<PAGE>
DELAWARE(TM)
INVESTMENTS
---------------------
Philadelphia o London
Delaware
Pooled Trust
Prospectus June 29, 1999
This Prospectus offers 23 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.
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EQUITY ORIENTED FIXED-INCOME ORIENTED
The Large-Cap Value Equity Portfolio The Intermediate Fixed Income Portfolio
The Core Equity Portfolio The Aggregate Fixed Income Portfolio
(formerly The Growth and Income Portfolio) The High-Yield Bond Portfolio
The Balanced Portfolio The Diversified Core Fixed Income Portfolio
The Equity Income Portfolio The Global Fixed Income Portfolio
The Select Equity Portfolio The International Fixed 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 +/++ ASSET ALLOCATION The Real Estate
Investment Trust Portfolio II ++ The Asset Allocation Portfolio
The Global Equity Portfolio
The International Equity Portfolio
The Labor Select International Equity Portfolio
The Emerging Markets Portfolio
The International Small-Cap Portfolio
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+ 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. Although The
Asset Allocation Portfolio is technically not a Portfolio of the Fund, all
references in this Prospectus to "Portfolio" or "the Fund" shall include The
Asset Allocation Portfolio, where appropriate.
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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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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 Balanced Portfolio 5
The Equity Income Portfolio 7
The Select Equity Portfolio 9
The Mid-Cap Growth Equity Portfolio 11
The Mid-Cap Value Equity Portfolio 13
The Small-Cap Value Equity Portfolio 15
The Small-Cap Growth Equity Portfolio 17
The Real Estate Investment Trust Portfolios 19
The Global Equity Portfolio 23
The International Equity Portfolio 26
The Labor Select International Equity Portfolio 29
The Emerging Markets Portfolio 32
The International Small-Cap Portfolio 35
The Intermediate Fixed Income Portfolio 37
The Aggregate Fixed Income Portfolio 39
The High-Yield Bond Portfolio 41
The Diversified Core Fixed Income Portfolio 44
The Global Fixed Income Portfolio 47
The International Fixed Income Portfolio 50
The Asset Allocation Portfolio 53
Additional Investment Information 56
Risk Factors 60
Management of the Fund 64
Shareholder Services 70
How to Purchase Shares 71
Redemption of Shares 72
Valuation of Shares 75
Dividends and Capital Gains Distributions 75
Taxes 76
Financial Highlights 77
Appendix (ces) 87
<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.
How has The Large-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 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.
Year-by-year total return (The Large-Cap Value Equity Portfolio)
40%
34.06%
30.53% 30
19.44% 20.60% 20
11.84%
10
3.42%
0
1993 1994 1995 1996 1997 1998
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 quarterly return was 14.92% for the
quarter ended June 30, 1997 and its lowest quarterly return was -10.87% for the
quarter ended September 30, 1998.
1
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How has The Large-Cap Value Equity Portfolio performed? (continued)
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Average annual returns for the period ending 12/31/98
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%
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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 Investment advisory fees(1) 0.55%
The Large-Cap Value 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(1) 0.16%
calculated. We will not charge you separately for Total operating expenses(1) 0.71%
these expenses.
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This example is intended to help you compare the cost of 1 year $73
investing in the Portfolio to the cost of investing in other 3 years $227
mutual funds with similar investment objectives. We show the 5 years $395
cumulative amount of Portfolio expenses on a hypothetical 10 years $883
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.
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(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 0.68% of average daily net assets. The fees and expenses
shown in the table do not reflect this voluntary expense cap.
(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
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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 dividends, 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 American Depositary Receipts 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
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What are The Core Equity Portfolio's fees and expenses?
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<S> <C> <C>
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 Investment advisory fees(1) 0.55%
The Core Equity Portfolio's assets before it pays dividends and Distribution and service (12b-1) fees None
before its net asset value and total return are calculated. We Other expenses(1)(2) 1.19%
will not charge you separately for these expenses. Total operating expenses(1) 1.74%
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This example is intended to help you compare the cost of 1 year $177
investing in the Portfolio to the cost of investing in other 3 years $548
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.
</TABLE>
(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 0.68% of average daily net assets. The fees and expenses
shown in the table do not reflect this voluntary expense cap.
(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 Balanced Portfolio
What are the Portfolio's Goals?
The Portfolio seeks a balance of capital appreciation, income and
preservation of capital. 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
primarily in common stocks of established companies which we believe have the
potential for long-term capital appreciation. We focus on dividend-paying,
undervalued stocks. In addition, the Portfolio invests at least 25% of its
assets in various types of fixed-income securities, including U.S. government
securities and corporate bonds. Portfolios with this mix of stocks and bonds are
commonly known as "balanced" portfolios.
To seek current income and help preserve capital, we generally invest in bonds
that have bond ratings in the top four grades according to a nationally
recognized statistical rating organization at the time we buy them. We buy
unrated bonds only if we determine them to be equivalent to one of the top four
grades. Each bond in the portfolio will have a maturity between five and 30
years, and the average maturity of the portfolio will typically be between five
and ten years.
We conduct ongoing analysis of the different markets to determine the
appropriate mix of stocks and bonds for the current economic and investment
environment.
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 declines in stock and bond prices which can be
caused by a drop in the stock or bond market, an adverse change in interest
rates or poor performance in specific industries or companies.
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.
5
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What are The Balanced Portfolio's fees and expenses?
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<S> <C> <C>
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 Investment advisory fees(1) 0.55%
The Balanced Portfolio's assets before it pays dividends and Distribution and service (12b-1) fees None
before its net asset value and total return are calculated. We Other expenses(1)(2) 0.16%
will not charge you separately for these expenses. Total operating expenses(1) 0.71%
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This example is intended to help you compare the cost of 1 year $ 73
investing in the Portfolio to the cost of investing in other 3 years $227
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.
</TABLE>
(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 0.68% of average daily net assets. The fees and expenses
shown in the table do not reflect this voluntary expense cap.
(2) Other expenses are based on estimates 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.
6
<PAGE>
Profile: The Equity Income Portfolio
What are the Portfolio's Goals?
The Equity Income Portfolio seeks to provide 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.
Although the Portfolio will strive to achieve its goals, there is no
assurance that it will.
What are the Portfolio's main investment strategies? The Portfolio invests
primarily in dividend-paying stocks of large companies that we believe have
long-term total return potential. That is, they offer both current income
through dividends and capital growth potential through increases in stock
prices. Our focus on stocks with high dividend yields is generally considered to
be a value-oriented investment approach. Typically, we consider buying a stock
when its dividend yield is higher than the average of the unmanaged S&P 500
Composite Stock Price Index. We then consider the financial strength of the
company, its management and any developments affecting the security, the company
or its industry. If the yield on a stock in the portfolio falls below the
average of the S&P 500, the Portfolio generally sells that stock.
The Equity Income Portfolio also may invest up to 15% of its net assets in
high-yield, higher risk corporate bonds, commonly known as junk bonds. These
bonds involve the risk that the issuing company may be unable to pay interest or
repay principal. However, they can offer high income potential which we believe
can make a positive contribution to the Portfolio's performance. We carefully
evaluate individual bonds before they are purchased and monitor them carefully
while in the Portfolio. We look closely at each company and the characteristics
of the bond to better judge the ability of the company to pay interest and repay
principal.
We conduct ongoing analysis of both the stock and bond markets to determine how
much of the Portfolio should be allocated to stocks and how much to high-yield
bonds.
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 declines in stock and high-yield bond prices, which could be
caused by a drop in the stock market, interest rate changes, problems in the
economy or poor performance from particular companies or sectors.
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
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<CAPTION>
What are The Equity Income Portfolio's fees and expenses?
