UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED
MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number | 33-14363 | |||||||
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Delaware VIP Trust | ||||||||
(Exact name of registrant as specified in charter) | ||||||||
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2005 Market Street Philadelphia, PA |
| 19103 | ||||||
(Address of principal executive offices) |
| (Zip code) | ||||||
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David F. Connor, Esq. 2005 Market Street Philadelphia, PA 19103 | ||||||||
(Name and address of agent for service) | ||||||||
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Registrant’s telephone number, including area code: | (800) 523-1918 |
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Date of fiscal year end: | December 31 |
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Date of reporting period: | June 30, 2007 |
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Item 1. Reports to Stockholders
Delaware VIP Trust — Delaware VIP Balanced Series
Disclosure of Series Expenses
For the Period January 1, 2007 to June 30, 2007
As a shareholder of the Series, you incur ongoing costs, including management fees; distribution and/or service (12b-1) fees; and other Series expenses. This Example is intended to help you understand your ongoing costs (in dollars) of investing in the Series and to compare these costs with the ongoing costs of investing in other mutual funds.
The Example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period from January 1, 2007 to June 30, 2007.
Actual Expenses
The first section of the table shown, “Actual Series Return,” provides information about actual account values and actual expenses. You may use the information in this section of the table, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first section under the heading entitled “Expenses Paid During Period” to estimate the expenses you paid on your account during the period.
Hypothetical Example for Comparison Purposes
The second section of the table shown, “Hypothetical 5% Return,” provides information about hypothetical account values and hypothetical expenses based on the Series’ actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Series’ actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Series and other funds. To do so, compare the 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs only. As a shareholder of the Series, you do not incur any transaction costs, such as sales charges (loads), redemption fees or exchange fees, but shareholders of other funds may incur such costs. Also, the fees related to the variable annuity investment or the deferred sales charge that could apply have not been included. Therefore, the second section of the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. The Series’ actual expenses shown in the table reflect fee waivers in effect. The expenses shown in the table assume reinvestment of all dividends and distributions.
Expense Analysis of an Investment of $1,000
|
| Beginning |
| Ending |
| Annualized |
| Expenses |
| |||
Actual Series Return |
|
|
|
|
|
|
|
|
| |||
Standard Class |
| $ | 1,000.00 |
| $ | 1,046.70 |
| 0.81 | % | $ | 4.11 |
|
Service Class |
| 1,000.00 |
| 1,045.10 |
| 1.06 | % | 5.37 |
| |||
|
|
|
|
|
|
|
|
|
| |||
Hypothetical 5% Return (5% return before expenses) |
|
|
|
|
|
|
|
|
| |||
Standard Class |
| $ | 1,000.00 |
| $ | 1,020.78 |
| 0.81 | % | $ | 4.06 |
|
Service Class |
| 1,000.00 |
| 1,019.54 |
| 1.06 | % | 5.31 |
|
* “Expenses Paid During Period” are equal to the Series’ annualized expense ratio, multiplied by the average account value over the period, multiplied by 181/365 (to reflect the one-half year period).
1
Delaware VIP Trust — Delaware VIP Balanced Series
Sector Allocation and Credit Quality Breakdown
As of June 30, 2007
Sector designations may be different than the sector designations presented in other Series materials.
Sector |
| Percentage |
|
Common Stock |
| 62.85 | % |
Consumer Discretionary |
| 5.75 | % |
Consumer Staples |
| 5.55 | % |
Energy |
| 3.95 | % |
Financials |
| 15.27 | % |
Health Care |
| 11.20 | % |
Industrials |
| 3.89 | % |
Information Technology |
| 9.60 | % |
Materials |
| 1.88 | % |
Media |
| 0.03 | % |
Telecommunications |
| 4.01 | % |
Utilities |
| 1.72 | % |
Preferred Stock |
| 0.06 | % |
Agency Asset-Backed Securities |
| 0.01 | % |
Agency Collateralized Mortgage Obligations |
| 1.60 | % |
Agency Mortgage-Backed Securities |
| 6.41 | % |
Agency Obligations |
| 0.87 | % |
Commercial Mortgage-Backed Securities |
| 3.04 | % |
Convertible Bonds |
| 0.11 | % |
Corporate Bonds |
| 11.39 | % |
Banking |
| 1.43 | % |
Basic Industry |
| 0.28 | % |
Brokerage |
| 0.47 | % |
Capital Goods |
| 0.29 | % |
Communications |
| 1.94 | % |
Consumer Cyclical |
| 0.54 | % |
Consumer Non-Cyclical |
| 0.57 | % |
Electric |
| 0.97 | % |
Energy |
| 0.69 | % |
Finance Companies |
| 0.87 | % |
Industrial - Other |
| 0.02 | % |
Insurance |
| 1.24 | % |
Natural Gas |
| 0.99 | % |
Real Estate |
| 0.57 | % |
Technology |
| 0.01 | % |
Transportation |
| 0.51 | % |
Foreign Agencies |
| 0.11 | % |
Municipal Bonds |
| 0.90 | % |
Non-Agency Asset-Backed Securities |
| 2.76 | % |
Non-Agency Collateralized Mortgage Obligations |
| 8.60 | % |
U.S. Treasury Obligations |
| 3.63 | % |
Discount Note |
| 3.07 | % |
Securities Lending Collateral |
| 6.69 | % |
Fixed Rate Notes |
| 2.56 | % |
Variable Rate Notes |
| 4.13 | % |
Total Value of Securities |
| 112.10 | % |
Obligation to Return Securities Lending Collateral |
| (6.69 | )% |
Liabilities Net of Receivables and Other Assets |
| (5.41 | )% |
Total Net Assets |
| 100.00 | % |
Credit Quality Breakdown |
|
|
|
AAA |
| 62.69 | % |
AA |
| 5.66 | % |
A |
| 11.31 | % |
BBB |
| 18.64 | % |
BB |
| 0.48 | % |
B |
| 0.99 | % |
CCC |
| 0.16 | % |
NR |
| 0.07 | % |
Total |
| 100.00 | % |
2
Delaware VIP Trust — Delaware VIP Balanced Series
Statement of Net Assets
June 30, 2007 (Unaudited)
|
|
| Number of |
| Value |
| |
| COMMON STOCK–62.85% |
|
|
|
|
| |
| Consumer Discretionary–5.75% |
|
|
|
|
| |
| Gap |
| 33,800 |
| $ | 645,580 |
|
| Limited Brands |
| 23,300 |
| 639,585 |
| |
| Mattel |
| 21,700 |
| 548,793 |
| |
|
|
|
|
| 1,833,958 |
| |
| Consumer Staples–5.55% |
|
|
|
|
| |
| Heinz (H.J.) |
| 13,000 |
| 617,110 |
| |
| Kimberly-Clark |
| 8,700 |
| 581,943 |
| |
| Safeway |
| 16,800 |
| 571,704 |
| |
|
|
|
|
| 1,770,757 |
| |
| Energy–3.95% |
|
|
|
|
| |
| Chevron |
| 7,600 |
| 640,224 |
| |
| ConocoPhillips |
| 7,900 |
| 620,150 |
| |
|
|
|
|
| 1,260,374 |
| |
| Financials–15.27% |
|
|
|
|
| |
| Allstate |
| 10,100 |
| 621,251 |
| |
| Aon |
| 14,600 |
| 622,106 |
| |
| Chubb |
| 11,400 |
| 617,196 |
| |
| Hartford Financial Services Group |
| 6,000 |
| 591,060 |
| |
| Huntington Bancshares |
| 27,000 |
| 613,980 |
| |
| Morgan Stanley |
| 7,500 |
| 629,099 |
| |
| Wachovia |
| 11,200 |
| 574,000 |
| |
| Washington Mutual |
| 14,100 |
| 601,224 |
| |
|
|
|
|
| 4,869,916 |
| |
| Health Care–11.20% |
|
|
|
|
| |
| Abbott Laboratories |
| 10,600 |
| 567,630 |
| |
| Baxter International |
| 10,900 |
| 614,106 |
| |
| Bristol-Myers Squibb |
| 19,100 |
| 602,796 |
| |
| Merck |
| 11,600 |
| 577,680 |
| |
| Pfizer |
| 23,000 |
| 588,110 |
| |
| Wyeth |
| 10,800 |
| 619,272 |
| |
|
|
|
|
| 3,569,594 |
| |
| Industrials–3.89% |
|
|
|
|
| |
| Donnelley (R.R.) & Sons |
| 14,500 |
| 630,895 |
| |
| Waste Management |
| 15,600 |
| 609,180 |
| |
|
|
|
|
| 1,240,075 |
| |
| Information Technology–9.60% |
|
|
|
|
| |
| Hewlett-Packard |
| 13,600 |
| 606,832 |
| |
* | Intel |
| 27,700 |
| 658,152 |
| |
| International Business Machines |
| 6,000 |
| 631,500 |
| |
| Motorola |
| 32,500 |
| 575,250 |
| |
† | Xerox |
| 31,800 |
| 587,664 |
| |
|
|
|
|
| 3,059,398 |
| |
| Materials–1.88% |
|
|
|
|
| |
| duPont (E.I.) deNemours |
| 11,800 |
| 599,912 |
| |
|
|
|
|
| 599,912 |
| |
| Media–0.03% |
|
|
|
|
| |
† | Adelphia |
| 5,000 |
| 1,550 |
| |
† | Adelphia Recovery Trust Series ACC-1 |
| 4,907 |
| 456 |
| |
† | Adelphia Recovery Trust Series Arahova |
| 2,175 |
| 1,148 |
| |
† | Century Communications |
| 5,000 |
| 5 |
| |
† | Time Warner Cable Class A |
| 135 |
| 5,297 |
| |
|
|
|
|
| 8,456 |
| |
| Telecommunications–4.01% |
|
|
|
|
| |
| AT&T |
| 15,400 |
| 639,100 |
| |
| Verizon Communications |
| 15,500 |
| 638,135 |
| |
|
|
|
|
| 1,277,235 |
| |
| Utilities–1.72% |
|
|
|
|
| |
| Progress Energy |
| 12,000 |
| 547,080 |
| |
|
|
|
|
| 547,080 |
| |
| Total Common Stock |
|
|
| 20,036,755 |
| |
|
|
|
|
|
|
| |
| PREFERRED STOCK–0.06% |
|
|
|
|
| |
| Nexen 7.35% |
| 790 |
| 20,066 |
| |
| Total Preferred Stock |
|
|
| 20,066 |
| |
|
| Principal |
|
|
| ||
| AGENCY ASSET-BACKED SECURITIES–0.01% |
|
|
|
|
| |
· | Fannie Mae Whole Loan Series 2002-W11 AV1 5.66% 11/25/32 |
| $ | 2,347 |
| 2,347 |
|
| Total Agency Asset-Backed Securities |
|
|
| 2,347 |
| |
|
|
|
|
|
|
| |
| AGENCY COLLATERALIZED MORTGAGE OBLIGATIONS–1.60% |
|
|
|
|
| |
| Fannie Mae |
|
|
|
|
| |
| Series 1996-46 ZA 7.50% 11/25/26 |
| 18,533 |
| 19,068 |
| |
| Series 2003-122 AJ 4.50% 2/25/28 |
| 17,883 |
| 17,275 |
| |
| ·Series 2006-M2 A2F 5.259% 5/25/20 |
| 60,000 |
| 57,337 |
| |
| Fannie Mae Grantor Trust Series 2001-T8 A2 9.50% 7/25/41 |
| 15,358 |
| 16,400 |
| |
| Fannie Mae Whole Loan |
|
|
|
|
| |
| Series 2004-W9 2A1 6.50% 2/25/44 |
| 26,407 |
| 26,819 |
| |
| Series 2004-W11 1A2 6.50% 5/25/44 |
| 27,583 |
| 28,018 |
| |
| Freddie Mac |
|
|
|
|
| |
| Series 1730 Z 7.00% 5/15/24 |
| 15,586 |
| 16,205 |
| |
| Series 2326 ZQ 6.50% 6/15/31 |
| 72,145 |
| 74,477 |
| |
| Series 2480 EH 6.00% 11/15/31 |
| 14 |
| 14 |
| |
| Series 2662 MA 4.50% 10/15/31 |
| 34,552 |
| 33,727 |
| |
| Series 2694 QG 4.50% 1/15/29 |
| 30,000 |
| 28,752 |
| |
| Series 2872 GC 5.00% 11/15/29 |
| 40,000 |
| 38,694 |
| |
| Series 3005 ED 5.00% 7/15/25 |
| 40,000 |
| 36,901 |
| |
| Series 3022 MB 5.00% 12/15/28 |
| 30,000 |
| 29,302 |
| |
| Series 3063 PC 5.00% 2/15/29 |
| 60,000 |
| 58,657 |
| |
u | Freddie Mac Structured Pass Through Securities Series T-58 2A 6.50% 9/25/43 |
| 29,089 |
| 29,513 |
| |
| Total Agency Collateralized Mortgage Obligations (cost $524,152) |
|
|
| 511,159 |
| |
3
|
| Principal |
| Value |
| |||
| AGENCY MORTGAGE-BACKED SECURITIES–6.41% |
|
|
|
|
| ||
| Fannie Mae 6.50% 8/1/17 |
| $ | 20,836 |
| $ | 21,214 |
|
| Fannie Mae Relocation 30 yr 5.00% 11/1/34 |
| 31,246 |
| 29,598 |
| ||
| Fannie Mae S.F. 15 yr TBA |
|
|
|
|
| ||
| 4.50% 7/1/21 |
| 70,000 |
| 66,434 |
| ||
| 5.00% 7/1/22 |
| 150,000 |
| 144,961 |
| ||
| 6.00% 7/1/22 |
| 50,000 |
| 50,227 |
| ||
| Fannie Mae S.F. 30 yr |
|
|
|
|
| ||
| 5.50% 3/1/29 |
| 64,823 |
| 62,834 |
| ||
| 5.50% 4/1/29 |
| 74,189 |
| 71,913 |
| ||
| 7.50% 6/1/31 |
| 23,809 |
| 24,868 |
| ||
| 9.50% 6/1/19 |
| 4,429 |
| 4,678 |
| ||
| Fannie Mae S.F. 30 yr TBA |
|
|
|
|
| ||
| 5.00% 7/1/37 |
| 430,000 |
| 402,923 |
| ||
| 5.50% 7/1/37 |
| 705,000 |
| 679,993 |
| ||
| 6.00% 8/1/37 |
| 170,000 |
| 168,061 |
| ||
| 6.50% 7/1/37 |
| 30,000 |
| 30,281 |
| ||
· | Freddie Mac ARM 5.838% 4/1/34 |
| 15,747 |
| 15,902 |
| ||
| Freddie Mac S.F. 15 yr 4.00% 2/1/14 |
| 51,952 |
| 49,951 |
| ||
| Freddie Mac S.F. 30 yr 7.00% 11/1/33 |
| 13,048 |
| 13,468 |
| ||
| Freddie Mac S.F. 30 yr TBA 6.00% 7/1/37 |
| 65,000 |
| 64,391 |
| ||
| GNMA S.F. 30 yr 7.50% 1/15/32 |
| 5,524 |
| 5,785 |
| ||
| GNMA S.F. 30 yr TBA |
|
|
|
|
| ||
| 5.50% 7/1/37 |
| 70,000 |
| 67,922 |
| ||
| 6.00% 7/1/37 |
| 70,000 |
| 69,628 |
| ||
| Total Agency Mortgage-Backed Securities (cost $2,065,128) |
|
|
| 2,045,032 |
| ||
|
|
|
|
|
|
| ||
| AGENCY OBLIGATIONS–0.87% |
|
|
|
|
| ||
| Fannie Mae |
|
|
|
|
| ||
| *4.75% 3/12/10 |
| 60,000 |
| 59,362 |
| ||
| ^5.377% 10/9/19 |
| 230,000 |
| 115,260 |
| ||
^ | Resolution Funding Interest Strip 5.24% 10/15/25 |
| 275,000 |
| 102,870 |
| ||
| Total Agency Obligations |
|
|
| 277,492 |
| ||
|
|
|
|
|
|
| ||
| COMMERCIAL MORTGAGE-BACKED SECURITIES–3.04% |
|
|
|
|
| ||
| Bank of America Commercial Mortgage |
|
|
|
|
| ||
| ·Series 2006-3 A4 5.889% 7/10/44 |
| 30,000 |
| 30,045 |
| ||
| Series 2006-4 A4 5.634% 7/10/46 |
| 10,000 |
| 9,818 |
| ||
# | Bear Stearns Commercial Mortgage Securities Series 2004-ESA E 144A 5.064% 5/14/16 |
| 40,000 |
| 39,794 |
| ||
u | Commercial Mortgage Pass Through Certificates |
|
|
|
|
| ||
| #Series 2001-J1A A2 144A 6.457% 2/14/34 |
| 27,939 |
| 28,603 |
| ||
| Series 2006-C7 A2 5.69% 6/10/46 |
| 25,000 |
| 25,046 |
| ||
· | Credit Suisse Mortgage Capital Certificates Series 2006-C1 AAB 5.681% 2/15/39 |
| 15,000 |
| 14,870 |
| ||
# | Crown Castle Towers Series 2005-1A C 144A 5.074% 6/15/35 |
| 25,000 |
| 24,508 |
| ||
| Deutsche Mortgage and Asset Receiving Series 1998-C1 A2 6.538% 6/15/31 |
| 17,369 |
| 17,383 |
| ||
| First Union National Bank-Bank of America Commercial Mortgage Trust Series 2001-C1 C 6.403% 3/15/33 |
| 10,000 |
| 10,256 |
| ||
| First Union-Lehman Brothers-Bank of America Series 1998-C2 A2 6.56% 11/18/35 |
| 24,662 |
| 24,758 |
| ||
| General Electric Capital Commercial Mortgage Series 2002-1A A3 6.269% 12/10/35 |
| 50,000 |
| 51,234 |
| ||
| Goldman Sachs Mortgage Securities II |
|
|
|
|
| ||
| Series 2004-GG2 A3 4.602% 8/10/38 |
| 20,000 |
| 19,682 |
| ||
| *Series 2006-GG8 A4 5.56% 11/10/39 |
| 40,000 |
| 39,127 |
| ||
| Greenwich Capital Commercial Funding Series 2007-GG9 A4 5.444% 3/10/39 |
| 25,000 |
| 24,203 |
| ||
| JPMorgan Chase Commercial Mortgage Securities |
|
|
|
|
| ||
| Series 2002-C1 A3 5.376% 7/12/37 |
| 35,000 |
| 34,609 |
| ||
| Series 2003-C1 A2 4.985% 1/12/37 |
| 68,000 |
| 65,773 |
| ||
| ·#Series 2006-RR1A A1 144A 5.606% 10/18/52 |
| 25,000 |
| 24,172 |
| ||
| Series 2007-CB18 A4 5.44% 6/12/47 |
| 50,000 |
| 48,317 |
| ||
| Lehman Brothers-UBS Commercial Mortgage Trust |
|
|
|
|
| ||
| Series 2001-C2 A1 6.27% 6/15/20 |
| 8,526 |
| 8,566 |
| ||
| Series 2002-C1 A4 6.462% 3/15/31 |
| 55,000 |
| 56,836 |
| ||
· | Merrill Lynch Mortgage Trust Series 2006-C1 ASB 5.843% 5/12/39 |
| 35,000 |
| 34,970 |
| ||
| Merrill Lynch/Countrywide Commercial Mortgage Trust |
|
|
|
|
| ||
| Series 2007-5 A1 4.275% 8/12/48 |
| 48,335 |
| 47,065 |
| ||
| Series 2007-5 A4 5.378% 8/12/48 |
| 20,000 |
| 19,222 |
| ||
· | Morgan Stanley Capital I Series 2007-IQ14 A4 5.692% 4/15/49 |
| 25,000 |
| 24,501 |
| ||
# | SBA Commercial Mortgage Securities Trust Series 2006-1A B 144A 5.451% 11/15/36 |
| 60,000 |
| 59,204 |
| ||
# | Tower 144A |
|
|
|
|
| ||
| Series 2004-2A A 4.232% 12/15/14 |
| 45,000 |
| 43,516 |
| ||
| Series 2006-1 B 5.588% 2/15/36 |
| 25,000 |
| 24,821 |
| ||
| Series 2006-1 C 5.707% 2/15/36 |
| 25,000 |
| 24,846 |
| ||
| Wachovia Bank Commercial Mortgage Trust |
|
|
|
|
| ||
| ·Series 2005-C20 A5 5.087% 7/15/42 |
| 15,000 |
| 14,675 |
| ||
| Series 2006-C28 A2 5.50% 10/15/48 |
| 40,000 |
| 39,720 |
| ||
| Series 2007-C30 A3 5.246% 12/15/43 |
| 40,000 |
| 39,236 |
| ||
| Total Commercial Mortgage-Backed Securities (cost $998,442) |
|
|
| 969,376 |
| ||
4
|
| Principal |
| Value |
| |||
| CONVERTIBLE BONDS–0.11% |
|
|
|
|
| ||
*· | U.S. Bancorp 3.61% 9/20/36 exercise price $38.28, expiration date 9/20/36 |
| $ | 35,000 |
| $ | 34,986 |
|
| Total Convertible Bonds |
|
|
| 34,986 |
| ||
|
|
|
|
|
|
| ||
| CORPORATE BONDS–11.39% |
|
|
|
|
| ||
| Banking–1.43% |
|
|
|
|
| ||
· | BAC Capital Trust XIV 5.63% 12/31/49 |
| 15,000 |
| 14,682 |
| ||
·# | Barclays Bank 144A 7.375% 6/29/49 |
| 20,000 |
| 21,367 |
| ||
| Citigroup 5.875% 2/22/33 |
| 20,000 |
| 19,058 |
| ||
* | JPMorgan Chase 6.125% 6/27/17 |
| 15,000 |
| 15,145 |
| ||
| JPMorgan Chase Capital |
|
|
|
|
| ||
| XVIII 6.95% 8/17/36 |
| 10,000 |
| 10,140 |
| ||
| ·XXI 6.305% 2/2/37 |
| 20,000 |
| 19,828 |
| ||
·# | KBC Bank Funding Trust III 144A 9.86% 11/29/49 |
| 10,000 |
| 10,910 |
| ||
· | Marshall & Ilsley Bank 5.63% 12/4/12 |
| 10,000 |
| 10,012 |
| ||
· | Mellon Capital IV 6.244% 6/29/49 |
| 15,000 |
| 15,151 |
| ||
· | MUFG Capital Finance 1 6.346% 7/29/49 |
| 100,000 |
| 98,423 |
| ||
| Popular North America |
|
|
|
|
| ||
| 4.25% 4/1/08 |
| 55,000 |
| 54,446 |
| ||
| ·5.75% 4/6/09 |
| 25,000 |
| 25,131 |
| ||
| Popular North America Capital Trust I 6.564% 9/15/34 |
| 10,000 |
| 9,180 |
| ||
·# | Rabobank Capital Funding II 144A 5.26% 12/29/49 |
| 10,000 |
| 9,603 |
| ||
· | RBS Capital Trust I 4.709% 12/29/49 |
| 15,000 |
| 13,980 |
| ||
·# | Resona Preferred Global Securities Cayman 144A 7.191% 12/29/49 |
| 15,000 |
| 15,361 |
| ||
| SunTrust Capital II 7.90% 6/15/27 |
| 35,000 |
| 36,429 |
| ||
| Wachovia 5.75% 6/15/17 |
| 15,000 |
| 14,827 |
| ||
# | Wachovia Capital Trust I 144A 7.64% 1/15/27 |
| 40,000 |
| 41,556 |
| ||
|
|
|
|
| 455,229 |
| ||
| Basic Industry–0.28% |
|
|
|
|
| ||
* | Bowater 9.50% 10/15/12 |
| 5,000 |
| 4,950 |
| ||
| Georgia-Pacific 8.875% 5/15/31 |
| 1,000 |
| 1,003 |
| ||
| Lubrizol 4.625% 10/1/09 |
| 30,000 |
| 29,426 |
| ||
| Potlatch 13.00% 12/1/09 |
| 5,000 |
| 5,653 |
| ||
| U.S. Steel |
|
|
|
|
| ||
| 6.05% 6/1/17 |
| 15,000 |
| 14,655 |
| ||
| 6.65% 6/1/37 |
| 10,000 |
| 9,715 |
| ||
| Vale Overseas |
|
|
|
|
| ||
| 6.25% 1/23/17 |
| 15,000 |
| 14,952 |
| ||
| 6.875% 11/21/36 |
| 10,000 |
| 10,077 |
| ||
|
|
|
|
| 90,431 |
| ||
| Brokerage–0.47% |
|
|
|
|
| ||
· | Ameriprise Financial 7.518% 6/1/66 |
| 20,000 |
| 20,864 |
| ||
| AMVESCAP |
|
|
|
|
| ||
| 4.50% 12/15/09 |
| 55,000 |
| 53,702 |
| ||
| 5.625% 4/17/12 |
| 25,000 |
| 24,828 |
| ||
| Goldman Sachs Group 6.345% 2/15/34 |
| 15,000 |
| 14,350 |
| ||
| Jefferies Group 6.45% 6/8/27 |
| 15,000 |
| 14,678 |
| ||
| LaBranche 11.00% 5/15/12 |
| 5,000 |
| 5,325 |
| ||
# | Lazard Group 144A 6.85% 6/15/17 |
| 10,000 |
| 10,025 |
| ||
· | Lehman Brothers Holdings Capital Trust VIII 6.19% 5/29/49 |
| 5,000 |
| 5,005 |
| ||
|
|
|
|
| 148,777 |
| ||
| Capital Goods–0.29% |
|
|
|
|
| ||
| Allied Waste North America 9.25% 9/1/12 |
| 4,000 |
| 4,205 |
| ||
* | Casella Waste Systems 9.75% 2/1/13 |
| 5,000 |
| 5,213 |
| ||
| Caterpillar 6.05% 8/15/36 |
| 5,000 |
| 4,936 |
| ||
| General Electric 5.00% 2/1/13 |
| 40,000 |
| 38,828 |
| ||
| Geo Subordinate 11.00% 5/15/12 |
| 5,000 |
| 5,100 |
| ||
| Interface 10.375% 2/1/10 |
| 5,000 |
| 5,400 |
| ||
· | Masco 5.66% 3/12/10 |
| 20,000 |
| 20,030 |
| ||
| Pactiv |
|
|
|
|
| ||
| 5.875% 7/15/12 |
| 5,000 |
| 5,018 |
| ||
| 6.40% 1/15/18 |
| 5,000 |
| 5,028 |
| ||
|
|
|
|
| 93,758 |
| ||
| Communications–1.94% |
|
|
|
|
| ||
* | American Tower 7.125% 10/15/12 |
| 5,000 |
| 5,138 |
| ||
| AT&T |
|
|
|
|
| ||
| 7.30% 11/15/11 |
| 40,000 |
| 42,619 |
| ||
| 8.00% 11/15/31 |
| 15,000 |
| 17,881 |
| ||
| BellSouth 4.20% 9/15/09 |
| 25,000 |
| 24,361 |
| ||
* | CCH I Holdings 13.50% 1/15/14 |
| 2,000 |
| 2,063 |
| ||
| Charter Communications Holdings 13.50% 1/15/11 |
| 5,000 |
| 5,206 |
| ||
| Comcast |
|
|
|
|
| ||
| ·5.656% 7/14/09 |
| 15,000 |
| 15,008 |
| ||
| 6.50% 11/15/35 |
| 15,000 |
| 14,586 |
| ||
| Cox Communications 4.625% 1/15/10 |
| 25,000 |
| 24,433 |
| ||
| Embarq |
|
|
|
|
| ||
| 6.738% 6/1/13 |
| 20,000 |
| 20,406 |
| ||
| 7.082% 6/1/16 |
| 20,000 |
| 20,145 |
| ||
* | Hughes Network Systems/Finance 9.50% 4/15/14 |
| 4,000 |
| 4,200 |
| ||
* | Insight Communications 12.25% 2/15/11 |
| 5,000 |
| 5,238 |
| ||
| Insight Midwest 9.75% 10/1/09 |
| 5,000 |
| 5,050 |
| ||
· | Qwest 8.61% 6/15/13 |
| 5,000 |
| 5,450 |
| ||
| Rural Cellular 9.875% 2/1/10 |
| 5,000 |
| 5,250 |
| ||
| Sprint Capital 7.625% 1/30/11 |
| 35,000 |
| 36,853 |
| ||
| Sprint Nextel |
|
|
|
|
| ||
| ·5.76% 6/28/10 |
| 15,000 |
| 15,008 |
| ||
| 6.00% 12/1/16 |
| 5,000 |
| 4,752 |
| ||
· | Telecom Italia Capital 5.969% 7/18/11 |
| 40,000 |
| 40,300 |
| ||
| Telefonica Emisiones |
|
|
|
|
| ||
| 5.984% 6/20/11 |
| 75,000 |
| 75,755 |
| ||
| 6.221% 7/3/17 |
| 10,000 |
| 9,993 |
| ||
| Telefonos de Mexico 4.50% 11/19/08 |
| 65,000 |
| 64,237 |
| ||
| Thomson 5.75% 2/1/08 |
| 30,000 |
| 30,029 |
| ||
| Time Warner 5.50% 11/15/11 |
| 20,000 |
| 19,797 |
| ||
# | Time Warner Cable 144A |
|
|
|
|
| ||
| 5.40% 7/2/12 |
| 45,000 |
| 44,239 |
| ||
| 5.85% 5/1/17 |
| 20,000 |
| 19,489 |
| ||
| 6.55% 5/1/37 |
| 5,000 |
| 4,848 |
| ||
5
|
| Principal |
| Value |
| |||
| CORPORATE BONDS (continued) |
|
|
|
|
| ||
| Communications (continued) |
|
|
|
|
| ||
| Time Warner Entertainment 8.375% 3/15/23 |
| $ | 10,000 |
| $ | 11,506 |
|
| Viacom 5.75% 4/30/11 |
| 25,000 |
| 24,985 |
| ||
|
|
|
|
| 618,825 |
| ||
| Consumer Cyclical–0.54% |
|
|
|
|
| ||
| CVS Caremark |
|
|
|
|
| ||
| 5.75% 6/1/17 |
| 15,000 |
| 14,499 |
| ||
| 6.25% 6/1/27 |
| 10,000 |
| 9,717 |
| ||
*· | DaimlerChrysler Holding 5.805% 8/3/09 |
| 50,000 |
| 50,285 |
| ||
* | Federated Retail Holdings 5.35% 3/15/12 |
| 20,000 |
| 19,669 |
| ||
| GMAC 6.875% 9/15/11 |
| 30,000 |
| 29,536 |
| ||
| Global Cash Access 8.75% 3/15/12 |
| 1,000 |
| 1,043 |
| ||
| Majestic Star Casino 9.50% 10/15/10 |
| 5,000 |
| 5,225 |
| ||
| Penney (JC) |
|
|
|
|
| ||
| 6.375% 10/15/36 |
| 20,000 |
| 19,107 |
| ||
| *8.00% 3/1/10 |
| 15,000 |
| 15,848 |
| ||
| Wheeling Island Gaming 10.125% 12/15/09 |
| 5,000 |
| 5,088 |
| ||
|
|
|
|
| 170,017 |
| ||
| Consumer Non-Cyclical–0.57% |
|
|
|
|
| ||
# | Amgen 144A |
|
|
|
|
| ||
| 5.85% 6/1/17 |
| 15,000 |
| 14,794 |
| ||
| 6.375% 6/1/37 |
| 45,000 |
| 44,170 |
| ||
| Boston Scientific 6.40% 6/15/16 |
| 25,000 |
| 24,329 |
| ||
| CRC Health 10.75% 2/1/16 |
| 5,000 |
| 5,525 |
| ||
| Kraft Foods 4.125% 11/12/09 |
| 15,000 |
| 14,539 |
| ||
| Kroger 6.375% 3/1/08 |
| 30,000 |
| 30,161 |
| ||
| Medtronic 4.375% 9/15/10 |
| 5,000 |
| 4,858 |
| ||
| UST 6.625% 7/15/12 |
| 10,000 |
| 10,384 |
| ||
| Wyeth |
|
|
|
|
| ||
| 5.50% 2/1/14 |
| 20,000 |
| 19,739 |
| ||
| 5.95% 4/1/37 |
| 15,000 |
| 14,384 |
| ||
|
|
|
|
| 182,883 |
| ||
| Electric–0.97% |
|
|
|
|
| ||
· | Alabama Power Capital Trust IV 4.75% 10/1/42 |
| 55,000 |
| 54,893 |
| ||
·‡# | Calpine 144A 11.11% 7/15/07 |
| 196 |
| 207 |
| ||
| Commonwealth Edison 5.95% 8/15/16 |
| 45,000 |
| 44,131 |
| ||
| Dominion Resources 5.687% 5/15/08 |
| 20,000 |
| 20,028 |
| ||
| FPL Group Capital |
|
|
|
|
| ||
| 5.625% 9/1/11 |
| 25,000 |
| 25,016 |
| ||
| ·6.65% 6/15/67 |
| 10,000 |
| 9,935 |
| ||
· | Nisource Finance 5.93% 11/23/09 |
| 20,000 |
| 20,042 |
| ||
| Orion Power Holdings 12.00% 5/1/10 |
| 5,000 |
| 5,675 |
| ||
| Pepco Holdings |
|
|
|
|
| ||
| 5.50% 8/15/07 |
| 24,000 |
| 24,010 |
| ||
| ·5.985% 6/1/10 |
| 30,000 |
| 30,038 |
| ||
| 6.125% 6/1/17 |
| 10,000 |
| 9,901 |
| ||
# | Power Contract Financing 144A 6.256% 2/1/10 |
| 13,063 |
| 13,152 |
| ||
| Puget Sound Energy 5.483% 6/1/35 |
| 15,000 |
| 13,295 |
| ||
| Southwestern Public Service 6.00% 10/1/36 |
| 30,000 |
| 28,578 |
| ||
| Xcel Energy 6.50% 7/1/36 |
| 10,000 |
| 10,147 |
| ||
|
|
|
|
| 309,048 |
| ||
| Energy–0.69% |
|
|
|
|
| ||
| Anadarko Petroleum 6.45% 9/15/36 |
| 15,000 |
| 14,474 |
| ||
| Apache |
|
|
|
|
| ||
| 5.25% 4/15/13 |
| 15,000 |
| 14,722 |
| ||
| *5.625% 1/15/17 |
| 25,000 |
| 24,459 |
| ||
| Bluewater Finance 10.25% 2/15/12 |
| 5,000 |
| 5,238 |
| ||
| Canadian Natural Resources 5.70% 5/15/17 |
| 30,000 |
| 29,075 |
| ||
# | Canadian Oil Sands 144A 4.80% 8/10/09 |
| 35,000 |
| 34,441 |
| ||
| Devon Energy 7.95% 4/15/32 |
| 5,000 |
| 5,862 |
| ||
| Nexen 6.40% 5/15/37 |
| 10,000 |
| 9,591 |
| ||
# | Ras Laffan Liquefied Natural Gas III 144A 5.832% 9/30/16 |
| 25,000 |
| 24,621 |
| ||
· | Secunda International 13.356% 9/1/12 |
| 5,000 |
| 5,200 |
| ||
*# | Seitel 144A 9.75% 2/15/14 |
| 5,000 |
| 4,975 |
| ||
| Suncor Energy 6.50% 6/15/38 |
| 10,000 |
| 10,082 |
| ||
| Weatherford International 4.95% 10/15/13 |
| 35,000 |
| 33,075 |
| ||
* | Whiting Petroleum 7.25% 5/1/13 |
| 5,000 |
| 4,775 |
| ||
|
|
|
|
| 220,590 |
| ||
| Finance Companies–0.87% |
|
|
|
|
| ||
· | American Express 6.80% 9/1/66 |
| 35,000 |
| 36,150 |
| ||
# | Capmark Financial Group 144A |
|
|
|
|
| ||
| 5.875% 5/10/12 |
| 15,000 |
| 14,819 |
| ||
| 6.30% 5/10/17 |
| 40,000 |
| 39,433 |
| ||
* | FTI Consulting 7.625% 6/15/13 |
| 5,000 |
| 5,088 |
| ||
| International Lease Finance 5.75% 6/15/11 |
| 15,000 |
| 15,076 |
| ||
| Prudential Financial 6.10% 6/15/17 |
| 10,000 |
| 10,131 |
| ||
| Residential Capital |
|
|
|
|
| ||
| *·5.86% 6/9/08 |
| 25,000 |
| 24,752 |
| ||
| 6.00% 2/22/11 |
| 20,000 |
| 19,368 |
| ||
| 6.125% 11/21/08 |
| 30,000 |
| 29,736 |
| ||
| 6.375% 6/30/10 |
| 25,000 |
| 24,694 |
| ||
| SLM 5.40% 10/25/11 |
| 64,000 |
| 58,673 |
| ||
|
|
|
|
| 277,920 |
| ||
| Industrial–Other–0.02% |
|
|
|
|
| ||
*# | Mobile Services Group 144A 9.75% 8/1/14 |
| 5,000 |
| 5,350 |
| ||
|
|
|
|
| 5,350 |
| ||
| Insurance–1.24% |
|
|
|
|
| ||
# | Farmers Insurance Exchange 144A 8.625% 5/1/24 |
| 70,000 |
| 81,070 |
| ||
| MetLife 5.00% 6/15/15 |
| 10,000 |
| 9,457 |
| ||
| Montpelier Re Holdings 6.125% 8/15/13 |
| 5,000 |
| 4,859 |
| ||
*# | Nationwide Mutual Insurance 144A 7.875% 4/1/33 |
| 45,000 |
| 52,021 |
| ||
6
|
| Principal |
| Value |
| |||
| CORPORATION BONDS (continued) |
|
|
|
|
| ||
| Insurance (continued) |
|
|
|
|
| ||
# | Nippon Life Insurance 144A 4.875% 8/9/10 |
| $ | 35,000 |
| $ | 34,136 |
|
| PMI Group 5.568% 11/15/08 |
| 30,000 |
| 29,911 |
| ||
| SAFECO Capital Trust I 8.072% 7/15/37 |
| 45,000 |
| 46,866 |
| ||
| St. Paul Travelers 5.01% 8/16/07 |
| 15,000 |
| 14,994 |
| ||
| Travelers 6.25% 6/15/37 |
| 20,000 |
| 19,431 |
| ||
| Unitrin 6.00% 5/15/17 |
| 25,000 |
| 24,278 |
| ||
| WellPoint |
|
|
|
|
| ||
| 4.25% 12/15/09 |
| 25,000 |
| 24,230 |
| ||
| 5.875% 6/15/17 |
| 40,000 |
| 39,583 |
| ||
· | XL Capital 6.50% 12/31/49 |
| 15,000 |
| 14,113 |
| ||
|
|
|
|
| 394,949 |
| ||
| Natural Gas–0.99% |
|
|
|
|
| ||
| Enbridge 5.80% 6/15/14 |
| 5,000 |
| 4,966 |
| ||
| Enterprise Products Operating |
|
|
|
|
| ||
| 4.00% 10/15/07 |
| 50,000 |
| 49,796 |
| ||
| 4.625% 10/15/09 |
| 40,000 |
| 39,198 |
| ||
| Inergy Finance 6.875% 12/15/14 |
| 5,000 |
| 4,763 |
| ||
| ONEOK 5.51% 2/16/08 |
| 25,000 |
| 25,003 |
| ||
· | Sempra Energy 5.83% 5/21/08 |
| 50,000 |
| 50,025 |
| ||
| Southern Union 6.15% 8/16/08 |
| 50,000 |
| 50,254 |
| ||
| Valero Energy 6.625% 6/15/37 |
| 10,000 |
| 9,986 |
| ||
| Valero Logistics Operations 6.05% 3/15/13 |
| 80,000 |
| 80,065 |
| ||
|
|
|
|
| 314,056 |
| ||
| Real Estate–0.57% |
|
|
|
|
| ||
| BF Saul REIT 7.50% 3/1/14 |
| 5,000 |
| 5,044 |
| ||
* | Developers Diversified Realty 4.625% 8/1/10 |
| 50,000 |
| 48,555 |
| ||
| HRPT Properties Trust 6.25% 6/15/17 |
| 15,000 |
| 15,142 |
| ||
| Regency Centers 5.875% 6/15/17 |
| 15,000 |
| 14,778 |
| ||
·# | USB Realty 144A 6.091% 12/22/49 |
| 100,000 |
| 98,191 |
| ||
|
|
|
|
| 181,710 |
| ||
| Technology–0.01% |
|
|
|
|
| ||
*# | Freescale Semiconductor 144A 10.125% 12/15/16 |
| 5,000 |
| 4,725 |
| ||
|
|
|
|
| 4,725 |
| ||
| Transportation–0.51% |
|
|
|
|
| ||
* | American Airlines 3.857% 7/9/10 |
| 39,104 |
| 37,491 |
| ||
| Continental Airlines 6.503% 6/15/11 |
| 50,000 |
| 50,187 |
| ||
| Delta Air Lines 7.57% 11/18/10 |
| 15,000 |
| 15,575 |
| ||
# | Erac USA Finance 144A 7.35% 6/15/08 |
| 40,000 |
| 40,556 |
| ||
| Hertz 8.875% 1/1/14 |
| 10,000 |
| 10,475 |
| ||
¶ | H-Lines Finance Holdings 11.00% 4/1/13 |
| 5,000 |
| 4,925 |
| ||
| Horizon Lines 9.00% 11/1/12 |
| 1,000 |
| 1,063 |
| ||
| Kansas City Southern Railway 9.50% 10/1/08 |
| 1,000 |
| 1,040 |
| ||
|
|
|
|
| 161,312 |
| ||
| Total Corporate Bonds |
|
|
| 3,629,580 |
| ||
|
|
|
|
|
|
| ||
| FOREIGN AGENCIES–0.11% |
|
|
|
|
| ||
| Pemex Project Funding Master Trust 6.125% 8/15/08 |
| 35,000 |
| 35,298 |
| ||
| Total Foreign Agencies |
|
|
| 35,298 |
| ||
|
|
|
|
|
|
| ||
| MUNICIPAL BONDS–0.90% |
|
|
|
|
| ||
| Augusta, Georgia Water & Sewer Revenue 5.25% 10/1/39 (FSA) |
| 55,000 |
| 57,751 |
| ||
| California State 5.00% 2/1/33 |
| 20,000 |
| 20,330 |
| ||
| California State University Systemwide Revenue 5.00% 11/1/30 (AMBAC) |
| 20,000 |
| 20,660 |
| ||
| Illinois State Taxable Pension 5.10% 6/1/33 |
| 30,000 |
| 27,357 |
| ||
| New Jersey Economic Development Authority Revenue Cigarette Tax 5.75% 6/15/29 |
| 40,000 |
| 42,610 |
| ||
| New York State Urban Development Series A-1 5.25% 3/15/34 (FGIC) |
| 35,000 |
| 36,797 |
| ||
| Oregon State Taxable Pension 5.892% 6/1/27 |
| 35,000 |
| 35,504 |
| ||
| West Virginia Economic Development Authority 5.37% 7/1/20 (MBIA) |
| 15,000 |
| 14,606 |
| ||
| West Virginia Tobacco Settlement Finance Authority 7.467% 6/1/47 |
| 30,000 |
| 30,621 |
| ||
| Total Municipal Bonds |
|
|
| 286,236 |
| ||
|
|
|
|
|
|
| ||
| NON-AGENCY ASSET-BACKED SECURITIES–2.76% |
|
|
|
|
| ||
· | Bank of America Credit Card Trust Series 2006-A10 A10 5.30% 2/15/12 |
| 380,000 |
| 379,838 |
| ||
| Countrywide Asset-Backed Certificates |
|
|
|
|
| ||
| Series 2004-S1 A2 3.872% 3/25/20 |
| 9,931 |
| 9,769 |
| ||
| ·Series 2006-3 2A2 5.50% 6/25/36 |
| 35,000 |
| 35,033 |
| ||
| Series 2006-S3 A2 6.085% 6/25/21 |
| 40,000 |
| 40,098 |
| ||
| ·Series 2006-S6 A2 5.519% 3/25/34 |
| 40,000 |
| 39,802 |
| ||
| ·Series 2006-S7 A3 5.712% 11/25/35 |
| 25,000 |
| 24,747 |
| ||
| ·Series 2006-S9 A3 5.728% 8/25/36 |
| 35,000 |
| 34,453 |
| ||
· | GMAC Mortgage Loan Trust Series 2006-HE3 A2 5.75% 10/25/36 |
| 25,000 |
| 24,950 |
| ||
| GSAMP Trust Series 2006-S3 A1 6.085% 5/25/36 |
| 10,964 |
| 10,889 |
| ||
·# | MASTR Specialized Loan Trust Series 2005-2 A2 144A 5.006% 7/25/35 |
| 22,876 |
| 22,173 |
| ||
· | Merrill Lynch Mortgage Investors Series 2006-AR1 A2C 5.48% 3/25/37 |
| 25,000 |
| 24,989 |
| ||
| Mid-State Trust |
|
|
|
|
| ||
| *Series 11 A1 4.864% 7/15/38 |
| 17,952 |
| 16,771 |
| ||
| Series 2004-1 A 6.005% 8/15/37 |
| 9,431 |
| 9,417 |
| ||
| #Series 2006-1 A 144A 5.787% 10/15/40 |
| 22,483 |
| 21,907 |
| ||
· | Option One Mortgage Loan Trust Series 2005-4 A3 5.58% 11/25/35 |
| 30,000 |
| 30,062 |
| ||
| Renaissance Home Equity Loan Trust |
|
|
|
|
| ||
| Series 2005-4 A2 5.399% 2/25/36 |
| 32,640 |
| 32,525 |
| ||
| Series 2007-2 AF2 5.675% 6/25/37 |
| 25,000 |
| 25,000 |
| ||
7
|
| Principal |
| Value |
| |||
|
| (U.S. $) |
| (U.S. $) |
| |||
| NON-AGENCY ASSET-BACKED SECURITIES (continued) |
|
|
|
|
| ||
| Residential Asset Securities Series 2003-KS9 AI6 4.71% 11/25/33 |
| $ | 23,021 |
| $ | 22,334 |
|
| Structured Asset Securities |
|
|
|
|
| ||
| Series 2001-SB1 A2 3.375% 8/25/31 |
| 29,741 |
| 26,648 |
| ||
| Series 2004-16XS A2 4.91% 8/25/34 |
| 7,705 |
| 7,677 |
| ||
| Triad Auto Receivables Owner Trust Series 2006-C A4 5.31% 5/13/13 |
| 40,000 |
| 39,829 |
| ||
| Total Non-Agency Asset-Backed Securities |
|
|
| 878,911 |
| ||
|
|
|
|
|
|
| ||
| NON-AGENCY COLLATERALIZED MORTGAGE OBLIGATIONS–8.60% |
|
|
|
|
| ||
| American Home Mortgage Investment Trust Series 2005-2 5A1 5.064% 9/25/35 |
| 35,000 |
| 33,779 |
| ||
| Bank of America Alternative Loan Trust |
|
|
|
|
| ||
| Series 2003-10 2A1 6.00% 12/25/33 |
| 61,213 |
| 60,381 |
| ||
| Series 2004-2 1A1 6.00% 3/25/34 |
| 34,597 |
| 34,073 |
| ||
| Series 2005-3 2A1 5.50% 4/25/20 |
| 35,058 |
| 34,400 |
| ||
| Series 2005-5 2CB1 6.00% 6/25/35 |
| 36,657 |
| 36,136 |
| ||
| Series 2005-9 5A1 5.50% 10/25/20 |
| 23,704 |
| 23,230 |
| ||
· | Bank of America Funding Securities Series 2006-F 1A2 5.173% 7/20/36 |
| 43,560 |
| 43,101 |
| ||
| Bank of America Mortgage Securities |
|
|
|
|
| ||
| ·Series 2003-D 1A2 7.289% 5/25/33 |
| 331 |
| 334 |
| ||
| Series 2005-9 2A1 4.75% 10/25/20 |
| 39,198 |
| 38,060 |
| ||
· | Bear Stearns Alternative A Trust |
|
|
|
|
| ||
| Series 2006-3 33A1 6.162% 5/25/36 |
| 42,736 |
| 42,855 |
| ||
| Series 2006-3 34A1 6.155% 5/25/36 |
| 44,903 |
| 45,026 |
| ||
| Chase Mortgage Finance Series 2003-S8 A2 5.00% 9/25/18 |
| 74,354 |
| 71,925 |
| ||
| Countrywide Alternative Loan Trust |
| 17,012 |
| 16,775 |
| ||
| Series 2004-28CB 6A1 6.00% 1/25/35 |
|
|
|
|
| ||
| ·Series 2004-J7 1A2 4.673% 8/25/34 |
| 12,276 |
| 12,190 |
| ||
| ·Series 2005-63 3A1 5.894% 11/25/35 |
| 46,064 |
| 45,915 |
| ||
| Series 2006-2CB A3 5.50% 3/25/36 |
| 35,436 |
| 35,178 |
| ||
u | Countrywide Home Loan Mortgage Pass Through Trust |
|
|
|
|
| ||
| ·Series 2004-12 1M 4.894% 8/25/34 |
| 30,867 |
| 30,689 |
| ||
| Series 2005-23 A1 5.50% 11/25/35 |
| 21,185 |
| 20,261 |
| ||
| *Series 2005-29 A1 5.75% 12/25/35 |
| 51,624 |
| 50,034 |
| ||
| Series 2006-1 A2 6.00% 3/25/36 |
| 36,384 |
| 35,707 |
| ||
| Series 2006-17 A5 6.00% 12/25/36 |
| 23,712 |
| 23,586 |
| ||
| ·Series 2006-HYB3 3A1A 6.097% 5/20/36 |
| 45,749 |
| 46,005 |
| ||
| ·Series 2006-HYB4 1A2 5.646% 6/20/36 |
| 30,245 |
| 30,387 |
| ||
| Credit Suisse First Boston Mortgage Securities |
|
|
|
|
| ||
| Series 2003-29 5A1 7.00% 12/25/33 |
| 11,840 |
| 12,066 |
| ||
| Series 2004-1 3A1 7.00% 2/25/34 |
| 8,526 |
| 8,689 |
| ||
| First Horizon Asset Securities |
|
|
|
|
| ||
| Series 2003-5 1A17 8.00% 7/25/33 |
| 15,897 |
| 16,565 |
| ||
| ·Series 2004-AR5 4A1 5.708% 10/25/34 |
| 31,806 |
| 31,585 |
| ||
| ·Series 2007-AR2 1A1 5.865% 8/25/37 |
| 20,000 |
| 19,975 |
| ||
· | GMAC Mortgage Loan Trust Series 2005-AR2 4A 5.188% 5/25/35 |
| 38,228 |
| 37,452 |
| ||
# | GSMPS Mortgage Loan Trust 144A |
|
|
|
|
| ||
| Series 1998-3 A 7.75% 9/19/27 |
| 28,685 |
| 29,881 |
| ||
| Series 2005-RP1 1A3 8.00% 1/25/35 |
| 21,721 |
| 22,815 |
| ||
| Series 2005-RP1 1A4 8.50% 1/25/35 |
| 12,305 |
| 13,042 |
| ||
| GSR Mortgage Loan Trust |
|
|
|
|
| ||
| Series 2006-1F 5A2 6.00% 2/25/36 |
| 38,367 |
| 37,450 |
| ||
· | Indymac Index Mortgage Loan Trust |
|
|
|
|
| ||
| Series 2005-AR25 1A21 5.853% 12/25/35 |
| 37,860 |
| 37,706 |
| ||
| Series 2006-AR2 1A1A 5.54% 4/25/46 |
| 47,185 |
| 47,217 |
| ||
· | JPMorgan Mortgage Trust |
|
|
|
|
| ||
| Series 2005-A1 4A1 4.778% 2/25/35 |
| 40,542 |
| 39,431 |
| ||
| Series 2005-A4 1A1 5.399% 7/25/35 |
| 47,615 |
| 46,924 |
| ||
| Series 2005-A6 1A2 5.14% 9/25/35 |
| 60,000 |
| 58,098 |
| ||
| Lehman Mortgage Trust |
|
|
|
|
| ||
| Series 2005-2 2A3 5.50% 12/25/35 |
| 36,195 |
| 36,006 |
| ||
| Series 2006-1 3A3 5.50% 2/25/36 |
| 38,836 |
| 38,423 |
| ||
· | MASTR Adjustable Rate Mortgages Trust |
|
|
|
|
| ||
| Series 2003-6 1A2 5.89% 12/25/33 |
| 16,781 |
| 17,052 |
| ||
| Series 2005-1 B1 5.409% 3/25/35 |
| 39,452 |
| 39,075 |
| ||
| Series 2005-6 7A1 5.339% 6/25/35 |
| 28,354 |
| 27,924 |
| ||
| MASTR Alternative Loans Trust |
|
|
|
|
| ||
| Series 2003-6 3A1 8.00% 9/25/33 |
| 6,204 |
| 6,329 |
| ||
| Series 2005-3 7A1 6.00% 4/25/35 |
| 41,207 |
| 40,621 |
| ||
# | MASTR Reperforming Loan Trust 144A |
|
|
|
|
| ||
| Series 2005-1 1A5 8.00% 8/25/34 |
| 34,542 |
| 36,228 |
| ||
| Series 2005-2 1A4 8.00% 5/25/35 |
| 14,991 |
| 15,796 |
| ||
| Morgan Stanley Mortgage Loan Trust Series 2006-2 6A 6.50% 2/25/36 |
| 21,659 |
| 21,777 |
| ||
| Nomura Asset Acceptance |
|
|
|
|
| ||
| Series 2005-WF1 2A2 4.786% 3/25/35 |
| 65,000 |
| 63,447 |
| ||
| ·Series 2006-AF1 1A2 6.159% 5/25/36 |
| 60,000 |
| 60,447 |
| ||
| Prime Mortgage Trust Series 2004-CL1 1A1 6.00% 2/25/34 |
| 16,689 |
| 16,509 |
| ||
| Residential Asset Mortgage Products |
|
|
|
|
| ||
| Series 2004-SL1 A3 7.00% 11/25/31 |
| 10,064 |
| 10,198 |
| ||
| Series 2004-SL4 A3 6.50% 7/25/32 |
| 25,232 |
| 25,554 |
| ||
| Series 2005-SL1 A2 6.00% 5/25/32 |
| 28,313 |
| 28,446 |
| ||
· | Residential Funding Mortgage Securities I Series 2006-SA3 3A1 6.044% 9/25/36 |
| 40,938 |
| 41,035 |
| ||
· | Structured Adjustable Rate Mortgage Loan Trust |
|
|
|
|
| ||
| Series 2004-18 5A 5.50% 12/25/34 |
| 35,131 |
| 34,765 |
| ||
| Series 2005-3XS A2 5.57% 1/25/35 |
| 12,189 |
| 12,194 |
| ||
| Series 2006-5 5A4 5.56% 6/25/36 |
| 27,786 |
| 27,406 |
| ||
| Structured Asset Securities |
|
|
|
|
| ||
| ·Series 2002-22H 1A 6.951% 11/25/32 |
| 10,349 |
| 10,456 |
| ||
| Series 2004-12H 1A 6.00% 5/25/34 |
| 35,743 |
| 35,190 |
| ||
8
|
| Principal |
| Value |
| |||
NON-AGENCY COLLATERALIZED MORTGAGE OBLIGATIONS (continued) |
|
|
|
|
| |||
u | Washington Mutual Alternative Mortgage Pass Through Certificates |
|
|
|
|
| ||
| Series 2005-9 3CB 5.50% 10/25/20 |
| $ | 49,183 |
| $ | 48,719 |
|
| Series 2006-2 2CB 6.50% 3/25/36 |
| 30,863 |
| 31,022 |
| ||
| Series 2006-5 2CB3 6.00% 7/25/36 |
| 44,211 |
| 44,506 |
| ||
| ·Series 2006-AR5 3A 5.969% 7/25/46 |
| 26,055 |
| 26,074 |
| ||
·u | Washington Mutual Mortgage Pass Through Certificates |
|
|
|
|
| ||
| Series 2006-AR7 1A 6.009% 7/25/46 |
| 20,910 |
| 20,910 |
| ||
| Series 2006-AR8 2A3 6.139% 8/25/36 |
| 18,504 |
| 18,587 |
| ||
| Series 2006-AR10 1A1 5.953% 9/25/36 |
| 39,769 |
| 39,732 |
| ||
| Series 2006-AR14 1A4 5.651% 11/25/36 |
| 29,430 |
| 29,346 |
| ||
| Wells Fargo Mortgage Backed Securities Trust |
|
|
|
|
| ||
| ·Series 2004-T A1 5.026% 9/25/34 |
| 21,118 |
| 21,278 |
| ||
| Series 2005-11 1A3 5.50% 11/25/35 |
| 91,936 |
| 87,726 |
| ||
| Series 2005-14 2A1 5.50% 12/25/35 |
| 64,460 |
| 61,650 |
| ||
| Series 2005-17 1A1 5.50% 1/25/36 |
| 50,968 |
| 48,683 |
| ||
| Series 2006-7 2A1 6.00% 6/25/36 |
| 80,049 |
| 78,536 |
| ||
| ·Series 2006-AR4 1A1 5.862% 4/25/36 |
| 66,606 |
| 66,396 |
| ||
| ·Series 2006-AR4 2A1 5.777% 4/25/36 |
| 94,821 |
| 94,311 |
| ||
| ·Series 2006-AR6 7A1 5.111% 3/25/36 |
| 75,101 |
| 73,402 |
| ||
| ·Series 2006-AR10 5A1 5.60% 7/25/36 |
| 37,866 |
| 37,653 |
| ||
| Total Non-Agency Collateralized Mortgage Obligations |
|
|
| 2,742,332 |
| ||
|
|
|
|
|
|
| ||
| U.S. TREASURY OBLIGATIONS–3.63% |
|
|
|
|
| ||
* | U.S. Treasury Bonds 4.50% 2/15/36 |
| 460,000 |
| 416,659 |
| ||
| U.S. Treasury Inflation Index Notes |
|
|
|
|
| ||
| ° 2.00% 1/15/14 |
| 50,337 |
| 48,390 |
| ||
| *2.00% 1/15/26 |
| 52,068 |
| 47,179 |
| ||
| *2.375% 1/15/17 |
| 163,984 |
| 160,153 |
| ||
| *3.625% 1/15/08 |
| 25,587 |
| 25,611 |
| ||
| U.S. Treasury Notes |
|
|
|
|
| ||
| *4.50% 5/15/10 |
| 40,000 |
| 39,594 |
| ||
| *4.50% 5/15/17 |
| 315,000 |
| 302,105 |
| ||
| 4.875% 6/30/09 |
| 9,000 |
| 9,002 |
| ||
| 4.875% 6/30/12 |
| 24,000 |
| 23,942 |
| ||
*^ | U.S. Treasury Strip 4.293% 11/15/13 |
| 115,000 |
| 84,120 |
| ||
| Total U.S. Treasury Obligations |
|
|
| 1,156,755 |
| ||
|
|
|
|
|
|
| ||
^ | DISCOUNT NOTE–3.07% |
|
|
|
|
| ||
| Federal Home Loan Bank 4.802% 7/2/07 |
| 978,000 |
| 977,870 |
| ||
| Total Discount Note |
|
|
| 977,870 |
| ||
|
|
|
|
|
|
| ||
| Total Value of Securities Before Securities Lending Collateral–105.41% |
|
|
| 33,604,195 |
| ||
|
|
|
|
|
|
| ||
| SECURITIES LENDING COLLATERAL**–6.69% |
|
|
|
|
| ||
| Short-Term Investments–6.69% |
|
|
|
|
| ||
| Fixed Rate Notes–2.56% |
|
|
|
|
| ||
| Abbey National 5.31% 7/2/07 |
| 83,931 |
| 83,931 |
| ||
| American Express Centurion 5.32% 7/30/07 |
| 74,938 |
| 74,938 |
| ||
| BNP Paribas 5.37% 7/2/07 |
| 33,972 |
| 33,972 |
| ||
| Credit Agricole 5.31% 10/4/07 |
| 49,959 |
| 49,959 |
| ||
| Den Danske Bank 5.38% 7/2/07 |
| 83,931 |
| 83,931 |
| ||
| Fortis Bank 5.30% 7/23/07 |
| 44,962 |
| 44,962 |
| ||
| HBOS Treasury Services 5.42% 7/2/07 |
| 83,931 |
| 83,931 |
| ||
| ING Bank |
|
|
|
|
| ||
| 5.31% 7/3/07 |
| 29,975 |
| 29,975 |
| ||
| 5.33% 7/9/07 |
| 49,959 |
| 49,959 |
| ||
| M&T 5.34% 7/2/07 |
| 83,931 |
| 83,931 |
| ||
| Royal Bank of Canada 5.31% 7/23/07 |
| 74,938 |
| 74,938 |
| ||
| Societe Generale 5.33% 7/2/07 |
| 38,907 |
| 38,907 |
| ||
| Union Bank of Switzerland 5.33% 7/2/07 |
| 83,931 |
| 83,931 |
| ||
|
|
|
|
| 817,265 |
| ||
· | Variable Rate Notes–4.13% |
|
|
|
|
| ||
| ANZ National 5.32% 7/29/08 |
| 9,992 |
| 9,992 |
| ||
| Australia New Zealand 5.34% 7/29/08 |
| 49,959 |
| 49,959 |
| ||
| Bank of New York 5.32% 7/29/08 |
| 39,967 |
| 39,967 |
| ||
| Bayerische Landesbank 5.37% 7/29/08 |
| 49,959 |
| 49,959 |
| ||
| Bear Stearns 5.38% 12/28/07 |
| 69,942 |
| 69,942 |
| ||
| BNP Paribas 5.33% 7/29/08 |
| 49,959 |
| 49,959 |
| ||
| Calyon 5.33% 8/14/07 |
| 24,979 |
| 24,979 |
| ||
| Canadian Imperial Bank |
|
|
|
|
| ||
| 5.32% 7/29/08 |
| 34,971 |
| 34,971 |
| ||
| 5.33% 8/15/07 |
| 48,959 |
| 48,959 |
| ||
| CDC Financial Products 5.43% 7/27/07 |
| 64,946 |
| 64,946 |
| ||
| Citigroup Global Markets 5.45% 7/6/07 |
| 64,946 |
| 64,946 |
| ||
| Commonwealth Bank 5.32% 7/29/08 |
| 49,959 |
| 49,959 |
| ||
| Credit Suisse First Boston 5.32% 3/14/08 |
| 49,959 |
| 49,959 |
| ||
| Deutsche Bank |
|
|
|
|
| ||
| 5.34% 8/20/07 |
| 69,942 |
| 69,942 |
| ||
| 5.34% 9/21/07 |
| 7,494 |
| 7,494 |
| ||
| Dexia Bank 5.32% 9/28/07 |
| 69,942 |
| 69,939 |
| ||
| Goldman Sachs Group 5.52% 6/27/08 |
| 58,951 |
| 58,951 |
| ||
| Marshall & Ilsley Bank 5.32% 7/29/08 |
| 54,955 |
| 54,955 |
| ||
| Morgan Stanley 5.56% 7/29/08 |
| 64,946 |
| 64,946 |
| ||
| National Australia Bank 5.31% 7/29/08 |
| 61,949 |
| 61,949 |
| ||
| National Rural Utilities 5.33% 7/29/08 |
| 78,935 |
| 78,935 |
| ||
| Nordea Bank 5.33% 7/29/08 |
| 49,959 |
| 49,959 |
| ||
| Royal Bank of Scotland Group 5.33% 7/29/08 |
| 49,959 |
| 49,959 |
| ||
| Societe Generale 5.31% 7/29/08 |
| 24,979 |
| 24,979 |
| ||
| Sun Trust Bank 5.33% 7/30/07 |
| 64,946 |
| 64,946 |
| ||
| Wells Fargo 5.33% 7/29/08 |
| 49,959 |
| 49,959 |
| ||
|
|
|
|
| 1,315,410 |
| ||
| Total Securities Lending Collateral |
|
|
| 2,132,675 |
| ||
9
TOTAL VALUE OF SECURITIES–112.10% (cost $31,329,400) |
| $ | 35,736,870 | v |
OBLIGATION TO RETURN SECURITIES LENDING COLLATERAL**–(6.69%) |
| (2,132,675 | ) | |
LIABILITIES NET OF RECEIVABLES AND OTHER ASSETS–(5.41%)z |
| (1,725,119 | ) | |
NET ASSETS APPLICABLE TO 2,061,485 SHARES OUTSTANDING–100.00% |
| $ | 31,879,076 |
|
NET ASSET VALUE-DELAWARE VIP BALANCED SERIES STANDARD CLASS ($31,872,892 / 2,061,085 Shares) |
| $ | 15.46 |
|
NET ASSET VALUE-DELAWARE VIP BALANCED SERIES SERVICE CLASS |
| $ | 15.45 |
|
COMPONENTS OF NET ASSETS AT JUNE 30, 2007: |
|
|
| |
Shares of beneficial interest (unlimited authorization–no par) |
| $ | 46,240,896 |
|
Undistributed net investment income |
| 498,723 |
| |
Accumulated net realized loss on investments |
| (19,266,989 | ) | |
Net unrealized appreciation of investments |
| 4,406,446 |
| |
Total net assets |
| $ | 31,879,076 |
|
* | Fully or partially on loan. |
** | See Note 10 in “Notes to Financial Statements.” |
v | Includes $2,316,124 of securities loaned. |
† | Non-income producing security for the period ended June 30, 2007. |
· | Variable rate security. The rate shown is the rate as of June 30, 2007. |
u | Pass Through Agreement. Security represents the contractual right to receive a proportionate amount of underlying payments due to the counterparty pursuant to various agreements related to the rescheduling of obligations and the exchange of certain notes. |
^ | Zero coupon security. The rate shown is the yield at the time of purchase. |
‡ | Non-income producing security. Security is currently in default. |
¶ | Step coupon bond. Indicates security that has a zero coupon that remains in effect until a predetermined date at which time the stated interest rate becomes effective. |
o | Fully or partially pledged as collateral for financial futures contracts. |
# | Security exempt from registration under Rule 144A of the Securities Act of 1933, as amended. At June 30, 2007, the aggregate amount of Rule 144A securities equaled $1,115,365, which represented 3.50% of the Series’ net assets. See Note 11 in “Notes to Financial Statements.” |
z | Of this amount, $2,522,012 represents payable for securities purchased as of June 30, 2007. |
Summary of Abbreviations:
AMBAC – Insured by the AMBAC Assurance Corporation
ARM – Adjustable Rate Mortgage
CDS – Credit Default Swap
FGIC – Insured by the Financial Guaranty Insurance Company
FSA – Insured by Financial Security Assurance
GNMA – Government National Mortgage Association
GSMPS – Goldman Sachs Reperforming Mortgage Securities
MBIA – Insured by the Municipal Bond Insurance Association
REIT – Real Estate Investment Trust
S.F. – Single Family
TBA – To be announced
yr – Year
The following futures contracts and swap contracts were outstanding at June 30, 2007:
Futures Contracts(1)
Contracts |
| Notional |
| Notional |
| Expiration Date |
| Unrealized |
| |||
7 U.S. Treasury 5 year Notes |
| $ | 726,160 |
| $ | 728,547 |
| 9/30/07 |
| $ | 2,387 |
|
(7) U.S. Treasury 10 year Notes |
| (745,426 | ) | (739,922 | ) | 9/30/07 |
| 5,504 |
| |||
|
|
|
|
|
|
|
| $ | 7,891 |
| ||
10
Swap Contracts(2)
Index Swap
Notional Amount |
| Expiration Date |
| Description |
| Unrealized |
| ||
$ | 355,000 |
| 8/1/07 |
| Agreement with Goldman Sachs to receive the notional amount multiplied by the return on the Lehman Brothers Commercial MBS Index AAA and to pay the notional amount multiplied by the 3 month BBA LIBOR adjusted by a spread of minus 0.05%. |
| $ | 296 |
|
Interest Rate Swap
Notional Amount |
| Expiration Date |
| Description |
| Unrealized |
| ||
$ | 415,000 |
| 5/2/12 |
| Agreement with Goldman Sachs to receive the notional amount multiplied by the fixed rate of 5.36% and to pay the notional amount multiplied by the 3 month LIBOR. |
| $ | (8,641 | ) |
Credit Default Swap Contracts
Swap Counterparty & |
| Notional |
| Annual Protection |
| Termination |
| Unrealized |
| ||
Protection Purchased: |
|
|
|
|
|
|
|
|
| ||
Gannet 7 yr CDS |
| $ | 30,000 |
| 0.88 | % | 9/20/14 |
| $ | (166 | ) |
New York Times 7 yr CDS |
| 30,000 |
| 0.75 | % | 9/20/14 |
| (151 | ) | ||
Sara Lee 7 yr CDS |
| 30,000 |
| 0.60 | % | 9/20/14 |
| 10 |
| ||
|
|
|
|
|
|
|
| $ | (307 | ) | |
The use of futures contracts and swap contracts involves elements of market risk and risks in excess of the amount recognized in the financial statements. The notional amounts presented above represent the Series’ total exposure in such contracts, whereas only the net unrealized appreciation (depreciation) is reflected in the Series’ net assets.
(1)See Note 8 in “Notes to Financial Statements.”
(2)See Note 9 in “Notes to Financial Statements.”
See accompanying notes
11
Delaware VIP Trust —
Delaware VIP Balanced Series
Statement of Operations
Six Months Ended June 30, 2007 (Unaudited)
INVESTMENT INCOME: |
|
|
| |
Interest |
| $ | 362,783 |
|
Dividends |
| 268,402 |
| |
Securities lending income |
| 2,144 |
| |
|
| 633,329 |
| |
EXPENSES: |
|
|
| |
Management fees |
| 109,436 |
| |
Reports and statements to shareholders |
| 7,066 |
| |
Audit and tax |
| 7,048 |
| |
Accounting and administration expenses |
| 6,734 |
| |
Pricing fees |
| 3,909 |
| |
Legal fees |
| 3,051 |
| |
Custodian fees |
| 2,945 |
| |
Dividend disbursing and transfer agent fees and expenses |
| 1,684 |
| |
Trustees’ fees and benefits |
| 844 |
| |
Insurance fees |
| 413 |
| |
Consulting fees |
| 290 |
| |
Taxes (other than taxes on income) |
| 159 |
| |
Dues and services |
| 77 |
| |
Trustees’ expenses |
| 53 |
| |
Registration fees |
| 30 |
| |
Distribution expenses – Service Class |
| 9 |
| |
|
| 143,748 |
| |
Less expenses absorbed or waived |
| (6,971 | ) | |
Less waiver of distribution expenses – Service Class |
| (2 | ) | |
Less expense paid indirectly |
| (151 | ) | |
Total operating expenses |
| 136,624 |
| |
|
|
|
| |
NET INVESTMENT INCOME |
| 496,705 |
| |
|
|
|
| |
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS: |
|
|
| |
Net realized gain (loss) on: |
|
|
| |
Investments |
| 608,187 |
| |
Futures contracts |
| (1,882 | ) | |
Swap contracts |
| 2,675 |
| |
Net realized gain |
| 608,980 |
| |
Net change in unrealized appreciation/depreciation of investments |
| 464,191 |
| |
|
|
|
| |
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS |
| 1,073,171 |
| |
|
|
|
| |
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS |
| $ | 1,569,876 |
|
Delaware VIP Trust —
Delaware VIP Balanced Series
Statements of Changes in Net Assets
|
| Six Months |
| Year |
| ||
INCREASE IN NET ASSETS FROM OPERATIONS: |
|
|
|
|
| ||
Net investment income |
| $ | 496,705 |
| $ | 1,045,074 |
|
Net realized gain on investments |
| 608,980 |
| 1,186,084 |
| ||
Net change in unrealized appreciation/ depreciation of investments |
| 464,191 |
| 3,149,987 |
| ||
Net increase in net assets resulting from operations |
| 1,569,876 |
| 5,381,145 |
| ||
|
|
|
|
|
| ||
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM: |
|
|
|
|
| ||
Net investment income: |
|
|
|
|
| ||
Standard Class |
| (1,095,621 | ) | (1,122,023 | ) | ||
Service Class |
| (180 | ) | (144 | ) | ||
|
| (1,095,801 | ) | (1,122,167 | ) | ||
|
|
|
|
|
| ||
CAPITAL SHARE TRANSACTIONS: |
|
|
|
|
| ||
Proceeds from shares sold: |
|
|
|
|
| ||
Standard Class |
| 940,325 |
| 35,103,629 |
| ||
Net asset value of shares issued upon reinvestment of dividends and distributions: |
|
|
|
|
| ||
Standard Class |
| 1,095,621 |
| 1,122,023 |
| ||
Service Class |
| 180 |
| 144 |
| ||
|
| 2,036,126 |
| 36,225,796 |
| ||
Cost of shares repurchased: |
|
|
|
|
| ||
Standard Class |
| (6,263,578 | ) | (43,084,571 | ) | ||
Decrease in net assets derived from capital share transactions |
| (4,227,452 | ) | (6,858,775 | ) | ||
|
|
|
|
|
| ||
NET DECREASE IN NET ASSETS |
| (3,753,377 | ) | (2,599,797 | ) | ||
|
|
|
|
|
| ||
NET ASSETS: |
|
|
|
|
| ||
Beginning of period |
| 35,632,453 |
| 38,232,250 |
| ||
End of period (including undistributed net investment income of $498,723 and $1,093,355, respectively) |
| $ | 31,879,076 |
| $ | 35,632,453 |
|
See accompanying notes
12
Delaware VIP Trust — Delaware VIP Balanced Series
Financial Highlights
Selected data for each share of the Series outstanding throughout each period were as follows:
|
| Delaware VIP Balanced Series Standard Class |
| ||||||||||||||||
|
| Six Months |
|
|
|
|
|
|
|
|
|
|
| ||||||
|
| Ended |
| Year Ended |
| ||||||||||||||
|
| 6/30/07(1) |
| 12/31/06 |
| 12/31/05 |
| 12/31/04 |
| 12/31/03 |
| 12/31/02 |
| ||||||
|
| (Unaudited) |
|
|
|
|
|
|
|
|
|
|
| ||||||
Net asset value, beginning of period |
| $ | 15.260 |
| $ | 13.530 |
| $ | 13.360 |
| $ | 12.890 |
| $ | 11.170 |
| $ | 13.730 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Income (loss) from investment operations: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Net investment income(2) |
| 0.225 |
| 0.405 |
| 0.341 |
| 0.245 |
| 0.211 |
| 0.258 |
| ||||||
Net realized and unrealized gain (loss) on investments and foreign currencies |
| 0.472 |
| 1.739 |
| 0.135 |
| 0.493 |
| 1.872 |
| (2.430 | ) | ||||||
Total from investment operations |
| 0.697 |
| 2.144 |
| 0.476 |
| 0.738 |
| 2.083 |
| (2.172 | ) | ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Less dividends and distributions from: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Net investment income |
| (0.497 | ) | (0.414 | ) | (0.306 | ) | (0.268 | ) | (0.363 | ) | (0.388 | ) | ||||||
Total dividends and distributions |
| (0.497 | ) | (0.414 | ) | (0.306 | ) | (0.268 | ) | (0.363 | ) | (0.388 | ) | ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Net asset value, end of period |
| $ | 15.460 |
| $ | 15.260 |
| $ | 13.530 |
| $ | 13.360 |
| $ | 12.890 |
| $ | 11.170 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Total return(3) |
| 4.67 | % | 16.20 | % | 3.68 | % | 5.84 | % | 19.21 | % | (16.27 | )% | ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Ratios and supplemental data: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Net assets, end of period (000 omitted) |
| $ | 31,873 |
| $ | 35,626 |
| $ | 38,227 |
| $ | 45,407 |
| $ | 53,233 |
| $ | 54,789 |
|
Ratio of expenses to average net assets |
| 0.81 | % | 0.81 | % | 0.80 | % | 0.77 | % | 0.77 | % | 0.75 | % | ||||||
Ratio of expenses to average net assets prior to expense limitation and expenses paid indirectly |
| 0.85 | % | 0.84 | % | 0.85 | % | 0.77 | % | 0.77 | % | 0.76 | % | ||||||
Ratio of net investment income to average net assets |
| 2.95 | % | 2.88 | % | 2.57 | % | 1.91 | % | 1.80 | % | 2.10 | % | ||||||
Ratio of net investment income to average net assets prior to expense limitation and expenses paid indirectly |
| 2.91 | % | 2.85 | % | 2.52 | % | 1.91 | % | 1.80 | % | 2.09 | % | ||||||
Portfolio turnover |
| 120 | % | 131 | % | 200 | % | 247 | % | 231 | % | 303 | % |
(1) | Ratios and portfolio turnover have been annualized and total return has not been annualized. |
(2) | The average shares outstanding method has been applied for per share information. |
(3) | Total investment return is based on the change in net asset value of a share during the period and assumes reinvestment of dividends and distributions at net asset value. Total investment return reflects waivers and payment of fees by the manager, as applicable. Performance would have been lower had the expense limitation not been in effect. |
See accompanying notes
13
Selected data for each share of the Series outstanding throughout each period were as follows:
|
| Delaware VIP Balanced Series Service Class |
| ||||||||||||||||
|
| Six Months |
|
|
|
|
|
|
|
|
|
|
| ||||||
|
| Ended |
| Year Ended |
| ||||||||||||||
|
| 6/30/07(1) |
| 12/31/06 |
| 12/31/05 |
| 12/31/04 |
| 12/31/03 |
| 12/31/02 |
| ||||||
|
| (Unaudited) |
|
|
|
|
|
|
|
|
|
|
| ||||||
Net asset value, beginning of period |
| $ | 15.240 |
| $ | 13.520 |
| $ | 13.340 |
| $ | 12.880 |
| $ | 11.170 |
| $ | 13.720 |
|
|
|
| �� |
|
|
|
|
|
|
|
|
|
| ||||||
Income (loss) from investment operations: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Net investment income(2) |
| 0.206 |
| 0.371 |
| 0.310 |
| 0.214 |
| 0.186 |
| 0.238 |
| ||||||
Net realized and unrealized gain (loss) on investments and foreign currencies |
| 0.468 |
| 1.732 |
| 0.145 |
| 0.488 |
| 1.867 |
| (2.421 | ) | ||||||
Total from investment operations |
| 0.674 |
| 2.103 |
| 0.455 |
| 0.702 |
| 2.053 |
| (2.183 | ) | ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Less dividends and distributions from: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Net investment income |
| (0.464 | ) | (0.383 | ) | (0.275 | ) | (0.242 | ) | (0.343 | ) | (0.367 | ) | ||||||
Total dividends and distributions |
| (0.464 | ) | (0.383 | ) | (0.275 | ) | (0.242 | ) | (0.343 | ) | (0.367 | ) | ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Net asset value, end of period |
| $ | 15.450 |
| $ | 15.240 |
| $ | 13.520 |
| $ | 13.340 |
| $ | 12.880 |
| $ | 11.170 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Total return(3) |
| 4.51 | % | 15.88 | % | 3.51 | % | 5.55 | % | 18.90 | % | (16.40 | )% | ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Ratios and supplemental data: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Net assets, end of period (000 omitted) |
| $ | 6 |
| $ | 6 |
| $ | 5 |
| $ | 5 |
| $ | 5 |
| $ | 4 |
|
Ratio of expenses to average net assets |
| 1.06 | % | 1.06 | % | 1.05 | % | 1.02 | % | 0.99 | % | 0.90 | % | ||||||
Ratio of expenses to average net assets prior to expense limitation and expenses paid indirectly |
| 1.15 | % | 1.14 | % | 1.15 | % | 1.07 | % | 1.02 | % | 0.91 | % | ||||||
Ratio of net investment income to average net assets |
| 2.70 | % | 2.63 | % | 2.32 | % | 1.66 | % | 1.58 | % | 1.95 | % | ||||||
Ratio of net investment income to average net assets prior to expense limitation and expenses paid indirectly |
| 2.61 | % | 2.55 | % | 2.22 | % | 1.61 | % | 1.55 | % | 1.94 | % | ||||||
Portfolio turnover |
| 120 | % | 131 | % | 200 | % | 247 | % | 231 | % | 303 | % |
(1) | Ratios and portfolio turnover have been annualized and total return has not been annualized. |
(2) | The average shares outstanding method has been applied for per share information. |
(3) | Total investment return is based on the change in net asset value of a share during the period and assumes reinvestment of dividends and distributions at net asset value. Total investment return reflects waivers and payment of fees by the manager and distributor, as applicable. Performance would have been lower had the expense limitation not been in effect. |
See accompanying notes
14
Delaware VIP Trust — Delaware VIP Balanced Series
Notes to Financial Statements
June 30, 2007 (Unaudited)
Delaware VIP Trust (Trust) is organized as a Delaware statutory trust and offers 14 series: Delaware VIP Balanced Series, Delaware VIP Capital Reserves Series, Delaware VIP Cash Reserve Series, Delaware VIP Diversified Income Series, Delaware VIP Emerging Markets Series, Delaware VIP Growth Opportunities Series, Delaware VIP High Yield Series, Delaware VIP International Value Equity Series, Delaware VIP REIT Series, Delaware VIP Select Growth Series, Delaware VIP Small Cap Value Series, Delaware VIP Trend Series, Delaware VIP U.S. Growth Series and Delaware VIP Value Series. These financial statements and the related notes pertain to Delaware VIP Balanced Series (Series). The Trust is an open-end investment company. The Series is considered diversified under the Investment Company Act of 1940, as amended, and offers Standard Class and Service Class shares. The Standard Class shares do not carry a 12b-1 fee and the Service Class shares carry a 12b-1 fee. The shares of the Series are sold only to separate accounts of life insurance companies.
The investment objective of the Series is to seek a balance of capital appreciation, income and preservation of capital.
1. Significant Accounting Policies
The following accounting policies are in accordance with U.S. generally accepted accounting principles and are consistently followed by the Series.
Security Valuation—Equity securities, except those traded on the Nasdaq Stock Market, Inc. (Nasdaq), are valued at the last quoted sales price as of the time of the regular close of the New York Stock Exchange (NYSE) on the valuation date. Securities traded on the Nasdaq are valued in accordance with the Nasdaq Official Closing Price, which may not be the last sales price. If on a particular day an equity security does not trade, then the mean between the bid and asked prices will be used. U.S. government and agency securities are valued at the mean between the bid and asked prices. Other long-term debt securities are valued by an independent pricing service and such prices are believed to reflect the fair value of such securities. Short-term debt securities having less than 60 days to maturity are valued at amortized cost, which approximates market value. Securities lending collateral is valued at amortized cost, which approximates value. Futures contracts and options on futures contracts are valued at the daily quoted settlement prices. Exchange-traded options are valued at the last reported sale price or, if no sales are reported, at the mean between the last reported bid and asked prices. Swap contracts and other securities and assets for which market quotations are not readily available are valued at fair value as determined in good faith under the direction of the Series’ Board of Trustees. In determining whether market quotations are readily available or fair valuation will be used, various factors will be taken into consideration, such as market closures, or with respect to foreign securities, aftermarket trading, or significant events after local market trading (e.g., government actions or pronouncements, trading volume or volatility on markets, exchanges among dealers, or news events).
In September 2006, the Financial Accounting Standards Board (FASB) issued FASB Statement No. 157 “Fair Value Measurements” (Statement 157). Statement 157 establishes a framework for measuring fair value in generally accepted accounting principles, clarifies the definition of fair value within that framework, and expands disclosures about the use of fair value measurements. Statement 157 is intended to increase consistency and comparability among fair value estimates used in financial reporting. Statement 157 is effective for fiscal years beginning after November 15, 2007. Management does not expect the adoption of Statement 157 to have an impact on the amounts reported in the financial statements.
Federal Income Taxes—The Series intends to continue to qualify for federal income tax purposes as a regulated investment company and make the requisite distributions to shareholders. Accordingly, no provision for federal income taxes has been made in the financial statements.
Effective June 29, 2007, the Series adopted FASB Interpretation No. 48 “Accounting for Uncertainty in Income Taxes” (FIN 48). FIN 48 provides guidance for how uncertain tax positions should be recognized, measured, presented and disclosed in the financial statements. FIN 48 requires the evaluation of tax positions taken or expected to be taken in the course of preparing the Series’ tax returns to determine whether the tax positions are “more-likely-than-not” of being sustained by the applicable tax authority. Tax positions not deemed to meet the more-likely-than-not threshold are recorded as a tax benefit or expense in the current year. The adoption of FIN 48 did not result in the recording of any tax benefit or expense in the current period.
Class Accounting—Investment income, common expenses and realized and unrealized gain (loss) on investments are allocated to the classes of the Series on the basis of daily net assets of each class. Distribution expenses relating to a specific class are charged directly to that class.
Repurchase Agreements—The Series may invest in a pooled cash account along with members of the Delaware Investments® Family of Funds pursuant to an exemptive order issued by the Securities and Exchange Commission. The aggregate daily balance of the pooled cash account is invested in repurchase agreements secured by obligations of the U.S. government. The respective collateral is held by the Series’ custodian bank until the maturity of the respective repurchase agreements. Each repurchase agreement is at least 102% collateralized. However, in the event of default or bankruptcy by the counterparty to the agreement, realization of the collateral may be subject to legal proceedings.
Use of Estimates—The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
15
Other—Expenses directly attributable to the Series are charged directly to the Series. Other expenses common to various funds within the Delaware Investments® Family of Funds are generally allocated amongst such funds on the basis of average net assets. Management fees and some other expenses are paid monthly. Security transactions are recorded on the date the securities are purchased or sold (trade date) for financial reporting purposes. Costs used in calculating realized gains and losses on the sale of investment securities are those of the specific securities sold. Dividend income is recorded on the ex-dividend date and interest income is recorded on the accrual basis. Discounts and premiums are amortized to interest income over the lives of the respective securities. Realized gains (losses) on paydowns of mortgage- and asset-backed securities are classified as interest income.
The Series declares and pays dividends from net investment income and distributions from net realized gain on investments, if any, following the close of the fiscal year.
Subject to seeking best execution, the Series may direct certain security trades to brokers who have agreed to rebate a portion of the related brokerage commission to the Series in cash. There were no commission rebates during the six months ended June 30, 2007. In general, best execution refers to many factors, including the price paid or received for a security, the commission charged, the promptness and reliability of execution, the confidentiality and placement accorded the order, and other factors affecting the overall benefit obtained by the Series on the transaction.
The Series receives earnings credits from its custodian when positive cash balances are maintained, which are used to offset custody fees. The expense paid under this arrangement is included in custodian fees on the Statement of Operations with the corresponding expense offset shown as “expense paid indirectly.”
2. Investment Management, Administration Agreements and Other Transactions with Affiliates
In accordance with the terms of its investment management agreement, the Series pays Delaware Management Company (DMC), a series of Delaware Management Business Trust and the investment manager, an annual fee which is calculated daily at the rate of 0.65% on the first $500 million of average daily net assets of the Series, 0.60% on the next $500 million, 0.55% on the next $1.5 billion, and 0.50% on average daily net assets in excess of $2.5 billion.
Prior to May 1, 2007, DMC had contractually agreed to waive that portion, if any, of its management fee and reimburse the Series to the extent necessary to ensure that annual operating expenses, exclusive of taxes, interest, brokerage commissions, inverse floater program expenses, 12b-1 plan expenses, certain insurance costs and non-routine expenses or costs including, but not limited to, those relating to reorganizations, litigation, certain Trustee retirement plan expenses, conducting shareholder meetings, and liquidations, did not exceed 0.80% of average daily net assets of the Series through April 30, 2007.
Delaware Service Company, Inc. (DSC), an affiliate of DMC, provides accounting, administration, dividend disbursing and transfer agent services. The Series pays DSC a monthly fee computed at the annual rate of 0.04% of the Series’ average daily net assets for accounting and administrative services. The Series pays DSC a monthly fee based on average net assets for dividend disbursing and transfer agent services.
Pursuant to a distribution agreement and distribution plan, the Series pays Delaware Distributors, L.P. (DDLP), the distributor and an affiliate of DMC, an annual distribution and service fee not to exceed 0.30% of the average daily net assets of the Service Class shares. DDLP has contracted to waive distribution and service fees through April 30, 2008 in order to prevent distribution and service fees of the Service Class shares from exceeding 0.25% of average daily net assets. Standard Class shares pay no distribution and service expenses.
At June 30, 2007, the Series had liabilities payable to affiliates as follows:
Investment |
| Dividend Disbursing, |
| Distribution |
| Other |
| ||||
$ | 17,215 |
| $ | 1,325 |
| $ | 1 |
| $ | 16,162 |
|
* DMC, as part of its administrative services, pays operating expenses on behalf of the Series and is reimbursed on a periodic basis. Such expenses include items such as printing of shareholder reports, fees for audit, legal and tax services, custodian fees and trustees’ fees.
As provided in the investment management agreement, the Series bears the cost of certain legal and tax services, including internal legal and tax services provided to the Series by DMC and/or its affiliates’ employees. For the six months ended June 30, 2007, the Series was charged $757 for internal legal and tax services provided by DMC and/or its affiliates’ employees.
Trustees’ fees and benefits include expenses accrued by the Series for each Trustee’s retainer, per meeting fees and retirement benefits. Independent Trustees with over five years of uninterrupted service were eligible to participate in a retirement plan that provides for the payment of benefits upon retirement. The amount of the retirement benefit was determined based on factors set forth in the plan, including the number of years of service. On November 16, 2006, the Board of Trustees unanimously voted to terminate the retirement plan. Payments equal to the net present value of the earned benefits were made in 2007 to those independent Trustees so entitled. The retirement benefit payout for the Series was $4,392. Certain officers of DMC, DSC and DDLP are officers and/or Trustees of the Trust. These officers and Trustees are paid no compensation by the Series.
16
3. Investments
For the six months ended June 30, 2007, the Series made purchases and sales of investment securities other than short-term investments as follows:
Purchases other than U.S. government securities |
| $ | 15,908,714 |
|
Purchases of U.S. government securities |
| 4,299,340 |
| |
Sales other than U.S. government securities |
| 18,892,626 |
| |
Sales of U.S. government securities |
| 5,072,371 |
|
At June 30, 2007, the cost of investments for federal income tax purposes has been estimated since the final tax characteristics cannot be determined until fiscal year end. At June 30, 2007, the cost of investments and unrealized appreciation (depreciation) for the Series were as follows:
Cost of |
| Aggregate |
| Aggregate |
| Net Unrealized |
| ||||
$ | 31,385,355 |
| $ | 4,641,735 |
| $ | (290,220 | ) | $ | 4,351,515 |
|
4. Dividend and Distribution Information
Income and long-term capital gain distributions are determined in accordance with federal income tax regulations, which may differ from U.S. generally accepted accounting principles. Additionally, net short-term gains on sales of investment securities are treated as ordinary income for federal income tax purposes. The tax character of dividends and distributions paid during the six months ended June 30, 2007 and the year ended December 31, 2006 was as follows:
| Six Months |
| Year |
| |||
Ordinary income |
| $ | 1,095,801 |
| $ | 1,122,167 |
|
*Tax information for the six months ended June 30, 2007 is an estimate and the tax character of dividends and distributions may be redesignated at fiscal year end.
5. Components of Net Assets on a Tax Basis
The components of net assets are estimated since final tax characteristics cannot be determined until fiscal year end. As of June 30, 2007, the estimated components of net assets on a tax basis were as follows:
Shares of beneficial interest |
| $ | 46,240,896 |
|
Undistributed ordinary income |
| 489,640 |
| |
Capital loss carryforwards as of 12/31/06 |
| (19,827,058 | ) | |
Realized gains 1/1/07 – 6/30/07 |
| 623,787 |
| |
Unrealized appreciation of investments and swap contracts |
| 4,351,811 |
| |
Net assets |
| $ | 31,879,076 |
|
The differences between book basis and tax basis components of net assets are primarily attributable to tax deferral of losses on wash sales, mark-to-market of futures contracts, tax treatment of market discount and premium on debt instruments, interest accrual on defaulted bonds, and contingent payment debt instruments.
For financial reporting purposes, capital accounts are adjusted to reflect the tax character of permanent book/tax differences. Reclassifications are primarily due to tax treatment of gain (loss) on paydowns of mortgage- and asset-backed securities, contingent payment debt instruments, and market discount and premium on certain debt instruments. Results of operations and net assets were not affected by these reclassifications. For the six months ended June 30, 2007, the Series recorded an estimate of these differences since the final tax characteristics cannot be determined until fiscal year end:
Undistributed |
| Accumulated |
| ||
$ | 4,464 |
| $ | (4,464 | ) |
For federal income tax purposes, capital loss carryforwards may be carried forward and applied against future capital gains. Capital loss carryforwards remaining at December 31, 2006 will expire as follows: $1,748,728 expires in 2008; $8,028,969 expires in 2009; $9,576,012 expires in 2010; and $473,349 expires in 2011.
For the six months ended June 30, 2007, the Series had capital gains of $623,787, which may reduce the capital loss carryforwards.