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<S> <C> <C>
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 Investment advisory fees(1) 0.55%
The Equity Income Portfolio's assets before it pays dividends Distribution and service (12b-1) fees None
and before its net asset value and total return are calculated. Other expenses(1)(2) 0.17%
We will not charge you separately for these expenses. Total operating expenses(1) 0.72%
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This example is intended to help you compare the cost of 1 year $ 74
investing in the Portfolio to the cost of investing in other 3 years $230
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.
</TABLE>
(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 0.68% of average daily net assets. The fees and expenses
shown in the table do not reflect this voluntary expense cap.
(2) Other expenses are based on estimates 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.
8
<PAGE>
Profile: The Select Equity Portfolio
What are the Portfolio's goals?
The Select Equity Portfolio seeks to provide maximum long-term capital
appreciation. Although the Portfolio will strive to achieve its goals,
there is no assurance that it will.
What are the Portfolio's main investment strategies? The Portfolio invests
primarily in exchange-traded equity securities. At any point in time, the
Portfolio will hold between 20 and 30 different stocks. The securities we select
must pass through three screens. First, we only look at stocks that have already
been picked by our portfolio managers for inclusion in other funds in the
Delaware Investments Family of Funds. Second, we apply quantitative models which
rank these stocks based on a combination of their value, growth and risk
characteristics. Third, we perform fundamental analysis on the companies in the
top 25% of the ranking to narrow the list down to the 20 to 30 individual
securities selected for the Portfolio. When a security which is held by the
Portfolio no longer passes these screens, it is sold and replaced by a new
security that meets our selection criteria. Because the Portfolio will
continually purchase and sell securities according to the screening process, and
will also purchase or sell securities to maintain an approximately equal
weighting for each security, portfolio turnover is expected to be high, perhaps
between 200% and 300%.
The Portfolio is "non-diversified," which means that it can invest a much
greater portion of its assets in any one company than a "diversified" portfolio
(although the Portfolio does intend to be treated as "diversified" for tax
purposes). The Portfolio may invest in companies of all sizes, including small
capitalization, or "small cap," companies. The Portfolio may be highly
concentrated in particular industries or in closely related industries, although
in general it will not invest more than 25% of its net assets in any one
industry.
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 declines in stock prices, which could be caused by a drop in
the stock market, problems in the economy or poor performance from particular
companies or industry sectors. In particular, because of the small number of
different stocks held by the Portfolio, the effect of a change in the price of
any single stock holding may be magnified. Because the Portfolio may be highly
concentrated in particular industries or in closely related industries, the
Portfolio may be particularly sensitive to changes in economic conditions in
those industries. Small cap stocks may experience much more drastic changes in
prices than stocks of larger capitalized companies because small cap companies
are typically much more sensitive to changes in economic conditions. In
addition, high portfolio turnover can result in higher brokerage costs to the
Portfolio and in higher net taxable gains for you as an investor.
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>
<TABLE>
<CAPTION>
What are The Select Equity Portfolio's fees and expenses?
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<S> <C> <C>
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 Investment advisory fees(1) 1.00%
The Select Equity Portfolio's assets before it pays dividends and Distribution and service (12b-1) fees None
before its net asset value and total return are calculated. We Other expenses(1)(2) 0.26%
will not charge you separately for these expenses. Total operating expenses(1) 1.26%
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This example is intended to help you compare the cost of 1 year $128
investing in the Portfolio to the cost of investing in other 3 years $400
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.
</TABLE>
(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 1.20% of average daily net assets. The fees and expenses
shown in the table do not reflect this voluntary expense cap.
(2) Other expenses are based on estimates 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
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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.
11
<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.
Year-by-year total return (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 quarterly return was 25.17% for the quarter
ended December 31, 1998 and its lowest quarterly 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%
What are The Mid-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 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 October 31, 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. The fees and expenses shown in the table do
not reflect this voluntary expense cap.
(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.
12
<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.
13
<PAGE>
How has The Mid-Cap Value Equity Portfolio performed?
- --------------------------------------------------------------------------------
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 MidCap Value Index. The Russell MidCap Value Index
contains stocks from the Russell MidCap Index with a less-than-average growth
orientation. 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.
Total return (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 quarterly return was 10.06% for the quarter
ended March 31, 1998 and its lowest quarterly 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 MidCap
Equity Portfolio Value Index
1 year -3.90% 5.08%
Since inception (12/29/97) -3.27% 5.08%
What are The Mid-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 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 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. The fees and expenses shown in the table do
not reflect this voluntary expense cap.
(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.
14
<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 issuers, 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.
15
<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. The fees and expenses shown in the table do
not reflect this voluntary expense cap.
(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.
16
<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.
17
<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 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. The fees and expenses
shown in the table do not reflect this voluntary expense cap.
(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.
18
<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.
19
<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 S&P or Aaa by
Moody's) or be of comparable quality as we determine. 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 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 they are an appropriate investment for you.
How has The Real Estate Investment Trust Portfolio performed?
Year-by-year total return (The Real Estate Investment Trust Portfolio)
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.
Year-by-year total return (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 quarterly return was 21.32% for the quarter
ended December 31, 1996 and its lowest quarterly return was -8.93% for the
quarter ended September 30, 1998.
20
<PAGE>
How has Real Estate Investment Trust 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%
What are The Real Estate Investment Trust 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 Real Estate Investment
Trust 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) 0.27%
Total operating expenses(1) 1.02%
- --------------------------------------------------------------------------------
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 $104
3 years $325
5 years $563
10 years $1,248
(1) Delaware Management Company has agreed to waive fees and pay expenses from
November 11, 1998 through October 31, 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.
The fees and expenses shown in the table do not reflect this voluntary
expense cap.
(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.
21
<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.
Total return (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 quarterly return was
3.95% for the quarter ended December 31, 1998 and its lowest quarterly 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 REIT Index
1 year -12.97% -17.51%
Since inception (11/4/97) -8.29% -14.46%
What are The Real Estate Investment Trust Portfolio II'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 Real Estate Investment
Trust Portfolio II'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) 0.68%
Total operating expenses(1) 1.43%
- --------------------------------------------------------------------------------
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 $146
3 years $452
5 years $782
10 years $1,713
(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 0.86% of average daily net assets. The fees and expenses
shown in the table do not reflect this voluntary expense cap.
(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.
22
<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 the 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 the Euro, 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 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. 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
23
<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.
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.
Total return (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 quarterly return was 12.51% for the quarter ended December
31, 1998 and its lowest quarterly return was -10.57% for the quarter ended
September 30, 1998.
24
<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%
What are The Global 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(1) 0.40%
Redemption reimbursement fees(1) 0.30%
Exchange fees None
- --------------------------------------------------------------------------------
Annual Portfolio operating expenses are deducted from The Global 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(2) 0.75%
Distribution and service (12b-1) fees None
Other expenses(2) 1.56%
Total operating expenses(2) 2.31%
- --------------------------------------------------------------------------------
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.
Assumes Assumes no
redemption redemption
1 year $303 $273
3 years $788 $758
5 years $1,300 $1,270
10 years $2,705 $2,675
(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 investment 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 October 31, 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. The fees and
expenses shown in the table do not reflect this voluntary expense cap.
(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.
25
<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 the
Euro), 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 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. 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 the Euro, and must have a government or government agency
backed credit status which would
26
<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.
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.
Year-by-year total return (The International Equity Portfolio)
1993 - 29.72%
1994 - 3.59%
1995 - 13.02%
1996 - 20.35%
1997 - 5.13%
1998 - 10.01%
As of December 31, 1998, The International Equity Portfolio had a year-to-date
return of 10.01%. During the periods illustrated in this bar chart, The
International Equity Portfolio's highest quarterly return was 13.70% for the
quarter ended December 31, 1998 and its lowest quarterly return was -12.33% for
the quarter ended September 30, 1998.