17
6. Capital Shares
Transactions in capital shares were as follows:
| Six Months |
| Year |
| |
Shares sold: |
|
|
|
|
|
Standard Class |
| 60,937 |
| 2,599,584 |
|
|
|
|
|
|
|
Shares issued upon reinvestment of dividends and distributions: |
|
|
|
|
|
Standard Class |
| 72,993 |
| 82,019 |
|
Service Class |
| 12 |
| 10 |
|
|
| 133,942 |
| 2,681,613 |
|
|
|
|
|
|
|
Shares repurchased: |
|
|
|
|
|
Standard Class |
| (407,807 | ) | (3,171,452 | ) |
Net decrease |
| (273,865 | ) | (489,839 | ) |
7. Line of Credit
The Series, along with certain other funds in the Delaware Investments® Family of Funds (Participants), participates in a $225,000,000 revolving line of credit facility to be used for temporary or emergency purposes as an additional source of liquidity to fund redemptions of investor shares. The Participants are charged an annual commitment fee, which is allocated across the Participants on the basis of each Participant’s allocation of the entire facility. The Participants may borrow up to a maximum of one third of their net assets under the agreement. The Series had no amounts outstanding as of June 30, 2007, or at any time during the period then ended.
8. Futures Contracts
The Series may invest in financial futures contracts to hedge its existing portfolio securities against fluctuations in value caused by changes in prevailing market interest rates. Upon entering into a futures contract, the Series deposits cash or pledges U.S. government securities to a broker, equal to the minimum “initial margin” requirements of the exchange on which the contract is traded. Subsequent payments are received from the broker or paid to the broker each day, based on the daily fluctuation in the market value of the contract. These receipts or payments are known as “variation margin” and are recorded daily by the Series as unrealized gains or losses until the contracts are closed. When the contracts are closed, the Series records a realized gain or loss equal to the difference between the value of the contract at the time it was opened and the value at the time it was closed. Risks of entering into futures contracts include potential imperfect correlation between the futures contracts and the underlying securities and the possibility of an illiquid secondary market for these instruments. The unrealized gain (loss) is included in liabilities net of receivables and other assets on the Statement of Net Assets.
9. Swap Contracts
The Series may enter into interest rate swap contracts, index swap contracts and credit default swap (CDS) contracts in accordance with its investment objectives. The Series may use interest rate swaps to adjust the Series’ sensitivity to interest rates or to hedge against changes in interest rates. Index swaps may be used to gain exposure to markets that the Series invests in, such as the corporate bond market. The Series may also use index swaps as a substitute for future or options contracts if such contracts are not directly available to the Series on favorable terms. The Series may enter into CDS contracts in order to hedge against a credit event, to enhance total return or to gain exposure to certain securities or markets.
An interest rate swap involves payments received by the Series from another party based on a variable or floating interest rate, in return for making payments based on a fixed interest rate. An interest rate swap can also work in reverse with the Series receiving payments based on a fixed interest rate and making payments based on a variable or floating interest rate. Interest rate swaps may be used to adjust the Series’ sensitivity to interest rates or to hedge against changes in interest rates. Periodic payments on such contracts are accrued daily and recorded as unrealized appreciation/depreciation on swap contracts. Upon periodic payment/receipt or termination of the contract, such amounts are recorded as realized gains or losses on swap contracts.
Index swaps involve commitments to pay interest in exchange for a market-linked return based on a notional amount. To the extent the total return of the security, instrument or basket of instruments underlying the transaction exceeds the offsetting interest obligation, the Series will receive a payment from the counterparty. To the extent the total return of the security, instrument or basket of instruments underlying the transaction falls short of the offsetting interest obligation, the Series will make a payment to the counterparty. The change in value of swap contracts outstanding, if any, is recorded as unrealized appreciation or depreciation daily. A realized gain or loss is recorded on maturity or termination of the swap contract.
18
A CDS contract is a risk-transfer instrument through which one party (the “purchaser of protection”) transfers to another party (the “seller of protection”) the financial risk of a Credit Event (as defined in the CDS agreement), as it relates to a particular reference security or basket of securities (such as an index). In exchange for the protection offered by the seller of protection, the purchaser of protection agrees to pay the seller of protection a periodic amount at a stated rate that is applied to the notional amount of the CDS contract. In addition, an upfront payment may be made or received by the Series in connection with an unwinding or assignment of a CDS contract. Upon the occurrence of a Credit Event, the seller of protection would pay the par (or other agreed-upon) value of the referenced security (or basket of securities) to the counterparty.
During the six months ended June 30, 2007, the Series entered into CDS contracts as a purchaser of protection. Periodic payments on such contracts are accrued daily and recorded as unrealized losses on swap contracts. Upon payment, such amounts are recorded as realized losses on swap contracts. Upfront payments made or received in connection with CDS contracts are amortized over the expected life of the CDS contracts as realized losses (gains) on swap contracts. The change in value of CDS contracts is recorded as unrealized appreciation or depreciation daily. A realized gain or loss is recorded upon a Credit Event or the maturity or termination of the agreement. For the six months ended June 30, 2007, the Series did not enter into any CDS contracts as a seller of protection.
Credit default swaps may involve greater risks than if the Series had invested in the referenced obligation directly. Credit default swaps are subject to general market risk, liquidity risk, counterparty risk and credit risk. If the Series enters into a CDS contract as a purchaser of protection and no credit event occurs, its exposure is limited to the periodic payments previously made to the counterparty.
Because there is no organized market for swap contracts, the value of open swaps may differ from that which would be realized in the event the Series terminated its position in the agreement. Risks of entering into these agreements include the potential inability of the counterparty to meet the terms of the contracts. This type of risk is generally limited to the amount of favorable movements in the value of the underlying security, instrument, or basket of instruments, if any, at the day of default. Risks also arise from potential losses from adverse market movements and such losses could exceed the unrealized amounts shown above.
10. Securities Lending
The Series, along with other funds in the Delaware Investments® Family of Funds, may lend its securities pursuant to a security lending agreement (Lending Agreement) with JPMorgan Chase. Initial security loans made pursuant to the Lending Agreement are required to be secured by U.S. government obligations and/or cash collateral not less than 102% of the value of the securities issued in the United States. With respect to each loan, if the aggregate value of the collateral held on any business day is less than the aggregate value of the securities which are the subject of such loan, the borrower will be notified to provide additional collateral not less than the applicable collateral requirements. Cash collateral received is invested in fixed income securities, with a weighted average maturity not to exceed 90 days, rated in one of the top two tiers by Standard & Poor’s Ratings Group or Moody’s Investors Service, Inc. or repurchase agreements collateralized by such securities. However, in the event of default or bankruptcy by the lending agent, realization and/or retention of the collateral may be subject to legal proceedings. In the event the borrower fails to return loaned securities and the collateral received is insufficient to cover the value of the loaned securities and provided such collateral shortfall is not the result of investment losses, the lending agent has agreed to pay the amount of the shortfall to the Series, or at the discretion of the lending agent, replace the loaned securities. The Series continues to record dividends and interest on the securities loaned and is subject to change in value of the securities loaned that may occur during the term of the loan. The Series has the right under the Lending Agreement to recover the securities from the borrower on demand. With respect to security loans collateralized by U.S. Treasury obligations the Series receives a fee from the securities lending agent. With respect to security loans collateralized by cash collateral, the earnings from the collateral investments are shared among the Series, the security lending agent and the borrower. The Series records securities lending income net of allocations to the security lending agent and the borrower.
At June 30, 2007, the value of the securities on loan was $2,092,825, for which the Series received collateral, comprised of U.S. government obligations valued at $223,299, and cash collateral of $2,132,675. Investments purchased with cash collateral are presented on the Statement of Net Assets under the caption “Securities Lending Collateral.”
11. Credit and Market Risk
The Series invests in fixed income securities whose value is derived from an underlying pool of mortgages or consumer loans. Investors receive principal and interest payments as the underlying mortgages and consumer loans are paid back. Some of these securities are collateralized mortgage obligations (CMOs). CMOs are debt securities issued by U.S. government agencies or by financial institutions and other mortgage lenders, which are collateralized by a pool of mortgages held under an indenture. Prepayment of mortgages may shorten the stated maturity of the obligations and can result in a loss of premium, if any has been paid. Certain of these securities may be stripped (securities which provide only the principal or interest feature of the underlying security). The yield to maturity on an interest-only CMO is extremely sensitive not only to changes in prevailing interest rates, but also to the rate of principal payments (including prepayments) on the related underlying mortgage assets. A rapid rate of principal payments may have a material adverse affect on the Series’ yield to maturity. If the underlying mortgage assets experience greater than anticipated prepayments of principal, the Series may fail to fully recoup its initial investment in these securities even if the securities are rated in the highest rating categories.
The Series may invest up to 10% of its total assets in illiquid securities, which may include securities with contractual restrictions on resale, securities exempt from registration under Rule 144A of the Securities Act of 1933, as amended, and other securities which may not be readily marketable. The relative illiquidity of these securities may impair the Series from disposing of them in a timely manner and at a fair price when it is necessary or desirable to do so. While maintaining oversight, the Series’ Board of Trustees has delegated to DMC the day-to-day functions of determining whether individual securities are liquid for purposes of the Series’ limitation on investments in illiquid assets. As of June 30, 2007, no securities have been determined to be illiquid under the Series’ Liquidity Procedures. Rule 144A securities have been identified on the Statement of Net Assets.
19
12. Contractual Obligations
The Series enters into contracts in the normal course of business that contain a variety of indemnifications. The Series’ maximum exposure under these arrangements is unknown. However, the Series has not had prior claims or losses pursuant to these contracts. Management has reviewed the Series’ existing contracts and expects the risk of loss to be remote.
13. Subsequent Event
The Series has a new securities lending agreement with Mellon Bank, N.A. as of August 9, 2007.
The Series files its complete schedule of portfolio holdings with the Securities and Exchange Commission (the Commission) for the first and third quarters of each fiscal year on Form N-Q. The Series’ Forms N-Q, as well as a description of the policies and procedures that the Series uses to determine how to vote proxies (if any) relating to portfolio securities is available without charge (i) upon request, by calling 800 523-1918; and (ii) on the Commission’s website at http://www.sec.gov. In addition, a description of the policies and procedures that the Series uses to determine how to vote proxies (if any) relating to portfolio securities is available without charge on the Delaware Investments® Funds’ website at http://www.delawareinvestments.com. The Series’ Forms N-Q may be reviewed and copied at the Commission’s Public Reference Room in Washington, DC; information on the operation of the Public Reference Room may be obtained by calling 800 SEC-0330.
Information (if any) regarding how the Series voted proxies relating to portfolio securities during the most recently disclosed 12-month period ended June 30 is available without charge (i) through the Delaware Investments® Funds’ website at http://www.delawareinvestments.com; and (ii) on the Commission’s website at http://www.sec.gov.
20
Delaware VIP Trust — Delaware VIP Balanced Series
Other Series Information
Board Consideration of Delaware VIP Balanced Series Investment Advisory Agreement
At a meeting held on May 16-17, 2007 (Annual Meeting), the Board of Trustees (Board), including a majority of disinterested or independent Trustees, approved the renewal of the Investment Advisory Agreement for the VIP Balanced Series (the “Series”). In making its decision, the Board considered information furnished throughout the year at regular Board meetings, including reports detailing Series performance, investment strategies and expenses, as well as information prepared specifically in connection with the renewal of the investment advisory contracts. Information furnished specifically in connection with the renewal of the Investment Advisory Agreement with Delaware Management Company (DMC) included materials provided by DMC and its affiliates (“Delaware Investments”) concerning, among other things, the level of services provided to the Series, the costs of such services to the Series, economies of scale and the financial condition and profitability of Delaware Investments. In addition, in connection with the Meeting, the Board separately received and reviewed in mid-January 2007 independent historical and comparative reports prepared by Lipper Inc. (“Lipper”), an independent statistical compilation organization. The Lipper reports compared the Series’ investment performance and expenses with those of other comparable mutual funds. The Board requested and received certain information regarding management’s policy with respect to advisory fee levels and its philosophy with respect to breakpoints; the structure of portfolio manager compensation; the investment manager’s profitability; and any constraints or limitations on the availability of securities in certain investment styles which might inhibit DMC’s ability to fully invest in accordance with the Series’ policies.
In considering information relating to the approval of the Series’ advisory agreement, the independent Trustees received assistance and advice from and met separately with independent counsel. While attention was given to all information furnished, the following discusses under separate headings the primary factors taken into account by the Board in its contract renewal considerations.
NATURE, EXTENT AND QUALITY OF SERVICE. Consideration was given to the services provided by Delaware Investments to the Series and its shareholders. In reviewing the nature, extent and quality of services, the Board emphasized reports furnished to it throughout the year at regular Board meetings covering matters such as the relative performance of the Series, compliance of portfolio managers with the investment policies, strategies and restrictions for the Series, the compliance of management personnel with the Code of Ethics adopted throughout the Delaware Investments® Family of Funds complex and the adherence to fair value pricing procedures as established by the Board. The Board noted that it was pleased with the current staffing of the Series’ investment advisor and the emphasis placed on research in the investment process. Favorable consideration was given to DMC’s efforts to maintain, and in some instances increase, financial and human resources committed to fund matters. The Board also considered the transfer agent and shareholder services provided to Series shareholders by Delaware Investments’ affiliate, Delaware Service Company, Inc. (“DSC”), noting DSC’s commitment to maintain a high level of service and the continuing expenditures by Delaware Investments to improve the delivery of shareholder services. During 2006, management conducted extensive research into alternatives that could further improve the quality and cost of delivering investment accounting services to the Fund. The Board was satisfied with the nature, extent and quality of the overall services provided by Delaware Investments.
INVESTMENT PERFORMANCE. The Board considered the investment performance of DMC and the Series. The Board placed significant emphasis on the investment performance of the Series in view of its importance to shareholders. While consideration was given to performance reports and discussions with portfolio managers at Board meetings throughout the year, particular weight was given to the Lipper reports furnished for the Annual Meeting. The Lipper reports prepared for the Series showed the investment performance of its Standard Class shares in comparison to a group of similar funds as selected by Lipper (the “Performance Universe”). A fund with the best performance ranked first, and a fund with the poorest ranked last. The highest/best performing 25% of funds in the Performance Universe make up the first quartile; the next 25% — the second quartile; the next 25% — the third quartile; and the poorest/worst performing 25% of funds in the Performance Universe make up the fourth quartile. Comparative annualized performance for the Series was shown for the past one, three, five and ten year periods ended December 31, 2006. The Board also considered comparative annualized performance for the Series for the same periods ended October 31, 2006. The performance comparison presented below is based upon the December 31, 2006 information. The Board noted its objective that the Series’ performance for the periods considered be at or above the median of its Performance Universe. The following paragraph summarizes the performance results for the Series and the Board’s view of such performance.
The Performance Universe for the Series consisted of the Series and all mixed asset target allocation moderate funds underlying variable insurance products as selected by Lipper. The Lipper report comparison showed that the Series’ total return for the one year period was in the first quartile of its Performance Universe. The report further showed that the Series’ total return for the three year period was in the second quartile and the Series’ total return for the five and ten year periods was in the fourth quartile. The Board noted that the Series’ performance results were mixed. However, given the strong recent returns, which were achieved by the current investment team, the Board was satisfied with performance. Additionally, the Board recognized management’s efforts to increase portfolio management depth, noting particularly the recent hire of a new head of the equity department.
COMPARATIVE EXPENSES. The Board considered expense comparison data for the Delaware Investments Family of Funds as of October 31, 2006. Management provided the Board with information on pricing levels and fee structures for the Series. The Board focused particularly on the comparative analysis of the effective management fees and total expense ratios of the Series and the effective management fees and expense ratios of a group of similar funds as selected by Lipper (the “Expense Group”). In reviewing comparative costs, the Series’ contractual management fee and the actual management fee incurred by the Series were compared with the contractual management fees (assuming all funds in the Expense Group were similar in size to the Series) and actual management fees (as reported by each fund) of other funds within the Expense Group, taking into account any applicable breakpoints and fee waivers. The Series’ total expenses were also compared with those of its Expense Group. The Lipper total expenses, for comparative consistency, were shown by Lipper for Standard Class shares which do not charge 12b-1 and non-12b-1 service fees. The Board also considered fees paid to Delaware Investments for non-management services. The Board noted its objective to limit the Series’ total expense ratio to an acceptable range as compared to the median of the Expense Group. The following paragraph summarizes the expense results for the Series and the Board’s view of such expenses.
The expense comparisons for the Series showed that its actual management fee and total expenses were in the quartile with the second lowest expenses of its Expense Group. The Board was satisfied with the management fee and total expenses of the Series in comparison to its Expense Group as shown in the Lipper report.
21
MANAGEMENT PROFITABILITY. The Board considered the level of profits, if any, realized by Delaware Investments in connection with the operation of the Series. In this respect, the Board reviewed the Investment Management Profitability Analysis that addressed the overall profitability of Delaware Investments’ business in providing management and other services to each of the individual funds and the Delaware Investments® Family of Funds as a whole. Specific attention was given to the methodology followed in allocating costs for the purpose of determining profitability. Management stated that the level of profits of Delaware Investments, to a certain extent, reflected operational cost savings and efficiencies initiated by Delaware Investments. The Board considered Delaware Investments’ efforts to improve services provided to fund shareholders and to meet additional regulatory and compliance requirements resulting from recent SEC initiatives. The Board also considered the extent to which Delaware Investments might derive ancillary benefits from fund operations, including the potential for procuring additional business as a result of the prestige and visibility associated with its role as service provider to the Delaware Investments Family of Funds and the benefits from allocation of fund brokerage to improve trading efficiencies. The Board found that the level of management fees was reasonable in light of the services rendered and the profitability of Delaware Investments.
ECONOMIES OF SCALE. The Trustees considered whether economies of scale are realized by Delaware Investments as the Series’ assets increase and the extent to which any economies of scale are reflected in the level of management fees charged. The Trustees took into account the standardized advisory fee pricing and structure, approved by the Board and shareholders and again reviewed by the Board this year, which includes breakpoints. Breakpoints in the advisory fee occur when the advisory fee rate is reduced on assets in excess of specified levels. This results in a lower advisory fee than would otherwise be the case on all assets when those asset levels specified are exceeded. The Board noted that the fee under the Series’ management contract fell within the standard structure. Although the Series has not reached a size at which the advantages of breakpoints would be realized, the Board recognized that the fee was structured so that when the Series grows, economies of scale may be shared.
22
Delaware VIP Trust — Delaware VIP Capital Reserves Series
Disclosure of Series Expenses
For the Period January 1, 2007 to June 30, 2007
As a shareholder of the Series, you incur ongoing costs, including management fees; distribution and/or service (12b-1) fees; and other Series expenses. This Example is intended to help you understand your ongoing costs (in dollars) of investing in the Series and to compare these costs with the ongoing costs of investing in other mutual funds.
The Example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period from January 1, 2007 to June 30, 2007.
Actual Expenses
The first section of the table shown, “Actual Series Return,” provides information about actual account values and actual expenses. You may use the information in this section of the table, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first section under the heading entitled “Expenses Paid During Period” to estimate the expenses you paid on your account during the period.
Hypothetical Example for Comparison Purposes
The second section of the table shown, “Hypothetical 5% Return,” provides information about hypothetical account values and hypothetical expenses based on the Series’ actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Series’ actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Series and other funds. To do so, compare the 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs only. As a shareholder of the Series, you do not incur any transaction costs, such as sales charges (loads), redemption fees or exchange fees, but shareholders of other funds may incur such costs. Also, the fees related to the variable annuity investment or the deferred sales charge that could apply have not been included. Therefore, the second section of the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. The Series’ actual expenses shown in the table reflect fee waivers in effect for Service Class shares. The expenses shown in the table assume reinvestment of all dividends and distributions.
Expense Analysis of an Investment of $1,000
|
| Beginning |
| Ending |
| Annualized |
| Expenses |
| |||
Actual Series Return |
|
|
|
|
|
|
|
|
| |||
Standard Class |
| $ | 1,000.00 |
| $ | 1,019.50 |
| 0.67 | % | $ | 3.35 |
|
Service Class |
| 1,000.00 |
| 1,018.40 |
| 0.92 | % | 4.60 |
| |||
|
|
|
|
|
|
|
|
|
| |||
Hypothetical 5% Return (5% return before expenses) |
|
|
|
|
|
|
|
|
| |||
Standard Class |
| $ | 1,000.00 |
| $ | 1,021.47 |
| 0.67 | % | $ | 3.36 |
|
Service Class |
| 1,000.00 |
| 1,020.23 |
| 0.92 | % | 4.61 |
|
* “Expenses Paid During Period” are equal to the Series’ annualized expense ratio, multiplied by the average account value over the period, multiplied by 181/365 (to reflect the one-half year period).
1
Delaware VIP Trust — Delaware VIP Capital Reserves Series
Sector Allocation and Credit Quality Breakdown
As of June 30, 2007
Sector designations may be different than the sector designations presented in other Series materials
Sector |
| Percentage |
|
Agency Asset-Backed Securities |
| 0.20 | % |
Agency Collateralized Mortgage Obligations |
| 1.81 | % |
Agency Mortgage-Backed Securities |
| 10.72 | % |
Agency Obligations |
| 0.66 | % |
Commercial Mortgage-Backed Securities |
| 4.00 | % |
Corporate Bonds |
| 26.73 | % |
Banking |
| 3.28 | % |
Basic Industry |
| 1.38 | % |
Brokerage |
| 1.55 | % |
Capital Goods |
| 0.25 | % |
Communications |
| 4.87 | % |
Consumer Cyclical |
| 3.35 | % |
Consumer Non-Cyclical |
| 1.25 | % |
Electric |
| 1.42 | % |
Finance Companies |
| 4.66 | % |
Insurance |
| 1.75 | % |
Natural Gas |
| 0.52 | % |
Real Estate |
| 1.14 | % |
Transportation |
| 1.31 | % |
Foreign Agencies |
| 0.36 | % |
Non-Agency Asset-Backed Securities |
| 30.38 | % |
Non-Agency Collateralized Mortgage Obligations |
| 15.99 | % |
Senior Secured Loans |
| 0.28 | % |
Sovereign Debt |
| 0.99 | % |
U.S. Treasury Obligations |
| 4.89 | % |
Total Value of Securities |
| 97.01 | % |
Receivables and Other Assets Net of Liabilities |
| 2.99 | % |
Total Net Assets |
| 100.00 | % |
Credit Quality Breakdown |
|
|
|
AAA |
| 70.05 | % |
AA |
| 4.42 | % |
A |
| 8.14 | % |
BBB |
| 12.76 | % |
BB |
| 1.49 | % |
B |
| 3.14 | % |
Total |
| 100.00 | % |
2
Delaware VIP Trust — Delaware VIP Capital Reserves Series
Statement of Net Assets
June 30, 2007 (Unaudited)
|
| Principal |
| Value |
| |||
| AGENCY ASSET-BACKED SECURITIES–0.20% |
|
|
|
|
| ||
| Fannie Mae Grantor Trust Series 2003-T4 2A5 4.907% 9/26/33 |
| USD | 44,746 |
| $ | 44,515 |
|
t | Freddie Mac Structured Pass Through Securities Series T-30 A5 8.61% 12/25/30 |
| 27,248 |
| 27,058 |
| ||
| Total Agency Asset-Backed Securities |
|
|
| 71,573 |
| ||
|
|
|
|
|
|
| ||
| AGENCY COLLATERALIZED MORTGAGE OBLIGATIONS–1.81% |
|
|
|
|
| ||
| Fannie Mae Grantor Trust Series 2001-T8 A2 9.50% 7/25/41 |
| 23,735 |
| 25,345 |
| ||
| Fannie Mae Series 2003-122 AJ 4.50% 2/25/28 |
| 26,825 |
| 25,912 |
| ||
| Fannie Mae Whole Loan Series 2004-W9 2A1 6.50% 2/25/44 |
| 54,846 |
| 55,700 |
| ||
| Freddie Mac |
|
|
|
|
| ||
| Series 2326 ZQ 6.50% 6/15/31 |
| 116,542 |
| 120,308 |
| ||
| Series 2662 MA 4.50% 10/15/31 |
| 53,156 |
| 51,887 |
| ||
| Series 2694 QG 4.50% 1/15/29 |
| 25,000 |
| 23,960 |
| ||
| Freddie Mac Stated Final Series 5 GC 2.95% 12/15/09 |
| 126,641 |
| 124,445 |
| ||
· | Freddie Mac Strip Series 19 F 5.936% 6/1/28 |
| 21,666 |
| 21,551 |
| ||
t | Freddie Mac Structured Pass Through Securities Series T-58 2A 6.50% 9/25/43 |
| 58,178 |
| 59,026 |
| ||
| GNMA |
|
|
|
|
| ||
| Series 2002-28 B 5.779% 7/16/24 |
| 27,980 |
| 28,168 |
| ||
| Series 2002-61 BA 4.648% 3/16/26 |
| 52,342 |
| 51,761 |
| ||
| Series 2003-78 B 5.11% 10/16/27 |
| 55,000 |
| 54,188 |
| ||
| Total Agency Collateralized Mortgage Obligations |
|
|
| 642,251 |
| ||
|
|
|
|
|
|
| ||
| AGENCY MORTGAGE-BACKED SECURITIES–10.72% |
|
|
|
|
| ||
| Fannie Mae |
|
|
|
|
| ||
| 6.50% 8/1/17 |
| 28,650 |
| 29,169 |
| ||
| 6.52% 1/1/08 |
| 7,641 |
| 7,625 |
| ||
| 7.00% 11/15/16 |
| 68,302 |
| 70,179 |
| ||
| 8.50% 9/20/10 |
| 3,244 |
| 3,397 |
| ||
| 9.00% 4/1/09 |
| 4,095 |
| 4,136 |
| ||
· | Fannie Mae ARM |
|
|
|
|
| ||
| 4.091% 6/1/34 |
| 73,691 |
| 73,820 |
| ||
| 4.347% 8/1/34 |
| 55,452 |
| 55,417 |
| ||
| 4.795% 11/1/35 |
| 481,273 |
| 474,687 |
| ||
| 5.054% 8/1/35 |
| 65,422 |
| 63,377 |
| ||
| 5.287% 10/1/33 |
| 128,949 |
| 130,891 |
| ||
| 6.154% 6/1/36 |
| 222,864 |
| 224,605 |
| ||
| 6.217% 7/1/36 |
| 196,407 |
| 198,360 |
| ||
| 6.316% 7/1/36 |
| 211,180 |
| 213,474 |
| ||
| 6.352% 8/1/36 |
| 211,684 |
| 213,618 |
| ||
| 6.358% 4/1/36 |
| 101,931 |
| 103,158 |
| ||
| 6.478% 12/1/33 |
| 43,781 |
| 44,542 |
| ||
| Fannie Mae FHAVA 9.00% 6/1/09 |
| 29,435 |
| 30,086 |
| ||
| Fannie Mae Relocation 30 yr |
|
|
|
|
| ||
| Pool #763656 5.00% 1/1/34 |
|
| 104,664 |
| 99,253 |
| |
| Pool #763742 5.00% 1/1/34 |
| 128,494 |
| 121,715 |
| ||
| Fannie Mae S.F. 15 yr |
|
|
|
|
| ||
| 7.50% 3/1/15 |
| 9,791 |
| 10,100 |
| ||
| 8.00% 10/1/14 |
| 11,390 |
| 11,530 |
| ||
| 8.00% 10/1/16 |
| 43,318 |
| 45,112 |
| ||
| Fannie Mae S.F. 30 yr |
|
|
|
|
| ||
| 7.50% 12/1/10 |
| 3,230 |
| 3,265 |
| ||
| 7.50% 6/1/31 |
| 24,739 |
| 25,839 |
| ||
| 8.50% 5/1/11 |
| 2,623 |
| 2,688 |
| ||
| 8.50% 8/1/12 |
| 5,504 |
| 5,677 |
| ||
| 9.00% 7/1/20 |
| 42,399 |
| 45,323 |
| ||
| 10.00% 8/1/19 |
| 48,668 |
| 52,958 |
| ||
· | Freddie Mac ARM |
|
|
|
|
| ||
| 5.838% 4/1/34 |
| 22,308 |
| 22,528 |
| ||
| 7.103% 4/1/33 |
| 29,412 |
| 29,727 |
| ||
| Freddie Mac Balloon 5 yr |
|
|
|
|
| ||
| 4.00% 6/1/08 |
| 16,138 |
| 15,939 |
| ||
| 4.00% 1/1/09 |
| 99,961 |
| 98,439 |
| ||
| 4.50% 1/1/10 |
| 181,602 |
| 178,829 |
| ||
| Freddie Mac Balloon 7 yr |
|
|
|
|
| ||
| 4.50% 10/1/09 |
| 105,021 |
| 103,662 |
| ||
| 5.00% 6/1/11 |
| 179,167 |
| 178,540 |
| ||
| 5.00% 11/1/11 |
| 191,139 |
| 190,466 |
| ||
| Freddie Mac Relocation 15 yr |
|
|
|
|
| ||
| 3.50% 9/1/18 |
| 77,064 |
| 70,480 |
| ||
| 3.50% 10/1/18 |
| 11,499 |
| 10,517 |
| ||
| Freddie Mac S.F. 15 yr |
|
|
|
|
| ||
| 4.00% 11/1/13 |
| 113,730 |
| 109,537 |
| ||
| 4.00% 3/1/14 |
| 138,463 |
| 133,014 |
| ||
| 8.00% 5/1/15 |
| 40,734 |
| 42,772 |
| ||
| 8.50% 10/1/15 |
| 5,184 |
| 5,461 |
| ||
| Freddie Mac S.F. 30 yr |
|
|
|
|
| ||
| 7.00% 11/1/33 |
| 26,097 |
| 26,936 |
| ||
| 9.25% 9/1/08 |
| 1,499 |
| 1,526 |
| ||
| GNMA I S.F. 15 yr |
|
|
|
|
| ||
| 6.00% 1/15/09 |
| 3,339 |
| 3,361 |
| ||
| 8.50% 8/15/10 |
| 2,290 |
| 2,300 |
| ||
| GNMA I S.F. 30 yr |
|
|
|
|
| ||
| 7.00% 12/15/34 |
| 83,466 |
| 87,607 |
| ||
| 8.00% 5/15/08 |
| 4,845 |
| 4,848 |
| ||
| 11.00% 11/15/10 |
| 112,873 |
| 118,935 |
| ||
| GNMA II S.F. 30 yr |
|
|
|
|
| ||
| 12.00% 6/20/14 |
| 5,553 |
| 6,236 |
| ||
| 12.00% 3/20/15 |
| 665 |
| 736 |
| ||
| 12.00% 2/20/16 |
| 2,145 |
| 2,374 |
| ||
| Total Agency Mortgage-Backed Securities (cost $3,857,781) |
|
|
| 3,808,771 |
| ||
3
|
| Principal |
| Value |
| |||
| AGENCY OBLIGATIONS–0.66% |
|
|
|
|
| ||
| Freddie Mac 5.00% 1/16/09 |
| USD | 235,000 |
| $ | 234,450 |
|
| Total Agency Obligations (cost $234,739) |
|
|
| 234,450 |
| ||
|
|
|
|
|
|
| ||
| COMMERCIAL MORTGAGE-BACKED SECURITIES–4.00% |
|
|
|
|
| ||
# | Bear Stearns Commercial Mortgage Securities Series 2004-ESA E 144A 5.064% 5/14/16 |
| 65,000 |
| 64,665 |
| ||
t# | Commercial Mortgage Pass Through Certificates Series 2001-J1A A2 144A 6.457% 2/14/34 |
| 46,566 |
| 47,672 |
| ||
# | Crown Castle Towers 144A |
|
|
|
|
| ||
· | Series 2005-1A AFL 5.70% 6/15/35 |
| 110,000 |
| 110,630 |
| ||
| Series 2006-1A B 5.362% 11/15/36 |
| 40,000 |
| 39,332 |
| ||
| Deutsche Mortgage and Asset Receiving Series 1998-C1 A2 6.538% 6/15/31 |
| 84,174 |
| 84,240 |
| ||
| DLJ Commercial Mortgage |
| 150,000 |
| 150,710 |
| ||
| First Union-Lehman Brothers-Bank of America Series 1998-C2 A2 6.56% 11/18/35 |
| 73,986 |
| 74,275 |
| ||
| First Union National Bank- Bank of America Commercial Mortgage Trust Series 2001-C1 C 6.403% 3/15/33 |
| 45,000 |
| 46,151 |
| ||
| Goldman Sachs Mortgage Securities II |
| 95,000 |
| 93,490 |
| ||
| Lehman Brothers-UBS Commercial Mortgage Trust |
|
|
|
|
| ||
| Series 2001-C2 A1 6.27% 6/15/20 |
| 51,156 |
| 51,397 |
| ||
| Series 2003-C8 A2 4.207% 11/15/27 |
| 150,000 |
| 147,326 |
| ||
| Merrill Lynch/Countrywide Commercial Mortgage Trust |
| 217,506 |
| 211,791 |
| ||
# | SBA Commercial Mortgage Securities Trust Series 2006-1A B 144A 5.451% 11/15/36 |
| 150,000 |
| 148,011 |
| ||
# | Tower 144A |
|
|
|
|
| ||
| Series 2006-1 B 5.588% 2/15/36 |
| 30,000 |
| 29,786 |
| ||
| Series 2006-1 C 5.707% 2/15/36 |
| 45,000 |
| 44,722 |
| ||
· | Wachovia Bank Commercial Mortgage Trust Series 2005-C20 A5 5.087% 7/15/42 |
| 80,000 |
| 78,267 |
| ||
| Total Commercial Mortgage-Backed Securities |
|
|
| 1,422,465 |
| ||
|
|
|
|
|
|
| ||
| CORPORATE BONDS–26.73% |
|
|
|
|
| ||
| Banking–3.28% |
|
|
|
|
| ||
· | BAC Capital Trust XIV 5.63% 12/31/49 |
| 65,000 |
| 63,620 |
| ||
·# | KBC Bank Funding Trust III 144A 9.86% 11/29/49 |
| 160,000 |
| 174,560 |
| ||
| Marshall & Ilsley Bank 3.95% 8/14/09 |
| 145,000 |
| 141,422 |
| ||
· | Mellon Capital IV 6.244% 6/29/49 |
| 80,000 |
| 80,807 |
| ||
| National City 3.125% 4/30/09 |
| 225,000 |
| 216,142 |
| ||
·# | PNC Preferred Funding Trust I 144A 6.113% 3/29/49 |
|
| 100,000 |
| 97,633 |
| |
| Popular North America 4.25% 4/1/08 |
| 295,000 |
| 292,032 |
| ||
·# | Vneshtorgbank 144A 5.955% 8/1/08 |
| 100,000 |
| 100,225 |
| ||
|
|
|
|
| 1,166,441 |
| ||
| Basic Industry–1.38% |
|
|
|
|
| ||
| Bowater 9.00% 8/1/09 |
| 135,000 |
| 137,699 |
| ||
| Catalyst Paper 8.625% 6/15/11 |
| 65,000 |
| 63,213 |
| ||
| Grupo Minero Mexico 8.25% 4/1/08 |
| 100,000 |
| 102,350 |
| ||
| Lubrizol 4.625% 10/1/09 |
| 120,000 |
| 117,708 |
| ||
| Weyerhaeuser 5.95% 11/1/08 |
| 70,000 |
| 70,536 |
| ||
|
|
|
|
| 491,506 |
| ||
| Brokerage–1.55% |
|
|
|
|
| ||
| AMVESCAP |
|
|
|
|
| ||
| 4.50% 12/15/09 |
| 120,000 |
| 117,168 |
| ||
| 5.625% 4/17/12 |
| 105,000 |
| 104,276 |
| ||
| LaBranche |
|
|
|
|
| ||
| 9.50% 5/15/09 |
| 150,000 |
| 156,000 |
| ||
| 11.00% 5/15/12 |
| 140,000 |
| 149,100 |
| ||
· | Lehman Brothers Holdings Capital Trust VIII 6.19% 5/29/49 |
| 25,000 |
| 25,023 |
| ||
|
|
|
|
| 551,567 |
| ||
| Capital Goods–0.25% |
|
|
|
|
| ||
· | Masco 5.66% 3/12/10 |
| 90,000 |
| 90,134 |
| ||
|
|
|
|
| 90,134 |
| ||
| Communications–4.87% |
|
|
|
|
| ||
| AT&T 7.30% 11/15/11 |
| 180,000 |
| 191,786 |
| ||
| BellSouth 4.20% 9/15/09 |
| 90,000 |
| 87,700 |
| ||
| Comcast Cable Communications 6.20% 11/15/08 |
| 235,000 |
| 236,941 |
| ||
| Cox Communications 4.625% 1/15/10 |
| 60,000 |
| 58,639 |
| ||
| Insight Midwest 9.75% 10/1/09 |
| 130,000 |
| 131,300 |
| ||
| News America Holdings 7.375% 10/17/08 |
| 70,000 |
| 71,418 |
| ||
| Sprint Capital 7.625% 1/30/11 |
| 65,000 |
| 68,440 |
| ||
· | Sprint Nextel 5.76% 6/28/10 |
| 75,000 |
| 75,041 |
| ||
| Telecom Italia Capital |
|
|
|
|
| ||
| 4.00% 1/15/10 |
| 130,000 |
| 125,046 |
| ||
· | 5.969% 7/18/11 |
| 100,000 |
| 100,749 |
| ||
| Telefonos de Mexico 4.50% 11/19/08 |
| 80,000 |
| 79,063 |
| ||
# | Time Warner Cable 144A 5.40% 7/2/12 |
| 180,000 |
| 176,955 |
| ||
| Viacom |
|
|
|
|
| ||
· | 5.71% 6/16/09 |
| 120,000 |
| 120,418 |
| ||
| 5.75% 4/30/11 |
| 205,000 |
| 204,877 |
| ||
|
|
|
|
| 1,728,373 |
| ||
| Consumer Cyclical–3.35% |
|
|
|
|
| ||
| Costco Wholesale 5.30% 3/15/12 |
| 120,000 |
| 119,224 |
| ||
· | DaimlerChrysler Holding 5.805% 8/3/09 |
| 135,000 |
| 135,770 |
| ||
| Federated Retail Holdings 5.35% 3/15/12 |
| 50,000 |
| 49,172 |
| ||
4
|
| Principal |
| Value |
| |||
| CORPORATE BONDS (continued) |
|
|
|
|
|
| |
| Consumer Cyclical (continued) |
|
|
|
|
|
| |
| Ford Motor Credit |
|
|
|
|
|
| |
| 5.80% 1/12/09 |
| USD | 95,000 |
| $ | 93,024 |
|
| 7.80% 6/1/12 |
| 130,000 |
| 126,945 |
| ||
| Fortune Brands 5.125% 1/15/11 |
| 70,000 |
| 68,361 |
| ||
· | GMAC 6.306% 7/16/07 |
| 330,000 |
| 330,011 |
| ||
| Home Depot 4.625% 8/15/10 |
| 55,000 |
| 53,443 |
| ||
| Penney (J.C.) 7.375% 8/15/08 |
| 145,000 |
| 147,096 |
| ||
| Wal-Mart Stores 6.875% 8/10/09 |
| 65,000 |
| 67,065 |
| ||
|
|
|
|
| 1,190,111 |
| ||
| Consumer Non-Cyclical–1.25% |
|
|
|
|
| ||
| Constellation Brands 8.125% 1/15/12 |
| 75,000 |
| 76,688 |
| ||
| Fred Meyer 7.45% 3/1/08 |
| 70,000 |
| 70,884 |
| ||
# | HCA 144A 9.125% 11/15/14 |
| 40,000 |
| 42,150 |
| ||
| Kraft Foods 4.125% 11/12/09 |
| 120,000 |
| 116,314 |
| ||
| Smithfield Foods 7.75% 7/1/17 |
| 25,000 |
| 25,125 |
| ||
| US Oncology 9.00% 8/15/12 |
| 110,000 |
| 113,850 |
| ||
|
|
|
|
| 445,011 |
| ||
| Electric–1.42% |
|
|
|
|
| ||
| Dominion Resources 5.687% 5/15/08 |
| 75,000 |
| 75,106 |
| ||
| FPL Group Capital 5.625% 9/1/11 |
| 70,000 |
| 70,045 |
| ||
| Pacific Gas & Electric 4.20% 3/1/11 |
| 120,000 |
| 114,756 |
| ||
| Potomac Electric Power 6.25% 10/15/07 |
| 75,000 |
| 75,125 |
| ||
# | Power Contract Financing 144A 6.256% 2/1/10 |
| 39,188 |
| 39,456 |
| ||
# | Power Receivables Finance 144A 6.29% 1/1/12 |
| 69,097 |
| 69,888 |
| ||
| PSEG Funding Trust I 5.381% 11/16/07 |
| 60,000 |
| 59,952 |
| ||
|
|
|
|
| 504,328 |
| ||
| Finance Companies–4.66% |
|
|
|
|
| ||
| American General Finance 4.625% 5/15/09 |
| 140,000 |
| 138,128 |
| ||
| Capital One Bank 5.00% 6/15/09 |
| 135,000 |
| 134,023 |
| ||
# | Capmark Financial Group 144A 5.875% 5/10/12 |
| 105,000 |
| 103,732 |
| ||
| General Electric Capital |
|
|
|
|
| ||
| 5.50% 4/28/11 |
| 155,000 |
| 155,098 |
| ||
| 6.50% 1/27/09 |
| NZD | 500,000 |
| 375,462 |
| |
| International Lease Finance |
|
|
|
|
|
| |
| 4.625% 6/2/08 |
| USD | 60,000 |
| 59,550 |
| |
| 5.75% 6/15/11 |
| 60,000 |
| 60,303 |
| ||
· | JPMorgan Chase Capital XXI 6.305% 2/2/37 |
| 85,000 |
| 84,268 |
| ||
·# | Mizuho JGB Investment Preferred 144A 9.87% 12/29/49 |
| 135,000 |
| 140,368 |
| ||
| Residential Capital |
|
|
|
|
| ||
· | 5.86% 6/9/08 |
| 70,000 |
| 69,306 |
| ||
| 6.125% 11/21/08 |
| 215,000 |
| 213,107 |
| ||
· | 6.66% 11/21/08 |
| 45,000 |
| 45,135 |
| ||
·# | Xstrata Finance 144A 5.71% 11/13/09 |
| 75,000 |
| 75,146 |
| ||
|
|
|
|
| 1,653,626 |
| ||
| Insurance–1.75% |
|
|
|
|
| ||
| Aetna 7.875% 3/1/11 |
|
| 45,000 |
| 48,343 |
| |
· | Marsh & McLennan 5.495% 7/13/07 |
| 75,000 |
| 75,001 |
| ||
# | Nippon Life Insurance 144A 4.875% 8/9/10 |
| 90,000 |
| 87,779 |
| ||
| PMI Group 5.568% 11/15/08 |
| 85,000 |
| 84,747 |
| ||
| ReliaStar Financial 6.50% 11/15/08 |
| 185,000 |
| 186,694 |
| ||
| SAFECO Capital Trust I 8.072% 7/15/37 |
| 100,000 |
| 104,146 |
| ||
| WellPoint 4.25% 12/15/09 |
| 35,000 |
| 33,922 |
| ||
|
|
|
|
| 620,632 |
| ||
| Natural Gas–0.52% |
|
|
|
|
| ||
· | Sempra Energy 5.83% 5/21/08 |
| 50,000 |
| 50,025 |
| ||
| Southern Union 6.15% 8/16/08 |
| 135,000 |
| 135,687 |
| ||
|
|
|
|
| 185,712 |
| ||
| Real Estate–1.14% |
|
|
|
|
| ||
| Developers Diversified Realty 4.625% 8/1/10 |
| 100,000 |
| 97,111 |
| ||
| Simon Property Group |
|
|
|
|
| ||
| 5.375% 8/28/08 |
| 130,000 |
| 129,422 |
| ||
| 7.125% 2/9/09 |
| 35,000 |
| 35,823 |
| ||
| Tanger Properties 9.125% 2/15/08 |
| 140,000 |
| 142,646 |
| ||
|
|
|
|
| 405,002 |
| ||
| Transportation–1.31% |
|
|
|
|
| ||
| Continental Airlines 6.503% 6/15/11 |
| 245,000 |
| 245,918 |
| ||
# | Erac USA Finance 144A 7.35% 6/15/08 |
| 215,000 |
| 217,992 |
| ||
|
|
|
|
| 463,910 |
| ||
| Total Corporate Bonds |
|
|
| 9,496,353 |
| ||
| FOREIGN AGENCIES–0.36% |
|
|
|
|
| ||
| Pemex Project Funding Master Trust 6.125% 8/15/08 |
| 125,000 |
| 126,063 |
| ||
| Total Foreign Agencies |
|
|
| 126,063 |
| ||
|
|
|
|
|
|
| ||
| NON-AGENCY ASSET-BACKED SECURITIES–30.38% |
|
|
|
|
| ||
| AmeriCredit Automobile Receivables Trust |
|
|
|
|
| ||
| Series 2005-CF A4 4.63% 6/6/12 |
| 285,000 |
| 282,533 |
| ||
| Series 2007-AX A3 5.19% 11/6/11 |
| 135,000 |
| 134,647 |
| ||
| Ameriquest Mortgage Securities |
|
|
|
|
| ||
| Series 2003-5 A4 4.272% 4/25/33 |
| 5,626 |
| 5,603 |
| ||
| Series 2003-11 AF6 5.14% 1/25/34 |
| 65,000 |
| 63,655 |
| ||
| Series 2004-FR1 A4 3.243% 5/25/34 |
| 8,322 |
| 8,287 |
| ||
· | Series 2006-R1 A2C 5.51% 3/25/36 |
| 100,000 |
| 100,009 |
| ||
| Argent Securities Series 2003-W5 AF4 4.66% 10/25/33 |
| 12,904 |
| 12,838 |
| ||
· | Bank of America Credit Card Trust Series 2006-A10 A10 5.30% 2/15/12 |
| 1,150,000 |
| 1,149,506 |
| ||
| Centex Home Equity Series 2005-D AF4 5.27% 10/25/35 |
| 155,000 |
| 153,164 |
| ||
5
|
| Principal |
| Value |
| ||||
| NON-AGENCY ASSET-BACKED SECURITIES (continued) |
|
|
|
|
|
| ||
| Chase Funding Mortgage Loan Asset-Backed Certificates |
|
|
|
|
|
| ||
| Series 2002-3 1A6 4.707% 9/25/13 |
| USD | 179,106 |
| $ | 173,712 |
| |
| Series 2003-2 1A4 3.986% 8/25/29 |
| 10,257 |
| 10,176 |
| |||
| Series 2003-3 1A4 3.303% 11/25/29 |
| 99,292 |
| 97,815 |
| |||
| Chase Manhattan Auto Owner Trust Series 2006-B A3 5.13% 5/15/11 |
| 220,000 |
| 219,512 |
| |||
| CIT Equipment Collateral |
|
|
|
|
| |||
| Series 2005-VT1 A3 4.12% 8/20/08 |
| 73,475 |
| 73,274 |
| |||
| Series 2006-VT2 A3 5.07% 2/20/10 |
| 445,000 |
| 443,326 |
| |||
| CitiFinancial Mortgage Securities |
|
|
|
|
| |||
| Series 2003-2 AF4 4.098% 5/25/33 |
| 220,000 |
| 216,519 |
| |||
| Series 2004-1 AF2 2.645% 4/25/34 |
| 150,076 |
| 145,546 |
| |||
| Countrywide Asset-Backed Certificates |
|
|
|
|
| |||
· | Series 2004-13 AV2 5.58% 5/25/34 |
| 8,873 |
| 8,875 |
| |||
| Series 2004-S1 A2 3.872% 3/25/20 |
| 109,236 |
| 107,455 |
| |||
· | Series 2006-1 AF2 5.281% 7/25/36 |
| 410,000 |
| 408,114 |
| |||
· | Series 2006-1 AF3 5.348% 7/25/36 |
| 280,000 |
| 278,554 |
| |||
· | Series 2006-3 2A2 5.50% 6/25/36 |
| 135,000 |
| 135,128 |
| |||
| Series 2006-9 1AF3 5.859% 10/25/46 |
| 160,000 |
| 159,824 |
| |||
· | Series 2006-11 1AF3 6.05% 9/25/46 |
| 215,000 |
| 215,412 |
| |||
| Series 2006-13 1AF3 5.944% 1/25/37 |
| 160,000 |
| 159,843 |
| |||
· | Series 2006-15 A3 5.689% 10/25/46 |
| 115,000 |
| 114,152 |
| |||
| Series 2006-S2 A2 5.627% 7/25/27 |
| 80,000 |
| 79,759 |
| |||
| Series 2006-S3 A2 6.085% 6/25/21 |
| 250,000 |
| 250,610 |
| |||
| Series 2006-S5 A3 5.762% 6/25/35 |
| 115,000 |
| 113,962 |
| |||
· | Series 2006-S6 A2 5.519% 3/25/34 |
| 105,000 |
| 104,481 |
| |||
· | Series 2006-S7 A3 5.712% 11/25/35 |
| 210,000 |
| 207,871 |
| |||
· | Series 2006-S9 A3 5.728% 8/25/36 |
| 95,000 |
| 93,516 |
| |||
| Series 2007-4 A2 5.53% 9/25/37 |
| 115,000 |
| 114,316 |
| |||
# | Countrywide Asset-Backed NIM Certificates Series 2004-BC1 Note 144A 5.50% 4/25/35 |
| 39 |
| 19 |
| |||
| Credit-Based Asset Servicing and Securitization |
|
|
|
|
| |||
# | Series 2006-SL1 A2 144A 5.556% 9/25/36 |
| 245,000 |
| 243,009 |
| |||
| Series 2007-CB1 AF2 5.721% 1/25/37 |
| 100,000 |
| 99,761 |
| |||
| Credit Suisse First Boston Mortgage Securities Series 2005-AGE1 A2 4.64% 2/25/32 |
| 250,000 |
| 246,960 |
| |||
# | Dunkin Securitization Series 2006-1 A2 144A 5.779% 6/20/31 |
| 100,000 |
| 100,332 |
| |||
| GMAC Mortgage Loan Trust |
| 20,649 |
| 20,579 |
| |||
| Series 2003-HE2 A3 4.12% 10/25/26 |
|
|
|
|
| |||
· | Series 2006-HE3 A2 5.75% 10/25/36 |
| 95,000 |
| 94,810 |
| |||
| GSAMP Trust Series 2006-S3 A1 6.085% 5/25/36 |
| 83,327 |
| 82,753 |
| |||
| Indymac Seconds Assets Backed Trust Series 2006-1 A2 5.767% 5/25/36 |
| 235,000 |
| 234,469 |
| |||
| Long Beach Auto Receivables Trust Series 2006-B A3 5.17% 8/15/11 |
| 300,000 |
| 299,104 |
| |||
·# | MASTR Specialized Loan Trust Series 2005-2 A2 144A 5.006% 7/25/35 |
|
| 29,738 |
| 28,825 |
| ||
· | Merrill Lynch Mortgage Investors Series 2006-AR1 A2C 5.48% 3/25/37 |
| 80,000 |
| 79,965 |
| |||
· | Morgan Stanley Mortgage Loan Trust Series 2006-12XS A1 5.44% 10/25/36 |
| 113,336 |
| 113,342 |
| |||
| New Century Home Equity Loan Trust Series 2003-5 AI4 4.76% 11/25/33 |
| 86,891 |
| 86,147 |
| |||
· | Option One Mortgage Loan Trust Series 2005-4 A3 5.58% 11/25/35 |
| 125,000 |
| 125,260 |
| |||
| Renaissance Home Equity Loan Trust |
|
|
|
|
| |||
| Series 2005-4 A2 5.399% 2/25/36 |
| 37,303 |
| 37,171 |
| |||
| Series 2005-4 A3 5.565% 2/25/36 |
| 25,000 |
| 24,898 |
| |||
| Series 2006-1 AF3 5.608% 5/25/36 |
| 210,000 |
| 209,294 |
| |||
| Series 2006-2 AF3 5.797% 8/25/36 |
| 125,000 |
| 124,872 |
| |||
| Series 2006-3 AF1 5.917% 11/25/36 |
| 182,611 |
| 182,103 |
| |||
| Series 2006-3 AF2 5.58% 11/25/36 |
| 90,000 |
| 89,679 |
| |||
| Series 2006-3 AF3 5.586% 11/25/36 |
| 235,000 |
| 233,194 |
| |||
| Series 2006-4 AF2 5.285% 1/25/37 |
| 225,000 |
| 223,173 |
| |||
| Series 2007-1 AF2 5.512% 4/25/37 |
| 195,000 |
| 193,742 |
| |||
| Series 2007-2 AF2 5.675% 6/25/37 |
| 35,000 |
| 35,000 |
| |||
| Residential Asset Securities |
|
|
|
|
| |||
| Series 2002-KS2 AI5 6.779% 4/25/32 |
| 37,246 |
| 37,519 |
| |||
| Series 2003-KS9 AI6 4.71% 11/25/33 |
| 64,459 |
| 62,536 |
| |||
· | Series 2004-KS9 AI3 3.79% 8/25/29 |
| 72,018 |
| 71,067 |
| |||
· | Series 2006-KS3 AI3 5.49% 4/25/36 |
| 270,000 |
| 270,229 |
| |||
| Residential Funding Mortgage Securities II |
|
|
|
|
| |||
| Series 2001-HS2 A5 7.42% 4/25/31 |
| 25,959 |
| 25,875 |
| |||
| Series 2005-HI3 A2 5.09% 9/25/35 |
| 160,000 |
| 158,725 |
| |||
| Series 2006-HI2 A3 5.79% 2/25/36 |
| 150,000 |
| 149,527 |
| |||
· | Series 2006-HSA1 A2 5.19% 2/25/36 |
| 345,000 |
| 340,173 |
| |||
· | Series 2006-HSA2 AI2 5.50% 3/25/36 |
| 190,000 |
| 189,220 |
| |||
# | Silverleaf Finance Series 2005-A A 144A 4.857% 11/15/16 |
| 57,951 |
| 57,357 |
| |||
| Structured Asset Securities |
|
|
|
|
| |||
| Series 2001-SB1 A2 3.375% 8/25/31 |
| 40,363 |
| 36,165 |
| |||
| Series 2005-4XS 1A2B 4.67% 3/25/35 |
| 90,323 |
| 89,374 |
| |||
| Series 2005-9XS 1A2A 4.84% 6/25/35 |
| 95,000 |
| 93,989 |
| |||
· | Series 2005-NC1 A7 5.55% 2/25/35 |
| 940 |
| 940 |
| |||
| Triad Auto Receivables Owner Trust Series 2006-C A4 5.31% 5/13/13 |
| 160,000 |
| 159,318 |
| |||
| Total Non-Agency Asset-Backed Securities (cost $10,826,489) |
|
|
| 10,792,469 |
| |||
|
|
|
|
|
|
| |||
| NON-AGENCY COLLATERALIZED MORTGAGE OBLIGATIONS–15.99% |
|
|
|
|
| |||
| Bank of America Alternative Loan Trust |
|
|
|
|
| |||
| Series 2003-10 2A1 6.00% 12/25/33 |
| 83,250 |
| 82,118 |
| |||
| Series 2004-2 1A1 6.00% 3/25/34 |
| 69,195 |
| 68,146 |
| |||
| Series 2004-11 1CB1 6.00% 12/25/34 |
| 37,167 |
| 36,650 |
| |||
| Series 2005-9 5A1 5.50% 10/25/20 |
| 106,669 |
| 104,536 |
| |||
6
|
| Principal |
| Value |
| ||||
| NON-AGENCY COLLATERALIZED MORTGAGE OBLIGATIONS (continued) |
|
|
|
|
|
| ||
· | Bank of America Funding Series 2006-H 1A2 5.689% 9/20/46 |
| USD | 130,375 |
| $ | 131,011 |
| |
· | Bank of America Mortgage Securities Series 2003-D 1A2 7.289% 5/25/33 |
| 746 |
| 751 |
| |||
· | Bear Stearns Alternative A Trust |
|
|
|
|
| |||
| Series 2006-3 33A1 6.162% 5/25/36 |
| 97,127 |
| 97,397 |
| |||
| Series 2006-3 34A1 6.155% 5/25/36 |
| 104,774 |
| 105,061 |
| |||
| Bear Stearns Asset Backed Securities Series 2005-AC8 A5 5.50% 11/25/35 |
| 73,792 |
| 73,525 |
| |||
· | Citigroup Mortgage Loan Trust Series 2007-AR5 1AB 5.625% 4/25/37 |
| 102,681 |
| 101,812 |
| |||
| Countrywide Alternative Loan Trust |
|
|
|
|
| |||
| Series 2003-20CB 1A2 5.50% 10/25/33 |
| 145,011 |
| 143,363 |
| |||
| Series 2004-28CB 6A1 6.00% 1/25/35 |
| 87,893 |
| 86,671 |
| |||
· | Series 2004-J7 1A2 4.673% 8/25/34 |
| 16,368 |
| 16,253 |
| |||
| Series 2005-1CB 2A2 5.50% 3/25/35 |
| 160,429 |
| 158,793 |
| |||
| Series 2006-2CB A3 5.50% 3/25/36 |
| 70,871 |
| 70,356 |
| |||
t· | Countrywide Home Loan Mortgage Pass Through Trust |
|
|
|
|
| |||
| Series 2003-21 A1 4.077% 5/25/33 |
| 34,558 |
| 34,319 |
| |||
| Series 2003-46 1A1 4.124% 1/19/34 |
| 38,265 |
| 38,094 |
| |||
| Series 2004-12 1M 4.894% 8/25/34 |
| 88,191 |
| 87,683 |
| |||
| Series 2006-HYB4 1A2 5.646% 6/20/36 |
| 73,931 |
| 74,280 |
| |||
| Credit Suisse First Boston Mortgage Securities |
|
|
|
|
| |||
| Series 2002-5 1A4 6.50% 2/25/32 |
| 97,421 |
| 97,214 |
| |||
| Series 2003-29 5A1 7.00% 12/25/33 |
| 23,680 |
| 24,131 |
| |||
| Series 2004-1 3A1 7.00% 2/25/34 |
| 6,976 |
| 7,109 |
| |||
| Deutsche Alternative A Securities Loan Trust Series 2003-4XS A6A 4.82% 10/25/33 |
| 61,562 |
| 60,141 |
| |||
· | First Horizon Asset Securities Series 2004-AR5 4A1 5.708% 10/25/34 |
| 45,722 |
| 45,403 |
| |||
· | GMAC Mortgage Loan Trust Series 2005-AR2 4A 5.188% 5/25/35 |
| 84,101 |
| 82,394 |
| |||
# | GSMPS Mortgage Loan Trust 144A |
|
|
|
|
| |||
| Series 1998-3 A 7.75% 9/19/27 |
| 28,685 |
| 29,881 |
| |||
| Series 2005-RP1 1A3 8.00% 1/25/35 |
| 32,581 |
| 34,223 |
| |||
| Series 2005-RP1 1A4 8.50% 1/25/35 |
| 14,766 |
| 15,650 |
| |||
| GSR Mortgage Loan Trust |
|
|
|
|
| |||
| Series 2004-2F 9A1 6.00% 9/25/19 |
| 21,548 |
| 21,559 |
| |||
· | Series 2007-AR1 1A2 5.774% 3/25/37 |
| 201,992 |
| 202,304 |
| |||
· | Indymac Index Mortgage Loan Trust Series 2006-AR2 1A1A 5.54% 4/25/46 |
| 30,333 |
| 30,354 |
| |||
· | JPMorgan Mortgage Trust |
|
|
|
|
| |||
| Series 2005-A1 4A1 4.778% 2/25/35 |
| 106,884 |
| 103,953 |
| |||
| Series 2005-A4 1A1 5.399% 7/25/35 |
| 129,860 |
| 127,975 |
| |||
| Series 2005-A6 1A2 5.14% 9/25/35 |
| 105,000 |
| 101,672 |
| |||
| Series 2007-A1 B1 4.817% 7/25/35 |
| 99,670 |
| 97,199 |
| |||
| Lehman Mortgage Trust |
|
|
|
|
|
| ||
| Series 2005-2 2A3 5.50% 12/25/35 |
|
| 68,770 |
| 68,411 |
| ||
| Series 2006-1 3A3 5.50% 2/25/36 |
| 97,090 |
| 96,058 |
| |||
· | MASTR Adjustable Rate Mortgages Trust |
|
|
|
|
| |||
| Series 2003-6 1A2 5.89% 12/25/33 |
| 30,980 |
| 31,480 |
| |||
| Series 2005-1 B1 5.409% 3/25/35 |
| 113,423 |
| 112,341 |
| |||
| Series 2005-6 7A1 5.339% 6/25/35 |
| 81,013 |
| 79,783 |
| |||
# | MASTR Reperforming Loan Trust Series 2005-1 1A5 144A 8.00% 8/25/34 |
| 66,206 |
| 69,437 |
| |||
| Nomura Asset Acceptance |
|
|
|
|
| |||
| Series 2005-WF1 2A2 4.786% 3/25/35 |
| 100,000 |
| 97,611 |
| |||
· | Series 2006-AF1 1A2 6.159% 5/25/36 |
| 125,000 |
| 125,931 |
| |||
| Residential Asset Mortgage Products |
|
|
|
|
| |||
| Series 2004-SL1 A3 7.00% 11/25/31 |
| 17,444 |
| 17,676 |
| |||
| Series 2004-SL4 A3 6.50% 7/25/32 |
| 34,407 |
| 34,846 |
| |||
· | Residential Funding Mortgage Security I Series 2006-SA3 3A1 6.044% 9/25/36 |
| 102,345 |
| 102,587 |
| |||
· | Structured Adjustable Rate Mortgage Loan Trust |
|
|
|
|
| |||
| Series 2004-18 5A 5.50% 12/25/34 |
| 42,157 |
| 41,717 |
| |||
| Series 2005-22 4A2 5.373% 12/25/35 |
| 22,152 |
| 21,741 |
| |||
| Series 2005-3XS A2 5.57% 1/25/35 |
| 18,642 |
| 18,649 |
| |||
| Series 2006-5 5A4 5.56% 6/25/36 |
| 46,309 |
| 45,676 |
| |||
| Structured Asset Securities |
|
|
|
|
| |||
| Series 2004-5H A2 4.43% 12/25/33 |
| 34,394 |
| 34,140 |
| |||
| Series 2004-12H 1A 6.00% 5/25/34 |
| 31,538 |
| 31,050 |
| |||
t | Washington Mutual Alternative Mortgage Pass Through Certificates |
|
|
|
|
| |||
| Series 2006-5 2CB3 6.00% 7/25/36 |
| 106,105 |
| 106,814 |
| |||
· | Series 2006-AR5 3A 5.969% 7/25/46 |
| 73,822 |
| 73,877 |
| |||
t | Washington Mutual Mortgage Pass Through Certificates |
|
|
|
|
| |||
| Series 2003-S10 A2 5.00% 10/25/18 |
| 171,147 |
| 165,728 |
| |||
· | Series 2004-AR4 A2 2.98% 6/25/34 |
| 32,548 |
| 32,507 |
| |||
· | Series 2006-AR7 1A 6.009% 7/25/46 |
| 44,808 |
| 44,808 |
| |||
| Series 2006-AR10 1A1 5.953% 9/25/36 |
| 111,353 |
| 111,249 |
| |||
· | Series 2006-AR14 1A4 5.651% 11/25/36 |
| 105,105 |
| 104,807 |
| |||
· | Series 2007-HY1 1A1 5.722% 2/25/37 |
| 181,563 |
| 181,085 |
| |||
· | Series 2007-OA2 B1 5.66% 3/25/47 |
| 59,940 |
| 59,882 |
| |||
· | Wells Fargo Mortgage Backed Securities Trust |
|
|
|
|
| |||
| Series 2004-EE 2A1 3.99% 12/25/34 |
| 178,404 |
| 174,699 |
| |||
| Series 2004-T A1 5.026% 9/25/34 |
| 27,152 |
| 27,358 |
| |||
| Series 2005-AR12 2A10 4.319% 7/25/35 |
| 147,572 |
| 145,838 |
| |||
| Series 2006-AR4 2A1 5.777% 4/25/36 |
| 189,643 |
| 188,624 |
| |||
| Series 2006-AR6 7A1 5.111% 3/25/36 |
| 272,240 |
| 266,081 |
| |||
| Series 2006-AR10 5A1 5.599% 7/25/36 |
| 100,977 |
| 100,409 |
| |||
| Series 2006-AR11 A7 5.519% 8/25/36 |
| 111,451 |
| 110,188 |
| |||
| Series 2006-AR12 1A2 6.031% 9/25/36 |
| 76,345 |
| 76,637 |
| |||
7
|
| Principal |
| Value |
| |||
| NON-AGENCY COLLATERALIZED MORTGAGE OBLIGATIONS (continued) |
|
|
|
|
| ||
· | Wells Fargo Mortgage Backed Securities Trust (continued) |
|
|
|
|
| ||
| Series 2006-AR14 2A4 6.096% 10/25/36 |
| USD | 88,472 |
| $ | 88,885 |
|
| Total Non-Agency Collateralized Mortgage Obligations |
|
|
| 5,680,591 |
| ||
|
|
|
|
|
|
| ||
« | SENIOR SECURED LOANS–0.28% |
|
|
|
|
| ||
@ | Visteon 8.38% 6/13/13 |
| 100,000 |
| 100,313 |
| ||
| Total Senior Secured Loans |
|
|
| 100,313 |
| ||
|
|
|
|
|
|
| ||
| SOVEREIGN DEBT–0.99% |
|
|
|
|
| ||
| U.K. Treasury 4.00% 3/7/09 |
| GBP | 180,000 |
| 351,563 |
| |
| Total Sovereign Debt (cost $344,285) |
|
|
| 351,563 |
| ||
|
|
|
|
|
|
| ||
| U.S. TREASURY OBLIGATIONS–4.89% |
|
|
|
|
| ||
| U.S. Treasury Inflation Index Notes |
|
|
|
|
| ||
| 2.00% 1/15/14 |
| USD | 206,939 |
| 198,937 |
| |
| 2.375% 4/15/11 |
| 583,134 |
| 576,939 |
| ||
°° | 3.00% 7/15/12 |
| 350,607 |
| 357,509 |
| ||
| 3.875% 1/15/09 |
| 315,070 |
| 320,190 |
| ||
| U.S. Treasury Notes |
|
|
|
|
| ||
| 4.50% 5/15/10 |
| 55,000 |
| 54,441 |
| ||
| 4.50% 4/30/12 |
| 235,000 |
| 230,704 |
| ||
|
|
|
|
|
|
| ||
| Total U.S. Treasury Obligations |
|
|
| 1,738,720 |
| ||
8
TOTAL VALUE OF SECURITIES–97.01% (cost $34,609,789) |
| $ | 34,465,582 |
|
RECEIVABLES AND OTHER ASSETS NET OF LIABILITIES–2.99% |
| 1,060,722 |
| |
NET ASSETS APPLICABLE TO 3,687,337 SHARES OUTSTANDING–100.00% |
| $ | 35,526,304 |
|
NET ASSET VALUE–DELAWARE VIP CAPITAL RESERVES SERIES STANDARD CLASS ($21,792,840 / 2,256,388 Shares) |
| $ | 9.66 |
|
NET ASSET VALUE–DELAWARE VIP CAPITAL RESERVES SERIES SERVICES CLASS ($13,733,464 / 1,430,949 Shares) |
| $ | 9.60 |
|
COMPONENTS OF NET ASSETS AT JUNE 30, 2007: |
|
|
| |
Shares of beneficial interest (unlimited authorization–no par) |
| $ | 37,458,554 |
|
Undistributed net investment income |
| 30,624 |
| |
Accumulated net realized loss on investments |
| (1,797,790 | ) | |
Unrealized depreciation of investments and foreign currencies |
| (165,084 | ) | |
Total net assets |
| $ | 35,526,304 |
|
° Principal amount shown is stated in the currency in which each security is denominated.
AUD – Australian Dollar
CAD – Canadian Dollar
EUR – European Monetary Unit
GBP – British Pound Sterling
JPY – Japanese Yen
NOK – Norwegian Kroner
NZD – New Zealand Dollar
SEK – Swedish Krona
USD – United States Dollar
t | Pass Through Agreement. Security represents the contractual right to receive a proportionate amount of underlying payments due to the counterparty pursuant to various agreements related to the rescheduling of obligations and the exchange of certain notes. |
· | Variable rate security. The rate shown is the rate as of June 30, 2007. |
« | Senior Secured Loans generally pay interest at rates which are periodically redetermined by reference to a base lending rate plus a premium. These base lending rates are generally (i) the prime rate offered by one or more United States banks, (ii) the lending rate offered by one or more European banks such as the London Inter-Bank Offered Rate (LIBOR) and (iii) the certificate of deposit rate. Senior Secured Loans may be subject to restrictions on resale. |
@ | Illiquid security. At June 30, 2007, the aggregate amount of illiquid securities equaled $100,313, which represented 0.28% of the Series’ net assets. See Note 11 in “Notes to Financial Statements.” |
°° | Fully or partially pledged as collateral for financial futures contracts. |
# | Security exempt from registration under Rule 144A of the Securities Act of 1933, as amended. At June 30, 2007, the aggregate amount of Rule 144A securities equaled $2,389,435, which represented 6.73% of the Series’ net assets. See Note 11 in “Notes to Financial Statements.” |
Summary of Abbreviations:
ARM – Adjustable Rate Mortgage
FHAVA – Federal Housing Administration & Veterans Administration
GNMA – Government National Mortgage Association
GSMPS – Goldman Sachs Reperforming Mortgage Securities
NIM – Net Interest Margin
S.F. – Single Family
yr – Year
The following foreign currency exchange and foreign cross currency exchange contracts, futures contracts, and swap contracts were outstanding at June 30, 2007:
Foreign Currency Exchange Contracts(1)
Contracts to Receive (Deliver) |
| In Exchange For |
| Settlement Date |
| Unrealized |
| |||
AUD | (1,756,782 | ) | USD | 14,694 |
| 7/31/07 |
| (188 | ) | |
CAD | 107,996 |
| EUR | (75,000 | ) | 8/31/07 |
| (223 | ) | |
CAD | 42,000 |
| USD | (39,606 | ) | 7/31/07 |
| (156 | ) | |
EUR | (60,000 | ) | USD | 80,958 |
| 8/31/07 |
| (431 | ) | |
EUR | 50,000 |
| USD | (67,735 | ) | 7/31/07 |
| 16 |
| |
EUR | 160,000 |
| USD | (216,763 | ) | 7/31/07 |
| 40 |
| |
GBP | (178,770 | ) | USD | 356,889 |
| 8/31/07 |
| (1,772 | ) | |
JPY | 41,000 |
| USD | (340 | ) | 7/31/07 |
| (6 | ) | |
JPY | 39,955,463 |
| USD | (331,540 | ) | 7/31/07 |
| (5,644 | ) | |
NOK | 280,000 |
| USD | (46,903 | ) | 7/31/07 |
| 608 |
| |
NOK | 655,000 |
| USD | (109,845 | ) | 7/31/07 |
| 1,298 |
| |
NZD | (520,000 | ) | USD | 380,234 |
| 8/31/07 |
| (18,548 | ) | |
SEK | 3,450 |
| USD | (502 | ) | 7/31/07 |
| 3 |
| |
|
|
|
|
|
|
|
| $ | (25,003 | ) |
9
Futures Contracts(2)
Contracts |
| Notional Cost |
| Notional |
| Expiration Date |
| Unrealized |
| ||||
24 | U.S. Treasury 2 year notes |
| $ | 4,897,477 |
| $ | 4,890,750 |
| 9/30/07 |
| $ | (6,727 | ) |
13 | U.S. Treasury 5 year notes |
| 1,345,279 |
| 1,353,016 |
| 9/30/07 |
| 7,737 |
| |||
(24) | U.S. Treasury 10 year Notes |
| (2,555,745 | ) | (2,536,875 | ) | 9/30/07 |
| 18,870 |
| |||
|
|
|
|
|
|
|
| $ | 19,880 |
| |||
Swap Contracts(3)
Index Swap
Notional Amount |
| Expiration Date |
| Description |
| Unrealized |
| ||
$ | 990,000 |
| 8/1/07 |
| Agreement with Goldman Sachs to receive the notional amount multiplied by the return on the Lehman Brothers Commercial MBS Index AAA and to pay the notional amount multiplied by the 3 month BBA LIBOR adjusted by a spread of minus 0.05%. |
| $ | 825 |
|
|
|
|
|
|
|
|
| ||
Interest Rate Swap
Notional Amount |
| Expiration Date |
| Description |
| Unrealized |
| ||
$ | 1,000,000 |
| 1/8/09 |
| Agreement with Goldman Sachs to receive the notional amount multiplied by the fixed rate of 5.36% and to pay the notional amount multiplied by the 3 month LIBOR. |
| $ | (4,721 | ) |
|
|
|
|
|
|
|
| ||
$ | 1,155,000 |
| 5/2/12 |
| Agreement with Goldman Sachs to receive the notional amount multiplied by the fixed rate of 5.36% and to pay the notional amount multiplied by the 3 month LIBOR. |
| $ | (24,050 | ) |
The use of foreign currency and foreign cross currency exchange contracts, futures contracts and swap contracts involves elements of market risk and risks in excess of the amount recognized in the financial statements. The notional amounts presented above represent the Series’ total exposure in such contracts, whereas only the net unrealized appreciation (depreciation) is reflected in the Series’ net assets.
(1) See Note 8 in “Notes to Financial Statements.”
(2) See Note 9 in “Notes to Financial Statements.”
(3) See Note 10 in “Notes to Financial Statements.”
See accompanying notes
10
Delaware VIP Trust —
Delaware VIP Capital Reserves Series
Statement of Operations
Six Months Ended June 30, 2007 (Unaudited)
INVESTMENT INCOME: |
|
|
| |
Interest |
| $ | 1,001,219 |
|
|
|
|
| |
EXPENSES: |
|
|
| |
Management fees |
| 87,348 |
| |
Distribution expenses – Service Class |
| 19,089 |
| |
Accounting and administration expenses |
| 6,988 |
| |
Reports and statements to shareholders |
| 6,352 |
| |
Audit and tax |
| 5,874 |
| |
Pricing fees |
| 3,687 |
| |
Custodian fees |
| 2,627 |
| |
Legal fees |
| 1,891 |
| |
Dividend disbursing and transfer agent fees and expenses |
| 1,747 |
| |
Trustees’ fees and benefits |
| 865 |
| |
Insurance fees |
| 460 |
| |
Consulting fees |
| 288 |
| |
Dues and services |
| 60 |
| |
Trustees’ expenses |
| 53 |
| |
Taxes (other than taxes on income) |
| 31 |
| |
|
| 137,360 |
| |
Less waiver of distribution expenses – Service Class |
| (3,182 | ) | |
Less expense paid indirectly |
| (471 | ) | |
Total operating expenses |
| 133,707 |
| |
|
|
|
| |
NET INVESTMENT INCOME |
| 867,512 |
| |
|
|
|
| |
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND FOREIGN CURRENCIES: |
|
|
| |
Net realized gain (loss) on: |
|
|
| |
Investments |
| (1,697 | ) | |
Foreign currencies |
| (28,379 | ) | |
Futures contracts |
| 7,864 |
| |
Swap contracts |
| (31,490 | ) | |
Net realized loss |
| (53,702 | ) | |
Net change in unrealized appreciation/depreciation of investments and foreign currencies |
| (153,716 | ) | |
|
|
|
| |
NET REALIZED AND UNREALIZED LOSS ON INVESTMENTS AND FOREIGN CURRENCIES |
| (207,418 | ) | |
|
|
|
| |
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS |
| $ | 660,094 |
|
Delaware VIP Trust —
Delaware VIP Capital Reserves Series
Statements of Changes in Net Assets
|
| Six Months |
| Year |
| ||
|
| (Unaudited) |
|
|
| ||
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS: |
|
|
|
|
| ||
Net investment income |
| $ | 867,512 |
| $ | 1,337,119 |
|
Net realized loss on investments and foreign currencies |
| (53,702 | ) | (113,807 | ) | ||
Net change in unrealized appreciation/ depreciation of investments and foreign currencies |
| (153,716 | ) | 275,106 |
| ||
Net increase in net assets resulting from operations |
| 660,094 |
| 1,498,418 |
| ||
|
|
|
|
|
| ||
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM: |
|
|
|
|
| ||
Net investment income: |
|
|
|
|
| ||
Standard Class |
| (549,417 | ) | (1,090,179 | ) | ||
Service Class |
| (301,339 | ) | (379,335 | ) | ||
|
| (850,756 | ) | (1,469,514 | ) | ||
CAPITAL SHARE TRANSACTIONS: |
|
|
|
|
| ||
Proceeds from shares sold: |
|
|
|
|
| ||
Standard Class |
| 3,185,127 |
| 30,958,997 |
| ||
Service Class |
| 6,204,622 |
| 21,727,142 |
| ||
Net asset value of shares issued upon reinvestment of dividends and distributions: |
|
|
|
|
| ||
Standard Class |
| 549,417 |
| 1,087,085 |
| ||
Service Class |
| 299,199 |
| 370,622 |
| ||
|
| 10,238,365 |
| 54,143,846 |
| ||
Cost of shares repurchased: |
|
|
|
|
| ||
Standard Class |
| (4,448,748 | ) | (33,314,414 | ) | ||
Service Class |
| (4,404,250 | ) | (14,914,594 | ) | ||
|
| (8,852,998 | ) | (48,229,008 | ) | ||
Increase in net assets derived from capital share transactions |
| 1,385,367 |
| 5,914,838 |
| ||
|
|
|
|
|
| ||
NET INCREASE IN NET ASSETS |
| 1,194,705 |
| 5,943,742 |
| ||
|
|
|
|
|
| ||
NET ASSETS: |
|
|
|
|
| ||
Beginning of period |
| 34,331,599 |
| 28,387,857 |
| ||
End of period (including undistributed net investment income of $30,624 and $4,212, respectively) |
| $ | 35,526,304 |
| $ | 34,331,599 |
|
See accompanying notes
11
Delaware VIP Trust — Delaware VIP Capital Reserves Series
Financial Highlights
Selected data for each share of the Series outstanding throughout each period were as follows:
|
| Delaware VIP Capital Reserves Series Standard Class |
| ||||||||||||||||
|
| Six Months |
|
|
|
|
|
|
|
|
|
|
| ||||||
|
| Ended |
| Year Ended |
| ||||||||||||||
|
| 6/30/07(1) |
| 12/31/06 |
| 12/31/05 |
| 12/31/04 |
| 12/31/03 |
| 12/31/02 |
| ||||||
|
| (Unaudited) |
|
|
|
|
|
|
|
|
|
|
| ||||||
Net asset value, beginning of period |
| $ | 9.710 |
| $ | 9.710 |
| $ | 9.940 |
| $ | 10.020 |
| $ | 9.970 |
| $ | 9.750 |
|
Income (loss) from investment operations: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Net investment income(2) |
| 0.243 |
| 0.396 |
| 0.355 |
| 0.356 |
| 0.329 |
| 0.419 |
| ||||||
Net realized and unrealized gain (loss) on investments and foreign currencies |
| (0.055 | ) | 0.038 |
| (0.180 | ) | 0.004 |
| 0.125 |
| 0.253 |
| ||||||
Total from investment operations |
| 0.188 |
| 0.434 |
| 0.175 |
| 0.360 |
| 0.454 |
| 0.672 |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Less dividends and distributions from: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Net investment income |
| (0.238 | ) | (0.434 | ) | (0.405 | ) | (0.440 | ) | (0.404 | ) | (0.452 | ) | ||||||
Total dividends and distributions |
| (0.238 | ) | (0.434 | ) | (0.405 | ) | (0.440 | ) | (0.404 | ) | (0.452 | ) | ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Net asset value, end of period |
| $ | 9.660 |
| $ | 9.710 |
| $ | 9.710 |
| $ | 9.940 |
| $ | 10.020 |
| $ | 9.970 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Total return(3) |
| 1.95 | % | 4.57 | % | 1.79 | % | 3.66 | % | 4.63 | % | 7.09 | % | ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Ratios and supplemental data: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Net assets, end of period (000 omitted) |
| $ | 21,793 |
| $ | 22,626 |
| $ | 23,895 |
| $ | 25,955 |
| $ | 34,077 |
| $ | 42,698 |
|
Ratio of expenses to average net assets |
| 0.67 | % | 0.71 | % | 0.71 | % | 0.62 | % | 0.63 | % | 0.62 | % | ||||||
Ratio of net investment income to average net assets |
| 5.06 | % | 4.10 | % | 3.61 | % | 3.57 | % | 3.36 | % | 4.21 | % | ||||||
Portfolio turnover |
| 141 | % | 318 | % | 259 | % | 252 | % | 438 | % | 427 | % |
(1) | Ratios and portfolio turnover have been annualized and total return has not been annualized. |
(2) | The average shares outstanding method has been applied for per share information. |
(3) | Total investment return is based on the change in net asset value of a share during the period and assumes reinvestment of dividends and distributions at net asset value. |
See accompanying notes
12
Selected data for each share of the Series outstanding throughout each period were as follows:
|
| Delaware VIP Capital Reserves Series Service Class |
| ||||||||||||||||
|
| Six Months |
|
|
|
|
|
|
|
|
|
|
| ||||||
|
| Ended |
| Year Ended |
| ||||||||||||||
|
| 6/30/07(1) |
| 12/31/06 |
| 12/31/05 |
| 12/31/04 |
| 12/31/03 |
| 12/31/02 |
| ||||||
|
| (Unaudited) |
|
|
|
|
|
|
|
|
|
|
| ||||||
Net asset value, beginning of period |
| $ | 9.650 |
| $ | 9.650 |
| $ | 9.900 |
| $ | 10.000 |
| $ | 9.970 |
| $ | 9.760 |
|
Income (loss) from investment operations: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Net investment income(2) |
| 0.231 |
| 0.372 |
| 0.331 |
| 0.333 |
| 0.308 |
| 0.406 |
| ||||||
Net realized and unrealized gain (loss) on investments and foreign currencies |
| (0.055 | ) | 0.037 |
| (0.200 | ) | (0.017 | ) | 0.105 |
| 0.243 |
| ||||||
Total from investment operations |
| 0.176 |
| 0.409 |
| 0.131 |
| 0.316 |
| 0.413 |
| 0.649 |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Less dividends and distributions from: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Net investment income |
| (0.226 | ) | (0.409 | ) | (0.381 | ) | (0.416 | ) | (0.383 | ) | (0.439 | ) | ||||||
Total dividends and distributions |
| (0.226 | ) | (0.409 | ) | (0.381 | ) | (0.416 | ) | (0.383 | ) | (0.439 | ) | ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Net asset value, end of period |
| $ | 9.600 |
| $ | 9.650 |
| $ | 9.650 |
| $ | 9.900 |
| $ | 10.000 |
| $ | 9.970 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Total return(3) |
| 1.84 | % | 4.34 | % | 1.35 | % | 3.23 | % | 4.21 | % | 6.84 | % | ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Ratios and supplemental data: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Net assets, end of period (000 omitted) |
| $ | 13,733 |
| $ | 11,706 |
| $ | 4,493 |
| $ | 7 |
| $ | 6 |
| $ | 6 |
|
Ratio of expenses to average net assets |
| 0.92 | % | 0.96 | % | 0.96 | % | 0.87 | % | 0.85 | % | 0.77 | % | ||||||
Ratio of expenses to average net assets prior to expense limitation and expenses paid indirectly |
| 0.97 | % | 1.01 | % | 1.01 | % | 0.92 | % | 0.88 | % | 0.77 | % | ||||||
Ratio of net investment income to average net assets |
| 4.81 | % | 3.85 | % | 3.36 | % | 3.32 | % | 3.14 | % | 4.06 | % | ||||||
Ratio of net investment income to average net assets prior to expense limitation and expenses paid indirectly |
| 4.76 | % | 3.78 | % | 3.31 | % | 3.27 | % | 3.11 | % | 4.06 | % | ||||||
Portfolio turnover |
| 141 | % | 318 | % | 259 | % | 252 | % | 438 | % | 427 | % |
(1) Ratios and portfolio turnover have been annualized and total return has not been annualized.
(2) The average shares outstanding method has been applied for per share information.
(3) Total investment return is based on the change in net asset value of a share during the period and assumes reinvestment of dividends and distributions at net asset value. Total investment return reflects a waiver and payment of fees by the distributor, as applicable. Performance would have been lower had the waiver not been in effect.
See accompanying notes
13
Delaware VIP Trust — Delaware VIP Capital Reserves Series
Notes to Financial Statements
June 30, 2007 (Unaudited)
Delaware VIP Trust (Trust) is organized as a Delaware statutory trust and offers 14 series: Delaware VIP Balanced Series, Delaware VIP Capital Reserves Series, Delaware VIP Cash Reserve Series, Delaware VIP Diversified Income Series, Delaware VIP Emerging Markets Series, Delaware VIP Growth Opportunities Series, Delaware VIP High Yield Series, Delaware VIP International Value Equity Series, Delaware VIP REIT Series, Delaware VIP Select Growth Series, Delaware VIP Small Cap Value Series, Delaware VIP Trend Series, Delaware VIP U.S. Growth Series and Delaware VIP Value Series. These financial statements and the related notes pertain to Delaware VIP Capital Reserves Series (Series). The Trust is an open-end investment company. The Series is considered diversified under the Investment Company Act of 1940, as amended, and offers Standard Class and Service Class shares. The Standard Class shares do not carry a 12b-1 fee and the Service Class shares carry a 12b-1 fee. The shares of the Series are sold only to separate accounts of life insurance companies.
The investment objective of the Series is to seek a high, stable level of current income while attempting to minimize fluctuations in principal and provide maximum liquidity.
1. Significant Accounting Policies
The following accounting policies are in accordance with U.S. generally accepted accounting principles and are consistently followed by the Series.
Security Valuation—U.S. government and agency securities are valued at the mean between the bid and asked prices. Other long-term debt securities are valued by an independent pricing service and such prices are believed to reflect the fair value of such securities. Short-term debt securities having less than 60 days to maturity are valued at amortized cost, which approximates market value. Foreign currency exchange contracts are valued at the mean between the bid and asked prices of the contracts and are marked-to-market daily. Interpolated values are derived when the settlement date of the contract is an interim date for which quotations are not available. Futures contracts and options on futures contracts are valued at the daily quoted settlement prices. Swap contracts and other securities and assets for which market quotations are not readily available are valued at fair value as determined in good faith under the direction of the Series’ Board of Trustees. In determining whether market quotations are readily available or fair valuation will be used, various factors will be taken into consideration, such as market closures, aftermarket trading, or significant events after local market trading (e.g., government actions or pronouncements, trading volume or volatility on markets, exchanges among dealers, or news events).
In September 2006, the Financial Accounting Standards Board (FASB) issued FASB Statement No. 157 “Fair Value Measurements” (Statement 157). Statement 157 establishes a framework for measuring fair value in generally accepted accounting principles, clarifies the definition of fair value within that framework, and expands disclosures about the use of fair value measurements. Statement 157 is intended to increase consistency and comparability among fair value estimates used in financial reporting. Statement 157 is effective for fiscal years beginning after November 15, 2007. Management does not expect the adoption of Statement 157 to have an impact on the amounts reported in the financial statements.
Federal Income Taxes—The Series intends to continue to qualify for federal income tax purposes as a regulated investment company and make the requisite distributions to shareholders. Accordingly, no provision for federal income taxes has been made in the financial statements.
Effective June 29, 2007, the Series adopted FASB Interpretation No. 48 “Accounting for Uncertainty in Income Taxes” (FIN 48). FIN 48 provides guidance for how uncertain tax positions should be recognized, measured, presented and disclosed in the financial statements. FIN 48 requires the evaluation of tax positions taken or expected to be taken in the course of preparing the Series’ tax returns to determine whether the tax positions are “more-likely-than-not” of being sustained by the applicable tax authority. Tax positions not deemed to meet the more-likely-than-not threshold are recorded as a tax benefit or expense in the current year. The adoption of FIN 48 did not result in the recording of any tax benefit or expense in the current period.
Class Accounting—Investment income and common expenses are allocated to the classes of the Series on the basis of “settled shares” of each class in relation to the net assets of the Series. Realized and unrealized gain (loss) on investments is allocated to the classes of the Series on the basis of daily net assets of each class. Distribution expenses relating to a specific class are charged directly to that class.
Repurchase Agreements—The Series may invest in a pooled cash account along with members of the Delaware Investments® Family of Funds pursuant to an exemptive order issued by the Securities and Exchange Commission. The aggregate daily balance of the pooled cash account is invested in repurchase agreements secured by obligations of the U.S. government. The respective collateral is held by the Series’ custodian bank until the maturity of the respective repurchase agreements. Each repurchase agreement is at least 102% collateralized. However, in the event of default or bankruptcy by the counterparty to the agreement, realization of the collateral may be subject to legal proceedings.
Use of Estimates—The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Other—Expenses directly attributable to the Series are charged directly to the Series. Other expenses common to various funds within the Delaware Investments® Family of Funds are generally allocated amongst such funds on the basis of average net assets. Management fees and some other expenses are paid monthly. Security transactions are recorded on the date the securities are purchased or sold (trade date) for financial reporting purposes. Costs used in calculating realized gains and losses on the sale of investment securities are those of the specific securities sold. Interest income is recorded on the accrual basis. Discounts and premiums are amortized to interest income over the lives of the respective securities. Realized gains (losses) on paydowns of mortgage- and asset-backed securities are classified as interest income.
The Series declares dividends daily from net investment income and pays such dividends monthly and declares and pays distributions from net realized gain on investments, if any, following the close of the fiscal year.
14
The Series may receive earnings credits from its custodian when positive cash balances are maintained, which are used to offset custody fees. The expense paid under this arrangement is included in custodian fees on the Statement of Operations with the corresponding expense offset shown as “expense paid indirectly.”
2. Investment Management, Administration Agreements and Other Transactions with Affiliates
In accordance with the terms of its investment management agreement, the Series pays Delaware Management Company (DMC), a series of Delaware Management Business Trust and the investment manager, an annual fee which is calculated daily at the rate of 0.50% on the first $500 million of average daily net assets of the Series, 0.475% on the next $500 million, 0.45% on the next $1.5 billion, and 0.425% on average daily net assets in excess of $2.5 billion.
Prior to May 1, 2007, DMC had contractually agreed to waive that portion, if any, of its management fee and reimburse the Series to the extent necessary to ensure that annual operating expenses, exclusive of taxes, interest, brokerage commissions, inverse floater program expenses, 12b-1 plan expenses, certain insurance costs and non-routine expenses or costs including, but not limited to, those relating to reorganizations, litigation, certain Trustee retirement plan expenses, conducting shareholder meetings, and liquidations, did not exceed 0.70% of average daily net assets of the Series through April 30, 2007. No reimbursement was due for the six months ended June 30, 2007.
Delaware Service Company, Inc. (DSC), an affiliate of DMC, provides accounting, administration, dividend disbursing and transfer agent services. The Series pays DSC a monthly fee computed at the annual rate of 0.04% of the Series’ average daily net assets for accounting and administrative services. The Series pays DSC a monthly fee based on average net assets for dividend disbursing and transfer agent services.
Pursuant to a distribution agreement and distribution plan, the Series pays Delaware Distributors, L.P. (DDLP), the distributor and an affiliate of DMC, an annual distribution and service fee not to exceed 0.30% of the average daily net assets of the Service Class shares. DDLP has contracted to waive distribution and service fees through April 30, 2008 in order to prevent distribution and service fees of the Service Class shares from exceeding 0.25% of average daily net assets. Standard Class shares pay no distribution and service expenses.
At June 30, 2007, the Series had liabilities payable to affiliates as follows:
Investment |
| Dividend Disbursing, |
| Distribution |
| Other |
| ||||
$ | 14,449 |
| $ | 1,445 |
| $ | 2,743 |
| $ | 10,257 |
|
* | DMC, as part of its administrative services, pays operating expenses on behalf of the Series and is reimbursed on a periodic basis. Such expenses include items such as printing of shareholder reports, fees for audit, legal and tax services, custodian fees and trustees’ fees. |
As provided in the investment management agreement, the Series bears the cost of certain legal and tax services, including internal legal and tax services provided to the Series by DMC and/or its affiliates’ employees. For the six months ended June 30, 2007, the Series was charged $800 for internal legal and tax services provided by DMC and/or its affiliates’ employees.
Trustees’ fees and benefits include expenses accrued by the Series for each Trustee’s retainer, per meeting fees and retirement benefits. Independent Trustees with over five years of uninterrupted service were eligible to participate in a retirement plan that provides for the payment of benefits upon retirement. The amount of the retirement benefit was determined based on factors set forth in the plan, including the number of years of service. On November 16, 2006, the Board of Trustees unanimously voted to terminate the retirement plan. Payments equal to the net present value of the earned benefits were made in 2007 to those independent Trustees so entitled. The retirement benefit payout for the Series was $4,608. Certain officers of DMC, DSC and DDLP are officers and/or Trustees of the Trust. These officers and Trustees are paid no compensation by the Series.
3. Investments
For the six months ended June 30, 2007, the Series made purchases and sales of investment securities other than short-term investments as follows:
Purchases other than U.S. government securities |
| $ | 11,616,778 |
|
Purchases of U.S. government securities |
| 12,356,869 |
| |
Sales other than U.S. government securities |
| 9,524,798 |
| |
Sales of U.S. government securities |
| 14,406,181 |
|
At June 30, 2007, the cost of investments for federal income tax purposes has been estimated since the final tax characteristics cannot be determined until fiscal year end. At June 30, 2007, the cost of investments and unrealized appreciation (depreciation) for the Series were as follows:
Cost of |
| Aggregate |
| Aggregate |
| Net Unrealized |
| ||||
$ | 34,702,954 |
| $ | 90,048 |
| $ | (327,420 | ) | $ | (237,372 | ) |
15
4. Dividend and Distribution Information
Income and long-term capital gain distributions are determined in accordance with federal income tax regulations, which may differ from U.S. generally accepted accounting principles. Additionally, gains (losses) on foreign currency transactions and net short-term gains on sales of investment securities are treated as ordinary income for federal income tax purposes. The tax character of dividends and distributions paid during the six months ended June 30, 2007 and the year ended December 31, 2006 was as follows:
| Six Months |
| Year |
| |||
Ordinary income |
| $ | 850,756 |
| $ | 1,469,514 |
|
* Tax information for the six months ended June 30, 2007 is an estimate and the tax character of dividends and distributions may be redesignated at fiscal year end.
5. Components of Net Assets on a Tax Basis
The components of net assets are estimated since final tax characteristics cannot be determined until fiscal year end. As of June 30, 2007, the estimated components of net assets on a tax basis were as follows:
Shares of beneficial interest |
| $ | 37,458,554 |
|
Capital loss carryforwards at 12/31/06 |
| (1,679,561 | ) | |
Realized losses 1/1/07 – 6/30/07 |
| (17,166 | ) | |
Unrealized depreciation of investments, |
| (235,523 | ) | |
Net assets |
| $ | 35,526,304 |
|
The differences between book basis and tax basis components of net assets are primarily attributable to tax deferral of losses on wash sales, mark-to-market of foreign currency contracts, mark-to-market of futures contracts, tax treatment of market discount and premium on debt instruments and contingent payment debt instruments.
For financial reporting purposes, capital accounts are adjusted to reflect the tax character of permanent book/tax differences. Reclassifications are primarily due to tax treatment of gain (loss) on foreign currency transactions, paydown gains (losses) on mortgage- and asset-backed securities and market discount and premium on certain debt instruments. Results of operations and net assets were not affected by these reclassifications. For the six months ended June 30, 2007, the Series recorded an estimate of these differences since the final tax characteristics cannot be determined until fiscal year end:
Undistributed |
| Accumulated |
| Paid-in |
| |||
$ | 9,656 |
| $ | 56,364 |
| $ | (66,020 | ) |
For federal income tax purposes, capital loss carryforwards may be carried forward and applied against future capital gains. Capital loss carryforwards remaining at December 31, 2006 will expire as follows: $1,132,035 expires in 2008; $82,894 expires in 2010; $226,584 expires in 2013; and $238,048 expires in 2014.
For the six months ended June 30, 2007, the Series had capital losses of $17,166, which may increase the capital loss carryforwards.
6. Capital Shares
Transactions in capital shares were as follows:
| Six Months |
| Year |
| |
Shares sold: |
|
|
|
|
|
Standard Class |
| 327,906 |
| 3,206,194 |
|
Service Class |
| 643,430 |
| 2,258,522 |
|
Shares issued upon reinvestment of dividends and distributions: |
|
|
|
|
|
Standard Class |
| 56,765 |
| 112,240 |
|
Service Class |
| 31,039 |
| 38,492 |
|
|
| 1,059,140 |
| 5,615,448 |
|
Shares repurchased: |
|
|
|
|
|
Standard Class |
| (458,541 | ) | (3,448,638 | ) |
Service Class |
| (456,635 | ) | (1,549,400 | ) |
|
| (915,176 | ) | (4,998,038 | ) |
Net increase |
| 143,964 |
| 617,410 |
|
16
7. Line of Credit
The Series, along with certain other funds in the Delaware Investments® Family of Funds (Participants), participates in a $225,000,000 revolving line of credit facility to be used for temporary or emergency purposes as an additional source of liquidity to fund redemptions of investor shares. The Participants are charged an annual commitment fee, which is allocated across the Participants on the basis of each Participant’s allocation of the entire facility. The Participants may borrow up to a maximum of one third of their net assets under the agreement. The Series had no amounts outstanding as of June 30, 2007, or at any time during the period then ended.
8. Foreign Currency Exchange Contracts
The Series may enter into foreign currency exchange contracts and foreign cross currency exchange contracts as a way of managing foreign exchange rate risk. The Series may enter into these contracts to fix the U.S. dollar value of a security that it has agreed to buy or sell for the period between the date the trade was entered into and the date the security is delivered and paid for. The Series may also use these contracts to hedge the U.S. dollar value of securities it already owns that are denominated in foreign currencies. The change in market value is recorded as an unrealized gain or loss. When the contract is closed, a realized gain or loss is recorded equal to the difference between the value of the contract at the time it was opened and the value at the time it was closed.
The use of foreign currency exchange contracts and foreign cross currency exchange contracts does not eliminate fluctuations in the underlying prices of the securities, but does establish a rate of exchange that can be achieved in the future. Although foreign currency exchange contracts limit the risk of loss due to a decline in the value of the hedged currency, they also limit any potential gain that might result should the value of the currency increase. In addition, the Series could be exposed to risks if the counterparties to the contracts are unable to meet the terms of their contracts. The unrealized gain (loss) is included in receivables and other assets net of liabilities on the Statement of Net Assets.
9. Futures Contracts
The Series may invest in financial futures contracts to hedge its existing portfolio securities against fluctuations in fair value caused by changes in prevailing market interest rates. Upon entering into a futures contract, the Series deposits cash or pledges U.S. government securities to a broker, equal to the minimum “initial margin” requirements of the exchange on which the contract is traded. Subsequent payments are received from the broker or paid to the broker each day, based on the daily fluctuation in the market value of the contract. These receipts or payments are known as “variation margin” and are recorded daily by the Series as unrealized gains or losses until the contracts are closed. When the contracts are closed, the Series records a realized gain or loss equal to the difference between the value of the contract at the time it was opened and the value at the time it was closed. Risks of entering into futures contracts includes potential imperfect correlation between the futures contracts and the underlying securities and the possibility of an illiquid secondary market for these instruments. The unrealized gain (loss) is included in receivables and other assets net of liabilities on the Statement of Net Assets.
10. Swap Contracts
The Series may enter into interest rate swap contracts and index swap contracts in accordance with its investment objectives. The Series may use interest rate swaps to adjust the Series’ sensitivity to interest rates or to hedge against changes in interest rates. Index swaps may be used to gain exposure to markets that the Series invests in, such as the corporate bond market. The Series may also use index swaps as a substitute for future or options contracts if such contracts are not directly available to the Series on favorable terms.
An interest rate swap involves payments received by the Series from another party based on a variable or floating interest rate, in return for making payments based on a fixed interest rate. An interest rate swap can also work in reverse with the Series receiving payments based on a fixed interest rate and making payments based on a variable or floating interest rate. Interest rate swaps may be used to adjust the Series’ sensitivity to interest rates or to hedge against changes in interest rates. Periodic payments on such contracts are accrued daily and recorded as unrealized appreciation/depreciation on swap contracts. Upon periodic payment/receipt or termination of the contract, such amounts are recorded as realized gains or losses on swap contracts.
Index swaps involve commitments to pay interest in exchange for a market-linked return based on a notional amount. To the extent the total return of the security, instrument or basket of instruments underlying the transaction exceeds the offsetting interest obligation, the Series will receive a payment from the counterparty. To the extent the total return of the security, instrument or basket of instruments underlying the transaction falls short of the offsetting interest obligation, the Series will make a payment to the counterparty. The change in value of swap contracts outstanding, if any, is recorded as unrealized appreciation or depreciation daily. A realized gain or loss is recorded on maturity or termination of the swap contract.
Because there is no organized market for swap contracts, the value of open swaps may differ from that which would be realized in the event the Series terminated its position in the agreement. Risks of entering into these agreements include the potential inability of the counterparty to meet the terms of the contracts. This type of risk is generally limited to the amount of favorable movements in the value of the underlying security, instrument, or basket of instruments, if any, at the day of default. Risks also arise from potential losses from adverse market movements and such losses could exceed the unrealized amounts shown above.
17
11. Credit and Market Risk
The Series invests in fixed income securities whose value is derived from an underlying pool of mortgages or consumer loans. Investors receive principal and interest payments as the underlying mortgages and consumer loans are paid back. Some of these securities are collateralized mortgage obligations (CMOs). CMOs are debt securities issued by U.S. government agencies or by financial institutions and other mortgage lenders, which are collateralized by a pool of mortgages held under an indenture. Prepayment of mortgages may shorten the stated maturity of the obligations and can result in a loss of premium, if any has been paid. Certain of these securities may be stripped (securities which provide only the principal or interest feature of the underlying security). The yield to maturity on an interest-only CMO is extremely sensitive not only to changes in prevailing interest rates, but also to the rate of principal payments (including prepayments) on the related underlying mortgage assets. A rapid rate of principal payments may have a material adverse affect on the Series’ yield to maturity. If the underlying mortgage assets experience greater than anticipated prepayments of principal, the Series may fail to recoup its initial investment in these securities even if the securities are rated in the highest rating categories.
The Series may invest up to 10% of its total assets in illiquid securities, which may include securities with contractual restrictions on resale, securities exempt from registration under Rule 144A of the Securities Act of 1933, as amended, and other securities which may not be readily marketable. The relative illiquidity of these securities may impair the Series from disposing of them in a timely manner and at a fair price when it is necessary or desirable to do so. While maintaining oversight, the Series’ Board of Trustees has delegated to DMC the day-to-day functions of determining whether individual securities are liquid for purposes of the Series’ limitation on investments in illiquid assets. Rule 144A and illiquid securities have been identified on the Statement of Net Assets.
12. Contractual Obligations
The Series enters into contracts in the normal course of business that contain a variety of indemnifications. The Series’ maximum exposure under these arrangements is unknown. However, the Series has not had prior claims or losses pursuant to these contracts. Management has reviewed the Series’ existing contracts and expects the risk of loss to be remote.
13. Subsequent Event
The Series has a new securities lending agreement with Mellon Bank, N.A. as of July 26, 2007.
The Series files its complete schedule of portfolio holdings with the Securities and Exchange Commission (the Commission) for the first and third quarters of each fiscal year on Form N-Q. The Series’ Forms N-Q, as well as a description of the policies and procedures that the Series uses to determine how to vote proxies (if any) relating to portfolio securities is available without charge (i) upon request, by calling 800 523-1918; and (ii) on the Commission’s website at http://www.sec.gov. In addition, a description of the policies and procedures that the Series uses to determine how to vote proxies (if any) relating to portfolio securities is available without charge on the Delaware Investments® Funds’ website at http://www.delawareinvestments.com. The Series’ Forms N-Q may be reviewed and copied at the Commission’s Public Reference Room in Washington, DC; information on the operation of the Public Reference Room may be obtained by calling 800 SEC-0330.
Information (if any) regarding how the Series voted proxies relating to portfolio securities during the most recently disclosed 12-month period ended June 30 is available without charge (i) through the Delaware Investments® Funds’ website at http://www.delawareinvestments.com; and (ii) on the Commission’s website at http://www.sec.gov.
18
Delaware VIP Trust — Delaware VIP Capital Reserves Series
Other Series Information
Board Consideration of Delaware VIP Capital Reserves Series Investment Advisory Agreement
At a meeting held on May 16-17, 2007 (Annual Meeting), the Board of Trustees (Board), including a majority of disinterested or independent Trustees, approved the renewal of the Investment Advisory Agreement for the VIP Capital Reserves Series (Series). In making its decision, the Board considered information furnished throughout the year at regular Board meetings, including reports detailing Series performance, investment strategies and expenses, as well as information prepared specifically in connection with the renewal of the investment advisory contracts. Information furnished specifically in connection with the renewal of the Investment Advisory Agreement with Delaware Management Company (DMC) included materials provided by DMC and its affiliates (Delaware Investments) concerning, among other things, the level of services provided to the Series, the costs of such services to the Series, economies of scale and the financial condition and profitability of Delaware Investments. In addition, in connection with the Meeting, the Board separately received and reviewed in mid-January 2007 independent historical and comparative reports prepared by Lipper Inc. (Lipper), an independent statistical compilation organization. The Lipper reports compared the Series’ investment performance and expenses with those of other comparable mutual funds. The Board requested and received certain information regarding management’s policy with respect to advisory fee levels and its philosophy with respect to breakpoints; the structure of portfolio manager compensation; the investment manager’s profitability; and any constraints or limitations on the availability of securities in certain investment styles which might inhibit DMC’s ability to fully invest in accordance with the Series’ policies.
In considering information relating to the approval of the Series’ advisory agreement, the independent Trustees received assistance and advice from and met separately with independent counsel. While attention was given to all information furnished, the following discusses under separate headings the primary factors taken into account by the Board in its contract renewal considerations.
NATURE, EXTENT AND QUALITY OF SERVICE. Consideration was given to the services provided by Delaware Investments to the Series and its shareholders. In reviewing the nature, extent and quality of services, the Board emphasized reports furnished to it throughout the year at regular Board meetings covering matters such as the relative performance of the Series, compliance of portfolio managers with the investment policies, strategies and restrictions for the Series, the compliance of management personnel with the Code of Ethics adopted throughout the Delaware Investments® Family of Funds complex and the adherence to fair value pricing procedures as established by the Board. The Board noted that it was pleased with the current staffing of the Series’ investment advisor and the emphasis placed on research in the investment process. Favorable consideration was given to DMC’s efforts to maintain, and in some instances increase, financial and human resources committed to fund matters. The Board also considered the transfer agent and shareholder services provided to Series shareholders by Delaware Investments’ affiliate, Delaware Service Company, Inc. (DSC), noting DSC’s commitment to maintain a high level of service and the continuing expenditures by Delaware Investments to improve the delivery of shareholder services. During 2006, management conducted extensive research into alternatives that could further improve the quality and cost of delivering investment accounting services to the Fund. The Board was satisfied with the nature, extent and quality of the overall services provided by Delaware Investments.
INVESTMENT PERFORMANCE. The Board considered the investment performance of DMC and the Series. The Board placed significant emphasis on the investment performance of the Series in view of its importance to shareholders. While consideration was given to performance reports and discussions with portfolio managers at Board meetings throughout the year, particular weight was given to the Lipper reports furnished for the Annual Meeting. The Lipper reports prepared for the Series showed the investment performance of its Standard Class shares in comparison to a group of similar funds as selected by Lipper (Performance Universe). A fund with the best performance ranked first, and a fund with the poorest ranked last. The highest/best performing 25% of funds in the Performance Universe make up the first quartile; the next 25% — the second quartile; the next 25% — the third quartile; and the poorest/worst performing 25% of funds in the Performance Universe make up the fourth quartile. Comparative annualized performance for the Series was shown for the past one, three, five and ten year periods ended December 31, 2006. The Board also considered comparative annualized performance for the Series for the same periods ended October 31, 2006. The performance comparison presented below is based upon the December 31, 2006 information. The Board noted its objective that the Series’ performance for the periods considered be at or above the median of its Performance Universe. The following paragraph summarizes the performance results for the Series and the Board’s view of such performance.
The Performance Universe for the Series consisted of the Series and all intermediate investment grade debt funds underlying variable insurance products as selected by Lipper. The Lipper report comparison showed that the Series’ total return for the one, three, five and ten year periods was in the first quartile of its Performance Universe. The Board was very satisfied with performance.
COMPARATIVE EXPENSES. The Board considered expense comparison data for the Delaware Investments Family of Funds as of October 31, 2006. Management provided the Board with information on pricing levels and fee structures for the Series. The Board focused particularly on the comparative analysis of the effective management fees and total expense ratios of the Series and the effective management fees and expense ratios of a group of similar funds as selected by Lipper (Expense Group). In reviewing comparative costs, the Series’ contractual management fee and the actual management fee incurred by the Series were compared with the contractual management fees (assuming all funds in the Expense Group were similar in size to the Series) and actual management fees (as reported by each fund) of other funds within the Expense Group, taking into account any applicable breakpoints and fee waivers. The Series’ total expenses were also compared with those of its Expense Group. The Lipper total expenses, for comparative consistency, were shown by Lipper for Standard Class shares which do not charge 12b-1 and non-12b-1 service fees. The Board also considered fees paid to Delaware Investments for non-management services. The Board noted its objective to limit the Series’ total expense ratio to an acceptable range as compared to the median of the Expense Group. The following paragraph summarizes the expense results for the Series and the Board’s view of such expenses.
The expense comparisons for the Series showed that its actual management fee was in the quartile with the second highest expenses of its Expense Group and its total expenses were in the quartile with the highest expenses of its Expense Group. The Board noted that the Series’ total expenses were not in line with the Board’s stated objective. In evaluating total expenses, the Board considered fee waivers in place through April 2008 and recent initiatives implemented by management, such as the outsourcing of certain transfer agency services, creating an opportunity for a reduction in expenses. The Board was satisfied with management’s efforts to improve the Series’ total expense ratio and bring it in line with the Board’s objective.
19
MANAGEMENT PROFITABILITY. The Board considered the level of profits, if any, realized by Delaware Investments in connection with the operation of the Series. In this respect, the Board reviewed the Investment Management Profitability Analysis that addressed the overall profitability of Delaware Investments’ business in providing management and other services to each of the individual funds and the Delaware Investments® Family of Funds as a whole. Specific attention was given to the methodology followed in allocating costs for the purpose of determining profitability. Management stated that the level of profits of Delaware Investments, to a certain extent, reflected operational cost savings and efficiencies initiated by Delaware Investments. The Board considered Delaware Investments’ efforts to improve services provided to fund shareholders and to meet additional regulatory and compliance requirements resulting from recent Securities and Exchange Commission initiatives. The Board also considered the extent to which Delaware Investments might derive ancillary benefits from fund operations, including the potential for procuring additional business as a result of the prestige and visibility associated with its role as service provider to the Delaware Investments Family of Funds and the benefits from allocation of fund brokerage to improve trading efficiencies. The Board found that the level of management fees was reasonable in light of the services rendered and the profitability of Delaware Investments.
ECONOMIES OF SCALE. The Trustees considered whether economies of scale are realized by Delaware Investments as the Series’ assets increase and the extent to which any economies of scale are reflected in the level of management fees charged. The Trustees took into account the standardized advisory fee pricing and structure, approved by the Board and shareholders and again reviewed by the Board this year, which includes breakpoints. Breakpoints in the advisory fee occur when the advisory fee rate is reduced on assets in excess of specified levels. This results in a lower advisory fee than would otherwise be the case on all assets when those asset levels specified are exceeded. The Board noted that the fee under the Series’ management contract fell within the standard structure. Although the Series has not reached a size at which the advantages of breakpoints would be realized, the Board recognized that the fee was structured so that when the Series grows, economies of scale may be shared.
20
Delaware VIP Trust — Delaware VIP Cash Reserve Series
Disclosure of Series Expenses
For the Period January 1, 2007 to June 30, 2007
As a shareholder of the Series, you incur ongoing costs, including management fees; distribution and/or service (12b-1) fees; and other Series expenses. This Example is intended to help you understand your ongoing costs (in dollars) of investing in the Series and to compare these costs with the ongoing costs of investing in other mutual funds.
The Example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period from January 1, 2007 to June 30, 2007.
Actual Expenses
The first section of the table shown, “Actual Series Return,” provides information about actual account values and actual expenses. You may use the information in this section of the table, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first section under the heading entitled “Expenses Paid During Period” to estimate the expenses you paid on your account during the period.
Hypothetical Example for Comparison Purposes
The second section of the table shown, “Hypothetical 5% Return,” provides information about hypothetical account values and hypothetical expenses based on the Series’ actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Series’ actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Series and other funds. To do so, compare the 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs only. As a shareholder of the Series, you do not incur any transaction costs, such as sales charges (loads), redemption fees or exchange fees, but shareholders of other funds may incur such costs. Also, the fees related to the variable annuity investment or the deferred sales charge that could apply have not been included. Therefore, the second section of the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. The Series’ actual expenses shown in the table reflect fee waivers in effect for Service Class shares. The expenses shown in the table assume reinvestment of all dividends and distributions.
Expense Analysis of an Investment of $1,000
|
| Beginning |
| Ending |
| Annualized |
| Expenses |
| |||
Actual Series Return |
|
|
|
|
|
|
|
|
| |||
Standard Class |
| $ | 1,000.00 |
| $ | 1,023.70 |
| 0.63 | % | $ | 3.16 |
|
Service Class |
| 1,000.00 |
| 1,022.40 |
| 0.88 | % | 4.41 |
| |||
|
|
|
|
|
|
|
|
|
| |||
Hypothetical 5% Return (5% return before expenses) |
|
|
|
|
|
|
|
|
| |||
Standard Class |
| $ | 1,000.00 |
| $ | 1,021.67 |
| 0.63 | % | $ | 3.16 |
|
Service Class |
| 1,000.00 |
| 1,020.43 |
| 0.88 | % | 4.41 |
|
* “Expenses Paid During Period” are equal to the Series’ annualized expense ratio, multiplied by the average account value over the period, multiplied by 181/365 (to reflect the one-half year period).
1
Delaware VIP Trust — Delaware VIP Cash Reserve Series
Sector Allocation
As of June 30, 2007
Sector designations may be different than the sector designations presented in other Series materials.
Sector |
| Percentage |
|
Certificates of Deposit |
| 9.60 | % |
Discounted Commercial Paper |
| 78.94 | % |
Financial Services |
| 46.03 | % |
Industrial |
| 12.07 | % |
Mortgage Bankers & Brokers |
| 13.81 | % |
Sovereign Agency |
| 2.35 | % |
State Agency |
| 4.68 | % |
Floating Rate Notes |
| 8.40 | % |
Variable Rate Demand Note |
| 3.84 | % |
Total Value of Securities |
| 100.78 | % |
Liabilities Net of Receivables and Other Assets |
| (0.78 | )% |
Total Net Assets |
| 100.00 | % |
2
Delaware VIP Trust — Delaware VIP Cash Reserve Series
Statement of Net Assets
June 30, 2007 (Unaudited)
|
|
| Principal |
| Value |
| ||
| CERTIFICATES OF DEPOSIT–9.60% |
|
|
|
|
| ||
| Credit Agricole 5.35% 8/31/07 |
| $ | 500,000 |
| $ | 500,000 |
|
| First Tennessee Bank 5.30% 7/23/07 |
| 500,000 |
| 500,000 |
| ||
| Natixis 5.345% 8/17/07 |
| 500,000 |
| 500,013 |
| ||
| Wilmington Trust 5.32% 9/25/07 |
| 500,000 |
| 500,000 |
| ||
| Total Certificates of Deposit |
|
|
| 2,000,013 |
| ||
# | DISCOUNTED COMMERCIAL PAPER–78.94% |
|
|
|
|
| ||
| Financial Services–46.03% |
|
|
|
|
| ||
> | Aegon 5.44% 7/2/07 |
| 500,000 |
| 499,924 |
| ||
*> | Aquinas Funding 5.22% 12/19/07 |
| 400,000 |
| 390,082 |
| ||
*> | Barton Capital |
|
|
|
|
| ||
| 5.24% 7/3/07 |
| 300,000 |
| 299,913 |
| ||
| 5.27% 7/2/07 |
| 500,000 |
| 499,927 |
| ||
*> | Beta Finance 5.24% 7/16/07 |
| 500,000 |
| 498,908 |
| ||
*> | Chesham Finance 5.40% 7/2/07 |
| 250,000 |
| 249,963 |
| ||
*> | Cullinan Finance 5.15% 11/26/07 |
| 500,000 |
| 489,414 |
| ||
| Danske 5.16% 10/12/07 |
| 500,000 |
| 492,618 |
| ||
*> | Eureka Securitization |
|
|
|
|
| ||
| 5.24% 7/13/07 |
| 250,000 |
| 249,563 |
| ||
| 5.26% 8/8/07 |
| 349,000 |
| 347,062 |
| ||
*> | Fountain Square Commercial Funding |
|
|
|
|
| ||
| 5.26% 8/6/07 |
| 350,000 |
| 348,159 |
| ||
| 5.29% 7/13/07 |
| 400,000 |
| 399,295 |
| ||
* | General Electric Capital 5.235% 7/23/07 |
| 375,000 |
| 373,800 |
| ||
| JPMorgan Chase 5.40% 7/2/07 |
| 500,000 |
| 499,925 |
| ||
> | MetLife 5.24% 9/6/07 |
| 620,000 |
| 613,953 |
| ||
> | Natixis 5.40% 7/2/07 |
| 250,000 |
| 249,963 |
| ||
| Sanpaolo IMI US Financial 5.23% 7/31/07 |
| 750,000 |
| 746,730 |
| ||
*> | Sheffield Receivables |
|
|
|
|
| ||
| 5.08% 9/4/07 |
| 350,000 |
| 346,790 |
| ||
| 5.265% 7/12/07 |
| 500,000 |
| 499,196 |
| ||
*> | Sigma Finance 5.25% 9/13/07 |
| 500,000 |
| 494,604 |
| ||
*> | Starbird Funding 5.27% 8/1/07 |
| 500,000 |
| 497,731 |
| ||
*> | Three Pillars Funding 5.26% 7/9/07 |
| 500,000 |
| 499,416 |
| ||
|
|
|
|
| 9,586,936 |
| ||
| Industrial–12.07% |
|
|
|
|
| ||
> | BASF AG 5.18% 9/17/07 |
| 700,000 |
| 692,144 |
| ||
> | Cargill Global Funding 5.26% 7/31/07 |
| 585,000 |
| 582,436 |
| ||
> | Statoil 5.40% 7/2/07 |
| 750,000 |
| 749,887 |
| ||
> | Total Capital 5.36% 7/2/07 |
| 490,000 |
| 489,927 |
| ||
|
|
|
|
| 2,514,394 |
| ||
| Mortgage Bankers & Brokers–13.81% |
|
|
|
|
| ||
| Bank of America 5.17% 9/5/07 |
| 500,000 |
| 495,261 |
| ||
> | Bank of Ireland 5.20% 8/6/07 |
| 600,000 |
| 596,880 |
| ||
| Bear Stearns 5.15% 9/20/07 |
| 500,000 |
| 494,206 |
| ||
| Goldman Sachs Group 5.24% 7/2/07 |
| 300,000 |
| 299,956 |
| ||
> | Skandinaviska Enskilda Banken 5.205% 8/1/07 |
| 500,000 |
| 497,759 |
| ||
| Westpac Securities 5.17% 10/15/07 |
| 500,000 |
| 492,389 |
| ||
|
|
|
|
| 2,876,451 |
| ||
| Sovereign Agency–2.35% |
|
|
|
|
| ||
> | Swedish Housing Finance 5.19% 12/4/07 |
| 500,000 |
| 488,755 |
| ||
|
|
|
|
| 488,755 |
| ||
| State Agency–4.68% |
|
|
|
|
| ||
| City of Austin, Texas 5.27% 7/2/07 |
| 478,000 |
| 477,930 |
| ||
| Sunshine State Governmental Financing Commission 5.27% 8/2/07 |
| 500,000 |
| 497,658 |
| ||
|
|
|
|
| 975,588 |
| ||
| Total Discounted Commercial Paper |
|
|
| 16,442,124 |
| ||
• | FLOATING RATE NOTES–8.40% |
|
|
|
|
| ||
| Chesham Finance 5.405% 9/25/07 |
| 500,000 |
| 499,976 |
| ||
| Credit Suisse 5.295% 7/26/07 |
| 500,000 |
| 500,000 |
| ||
> | DnB NOR Bank 5.32% 7/24/08 |
| 750,000 |
| 750,000 |
| ||
| Total Floating Rate Notes |
|
|
| 1,749,976 |
| ||
| VARIABLE RATE DEMAND NOTE–3.84% |
|
|
|
|
| ||
• | North Texas Higher Education Authority Series B 5.32% 12/1/44 (AMBAC) (SPA-Depfa Bank) |
| 800,000 |
| 800,000 |
| ||
| Total Variable Rate Demand Note |
|
|
| 800,000 |
| ||
3
TOTAL VALUE OF SECURITIES–100.78% (cost $20,992,113)© |
| $ | 20,992,113 |
|
LIABILITIES NET OF RECEIVABLES AND OTHER ASSETS–(0.78%) |
| (163,791 | ) | |
NET ASSETS APPLICABLE TO 20,828,091 SHARES OUTSTANDING–100.00% |
| $ | 20,828,322 |
|
NET ASSET VALUE-DELAWARE VIP CASH RESERVE SERIES STANDARD CLASS ($20,822,315 / 20,822,086 Shares) |
| $ | 1.00 |
|
NET ASSET VALUE-DELAWARE VIP CASH RESERVE SERIES SERVICE CLASS ($6,007 / 6,005 Shares) |
| $ | 1.00 |
|
COMPONENTS OF NET ASSETS AT JUNE 30, 2007: |
|
|
| |
Shares of beneficial interest (unlimited authorization–no par) |
| $ | 20,881,489 |
|
Accumulated net realized loss on investments |
| (53,167 | ) | |
Total net assets |
| $ | 20,828,322 |
|
# | The rate shown is the effective yield as of the time of purchase. |
• | Variable rate security. The rate shown is the rate as of June 30, 2007. |
© | Also the cost for federal income tax purposes. |
* | Asset-backed commercial paper. |
> | Commercial paper exempt from registration under Section 4(2) and/or Rule 144A of the Securities Act of 1933, as amended and may be resold in transactions exempt from registration only to dealers in that program or other “accredited investors”. At June 30, 2007, the aggregate amount of these securities equaled $12,321,651, which represented 59.16% of the Series’ net assets. See Note 5 in “Notes to Financial Statements.” |
Summary of Abbreviations:
AMBAC – Insured by the AMBAC Assurance Corporation
SPA – Stand-by Purchase Agreement
See accompanying notes
4
Delaware VIP Trust —
Delaware VIP Cash Reserve Series
Statement of Operations
Six Months Ended June 30, 2007 (Unaudited)
INVESTMENT INCOME: |
|
|
| |
Interest |
| $ | 575,514 |
|
|
|
|
| |
EXPENSES: |
|
|
| |
Management fees |
| 48,311 |
| |
Audit and tax |
| 6,793 |
| |
Accounting and administration expenses |
| 4,294 |
| |
Reports and statements to shareholders |
| 3,849 |
| |
Custodian fees |
| 1,371 |
| |
Dividend disbursing and transfer agent fees and expenses |
| 1,058 |
| |
Legal fees |
| 930 |
| |
Pricing fees |
| 561 |
| |
Trustees’ fees and benefits |
| 555 |
| |
Insurance fees |
| 269 |
| |
Consulting fees |
| 178 |
| |
Trustees’ expenses |
| 53 |
| |
Taxes (other than taxes on income) |
| 41 |
| |
Dues and services |
| 36 |
| |
Registration fees |
| 28 |
| |
Distribution expenses – Service Class |
| 9 |
| |
|
| 68,336 |
| |
Less waiver of distribution expenses – Service Class |
| (2 | ) | |
Less expense paid indirectly |
| (449 | ) | |
Total operating expenses |
| 67,885 |
| |
|
|
|
| |
NET INVESTMENT INCOME |
| 507,629 |
| |
|
|
|
| |
NET REALIZED GAIN ON INVESTMENTS |
| 129 |
| |
|
|
|
| |
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS |
| $ | 507,758 |
|
Delaware VIP Trust —
Delaware VIP Cash Reserve Series
Statements of Changes in Net Assets
|
| Six Months |
| Year |
| ||
|
| (Unaudited) |
|
|
| ||
INCREASE IN NET ASSETS FROM OPERATIONS: |
|
|
|
|
| ||
Net investment income |
| $ | 507,629 |
| $ | 958,933 |
|
Net realized gain on investments |
| 129 |
| 20 |
| ||
Net increase in net assets resulting from operations |
| 507,758 |
| 958,953 |
| ||
|
|
|
|
|
| ||
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM: |
|
|
|
|
| ||
Net investment income: |
|
|
|
|
| ||
Standard Class |
| (507,497 | ) | (958,694 | ) | ||
Service Class |
| (132 | ) | (239 | ) | ||
|
| (507,629 | ) | (958,933 | ) | ||
|
|
|
|
|
| ||
CAPITAL SHARE TRANSACTIONS |
|
|
|
|
| ||
Proceeds from shares sold: Standard Class |
| 7,940,467 |
| 29,007,341 |
| ||
Net asset value of shares issued upon reinvestment of dividends and distributions: |
|
|
|
|
| ||
Standard Class |
| 507,497 |
| 954,586 |
| ||
Service Class |
| 132 |
| 237 |
| ||
|
| 8,448,096 |
| 29,962,164 |
| ||
Cost of shares repurchased: |
|
|
|
|
| ||
Standard Class |
| (8,597,048 | ) | (32,421,044 | ) | ||
Decrease in net assets derived from capital share transactions |
| (148,952 | ) | (2,458,880 | ) | ||
|
|
|
|
|
| ||
NET DECREASE IN NET ASSETS |
| (148,823 | ) | (2,458,860 | ) | ||
|
|
|
|
|
| ||
NET ASSETS: |
|
|
|
|
| ||
Beginning of period |
| 20,977,145 |
| 23,436,005 |
| ||
End of period (there was no undistributed net investment income at either period end) |
| $ | 20,828,322 |
| $ | 20,977,145 |
|
See accompanying notes
5
Delaware VIP Trust — Delaware VIP Cash Reserve Series
Financial Highlights
Selected data for each share of the Series outstanding throughout each period were as follows:
|
| Delaware VIP Cash Reserve Series Standard Class |
| ||||||||||||||||
|
| Six Months |
|
|
|
|
| Year Ended |
|
|
|
|
| ||||||
|
| 6/30/07(1) |
| 12/31/06 |
| 12/31/05 |
| 12/31/04(2) |
| 12/31/03 |
| 12/31/02(3) |
| ||||||
|
| (Unaudited) |
|
|
|
|
|
|
|
|
|
|
| ||||||
Net asset value, beginning of period |
| $ | 1.000 |
| $ | 1.000 |
| $ | 1.000 |
| $ | 1.000 |
| $ | 1.000 |
| $ | 1.000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Income from investment operations: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Net investment income |
| 0.023 |
| 0.044 |
| 0.027 |
| 0.009 |
| 0.006 |
| 0.013 |
| ||||||
Total from investment operations |
| 0.023 |
| 0.044 |
| 0.027 |
| 0.009 |
| 0.006 |
| 0.013 |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Less dividends and distributions from: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Net investment income |
| (0.023 | ) | (0.044 | ) | (0.027 | ) | (0.009 | ) | (0.006 | ) | (0.013 | ) | ||||||
Total dividends and distributions |
| (0.023 | ) | (0.044 | ) | (0.027 | ) | (0.009 | ) | (0.006 | ) | (0.013 | ) | ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Net asset value, end of period |
| $ | 1.000 |
| $ | 1.000 |
| $ | 1.000 |
| $ | 1.000 |
| $ | 1.000 |
| $ | 1.000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Total return (4) |
| 2.37 | % | 4.49 | % | 2.69 | % | 0.87 | % | 0.61 | % | 1.26 | % | ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Ratios and supplemental data: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Net assets, end of period (000 omitted) |
| $ | 20,822 |
| $ | 20,971 |
| $ | 23,430 |
| $ | 29,831 |
| $ | 42,748 |
| $ | 49,809 |
|
Ratio of expenses to average net assets |
| 0.63 | % | 0.67 | % | 0.61 | % | 0.55 | % | 0.58 | % | 0.59 | % | ||||||
Ratio of net investment income to average net assets |
| 4.73 | % | 4.39 | % | 2.62 | % | 0.82 | % | 0.60 | % | 1.26 | % |
(1) Ratios have been annualized and total return has not been annualized.
(2) On June 10, 2004, DMC voluntarily made a capital contribution of $0.001 per share to the Series in order to eliminate the potential deviation in the Series’ net asset value of $1.00 per share caused by accumulated net realized losses. This contribution had no impact on the Series’ total return.
(3) Effective December 20, 2002, the Series declared a 10 for 1 share split. Per share data for periods prior to this date have been restated to reflect this share split.
(4) Total investment return is based on the change in net asset value of a share during the period and assumes reinvestment of dividends and distributions at net asset value.
See accompanying notes
6
Selected data for each share of the Series outstanding throughout each period were as follows:
|
| Delaware VIP Cash Reserve Series Service Class |
| ||||||||||||||||
|
| Six Months |
| Year Ended |
| ||||||||||||||
|
| 6/30/07(1) |
| 12/31/06 |
| 12/31/05 |
| 12/31/04(2) |
| 12/31/03 |
| 12/31/02(3) |
| ||||||
|
| (Unaudited) |
|
|
|
|
|
|
|
|
|
|
| ||||||
Net asset value, beginning of period |
| $ | 1.000 |
| $ | 1.000 |
| $ | 1.000 |
| $ | 1.000 |
| $ | 1.000 |
| $ | 1.000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Income from investment operations: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Net investment income |
| 0.022 |
| 0.041 |
| 0.024 |
| 0.006 |
| 0.004 |
| 0.011 |
| ||||||
Total from investment operations |
| 0.022 |
| 0.041 |
| 0.024 |
| 0.006 |
| 0.004 |
| 0.011 |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Less dividends and distributions from: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Net investment income |
| (0.022 | ) | (0.041 | ) | (0.024 | ) | (0.006 | ) | (0.004 | ) | (0.011 | ) | ||||||
Total dividends and distributions |
| (0.022 | ) | (0.041 | ) | (0.024 | ) | (0.006 | ) | (0.004 | ) | (0.011 | ) | ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Net asset value, end of period |
| $ | 1.000 |
| $ | 1.000 |
| $ | 1.000 |
| $ | 1.000 |
| $ | 1.000 |
| $ | 1.000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Total return(4) |
| 2.24 | % | 4.23 | % | 2.43 | % | 0.60 | % | 0.40 | % | 1.13 | % | ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Ratios and supplemental data: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Net assets, end of period (000 omitted) |
| $ | 6 |
| $ | 6 |
| $ | 6 |
| $ | 5 |
| $ | 5 |
| $ | 5 |
|
Ratio of expenses to average net assets |
| 0.88 | % | 0.92 | % | 0.86 | % | 0.80 | % | 0.80 | % | 0.74 | % | ||||||
Ratio of expenses to average net assets prior to expense limitation and expenses paid indirectly |
| 0.93 | % | 0.97 | % | 0.91 | % | 0.85 | % | 0.83 | % | 0.74 | % | ||||||
Ratio of net investment income to average net assets |
| 4.48 | % | 4.14 | % | 2.37 | % | 0.57 | % | 0.38 | % | 1.11 | % | ||||||
Ratio of net investment income to average net assets prior to expense limitation and expenses paid indirectly |
| 4.43 | % | 4.09 | % | 2.32 | % | 0.52 | % | 0.35 | % | 1.11 | % |
(1) | Ratios have been annualized and total return has not been annualized. |
(2) | On June 10, 2004, DMC voluntarily made a capital contribution of $0.001 per share to the Series in order to eliminate the potential deviation in the Series’ net asset value of $1.00 per share caused by accumulated net realized losses. This contribution had no impact on the Series’ total return. |
(3) | Effective December 20, 2002, the Series declared a 10 for 1 share split. Per share data for periods prior to this date have been restated to reflect this share split. |
(4) | Total investment return is based on the change in net asset value of a share during the period and assumes reinvestment of dividends and distributions at net asset value. Total investment return reflects a waiver and payment of fees by the distributor, as applicable. Performance would have been lower had the waiver not been in effect. |
See accompanying notes
7
Delaware VIP Trust — Delaware VIP Cash Reserve Series
Notes to Financial Statements
June 30, 2007 (Unaudited)
Delaware VIP Trust (Trust) is organized as a Delaware statutory trust and offers 14 series: Delaware VIP Balanced Series, Delaware VIP Capital Reserves Series, Delaware VIP Cash Reserve Series, Delaware VIP Diversified Income Series, Delaware VIP Emerging Markets Series, Delaware VIP Growth Opportunities Series, Delaware VIP High Yield Series, Delaware VIP International Value Equity Series, Delaware VIP REIT Series, Delaware VIP Select Growth Series, Delaware VIP Small Cap Value Series, Delaware VIP Trend Series, Delaware VIP U.S. Growth Series and Delaware VIP Value Series. These financial statements and the related notes pertain to Delaware VIP Cash Reserve Series (Series). The Trust is an open-end investment company. The Series is considered diversified under the Investment Company Act of 1940, as amended, and offers Standard Class and Service Class shares. The Standard Class shares do not carry a 12b-1 fee and the Service Class shares carry a 12b-1 fee. The shares of the Series are sold only to separate accounts of life insurance companies.
The investment objective of the Series is to seek to provide maximum current income, while preserving principal and maintaining liquidity, by investing its assets in a diversified portfolio of money market securities and managing the portfolio to maintain a constant net asset value of $1 per share.
1. Significant Accounting Policies
The following accounting policies are in accordance with U.S. generally accepted accounting principles and are consistently followed by the Series.
Security Valuation—Securities are valued at amortized cost, which approximates market value.
In September 2006, the Financial Accounting Standards Board (FASB) issued FASB Statement No. 157 “Fair Value Measurements” (Statement 157). Statement 157 establishes a framework for measuring fair value in generally accepted accounting principles, clarifies the definition of fair value within that framework, and expands disclosures about the use of fair value measurements. Statement 157 is intended to increase consistency and comparability among fair value estimates used in financial reporting. Statement 157 is effective for fiscal years beginning after November 15, 2007. Management does not expect the adoption of Statement 157 to have an impact on the amounts reported in the financial statements.
Federal Income Taxes—The Series intends to continue to qualify for federal income tax purposes as a regulated investment company and make the requisite distributions to shareholders. Accordingly, no provision for federal income taxes has been made in the financial statements.
Effective June 29, 2007, the Series adopted FASB Interpretation No. 48 “Accounting for Uncertainty in Income Taxes” (FIN 48). FIN 48 provides guidance for how uncertain tax positions should be recognized, measured, presented and disclosed in the financial statements. FIN 48 requires the evaluation of tax positions taken or expected to be taken in the course of preparing the Series’ tax returns to determine whether the tax positions are “more-likely-than-not” of being sustained by the applicable tax authority. Tax positions not deemed to meet the more-likely-than-not threshold are recorded as a tax benefit or expense in the current year. The adoption of FIN 48 did not result in the recording of any tax benefit or expense in the current period.
Class Accounting—Investment income and common expenses are allocated to the classes of the Series on the basis of “settled shares” of each class in relation to the net assets of the Series. Realized and unrealized gain (loss) on investments is allocated to the classes of the Series on the basis of daily net assets of each class. Distribution expenses relating to a specific class are charged directly to that class.
Repurchase Agreements—The Series may invest in a pooled cash account along with members of the Delaware Investments® Family of Funds pursuant to an exemptive order issued by the Securities and Exchange Commission. The aggregate daily balance of the pooled cash account is invested in repurchase agreements secured by obligations of the U.S. government. The respective collateral is held by the Series’ custodian bank until the maturity of the respective repurchase agreements. Each repurchase agreement is at least 102% collateralized. However, in the event of default or bankruptcy by the counterparty to the agreement, realization of the collateral may be subject to legal proceedings.
Use of Estimates—The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Other—Expenses directly attributable to the Series are charged directly to the Series. Other expenses common to various funds within the Delaware Investments® Family of Funds are generally allocated amongst such funds on the basis of average net assets. Management fees and some other expenses are paid monthly. Security transactions are recorded on the date the securities are purchased or sold (trade date) for financial reporting purposes. Costs used in calculating realized gains and losses on the sale of investment securities are those of the specific securities sold. Interest income is recorded on the accrual basis. Discounts and premiums are amortized to interest income over the lives of the respective securities.
The Series declares dividends daily from net investment income and pays such dividends monthly and declares and pays distributions from net realized gain on investments, if any, following the close of the fiscal year.
The Series may receive earnings credits from its custodian when positive cash balances are maintained, which are used to offset custody fees. The expense paid under this arrangement is included in custodian fees on the Statement of Operations with the corresponding expense offset shown as “expense paid indirectly.”
8
2. Investment Management, Administration Agreements and Other Transactions with Affiliates
In accordance with the terms of its investment management agreement, the Series pays Delaware Management Company (DMC), a series of Delaware Management Business Trust and the investment manager, an annual fee which is calculated daily at the rate of 0.45% on the first $500 million of average daily net assets of the Series, 0.40% on the next $500 million, 0.35% on the next $1.5 billion, and 0.30% on average daily net assets in excess of $2.5 billion.
Prior to May 1, 2007, DMC had contractually agreed to waive that portion, if any, of its management fee and reimburse the Series to the extent necessary to ensure that annual operating expenses, exclusive of taxes, interest, brokerage commissions, inverse floater program expenses, 12b-1 plan expenses, certain insurance costs and non-routine expenses or costs including, but not limited to, those relating to reorganizations, litigation, certain Trustee retirement plan expenses, conducting shareholder meetings, and liquidations, did not exceed 0.67% of average daily net assets of the Series through April 30, 2007. No reimbursement was due for the six months ended June 30, 2007.
Delaware Service Company, Inc. (DSC), an affiliate of DMC, provides accounting, administration, dividend disbursing and transfer agent services. The Series pays DSC a monthly fee computed at the annual rate of 0.04% of the Series’ average daily net assets for accounting and administrative services. The Series pays DSC a monthly fee based on average net assets for dividend disbursing and transfer agent services.
Pursuant to a distribution agreement and distribution plan, the Series pays Delaware Distributors, L.P. (DDLP), the distributor and an affiliate of DMC, an annual distribution and service fee not to exceed 0.30% of the average daily net assets of the Service Class shares. DDLP has contracted to waive distribution and service fees through April 30, 2008 in order to prevent distribution and service fees of the Service Class shares from exceeding 0.25% of average daily net assets. Standard Class shares pay no distribution and service expenses.
At June 30, 2007, the Series had liabilities payable to affiliates as follows:
Investment |
| Dividend Disbursing, |
| Distribution |
| Other |
| ||||
$ | 7,861 |
| $ | 874 |
| $ | 1 |
| $ | 9,285 |
|
* | DMC, as part of its administrative services, pays operating expenses on behalf of the Series and is reimbursed on a periodic basis. Such expenses include items such as printing of shareholder reports, fees for audit, legal and tax services, custodian fees and trustees’ fees. |
As provided in the investment management agreement, the Series bears the cost of certain legal and tax services, including internal legal and tax services provided to the Series by DMC and/or its affiliates’ employees. For the six months ended June 30, 2007, the Series was charged $488 for internal legal and tax services provided by DMC and/or its affiliates’ employees.
Trustees’ fees and benefits include expenses accrued by the Series for each Trustee’s retainer, per meeting fees and retirement benefits. Independent Trustees with over five years of uninterrupted service were eligible to participate in a retirement plan that provides for the payment of benefits upon retirement. The amount of the retirement benefit was determined based on factors set forth in the plan, including the number of years of service. On November 16, 2006, the Board of Trustees unanimously voted to terminate the retirement plan. Payments equal to the net present value of the earned benefits were made in 2007 to those independent Trustees so entitled. The retirement benefit payout for the Series was $2,653. Certain officers of DMC, DSC and DDLP are officers and/or Trustees of the Trust. These officers and Trustees are paid no compensation by the Series.
3. Dividend and Distribution Information
Income and long-term capital gain distributions are determined in accordance with federal income tax regulations, which may differ from U.S. generally accepted accounting principles. Additionally, net short-term gains on sales of investment securities are treated as ordinary income for federal income tax purposes. The tax character of dividends and distributions paid during the six months ended June 30, 2007 and the year ended December 31, 2006 was as follows:
| Six Months |
| Year |
| |||
Ordinary income |
| $ | 507,629 |
| $ | 958,933 |
|
*Tax information for the six months ended June 30, 2007 is an estimate and the tax character of dividends and distributions may be redesignated at fiscal year end.
9
4. Components of Net Assets on a Tax Basis
The components of net assets are estimated since final tax characteristics cannot be determined until fiscal year end. As of June 30, 2007, the estimated components of net assets on a tax basis were as follows:
Shares of beneficial interest |
| $ | 20,881,489 |
|
Capital loss carryforwards at 12/31/06 |
| (53,296 | ) | |
Realized gains 1/1/07 – 6/30/07 |
| 129 |
| |
Net assets |
| $ | 20,828,322 |
|
For federal income tax purposes, capital loss carryforwards may be carried forward and applied against future capital gains. Capital loss carryforwards of $53,296 remaining at December 31, 2006 will expire in 2010.
For the six months ended June 30, 2007, the Series had capital gains of $129, which may reduce the capital loss carryforwards.
5. Credit and Market Risk
An investment in the Series is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. Although the Series seeks to preserve the value of your investment at $1.00 per share, it is possible to lose money by investing in the Series.
The Series may invest up to 10% of its total assets in illiquid securities, which may include securities with contractual restrictions on resale, securities exempt from registration under Rule 144A of the Securities Act of 1933, as amended (Act), and other securities which may not be readily marketable. The relative illiquidity of these securities may impair the Series from disposing of them in a timely manner and at a fair price when it is necessary or desirable to do so. While maintaining oversight, the Series’ Board of Trustees has delegated to DMC the day-to-day functions of determining whether individual securities are liquid for purposes of the Series’ limitation on investments in illiquid assets. The Series may also invest in securities exempt from registration under Section 4(2) of the Act, which exempts from registration transactions by an issuer not involving any public offering. As of June 30, 2007, no securities have been determined to be illiquid under the Series’ Liquidity Procedures. Section 4(2) securities have been identified on the Statement of Net Assets.
6. Contractual Obligations
The Series enters into contracts in the normal course of business that contain a variety of indemnifications. The Series’ maximum exposure under these arrangements is unknown. However, the Series has not had prior claims or losses pursuant to these contracts. Management has reviewed the Series’ existing contracts and expects the risk of loss to be remote.
7. Subsequent Event
The Series has a new securities lending agreement with Mellon Bank, N.A. as of August 9, 2007.
The Series files its complete schedule of portfolio holdings with the Securities and Exchange Commission (the Commission) for the first and third quarters of each fiscal year on Form N-Q. The Series’ Forms N-Q, as well as a description of the policies and procedures that the Series uses to determine how to vote proxies (if any) relating to portfolio securities is available without charge (i) upon request, by calling 800 523-1918; and (ii) on the Commission’s website at http://www.sec.gov. In addition, a description of the policies and procedures that the Series uses to determine how to vote proxies (if any) relating to portfolio securities is available without charge on the Delaware Investments® Funds’ website at http://www.delawareinvestments.com. The Series’ Forms N-Q may be reviewed and copied at the Commission’s Public Reference Room in Washington, DC; information on the operation of the Public Reference Room may be obtained by calling 800 SEC-0330.
Information (if any) regarding how the Series voted proxies relating to portfolio securities during the most recently disclosed 12-month period ended June 30 is available without charge (i) through the Delaware Investments® Funds’ website at http://www.delawareinvestments.com; and (ii) on the Commission’s website at http://www.sec.gov.
10
Delaware VIP Trust — Delaware VIP Cash Reserve Series
Other Series Information
Board Consideration of Delaware VIP Cash Reserve Series Investment Advisory Agreement
At a meeting held on May 16-17, 2007 (Annual Meeting), the Board of Trustees (Board), including a majority of disinterested or independent Trustees, approved the renewal of the Investment Advisory Agreement for the VIP Cash Reserve Series (Series). In making its decision, the Board considered information furnished throughout the year at regular Board meetings, including reports detailing Series performance, investment strategies and expenses, as well as information prepared specifically in connection with the renewal of the investment advisory contracts. Information furnished specifically in connection with the renewal of the Investment Advisory Agreement with Delaware Management Company (DMC) included materials provided by DMC and its affiliates (Delaware Investments) concerning, among other things, the level of services provided to the Series, the costs of such services to the Series, economies of scale and the financial condition and profitability of Delaware Investments. In addition, in connection with the Meeting, the Board separately received and reviewed in mid-January 2007 independent historical and comparative reports prepared by Lipper Inc. (Lipper), an independent statistical compilation organization. The Lipper reports compared the Series’ investment performance and expenses with those of other comparable mutual funds. The Board requested and received certain information regarding management’s policy with respect to advisory fee levels and its philosophy with respect to breakpoints; the structure of portfolio manager compensation; the investment manager’s profitability; and any constraints or limitations on the availability of securities in certain investment styles which might inhibit DMC’s ability to fully invest in accordance with the Series’ policies.
In considering information relating to the approval of the Series’ advisory agreement, the independent Trustees received assistance and advice from and met separately with independent counsel. While attention was given to all information furnished, the following discusses under separate headings the primary factors taken into account by the Board in its contract renewal considerations.
NATURE, EXTENT AND QUALITY OF SERVICE. Consideration was given to the services provided by Delaware Investments to the Series and its shareholders. In reviewing the nature, extent and quality of services, the Board emphasized reports furnished to it throughout the year at regular Board meetings covering matters such as the relative performance of the Series, compliance of portfolio managers with the investment policies, strategies and restrictions for the Series, the compliance of management personnel with the Code of Ethics adopted throughout the Delaware Investments® Family of Funds complex and the adherence to fair value pricing procedures as established by the Board. The Board noted that it was pleased with the current staffing of the Series’ investment advisor and the emphasis placed on research in the investment process. Favorable consideration was given to DMC’s efforts to maintain, and in some instances increase, financial and human resources committed to fund matters. The Board also considered the transfer agent and shareholder services provided to Series shareholders by Delaware Investments’ affiliate, Delaware Service Company, Inc. (DSC), noting DSC’s commitment to maintain a high level of service and the continuing expenditures by Delaware Investments to improve the delivery of shareholder services. During 2006, management conducted extensive research into alternatives that could further improve the quality and cost of delivering investment accounting services to the Fund. The Board was satisfied with the nature, extent and quality of the overall services provided by Delaware Investments.
INVESTMENT PERFORMANCE. The Board considered the investment performance of DMC and the Series. The Board placed significant emphasis on the investment performance of the Series in view of its importance to shareholders. While consideration was given to performance reports and discussions with portfolio managers at Board meetings throughout the year, particular weight was given to the Lipper reports furnished for the Annual Meeting. The Lipper reports prepared for the Series showed the investment performance of its Standard Class shares in comparison to a group of similar funds as selected by Lipper (Performance Universe). A fund with the best performance ranked first, and a fund with the poorest ranked last. The highest/best performing 25% of funds in the Performance Universe make up the first quartile; the next 25% — the second quartile; the next 25% — the third quartile; and the poorest/worst performing 25% of funds in the Performance Universe make up the fourth quartile. Comparative annualized performance for the Series was shown for the past one, three, five and ten year periods ended December 31, 2006. The Board also considered comparative annualized performance for the Series for the same periods ended October 31, 2006. The performance comparison presented below is based upon the December 31, 2006 information. The Board noted its objective that the Series’ performance for the periods considered be at or above the median of its Performance Universe. The following paragraph summarizes the performance results for the Series and the Board’s view of such performance.
The Performance Universe for the Series consisted of the Series and all money market funds underlying variable insurance products as selected by Lipper. The Lipper report comparison showed that the Series’ total return for the one, three, five and ten year periods was in the third quartile of its Performance Universe. The Board noted that the Series’ performance results were not in line with the Board’s objective. In evaluating the Series’ performance, the Board considered interest rate sensitivity inherent in money market funds and historical fee waivers. The Board was satisfied that management was taking effective action to improve Series performance and meet the Board’s performance objective.
COMPARATIVE EXPENSES. The Board considered expense comparison data for the Delaware Investments Family of Funds as of October 31, 2006. Management provided the Board with information on pricing levels and fee structures for the Series. The Board focused particularly on the comparative analysis of the effective management fees and total expense ratios of the Series and the effective management fees and expense ratios of a group of similar funds as selected by Lipper (Expense Group). In reviewing comparative costs, the Series’ contractual management fee and the actual management fee incurred by the Series were compared with the contractual management fees (assuming all funds in the Expense Group were similar in size to the Series) and actual management fees (as reported by each fund) of other funds within the Expense Group, taking into account any applicable breakpoints and fee waivers. The Series’ total expenses were also compared with those of its Expense Group. The Lipper total expenses, for comparative consistency, were shown by Lipper for Standard Class shares which do not charge 12b-1 and non-12b-1 service fees. The Board also considered fees paid to Delaware Investments for non-management services. The Board noted its objective to limit the Series’ total expense ratio to an acceptable range as compared to the median of the Expense Group. The following paragraph summarizes the expense results for the Series and the Board’s view of such expenses.
The expense comparisons for the Series showed that its actual management fee was in the quartile with the second highest expenses of its expense Group and its total expenses were in the quartile with the second lowest expenses of its Expense Group. The Board noted that the investment manager had agreed to certain expense waivers and re-imbursements to offset total expenses of the Series. The Board was satisfied with the total expenses of the Series in comparison to its Expense Group as shown in the Lipper report.
11
MANAGEMENT PROFITABILITY. The Board considered the level of profits, if any, realized by Delaware Investments in connection with the operation of the Series. In this respect, the Board reviewed the Investment Management Profitability Analysis that addressed the overall profitability of Delaware Investments’ business in providing management and other services to each of the individual funds and the Delaware Investments® Family of Funds as a whole. Specific attention was given to the methodology followed in allocating costs for the purpose of determining profitability. Management stated that the level of profits of Delaware Investments, to a certain extent, reflected operational cost savings and efficiencies initiated by Delaware Investments. The Board considered Delaware Investments’ efforts to improve services provided to fund shareholders and to meet additional regulatory and compliance requirements resulting from recent Securities and Exchange Commission initiatives. The Board also considered the extent to which Delaware Investments might derive ancillary benefits from fund operations, including the potential for procuring additional business as a result of the prestige and visibility associated with its role as service provider to the Delaware Investments Family of Funds and the benefits from allocation of fund brokerage to improve trading efficiencies. The Board found that the level of management fees was reasonable in light of the services rendered and the profitability of Delaware Investments.
ECONOMIES OF SCALE. The Trustees considered whether economies of scale are realized by Delaware Investments as the Series’ assets increase and the extent to which any economies of scale are reflected in the level of management fees charged. The Trustees took into account the standardized advisory fee pricing and structure, approved by the Board and shareholders and again reviewed by the Board this year, which includes breakpoints. Breakpoints in the advisory fee occur when the advisory fee rate is reduced on assets in excess of specified levels. This results in a lower advisory fee than would otherwise be the case on all assets when those asset levels specified are exceeded. The Board noted that the fee under the Series’ management contract fell within the standard structure. Although the Series has not reached a size at which the advantages of breakpoints would be realized, the Board recognized that the fee was structured so that when the Series grows, economies of scale may be shared.
12
Delaware VIP Trust — Delaware VIP Diversified Income Series
Disclosure of Series Expenses
For the Period January 1, 2007 to June 30, 2007
As a shareholder of the Series, you incur ongoing costs, including management fees; distribution and/or service (12b-1) fees; and other Series expenses. This Example is intended to help you understand your ongoing costs (in dollars) of investing in the Series and to compare these costs with the ongoing costs of investing in other mutual funds.
The Example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period from January 1, 2007 to June 30, 2007.
Actual Expenses
The first section of the table shown, “Actual Series Return,” provides information about actual account values and actual expenses. You may use the information in this section of the table, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first section under the heading entitled “Expenses Paid During Period” to estimate the expenses you paid on your account during the period.
Hypothetical Example for Comparison Purposes
The second section of the table shown, “Hypothetical 5% Return,” provides information about hypothetical account values and hypothetical expenses based on the Series’ actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Series’ actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Series and other funds. To do so, compare the 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs only. As a shareholder of the Series, you do not incur any transaction costs, such as sales charges (loads), redemption fees or exchange fees, but shareholders of other funds may incur such costs. Also, the fees related to the variable annuity investment or the deferred sales charge that could apply have not been included. Therefore, the second section of the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. The Series’ actual expenses shown in the table reflect fee waivers in effect for Service Class shares. The expenses shown in the table assume reinvestment of all dividends and distributions.
Expense Analysis of an Investment of $1,000
|
| Beginning |
| Ending |
| Annualized |
| Expenses |
| |||
Actual Series Return |
|
|
|
|
|
|
|
|
| |||
Standard Class |
| $ | 1,000.00 |
| $ | 1,030.00 |
| 0.74 | % | $ | 3.72 |
|
Service Class |
| 1,000.00 |
| 1,027.70 |
| 0.99 | % | 4.98 |
| |||
|
|
|
|
|
|
|
|
|
| |||
Hypothetical 5% Return (5% return before expenses) |
|
|
|
|
|
|
|
|
| |||
Standard Class |
| $ | 1,000.00 |
| $ | 1,021.12 |
| 0.74 | % | $ | 3.71 |
|
Service Class |
| 1,000.00 |
| 1,019.89 |
| 0.99 | % | 4.96 |
|
* “Expenses Paid During Period” are equal to the Series’ annualized expense ratio, multiplied by the average account value over the period, multiplied by 181/365 (to reflect the one-half year period).
1
Delaware VIP Trust — Delaware VIP Diversified Income Series
Sector Allocation and Credit Quality Breakdown
As of June 30, 2007
Sector designations may be different than the sector designations presented in other Series materials.
Sector |
| Percentage |
|
Agency Asset-Backed Securities |
| 0.03 | % |
Agency Collateralized Mortgage Obligations |
| 0.98 | % |
Agency Mortgage-Backed Securities |
| 9.36 | % |
Agency Obligations |
| 4.09 | % |
Commercial Mortgage-Backed Securities |
| 2.42 | % |
Convertible Bonds |
| 0.38 | % |
Corporate Bonds |
| 41.15 | % |
Banking |
| 6.46 | % |
Basic Industry |
| 3.12 | % |
Brokerage |
| 0.99 | % |
Capital Goods |
| 1.99 | % |
Communications |
| 6.52 | % |
Consumer Cyclical |
| 5.86 | % |
Consumer Non-Cyclical |
| 2.57 | % |
Electric |
| 1.79 | % |
Energy |
| 2.33 | % |
Finance Companies |
| 2.46 | % |
Industrial |
| 0.34 | % |
Insurance |
| 1.62 | % |
Natural Gas |
| 0.68 | % |
Real Estate |
| 1.35 | % |
Technology |
| 1.17 | % |
Transportation |
| 1.90 | % |
Foreign Agencies |
| 1.99 | % |
Austria |
| 0.24 | % |
Germany |
| 1.75 | % |
Municipal Bonds |
| 0.21 | % |
Non-Agency Asset-Backed Securities |
| 2.75 | % |
Non-Agency Collateralized Mortgage Obligations |
| 7.63 | % |
Regional Agencies |
| 0.45 | % |
Regional Authorities |
| 0.36 | % |
Argentina |
| 0.10 | % |
Canada |
| 0.26 | % |
Senior Secured Loans |
| 2.81 | % |
Sovereign Agencies |
| 0.13 | % |
Sovereign Debt |
| 15.88 | % |
Austria |
| 0.74 | % |
Brazil |
| 1.64 | % |
Colombia |
| 0.60 | % |
El Salvador |
| 0.03 | % |
France |
| 0.60 | % |
Germany |
| 0.45 | % |
Indonesia |
| 1.64 | % |
Jamaica |
| 0.19 | % |
Japan |
| 4.91 | % |
Malaysia |
| 0.95 | % |
Mexico |
| 0.81 | % |
Norway |
| 0.51 | % |
Pakistan |
| 0.17 | % |
Panama |
| 0.07 | % |
Peru |
| 0.07 | % |
Philippines |
| 0.14 | % |
Poland |
| 0.30 | % |
Republic of Korea |
| 0.16 | % |
Sweden |
| 0.29 | % |
Turkey |
| 0.51 | % |
United Kingdom |
| 1.05 | % |
Uruguay |
| 0.05 | % |
Supranational Banks |
| 1.73 | % |
U.S. Treasury Obligations |
| 2.71 | % |
Common Stock |
| 0.32 | % |
Currency Options Purchased |
| 0.01 | % |
Preferred Stock |
| 0.00 | % |
Warrant |
| 0.13 | % |
Discount Note |
| 10.52 | % |
Total Value of Securities |
| 106.04 | % |
Liabilities Net of Receivables and Other Assets |
| (6.04 | )% |
Total Net Assets |
| 100.00 | % |
Credit Quality Breakdown |
|
|
|
AAA |
| 38.60 | % |
AA |
| 8.61 | % |
A |
| 7.69 | % |
BBB |
| 12.00 | % |
BB |
| 10.19 | % |
B |
| 16.94 | % |
CCC |
| 5.02 | % |
D |
| 0.06 | % |
Not Rated |
| 0.89 | % |
Total |
| 100.00 | % |
2
Delaware VIP Trust — Delaware VIP Diversified Income Series
Statement of Net Assets
June 30, 2007 (Unaudited)
|
| Principal |
| Value |
| |||
|
| Amount° |
| (U.S. $) |
| |||
AGENCY ASSET-BACKED SECURITIES–0.03% |
|
|
|
|
| |||
|
|
|
|
|
| |||
·Fannie Mae Whole Loan Series 2002-W11 AV1 5.66% 11/25/32 |
| USD | 13,918 |
| $ | 13,918 |
| |
uFreddie Mac Structured Pass Through Securities Series T-30 A5 8.61% 12/25/30 |
| 161,082 |
| 159,962 |
| |||
Total Agency Asset-Backed Securities |
|
|
| 173,880 |
| |||
AGENCY COLLATERALIZED MORTGAGE OBLIGATIONS–0.98% |
|
|
|
|
| |||
Fannie Mae |
|
|
|
|
| |||
Series 1996-46 ZA 7.50% 11/25/26 |
| 6,178 |
| 6,356 |
| |||
Series 2002-90 A1 6.50% 6/25/42 |
| 18,928 |
| 19,198 |
| |||
Series 2002-90 A2 6.50% 11/25/42 |
| 72,883 |
| 73,781 |
| |||
Series 2003-122 AJ 4.50% 2/25/28 |
| 91,652 |
| 88,533 |
| |||
Series 2005-110 MB 5.50% 9/25/35 |
| 790,000 |
| 785,482 |
| |||
· Series 2006-M2 A2F 5.259% 5/25/20 |
| 20,000 |
| 19,112 |
| |||
Fannie Mae Grantor Trust |
|
|
|
|
| |||
Series 1999-T2 A1 7.50% 1/19/39 |
| 1,704 |
| 1,768 |
| |||
Series 2001-T8 A2 9.50% 7/25/41 |
| 15,358 |
| 16,400 |
| |||
Series 2002-T4 A3 7.50% 12/25/41 |