27
<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 October 31, 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.
28
<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 stocks 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) 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 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
29
<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 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, 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.
30
<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.
Year-by-year total return (The Labor Select International Equity Portfolio)
30%
22.08%
20
11.90%
10.83%
10
0
- --------------------------------------------------------------------------------
1996 1997 1998
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 quarterly return was
13.01% for the quarter ended December 31, 1998 and its lowest quarterly return
was -12.04% for the quarter ended September 30, 1998.
Average annual returns for periods ending 12/31/98
<TABLE>
<CAPTION>
The Labor Select Morgan Stanley Capital
International Equity Portfolio International EAFE Stock Index
<S> <C> <C>
1 year 11.90% 20.00%
Since inception (12/19/95) 15.62% 9.00%
</TABLE>
<PAGE>
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 0.75%
Distribution and service (12b-1) fees None
Other expenses 0.18%
Total operating expenses(1) 0.93%
- --------------------------------------------------------------------------------
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 October 31, 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.
31
<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.
32
<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 the Euro. 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.
Total return (The Emerging Markets Portfolio)
10%
0
-10
-20
-30
-34.88%
-40
- --------------------------------------------------------------------------------
1998
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 quarterly return was 7.03% for the quarter
ended March 31, 1998 and its lowest quarterly return was -24.26% for the quarter
ended June 30, 1998.
33
<PAGE>
How has The Emerging Markets Portfolio performed? (continued)
- --------------------------------------------------------------------------------
Average annual returns for periods ending 12/31/98
<TABLE>
<CAPTION>
The Emerging Morgan Stanley Capital International
Markets Portfolio Emerging Markets Free Equity Index
<S> <C> <C>
1 year -34.88% -25.34%
Since inception (4/14/97) -26.85% -25.85%
</TABLE>
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%
- --------------------------------------------------------------------------------
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.
Assumes Assumes no
redemption redemption
---------- ----------
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 October 31, 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. The fees and
expenses shown in the table do not reflect this voluntary expense cap.
(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 October 31,
1999. The effect of the current fee waiver with respect to total operating
expenses and the 1.00% fee limitation described in footnote 2 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. The fees and expenses shown in the table
do not reflect this voluntary expense cap.
(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.
34
<PAGE>
Profile: The International Small-Cap Portfolio
What are the Portfolio's Goals?
The International Small-Cap 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 smaller
non-U.S. companies, which may include companies located or operating in
established or emerging countries. Under normal circumstances, at least 65% of
the Portfolio's total assets will be invested in equity securities of companies
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. The current market capitalization of the companies in which the
Portfolio intends to focus its investments will generally be $2.5 billion or
less (at the time of purchase).
By focusing on smaller, non-U.S. companies, we try to identify equity securities
of companies that we believe are responsive to changes within their markets and
have the potential for strong real earnings and dividend growth. We will look
for changing and dominant trends within the relevant markets and purchase
securities of companies that we believe will benefit from these trends. In
addition, we will consider the financial strength of a company or its industry.
We may invest in smaller capitalization companies that are temporarily out of
favor or overlooked by securities analysts and whose value, therefore, may not
be fully recognized by the market.
The equity securities in which the Portfolio will primarily invest include
common stocks and sponsored or unsponsored Depositary Receipts, preferred
stocks, rights or warrants to purchase common stocks and securities convertible
into common stocks. Depositary Receipts are receipts typically issued by a bank
or trust company evidencing ownership of underlying securities issued by a
foreign company. The Portfolio will invest primarily in the securities of
foreign companies.
In selecting investments for the Portfolio, the investment adviser uses a
dividend discount analysis across country boundaries and a purchasing power
parity approach to identify currencies and markets that are overvalued or
undervalued relative to the U.S. dollar. The investment adviser uses the
dividend discount analysis to compare the value of different investments by
looking at future anticipated dividends and discounting the value of those
dividends back to what they would be worth if they were being paid today. With a
purchasing parity approach, the investment adviser determines 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, the foreign currency may
be considered to be overvalued. Conversely, when the dollar buys more, the
currency may be considered to be undervalued.
While the Portfolio may purchase securities in any foreign country, developed
and developing, or emerging market countries, it is currently anticipated that
the countries in which the Portfolio is more likely to invest will include
Australia, Belgium, Canada, France, Germany, Hong Kong, Japan, Malaysia, the
Netherlands, New Zealand, Singapore, Spain, Switzerland, and the United Kingdom.
Emerging market countries are also permitted, such as, Argentina, Brazil, Chile,
Egypt, Greece, India, Indonesia, Korea, Peru, the Philippines, South Africa,
Taiwan, Thailand and Turkey, but are not likely to be a major focus at this
time. These lists are representative, and we may invest in additional countries
from time to time.
The Portfolio may also invest in convertible preferred stocks that offer
enhanced yield features, such as Preferred Equity Redemption Cumulative Stock,
and certain other non-traditional equity securities.
The Portfolio may invest up to 15% of its net assets in fixed-income securities,
some or all of which may be high-yield, high risk fixed-income securities rated
lower than BBB by S&P and Baa by Moody's or, if unrated, are considered by the
investment adviser to be of equivalent quality, and which present special
investment risks.
35
<PAGE>
What are the Portfolio's main investment strategies? (continued)
- --------------------------------------------------------------------------------
Convertible bonds are treated as equity securities and are not subject to the
15% limit.
For temporary defensive purposes, the Portfolio may invest all or a substantial
portion of its assets in high quality U.S. and foreign governmental and
corporate debt instruments. The Portfolio may also hold these securities 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. The Portfolio
will be adversely affected by declines in stock and bond prices, which can be
caused by a drop in the stock or bond market, an adverse change in interest
rates, or poor performance in specific geographic regions, industries or
companies. Investments in foreign securities, whether equity or fixed-income,
involve special risks, including those related to currency fluctuations, as well
as to political, economic and social situations different from and potentially
more volatile than those in the U.S. In addition, the accounting, tax and
financial reporting standards of foreign countries are different from and may be
less reliable or comprehensive than those relating to U.S. issuers. The
Portfolio may invest up to 15% of its net assets in high-yield, high risk
foreign fixed-income securities, which are subject to substantial risks,
particularly during periods of economic downturns or rising interest rates.
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>
What are The International Small-Cap 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) 0.55%
Redemption reimbursement fees(1) 0.45%
Exchange fees None
- --------------------------------------------------------------------------------
Annual Portfolio operating expenses are deducted from The International
Small-Cap 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) 1.00%
Distribution and service (12b-1) fees None
Other expenses(2/3) 0.24%
Total operating expenses(2) 1.24%
- --------------------------------------------------------------------------------
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.
Assumes Assumes no
redemption redemption
---------- ----------
1 year $226 $181
3 years $491 $446
(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 purchases reimbursement fee, investors in The International Small-Cap
Portfolio, with the concurrence of the investment 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 October 31, 1999 in order to prevent total operating
expenses (excluding any taxes, interest, brokerage fees and extraordinary
expenses) from exceeding 1.20% of average daily net assets. The fees and
expenses shown in the table do not reflect this voluntary expense cap.
(3) Other expenses are based on estimates for the current fiscal year.
(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 cap described in
footnote 2.
36
<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? 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 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.
37
<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 Index 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.
Year-by-year total return (The Intermediate Fixed Income Portfolio)
8%
7.37%
7.07%
6
4
2
0
- --------------------------------------------------------------------------------
1997 1998
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 quarterly return was 3.16% for
the quarter ended September 30, 1998 and its lowest quarterly return was -0.02%
for the quarter ended March 31, 1997.
Average annual returns for periods ending 12/31/98
<TABLE>
<CAPTION>
The Intermediate Lehman Brothers Government/
Fixed Income Portfolio Corporate Intermediate Bond Index
<S> <C> <C>
1 year 7.07% 7.73%
Since inception (3/12/96) 6.84% 8.44%
</TABLE>
<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 October 31, 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. The fees and expenses
shown in the table do not reflect this voluntary expense cap.
(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 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.
39
<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.
Total return (The Aggregate Fixed Income Portfolio)
10%
8.58%
8
6
4
2
0
- --------------------------------------------------------------------------------
1998
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 quarterly return was 4.20% for the quarter
ended September 30, 1998 and its lowest quarterly return was 0.54% for the
quarter ended December 31, 1998.
<PAGE>
Average annual returns for periods ending 12/31/98
<TABLE>
<CAPTION>
The Aggregate Fixed Lehman Brothers
Income Portfolio Aggregate Bond Index
<S> <C> <C>
1 year 8.58% 8.69%
Since inception (12/29/97) 8.39% 8.69%
</TABLE>
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 October 31, 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. The fees and expenses
shown in the table do not reflect this voluntary expense cap.
(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.
40
<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
41
<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 ratio 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 Smith Barney High-Yield Cash Pay
Index. The Salomon Smith Barney 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.
Year-by-year total return (The High Yield Bond Portfolio)
20%
18.14%
15
10
5
1.75%
0
- --------------------------------------------------------------------------------
1997 1998
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 quarterly return was 6.39% for the quarter ended June 30,
1997 and its lowest quarterly return was -5.42% for the quarter ended September
30, 1998.
42
<PAGE>
How has The High-Yield Bond Portfolio performed? (continued)
- --------------------------------------------------------------------------------
Average annual returns for periods ending 12/31/98
<TABLE>
<CAPTION>
The High-Yield Salomon Smith Barney
Bond Portfolio High-Yield Cash Pay Index
<S> <C> <C>
1 year 1.75% 4.42%
Since inception (12/2/96) 9.90% 8.69%
</TABLE>
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 October 31, 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. The fees and expenses
shown in the table do not reflect this voluntary expense cap.
(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.
43
<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 its evaluation of economic and market conditions
and its 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.
44
<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 Investment Bank, the Inter-Development 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 Euro. 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.
45
<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.
Total return (The Diversified Core Fixed Income Portfolio)
12%
10.28%
10
8
6
4
2
0
- --------------------------------------------------------------------------------
1998
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 quarterly return was 3.65%
for the quarter ended March 31, 1998 and its lowest quarterly return was 1.10%
for the quarter ended September 30, 1998.
<PAGE>
Average annual returns for periods ending 12/31/98
<TABLE>
<CAPTION>
The Diversified Core Lehman Brothers
Fixed Income Portfolio Aggregate Bond Index
<S> <C> <C>
1 year 10.28% 8.69%
Since inception (12/29/97) 9.92% 8.69%
</TABLE>
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 fees1 0.43%
Distribution and service (12b-1) fees None
Other expenses1 1.31%
Total operating expenses1 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 October 31, 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. The fees and expenses
shown in the table do not reflect this voluntary expense cap.
(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.
46
<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.
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 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 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 limitations 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 Investment Bank, the Inter-Development 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.
47
<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 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.
48
<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 Smith Barney
World Government Bond Index. The Salomon Smith Barney 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.
Year-by-year total return (The Global Fixed Income Portfolio)
1993 19.16%
1994 1.24%
1995 18.96%
1996 14.96%
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 quarterly return was 6.33% for the quarter
ended March 31, 1993 and its lowest quarterly return was -2.50% for the quarter
ended June 30, 1994.
<PAGE>
Average annual returns for periods ending 12/31/98
The Global Fixed Salomon Smith Barney 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?
- --------------------------------------------------------------------------------
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 October 31, 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. The fees and
expenses shown in the table do not reflect this voluntary expense cap.
(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).
49
<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 the Euro. 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 Investment Bank, the Inter-Development 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 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
50
<PAGE>
What are the Portfolio's main investment strategies? (continued)
- --------------------------------------------------------------------------------
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
portfolio 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.
51
<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 Smith Barney Non-U.S. World
Government Bond Index. The Salomon Smith Barney 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.
Total return (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 quarterly return was 5.52%
for the quarter ended September 30, 1998 and its lowest quarterly return was
0.30% for the quarter ended June 30, 1998.
Average annual returns for periods ending 12/31/98
The International Fixed Salomon Smith Barney Non-U.S.
Income Portfolio World 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?
- --------------------------------------------------------------------------------
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 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) 0.17%
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 October 31, 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. The fees and
expenses shown in the table do not reflect this voluntary expense cap.
(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).
52
<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 objective. 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
Prospectus. 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.
53
<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 Select Equity Portfolio
The Small-Cap Growth Equity Portfolio
The Real Estate Investment Trust Portfolio II
The Mid-Cap Value Equity Portfolio
The Small-Cap Value Equity Portfolio
International Equity The Emerging Markets Portfolio
The Global Equity Portfolio
The International Equity Portfolio
The Labor Select International Equity Portfolio
The International Small-Cap 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 objective, 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 Portfolios of the Fund held by it.
The ability of the Portfolio to meet its investment objective may thus be
directly related to
54
<PAGE>
What are the main risks of investing in the Portfolio? (continued)
- --------------------------------------------------------------------------------
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 investment adviser. 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) 0.05%
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
- --------------------------------------------------------------------------------
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
<PAGE>
(1) Delaware Management Company has agreed to waive fees and pay expenses
through October 31, 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. The fees and expenses shown in the table do not reflect this
voluntary expense cap.
(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
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, 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.
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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.
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Securities How we use them
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Common Stocks: Securities that represent shares of ownership Consistent with their respective investment objectives,
in a corporation. Stockholders participate in the certain Portfolios will invest assets in common stocks, some
corporation's profits and losses, proportionate to the of which will be dividend paying stocks.
number of shares they own.
Corporate Bonds: Debt obligations issued by a corporation. The Balanced, 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 (e.g., BBB
by S&P or Baa by Moody's) 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 High-Yield Bond Portfolio
may invest at least 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
or Fitch 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 NRSRO
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 B or below when the Portfolio's
investment adviser 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, unrated. In the case of The Core
Equity Portfolio, investments in such securities that are
rated below investment grade or unrated will be limited 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 Small-Cap Portfolio may invest up to 15% of
its net assets in fixed-income securities some or all of
which may be corporate obligations, and some or all of which
may be investment grade, below investment grade, or unrated.
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. The Equity Income Portfolio may invest up
to 15% of net assets in bonds rated below investment grade
by an NRSRO, typically they are rated B or BB. The Balanced
Portfolio may invest in Yankee and Euro Bonds.
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Convertible Securities: Usually preferred stocks or The Balanced, The Equity Income, The Select Equity, The
corporate bonds that can be exchanged for a set number of Mid-Cap Value Equity, The Small-Cap Value Equity, The
shares of common stock at a predetermined price. These Small-Cap Growth Equity, The Core Equity, The High-Yield
securities offer higher appreciation potential than Bond, The International Small-Cap and The Asset Allocation
nonconvertible bonds and greater income potential than Portfolios may invest a portion of their assets in
nonconvertible preferred stocks. convertible securities in any industry, and The Real Estate
Investment Trust Portfolios' 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 Real Estate
Investment Trust, The High-Yield Bond, The International
Small-Cap and The Asset Allocation Portfolios may be rated
below investment grade or unrated. In the case of The Core
Equity and The Balanced Portfolios, such securities that are
rated below investment grade, or unrated, will be limited to
no more than 5% of net assets. The Mid-Cap Value Equity, The
Real Estate Investment Trust, The High-Yield Bond, The
Emerging Markets, The International Small-Cap and The Asset
Allocation Portfolios may invest in convertible preferred
stocks that offer 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).