| 33,967 |
| 35,059 |
| |||
Series 2004-T1 1A2 6.50% 1/25/44 |
| 35,810 |
| 36,268 |
| |||
Fannie Mae Whole Loan |
|
|
|
|
| |||
Series 2002-W6 2A1 7.00% 6/25/42 |
| 61,171 |
| 62,631 |
| |||
Series 2004-W9 2A1 6.50% 2/25/44 |
| 10,157 |
| 10,315 |
| |||
Series 2004-W11 1A2 6.50% 5/25/44 |
| 110,332 |
| 112,070 |
| |||
Freddie Mac |
|
|
|
|
| |||
Series 1730 Z 7.00% 5/15/24 |
| 152,745 |
| 158,807 |
| |||
Series 2326 ZQ 6.50% 6/15/31 |
| 233,084 |
| 240,617 |
| |||
Series 2480 EH 6.00% 11/15/31 |
| 2 |
| 2 |
| |||
Series 2552 KB 4.25% 6/15/27 |
| 81,027 |
| 80,392 |
| |||
Series 2662 MA 4.50% 10/15/31 |
| 244,519 |
| 238,680 |
| |||
Series 2694 QG 4.50% 1/15/29 |
| 625,000 |
| 599,009 |
| |||
Series 2872 GC 5.00% 11/15/29 |
| 220,000 |
| 212,817 |
| |||
Series 2890 PC 5.00% 7/15/30 |
| 1,575,000 |
| 1,523,627 |
| |||
Series 2915 KP 5.00% 11/15/29 |
| 265,000 |
| 256,443 |
| |||
Series 3005 ED 5.00% 7/15/25 |
| 650,000 |
| 599,647 |
| |||
Series 3022 MB 5.00% 12/15/28 |
| 165,000 |
| 161,163 |
| |||
Series 3063 PC 5.00% 2/15/29 |
| 1,255,000 |
| 1,226,910 |
| |||
uFreddie Mac Structured Pass Through Securities |
|
|
|
|
| |||
Series T-54 2A 6.50% 2/25/43 |
| 32,325 |
| 32,533 |
| |||
Series T-58 2A 6.50% 9/25/43 |
| 13,689 |
| 13,889 |
| |||
Total Agency Collateralized Mortgage Obligations |
|
|
| 6,611,509 |
| |||
AGENCY MORTGAGE-BACKED SECURITIES–9.36% |
|
|
|
|
| |||
Fannie Mae |
|
|
|
|
| |||
5.50% 1/1/13 |
| 196,884 |
| 195,245 |
| |||
6.171% 5/1/09 |
| 25,138 |
| 25,202 |
| |||
6.50% 8/1/17 |
| 62,509 |
| 63,642 |
| |||
·Fannie Mae ARM |
|
|
|
|
| |||
5.054% 8/1/35 |
|
| 545,180 |
| 528,141 |
| ||
5.287% 10/1/33 |
| 268,744 |
| 272,791 |
| |||
Fannie Mae Relocation 15 yr 4.00% 9/1/20 |
| 521,256 |
| 479,699 |
| |||
Fannie Mae Relocation 30 yr |
|
|
|
|
| |||
5.00% 11/1/33 |
| 61,814 |
| 58,618 |
| |||
5.00% 8/1/34 |
| 64,873 |
| 61,451 |
| |||
5.00% 11/1/34 |
| 83,823 |
| 79,401 |
| |||
5.00% 4/1/35 |
| 250,750 |
| 237,173 |
| |||
5.00% 10/1/35 |
| 413,527 |
| 391,137 |
| |||
5.00% 1/1/36 |
| 580,557 |
| 549,124 |
| |||
Fannie Mae S.F. 15 yr TBA |
|
|
|
|
| |||
4.50% 7/1/21 |
| 1,140,000 |
| 1,081,931 |
| |||
5.00% 7/1/22 |
| 2,355,000 |
| 2,275,886 |
| |||
5.50% 7/1/22 |
| 3,040,000 |
| 2,994,874 |
| |||
6.00% 7/1/22 |
| 4,420,000 |
| 4,440,027 |
| |||
Fannie Mae S.F. 30 yr |
|
|
|
|
| |||
5.50% 3/1/29 |
| 3,241 |
| 3,142 |
| |||
5.50% 4/1/29 |
| 3,372 |
| 3,269 |
| |||
5.50% 12/1/34 |
| 2,792,939 |
| 2,704,082 |
| |||
7.50% 3/1/32 |
| 1,355 |
| 1,411 |
| |||
7.50% 4/1/32 |
| 4,737 |
| 4,935 |
| |||
Fannie Mae S.F. 30 yr TBA |
|
|
|
|
| |||
5.00% 7/1/37 |
| 13,125,000 |
| 12,298,532 |
| |||
5.50% 7/1/37 |
| 14,365,000 |
| 13,855,488 |
| |||
6.00% 8/1/37 |
| 12,155,000 |
| 12,016,360 |
| |||
6.50% 7/1/37 |
| 2,605,000 |
| 2,629,422 |
| |||
Freddie Mac 7.00% 1/1/08 |
| 9,921 |
| 9,933 |
| |||
·Freddie Mac ARM |
|
|
|
|
| |||
4.949% 12/1/33 |
| 381,408 |
| 384,651 |
| |||
5.838% 4/1/34 |
| 7,873 |
| 7,951 |
| |||
6.328% 2/1/37 |
| 1,983,496 |
| 2,001,799 |
| |||
Freddie Mac Relocation 30 yr 5.00% 9/1/33 |
| 109,515 |
| 104,161 |
| |||
Freddie Mac S.F. 30 yr TBA 6.00% 7/1/37 |
| 800,000 |
| 792,500 |
| |||
GNMA I S.F. 30 yr 7.00% 12/15/34 |
| 667,728 |
| 700,851 |
| |||
GNMA S.F. 30 yr TBA |
| 1,115,000 |
| 1,081,898 |
| |||
5.50% 7/1/37 |
|
|
|
|
| |||
6.00% 7/1/37 |
| 1,115,000 |
| 1,109,077 |
| |||
Total Agency Mortgage-Backed Securities (cost $63,939,345) |
|
|
| 63,443,804 |
| |||
AGENCY OBLIGATIONS–4.09% |
|
|
|
|
| |||
Fannie Mae |
|
|
|
|
| |||
3.00% 8/15/07 |
| 40,000 |
| 39,886 |
| |||
5.00% 9/15/08 |
| 1,100,000 |
| 1,096,777 |
| |||
^ 8.12% 10/29/07 |
| NZD | 1,700,000 |
| 1,276,616 |
| ||
Federal Farm Credit Bank |
|
|
|
|
| |||
5.125% 8/25/16 |
| USD | 615,000 |
| 603,388 |
| ||
Federal Home Loan Bank System |
|
|
|
|
| |||
4.875% 11/27/13 |
| 4,100,000 |
| 3,996,832 |
| |||
5.375% 8/19/11 |
| 1,920,000 |
| 1,929,642 |
| |||
5.50% 8/13/14 |
| 1,460,000 |
| 1,472,149 |
| |||
3
| Principal |
| Value |
| |||
|
| Amount° |
| (U.S. $) |
| ||
AGENCY OBLIGATIONS (continued) |
|
|
|
|
| ||
^Financing Corporation Interest Strip |
|
|
|
|
| ||
CPN 4.782% 4/6/12 |
| USD | 645,000 |
| $ | 508,544 |
|
CPN 4.797% 5/2/12 |
| 125,000 |
| 98,495 |
| ||
CPN 4.901% 10/6/12 |
| 545,000 |
| 416,258 |
| ||
CPN 4.938% 10/6/13 |
| 109,000 |
| 78,827 |
| ||
CPN 4.948% 10/6/14 |
| 650,000 |
| 444,094 |
| ||
CPN 5.079% 2/8/13 |
| 252,000 |
| 189,030 |
| ||
CPN 5.08% 8/8/13 |
| 252,000 |
| 184,122 |
| ||
CPN 5.093% 4/6/14 |
| 135,000 |
| 94,804 |
| ||
CPN 5.101% 10/6/11 |
| 120,000 |
| 96,676 |
| ||
CPN 5.175% 3/26/12 |
| 200,000 |
| 157,711 |
| ||
CPN 5.193% 10/6/15 |
| 353,000 |
| 227,645 |
| ||
CPN 1 5.162% 5/11/12 |
| 330,000 |
| 259,978 |
| ||
CPN 1 5.283% 5/11/15 |
| 400,000 |
| 263,760 |
| ||
CPN 1 5.407% 11/11/17 |
| 700,000 |
| 400,208 |
| ||
CPN 4 5.213% 10/6/15 |
| 200,000 |
| 128,977 |
| ||
CPN 12 5.10% 12/6/11 |
| 638,000 |
| 509,229 |
| ||
CPN 13 5.161% 12/27/12 |
| 100,000 |
| 75,433 |
| ||
CPN 13 5.208% 6/27/13 |
| 400,000 |
| 293,818 |
| ||
CPN 13 5.366% 12/27/16 |
| 366,000 |
| 220,357 |
| ||
CPN 15 4.903% 9/7/13 |
| 860,000 |
| 625,246 |
| ||
CPN 15 5.253% 3/7/16 |
| 674,000 |
| 425,043 |
| ||
CPN 19 5.074% 12/6/10 |
| 120,000 |
| 100,915 |
| ||
CPN 19 5.189% 6/6/16 |
| 120,000 |
| 74,623 |
| ||
CPN A 5.098% 8/8/15 |
| 150,000 |
| 97,651 |
| ||
CPN A 5.099% 2/8/15 |
| 150,000 |
| 100,301 |
| ||
CPN A 5.112% 2/8/14 |
| 252,000 |
| 178,666 |
| ||
CPN D 5.112% 9/26/11 |
| 550,000 |
| 443,782 |
| ||
CPN D 5.119% 9/26/10 |
| 600,000 |
| 509,431 |
| ||
Freddie Mac 4.625% 12/19/08 |
| 525,000 |
| 520,591 |
| ||
5.25% 2/24/11 |
| 3,000,000 |
| 2,987,256 |
| ||
5.40% 2/2/12 |
| 2,180,000 |
| 2,170,792 |
| ||
5.45% 9/2/11 |
| 2,180,000 |
| 2,174,659 |
| ||
5.50% 7/18/16 |
| 2,200,000 |
| 2,211,438 |
| ||
Total Agency Obligations |
|
|
| 27,683,650 |
| ||
COMMERCIAL MORTGAGE-BACKED SECURITIES–2.42% |
|
|
|
|
| ||
Bank of America Commercial Mortgage Securities |
|
|
|
|
| ||
· Series 2006-3 A4 5.889% 7/10/44 |
| 1,215,000 |
| 1,216,838 |
| ||
Series 2006-4 A4 5.634% 7/10/46 |
| 80,000 |
| 78,546 |
| ||
#Bear Stearns Commercial Mortgage Securities Series 2004-ESA E 144A 5.064% 5/14/16 |
| 350,000 |
| 348,196 |
| ||
uCommercial Mortgage Pass Through Certificates |
|
|
|
|
| ||
# Series 2001-J1A A2 144A 6.457% 2/14/34 |
| 181,606 |
| 185,922 |
| ||
Series 2006-C7 A2 5.69% 6/10/46 |
| 210,000 |
| 210,385 |
| ||
·Credit Suisse Mortgage Capital Certificates Series 2006-C1 AAB 5.681% 2/15/39 |
| 115,000 |
| 114,007 |
| ||
#Crown Castle Towers 144A |
|
|
|
|
| ||
Series 2005-1A C 5.074% 6/15/35 |
|
| 90,000 |
| 88,228 |
| |
Series 2006-1A B 5.362% 11/15/36 |
| 830,000 |
| 816,147 |
| ||
#First Union National Bank Commercial Mortgage Series 2001-C2 L 144A 6.46% 1/12/43 |
| 200,000 |
| 198,125 |
| ||
General Electric Capital Commercial Mortgage Series 2002-1A A3 6.269% 12/10/35 |
| 390,000 |
| 399,624 |
| ||
Goldman Sachs Mortgage Securities II |
|
|
|
|
| ||
Series 2006-GG8 A4 5.56% 11/10/39 |
| 1,300,000 |
| 1,271,616 |
| ||
·# Series 2006-RR2 A1 144A 5.812% 6/23/46 |
| 345,000 |
| 338,335 |
| ||
·# Series 2006-RR3 A1S 144A 5.76% 7/18/56 |
| 1,205,000 |
| 1,175,923 |
| ||
Greenwich Capital Commercial Funding Series 2007-GG9 A4 5.444% 3/10/39 |
| 1,240,000 |
| 1,200,467 |
| ||
JPMorgan Chase Commercial Mortgage Securities |
|
|
|
|
| ||
Series 2002-C1 A3 5.376% 7/12/37 |
| 290,000 |
| 286,758 |
| ||
Series 2002-C2 A2 5.05% 12/12/34 |
| 280,000 |
| 272,162 |
| ||
Series 2003-C1 A2 4.985% 1/12/37 |
| 20,000 |
| 19,345 |
| ||
· Series 2006-LDP7 AJ 6.066% 4/15/45 |
| 1,000,000 |
| 1,000,811 |
| ||
·# Series 2006-RR1A A1 144A 5.606% 10/18/52 |
| 1,035,000 |
| 1,000,721 |
| ||
Series 2007-CB18 A4 5.44% 6/12/47 |
| 810,000 |
| 782,743 |
| ||
Lehman Brothers-UBS Commercial Mortgage Trust |
|
|
|
|
| ||
Series 2002-C1 A4 6.462% 3/15/31 |
| 110,000 |
| 113,672 |
| ||
Series 2003-C8 A2 4.207% 11/15/27 |
| 120,000 |
| 117,861 |
| ||
Merrill Lynch/Countrywide Commercial Mortgage Trust |
|
|
|
|
| ||
Series 2007-5 A1 4.275% 8/12/48 |
| 33,834 |
| 32,945 |
| ||
Series 2007-5 A4 5.378% 8/12/48 |
| 440,000 |
| 422,884 |
| ||
Morgan Stanley Capital I |
|
|
|
|
| ||
# Series 1999-FNV1 G 144A 6.12% 3/15/31 |
| 110,000 |
| 110,175 |
| ||
· Series 2006-HQ9 A4 5.731% 7/12/44 |
| 2,500,000 |
| 2,476,388 |
| ||
· Series 2007-IQ14 A4 5.692% 4/15/49 |
| 350,000 |
| 343,010 |
| ||
·#Morgan Stanley Dean Witter Capital I Series 2001-TOP1 E 144A 7.551% 2/15/33 |
| 100,000 |
| 104,925 |
| ||
#Tower 144A |
|
|
|
|
| ||
Series 2004-2A A 4.232% 12/15/14 |
| 65,000 |
| 62,856 |
| ||
Series 2006-1 B 5.588% 2/15/36 |
| 120,000 |
| 119,142 |
| ||
Series 2006-1 C 5.707% 2/15/36 |
| 185,000 |
| 183,858 |
| ||
Wachovia Bank Commercial Mortgage Trust |
|
|
|
|
| ||
Series 2006-C28 A2 5.50% 10/15/48 |
| 610,000 |
| 605,725 |
| ||
Series 2007-C30 A3 5.246% 12/15/43 |
| 715,000 |
| 701,341 |
| ||
Total Commercial Mortgage-Backed Securities |
|
|
| 16,399,681 |
| ||
4
|
| Principal |
| Value |
| ||||
|
| Amount° |
| (U.S. $) |
| ||||
CONVERTIBLE BONDS–0.38% |
|
|
|
|
| ||||
Electronic Data Systems 3.875% 7/15/23 exercise price $34.14, expiration date 7/15/23 |
| USD | 1,270,000 |
| $ | 1,292,225 |
| ||
Ford Motor 4.25% 12/15/36 exercise price $9.20, expiration date 12/15/36 |
| 300,000 |
| 377,250 |
| ||||
†Mirant (Escrow) 2.50% 6/15/21 exercise price $67.95, expiration date 6/15/21 |
| 110,000 |
| — |
| ||||
·US Bancorp 3.61% 9/20/36 exercise price $38.28, expiration date 9/20/36 |
| 900,000 |
| 899,640 |
| ||||
Total Convertible Bonds |
|
|
| 2,569,115 |
| ||||
CORPORATE BONDS–41.15% |
|
|
|
|
| ||||
Banking–6.46% |
|
|
|
|
| ||||
#ABH Financial 144A 8.20% 6/25/12 |
| 545,000 |
| 545,000 |
| ||||
·BAC Capital Trust XIV 5.63% 12/31/49 |
| 1,475,000 |
| 1,443,690 |
| ||||
·BAC Capital Trust XV 6.16% 6/1/56 |
| 1,045,000 |
| 1,047,826 |
| ||||
·#Banco Macro 144A 9.75% 12/18/36 |
| 940,000 |
| 944,700 |
| ||||
·#Banco Mercantil 144A 6.862% 10/13/21 |
| 1,320,000 |
| 1,325,248 |
| ||||
Bancolombia 6.875% 5/25/17 |
| 830,000 |
| 819,625 |
| ||||
#Bank of Moscow 144A 7.335% 5/13/13 |
| 2,512,000 |
| 2,587,611 |
| ||||
·#Barclays Bank 144A 7.375% 6/29/49 |
| 330,000 |
| 352,550 |
| ||||
#CenterCredit International 144A 8.625% 1/30/14 |
| 375,000 |
| 370,800 |
| ||||
Citigroup 6.125% 8/25/36 |
| 425,000 |
| 418,715 |
| ||||
Depfa Bank 20.00% 11/19/07 |
| TRY | 7,244,000 |
| 5,497,160 |
| |||
^Dresdner Bank 4.66% 1/24/08 |
| USD | 4,245,000 |
| 4,197,243 |
| |||
First National Bank of Omaha 7.32% 12/1/10 |
| 280,000 |
| 285,906 |
| ||||
First Union Institutional Capital II 7.85% 1/1/27 |
| 950,000 |
| 988,175 |
| ||||
·Fortis Capital 6.25% 6/29/49 |
| EUR | 900,000 |
| 1,246,984 |
| |||
#HBOS Treasury Services 144A 5.25% 2/21/17 |
| USD | 1,500,000 |
| 1,474,341 |
| |||
#HSBK Europe 144A 7.25% 5/3/17 |
| 380,000 |
| 369,075 |
| ||||
JPMorgan Chase Capital XVIII 6.95% 8/17/36 |
| 195,000 |
| 197,723 |
| ||||
#Kazkommerts International 144A 8.00% 11/3/15 |
| 410,000 |
| 400,283 |
| ||||
·# KBC Bank Funding Trust III 144A 9.86% 11/29/49 |
| 200,000 |
| 218,201 |
| ||||
#Majapahit Holding 144A 7.75% 10/17/16 |
| 640,000 |
| 651,200 |
| ||||
·Marshall & Ilsley Bank 5.63% 12/4/12 |
| 255,000 |
| 255,314 |
| ||||
·Mellon Capital IV 6.244% 6/29/49 |
| 480,000 |
| 484,840 |
| ||||
·MUFG Capital Finance 1 6.346% 7/29/49 |
| 460,000 |
| 452,752 |
| ||||
National City Bank 5.80% 6/7/17 |
| 375,000 |
| 371,061 |
| ||||
#Northern Rock 144A |
|
|
|
|
| ||||
5.625% 6/22/17 |
| 3,745,000 |
| 3,764,686 |
| ||||
· 6.594% 6/29/49 |
| 500,000 |
| 503,405 |
| ||||
·#PNC Preferred Funding Trust I 144A 6.113% 3/29/49 |
|
| 1,000,000 |
| 976,330 |
| |||
Popular North America |
|
|
|
|
| ||||
4.25% 4/1/08 |
| 335,000 |
| 331,630 |
| ||||
· 5.75% 4/6/09 |
| 375,000 |
| 376,962 |
| ||||
Popular North America Capital Trust I 6.564% 9/15/34 |
| 260,000 |
| 238,680 |
| ||||
#Privatbank 144A 8.00% 2/6/12 |
| 750,000 |
| 745,688 |
| ||||
·#Rabobank Capital Funding II 144A 5.26% 12/29/49 |
| 255,000 |
| 244,874 |
| ||||
·RBS Capital Trust I 4.709% 12/29/49 |
| 180,000 |
| 167,764 |
| ||||
·Resona Bank 4.125% 9/29/49 |
| EUR | 552,000 |
| 708,513 |
| |||
·#Resona Preferred Global Securities 144A 7.191% 12/29/49 |
| USD | 395,000 |
| 404,499 |
| |||
#Russian Agricultural Bank 144A 6.299% 5/15/17 |
| 950,000 |
| 932,235 |
| ||||
#Russian Standard Bank 144A 8.625% 5/5/11 |
| 265,000 |
| 266,060 |
| ||||
·#Shinsei Finance II 144A 7.16% 7/29/49 |
| 210,000 |
| 209,803 |
| ||||
·Standard Chartered Capital Trust I 8.16% 3/29/49 |
| EUR | 589,000 |
| 859,553 |
| |||
#TemirBank 144A 9.50% 5/21/14 |
| USD | 1,490,000 |
| 1,471,375 |
| |||
#TuranAlem Finance 144A 7.75% 4/25/13 |
| 600,000 |
| 578,280 |
| ||||
·#Vneshtorgbank 144A 5.955% 8/1/08 |
| 110,000 |
| 110,248 |
| ||||
·VTB 24 Capital 6.18% 12/7/09 |
| 415,000 |
| 417,075 |
| ||||
Wachovia 5.75% 6/15/17 |
| 460,000 |
| 454,688 |
| ||||
WM Covered Bond Program 3.875% 9/27/11 |
| EUR | 2,326,000 |
| 3,038,478 |
| |||
|
|
|
| 43,746,849 |
| ||||
Basic Industry–3.12% |
|
|
|
|
| ||||
AK Steel 7.875% 2/15/09 |
| USD | 150,000 |
| 150,375 |
| |||
Bowater |
|
|
|
|
| ||||
6.50% 6/15/13 |
| 325,000 |
| 283,969 |
| ||||
9.00% 8/1/09 |
| 750,000 |
| 765,000 |
| ||||
9.50% 10/15/12 |
| 875,000 |
| 866,250 |
| ||||
Bowater Canada Finance |
|
|
|
|
| ||||
7.95% 11/15/11 |
| 400,000 |
| 378,500 |
| ||||
Catalyst Paper 8.625% 6/15/11 |
| 1,485,000 |
| 1,444,162 |
| ||||
#Evraz Group 144A 8.25% 11/10/15 |
| 475,000 |
| 486,875 |
| ||||
Freeport McMoRan Copper & Gold 8.25% 4/1/15 |
| 1,270,000 |
| 1,343,025 |
| ||||
Georgia-Pacific |
|
|
|
|
| ||||
8.875% 5/15/31 |
| 1,660,000 |
| 1,664,149 |
| ||||
9.50% 12/1/11 |
| 415,000 |
| 441,975 |
| ||||
Ispat Inland 9.75% 4/1/14 |
| 65,000 |
| 72,070 |
| ||||
Lubrizol 4.625% 10/1/09 |
| 745,000 |
| 730,769 |
| ||||
Lyondell Chemical |
|
|
|
|
| ||||
8.00% 9/15/14 |
| 915,000 |
| 944,738 |
| ||||
8.25% 9/15/16 |
| 500,000 |
| 525,000 |
| ||||
10.50% 6/1/13 |
| 50,000 |
| 54,250 |
| ||||
#MacDermid 144A 9.50% 4/15/17 |
| 1,220,000 |
| 1,232,200 |
| ||||
Massey Energy 6.625% 11/15/10 |
| 165,000 |
| 163,350 |
| ||||
5
|
| Principal |
| Value |
| |||||
| CORPORATE BONDS (continued) |
|
|
|
|
|
| |||
| Basic Industry (continued) |
|
|
|
|
|
| |||
# | Momentive Performance Materials 144A 9.75% 12/1/14 |
| USD | 575,000 |
| $ | 583,625 |
| ||
# | Norske Skogindustrier 144A 7.125% 10/15/33 |
| 640,000 |
| 562,550 |
| ||||
‡# | Port Townsend Paper 144A 11.00% 4/15/11 |
| 685,000 |
| 304,825 |
| ||||
| Potlatch 13.00% 12/1/09 |
| 675,000 |
| 763,177 |
| ||||
# | Sappi Papier Holding 144A |
|
|
|
|
| ||||
| 6.75% 6/15/12 |
| 415,000 |
| 410,533 |
| ||||
| 7.50% 6/15/32 |
| 1,465,000 |
| 1,348,283 |
| ||||
| Smurfit-Stone Container Enterprises 8.00% 3/15/17 |
| 600,000 |
| 585,000 |
| ||||
‡ | Solutia 6.72% 10/15/37 |
| 615,000 |
| 558,113 |
| ||||
| Southern Copper 7.50% 7/27/35 |
| 125,000 |
| 134,505 |
| ||||
# | Steel Dynamics 144A 6.75% 4/1/15 |
| 300,000 |
| 295,500 |
| ||||
# | Stora Enso Oyj 144A 7.25% 4/15/36 |
| 345,000 |
| 344,614 |
| ||||
# | Tube City IMS 144A 9.75% 2/1/15 |
| 650,000 |
| 669,500 |
| ||||
| United States Steel |
|
|
|
|
| ||||
| 6.05% 6/1/17 |
| 630,000 |
| 615,511 |
| ||||
| 6.65% 6/1/37 |
| 320,000 |
| 310,871 |
| ||||
| Vale Overseas |
|
|
|
|
| ||||
| 6.25% 1/23/17 |
| 380,000 |
| 378,792 |
| ||||
| 6.875% 11/21/36 |
| 1,470,000 |
| 1,481,297 |
| ||||
| Witco 6.875% 2/1/26 |
| 255,000 |
| 212,925 |
| ||||
|
|
|
|
| 21,106,278 |
| ||||
| Brokerage–0.99% |
|
|
|
|
| ||||
· | Ameriprise Financial 7.518% 6/1/66 |
| 640,000 |
| 667,658 |
| ||||
| AMVESCAP |
|
|
|
|
| ||||
| 4.50% 12/15/09 |
| 180,000 |
| 175,752 |
| ||||
| 5.625% 4/17/12 |
| 675,000 |
| 670,343 |
| ||||
| E Trade Financial 8.00% 6/15/11 |
| 825,000 |
| 849,750 |
| ||||
| Goldman Sachs Group 6.345% 2/15/34 |
| 175,000 |
| 167,421 |
| ||||
| Jefferies Group 6.45% 6/8/27 |
| 470,000 |
| 459,926 |
| ||||
| JPMorgan Chase 6.125% 6/27/17 |
| 425,000 |
| 429,097 |
| ||||
| LaBranche |
|
|
|
|
| ||||
| 9.50% 5/15/09 |
| 600,000 |
| 624,000 |
| ||||
| 11.00% 5/15/12 |
| 1,610,000 |
| 1,714,650 |
| ||||
# | Lazard Group 144A 6.85% 6/15/17 |
| 250,000 |
| 250,619 |
| ||||
· | Lehman Brothers Holdings Capital Trust VII 6.19% 5/29/49 |
| 160,000 |
| 160,146 |
| ||||
| Merrill Lynch 6.22% 9/15/26 |
| 180,000 |
| 175,859 |
| ||||
| Ukrsotsbank 8.00% 2/22/10 |
| 380,000 |
| 382,333 |
| ||||
|
|
|
|
| 6,727,554 |
| ||||
| Capital Goods–1.99% |
|
|
|
|
| ||||
# | Aleris International 144A 10.00% 12/15/16 |
| 525,000 |
| 523,688 |
| ||||
| Allied Waste North America 9.25% 9/1/12 |
| 100,000 |
| 105,125 |
| ||||
| Armor Holdings 8.25% 8/15/13 |
| 525,000 |
| 555,188 |
| ||||
| Berry Plastics Holding 8.875% 9/15/14 |
| 765,000 |
| 778,388 |
| ||||
| Casella Waste Systems 9.75% 2/1/13 |
| 1,425,000 |
| 1,485,562 |
| ||||
| Caterpillar 6.05% 8/15/36 |
| 125,000 |
| 123,390 |
| ||||
| CPG International I 10.50% 7/1/13 |
| 525,000 |
| 540,750 |
| ||||
| General Electric 5.00% 2/1/13 |
| 365,000 |
| 354,305 |
| ||||
| Geo Subordinate 11.00% 5/15/12 |
| 575,000 |
| 586,500 |
| ||||
| Graham Packaging 9.875% 10/15/14 |
| 410,000 |
| 416,663 |
| ||||
| Greenbrier 8.375% 5/15/15 |
|
| 115,000 |
| 116,438 |
| |||
# | Hawker Beechcraft Acquisition 144A 9.75% 4/1/17 |
| 330,000 |
| 345,675 |
| ||||
| Hexion US Finance 9.75% 11/15/14 |
| 925,000 |
| 962,000 |
| ||||
| Interface 10.375% 2/1/10 |
| 1,090,000 |
| 1,177,199 |
| ||||
| Intertape Polymer 8.50% 8/1/14 |
| 455,000 |
| 452,725 |
| ||||
# | Mueller Water Products 144A 7.375% 6/1/17 |
| 170,000 |
| 169,424 |
| ||||
| Pactiv |
| 215,000 |
| 215,788 |
| ||||
| 5.875% 7/15/12 |
|
|
|
|
| ||||
| 6.40% 1/15/18 |
| 170,000 |
| 170,962 |
| ||||
# | Penhall International 144A 12.00% 8/1/14 |
| 475,000 |
| 515,375 |
| ||||
# | Rental Services 144A 9.50% 12/1/14 |
| 1,025,000 |
| 1,050,624 |
| ||||
# | Siemens Finance 144A 6.125% 8/17/26 |
| 410,000 |
| 405,736 |
| ||||
# | Vitro 144A 9.125% 2/1/17 |
| 1,620,000 |
| 1,668,599 |
| ||||
| WCA Waste 9.25% 6/15/14 |
| 745,000 |
| 778,525 |
| ||||
|
|
|
|
| 13,498,629 |
| ||||
| Communications–6.52% |
|
|
|
|
| ||||
| America Movil 6.375% 3/1/35 |
| 295,000 |
| 291,254 |
| ||||
| American Tower 7.125% 10/15/12 |
| 660,000 |
| 678,150 |
| ||||
| AT&T |
|
|
|
|
| ||||
| 7.30% 11/15/11 |
| 350,000 |
| 372,916 |
| ||||
| 8.00% 11/15/31 |
| 400,000 |
| 476,827 |
| ||||
| BellSouth 4.20% 9/15/09 |
| 260,000 |
| 253,356 |
| ||||
# | Broadview Networks Holdings 144A 11.375% 9/1/12 |
| 705,000 |
| 750,825 |
| ||||
# | C&M Finance 144A 8.10% 2/1/16 |
| 370,000 |
| 376,475 |
| ||||
| CCH I Holdings 13.50% 1/15/14 |
| 3,075,000 |
| 3,171,093 |
| ||||
· | Centennial Communications 11.099% 1/1/13 |
| 615,000 |
| 645,750 |
| ||||
| Charter Communications Holdings 13.50% 1/15/11 |
| 1,275,000 |
| 1,327,594 |
| ||||
| Comcast |
|
|
|
|
| ||||
· | 5.656% 7/14/09 |
| 395,000 |
| 395,220 |
| ||||
| 6.50% 11/15/35 |
| 365,000 |
| 354,935 |
| ||||
| Cox Communications 4.625% 1/15/10 |
| 165,000 |
| 161,257 |
| ||||
| Cricket Communications 9.375% 11/1/14 |
| 1,100,000 |
| 1,141,250 |
| ||||
| Dex Media West 9.875% 8/15/13 |
| 625,000 |
| 671,875 |
| ||||
# | Digicel 144A 9.25% 9/1/12 |
| 600,000 |
| 635,250 |
| ||||
# | Digicel Group 144A 8.875% 1/15/15 |
| 2,525,000 |
| 2,480,812 |
| ||||
| Donnelley (R.H.) 8.875% 1/15/16 |
| 355,000 |
| 370,975 |
| ||||
| Embarq 7.082% 6/1/16 |
| 640,000 |
| 644,638 |
| ||||
# | Grupo Televisa 144A 8.49% 5/11/37 |
| MXN | 16,500,000 |
| 1,549,835 |
| |||
·# | Hellas Telecommunications II 144A 11.106% 1/15/15 |
| USD | 1,025,000 |
| 1,060,875 |
| |||
| Hughes Network Systems/Finance 9.50% 4/15/14 |
| 1,632,000 |
| 1,713,599 |
| ||||
| Idearc 8.00% 11/15/16 |
| 450,000 |
| 456,750 |
| ||||
² | Inmarsat Finance 10.375% 11/15/12 |
| 750,000 |
| 719,063 |
| ||||
| Insight Communications 12.25% 2/15/11 |
| 315,000 |
| 329,963 |
| ||||
| Insight Midwest 9.75% 10/1/09 |
| 975,000 |
| 984,750 |
| ||||
# | Level 3 Financing 144A 8.75% 2/15/17 |
| 700,000 |
| 695,625 |
| ||||
6
|
| Principal |
| Value |
|
| ||||||||
| CORPORATE BONDS (continued) |
|
|
|
|
|
| |||||||
| Communications (continued) |
|
|
|
|
|
| |||||||
| Mediacom Broadband 8.50% 10/15/15 |
| USD | 25,000 |
| $ | 25,250 |
|
| |||||
| Mediacom Capital 9.50% 1/15/13 |
| 2,425,000 |
| 2,485,624 |
|
| |||||||
# | MetroPCS Wireless 144A 9.25% 11/1/14 |
| 450,000 |
| 466,876 |
|
| |||||||
# | Orascom Telecomunication Finance 144A 7.875% 2/8/14 |
| 910,000 |
| 884,611 |
|
| |||||||
# | PAETEC Holding 144A 9.50% 7/15/15 |
| 300,000 |
| 304,125 |
|
| |||||||
# | Pakistan Mobile Communications 144A 8.625% 11/13/13 |
| 1,050,000 |
| 1,078,875 |
|
| |||||||
= | Porttown 10.85% 9/30/07 |
| 328,947 |
| 325,658 |
|
| |||||||
# | Quebecor World 144A 9.75% 1/15/15 |
| 675,000 |
| 686,813 |
|
| |||||||
| Qwest |
|
|
|
|
|
| |||||||
| 7.50% 10/1/14 |
| 560,000 |
| 576,800 |
|
| |||||||
· | 8.61% 6/15/13 |
| 775,000 |
| 844,750 |
|
| |||||||
| Rural Cellular |
|
|
|
|
|
| |||||||
| 9.875% 2/1/10 |
| 820,000 |
| 861,000 |
|
| |||||||
· | 11.106% 11/1/12 |
| 175,000 |
| 181,125 |
|
| |||||||
| Sprint Capital 7.625% 1/30/11 |
| 400,000 |
| 421,172 |
|
| |||||||
| Sprint Nextel |
|
|
|
|
|
| |||||||
· | 5.76% 6/28/10 |
| 475,000 |
| 475,259 |
|
| |||||||
| 6.00% 12/1/16 |
| 145,000 |
| 137,797 |
|
| |||||||
| Telecom Italia Capital |
|
|
|
|
|
| |||||||
| 4.00% 1/15/10 |
| 695,000 |
| 668,516 |
|
| |||||||
· | 5.969% 7/18/11 |
| 485,000 |
| 488,634 |
|
| |||||||
| Telefonica Emisones |
|
|
|
|
|
| |||||||
· | 5.66% 6/19/09 |
| 265,000 |
| 265,971 |
|
| |||||||
| 5.984% 6/20/11 |
| 365,000 |
| 368,680 |
|
| |||||||
| 6.221% 7/3/17 |
| 340,000 |
| 339,773 |
|
| |||||||
| 6.421% 6/20/16 |
| 310,000 |
| 314,856 |
|
| |||||||
| 7.045% 6/20/36 |
| 110,000 |
| 114,272 |
|
| |||||||
| TELUS 4.95% 3/15/17 |
| CAD | 800,000 |
| 684,959 |
|
| ||||||
| THOMSON 5.75% 2/1/08 |
| USD | 100,000 |
| 100,098 |
|
| ||||||
| Time Warner 5.50% 11/15/11 |
| 345,000 |
| 341,491 |
|
| |||||||
# | Time Warner Cable 144A |
|
|
|
|
|
| |||||||
| 5.40% 7/2/12 |
| 1,385,000 |
| 1,361,569 |
|
| |||||||
| 5.85% 5/1/17 |
| 430,000 |
| 419,007 |
|
| |||||||
| 6.55% 5/1/37 |
| 90,000 |
| 87,264 |
|
| |||||||
| Time Warner Entertainment 8.375% 3/15/23 |
| 225,000 |
| 258,878 |
|
| |||||||
| Time Warner Telecom Holdings 9.25% 2/15/14 |
| 380,000 |
| 404,700 |
|
| |||||||
| Triton PCS 8.50% 6/1/13 |
| 560,000 |
| 575,400 |
|
| |||||||
# | True Move 144A 10.75% 12/16/13 |
| 855,000 |
| 910,575 |
|
| |||||||
# | Univision Communications PIK 144A 9.75% 3/15/15 |
| 870,000 |
| 863,475 |
|
| |||||||
| Vertis 10.875% 6/15/09 |
| 810,000 |
| 797,850 |
|
| |||||||
| Viacom |
|
|
|
|
|
| |||||||
| 5.75% 4/30/11 |
| 320,000 |
| 319,807 |
|
| |||||||
| 6.875% 4/30/36 |
| 165,000 |
| 159,899 |
|
| |||||||
| Vimpel Communication 8.25% 5/23/16 |
| 622,000 |
| 651,545 |
|
| |||||||
# | 144A 8.00% 2/11/10 |
| 630,000 |
| 650,160 |
|
| |||||||
| Virgin Media Finance 9.125% 8/15/16 |
| 520,000 |
| 547,300 |
|
| |||||||
|
|
|
|
| 44,161,326 |
|
| |||||||
| Consumer Cyclical–5.86% |
|
|
|
|
|
| |||||||
| Accuride 8.50% 2/1/15 |
|
| 325,000 |
| 322,563 |
| |||||||
| Carrols 9.00% 1/15/13 |
| 1,150,000 |
| 1,138,500 |
| ||||||||
# | Claire’s Stores 144A 9.25% 6/1/15 |
| 175,000 |
| 167,125 |
| ||||||||
| Corrections Corporation of America 7.50% 5/1/11 |
| 265,000 |
| 269,969 |
| ||||||||
| CVS Caremark 5.75% 6/1/17 |
| 1,045,000 |
| 1,010,110 |
| ||||||||
· | DaimlerChrysler Holding 5.805% 8/3/09 |
| 980,000 |
| 985,589 |
| ||||||||
| Denny’s 10.00% 10/1/12 |
| 675,000 |
| 715,500 |
| ||||||||
| Federated Retail Holdings |
|
|
|
|
| ||||||||
| 5.35% 3/15/12 |
| 310,000 |
| 304,869 |
| ||||||||
| 5.90% 12/1/16 |
| 1,050,000 |
| 1,025,179 |
| ||||||||
# | Fontainebleau Las Vegas Holdings 144A 10.25% 6/15/15 |
| 350,000 |
| 346,500 |
| ||||||||
| Ford Motor 7.70% 5/15/97 |
| 230,000 |
| 175,950 |
| ||||||||
| Ford Motor Credit |
|
|
|
|
|
| |||||||
| 5.75% 1/12/09 |
| EUR | 1,096,000 |
| 1,479,539 |
| |||||||
| 7.375% 10/28/09 |
| USD | 485,000 |
| 481,690 |
| |||||||
| 7.80% 6/1/12 |
| 3,005,000 |
| 2,934,385 |
| ||||||||
| 8.00% 12/15/16 |
| 290,000 |
| 278,225 |
| ||||||||
· | 8.105% 1/13/12 |
| 665,000 |
| 663,936 |
| ||||||||
| 9.75% 9/15/10 |
| 380,000 |
| 397,060 |
| ||||||||
# | Galaxy Entertainment Finance 144A 9.875% 12/15/12 |
| 2,101,000 |
| 2,269,079 |
| ||||||||
| Gaylord Entertainment 8.00% 11/15/13 |
| 800,000 |
| 815,000 |
| ||||||||
| General Motors 8.375% 7/15/33 |
| 2,095,000 |
| 1,922,163 |
| ||||||||
| Global Cash Access/Finance 8.75% 3/15/12 |
| 300,000 |
| 312,750 |
| ||||||||
| GMAC |
|
|
|
|
| ||||||||
| 4.75% 9/14/09 |
| EUR | 1,026,000 |
| 1,344,071 |
| |||||||
| 5.375% 6/6/11 |
| EUR | 774,000 |
| 1,007,299 |
| |||||||
| 6.61% 5/15/09 |
| USD | 2,125,000 |
| 2,126,020 |
| |||||||
| 6.625% 5/15/12 |
| 375,000 |
| 362,499 |
| ||||||||
| 6.875% 9/15/11 |
| 1,640,000 |
| 1,614,639 |
| ||||||||
# | Goodyear Tire & Rubber 144A 8.625% 12/1/11 |
| 276,000 |
| 291,870 |
| ||||||||
| Harrah’s Operating 6.50% 6/1/16 |
| 685,000 |
| 572,890 |
| ||||||||
| Isle of Capri Casinos 9.00% 3/15/12 |
| 645,000 |
| 675,638 |
| ||||||||
| KAR Holdings 144A 10.00% 5/1/15 |
| 1,465,000 |
| 1,435,700 |
| ||||||||
| Lear 8.75% 12/1/16 |
| 695,000 |
| 665,463 |
| ||||||||
| Majestic Star Casino 9.50% 10/15/10 |
| 985,000 |
| 1,029,325 |
| ||||||||
| Mandalay Resort Group |
|
|
|
|
| ||||||||
| 9.375% 2/15/10 |
| 250,000 |
| 265,000 |
| ||||||||
| 9.50% 8/1/08 |
| 700,000 |
| 724,500 |
| ||||||||
# | Michaels Stores 144A 11.375% 11/1/16 |
| 1,180,000 |
| 1,239,000 |
| ||||||||
| Neiman Marcus PIK 9.00% 10/15/15 |
| 600,000 |
| 645,000 |
| ||||||||
| NPC International 9.50% 5/1/14 |
| 225,000 |
| 219,375 |
| ||||||||
# | OSI Restaurant Partners 144A 10.00% 6/15/15 |
| 250,000 |
| 240,000 |
| ||||||||
| Penney (J.C.) |
|
|
|
|
| ||||||||
| 6.375% 10/15/36 |
| 605,000 |
| 577,998 |
| ||||||||
| 7.375% 8/15/08 |
| 630,000 |
| 639,108 |
| ||||||||
# | Pokagon Gaming Authority 144A 10.375% 6/15/14 |
| 1,045,000 |
| 1,157,338 |
| ||||||||
| Procter & Gamble 2.00% 6/21/10 |
| JPY | 124,000,000 |
| 1,025,077 |
| |||||||
7
|
|
| Principal |
| Value |
| |||
| CORPORATE BONDS (continued) |
|
|
|
|
| |||
| Consumer Cyclical (continued) |
|
|
|
|
| |||
| Station Casinos 6.625% 3/15/18 |
| USD | 485,000 |
| $ | 419,525 |
| |
² | Town Sports International 11.00% 2/1/14 |
| 400,000 |
| 370,000 |
| |||
| Toyota Motor Credit 1.30% 3/16/12 |
| JPY | 40,000,000 |
| 321,691 |
| ||
| True Temper Sports 8.375% 9/15/11 |
| USD |
| 242,000 |
| |||
# | TRW Automotive 144A |
|
|
|
|
| |||
| 7.00% 3/15/14 |
| 40,000 |
| 38,300 |
| |||
| 7.25% 3/15/17 |
| 475,000 |
| 454,813 |
| |||
· | Viacom 5.71% 6/16/09 |
| 295,000 |
| 296,027 |
| |||
| Visteon 8.25% 8/1/10 |
| 220,000 |
| 219,450 |
| |||
| Wheeling Island Gaming 10.125% 12/15/09 |
| 950,000 |
| 966,625 |
| |||
| WMG Acquisition 7.375% 4/15/14 |
| 540,000 |
| 504,900 |
| |||
|
|
|
|
| 39,706,822 |
| |||
| Consumer Non-Cyclical-2.57% |
|
|
|
|
| |||
| AmerisourceBergen |
|
|
|
|
| |||
| 5.625% 9/15/12 |
| 30,000 |
| 29,547 |
| |||
| 5.875% 9/15/15 |
| 470,000 |
| 454,294 |
| |||
# | Amgen 144A |
|
|
|
|
| |||
| 5.85% 6/1/17 |
| 445,000 |
| 438,897 |
| |||
| 6.375% 6/1/37 |
| 1,105,000 |
| 1,084,655 |
| |||
# | Aramark 144A |
|
|
|
|
| |||
| 8.50% 2/1/15 |
| 760,000 |
| 777,100 |
| |||
· | 8.856% 2/1/15 |
| 155,000 |
| 158,100 |
| |||
# | Cerveceria Nacional Dominicana 144A 8.00% 3/27/14 |
| 475,000 |
| 490,438 |
| |||
| Chiquita Brands International 8.875% 12/1/15 |
| 500,000 |
| 474,375 |
| |||
| Constellation Brands 8.125% 1/15/12 |
| 675,000 |
| 690,188 |
| |||
| Cott Beverages 8.00% 12/15/11 |
| 450,000 |
| 456,750 |
| |||
| CRC Health 10.75% 2/1/16 |
| 1,250,000 |
| 1,381,250 |
| |||
| DEL Laboratories 8.00% 2/1/12 |
| 610,000 |
| 588,650 |
| |||
| HCA 6.50% 2/15/16 |
| 585,000 |
| 497,981 |
| |||
# | HCA 144A 9.125% 11/15/14 |
| 175,000 |
| 184,406 |
| |||
| PIK 9.625% 11/15/16 |
| 55,000 |
| 59,263 |
| |||
| Healthsouth 10.75% 6/15/16 |
| 1,070,000 |
| 1,166,300 |
| |||
| Kraft Foods 4.125% 11/12/09 |
| 15,000 |
| 14,539 |
| |||
# | Miller Brewing 144A 4.25% 8/15/08 |
| 175,000 |
| 172,403 |
| |||
| National Beef Packing 10.50% 8/1/11 |
| 850,000 |
| 888,250 |
| |||
| Pilgrim’s Pride |
|
|
|
|
| |||
| 8.375% 5/1/17 |
| 1,625,000 |
| 1,616,874 |
| |||
| 9.625% 9/15/11 |
| 575,000 |
| 598,000 |
| |||
| Smithfield Foods 7.75% 7/1/17 |
| 125,000 |
| 125,625 |
| |||
| Swift 12.50% 1/1/10 |
| 1,290,000 |
| 1,365,517 |
| |||
# | Universal Hospital PIK 144A 8.50% 6/1/15 |
| 450,000 |
| 447,750 |
| |||
| US Oncology |
|
|
|
|
| |||
| 9.00% 8/15/12 |
| 265,000 |
| 274,275 |
| |||
| 10.75% 8/15/14 |
| 500,000 |
| 537,500 |
| |||
# | US Oncology Holdings PIK 144A 9.797% 3/15/12 |
| 900,000 |
| 888,750 |
| |||
| UST 6.625% 7/15/12 |
| 85,000 |
| 88,265 |
| |||
² | Vanguard Health Holding 11.25% 10/1/15 |
| 1,070,000 |
| 877,400 |
| |||
| Wyeth |
|
|
|
|
| |||
| 5.50% 2/1/14 |
| 370,000 |
| 365,163 |
| |||
| 5.95% 4/1/37 |
| 235,000 |
| 225,347 |
| |||
|
|
|
|
| 17,417,852 |
| |||
| Electric-1.79% |
|
|
|
|
| |||
| Avista 9.75% 6/1/08 |
| 415,000 |
| 430,379 |
| |||
·‡# | Calpine 144A 11.11% 7/15/07 |
| 376,338 |
| 399,388 |
| |||
| Dominion Resources 5.687% 5/15/08 |
| 465,000 |
| 465,657 |
| |||
| Duquense Light Holdings 5.50% 8/15/15 |
| 1,050,000 |
| 980,766 |
| |||
| Elwood Energy 8.159% 7/5/26 |
| 818,116 |
| 863,327 |
| |||
| FPL Group Capital |
|
|
|
|
| |||
| 5.625% 9/1/11 |
| 315,000 |
| 315,204 |
| |||
· | 6.65% 6/14/67 |
| 240,000 |
| 238,440 |
| |||
| ISA Capital do Brasil 7.875% 1/30/12 |
| 225,000 |
| 229,444 |
| |||
# | ISA Capital do Brasil 144A |
|
|
|
|
| |||
| 7.875% 1/30/12 |
| 1,075,000 |
| 1,101,874 |
| |||
| 8.80% 1/30/17 |
| 565,000 |
| 605,963 |
| |||
# | Jersey Cent Power & Light 144A 5.65% 6/1/17 |
| 1,050,000 |
| 1,021,260 |
| |||
# | MidAmerica Energy Holdings 144A 5.95% 5/15/37 |
| 1,050,000 |
| 992,918 |
| |||
| Midamerican Funding 6.75% 3/1/11 |
| 20,000 |
| 20,763 |
| |||
| Midwest Generation 8.30% 7/2/09 |
| 417,180 |
| 425,524 |
| |||
| Mirant Americas Generation 8.30% 5/1/11 |
| 885,000 |
| 918,188 |
| |||
| Mirant North America 7.375% 12/31/13 |
| 375,000 |
| 385,313 |
| |||
| Orion Power Holdings 12.00% 5/1/10 |
| 575,000 |
| 652,625 |
| |||
| Pepco Holdings |
|
|
|
|
| |||
| 5.50% 8/15/07 |
| 282,000 |
| 282,121 |
| |||
· | 5.985% 6/1/10 |
| 285,000 |
| 285,364 |
| |||
| 6.125% 6/1/17 |
| 235,000 |
| 232,667 |
| |||
# | Power Contract Financing 144A 6.256% 2/1/10 |
| 130,626 |
| 131,521 |
| |||
# | Rede Empresas de Energia Electrica 144A 11.125% 4/2/49 |
| 1,050,000 |
| 1,094,625 |
| |||
| TECO Energy 7.20% 5/1/11 |
| 20,000 |
| 20,827 |
| |||
| Xcel Energy 6.50% 7/1/36 |
| 20,000 |
| 20,294 |
| |||
|
|
|
|
| 12,114,452 |
| |||
| Energy-2.33% |
|
|
|
|
| |||
| Anadarko Petroleum 5.95% 9/15/16 |
| 150,000 |
| 146,719 |
| |||
| Apache 5.25% 4/15/13 |
| 305,000 |
| 299,337 |
| |||
| Bluewater Finance 10.25% 2/15/12 |
| 380,000 |
| 398,050 |
| |||
| Canadian Natural Resources 6.25% 3/15/38 |
| 335,000 |
| 318,017 |
| |||
# | Canadian Oil Sands 144A 4.80% 8/10/09 |
| 115,000 |
| 113,164 |
| |||
| Chesapeake Energy 6.625% 1/15/16 |
| 885,000 |
| 856,238 |
| |||
| Compton Petroleum Finance 7.625% 12/1/13 |
| 1,265,000 |
| 1,255,512 |
| |||
| Devon Energy 7.95% 4/15/32 |
| 110,000 |
| 128,960 |
| |||
# | Energy Partners 144A 9.75% 4/15/14 |
| 580,000 |
| 578,550 |
| |||
8
|
|
| Principal |
| Value |
| |||
| CORPORATE BONDS (continued) |
|
|
|
|
| |||
| Energy (continued) |
|
|
|
|
| |||
| Geophysique-Veritas |
|
|
|
|
| |||
| 7.50% 5/15/15 |
| USD | 85,000 |
| $ | 85,425 |
| |
| 7.75% 5/15/17 |
| 370,000 |
| 376,475 |
| |||
| Halliburton 5.50% 10/15/10 |
| 10,000 |
| 9,998 |
| |||
# | Hilcorp Energy I 144A |
|
|
|
|
| |||
| 7.75% 11/1/15 |
| 850,000 |
| 828,750 |
| |||
| 9.00% 6/1/16 |
| 750,000 |
| 780,000 |
| |||
# | Lukoil International Finance 144A |
|
|
|
|
| |||
| 6.356% 6/7/17 |
| 755,000 |
| 731,973 |
| |||
| 6.656% 6/7/22 |
| 540,000 |
| 525,150 |
| |||
| Mariner Energy 8.00% 5/15/17 |
| 400,000 |
| 399,000 |
| |||
| Nexen 6.40% 5/15/37 |
| 245,000 |
| 234,989 |
| |||
# | OPTI Canada 144A |
|
|
|
|
| |||
| 7.875% 12/15/14 |
| 200,000 |
| 201,000 |
| |||
| 8.25% 12/15/14 |
| 325,000 |
| 331,500 |
| |||
| PetroHawk Energy 9.125% 7/15/13 |
| 925,000 |
| 982,812 |
| |||
| Plains Exploration & Production 7.00% 3/15/17 |
| 390,000 |
| 371,475 |
| |||
# | Ras Laffan Liquefied Natural Gas III 144A |
|
|
|
|
| |||
| 5.832% 9/30/16 |
| 425,000 |
| 418,558 |
| |||
| 5.838% 9/30/27 |
| 500,000 |
| 465,199 |
| |||
· | Secunda International 13.356% 9/1/12 |
| 425,000 |
| 442,000 |
| |||
# | Seitel Acquisition 144A 9.75% 2/15/14 |
| 620,000 |
| 616,900 |
| |||
| Siberian Oil 10.75% 1/15/09 |
| 30,000 |
| 32,184 |
| |||
# | Stallion Oilfield Services 144A 9.75% 2/1/15 |
| 625,000 |
| 640,625 |
| |||
| Suncor Energy 6.50% 6/15/38 |
| 255,000 |
| 257,097 |
| |||
# | TNK-BP Finance 144A 6.625% 3/20/17 |
| 1,690,000 |
| 1,641,496 |
| |||
· | TransCanada Pipelines 6.35% 5/15/67 |
| 420,000 |
| 404,496 |
| |||
| Tyumen Oil 11.00% 11/6/07 |
| 30,000 |
| 30,633 |
| |||
# | VeraSun Energy 144A 9.375% 6/1/17 |
| 580,000 |
| 542,300 |
| |||
| Weatherford International 4.95% 10/15/13 |
| 72,000 |
| 68,041 |
| |||
| Whiting Petroleum 7.25% 5/1/13 |
| 275,000 |
| 262,625 |
| |||
|
|
|
|
| 15,775,248 |
| |||
| Finance Companies–2.46% |
|
|
|
|
| |||
· | American Express 6.80% 9/1/66 |
| 985,000 |
| 1,017,378 |
| |||
# | Capmark Financial Group 144A |
|
|
|
|
| |||
| 5.875% 5/10/12 |
| 1,050,000 |
| 1,037,318 |
| |||
| 6.30% 5/10/17 |
| 1,095,000 |
| 1,079,487 |
| |||
| FTI Consulting 7.625% 6/15/13 |
| 800,000 |
| 814,000 |
| |||
| General Electric Capital 5.125% 1/28/14 |
| SEK | 6,500,000 |
| 957,283 |
| ||
| General Electric Capital UK Funding 4.625% 1/18/16 |
| GBP | 503,000 |
| 907,508 |
| ||
·# | ILFC E-Capital Trust II 144A 6.25% 12/21/65 |
| USD | 1,000,000 |
| 976,916 |
| ||
| International Lease Finance |
|
|
|
|
| |||
| 4.625% 6/2/08 |
| 130,000 |
| 129,026 |
| |||
| 5.75% 6/15/11 |
| 375,000 |
| 376,896 |
| |||
· | JP Morgan Chase Capital XXI 6.305% 2/2/37 |
| 515,000 |
| 510,564 |
| |||
· | Lehman Brothers UK Capital Funding II 3.875% 2/28/49 |
| EUR | 500,000 |
| 645,839 |
| ||
·# | Pinnacle Foods Finance 144A 10.625% 4/1/17 |
| USD | 985,000 |
| 952,988 |
| ||
| Residential Capital |
|
|
|
|
| |||
| 5.125% 5/17/12 |
| EUR | 400,000 |
| 513,621 |
| ||
· | 5.86% 6/9/08 |
| USD | 415,000 |
| 410,886 |
| ||
| 6.00% 2/22/11 |
| 350,000 |
| 338,944 |
| |||
| 6.125% 11/21/08 |
| 635,000 |
| 629,409 |
| |||
| 6.375% 6/30/10 |
| 205,000 |
| 202,489 |
| |||
| 6.375% 5/17/13 |
| GBP | 650,000 |
| 1,195,936 |
| ||
·# | 144A 7.187% 4/17/09 |
| USD | 380,000 |
| 378,459 |
| ||
| SLM 5.375% 1/15/13 |
| 2,510,000 |
| 2,219,138 |
| |||
·# | Washington Mutual Preferred Funding II 144A 6.895% 12/31/49 |
| 1,100,000 |
| 1,085,927 |
| |||
·# | Xstrata Finance 144A 5.71% 11/13/09 |
| 310,000 |
| 310,604 |
| |||
|
|
|
|
| 16,690,616 |
| |||
| Industrial-0.34% |
|
|
|
|
| |||
| Baldor Electric 8.625% 2/15/17 |
| 250,000 |
| 265,625 |
| |||
# | Mobile Services Group 144A 9.75% 8/1/14 |
| 375,000 |
| 401,250 |
| |||
| RBS Global & Rexnord 11.75% 8/1/16 |
| 750,000 |
| 810,000 |
| |||
| Trimas 9.875% 6/15/12 |
| 790,000 |
| 815,675 |
| |||
|
|
|
|
| 2,292,550 |
| |||
| Insurance-1.62% |
|
|
|
|
| |||
· | Allstate |
|
|
|
|
| |||
| 6.125% 5/15/37 |
| 840,000 |
| 810,741 |
| |||
| 6.50% 5/15/57 |
| 420,000 |
| 398,412 |
| |||
# | Farmers Insurance Exchange 144A 8.625% 5/1/24 |
| 255,000 |
| 295,326 |
| |||
# | HUB International Holdings 144A 10.25% 6/15/15 |
| 250,000 |
| 241,875 |
| |||
·# | Liberty Mutual Group 144A 7.00% 3/15/37 |
| 590,000 |
| 567,530 |
| |||
· | Marsh & McLennan 5.495% 7/13/07 |
| 480,000 |
| 480,006 |
| |||
# | Max USA Holdings 144A 7.20% 4/14/17 |
| 755,000 |
| 739,131 |
| |||
| MetLife 5.00% 6/15/15 |
| 195,000 |
| 184,403 |
| |||
# | Metropolitan Life Global Funding I 144A 4.25% 7/30/09 |
| 450,000 |
| 440,961 |
| |||
| Montpelier Re Holdings 6.125% 8/15/13 |
| 195,000 |
| 189,520 |
| |||
# | Nationwide Mutual Insurance 144A 7.875% 4/1/33 |
| 375,000 |
| 433,506 |
| |||
# | Nippon Life Insurance 144A 4.875% 8/9/10 |
| 535,000 |
| 521,799 |
| |||
| Prudential Financial 6.10% 6/15/17 |
| 240,000 |
| 243,156 |
| |||
| SAFECO Capital Trust I 8.072% 7/15/37 |
| 245,000 |
| 255,157 |
| |||
| St. Paul Travelers 5.01% 8/16/07 |
| 315,000 |
| 314,873 |
| |||
# | Sul America Participacoes 144A 8.625% 2/15/12 |
| 350,000 |
| 362,250 |
| |||
·u# | Twin Reefs Pass Through Trust 144A 6.32% 12/31/49 |
| 600,000 |
| 601,929 |
| |||
| Unitrin 6.00% 5/15/17 |
| 760,000 |
| 738,063 |
| |||
| Unum Group 5.859% 5/15/09 |
| 295,000 |
| 295,974 |
| |||
9
|
|
| Principal |
| Value |
| |||
| CORPORATE BONDS (continued) |
|
|
|
|
|
| ||
| Insurance (continued) |
|
|
|
|
|
| ||
# | USI Holdings 144A 9.75% 5/15/15 |
| USD | 375,000 |
| $ | 375,000 |
| |
| WellPoint |
|
|
|
|
| |||
| 4.25% 12/15/09 |
| 140,000 |
| 135,689 |
| |||
| 5.875% 6/15/17 |
| 1,155,000 |
| 1,142,946 |
| |||
·# | White Mountains Re Group 144A 7.506% 5/29/49 |
| 520,000 |
| 509,003 |
| |||
| XL Capital 6.25% 5/15/27 |
| 700,000 |
| 677,891 |
| |||
|
|
|
|
| 10,955,141 |
| |||
| Natural Gas–0.68% |
|
|
|
|
| |||
# | Dynergy Holdings 144A 7.75% 6/1/19 |
| 285,000 |
| 266,475 |
| |||
# | El Paso Performance-Linked Trust 144A 7.75% 7/15/11 |
| 325,000 |
| 336,375 |
| |||
| El Paso 7.00% 6/15/17 |
| 225,000 |
| 223,660 |
| |||
| Enbridge 5.80% 6/15/14 |
| 125,000 |
| 124,144 |
| |||
| Enterprise Products Operating |
|
|
|
|
| |||
| 4.00% 10/15/07 |
| 110,000 |
| 109,552 |
| |||
| 4.625% 10/15/09 |
| 330,000 |
| 323,382 |
| |||
· | 8.375% 8/1/66 |
| 475,000 |
| 507,756 |
| |||
| Inergy Finance |
|
|
|
|
| |||
| 6.875% 12/15/14 |
| 275,000 |
| 261,938 |
| |||
| 8.25% 3/1/16 |
| 75,000 |
| 77,438 |
| |||
| Kinder Morgan Finance 5.35% 1/5/11 |
| 505,000 |
| 494,386 |
| |||
| ONEOK 5.51% 2/16/08 |
| 405,000 |
| 405,051 |
| |||
# | Regency Energy Partners 144A 8.375% 12/15/13 |
| 675,000 |
| 698,624 |
| |||
· | Sempra Energy 5.83% 5/21/08 |
| 115,000 |
| 115,058 |
| |||
| Valero Energy 6.625% 6/15/37 |
| 245,000 |
| 244,661 |
| |||
| Valero Logistics Operations 6.05% 3/15/13 |
| 415,000 |
| 415,335 |
| |||
|
|
|
|
| 4,603,835 |
| |||
| Real Estate–1.35% |
|
|
|
|
| |||
| American Real Estate Partners 8.125% 6/1/12 |
| 640,000 |
| 645,600 |
| |||
| BF Saul REIT 7.50% 3/1/14 |
| 1,295,000 |
| 1,306,331 |
| |||
# | China Properties Group 144A 9.125% 5/4/14 |
| 565,000 |
| 535,338 |
| |||
| Developers Diversified Realty |
|
|
|
|
| |||
| 4.625% 8/1/10 |
| 90,000 |
| 87,400 |
| |||
| 5.25% 4/15/11 |
| 95,000 |
| 93,470 |
| |||
| 5.375% 10/15/12 |
| 415,000 |
| 407,136 |
| |||
# | Greentown China Holdings 144A 9.00% 11/8/13 |
| 740,000 |
| 755,725 |
| |||
| HRPT Properties Trust 6.25% 6/15/17 |
| 485,000 |
| 489,585 |
| |||
| iStar Financial |
|
|
|
|
| |||
| 5.15% 3/1/12 |
| 375,000 |
| 361,228 |
| |||
| 5.875% 3/15/16 |
| 630,000 |
| 607,526 |
| |||
| 8.75% 8/15/08 |
| 420,000 |
| 433,141 |
| |||
# | Realogy 144A 12.375% 4/15/15 |
| 725,000 |
| 663,375 |
| |||
| Regency Centers 5.875% 6/15/17 |
| 465,000 |
| 458,131 |
| |||
| Rouse 7.20% 9/15/12 |
| 350,000 |
| 360,965 |
| |||
·# | USB Realty 144A 6.091% 12/22/49 |
| 2,000,000 |
| 1,963,820 |
| |||
|
|
|
|
| 9,168,771 |
| |||
| Technology–1.17% |
|
|
|
|
| |||
# | Freescale Semiconductor 144A 10.125% 12/15/16 |
|
| 2,070,000 |
| 1,956,150 |
| ||
| International Business Machine 4.00% 11/11/11 |
| EUR | 1,000,000 |
| 1,308,292 |
| ||
| MagnaChip Semiconductor 8.00% 12/15/14 |
| USD | 1,900,000 |
| 1,396,500 |
| ||
| Solectron Global Finance 8.00% 3/15/16 |
| 565,000 |
| 607,375 |
| |||
| Sungard Data Systems 10.25% 8/15/15 |
| 466,000 |
| 495,125 |
| |||
| Xerox |
|
|
|
|
| |||
| 5.50% 5/15/12 |
| 1,050,000 |
| 1,033,047 |
| |||
| 6.40% 3/15/16 |
| 840,000 |
| 846,576 |
| |||
| 10.25% 1/15/09 |
| 300,000 |
| 317,461 |
| |||
|
|
|
|
| 7,960,526 |
| |||
| Transportation–1.90% |
|
|
|
|
| |||
| American Airlines |
|
|
|
|
| |||
| 6.817% 5/23/11 |
| 305,000 |
| 304,238 |
| |||
| 6.977% 5/23/21 |
| 109,343 |
| 105,516 |
| |||
# | Bristow Group 144A 7.50% 9/15/17 |
| 525,000 |
| 528,938 |
| |||
| Continental Airlines 6.503% 6/15/11 |
| 205,000 |
| 205,769 |
| |||
| Delta Air Lines 7.57% 11/18/10 |
| 315,000 |
| 327,076 |
| |||
# | DP World 144A 6.85% 7/2/37 |
| 970,000 |
| 972,090 |
| |||
# | DP World Sukuk 144A 6.25% 7/2/17 |
| 2,230,000 |
| 2,215,950 |
| |||
# | Erac USA Finance 144A |
|
|
|
|
| |||
| 5.30% 11/15/08 |
| 100,000 |
| 99,256 |
| |||
| 7.35% 6/15/08 |
| 505,000 |
| 512,027 |
| |||
| Hertz 8.875% 1/1/14 |
| 1,145,000 |
| 1,199,388 |
| |||
² | H-Lines Finance Holdings 11.00% 4/1/13 |
| 1,125,000 |
| 1,108,125 |
| |||
| Horizon Lines 9.00% 11/1/12 |
| 580,000 |
| 616,250 |
| |||
| Kansas City Southern de Mexico 9.375% 5/1/12 |
| 1,175,000 |
| 1,263,125 |
| |||
| Kansas City Southern Railway 9.50% 10/1/08 |
| 350,000 |
| 364,000 |
| |||
‡ | Northwest Airlines 10.00% 2/1/09 |
| 145,000 |
| 19,394 |
| |||
| Red Arrow International Leasing 8.375% 3/31/12 |
| RUB | 61,651,013 |
| 2,486,459 |
| ||
| Seabulk International 9.50% 8/15/13 |
| USD | 515,000 |
| 552,981 |
| ||
|
|
|
|
| 12,880,582 |
| |||
| Total Corporate Bonds |
|
|
| 278,807,031 |
| |||
| FOREIGN AGENCIES–1.99%D |
|
|
|
|
| |||
| Austria–0.24% |
|
|
|
|
| |||
| Oesterreichische Kontrollbank 1.80% 3/22/10 |
| JPY | 196,000,000 |
| 1,618,506 |
| ||
|
|
|
|
| 1,618,506 |
| |||
| Germany–1.75% |
|
|
|
|
| |||
| KFW |
|
|
|
|
|
| ||
| 1.75% 3/23/10 |
| JPY | 100,000,000 |
| 824,688 |
| ||
| 3.50% 7/4/21 |
| EUR | 2,194,000 |
| 2,576,983 |
| ||
| 4.125% 7/4/17 |
| EUR | 4,106,000 |
| 5,298,503 |
| ||
| 8.25% 9/20/07 |
| ISK | 146,700,000 |
| 2,318,636 |
| ||
| Rentenbank 1.375% 4/25/13 |
| JPY | 103,000,000 |
| 824,874 |
| ||
|
|
|
|
| 11,843,684 |
| |||
| Total Foreign Agencies |
|
|
| 13,462,190 |
| |||
10
|
| Principal |
| Value |
| |||||
| MUNICIPAL BONDS–0.21% |
|
|
|
|
| ||||
| Augusta, Georgia Water & Sewer Revenue 5.25% 10/1/39 (FSA) |
| USD | 85,000 |
| $ | 89,252 |
| ||
§ | California State 5.00% 2/1/33-14 |
| 25,000 |
| 26,502 |
| ||||
| California State University Systemwide Revenue 5.00% 11/1/30 (AMBAC) |
| 95,000 |
| 98,134 |
| ||||
| Illinois State Taxable Pension 5.10% 6/1/33 |
| 10,000 |
| 9,119 |
| ||||
| Massachusetts Health & Education Facilities Authority Revenue Series A 5.00% 7/15/36 |
| 220,000 |
| 227,726 |
| ||||
| New Jersey Economic Development Authority Revenue Cigarette Tax 5.75% 6/15/29 |
| 25,000 |
| 26,631 |
| ||||
| New York State Urban Development Series A-1 5.25% 3/15/34 (FGIC) |
| 40,000 |
| 42,054 |
| ||||
| Oregon State Taxable Pension 5.892% 6/1/27 |
| 5,000 |
| 5,072 |
| ||||
| West Virginia Tobacco Settlement Finance Authority 7.467% 6/1/47 |
| 865,000 |
| 882,897 |
| ||||
| Total Municipal Bonds |
|
|
| 1,407,387 |
| ||||
|
|
|
|
|
|
| ||||
| NON-AGENCY ASSET-BACKED SECURITIES–2.75% |
|
|
|
|
| ||||
· | Bank of America Credit Card Trust Series 2006-A10 A10 5.30% 2/15/12 |
| 9,585,000 |
| 9,580,880 |
| ||||
· | Chase Funding Mortgage Loan Asset-Backed Certificates Series 2002-3 1A6 4.707% 9/25/13 |
| 812,226 |
| 787,766 |
| ||||
| Citibank Credit Card Insurance Trust Series 2007-A3 A3 6.15% 6/15/39 |
| 105,000 |
| 106,313 |
| ||||
| Countrywide Asset-Backed Certificates |
|
|
|
|
| ||||
· | Series 2006-3 2A2 5.50% 6/25/36 |
| 70,000 |
| 70,067 |
| ||||
· | Series 2006-4 2A2 5.50% 7/25/36 |
| 1,050,000 |
| 1,051,021 |
| ||||
· | Series 2006-11 1AF3 6.05% 9/25/46 |
| 735,000 |
| 736,407 |
| ||||
· | Series 2006-15 A3 5.689% 10/25/46 |
| 165,000 |
| 163,783 |
| ||||
| Series 2006-S3 A2 6.085% 6/25/21 |
| 475,000 |
| 476,158 |
| ||||
· | Series 2006-S7 A3 5.712% 11/25/35 |
| 1,165,000 |
| 1,153,190 |
| ||||
· | Series 2006-S9 A3 5.728% 8/25/36 |
| 745,000 |
| 733,365 |
| ||||
| Credit-Based Asset Servicing and Securitization |
|
|
|
|
| ||||
# | Series 2006-SL1 A2 144A 5.556% 9/25/36 |
| 450,000 |
| 446,342 |
| ||||
| Series 2007-CB1 AF2 5.721% 1/25/37 |
| 405,000 |
| 404,032 |
| ||||
# | Dunkin Securitization Series 2006-1 A2 144A 5.779% 6/20/31 |
| 640,000 |
| 642,126 |
| ||||
· | GMAC Mortgage Loan Trust Series 2006-HE3 A2 5.75% 10/25/36 |
| 180,000 |
| 179,640 |
| ||||
·# | MASTR Specialized Loan Trust Series 2005-2 A2 144A 5.006% 7/25/35 |
| 212,743 |
| 206,212 |
| ||||
· | Merrill Lynch Mortgage Investors Series 2006-AR1 A2C 5.48% 3/25/37 |
| 130,000 |
| 129,943 |
| ||||
| Mid-State Trust |
|
|
|
|
| ||||
| Series 11 A1 4.864% 7/15/38 |
| 17,952 |
| 16,772 |
| ||||
| Series 2004-1 A 6.005% 8/15/37 |
| 9,431 |
| 9,417 |
| ||||
| Series 2005-1 A 5.745% 1/15/40 |
| 207,918 |
| 202,850 |
| ||||
# | Series 2006-1 A 144A 5.787% 10/15/40 |
| 256,311 |
| 249,743 |
| ||||
· | Option One Mortgage Loan Trust Series 2005-4 A3 5.58% 11/25/35 |
|
| 300,000 |
| 300,623 |
| |||
| Renaissance Home Equity Loan Trust |
|
|
|
|
| ||||
| Series 2005-4 A2 5.399% 2/25/36 |
| 158,537 |
| 157,978 |
| ||||
| Series 2005-4 A3 5.565% 2/25/36 |
| 110,000 |
| 109,553 |
| ||||
· | Residential Asset Securities Series 2006-KS3 AI3 5.49% 4/25/36 |
| 105,000 |
| 105,089 |
| ||||
| RSB Bondco Series 2007-A A2 5.723% 4/1/18 |
| 555,000 |
| 554,738 |
| ||||
| Structured Asset Securities |
|
|
|
|
| ||||
| Series 2001-SB1 A2 3.375% 8/25/31 |
| 44,611 |
| 39,972 |
| ||||
· | Series 2005-NC1 A7 5.55% 2/25/35 |
| 319 |
| 319 |
| ||||
| Total Non-Agency Asset-Backed Securities |
|
|
| 18,614,299 |
| ||||
| NON-AGENCY COLLATERALIZED MORTGAGE OBLIGATIONS–7.63% |
|
|
|
|
| ||||
| Bank of America Alternative Loan Trust |
|
|
|
|
| ||||
| Series 2003-10 2A1 6.00% 12/25/33 |
| 1,141,011 |
| 1,125,501 |
| ||||
| Series 2004-2 1A1 6.00% 3/25/34 |
| 2,883 |
| 2,839 |
| ||||
| Series 2004-10 1CB1 6.00% 11/25/34 |
| 77,111 |
| 77,605 |
| ||||
| Series 2005-1 2A1 5.50% 2/25/20 |
| 676,445 |
| 664,396 |
| ||||
| Series 2005-3 2A1 5.50% 4/25/20 |
| 94,655 |
| 92,881 |
| ||||
| Series 2005-5 2CB1 6.00% 6/25/35 |
| 173,286 |
| 170,822 |
| ||||
| Series 2005-6 7A1 5.50% 7/25/20 |
| 242,350 |
| 237,655 |
| ||||
| Series 2005-9 5A1 5.50% 10/25/20 |
| 485,937 |
| 476,219 |
| ||||
| Bank of America Funding Series 2005-8 1A1 5.50% 1/25/36 |
| 1,279,830 |
| 1,224,037 |
| ||||
| Bank of America Mortgage Securities |
|
|
|
|
| ||||
· | Series 2003-D 1A2 7.289% 5/25/33 |
| 83 |
| 83 |
| ||||
| Series 2005-9 2A1 4.75% 10/25/20 |
| 317,506 |
| 308,285 |
| ||||
· | Series 2005-A 1A1 4.039% 2/25/35 |
| 101,877 |
| 101,241 |
| ||||
· | Bear Stearns Adjustable Rate Mortgage Trust Series 2007-3 1A1 5.493% 5/25/47 |
| 1,522,711 |
| 1,509,098 |
| ||||
· | Bear Stearns Alternative A Trust |
|
|
|
|
| ||||
| Series 2006-3 33A1 6.162% 5/25/36 |
| 388,507 |
| 389,587 |
| ||||
| Series 2006-6 2A1 5.939% 11/25/36 |
| 1,714,283 |
| 1,700,903 |
| ||||
| Bear Stearns Asset Backed Securities Series 2005-AC8 A5 5.50% 11/25/35 |
| 304,392 |
| 303,290 |
| ||||
| Chase Mortgage Finance Series 2003-S8 A2 5.00% 9/25/18 |
| 552,341 |
| 534,297 |
| ||||
· | Citigroup Mortgage Loan Trust Series 2007-AR5 1AB 5.625% 4/25/37 |
| 830,780 |
| 823,751 |
| ||||
| Countrywide Alternative Loan Trust |
|
|
|
|
| ||||
| Series 2004-28CB 6A1 6.00% 1/25/35 |
| 399,771 |
| 394,211 |
| ||||
· | Series 2004-J7 1A2 4.673% 8/25/34 |
| 20,459 |
| 20,316 |
| ||||
· | Series 2005-63 3A1 5.894% 11/25/35 |
| 330,125 |
| 329,056 |
| ||||
| Series 2006-2CB A3 5.50% 3/25/36 |
| 275,609 |
| 273,606 |
| ||||
u | Countrywide Home Loan Mortgage Pass Through Trust |
|
|
|
|
| ||||
· | Series 2003-21 A1 4.077% 5/25/33 |
| 864 |
| 858 |
| ||||
| Series 2005-23 A1 5.50% 11/25/35 |
| 1,686,317 |
| 1,612,805 |
| ||||
11
| Principal |
| Value |
| |||||
| NON-AGENCY COLLATERALIZED MORTGAGE OBLIGATIONS (continued) |
|
|
|
|
|
| ||
| Series 2005-29 A1 5.75% 12/25/35 |
| USD | 1,264,779 |
| $ | 1,225,840 |
| |
| Series 2006-1 A2 6.00% 3/25/36 |
| 295,114 |
| 289,626 |
| |||
| Series 2006-1 A3 6.00% 3/25/36 |
| 133,408 |
| 130,218 |
| |||
| Series 2006-17 A5 6.00% 12/25/36 |
| 602,290 |
| 599,090 |
| |||
· | Series 2006-HYB3 3A1A 6.097% 5/20/36 |
| 378,471 |
| 380,585 |
| |||
· | Series 2007-HYB1 4A2 5.959% 3/25/37 |
| 2,189,455 |
| 2,188,525 |
| |||
| Credit Suisse First Boston Mortgage Securities Series 2003-29 5A1 7.00% 12/25/33 |
| 10,763 |
| 10,969 |
| |||
| First Horizon Asset Securities |
|
|
|
|
| |||
| Series 2003-5 1A17 8.00% 7/25/33 |
| 1,987 |
| 2,071 |
| |||
· | Series 2004-AR5 4A1 5.708% 10/25/34 |
| 27,831 |
| 27,637 |
| |||
· | Series 2007-AR2 1A1 5.865% 8/25/37 |
| 1,500,000 |
| 1,498,125 |
| |||
· | GMAC Loan Trust Series 2005-AR2 4A 5.188% 5/25/35 |
| 328,760 |
| 322,085 |
| |||
# | GSMPS Mortgage Loan Trust 144A |
|
|
|
|
| |||
| Series 2005-RP1 1A3 8.00% 1/25/35 |
| 304,093 |
| 319,417 |
| |||
| Series 2005-RP1 1A4 8.50% 1/25/35 |
| 243,647 |
| 258,228 |
| |||
| Series 2006-RP1 1A2 7.50% 1/25/36 |
| 398,334 |
| 413,490 |
| |||
| GSR Mortgage Loan Trust Series 2006-1F 5A2 6.00% 2/25/36 |
| 221,674 |
| 216,375 |
| |||
· | Indymac Index Mortgage Loan Trust |
|
|
|
|
| |||
| Series 2005-AR25 1A21 5.853% 12/25/35 |
| 336,950 |
| 335,582 |
| |||
| Series 2006-AR2 1A1A 5.54% 4/25/46 |
| 370,741 |
| 370,995 |
| |||
· | JPMorgan Mortgage Trust |
|
|
|
|
| |||
| Series 2004-A6 1A2 4.854% 12/25/34 |
| 576,713 |
| 565,188 |
| |||
| Series 2005-A4 1A1 5.399% 7/25/35 |
| 328,979 |
| 324,203 |
| |||
| Series 2005-A6 1A2 5.14% 9/25/35 |
| 855,000 |
| 827,899 |
| |||
| Lehman Mortgage Trust Series 2005-2 2A3 5.50% 12/25/35 |
| 271,460 |
| 270,045 |
| |||
· | MASTR Adjustable Rate Mortgages Trust |
|
|
|
|
| |||
| Series 2003-6 1A2 5.89% 12/25/33 |
| 3,872 |
| 3,935 |
| |||
| Series 2005-6 7A1 5.339% 6/25/35 |
| 202,532 |
| 199,458 |
| |||
| MASTR Alternative Loans Trust |
|
|
|
|
| |||
| Series 2003-9 1A1 5.50% 12/25/18 |
| 55,416 |
| 54,342 |
| |||
| Series 2005-3 7A1 6.00% 4/25/35 |
| 88,754 |
| 87,492 |
| |||
# | MASTR Reperforming Loan Trust 144A |
|
|
|
|
| |||
| Series 2005-1 1A5 8.00% 8/25/34 |
| 474,959 |
| 498,135 |
| |||
| Series 2005-2 1A4 8.00% 5/25/35 |
| 275,840 |
| 290,650 |
| |||
| Morgan Stanley Mortgage Loan Trust Series 2006-2 6A 6.50% 2/25/36 |
| 203,591 |
| 204,704 |
| |||
| Nomura Asset Acceptance |
|
|
|
|
| |||
| Series 2005-WF1 2A2 4.786% 3/25/35 |
| 275,000 |
| 268,431 |
| |||
| Series 2006-AF1 1A2 6.159% 5/25/36 |
| 400,000 |
| 402,978 |
| |||
| Prime Mortgage Trust Series 2004-CL1 1A1 6.00% 2/25/34 |
| 10,013 |
| 9,905 |
| |||
| Residential Asset Mortgage Products |
|
|
|
|
| |||
| Series 2004-SL1 A3 7.00% 11/25/31 |
| 671 |
| 680 |
| |||
| Series 2004-SL4 A3 6.50% 7/25/32 |
| 45,876 |
| 46,461 |
| |||
| Series 2005-SL1 A2 6.00% 5/25/32 |
| 110,891 |
| 111,415 |
| |||
· | Residential Funding Mortgage Securities I Series 2006-SA3 3A1 6.044% 9/25/36 |
| 470,785 |
| 471,901 |
| |||
· | Structured Adjustable Rate Mortgage Loan Trust |
|
|
|
|
| |||
| Series 2004-18 5A 5.50% 12/25/34 |
|
| 35,131 |
| 34,765 |
| ||
| Series 2005-3XS A2 5.57% 1/25/35 |
| 98,231 |
| 98,265 |
| |||
| Structured Asset Securities |
|
|
|
|
| |||
· | Series 2002-22H 1A 6.951% 11/25/32 |
| 1,552 |
| 1,568 |
| |||
| Series 2004-5H A2 4.43% 12/25/33 |
| 146,358 |
| 145,276 |
| |||
| Series 2004-12H 1A 6.00% 5/25/34 |
| 454,148 |
| 447,123 |
| |||
u | Washington Mutual Alternative Mortgage Pass Through Certificates |
|
|
|
|
| |||
| Series 2005-1 5A2 6.00% 3/25/35 |
| 52,397 |
| 51,423 |
| |||
| Series 2005-1 6A2 6.50% 3/25/35 |
| 10,845 |
| 10,864 |
| |||
| Series 2005-9 3CB 5.50% 10/25/20 |
| 262,308 |
| 259,833 |
| |||
| Series 2006-2 2CB 6.50% 3/25/36 |
| 258,476 |
| 259,808 |
| |||
| Series 2006-5 2CB3 6.00% 9/25/36 |
| 486,316 |
| 489,565 |
| |||
· | Series 2006-AR5 3A 5.969% 7/25/46 |
| 325,685 |
| 325,927 |
| |||
u | Washington Mutual Pass Through Certificates |
|
|
|
|
| |||
| Series 2004-CB3 1A 6.00% 10/25/34 |
| 51,163 |
| 50,451 |
| |||
| Series 2004-CB3 4A 6.00% 10/25/19 |
| 72,310 |
| 72,335 |
| |||
· | Series 2006-AR7 1A 6.009% 7/25/46 |
| 194,169 |
| 194,169 |
| |||
· | Series 2006-AR10 1A1 5.953% 9/25/36 |
| 485,180 |
| 484,726 |
| |||
· | Series 2006-AR14 2A1 5.767% 11/25/36 |
| 3,413,069 |
| 3,400,102 |
| |||
· | Series 2007-HY3 4A1 5.354% 3/25/37 |
| 841,723 |
| 833,905 |
| |||
· | Series 2007-HY6 2A2 5.287% 6/25/37 |
| 1,463,263 |
| 1,422,794 |
| |||
| Wells Fargo Mortgage Backed Securities Trust |
|
|
|
|
| |||
· | Series 2004-O A1 4.894% 8/25/34 |
| 4,126,193 |
| 4,019,331 |
| |||
· | Series 2004-T A1 5.026% 9/25/34 |
| 107,098 |
| 107,911 |
| |||
| Series 2005-12 1A7 5.50% 11/25/35 |
| 471,742 |
| 448,671 |
| |||
| Series 2005-14 2A1 5.50% 12/25/35 |
| 736,686 |
| 704,571 |
| |||
| Series 2005-17 1A1 5.50% 1/25/36 |
| 412,379 |
| 393,886 |
| |||
| Series 2005-17 1A2 5.50% 1/25/36 |
| 384,578 |
| 365,770 |
| |||
| Series 2006-1 A3 5.00% 3/25/21 |
| 732,729 |
| 703,649 |
| |||
| Series 2006-2 3A1 5.75% 3/25/36 |
| 500,952 |
| 489,756 |
| |||
| Series 2006-3 A11 5.50% 3/25/36 |
| 2,295,000 |
| 2,181,105 |
| |||
| Series 2006-4 2A3 5.75% 4/25/36 |
| 251,520 |
| 244,677 |
| |||
· | Series 2006-AR4 1A1 5.862% 4/25/36 |
| 572,812 |
| 571,009 |
| |||
· | Series 2006-AR4 2A1 5.777% 4/25/36 |
| 387,906 |
| 385,822 |
| |||
· | Series 2006-AR5 2A1 5.531% 4/25/36 |
| 481,799 |
| 479,919 |
| |||
· | Series 2006-AR6 7A1 5.111% 3/25/36 |
| 3,168,305 |
| 3,096,646 |
| |||
· | Series 2006-AR10 5A1 5.60% 7/25/36 |
| 450,189 |
| 447,655 |
| |||
· | Series 2006-AR14 2A4 6.096% 10/25/36 |
| 394,102 |
| 395,942 |
| |||
· | Series 2006-AR18 2A2 5.732% 11/25/36 |
| 1,160,410 |
| 1,152,163 |
| |||
· | Series 2006-AR19 A1 5.668% 12/25/36 |
| 1,372,229 |
| 1,355,084 |
| |||
| Total Non-Agency Collateralized Mortgage Obligations (cost $52,122,887) |
|
|
| 51,726,488 |
| |||
| REGIONAL AGENCIES–0.45%D |
|
|
|
|
| |||
| Australia–0.45% |
|
|
|
|
| |||
| New South Wales Treasury |
|
|
|
|
| |||
| 5.50% 3/1/17 |
| AUD | 1,681,000 |
| 1,310,945 |
| ||
| 6.00% 5/1/12 |
| AUD | 2,088,000 |
| 1,713,721 |
| ||
| Total Regional Agencies |
|
|
| 3,024,666 |
| |||
12
|
| Principal |
| Value |
|
| |||
| REGIONAL AUTHORITIES–0.36%D |
|
|
|
|
|
| ||
| Argentina–0.10% |
|
|
|
|
|
| ||
# | Province of Buenos Aires 144A 9.625% 4/18/28 |
| USD | 760,000 |
| $ | 712,500 |
|
|
|
|
|
|
| 712,500 |
|
| ||
| Canada–0.26% |
|
|
|
|
|
| ||
| Ontario Province |
|
|
|
|
|
|
| |
| 1.875% 1/25/10 |
| JPY | 55,000,000 |
| 455,456 |
|
| |
| 5.375% 12/2/12 |
| CAD | 540,000 |
| 522,267 |
|
| |
| Saskatchewan Province 4.75% 6/1/40 |
| CAD | 833,000 |
| 759,926 |
|
| |
|
|
|
|
| 1,737,649 |
|
| ||
| Total Regional Authorities |
|
|
| 2,450,149 |
|
| ||
@« | SENIOR SECURED LOANS–2.81% |
|
|
|
|
|
| ||
| AWAS 2nd Lien 11.375% 3/21/13 |
| USD | 423,413 |
| 427,647 |
|
| |
| Claires Stores 8.36% 5/7/14 |
| 125,000 |
| 124,063 |
|
| ||
| Community Health Systems |
|
|
|
|
|
| ||
| 7.61% 7/2/14 |
| 1,000,000 |
| 1,000,000 |
|
| ||
| 9.36% 4/10/08 |
| 1,300,000 |
| 1,296,750 |
|
| ||
| Fontainbleau 8.67% 6/6/14 |
| 100,000 |
| 100,125 |
|
| ||
| Ford Motor 8.36% 11/29/13 |
| 1,990,000 |
| 2,002,098 |
|
| ||
| General Motors 7.725% 11/17/13 |
| 1,321,688 |
| 1,334,078 |
|
| ||
| Georgia Pacific Term Tranche Loan B 7.09% 12/20/12 |
| 985,000 |
| 988,221 |
|
| ||
| Goodyear Tire 7.10% 4/30/10 |
| 325,000 |
| 322,563 |
|
| ||
| HCA 7.60% 11/17/13 |
| 995,000 |
| 1,002,368 |
|
| ||
| Healthsouth 8.61% 3/10/13 |
| 687,764 |
| 690,859 |
|
| ||
| HUB International 7.86% 6/13/14 |
| 100,000 |
| 100,032 |
|
| ||
| Idearc 7.35% 11/17/14 |
| 298,500 |
| 299,784 |
|
| ||
| Lyondell Chemical 6.86% 8/16/13 |
| 595,500 |
| 595,956 |
|
| ||
| Sirius Satellite Radio 7.61% 6/20/12 |
| 150,000 |
| 150,470 |
|
| ||
| Spirit Finance 8.36% 5/23/13 |
| 275,000 |
| 275,689 |
|
| ||
| Talecris Biotherapeutics 2nd Lien 11.86% 12/6/14 |
| 705,000 |
| 729,675 |
|
| ||
| Telesat Canada 9.00% 2/14/08 |
| 1,345,000 |
| 1,345,000 |
|
| ||
| Tribune 8.698% 5/30/14 |
| 200,000 |
| 198,500 |
|
| ||
| United Airlines 7.375% 2/1/14 |
| 600,000 |
| 600,750 |
|
| ||
| Univision Communications 7.60% 9/15/14 |
| 865,000 |
| 848,379 |
|
| ||
| Visteon 8.38% 6/13/13 |
| 200,000 |
| 200,626 |
|
| ||
| Wind Acquisition PIK 1.26% 12/7/11 |
| 780,000 |
| 803,400 |
|
| ||
| Windstream Term Loan B 6.85% 7/17/13 |
| 3,585,000 |
| 3,595,826 |
|
| ||
| Total Senior Secured Loans |
|
|
| 19,032,859 |
|
| ||
| SOVEREIGN AGENCIES–0.13%D |
|
|
|
|
|
| ||
| Norway–0.13% |
|
|
|
|
|
| ||
| Kommunalbanken 4.25% 10/24/11 |
| NOK | 5,340,000 |
| 865,224 |
|
| |
| Total Sovereign Agencies |
|
|
| 865,224 |
|
| ||
| SOVEREIGN DEBT–15.88%D |
|
|
|
|
|
| ||
| Austria–0.74% |
|
|
|
|
|
| ||
| Republic of Austria |
|
|
|
|
|
|
| |
| 5.25% 1/4/11 |
| EUR | 1,267,000 |
| 1,753,214 |
|
| |
# | 144A 4.00% 9/15/16 |
| EUR | 2,546,000 |
| 3,287,867 |
|
| |
|
|
|
|
| 5,041,081 |
|
| ||
| Brazil–1.64% |
|
|
|
|
|
| ||
| Federal Republic of Brazil |
|
|
|
|
|
|
| |
| 8.00% 1/15/18 |
| USD | 680,000 |
| 749,020 |
|
| |
| 10.25% 1/10/28 |
| BRL | 4,215,000 |
| 2,452,677 |
|
| |
| 12.50% 1/5/22 |
| BRL | 7,701,000 |
| 5,149,835 |
|
| |
· | Nota do Tesouro Nacional (Treasury Note) 10.00% 1/12/12 |
| BRL | 5,105,000 |
| 2,729,424 |
|
| |
|
|
|
|
| 11,080,956 |
|
| ||
| Colombia–0.60% |
|
|
|
|
|
| ||
| Republic of Colombia |
|
|
|
|
|
|
| |
| 7.375% 9/18/37 |
| USD | 1,260,000 |
| 1,401,750 |
|
| |
| 9.85% 6/28/27 |
| COP | 1,717,000,000 |
| 922,455 |
|
| |
| 12.00% 10/22/15 |
| COP | 2,957,000,000 |
| 1,735,987 |
|
| |
|
|
|
|
| 4,060,192 |
|
| ||
| El Salvador–0.03% |
|
|
|
|
|
| ||
| Republic of El Salvador 7.65% 6/15/35 |
| USD | 190,000 |
| 218,025 |
|
| |
|
|
|
|
| 218,025 |
|
| ||
| France–0.60% |
|
|
|
|
|
| ||
| France Government O.A.T. |
|
|
|
|
|
|
| |
| 4.00% 10/25/38 |
| EUR | 1,690,000 |
| 2,013,602 |
|
| |
| 4.00% 4/25/55 |
| EUR | 1,738,000 |
| 2,044,231 |
|
| |
|
|
|
|
| 4,057,833 |
|
| ||
| Germany–0.45% |
|
|
|
|
|
| ||
| Deutschland Republic 6.25% 1/4/24 |
| EUR | 1,934,000 |
| 3,078,879 |
|
| |
|
|
|
|
| 3,078,879 |
|
| ||
| Indonesia–1.64% |
|
|
|
|
|
| ||
| Republic of Indonesia |
|
|
|
|
|
| ||
| 10.00% 9/17/24 |
| IDR | 24,645,000,000 |
| 2,807,903 |
| ||
| 10.25% 7/15/22 |
| IDR | 24,880,000,000 |
| 2,900,329 |
| ||
| 10.25% 7/15/27 |
| IDR | 41,314,000,000 |
| 4,793,084 |
| ||
# | 144A 6.625% 2/17/37 |
| USD | 595,000 |
| 574,175 |
|
| |
|
|
|
|
| 11,075,491 |
|
| ||
| Jamaica–0.19% |
|
|
|
|
|
| ||
| Jamaica Government 8.00% 3/15/39 |
| USD | 1,315,000 |
| 1,288,700 |
|
| |
|
|
|
|
| 1,288,700 |
|
| ||
| Japan–4.91% |
|
|
|
|
|
| ||
| Japan Government |
|
|
|
|
|
|
| |
| 5 yr Bond 1.50% 6/20/11 |
| JPY | 605,300,000 |
| 4,949,908 |
|
| |
| 10 yr Bond |
|
|
|
|
|
|
| |
| 1.70% 3/20/17 |
| JPY | 18,000,000 |
| 144,080 |
|
| |
| 1.90% 6/20/16 |
| JPY | 632,800,000 |
| 5,184,439 |
|
| |
| 20 yr Bond |
|
|
|
|
|
|
| |
| 2.00% 3/20/27 |
| JPY | 1,756,000,000 |
| 13,764,545 |
|
| |
| 2.10% 12/20/26 |
| JPY | 408,700,000 |
| 3,249,908 |
|
| |
| 2.30% 6/20/26 |
| JPY | 584,100,000 |
| 4,801,922 |
|
| |
| Japanese Government CPI Linked Bond 10 yr Bond 0.80% 3/10/16 |
| JPY | 149,705,400 |
| 1,174,741 |
|
| |
|
|
|
|
|
| 33,269,543 |
|
| |
13
|
|
| Principal |
| Value |
| |||||
| SOVEREIGN DEBT (continued) |
|
|
|
|
| |||||
| Malaysia–0.95% |
|
|
|
|
| |||||
| Malaysian Government |
|
|
|
|
|
| ||||
| 3.718% 6/15/12 |
| MYR | 14,280,000 |
| $ | 4,202,770 |
| |||
| 3.756% 4/28/11 |
| MYR | 5,163,000 |
| 1,518,158 |
| ||||
| 3.814% 2/15/17 |
| MYR | 450,000 |
| 133,681 |
| ||||
| 7.00% 3/15/09 |
| MYR | 1,954,000 |
| 600,509 |
| ||||
|
|
|
|
|
| 6,455,118 |
| ||||
| Mexico–0.81% |
|
|
|
|
|
| ||||
| Mexican Government |
|
|
|
|
|
| ||||
| 8.00% 12/17/15 |
| MXN | 43,472,000 |
| 4,101,955 |
| ||||
| 9.00% 12/20/12 |
| MXN | 4,124,000 |
| 404,308 |
| ||||
| 10.00% 12/5/24 |
| MXN | 8,420,000 |
| 951,965 |
| ||||
|
|
|
|
|
| 5,458,228 |
| ||||
| Norway–0.51% |
|
|
|
|
|
| ||||
| Norwegian Government |
|
|
|
|
|
| ||||
| 5.00% 5/15/15 |
| NOK | 9,909,000 |
| 1,660,960 |
| ||||
| 6.50% 5/15/13 |
| NOK | 10,081,000 |
| 1,818,746 |
| ||||
|
|
|
|
|
| 3,479,706 |
| ||||
| Pakistan–0.17% |
|
|
|
|
|
| ||||
# | Republic of Pakistan 144A 6.875% 6/1/17 |
| USD | 1,230,000 |
| 1,183,875 |
| ||||
|
|
|
|
|
| 1,183,875 |
| ||||
| Panama–0.07% |
|
|
|
|
|
| ||||
| Republic of Panama 6.70% 1/26/36 |
| USD | 475,000 |
| 486,875 |
| ||||
|
|
|
|
|
| 486,875 |
| ||||
| Peru–0.07% |
|
|
|
|
|
| ||||
| Republic of Peru 6.55% 3/14/37 |
| USD | 465,000 |
| 468,488 |
| ||||
|
|
|
|
|
| 468,488 |
| ||||
| Philippines–0.14% |
|
|
|
|
|
| ||||
| Republic of Philippines 8.25% 1/15/14 |
| USD | 855,000 |
| 938,363 |
| ||||
|
|
|
|
|
| 938,363 |
| ||||
| Poland–0.30% |
|
|
|
|
|
| ||||
| Poland Government |
|
|
|
|
|
| ||||
| 5.25% 10/25/17 |
| PLN | 3,114,000 |
| 1,083,883 |
| ||||
| 6.25% 10/24/15 |
| PLN | 2,536,000 |
| 947,383 |
| ||||
|
|
|
|
|
| 2,031,266 |
| ||||
| Republic of Korea–0.16% |
|
|
|
|
|
| ||||
| Government of South Korea 4.25% 12/7/21 |
| EUR | 900,000 |
| 1,109,966 |
| ||||
|
|
|
|
|
| 1,109,966 |
| ||||
| Sweden–0.29% |
|
|
|
|
|
| ||||
| Sweden Government 5.50% 10/8/12 |
| SEK | 12,770,000 |
| 1,954,375 |
| ||||
|
|
|
|
|
| 1,954,375 |
| ||||
| Turkey–0.51% |
|
|
|
|
|
| ||||
| Republic of Turkey |
|
|
|
|
|
| ||||
| 6.875% 3/17/36 |
| USD | 145,000 |
| 137,931 |
| ||||
| 11.875% 1/15/30 |
| USD | 2,145,000 |
| 3,297,938 |
| ||||
|
|
|
|
|
| 3,435,869 |
| ||||
| United Kingdom–1.05% |
|
|
|
|
| |||||
| U.K. Treasury |
|
|
|
|
| |||||
| 4.25% 3/7/11 |
| GBP | 1,740,000 |
| 3,318,389 |
| ||||
| 4.75% 9/7/15 |
| GBP | 623,000 |
| 1,186,660 |
| ||||
| 5.00% 3/7/12 |
| GBP | 703,000 |
| 1,372,194 |
| ||||
| 9.00% 7/12/11 |
| GBP | 540,000 |
| 1,208,100 |
| ||||
|
|
|
|
|
| 7,085,343 |
| ||||
| Uruguay–0.05% |
|
|
|
|
|
| ||||
| Republic of Uruguay 7.625% 3/21/36 |
| USD | 281,000 |
| 309,100 |
| ||||
|
|
|
|
|
| 309,100 |
| ||||
| Total Sovereign Debt |
|
|
|
| 107,567,272 |
| ||||
| SUPRANATIONAL BANKS–1.73% |
|
|
|
|
|
| ||||
| Asia Development Bank 0.50% 10/9/12 |
| AUD | 759,000 |
| 466,241 |
| ||||
| European Investment Bank |
|
|
|
|
|
| ||||
| 1.40% 6/20/17 |
| JPY | 258,900,000 |
| 2,018,893 |
| ||||
| 4.25% 12/7/10 |
| GBP | 826,000 |
| 1,567,967 |
| ||||
| 6.00% 7/15/09 |
| NZD | 2,340,000 |
| 1,732,695 |
| ||||
| Inter-American Development Bank 13.00% 6/20/08 |
| ISK | 150,200,000 |
| 2,411,598 |
| ||||
| International Bank for Reconstruction & Development 13.625% 5/9/17 |
| TRY | 1,525,000 |
| 1,162,782 |
| ||||
| Nordic Investment Bank |
|
|
|
|
|
| ||||
| 1.70% 4/27/17 |
| JPY | 160,000,000 |
| 1,272,857 |
| ||||
| 4.625% 7/30/10 |
| NOK | 6,700,000 |
| 1,109,157 |
| ||||
| Total Supranational Banks |
|
|
|
| 11,742,190 |
| ||||
| U.S. TREASURY OBLIGATIONS–2.71% |
|
|
|
|
|
| ||||
| U.S. Treasury Bond 4.50% 2/15/36 |
| USD | 4,120,000 |
| 3,731,822 |
| ||||
| U.S. Treasury Inflation Index Notes |
|
|
|
|
|
| ||||
| 2.00% 1/15/26 |
|
| 447,785 |
| 405,735 |
| ||||
| 2.375% 4/15/11 |
|
| 104,131 |
| 103,025 |
| ||||
¥ | 2.375% 1/15/17 |
|
| 1,286,250 |
| 1,256,204 |
| ||||
| 3.00% 7/15/12 |
|
| 385,093 |
| 392,674 |
| ||||
| 3.625% 1/15/08 |
|
| 358,221 |
| 358,557 |
| ||||
| U.S. Treasury Notes |
|
|
|
|
|
| ||||
| 4.50% 5/15/10 |
|
| 490,000 |
| 485,024 |
| ||||
| 4.50% 5/15/17 |
|
| 4,811,000 |
| 4,614,052 |
| ||||
| 4.875% 6/30/09 |
|
| 1,195,000 |
| 1,195,281 |
| ||||
| 4.875% 6/30/12 |
|
| 5,868,000 |
| 5,853,793 |
| ||||
| Total U.S. Treasury Obligations |
|
|
|
| 18,396,167 |
| ||||
|
|
| Number of |
|
|
|
| COMMON STOCK–0.32% |
|
|
|
|
|
† | Adelphia |
| 280,000 |
| 86,800 |
|
† | Adelphia Recovery Trust Series ACC-1 |
| 274,798 |
| 25,556 |
|
† | Adelphia Recovery Trust Series Arahova |
| 1,087,366 |
| 574,129 |
|
† | Century Communications |
| 2,500,000 |
| 2,344 |
|
† | Charter Communications Class A |
| 5,800 |
| 23,490 |
|
14
|
| Number of |
| Value |
| ||
† | Foster Wheeler |
| 1,044 |
| $ | 111,698 |
|
† | Mirant |
| 5,025 |
| 214,316 |
| |
† | Northwest Airlines |
| 3,484 |
| 77,351 |
| |
† | Time Warner Cable Class A |
| 27,505 |
| 1,077,365 |
| |
| Total Common Stock |
|
|
| 2,193,049 |
| |
|
|
|
|
|
|
| |
| CURRENCY OPTIONS PURCHASED–0.01% |
|
|
|
|
| |
| Put USD 17,957,000, Call JPY 2,033,630,250, expiration date 8/17/07 |
|
|
| 4,669 |
| |
| Put USD 14,737,000, Call JPY 1,807,493,050, expiration date 7/26/07 |
|
|
| 96,527 |
| |
| Total Currency Options Purchased |
|
|
| 101,196 |
| |
|
|
|
|
|
|
| |
| PREFERRED STOCK–0.00% |
|
|
|
|
| |
| Nexen 7.35% |
| 200 |
| 5,080 |
| |
| Total Preferred Stock |
|
|
| 5,080 |
| |
|
|
|
|
|
|
| |
| WARRANT–0.13% |
|
|
|
|
| |
† | Argentina GDP Linked, expiration date 12/15/35 |
| 6,087,000 |
| 891,746 |
| |
| Total Warrant |
|
|
| 891,746 |
| |
| Principal |
|
|
| |||
^ | DISCOUNT NOTE–10.52% |
|
|
|
|
| |
| Federal Home Loan Bank 4.802% 7/2/07 |
| USD | 71,261,000 |
| 71,251,498 |
|
| Total Discount Note |
|
|
| 71,251,498 |
| |
TOTAL VALUE OF SECURITIES–106.04% (cost $719,448,215) |
| 718,420,130 |
| |
LIABILITIES NET OF RECEIVABLES AND OTHER ASSETS–(6.04%) |
| (40,940,868 | ) | |
NET ASSETS APPLICABLE TO 69,347,009 SHARES OUTSTANDING–100.00% |
| $ | 677,479,262 |
|
NET ASSET VALUE-DELAWARE VIP DIVERSIFIED INCOME SERIES STANDARD CLASS ($410,994,580 / 42,016,052 Shares) |
| $ | 9.78 |
|
NET ASSET VALUE-DELAWARE VIP DIVERSIFIED INCOME SERIES SERVICE CLASS ($266,484,682 / 27,330,957 Shares) |
| $ | 9.75 |
|
COMPONENTS OF NET ASSET AT DECEMBER 31, 2006: |
|
|
| |
Shares of beneficial interest (unlimited authorization–no par) |
| $ | 654,729,159 |
|
Undistributed net investment income |
| 14,496,548 |
| |
Accumulated net realized gain on investments |
| 5,875,268 |
| |
Net unrealized appreciation of investments and foreign currencies |
| 2,378,287 |
| |
Total net assets |
| $ | 677,479,262 |
|
° Principal amount shown is stated in the currency in which each security is denominated.
AUD – Australian Dollar
BRL – Brazilian Real
CAD – Canadian Dollar
CHF – Swiss Francs
COP – Colombian Peso
EUR – European Monetary Unit
GBP – British Pound Sterling
IDR – Indonesia Rupiahs
ISK – Iceland Krona
JPY – Japanese Yen
MXN – Mexican Peso
MYR – Malaysia Ringgit
NOK – Norwegian Kroner
NZD – New Zealand Dollar
PLN – Polish Zlotych
RUB – Russian Rubles
SEK – Swedish Krona
TRY – Turkish Lira
USD – United States Dollar
15
# Security exempt from registration under Rule 144A of the Securities Act of 1933, as amended. At June 30, 2007, the aggregate amount of Rule 144A securities equaled $108,612,700, which represented 16.04% of the Series’ net assets. See Note 11 in “Notes to Financial Statements.”
· Variable rate security. The rate shown is the rate as of June 30, 2007.
^ Zero coupon security. The rate shown is the yield at the time of purchase.
‡ Non-income producing security. Security is currently in default.
@ Illiquid security. At June 30, 2007, the aggregate amount of illiquid securities equaled $19,032,859, which represented 2.81% of the Series’ net assets. See Note 11 in “Notes to Financial Statements.”
= Security is being fair valued in accordance with the Series’ fair valuation policy. At June 30, 2007, the aggregate amount of fair valued securities equaled $325,658, which represented 0.05% of the Series’ net assets. See Note 1 in “Notes to Financial Statements.”
² Step coupon bond. Indicates security that has a zero coupon that remains in effect until a predetermined date at which time the stated interest rate becomes effective.
¥ Fully or partially pledged as collateral for financial futures contracts.
t Pass Through Agreement. Security represents the contractual right to receive a proportionate amount of underlying payments due to the counterparty pursuant to various agreements related to the rescheduling of obligations and the exchange of certain notes.
† Non-income producing security for the period ended June 30, 2007.
« Senior Secured Loans generally pay interest at rates which are periodically redetermined by reference to a base lending rate plus a premium. These base lending rates are generally (i) the prime rate offered by one or more United States banks, (ii) the lending rate offered by one or more European banks such as the London Inter-Bank Offered Rate (LIBOR) and (iii) the certificate of deposit rate. Senior Secured Loans may be subject to restrictions on resale.
D Securities have been classified by country of origin.
§ Pre-Refunded Bonds. Municipals that are generally backed or secured by U.S. Treasury bonds. For Pre-Refunded Bonds, the stated maturity is followed by the year in which the bond is pre-refunded.
Summary of Abbreviations:
AMBAC – Insured by the AMBAC Assurance Corporation
ARM – Adjustable Rate Mortgage
CDS – Credit Default Swap
CPI – Consumer Price Index
CPN – Coupon
FGIC – Insured by the Financial Guaranty Insurance Company
FSA – Insured by Financial Security Assurance
GNMA – Government National Mortgage Association
GDP – Gross Domestic Product
GSMPS –Goldman Sachs Reperforming Mortgage Securities
O.A.T. – Obligation Assimilable au Tresor (Treasury Security)
PIK – Pay-in-kind
REIT – Real Estate Investment Trust
S.F. – Single Family
TBA – To be announced
yr – Year
The following foreign currency exchange contracts and foreign cross currency exchange contracts, futures contracts, and swap contracts were outstanding at June 30, 2007:
Foreign Currency Exchange Contracts(1)
|
|
|
|
| Unrealized |
| ||||
|
|
|
|
|
| Appreciation |
| |||
Contracts to Receive (Deliver) |
| In Exchange For |
| Settlement Date |
| (Depreciation) |
| |||
AUD | 488,402 |
| NZD | (543,000 | ) | 8/31/07 |
| $ | (3,067 | ) |
AUD | (3,730,000 | ) | USD | 3,153,118 |
| 8/31/07 |
| (3,728 | ) | |
CAD | 949,432 |
| NOK | (5,270,479 | ) | 8/31/07 |
| (2,338 | ) | |
CHF | 3,721,595 |
| GBP | (1,525,000 | ) | 8/31/07 |
| 2,239 |
| |
CHF | 1,279,116 |
| PLN | (2,944,000 | ) | 8/31/07 |
| (5,635 | ) | |
EUR | 1,875,964 |
| GBP | (1,266,000 | ) | 8/31/07 |
| 4,767 |
| |
EUR | (1,511,747 | ) | JPY | 250,120,887 |
| 8/31/07 |
| (2,027 | ) | |
EUR | 1,475,621 |
| NOK | (11,844,444 | ) | 8/31/07 |
| (9,188 | ) | |
EUR | 539,081 |
| NZD | (957,435 | ) | 8/31/07 |
| (2,993 | ) | |
EUR | 770,694 |
| SEK | (7,146,104 | ) | 8/31/07 |
| (2,760 | ) | |
EUR | (1,137,717 | ) | USD | 1,541,345 |
| 7/31/07 |
| (282 | ) | |
EUR | (9,526,801 | ) | USD | 12,858,209 |
| 8/31/07 |
| (64,703 | ) | |
EUR | 1,481,581 |
| NZD | (2,636,000 | ) | 7/31/07 |
| (19,237 | ) | |
GBP | 1,338,838 |
| JPY | (327,643,000 | ) | 8/31/07 |
| 2,495 |
| |
GBP | 234,000 |
| USD | (466,325 | ) | 7/31/07 |
| 3,374 |
| |
GBP | (441,000 | ) | USD | 880,395 |
| 8/31/07 |
| (4,371 | ) | |
IDR | 16,586,550,000 |
| USD | (1,845,000 | ) | 7/17/07 |
| (9,210 | ) | |
JPY | 415,673,613 |
| EUR | (2,519,723 | ) | 8/31/07 |
| (13,357 | ) | |
JPY | (267,886,463 | ) | USD | 2,185,000 |
| 7/31/07 |
| (14 | ) | |
JPY | (1,986,138,730 | ) | USD | 16,231,931 |
| 8/31/07 |
| (35,640 | ) | |
MXN | 23,731,869 |
| USD | (2,197,523 | ) | 7/2/07 |
| (1,075 | ) | |
MYR | 13,938,684 |
| USD | (4,206,000 | ) | 5/19/08 |
| (107,565 | ) | |
MYR | 5,703,130 |
| USD | (1,723,000 | ) | 5/20/08 |
| (46,182 | ) | |
PLN | 3,851,000 |
| USD | (1,368,982 | ) | 7/31/07 |
| 13,977 |
| |
PLN | 5,116,123 |
| USD | (1,826,000 | ) | 8/31/07 |
| 12,572 |
| |
PLN | (3,141,000 | ) | USD | 1,129,490 |
| 9/4/07 |
| 643 |
| |
|
|
|
|
|
|
|
| $ | (293,305 | ) |
16
Futures Contracts(2)
Contracts |
| Notional Cost |
| Notional |
| Expiration Date |
| Unrealized |
| |||||
105 |
| U.S. Treasury 2 year Notes |
| $ | 21,426,463 |
| $ | 21,397,031 |
| 9/30/07 |
| $ | (29,432 | ) |
1,021 |
| U.S. Treasury 5 year Notes |
| 106,013,896 |
| 106,263,766 |
| 9/30/07 |
| 249,870 |
| |||
77 |
| U.S. Treasury 10 year Notes |
| 8,200,113 |
| 8,139,141 |
| 9/30/07 |
| (60,972 | ) | |||
(89) |
| U.S. Treasury Long Bond |
| (9,529,326 | ) | (9,589,750 | ) | 9/30/07 |
| (60,424 | ) | |||
|
|
|
|
|
|
|
|
|
| $ | 99,042 |
| ||
Swap Contracts(3)
Swap Counterparty & |
| Notional |
| Annual Protection |
| Termination Date |
| Unrealized |
| ||
Protection Purchased: |
|
|
|
|
|
|
|
|
| ||
Autozone 7 yr CDS |
| $ | 850,000 |
| 0.45 | % | 6/20/14 |
| $ | 1,745 |
|
Avon Products 7 yr CDS |
| 850,000 |
| 0.25 | % | 6/20/14 |
| 2,698 |
| ||
Beazer Homes |
|
|
|
|
|
|
|
|
| ||
5yr CDS IndexCo |
| 1,625,000 |
| 3.08 | % | 6/20/12 |
| 125,499 |
| ||
5yr CDS IndexCo |
| (1,625,000 | ) | 3.43 | % | 6/20/12 |
| (104,933 | ) | ||
Campbell Soup 7 yr CDS |
| 850,000 |
| 0.18 | % | 6/20/14 |
| 2,332 |
| ||
CDX North America |
|
|
|
|
|
|
|
|
| ||
Crossover Index 8 CDS |
| 11,765,000 |
| 2.75 | % | 6/20/12 |
| 187,002 |
| ||
CDX North America |
|
|
|
|
|
|
|
|
| ||
Crossover Index 8-B CDS |
| 7,850,000 |
| 2.50 | % | 6/20/12 |
| 10,765 |
| ||
CDX North America |
|
|
|
|
|
|
|
|
| ||
Crossover Index 8-HB CDS |
| 1,750,000 |
| 5.00 | % | 6/20/12 |
| 8,730 |
| ||
Computer Science 7 yr CDS |
| 850,000 |
| 1.00 | % | 6/20/14 |
| 7,571 |
| ||
Gannet 7 yr CDS |
| 737,000 |
| 0.88 | % | 9/20/14 |
| (4,077 | ) | ||
Goldman Sachs |
|
|
|
|
|
|
|
|
| ||
CDS IndexCo ABX |
|
|
|
|
|
|
|
|
| ||
Home Equity BBB-Index 06-1 |
| 12,400,000 |
| 2.67 | % | 7/25/45 |
| 2,284,164 |
| ||
Goldman Sachs |
|
|
|
|
|
|
|
|
| ||
CDS IndexCo ABX |
|
|
|
|
|
|
|
|
| ||
Home Equity BBB-Index 06-2 |
| 3,000,000 |
| 2.42 | % | 5/25/46 |
| 1,042,300 |
| ||
Kimberly-Clark 7 yr CDS |
| 850,000 |
| 0.20 | % | 6/20/14 |
| 438 |
| ||
McDonald’s 7 yr CDS |
| 850,000 |
| 0.18 | % | 6/20/14 |
| 2,559 |
| ||
New York Times 7 yr CDS |
| 737,000 |
| 0.75 | % | 9/20/14 |
| (3,716 | ) | ||
Newell Rubber 7 yr CDS |
| 850,000 |
| 0.39 | % | 6/20/14 |
| (2,362 | ) | ||
Sara Lee 7 yr CDS |
| 737,000 |
| 0.60 | % | 9/20/14 |
| 246 |
| ||
Sysco 7 yr CDS |
| 850,000 |
| 0.32 | % | 6/20/14 |
| 656 |
| ||
TJX 7 yr CDS |
| 850,000 |
| 0.61 | % | 6/20/14 |
| 2,159 |
| ||
V.F. 7 yr CDS |
| 850,000 |
| 0.37 | % | 6/20/14 |
| (2,936 | ) | ||
|
|
|
|
|
|
|
| $ | 3,543,380 |
| |
The use of foreign currency and foreign cross currency exchange contracts, futures contracts and swap contracts involves elements of market risks in excess of the amount recognized in the financial statements. The notional amounts presented above represent the Series’ total exposure in such contracts, whereas only the net unrealized appreciation (depreciation) is reflected in the Series’ net assets.
(1) See Note 8 in “Notes to Financial Statements.”
(2) See Note 9 in “Notes to Financial Statements.”
(3) See Note 10 in “Notes to Financial Statements.”