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Additional Investment Information (continued)
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Securities How we use them
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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, The Core Equity, The Balanced and The Select
default by the U.S. government or its agencies or Equity Portfolios may invest in mortgage-backed securities
instrumentalities, such as the Federal Home Loan Mortgage issued or guaranteed by the U.S. government, its agencies or
Corporation, the Fannie Mae and the Government National instrumentalities or by government sponsored corporations.
Mortgage Association. Others are issued by private financial For the Aggregate Fixed Income and The Intermediate Fixed
institutions, with some fully collateralized by certificates Income Portfolios, all securities will be rated investment
issued or guaranteed by the government or its agencies or grade at the time of 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, The Balanced and The Core Equity Portfolios may
to their maturity. They are issued by U.S. government invest in CMOs and REMICs. Certain CMOs and REMICs may have
agencies and private issuers. REMICs are privately issued variable or floating interest rates and others may be
mortgage-backed bonds whose underlying value is a fixed pool stripped. Stripped mortgage securities are generally
of mortgages secured by an interest in real property. Like considered illiquid and to such extent, together with any
CMOs, REMICs offer different pools. other illiquid investments, 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. The Balanced Portfolio may invest up to
20% of net assets in CMOs or REMICs rated at the time of
purchase in one of the four highest categories by an NRSRO,
whether or not the securities are 100% collateralized.
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, The
loans. Balanced and The Core Equity Portfolios may invest in
asset-backed securities rated in one of the four highest
rating categories by an NRSRO.
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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 Balanced, The
income-producing real estate or real estate related loans or Select Equity, The Core Equity, The Small-Cap Value Equity,
interests. REITs are generally classified as equity REITs, The International Small-Cap and The Asset Allocation
mortgage REITs or a combination of equity and mortgage Portfolios may also invest in REITs consistent with their
REITs. Equity REITs invest the majority of their assets investment objectives and policies.
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.
Foreign Government Securities: Debt issued by a government Foreign government securities purchased by The Global Fixed
other than the United States or by an agency, Income and The International Fixed Income Portfolios will
instrumentality or political subdivision of such generally be rated in one of the top two rating categories
governments. or, if unrated, deemed to be of comparable quality. However,
each such Portfolio may invest up to 5% of its assets in
fixed-income securities rated, or comparable to securities
rated, below BBB. The fixed-income securities in which The
Emerging Markets Portfolio, The International Small-Cap
Portfolio and The Diversified Core Fixed Income Portfolio
may invest include those issued by foreign governments.
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.
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Additional Investment Information (continued)
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Securities How we use them
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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.
Illiquid Securities: Securities that do not have a ready The Large-Cap Value Equity, The Mid-Cap Growth Equity, The
market, and cannot be easily sold, if at all, at International Equity, The Intermediate Fixed Income and The
approximately the price that the Fund has valued them. Global Fixed Income Portfolios may invest no more than 10%
Illiquid securities include repurchase agreements maturing of net assets in illiquid securities. The Diversified Core
in more than seven days. Fixed Income, The Aggregate Fixed Income, The Mid-Cap Value
Equity, The Small-Cap Value 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 International Small-Cap,
The Asset Allocation, The Small-Cap Growth Equity, The
Balanced, The Equity Income, The Select Equity and The Core
Equity Portfolios may invest no more than 15% of net assets
in illiquid securities.
Short-Term Debt Investments: These instruments include (1) 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; (2) commercial as temporary defensive investments or pending investment in
paper of the highest quality rating; (3) short-term debt the Portfolio's principal investment securities.
obligations with the highest quality rating; (4) U.S.
government securities; and (5) 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 International Small-Cap, 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 brokers/ dealers or institutional investors. These
investors for their use relating to short-sales or other transactions will generate additional income for the
securities transactions. Portfolios.
Investment Company Securities: Investment company securities The Emerging Markets Portfolio, The Global Equity Portfolio,
issued by registered or unregistered domestic or foreign The International Small-Cap Portfolio, The Diversified Core
investment companies. 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.
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Borrowing From Banks: The Portfolios may have pre-existing Each Portfolio may borrow money as a temporary measure or to
arrangements with banks that permit them to borrow money facilitate redemptions. No Portfolio has the intention of
from time to time. 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% and the
debt obligations which do not entitle the holder to any International Small-Cap Portfolio may invest up to 15% of
periodic payments of interest prior to maturity or a its respective net assets in fixed-income securities,
specified date when the securities begin paying current including zero coupon bonds. The High-Yield Bond Portfolio
interest, and therefore are issued and traded at a discount may also purchase zero coupon bonds and PIK bonds, although
from their face amounts or par value. Pay-in-kind ("PIK") it generally does not purchase a substantial amount of these
bonds pay interest through the issuance to holders of bonds. The Diversified Core Fixed Income Portfolio may also
additional securities. purchase these securities consistent with its investment
objective.
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Additional Investment Information (continued)
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Securities How we use them
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American Depositary Receipts (ADRs), European Depositary The Balanced, The Equity Income, The Select Equity, The
Receipts (EDRs), and Global Depositary Receipts (GDRs): ADRs Small-Cap Growth Equity, The Core Equity, The Large-Cap
are receipts issued by a U.S. depositary (usually a U.S. Value Equity, The International Equity, The Mid-Cap Value
bank) and EDRs and GDRs are receipts issued by a depositary Equity, The Small-Cap Value Equity, The Real Estate
outside of the U.S. (usually a non-U.S. bank or trust Investment Trust, The Diversified Core Fixed Income, The
company or a foreign branch of a U.S. bank). Depositary Global Fixed Income, The International Fixed Income, The
receipts represent an ownership interest in an underlying Global Equity, The Emerging Markets, The International
security that is held by the depositary. Generally, the Small-Cap and The Asset Allocation Portfolios may invest in
underlying security represented by an ADR is issued by a sponsored and unsponsored ADRs. Such ADRs that The Balanced,
foreign issuer and the underlying security represented by an The Equity Income, The Select Equity, The Small-Cap Growth
EDR or GDR may be issued by a foreign or U.S. issuer. Equity, The Core Equity, The Large-Cap Value Equity, The
Sponsored depositary receipts are issued jointly by the Mid-Cap Value Equity, The Small-Cap Value Equity, The Real
issuer of the underlying security and the depositary, and Estate Investment Trust, The Diversified Core Fixed Income
unsponsored depositary receipts are issued by the depositary and The Asset Allocation Portfolios may invest in will be
without the participation of the issuer of the underlying those that are actively traded in the United States.
security. Generally, the holder of the depositary receipt is
entitled to all payments of interest, dividends or capital In conjunction with their investments in foreign securities,
gains that are made on the underlying security. The Global Fixed Income, The International Fixed Income and
The Asset Allocation Portfolios may invest in sponsored and
unsponsored EDRs, and The Equity Income, The Select Equity,
The International Equity, The Global Equity, The Emerging
Markets, The International Small-Cap, The Diversified Core
Fixed Income and The Asset Allocation Portfolios may also
invest in sponsored and unsponsored EDRs and GDRs. In
addition, The 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 may make the
debt of countries which have issued or have announced plans
to issue Brady Bonds a viable opportunity for investment.