See accompanying notes
17
Delaware VIP Trust –
Delaware VIP Diversified Income Series
Statement of Assets and Liabilities
June 30, 2007 (Unaudited)
ASSETS: |
|
|
| |
Investments at market (cost $719,448,215) |
| $ | 718,420,130 |
|
Cash |
| 2,286,556 |
| |
Foreign currencies (cost $7,661,863) |
| 7,690,893 |
| |
Receivable for securities sold |
| 44,616,157 |
| |
Dividends and interest receivable |
| 9,417,334 |
| |
Subscription receivable |
| 1,981,200 |
| |
Credit default swap contracts, at value |
| 4,257,466 |
| |
Variation margin receivable on futures contracts |
| 302,516 |
| |
Total assets |
| 788,972,252 |
| |
|
|
|
| |
LIABILITIES: |
|
|
| |
Payable for securities purchased |
| 110,555,800 |
| |
Accrued Protection Payments on credit default swaps |
| 30,458 |
| |
Liquidations payable |
| 72,362 |
| |
Foreign currency contracts, at value |
| 293,305 |
| |
Due to manager and affiliates |
| 440,525 |
| |
Other accrued expenses |
| 100,540 |
| |
Total liabilities |
| 111,492,990 |
| |
|
|
|
| |
Total net assets |
| $ | 677,479,262 |
|
See accompanying notes
18
Delaware VIP Trust –
Delaware VIP Diversified Income Series
Statement of Operations
Six Months Ended June 30, 2007 (Unaudited)
INVESTMENT INCOME: |
|
|
| |
Interest |
| $ | 18,054,646 |
|
Dividends |
| 32,742 |
| |
|
| 18,087,388 |
| |
EXPENSES: |
|
|
| |
Management fees |
| 1,866,756 |
| |
Distribution expenses – Service Class |
| 353,886 |
| |
Accounting and administration expenses |
| 116,185 |
| |
Legal fees |
| 40,105 |
| |
Reports and statements to shareholders |
| 30,882 |
| |
Dividend disbursing and transfer agent fees and expenses |
| 29,046 |
| |
Audit and tax |
| 24,850 |
| |
Custodian fees |
| 18,029 |
| |
Trustees’ fees & benefits |
| 13,971 |
| |
Pricing fees |
| 12,309 |
| |
Insurance fees |
| 8,344 |
| |
Consulting fees |
| 4,612 |
| |
Dues and services |
| 1,007 |
| |
Taxes (other than taxes on income) |
| 989 |
| |
Trustees’ expenses |
| 887 |
| |
Registration fees |
| 10 |
| |
|
| 2,521,868 |
| |
Less waiver of distribution expenses – Service Class |
| (58,981 | ) | |
Less expense paid indirectly |
| (18,029 | ) | |
Total operating expenses |
| 2,444,858 |
| |
|
|
|
| |
NET INVESTMENT INCOME |
| 15,642,530 |
| |
|
|
|
| |
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND FOREIGN CURRENCIES: |
|
|
| |
Net realized gain (loss) on: |
|
|
| |
Investments |
| 5,432,994 |
| |
Futures contracts |
| (187,463 | ) | |
Swap contracts |
| 271,874 |
| |
Foreign currencies |
| 83,370 |
| |
Net realized gain |
| 5,600,775 |
| |
Net change in unrealized appreciation/depreciation of investments and foreign currencies |
| (5,383,169 | ) | |
|
|
|
| |
NET REALIZED AND UNREALIZED LOSS ON INVESTMENTS AND FOREIGN CURRENCIES |
| 217,606 |
| |
|
|
|
| |
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS |
| $ | 15,860,136 |
|
Delaware VIP Trust –
Delaware VIP Diversified Income Series
Statements of Changes in Net Assets
|
| Six Months |
| Year |
| ||
|
| (Unaudited) |
|
|
| ||
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS: |
|
|
|
|
| ||
Net investment income |
| $ | 15,642,530 |
| $ | 18,138,021 |
|
Net realized gain on investments and foreign currencies |
| 5,600,775 |
| 1,855,330 |
| ||
Net change in unrealized appreciation/ depreciation of investments and foreign currencies |
| (5,383,169 | ) | 9,416,957 |
| ||
Net increase in net assets resulting from operations |
| 15,860,136 |
| 29,410,308 |
| ||
|
|
|
|
|
| ||
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM: |
|
|
|
|
| ||
Net investment income: |
|
|
|
|
| ||
Standard Class |
| (10,799,019 | ) | (1,927,505 | ) | ||
Service Class |
| (6,977,327 | ) | (2,054,268 | ) | ||
Net realized gain on investments: |
|
|
|
|
| ||
Standard Class |
| (882,938 | ) | — |
| ||
Service Class |
| (614,951 | ) | — |
| ||
|
| (19,274,235 | ) | (3,981,773 | ) | ||
|
|
|
|
|
| ||
CAPITAL SHARE TRANSACTIONS: |
|
|
|
|
| ||
Proceeds from shares sold: |
|
|
|
|
| ||
Standard Class |
| 118,785,172 |
| 202,710,123 |
| ||
Service Class |
| 68,919,404 |
| 95,407,632 |
| ||
Net asset value of shares issued upon reinvestment of dividends and distributions: |
|
|
|
|
| ||
Standard Class |
| 11,681,957 |
| 1,927,505 |
| ||
Service Class |
| 7,592,278 |
| 2,054,268 |
| ||
|
| 206,978,811 |
| 302,099,528 |
| ||
Cost of shares repurchased: |
|
|
|
|
| ||
Standard Class |
| (11,499,626 | ) | (15,934,779 | ) | ||
Service Class |
| (17,557,806 | ) | (30,302,103 | ) | ||
|
| (29,057,432 | ) | (46,236,882 | ) | ||
Increase in net assets derived from capital share transactions |
| 177,921,379 |
| 255,862,646 |
| ||
NET INCREASE IN NET ASSETS |
| 174,507,280 |
| 281,291,181 |
| ||
NET ASSETS: |
|
|
|
|
| ||
Beginning of period |
| 502,971,982 |
| 221,680,801 |
| ||
End of period (including undistributed net investment income of $14,496,548 and $17,313,698, respectively) |
| $ | 677,479,262 |
| $ | 502,971,982 |
|
See accompanying notes
19
Delaware VIP Trust — Delaware VIP Diversified Income Series
Financial Highlights
Selected data for each share of the Series outstanding throughout each period were as follows:
|
| Delaware VIP Diversified Income Series Standard Class |
| |||||||||||||
|
| Six Months |
| Year Ended |
| 5/16/03(2) |
| |||||||||
|
| 6/30/07(1) |
| 12/31/06 |
| 12/31/05 |
| 12/31/04 |
| 12/31/03 |
| |||||
|
| (Unaudited) |
|
|
|
|
|
|
|
|
| |||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
Net asset value, beginning of period |
| $ | 9.830 |
| $ | 9.260 |
| $ | 9.450 |
| $ | 8.940 |
| $ | 8.500 |
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Income (loss) from investment operations: |
|
|
|
|
|
|
|
|
|
|
| |||||
Net investment income(3) |
| 0.268 |
| 0.496 |
| 0.373 |
| 0.348 |
| 0.240 |
| |||||
Net realized and unrealized gain (loss) on investments and foreign currencies |
| 0.026 |
| 0.227 |
| (0.416 | ) | 0.395 |
| 0.200 |
| |||||
Total from investment operations |
| 0.294 |
| 0.723 |
| (0.043 | ) | 0.743 |
| 0.440 |
| |||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
Less dividends and distributions from: |
|
|
|
|
|
|
|
|
|
|
| |||||
Net investment income |
| (0.318 | ) | (0.153 | ) | (0.099 | ) | (0.233 | ) | — |
| |||||
Net realized gain on investments |
| (0.026 | ) | — |
| (0.048 | ) | — |
| — |
| |||||
Total dividends and distributions |
| (0.344 | ) | (0.153 | ) | (0.147 | ) | (0.233 | ) | — |
| |||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
Net asset value, end of period |
| $ | 9.780 |
| $ | 9.830 |
| $ | 9.260 |
| $ | 9.450 |
| $ | 8.940 |
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Total return(4) |
| 3.00 | % | 7.92 | % | (0.45 | )% | 8.47 | % | 5.18 | % | |||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
Ratios and supplemental data: |
|
|
|
|
|
|
|
|
|
|
| |||||
Net assets, end of period (000 omitted) |
| $ | 410,994 |
| $ | 294,248 |
| $ | 90,811 |
| $ | 14,770 |
| $ | 2,104 |
|
Ratio of expenses to average net assets |
| 0.74 | % | 0.79 | % | 0.79 | % | 0.80 | % | 0.80 | % | |||||
Ratio of expenses to average net assets prior to expense limitation and expenses paid indirectly |
| 0.74 | % | 0.79 | % | 0.86 | % | 0.98 | % | 1.59 | % | |||||
Ratio of net investment income to average net assets |
| 5.49 | % | 5.26 | % | 4.02 | % | 3.82 | % | 4.43 | % | |||||
Ratio of net investment income to average net assets prior to expense limitation and expenses paid indirectly |
| 5.49 | % | 5.26 | % | 3.95 | % | 3.64 | % | 3.64 | % | |||||
Portfolio turnover |
| 284 | % | 311 | % | 400 | % | 493 | % | 521 | % |
(1) Ratios and portfolio turnover have been annualized and total return has not been annualized.
(2) Commencement of operations; ratios and portfolio turnover have been annualized and total return has not been annualized.
(3) The average shares outstanding method has been applied for per share information.
(4) Total investment return is based on the change in net asset value of a share during the period and assumes reinvestment of dividends and distributions at net asset value. Total investment return reflects waivers and payment of fees by the manager, as applicable. Performance would have been lower had the expense limitation not been in effect.
See accompanying notes
20
Selected data for each share of the Series outstanding throughout each period were as follows:
|
| Delaware VIP Diversified Income Series Service Class |
| |||||||||||||
|
| Six Months |
|
|
|
|
|
|
| 5/16/03(2) |
| |||||
|
| Ended |
| Year Ended |
| to |
| |||||||||
|
| 6/30/07(1) |
| 12/31/06 |
| 12/31/05 |
| 12/31/04 |
| 12/31/03 |
| |||||
|
| (Unaudited) |
|
|
|
|
|
|
| �� |
| |||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
Net asset value, beginning of period |
| $ | 9.790 |
| $ | 9.230 |
| $ | 9.410 |
| $ | 8.930 |
| $ | 8.500 |
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Income (loss) from investment operations: |
|
|
|
|
|
|
|
|
|
|
| |||||
Net investment income(3) |
| 0.256 |
| 0.472 |
| 0.350 |
| 0.326 |
| 0.216 |
| |||||
Net realized and unrealized gain (loss) on investments and foreign currencies |
| 0.025 |
| 0.218 |
| (0.406 | ) | 0.373 |
| 0.214 |
| |||||
Total from investment operations |
| 0.281 |
| 0.690 |
| (0.056 | ) | 0.699 |
| 0.430 |
| |||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
Less dividends and distributions from: |
|
|
|
|
|
|
|
|
|
|
| |||||
Net investment income |
| (0.295 | ) | (0.130 | ) | (0.076 | ) | (0.219 | ) | — |
| |||||
Net realized gain on investments |
| (0.026 | ) | — |
| (0.048 | ) | — |
| — |
| |||||
Total dividends and distributions |
| (0.321 | ) | (0.130 | ) | (0.124 | ) | (0.219 | ) | — |
| |||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
Net asset value, end of period |
| $ | 9.750 |
| $ | 9.790 |
| $ | 9.230 |
| $ | 9.410 |
| $ | 8.930 |
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Total return(4) |
| 2.77 | % | 7.57 | % | (0.59 | )% | 7.85 | % | 5.06 | % | |||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
Ratios and supplemental data: |
|
|
|
|
|
|
|
|
|
|
| |||||
Net assets, end of period (000 omitted) |
| $ | 266,485 |
| $ | 208,724 |
| $ | 130,870 |
| $ | 47,417 |
| $ | — |
|
Ratio of expenses to average net assets |
| 0.99 | % | 1.04 | % | 1.04 | % | 1.05 | % | 1.05 | % | |||||
Ratio of expenses to average net assets prior to expense |
|
|
|
|
|
|
|
|
|
|
| |||||
limitation and expenses paid indirectly |
| 1.04 | % | 1.09 | % | 1.16 | % | 1.28 | % | 1.89 | % | |||||
Ratio of net investment income to average net assets |
| 5.24 | % | 5.01 | % | 3.77 | % | 3.57 | % | 4.18 | % | |||||
Ratio of net investment income to average net assets prior to expense limitation and expenses paid indirectly |
| 5.19 | % | 4.96 | % | 3.65 | % | 3.34 | % | 3.34 | % | |||||
Portfolio turnover |
| 284 | % | 311 | % | 400 | % | 493 | % | 521 | % |
(1) Ratios and portfolio turnover have been annualized and total return has not been annualized.
(2) Commencement of operations; ratios and portfolio turnover have been annualized and total return has not been annualized.
(3) The average shares outstanding method has been applied for per share information.
(4) Total investment return is based on the change in net asset value of a share during the period and assumes reinvestment of dividends and distributions at net asset value. Total investment return reflects waivers and payment of fees by the manager and distributor, as applicable. Performance would have been lower had the expense limitation and waiver not been in effect.
See accompanying notes
21
Delaware VIP Trust — Delaware VIP Diversified Income Series
Notes to Financial Statements
June 30, 2007 (Unaudited)
Delaware VIP Trust (Trust) is organized as a Delaware statutory trust and offers 14 series: Delaware VIP Balanced Series, Delaware VIP Capital Reserves Series, Delaware VIP Cash Reserve Series, Delaware VIP Diversified Income Series, Delaware VIP Emerging Markets Series, Delaware VIP Growth Opportunities Series, Delaware VIP High Yield Series, Delaware VIP International Value Equity Series, Delaware VIP REIT Series, Delaware VIP Select Growth Series, Delaware VIP Small Cap Value Series, Delaware VIP Trend Series, Delaware VIP U.S. Growth Series and Delaware VIP Value Series. These financial statements and the related notes pertain to Delaware VIP Diversified Income Series (Series). The Trust is an open-end investment company. The Series is considered diversified under the Investment Company Act of 1940, as amended, and offers Standard Class and Service Class shares. The Standard Class shares do not carry a 12b-1 fee and the Service Class shares carry a 12b-1 fee. The shares of the Series are sold only to separate accounts of life insurance companies.
The investment objective of the Series is to seek maximum long-term total return consistent with reasonable risk.
1. Significant Accounting Policies
The following accounting policies are in accordance with U.S. generally accepted accounting principles and are consistently followed by the Series.
Security Valuation—Equity securities, except those traded on the Nasdaq Stock Market, Inc. (Nasdaq), are valued at the last quoted sales price as of the time of the regular close of the New York Stock Exchange (NYSE) on the valuation date. Securities traded on the Nasdaq are valued in accordance with the Nasdaq Official Closing Price, which may not be the last sales price. If on a particular day an equity security does not trade, then the mean between the bid and asked prices will be used. Securities listed on a foreign exchange are valued at the last quoted sales price before the Series is valued. U.S. government and agency securities are valued at the mean between the bid and asked prices. Other long-term debt securities are valued by an independent pricing service and such prices are believed to reflect the fair value of such securities. Short-term debt securities having less than 60 days to maturity are valued at amortized cost, which approximates market value. Foreign currency exchange contracts are valued at the mean between the bid and asked prices of the contracts and are marked-to-market daily. Interpolated values are derived when the settlement date of the contract is an interim date for which quotations are not available. Futures contracts are valued at the daily quoted settlement prices. Exchange-traded options are valued at the last reported sale price or, if no sales are reported, at the mean between the last reported bid and asked prices. Swap contracts and other securities and assets for which market quotations are not readily available are valued at fair value as determined in good faith under the direction of the Series’ Board of Trustees. In determining whether market quotations are readily available or fair valuation will be used, various factors will be taken into consideration, such as market closures, or with respect to foreign securities, aftermarket trading, or significant events after local market trading (e.g., government actions or pronouncements, trading volume or volatility on markets, exchanges among dealers, or news events).
In September 2006, the Financial Accounting Standards Board (FASB) issued FASB Statement No. 157 “Fair Value Measurements” (Statement 157). Statement 157 establishes a framework for measuring fair value in generally accepted accounting principles, clarifies the definition of fair value within that framework, and expands disclosures about the use of fair value measurements. Statement 157 is intended to increase consistency and comparability among fair value estimates used in financial reporting. Statement 157 is effective for fiscal years beginning after November 15, 2007. Management does not expect the adoption of Statement 157 to have an impact on the amounts reported in the financial statements.
Federal Income Taxes—The Series intends to continue to qualify for federal income tax purposes as a regulated investment company and make the requisite distributions to shareholders. Accordingly, no provision for federal income taxes has been made in the financial statements.
Effective June 29, 2007, the Series adopted FASB Interpretation No. 48 “Accounting for Uncertainty in Income Taxes” (FIN 48). FIN 48 provides guidance for how uncertain tax positions should be recognized, measured, presented and disclosed in the financial statements. FIN 48 requires the evaluation of tax positions taken or expected to be taken in the course of preparing the Series’ tax returns to determine whether the tax positions are “more-likely-than-not” of being sustained by the applicable tax authority. Tax positions not deemed to meet the more-likely-than-not threshold are recorded as a tax benefit or expense in the current year. The adoption of FIN 48 did not result in the recording of any tax benefit or expense in the current period.
Class Accounting—Investment income, common expenses and realized and unrealized gain (loss) on investments are allocated to the classes of the Series on the basis of daily net assets of each class. Distribution expenses relating to a specific class are charged directly to that class.
Repurchase Agreements—The Series may invest in a pooled cash account along with members of the Delaware Investments® Family of Funds pursuant to an exemptive order issued by the Securities and Exchange Commission. The aggregate daily balance of the pooled cash account is invested in repurchase agreements secured by obligations of the U.S. government. The respective collateral is held by the Series’ custodian bank until the maturity of the respective repurchase agreements. Each repurchase agreement is at least 102% collateralized. However, in the event of default or bankruptcy by the counterparty to the agreement, realization of the collateral may be subject to legal proceedings.
Foreign Currency Transactions—Transactions denominated in foreign currencies are recorded at the prevailing exchange rates on the valuation date. The value of all assets and liabilities denominated in foreign currencies are translated into U.S. dollars at the exchange rate of such currencies against the U.S. dollar daily. Transaction gains or losses resulting from changes in exchange rates during the reporting period or upon settlement of the foreign currency transaction are reported in operations for the current period. The Series isolates that portion of realized gains and losses on investments in debt securities, which are due to changes in the foreign exchange rates from that which are due to changes in market prices of debt securities. The Series reports certain foreign currency related transactions as components of realized gains (losses) for financial reporting purposes, where such components are treated as ordinary income (loss) for federal income tax purposes.
Use of Estimates—The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
22
Other—Expenses directly attributable to the Series are charged directly to the Series. Other expenses common to various funds within the Delaware Investments® Family of Funds are generally allocated amongst such funds on the basis of average net assets. Management fees and some other expenses are paid monthly. Security transactions are recorded on the date the securities are purchased or sold (trade date) for financial reporting purposes. Costs used in calculating realized gains and losses on the sale of investment securities are those of the specific securities sold. Dividend income is recorded on the ex-dividend date and interest income is recorded on the accrual basis. Withholding taxes have been provided for in accordance with the Series’ understanding of the applicable country’s tax rules and rates. Discounts and premiums on non-convertible bonds are amortized to interest income over the lives of the respective securities. Realized gains (losses) on paydowns of mortgage- and asset-backed securities are classified as interest income.
The Series declares and pays dividends from net investment income and distributions from net realized gain on investments, if any, following the close of the fiscal year.
The Series may receive earnings credits from its custodian when positive cash balances are maintained, which are used to offset custody fees. The expense paid under this arrangement is included in custodian fees on the Statement of Operations with the corresponding expense offset shown as “expense paid indirectly.”
2. Investment Management, Administration Agreements and Other Transactions with Affiliates
In accordance with the terms of its investment management agreement, the Series pays Delaware Management Company (DMC), a series of Delaware Management Business Trust and the investment manager, an annual fee which is calculated daily at the rate of 0.65% on the first $500 million of average daily net assets of the Series, 0.60% on the next $500 million, 0.55% on the next $1.5 billion, and 0.50% on the average daily net assets in excess of $2.5 billion.
Prior to May 1, 2007, DMC had contractually agreed to waive that portion, if any, of its management fee and reimburse the Series to the extent necessary to ensure that annual operating expenses, exclusive of taxes, interest, brokerage commissions, inverse floater program expenses, 12b-1 plan expenses, certain insurance costs and non-routine expenses or costs including, but not limited to, those relating to reorganizations, litigation, certain Trustee retirement plan expenses, conducting shareholder meetings, and liquidations, did not exceed 0.81% of average daily net assets of the Series through April 30, 2007. No reimbursement was due for the six months ended June 30, 2007.
Delaware Service Company, Inc. (DSC), an affiliate of DMC, provides accounting, administration, dividend disbursing and transfer agent services. The Series pays DSC a monthly fee computed at the annual rate of 0.04% of the Series’ average daily net assets for accounting and administrative services. The Series pays DSC a monthly fee based on average net assets for dividend disbursing and transfer agent services.
Pursuant to a distribution agreement and distribution plan, the Series pays Delaware Distributors, L.P. (DDLP), the distributor and an affiliate of DMC, an annual distribution and service fee not to exceed 0.30% of the average daily net assets of the Service Class shares. DDLP has contracted to waive distribution and service fees through April 30, 2008 in order to prevent distribution and service fees of the Service Class shares from exceeding 0.25% of average daily net assets. Standard Class shares pay no distribution and service expenses.
At June 30, 2007, the Series had liabilities payable to affiliates as follows:
Investment |
| Dividend Disbursing, |
| Distribution |
| Other |
| ||||
$ | 346,956 |
| $ | 27,209 |
| $ | 53,756 |
| $ | 12,604 |
|
* DMC, as part of its administrative services, pays operating expenses on behalf of the Series and is reimbursed on a periodic basis. Such expenses include items such as printing of shareholder reports, fees for audit, legal and tax services, custodian fees and trustees’ fees.
As provided in the investment management agreement, the Series bears the cost of certain legal and tax services, including internal legal and tax services provided to the Series by DMC and/or its affiliates’ employees. For the six months ended June 30, 2007, the Series was charged $13,535 for internal legal and tax services provided by DMC and/or its affiliates’ employees.
Trustees’ fees and benefits include expenses accrued by the Series for each Trustee’s retainer, per meeting fees and retirement benefits. Independent Trustees with over five years of uninterrupted service were eligible to participate in a retirement plan that provides for the payment of benefits upon retirement. The amount of the retirement benefit was determined based on factors set forth in the plan, including the number of years of service. On November 16, 2006, the Board of Trustees unanimously voted to terminate the retirement plan. Payments equal to the net present value of the earned benefits were made in 2007 to those independent Trustees so entitled. The retirement benefit payout for the Series was $49,837. Certain officers of DMC, DSC and DDLP are officers and/or Trustees of the Trust. These officers and Trustees are paid no compensation by the Series.
23
3. Investments
For the six months ended June 30, 2007, the Series made purchases and sales of investment securities other than short-term investments as follows:
Purchases other than U.S. government securities |
| $ | 808,467,548 |
|
Purchases of U.S. government securities |
| 123,637,175 |
| |
Sales other than U.S. government securities |
| 627,615,328 |
| |
Sales of U.S. government securities |
| 134,788,083 |
|
At June 30, 2007, the cost of investments for federal income tax purposes has been estimated since the final tax characteristics cannot be determined until fiscal year end. At June 30, 2007, the cost of investments and unrealized appreciation (depreciation) for the Series were as follows:
Cost of |
| Aggregate |
| Aggregate |
| Net Unrealized |
| ||||
$ | 719,751,234 |
| $ | 7,916,774 |
| $ | (9,247,878 | ) | $ | (1,331,104 | ) |
4. Dividend and Distribution Information
Income and long-term capital gain distributions are determined in accordance with federal income tax regulations, which may differ from U.S. generally accepted accounting principles. Additionally, gains (losses) on foreign currency transactions and net short-term gains on sales of investment securities are treated as ordinary income for federal income tax purposes. The tax character of dividends and distributions paid during the six months ended June 30, 2007 and the year ended December 31, 2006 was as follows:
| Six Months |
| Year |
| |||
|
| Ended |
| Ended |
| ||
|
| 6/30/07* |
| 12/31/06 |
| ||
Ordinary income |
| $ | 19,213,099 |
| $ | 3,981,773 |
|
Long-term capital gain |
| 61,136 |
| — |
| ||
|
| $ 19,274,235 |
| $ | 3,981,773 |
| |
* Tax information for the six months ended June 30, 2007 is an estimate and the tax character of dividends and distributions may be redesignated at fiscal year end.
5. Components of Net Assets on a Tax Basis
The components of net assets are estimated since final tax characteristics cannot be determined until fiscal year end. As of June 30, 2007, the estimated components of net assets on a tax basis were as follows:
Shares of beneficial interest |
| $ | 654,729,159 |
|
Undistributed ordinary income |
| 24,066,814 |
| |
Undistributed long-term capital gains |
| 194,328 |
| |
Other temporary differences |
| (482,765 | ) | |
Unrealized appreciation of investments, swap contracts and foreign currencies |
| (1,028,274 | ) | |
Net assets |
| $ | 677,479,262 |
|
The differences between book basis and tax basis components of net assets are primarily attributable to tax deferral of losses on wash sales, interest accrual on defaulted bonds, contingent payment debt instruments, mark-to-market of futures contracts, straddle deferrals, mark-to-market of foreign currency contracts and credit default swap contracts.
For financial reporting purposes, capital accounts are adjusted to reflect the tax character of permanent book/tax differences. Reclassifications are primarily due to tax treatment of paydowns of mortgage- and asset-backed securities, contingent payment debt instruments, credit default swap contracts and gain (loss) on foreign currency transactions. Results of operations and net assets were not affected by these reclassifications. For the six months ended June 30, 2007, the Series recorded an estimate of these differences since the final tax characteristics cannot be determined until fiscal year end:
Undistributed |
| Accumulated |
| ||
$ | (683,334 | ) | $ | 683,334 |
|
24
6. Capital Shares
Transactions in capital shares were as follows:
| Six Months |
| Year |
| |
|
| Ended |
| Ended |
|
|
| 6/30/07 |
| 12/31/06 |
|
|
|
|
|
|
|
Shares sold: |
|
|
|
|
|
Standard Class |
| 12,043,278 |
| 21,608,848 |
|
Service Class |
| 7,008,013 |
| 10,150,801 |
|
|
|
|
|
|
|
Shares issued upon reinvestment of dividends and distributions: |
|
|
|
|
|
Standard Class |
| 1,196,922 |
| 209,284 |
|
Service Class |
| 780,296 |
| 223,533 |
|
|
| 21,028,509 |
| 32,192,466 |
|
|
|
|
|
|
|
Shares repurchased: |
|
|
|
|
|
Standard Class |
| (1,168,196 | ) | (1,676,554 | ) |
Service Class |
| (1,786,552 | ) | (3,228,944 | ) |
|
| (2,954,748 | ) | (4,905,498 | ) |
Net increase |
| 18,073,761 |
| 27,286,968 |
|
7. Line of Credit
The Series, along with certain other funds in the Delaware Investments® Family of Funds (Participants), participates in a $225,000,000 revolving line of credit facility to be used emergency purposes as an additional source of liquidity to fund redemptions of investor shares. The Participants are charged an annual commitment fee, which is allocated across the Participants on the basis of each Participant’s allocation of the entire facility. The Participants may borrow up to a maximum of one third of their net assets under the agreement. The Series had no amounts outstanding as of June 30, 2007, or at any time during the period then ended.
8. Foreign Currency Exchange Contracts
The Series may enter into foreign currency exchange contracts as a way of managing foreign exchange rate risk. The Series may enter into these contracts to fix the U.S. dollar value of a security that it has agreed to buy or sell for the period between the date the trade was entered into and the date the security is delivered and paid for. The Series may also use these contracts to hedge the U.S. dollar value of securities it already owns that are denominated in foreign currencies. The change in market value is recorded as an unrealized gain or loss. When the contract is closed, a realized gain or loss is recorded equal to the difference between the value of the contract at the time it was opened and the value at the time it was closed.
The use of foreign currency exchange contracts does not eliminate fluctuations in the underlying prices of the securities, but does establish a rate of exchange that can be achieved in the future. Although foreign currency exchange contracts limit the risk of loss due to a decline in the value of the hedged currency, they also limit any potential gain that might result should the value of the currency increase. In addition, the Series could be exposed to risks if the counterparties to the contracts are unable to meet the terms of their contracts. The unrealized gain (loss) is included in liabilities net of receivables and other assets on the Statement of Net Assets.
9. Futures Contracts
The Series may invest in financial futures contracts to hedge its existing portfolio securities against fluctuations in fair value caused by changes in prevailing market interest rates. Upon entering into a futures contract, the Series deposits cash or pledges U.S. government securities to a broker, equal to the minimum “initial margin” requirements of the exchange on which the contract is traded. Subsequent payments are received from the broker or paid to the broker each day, based on the daily fluctuation in the market value of the contract. These receipts or payments are known as “variation margin” and are recorded daily by the Series as unrealized gains or losses until the contracts are closed. When the contracts are closed, the Series records a realized gain or loss equal to the difference between the value of the contract at the time it was opened and the value at the time it was closed. Risks of entering into futures contracts include potential imperfect correlation between the futures contracts and the underlying securities and the possibility of an illiquid secondary market for these instruments. The unrealized gain (loss) is included in liabilities net of receivables and other assets on the Statement of Net Assets.
10. Swap Contracts
The Series may enter into interest rate swap contracts, index swap contracts and credit default swap (CDS) contracts in accordance with its investment objectives. The Series may use interest rate swaps to adjust the Series’ sensitivity to interest rates or to hedge against changes in interest rates. Index swaps may be used to gain exposure to markets that the Series invests in, such as the corporate bond market. The Series may also use index swaps as a substitute for future or options contracts if such contracts are not directly available to the Series on favorable terms. The Series may enter into CDS contracts in order to hedge against a credit event, to enhance total return or to gain exposure to certain securities or markets.
25
An interest rate swap involves payments received by the Series from another party based on a variable or floating interest rate, in return for making payments based on a fixed interest rate. An interest rate swap can also work in reverse with the Series receiving payments based on a fixed interest rate and making payments based on a variable or floating interest rate. Interest rate swaps may be used to adjust the Series’ sensitivity to interest rates or to hedge against changes in interest rates. Periodic payments on such contracts are accrued daily and recorded as unrealized appreciation/depreciation on swap contracts. Upon periodic payment/receipt or termination of the contract, such amounts are recorded as realized gains or losses on swap contracts.
Index swaps involve commitments to pay interest in exchange for a market-linked return based on a notional amount. To the extent the total return of the security, instrument or basket of instruments underlying the transaction exceeds the offsetting interest obligation, the Series will receive a payment from the counterparty. To the extent the total return of the security, instrument or basket of instruments underlying the transaction falls short of the offsetting interest obligation, the Series will make a payment to the counterparty. The change in value of swap contracts outstanding, if any, is recorded as unrealized appreciation or depreciation daily. A realized gain or loss is recorded on maturity or termination of the swap contract.
A CDS contract is a risk-transfer instrument through which one party (the “purchaser of protection”) transfers to another party (the “seller of protection”) the financial risk of a Credit Event (as defined in the CDS agreement), as it relates to a particular reference security or basket of securities (such as an index). In exchange for the protection offered by the seller of protection, the purchaser of protection agrees to pay the seller of protection a periodic amount at a stated rate that is applied to the notional amount of the CDS contract. In addition, an upfront payment may be made or received by the Series in connection with an unwinding or assignment of a CDS contract. Upon the occurrence of a Credit Event, the seller of protection would pay the par (or other agreed-upon) value of the referenced security (or basket of securities) to the counterparty.
During the six months ended June 30, 2007, the Series entered into CDS contracts as a purchaser of protection. Periodic payments on such contracts are accrued daily and recorded as unrealized losses on swap contracts. Upon payment, such amounts are recorded as realized losses on swap contracts. Upfront payments made or received in connection with CDS contracts are amortized over the expected life of the CDS contracts as realized losses (gains) on swap contracts. The change in value of CDS contracts is recorded as unrealized appreciation or depreciation daily. A realized gain or loss is recorded upon a Credit Event or the maturity or termination of the agreement. For the six months ended June 30, 2007, the Series did not enter into any CDS contracts as a seller of protection.
Credit default swaps may involve greater risks than if the Series had invested in the referenced obligation directly. Credit default swaps are subject to general market risk, liquidity risk, counterparty risk and credit risk. If the Series enters into a CDS contract as a purchaser of protection and no credit event occurs, its exposure is limited to the periodic payments previously made to the counterparty.
Because there is no organized market for swap contracts, the value of open swaps may differ from that which would be realized in the event the Series terminated its position in the agreement. Risks of entering into these agreements include the potential inability of the counterparty to meet the terms of the contracts. This type of risk is generally limited to the amount of favorable movements in the value of the underlying security, instrument, or basket of instruments, if any, at the day of default. Risks also arise from potential losses from adverse market movements and such losses could exceed the unrealized amounts shown above.
11. Credit and Market Risk
Some countries in which the Series may invest require governmental approval for the repatriation of investment income, capital or the proceeds of sales of securities by foreign investors. In addition, if there is deterioration in a country’s balance of payments or for other reasons, a country may impose temporary restrictions on foreign capital remittances abroad.
The securities exchanges of certain foreign markets are substantially smaller, less liquid and more volatile than the major securities markets in the United States. Consequently, acquisition and disposition of securities by the Series may be inhibited. In addition, a significant portion of the aggregate market value of securities listed on the major securities exchanges in emerging markets are held by a smaller number of investors. This may limit the number of shares available for acquisition or disposition by the Series.
The Series invests in fixed income securities whose value is derived from underlying mortgages or consumer loans. Investors receive principal and interest payments as the underlying mortgages or consumer loans are paid back. Some of these securities are collateralized mortgage obligations (CMOs). CMOs are debt securities issued by U.S. government agencies or by financial institutions and other mortgage lenders, which are collateralized by a pool of mortgages held under an indenture. Prepayment of mortgages may shorten the stated maturity of the obligations and can result in a loss of premium, if any has been paid. Certain of these securities may be stripped (securities which provide only the principal or interest feature of the underlying security). The yield to maturity on an interest-only CMO is extremely sensitive not only to changes in prevailing interest rates, but also to the rate of principal payments (including prepayments) on the related underlying mortgage assets. A rapid rate of principal payments may have a material adverse affect on the Series’ yield to maturity. If the underlying mortgage assets experience greater than anticipated prepayments of principal, the Series may fail to fully recoup its initial investment in these securities even if the securities are rated in the highest rating categories.
The Series invests a portion of its assets in high yield fixed income securities, which carry ratings of BB or lower by Standard & Poor’s Ratings Group and/or Ba or lower by Moody’s Investors Service, Inc. Investments in these higher yielding securities are generally accompanied by a greater degree of credit risk than higher rated securities. Additionally, lower rated securities may be more susceptible to adverse economic and competitive industry conditions than investment-grade securities.
26
The Series may invest up to 10% of its total assets in illiquid securities, which may include securities with contractual restrictions on resale, securities exempt from registration under Rule 144A of the Securities Act of 1933 (the “Act”), as amended, and other securities which may not be readily marketable. The relative illiquidity of these securities may impair the Series from disposing of them in a timely manner and at a fair price when it is necessary or desirable to do so. While maintaining oversight, the Series’ Board of Trustees has delegated to DMC the day-to-day functions of determining whether individual securities are liquid for purposes of the Series’ limitation on investments in illiquid assets. Rule 144A and illiquid securities have been identified on the Statement of Net Assets.
12. Contractual Obligations
The Series enters into contracts in the normal course of business that contain a variety of indemnifications. The Series’ maximum exposure under these arrangements is unknown. However, the Series has not had prior claims or losses pursuant to these contracts. Management has reviewed the Series’ existing contracts and expects the risk of loss to be remote.
13. Subsequent Event
The Series has a new securities lending agreement with Mellon Bank, N.A. as of August 9, 2007.
The Series files its complete schedule of portfolio holdings with the Securities and Exchange Commission (the Commission) for the first and third quarters of each fiscal year on Form N-Q. The Series’ Forms N-Q, as well as a description of the policies and procedures that the Series uses to determine how to vote proxies (if any) relating to portfolio securities is available without charge (i) upon request, by calling 800 523-1918; and (ii) on the Commission’s website at http://www.sec.gov. In addition, a description of the policies and procedures that the Series uses to determine how to vote proxies (if any) relating to portfolio securities is available without charge on the Delaware Investments® Funds’ website at http://www.delawareinvestments.com. The Series’ Forms N-Q may be reviewed and copied at the Commission’s Public Reference Room in Washington, DC; information on the operation of the Public Reference Room may be obtained by calling 800 SEC-0330.
Information (if any) regarding how the Series voted proxies relating to portfolio securities during the most recently disclosed 12-month period ended June 30 is available without charge (i) through the Delaware Investments® Funds’ website at http://www.delawareinvestments.com; and (ii) on the Commission’s website at http://www.sec.gov.
27
Delaware VIP Trust — Delaware VIP Diversified Income Series
Other Series Information
Board Consideration of Delaware VIP Diversified Income Series Investment Advisory Agreement
At a meeting held on May 16-17, 2007 (Annual Meeting), the Board of Trustees (Board), including a majority of disinterested or independent Trustees, approved the renewal of the Investment Advisory Agreement for the VIP Diversified Income Series (Series). In making its decision, the Board considered information furnished throughout the year at regular Board meetings, including reports detailing Series performance, investment strategies and expenses, as well as information prepared specifically in connection with the renewal of the investment advisory contracts. Information furnished specifically in connection with the renewal of the Investment Advisory Agreement with Delaware Management Company (DMC) included materials provided by DMC and its affiliates (Delaware Investments) concerning, among other things, the level of services provided to the Series, the costs of such services to the Series, economies of scale and the financial condition and profitability of Delaware Investments. In addition, in connection with the Meeting, the Board separately received and reviewed in mid-January 2007 independent historical and comparative reports prepared by Lipper Inc. (Lipper), an independent statistical compilation organization. The Lipper reports compared the Series’ investment performance and expenses with those of other comparable mutual funds. The Board requested and received certain information regarding management’s policy with respect to advisory fee levels and its philosophy with respect to breakpoints; the structure of portfolio manager compensation; the investment manager’s profitability; and any constraints or limitations on the availability of securities in certain investment styles which might inhibit DMC’s ability to fully invest in accordance with the Series’ policies.
In considering information relating to the approval of the Series’ advisory agreement, the independent Trustees received assistance and advice from and met separately with independent counsel. While attention was given to all information furnished, the following discusses under separate headings the primary factors taken into account by the Board in its contract renewal considerations.
NATURE, EXTENT AND QUALITY OF SERVICE. Consideration was given to the services provided by Delaware Investments to the Series and its shareholders. In reviewing the nature, extent and quality of services, the Board emphasized reports furnished to it throughout the year at regular Board meetings covering matters such as the relative performance of the Series, compliance of portfolio managers with the investment policies, strategies and restrictions for the Series, the compliance of management personnel with the Code of Ethics adopted throughout the Delaware Investments® Family of Funds complex and the adherence to fair value pricing procedures as established by the Board. The Board noted that it was pleased with the current staffing of the Series’ investment advisor and the emphasis placed on research in the investment process. Favorable consideration was given to DMC’s efforts to maintain, and in some instances increase, financial and human resources committed to fund matters. The Board also considered the transfer agent and shareholder services provided to Series shareholders by Delaware Investments’ affiliate, Delaware Service Company, Inc. (DSC), noting DSC’s commitment to maintain a high level of service and the continuing expenditures by Delaware Investments to improve the delivery of shareholder services. During 2006, management conducted extensive research into alternatives that could further improve the quality and cost of delivering investment accounting services to the Fund. The Board was satisfied with the nature, extent and quality of the overall services provided by Delaware Investments.
INVESTMENT PERFORMANCE. The Board considered the investment performance of DMC and the Series. The Board placed significant emphasis on the investment performance of the Series in view of its importance to shareholders. While consideration was given to performance reports and discussions with portfolio managers at Board meetings throughout the year, particular weight was given to the Lipper reports furnished for the Annual Meeting. The Lipper reports prepared for the Series showed the investment performance of its Standard Class shares in comparison to a group of similar funds as selected by Lipper (Performance Universe). A fund with the best performance ranked first, and a fund with the poorest ranked last. The highest/best performing 25% of funds in the Performance Universe make up the first quartile; the next 25% - the second quartile; the next 25% - the third quartile; and the poorest/worst performing 25% of funds in the Performance Universe make up the fourth quartile. Comparative annualized performance for the Series was shown for the past one and three year periods ended December 31, 2006. The Board also considered comparative annualized performance for the Series for the same periods ended October 31, 2006. The performance comparison presented below is based upon the December 31, 2006 information. The Board noted its objective that the Series’ performance for the periods considered be at or above the median of its Performance Universe. The following paragraph summarizes the performance results for the Series and the Board’s view of such performance.
The Performance Universe for the Series consisted of the Series and all general bond funds underlying variable insurance products as selected by Lipper. The Lipper report comparison showed that the Series’ total return for the one year period was in the first quartile of its Performance Universe. The report further showed that the Series’ total return for the three year period was in the second quartile. The Board was satisfied with performance.
COMPARATIVE EXPENSES. The Board considered expense comparison data for the Delaware Investments Family of Funds as of October 31, 2006. Management provided the Board with information on pricing levels and fee structures for the Series. The Board focused particularly on the comparative analysis of the effective management fees and total expense ratios of the Series and the effective management fees and expense ratios of a group of similar funds as selected by Lipper (Expense Group). In reviewing comparative costs, the Series’ contractual management fee and the actual management fee incurred by the Series were compared with the contractual management fees (assuming all funds in the Expense Group were similar in size to the Series) and actual management fees (as reported by each fund) of other funds within the Expense Group, taking into account any applicable breakpoints and fee waivers. The Series’ total expenses were also compared with those of its Expense Group. The Lipper total expenses, for comparative consistency, were shown by Lipper for Standard Class shares which do not charge 12b-1 and non-12b-1 service fees. The Board also considered fees paid to Delaware Investments for non-management services. The Board noted its objective to limit the Series’ total expense ratio to an acceptable range as compared to the median of the Expense Group. The following paragraph summarizes the expense results for the Series and the Board’s view of such expenses.
The expense comparisons for the Series showed that its actual management fee was in the quartile with the second lowest expenses of its Expense Group and its total expenses were in the quartile with the second highest expenses of its Expense Group. The Board gave favorable consideration to the Series’ management fee, but noted that the Series’ total expenses were not in line with the Board’s stated objective. In evaluating total expenses, the Board considered fee waivers in place through April 2008 and recent initiatives implemented by management, such as the outsourcing of certain transfer agency services, creating an opportunity for a reduction in expenses. The Board was satisfied with management’s efforts to improve the Series’ total expense ratio and bring it in line with the Board’s objective.
28
MANAGEMENT PROFITABILITY. The Board considered the level of profits, if any, realized by Delaware Investments in connection with the operation of the Series. In this respect, the Board reviewed the Investment Management Profitability Analysis that addressed the overall profitability of Delaware Investments’ business in providing management and other services to each of the individual funds and the Delaware Investments® Family of Funds as a whole. Specific attention was given to the methodology followed in allocating costs for the purpose of determining profitability. Management stated that the level of profits of Delaware Investments, to a certain extent, reflected operational cost savings and efficiencies initiated by Delaware Investments. The Board considered Delaware Investments’ efforts to improve services provided to fund shareholders and to meet additional regulatory and compliance requirements resulting from recent Securities and Exchange Commission initiatives. The Board also considered the extent to which Delaware Investments might derive ancillary benefits from fund operations, including the potential for procuring additional business as a result of the prestige and visibility associated with its role as service provider to the Delaware Investments Family of Funds and the benefits from allocation of fund brokerage to improve trading efficiencies. The Board found that the level of management fees was reasonable in light of the services rendered and the profitability of Delaware Investments.
ECONOMIES OF SCALE. The Trustees considered whether economies of scale are realized by Delaware Investments as the Series’ assets increase and the extent to which any economies of scale are reflected in the level of management fees charged. The Trustees took into account the standardized advisory fee pricing and structure, approved by the Board and shareholders and again reviewed by the Board this year, which includes breakpoints. Breakpoints in the advisory fee occur when the advisory fee rate is reduced on assets in excess of specified levels. This results in a lower advisory fee than would otherwise be the case on all assets when those asset levels specified are exceeded. The Board noted that the fee under the Series’ management contract fell within the standard structure. The Board also noted that the Series’ assets exceeded the first breakpoint level. The Board believed that, given the extent to which economies of scale might be realized by the advisor and its affiliates, the schedule of fees under the Investment Advisory Agreement provides a sharing of benefits with the Series and its shareholders.
29
Delaware VIP Trust — Delaware VIP Emerging Markets Series
Disclosure of Series Expenses
For the Period January 1, 2007 to June 30, 2007
As a shareholder of the Series, you incur ongoing costs, including management fees; distribution and/or service (12b-1) fees; and other Series expenses. This Example is intended to help you understand your ongoing costs (in dollars) of investing in the Series and to compare these costs with the ongoing costs of investing in other mutual funds.
The Example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period from January 1, 2007 to June 30, 2007.
Actual Expenses
The first section of the table shown, “Actual Series Return,” provides information about actual account values and actual expenses. You may use the information in this section of the table, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first section under the heading entitled “Expenses Paid During Period” to estimate the expenses you paid on your account during the period.
Hypothetical Example for Comparison Purposes
The second section of the table shown, “Hypothetical 5% Return,” provides information about hypothetical account values and hypothetical expenses based on the Series’ actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Series’ actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Series and other funds. To do so, compare the 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs only. As a shareholder of the Series, you do not incur any transaction costs, such as sales charges (loads), redemption fees or exchange fees, but shareholders of other funds may incur such costs. Also, the fees related to the variable annuity investment or the deferred sales charge that could apply have not been included. Therefore, the second section of the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. The Series’ actual expenses shown in the table reflect fee waivers in effect. The expenses shown in the table assume reinvestment of all dividends and distributions.
Expense Analysis of an Investment of $1,000
|
| Beginning |
| Ending |
| Annualized |
| Expenses |
| |||
Actual Series Return |
|
|
|
|
|
|
|
|
| |||
Standard Class |
| $ | 1,000.00 |
| $ | 1,211.00 |
| 1.47 | % | $ | 8.06 |
|
Service Class |
| 1,000.00 |
| 1,209.40 |
| 1.72 | % | 9.42 |
| |||
|
|
|
|
|
|
|
|
|
| |||
Hypothetical 5% Return (5% return before expenses) |
|
|
|
|
| |||||||
Standard Class |
| $ | 1,000.00 |
| $ | 1,017.50 |
| 1.47 | % | $ | 7.35 |
|
Service Class |
| 1,000.00 |
| 1,016.27 |
| 1.72 | % | 8.60 |
|
* “Expenses Paid During Period” are equal to the Series’ annualized expense ratio, multiplied by the average account value over the period, multiplied by 181/365 (to reflect the one-half year period).
1
Delaware VIP Trust — Delaware VIP Emerging Markets Series
Country and Sector Allocations
As of June 30, 2007
Country and sector designations may be different than the country and sector designations presented in other Series materials.
Country |
| Percentage |
|
Common Stock |
| 91.59 | % |
Argentina |
| 1.97 | % |
Australia |
| 0.60 | % |
Bermuda |
| 0.51 | % |
Brazil |
| 10.90 | % |
Chile |
| 0.71 | % |
China |
| 10.20 | % |
Hungary |
| 1.42 | % |
Indonesia |
| 2.95 | % |
Israel |
| 1.87 | % |
Kazakhstan |
| 0.83 | % |
Luxembourg |
| 0.23 | % |
Malaysia |
| 3.92 | % |
Mexico |
| 5.22 | % |
Pakistan |
| 0.19 | % |
Panama |
| 0.22 | % |
Peru |
| 1.11 | % |
Philippines |
| 0.59 | % |
Poland |
| 1.16 | % |
Republic of Korea |
| 15.17 | % |
Russia |
| 6.35 | % |
South Africa |
| 6.65 | % |
Taiwan |
| 11.53 | % |
Thailand |
| 3.26 | % |
Turkey |
| 2.69 | % |
United Kingdom |
| 0.56 | % |
United States |
| 0.78 | % |
Preferred Stock |
| 6.00 | % |
Brazil |
| 2.94 | % |
Republic of Korea |
| 2.65 | % |
Russia |
| 0.41 | % |
Exchange Traded Funds |
| 0.36 | % |
Participation Notes |
| 0.36 | % |
Total Value of Securities |
| 98.31 | % |
Receivables and Other Assets Net of Liabilities |
| 1.69 | % |
Total Net Assets |
| 100.00 | % |
|
| Percentage |
|
Commercial Services |
| 0.95 | % |
Communications |
| 14.78 | % |
Consumer Durables |
| 2.68 | % |
Consumer Non-Durables |
| 4.24 | % |
Consumer Services |
| 3.25 | % |
Distribution Services |
| 0.74 | % |
Electronic Technology |
| 5.52 | % |
Energy Minerals |
| 15.77 | % |
Finance |
| 14.11 | % |
Industrial Services |
| 2.50 | % |
Miscellaneous |
| 0.36 | % |
Non-Energy Minerals |
| 10.38 | % |
Process Industries |
| 5.88 | % |
Producer Manufacturing |
| 2.47 | % |
Retail Trade |
| 1.85 | % |
Technology Services |
| 0.50 | % |
Transportation |
| 2.85 | % |
Utilities |
| 8.76 | % |
Total |
| 97.59 | % |
2
Delaware VIP Trust — Delaware VIP Emerging Markets Series
Statement of Net Assets
June 30, 2007 (Unaudited)
|
| Number of |
| Value |
| ||
| COMMON STOCK-91.59%S |
|
|
|
|
| |
| Argentina–1.97% |
|
|
|
|
| |
| Cresud ADR |
| 148,701 |
| $ | 3,180,714 |
|
† | Grupo Financiero Galicia ADR |
| 187,000 |
| 1,793,330 |
| |
| IRSA Inversiones y Representaciones GDR |
| 123,600 |
| 2,286,600 |
| |
† | Petrobras Energia Participaciones ADR |
| 202,200 |
| 2,193,870 |
| |
|
|
|
|
| 9,454,514 |
| |
| Australia–0.60% |
|
|
|
|
| |
† | Murchison Metals |
| 585,900 |
| 2,896,083 |
| |
|
|
|
|
| 2,896,083 |
| |
| Bermuda–0.51% |
|
|
|
|
| |
| Creditcorp |
| 40,000 |
| 2,446,800 |
| |
|
|
|
|
| 2,446,800 |
| |
| Brazil–10.90% |
|
|
|
|
| |
| AES Tiete |
| 41,468,000 |
| 1,579,999 |
| |
| Centrais Eletricas Brasileiras |
| 360,617,623 |
| 10,805,162 |
| |
| Cia de Concessoes Rodoviarias |
| 128,175 |
| 2,380,711 |
| |
| Cia Vale do Rio Doce ADR |
| 39,251 |
| 1,479,763 |
| |
| CPFL Energia |
| 251,100 |
| 5,058,317 |
| |
† | CPFL Energia ADR |
| 50,700 |
| 3,079,011 |
| |
† | CSU Cardsystem |
| 245,700 |
| 1,471,105 |
| |
| Energias do Brasil |
| 181,900 |
| 3,724,657 |
| |
† | Ez Tec Empreendimentos e Participacoes |
| 151,400 |
| 884,517 |
| |
| Industrias Romi |
| 28,463 |
| 264,851 |
| |
† | Inpar |
| 200,700 |
| 1,992,382 |
| |
| Petroleo Brasileiro ADR |
| 121,000 |
| 12,908,281 |
| |
| Tim Participacoes |
| 113,542,700 |
| 630,384 |
| |
† | Tim Participacoes ADR |
| 72,000 |
| 2,481,840 |
| |
| Votorantim Celulose e Papel ADR |
| 158,600 |
| 3,611,322 |
| |
|
|
|
|
| 52,352,302 |
| |
| Chile–0.71% |
|
|
|
|
| |
| Banco Santander ADR |
| 36,200 |
| 1,793,348 |
| |
† | Inversiones Aguas Metropolitanas |
| 237,618 |
| 299,527 |
| |
†# | Inversiones Aguas Metropolitanas 144A ADR |
| 51,717 |
| 1,305,813 |
| |
|
|
|
|
| 3,398,688 |
| |
| China–10.20%n |
|
|
|
|
| |
| China Merchants Holdings International |
| 463,908 |
| 2,245,616 |
| |
| China Mobil |
| 215,200 |
| 2,310,472 |
| |
| China Mobile ADR |
| 69,100 |
| 3,724,490 |
| |
| China Netcom Group ADR |
| 33,200 |
| 1,841,936 |
| |
| China Petroleum & Chemical ADR |
| 23,900 |
| 2,668,196 |
| |
† | China Properties Group |
| 2,730,000 |
| 1,141,690 |
| |
| China Telecom |
| 11,242,000 |
| 6,613,617 |
| |
| China Unicom |
| 3,327,021 |
| 5,727,146 |
| |
| China Unicom ADR |
| 163,100 |
| 2,810,213 |
| |
| CNPC |
| 3,393,600 |
| 1,913,978 |
| |
| Fountain Set Holdings |
| 2,959,200 |
| 1,139,144 |
| |
† | Hutchison Telecommunications International |
| 821,000 |
| 1,058,379 |
| |
| New World China Land |
| 357,000 |
| 303,618 |
| |
† | Pacific Textiles Holdings |
| 666,900 |
| 413,657 |
| |
| PetroChina |
| 2,128,000 |
| 3,135,175 |
| |
| PetroChina ADR |
| 28,300 |
| $ | 4,207,644 |
|
† | Star Cruises |
| 2,885,000 |
| 1,298,250 |
| |
† | Stella International Holdings |
| 112,000 |
| 222,018 |
| |
| Texwinca Holdings |
| 2,414,000 |
| 1,997,465 |
| |
† | Tom Group |
| 16,384,000 |
| 1,843,912 |
| |
† | Tom Online ADR |
| 166,900 |
| 2,395,015 |
| |
|
|
|
|
| 49,011,631 |
| |
| Hungary–1.42% |
|
|
|
|
| |
| Magyar Telekom Telecommunications |
| 415,992 |
| 2,268,010 |
| |
| OTP Bank |
| 78,680 |
| 4,569,905 |
| |
|
|
|
|
| 6,837,915 |
| |
| Indonesia–2.95% |
|
|
|
|
| |
| Bank Mandiri Persero |
| 7,779,720 |
| 2,690,811 |
| |
| Bumi Resources |
| 11,449,037 |
| 2,882,833 |
| |
| Gudang Garam |
| 1,896,264 |
| 2,340,145 |
| |
| Indosat |
| 2,566,800 |
| 1,846,607 |
| |
| Medco Energi Internasional |
| 180,500 |
| 70,422 |
| |
| Panin Life |
| 42,733,000 |
| 969,586 |
| |
| Tambang Batubara Bukit Asam |
| 4,622,625 |
| 3,351,190 |
| |
|
|
|
|
| 14,151,594 |
| |
| Israel–1.87% |
|
|
|
|
| |
| Bezeq Israeli Telecommunication |
| 804,022 |
| 1,315,139 |
| |
† | Cellcom Israel |
| 90,000 |
| 2,382,300 |
| |
† | Delek Group |
| 3,728 |
| 882,024 |
| |
| Israel Chemicals |
| 555,142 |
| 4,399,880 |
| |
|
|
|
|
| 8,979,343 |
| |
| Kazakhstan–0.83% |
|
|
|
|
| |
† | KazMunaiGas Exploration Production GDR |
| 181,186 |
| 3,965,256 |
| |
|
|
|
|
| 3,965,256 |
| |
| Luxembourg–0.23% |
|
|
|
|
| |
† | Ternium ADR |
| 37,200 |
| 1,126,788 |
| |
|
|
|
|
| 1,126,788 |
| |
| Malaysia–3.92% |
|
|
|
|
| |
| Eastern & Oriental |
| 3,811,511 |
| 3,311,957 |
| |
| Hong Leong Bank |
| 2,884,417 |
| 5,305,155 |
| |
| KLCC Property Holdings |
| 1,766,200 |
| 1,862,120 |
| |
| Media Prima |
| 1,612,000 |
| 1,410,062 |
| |
| MISC - Foreign |
| 404,412 |
| 1,159,646 |
| |
| Oriental Holdings |
| 1,305,900 |
| 2,174,924 |
| |
| Tanjong |
| 379,610 |
| 2,122,078 |
| |
| UEM World |
| 1,347,600 |
| 1,475,432 |
| |
|
|
|
|
| 18,821,374 |
| |
| Mexico–5.22% |
|
|
|
|
| |
| Cemex ADR |
| 160,385 |
| 5,918,207 |
| |
| Controladora Comercial Mexicana |
| 794,200 |
| 2,043,573 |
| |
† | Dine Series B |
| 98,200 |
| 97,164 |
| |
| Grupo Aeroportuario del Sureste ADR |
| 46,600 |
| 2,455,354 |
| |
† | Grupo Kuo Series B |
| 98,200 |
| 91,801 |
| |
| Grupo Mexico Series B |
| 454,389 |
| 2,792,617 |
| |
† | Grupo Simec ADR |
| 60,900 |
| 760,032 |
| |
| Grupo Televisa ADR |
| 348,900 |
| 9,633,128 |
| |
| Organizacion Soriana Series B |
| 399,531 |
| 1,273,958 |
| |
|
|
|
|
| 25,065,834 |
|
3
|
|
| Number of |
| Value |
| |
| COMMON STOCK (continued) |
|
|
|
|
| |
| Pakistan–0.19% |
|
|
|
|
| |
| Oil & Gas Development GDR |
| 47,167 |
| $ | 931,548 |
|
|
|
|
|
| 931,548 |
| |
| Panama–0.22% |
|
|
|
|
| |
† | Intergroup Financial Services |
| 68,000 |
| 1,071,680 |
| |
|
|
|
|
| 1,071,680 |
| |
| Peru–1.11% |
|
|
|
|
| |
| Cia de Minas Buenaventura ADR |
| 142,400 |
| 5,334,304 |
| |
|
|
|
|
| 5,334,304 |
| |
| Philippines–0.59% |
|
|
|
|
| |
| Manila Water |
| 4,929,900 |
| 1,333,271 |
| |
| Philippine Long Distance Telephone ADR |
| 26,400 |
| 1,510,080 |
| |
|
|
|
|
| 2,843,351 |
| |
| Poland–1.16% |
|
|
|
|
| |
| Polski Koncern Naftowy Orlen |
| 147,560 |
| 2,912,386 |
| |
| Telekomunikacja Polska |
| 304,991 |
| 2,670,511 |
| |
|
|
|
|
| 5,582,897 |
| |
| Republic of Korea–15.17% |
|
|
|
|
| |
| Basic House |
| 29,330 |
| 425,419 |
| |
| Cheil Industries |
| 28,260 |
| 1,358,173 |
| |
| CJ |
| 65,221 |
| 7,906,883 |
| |
| Daelim Industrial |
| 30,204 |
| 4,495,386 |
| |
| GS Holdings |
| 50,000 |
| 2,430,055 |
| |
| Handsome |
| 56,780 |
| 958,782 |
| |
| Hyundai Elevator |
| 18,100 |
| 1,953,321 |
| |
† | Hyundai Engineering & Construction |
| 30,000 |
| 2,195,168 |
| |
| Kookmin Bank |
| 61,489 |
| 5,397,816 |
| |
| Korea Electric Power |
| 107,230 |
| 4,758,828 |
| |
| Korea Gas |
| 91,356 |
| 5,913,411 |
| |
| KT |
| 112,200 |
| 5,246,582 |
| |
| KT ADR |
| 174,527 |
| 4,094,403 |
| |
| Lotte Confectionery |
| 2,362 |
| 3,144,741 |
| |
| Lotte Shopping |
| 3,900 |
| 1,519,732 |
| |
| POSCO ADR |
| 55,800 |
| 6,696,000 |
| |
| Samsung |
| 42,000 |
| 2,059,431 |
| |
† | Samsung Card |
| 4,040 |
| 248,387 |
| |
| Samsung Electronics |
| 3,725 |
| 2,282,141 |
| |
## | SK |
| 31,625 |
| 4,627,598 |
| |
| SK Telecom ADR |
| 165,800 |
| 4,534,630 |
| |
| Woori Finance Holdings |
| 25,000 |
| 633,222 |
| |
|
|
|
|
| 72,880,109 |
| |
| Russia–6.35% |
|
|
|
|
| |
| Gazprom ADR |
| 200,405 |
| 8,278,731 |
| |
| LUKOIL ADR |
| 27,664 |
| 2,121,829 |
| |
| LUKOIL ADR (London International Exchange) |
| 148,647 |
| 11,326,901 |
| |
| Mobile Telesystems ADR |
| 70,100 |
| 4,245,957 |
| |
| NovaTek GDR |
| 68,095 |
| 3,554,559 |
| |
† | Unified Energy System GDR |
| 7,037 |
| 949,688 |
| |
|
|
|
|
| 30,477,665 |
| |
| South Africa–6.65% |
|
|
|
|
| |
| Barloworld |
| 117,710 |
| 3,281,011 |
| |
| Bell Equipment |
| 10,603 |
| 60,909 |
| |
| Gold Fields ADR |
| 106,500 |
| 1,672,050 |
| |
| JD Group |
| 74,200 |
| 745,297 |
| |
| Liberty Group |
| 220,684 |
| 2,794,615 |
| |
| Mittal Steel South Africa |
| 304,862 |
| 5,495,417 |
| |
| Remgro |
| 75,408 |
| 2,015,475 |
| |
| Sasol |
| 95,871 |
| 3,608,253 |
| |
| Standard Bank Group |
| 256,893 |
| 3,573,007 |
| |
| Steinhoff International Holdings |
| 418,714 |
| 1,434,301 |
| |
| Sun International |
| 48,300 |
| 1,001,181 |
| |
| Telkom |
| 197,835 |
| 4,993,741 |
| |
| Tiger Brands |
| 49,997 |
| 1,283,952 |
| |
|
|
|
|
| 31,959,209 |
| |
| Taiwan–11.53% |
|
|
|
|
| |
| Cathay Financial Holding |
| 1,931,188 |
| 4,630,369 |
| |
† | China Life Insurance |
| 4,464,000 |
| 2,386,072 |
| |
| China Steel |
| 1,467,000 |
| 1,792,303 |
| |
| Chunghwa Telecom |
| 1,224,394 |
| 2,344,823 |
| |
| Chunghwa Telecom ADR |
| 122,600 |
| 2,312,236 |
| |
| Evergreen Marine |
| 8,053,000 |
| 5,349,810 |
| |
† | First Financial Holding |
| 4,120,000 |
| 2,944,655 |
| |
| Formosa Chemicals & Fibre |
| 2,255,330 |
| 5,221,565 |
| |
| MediaTek |
| 325,000 |
| 5,082,468 |
| |
| Mega Financial Holding |
| 3,646,556 |
| 2,478,188 |
| |
| President Chain Store |
| 1,139,549 |
| 3,257,843 |
| |
| Synnex Technology International |
| 977,160 |
| 1,480,365 |
| |
| Taiwan Semiconductor Manufacturing |
| 2,725,586 |
| 5,902,384 |
| |
† | United Microelectronics |
| 10,486,367 |
| 6,357,803 |
| |
| Wah Lee Industrial |
| 212,000 |
| 481,759 |
| |
† | Walsin Lihwa |
| 5,644,000 |
| 3,344,337 |
| |
|
|
|
|
| 55,366,980 |
| |
| Thailand–3.26% |
|
|
|
|
| |
| Advanced Info Service Class F |
| 804,800 |
| 2,016,371 |
| |
| Bangkok Bank |
| 656,900 |
| 2,321,269 |
| |
| Charoen Pokphand Foods - Foreign |
| 9,670,400 |
| 1,456,512 |
| |
| Kasikornbank - Foreign |
| 194,537 |
| 431,052 |
| |
| Kasikornbank NVDR |
| 1,200,363 |
| 2,572,827 |
| |
| Land & Houses NVDR |
| 6,629,101 |
| 1,305,659 |
| |
| PTT Exploration & Production |
| 587,900 |
| 1,839,050 |
| |
| Siam Cement NVDR |
| 492,593 |
| 3,709,608 |
| |
|
|
|
|
| 15,652,348 |
| |
| Turkey–2.69% |
|
|
|
|
| |
| Aygaz |
| 286,245 |
| 1,199,502 |
| |
| Enka Insaat Ve Sanayi |
| 152,658 |
| 1,744,663 |
| |
| Turk Sise ve Cam Fabrikalari |
| 418,123 |
| 1,720,277 |
| |
| Turkcell Iletisim Hizmet |
| 200,400 |
| 1,351,269 |
| |
| Turkiye Is Bankasi Class C |
| 884,384 |
| 4,143,970 |
| |
| Yazicilar Holding |
| 353,282 |
| 2,772,423 |
| |
|
|
|
|
| 12,932,104 |
| |
| United Kingdom–0.56% |
|
|
|
|
| |
† | Dev Property Development |
| 449,300 |
| 814,271 |
| |
† | Griffin Mining |
| 836,768 |
| 1,856,747 |
| |
|
|
|
|
| 2,671,018 |
| |
| United States–0.78% |
|
|
|
|
| |
† | Applied Micro Circuits |
| 559,100 |
| 1,397,750 |
| |
† | BMB Munai |
| 12,900 |
| 78,174 |
| |
4
|
|
| Number of |
| Value |
| |
| COMMON STOCK (continued) |
|
|
|
|
| |
| United States (continued) |
|
|
|
|
| |
| ConocoPhillips |
| 28,800 |
| $ | 2,260,800 |
|
|
|
|
|
| 3,736,724 |
| |
| Total Common Stock |
|
|
| 439,948,059 |
| |
|
|
|
|
|
|
| |
| PREFERRED STOCK–6.00% |
|
|
|
|
| |
| Brazil–2.94% |
|
|
|
|
| |
| Banco Sofisa |
| 13,600 |
| 100,111 |
| |
| Braskem |
| 146,200 |
| 1,318,722 |
| |
| Centrais Elecricas Brasileiras Class B |
| 97,749,366 |
| 2,888,320 |
| |
| Cia Vale do Rio Doce Class A |
| 230,640 |
| 8,626,359 |
| |
| LA Fonte Participacoes |
| 1,875,000 |
| 1,205,256 |
| |
|
|
|
|
| 14,138,768 |
| |
| Republic of Korea–2.65% |
|
|
|
|
| |
| CJ |
| 50,000 |
| 2,792,669 |
| |
| Hyundai Motor |
| 105,222 |
| 5,039,874 |
| |
| Samsung Electronics |
| 10,395 |
| 4,866,429 |
| |
|
|
|
|
| 12,698,972 |
| |
| Russia–0.41% |
|
|
|
|
| |
| Transneft |
| 1,203 |
| 1,972,920 |
| |
|
|
|
|
| 1,972,920 |
| |
| Total Preferred Stock |
|
|
| 28,810,660 |
| |
|
|
|
|
|
|
| |
| EXCHANGE TRADED FUNDS–0.36% |
|
|
|
|
| |
| iShares MSCI Taiwan Index Fund |
| 107,700 |
| 1,718,892 |
| |
| Total Exchange Traded Funds |
|
|
| 1,718,892 |
| |
|
|
|
|
|
|
| |
| PARTICIPATION NOTES–0.36% |
|
|
|
|
| |
| India–0.36% |
|
|
|
|
| |
## | Lehman CW12 Hindalco Industries |
| 433,100 |
| 1,711,560 |
| |
| Total Participation Notes |
|
|
| 1,711,560 |
| |
|
|
|
|
|
|
| |
TOTAL VALUE OF SECURITIES–98.31% (cost $382,411,061) |
| $ | 472,189,171 |
| |||
RECEIVABLES AND OTHER ASSETS NET OF LIABILITIES–1.69% |
| 8,145,355 |
| ||||
NET ASSETS APPLICABLE TO 19,804,447 SHARES OUTSTANDING–100.00% |
| $ | 480,334,526 |
| |||
NET ASSET VALUE-DELAWARE VIP EMERGING MARKETS SERIES STANDARD CLASS ($259,686,418 / 10,697,631 Shares) |
| $ | 24.28 |
| |||
NET ASSET VALUE-DELAWARE VIP EMERGING MARKETS SERIES SERVICE CLASS ($220,648,108 / 9,106,816 Shares) |
| $ | 24.23 |
| |||
COMPONENTS OF NET ASSETS AT JUNE 30, 2007: |
|
|
| ||||
Shares of beneficial interest (unlimited authorization–no par) |
| $ | 343,416,679 |
| |||
Undistributed net investment income |
| 2,047,140 |
| ||||
Accumulated net realized gain on investments |
| 45,075,180 |
| ||||
Net unrealized appreciation of investments and foreign currencies |
| 89,795,527 |
| ||||
Total net assets |
| $ | 480,334,526 |
|
† | Non-income producing security for the period ended June 30, 2007. |
# | Security exempt from registration under Rule 144A of the Securities Act of 1933, as amended. At June 30, 2007, the aggregate amount of Rule 144A securities equaled $1,305,813, which represented 0.27% of the Series’ net assets. See Note 9 in “Notes to Financial Statements.” |
## | Security is being fair valued in accordance with the Series’ fair valuation policy. At June 30, 2007, the aggregate amount of fair valued securities equaled $6,339,158, which represented 1.32% of the Series’ net assets. See Note 1 in “Notes to Financial Statements.” |
S | Securities have been classified by country of origin. Classification by type of business has been presented on page 2 in “Country and Sector Allocations.” |
n | Securities listed and traded on the Hong Kong Stock Exchange. These securities have significant business operations in China. |
Summary of Abbreviations:
ADR – American Depositary Receipts
GDR – Global Depositary Receipts
NVDR – Non-Voting Depositary Receipts
See accompanying notes
5
Delaware VIP Trust —
Delaware VIP Emerging Markets Series
Statement of Operations
Six Months Ended June 30, 2007 (Unaudited)
INVESTMENT INCOME: |
|
|
| |
Dividends |
| $ | 7,351,039 |
|
Interest |
| 58,235 |
| |
Foreign tax withheld |
| (587,602 | ) | |
|
| 6,821,672 |
| |
|
|
|
| |
EXPENSES: |
|
|
| |
Management fees |
| 2,450,170 |
| |
Custodian fees |
| 285,910 |
| |
Distribution expenses – Service Class |
| 267,905 |
| |
Accounting and administration expenses |
| 78,405 |
| |
Legal fees |
| 27,780 |
| |
Reports and statements to shareholders |
| 24,214 |
| |
Dividend disbursing and transfer agent fees and expenses |
| 19,601 |
| |
Audit and tax |
| 15,066 |
| |
Trustees’ fees and benefits |
| 9,382 |
| |
Pricing fees |
| 6,838 |
| |
Insurance fees |
| 5,737 |
| |
Consulting fees |
| 3,269 |
| |
Registration fees |
| 1,260 |
| |
Taxes (other than taxes on income) |
| 1,083 |
| |
Dues and services |
| 978 |
| |
Trustees’ expenses |
| 606 |
| |
|
| 3,198,204 |
| |
Less expenses absorbed or waived |
| (40,214 | ) | |
Less waiver of distribution expenses – Service Class |
| (44,651 | ) | |
Less expense paid indirectly |
| (8,205 | ) | |
Total operating expenses |
| 3,105,134 |
| |
|
|
|
| |
NET INVESTMENT INCOME |
| 3,716,538 |
| |
|
|
|
| |
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND FOREIGN CURRENCIES: |
|
|
| |
Net realized gain (loss) on: |
|
|
| |
Investments |
| 45,233,611 |
| |
Foreign currencies |
| (491,338 | ) | |
Net realized gain |
| 44,742,273 |
| |
Net change in unrealized appreciation/depreciation of investments and foreign currencies |
| 31,002,353 |
| |
|
|
|
| |
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS AND FOREIGN CURRENCIES |
| 75,744,626 |
| |
|
|
|
| |
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS |
| $ | 79,461,164 |
|
Delaware VIP Trust —
Delaware VIP Emerging Markets Series
Statements of Changes in Net Assets
|
| Six Months |
| Year |
| ||
|
| (Unaudited) |
|
|
| ||
INCREASE IN NET ASSETS FROM OPERATIONS: |
|
|
|
|
| ||
Net investment income |
| $ | 3,716,538 |
| $ | 6,174,862 |
|
Net realized gain on investments and foreign currencies |
| 44,742,273 |
| 29,823,647 |
| ||
Net change in unrealized appreciation/depreciation of investments and foreign currencies |
| 31,002,353 |
| 30,008,281 |
| ||
Net increase in net assets resulting from operations |
| 79,461,164 |
| 66,006,790 |
| ||
|
|
|
|
|
| ||
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM: |
|
|
|
|
| ||
Net investment income: |
|
|
|
|
| ||
Standard Class |
| (3,783,511 | ) | (1,865,697 | ) | ||
Service Class |
| (2,797,530 | ) | (1,148,824 | ) | ||
Net realized gain on investments: |
|
|
|
|
| ||
Standard Class |
| (16,362,104 | ) | (3,946,372 | ) | ||
Service Class |
| (13,663,407 | ) | (2,908,845 | ) | ||
|
| (36,606,552 | ) | (9,869,738 | ) | ||
CAPITAL SHARE TRANSACTIONS: |
|
|
|
|
| ||
Proceeds from shares sold: |
|
|
|
|
| ||
Standard Class |
| 52,646,754 |
| 90,207,572 |
| ||
Service Class |
| 47,110,935 |
| 89,316,167 |
| ||
Net asset value of shares issued upon reinvestment of dividends and distributions: |
|
|
|
|
| ||
Standard Class |
| 20,145,615 |
| 5,812,069 |
| ||
Service Class |
| 16,460,937 |
| 4,057,669 |
| ||
|
| 136,364,241 |
| 189,393,477 |
| ||
Cost of shares repurchased: |
|
|
|
|
| ||
Standard Class |
| (25,566,878 | ) | (58,049,374 | ) | ||
Service Class |
| (20,626,852 | ) | (39,040,035 | ) | ||
|
| (46,193,730 | ) | (97,089,409 | ) | ||
Increase in net assets derived from capital share transactions |
| 90,170,511 |
| 92,304,068 |
| ||
|
|
|
|
|
| ||
NET INCREASE IN NET ASSETS |
| 133,025,123 |
| 148,441,120 |
| ||
|
|
|
|
|
| ||
NET ASSETS: |
|
|
|
|
| ||
Beginning of period |
| 347,309,403 |
| 198,868,283 |
| ||
End of period (including undistributed net investment income of $2,047,140 and $5,402,981, respectively) |
| $ | 480,334,526 |
| $ | 347,309,403 |
|
See accompanying notes
6
Delaware VIP Trust — Delaware VIP Emerging Markets Series
Financial Highlights
Selected data for each share of the Series outstanding throughout each period were as follows:
|
| Delaware VIP Emerging Markets Series Standard Class |
| ||||||||||||||||
|
| Six Months |
| Year Ended |
| ||||||||||||||
|
| 6/30/07(1) |
| 12/31/06 |
| 12/31/05 |
| 12/31/04 |
| 12/31/03 |
| 12/31/02 |
| ||||||
|
| (Unaudited) |
|
|
|
|
|
|
|
|
|
|
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Net asset value, beginning of period |
| $ | 22.240 |
| $ | 18.200 |
| $ | 14.500 |
| $ | 11.180 |
| $ | 6.770 |
| $ | 6.610 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Income from investment operations: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Net investment income(2) |
| 0.222 |
| 0.457 |
| 0.412 |
| 0.263 |
| 0.210 |
| 0.215 |
| ||||||
Net realized and unrealized gain on investments and foreign currencies |
| 4.049 |
| 4.340 |
| 3.519 |
| 3.388 |
| 4.410 |
| 0.137 |
| ||||||
Total from investment operations |
| 4.271 |
| 4.797 |
| 3.931 |
| 3.651 |
| 4.620 |
| 0.352 |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Less dividends and distributions from: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Net investment income |
| (0.419 | ) | (0.243 | ) | (0.051 | ) | (0.331 | ) | (0.210 | ) | (0.192 | ) | ||||||
Net realized gain on investments |
| (1.812 | ) | (0.514 | ) | (0.180 | ) | — |
| — |
| — |
| ||||||
Total dividends and distributions |
| (2.231 | ) | (0.757 | ) | (0.231 | ) | (0.331 | ) | (0.210 | ) | (0.192 | ) | ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Net asset value, end of period |
| $ | 24.280 |
| $ | 22.240 |
| $ | 18.200 |
| $ | 14.500 |
| $ | 11.180 |
| $ | 6.770 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Total return(3) |
| 21.10 | % | 27.13 | % | 27.49 | % | 33.47 | % | 70.54 | % | 5.17 | % | ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Ratios and supplemental data: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Net assets, end of period (000 omitted) |
| $ | 259,687 |
| $ | 189,572 |
| $ | 120,292 |
| $ | 36,966 |
| $ | 14,304 |
| $ | 12,651 |
|
Ratio of expenses to average net assets |
| 1.47 | % | 1.51 | % | 1.47 | % | 1.50 | % | 1.49 | % | 1.43 | % | ||||||
Ratio of expenses to average net assets prior to expense limitation and expenses paid indirectly |
| 1.49 | % | 1.56 | % | 1.57 | % | 1.63 | % | 1.58 | % | 1.46 | % | ||||||
Ratio of net investment income to average net assets |
| 2.01 | % | 2.37 | % | 2.55 | % | 2.15 | % | 2.64 | % | 3.15 | % | ||||||
Ratio of net investment income to average net assets prior to expense limitation and expenses paid indirectly |
| 1.99 | % | 2.32 | % | 2.45 | % | 2.02 | % | 2.55 | % | 3.12 | % | ||||||
Portfolio turnover |
| 111 | % | 67 | % | 18 | % | 34 | % | 71 | % | 39 | % |
(1) | Ratios and portfolio turnover have been annualized and total return has not been annualized. |
(2) | The average shares outstanding method has been applied for per share information. |
(3) | Total investment return is based on the change in net asset value of a share during the period and assumes reinvestment of dividends and distributions at net asset value. Total investment return reflects waivers and payment of fees by the manager. Performance would have been lower had the expense limitation not been in effect. |
See accompanying notes
7
Selected data for each share of the Series outstanding throughout each period were as follows:
|
| Delaware VIP Emerging Markets Series Service Class |
| ||||||||||||||||
|
| Six Months |
| Year Ended |
| ||||||||||||||
|
| 6/30/07(1) |
| 12/31/06 |
| 12/31/05 |
| 12/31/04 |
| 12/31/03 |
| 12/31/02 |
| ||||||
|
| (Unaudited) |
|
|
|
|
|
|
|
|
|
|
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Net asset value, beginning of period |
| $ | 22.180 |
| $ | 18.160 |
| $ | 14.480 |
| $ | 11.170 |
| $ | 6.770 |
| $ | 6.610 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Income from investment operations: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Net investment income(2) |
| 0.195 |
| 0.409 |
| 0.372 |
| 0.231 |
| 0.197 |
| 0.204 |
| ||||||
Net realized and unrealized gain on investments and foreign currencies |
| 4.038 |
| 4.328 |
| 3.507 |
| 3.397 |
| 4.402 |
| 0.138 |
| ||||||
Total from investment operations |
| 4.233 |
| 4.737 |
| 3.879 |
| 3.628 |
| 4.599 |
| 0.342 |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Less dividends and distributions from: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Net investment income |
| (0.371 | ) | (0.203 | ) | (0.019 | ) | (0.318 | ) | (0.199 | ) | (0.182 | ) | ||||||
Net realized gain on investments |
| (1.812 | ) | (0.514 | ) | (0.180 | ) | — |
| — |
| — |
| ||||||
Total dividends and distributions |
| (2.183 | ) | (0.717 | ) | (0.199 | ) | (0.318 | ) | (0.199 | ) | (0.182 | ) | ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Net asset value, end of period |
| $ | 24.230 |
| $ | 22.180 |
| $ | 18.160 |
| $ | 14.480 |
| $ | 11.170 |
| $ | 6.770 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Total return(3) |
| 20.94 | % | 26.81 | % | 27.11 | % | 33.26 | % | 70.10 | % | 5.03 | % | ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Ratios and supplemental data: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Net assets, end of period (000 omitted) |
| $ | 220,648 |
| $ | 157,737 |
| $ | 78,576 |
| $ | 12,045 |
| $ | 144 |
| $ | 652 |
|
Ratio of expenses to average net assets |
| 1.72 | % | 1.76 | % | 1.72 | % | 1.75 | % | 1.71 | % | 1.58 | % | ||||||
Ratio of expenses to average net assets prior to expense limitation and expenses paid indirectly |
| 1.79 | % | 1.86 | % | 1.87 | % | 1.93 | % | 1.83 | % | 1.61 | % | ||||||
Ratio of net investment income to average net assets |
| 1.76 | % | 2.12 | % | 2.30 | % | 1.90 | % | 2.42 | % | 3.00 | % | ||||||
Ratio of net investment income to average net assets prior to expense limitation and expenses paid indirectly |
| 1.69 | % | 2.02 | % | 2.15 | % | 1.72 | % | 2.30 | % | 2.97 | % | ||||||
Portfolio turnover |
| 111 | % | 67 | % | 18 | % | 34 | % | 71 | % | 39 | % |
(1) | Ratios and portfolio turnover have been annualized and total return has not been annualized. |
(2) | The average shares outstanding method has been applied for per share information. |
(3) | Total investment return is based on the change in net asset value of a share during the period and assumes reinvestment of dividends and distributions at net asset value. Total investment return reflects waivers and payment of fees by the manager and distributor, as applicable. Performance would have been lower had the expense limitation and waiver not been in effect. |
See accompanying notes
8
Delaware VIP Trust — Delaware VIP Emerging Markets Series
Notes to Financial Statements
June 30, 2007 (Unaudited)
Delaware VIP Trust (the “Trust”) is organized as a Delaware statutory trust and offers 14 series: Delaware VIP Balanced Series, Delaware VIP Capital Reserves Series, Delaware VIP Cash Reserve Series, Delaware VIP Diversified Income Series, Delaware VIP Emerging Markets Series, Delaware VIP Growth Opportunities Series, Delaware VIP High Yield Series, Delaware VIP International Value Equity Series, Delaware VIP REIT Series, Delaware VIP Select Growth Series, Delaware VIP Small Cap Value Series, Delaware VIP Trend Series, Delaware VIP U.S. Growth Series and Delaware VIP Value Series. These financial statements and the related notes pertain to Delaware VIP Emerging Markets Series (the “Series”). The Trust is an open-end investment company. The Series is considered non-diversified under the Investment Company Act of 1940, as amended, and offers Standard Class and Service Class shares. The Standard Class shares do not carry a 12b-1 fee and the Service Class shares carry a 12b-1 fee. The shares of the Series are sold only to separate accounts of life insurance companies.
The investment objective of the Series is to seek long-term capital appreciation.
1. Significant Accounting Policies
The following accounting policies are in accordance with U.S. generally accepted accounting principles and are consistently followed by the Series.
Security Valuation—Equity securities, except those traded on the Nasdaq Stock Market, Inc. (Nasdaq), are valued at the last quoted sales price as of the time of the regular close of the New York Stock Exchange (NYSE) on the valuation date. Securities traded on the Nasdaq are valued in accordance with the Nasdaq Official Closing Price, which may not be the last sales price. If on a particular day an equity security does not trade, then the mean between the bid and asked prices will be used. Securities listed on a foreign exchange are valued at the last quoted sales price before the Series is valued. Short-term debt securities having less than 60 days to maturity are valued at amortized cost, which approximates market value. Foreign currency exchange contracts are valued at the mean between the bid and asked prices of the contracts and are marked-to-market daily. Interpolated values are derived when the settlement date of the contract is an interim date for which quotations are not available. Other securities and assets for which market quotations are not readily available are valued at fair value as determined in good faith under the direction of the Series’ Board of Trustees. In determining whether market quotations are readily available or fair valuation will be used, various factors will be taken into consideration, such as market closures, aftermarket trading, or significant events after local market trading (e.g., government actions or pronouncements, trading volume or volatility on markets, exchanges among dealers, or news events).
In September 2006, the Financial Accounting Standards Board (FASB) issued FASB Statement No. 157, “Fair Value Measurements” (Statement 157). Statement 157 establishes a framework for measuring fair value in generally accepted accounting principles, clarifies the definition of fair value within that framework, and expands disclosures about the use of fair value measurements. Statement 157 is intended to increase consistency and comparability among fair value estimates used in financial reporting. Statement 157 is effective for fiscal years beginning after November 15, 2007. Management does not expect the adoption of Statement 157 to have an impact on the amounts reported in the financial statements.
Federal Income Taxes—The Series intends to continue to qualify for federal income tax purposes as a regulated investment company and make the requisite distributions to shareholders. Accordingly, no provision for federal income taxes has been made in the financial statements.
On July 13, 2006, the FASB released FASB Interpretation No. 48 “Accounting for Uncertainty in Income Taxes” (FIN 48). FIN 48 provides guidance for how uncertain tax positions should be recognized, measured, presented and disclosed in the financial statements. FIN 48 requires the evaluation of tax positions taken or expected to be taken in the course of preparing the Series’ tax returns to determine whether the tax positions are “more-likely-than-not” of being sustained by the applicable tax authority. Tax positions not deemed to meet the more-likely-than-not threshold would be recorded as a tax benefit or expense in the current year. Adoption of FIN 48 is required for fiscal years beginning after December 15, 2006 and is to be applied to all open tax years as of the effective date. Management has evaluated the Series’ tax positions and has concluded that the adoption of FIN 48 will not impact the Series’ financial statements.
Class Accounting—Investment income, common expenses and realized and unrealized gain (loss) on investments are allocated to the classes of the Series on the basis of daily net assets of each class. Distribution expenses relating to a specific class are charged directly to that class.
Repurchase Agreements—The Series may invest in a pooled cash account along with members of the Delaware Investments® Family of Funds pursuant to an exemptive order issued by the Securities and Exchange Commission. The aggregate daily balance of the pooled cash account is invested in repurchase agreements secured by obligations of the U.S. government. The respective collateral is held by the Series’ custodian bank until the maturity of the respective repurchase agreements. Each repurchase agreement is at least 102% collateralized. However, in the event of default or bankruptcy by the counterparty to the agreement, realization of the collateral may be subject to legal proceedings.
Foreign Currency Transactions—Transactions denominated in foreign currencies are recorded at the prevailing exchange rates on the valuation date. The value of all assets and liabilities denominated in foreign currencies are translated into U.S. dollars at the exchange rate of such currencies against the U.S. dollar daily. Transaction gains or losses resulting from changes in exchange rates during the reporting period or upon settlement of the foreign currency transaction are reported in operations for the current period. The Series does not isolate that portion of realized gains and losses on investments which are due to changes in foreign exchange rates from that which are due to changes in market prices. The Series reports certain foreign currency related transactions as components of realized gains (losses) for financial reporting purposes, where such components are treated as ordinary income (loss) for federal income tax purposes.
Use of Estimates—The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
9
Other—Expenses directly attributable to the Series are charged directly to the Series. Other expenses common to various funds within the Delaware Investments® Family of Funds are generally allocated amongst such funds on the basis of average net assets. Management fees and some other expenses are paid monthly. Security transactions are recorded on the date the securities are purchased or sold (trade date) for financial reporting purposes. Costs used in calculating realized gains and losses on the sale of investment securities are those of the specific securities sold. Dividend income is recorded on the ex-dividend date and interest income is recorded on the accrual basis. Foreign dividends are also recorded on the ex-dividend date or as soon after the ex-dividend date that the Series is aware of such dividends, net of all non-rebatable tax withholdings. Withholding taxes on foreign dividends have been recorded in accordance with the Series’ understanding of the applicable country’s tax rules and rates.
The Series declares and pays dividends from net investment income and distributions from net realized gain on investments, if any, following the close of the fiscal year.
The Series may receive earnings credits from its custodian when positive cash balances are maintained, which are used to offset custody fees. The expense paid under this arrangement is included in custodian fees on the Statement of Operations with the corresponding expense offset shown as “expense paid indirectly.”
2. Investment Management, Administration Agreements and Other Transactions with Affiliates
In accordance with the terms of its investment management agreement, the Series pays Delaware Management Company (DMC), a series of Delaware Management Business Trust and the investment manager, an annual fee which is calculated daily at the rate of 1.25% on the first $500 million of average daily net assets of the Series, 1.20% on the next $500 million, 1.15% on the next $1.5 billion, and 1.10% on average daily net assets in excess of $2.5 billion.
DMC has contractually agreed to waive that portion, if any, of its management fee and reimburse the Series to the extent necessary to ensure that annual operating expenses, exclusive of taxes, interest, brokerage commissions, inverse floater program expenses, 12b-1 plan expenses, certain insurance costs and non-routine expenses or costs including, but not limited to, those relating to reorganizations, litigation, certain Trustee retirement plan expenses, conducting shareholder meetings, and liquidations, do not exceed 1.50% of average daily net assets of the Series through April 30, 2008.
Delaware Service Company, Inc. (DSC), an affiliate of DMC, provides accounting, administration, dividend disbursing and transfer agent services. The Series pays DSC a monthly fee computed at the annual rate of 0.04% of the Series’ average daily net assets for accounting and administrative services. The Series pays DSC a monthly fee based on average net assets for dividend disbursing and transfer agent services.
Pursuant to a distribution agreement and distribution plan, the Series pays Delaware Distributors, L.P. (DDLP), the distributor and an affiliate of DMC, an annual distribution and service fee not to exceed 0.30% of the average daily net assets of the Service Class shares. DDLP has contracted to waive distribution and service fees through April 30, 2008 in order to prevent distribution and service fees of the Service Class shares from exceeding 0.25% of average daily net assets. Standard Class shares pay no distribution and service expenses.
At June 30, 2007, the Series had liabilities payable to affiliates as follows:
Investment |
| Dividend Disbursing, |
| Distribution |
| Other |
| ||||
$ | 470,930 |
| $ | 18,843 |
| $ | 43,623 |
| $ | 11,425 |
|
* | DMC as part of its administrative services, pays operating expenses on behalf of the Series and is reimbursed on a periodic basis. Such expenses include items such as printing of shareholder reports, fees for audit, legal and tax services, custodian fees and trustees’ fees. |
As provided in the investment management agreement, the Series bears the cost of certain legal and tax services, including internal legal and tax services provided to the Series by DMC and/or its affiliates’ employees. For the six months ended June 30, 2007, the Series was charged $9,044 for internal legal and tax services provided by DMC and/or its affiliates’ employees.
Trustees’ fees and benefits include expenses accrued by the Series for each Trustee’s retainer, per meeting fees and retirement benefits. Independent Trustees with over five years of uninterrupted service were eligible to participate in a retirement plan that provides for the payment of benefits upon retirement. The amount of the retirement benefit was determined based on factors set forth in the plan, including the number of years of service. On November 16, 2006, the Board of Trustees unanimously voted to terminate the retirement plan. Payments equal to the net present value of the earned benefits were made in 2007 to those independent trustees so entitled. The retirement benefit payout for the Series was $35,828. Certain officers of DMC, DSC and DDLP are officers and/or trustees of the Trust. These officers and trustees are paid no compensation by the Series.
10
3. Investments
For the six months ended June 30, 2007, the Series made purchases and sales of investment securities other than short-term investments as follows:
Purchases |
| $ | 275,104,925 |
|
Sales |
| 216,665,333 |
|
At June 30, 2007, the cost of investments for federal income tax purposes has been estimated since the final tax characteristics cannot be determined until fiscal year end. At June 30, 2007, the cost of investments and unrealized appreciation (depreciation) for the Series were as follows:
Cost of |
| Aggregate |
| Aggregate |
| Net Unrealized |
| ||||
$ | 382,489,855 |
| $ | 93,931,514 |
| $ | (4,232,198 | ) | $ | 89,699,316 |
|
4. Dividend and Distribution Information
Income and long-term capital gain distributions are determined in accordance with federal income tax regulations, which may differ from U.S. generally accepted accounting principles. Additionally, gains (losses) on foreign currency transactions and net short-term gains on sales of investment securities are treated as ordinary income for federal income tax purposes. The tax character of dividends and distributions paid during the six months ended June 30, 2007 and the year ended December 31, 2006 was as follows:
| Six Months |
| Year |
| |||
Ordinary income |
| $ | 13,358,323 |
| $ | 5,745,436 |
|
Long-term capital gain |
| 23,248,229 |
| 4,124,302 |
| ||
|
| $ | 36,606,552 |
| $ | 9,869,738 |
|
* Tax information for the six months ended June 30, 2007 is an estimate and the tax character of dividends and distributions may be redesignated at fiscal year end.
5. Components of Net Assets on a Tax Basis
The components of net assets are estimated since final tax characteristics cannot be determined until fiscal year end. As of June 30, 2007, the estimated components of net assets on a tax basis were as follows:
Shares of beneficial interest |
| $ | 343,416,679 |
|
Undistributed ordinary income |
| 30,754,298 |
| |
Undistributed long-term capital gains |
| 16,446,816 |
| |
Unrealized appreciation of investments and foreign currencies |
| 89,716,733 |
| |
Net assets |
| $ | 480,334,526 |
|
The differences between book basis and tax basis components of net assets are primarily attributable to tax deferral of losses on wash sales and tax recognition of unrealized gain on investments in passive foreign investment companies.