Futures and Options: A futures contract is a bilateral The Balanced, The Equity Income, The Select Equity, The
agreement providing for the purchase and sale of a specified Mid-Cap Growth Equity, The Real Estate Investment Trust, The
type and amount of a financial instrument, or for the making Diversified Core Fixed Income, The Emerging Markets, The
and acceptance of a cash settlement, at a stated time in the Global Equity, The Asset Allocation, The Small-Cap Growth
future for a fixed price. A call option is a short-term Equity, The Mid-Cap Value Equity, The Small-Cap Value
contract pursuant to which the purchaser of the call option, Equity, The International Small-Cap and The Core Equity
in return for the premium paid, has the right to buy the Portfolios may invest in futures, options and closing
security or other financial instrument underlying the option transactions related thereto. These activities will not be
at a specified exercise price at any time during the term of entered into for speculative purposes, but rather for
the option. A put option is a similar contract which gives hedging purposes and to facilitate the ability to quickly
the purchaser of the put option, in return for a premium, deploy into the stock market the Portfolio's cash,
the right to sell the underlying security or other financial short-term debt securities and other money market
instrument at a specified price during the term of the instruments at times when the Portfolio's assets are not
option. fully invested in equity securities. A Portfolio may only
enter into these transactions for hedging purposes if 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, futures contracts on foreign
currencies operate similarly to futures contracts concerning
securities, and options on foreign currencies operate
similarly to options on securities. See also "Foreign
Currency Transactions" below.
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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 International Small-Cap, The Asset Allocation,
"forward" contract). A forward contract involves an The Small-Cap Value Equity, The Small-Cap Growth Equity and
obligation to purchase or sell a specific currency at a The Core Equity Portfolios value their assets daily in terms
future date, which may be any fixed number of days from the of U.S. dollars, they do not intend to convert their
date of the contract, agreed upon by the parties, at a price holdings of foreign currencies into U.S. dollars on a daily
set at the time of the contract. A Portfolio may enter into basis. A Portfolio may, however, from time to time, purchase
forward contracts to "lock-in" the price of a security it or sell foreign currencies and/or engage in forward foreign
has agreed to purchase or sell, in terms of U.S. dollars or currency transactions in order to expedite settlement of
other currencies in which the transaction will be Portfolio transactions and to minimize currency value
consummated. fluctuations.
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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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Risks How we strive to manage them
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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.
Although The Select Equity Portfolio will not invest more
than 5% of its net assets in any one industry, it may from
time to time, invest up to that amount in any one industry,
and may also, from time to time, be highly concentrated in
closely related industries. As a result, the Portfolio may
be more susceptible to any single economic, political or
regulatory occurrence affecting a particular industry or
closely related industries.
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.
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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 and increase in value if interest rates rate risks depending upon their investment objectives and
fall. However, investments in equity securities issued by policies. We cannot eliminate that risk, but we do try to
small 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, The Small-Cap Growth Equity and The
International Small-Cap Portfolios and, to a lesser extent,
The Select Equity Portfolio, 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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Risks How we strive to manage them
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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, The Emerging Markets and The
inadequate regulatory and accounting standards. In addition, International Small-Cap Portfolios will invest in securities
there is the possibility of expropriation, nationalization of foreign issuers, which normally are denominated in
or confiscatory taxation, taxation of income earned in foreign currencies, and may hold foreign currencies
foreign nations or other taxes imposed with respect to directly. The Core Equity Portfolio may invest up to 5% of
investments in foreign nations, foreign exchange controls, its assets; The Real Estate Investment Trust, The High-Yield
which may include suspension of the ability to transfer Bond and The Small-Cap Growth Equity Portfolios may invest
currency from a given country, and default in foreign up to 10% of their respective total assets; The Diversified
government securities. Core Fixed Income Portfolio may invest up to 20% of its
total assets; and The Small-Cap Value Equity may invest up
to 25% of its assets in foreign securities. Investments in
securities of non-United States issuers involve certain risk
and opportunity considerations not typically associated with
investing in United States companies. The Balanced, The
Equity Income and The Select Equity Portfolios typically
invest only a small portion of their assets in foreign
securities, usually through depositary receipts denominated
in U.S. dollars and traded on a U.S. exchange. We attempt to
reduce these risks by conducting world-wide fundamental
research with an emphasis on company visits. In addition, we
monitor current economic and market conditions and trends,
the political and regulatory environment and the value of
currencies in different countries in an effort to identify
the most attractive countries and securities. Additionally,
when currencies appear significantly overvalued compared to
average real exchange rates, a Portfolio may hedge exposure
to those currencies for defensive purposes.
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.
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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 International Small-Cap, The Global Fixed Income, The
stable political and economic environments. In addition, in International Fixed Income, and The High-Yield Bond
many emerging markets, there is substantially less publicly Portfolios may invest a portion of their assets in
available information about issuers and the information that securities of issuers located in emerging markets. The
is available tends to be of a lesser quality. Economic Portfolios cannot eliminate these risks but will attempt to
markets and structures tend to be less mature and diverse reduce these risks through portfolio diversification, credit
and the securities markets which are subject to less analysis, and attention to trends in the economy, industries
government regulation or supervision may also be smaller, and financial markets and other relevant factors.
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 and The International Small-Cap Portfolio may invest
primarily speculative. Such securities are subject to a up to 15% of its net assets in high-yield, high risk
substantial degree of credit risk. fixed-income securities, including Brady Bonds. See
"Emerging Markets Risk" above. 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. The Equity Income Portfolio may invest up to 15% of
net assets in high-yield, high-risk securities rated BB or B
by an NRSRO or, if unrated, deemed to be of equivalent
quality. The Portfolios will attempt to reduce these risks
through portfolio diversification, credit analysis,
attention to trends in the economy, industries and financial
markets, and complying with the limits on exposure to this
asset class described in this Prospectus.
Liquidity Risk is the possibility that securities cannot be We limit exposure to illiquid securities as described under
readily sold, if at all, at approximately the price that the "Additional Investment Information - Illiquid Securities."
Portfolio values them.
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Risk Factors (continued)
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Risks How we strive to manage them
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Futures Contracts, Options on Futures Contracts, Forward The Mid-Cap Growth Equity, The Mid-Cap Value Equity, The
Contracts, and Certain Options used as investments for Small-Cap Value Equity, The Real Estate Investment Trust,
hedging and other non-speculative purposes involves certain The Small-Cap Growth Equity, The Balanced, The Equity
risks. For example, a lack of correlation between price Income, The Select Equity, The Core Equity, The Global
changes of an option or futures contract and the assets Equity, The Diversified Core Fixed Income, The Emerging
being hedged could render a Portfolio's hedging strategy Markets and The Asset Allocation Portfolios may use certain
unsuccessful and could result in losses. The same results options strategies or may use futures contracts and options
could occur if movements of foreign currencies do not on futures contracts. The Portfolios will not enter into
correlate as expected by the investment adviser at a time futures contracts and options thereon to the extent that
when a Portfolio is using a hedging instrument denominated more than 5% of a Portfolio's assets are required as futures
in one foreign currency to protect the value of a security contract margin deposits and premiums on options and only to
denominated in a second foreign currency against changes the extent that obligations under such futures contracts and
caused by fluctuations in the exchange rate for the dollar options thereon would not exceed 20% of the Portfolio's
and the second currency. If the direction of securities total assets.
prices, interest rates or foreign currency prices is
incorrectly predicted, the Portfolio will be in a worse See also "Foreign Risk" and "Currency Risk" above.
position than if such transactions had not been entered
into. In addition, since there can be no assurance that a
liquid secondary market will exist for any contract
purchased or sold, a Portfolio may be required to maintain a
position (and in the case of written options may be required
to continue to hold the securities used as cover) until
exercise or expiration, which could result in losses.
Further, options and futures contracts on foreign
currencies, and forward contracts, entail particular risks
related to conditions affecting the underlying currency.
Over-the-counter transactions in options and forward
contracts also involve risks arising from the lack of an
organized exchange trading environment.
Zero Coupon and Pay-In-Kind Bonds are generally considered Those Portfolios that invest in zero coupon and pay-in-kind
to be more interest sensitive than income bearing bonds, to bonds will do so to the extent they are consistent with the
be more speculative than interest-bearing bonds, and to have Portfolio's investment objective. We cannot eliminate the
certain tax consequences which could, under certain risks of zero coupon bonds, but we do try to address them by
circumstances be adverse to a Portfolio. For example, the monitoring economic conditions, especially interest rate
Portfolio accrues, and is required to distribute to trends and their potential impact on the Portfolios.
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.
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Portfolio Turnover rates reflect the amount of securities The Select Equity, The Intermediate Fixed Income, The
that are replaced from the beginning of the year to the end Aggregate Fixed Income, The Global Fixed Income, The
of the year by a Portfolio. The degree of portfolio activity International Fixed Income and The Diversified Core Fixed
may affect brokerage costs and other transaction costs of a Income Portfolios will normally experience annual portfolio
Portfolio, as well as taxes payable by Portfolio turnover rates exceeding 100%, but those rates are not
shareholders that are subject to federal income tax. expected to exceed, 300% with respect to The Select Equity
Portfolio, 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 Equity, The
companies may be more volatile than larger companies because Small-Cap Value Equity, The Small-Cap Growth Equity and The
of limited financial resources or dependence on narrow International Small-Cap Portfolios maintain a well
product lines. diversified portfolio and, together with The Select Equity
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 Securities,
mortgages during periods of low interest rates, forcing an Collateralized Mortgage Obligations (CMOs) and Real Estate
investor to reinvest money at interest rates that might not Mortgage Investment Conduits (REMICS) under "Additional
be lower than those on the prepaid mortgage. 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.
Real Estate Industry Risk include among others: possible The Real Estate Investment Trust Portfolios operate as
declines in the value of real estate; risks related to "non-diversified" funds as defined by the 1940 Act. Since
general and local economic conditions; possible lack of each Portfolio invests principally in REITS it is more
availability of mortgage funds; overbuilding; extended subject to the risks associated with the real estate
vacancies of properties; increases in competition; property industry. Investors should carefully consider these risks
taxes and operating expenses; changes in zoning laws; costs before investing in the Portfolio. To the extent The Asset
resulting from the clean-up of, and liability to third Allocation, The Balanced, The Select Equity, The Core
parties resulting from, environmental problems; casualty for Equity, The International Small-Cap and The Small-Cap Value
condemnation losses; uninsured damages from floods, Equity Portfolios invest in REITs, those Portfolios,
earthquakes or other natural disasters; limitations on and although to a lesser degree than The Real Estate Investment
variations in rents; and changes in interest rates. REITS Trust Portfolios, are subject to the same risks.
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.
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Risk Factors (continued)
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Risks How we strive to manage them
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Non-Diversified Portfolios are believed to be subject to The Real Estate Investment Trust, The Global Fixed Income,
greater risks because adverse effects on their security The International Fixed Income, The Emerging Markets, The
holdings may affect a larger portion of their overall Select Equity and The Asset Allocation Portfolios will not
assets. be diversified under the 1940 Act. This means these
Portfolios may invest in securities of any one issuer in an
amount greater than 5% of the Portfolio's total assets.
However, each Portfolio will satisfy the Internal Revenue
Code's diversification requirement, which requires that 50%
of the Portfolio's assets 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. With the
exception of The Select Equity and The Asset Allocation
Portfolios, these Portfolios, in practice, do not intend to
be heavily invested in any single particular industry. The
Select Equity Portfolio will always be invested in at least
20 issuers, and in general will not hold more than a 5%
position in each issuer. Although the Asset Allocation
Portfolio may be substantially invested in a relatively
small number of Portfolios, most of these Portfolios are
diversified or, if non-diversified, are nonetheless not
heavily invested in any single issuer.
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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 each 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 securities in which each Portfolio invests. The portfolio managers
and investment professionals of each Portfolio consider Year 2000 issues in the
securities selection and investment process. However, there can be no guarantee
that, even with their due diligence efforts, they will be able to predict the
effect of Year 2000 on any company or the performance of its securities.
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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
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 International in 1990 as Managing Director
and Chief Investment Officer, 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 International 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 a 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.
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 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.
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John B. Fields
Senior Vice President/Senior Portfolio Manager - The Equity Income Portfolio
Mr. Fields, who has 27 years experience in investment management, earned a
bachelor's degree and an MBA from Ohio State University. Before joining Delaware
Investments in 1992, he was Director of Domestic Equity Risk Management at
DuPont. Prior to that time, he was Director of Equity Research at Comerica Bank.
Mr. Fields is a member of the Financial Analysts Society of Wilmington,
Delaware. In researching securities and making investment decisions for the
Portfolio, Mr. Fields regularly consults with a team of Delaware portfolio
managers utilizing the same investment strategy. Mr Fields has managed The
Equity Income Portfolio since its inception.
Gary A. Reed
Vice President/Senior Portfolio Manager - The Intermediate Fixed Income
Portfolio, The Aggregate Fixed Income Portfolio and The Balanced 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, The Aggregate Fixed Income Portfolio and the
fixed-income portion of The Balanced 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.
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.
Joshua A. Brooks
Senior Portfolio Manager - Delaware International Advisers Ltd.
(The International Small-Cap Portfolio)
Mr. Brooks holds a bachelor's degree from Yale University and holds an MBA from
The London Business School. He began his investment career with Delaware
Investments in 1991. Prior to joining the emerging markets team in London, he
was based in Philadelphia with responsibilities that included equity market
analysis and acting as liaison with Delaware International. Mr. Brooks has
managed The International Small-Cap Portfolio since its inception.
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Gavin Hall
Senior Portfolio Manager - Delaware International Advisers Ltd.
(The International Small-Cap Portfolio)
Mr. Hall joined Delaware International Advisers in 1991. He began his investment
career with Barings Investment Management Ltd. after attending Dulwich College.
In 1988, he became a Portfolio Manager and Research Analyst covering the United
Kingdom market at Hill Samuel Investment Advisers Ltd. At Delaware International
his research responsibilities have included covering the United Kingdom,
Continental European and Asian equity markets. Mr. Hall has managed The
International Small-Cap Portfolio since its 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 an 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,
The Balanced Portfolio and The Core 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 and The Balanced Portfolio since their
respective dates of inception and The Core Equity Portfolio since March 18,
1999.
J. Paul Dokas
Vice President/Portfolio Manager - The Select Equity Portfolio, 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 and The Select Equity Portfolio since their
respective inceptions and will manage The Asset Allocation Portfolio when it
commences operations.
Timothy J. Connors
Vice President/Senior Portfolio Manager - The Select Equity Portfolio
Mr. Connors earned a bachelor's degree at the University of Virginia and a MBA
in Finance at Tulane University. He joined Delaware Investments in 1997 after
serving as a Principal at Miller, Anderson & Sherrerd, where he managed equity
accounts, conducted sector analysis and directed research. He previously held
positions at CoreStates Investment Advisers and Fauquier National Bank. He is a
CFA charterholder and a member of the Association for Investment Management and
Research. Mr. Connors has managed The Select Equity Portfolio since its
inception.