For financial reporting purposes, capital accounts are adjusted to reflect the tax character of permanent book/tax differences. Reclassifications are primarily due to tax treatment of gain (loss) on foreign currency transactions and capital gain tax. Results of operations and net assets were not affected by these reclassifications. For the six months ended June 30, 2007, the Series recorded an estimate of these differences since the final tax characteristics cannot be determined until fiscal year end:
Undistributed |
| Accumulated |
| ||
$ | (491,338 | ) | $ | 491,338 |
|
11
6. Capital Shares
Transactions in capital shares were as follows:
| Six Months |
| Year |
| |
Shares sold: |
|
|
|
|
|
Standard Class |
| 2,339,868 |
| 4,700,048 |
|
Service Class |
| 2,114,422 |
| 4,637,136 |
|
Shares issued upon reinvestment of dividends and distributions: |
|
|
|
|
|
Standard Class |
| 986,563 |
| 310,143 |
|
Service Class |
| 807,304 |
| 216,640 |
|
|
| 6,248,157 |
| 9,863,967 |
|
Shares repurchased: |
|
|
|
|
|
Standard Class |
| (1,151,832 | ) | (3,097,082 | ) |
Service Class |
| (925,469 | ) | (2,070,320 | ) |
|
| (2,077,301 | ) | (5,167,402 | ) |
Net increase |
| 4,170,856 |
| 4,696,565 |
|
7. Line of Credit
The Series, along with certain other funds in the Delaware Investments® Family of Funds (the “Participants”), participates in a $225,000,000 revolving line of credit facility to be used for temporary or emergency purposes as an additional source of liquidity to fund redemptions of investor shares. The Participants are charged an annual commitment fee, which is allocated across the Participants on the basis of each Participant’s allocation of the entire facility. The Participants may borrow up to a maximum of one third of their net assets under the agreement. The Series had no amounts outstanding as of June 30, 2007, or at any time during the period then ended.
8. Foreign Currency Exchange Contracts
The Series may enter into foreign currency exchange contracts as a way of managing foreign exchange rate risk. The Series may enter into these contracts to fix the U.S. dollar value of a security that it has agreed to buy or sell for the period between the date the trade was entered into and the date the security is delivered and paid for. The Series may also use these contracts to hedge the U.S. dollar value of securities it already owns that are denominated in foreign currencies. The change in market value is recorded as an unrealized gain or loss. When the contract is closed, a realized gain or loss is recorded equal to the difference between the value of the contract at the time it was opened and the value at the time it was closed.
The use of foreign currency exchange contracts does not eliminate fluctuations in the underlying prices of the securities, but does establish a rate of exchange that can be achieved in the future. Although foreign currency exchange contracts limit the risk of loss due to a decline in the value of the hedged currency, they also limit any potential gain that might result should the value of the currency increase. In addition, the Series could be exposed to risks if the counterparties to the contracts are unable to meet the terms of their contracts. There were no foreign currency exchange contracts outstanding at June 30, 2007.
9. Credit and Market Risk
Some countries in which the Series may invest require governmental approval for the repatriation of investment income, capital or the proceeds of sales of securities by foreign investors. In addition, if there is deterioration in a country’s balance of payments or for other reasons, a country may impose temporary restrictions on foreign capital remittances abroad.
The securities exchanges of certain foreign markets are substantially smaller, less liquid and more volatile than the major securities markets in the United States. Consequently, acquisition and disposition of securities by the Series may be inhibited. In addition, a significant portion of the aggregate market value of equity securities listed on the major securities exchanges in emerging markets are held by a smaller number of investors. This may limit the number of shares available for acquisition or disposition by the Series.
The Series may invest up to 10% of its total assets in illiquid securities, which may include securities with contractual restrictions on resale, securities exempt from registration under Rule 144A of the Securities Act of 1933, (the “Act”), as amended, and other securities which may not be readily marketable. The relative illiquidity of these securities may impair the Series from disposing of them in a timely manner and at a fair price when it is necessary or desirable to do so. While maintaining oversight, the Series’ Board of Trustees has delegated to DMC the day-to-day functions of determining whether individual Rule 144A securities are liquid for purposes of the Series’ limitation on investments in illiquid assets. As of June 30, 2007, no securities have been determined to be illiquid under the Series’ Liquidity Procedures. Rule 144A securities have been identified on the Statement of Net Assets.
12
10. Contractual Obligations
The Series enters into contracts in the normal course of business that contain a variety of indemnifications. The Series’ maximum exposure under these arrangements is unknown. However, the Series has not had prior claims or losses pursuant to these contracts. Management has reviewed the Series’ existing contracts and expects the risk of loss to be remote.
The Series files its complete schedule of portfolio holdings with the Securities and Exchange Commission for the first and third quarters of each fiscal year on Form N-Q. The Series’ Forms N-Q as well as a description of the policies and procedures that the Series uses to determine how to vote proxies (if any) relating to portfolio securities is available without charge (i) upon request, by calling 800-523-1918; (ii) on the Series’ website at http://www.delawareinvestments.com; and (iii) on the Commission’s website at http://www.sec.gov. The Series’ Forms N-Q may be reviewed and copied at the Commission’s Public Reference Room in Washington, DC; information on the operation of the Public Reference Room may be obtained by calling 1-800-SEC-0330.
Information (if any) regarding how the Series voted proxies relating to portfolio securities during the most recently disclosed 12-month period ended June 30 is available without charge (i) through the Series’ website at http://www.delawareinvestments.com; and (ii) on the Commission’s website at http://www.sec.gov.
13
Delaware VIP Trust — Delaware VIP Emerging Markets Series
Other Series Information
Board Consideration of Delaware VIP Emerging Markets Series Investment Advisory Agreement
At a meeting held on May 16-17, 2007 (Annual Meeting), the Board of Trustees (Board), including a majority of disinterested or independent Trustees, approved the renewal of the Investment Advisory Agreement for the VIP Emerging Markets Series (Series). In making its decision, the Board considered information furnished throughout the year at regular Board meetings, including reports detailing Series performance, investment strategies and expenses, as well as information prepared specifically in connection with the renewal of the investment advisory contracts. Information furnished specifically in connection with the renewal of the Investment Advisory Agreement with Delaware Management Company (DMC) included materials provided by DMC and its affiliates (Delaware Investments) concerning, among other things, the level of services provided to the Series, the costs of such services to the Series, economies of scale and the financial condition and profitability of Delaware Investments. In addition, in connection with the Meeting, the Board separately received and reviewed in mid-January 2007 independent historical and comparative reports prepared by Lipper Inc. (Lipper), an independent statistical compilation organization. The Lipper reports compared the Series’ investment performance and expenses with those of other comparable mutual funds. The Board requested and received certain information regarding management’s policy with respect to advisory fee levels and its philosophy with respect to breakpoints; the structure of portfolio manager compensation; the investment manager’s profitability; and any constraints or limitations on the availability of securities in certain investment styles which might inhibit DMC’s ability to fully invest in accordance with the Series’ policies.
In considering information relating to the approval of the Series’ advisory agreement, the independent Trustees received assistance and advice from and met separately with independent counsel. While attention was given to all information furnished, the following discusses under separate headings the primary factors taken into account by the Board in its contract renewal considerations.
NATURE, EXTENT AND QUALITY OF SERVICE. Consideration was given to the services provided by Delaware Investments to the Series and its shareholders. In reviewing the nature, extent and quality of services, the Board emphasized reports furnished to it throughout the year at regular Board meetings covering matters such as the relative performance of the Series, compliance of portfolio managers with the investment policies, strategies and restrictions for the Series, the compliance of management personnel with the Code of Ethics adopted throughout the Delaware Investments® Family of Funds complex and the adherence to fair value pricing procedures as established by the Board. The Board noted that it was pleased with the current staffing of the Series’ investment advisor and the emphasis placed on research in the investment process. Favorable consideration was given to DMC’s efforts to maintain, and in some instances increase, financial and human resources committed to fund matters. The Board also considered the transfer agent and shareholder services provided to Series shareholders by Delaware Investments’ affiliate, Delaware Service Company, Inc. (DSC), noting DSC’s commitment to maintain a high level of service and the continuing expenditures by Delaware Investments to improve the delivery of shareholder services. During 2006, management conducted extensive research into alternatives that could further improve the quality and cost of delivering investment accounting services to the Fund. The Board was satisfied with the nature, extent and quality of the overall services provided by Delaware Investments.
INVESTMENT PERFORMANCE. The Board considered the investment performance of DMC and the Series. The Board placed significant emphasis on the investment performance of the Series in view of its importance to shareholders. While consideration was given to performance reports and discussions with portfolio managers at Board meetings throughout the year, particular weight was given to the Lipper reports furnished for the Annual Meeting. The Lipper reports prepared for the Series showed the investment performance of its Standard Class shares in comparison to a group of similar funds as selected by Lipper (Performance Universe). A fund with the best performance ranked first, and a fund with the poorest ranked last. The highest/best performing 25% of funds in the Performance Universe make up the first quartile; the next 25% – the second quartile; the next 25% – the third quartile; and the poorest/worst performing 25% of funds in the Performance Universe make up the fourth quartile. Comparative annualized performance for the Series was shown for the past one, three and five year periods ended December 31, 2006. The Board also considered comparative annualized performance for the Series for the same periods ended October 31, 2006. The performance comparison presented below is based upon the December 31, 2006 information. The Board noted its objective that the Series’ performance for the periods considered be at or above the median of its Performance Universe. The following paragraph summarizes the performance results for the Series and the Board’s view of such performance.
The Performance Universe for the Series consisted of the Series and all emerging markets funds underlying variable insurance products as selected by Lipper. The Lipper report comparison showed that the Series’ total return for the one year period was in the fourth quartile. The Lipper report further showed that the Series’ total return for the three and five year periods was in the third quartile and first quartile, respectively. The Board noted that the Series’ performance results were mixed. In evaluating the Series’ performance, the Board considered changes made to the Series’ investment team in September 2006. The Board noted that the Series’ relative performance had improved since implementing the personnel changes. Additionally, the Board recognized management’s efforts to increase portfolio management depth, noting particularly the recent hire of a new head of the equity department. The Board was pleased with management’s efforts to enhance Series performance and expressed confidence in the new team and its philosophy and processes.
COMPARATIVE EXPENSES. The Board considered expense comparison data for the Delaware Investments Family of Funds as of October 31, 2006. Management provided the Board with information on pricing levels and fee structures for the Series. The Board focused particularly on the comparative analysis of the effective management fees and total expense ratios of the Series and the effective management fees and expense ratios of a group of similar funds as selected by Lipper (Expense Group). In reviewing comparative costs, the Series’ contractual management fee and the actual management fee incurred by the Series were compared with the contractual management fees (assuming all funds in the Expense Group were similar in size to the Series) and actual management fees (as reported by each fund) of other funds within the Expense Group, taking into account any applicable breakpoints and fee waivers. The Series’ total expenses were also compared with those of its Expense Group. The Lipper total expenses, for comparative consistency, were shown by Lipper for Standard Class shares which do not charge 12b-1 and non-12b-1 service fees. The Board also considered fees paid to Delaware Investments for non-management services. The Board noted its objective to limit the Series’ total expense ratio to an acceptable range as compared to the median of the Expense Group. The following paragraph summarizes the expense results for the Series and the Board’s view of such expenses.
14
The expense comparisons for the Series showed that its actual management fee and total expenses were in the quartile with the second highest expenses of its Expense Group. The Board noted that the Series’ total expenses were not in line with the Board’s stated objective. In evaluating total expenses, the Board considered fee waivers in place through April 2008 and recent initiatives implemented by management, such as the outsourcing of certain transfer agency services, creating an opportunity for a reduction in expenses. The Board was satisfied with management’s efforts to improve the Series’ total expense ratio and bring it in line with the Board’s objective.
MANAGEMENT PROFITABILITY. The Board considered the level of profits, if any, realized by Delaware Investments in connection with the operation of the Series. In this respect, the Board reviewed the Investment Management Profitability Analysis that addressed the overall profitability of Delaware Investments’ business in providing management and other services to each of the individual funds and the Delaware Investments® Family of Funds as a whole. Specific attention was given to the methodology followed in allocating costs for the purpose of determining profitability. Management stated that the level of profits of Delaware Investments, to a certain extent, reflected operational cost savings and efficiencies initiated by Delaware Investments. The Board considered Delaware Investments’ efforts to improve services provided to fund shareholders and to meet additional regulatory and compliance requirements resulting from recent Securities and Exchange Commission initiatives. The Board also considered the extent to which Delaware Investments might derive ancillary benefits from fund operations, including the potential for procuring additional business as a result of the prestige and visibility associated with its role as service provider to the Delaware Investments Family of Funds and the benefits from allocation of fund brokerage to improve trading efficiencies. The Board found that the level of management fees was reasonable in light of the services rendered and the profitability of Delaware Investments.
ECONOMIES OF SCALE. The Trustees considered whether economies of scale are realized by Delaware Investments as the Series’ assets increase and the extent to which any economies of scale are reflected in the level of management fees charged. The Trustees took into account the standardized advisory fee pricing and structure, approved by the Board and shareholders and again reviewed by the Board this year, which includes breakpoints. Breakpoints in the advisory fee occur when the advisory fee rate is reduced on assets in excess of specified levels. This results in a lower advisory fee than would otherwise be the case on all assets when those asset levels specified are exceeded. The Board noted that the fee under the Series’ management contract fell within the standard structure. Although the Series has not reached a size at which the advantages of breakpoints would be realized, the Board recognized that the fee was structured so that when the Series grows, economies of scale may be shared.
15
Delaware VIP Trust — Delaware VIP Growth Opportunities Series
Disclosure of Series Expenses
For the Period January 1, 2007 to June 30, 2007
As a shareholder of the Series, you incur ongoing costs, including management fees; distribution and/or service (12b-1) fees; and other Series expenses. This Example is intended to help you understand your ongoing costs (in dollars) of investing in the Series and to compare these costs with the ongoing costs of investing in other mutual funds.
The Example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period from January 1, 2007 to June 30, 2007.
Actual Expenses
The first section of the table shown, “Actual Series Return,” provides information about actual account values and actual expenses. You may use the information in this section of the table, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first section under the heading entitled “Expenses Paid During Period” to estimate the expenses you paid on your account during the period.
Hypothetical Example for Comparison Purposes
The second section of the table shown, “Hypothetical 5% Return,” provides information about hypothetical account values and hypothetical expenses based on the Series’ actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Series’ actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Series and other funds. To do so, compare the 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs only. As a shareholder of the Series, you do not incur any transaction costs, such as sales charges (loads), redemption fees or exchange fees, but shareholders of other funds may incur such costs. Also, the fees related to the variable annuity investment or the deferred sales charge that could apply have not been included. Therefore, the second section of the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. The Series’ actual expenses shown in the table reflect fee waivers in effect for Service Class shares. The expenses shown in the table assume reinvestment of all dividends and distributions.
Expense Analysis of an Investment of $1,000
|
| Beginning |
| Ending |
| Annualized |
| Expenses |
| |||
Actual Series Return |
|
|
|
|
|
|
|
|
| |||
Standard Class |
| $ | 1,000.00 |
| $ | 1,139.60 |
| 0.90 | % | $ | 4.77 |
|
Service Class |
| 1,000.00 |
| 1,138.40 |
| 1.15 | % | 6.10 |
| |||
|
|
|
|
|
|
|
|
|
| |||
Hypothetical 5% Return (5% return before expenses) |
|
|
|
|
|
|
|
|
| |||
Standard Class |
| $ | 1,000.00 |
| $ | 1,020.33 |
| 0.90 | % | $ | 4.51 |
|
Service Class |
| 1,000.00 |
| 1,019.09 |
| 1.15 | % | 5.76 |
|
* “Expenses Paid During Period” are equal to the Series’ annualized expense ratio, multiplied by the average account value over the period, multiplied by 181/365 (to reflect the one-half year period).
1
Delaware VIP Trust — Delaware VIP Growth Opportunities Series
Sector Allocation and Top 10 Holdings
As of June 30, 2007
Sector designations may be different than the sector designations presented in other Series materials
Sector |
| Percentage |
|
Common Stock |
| 98.76 | % |
Basic Industry/Capital Goods |
| 10.20 | % |
Business Services |
| 7.10 | % |
Consumer Durables |
| 1.81 | % |
Consumer Non-Durables |
| 12.37 | % |
Consumer Services |
| 8.96 | % |
Energy |
| 7.45 | % |
Financials |
| 9.49 | % |
Health Care |
| 15.57 | % |
Technology |
| 24.75 | % |
Transportation |
| 1.06 | % |
Securities Lending Collateral |
| 20.42 | % |
Fixed Rate Notes |
| 7.83 | % |
Variable Rate Notes |
| 12.59 | % |
Total Value of Securities |
| 119.18 | % |
Obligation to Return Securities Lending Collateral |
| (20.42 | )% |
Receivables and Other Assets Net of Liabilities |
| 1.24 | % |
Total Net Assets |
| 100.00 | % |
Holdings are for informational purposes only and are subject to change at any time. They are not a recommendation to buy, sell, or hold any security.
Top 10 Holdings |
| Percentage |
|
Coach |
| 2.87 | % |
National Oilwell Varco |
| 2.69 | % |
Marriott International Class A |
| 1.96 | % |
NII Holdings |
| 1.93 | % |
Affiliated Managers Group |
| 1.89 | % |
Bausch & Lomb |
| 1.89 | % |
Allegheny Technologies |
| 1.86 | % |
Nordstrom |
| 1.84 | % |
Compagnie Generale de Geophysique-Veritas ADR |
| 1.82 | % |
Activision |
| 1.81 | % |
2
Delaware VIP Trust — Delaware VIP Growth Opportunities Series
Statement of Net Assets
June 30, 2007 (Unaudited)
|
| Number of |
| Value |
| |
COMMON STOCK–98.76% |
|
|
|
|
| |
Basic Industry/Capital Goods–10.20% |
|
|
|
|
| |
Allegheny Technologies |
| 8,800 |
| $ | 922,944 |
|
Joy Global |
| 13,700 |
| 799,121 |
| |
Manitowoc |
| 10,500 |
| 843,990 |
| |
† Mettler-Toledo International |
| 6,700 |
| 639,917 |
| |
Oshkosh Truck |
| 10,500 |
| 660,660 |
| |
Roper Industries |
| 5,900 |
| 336,890 |
| |
* Trinity Industries |
| 19,800 |
| 862,092 |
| |
|
|
|
| 5,065,614 |
| |
Business Services–7.10% |
|
|
|
|
| |
Dun & Bradstreet |
| 6,400 |
| 659,072 |
| |
Expeditors International Washington |
| 16,800 |
| 693,840 |
| |
† Fiserv |
| 12,600 |
| 715,680 |
| |
Paychex |
| 19,200 |
| 751,104 |
| |
† WESCO International |
| 11,700 |
| 707,265 |
| |
|
|
|
| 3,526,961 |
| |
Consumer Durables–1.81% |
|
|
|
|
| |
† Activision |
| 48,100 |
| 898,027 |
| |
|
|
|
| 898,027 |
| |
Consumer Non-Durables–12.37% |
|
|
|
|
| |
† Amazon.com |
| 3,600 |
| 246,276 |
| |
American Eagle Outfitters |
| 16,400 |
| 420,824 |
| |
† Coach |
| 30,100 |
| 1,426,439 |
| |
† Dick’s Sporting Goods |
| 5,500 |
| 319,935 |
| |
Flowers Foods |
| 14,900 |
| 497,064 |
| |
*† J Crew Group |
| 12,400 |
| 670,716 |
| |
Nordstrom |
| 17,900 |
| 915,048 |
| |
Staples |
| 17,700 |
| 420,021 |
| |
† Starbucks |
| 18,300 |
| 480,192 |
| |
*† Urban Outfitters |
| 30,900 |
| 742,527 |
| |
|
|
|
| 6,139,042 |
| |
Consumer Services–8.96% |
|
|
|
|
| |
* Host Hotels & Resorts |
| 20,239 |
| 467,926 |
| |
International Game Technology |
| 18,200 |
| 722,540 |
| |
Marriott International Class A |
| 22,500 |
| 972,900 |
| |
† National CineMedia |
| 5,400 |
| 151,254 |
| |
*† NutriSystem |
| 11,500 |
| 803,160 |
| |
Starwood Hotels & Resorts Worldwide |
| 13,300 |
| 892,031 |
| |
*† Wynn Resorts |
| 4,900 |
| 439,481 |
| |
|
|
|
| 4,449,292 |
| |
Energy–7.45% |
|
|
|
|
| |
† Compagnie Generale de Geophysique- Veritas ADR |
| 18,200 |
| 904,722 |
| |
*† Helix Energy Solutions Group |
| 15,400 |
| 614,614 |
| |
† National Oilwell Varco |
| 12,800 |
| 1,334,272 |
| |
Smith International |
| 14,400 |
| 844,416 |
| |
|
|
|
| 3,698,024 |
| |
Financials–9.49% |
|
|
|
|
| |
*† Affiliated Managers Group |
| 7,300 |
| 939,948 |
| |
AMBAC Financial Group |
| 5,800 |
| 505,702 |
| |
† E Trade Financial |
| 20,700 |
| 457,263 |
| |
† IntercontinentalExchange |
| 1,600 |
| 236,560 |
| |
Legg Mason |
| 5,100 |
| 501,738 |
| |
Lehman Brothers Holdings |
| 10,800 |
| 804,816 |
| |
† OakTree Capital Group |
| 11,000 |
| 453,750 |
| |
People’s United Financial |
| 24,200 |
| 429,066 |
| |
Zions Bancorp |
| 5,000 |
| 384,550 |
| |
|
|
|
| 4,713,393 |
| |
Health Care–15.57% |
|
|
|
|
| |
*† Abraxis BioScience |
| 22,000 |
| 489,060 |
| |
† Barr Pharmaceuticals |
| 14,900 |
| 748,427 |
| |
Bausch & Lomb |
| 13,500 |
| 937,440 |
| |
† Biogen Idec |
| 10,200 |
| 545,700 |
| |
Dade Behring Holdings |
| 14,200 |
| 754,304 |
| |
† DaVita |
| 9,600 |
| 517,248 |
| |
† Express Scripts |
| 5,000 |
| 250,050 |
| |
† Hologic |
| 2,900 |
| 160,399 |
| |
† Invitrogen |
| 10,600 |
| 781,750 |
| |
Manor Care |
| 5,300 |
| 346,037 |
| |
† Medco Health Solutions |
| 10,000 |
| 779,900 |
| |
* Omnicare |
| 11,300 |
| 407,478 |
| |
*† PDL BioPharma |
| 13,000 |
| 302,900 |
| |
*† Regeneron Pharmaceuticals |
| 25,300 |
| 453,376 |
| |
† Sepracor |
| 6,300 |
| 258,426 |
| |
|
|
|
| 7,732,495 |
| |
Technology–24.75% |
|
|
|
|
| |
† Amdocs |
| 12,800 |
| 509,696 |
| |
† American Tower Class A |
| 15,400 |
| 646,800 |
| |
† Broadcom Class A |
| 19,250 |
| 563,063 |
| |
*† Ciena |
| 16,585 |
| 599,216 |
| |
† Citrix Systems |
| 10,400 |
| 350,168 |
| |
† F5 Networks |
| 9,000 |
| 725,400 |
| |
*† Focus Media Holding ADR |
| 16,500 |
| 833,250 |
| |
L-3 Communications Holdings |
| 7,700 |
| 749,903 |
| |
*† Logitech International |
| 27,100 |
| 715,169 |
| |
† MetroPCS Communications |
| 8,900 |
| 294,056 |
| |
† Microsemi |
| 28,800 |
| 689,760 |
| |
* National Semiconductor |
| 25,200 |
| 712,404 |
| |
† NII Holdings |
| 11,900 |
| 960,805 |
| |
† Nuance Communications |
| 30,600 |
| 511,938 |
| |
† Polycom |
| 20,800 |
| 698,880 |
| |
† Riverbed Technology |
| 15,500 |
| 679,210 |
| |
† salesforce.com |
| 17,800 |
| 762,908 |
| |
† SanDisk |
| 11,800 |
| 577,492 |
| |
* Satyam Computer Services ADR |
| 28,600 |
| 708,136 |
| |
|
|
|
| 12,288,254 |
| |
Transportation–1.06% |
|
|
|
|
| |
* Hunt (J.B.) Transport Services |
| 18,000 |
| 527,760 |
| |
|
|
|
| 527,760 |
| |
Total Common Stock |
|
|
| 49,038,862 |
| |
|
|
|
|
|
| |
Total Value of Securities Before Securities Lending Collateral–98.76% |
|
|
| 49,038,862 |
| |
3
|
| Principal |
| Value |
| |||
| SECURITIES LENDING COLLATERAL**–20.42% |
|
|
|
|
| ||
| Short-Term Investments–20.42% |
|
|
|
|
| ||
| Fixed Rate Notes–7.83% |
|
|
|
|
| ||
| Abbey National 5.31% 7/2/07 |
| $ | 399,059 |
| $ | 399,059 |
|
| American Express Centurion 5.32% 7/30/07 |
| 356,303 |
| 356,303 |
| ||
| BNP Paribas 5.37% 7/2/07 |
| 161,524 |
| 161,524 |
| ||
| Credit Agricole 5.31% 10/4/07 |
| 237,535 |
| 237,535 |
| ||
| Den Danske Bank 5.38% 7/2/07 |
| 399,059 |
| 399,059 |
| ||
| Fortis Bank 5.30% 7/23/07 |
| 213,782 |
| 213,781 |
| ||
| HBOS Treasury Services 5.42% 7/2/07 |
| 399,059 |
| 399,059 |
| ||
| ING Bank |
|
|
|
|
| ||
| 5.31% 7/3/07 |
| 142,521 |
| 142,521 |
| ||
| 5.33% 7/9/07 |
| 237,535 |
| 237,535 |
| ||
| M&T 5.34% 7/2/07 |
| 399,059 |
| 399,059 |
| ||
| Royal Bank of Canada 5.31% 7/23/07 |
| 356,303 |
| 356,303 |
| ||
| Societe Generale 5.33% 7/2/07 |
| 184,991 |
| 184,991 |
| ||
| Union Bank of Switzerland 5.33% 7/2/07 |
| 399,059 |
| 399,059 |
| ||
|
|
|
|
| 3,885,788 |
| ||
• | Variable Rate Notes–12.59% |
|
|
|
|
| ||
| ANZ National 5.32% 7/29/08 |
| 47,507 |
| 47,507 |
| ||
| Australia New Zealand 5.34% 7/29/08 |
| 237,535 |
| 237,535 |
| ||
| Bank of New York 5.32% 7/29/08 |
| 190,028 |
| 190,028 |
| ||
| Bayerische Landesbank 5.37% 7/29/08 |
| 237,535 |
| 237,535 |
| ||
| Bear Stearns 5.38% 12/28/07 |
| 332,549 |
| 332,549 |
| ||
| BNP Paribas 5.33% 7/29/08 |
| 237,535 |
| 237,535 |
| ||
| Calyon 5.33% 8/14/07 |
| 118,768 |
| 118,768 |
| ||
| Canadian Imperial Bank |
|
|
|
|
| ||
| 5.32% 7/29/08 |
| 166,275 |
| 166,275 |
| ||
| 5.33% 8/15/07 |
| 232,784 |
| 232,784 |
| ||
| CDC Financial Products 5.43% 7/27/07 |
| 308,796 |
| 308,796 |
| ||
| Citigroup Global Markets 5.45% 7/6/07 |
| 308,796 |
| 308,796 |
| ||
| Commonwealth Bank 5.32% 7/29/08 |
| 237,535 |
| 237,535 |
| ||
| Credit Suisse First Boston 5.32% 3/14/08 |
| 237,535 |
| 237,535 |
| ||
| Deutsche Bank |
|
|
|
|
| ||
| 5.34% 8/20/07 |
| 332,549 |
| 332,549 |
| ||
| 5.34% 9/21/07 |
| 35,630 |
| 35,630 |
| ||
| Dexia Bank 5.32% 9/28/07 |
| 237,535 |
| 237,523 |
| ||
| Goldman Sachs Group 5.52% 6/27/08 |
| 375,301 |
| 375,301 |
| ||
| Marshall & Ilsley Bank 5.32% 7/29/08 |
| 261,289 |
| 261,289 |
| ||
| Morgan Stanley 5.56% 7/29/08 |
| 308,796 |
| 308,796 |
| ||
| National Australia Bank 5.31% 7/29/08 |
| 294,544 |
| 294,544 |
| ||
| National Rural Utilities 5.33% 7/29/08 |
| 375,306 |
| 375,306 |
| ||
| Nordea Bank 5.33% 7/29/08 |
| 237,535 |
| 237,535 |
| ||
| Royal Bank of Scotland Group 5.33% 7/29/08 |
| 237,535 |
| 237,535 |
| ||
| Societe Generale 5.31% 7/29/08 |
| 118,768 |
| 118,767 |
| ||
| Sun Trust Bank 5.33% 7/30/07 |
| 308,796 |
| 308,796 |
| ||
| Wells Fargo 5.33% 7/29/08 |
| 237,535 |
| 237,535 |
| ||
|
|
|
|
| 6,254,284 |
| ||
| Total Securities Lending Collateral |
|
|
| 10,140,072 |
| ||
|
|
|
|
|
|
| ||
TOTAL VALUE OF SECURITIES–119.18% (cost $46,574,123) |
|
|
| 59,178,934 | v | |||
OBLIGATION TO RETURN SECURITIES LENDING COLLATERAL**–(20.42%) |
|
|
| (10,140,072 | ) | |||
RECEIVABLES AND OTHER ASSETS NET OF LIABILITIES–1.24% |
|
|
| 617,039 |
| |||
NET ASSETS APPLICABLE TO 2,314,066 SHARES OUTSTANDING–100.00% |
|
|
| $ | 49,655,901 |
| ||
NET ASSET VALUE–DELAWARE VIP GROWTH OPPORTUNITIES SERIES STANDARD CLASS ($36,283,425 / 1,683,931 Shares) |
|
|
| $ | 21.55 |
| ||
NET ASSET VALUE–DELAWARE VIP GROWTH OPPORTUNITIES SERIES SERVICE CLASS ($13,372,476 / 630,135 Shares) |
|
|
| $ | 21.22 |
| ||
COMPONENTS OF NET ASSETS AT JUNE 30, 2007: |
|
|
|
|
| |||
Shares of beneficial interest (unlimited authorization–no par) |
|
|
| $ | 36,796,876 |
| ||
Accumulated net realized gain on investments |
|
|
| 254,214 |
| |||
Net unrealized appreciation of investments |
|
|
| 12,604,811 |
| |||
Total net assets |
|
|
| $ | 49,655,901 |
| ||
† | Non-income producing security for the period ended June 30, 2007. |
• | Variable rate security. The rate shown is the rate as of June 30, 2007. |
* | Fully or partially on loan. |
** | See Note 8 in “Notes to Financial Statements.” |
v | Includes $9,995,134 of securities loaned. |
|
|
ADR – American Depositary Receipts |
See accompanying notes
4
Delaware VIP Trust — Delaware VIP Growth Opportunities Series
Statement of Assets and Liabilities
June 30, 2007 (Unaudited)
ASSETS: |
|
|
| |
Investments at market (including $9,995,134 of securities loaned) |
| $ | 49,038,862 |
|
Short-term investments held as collateral for loaned securities |
| 10,140,072 |
| |
Cash |
| 1,852,310 |
| |
Receivable for securities sold |
| 556,202 |
| |
Dividends receivable |
| 13,087 |
| |
Subscriptions receivable |
| 507,941 |
| |
Other assets |
| 4,801 |
| |
Total assets |
| 62,113,275 |
| |
|
|
|
| |
LIABILITIES: |
|
|
| |
Obligation to return securities lending collateral |
| 10,140,072 |
| |
Payable for securities purchased |
| 2,133,007 |
| |
Liquidations payable |
| 111,039 |
| |
Due to manager and affiliates |
| 52,200 |
| |
Other accrued expenses |
| 21,056 |
| |
Total liabilities |
| 12,457,374 |
| |
|
|
|
| |
Total net assets |
| $ | 49,655,901 |
|
Investments at cost |
| $ | 36,434,051 |
|
|
|
|
| |
Cost of short-term investments held as collateral for loaned securities |
| $ | 10,140,072 |
|
See accompanying notes
5
Delaware VIP Trust —
Delaware VIP Growth Opportunities Series
Statement of Operations
Six Months Ended June 30, 2007 (Unaudited)
INVESTMENT INCOME: |
|
|
| |
Dividends |
| $ | 107,783 |
|
Interest |
| 7,020 |
| |
Securities lending income |
| 19,329 |
| |
|
| 134,132 |
| |
EXPENSES: |
|
|
| |
Management fees |
| 189,549 |
| |
Distribution expenses – Service Class |
| 18,816 |
| |
Accounting and administration expenses |
| 10,109 |
| |
Reports and statements to shareholders |
| 9,782 |
| |
Audit and tax |
| 7,423 |
| |
Legal fees |
| 3,022 |
| |
Dividend disbursing and transfer agent fees and expenses |
| 2,528 |
| |
Custodian fees |
| 1,373 |
| |
Trustees’ fees and benefits |
| 1,254 |
| |
Insurance fees |
| 631 |
| |
Consulting fees |
| 413 |
| |
Pricing fees |
| 282 |
| |
Taxes (other than taxes on income) |
| 93 |
| |
Trustees’ expenses |
| 80 |
| |
Dues and services |
| 45 |
| |
Registration fees |
| 30 |
| |
|
| 245,430 |
| |
Less waiver of distribution expenses – Service Class |
| (3,136 | ) | |
Less expense paid indirectly |
| (65 | ) | |
Total operating expenses |
| 242,229 |
| |
|
|
|
| |
NET INVESTMENT LOSS |
| (108,097 | ) | |
|
|
|
| |
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS: |
|
|
| |
Net realized gain on investments |
| 5,087,311 |
| |
Net change in unrealized appreciation/depreciation of investments |
| 1,652,875 |
| |
|
|
|
| |
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS |
| 6,740,186 |
| |
|
|
|
| |
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS |
| $ | 6,632,089 |
|
Delaware VIP Trust —
Delaware VIP Growth Opportunities Series
Statements of Changes in Net Assets
|
| Six Months |
| Year |
| ||
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS: |
|
|
|
|
| ||
Net investment loss |
| $ | (108,097 | ) | $ | (94,468 | ) |
Net realized gain on investments |
| 5,087,311 |
| 6,652,389 |
| ||
Net change in unrealized appreciation/ depreciation of investments |
| 1,652,875 |
| (3,075,782 | ) | ||
Net increase in net assets resulting from operations |
| 6,632,089 |
| 3,482,139 |
| ||
|
|
|
|
|
| ||
CAPITAL SHARE TRANSACTIONS: |
|
|
|
|
| ||
Proceeds from shares sold: |
|
|
|
|
| ||
Standard Class |
| 1,300,250 |
| 38,229,325 |
| ||
Service Class |
| 1,019,660 |
| 12,382,384 |
| ||
|
| 2,319,910 |
| 50,611,709 |
| ||
Cost of shares repurchased: |
|
|
|
|
| ||
Standard Class |
| (8,875,192 | ) | (48,030,272 | ) | ||
Service Class |
| (1,476,269 | ) | (15,056,667 | ) | ||
|
| (10,351,461 | ) | (63,086,939 | ) | ||
Decrease in net assets derived from capital share transactions |
| (8,031,551 | ) | (12,475,230 | ) | ||
|
|
|
|
|
| ||
NET DECREASE IN NET ASSETS |
| (1,399,462 | ) | (8,993,091 | ) | ||
|
|
|
|
|
| ||
NET ASSETS: |
|
|
|
|
| ||
Beginning of period |
| 51,055,363 |
| 60,048,454 |
| ||
End of period (there was no undistributed net investment income at either period end) |
| $ | 49,655,901 |
| $ | 51,055,363 |
|
See accompanying notes
6
Delaware VIP Trust — Delaware VIP Growth Opportunities Series
Financial Highlights
Selected data for each share of the Series outstanding throughout each period were as follows:
|
| Delaware VIP Growth Opportunities Series Standard Class |
| ||||||||||||||||
|
| Six Months |
| Year Ended |
| ||||||||||||||
|
| 6/30/07(1) |
| 12/31/06 |
| 12/31/05 |
| 12/31/04 |
| 12/31/03 |
| 12/31/02 |
| ||||||
|
| (Unaudited) |
|
|
|
|
|
|
|
|
|
|
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Net asset value, beginning of period |
| $ | 18.910 |
| $ | 17.780 |
| $ | 15.960 |
| $ | 14.190 |
| $ | 10.060 |
| $ | 15.010 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Income (loss) from investment operations: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Net investment loss(2) |
| (0.037 | ) | (0.021 | ) | (0.056 | ) | (0.031 | ) | (0.032 | ) | (0.025 | ) | ||||||
Net realized and unrealized gain (loss) on investments |
| 2.677 |
| 1.151 |
| 1.876 |
| 1.801 |
| 4.162 |
| (3.351 | ) | ||||||
Total from investment operations |
| 2.640 |
| 1.130 |
| 1.820 |
| 1.770 |
| 4.130 |
| (3.376 | ) | ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Less dividends and distributions from: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Return of capital |
| — |
| — |
| — |
| — |
| — |
| (1.574 | ) | ||||||
Total dividends and distributions |
| — |
| — |
| — |
| — |
| — |
| (1.574 | ) | ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Net asset value, end of period |
| $ | 21.550 |
| $ | 18.910 |
| $ | 17.780 |
| $ | 15.960 |
| $ | 14.190 |
| $ | 10.060 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Total return(3) |
| 13.96 | % | 6.36 | % | 11.40 | % | 12.47 | % | 41.05 | % | (24.94 | )% | ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Ratios and supplemental data: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Net assets, end of period (000 omitted) |
| $ | 36,284 |
| $ | 38,859 |
| $ | 46,000 |
| $ | 56,875 |
| $ | 65,368 |
| $ | 60,964 |
|
Ratio of expenses to average net assets |
| 0.90 | % | 0.91 | % | 0.90 | % | 0.84 | % | 0.85 | % | 0.87 | % | ||||||
Ratio of net investment loss to average net assets |
| (0.37 | )% | (0.11 | )% | (0.35 | )% | (0.21 | )% | (0.27 | )% | (0.21 | )% | ||||||
Portfolio turnover |
| 85 | % | 67 | % | 75 | % | 94 | % | 94 | % | 88 | % |
(1) |
| Ratios and portfolio turnover have been annualized and total return has not been annualized. |
(2) |
| The average shares outstanding method has been applied for per share information. |
(3) |
| Total investment return is based on the change in net asset value of a share during the period and assumes reinvestment of dividends and distributions at net asset value. |
See accompanying notes
7
Selected data for each share of the Series outstanding throughout each period were as follows:
|
| Delaware VIP Growth Opportunities Series Service Class |
| ||||||||||||||||
|
| Six Months |
| Year Ended |
| ||||||||||||||
|
| 6/30/07(1) |
| 12/31/06 |
| 12/31/05 |
| 12/31/04 |
| 12/31/03 |
| 12/31/02 |
| ||||||
|
| (Unaudited) |
|
|
|
|
|
|
|
|
|
|
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Net asset value, beginning of period |
| $ | 18.640 |
| $ | 17.580 |
| $ | 15.810 |
| $ | 14.100 |
| $ | 10.010 |
| $ | 14.970 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Income (loss) from investment operations: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Net investment loss(2) |
| (0.062 | ) | (0.066 | ) | (0.096 | ) | (0.066 | ) | (0.058 | ) | (0.043 | ) | ||||||
Net realized and unrealized gain (loss) on investments |
| 2.642 |
| 1.126 |
| 1.866 |
| 1.776 |
| 4.148 |
| (3.343 | ) | ||||||
Total from investment operations |
| 2.580 |
| 1.060 |
| 1.770 |
| 1.710 |
| 4.090 |
| (3.386 | ) | ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Less dividends and distributions from: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Return of capital |
| — |
| — |
| — |
| — |
| — |
| (1.574 | ) | ||||||
Total dividends and distributions |
| — |
| — |
| — |
| — |
| — |
| (1.574 | ) | ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Net asset value, end of period |
| $ | 21.220 |
| $ | 18.640 |
| $ | 17.580 |
| $ | 15.810 |
| $ | 14.100 |
| $ | 10.010 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Total return(3) |
| 13.84 | % | 6.03 | % | 11.20 | % | 12.13 | % | 40.86 | % | (25.09 | )% | ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Ratios and supplemental data: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Net assets, end of period (000 omitted) |
| $ | 13,372 |
| $ | 12,196 |
| $ | 14,048 |
| $ | 15,082 |
| $ | 16,906 |
| $ | 15,275 |
|
Ratio of expenses to average net assets |
| 1.15 | % | 1.16 | % | 1.15 | % | 1.09 | % | 1.07 | % | 1.02 | % | ||||||
Ratio of expenses to average net assets prior to expense limitation and expenses paid indirectly |
| 1.20 | % | 1.21 | % | 1.20 | % | 1.14 | % | 1.10 | % | 1.02 | % | ||||||
Ratio of net investment loss to average net assets |
| (0.62 | )% | (0.36 | )% | (0.60 | )% | (0.46 | )% | (0.49 | )% | (0.36 | )% | ||||||
Ratio of net investment loss to average net assets prior to expense limitation and expenses paid indirectly |
| (0.67 | )% | (0.41 | )% | (0.65 | )% | (0.51 | )% | (0.52 | )% | (0.36 | )% | ||||||
Portfolio turnover |
| 85 | % | 67 | % | 75 | % | 94 | % | 94 | % | 88 | % |
(1) |
| Ratios and portfolio turnover have been annualized and total return has not been annualized. |
(2) |
| The average shares outstanding method has been applied for per share information. |
(3) |
| Total investment return is based on the change in net asset value of a share during the period and assumes reinvestment of dividends and distributions at net asset value. Total investment return reflects waivers and payment of fees by the distributor, as applicable. Performance would have been lower had the expense limitation and waiver not been in effect. |
See accompanying notes
8
Delaware VIP Trust — Delaware VIP Growth Opportunities Series
Notes to Financial Statements
June 30, 2007 (Unaudited)
Delaware VIP Trust (Trust) is organized as a Delaware statutory trust and offers 14 series: Delaware VIP Balanced Series, Delaware VIP Capital Reserves Series, Delaware VIP Cash Reserve Series, Delaware VIP Diversified Income Series, Delaware VIP Emerging Markets Series, Delaware VIP Growth Opportunities Series, Delaware VIP High Yield Series, Delaware VIP International Value Equity Series, Delaware VIP REIT Series, Delaware VIP Select Growth Series, Delaware VIP Small Cap Value Series, Delaware VIP Trend Series, Delaware VIP U.S. Growth Series and Delaware VIP Value Series. These financial statements and the related notes pertain to Delaware VIP Growth Opportunities Series (Series). The Trust is an open-end investment company. The Series is considered diversified under the Investment Company Act of 1940, as amended, and offers Standard Class and Service Class shares. The Standard Class shares do not carry a 12b-1 fee and the Service Class shares carry a 12b-1 fee. The shares of the Series are sold only to separate accounts of life insurance companies.
The investment objective of the Series is to seek long-term capital appreciation.
1. Significant Accounting Policies
The following accounting policies are in accordance with U.S. generally accepted accounting principles and are consistently followed by the Series.
Security Valuation—Equity securities, except those traded on the Nasdaq Stock Market, Inc. (Nasdaq), are valued at the last quoted sales price as of the time of the regular close of the New York Stock Exchange (NYSE) on the valuation date. Securities traded on the Nasdaq are valued in accordance with the Nasdaq Official Closing Price, which may not be the last sales price. If on a particular day an equity security does not trade, then the mean between the bid and asked prices will be used. Short-term debt securities having less than 60 days to maturity are valued at amortized cost, which approximates market value. Securities lending collateral is valued at amortized cost, which approximates value. Other securities and assets for which market quotations are not readily available are valued at fair value as determined in good faith under the direction of the Series’ Board of Trustees. In determining whether market quotations are readily available or fair valuation will be used, various factors will be taken into consideration, such as market closures, aftermarket trading, or significant events after local market trading (e.g., government actions or pronouncements, trading volume or volatility on markets, exchanges among dealers, or news events).
In September 2006, the Financial Accounting Standards Board (FASB) issued FASB Statement No. 157 “Fair Value Measurements” (Statement 157). Statement 157 establishes a framework for measuring fair value in generally accepted accounting principles, clarifies the definition of fair value within that framework, and expands disclosures about the use of fair value measurements. Statement 157 is intended to increase consistency and comparability among fair value estimates used in financial reporting. Statement 157 is effective for fiscal years beginning after November 15, 2007. Management does not expect the adoption of Statement 157 to have an impact on the amounts reported in the financial statements.
Federal Income Taxes—The Series intends to continue to qualify for federal income tax purposes as a regulated investment company and make the requisite distributions to shareholders. Accordingly, no provision for federal income taxes has been made in the financial statements.
Effective June 29, 2007, the Series adopted FASB Interpretation No. 48 “Accounting for Uncertainty in Income Taxes” (FIN 48). FIN 48 provides guidance for how uncertain tax positions should be recognized, measured, presented and disclosed in the financial statements. FIN 48 requires the evaluation of tax positions taken or expected to be taken in the course of preparing the Series’ tax returns to determine whether the tax positions are “more-likely-than-not” of being sustained by the applicable tax authority. Tax positions not deemed to meet the more-likely-than-not threshold are recorded as a tax benefit or expense in the current year. The adoption of FIN 48 did not result in the recording of any tax benefit or expense in the current period.
Class Accounting—Investment income, common expenses and realized and unrealized gain (loss) on investments are allocated to the classes of the Series on the basis of daily net assets of each class. Distribution expenses relating to a specific class are charged directly to that class.
Repurchase Agreements—The Series may invest in a pooled cash account along with members of the Delaware Investments® Family of Funds pursuant to an exemptive order issued by the Securities and Exchange Commission. The aggregate daily balance of the pooled cash account is invested in repurchase agreements secured by obligations of the U.S. government. The respective collateral is held by the Series’ custodian bank until the maturity of the respective repurchase agreements. Each repurchase agreement is at least 102% collateralized. However, in the event of default or bankruptcy by the counterparty to the agreement, realization of the collateral may be subject to legal proceedings.
Use of Estimates—The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Other—Expenses directly attributable to the Series are charged directly to the Series. Other expenses common to various funds within the Delaware Investments® Family of Funds are generally allocated amongst such funds on the basis of average net assets. Management fees and some other expenses are paid monthly. Security transactions are recorded on the date the securities are purchased or sold (trade date) for financial reporting purposes. Costs used in calculating realized gains and losses on the sale of investment securities are those of the specific securities sold. Dividend income is recorded on the ex-dividend date and interest income is recorded on the accrual basis.
The Series declares and pays dividends from net investment income and distributions from net realized gain on investments, if any, following the close of the fiscal year.
9
Subject to seeking best execution, the Series may direct certain security trades to brokers who have agreed to rebate a portion of the related brokerage commission to the Series in cash. Such commission rebates are included in realized gain on investments in the accompanying financial statements and totaled $663 for the six months ended June 30, 2007. In general, best execution refers to many factors, including the price paid or received for a security, the commission charged, the promptness and reliability of execution, the confidentiality and placement accorded the order, and other factors affecting the overall benefit obtained by the Series on the transaction.
The Series may receive earnings credits from its custodian when positive cash balances are maintained, which are used to offset custody fees. The expense paid under this arrangement is included in custodian fees on the Statement of Operations with the corresponding expense offset shown as “expense paid indirectly.”
2. Investment Management, Administration Agreements and Other Transactions with Affiliates
In accordance with the terms of its investment management agreement, the Series pays Delaware Management Company (DMC), a series of Delaware Management Business Trust and the investment manager, an annual fee which is calculated daily at the rate of 0.75% on the first $500 million of average daily net assets of the Series, 0.70% on the next $500 million, 0.65% on the next $1.5 billion, and 0.60% on average daily net assets in excess of $2.5 billion.
Prior to May 1, 2007, DMC had contractually agreed to waive that portion, if any, of its management fee and reimburse the Series to the extent necessary to ensure that annual operating expenses, exclusive of taxes, interest, brokerage commissions, inverse floater expenses, 12b-1 plan expenses, certain insurance costs and non-routine expenses or costs including, but not limited to, those relating to reorganizations, litigation, certain Trustee retirement plan expenses, conducting shareholder meetings, and liquidations, did not exceed 0.95% of average daily net assets of the Series through April 30, 2007. No reimbursement was due for the six months ended June 30, 2007.
Delaware Service Company, Inc. (DSC), an affiliate of DMC, provides accounting, administration, dividend disbursing and transfer agent services. The Series pays DSC a monthly fee computed at the annual rate of 0.04% of the Series’ average daily net assets for accounting and administrative services. The Series pays DSC a monthly fee based on average net assets for dividend disbursing and transfer agent services.
Pursuant to a distribution agreement and distribution plan, the Series pays Delaware Distributors, L.P. (DDLP), the distributor and an affiliate of DMC, an annual distribution and service fee not to exceed 0.30% of the average daily net assets of the Service Class shares. DDLP has contracted to waive distribution and service fees through April 30, 2008 in order to prevent distribution and service fees of the Service Class shares from exceeding 0.25% of average daily net assets. Standard Class shares pay no distribution and service expenses.
At June 30, 2007, the Series had liabilities payable to affiliates as follows:
Investment |
| Dividend Disbursing, |
| Distribution |
| Other |
| ||||
$ | 31,029 |
| $ | 2,638 |
| $ | 2,685 |
| $ | 15,848 |
|
* DMC, as part of its administrative services, pays operating expenses on behalf of the Series and is reimbursed on a periodic basis. Such expenses include items such as printing of shareholder reports, fees for audit, legal and tax services, custodian fees and trustees’ fees.
As provided in the investment management agreement, the Series bears the cost of certain legal and tax services, including internal legal and tax services provided to the Series by DMC and/or its affiliates’ employees. For the six months ended June 30, 2007, the Series was charged $1,144 for internal legal and tax services provided by DMC and/or its affiliates’ employees.
Trustees’ fees and benefits include expenses accrued by the Series for each Trustee’s retainer, per meeting fees and retirement benefits. Independent Trustees with over five years of uninterrupted service were eligible to participate in a retirement plan that provides for the payment of benefits upon retirement. The amount of the retirement benefit was determined based on factors set forth in the plan, including the number of years of service. On November 16, 2006, the Board of Trustees unanimously voted to terminate the retirement plan. Payments equal to the net present value of the earned benefits were made in 2007 to those independent Trustees so entitled. The retirement benefit payout for the Series was $6,312. Certain officers of DMC, DSC and DDLP are officers and/or Trustees of the Trust. These officers and Trustees are paid no compensation by the Series.
10
3. Investments
For the six months ended June 30, 2007, the Series made purchases and sales of investment securities other than short-term investments as follows:
Purchases |
| $ | 21,290,436 |
|
Sales |
| 29,761,510 |
|
At June 30, 2007, the cost of investments for federal income tax purposes has been estimated since the final tax characteristics cannot be determined until fiscal year end. At June 30, 2007, the cost of investments and unrealized appreciation (depreciation) for the Series were as follows:
Cost of |
| Aggregate |
| Aggregate |
| Net Unrealized |
| ||||
$ | 46,721,159 |
| $ | 13,108,515 |
| $ | (650,740 | ) | $ | 12,457,775 |
|
4. Dividend and Distribution Information
Income and long-term capital gain distributions are determined in accordance with federal income tax regulations, which may differ from U.S. generally accepted accounting principles. Additionally, net short-term gains on sales of investment securities are treated as ordinary income for federal income tax purposes. There were no dividends and distributions paid during the six months ended June 30, 2007 and the year ended December 31, 2006.
5. Components of Net Assets on a Tax Basis
The components of net assets are estimated since final tax characteristics cannot be determined until fiscal year end. As of June 30, 2007, the estimated components of net assets on a tax basis were as follows:
Shares of beneficial interest |
| $ | 36,796,876 |
|
Capital loss carryforwards as of 12/31/06 |
| (4,767,587 | ) | |
Realized gains 1/1/07 – 6/30/07 |
| 5,168,837 |
| |
Unrealized appreciation of investments |
| 12,457,775 |
| |
Net assets |
| $ | 49,655,901 |
|
The differences between book basis and tax basis components of net assets are primarily attributable to tax deferral of losses on wash sales.
For financial reporting purposes, capital accounts are adjusted to reflect the tax character of permanent book/tax differences. Reclassifications are primarily due to tax treatment of net operating losses. Results of operations and net assets were not affected by these reclassifications. For the six months ended June 30, 2007, the Series recorded an estimate of these differences since the final tax characteristics cannot be determined until fiscal year end.
Accumulated |
| Paid-in |
| ||
$ | 108,097 |
| $ | (108,097 | ) |
For federal income tax purposes, capital loss carryforwards may be carried forward and applied against future capital gains. Capital loss carryforwards of $4,767,587 remaining at December 31, 2006 will expire in 2010.
For the six months ended June 30, 2007, the Series had capital gains of $5,168,837, which may reduce the capital loss carryforwards.
11
6. Capital Shares
Transactions in capital shares were as follows:
| Six Months |
| Year |
| |
Shares sold: |
|
|
|
|
|
Standard Class |
| 64,076 |
| 2,215,596 |
|
Service Class |
| 49,399 |
| 725,687 |
|
|
| 113,475 |
| 2,941,283 |
|
Shares repurchased: |
|
|
|
|
|
Standard Class |
| (435,548 | ) | (2,747,292 | ) |
Service Class |
| (73,461 | ) | (870,649 | ) |
|
| (509,009 | ) | (3,617,941 | ) |
Net decrease |
| (395,534 | ) | (676,658 | ) |
7. Line of Credit
The Series, along with certain other funds in the Delaware Investments® Family of Funds (Participants), participates in a $225,000,000 revolving line of credit facility to be used for temporary or emergency purposes as an additional source of liquidity to fund redemptions of investor shares. The Participants are charged an annual commitment fee, which is allocated across the Participants on the basis of each Participant’s allocation of the entire facility. The Participants may borrow up to a maximum of one third of their net assets under the agreement. The Series had no amounts outstanding as of June 30, 2007, or at any time during the period then ended.
8. Securities Lending
The Series, along with other funds in the Delaware Investments® Family of Funds, may lend its securities pursuant to a security lending agreement (Lending Agreement) with JPMorgan Chase. Initial security loans made pursuant to the Lending Agreement are required to be secured by U.S. government obligations and/or cash collateral not less than 102% of the value of the securities issued in the United States. With respect to each loan, if the aggregate value of the collateral held on any business day is less than the aggregate value of the securities which are the subject of such loan, the borrower will be notified to provide additional collateral not less than the applicable collateral requirements. Cash collateral received is invested in fixed income securities, with a weighted average maturity not to exceed 90 days, rated in one of the top two tiers by Standard & Poor’s Ratings Group or Moody’s Investors Service, Inc. or repurchase agreements collateralized by such securities. However, in the event of default or bankruptcy by the lending agent, realization and/or retention of the collateral may be subject to legal proceedings. In the event the borrower fails to return loaned securities and the collateral received is insufficient to cover the value of the loaned securities and provided such collateral shortfall is not the result of investment losses, the lending agent has agreed to pay the amount of the shortfall to the Series, or at the discretion of the lending agent, replace the loaned securities. The Series continues to record dividends on the securities loaned and is subject to change in value of the securities loaned that may occur during the term of the loan. The Series has the right under the Lending Agreement to recover the securities from the borrower on demand. The security lending agent and the borrower retain a portion of the earnings from the collateral investments. The Series records security lending income net of such allocation.
At June 30, 2007, the value of securities on loan was $9,995,134, for which cash collateral was received and invested in accordance with the Lending Agreement. Such investments are presented on the Statement of Net Assets under the caption “Securities Lending Collateral.”
9. Credit and Market Risk
The Series invests a significant portion of its assets in small- and mid-sized companies and may be subject to certain risks associated with ownership of securities of such companies. Investments in small- or mid-sized companies may be more volatile than investments in larger companies for a number of reasons, which include more limited financial resources or a dependence on narrow product lines.
The Series may invest up to 10% of its total assets in illiquid securities, which may include securities with contractual restrictions on resale, securities exempt from registration under Rule 144A of the Securities Act of 1933, as amended, and other securities which may not be readily marketable. The relative illiquidity of these securities may impair the Series from disposing of them in a timely manner and at a fair price when it is necessary or desirable to do so. While maintaining oversight, the Series’ Board of Trustees has delegated to DMC the day-to-day functions of determining whether individual securities are liquid for purposes of the Series’ limitation on investments in illiquid assets. As of June 30, 2007, there were no Rule 144A securities and no securities have been determined to be illiquid under the Series’ Liquidity Procedures.
12
10. Contractual Obligations
The Series enters into contracts in the normal course of business that contain a variety of indemnifications. The Series’ maximum exposure under these arrangements is unknown. However, the Series has not had prior claims or losses pursuant to these contracts. Management has reviewed the Series’ existing contracts and expects the risk of loss to be remote.
11. Subsequent Event
The Series has a new securities lending agreement with Mellon Bank, N.A. as of August 2, 2007.
The Series files its complete schedule of portfolio holdings with the Securities and Exchange Commission (the Commission) for the first and third quarters of each fiscal year on Form N-Q. The Series’ Forms N-Q, as well as a description of the policies and procedures that the Series uses to determine how to vote proxies (if any) relating to portfolio securities is available without charge (i) upon request, by calling 800 523-1918; and (ii) on the Commission’s website at http://www.sec.gov. In addition, a description of the policies and procedures that the Series uses to determine how to vote proxies (if any) relating to portfolio securities is available without charge on the Delaware Investments® Funds’ website at http://www.delawareinvestments.com. The Series’ Forms N-Q may be reviewed and copied at the Commission’s Public Reference Room in Washington, DC; information on the operation of the Public Reference Room may be obtained by calling 800 SEC-0330.
Information (if any) regarding how the Series voted proxies relating to portfolio securities during the most recently disclosed 12-month period ended June 30 is available without charge (i) through the Delaware Investments® Funds’ website at http://www.delawareinvestments.com; and (ii) on the Commission’s website at http://www.sec.gov.
13
Delaware VIP Trust — Delaware VIP Growth Opportunities Series
Other Series Information
Board Consideration of Delaware VIP Growth Opportunities Series Investment Advisory Agreement
At a meeting held on May 16-17, 2007 (Annual Meeting), the Board of Trustees (Board), including a majority of disinterested or independent Trustees, approved the renewal of the Investment Advisory Agreement for the VIP Growth Opportunities Series (Series). In making its decision, the Board considered information furnished throughout the year at regular Board meetings, including reports detailing Series performance, investment strategies and expenses, as well as information prepared specifically in connection with the renewal of the investment advisory contracts. Information furnished specifically in connection with the renewal of the Investment Advisory Agreement with Delaware Management Company (DMC) included materials provided by DMC and its affiliates (Delaware Investments) concerning, among other things, the level of services provided to the Series, the costs of such services to the Series, economies of scale and the financial condition and profitability of Delaware Investments. In addition, in connection with the Meeting, the Board separately received and reviewed in mid-January 2007 independent historical and comparative reports prepared by Lipper Inc. (Lipper), an independent statistical compilation organization. The Lipper reports compared the Series’ investment performance and expenses with those of other comparable mutual funds. The Board requested and received certain information regarding management’s policy with respect to advisory fee levels and its philosophy with respect to breakpoints; the structure of portfolio manager compensation; the investment manager’s profitability; and any constraints or limitations on the availability of securities in certain investment styles which might inhibit DMC’s ability to fully invest in accordance with the Series’ policies.
In considering information relating to the approval of the Series’ advisory agreement, the independent Trustees received assistance and advice from and met separately with independent counsel. While attention was given to all information furnished, the following discusses under separate headings the primary factors taken into account by the Board in its contract renewal considerations.
NATURE, EXTENT AND QUALITY OF SERVICE. Consideration was given to the services provided by Delaware Investments to the Series and its shareholders. In reviewing the nature, extent and quality of services, the Board emphasized reports furnished to it throughout the year at regular Board meetings covering matters such as the relative performance of the Series, compliance of portfolio managers with the investment policies, strategies and restrictions for the Series, the compliance of management personnel with the Code of Ethics adopted throughout the Delaware Investments® Family of Funds complex and the adherence to fair value pricing procedures as established by the Board. The Board noted that it was pleased with the current staffing of the Series’ investment advisor and the emphasis placed on research in the investment process. Favorable consideration was given to DMC’s efforts to maintain, and in some instances increase, financial and human resources committed to fund matters. The Board also considered the transfer agent and shareholder services provided to Series shareholders by Delaware Investments’ affiliate, Delaware Service Company, Inc. (DSC), noting DSC’s commitment to maintain a high level of service and the continuing expenditures by Delaware Investments to improve the delivery of shareholder services. During 2006, management conducted extensive research into alternatives that could further improve the quality and cost of delivering investment accounting services to the Fund. The Board was satisfied with the nature, extent and quality of the overall services provided by Delaware Investments.
INVESTMENT PERFORMANCE. The Board considered the investment performance of DMC and the Series. The Board placed significant emphasis on the investment performance of the Series in view of its importance to shareholders. While consideration was given to performance reports and discussions with portfolio managers at Board meetings throughout the year, particular weight was given to the Lipper reports furnished for the Annual Meeting. The Lipper reports prepared for the Series showed the investment performance of its Standard Class shares in comparison to a group of similar funds as selected by Lipper (Performance Universe). A fund with the best performance ranked first, and a fund with the poorest ranked last. The highest/best performing 25% of funds in the Performance Universe make up the first quartile; the next 25% — the second quartile; the next 25% — the third quartile; and the poorest/worst performing 25% of funds in the Performance Universe make up the fourth quartile. Comparative annualized performance for the Series was shown for the past one, three, five and ten year periods ended December 31, 2006. The Board also considered comparative annualized performance for the Series for the same periods ended October 31, 2006. The performance comparison presented below is based upon the December 31, 2006 information. The Board noted its objective that the Series’ performance for the periods considered be at or above the median of its Performance Universe. The following paragraph summarizes the performance results for the Series and the Board’s view of such performance.
The Performance Universe for the Series consisted of the Series and all mid-cap growth funds underlying variable insurance products as selected by Lipper. The Lipper report comparison showed that the Series’ total return for the one and three year periods was in the third quartile of its Performance Universe. The report further showed that the Series’ total return for the five and ten year periods was in the second quartile. The Board noted that the Series’ performance results were mixed but on an overall basis tended toward median, which was acceptable. Additionally, the Board recognized management’s efforts to increase portfolio management depth, noting particularly the recent hire of a new head of the equity department.
COMPARATIVE EXPENSES. The Board considered expense comparison data for the Delaware Investments Family of Funds as of October 31, 2006. Management provided the Board with information on pricing levels and fee structures for the Series. The Board focused particularly on the comparative analysis of the effective management fees and total expense ratios of the Series and the effective management fees and expense ratios of a group of similar funds as selected by Lipper (Expense Group). In reviewing comparative costs, the Series’ contractual management fee and the actual management fee incurred by the Series were compared with the contractual management fees (assuming all funds in the Expense Group were similar in size to the Series) and actual management fees (as reported by each fund) of other funds within the Expense Group, taking into account any applicable breakpoints and fee waivers. The Series’ total expenses were also compared with those of its Expense Group. The Lipper total expenses, for comparative consistency, were shown by Lipper for Standard Class shares which do not charge 12b-1 and non-12b-1 service fees. The Board also considered fees paid to Delaware Investments for non-management services. The Board noted its objective to limit the Series’ total expense ratio to an acceptable range as compared to the median of the Expense Group. The following paragraph summarizes the expense results for the Series and the Board’s view of such expenses.
The expense comparisons for the Series showed that its actual management fee and total expenses were in the quartile with the second lowest expenses of its Expense Group. The Board was satisfied with the management fee and total expenses of the Series in comparison to its Expense Group as shown in the Lipper report.
14
MANAGEMENT PROFITABILITY. The Board considered the level of profits, if any, realized by Delaware Investments in connection with the operation of the Series. In this respect, the Board reviewed the Investment Management Profitability Analysis that addressed the overall profitability of Delaware Investments’ business in providing management and other services to each of the individual funds and the Delaware Investments® Family of Funds as a whole. Specific attention was given to the methodology followed in allocating costs for the purpose of determining profitability. Management stated that the level of profits of Delaware Investments, to a certain extent, reflected operational cost savings and efficiencies initiated by Delaware Investments. The Board considered Delaware Investments’ efforts to improve services provided to fund shareholders and to meet additional regulatory and compliance requirements resulting from recent Securities and Exchange Commission initiatives. The Board also considered the extent to which Delaware Investments might derive ancillary benefits from fund operations, including the potential for procuring additional business as a result of the prestige and visibility associated with its role as service provider to the Delaware Investments Family of Funds and the benefits from allocation of fund brokerage to improve trading efficiencies. The Board found that the level of management fees was reasonable in light of the services rendered and the profitability of Delaware Investments.
ECONOMIES OF SCALE. The Trustees considered whether economies of scale are realized by Delaware Investments as the Series’ assets increase and the extent to which any economies of scale are reflected in the level of management fees charged. The Trustees took into account the standardized advisory fee pricing and structure, approved by the Board and shareholders and again reviewed by the Board this year, which includes breakpoints. Breakpoints in the advisory fee occur when the advisory fee rate is reduced on assets in excess of specified levels. This results in a lower advisory fee than would otherwise be the case on all assets when those asset levels specified are exceeded. The Board noted that the fee under the Series’ management contract fell within the standard structure. Although the Series has not reached a size at which the advantages of breakpoints would be realized, the Board recognized that the fee was structured so that when the Series grows, economies of scale may be shared.
15
Delaware VIP Trust — Delaware VIP High Yield Series
Disclosure of Series Expenses
For the Period January 1, 2007 to June 30, 2007
As a shareholder of the Series, you incur ongoing costs, including management fees; distribution and/or service (12b-1) fees; and other Series expenses. This Example is intended to help you understand your ongoing costs (in dollars) of investing in the Series and to compare these costs with the ongoing costs of investing in other mutual funds.
The Example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period from January 1, 2007 to June 30, 2007.
Actual Expenses
The first section of the table shown, “Actual Series Return,” provides information about actual account values and actual expenses. You may use the information in this section of the table, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first section under the heading entitled “Expenses Paid During Period” to estimate the expenses you paid on your account during the period.
Hypothetical Example for Comparison Purposes
The second section of the table shown, “Hypothetical 5% Return,” provides information about hypothetical account values and hypothetical expenses based on the Series’ actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Series’ actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Series and other funds. To do so, compare the 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs only. As a shareholder of the Series, you do not incur any transaction costs, such as sales charges (loads), redemption fees or exchange fees, but shareholders of other funds may incur such costs. Also, the fees related to the variable annuity investment or the deferred sales charge that could apply have not been included. Therefore, the second section of the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. The Series’ actual expenses shown in the table reflect fee waivers in effect. The expenses shown in the table assume reinvestment of all dividends and distributions.
Expense Analysis of an Investment of $1,000
|
| Beginning |
| Ending |
| Annualized |
| Expenses |
| |||
Actual Series Return |
|
|
|
|
|
|
|
|
| |||
Standard Class |
| $ | 1,000.00 |
| $ | 1,041.80 |
| 0.75 | % | $ | 3.80 |
|
Service Class |
| 1,000.00 |
| 1,039.30 |
| 1.00 | % | 5.06 |
| |||
|
|
|
|
|
|
|
|
|
| |||
Hypothetical 5% Return (5% return before expenses) |
|
|
|
|
|
|
|
|
| |||
Standard Class |
| $ | 1,000.00 |
| $ | 1,021.08 |
| 0.75 | % | $ | 3.76 |
|
Service Class |
| 1,000.00 |
| 1,019.84 |
| 1.00 | % | 5.01 |
|
* “Expenses Paid During Period” are equal to the Series’ annualized expense ratio, multiplied by the average account value over the period, multiplied by 181/365 (to reflect the one-half year period).
1
Delaware VIP Trust — Delaware VIP High Yield Series
Sector Allocation and Credit Quality Breakdown
As of June 30, 2007
Sector designations may be different than the sector designations presented in other Series materials.
Sector |
| Percentage |
|
Commercial Mortgage-Backed Securities |
| 0.38 | % |
Corporate Bonds |
| 77.14 | % |
Basic Industry |
| 9.37 | % |
Brokerage |
| 2.10 | % |
Capital Goods |
| 4.73 | % |
Consumer Cyclical |
| 7.29 | % |
Consumer Non-Cyclical |
| 4.52 | % |
Energy |
| 8.29 | % |
Finance & Investments |
| 0.39 | % |
Media |
| 7.79 | % |
Real Estate |
| 1.64 | % |
Services Cyclical |
| 11.66 | % |
Services Non-Cyclical |
| 5.66 | % |
Technology & Electronics |
| 2.37 | % |
Telecommunications |
| 8.18 | % |
Utilities |
| 3.15 | % |
Convertible Bonds |
| 0.26 | % |
Emerging Market Bonds |
| 0.31 | % |
Senior Secured Loans |
| 4.32 | % |
Common Stock |
| 1.19 | % |
Warrants |
| 0.00 | % |
Discount Note |
| 15.37 | % |
Total Value of Securities |
| 98.97 | % |
Receivables and Other Assets Net of Liabilities |
| 1.03 | % |
Total Net Assets |
| 100.00 | % |
Credit Quality Breakdown |
|
|
|
AAA |
| 16.39 | % |
BBB |
| 1.83 | % |
BB |
| 12.29 | % |
B |
| 52.75 | % |
CCC |
| 13.70 | % |
D |
| 0.35 | % |
Not Rated |
| 2.69 | % |
Total |
| 100.00 | % |
2
Delaware VIP Trust — Delaware VIP High Yield Series
Statement of Net Assets
June 30, 2007 (Unaudited)
|
| Principal |
| Value |
| |||
| COMMERCIAL MORTGAGE-BACKED SECURITIES–0.38% |
|
|
|
|
| ||
# | First Union National Bank Commercial Mortgage Series 2001-C2 L 144A 6.46% 1/12/43 |
| $ | 1,375,000 |
| $ | 1,363,417 |
|
| Total Commercial Mortgage-Backed Securities (cost $1,395,571) |
|
|
| 1,363,417 |
| ||
|
|
|
|
|
|
| ||
| CORPORATE BONDS–77.14% |
|
|
|
|
| ||
| Basic Industry–9.37% |
|
|
|
|
| ||
| AK Steel 7.875% 2/15/09 |
| 541,000 |
| 542,353 |
| ||
| Bowater |
|
|
|
|
| ||
| 6.50% 6/15/13 |
| 800,000 |
| 699,000 |
| ||
| 9.00% 8/1/09 |
| 900,000 |
| 918,000 |
| ||
| 9.50% 10/15/12 |
| 2,200,000 |
| 2,178,000 |
| ||
| Bowater Canada Finance 7.95% 11/15/11 |
| 1,050,000 |
| 993,563 |
| ||
| Catalyst Paper 8.625% 6/15/11 |
| 3,565,000 |
| 3,466,962 |
| ||
| Freeport McMoRan Copper & Gold 8.25% 4/1/15 |
| 1,850,000 |
| 1,956,375 |
| ||
| Georgia-Pacific 8.875% 5/15/31 |
| 3,320,000 |
| 3,328,299 |
| ||
| Hexion US Finance 9.75% 11/15/14 |
| 2,375,000 |
| 2,470,000 |
| ||
| Lyondell Chemical |
|
|
|
|
| ||
| 8.00% 9/15/14 |
| 2,450,000 |
| 2,529,625 |
| ||
| 8.25% 9/15/16 |
| 2,140,000 |
| 2,247,000 |
| ||
| 10.50% 6/1/13 |
| 190,000 |
| 206,150 |
| ||
# | Momentive Performance Materials 144A 9.75% 12/1/14 |
| 1,575,000 |
| 1,598,625 |
| ||
‡# | Port Townsend Paper 144A 11.00% 4/15/11 |
| 1,905,000 |
| 847,725 |
| ||
| Potlatch 13.00% 12/1/09 |
| 2,000,000 |
| 2,261,264 |
| ||
# | Sappi Papier Holding 144A 7.50% 6/15/32 |
| 2,920,000 |
| 2,687,364 |
| ||
‡ | Solutia 6.72% 10/15/37 |
| 1,570,000 |
| 1,424,775 |
| ||
# | Steel Dynamics 144A 6.75% 4/1/15 |
| 725,000 |
| 714,125 |
| ||
# | Tube City IMS 144A 9.75% 2/1/15 |
| 1,575,000 |
| 1,622,250 |
| ||
| Witco 6.875% 2/1/26 |
| 580,000 |
| 484,300 |
| ||
|
|
|
|
| 33,175,755 |
| ||
| Brokerage–2.10% |
|
|
|
|
| ||
| E Trade Financial 8.00% 6/15/11 |
| 2,000,000 |
| 2,060,000 |
| ||
# | HUB International Holdings 10.25% 6/15/15 |
| 670,000 |
| 648,225 |
| ||
| LaBranche |
|
|
|
|
| ||
| 9.50% 5/15/09 |
| 1,290,000 |
| 1,341,600 |
| ||
| 11.00% 5/15/12 |
| 3,170,000 |
| 3,376,050 |
| ||
|
|
|
|
| 7,425,875 |
| ||
| Capital Goods–4.73% |
|
|
|
|
| ||
| Armor Holdings 8.25% 8/15/13 |
| 1,075,000 |
| 1,136,813 |
| ||
| Baldor Electric 8.625% 2/15/17 |
| 600,000 |
| 637,500 |
| ||
| Berry Plastics Holding 8.875% 9/15/14 |
| 1,950,000 |
| 1,984,125 |
| ||
| CPG International 10.50% 7/1/13 |
| 1,275,000 |
| 1,313,250 |
| ||
| Graham Packaging 9.875% 10/15/14 |
| 1,050,000 |
| 1,067,063 |
| ||
| Greenbrier 8.375% 5/15/15 |
| 295,000 |
| 298,688 |
| ||
# | Hawker Beechcraft Acquisition 144A 9.75% 4/1/17 |
| 1,280,000 |
| 1,340,800 |
| ||
| Interface 10.375% 2/1/10 |
| 2,125,000 |
| 2,294,999 |
| ||
| Intertape Polymer 8.50% 8/1/14 |
| 1,160,000 |
| 1,154,200 |
| ||
# | Mueller Water Products 144A 7.375% 6/1/17 |
| 445,000 |
| 443,491 |
| ||
| RBS Global & Rexnord 11.75% 8/1/16 |
| 1,600,000 |
| 1,728,000 |
| ||
| Smurfit-Stone Container Enterprises 8.00% 3/15/17 |
| 1,515,000 |
| 1,477,125 |
| ||
| Trimas 9.875% 6/15/12 |
| 1,831,000 |
| 1,890,508 |
| ||
|
|
|
|
| 16,766,562 |
| ||
| Consumer Cyclical–7.29% |
|
|
|
|
| ||
| Accuride 8.50% 2/1/15 |
| 875,000 |
| 868,438 |
| ||
| Carrols 9.00% 1/15/13 |
| 2,905,000 |
| 2,875,949 |
| ||
# | Claire’s Stores 144A 9.25% 6/1/15 |
| 425,000 |
| 405,875 |
| ||
| Denny’s 10.00% 10/1/12 |
| 1,750,000 |
| 1,855,000 |
| ||
| Ford Motor Credit |
|
|
|
|
| ||
| 7.375% 10/28/09 |
| 1,450,000 |
| 1,440,104 |
| ||
| 7.80% 6/1/12 |
| 1,525,000 |
| 1,489,164 |
| ||
• | 8.105% 1/13/12 |
| 750,000 |
| 748,800 |
| ||
| General Motors 8.375% 7/15/33 |
| 3,450,000 |
| 3,165,374 |
| ||
# | Goodyear Tire & Rubber 144A 8.625% 12/1/11 |
| 1,282,000 |
| 1,355,715 |
| ||
# | KAR Holdings 144A 10.00% 5/1/15 |
| 2,650,000 |
| 2,597,000 |
| ||
| Lear 8.75% 12/1/16 |
| 1,400,000 |
| 1,340,500 |
| ||
# | Michaels Stores 144A 11.375% 11/1/16 |
| 700,000 |
| 735,000 |
| ||
| Neiman Marcus Group PIK 9.00% 10/15/15 |
| 1,475,000 |
| 1,585,625 |
| ||
| NPC International 9.50% 5/1/14 |
| 1,700,000 |
| 1,657,500 |
| ||
# | OSI Restaurant Partners 144A 10.00% 6/15/15 |
| 675,000 |
| 648,000 |
| ||
# | TRW Automotive 144A |
|
|
|
|
| ||
| 7.00% 3/15/14 |
| 1,175,000 |
| 1,125,063 |
| ||
| 7.25% 3/15/17 |
| 175,000 |
| 167,563 |
| ||
# | Vitro 144A 9.125% 2/1/17 |
| 1,705,000 |
| 1,756,150 |
| ||
|
|
|
|
| 25,816,820 |
| ||
| Consumer Non-Cyclical–4.52% |
|
|
|
|
| ||
| Chiquita Brands International 8.875% 12/1/15 |
| 1,350,000 |
| 1,280,813 |
| ||
| Constellation Brands 8.125% 1/15/12 |
| 1,950,000 |
| 1,993,875 |
| ||
| DEL Laboratories 8.00% 2/1/12 |
| 1,555,000 |
| 1,500,575 |
| ||
| National Beef Packing 10.50% 8/1/11 |
| 2,175,000 |
| 2,272,875 |
| ||
| Pilgrim’s Pride |
|
|
|
|
| ||
| 8.375% 5/1/17 |
| 4,370,000 |
| 4,348,150 |
| ||
| 9.625% 9/15/11 |
| 1,665,000 |
| 1,731,600 |
| ||
# | Pinnacle Foods Finance 144A 10.625% 4/1/17 |
| 1,970,000 |
| 1,905,975 |
| ||
| Smithfield Foods 7.75% 7/1/17 |
| 375,000 |
| 376,875 |
| ||
| True Temper Sports 8.375% 9/15/11 |
| 700,000 |
| 616,000 |
| ||
|
|
|
|
| 16,026,738 |
| ||
3
|
| Principal |
| Value |
| |||
| CORPORATE BONDS (continued) |
|
|
|
|
| ||
| Energy–8.29% |
|
|
|
|
| ||
| Bluewater Finance 10.25% 2/15/12 |
| $ | 985,000 |
| $ | 1,031,788 |
|
| Chesapeake Energy 6.625% 1/15/16 |
| 595,000 |
| 575,663 |
| ||
| Compton Petroleum Finance 7.625% 12/1/13 |
| 2,525,000 |
| 2,506,062 |
| ||
# | Dynergy Holdings 144A 7.75% 6/1/19 |
| 740,000 |
| 691,900 |
| ||
| El Paso 7.00% 6/15/17 |
| 600,000 |
| 596,426 |
| ||
# | El Paso Performance-Linked Trust 144A 7.75% 7/15/11 |
| 975,000 |
| 1,009,125 |
| ||
# | Energy Partners 144A 9.75% 4/15/14 |
| 890,000 |
| 887,775 |
| ||
| Geophysique-Veritas |
|
|
|
|
| ||
| 7.50% 5/15/15 |
| 215,000 |
| 216,075 |
| ||
| 7.75% 5/15/17 |
| 890,000 |
| 905,575 |
| ||
# | Hilcorp Energy I 144A |
|
|
|
|
| ||
| 7.75% 11/1/15 |
| 2,325,000 |
| 2,266,874 |
| ||
| 9.00% 6/1/16 |
| 1,475,000 |
| 1,534,000 |
| ||
| Inergy Finance |
|
|
|
|
| ||
| 6.875% 12/15/14 |
| 810,000 |
| 771,525 |
| ||
| 8.25% 3/1/16 |
| 375,000 |
| 387,188 |
| ||
# | Lukoil International Finance 144A |
|
|
|
|
| ||
| 6.356% 6/7/17 |
| 110,000 |
| 106,645 |
| ||
| 6.656% 6/7/22 |
| 110,000 |
| 106,975 |
| ||
| Mariner Energy 8.00% 5/15/17 |
| 1,200,000 |
| 1,197,000 |
| ||
| Massey Energy 6.625% 11/15/10 |
| 430,000 |
| 425,700 |
| ||
# | OPTI Canada 144A |
|
|
|
|
| ||
| 7.875% 12/15/14 |
| 525,000 |
| 527,625 |
| ||
| 8.25% 12/15/14 |
| 775,000 |
| 790,500 |
| ||
| PetroHawk Energy 9.125% 7/15/13 |
| 2,295,000 |
| 2,438,437 |
| ||
| Plains Exploration & Production 7.00% 3/15/17 |
| 985,000 |
| 938,213 |
| ||
# | Regency Energy Partners 144A 8.375% 12/15/13 |
| 1,775,000 |
| 1,837,125 |
| ||
• | Secunda International 13.356% 9/1/12 |
| 1,125,000 |
| 1,170,000 |
| ||
# | Seitel 144A 9.75% 2/15/14 |
| 1,550,000 |
| 1,542,250 |
| ||
# | Stallion Oilfield Services144A 9.75% 2/1/15 |
| 1,625,000 |
| 1,665,625 |
| ||
| TNK-BP Finance 6.625% 3/20/17 |
| 965,000 |
| 937,835 |
| ||
# | VeraSun Energy 144A 9.375% 6/1/17 |
| 1,500,000 |
| 1,402,500 |
| ||
| Whiting Petroleum 7.25% 5/1/13 |
| 935,000 |
| 892,925 |
| ||
|
|
|
|
| 29,359,331 |
| ||
| Finance & Investments–0.39% |
|
|
|
|
| ||
# | ABH Financial 144A 8.20% 6/25/12 |
| 490,000 |
| 490,000 |
| ||
# | TemirBank 144A 9.50% 5/21/14 |
| 910,000 |
| 898,625 |
| ||
|
|
|
|
| 1,388,625 |
| ||
| Media–7.79% |
|
|
|
|
| ||
| CCH I Holdings 13.50% 1/15/14 |
| 4,139,000 |
| 4,268,344 |
| ||
| Charter Communications Holdings 13.50% 1/15/11 |
| 4,225,000 |
| 4,399,281 |
| ||
| Dex Media West 9.875% 8/15/13 |
| 1,575,000 |
| 1,693,125 |
| ||
| Idearc 8.00% 11/15/16 |
| 1,225,000 |
| 1,243,375 |
| ||
| Insight Midwest 9.75% 10/1/09 |
| 2,025,000 |
| 2,045,250 |
| ||
| Mediacom Capital 9.50% 1/15/13 |
| 6,000,000 |
| 6,150,000 |
| ||
= | Porttown 10.82% 9/30/07 |
| 855,263 |
| 846,711 |
| ||
# | Quebecor World 144A 9.75% 1/15/15 |
| 1,865,000 |
| 1,897,638 |
| ||
| RH Donnelley 8.875% 1/15/16 |
| 900,000 |
| 940,500 |
| ||
# | Univision Communications PIK 144A 9.75% 3/15/15 |
| 2,270,000 |
| 2,252,975 |
| ||
| Vertis 10.875% 6/15/09 |
| 550,000 |
| 541,750 |
| ||
| WMG Acquisition 7.375% 4/15/14 |
| 1,395,000 |
| 1,304,325 |
| ||
|
|
|
|
| 27,583,274 |
| ||
| Real Estate–1.64% |
|
|
|
|
| ||
| American Real Estate Partners 8.125% 6/1/12 |
| 950,000 |
| 958,313 |
| ||
| BF Saul REIT 7.50% 3/1/14 |
| 2,625,000 |
| 2,647,968 |
| ||
# | Realogy 144A 12.375% 4/15/15 |
| 1,410,000 |
| 1,290,150 |
| ||
| Rouse 7.20% 9/15/12 |
| 875,000 |
| 902,413 |
| ||
|
|
|
|
| 5,798,844 |
| ||
| Services Cyclical–11.66% |
|
|
|
|
| ||
# | Aramark 144A 8.50% 2/1/15 |
| 1,650,000 |
| 1,687,125 |
| ||
# | Bristow Group 144A 7.50% 9/15/17 |
| 1,360,000 |
| 1,370,200 |
| ||
| Corrections Corporation of America 7.50% 5/1/11 |
| 720,000 |
| 733,500 |
| ||
| FTI Consulting 7.625% 6/15/13 |
| 2,225,000 |
| 2,263,938 |
| ||
# | Galaxy Entertainment Finance 144A 9.875% 12/15/12 |
| 2,900,000 |
| 3,131,999 |
| ||
| Gaylord Entertainment 8.00% 11/15/13 |
| 1,725,000 |
| 1,757,344 |
| ||
| Global Cash Access 8.75% 3/15/12 |
| 760,000 |
| 792,300 |
| ||
| Harrah’s Operating 6.50% 6/1/16 |
| 995,000 |
| 832,154 |
| ||
| Hertz 8.875% 1/1/14 |
| 1,350,000 |
| 1,414,125 |
| ||
¶ | H-Lines Finance Holding 11.00% 4/1/13 |
| 2,950,000 |
| 2,905,750 |
| ||
| Horizon Lines 9.00% 11/1/12 |
| 1,150,000 |
| 1,221,875 |
| ||
| Isle of Capri Casinos 9.00% 3/15/12 |
| 630,000 |
| 659,925 |
| ||
| Kansas City Southern de Mexico 9.375% 5/1/12 |
| 2,350,000 |
| 2,526,250 |
| ||
| Kansas City Southern Railway 9.50% 10/1/08 |
| 1,100,000 |
| 1,144,000 |
| ||
| Majestic Star Casino 9.50% 10/15/10 |
| 2,450,000 |
| 2,560,250 |
| ||
| Mandalay Resort Group |
|
|
|
|
| ||
| 9.375% 2/15/10 |
| 625,000 |
| 662,500 |
| ||
| 9.50% 8/1/08 |
| 1,475,000 |
| 1,526,625 |
| ||
# | Mobile Services Group 144A 9.75% 8/1/14 |
| 1,150,000 |
| 1,230,500 |
| ||
# | Penhall International 144A 12.00% 8/1/14 |
| 1,175,000 |
| 1,274,875 |
| ||
# | Pokagon Gaming Authority 144A 10.375% 6/15/14 |
| 2,635,000 |
| 2,918,262 |
| ||
# | Rental Service 144A 9.50% 12/1/14 |
| 2,700,000 |
| 2,767,500 |
| ||
| Seabulk International 9.50% 8/15/13 |
| 865,000 |
| 928,794 |
| ||
| Station Casinos 6.625% 3/15/18 |
| 1,280,000 |
| 1,107,200 |
| ||
¶ | Town Sports International 11.00% 2/1/14 |
| 1,125,000 |
| 1,040,625 |
| ||
| Wheeling Island Gaming 10.125% 12/15/09 |
| 2,775,000 |
| 2,823,563 |
| ||
|
|
|
|
| 41,281,179 |
| ||
4
|
| Principal |
| Value |
| |||
| CORPORATE BONDS (continued) |
|
|
|
|
| ||
| Services Non-Cyclical–5.66% |
|
|
|
|
| ||
# | Aleris International 144A 10.00% 12/15/16 |
| $ | 1,375,000 |
| $ | 1,371,563 |
|
| Allied Waste North America 9.25% 9/1/12 |
| 50,000 |
| 52,563 |
| ||
| Casella Waste Systems 9.75% 2/1/13 |
| 3,550,000 |
| 3,700,874 |
| ||
| Geo Sub 11.00% 5/15/12 |
| 1,450,000 |
| 1,479,000 |
| ||
| HCA 6.50% 2/15/16 |
| 1,475,000 |
| 1,255,594 |
| ||
# | HCA PIK 144A 9.625% 11/15/16 |
| 140,000 |
| 150,850 |
| ||
| Healthsouth 10.75% 6/15/16 |
| 2,375,000 |
| 2,588,749 |
| ||
# | Universal Hospital Services PIK 144A 8.50% 6/1/15 |
| 1,150,000 |
| 1,144,250 |
| ||
| US Oncology |
|
|
|
|
| ||
| 9.00% 8/15/12 |
| 395,000 |
| 408,825 |
| ||
| 10.75% 8/15/14 |
| 1,250,000 |
| 1,343,750 |
| ||
# | US Oncology Holdings PIK 144A 9.797% 3/15/12 |
| 2,335,000 |
| 2,305,813 |
| ||
¶ | Vanguard Health Holding 11.25% 10/1/15 |
| 2,730,000 |
| 2,238,600 |
| ||
| WCA Waste 9.25% 6/15/14 |
| 1,925,000 |
| 2,011,625 |
| ||
|
|
|
|
| 20,052,056 |
| ||
| Technology & Electronics–2.37% |
|
|
|
|
| ||
# | Freescale Semiconductor 144A 10.125% 12/15/16 |
| 4,405,000 |
| 4,162,725 |
| ||
| MagnaChip Semiconductor 8.00% 12/15/14 |
| 3,600,000 |
| 2,646,000 |
| ||
| Solectron Global Finance 8.00% 3/15/16 |
| 1,215,000 |
| 1,306,125 |
| ||
| Sungard Data Systems 10.25% 8/15/15 |
| 280,000 |
| 297,500 |
| ||
|
|
|
|
| 8,412,350 |
| ||
| Telecommunications–8.18% |
|
|
|
|
| ||
‡ | Allegiance Telecom 11.75% 2/15/08 |
| 565,000 |
| 259,900 |
| ||
| American Tower 7.125% 10/15/12 |
| 1,700,000 |
| 1,746,750 |
| ||
# | Broadview Networks Holdings 144A 11.375% 9/1/12 |
| 1,805,000 |
| 1,922,325 |
| ||
• | Centennial Communications 11.099% 1/1/13 |
| 1,560,000 |
| 1,638,000 |
| ||
| Cricket Communications 9.375% 11/1/14 |
| 2,650,000 |
| 2,749,375 |
| ||
# | Digicel 144A 9.25% 9/1/12 |
| 1,595,000 |
| 1,688,706 |
| ||
#• | Hellas Telecommunications Luxembourg II 144A 11.106% 1/15/15 |
| 2,565,000 |
| 2,654,775 |
| ||
| Hughes Network Systems/Finance 9.50% 4/15/14 |
| 4,075,000 |
| 4,278,749 |
| ||
¶ | Inmarsat Finance 10.375% 11/15/12 |
| 2,000,000 |
| 1,917,500 |
| ||
# | Level 3 Financing 144A 8.75% 2/15/17 |
| 1,625,000 |
| 1,614,844 |
| ||
# | MetroPCS Wireless 144A 9.25% 11/1/14 |
| 75,000 |
| 77,813 |
| ||
# | PAETEC Holding 144A 9.50% 7/15/15 |
| 750,000 |
| 760,313 |
| ||
| Qwest |
|
|
|
|
| ||
| 7.50% 10/1/14 |
| 1,425,000 |
| 1,467,750 |
| ||
• | 8.61% 6/15/13 |
| 1,100,000 |
| 1,199,000 |
| ||
| Rural Cellular |
|
|
|
|
| ||
| 9.875% 2/1/10 |
| 1,685,000 |
| 1,769,250 |
| ||
• | 11.106% 11/1/12 |
| 475,000 |
| 491,625 |
| ||
| Time Warner Telecom Holdings 9.25% 2/15/14 |
| 900,000 |
| 958,500 |
| ||
| Triton PCS 8.50% 6/1/13 |
| 350,000 |
| 359,625 |
| ||
| Virgin Media Finance 9.125% 8/15/16 |
| 1,340,000 |
| 1,410,350 |
| ||
|
|
|
|
| 28,965,150 |
| ||
| Utilities–3.15% |
|
|
|
|
| ||
| Avista 9.75% 6/1/08 |
| 680,000 |
| 705,199 |
| ||
•‡# | Calpine 144A 11.11% 7/15/07 |
| 1,177,692 |
| 1,249,826 |
| ||
| Elwood Energy 8.159% 7/5/26 |
| 1,943,026 |
| 2,050,401 |
| ||
| Midwest Generation 8.30% 7/2/09 |
| 1,137,765 |
| 1,160,520 |
| ||
| Mirant Americas Generation 8.30% 5/1/11 |
| 2,400,000 |
| 2,490,000 |
| ||
| Mirant North America 7.375% 12/31/13 |
| 1,810,000 |
| 1,859,775 |
| ||
| Orion Power Holdings 12.00% 5/1/10 |
| 1,440,000 |
| 1,634,400 |
| ||
|
|
|
|
| 11,150,121 |
| ||
| Total Corporate Bonds |
|
|
| 273,202,680 |
| ||
|
|
|
|
|
|
| ||
| CONVERTIBLE BONDS–0.26% |
|
|
|
|
| ||
| Ford Motor 4.25% 12/15/36 exercise price $9.20, expiration date 12/15/36 |
| 725,000 |
| 911,688 |
| ||
| Total Convertible Bonds |
|
|
| 911,688 |
| ||
|
|
|
|
|
|
| ||
| EMERGING MARKET BONDS–0.31% |
|
|
|
|
| ||
# | True Move 144A 10.75% 12/16/13 |
| 1,050,000 |
| 1,118,250 |
| ||
| Total Emerging Market Bonds |
|
|
| 1,118,250 |
| ||
|
|
|
|
|
|
| ||
@« | SENIOR SECURED LOANS–4.32% |
|
|
|
|
| ||
| Claire’s Stores 8.36% 5/7/14 |
| 325,000 |
| 322,564 |
| ||
| Community Health 9.36% 4/10/08 |
| 1,900,000 |
| 1,895,250 |
| ||
| Fontainbleau Nevada Resorts 8.67% 6/6/14 |
| 225,000 |
| 225,281 |
| ||
| Ford Motor 8.36% 11/29/13 |
| 1,691,500 |
| 1,701,784 |
| ||
| General Motors 7.725% 11/17/13 |
| 748,125 |
| 755,139 |
| ||
| Goodyear Tire & Rubber 7.10% 4/30/10 |
| 775,000 |
| 769,188 |
| ||
| HCA 7.60% 11/17/13 |
| 895,500 |
| 902,131 |
| ||
| Hub International 7.86% 6/13/14 |
| 200,000 |
| 200,063 |
| ||
| Sirius Satellite Radio 7.61% 6/20/12 |
| 425,000 |
| 426,330 |
| ||
| Spirit Finance 8.36% 5/23/13 |
| 750,000 |
| 751,879 |
| ||
| Talecris Biotherapeutics 11.86% 12/6/14 |
| 1,075,000 |
| 1,112,625 |
| ||
| Telesat Canada 9.00% 2/14/08 |
| 2,500,000 |
| 2,500,000 |
| ||
| Tribune 8.698% 5/30/14 |
| 525,000 |
| 521,063 |
| ||
| Univision Communications 7.60% 9/15/14 |
| 700,000 |
| 686,550 |
| ||
| Wind Acquisition 1.26% 12/7/11 |
| 2,445,000 |
| 2,518,349 |
| ||
| Total Senior Secured Loans |
|
|
| 15,288,196 |
| ||
5
| Number of |
| Value |
| |||
| COMMON STOCK–1.19% |
|
|
|
|
| |
† | Adelphia Recovery Trust Series Arahova |
| 1,226,549 |
| $ | 647,618 |
|
@=†p | Avado Brands |
| 1,813 |
| 0 |
| |
† | Century Communications |
| 2,820,000 |
| 2,644 |
| |
† | Charter Communications Class A |
| 58,900 |
| 238,545 |
| |
† | Foster Wheeler |
| 12,515 |
| 1,338,965 |
| |
† | Mirant |
| 18,564 |
| 791,755 |
| |
† | Petrojarl ADR |
| 2,484 |
| 29,440 |
| |
† | Petroleum Geo-Services ADR |
| 7,452 |
| 183,841 |
| |
† | Time Warner Cable Class A |
| 25,252 |
| 989,112 |
| |
† | USGen |
| 475,000 |
| 0 |
| |
| Total Common Stock |
|
|
| 4,221,920 |
| |
| WARRANTS–0.00% |
|
|
|
|
| |
†# | Solutia 144A, exercise price $7.59, expiration date 7/15/09 |
| 850 |
| 0 |
| |
| Total Warrants |
|
|
| 0 |
| |
| Principal |
|
|
| |||
^ | DISCOUNT NOTE–15.37% |
|
|
|
|
| |
| Federal Home Loan Bank 4.802% 7/2/07 |
| $ | 54,434,000 |
| 54,426,742 |
|
| Total Discount Note |
|
|
| 54,426,742 |
| |
TOTAL VALUE OF SECURITIES–98.97% (cost $348,133,958) |
| 350,532,893 |
| |
RECEIVABLES AND OTHER ASSETS NET OF LIABILITIES–1.03% |
| 3,639,134 |
| |
NET ASSETS APPLICABLE TO 58,769,741 SHARES OUTSTANDING–100.00% |
| $ | 354,172,027 |
|
NET ASSET VALUE-DELAWARE VIP HIGH YIELD SERIES STANDARD CLASS ($127,293,133 / 21,105,056 Shares) |
| $ | 6.03 |
|
NET ASSET VALUE-DELAWARE VIP HIGH YIELD SERIES SERVICE CLASS ($226,878,894 / 37,664,685 Shares) |
| $ | 6.02 |
|
COMPONENTS OF NET ASSETS AT JUNE 30, 2007: |
|
|
| |
Shares of beneficial interest (unlimited authorization–no par) |
| $ | 378,382,399 |
|
Undistributed net investment income |
| 12,876,706 |
| |
Accumulated net realized loss on investments |
| (39,486,013 | ) | |
Net unrealized appreciation of investments |
| 2,398,935 |
| |
Total net assets |
| $ | 354,172,027 |
|
# | Security exempt from registration under Rule 144A of the Securities Act of 1933, as amended. At June 30, 2007, the aggregate amount of Rule 144A securities equaled $77,761,879, which represented 21.96% of the Series’ net assets. See Note 8 in “Notes to Financial Statements.” |
p | Restricted Security. Investment in a security not registered under the Securities Act of 1933, as amended. This security has certain restrictions on resale which may limit its liquidity. At June 30, 2007, the aggregate amount of the restricted security equaled $0, or 0.00% of the Series’ net assets. See Note 8 in “Notes to Financial Statements.” |
† | Non-income producing security for the period ended June 30, 2007. |
‡ | Non-income producing security. Security is currently in default. |
• | Variable rate security. The rate shown is the rate as of June 30, 2007. |
¶ | Step coupon bond. Indicates security that has a zero coupon that remains in effect until a predetermined date at which time the stated interest rate becomes effective. |
= | Security is being fair valued in accordance with the Series’ fair valuation policy. At June 30, 2007, the aggregate amount of fair valued securities equaled $846,711, which represented 0.24% of the Series’ net assets. See Note 1 in “Notes to Financial Statements.” |
@ | Illiquid security. At June 30, 2007, the aggregate amount of illiquid securities equaled $15,288,196, which represented 4.32% of the Series’ net assets. See Note 8 in “Notes to Financial Statements.” |
« | Senior Secured Loans generally pay interest at rates which are periodically redetermined by reference to a base lending rate plus a premium. These base lending rates are generally (i) the prime rate offered by one or more United States banks, (ii) the lending rate offered by one or more European banks such as the London Inter-Bank Offered Rate (LIBOR) and (iii) the certificate of deposit rate. Senior Secured Loans may be subject to restrictions on resale. |
^ | Zero coupon security. The rate shown is the yield at the time of purchase. |
Summary of Abbreviations:
ADR – American Depositary Receipts
CBO – Collateralized Bond Obligation
PIK – Pay-in-kind
REIT – Real Estate Investment Trust
See accompanying notes
6
Delaware VIP Trust —
Delaware VIP High Yield Series
Statement of Operations
Six Months Ended June 30, 2007 (Unaudited)
INVESTMENT INCOME: |
|
|
| |
Interest |
| $ | 13,785,514 |
|
Dividends |
| 11,302 |
| |
|
| 13,796,816 |
| |
EXPENSES: |
|
|
| |
Management fees |
| 1,066,937 |
| |
Distribution expenses – Service Class |
| 317,400 |
| |
Accounting and administration expenses |
| 65,658 |
| |
Reports and statements to shareholders |
| 22,348 |
| |
Legal fees |
| 21,874 |
| |
Dividend disbursing and transfer agent fees and expenses |
| 16,415 |
| |
Audit and tax |
| 13,232 |
| |
Trustees’ fees and benefits |
| 8,020 |
| |
Insurance fees |
| 4,555 |
| |
Consulting fees |
| 2,569 |
| |
Custodian fees |
| 2,246 |
| |
Pricing fees |
| 2,027 |
| |
Dues and services |
| 656 |
| |
Taxes (other than taxes on income) |
| 555 |
| |
Trustees’ expenses |
| 507 |
| |
Registration fees |
| 76 |
| |
|
| 1,545,075 |
| |
Less expenses absorbed or waived |
| (10 | ) | |
Less waiver of distribution expenses – Service Class |
| (52,900 | ) | |
Less expense paid indirectly |
| (1,676 | ) | |
Total operating expenses |
| 1,490,489 |
| |
|
|
|
| |
NET INVESTMENT INCOME |
| 12,306,327 |
| |
|
|
|
| |
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS: |
|
|
| |
Net realized gain on investments |
| 5,490,172 |
| |
Net change in unrealized appreciation/depreciation of investments |
| (5,160,412 | ) | |
|
|
|
| |
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS |
| 329,760 |
| |
|
|
|
| |
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS |
| $ | 12,636,087 |
|
Delaware VIP Trust —
Delaware VIP High Yield Series
Statements of Changes in Net Assets
|
| Six Months |
| Year |
| ||
|
| (Unaudited) |
|
|
| ||
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS: |
|
|
|
|
| ||
Net investment income |
| $ | 12,306,327 |
| $ | 20,738,501 |
|
Net realized gain on investments |
| 5,490,172 |
| 342,427 |
| ||
Net change in unrealized appreciation/ depreciation of investments |
| (5,160,412 | ) | 9,806,997 |
| ||
Net increase in net assets resulting from operations |
| 12,636,087 |
| 30,887,925 |
| ||
|
|
|
|
|
| ||
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM: |
|
|
|
|
| ||
Net investment income: |
|
|
|
|
| ||
Standard Class |
| (7,721,397 | ) | (5,223,811 | ) | ||
Service Class |
| (13,348,959 | ) | (10,890,450 | ) | ||
|
| (21,070,356 | ) | (16,114,261 | ) | ||
CAPITAL SHARE TRANSACTIONS: |
|
|
|
|
| ||
Proceeds from shares sold: |
|
|
|
|
| ||
Standard Class |
| 29,299,981 |
| 65,283,017 |
| ||
Service Class |
| 41,607,678 |
| 64,586,970 |
| ||
Net asset value of shares issued upon reinvestment of dividends and distributions: |
|
|
|
|
| ||
Standard Class |
| 7,721,397 |
| 5,223,811 |
| ||
Service Class |
| 13,348,959 |
| 10,890,450 |
| ||
|
| 91,978,015 |
| 145,984,248 |
| ||
Cost of shares repurchased: |
|
|
|
|
| ||
Standard Class |
| (12,113,673 | ) | (40,279,258 | ) | ||
Service Class |
| (23,602,115 | ) | (46,658,029 | ) | ||
|
| (35,715,788 | ) | (86,937,287 | ) | ||
Increase in net assets derived from capital share transactions |
| 56,262,227 |
| 59,046,961 |
| ||
|
|
|
|
|
| ||
NET INCREASE IN NET ASSETS |
| 47,827,958 |
| 73,820,625 |
| ||
|
|
|
|
|
| ||
NET ASSETS: |
|
|
|
|
| ||
Beginning of period |
| 306,344,069 |
| 232,523,444 |
| ||
End of period (including undistributed net investment income of $12,876,706 and $21,003,046, respectively) |
| $ | 354,172,027 |
| $ | 306,344,069 |
|
See accompanying notes
7
Delaware VIP Trust — Delaware VIP High Yield Series
Financial Highlights
Selected data for each share of the Series outstanding throughout each period were as follows:
|
| Delaware VIP High Yield Series Standard Class |
| ||||||||||||||||
|
| Six Months |
|
|
| ||||||||||||||
|
| Ended |
| Year Ended |
| ||||||||||||||
|
| 6/30/07(1) |
| 12/31/06 |
| 12/31/05 |
| 12/31/04 |
| 12/31/03 |
| 12/31/02 |
| ||||||
|
| (Unaudited) |
|
|
|
|
|
|
|
|
|
|
| ||||||
Net asset value, beginning of period |
| $ | 6.200 |
| $ | 5.910 |
| $ | 6.110 |
| $ | 5.690 |
| $ | 4.790 |
| $ | 5.220 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Income (loss) from investment operations: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Net investment income(2) |
| 0.234 |
| 0.473 |
| 0.434 |
| 0.437 |
| 0.489 |
| 0.517 |
| ||||||
Net realized and unrealized gain (loss) on investments and foreign currencies |
| 0.020 |
| 0.226 |
| (0.227 | ) | 0.332 |
| 0.804 |
| (0.413 | ) | ||||||
Total from investment operations |
| 0.254 |
| 0.699 |
| 0.207 |
| 0.769 |
| 1.293 |
| 0.104 |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Less dividends and distributions from: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Net investment income |
| (0.424 | ) | (0.409 | ) | (0.407 | ) | (0.349 | ) | (0.393 | ) | (0.534 | ) | ||||||
Total dividends and distributions |
| (0.424 | ) | (0.409 | ) | (0.407 | ) | (0.349 | ) | (0.393 | ) | (0.534 | ) | ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Net asset value, end of period |
| $ | 6.030 |
| $ | 6.200 |
| $ | 5.910 |
| $ | 6.110 |
| $ | 5.690 |
| $ | 4.790 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Total return(3) |
| 4.18 | % | 12.45 | % | 3.59 | % | 14.25 | % | 28.74 | % | 1.84 | % | ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Ratios and supplemental data: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Net assets, end of period (000 omitted) |
| $ | 127,293 |
| $ | 105,576 |
| $ | 70,139 |
| $ | 65,418 |
| $ | 71,061 |
| $ | 48,089 |
|
Ratio of expenses to average net assets |
| 0.75 | % | 0.78 | % | 0.78 | % | 0.75 | % | 0.77 | % | 0.78 | % | ||||||
Ratio of net investment income to average net assets |
| 7.66 | % | 8.01 | % | 7.39 | % | 7.66 | % | 9.33 | % | 10.96 | % | ||||||
Portfolio turnover |
| 144 | % | 132 | % | 162 | % | 429 | % | 716 | % | 587 | % |
(1) | Ratios and portfolio turnover have been annualized and total return has not been annualized. |
(2) | The average shares outstanding method has been applied for per share information. |
(3) | Total investment return is based on the change in net asset value of a share during the period and assumes reinvestment of dividends and distributions at net asset value. |
See accompanying notes
8
Selected data for each share of the Series outstanding throughout each period were as follows:
|
| Delaware VIP High Yield Series Service Class |
| ||||||||||||||||
|
| Six Months |
|
|
|
|
|
|
|
|
|
|
| ||||||
|
| Ended |
| Year Ended |
| ||||||||||||||
|
| 6/30/07(1) |
| 12/31/06 |
| 12/31/05 |
| 12/31/04 |
| 12/31/03 |
| 12/31/02 |
| ||||||
|
| (Unaudited) |
|
|
|
|
|
|
|
|
|
|
| ||||||
Net asset value, beginning of period |
| $ | 6.190 |
| $ | 5.900 |
| $ | 6.100 |
| $ | 5.680 |
| $ | 4.780 |
| $ | 5.220 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Income (loss) from investment operations: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Net investment income(2) |
| 0.226 |
| 0.458 |
| 0.419 |
| 0.423 |
| 0.477 |
| 0.510 |
| ||||||
Net realized and unrealized gain (loss) on investments and foreign currencies |
| 0.013 |
| 0.226 |
| (0.226 | ) | 0.334 |
| 0.809 |
| (0.424 | ) | ||||||
Total from investment operations |
| 0.239 |
| 0.684 |
| 0.193 |
| 0.757 |
| 1.286 |
| 0.086 |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Less dividends and distributions from: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Net investment income |
| (0.409 | ) | (0.394 | ) | (0.393 | ) | (0.337 | ) | (0.386 | ) | (0.526 | ) | ||||||
Total dividends and distributions |
| (0.409 | ) | (0.394 | ) | (0.393 | ) | (0.337 | ) | (0.386 | ) | (0.526 | ) | ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Net asset value, end of period |
| $ | 6.020 |
| $ | 6.190 |
| $ | 5.900 |
| $ | 6.100 |
| $ | 5.680 |
| $ | 4.780 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Total return(3) |
| 3.93 | % | 12.19 | % | 3.34 | % | 14.02 | % | 28.61 | % | 1.65 | % | ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Ratios and supplemental data: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Net assets, end of period (000 omitted) |
| $ | 226,879 |
| $ | 200,768 |
| $ | 162,384 |
| $ | 130,983 |
| $ | 68,295 |
| $ | 13,529 |
|
Ratio of expenses to average net assets |
| 1.00 | % | 1.03 | % | 1.03 | % | 1.00 | % | 0.99 | % | 0.93 | % | ||||||
Ratio of expenses to average net assets prior to expense limitation and expenses paid indirectly |
| 1.05 | % | 1.08 | % | 1.08 | % | 1.05 | % | 1.02 | % | 0.93 | % | ||||||
Ratio of net investment income to average net assets |
| 7.41 | % | 7.76 | % | 7.14 | % | 7.41 | % | 9.11 | % | 10.81 | % | ||||||
Ratio of net investment income to average net assets prior to expense limitation and expenses paid indirectly |
| 7.36 | % | 7.71 | % | 7.09 | % | 7.36 | % | 9.08 | % | 10.81 | % | ||||||
Portfolio turnover |
| 144 | % | 132 | % | 162 | % | 429 | % | 716 | % | 587 | % |
(1) | Ratios and portfolio turnover have been annualized and total return has not been annualized. |
(2) | The average shares outstanding method has been applied for per share information. |
(3) | Total investment return is based on the change in net asset value of a share during the period and assumes reinvestment of dividends and distributions at net asset value. Total investment return reflects waivers and payment of fees by the distributor, as applicable. Performance would have been lower had the waiver not been in effect. |
See accompanying notes
9
Delaware VIP Trust — Delaware VIP High Yield Series
Notes to Financial Statements
June 30, 2007 (Unaudited)
Delaware VIP Trust (Trust) is organized as a Delaware statutory trust and offers 14 series: Delaware VIP Balanced Series, Delaware VIP Capital Reserves Series, Delaware VIP Cash Reserve Series, Delaware VIP Diversified Income Series, Delaware VIP Emerging Markets Series, Delaware VIP Growth Opportunities Series, Delaware VIP High Yield Series, Delaware VIP International Value Equity Series, Delaware VIP REIT Series, Delaware VIP Select Growth Series, Delaware VIP Small Cap Value Series, Delaware VIP Trend Series, Delaware VIP U.S. Growth Series and Delaware VIP Value Series. These financial statements and the related notes pertain to Delaware VIP High Yield Series (Series). The Trust is an open-end investment company. The Series is considered diversified under the Investment Company Act of 1940, as amended, and offers Standard Class and Service Class shares. The Standard Class shares do not carry a 12b-1 fee and the Service Class shares carry a 12b-1 fee. The shares of the Series are sold only to separate accounts of life insurance companies.
The investment objective of the Series is to seek total return and, as a secondary objective, high current income.
1. Significant Accounting Policies
The following accounting policies are in accordance with U.S. generally accepted accounting principles and are consistently followed by the Series.
Security Valuation—Equity securities, except those traded on the Nasdaq Stock Market, Inc. (Nasdaq), are valued at the last quoted sales price as of the time of the regular close of the New York Stock Exchange (NYSE) on the valuation date. Securities traded on the Nasdaq are valued in accordance with the Nasdaq Official Closing Price, which may not be the last sales price. If on a particular day an equity security does not trade, then the mean between the bid and asked prices will be used. Long-term debt securities are valued by an independent pricing service and such prices are believed to reflect the fair value of such securities. Short-term debt securities having less than 60 days to maturity are valued at amortized cost, which approximates market value. Other securities and assets for which market quotations are not readily available are valued at fair value as determined in good faith under the direction of the Series’ Board of Trustees. In determining whether market quotations are readily available or fair valuation will be used, various factors will be taken into consideration, such as market closures, or with respect to foreign securities, aftermarket trading or significant events after local market trading (e.g., government actions or pronouncements, trading volume or volatility on markets, exchanges among dealers, or news events).
In September 2006, the Financial Accounting Standards Board (FASB) issued FASB Statement No. 157 “Fair Value Measurements” (Statement 157). Statement 157 establishes a framework for measuring fair value in generally accepted accounting principles, clarifies the definition of fair value within that framework, and expands disclosures about the use of fair value measurements. Statement 157 is intended to increase consistency and comparability among fair value estimates used in financial reporting. Statement 157 is effective for fiscal years beginning after November 15, 2007. Management does not expect the adoption of Statement 157 to have an impact on the amounts reported in the financial statements.
Federal Income Taxes—The Series intends to continue to qualify for federal income tax purposes as a regulated investment company and make the requisite distributions to shareholders. Accordingly, no provision for federal income taxes has been made in the financial statements.
Effective June 29, 2007, the Series adopted FASB Interpretation No. 48 “Accounting for Uncertainty in Income Taxes” (FIN 48). FIN 48 provides guidance for how uncertain tax positions should be recognized, measured, presented and disclosed in the financial statements. FIN 48 requires the evaluation of tax positions taken or expected to be taken in the course of preparing the Series’ tax returns to determine whether the tax positions are “more-likely-than-not” of being sustained by the applicable tax authority. Tax positions not deemed to meet the more-likely-than-not threshold are recorded as a tax benefit or expense in the current year. The adoption of FIN 48 did not result in the recording of any tax benefit or expense in the current period.
Class Accounting—Investment income, common expenses and realized and unrealized gain (loss) on investments are allocated to the classes of the Series on the basis of daily net assets of each class. Distribution expenses relating to a specific class are charged directly to that class.
Repurchase Agreements—The Series may invest in a pooled cash account along with members of the Delaware Investments® Family of Funds pursuant to an exemptive order issued by the Securities and Exchange Commission. The aggregate daily balance of the pooled cash account is invested in repurchase agreements secured by obligations of the U.S. government. The respective collateral is held by the Series’ custodian bank until the maturity of the respective repurchase agreements. Each repurchase agreement is at least 102% collateralized. However, in the event of default or bankruptcy by the counterparty to the agreement, realization of the collateral may be subject to legal proceedings.
Use of Estimates—The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
10
Other—Expenses directly attributable to the Series are charged directly to the Series. Other expenses common to various funds within the Delaware Investments® Family of Funds are generally allocated amongst such funds on the basis of average net assets. Management fees and some other expenses are paid monthly. Security transactions are recorded on the date the securities are purchased or sold (trade date) for financial reporting purposes. Costs used in calculating realized gains and losses on the sale of investment securities are those of the specific securities sold. Dividend income is recorded on the ex-dividend date and interest income is recorded on the accrual basis. Discounts and premiums on non-convertible bonds are amortized to interest income over the lives of the respective securities. Realized gains (losses) on paydowns of mortgage- and asset-backed securities are classified as interest income.
The Series declares and pays dividends from net investment income and distributions from net realized gain on investments, if any, following the close of the fiscal year.
The Series receives earnings credits from its custodian when positive cash balances are maintained, which are used to offset custody fees. The expense paid under this arrangement is included in custodian fees on the Statement of Operations with the corresponding expense offset shown as “expense paid indirectly.”
2. Investment Management, Administration Agreements and Other Transactions with Affiliates
In accordance with the terms of its investment management agreement, the Series pays Delaware Management Company (DMC), a series of Delaware Management Business Trust and the investment manager, an annual fee which is calculated daily at the rate of 0.65% on the first $500 million of average daily net assets of the Series, 0.60% on the next $500 million, 0.55% on the next $1.5 billion, and 0.50% on average daily net assets in excess of $2.5 billion.
DMC has contractually agreed to waive that portion, if any, of its management fee and reimburse the Series to the extent necessary to ensure that annual operating expenses, exclusive of taxes, interest, brokerage commissions, inverse floater program expenses, 12b-1 plan expenses, certain insurance costs and non-routine expenses or costs including, but not limited to, those relating to reorganizations, litigation, certain Trustee retirement plan expenses, conducting shareholder meetings, and liquidations, do not exceed 0.74% of average daily net assets of the Series through April 30, 2008. Prior to May 1, 2007, the expense limitation was 0.78% of average daily net assets.
Delaware Service Company, Inc. (DSC), an affiliate of DMC, provides accounting, administration, dividend disbursing and transfer agent services. The Series pays DSC a monthly fee computed at the annual rate of 0.04% of the Series’ average daily net assets for accounting and administrative services. The Series pays DSC a monthly fee based on average net assets for dividend disbursing and transfer agent services.
Pursuant to a distribution agreement and distribution plan, the Series pays Delaware Distributors, L.P. (DDLP), the distributor and an affiliate of DMC, an annual distribution and service fee not to exceed 0.30% of the average daily net assets of the Service Class shares. DDLP has contracted to waive distribution and service fees through April 30, 2008 in order to prevent distribution and service fees of the Service Class shares from exceeding 0.25% of average daily net assets. Standard Class shares pay no distribution and service expenses.
At June 30, 2007, the Series had liabilities payable to affiliates as follows:
Investment |
| Dividend Disbursing, |
| Distribution |
| Other |
| |||
$ 189,011 |
| $ | 14,544 |
| $ | 46,614 |
| $ | 12,570 |
|
* DMC, as part of its administrative services, pays operating expenses on behalf of the Series and is reimbursed on a periodic basis. Such expenses include items such as printing of shareholder reports, fees for audit, legal and tax services, custodian fees and trustees’ fees.
As provided in the investment management agreement, the Series bears the cost of certain legal and tax services, including internal legal and tax services provided to the Series by DMC and/or its affiliates’ employees. For the six months ended June 30, 2007, the Series was charged $7,550 for internal legal and tax services provided by DMC and/or its affiliates’ employees.
Trustees’ fees and benefits include expenses accrued by the Series for each Trustee’s retainer, per meeting fees and retirement benefits. Independent Trustees with over five years of uninterrupted service were eligible to participate in a retirement plan that provides for the payment of benefits upon retirement. The amount of the retirement benefit was determined based on factors set forth in the plan, including the number of years of service. On November 16, 2006, the Board of Trustees unanimously voted to terminate the retirement plan. Payments equal to the net present value of the earned benefits were made in 2007 to those independent Trustees so entitled. The retirement benefit payout for the Series was $34,982. Certain officers of DMC, DSC and DDLP are officers and/or Trustees of the Trust. These officers and Trustees are paid no compensation by the Series.
11
3. Investments
For the six months ended June 30, 2007, the Series made purchases and sales of investment securities other than short-term investments as follows:
Purchases |
| $ | 219,537,171 |
|
Sales |
| 223,169,690 |
|
At June 30, 2007, the cost of investments for federal income tax purposes has been estimated since the final tax characteristics cannot be determined until fiscal year end. At June 30, 2007, the cost of investments and unrealized appreciation (depreciation) for the Series were as follows:
Cost of |
| Aggregate |
| Aggregate |
| Net Unrealized |
| |||
$ 349,047,478 |
| $ | 7,367,522 |
| $ | (5,882,107 | ) | $ | 1,485,415 |
|
4. Dividend and Distribution Information
Income and long-term capital gain distributions are determined in accordance with federal income tax regulations, which may differ from U.S. generally accepted accounting principles. Additionally, net short-term gains on sales of investment securities are treated as ordinary income for federal income tax purposes. The tax character of dividends and distributions paid during the six months ended June 30, 2007 and the year ended December 31, 2006 was as follows:
| Six Months |
| Year |
| |||
Ordinary income |
| $ | 21,070,356 |
| $ | 16,114,261 |
|
* Tax information for the six months ended June 30, 2007 is an estimate and the tax character of dividends and distributions may be redesignated at fiscal year end.
5. Components of Net Assets on a Tax Basis
The components of net assets are estimated since final tax characteristics cannot be determined until fiscal year end. As of June 30, 2007, the estimated components of net assets on a tax basis were as follows:
Shares of beneficial interest |
| $ | 378,382,399 |
|
Undistributed ordinary income |
| 12,926,734 |
| |
Capital loss carryforwards as of 12/31/06 |
| (42,615,340 | ) | |
Realized gains 1/1/07 – 6/30/07 |
| 3,992,819 |
| |
Unrealized appreciation of investments |
| 1,485,415 |
| |
Net assets |
| $ | 354,172,027 |
|
The differences between book basis and tax basis components of net assets are primarily attributable to tax deferral of losses on wash sales and tax treatment of interest accrual on defaulted bonds and market discount and premium on debt instruments.
For financial reporting purposes, capital accounts are adjusted to reflect the tax character of permanent book/tax differences. Reclassifications are primarily due to tax treatment of paydown gain (loss) on mortgage- and asset-backed securities, contingent payment debt instruments and market discount and premium on certain debt instruments. Results of operations and net assets were not affected by these reclassifications. For the six months ended June 30, 2007, the Series recorded an estimate of these differences since the final tax characteristics cannot be determined until fiscal year end:
Undistributed |
| Accumulated |
| |
$ 637,689 |
| $ | (637,689 | ) |
For federal income tax purposes, capital loss carryforwards may be carried forward and applied against future capital gains. Capital loss carryforwards remaining at December 31, 2006 will expire as follows: $19,963,415 expires in 2008; $18,082,790 expires in 2009; and $4,569,135 expires in 2010.
For the six months ended June 30, 2007, the Series had capital gains of $3,992,819, which may reduce the capital loss carryforwards.
12
6. Capital Shares
Transactions in capital shares were as follows:
| Six Months |
| Year |
| |
Shares sold: |
|
|
|
|
|
Standard Class |
| 4,749,590 |
| 11,147,480 |
|
Service Class |
| 6,790,751 |
| 10,971,704 |
|
Shares issued upon reinvestment of dividends and distributions: |
|
|
|
|
|
Standard Class |
| 1,295,536 |
| 918,069 |
|
Service Class |
| 2,239,758 |
| 1,917,333 |
|
|
| 15,075,635 |
| 24,954,586 |
|
Shares repurchased: |
|
|
|
|
|
Standard Class |
| (1,965,065 | ) | (6,900,107 | ) |
Service Class |
| (3,818,045 | ) | (7,953,893 | ) |
|
| (5,783,110 | ) | (14,854,000 | ) |
Net increase |
| 9,292,525 |
| 10,100,586 |
|
7. Line of Credit
The Series, along with certain other funds in the Delaware Investments® Family of Funds (Participants), participates in a $225,000,000 revolving line of credit facility to be used for temporary or emergency purposes as an additional source of liquidity to fund redemptions of investor shares. The Participants are charged an annual commitment fee, which is allocated across the Participants on the basis of each Participant’s allocation of the entire facility. The Participants may borrow up to a maximum of one third of their net assets under the agreement. The Series had no amounts outstanding as of June 30, 2007, or at any time during the period then ended.
8. Credit and Market Risk
The Series invests a portion of its assets in high yield fixed income securities, which carry ratings of BB or lower by Standard & Poor’s Ratings Group and/or Ba or lower by Moody’s Investors Service, Inc. Investments in these higher yielding securities are generally accompanied by a greater degree of credit risk than higher rated securities. Additionally, lower rated securities may be more susceptible to adverse economic and competitive industry conditions than investment-grade securities.
The Series may invest up to 15% of its total assets in illiquid securities, which may include securities with contractual restrictions on resale, securities exempt from registration under Rule 144A of the Securities Act of 1933, as amended, and other securities which may not be readily marketable. The relative illiquidity of these securities may impair the Series from disposing of them in a timely manner and at a fair price when it is necessary or desirable to do so. While maintaining oversight, the Series’ Board of Trustees has delegated to DMC the day-to-day functions of determining whether individual securities are liquid for purposes of the Series’ limitation on investments in illiquid assets. Rule 144A and illiquid securities have been identified on the Statement of Net Assets.
9. Contractual Obligations
The Series enters into contracts in the normal course of business that contain a variety of indemnifications. The Series’ maximum exposure under these arrangements is unknown. However, the Series has not had prior claims or losses pursuant to these contracts. Management has reviewed the Series’ existing contracts and expects the risk of loss to be remote.
10. Subsequent Event
The Series has a new securities lending agreement with Mellon Bank, N.A. as of August 9, 2007.
The Series files its complete schedule of portfolio holdings with the Securities and Exchange Commission (the Commission) for the first and third quarters of each fiscal year on Form N-Q. The Series’ Forms N-Q, as well as a description of the policies and procedures that the Series uses to determine how to vote proxies (if any) relating to portfolio securities is available without charge (i) upon request, by calling 800 523-1918; and (ii) on the Commission’s website at http://www.sec.gov. In addition, a description of the policies and procedures that the Series uses to determine how to vote proxies (if any) relating to portfolio securities is available without charge on the Delaware Investments® Funds’ website at http://www.delawareinvestments.com. The Series’ Forms N-Q may be reviewed and copied at the Commission’s Public Reference Room in Washington, DC; information on the operation of the Public Reference Room may be obtained by calling 800 SEC-0330.
Information (if any) regarding how the Series voted proxies relating to portfolio securities during the most recently disclosed 12-month period ended June 30 is available without charge (i) through the Delaware Investments® Funds’ website at http://www.delawareinvestments.com; and (ii) on the Commission’s website at http://www.sec.gov.
13
Delaware VIP Trust — Delaware VIP High Yield Series
Other Series Information
Board Consideration of Delaware VIP High Yield Series Investment Advisory Agreement
At a meeting held on May 16-17, 2007 (Annual Meeting), the Board of Trustees (Board), including a majority of disinterested or independent Trustees, approved the renewal of the Investment Advisory Agreement for the VIP High Yield Series (Series). In making its decision, the Board considered information furnished throughout the year at regular Board meetings, including reports detailing Series performance, investment strategies and expenses, as well as information prepared specifically in connection with the renewal of the investment advisory contracts. Information furnished specifically in connection with the renewal of the Investment Advisory Agreement with Delaware Management Company (DMC) included materials provided by DMC and its affiliates (Delaware Investments) concerning, among other things, the level of services provided to the Series, the costs of such services to the Series, economies of scale and the financial condition and profitability of Delaware Investments. In addition, in connection with the Meeting, the Board separately received and reviewed in mid-January 2007 independent historical and comparative reports prepared by Lipper Inc. (Lipper), an independent statistical compilation organization. The Lipper reports compared the Series’ investment performance and expenses with those of other comparable mutual funds. The Board requested and received certain information regarding management’s policy with respect to advisory fee levels and its philosophy with respect to breakpoints; the structure of portfolio manager compensation; the investment manager’s profitability; and any constraints or limitations on the availability of securities in certain investment styles which might inhibit DMC’s ability to fully invest in accordance with the Series’ policies.
In considering information relating to the approval of the Series’ advisory agreement, the independent Trustees received assistance and advice from and met separately with independent counsel. While attention was given to all information furnished, the following discusses under separate headings the primary factors taken into account by the Board in its contract renewal considerations.
NATURE, EXTENT AND QUALITY OF SERVICE. Consideration was given to the services provided by Delaware Investments to the Series and its shareholders. In reviewing the nature, extent and quality of services, the Board emphasized reports furnished to it throughout the year at regular Board meetings covering matters such as the relative performance of the Series, compliance of portfolio managers with the investment policies, strategies and restrictions for the Series, the compliance of management personnel with the Code of Ethics adopted throughout the Delaware Investments® Family of Funds complex and the adherence to fair value pricing procedures as established by the Board. The Board noted that it was pleased with the current staffing of the Series’ investment advisor and the emphasis placed on research in the investment process. Favorable consideration was given to DMC’s efforts to maintain, and in some instances increase, financial and human resources committed to fund matters. The Board also considered the transfer agent and shareholder services provided to Series shareholders by Delaware Investments’ affiliate, Delaware Service Company, Inc. (DSC), noting DSC’s commitment to maintain a high level of service and the continuing expenditures by Delaware Investments to improve the delivery of shareholder services. During 2006, management conducted extensive research into alternatives that could further improve the quality and cost of delivering investment accounting services to the Fund. The Board was satisfied with the nature, extent and quality of the overall services provided by Delaware Investments.
INVESTMENT PERFORMANCE. The Board considered the investment performance of DMC and the Series. The Board placed significant emphasis on the investment performance of the Series in view of its importance to shareholders. While consideration was given to performance reports and discussions with portfolio managers at Board meetings throughout the year, particular weight was given to the Lipper reports furnished for the Annual Meeting. The Lipper reports prepared for the Series showed the investment performance of its Standard Class shares in comparison to a group of similar funds as selected by Lipper (Performance Universe). A fund with the best performance ranked first, and a fund with the poorest ranked last. The highest/best performing 25% of funds in the Performance Universe make up the first quartile; the next 25% — the second quartile; the next 25% — the third quartile; and the poorest/worst performing 25% of funds in the Performance Universe make up the fourth quartile. Comparative annualized performance for the Series was shown for the past one, three, five and ten year periods ended December 31, 2006. The Board also considered comparative annualized performance for the Series for the same periods ended October 31, 2006. The performance comparison presented below is based upon the December 31, 2006 information. The Board noted its objective that the Series’ performance for the periods considered be at or above the median of its Performance Universe. The following paragraph summarizes the performance results for the Series and the Board’s view of such performance.
The Performance Universe for the Series consisted of the Series and all high current yield funds underlying variable insurance products as selected by Lipper. The Lipper report comparison showed that the Series’ total return for the one, three and five year periods was in the first quartile of its Performance Universe. The report further showed that the Series’ total return for the ten year period was in the fourth quartile. The Board was satisfied with the improved performance.
COMPARATIVE EXPENSES. The Board considered expense comparison data for the Delaware Investments Family of Funds as of October 31, 2006. Management provided the Board with information on pricing levels and fee structures for the Series. The Board focused particularly on the comparative analysis of the effective management fees and total expense ratios of the Series and the effective management fees and expense ratios of a group of similar funds as selected by Lipper (Expense Group). In reviewing comparative costs, the Series’ contractual management fee and the actual management fee incurred by the Series were compared with the contractual management fees (assuming all funds in the Expense Group were similar in size to the Series) and actual management fees (as reported by each fund) of other funds within the Expense Group, taking into account any applicable breakpoints and fee waivers. The Series’ total expenses were also compared with those of its Expense Group. The Lipper total expenses, for comparative consistency, were shown by Lipper for Standard Class shares which do not charge 12b-1 and non-12b-1 service fees. The Board also considered fees paid to Delaware Investments for non-management services. The Board noted its objective to limit the Series’ total expense ratio to an acceptable range as compared to the median of the Expense Group. The following paragraph summarizes the expense results for the Series and the Board’s view of such expenses.
The expense comparisons for the Series showed that its actual management fee was in the quartile with the second lowest expenses of its Expense Group and its total expenses were in the quartile with the second highest expenses of its Expense Group. The Board gave favorable consideration to the Series’ management fee, but noted that the Series’ total expenses were not in line with the Board’s objective. In evaluating total expenses, the Board considered fee waivers in place through April 2007 and recent initiatives implemented by management, such as the outsourcing of certain transfer agency services, creating an opportunity for a reduction in expenses. The Board was satisfied with management’s efforts to improve the Series’ total expense ratio and bring it in line with the Board’s objective.
14
MANAGEMENT PROFITABILITY. The Board considered the level of profits, if any, realized by Delaware Investments in connection with the operation of the Series. In this respect, the Board reviewed the Investment Management Profitability Analysis that addressed the overall profitability of Delaware Investments’ business in providing management and other services to each of the individual funds and the Delaware Investments® Family of Funds as a whole. Specific attention was given to the methodology followed in allocating costs for the purpose of determining profitability. Management stated that the level of profits of Delaware Investments, to a certain extent, reflected operational cost savings and efficiencies initiated by Delaware Investments. The Board considered Delaware Investments’ efforts to improve services provided to fund shareholders and to meet additional regulatory and compliance requirements resulting from recent Securities and Exchange Commission initiatives. The Board also considered the extent to which Delaware Investments might derive ancillary benefits from fund operations, including the potential for procuring additional business as a result of the prestige and visibility associated with its role as service provider to the Delaware Investments Family of Funds and the benefits from allocation of fund brokerage to improve trading efficiencies. The Board found that the level of management fees was reasonable in light of the services rendered and the profitability of Delaware Investments.
ECONOMIES OF SCALE. The Trustees considered whether economies of scale are realized by Delaware Investments as the Series’ assets increase and the extent to which any economies of scale are reflected in the level of management fees charged. The Trustees took into account the standardized advisory fee pricing and structure, approved by the Board and shareholders and again reviewed by the Board this year, which includes breakpoints. Breakpoints in the advisory fee occur when the advisory fee rate is reduced on assets in excess of specified levels. This results in a lower advisory fee than would otherwise be the case on all assets when those asset levels specified are exceeded. The Board noted that the fee under the Series’ management contract fell within the standard structure. Although the Series has not reached a size at which the advantages of breakpoints would be realized, the Board recognized that the fee was structured so that when the Series grows, economies of scale may be shared.
15
Delaware VIP Trust — Delaware VIP International Value Equity Series
Disclosure of Series Expenses
For the Period January 1, 2007 to June 30, 2007
As a shareholder of the Series, you incur ongoing costs, including management fees; distribution and/or service (12b-1) fees; and other Series expenses. This Example is intended to help you understand your ongoing costs (in dollars) of investing in the Series and to compare these costs with the ongoing costs of investing in other mutual funds.
The Example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period from January 1, 2007 to June 30, 2007.
Actual Expenses
The first section of the table shown, “Actual Series Return,” provides information about actual account values and actual expenses. You may use the information in this section of the table, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first section under the heading entitled “Expenses Paid During Period” to estimate the expenses you paid on your account during the period.
Hypothetical Example for Comparison Purposes
The second section of the table shown, “Hypothetical 5% Return,” provides information about hypothetical account values and hypothetical expenses based on the Series’ actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Series’ actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Series and other funds. To do so, compare the 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs only. As a shareholder of the Series, you do not incur any transaction costs, such as sales charges (loads), redemption fees or exchange fees, but shareholders of other funds may incur such costs. Also, the fees related to the variable annuity investment or the deferred sales charge that could apply have not been included. Therefore, the second section of the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. The Series’ actual expenses shown in the table reflect fee waivers in effect for Service Class shares. The expenses shown in the table assume reinvestment of all dividends and distributions.
Expense Analysis of an Investment of $1,000
| Beginning |
| Ending |
| Annualized |
| Expenses |
| ||||
Actual Series Return |
|
|
|
|
|
|
|
|
| |||
Standard Class |
| $ | 1,000.00 |
| $ | 1,115.40 |
| 0.99 | % | $ | 5.19 |
|
Service Class |
| 1,000.00 |
| 1,114.20 |
| 1.24 | % | 6.50 |
| |||
|
|
|
|
|
|
|
|
|
| |||
Hypothetical 5% Return (5% return before expenses) |
|
|
|
|
|
|
| |||||
Standard Class |
| $ | 1,000.00 |
| $ | 1,019.89 |
| 0.99 | % | $ | 4.96 |
|
Service Class |
| 1,000.00 |
| 1,018.65 |
| 1.24 | % | 6.21 |
|
* “Expenses Paid During Period” are equal to the Series’ annualized expense ratio, multiplied by the average account value over the period, multiplied by 181/365 (to reflect the one-half year period).
1
Delaware VIP Trust — Delaware VIP International Value Equity Series
Country and Sector Allocations
As of June 30, 2007
Country and sector designations may be different than the country and sector designations presented in other Series materials.
Country |
| Percentage |
|
Common Stock |
| 98.55 | % |
Australia |
| 3.99 | % |
Belgium |
| 1.92 | % |
Canada |
| 3.12 | % |
Denmark |
| 2.38 | % |
Finland |
| 4.46 | % |
France |
| 15.33 | % |
Germany |
| 4.90 | % |
Hong Kong |
| 3.90 | % |
Japan |
| 18.34 | % |
Mexico |
| 3.77 | % |
Netherlands |
| 4.80 | % |
Republic of Korea |
| 1.95 | % |
Sweden |
| 2.09 | % |
Switzerland |
| 1.93 | % |
United Kingdom |
| 25.67 | % |
Discount Note |
| 0.95 | % |
Securities Lending Collateral |
| 20.66 | % |
Fixed Rate Notes |
| 7.94 | % |
Variable Rate Notes |
| 12.72 | % |
Total Value of Securities |
| 120.16 | % |
Obligation to Return Securities Lending Collateral |
| (20.66 | )% |
Receivables and Other Assets Net of Liabilities |
| 0.50 | % |
Total Net Assets |
| 100.00 | % |
Sector |
| Percentage |
|
Consumer Discretionary |
| 23.74 | % |
Consumer Staples |
| 5.74 | % |
Energy |
| 5.76 | % |
Financials |
| 18.03 | % |
Health Care |
| 12.32 | % |
Industrials |
| 7.58 | % |
Information Technology |
| 11.19 | % |
Materials |
| 6.18 | % |
Telecommunication Services |
| 8.01 | % |
Total |
| 98.55 | % |
2
Delaware VIP Trust — Delaware VIP International Value Equity Series
Statement of Net Assets
June 30, 2007 (Unaudited)
|
| Number of |
| Value |
| ||
| COMMON STOCK–98.55%r |
|
|
|
|
| |
| Australia–3.99% |
|
|
|
|
| |
* | Coca-Cola Amatil |
| 500,804 |
| $ | 4,050,748 |
|
| Telstra |
| 469,737 |
| 1,828,043 |
| |
| Telstra-Receipt |
| 451,484 |
| 1,190,479 |
| |
|
|
|
|
| 7,069,270 |
| |
| Belgium–1.92% |
|
|
|
|
| |
* | Dexia |
| 108,183 |
| 3,398,540 |
| |
|
|
|
|
| 3,398,540 |
| |
| Canada–3.12% |
|
|
|
|
| |
† | CGI Group Class A |
| 492,971 |
| 5,528,863 |
| |
|
|
|
|
| 5,528,863 |
| |
| Denmark–2.38% |
|
|
|
|
| |
| Novo Nordisk Class B |
| 38,660 |
| 4,218,720 |
| |
|
|
|
|
| 4,218,720 |
| |
| Finland–4.46% |
|
|
|
|
| |
| Nokia |
| 154,258 |
| 4,344,883 |
| |
* | TietoEnator |
| 110,446 |
| 3,572,779 |
| |
|
|
|
|
| 7,917,662 |
| |
| France–15.33% |
|
|
|
|
| |
* | AXA |
| 79,395 |
| 3,439,831 |
| |
* | Cia de Saint-Gobain |
| 33,950 |
| 3,830,962 |
| |
| Lafarge |
| 23,026 |
| 4,219,835 |
| |
* | Lagardere |
| 36,001 |
| 3,140,478 |
| |
* | Publicis Groupe |
| 72,111 |
| 3,186,713 |
| |
* | Sanofi-Aventis |
| 48,214 |
| 3,921,985 |
| |
| Total |
| 66,822 |
| 5,450,129 |
| |
|
|
|
|
| 27,189,933 |
| |
| Germany–4.90% |
|
|
|
|
| |
* | Bayerische Motoren Werke |
| 66,648 |
| 4,299,317 |
| |
* | Metro |
| 52,902 |
| 4,382,094 |
| |
|
|
|
|
| 8,681,411 |
| |
| Hong Kong–3.90% |
|
|
|
|
| |
| Esprit Holdings |
| 273,393 |
| 3,468,460 |
| |
| Techtronic Industries |
| 2,582,359 |
| 3,447,901 |
| |
|
|
|
|
| 6,916,361 |
| |
| Japan–18.34% |
|
|
|
|
| |
* | Asahi Glass |
| 277,000 |
| 3,743,427 |
| |
* | Canon |
| 59,680 |
| 3,504,317 |
| |
* | Don Quijote |
| 199,300 |
| 3,997,980 |
| |
| Fujitsu |
| 393,000 |
| 2,898,109 |
| |
* | Honda Motor |
| 67,900 |
| 2,481,524 |
| |
| Mitsubishi UFJ Financial Group |
| 264 |
| 2,915,943 |
| |
| Nissan Motor |
| 325,000 |
| 3,486,763 |
| |
| NTT DoCoMo |
| 2,014 |
| 3,189,557 |
| |
| Ono Pharmaceutical |
| 62,500 |
| 3,314,587 |
| |
* | Terumo |
| 77,600 |
| 2,999,887 |
| |
|
|
|
|
| 32,532,094 |
| |
| Mexico–3.77% |
|
|
|
|
| |
| Cemex ADR |
| 86,398 |
| 3,188,086 |
| |
| Telefonos de Mexico ADR |
| 92,416 |
| 3,501,642 |
| |
|
|
|
|
| 6,689,728 |
| |
| Netherlands–4.80% |
|
|
|
|
| |
| ING Groep CVA |
| 100,951 |
| 4,480,333 |
| |
| Koninklijke Philips Electronics |
| 94,222 |
| 4,024,830 |
| |
|
|
|
|
| 8,505,163 |
| |
| Republic of Korea–1.95% |
|
|
|
|
| |
| Kookmin Bank |
| 39,295 |
| $ | 3,449,514 |
|
|
|
|
|
| 3,449,514 |
| |
| Sweden–2.09% |
|
|
|
|
| |
| Nordea Bank |
| 236,304 |
| 3,714,276 |
| |
|
|
|
|
| 3,714,276 |
| |
| Switzerland–1.93% |
|
|
|
|
| |
| Novartis |
| 60,669 |
| 3,427,206 |
| |
|
|
|
|
| 3,427,206 |
| |
| United Kingdom–25.67% |
|
|
|
|
| |
| AstraZeneca |
| 73,655 |
| 3,966,855 |
| |
| BP |
| 393,784 |
| 4,768,270 |
| |
† | British Airways |
| 304,627 |
| 2,558,525 |
| |
| Greggs |
| 17,708 |
| 1,750,947 |
| |
| HBOS |
| 153,936 |
| 3,044,821 |
| |
| Kesa Electricals |
| 620,201 |
| 3,923,091 |
| |
| Rio Tinto |
| 46,262 |
| 3,557,092 |
| |
| Royal Bank of Scotland Group |
| 308,194 |
| 3,920,632 |
| |
| Standard Chartered |
| 110,033 |
| 3,599,394 |
| |
| Tomkins |
| 632,677 |
| 3,306,421 |
| |
| Travis Perkins |
| 82,739 |
| 3,155,154 |
| |
| Vodafone Group |
| 1,335,228 |
| 4,496,490 |
| |
| WPP Group |
| 231,497 |
| 3,477,221 |
| |
|
|
|
|
| 45,524,913 |
| |
| Total Common Stock |
|
|
| 174,763,654 |
|
|
| Principal |
|
|
| ||
^ | DISCOUNT NOTE–0.95% |
|
|
|
|
| |
| Federal Home Loan Bank 4.802% 7/2/07 |
| $ | 1,687,000 |
| 1,686,775 |
|
| Total Discount Note |
|
|
| 1,686,775 |
| |
|
|
|
|
|
|
| |
| Total Value of Securities Before Securities Lending Collateral–99.50% |
|
|
| 176,450,429 |
| |
|
|
|
|
|
|
| |
| SECURITIES LENDING COLLATERAL**–20.66% |
|
|
|
|
| |
| Short-Term Investments–20.66% |
|
|
|
|
| |
| Fixed Rate Notes–7.94% |
|
|
|
|
| |
| Abbey National 5.31% 7/2/07 |
| 1,514,025 |
| 1,514,025 |
| |
| American Express Centurion 5.32% 7/30/07 |
| 1,284,495 |
| 1,284,495 |
| |
| BNP Paribas 5.37% 7/2/07 |
| 582,305 |
| 582,305 |
| |
| Credit Agricole 5.31% 10/4/07 |
| 856,330 |
| 856,330 |
| |
| Den Danske Bank 5.38% 7/2/07 |
| 1,438,635 |
| 1,438,635 |
| |
| Fortis Bank 5.30% 7/23/07 |
| 770,697 |
| 770,697 |
| |
| HBOS Treasury Services 5.42% 7/2/07 |
| 1,438,635 |
| 1,438,635 |
| |
| ING Bank 5.31% 7/3/07 |
| 513,798 |
| 513,798 |
| |
| ING Bank 5.33% 7/9/07 |
| 856,330 |
| 856,330 |
| |
3
|
| Principal |
| Value |
| |||
| SECURITIES LENDING COLLATERAL (continued) |
|
|
|
|
| ||
| Short-Term Investments (continued) |
|
|
|
|
| ||
| Fixed Rate Notes (continued) |
|
|
|
|
| ||
| M&T 5.34% 7/2/07 |
| $ | 1,438,635 |
| $ | 1,438,635 |
|
| Royal Bank of Canada 5.31% 7/23/07 |
| 1,284,495 |
| 1,284,495 |
| ||
| Societe Generale 5.33% 7/2/07 |
| 666,904 |
| 666,904 |
| ||
| Union Bank of Switzerland 5.33% 7/2/07 |
| 1,438,635 |
| 1,438,635 |
| ||
|
|
|
|
| 14,083,919 |
| ||
• | Variable Rate Notes–12.72% |
|
|
|
|
| ||
| ANZ National 5.32% 7/29/08 |
| 171,266 |
| 171,266 |
| ||
| Australia New Zealand 5.34% 7/29/08 |
| 856,330 |
| 856,330 |
| ||
| Bank of New York 5.32% 7/29/08 |
| 685,064 |
| 685,064 |
| ||
| Bayerische Landesbank 5.37% 7/29/08 |
| 856,330 |
| 856,330 |
| ||
| Bear Stearns 5.38% 12/28/07 |
| 1,198,862 |
| 1,198,863 |
| ||
| BNP Paribas 5.33% 7/29/08 |
| 856,330 |
| 856,330 |
| ||
| Calyon 5.33% 8/14/07 |
| 428,165 |
| 428,165 |
| ||
| Canadian Imperial Bank |
|
|
|
|
| ||
| 5.32% 7/29/08 |
| 599,431 |
| 599,431 |
| ||
| 5.33% 8/15/07 |
| 839,204 |
| 839,204 |
| ||
| CDC Financial Products 5.43% 7/27/07 |
| 1,113,229 |
| 1,113,230 |
| ||
| Citigroup Global Markets 5.45% 7/6/07 |
| 1,113,229 |
| 1,113,230 |
| ||
| Commonwealth Bank 5.32% 7/29/08 |
| 856,330 |
| 856,330 |
| ||
| Credit Suisse First Boston 5.32% 3/14/08 |
| 856,330 |
| 856,330 |
| ||
| Deutsche Bank |
|
|
|
|
| ||
| 5.34% 8/20/07 |
| 1,198,862 |
| 1,198,863 |
| ||
| 5.34% 9/21/07 |
| 128,450 |
| 128,450 |
| ||
| Dexia Bank 5.32% 9/28/07 |
| 1,198,803 |
| 1,198,803 |
| ||
| Goldman Sachs Group 5.52% 6/27/08 |
| 1,010,470 |
| 1,010,470 |
| ||
| Marshall & Ilsley Bank 5.32% 7/29/08 |
| 941,963 |
| 941,963 |
| ||
| Morgan Stanley 5.56% 7/29/08 |
| 1,113,229 |
| 1,113,229 |
| ||
| National Australia Bank 5.31% 7/29/08 |
| 1,061,850 |
| 1,061,850 |
| ||
| National Rural Utilities 5.33% 7/29/08 |
| 1,353,002 |
| 1,353,002 |
| ||
| Nordea Bank, Norge 5.33% 7/29/08 |
| 856,330 |
| 856,330 |
| ||
| Royal Bank of Scotland Group 5.33% 7/29/08 |
| 856,330 |
| 856,330 |
| ||
| Societe Generale 5.31% 7/29/08 |
| 428,165 |
| 428,165 |
| ||
| Sun Trust Bank 5.33% 7/30/07 |
| 1,113,229 |
| 1,113,229 |
| ||
| Wells Fargo 5.33% 7/29/08 |
| 856,330 |
| 856,330 |
| ||
|
|
|
|
| 22,547,117 |
| ||
| Total Securities Lending Collateral |
|
|
| 36,631,036 |
| ||
|
|
|
|
|
|
| ||
TOTAL VALUE OF SECURITIES–120.16% (cost $183,679,742) |
|
|
| 213,081,465 | v | |||
OBLIGATION TO RETURN SECURITIES LENDING COLLATERAL**–(20.66%) |
|
|
| (36,631,036 | ) | |||
RECEIVABLES AND OTHER ASSETS NET OF LIABILITIES–0.50% |
|
|
| 888,254 |
| |||
NET ASSETS APPLICABLE TO 11,383,091 SHARES OUTSTANDING–100.00% |
|
|
| $ | 177,338,683 |
| ||
NET ASSET VALUE-DELAWARE VIP INTERNATIONAL VALUE EQUITY SERIES STANDARD CLASS ($177,145,649 / 11,370,683 Shares) |
|
|
| $ | 15.58 |
| ||
NET ASSET VALUE-DELAWARE VIP INTERNATIONAL VALUE EQUITY SERIES SERVICE CLASS ($193,034 / 12,408 Shares) |
|
|
| $ | 15.56 |
| ||
COMPONENTS OF NET ASSETS AT JUNE 30, 2007: |
|
|
|
|
| |||
Shares of beneficial interest (unlimited authorization–no par) |
|
|
| $ | 140,752,281 |
| ||
Undistributed net investment income |
|
|
| 2,239,193 |
| |||
Accumulated net realized gain on investments |
|
|
| 4,938,531 |
| |||
Net unrealized depreciation of investments and foreign currencies |
|
|
| 29,408,678 |
| |||
Total net assets |
|
|
| $ | 177,338,683 |
| ||
† | Non-income producing security for the period ended June 30, 2007. |
• | Variable rate security. The rate shown is the rate as of June 30, 2007. |
* | Fully or partially on loan. |
** | See Note 9 in “Notes to Financial Statements.” |
v | Includes $34,928,143 of securities loaned. |
r | Securities have been classified by country of origin. Classification by type of business has been presented on page 2 in “Country and Sector Allocations.” |
^ | Zero coupon security. The rate shown is the yield at the time of purchase. |
Summary of Abbreviations:
ADR – American Depositary Receipts
CVA – Dutch Certificate
See accompanying notes
4
Delaware VIP Trust —
Delaware VIP International Value Equity Series
Statement of Operations
Six Months Ended June 30, 2007 (Unaudited)
INVESTMENT INCOME: |
|
|
| |
Dividends |
| $ | 3,191,804 |
|
Interest |
| 52,985 |
| |
Securities lending income |
| 140,813 |
| |
Foreign tax withheld |
| (269,964 | ) | |
|
| 3,115,638 |
| |
EXPENSES: |
|
|
| |
Management fees |
| 740,618 |
| |
Custodian fees |
| 37,689 |
| |
Accounting and administration expenses |
| 34,853 |
| |
Audit and tax |
| 10,147 |
| |
Reports and statements to shareholders |
| 9,675 |
| |
Legal fees |
| 9,106 |
| |
Dividend disbursing and transfer agent fees and expenses |
| 8,713 |
| |
Trustees’ fees and benefits |
| 4,314 |
| |
Pricing fees |
| 3,002 |
| |
Insurance fees |
| 2,259 |
| |
Consulting fees |
| 1,592 |
| |
Taxes (other than taxes on income) |
| 1,429 |
| |
Registration fees |
| 1,178 |
| |
Dues and services |
| 456 |
| |
Trustees’ expenses |
| 275 |
| |
Distribution expenses – Service Class |
| 224 |
| |
|
| 865,530 |
| |
Less waiver of distribution expenses – Service Class |
| (37 | ) | |
Less expense paid indirectly |
| (214 | ) | |
Total operating expenses |
| 865,279 |
| |
|
|
|
| |
NET INVESTMENT INCOME |
| 2,250,359 |
| |
|
|
|
| |
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS AND FOREIGN CURRENCIES: |
|
|
| |
Net realized gain on: |
|
|
| |
Investments |
| 5,379,097 |
| |
Foreign currencies |
| 7,039 |
| |
Net realized gain |
| 5,386,136 |
| |
Net change in unrealized appreciation/depreciation of investments and foreign currencies |
| 11,066,248 |
| |
|
|
|
| |
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS AND FOREIGN CURRENCIES |
| 16,452,384 |
| |
|
|
|
| |
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS |
| $ | 18,702,743 |
|
Delaware VIP Trust —
Delaware VIP International Value Equity Series
Statements of Changes in Net Assets
|
| Six Months |
| Year Ended |
| ||
|
| (Unaudited) |
|
|
| ||
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS: |
|
|
|
|
| ||
Net investment income |
| $ | 2,250,359 |
| $ | 4,008,491 |
|
Net realized gain on investments and foreign currencies |
| 5,386,136 |
| 66,425,012 |
| ||
Net change in unrealized appreciation/depreciation of investments and foreign currencies |
| 11,066,248 |
| (35,420,048 | ) | ||
Net increase in net assets resulting from operations |
| 18,702,743 |
| 35,013,455 |
| ||
|
|
|
|
|
| ||
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM: |
|
|
|
|
| ||
Net investment income: |
|
|
|
|
| ||
Standard Class |
| (3,694,827 | ) | (4,683,222 | ) | ||
Service Class |
| (3,271 | ) | (1,608 | ) | ||
Net realized gain on investments: |
|
|
|
|
| ||
Standard Class |
| (65,626,826 | ) | (9,267,611 | ) | ||
Service Class |
| (64,716 | ) | (3,444 | ) | ||
|
| (69,389,640 | ) | (13,955,885 | ) | ||
|
|
|
|
|
| ||
CAPITAL SHARE TRANSACTIONS: |
|
|
|
|
| ||
Proceeds from shares sold: |
|
|
|
|
| ||
Standard Class |
| 2,465,501 |
| 90,482,396 |
| ||
Service Class |
| 124,896 |
| 336 |
| ||
Net asset value of shares issued upon reinvestment of dividends and distributions: |
|
|
|
|
| ||
Standard Class |
| 69,321,653 |
| 13,950,833 |
| ||
Service Class |
| 67,987 |
| 5,052 |
| ||
|
| 71,980,037 |
| 104,438,617 |
| ||
|
|
|
|
|
| ||
COST OF SHARES REPURCHASED: |
|
|
|
|
| ||
Standard Class |
| (17,024,209 | ) | (113,759,501 | ) | ||
Service Class |
| (6,845 | ) | (14,980 | ) | ||
|
| (17,031,054 | ) | (113,774,481 | ) | ||
Increase (Decrease) in net assets derived from capital share transactions |
| 54,948,983 |
| (9,335,864 | ) | ||
|
|
|
|
|
| ||
NET INCREASE IN NET ASSETS |
| 4,262,086 |
| 11,721,706 |
| ||
|
|
|
|
|
| ||
NET ASSETS: |
|
|
|
|
| ||
Beginning of period |
| 173,076,597 |
| 161,354,891 |
| ||
End of period (including undistributed net investment income of $2,239,193 and $3,678,748, respectively) |
| $ | 177,338,683 |
| $ | 173,076,597 |
|
See accompanying notes
5
Delaware VIP Trust —
Delaware VIP International Value Equity Series
Financial Highlights
Selected data for each share of the Series outstanding throughout each period were as follows:
|
| Delaware VIP International Value Equity Series Standard Class |
| ||||||||||||||||
|
| Six Months |
| Year Ended |
| ||||||||||||||
|
| 6/30/07(1) |
| 12/31/06 |
| 12/31/05 |
| 12/31/04 |
| 12/31/03 |
| 12/31/02 |
| ||||||
|
| (Unaudited) |
|
|
|
|
|
|
|
|
|
|
| ||||||
Net asset value, beginning of period |
| $ | 23.100 |
| $ | 20.380 |
| $ | 18.550 |
| $ | 15.660 |
| $ | 11.550 |
| $ | 13.900 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Income (loss) from investment operations: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Net investment income(2) |
| 0.230 |
| 0.512 |
| 0.496 |
| 0.396 |
| 0.373 |
| 0.254 |
| ||||||
Net realized and unrealized gain (loss) on investments and foreign currencies |
| 1.781 |
| 4.043 |
| 1.838 |
| 2.920 |
| 4.355 |
| (1.556 | ) | ||||||
Total from investment operations |
| 2.011 |
| 4.555 |
| 2.334 |
| 3.316 |
| 4.728 |
| (1.302 | ) | ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Less dividends and distributions from: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Net investment income |
| (0.508 | ) | (0.616 | ) | (0.291 | ) | (0.426 | ) | (0.314 | ) | (0.284 | ) | ||||||
Net realized gain on investments |
| (9.023 | ) | (1.219 | ) | (0.213 | ) | — |
| (0.304 | ) | (0.764 | ) | ||||||
Total dividends and distributions |
| (9.531 | ) | (1.835 | ) | (0.504 | ) | (0.426 | ) | (0.618 | ) | (1.048 | ) | ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Net asset value, end of period |
| $ | 15.580 |
| $ | 23.100 |
| $ | 20.380 |
| $ | 18.550 |
| $ | 15.660 |
| $ | 11.550 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Total return(3) |
| 11.54 | % | 23.59 | % | 12.87 | % | 21.79 | % | 43.44 | % | (10.40 | )% | ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Ratios and supplemental data: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Net assets, end of period (000 omitted) |
| $ | 177,146 |
| $ | 173,017 |
| $ | 161,293 |
| $ | 164,544 |
| $ | 167,813 |
| $ | 142,065 |
|
Ratio of expenses to average net assets |
| 0.99 | % | 1.01 | % | 1.00 | % | 0.99 | % | 0.98 | % | 0.98 | % | ||||||
Ratio of expenses to average net assets prior to expense limitation and expenses paid indirectly |
| 0.99 | % | 1.01 | % | 1.02 | % | 0.99 | % | 0.99 | % | 1.02 | % | ||||||
Ratio of net investment income to average net assets |
| 2.58 | % | 2.44 | % | 2.63 | % | 2.46 | % | 2.96 | % | 1.99 | % | ||||||
Ratio of net investment income to average net assets prior to expense limitation and expenses paid indirectly |
| 2.58 | % | 2.44 | % | 2.61 | % | 2.46 | % | 2.95 | % | 1.95 | % | ||||||
Portfolio turnover |
| 20 | % | 114 | % | 8 | % | 10 | % | 11 | % | 13 | % |
(1) | Ratios and portfolio turnover have been annualized and total return has not been annualized. |
(2) | The average shares outstanding method has been applied for per share information. |
(3) | Total investment return is based on the change in net asset value of a share during the period and assumes reinvestment of dividends and distributions at net asset value. Total investment return reflects waivers and payment of fees by the manager, as applicable. Performance would have been lower had the expense limitation not been in effect. |
See accompanying notes
6
Selected data for each share of the Series outstanding throughout each period were as follows:
|
| Delaware VIP International Value Equity Series Service Class |
| ||||||||||||||||
|
| Six Months |
| Year Ended |
| ||||||||||||||
|
| 6/30/07(1) |
| 12/31/06 |
| 12/31/05 |
| 12/31/04 |
| 12/31/03 |
| 12/31/02 |
| ||||||
|
| (Unaudited) |
|
|
|
|
|
|
|
|
|
|
| ||||||
Net asset value, beginning of period |
| $ | 23.050 |
| $ | 20.350 |
| $ | 18.520 |
| $ | 15.650 |
| $ | 11.550 |
| $ | 13.900 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Income (loss) from investment operations: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Net investment income(2) |
| 0.209 |
| 0.459 |
| 0.449 |
| 0.356 |
| 0.345 |
| 0.236 |
| ||||||
Net realized and unrealized gain (loss) on investments and foreign currencies |
| 1.780 |
| 4.029 |
| 1.845 |
| 2.911 |
| 4.355 |
| (1.559 | ) | ||||||
Total from investment operations |
| 1.989 |
| 4.488 |
| 2.294 |
| 3.267 |
| 4.700 |
| (1.323 | ) | ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Less dividends and distributions from: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Net investment income |
| (0.456 | ) | (0.569 | ) | (0.251 | ) | (0.397 | ) | (0.296 | ) | (0.263 | ) | ||||||
Net realized gain on investments |
| (9.023 | ) | (1.219 | ) | (0.213 | ) | — |
| (0.304 | ) | (0.764 | ) | ||||||
Total dividends and distributions |
| (9.479 | ) | (1.788 | ) | (0.464 | ) | (0.397 | ) | (0.600 | ) | (1.027 | ) | ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Net asset value, end of period |
| $ | 15.560 |
| $ | 23.050 |
| $ | 20.350 |
| $ | 18.520 |
| $ | 15.650 |
| $ | 11.550 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Total return(3) |
| 11.42 | % | 23.24 | % | 12.65 | % | 21.44 | % | 43.11 | % | (10.54 | )% | ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Ratios and supplemental data: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Net assets, end of period (000 omitted) |
| $ | 193 |
| $ | 60 |
| $ | 62 |
| $ | 95 |
| $ | 109 |
| $ | 54 |
|
Ratio of expenses to average net assets |
| 1.24 | % | 1.26 | % | 1.25 | % | 1.24 | % | 1.20 | % | 1.13 | % | ||||||
Ratio of expenses to average net assets prior to expense limitation and expenses paid indirectly |
| 1.29 | % | 1.31 | % | 1.32 | % | 1.29 | % | 1.24 | % | 1.17 | % | ||||||
Ratio of net investment income to average net assets |
| 2.33 | % | 2.19 | % | 2.38 | % | 2.21 | % | 2.74 | % | 1.84 | % | ||||||
Ratio of net investment income to average net assets prior to expense limitation and expenses paid indirectly |
| 2.28 | % | 2.14 | % | 2.31 | % | 2.16 | % | 2.70 | % | 1.80 | % | ||||||
Portfolio turnover |
| 20 | % | 114 | % | 8 | % | 10 | % | 11 | % | 13 | % |
(1) | Ratios and portfolio turnover have been annualized and total return has not been annualized. |
(2) | The average shares outstanding method has been applied for per share information. |
(3) | Total investment return is based on the change in net asset value of a share during the period and assumes reinvestment of dividends and distributions at net asset value. Total investment return reflects waivers and payment of fees by the manager and distributor, as applicable. Performance would have been lower had the expense limitation and waiver not been in effect. |
See accompanying notes
7
Delaware VIP Trust — Delaware VIP International Value Equity Series
Notes to Financial Statements
June 30, 2007 (Unaudited)
Delaware VIP Trust (Trust) is organized as a Delaware statutory trust and offers 14 series: Delaware VIP Balanced Series, Delaware VIP Capital Reserves Series, Delaware VIP Cash Reserve Series, Delaware VIP Diversified Income Series, Delaware VIP Emerging Markets Series, Delaware VIP Growth Opportunities Series, Delaware VIP High Yield Series, Delaware VIP International Value Equity Series, Delaware VIP REIT Series, Delaware VIP Select Growth Series, Delaware VIP Small Cap Value Series, Delaware VIP Trend Series, Delaware VIP U.S. Growth Series and Delaware VIP Value Series. These financial statements and the related notes pertain to Delaware VIP International Value Equity Series (Series). The Trust is an open-end investment company. The Series is considered diversified under the Investment Company Act of 1940, as amended, and offers Standard Class and Service Class shares. The Standard Class shares do not carry a 12b-1 fee and the Service Class shares carry a 12b-1 fee. The shares of the Series are sold only to separate accounts of life insurance companies.
The investment objective of the Series is to seek long-term growth without undue risk to principal.
1. Significant Accounting Policies
The following accounting policies are in accordance with U.S. generally accepted accounting principles and are consistently followed by the Series.
Security Valuation—Equity securities, except those traded on the Nasdaq Stock Market, Inc. (Nasdaq), are valued at the last quoted sales price as of the time of the regular close of the New York Stock Exchange (NYSE) on the valuation date. Securities traded on the Nasdaq are valued in accordance with the Nasdaq Official Closing Price, which may not be the last sales price. If on a particular day an equity security does not trade, then the mean between the bid and asked prices will be used. Securities listed on a foreign exchange are valued at the last quoted sales price before the Series is valued. Short-term debt securities having less than 60 days to maturity are valued at amortized cost, which approximates market value. Securities lending collateral is valued at amortized cost, which approximates value. Foreign currency exchange contracts are valued at the mean between the bid and asked prices of the contracts and are marked-to-market daily. Interpolated values are derived when the settlement date of the contract is an interim date for which quotations are not available. Other securities and assets for which market quotations are not readily available are valued at fair value as determined in good faith under the direction of the Series’ Board of Trustees. In determining whether market quotations are readily available or fair valuation will be used, various factors will be taken into consideration, such as market closures, or with respect to foreign securities, aftermarket trading, or significant events after local market trading (e.g., government actions or pronouncements, trading volume or volatility on markets, exchanges among dealers, or news events).
In September 2006, the Financial Accounting Standards Board (FASB) issued FASB Statement No. 157 “Fair Value Measurements” (Statement 157). Statement 157 establishes a framework for measuring fair value in generally accepted accounting principles, clarifies the definition of fair value within that framework, and expands disclosures about the use of fair value measurements. Statement 157 is intended to increase consistency and comparability among fair value estimates used in financial reporting. Statement 157 is effective for fiscal years beginning after November 15, 2007. Management does not expect the adoption of Statement 157 to have an impact on the amounts reported in the financial statements.
Federal Income Taxes—The Series intends to continue to qualify for federal income tax purposes as a regulated investment company and make the requisite distributions to shareholders. Accordingly, no provision for federal income taxes has been made in the financial statements.
Effective June 29, 2007, the Series adopted FASB Interpretation No. 48 “Accounting for Uncertainty in Income Taxes” (FIN 48). FIN 48 provides guidance for how uncertain tax positions should be recognized, measured, presented and disclosed in the financial statements. FIN 48 requires the evaluation of tax positions taken or expected to be taken in the course of preparing the Series’ tax returns to determine whether the tax positions are “more-likely-than-not” of being sustained by the applicable tax authority. Tax positions not deemed to meet the more-likely-than-not threshold are recorded as a tax benefit or expense in the current year. The adoption of FIN 48 did not result in the recording of any tax benefit or expense in the current period.
Class Accounting—Investment income, common expenses and realized and unrealized gain (loss) on investments are allocated to the classes of the Series on the basis of daily net assets of each class. Distribution expenses relating to a specific class are charged directly to that class.
Repurchase Agreements—The Series may invest in a pooled cash account along with members of the Delaware Investments® Family of Funds pursuant to an exemptive order issued by the Securities and Exchange Commission. The aggregate daily balance of the pooled cash account is invested in repurchase agreements secured by obligations of the U.S. government. The respective collateral is held by the Series’ custodian bank until the maturity of the respective repurchase agreements. Each repurchase agreement is at least 102% collateralized. However, in the event of default or bankruptcy by the counterparty to the agreement, realization of the collateral may be subject to legal proceedings.
Foreign Currency Transactions—Transactions denominated in foreign currencies are recorded at the prevailing exchange rates on the valuation date. The value of all assets and liabilities denominated in foreign currencies are translated into U.S. dollars at the exchange rate of such currencies against the U.S. dollar daily. Transaction gains or losses resulting from changes in exchange rates during the reporting period or upon settlement of the foreign currency transaction are reported in operations for the current period. The Series does not isolate that portion of realized gains and losses on investments which are due to changes in foreign exchange rates from that which are due to changes in market prices. The Series reports certain foreign currency related transactions as components of realized gains (losses) for financial reporting purposes, where such components are treated as ordinary income (loss) for federal income tax purposes.
Use of Estimates—The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
8
Other—Expenses directly attributable to the Series are charged directly to the Series. Other expenses common to various funds within the Delaware Investments® Family of Funds are generally allocated amongst such funds on the basis of average net assets. Management fees and some other expenses are paid monthly. Security transactions are recorded on the date the securities are purchased or sold (trade date) for financial reporting purposes. Costs used in calculating realized gains and losses on the sale of investment securities are those of the specific securities sold. Dividend income is recorded on the ex-dividend date and interest income is recorded on the accrual basis. Taxable non-cash dividends are recorded as dividend income. Foreign dividends are also recorded on the ex-dividend date or as soon after the ex-dividend date that the Series is aware of such dividends, net of all non-rebatable tax withholdings. Withholding taxes on foreign dividends have been recorded in accordance with the Series’ understanding of the applicable country’s tax rules and rates.
The Series declares and pays dividends from net investment income and distributions from net realized gain on investments, if any, following the close of the fiscal year.
The Series may receive earnings credits from its custodian when positive cash balances are maintained, which are used to offset custody fees. The expense paid under this arrangement is included in custodian fees on the Statement of Operations with the corresponding expense offset shown as “expense paid indirectly.”
2. Investment Management, Administration Agreements and Other Transactions with Affiliates
In accordance with the terms of its investment management agreement, the Series pays Delaware Management Company (DMC), a series of Delaware Management Business Trust and the investment manager, an annual fee which is calculated daily at the rate of 0.85% on the first $500 million of average daily net assets of the Series, 0.80% on the next $500 million, 0.75% on the next $1.5 billion, and 0.70% on average daily net assets in excess of $2.5 billion.
Prior to May 1, 2007, DMC had contractually agreed to waive that portion, if any, of its management fee and reimburse the Series to the extent necessary to ensure that annual operating expenses, exclusive of taxes, interest, brokerage commissions, inverse floater program expenses, 12b-1 plan expenses, certain insurance costs and non-routine expenses or costs including, but not limited to, those relating to reorganizations, litigation, certain Trustee retirement plan expenses, conducting shareholder meetings, and liquidations, did not exceed 1.08% of average daily net assets of the Series through April 30, 2007. No reimbursement was due for the six months ended June 30, 2007.
Delaware Service Company, Inc. (DSC), an affiliate of DMC, provides accounting, administration, dividend disbursing and transfer agent services. The Series pays DSC a monthly fee computed at the annual rate of 0.04% of the Series’ average daily net assets for accounting and administrative services. The Series pays DSC a monthly fee based on average net assets for dividend disbursing and transfer agent services.
Pursuant to a distribution agreement and distribution plan, the Series pays Delaware Distributors, L.P. (DDLP), the distributor and an affiliate of DMC, an annual distribution and service fee not to exceed 0.30% of the average daily net assets of the Service Class shares. DDLP has contracted to waive distribution and service fees through April 30, 2008 in order to prevent distribution and service fees of the Service Class shares from exceeding 0.25% of average daily net assets. Standard Class shares pay no distribution and service expenses.
At June 30, 2007, the Series had liabilities payable to affiliates as follows:
Investment |
| Dividend Disbursing, |
| Distribution |
| Other |
| ||||
$ | 124,200 |
| $ | 7,308 |
| $ | 40 |
| $ | 16,257 |
|
* DMC, as part of its administrative services, pays operating expenses on behalf of the Series and is reimbursed on a periodic basis. Such expenses include items such as printing of shareholder reports, fees for audit, legal and tax services, custodian fees and trustees’ fees.
As provided in the investment management agreement, the Series bears the cost of certain legal and tax services, including internal legal and tax services provided to the Series by DMC and/or its affiliates’ employees. For the six months ended June 30, 2007, the Series was charged $3,958 for internal legal and tax services provided by DMC and/or its affiliates’ employees.
Trustees’ fees and benefits include expenses accrued by the Series for each Trustee’s retainer, per meeting fees and retirement benefits. Independent Trustees with over five years of uninterrupted service were eligible to participate in a retirement plan that provides for the payment of benefits upon retirement. The amount of the retirement benefit was determined based on factors set forth in the plan, including the number of years of service. On November 16, 2006, the Board of Trustees unanimously voted to terminate the retirement plan. Payments equal to the net present value of the earned benefits were made in 2007 to those independent Trustees so entitled. The retirement benefit payout for the Series was $20,374. Certain officers of DMC, DSC and DDLP are officers and/or Trustees of the Trust. These officers and Trustees are paid no compensation by the Series.
9
3. Investments
For the six months ended June 30, 2007, the Series made purchases and sales of investment securities other than short-term investments as follows:
Purchases |
| $ | 16,895,026 |
|
Sales |
| 27,887,832 |
|
At June 30, 2007, the cost of investments for federal income tax purposes has been estimated since the final tax characteristics cannot be determined until fiscal year end. At June 30, 2007, the cost of investments and unrealized appreciation (depreciation) for the Series were as follows:
Cost of |
| Aggregate |
| Aggregate |
| Net Unrealized |
| |||
$ 184,134,671 |
| $ | 33,299,426 |
| $ | (4,352,632 | ) | $ | 28,946,794 |
|
4. Dividend and Distribution Information
Income and long-term capital gain distributions are determined in accordance with federal income tax regulations, which may differ from U.S. generally accepted accounting principles. Additionally, gains (losses) on foreign currency transactions and net short-term gains on sales of investment securities are treated as ordinary income for federal income tax purposes. The tax character of dividends and distributions paid during the six months ended June 30, 2007 and the year ended December 31, 2006 was as follows:
| Six Months |
| Year |
| |||
Ordinary income |
| $ | 4,887,102 |
| $ | 4,773,624 |
|
Long-term capital gain |
| 64,502,538 |
| 9,182,261 |
| ||
Total |
| $ | 69,389,640 |
| $ | 13,955,885 |
|
*Tax information for the six months ended June 30, 2007 is an estimate and the tax character of dividends and distributions may be redesignated at fiscal year end.
5. Components of Net Assets on a Tax Basis
The components of net assets are estimated since final tax characteristics cannot be determined until fiscal year end. As of June 30, 2007, the estimated components of net assets on a tax basis were as follows:
Shares of beneficial interest |
| $ | 140,752,281 |
|
Undistributed ordinary income |
| 4,693,905 |
| |
Undistributed long-term capital gain |
| 2,938,748 |
| |
Unrealized appreciation of investments and foreign currencies |
| 28,953,749 |
| |
Net assets |
| $ | 177,338,683 |
|
The differences between book basis and tax basis components of net assets are primarily attributable to tax deferral of losses on wash sales and mark to market of foreign currency contracts.
For financial reporting purposes, capital accounts are adjusted to reflect the tax character of permanent book/tax differences. Reclassifications are primarily due to tax treatment of gain (loss) on foreign currency transactions. Results of operations and net assets were not affected by these reclassifications. For the six months ended June 30, 2007, the Series recorded an estimate of these differences since the final tax characteristics cannot be determined until fiscal year end:
Undistributed |
| Accumulated |
| |
$ 8,184 |
| $ | (8,184 | ) |
10
6. Capital Shares
Transactions in capital shares were as follows:
| Six Months |
| Year |
| |
|
|
|
|
|
|
Shares sold: |
|
|
|
|
|
Standard Class |
| 90,427 |
| 4,684,879 |
|
Service Class |
| 5,550 |
| 15 |
|
|
|
|
|
|
|
Shares issued upon reinvestment of dividends and distributions: |
|
|
|
|
|
Standard Class |
| 4,754,572 |
| 686,895 |
|
Service Class |
| 4,665 |
| 249 |
|
|
| 4,855,214 |
| 5,372,038 |
|
|
|
|
|
|
|
Shares repurchased: |
|
|
|
|
|
Standard Class |
| (963,398 | ) | (5,796,253 | ) |
Service Class |
| (382 | ) | (712 | ) |
|
| (963,780 | ) | (5,796,965 | ) |
Net increase (decrease) |
| 3,891,434 |
| (424,927 | ) |
7. Line of Credit
The Series, along with certain other funds in the Delaware Investments® Family of Funds (Participants), participates in a $225,000,000 revolving line of credit facility to be used for temporary or emergency purposes as an additional source of liquidity to fund redemptions of investor shares. The Participants are charged an annual commitment fee, which is allocated across the Participants on the basis of each Participant’s allocation of the entire facility. The Participants may borrow up to a maximum of one third of their net assets under the agreement. The Series had no amounts outstanding as of June 30, 2007, or at any time during the period then ended.
8. Foreign Currency Exchange Contracts
The Series may enter into foreign currency exchange contracts as a way of managing foreign exchange rate risk. The Series may enter into these contracts to fix the U.S. dollar value of a security that it has agreed to buy or sell for the period between the date the trade was entered into and the date the security is delivered and paid for. The Series may also use these contracts to hedge the U.S. dollar value of securities it already owns that are denominated in foreign currencies. The change in market value is recorded as an unrealized gain or loss. When the contract is closed, a realized gain or loss is recorded equal to the difference between the value of the contract at the time it was opened and the value at the time it was closed.
The use of foreign currency exchange contracts does not eliminate fluctuations in the underlying prices of the securities, but does establish a rate of exchange that can be achieved in the future. Although foreign currency exchange contracts limit the risk of loss due to a decline in the value of the hedged currency, they also limit any potential gain that might result should the value of the currency increase. In addition, the Series could be exposed to risks if the counterparties to the contracts are unable to meet the terms of their contracts. There were no foreign currency exchange contracts outstanding at June 30, 2007.
9. Securities Lending
The Series, along with other funds in the Delaware Investments® Family of Funds, may lend its securities pursuant to a security lending agreement (Lending Agreement) with JPMorgan Chase. Initial security loans made pursuant to the Lending Agreement are required to be secured by U.S. government obligations and/or cash collateral not less than 102% of the value of securities issued in the United States and 105% of the value of the securities issued outside the United States. With respect to each loan, if the aggregate value of the collateral held on any business day is less than the aggregate value of the securities which are the subject of such loan, the borrower will be notified to provide additional collateral not less than the applicable collateral requirements. Cash collateral received is invested in fixed income securities, with a weighted average maturity not to exceed 90 days, rated in one of the top two tiers by Standard & Poor’s Ratings Group or Moody’s Investors Service, Inc. or repurchase agreements collateralized by such securities. However, in the event of default or bankruptcy by the lending agent, realization and/or retention of the collateral may be subject to legal proceedings. In the event the borrower fails to return loaned securities and the collateral received is insufficient to cover the value of the loaned securities and provided such collateral shortfall is not the result of investment losses, the lending agent has agreed to pay the amount of the shortfall to the Series, or at the discretion of the lending agent, replace the loaned securities. The Series continues to record dividends on the securities loaned and is subject to change in value of the securities loaned that may occur during the term of the loan. The Series has the right under the Lending Agreement to recover the securities from the borrower on demand. The security lending agent and the borrower retain a portion of the earnings from the collateral investments. The Series records security lending income net of such allocation.
At June 30, 2007, the value of securities on loan was $34,928,143, for which cash collateral was received and invested in accordance with the Lending Agreement. Such investments are presented on the Statement of Net Assets under the caption “Securities Lending Collateral.”
11
10. Credit and Market Risk
Some countries in which the Series may invest require governmental approval for the repatriation of investment income, capital or the proceeds of sales of securities by foreign investors. In addition, if there is deterioration in a country’s balance of payments or for other reasons, a country may impose temporary restrictions on foreign capital remittances abroad.
The securities exchanges of certain foreign markets are substantially smaller, less liquid, and more volatile than the major securities markets in the United States. Consequently, acquisition and disposition of securities by the Series may be inhibited. In addition, a significant portion of the aggregate market value of equity securities listed on the major securities exchanges in emerging markets are held by a smaller number of investors. This may limit the number of shares available for acquisition or disposition by the Series.
The Series may invest up to 10% of its total assets in illiquid securities, which may include securities with contractual restrictions on resale, securities exempt from registration under Rule 144A of the Securities Act of 1933, as amended, and other securities which may not be readily marketable. The relative illiquidity of these securities may impair the Series from disposing of them in a timely manner and at a fair price when it is necessary or desirable to do so. While maintaining oversight, the Series’ Board of Trustees has delegated to DMC the day-to-day functions of determining whether individual securities are liquid for purposes of the Series’ limitation on investments in illiquid assets. As of June 30, 2007, there were no Rule 144A securities and no securities have been determined to be illiquid under the Series’ Liquidity Procedures.
11. Contractual Obligations
The Series enters into contracts in the normal course of business that contain a variety of indemnifications. The Series’ maximum exposure under these arrangements is unknown. However, the Series has not had prior claims or losses pursuant to these contracts. Management has reviewed the Series’ existing contracts and expects the risk of loss to be remote.
12. Subsequent Event
The Series has a new securities lending agreement with Mellon Bank, N.A. as of August 2, 2007.
The Series files its complete schedule of portfolio holdings with the Securities and Exchange Commission (the Commission) for the first and third quarters of each fiscal year on Form N-Q. The Series’ Forms N-Q, as well as a description of the policies and procedures that the Series uses to determine how to vote proxies (if any) relating to portfolio securities is available without charge (i) upon request, by calling 800 523-1918; and (ii) on the Commission’s website at http://www.sec.gov. In addition, a description of the policies and procedures that the Series uses to determine how to vote proxies (if any) relating to portfolio securities is available without charge on the Delaware Investments® Funds’ website at http://www.delawareinvestments.com. The Series’ Forms N-Q may be reviewed and copied at the Commission’s Public Reference Room in Washington, DC; information on the operation of the Public Reference Room may be obtained by calling 800 SEC-0330.
Information (if any) regarding how the Series voted proxies relating to portfolio securities during the most recently disclosed 12-month period ended June 30 is available without charge (i) through the Delaware Investments® Funds’ website at http://www.delawareinvestments.com; and (ii) on the Commission’s website at http://www.sec.gov.
12
Delaware VIP Trust — Delaware VIP International Value Equity Series
Other Series Information
Board Consideration of Delaware VIP International Value Equity Series Investment Advisory Agreement
At a meeting held on May 16-17, 2007 (Annual Meeting), the Board of Trustees (Board), including a majority of disinterested or independent Trustees, approved the renewal of the Investment Advisory Agreement for the VIP International Value Equity Series (Series). In making its decision, the Board considered information furnished throughout the year at regular Board meetings, including reports detailing Series performance, investment strategies and expenses, as well as information prepared specifically in connection with the renewal of the investment advisory contracts. Information furnished specifically in connection with the renewal of the Investment Advisory Agreement with Delaware Management Company (DMC) included materials provided by DMC and its affiliates (Delaware Investments) concerning, among other things, the level of services provided to the Series, the costs of such services to the Series, economies of scale and the financial condition and profitability of Delaware Investments. In addition, in connection with the Meeting, the Board separately received and reviewed in mid-January 2007 independent historical and comparative reports prepared by Lipper Inc. (Lipper), an independent statistical compilation organization. The Lipper reports compared the Series’ investment performance and expenses with those of other comparable mutual funds. The Board requested and received certain information regarding management’s policy with respect to advisory fee levels and its philosophy with respect to breakpoints; the structure of portfolio manager compensation; the investment manager’s profitability; and any constraints or limitations on the availability of securities in certain investment styles which might inhibit DMC’s ability to fully invest in accordance with the Series’ policies.
In considering information relating to the approval of the Series’ advisory agreement, the independent Trustees received assistance and advice from and met separately with independent counsel. While attention was given to all information furnished, the following discusses under separate headings the primary factors taken into account by the Board in its contract renewal considerations.
NATURE, EXTENT AND QUALITY OF SERVICE. Consideration was given to the services provided by Delaware Investments to the Series and its shareholders. In reviewing the nature, extent and quality of services, the Board emphasized reports furnished to it throughout the year at regular Board meetings covering matters such as the relative performance of the Series, compliance of portfolio managers with the investment policies, strategies and restrictions for the Series, the compliance of management personnel with the Code of Ethics adopted throughout the Delaware Investments® Family of Funds complex and the adherence to fair value pricing procedures as established by the Board. The Board noted that it was pleased with the current staffing of the Series’ investment advisor and the emphasis placed on research in the investment process. Favorable consideration was given to DMC’s efforts to maintain, and in some instances increase, financial and human resources committed to fund matters. The Board also considered the transfer agent and shareholder services provided to Series shareholders by Delaware Investments’ affiliate, Delaware Service Company, Inc. (DSC), noting DSC’s commitment to maintain a high level of service and the continuing expenditures by Delaware Investments to improve the delivery of shareholder services. During 2006, management conducted extensive research into alternatives that could further improve the quality and cost of delivering investment accounting services to the Fund. The Board was satisfied with the nature, extent and quality of the overall services provided by Delaware Investments.
INVESTMENT PERFORMANCE. The Board considered the investment performance of DMC and the Series. The Board placed significant emphasis on the investment performance of the Series in view of its importance to shareholders. While consideration was given to performance reports and discussions with portfolio managers at Board meetings throughout the year, particular weight was given to the Lipper reports furnished for the Annual Meeting. The Lipper reports prepared for the Series showed the investment performance of its Standard Class shares in comparison to a group of similar funds as selected by Lipper (Performance Universe). A fund with the best performance ranked first, and a fund with the poorest ranked last. The highest/best performing 25% of funds in the Performance Universe make up the first quartile; the next 25% — the second quartile; the next 25% — the third quartile; and the poorest/worst performing 25% of funds in the Performance Universe make up the fourth quartile. Comparative annualized performance for the Series was shown for the past one, three, five and ten year periods ended December 31, 2006. The Board also considered comparative annualized performance for the Series for the same periods ended October 31, 2006. The performance comparison presented below is based upon the December 31, 2006 information. The Board noted its objective that the Series’ performance for the periods considered be at or above the median of its Performance Universe. The following paragraph summarizes the performance results for the Series and the Board’s view of such performance.
The Performance Universe for the Series consisted of the Series and all international core funds underlying variable insurance products as selected by Lipper. The Lipper report comparison showed that the Series’ total return for the one year period was in the third quartile. The report further showed that the Series’ total return for the three year period was in the second quartile and the Series’ total return for the five and ten year periods was in the first quartile. The Board noted that the Series’ performance results were mixed but on an overall basis tended toward above median, which was acceptable. Additionally, the Board was pleased with management’s efforts to increase portfolio management depth, noting particularly the recent hire of a new head of the equity department.