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Christopher S. Beck
Vice President/Senior Portfolio Manager - The Small-Cap Value Equity Portfolio
and The Real Estate Investment Trust Portfolios
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 Delaware Investments in May, 1997, he managed the Small
Cap Fund for two years at Pitcairn Trust Company. He holds a BS from the
University of Delaware, an MBA from Lehigh University and is a CFA
charterholder. Mr. Beck has managed The Small-Cap Value Equity Portfolio since
its inception and has managed The Real Estate Investment Trust Portfolios since
May 6, 1999.
Thomas J. Trotman
Vice President, The Real Estate Investment Trust Portfolios
Mr. Trotman earned a bachelor's degree in Accounting from Muhlenberg College and
an MBA from Widener University. Prior to joining Delaware Investments in 1995,
he was Vice President and Director of Investment Research at Independence
Capital Management. Before that, he held credit-related positions at Marine
Midland Bank, U.S. Steel Corporation, and Amerada Hess. Mr. Trotman is a CFA
charterholder. Mr. Trotman has been on The Real Estate Investment Trust
Portfolios' management teams since 1998.
Damon J. Andres
Vice President, The Real Estate Investment Trust Portfolios
Mr. Andres earned a BS in Business Administration with an emphasis in Finance
and Accounting from the University of Richmond. Prior to joining Delaware
Investments in 1994, he provided investment consulting services as a Consulting
Associate with Cambridge Associates, Inc. in Arlington, Virginia. Mr. Andres has
been on The Real Estate Investment Trust Portfolios' management teams since
1997.
Investment Advisers
Delaware Management Company ("Delaware"), a series of Delaware Management
Business Trust, furnishes investment advisory services to The Large-Cap Value
Equity, The Balanced, The Equity Income, The Select 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, The Emerging Markets and The
International Small-Cap 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 Balanced, The Equity
Income, The Select 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, The Emerging Markets and The International Small-Cap
Portfolios. Delaware International has entered into a Sub-Advisory Agreement
with Delaware on behalf of The Global Equity Portfolio. Under these Agreements,
Delaware and Delaware
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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 investment adviser 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:
Investment Management
Fees Paid After Voluntary
Portfolio Waivers
The Large-Cap Value Equity Portfolio 0.50%
The Core Equity Portfolio 0.55%*
The Balanced Portfolio 0.55%*
The Equity Income Portfolio 0.55%*
The Select Equity Portfolio 1.00%*
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 0.86%
The International Small-Cap Portfolio 1.00%*
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 currently 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 currently
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.
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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
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. ("DSC"), an affiliate of
Delaware and an indirect, wholly owned subsidiary of DMH, provides the Fund with
administrative services pursuant to the Amended and Restated Shareholders
Services Agreement with the Fund on behalf of the Portfolios. The services
provided under the Amended and Restated Shareholders Services Agreement are
subject to the supervision of the officers and directors of the Fund, and
include day-to-day administration of matters related to the corporate existence
of the Fund, maintenance of its records, preparation of reports, supervision of
the Fund's arrangements with its Custodian Bank, and assistance in the
preparation of the Fund's registration statements under Federal and State laws.
The Amended and Restated Shareholders Services Agreement also provides that DSC
will provide the Fund with dividend disbursing and transfer agent services. DSC
is located at 1818 Market Street, Philadelphia, PA 19103. For its services under
the Amended and Restated Shareholders Services Agreement, the Fund pays DSC an
annual fixed fee, payable monthly, and allocated among the Portfolios of the
Fund based on the relative percentage of assets of each Portfolio. DSC also
provides accounting services to the Fund pursuant to the terms of a separate
Fund Accounting Agreement. DSC provides The Asset Allocation Portfolio with
similar services pursuant to an Amended and Restated Shareholders Services
Agreement and Fund Accounting Agreement with Foundation Funds.
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 provides The Asset Allocation
Portfolio with similar services pursuant to a Distribution Agreement with
Foundation Funds. 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
Foundation Funds.
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SHAREHOLDER SERVICES
Special Reports and Other Services. The Fund will provide client shareholders
with the following information:
o Audited annual 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, The Global
Equity Portfolio or The International Small-Cap Portfolio, an investor will be
assessed a purchase reimbursement fee by the respective Portfolio when
exchanging from another Portfolio into The Emerging Markets Portfolio, The
Global Equity Portfolio or The International Small-Cap Portfolio and a
shareholder of The Emerging Markets Portfolio, The Global Equity Portfolio or
The International Small-Cap Portfolio will be assessed a redemption
reimbursement fee by the respective Portfolio when exchanging out of The
Emerging Markets Portfolio, The Global Equity Portfolio or The International
Small-Cap 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, The Global
Equity and The International Small-Cap 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, 0.40% of
the dollar amount invested for The Global Equity Portfolio and 0.55% of the
dollar amount invested for The International Small-Cap 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 and The International Small-Cap 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 and The International
Small-Cap Portfolio electing to do so should contact the Fund at
(1-800-231-8002) for further information.
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<PAGE>
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
Portfolio; for The International Small-Cap Portfolio, the reimbursement fee paid
to the Portfolio is equal to 0.45% of the amount redeemed and such amount 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, The
International Small-Cap 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
International Small-Cap 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, The International Small-Cap 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 International Small-Cap
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, The Global
Equity Portfolio or The International Small-Cap 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 International
Small-Cap, 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, The Global Equity and
The International Small-Cap 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, The Global Equity Portfolio or The
International Small-Cap 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 investment adviser'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
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are extremely high. There are three components of transaction costs - brokerage
fees, the difference between the bid/asked spread and market impact. Each one of
these factors is significantly more expensive in emerging market countries than
in the United States, because of less competition among brokers, lower
utilization of technology on the part of the exchanges and brokers, the lack of
derivative instruments and generally less liquid markets. Consequently,
brokerage commissions are high, bid/asked spreads are wide, and the market
impact is significant in those markets. In addition to these customary costs,
most foreign countries have exchange fees or stamp taxes.
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. Securities with remaining
maturities of 60 days or less are valued at amortized cost, if it approximates
market value.
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.
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.
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 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 Balanced, The Equity Income, The Select
Equity, The Mid-Cap Growth Equity, The Mid-Cap Value Equity, The Small-Cap Value
Equity, The Global Equity, The International Small-Cap, 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.
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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 will be automatically paid in
additional shares at net asset value of the Portfolio.
In addition, in order to satisfy certain distribution requirements of the Tax
Reform Act of 1986, each Portfolio may declare special year-end dividend and
capital gains distributions during November or December to shareholders of
record on a date in such month. Such distributions, if received by shareholders
by January 31, are deemed to have been paid by a Portfolio and received by
shareholders on the earlier of the date paid or December 31 of the prior year.
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, The Emerging
Markets and The International Small-Cap 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, The
Emerging Markets and The International Small-Cap 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.
76
<PAGE>
Financial Highlights
- --------------------------------------------------------------------------------
The financial highlights tables are intended to help you understand a
Portfolio's financial performance. The total returns in the tables 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.
77
<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.
78
<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 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(2) 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.
79
<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 0.5333
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.
<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 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.
81
<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 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.
82
<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.
83
<PAGE>
Financial Highlights (continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
The International Equity Portfolio
Year ended 10/31
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 income1 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.
84
<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.
85
<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 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
and foreign currencies (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
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.
86
<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 than 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 an 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.
87
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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.
88
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Delaware Pooled
Trust
Additional information about the Portfolios' 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 each Portfolio's performance
during its last fiscal period. You can find more detailed information about the
Portfolios 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 Portfolios 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 Portfolios, including
their Statement of Additional Information, can be reviewed and copied at the
SEC'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.
E-mail
[email protected]
Shareholder Inquires
Call the Fund at 1-800-231-8002
oFor Fund information; literature; price, yield and performance figures.
oFor 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
INVESTMENTS
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