COMPARATIVE EXPENSES. The Board considered expense comparison data for the Delaware Investments Family of Funds as of October 31, 2006. Management provided the Board with information on pricing levels and fee structures for the Series. The Board focused particularly on the comparative analysis of the effective management fees and total expense ratios of the Series and the effective management fees and expense ratios of a group of similar funds as selected by Lipper (Expense Group). In reviewing comparative costs, the Series’ contractual management fee and the actual management fee incurred by the Series were compared with the contractual management fees (assuming all funds in the Expense Group were similar in size to the Series) and actual management fees (as reported by each fund) of other funds within the Expense Group, taking into account any applicable breakpoints and fee waivers. The Series’ total expenses were also compared with those of its Expense Group. The Lipper total expenses, for comparative consistency, were shown by Lipper for Standard Class shares which do not charge 12b-1 and non-12b-1 service fees. The Board also considered fees paid to Delaware Investments for non-management services. The Board noted its objective to limit the Series’ total expense ratio to an acceptable range as compared to the median of the Expense Group. The following paragraph summarizes the expense results for the Series and the Board’s view of such expenses.
The expense comparisons for the Series showed that its actual management fee and total expenses were in the quartile with the second lowest expenses of its Expense Group. The Board was satisfied with the management fee and total expenses of the Series in comparison to its Expense Group as shown in the Lipper report.
13
MANAGEMENT PROFITABILITY. The Board considered the level of profits, if any, realized by Delaware Investments in connection with the operation of the Series. In this respect, the Board reviewed the Investment Management Profitability Analysis that addressed the overall profitability of Delaware Investments’ business in providing management and other services to each of the individual funds and the Delaware Investments® Family of Funds as a whole. Specific attention was given to the methodology followed in allocating costs for the purpose of determining profitability. Management stated that the level of profits of Delaware Investments, to a certain extent, reflected operational cost savings and efficiencies initiated by Delaware Investments. The Board considered Delaware Investments’ efforts to improve services provided to fund shareholders and to meet additional regulatory and compliance requirements resulting from recent Securities and Exchange Commission initiatives. The Board also considered the extent to which Delaware Investments might derive ancillary benefits from fund operations, including the potential for procuring additional business as a result of the prestige and visibility associated with its role as service provider to the Delaware Investments Family of Funds and the benefits from allocation of fund brokerage to improve trading efficiencies. The Board found that the level of management fees was reasonable in light of the services rendered and the profitability of Delaware Investments.
ECONOMIES OF SCALE. The Trustees considered whether economies of scale are realized by Delaware Investments as the Series’ assets increase and the extent to which any economies of scale are reflected in the level of management fees charged. The Trustees took into account the standardized advisory fee pricing and structure, approved by the Board and shareholders and again reviewed by the Board this year, which includes breakpoints. Breakpoints in the advisory fee occur when the advisory fee rate is reduced on assets in excess of specified levels. This results in a lower advisory fee than would otherwise be the case on all assets when those asset levels specified are exceeded. The Board noted that the fee under the Series’ management contract fell within the standard structure. Although the Series has not reached a size at which the advantages of breakpoints would be realized, the Board recognized that the fee was structured so that when the Series grows, economies of scale may be shared.
14
Delaware VIP Trust — Delaware VIP REIT Series
Disclosure of Series Expenses
For the Period January 1, 2007 to June 30, 2007
As a shareholder of the Series, you incur ongoing costs, including management fees; distribution and/or service (12b-1) fees; and other Series expenses. This Example is intended to help you understand your ongoing costs (in dollars) of investing in the Series and to compare these costs with the ongoing costs of investing in other mutual funds.
The Example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period from January 1, 2007 to June 30, 2007.
Actual Expenses
The first section of the table shown, “Actual Series Return,” provides information about actual account values and actual expenses. You may use the information in this section of the table, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first section under the heading entitled “Expenses Paid During Period” to estimate the expenses you paid on your account during the period.
Hypothetical Example for Comparison Purposes
The second section of the table shown, “Hypothetical 5% Return,” provides information about hypothetical account values and hypothetical expenses based on the Series’ actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Series’ actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Series and other funds. To do so, compare the 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs only. As a shareholder of the Series, you do not incur any transaction costs, such as sales charges (loads), redemption fees or exchange fees, but shareholders of other funds may incur such costs. Also, the fees related to the variable annuity investment or the deferred sales charge that could apply have not been included. Therefore, the second section of the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. The Series’ actual expenses shown in the table reflect fee waivers in effect for Service Class shares. The expenses shown in the table assume reinvestment of all dividends and distributions.
Expense Analysis of an Investment of $1,000
|
| Beginning |
| Ending |
| Annualized |
| Expenses |
| |||
Actual Series Return |
|
|
|
|
|
|
|
|
| |||
Standard Class |
| $ | 1,000.00 |
| $ | 949.80 |
| 0.83 | % | $ | 4.01 |
|
Service Class |
| 1,000.00 |
| 948.40 |
| 1.08 | % | 5.22 |
| |||
|
|
|
|
|
|
|
|
|
| |||
Hypothetical 5% Return (5% return before expenses) |
|
|
|
|
|
|
|
|
| |||
Standard Class |
| $ | 1,000.00 |
| $ | 1,020.68 |
| 0.83 | % | $ | 4.16 |
|
Service Class |
| 1,000.00 |
| 1,019.44 |
| 1.08 | % | 5.41 |
|
* “Expenses Paid During Period” are equal to the Series’ annualized expense ratio, multiplied by the average account value over the period, multiplied by 181/365 (to reflect the one-half year period).
1
Delaware VIP Trust — Delaware VIP REIT Series
Sector Allocation and Top 10 Holdings
As of June 30, 2007
Sector designations may be different than the sector designations presented in other Series materials.
|
| Percentage |
|
Sector |
| of Net Assets |
|
Common Stock |
| 97.20 | % |
Diversified REITs |
| 6.72 | % |
Health Care REITs |
| 4.25 | % |
Hotel REITs |
| 8.01 | % |
Industrial REITs |
| 6.51 | % |
Mall REITs |
| 13.80 | % |
Manufactured Housing REITs |
| 1.28 | % |
Multifamily REITs |
| 21.01 | % |
Office REITs |
| 13.27 | % |
Office/Industrial REITs |
| 1.84 | % |
Real Estate Operating Companies |
| 5.25 | % |
Self-Storage REITs |
| 3.58 | % |
Shopping Center REITs |
| 9.99 | % |
Specialty REITs |
| 1.69 | % |
Discount Note |
| 3.30 | % |
Total Value of Securities |
| 100.50 | % |
Liabilities Net of Receivables and Other Assets |
| (0.50 | )% |
Total Net Assets |
| 100.00 | % |
Holdings are for informational purposes only and are subject to change at any time. They are not a recommendation to buy, sell, or hold any security.
|
| Percentage |
|
Top 10 Holdings |
| of Net Assets |
|
Simon Property Group |
| 7.52 | % |
Vornado Realty Trust |
| 5.73 | % |
Host Hotels & Resorts |
| 4.76 | % |
Boston Properties |
| 4.38 | % |
Equity Residential |
| 4.32 | % |
ProLogis |
| 4.19 | % |
Archstone-Smith Trust |
| 3.91 | % |
General Growth Properties |
| 3.53 | % |
Apartment Investment & Management |
| 3.05 | % |
AvalonBay Communities |
| 3.05 | % |
2
Delaware VIP Trust — Delaware VIP REIT Series
Statement of Net Assets
June 30, 2007 (Unaudited)
|
| Number of |
|
|
| |||
|
| Shares |
| Value |
| |||
| COMMON STOCK–97.20% |
|
|
|
|
| ||
| Diversified REITs–6.72% |
|
|
|
|
| ||
| Spirit Finance |
| 461,400 |
| $ | 6,717,984 |
| |
| Vornado Realty Trust |
| 353,401 |
| 38,817,566 |
| ||
|
|
|
|
| 45,535,550 |
| ||
| Health Care REITs–4.25% |
|
|
|
|
| ||
| Health Care Property Investors |
| 276,600 |
| 8,002,038 |
| ||
| Health Care REIT |
| 228,900 |
| 9,238,404 |
| ||
| Ventas |
| 317,900 |
| 11,523,875 |
| ||
|
|
|
|
| 28,764,317 |
| ||
| Hotel REITs–8.01% |
|
|
|
|
| ||
| Ashford Hospitality Trust |
| 530,500 |
| 6,238,680 |
| ||
| Hersha Hospitality Trust |
| 669,390 |
| 7,912,190 |
| ||
| Host Hotels & Resorts |
| 1,394,396 |
| 32,238,435 |
| ||
| Marriott International Class A |
| 181,800 |
| 7,861,032 |
| ||
|
|
|
|
| 54,250,337 |
| ||
| Industrial REITs–6.51% |
|
|
|
|
| ||
| AMB Property |
| 296,155 |
| 15,761,369 |
| ||
| ProLogis |
| 498,293 |
| 28,352,872 |
| ||
|
|
|
|
| 44,114,241 |
| ||
| Mall REITs–13.80% |
|
|
|
|
| ||
| General Growth Properties |
| 451,346 |
| 23,898,771 |
| ||
| Macerich |
| 226,300 |
| 18,651,646 |
| ||
| Simon Property Group |
| 547,699 |
| 50,957,915 |
| ||
|
|
|
|
| 93,508,332 |
| ||
| Manufactured Housing REITs–1.28% |
|
|
|
|
| ||
| Equity Lifestyle Properties |
| 166,300 |
| 8,679,197 |
| ||
|
|
|
|
| 8,679,197 |
| ||
| Multifamily REITs–21.01% |
|
|
|
|
| ||
| Apartment Investment & Management |
| 409,300 |
| 20,636,906 |
| ||
| Archstone-Smith Trust |
| 448,300 |
| 26,499,013 |
| ||
| AvalonBay Communities |
| 173,574 |
| 20,634,477 |
| ||
| BRE Properties |
| 252,800 |
| 14,988,512 |
| ||
| Camden Property Trust |
| 119,474 |
| 8,001,174 |
| ||
| Equity Residential |
| 641,800 |
| 29,285,333 |
| ||
| Essex Property Trust |
| 75,908 |
| 8,828,100 |
| ||
| Home Properties |
| 169,900 |
| 8,822,907 |
| ||
| Post Properties |
| 88,900 |
| 4,634,357 |
| ||
|
|
|
|
| 142,330,779 |
| ||
| Office REITs–13.27% |
|
|
|
|
| ||
| Alexandria Real Estate Equities |
| 122,596 |
| 11,869,745 |
| ||
| Boston Properties |
| 290,500 |
| 29,668,765 |
| ||
| Brandywine Realty Trust |
| 454,500 |
| 12,989,610 |
| ||
| Highwoods Properties |
| 284,700 |
| 10,676,250 |
| ||
| Kilroy Realty |
| 90,600 |
| 6,418,104 |
| ||
| SL Green Realty |
| 147,637 |
| 18,290,748 |
| ||
|
|
|
|
| 89,913,222 |
| ||
| Office/Industrial REITs–1.84% |
|
|
|
|
| ||
| Digital Realty Trust |
| 192,800 |
| 7,264,704 |
| ||
| PS Business Parks |
| 82,000 |
| 5,196,340 |
| ||
|
|
|
|
| 12,461,044 |
| ||
| Real Estate Operating Companies–5.25% |
|
|
|
|
| ||
| Brookfield Properties |
| 277,300 |
| 6,741,163 |
| ||
| Hilton Hotels |
| 313,400 |
| 10,489,498 |
| ||
| Starwood Hotels & Resorts Worldwide |
| 272,750 |
| 18,293,343 |
| ||
|
|
|
|
| 35,524,004 |
| ||
| Self-Storage REITs–3.58% |
|
|
|
|
| ||
| Extra Space Storage |
| 238,300 |
| 3,931,950 |
| ||
| Public Storage |
| 264,400 |
| 20,311,208 |
| ||
|
|
|
|
| 24,243,158 |
| ||
| Shopping Center REITs–9.99% |
|
|
|
|
| ||
| Developers Diversified Realty |
| 125,378 |
| 6,608,674 |
| ||
| Equity One |
| 241,000 |
| 6,157,550 |
| ||
| Federal Realty Investment Trust |
| 189,389 |
| 14,632,194 |
| ||
| Kimco Realty |
| 492,300 |
| 18,741,861 |
| ||
| Kite Realty Group Trust |
| 375,896 |
| 7,149,542 |
| ||
| Regency Centers |
| 203,639 |
| 14,356,550 |
| ||
|
|
|
|
| 67,646,371 |
| ||
| Specialty REITs–1.69% |
|
|
|
|
| ||
| Entertainment Properties Trust |
| 49,900 |
| 2,683,622 |
| ||
| Plum Creek Timber |
| 210,500 |
| 8,769,430 |
| ||
|
|
|
|
| 11,453,052 |
| ||
| Total Common Stock |
|
|
| 658,423,604 |
| ||
|
|
| Principal |
|
|
| ||
^ | DISCOUNT NOTE–3.30% |
|
|
|
|
| ||
| Federal Home Loan Bank 4.802% 7/2/07 |
| $ | 22,386,000 |
| 22,383,015 |
| |
Total Discount Note |
|
|
| 22,383,015 |
| |||
TOTAL VALUE OF SECURITIES–100.50% (cost $693,028,887) |
| 680,806,619 |
| |
LIABILITIES NET OF RECEIVABLES AND OTHER ASSETS–(0.50)% |
| (3,374,365 | ) | |
NET ASSETS APPLICABLE TO 38,789,398 SHARES OUTSTANDING–100.00% |
| $ | 677,432,254 |
|
NET ASSET VALUE-DELAWARE VIP REIT SERIES STANDARD CLASS ($370,643,589 / 21,211,577 Shares) |
| $ | 17.47 |
|
NET ASSET VALUE-DELAWARE VIP REIT SERIES SERVICE CLASS ($306,788,665 / 17,577,821 Shares) |
| $ | 17.45 |
|
COMPONENTS OF NET ASSETS AT JUNE 30, 2007: |
|
|
| |
Shares of beneficial interest (unlimited authorization–no par) |
| $ | 546,446,421 |
|
Undistributed net investment income |
| 7,962,317 |
| |
Accumulated net realized gain on investments |
| 135,245,784 |
| |
Net unrealized depreciation of investments |
| (12,222,268 | ) | |
Total net assets |
| $ | 677,432,254 |
|
REIT – Real Estate Investment Trust
^Zero coupon security. The rate shown is the yield at the time of purchase.
See accompanying notes
3
Delaware VIP Trust —
Delaware VIP REIT Series
Statement of Operations
Six Months Ended June 30, 2007 (Unaudited)
INVESTMENT INCOME: |
|
|
| |
Dividends |
| $ | 11,784,980 |
|
Interest |
| 799,190 |
| |
Foreign Tax Withheld |
| (21,740 | ) | |
|
| 12,562,430 |
| |
EXPENSES: |
|
|
| |
Management fees |
| 3,656,034 |
| |
Distribution expenses – Service Class |
| 505,229 |
| |
Accounting and administration expenses |
| 202,533 |
| |
Reports and statements to shareholders |
| 103,751 |
| |
Legal fees |
| 76,766 |
| |
Dividend disbursing and transfer agent fees and expenses |
| 50,633 |
| |
Audit and tax |
| 26,870 |
| |
Trustees’ fees and benefits |
| 25,682 |
| |
Consulting fees |
| 9,887 |
| |
Insurance fees |
| 9,861 |
| |
Custodian fees |
| 8,772 |
| |
Taxes (other than taxes on income) |
| 7,344 |
| |
Dues and services |
| 2,196 |
| |
Trustees’ expenses |
| 1,645 |
| |
Pricing fees |
| 277 |
| |
Registration fees |
| 23 |
| |
|
| 4,687,503 |
| |
Less waiver of distribution expenses – Service Class |
| (84,205 | ) | |
Less expense paid indirectly |
| (3,185 | ) | |
Total operating expenses |
| 4,600,113 |
| |
|
|
|
| |
NET INVESTMENT INCOME |
| 7,962,317 |
| |
|
|
|
| |
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS: |
|
|
| |
Net realized gain on investments |
| 135,992,819 |
| |
Net change in unrealized appreciation/depreciation of investments |
| (188,706,815 | ) | |
|
|
|
| |
NET REALIZED AND UNREALIZED LOSS ON INVESTMENTS |
| (52,713,996 | ) | |
|
|
|
| |
NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS |
| $ | (44,751,679 | ) |
Delaware VIP Trust —
Delaware VIP REIT Series
Statements of Changes in Net Assets
|
| Six Months |
|
|
| ||
|
| Ended |
| Year Ended |
| ||
|
| 6/30/07 |
| 12/31/06 |
| ||
|
| (Unaudited) |
|
|
| ||
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS: |
|
|
|
|
| ||
Net investment income |
| $ | 7,962,317 |
| $ | 15,460,663 |
|
Net realized gain on investments |
| 135,992,819 |
| 195,940,779 |
| ||
Net change in unrealized appreciation/ depreciation of investments |
| (188,706,815 | ) | 30,768,216 |
| ||
Net increase (decrease) in net assets resulting from operations |
| (44,751,679 | ) | 242,169,658 |
| ||
|
|
|
|
|
| ||
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM: |
|
|
|
|
| ||
Net investment income: |
|
|
|
|
| ||
Standard Class |
| (9,041,997 | ) | (13,253,838 | ) | ||
Service Class |
| (3,547,975 | ) | (3,839,355 | ) | ||
Net realized gain on investments: |
|
|
|
|
| ||
Standard Class |
| (135,325,510 | ) | (44,190,646 | ) | ||
Service Class |
| (64,108,734 | ) | (14,446,942 | ) | ||
|
| (212,024,216 | ) | (75,730,781 | ) | ||
|
|
|
|
|
| ||
CAPITAL SHARE TRANSACTIONS: |
|
|
|
|
| ||
Proceeds from shares sold: |
|
|
|
|
| ||
Standard Class |
| 68,112,097 |
| 141,651,178 |
| ||
Service Class |
| 56,449,718 |
| 86,531,629 |
| ||
Net asset value of shares issued upon reinvestment of dividends and distributions: |
|
|
|
|
| ||
Standard Class |
| 144,367,507 |
| 57,444,484 |
| ||
Service Class |
| 67,656,709 |
| 18,286,297 |
| ||
|
| 336,586,031 |
| 303,913,588 |
| ||
Cost of shares repurchased: |
|
|
|
|
| ||
Standard Class |
| (343,642,301 | ) | (278,178,009 | ) | ||
Net Investment Income |
| (46,024,538 | ) | (44,657,293 | ) | ||
|
| (389,666,839 | ) | (322,835,302 | ) | ||
Decrease in net assets derived from capital share transactions |
| (53,080,808 | ) | (18,921,714 | ) | ||
|
|
|
|
|
| ||
NET INCREASE (DECREASE) IN NET ASSETS |
| (309,856,703 | ) | 147,517,163 |
| ||
|
|
|
|
|
| ||
NET ASSETS: |
|
|
|
|
| ||
Beginning of period |
| 987,288,957 |
| 839,771,794 |
| ||
End of period (including undistributed net investment income of $7,962,317 and $15,460,663, respectively) |
| $ | 677,432,254 |
| $ | 987,288,957 |
|
See accompanying notes
4
Delaware VIP Trust — Delaware VIP REIT Series
Financial Highlights
Selected data for each share of the Series outstanding throughout each period were as follows:
|
| Delaware VIP REIT Series Standard Class |
| ||||||||||||||||
|
| Six Months |
|
|
|
|
|
|
|
|
|
|
| ||||||
|
| Ended |
| Year Ended |
| ||||||||||||||
|
| 6/30/07(1) |
| 12/31/06 |
| 12/31/05 |
| 12/31/04 |
| 12/31/03 |
| 12/31/02 |
| ||||||
|
| (Unaudited) |
|
|
|
|
|
|
|
|
|
|
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Net asset value, beginning of period |
| $ | 22.860 |
| $ | 18.770 |
| $ | 19.080 |
| $ | 15.140 |
| $ | 11.730 |
| $ | 11.700 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Income (loss) from investment operations: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Net investment income(2) |
| 0.173 |
| 0.378 |
| 0.523 |
| 0.504 |
| 0.586 |
| 0.534 |
| ||||||
Net realized and unrealized gain (loss) on investments |
| (0.821 | ) | 5.424 |
| 0.618 |
| 4.112 |
| 3.271 |
| 0.010 |
| ||||||
Total from investment operations |
| (0.648 | ) | 5.802 |
| 1.141 |
| 4.616 |
| 3.857 |
| 0.544 |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Less dividends and distributions from: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Net investment income |
| (0.297 | ) | (0.395 | ) | (0.360 | ) | (0.332 | ) | (0.342 | ) | (0.317 | ) | ||||||
Net realized gain on investments |
| (4.445 | ) | (1.317 | ) | (1.091 | ) | (0.344 | ) | (0.105 | ) | (0.197 | ) | ||||||
Total dividends and distributions |
| (4.742 | ) | (1.712 | ) | (1.451 | ) | (0.676 | ) | (0.447 | ) | (0.514 | ) | ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Net asset value, end of period |
| $ | 17.470 |
| $ | 22.860 |
| $ | 18.770 |
| $ | 19.080 |
| $ | 15.140 |
| $ | 11.730 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Total return(3) |
| (5.02 | )% | 32.63 | % | 7.17 | % | 31.38 | % | 34.02 | % | 4.52 | % | ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Ratios and supplemental data: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Net assets, end of period (000 omitted) |
| $ | 370,643 |
| $ | 672,738 |
| $ | 637,889 |
| $ | 624,223 |
| $ | 359,958 |
| $ | 225,826 |
|
Ratio of expenses to average net assets |
| 0.83 | % | 0.84 | % | 0.85 | % | 0.84 | % | 0.86 | % | 0.84 | % | ||||||
Ratio of net investment income to average net assets |
| 1.66 | % | 1.87 | % | 2.89 | % | 3.11 | % | 4.51 | % | 4.52 | % | ||||||
Portfolio turnover |
| 88 | % | 100 | % | 42 | % | 38 | % | 37 | % | 53 | % |
(1) | Ratios and portfolio turnover have been annualized and total return has not been annualized. |
(2) | The average shares outstanding method has been applied for per share information. |
(3) | Total investment return is based on the change in net asset value of a share during the period and assumes reinvestment of dividends and distributions at net asset value. |
See accompanying notes
5
Selected data for each share of the Series outstanding throughout each period were as follows:
|
| Delaware VIP REIT Series Service Class |
| ||||||||||||||||
|
| Six Months |
|
|
|
|
|
|
|
|
|
|
| ||||||
|
| Ended |
| Year Ended |
| ||||||||||||||
|
| 6/30/07(1) |
| 12/31/06 |
| 12/31/05 |
| 12/31/04 |
| 12/31/03 |
| 12/31/02 |
| ||||||
|
| (Unaudited) |
|
|
|
|
|
|
|
|
|
|
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Net asset value, beginning of period |
| $ | 22.820 |
| $ | 18.740 |
| $ | 19.050 |
| $ | 15.130 |
| $ | 11.720 |
| $ | 11.700 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Income (loss) from investment operations: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Net investment income(2) |
| 0.147 |
| 0.327 |
| 0.478 |
| 0.464 |
| 0.556 |
| 0.517 |
| ||||||
Net realized and unrealized gain (loss) on investments |
| (0.826 | ) | 5.420 |
| 0.622 |
| 4.102 |
| 3.283 |
| — |
| ||||||
Total from investment operations |
| (0.679 | ) | 5.747 |
| 1.100 |
| 4.566 |
| 3.839 |
| 0.517 |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Less dividends and distributions from: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Net investment income |
| (0.246 | ) | (0.350 | ) | (0.319 | ) | (0.302 | ) | (0.324 | ) | (0.300 | ) | ||||||
Net realized gain on investments |
| (4.445 | ) | (1.317 | ) | (1.091 | ) | (0.344 | ) | (0.105 | ) | (0.197 | ) | ||||||
Total dividends and distributions |
| (4.691 | ) | (1.667 | ) | (1.410 | ) | (0.646 | ) | (0.429 | ) | (0.497 | ) | ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Net asset value, end of period |
| $ | 17.450 |
| $ | 22.820 |
| $ | 18.740 |
| $ | 19.050 |
| $ | 15.130 |
| $ | 11.720 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Total return(3) |
| (5.16 | )% | 32.32 | % | 6.86 | % | 31.09 | % | 33.73 | % | 4.38 | % | ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Ratios and supplemental data: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Net assets, end of period (000 omitted) |
| $ | 306,789 |
| $ | 314,551 |
| $ | 201,883 |
| $ | 160,976 |
| $ | 68,276 |
| $ | 28,152 |
|
Ratio of expenses to average net assets |
| 1.08 | % | 1.09 | % | 1.10 | % | 1.09 | % | 1.08 | % | 0.99 | % | ||||||
Ratio of expenses to average net assets prior to expense limitation and expenses paid indirectly |
| 1.13 | % | 1.14 | % | 1.15 | % | 1.14 | % | 1.11 | % | 0.99 | % | ||||||
Ratio of net investment income to average net assets |
| 1.41 | % | 1.62 | % | 2.64 | % | 2.86 | % | 4.29 | % | 4.37 | % | ||||||
Ratio of net investment income to average net assets prior to expense limitation and expenses paid indirectly |
| 1.36 | % | 1.57 | % | 2.59 | % | 2.81 | % | 4.26 | % | 4.37 | % | ||||||
Portfolio turnover |
| 88 | % | 100 | % | 42 | % | 38 | % | 37 | % | 53 | % |
(1) | Ratios and portfolio turnover have been annualized and total return has not been annualized. |
(2) | The average shares outstanding method has been applied for per share information. |
(3) | Total investment return is based on the change in net asset value of a share during the period and assumes reinvestment of dividends and distributions at net asset value. Total investment return reflects waivers and payment of fees by the distributor, as applicable. Performance would have been lower had the expense limitation and waiver not been in effect. |
See accompanying notes
6
Delaware VIP Trust — Delaware VIP REIT Series
Notes to Financial Statements
June 30, 2007 (Unaudited)
Delaware VIP Trust (Trust) is organized as a Delaware statutory trust and offers 14 series: Delaware VIP Balanced Series, Delaware VIP Capital Reserves Series, Delaware VIP Cash Reserve Series, Delaware VIP Diversified Income Series, Delaware VIP Emerging Markets Series, Delaware VIP Growth Opportunities Series, Delaware VIP High Yield Series, Delaware VIP International Value Equity Series, Delaware VIP REIT Series, Delaware VIP Select Growth Series, Delaware VIP Small Cap Value Series, Delaware VIP Trend Series, Delaware VIP U.S. Growth Series and Delaware VIP Value Series. These financial statements and the related notes pertain to Delaware VIP REIT Series (Series). The Trust is an open-end investment company. The Series is considered non-diversified under the Investment Company Act of 1940, as amended, and offers Standard Class and Service Class shares. The Standard Class shares do not carry a 12b-1 fee and the Service Class shares carry a 12b-1 fee. The shares of the Series are sold only to separate accounts of life insurance companies.
The investment objective of the Series is to seek maximum long-term total return, with capital appreciation as a secondary objective.
1. Significant Accounting Policies
The following accounting policies are in accordance with U.S. generally accepted accounting principles and are consistently followed by the Series.
Security Valuation—Equity securities, except those traded on the Nasdaq Stock Market, Inc. (Nasdaq), are valued at the last quoted sales price as of the time of the regular close of the New York Stock Exchange (NYSE) on the valuation date. Securities traded on the Nasdaq are valued in accordance with the Nasdaq Official Closing Price, which may not be the last sales price. If on a particular day an equity security does not trade, then the mean between the bid and asked prices will be used. Short-term debt securities having less than 60 days to maturity are valued at amortized cost, which approximates market value. Other securities and assets for which market quotations are not readily available are valued at fair value as determined in good faith under the direction of the Series’ Board of Trustees. In determining whether market quotations are readily available or fair valuation will be used, various factors will be taken into consideration, such as market closures, or with respect to foreign securities, aftermarket trading, or significant events after local market trading (e.g., government actions or pronouncements, trading volume or volatility on markets, exchanges among dealers, or news events).
In September 2006, the Financial Accounting Standards Board (FASB) issued FASB Statement No. 157 “Fair Value Measurements” (Statement 157). Statement 157 establishes a framework for measuring fair value in generally accepted accounting principles, clarifies the definition of fair value within that framework, and expands disclosures about the use of fair value measurements. Statement 157 is intended to increase consistency and comparability among fair value estimates used in financial reporting. Statement 157 is effective for fiscal years beginning after November 15, 2007. Management does not expect the adoption of Statement 157 to have an impact on the amounts reported in the financial statements.
Federal Income Taxes—The Series intends to continue to qualify for federal income tax purposes as a regulated investment company and make the requisite distributions to shareholders. Accordingly, no provision for federal income taxes has been made in the financial statements.
Effective June 29, 2007, the Series adopted FASB Interpretation No. 48 “Accounting for Uncertainty in Income Taxes” (FIN 48). FIN 48 provides guidance for how uncertain tax positions should be recognized, measured, presented and disclosed in the financial statements. FIN 48 requires the evaluation of tax positions taken or expected to be taken in the course of preparing the Series’ tax returns to determine whether the tax positions are “more-likely-than-not” of being sustained by the applicable tax authority. Tax positions not deemed to meet the more-likely-than-not threshold are recorded as a tax benefit or expense in the current year. The adoption of FIN 48 did not result in the recording of any tax benefit or expense in the current period.
Class Accounting—Investment income, common expenses and realized and unrealized gain (loss) on investments are allocated to the classes of the Series on the basis of daily net assets of each class. Distribution expenses relating to a specific class are charged directly to that class.
Repurchase Agreements—The Series may invest in a pooled cash account along with members of the Delaware Investments® Family of Funds pursuant to an exemptive order issued by the Securities and Exchange Commission. The aggregate daily balance of the pooled cash account is invested in repurchase agreements secured by obligations of the U.S. government. The respective collateral is held by the Series’ custodian bank until the maturity of the respective repurchase agreements. Each repurchase agreement is at least 102% collateralized. However, in the event of default or bankruptcy by the counterparty to the agreement, realization of the collateral may be subject to legal proceedings.
Use of Estimates—The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Other—Expenses directly attributable to the Series are charged directly to the Series. Other expenses common to various funds within the Delaware Investments® Family of Funds are generally allocated amongst such funds on the basis of average net assets. Management fees and some other expenses are paid monthly. Security transactions are recorded on the date the securities are purchased or sold (trade date) for financial reporting purposes. Costs used in calculating realized gains and losses on the sale of investment securities are those of the specific securities sold. Dividend income is recorded on the ex-dividend date and interest income is recorded on the accrual basis. Distributions received from investments in Real Estate Investment Trusts are recorded as dividend income on ex-dividend date, subject to reclassification upon notice of the character of such distributions by the issuer. The financial statements reflect an estimate of the reclassification of the distribution character.
The Series declares and pays dividends from net investment income and distributions from net realized gain on investments, if any, following the close of the fiscal year.
7
Subject to seeking best execution, the Series may direct certain security trades to brokers who have agreed to rebate a portion of the related brokerage commission to the Series in cash. There were no commission rebates for the six months ended June 30, 2007. In general, best execution refers to many factors, including the price paid or received for a security, the commission charged, the promptness and reliability of execution, the confidentiality and placement accorded the order, and other factors affecting the overall benefit obtained by the Series on the transaction.
The Series receives earnings credits from its custodian when positive cash balances are maintained, which are used to offset custody fees. The expense paid under this arrangement is included in custodian fees on the Statement of Operations with the corresponding expense offset shown as “expense paid indirectly.”
2. Investment Management, Administration Agreements and Other Transactions with Affiliates
In accordance with the terms of its investment management agreement, the Series pays Delaware Management Company (DMC), a series of Delaware Management Business Trust and the investment manager, an annual fee which is calculated daily at the rate of 0.75% on the first $500 million of average daily net assets of the Series, 0.70% on the next $500 million, 0.65% on the next $1.5 billion, and 0.60% on average daily net assets in excess of $2.5 billion.
DMC has contractually agreed to waive that portion, if any, of its management fee and reimburse the Series to the extent necessary to ensure that annual operating expenses, exclusive of taxes, interest, brokerage commissions, inverse floater program expenses, 12b-1 plan expenses, certain insurance costs and non-routine expenses or costs including, but not limited to, those relating to reorganizations, litigation, certain Trustee retirement plan expenses, conducting shareholder meetings, and liquidations, do not exceed 1.00% of average daily net assets of the Series through April 30, 2008. No reimbursement was due for the six months ended June 30, 2007.
Delaware Service Company, Inc. (DSC), an affiliate of DMC, provides accounting, administration, dividend disbursing and transfer agent services. The Series pays DSC a monthly fee computed at the annual rate of 0.04% of the Series’ average daily net assets for accounting and administrative services. The Series pays DSC a monthly fee based on average net assets for dividend disbursing and transfer agent services.
Pursuant to a distribution agreement and distribution plan, the Series pays Delaware Distributors, L.P. (DDLP), the distributor and an affiliate of DMC, an annual distribution and service fee not to exceed 0.30% of the average daily net assets of the Service Class shares. DDLP has contracted to waive distribution and service fees through April 30, 2008 in order to prevent distribution and service fees of the Service Class shares from exceeding 0.25% of average daily net assets. Standard Class shares pay no distribution and service expenses.
At June 30, 2007, the Series had liabilities payable to affiliates as follows:
Investment |
| Dividend Disbursing, |
| Distribution |
| Other |
| ||||
$ | 519,151 |
| $ | 35,626 |
| $ | 66,360 |
| $ | 13,474 |
|
*DMC, as part of its administrative services, pays operating expenses on behalf of the Series and is reimbursed on a periodic basis. Such expenses include items such as printing of shareholder reports, fees for audit, legal and tax services, custodian fees and trustees’ fees.
As provided in the investment management agreement, the Series bears the cost of certain legal and tax services, including internal legal and tax services provided to the Series by DMC and/or its affiliates’ employees. For the six months ended June 30, 2007, the Series was charged $22,525 for internal legal and tax services provided by DMC and/or its affiliates’ employees.
Trustees’ fees and benefits include expenses accrued by the Series for each Trustee’s retainer, per meeting fees and retirement benefits. Independent Trustees with over five years of uninterrupted service were eligible to participate in a retirement plan that provides for the payment of benefits upon retirement. The amount of the retirement benefit was determined based on factors set forth in the plan, including the number of years of service. On November 16, 2006, the Board of Trustees unanimously voted to terminate the retirement plan. Payments equal to the net present value of the earned benefits were made in 2007 to those independent Trustees so entitled. The retirement benefit payout for the Series was $106,750. Certain officers of DMC, DSC and DDLP are officers and/or Trustees of the Trust. These officers and Trustees are paid no compensation by the Series.
3. Investments
For the six months ended June 30, 2007, the Series made purchases and sales of investment securities other than short-term investments as follows:
Purchases |
| $ | 422,418,796 |
|
Sales |
| 674,307,938 |
|
8
At June 30, 2007, the cost of investments for federal income tax purposes has been estimated since the final tax characteristics cannot be determined until fiscal year end. At June 30, 2007, the cost of investments and unrealized appreciation (depreciation) for the Series were as follows:
Cost of |
| Aggregate |
| Aggregate |
| Net Unrealized |
| ||||
$ | 694,551,406 |
| $ | 17,492,276 |
| $ | (31,237,063 | ) | $ | (13,744,787 | ) |
4. Dividend and Distribution Information
Income and long-term capital gain distributions are determined in accordance with federal income tax regulations, which may differ from U.S. generally accepted accounting principles. Additionally, net short-term gains on sales of investment securities are treated as ordinary income for federal income tax purposes. The tax character of dividends and distributions paid during the six months ended June 30, 2007 and the year ended December 31, 2006 was as follows:
| Six Months |
| Year |
| |||
Ordinary income |
| $ | 47,103,961 |
| $ | 17,111,655 |
|
Long-term capital gain |
| 164,920,255 |
| 58,619,126 |
| ||
Total |
| $ | 212,024,216 |
| $ | 75,730,781 |
|
*Tax information for the six months ended June 30, 2007 is an estimate and the tax character of dividends and distributions may be redesignated at fiscal year end.
5. Components of Net Assets on a Tax Basis
The components of net assets are estimated since final tax characteristics cannot be determined until fiscal year end. As of June 30, 2007, the estimated components of net assets on a tax basis were as follows:
Shares of beneficial interest |
| $ | 546,446,421 |
|
Undistributed ordinary income |
| 43,367,490 |
| |
Undistributed long-term capital gain |
| 101,363,130 |
| |
Unrealized depreciation of investments |
| (13,744,787 | ) | |
Net assets |
| $ | 677,432,254 |
|
The differences between book basis and tax basis components of net assets are primarily attributable to tax deferral of losses on wash sales.
The undistributed earnings for the Series may be subject to reclassification upon notice of the tax character of distributions received from investments in Real Estate Investment Trusts.
For financial reporting purposes, capital accounts are adjusted to reflect the tax character of permanent book/tax differences. Reclassifications are primarily due to tax treatment of Real Estate Investment Trust dividends. Results of operations and net assets were not affected by these reclassifications. For the six months ended June 30, 2007, the Series recorded an estimate of these differences since the final tax characteristics cannot be determined until fiscal year end:
Undistributed |
| Accumulated |
| ||
(2,870,691 | $ | 2,870,691 |
| ||
9
6. Capital Shares
Transactions in capital shares were as follows:
| Six Months |
| Year |
| |
Shares sold: |
|
|
|
|
|
Standard Class |
| 2,902,633 |
| 6,992,847 |
|
Service Class |
| 2,604,795 |
| 4,285,149 |
|
|
|
|
|
|
|
Shares issued upon reinvestment of dividends and distributions: |
|
|
|
|
|
Standard Class |
| 7,392,089 |
| 2,985,680 |
|
Service Class |
| 3,466,020 |
| 950,431 |
|
|
| 16,365,537 |
| 15,214,107 |
|
Shares repurchased: |
|
|
|
|
|
Standard Class |
| (18,512,613 | ) | (14,534,587 | ) |
Service Class |
| (2,279,844 | ) | (2,221,709 | ) |
|
| (20,792,457 | ) | (16,756,296 | ) |
Net decrease |
| (4,426,920 | ) | (1,542,189 | ) |
7. Line of Credit
The Series, along with certain other funds in the Delaware Investments® Family of Funds (Participants), participates in a $225,000,000 revolving line of credit facility to be used for temporary or emergency purposes as an additional source of liquidity to fund redemptions of investor shares. The Participants are charged an annual commitment fee, which is allocated across the Participants on the basis of each Participant’s allocation of the entire facility. The Participants may borrow up to a maximum of one third of their net assets under the agreement. The Series had no amounts outstanding as of June 30, 2007, or at any time during the period then ended.
8. Credit and Market Risk
The Series concentrates its investments in the real estate industry and is subject to some of the risks associated with that industry. If the Series holds real estate directly as a result of defaults or receives rental income directly from real estate holdings, its tax status as a regulated investment company may be jeopardized. The Series is also affected by interest rate changes, particularly if the real estate investment trusts it holds use floating rate debt to finance their ongoing operations. Its investments may also tend to fluctuate more in value than a portfolio that invests in a broader range of industries.
The Series may invest up to 10% of its total assets in illiquid securities, which may include securities with contractual restrictions on resale, securities exempt from registration under Rule 144A of the Securities Act of 1933, as amended, and other securities which may not be readily marketable. The relative illiquidity of these securities may impair the Series from disposing of them in a timely manner and at a fair price when it is necessary or desirable to do so. While maintaining oversight, the Series’ Board of Trustees has delegated to DMC the day-to-day functions of determining whether individual securities are liquid for purposes of the Series’ limitation on investments in illiquid assets. As of June 30, 2007, there were no Rule 144A securities and no securities have been determined to be illiquid under the Series’ Liquidity Procedures.
9. Contractual Obligations
The Series enters into contracts in the normal course of business that contain a variety of indemnifications. The Series’ maximum exposure under these arrangements is unknown. However, the Series has not had prior claims or losses pursuant to these contracts. Management has reviewed the Series’ existing contracts and expects the risk of loss to be remote.
10. Subsequent Event
The Series has a new securities lending agreement with Mellon Bank, N.A. as of August 2, 2007.
The Series files its complete schedule of portfolio holdings with the Securities and Exchange Commission (the Commission) for the first and third quarters of each fiscal year on Form N-Q. The Series’ Forms N-Q, as well as a description of the policies and procedures that the Series uses to determine how to vote proxies (if any) relating to portfolio securities is available without charge (i) upon request, by calling 800 523-1918; and (ii) on the Commission’s website at http://www.sec.gov. In addition, a description of the policies and procedures that the Series uses to determine how to vote proxies (if any) relating to portfolio securities is available without charge on the Delaware Investments® Funds’ website at http://www.delawareinvestments.com. The Series’ Forms N-Q may be reviewed and copied at the Commission’s Public Reference Room in Washington, DC; information on the operation of the Public Reference Room may be obtained by calling 800 SEC-0330.
Information (if any) regarding how the Series voted proxies relating to portfolio securities during the most recently disclosed 12-month period ended June 30 is available without charge (i) through the Delaware Investments® Funds’ website at http://www.delawareinvestments.com; and (ii) on the Commission’s website at http://www.sec.gov.
10
Delaware VIP Trust — Delaware VIP REIT Series
Other Series Information
Board Consideration of Delaware VIP REIT Series Investment Advisory Agreement
At a meeting held on May 16-17, 2007 (Annual Meeting), the Board of Trustees (Board), including a majority of disinterested or independent Trustees, approved the renewal of the Investment Advisory Agreement for the VIP REIT Series (Series). In making its decision, the Board considered information furnished throughout the year at regular Board meetings, including reports detailing Series performance, investment strategies and expenses, as well as information prepared specifically in connection with the renewal of the investment advisory contracts. Information furnished specifically in connection with the renewal of the Investment Advisory Agreement with Delaware Management Company (DMC) included materials provided by DMC and its affiliates (Delaware Investments) concerning, among other things, the level of services provided to the Series, the costs of such services to the Series, economies of scale and the financial condition and profitability of Delaware Investments. In addition, in connection with the Meeting, the Board separately received and reviewed in mid-January 2007 independent historical and comparative reports prepared by Lipper Inc. (Lipper), an independent statistical compilation organization. The Lipper reports compared the Series’ investment performance and expenses with those of other comparable mutual funds. The Board requested and received certain information regarding management’s policy with respect to advisory fee levels and its philosophy with respect to breakpoints; the structure of portfolio manager compensation; the investment manager’s profitability; and any constraints or limitations on the availability of securities in certain investment styles which might inhibit DMC’s ability to fully invest in accordance with the Series’ policies.
In considering information relating to the approval of the Series’ advisory agreement, the independent Trustees received assistance and advice from and met separately with independent counsel. While attention was given to all information furnished, the following discusses under separate headings the primary factors taken into account by the Board in its contract renewal considerations.
NATURE, EXTENT AND QUALITY OF SERVICE. Consideration was given to the services provided by Delaware Investments to the Series and its shareholders. In reviewing the nature, extent and quality of services, the Board emphasized reports furnished to it throughout the year at regular Board meetings covering matters such as the relative performance of the Series, compliance of portfolio managers with the investment policies, strategies and restrictions for the Series, the compliance of management personnel with the Code of Ethics adopted throughout the Delaware Investments® Family of Funds complex and the adherence to fair value pricing procedures as established by the Board. The Board noted that it was pleased with the current staffing of the Series’ investment advisor and the emphasis placed on research in the investment process. Favorable consideration was given to DMC’s efforts to maintain, and in some instances increase, financial and human resources committed to fund matters. The Board also considered the transfer agent and shareholder services provided to Series shareholders by Delaware Investments’ affiliate, Delaware Service Company, Inc. (DSC), noting DSC’s commitment to maintain a high level of service and the continuing expenditures by Delaware Investments to improve the delivery of shareholder services. During 2006, management conducted extensive research into alternatives that could further improve the quality and cost of delivering investment accounting services to the Fund. The Board was satisfied with the nature, extent and quality of the overall services provided by Delaware Investments.
INVESTMENT PERFORMANCE. The Board considered the investment performance of DMC and the Series. The Board placed significant emphasis on the investment performance of the Series in view of its importance to shareholders. While consideration was given to performance reports and discussions with portfolio managers at Board meetings throughout the year, particular weight was given to the Lipper reports furnished for the Annual Meeting. The Lipper reports prepared for the Series showed the investment performance of its Standard Class shares in comparison to a group of similar funds as selected by Lipper (Performance Universe). A fund with the best performance ranked first, and a fund with the poorest ranked last. The highest/best performing 25% of funds in the Performance Universe make up the first quartile; the next 25% – the second quartile; the next 25% – the third quartile; and the poorest/worst performing 25% of funds in the Performance Universe make up the fourth quartile. Comparative annualized performance for the Series was shown for the past one, three and five year periods ended December 31, 2006. The Board also considered comparative annualized performance for the Series for the same periods ended October 31, 2006. The performance comparison presented below is based upon the December 31, 2006 information. The Board noted its objective that the Series’ performance for the periods considered be at or above the median of its Performance Universe. The following paragraph summarizes the performance results for the Series and the Board’s view of such performance.
The Performance Universe for the Series consisted of the Series and all real estate funds underlying variable insurance products as selected by Lipper. The Lipper report comparison showed that the Series’ total return for the one, three and five year periods was in the fourth quartile of its Performance Universe. The Board noted that performance was unsatisfactory. In evaluating the Series’ performance, the Board considered changes made to the investment team in 2006 and the recent improvement in performance. Additionally, the Board recognized management’s efforts to increase portfolio management depth, noting particularly the recent hire of a new head of the equity department. The Board was pleased with management’s efforts to enhance Series performance and expressed confidence in the new team and its philosophy and processes.
COMPARATIVE EXPENSES. The Board considered expense comparison data for the Delaware Investments Family of Funds as of October 31, 2006. Management provided the Board with information on pricing levels and fee structures for the Series. The Board focused particularly on the comparative analysis of the effective management fees and total expense ratios of the Series and the effective management fees and expense ratios of a group of similar funds as selected by Lipper (Expense Group). In reviewing comparative costs, the Series’ contractual management fee and the actual management fee incurred by the Series were compared with the contractual management fees (assuming all funds in the Expense Group were similar in size to the Series) and actual management fees (as reported by each fund) of other funds within the Expense Group, taking into account any applicable breakpoints and fee waivers. The Series’ total expenses were also compared with those of its Expense Group. The Lipper total expenses, for comparative consistency, were shown by Lipper for Standard Class shares which do not charge 12b-1 and non-12b-1 service fees. The Board also considered fees paid to Delaware Investments for non-management services. The Board noted its objective to limit the Series’ total expense ratio to an acceptable range as compared to the median of the Expense Group. The following paragraph summarizes the expense results for the Series and the Board’s view of such expenses.
The expense comparisons for the Series showed that its actual management fee and total expenses were in the quartile with the second lowest expenses of its Expense Group. The Board was satisfied with the management fee and total expenses of the Series in comparison to its Expense Group as shown in the Lipper report.
11
MANAGEMENT PROFITABILITY. The Board considered the level of profits, if any, realized by Delaware Investments in connection with the operation of the Series. In this respect, the Board reviewed the Investment Management Profitability Analysis that addressed the overall profitability of Delaware Investments’ business in providing management and other services to each of the individual funds and the Delaware Investments® Family of Funds as a whole. Specific attention was given to the methodology followed in allocating costs for the purpose of determining profitability. Management stated that the level of profits of Delaware Investments, to a certain extent, reflected operational cost savings and efficiencies initiated by Delaware Investments. The Board considered Delaware Investments’ efforts to improve services provided to fund shareholders and to meet additional regulatory and compliance requirements resulting from recent Securities and Exchange Commission initiatives. The Board also considered the extent to which Delaware Investments might derive ancillary benefits from fund operations, including the potential for procuring additional business as a result of the prestige and visibility associated with its role as service provider to the Delaware Investments Family of Funds and the benefits from allocation of fund brokerage to improve trading efficiencies. The Board found that the level of management fees was reasonable in light of the services rendered and the profitability of Delaware Investments.
ECONOMIES OF SCALE. The Trustees considered whether economies of scale are realized by Delaware Investments as the Series’ assets increase and the extent to which any economies of scale are reflected in the level of management fees charged. The Trustees took into account the standardized advisory fee pricing and structure, approved by the Board and shareholders and again reviewed by the Board this year, which includes breakpoints. Breakpoints in the advisory fee occur when the advisory fee rate is reduced on assets in excess of specified levels. This results in a lower advisory fee than would otherwise be the case on all assets when those asset levels specified are exceeded. The Board noted that the fee under the Series’ management contract fell within the standard structure. The Board also noted that the Series’ assets exceeded the first breakpoint level. The Board believed that, given the extent to which economies of scale might be realized by the advisor and its affiliates, the schedule of fees under the Investment Advisory Agreement provides a sharing of benefits with the Series and its shareholders.
12
Delaware VIP Trust — Delaware VIP Select Growth Series
Disclosure of Series Expenses
For the Period January 1, 2007 to June 30, 2007
As a shareholder of the Series, you incur ongoing costs, including management fees; distribution and/or service (12b-1) fees; and other Series expenses. This Example is intended to help you understand your ongoing costs (in dollars) of investing in the Series and to compare these costs with the ongoing costs of investing in other mutual funds.
The Example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period from January 1, 2007 to June 30, 2007.
Actual Expenses
The first section of the table shown, “Actual Series Return,” provides information about actual account values and actual expenses. You may use the information in this section of the table, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first section under the heading entitled “Expenses Paid During Period” to estimate the expenses you paid on your account during the period.
Hypothetical Example for Comparison Purposes
The second section of the table shown, “Hypothetical 5% Return,” provides information about hypothetical account values and hypothetical expenses based on the Series’ actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Series’ actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Series and other funds. To do so, compare the 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs only. As a shareholder of the Series, you do not incur any transaction costs, such as sales charges (loads), redemption fees or exchange fees, but shareholders of other funds may incur such costs. Also, the fees related to the variable annuity investment or the deferred sales charge that could apply have not been included. Therefore, the second section of the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. The Series’ actual expenses shown in the table reflect fee waivers in effect. The expenses shown in the table assume reinvestment of all dividends and distributions.
Expense Analysis of an Investment of $1,000
|
| Beginning |
| Ending |
| Annualized |
| Expenses |
| |||
Actual Series Return |
|
|
|
|
|
|
|
|
| |||
Standard Class |
| $ | 1,000.00 |
| $ | 1,042.70 |
| 0.91 | % | $ | 4.61 |
|
Service Class |
| 1,000.00 |
| 1,040.30 |
| 1.16 | % | 5.87 |
| |||
|
|
|
|
|
|
|
|
|
| |||
Hypothetical 5% Return (5% return before expenses) |
|
|
|
|
|
|
|
|
| |||
Standard Class |
| $ | 1,000.00 |
| $ | 1,020.28 |
| 0.91 | % | $ | 4.56 |
|
Service Class |
| 1,000.00 |
| 1,019.04 |
| 1.16 | % | 5.81 |
|
* | “Expenses Paid During Period” are equal to the Series’ annualized expense ratio, multiplied by the average account value over the period, multiplied by 181/365 (to reflect the one-half year period). |
1
Delaware VIP Trust — Delaware VIP Select Growth Series
Sector Allocation and Top 10 Holdings
As of June 30, 2007
Sector designations may be different than the sector designations presented in other Series materials.
Sector |
| Percentage |
|
Common Stockw |
| 99.21 | % |
Basic Industry/Capital Goods |
| 1.12 | % |
Business Services |
| 14.51 | % |
Consumer Durables |
| 1.27 | % |
Consumer Non-Durables |
| 7.30 | % |
Consumer Services |
| 22.25 | % |
Energy |
| 0.42 | % |
Financials |
| 12.28 | % |
Health Care |
| 15.03 | % |
Technology |
| 25.03 | % |
Total Value of Securities |
| 99.21 | % |
Receivables and Other Assets Net of Liabilities |
| 0.79 | % |
Total Net Assets |
| 100.00 | % |
w Narrow industries are utilized for compliance purposes for diversification whereas broad sectors are used for financial reporting.
Holdings are for informational purposes only and are subject to change at any time. They are not a recommendation to buy, sell, or hold any security.
Top 10 Holdings |
| Percentage |
|
UnitedHealth Group |
| 6.38 | % |
IntercontinentalExchange |
| 6.38 | % |
QUALCOMM |
| 6.37 | % |
Weight Watchers International |
| 6.05 | % |
eBay |
| 5.18 | % |
Intuit |
| 4.81 | % |
Research in Motion |
| 4.72 | % |
Allergan |
| 4.05 | % |
NetFlix |
| 3.88 | % |
Seagate Technology |
| 3.76 | % |
2
Delaware VIP Trust — Delaware VIP Select Growth Series
Statement of Net Assets
June 30, 2007 (Unaudited)
|
| Number of |
| Value |
| ||
|
|
|
|
|
|
| |
| COMMON STOCK–99.21%w |
|
|
|
|
| |
| Basic Industry/Capital Goods–1.12% |
|
|
|
|
| |
| Graco |
| 1,800 |
| $ | 72,504 |
|
| Praxair |
| 1,700 |
| 122,383 |
| |
|
|
|
|
| 194,887 |
| |
| Business Services–14.51% |
|
|
|
|
| |
| Corporate Executive Board |
| 5,500 |
| 357,005 |
| |
| Equifax |
| 4,400 |
| 195,448 |
| |
| Expeditors International Washington |
| 9,000 |
| 371,700 |
| |
† | Global Cash Access Holdings |
| 33,900 |
| 543,078 |
| |
| Paychex |
| 6,000 |
| 234,720 |
| |
† | Research in Motion |
| 4,100 |
| 819,959 |
| |
|
|
|
|
| 2,521,910 |
| |
| Consumer Durables–1.27% |
|
|
|
|
| |
† | Select Comfort |
| 13,600 |
| 220,592 |
| |
|
|
|
|
| 220,592 |
| |
| Consumer Non-Durables–7.30% |
|
|
|
|
| |
† | NetFlix |
| 34,800 |
| 674,772 |
| |
| Staples |
| 7,100 |
| 168,483 |
| |
† | Starbucks |
| 2,800 |
| 73,472 |
| |
| Walgreen |
| 4,400 |
| 191,576 |
| |
| Whole Foods Market |
| 4,200 |
| 160,860 |
| |
|
|
|
|
| 1,269,163 |
| |
| Consumer Services–22.25% |
|
|
|
|
| |
† | eBay |
| 28,000 |
| 901,040 |
| |
| Heartland Payment Systems |
| 6,800 |
| 199,444 |
| |
| IHOP |
| 5,500 |
| 299,365 |
| |
| International Game Technology |
| 5,300 |
| 210,410 |
| |
| Jackson Hewitt Tax Service |
| 17,400 |
| 489,114 |
| |
† | MGM MIRAGE |
| 3,100 |
| 255,688 |
| |
| Strayer Education |
| 3,500 |
| 460,985 |
| |
| Weight Watchers International |
| 20,672 |
| 1,050,964 |
| |
|
|
|
|
| 3,867,010 |
| |
| Energy–0.42% |
|
|
|
|
| |
| EOG Resources |
| 1,000 |
| 73,060 |
| |
|
|
|
|
| 73,060 |
| |
| Financials–12.28% |
|
|
|
|
| |
| Bank of New York Mellon |
| 2,800 |
| 116,032 |
| |
| Chicago Mercantile Exchange Holdings Class A |
| 350 |
| 187,026 |
| |
† | IntercontinentalExchange |
| 7,500 |
| 1,108,875 |
| |
| NYMEX Holdings |
| 1,400 |
| 175,882 |
| |
| optionsXpress Holdings |
| 21,300 |
| 546,558 |
| |
|
|
|
|
| 2,134,373 |
| |
| Health Care–15.03% |
|
|
|
|
| |
† | Abiomed |
| 6,500 |
| 70,070 |
| |
| Allergan |
| 12,200 |
| 703,208 |
| |
† | Genentech |
| 5,600 |
| 423,696 |
| |
| UnitedHealth Group |
| 21,700 |
| 1,109,738 |
| |
† | Zimmer Holdings |
| 3,600 |
| 305,604 |
| |
|
|
|
|
| 2,612,316 |
| |
| Technology–25.03% |
|
|
|
|
| |
| Blackbaud |
| 7,300 |
| 161,184 |
| |
† | Crown Castle International |
| 8,900 |
| 322,803 |
| |
† | Google Class A |
| 750 |
| 392,535 |
| |
† | Intuit |
| 27,800 |
| 836,224 |
| |
† | j2 Global Communications |
| 14,600 |
| 509,540 |
| |
† | NAVTEQ |
| 2,000 |
| 84,680 |
| |
| QUALCOMM |
| 25,500 |
| 1,106,445 |
| |
† | SanDisk |
| 5,800 |
| 283,852 |
| |
| Seagate Technology |
| 30,000 |
| 653,100 |
| |
|
|
|
|
| 4,350,363 |
| |
| Total Common Stock |
|
|
| 17,243,674 |
| |
TOTAL VALUE OF SECURITIES–99.21% (cost $13,761,047) |
| 17,243,674 |
| |
RECEIVABLES AND OTHER ASSETS NET OF LIABILITIES–0.79% |
| 136,783 |
| |
NET ASSETS APPLICABLE TO 1,663,220 SHARES OUTSTANDING–100.00% |
| $ | 17,380,457 |
|
NET ASSET VALUE–DELAWARE VIP SELECT GROWTH SERIES STANDARD CLASS ($13,205,747 / 1,259,224 Shares) |
| $ | 10.49 |
|
NET ASSET VALUE–DELAWARE VIP SELECT GROWTH SERIES SERVICE CLASS ($4,174,710 / 403,996 Shares) |
| $ | 10.33 |
|
COMPONENTS OF NET ASSETS AT JUNE 30, 2007: |
|
|
| |
Shares of beneficial interest (unlimited authorization–no par) |
| $ | 61,818,141 |
|
Accumulated net realized loss on investments |
| (47,920,311 | ) | |
Net unrealized appreciation of investments |
| 3,482,627 |
| |
Total net assets |
| $ | 17,380,457 |
|
w | Narrow industries are utilized for compliance purposes for diversification whereas broad sectors are used for financial reporting. | |
| † | Non-income producing security for the period ended June 30, 2007. |
See accompanying notes
3
Delaware VIP Trust —
Delaware VIP Select Growth Series
Statement of Operations
Six Months Ended June 30, 2007 (Unaudited)
INVESTMENT INCOME: |
|
|
| |
Dividends |
| $ | 47,977 |
|
Interest |
| 2,654 |
| |
|
| 50,631 |
| |
|
|
|
| |
EXPENSES: |
|
|
| |
Management fees |
| 68,955 |
| |
Audit and tax |
| 7,126 |
| |
Distribution expenses – Service Class |
| 6,504 |
| |
Reports and statements to shareholders |
| 4,029 |
| |
Accounting and administration expenses |
| 3,677 |
| |
Dividend disbursing and transfer agent fees and expenses |
| 920 |
| |
Legal fees |
| 532 |
| |
Trustees’ fees and benefits |
| 461 |
| |
Insurance fees |
| 222 |
| |
Custodian fees |
| 194 |
| |
Consulting fees |
| 154 |
| |
Pricing fees |
| 150 |
| |
Taxes (other than taxes on income) |
| 132 |
| |
Dues and services |
| 35 |
| |
Trustees’ expenses |
| 29 |
| |
Registration fees |
| 23 |
| |
|
| 93,143 |
| |
Less expenses absorbed or waived |
| (2,767 | ) | |
Less waiver of distribution expenses – Service Class |
| (1,084 | ) | |
Less expense paid indirectly |
| (142 | ) | |
Total operating expenses |
| 89,150 |
| |
|
|
|
| |
NET INVESTMENT LOSS |
| (38,519 | ) | |
|
|
|
| |
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS: |
|
|
| |
Net realized gain |
| 1,305,557 |
| |
Net change in unrealized appreciation/depreciation of investments |
| (511,900 | ) | |
|
|
|
| |
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS |
| 793,657 |
| |
|
|
|
| |
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS |
| $ | 755,138 |
|
Delaware VIP Trust —
Delaware VIP Select Growth Series
Statements of Changes in Net Assets
|
| Six Months |
| Year Ended |
| ||
|
| (Unaudited) |
|
|
| ||
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS: |
|
|
|
|
| ||
Net investment loss |
| $ | (38,519 | ) | $ | (87,417 | ) |
Net realized gain on investments and foreign currencies |
| 1,305,557 |
| 1,055,200 |
| ||
Net change in unrealized appreciation/depreciation of investments and foreign currencies |
| (511,900 | ) | (666,516 | ) | ||
Net increase in net assets resulting from operations |
| 755,138 |
| 301,267 |
| ||
|
|
|
|
|
| ||
CAPITAL SHARE TRANSACTIONS: |
|
|
|
|
| ||
Proceeds from shares sold: |
|
|
|
|
| ||
Standard Class |
| 55,257 |
| 15,031,576 |
| ||
Service Class |
| 61,686 |
| 4,970,607 |
| ||
|
| 116,943 |
| 20,002,183 |
| ||
Cost of shares repurchased: |
|
|
|
|
| ||
Standard Class |
| (2,334,362 | ) | (18,980,519 | ) | ||
Service Class |
| (629,008 | ) | (5,539,539 | ) | ||
|
| (2,963,370 | ) | (24,520,058 | ) | ||
Decrease in net assets derived from capital share transactions |
| (2,846,427 | ) | (4,517,875 | ) | ||
|
|
|
|
|
| ||
NET DECREASE IN NET ASSETS |
| (2,091,289 | ) | (4,216,608 | ) | ||
|
|
|
|
|
| ||
NET ASSETS: |
|
|
|
|
| ||
Beginning of period |
| 19,471,746 |
| 23,688,354 |
| ||
End of period (including accumulated net investment loss of $- and $(133), respectively) |
| $ | 17,380,457 |
| $ | 19,471,746 |
|
See accompanying notes
4
Delaware VIP Trust — Delaware VIP Select Growth Series
Financial Highlights
Selected data for each share of the Series outstanding throughout each period were as follows:
|
| Delaware VIP Select Growth Series Standard Class |
| ||||||||||||||||
|
| Six Months |
| Year Ended |
| ||||||||||||||
|
| 6/30/07(1) |
| 12/31/06 |
| 12/31/05 |
| 12/31/04 |
| 12/31/03 |
| 12/31/02 |
| ||||||
|
| (Unaudited) |
|
|
|
|
|
|
|
|
|
|
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Net asset value, beginning of period |
| $ | 10.060 |
| $ | 9.880 |
| $ | 8.460 |
| $ | 7.810 |
| $ | 5.600 |
| $ | 8.300 |
|
Income (loss) from investment operations: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Net investment loss(2) |
| (0.018 | ) | (0.035 | ) | (0.022 | ) | (0.011 | ) | (0.016 | ) | (0.024 | ) | ||||||
Net realized and unrealized gain (loss) on investments and foreign currencies |
| 0.448 |
| 0.215 |
| 1.442 |
| 0.661 |
| 2.226 |
| (2.676 | ) | ||||||
Total from investment operations |
| 0.430 |
| 0.180 |
| 1.420 |
| 0.650 |
| 2.210 |
| (2.700 | ) | ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Net asset value, end of period |
| $ | 10.490 |
| $ | 10.060 |
| $ | 9.880 |
| $ | 8.460 |
| $ | 7.810 |
| $ | 5.600 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Total return(3) |
| 4.27 | % | 1.82 | % | 16.78 | % | 8.32 | % | 39.46 | % | (32.53 | )% | ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Ratios and supplemental data: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Net assets, end of period (000 omitted) |
| $ | 13,206 |
| $ | 14,901 |
| $ | 18,612 |
| $ | 20,493 |
| $ | 23,089 |
| $ | 27,056 |
|
Ratio of expenses to average net assets |
| 0.91 | % | 0.91 | % | 0.90 | % | 0.83 | % | 0.83 | % | 0.86 | % | ||||||
Ratio of expenses to average net assets prior to expense limitation and expenses paid indirectly |
| 0.94 | % | 0.94 | % | 0.97 | % | 0.83 | % | 0.83 | % | 0.86 | % | ||||||
Ratio of net investment loss to average net assets |
| (0.36 | )% | (0.36 | )% | (0.26 | )% | (0.14 | )% | (0.24 | )% | (0.35 | )% | ||||||
Ratio of net investment loss to average net assets prior to expense limitation and expenses paid indirectly |
| (0.39 | )% | (0.39 | )% | (0.33 | )% | (0.14 | )% | (0.24 | )% | (0.35 | )% | ||||||
Portfolio turnover |
| 36 | % | 50 | % | 133 | % | 86 | % | 72 | % | 106 | % |
(1) Ratios and portfolio turnover have been annualized and total return has not been annualized.
(2) The average shares outstanding method has been applied for per share information.
(3) Total investment return is based on the change in net asset value of a share during the period and assumes reinvestment of dividends and distributions at net asset value. Total investment return reflects waivers and payment of fees by the manager, as applicable. Performance would have been lower had the expense limitation not been in effect.
See accompanying notes
5
Selected data for each share of the Series outstanding throughout each period were as follows:
|
| Delaware VIP Select Growth Series Service Class |
| ||||||||||||||||
|
| Six Months |
| Year Ended |
| ||||||||||||||
|
| 6/30/07(1) |
| 12/31/06 |
| 12/31/05 |
| 12/31/04 |
| 12/31/03 |
| 12/31/02 |
| ||||||
|
| (Unaudited) |
|
|
|
|
|
|
|
|
|
|
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Net asset value, beginning of period |
| $ | 9.930 |
| $ | 9.780 |
| $ | 8.390 |
| $ | 7.760 |
| $ | 5.580 |
| $ | 8.280 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Income (loss) from investment operations: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Net investment loss(2) |
| (0.031 | ) | (0.059 | ) | (0.043 | ) | (0.030 | ) | (0.030 | ) | (0.034 | ) | ||||||
Net realized and unrealized gain (loss) on investments and foreign currencies |
| 0.431 |
| 0.209 |
| 1.433 |
| 0.660 |
| 2.210 |
| (2.666 | ) | ||||||
Total from investment operations |
| 0.400 |
| 0.150 |
| 1.390 |
| 0.630 |
| 2.180 |
| (2.700 | ) | ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Net asset value, end of period |
| $ | 10.330 |
| $ | 9.930 |
| $ | 9.780 |
| $ | 8.390 |
| $ | 7.760 |
| $ | 5.580 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Total return(3) |
| 4.03 | % | 1.53 | % | 16.57 | % | 8.12 | % | 39.07 | % | (32.61 | )% | ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Ratios and supplemental data: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Net assets, end of period (000 omitted) |
| $ | 4,174 |
| $ | 4,571 |
| $ | 5,076 |
| $ | 5,148 |
| $ | 5,670 |
| $ | 7,018 |
|
Ratio of expenses to average net assets |
| 1.16 | % | 1.16 | % | 1.15 | % | 1.08 | % | 1.05 | % | 1.01 | % | ||||||
Ratio of expenses to average net assets prior to expense limitation and expenses paid indirectly |
| 1.24 | % | 1.24 | % | 1.27 | % | 1.13 | % | 1.08 | % | 1.01 | % | ||||||
Ratio of net investment loss to average net assets |
| (0.61 | )% | (0.61 | )% | (0.51 | )% | (0.39 | )% | (0.46 | )% | (0.50 | )% | ||||||
Ratio of net investment loss to average net assets prior to expense limitation and expenses paid indirectly |
| (0.69 | )% | (0.69 | )% | (0.63 | )% | (0.44 | )% | (0.49 | )% | (0.50 | )% | ||||||
Portfolio turnover |
| 36 | % | 50 | % | 133 | % | 86 | % | 72 | % | 106 | % |
(1) Ratios and portfolio turnover have been annualized and total return has not been annualized.
(2) The average shares outstanding method has been applied for per share information.
(3) Total investment return is based on the change in net asset value of a share during the period and assumes reinvestment of dividends and distributions at net asset value. Total investment return reflects waivers and payment of fees by the manager and distributor, as applicable. Performance would have been lower had the expense limitation not been in effect.
See accompanying notes
6
Delaware VIP Trust — Delaware VIP Select Growth Series
Notes to Financial Statements
June 30, 2007 (Unaudited)
Delaware VIP Trust (Trust) is organized as a Delaware statutory trust and offers 14 series: Delaware VIP Balanced Series, Delaware VIP Capital Reserves Series, Delaware VIP Cash Reserve Series, Delaware VIP Diversified Income Series, Delaware VIP Emerging Markets Series, Delaware VIP Growth Opportunities Series, Delaware VIP High Yield Series, Delaware VIP International Value Equity Series, Delaware VIP REIT Series, Delaware VIP Select Growth Series, Delaware VIP Small Cap Value Series, Delaware VIP Trend Series, Delaware VIP U.S. Growth Series and Delaware VIP Value Series. These financial statements and the related notes pertain to Delaware VIP Select Growth Series (Series). The Trust is an open-end investment company. The Series is considered diversified under the Investment Company Act of 1940, as amended, and offers Standard Class and Service Class shares. The Standard Class shares do not carry a 12b-1 fee and the Service Class shares carry a 12b-1 fee. The shares of the Series are sold only to separate accounts of life insurance companies.
The investment objective of the Series is to seek long-term capital appreciation.
1. Significant Accounting Policies
The following accounting policies are in accordance with U.S. generally accepted accounting principles and are consistently followed by the Series.
Security Valuation—Equity securities, except those traded on the Nasdaq Stock Market, Inc. (Nasdaq), are valued at the last quoted sales price as of the time of the regular close of the New York Stock Exchange (NYSE) on the valuation date. Securities traded on the Nasdaq are valued in accordance with the Nasdaq Official Closing Price, which may not be the last sales price. If on a particular day an equity security does not trade, then the mean between the bid and asked prices will be used. Short-term debt securities having less than 60 days to maturity are valued at amortized cost, which approximates market value. Other securities and assets for which market quotations are not readily available are valued at fair value as determined in good faith under the direction of the Series’ Board of Trustees. In determining whether market quotations are readily available or fair valuation will be used, various factors will be taken into consideration, such as market closures, or with respect to foreign securities, aftermarket trading, or significant events after local market trading (e.g., government actions or pronouncements, trading volume or volatility on markets, exchanges among dealers, or news events).
In September 2006, the Financial Accounting Standards Board (FASB) issued FASB Statement No. 157 “Fair Value Measurements” (Statement 157). Statement 157 establishes a framework for measuring fair value in generally accepted accounting principles, clarifies the definition of fair value within that framework, and expands disclosures about the use of fair value measurements. Statement 157 is intended to increase consistency and comparability among fair value estimates used in financial reporting. Statement 157 is effective for fiscal years beginning after November 15, 2007. Management does not expect the adoption of Statement 157 to have an impact on the amounts reported in the financial statements.
Federal Income Taxes—The Series intends to continue to qualify for federal income tax purposes as a regulated investment company and make the requisite distributions to shareholders. Accordingly, no provision for federal income taxes has been made in the financial statements.
Effective June 29, 2007, the Series adopted FASB Interpretation No. 48 “Accounting for Uncertainty in Income Taxes” (FIN 48). FIN 48 provides guidance for how uncertain tax positions should be recognized, measured, presented, and disclosed in the financial statements. FIN 48 requires the evaluation of tax positions taken or expected to be taken in the course of preparing the Series’ tax returns to determine whether the tax positions are “more-likely-than-not” of being sustained by the applicable tax authority. Tax positions not deemed to meet the more-likely-than-not threshold are recorded as a tax benefit or expense in the current year. The adoption of FIN 48 did not result in the recording of any tax benefit or expense in the current period.
Class Accounting—Investment income, common expenses and realized and unrealized gain (loss) on investments are allocated to the classes of the Series on the basis of daily net assets of each class. Distribution expenses relating to a specific class are charged directly to that class.
Repurchase Agreements—The Series may invest in a pooled cash account along with members of the Delaware Investments® Family of Funds pursuant to an exemptive order issued by the Securities and Exchange Commission. The aggregate daily balance of the pooled cash account is invested in repurchase agreements secured by obligations of the U.S. government. The respective collateral is held by the Series’ custodian bank until the maturity of the respective repurchase agreements. Each repurchase agreement is at least 102% collateralized. However, in the event of default or bankruptcy by the counterparty to the agreement, realization of the collateral may be subject to legal proceedings.
Use of Estimates—The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Other—Expenses directly attributable to the Series are charged directly to the Series. Other expenses common to various funds within the Delaware Investments Family of Funds® are generally allocated amongst such funds on the basis of average net assets. Management fees and some other expenses are paid monthly. Security transactions are recorded on the date the securities are purchased or sold (trade date) for financial reporting purposes. Costs used in calculating realized gains and losses on the sale of investment securities are those of the specific securities sold. Dividend income is recorded on the ex-dividend date and interest income is recorded on the accrual basis.
The Series declares and pays dividends from net investment income and distributions from net realized gain on investments, if any, following the close of the fiscal year.
7
Subject to seeking best execution, the Series may direct certain security trades to brokers who have agreed to rebate a portion of the related brokerage commission to the Series in cash. Such commission rebates are included in realized gain on investments in the accompanying financial statements and totaled $1,241 for the six months ended June 30, 2007. In general, best execution refers to many factors, including the price paid or received for a security, the commission charged, the promptness and reliability of execution, the confidentiality and placement accorded the order, and other factors affecting the overall benefit obtained by the Series on the transaction.
The Series may receive earnings credits from its custodian when positive cash balances are maintained, which are used to offset custody fees. The expense paid under this arrangement is included in custodian fees on the Statement of Operations with the corresponding expense offset shown as “expense paid indirectly.”
2. Investment Management, Administration Agreements and Other Transactions with Affiliates
In accordance with the terms of its investment management agreement, the Series pays Delaware Management Company (DMC), a series of Delaware Management Business Trust and the investment manager, an annual fee which is calculated daily at the rate of 0.75% on the first $500 million of average daily net assets of the Series, 0.70% on the next $500 million, 0.65% on the next $1.5 billion, and 0.60% on average daily net assets in excess of $2.5 billion.
Prior to May 1, 2007, DMC had contractually agreed to waive that portion, if any, of its management fee and reimburse the Series to the extent necessary to ensure that annual operating expenses, exclusive of taxes, interest, brokerage commissions, inverse floater program expense, 12b-1 plan expenses, certain insurance costs and non-routine expenses or costs including, but not limited to, those relating to reorganizations, litigation, certain Trustee retirement plan expenses, conducting shareholder meetings, and liquidations, did not exceed 0.90% of average daily net assets of the Series through April 30, 2007.
Delaware Service Company, Inc. (DSC), an affiliate of DMC, provides accounting, administration, dividend disbursing and transfer agent services. The Series pays DSC a monthly fee computed at the annual rate of 0.04% of the Series’ average daily net assets for accounting and administrative services. The Series pays DSC a monthly fee based on average net assets for dividend disbursing and transfer agent services.
Pursuant to a distribution agreement and distribution plan, the Series pays Delaware Distributors, L.P. (DDLP), the distributor and an affiliate of DMC, an annual distribution and service fee not to exceed 0.30% of the average daily net assets of the Service Class shares. DDLP has contracted to waive distribution and service fees through April 30, 2008 in order to prevent distribution and service fees of the Service Class shares from exceeding 0.25% of average daily net assets. Standard Class shares pay no distribution and service expenses.
At June 30, 2007, the Series had liabilities payable to affiliates as follows:
Investment |
| Dividend Disbursing, |
| Distribution |
| Other |
| ||||
$ | 10,861 |
| $ | 724 |
| $ | 858 |
| $ | 6,641 |
|
* | DMC, as part of its administrative services, pays operating expenses on behalf of the Series and is reimbursed on a periodic basis. Such expenses include items such as printing of shareholder reports, fees for audit, legal and tax services, custodian fees and trustees’ fees. |
As provided in the investment management agreement, the Series bears the cost of certain legal and tax services, including internal legal and tax services provided to the Series by DMC and/or its affiliates’ employees. For the six months ended June 30, 2007, the Series was charged $401 for internal legal and tax services provided by DMC and/or its affiliates’ employees.
Trustees’ fees and benefits include expenses accrued by the Series for each Trustee’s retainer, per meeting fees and retirement benefits. Independent Trustees with over five years of uninterrupted service were eligible to participate in a retirement plan that provides for the payment of benefits upon retirement. The amount of the retirement benefit was determined based on factors set forth in the plan, including the number of years of service. On November 16, 2006, the Board of Trustees unanimously voted to terminate the retirement plan. Payments equal to the net present value of the earned benefits were made in 2007 to those independent Trustees so entitled. The retirement benefit payout for the Series was $2,430. Certain officers of DMC, DSC and DDLP are officers and/or Trustees of the Trust. These officers and Trustees are paid no compensation by the Series.
3. Investments
For six months ended June 30, 2007, the Series made purchases and sales of investment securities other than short-term investments as follows:
Purchases |
| $ | 3,299,870 |
|
Sales |
| 6,329,425 |
|
8
At June 30, 2007, the cost of investments for federal income tax purposes has been estimated since the final tax characteristics cannot be determined until fiscal year end. At June 30, 2007, the cost of investments and unrealized appreciation (depreciation) for the Series were as follows:
Cost of |
| Aggregate |
| Aggregate |
| Net Unrealized |
| ||||
$ | 13,810,843 |
| $ | 3,653,923 |
| $ | (221,092 | ) | $ | 3,432,831 |
|
4. Dividend and Distribution Information
Income and long-term capital gain distributions are determined in accordance with federal income tax regulations, which may differ from U.S. generally accepted accounting principles. Additionally, gains (losses) on foreign currency transactions and net short-term gains on sales of investment securities are treated as ordinary income for federal income tax purposes. There were no dividends and distributions paid during the six months ended June 30, 2007 and the year ended December 31, 2006.
5. Components of Net Assets on a Tax Basis
The components of net assets are estimated since final tax characteristics cannot be determined until fiscal year end. As of June 30, 2007, the estimated components of net assets on a tax basis were as follows:
Shares of beneficial interest |
| $ | 61,818,141 |
|
Capital loss carryforwards as of 12/31/06 |
| (49,109,321 | ) | |
Realized gains 1/1/07 – 6/30/07 |
| 1,238,806 |
| |
Unrealized appreciation of investments |
| 3,432,831 |
| |
Net assets |
| $ | 17,380,457 |
|
The differences between book basis and tax basis components of net assets are primarily attributable to tax deferral of losses on wash sales.
For financial reporting purposes, capital accounts are adjusted to reflect the tax character of permanent book/tax differences. Reclassifications are primarily due to tax treatment of net operating losses. Results of operations and net assets were not affected by these reclassifications. For the six months ended June 30, 2007, the Series recorded an estimate of these difference since the final tax characteristics cannot be determined until fiscal year end:
Accumulated |
| Paid-in |
| ||
$ | 38,652 |
| $ | (38,652 | ) |
For federal income tax purposes, capital loss carryforwards may be carried forward and applied against future capital gains. Capital loss carryforwards remaining at December 31, 2006 will expire as follows: $4,054,443 expires in 2008; $30,958,389 expires in 2009; $10,812,739 expires in 2010; and $3,283,750 expires in 2011.
For the six months ended June 30, 2007, the Series had capital gains of $1,238,806, which may reduce the capital loss carryforwards.
6. Capital Shares
Transactions in capital shares were as follows:
| Six Months |
| Year |
| |
Shares sold: |
|
|
|
|
|
Standard Class |
| 5,538 |
| 1,691,049 |
|
Service Class |
| 6,067 |
| 560,656 |
|
|
| 11,605 |
| 2,251,705 |
|
Shares repurchased: |
|
|
|
|
|
Standard Class |
| (226,910 | ) | (2,093,415 | ) |
Service Class |
| (62,374 | ) | (619,563 | ) |
|
| (289,284 | ) | (2,712,978 | ) |
Net decrease |
| (277,679 | ) | (461,273 | ) |
9
7. Line of Credit
The Series, along with certain other funds in the Delaware Investments® Family of Funds (Participants), participates in a $225,000,000 revolving line of credit facility to be used for temporary or emergency purposes as an additional source of liquidity to fund redemptions of investor shares. The Participants are charged an annual commitment fee, which is allocated across the Participants on the basis of each Participant’s allocation of the entire facility. The Participants may borrow up to a maximum of one third of their net assets under the agreement. The Series had no amounts outstanding as of June 30, 2007, or at any time during the period then ended.
8. Credit and Market Risk
The Series invests a significant portion of its assets in small- and mid-sized companies and may be subject to certain risks associated with ownership of securities of such companies. Investments in small- or mid-sized companies may be more volatile than investments in larger companies for a number of reasons, which include more limited financial resources or a dependence on narrow product lines.
The Series may invest up to 15% of its total assets in illiquid securities, which may include securities with contractual restrictions on resale, securities exempt from registration under Rule 144A of the Securities Act of 1933, as amended, and other securities which may not be readily marketable. The relative illiquidity of these securities may impair the Series from disposing of them in a timely manner and at a fair price when it is necessary or desirable to do so. While maintaining oversight, the Series’ Board of Trustees has delegated to DMC the day-to-day functions of determining whether individual securities are liquid for purposes of the Series’ limitation on investments in illiquid assets. As of June 30, 2007, there were no Rule 144A securities and no securities have been determined to be illiquid under the Series’ Liquidity Procedures.
9. Contractual Obligations
The Series enters into contracts in the normal course of business that contain a variety of indemnifications. The Series’ maximum exposure under these arrangements is unknown. However, the Series has not had prior claims or losses pursuant to these contracts. Management has reviewed the Series’ existing contracts and expects the risk of loss to be remote.
10. Subsequent Event
The Series has a new securities lending agreement with Mellon Bank, N.A. as of August 2, 2007.
The Series files its complete schedule of portfolio holdings with the Securities and Exchange Commission (the Commission) for the first and third quarters of each fiscal year on Form N-Q. The Series’ Forms N-Q, as well as a description of the policies and procedures that the Series uses to determine how to vote proxies (if any) relating to portfolio securities is available without charge (i) upon request, by calling 800 523-1918; and (ii) on the Commission’s website at http://www.sec.gov. In addition, a description of the policies and procedures that the Series uses to determine how to vote proxies (if any) relating to portfolio securities is available without charge on the Delaware Investments® Funds’ website at http://www.delawareinvestments.com. The Series’ Forms N-Q may be reviewed and copied at the Commission’s Public Reference Room in Washington, DC; information on the operation of the Public Reference Room may be obtained by calling 800 SEC-0330.
Information (if any) regarding how the Series voted proxies relating to portfolio securities during the most recently disclosed 12-month period ended June 30 is available without charge (i) through the Delaware Investments® Funds’ website at http://www.delawareinvestments.com; and (ii) on the Commission’s website at http://www.sec.gov.
10
Delaware VIP Trust — Delaware VIP Select Growth Series
Other Series Information
Board Consideration of Delaware VIP Select Growth Series Investment Advisory Agreement
At a meeting held on May 16-17, 2007 (Annual Meeting), the Board of Trustees (Board), including a majority of disinterested or independent Trustees, approved the renewal of the Investment Advisory Agreement for the VIP Select Growth Series (Series). In making its decision, the Board considered information furnished throughout the year at regular Board meetings, including reports detailing Series performance, investment strategies and expenses, as well as information prepared specifically in connection with the renewal of the investment advisory contracts. Information furnished specifically in connection with the renewal of the Investment Advisory Agreement with Delaware Management Company (DMC) included materials provided by DMC and its affiliates (Delaware Investments) concerning, among other things, the level of services provided to the Series, the costs of such services to the Series, economies of scale and the financial condition and profitability of Delaware Investments. In addition, in connection with the Meeting, the Board separately received and reviewed in mid-January 2007 independent historical and comparative reports prepared by Lipper Inc. (Lipper), an independent statistical compilation organization. The Lipper reports compared the Series’ investment performance and expenses with those of other comparable mutual funds. The Board requested and received certain information regarding management’s policy with respect to advisory fee levels and its philosophy with respect to breakpoints; the structure of portfolio manager compensation; the investment manager’s profitability; and any constraints or limitations on the availability of securities in certain investment styles which might inhibit DMC’s ability to fully invest in accordance with the Series’ policies.
In considering information relating to the approval of the Series’ advisory agreement, the independent Trustees received assistance and advice from and met separately with independent counsel. While attention was given to all information furnished, the following discusses under separate headings the primary factors taken into account by the Board in its contract renewal considerations.
NATURE, EXTENT AND QUALITY OF SERVICE. Consideration was given to the services provided by Delaware Investments to the Series and its shareholders. In reviewing the nature, extent and quality of services, the Board emphasized reports furnished to it throughout the year at regular Board meetings covering matters such as the relative performance of the Series, compliance of portfolio managers with the investment policies, strategies and restrictions for the Series, the compliance of management personnel with the Code of Ethics adopted throughout the Delaware Investments® Family of Funds complex and the adherence to fair value pricing procedures as established by the Board. The Board noted that it was pleased with the current staffing of the Series’ investment advisor and the emphasis placed on research in the investment process. Favorable consideration was given to DMC’s efforts to maintain, and in some instances increase, financial and human resources committed to fund matters. The Board also considered the transfer agent and shareholder services provided to Series shareholders by Delaware Investments’ affiliate, Delaware Service Company, Inc. (DSC), noting DSC’s commitment to maintain a high level of service and the continuing expenditures by Delaware Investments to improve the delivery of shareholder services. During 2006, management conducted extensive research into alternatives that could further improve the quality and cost of delivering investment accounting services to the Fund. The Board was satisfied with the nature, extent and quality of the overall services provided by Delaware Investments.
INVESTMENT PERFORMANCE. The Board considered the investment performance of DMC and the Series. The Board placed significant emphasis on the investment performance of the Series in view of its importance to shareholders. While consideration was given to performance reports and discussions with portfolio managers at Board meetings throughout the year, particular weight was given to the Lipper reports furnished for the Annual Meeting. The Lipper reports prepared for the Series showed the investment performance of its Standard Class shares in comparison to a group of similar funds as selected by Lipper (Performance Universe). A fund with the best performance ranked first, and a fund with the poorest ranked last. The highest/best performing 25% of funds in the Performance Universe make up the first quartile; the next 25%—the second quartile; the next 25%—the third quartile; and the poorest/worst performing 25% of funds in the Performance Universe make up the fourth quartile. Comparative annualized performance for the Series was shown for the past one, three and five year periods ended December 31, 2006. The Board also considered comparative annualized performance for the Series for the same periods ended October 31, 2006. The performance comparison presented below is based upon the December 31, 2006 information. The Board noted its objective that the Series’ performance for the periods considered be at or above the median of its Performance Universe. The following paragraph summarizes the performance results for the Series and the Board’s view of such performance.
Lipper currently classifies the Series as a multi-cap core fund, although management believes that the Series’ objective is more closely aligned with those funds in the multi-cap growth category. Accordingly, the Lipper report prepared for this Series compares the Series’ performance to two separate Performance Universes consisting of the Series and all retail and institutional multi-cap core funds and all retail and institutional multi-cap growth funds, respectively, as selected by Lipper. When compared to other multi-cap core and multi-cap growth funds, the Lipper report comparison showed that the Series’ total return for the one, three and five year periods was in the fourth quartile of the Performance Universe. The Board noted that the Series’ performance results were not in line with the Board’s objective. In evaluating the Series’ performance, the Board considered the new investment team assigned to the Series in 2005 and the policy and investment strategy changes implemented in order to take advantage of the new team’s investment approach. The Board encouraged management to re-evaluate the team’s strategy and investment management approach in an effort to enhance Series performance and meet the Board’s performance objective. Additionally, the Board recognized management’s efforts to increase portfolio management depth, noting particularly the recent hire of a new head of the equity department.
COMPARATIVE EXPENSES. The Board considered expense comparison data for the Delaware Investments Family of Funds as of October 31, 2006. Management provided the Board with information on pricing levels and fee structures for the Series. The Board focused particularly on the comparative analysis of the effective management fees and total expense ratios of the Series and the effective management fees and expense ratios of a group of similar funds as selected by Lipper (Expense Group). In reviewing comparative costs, the Series’ contractual management fee and the actual management fee incurred by the Series were compared with the contractual management fees (assuming all funds in the Expense Group were similar in size to the Series) and actual management fees (as reported by each fund) of other funds within the Expense Group, taking into account any applicable breakpoints and fee waivers. The Series’ total expenses were also compared with those of its Expense Group. The Lipper total expenses, for comparative consistency, were shown by Lipper for Standard Class shares which do not charge 12b-1 and non-12b-1 service fees. The Board also considered fees paid to Delaware Investments for non-management services. The Board noted its objective to limit the Series’ total expense ratio to an acceptable range as compared to the median of the Expense Group. The following paragraph summarizes the expense results for the Series and the Board’s view of such expenses.
11
When compared to other multi-cap core funds, the expense comparisons for the Series showed that its actual management fee was in the quartile with the lowest expenses of its Expense Group and its total expenses were in the quartile with the second lowest expenses of its Expense Group. When compared to other multi-cap growth funds, the expense comparisons for the Series showed that its actual management fee and total expenses were in the quartile with the second lowest expenses of its Expense Group. The Board was satisfied with the management fee and total expenses of the Series in comparison to its Expense Groups as shown in the Lipper report.
MANAGEMENT PROFITABILITY. The Board considered the level of profits, if any, realized by Delaware Investments in connection with the operation of the Series. In this respect, the Board reviewed the Investment Management Profitability Analysis that addressed the overall profitability of Delaware Investments’ business in providing management and other services to each of the individual funds and the Delaware Investments® Family of Funds as a whole. Specific attention was given to the methodology followed in allocating costs for the purpose of determining profitability. Management stated that the level of profits of Delaware Investments, to a certain extent, reflected operational cost savings and efficiencies initiated by Delaware Investments. The Board considered Delaware Investments’ efforts to improve services provided to fund shareholders and to meet additional regulatory and compliance requirements resulting from recent Securities and Exchange Commission initiatives. The Board also considered the extent to which Delaware Investments might derive ancillary benefits from fund operations, including the potential for procuring additional business as a result of the prestige and visibility associated with its role as service provider to the Delaware Investments Family of Funds and the benefits from allocation of fund brokerage to improve trading efficiencies. The Board found that the level of management fees was reasonable in light of the services rendered and the profitability of Delaware Investments.
ECONOMIES OF SCALE. The Trustees considered whether economies of scale are realized by Delaware Investments as the Series’ assets increase and the extent to which any economies of scale are reflected in the level of management fees charged. The Trustees took into account the standardized advisory fee pricing and structure, approved by the Board and shareholders and again reviewed by the Board this year, which includes breakpoints. Breakpoints in the advisory fee occur when the advisory fee rate is reduced on assets in excess of specified levels. This results in a lower advisory fee than would otherwise be the case on all assets when those asset levels specified are exceeded. The Board noted that the fee under the Series’ management contract fell within the standard structure. Although the Series has not reached a size at which the advantages of breakpoints would be realized, the Board recognized that the fee was structured so that when the Series grows, economies of scale may be shared.
12
Delaware VIP Trust — Delaware VIP Small Cap Value Series
Disclosure of Series Expenses
For the Period January 1, 2007 to June 30, 2007
As a shareholder of the Series, you incur ongoing costs, including management fees; distribution and/or service (12b-1) fees; and other Series expenses. This Example is intended to help you understand your ongoing costs (in dollars) of investing in the Series and to compare these costs with the ongoing costs of investing in other mutual funds.
The Example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period from January 1, 2007 to June 30, 2007.
Actual Expenses
The first section of the table shown, “Actual Series Return,” provides information about actual account values and actual expenses. You may use the information in this section of the table, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first section under the heading entitled “Expenses Paid During Period” to estimate the expenses you paid on your account during the period.
Hypothetical Example for Comparison Purposes
The second section of the table shown, “Hypothetical 5% Return,” provides information about hypothetical account values and hypothetical expenses based on the Series’ actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Series’ actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Series and other funds. To do so, compare the 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs only. As a shareholder of the Series, you do not incur any transaction costs, such as sales charges (loads), redemption fees or exchange fees, but shareholders of other funds may incur such costs. Also, the fees related to the variable annuity investment or the deferred sales charge that could apply have not been included. Therefore, the second section of the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. The Series’ actual expenses shown in the table reflect fee waivers in effect for Service Class shares. The expenses shown in the table assume reinvestment of all dividends and distributions.
Expense Analysis of an Investment of $1,000
|
| Beginning |
| Ending |
| Annualized |
| Expenses |
| |||
Actual Series Return |
|
|
|
|
|
|
|
|
| |||
Standard Class |
| $ | 1,000.00 |
| $ | 1,076.20 |
| 0.81 | % | $ | 4.17 |
|
Service Class |
| 1,000.00 |
| 1,075.10 |
| 1.06 | % | 5.45 |
| |||
|
|
|
|
|
|
|
|
|
| |||
Hypothetical 5% Return (5% return before expenses) |
|
|
|
|
|
|
|
|
| |||
Standard Class |
| $ | 1,000.00 |
| $ | 1,020.78 |
| 0.81 | % | $ | 4.06 |
|
Service Class |
| 1,000.00 |
| 1,019.54 |
| 1.06 | % | 5.31 |
|
* “Expenses Paid During Period” are equal to the Series’ annualized expense ratio, multiplied by the average account value over the period, multiplied by 181/365 (to reflect the one-half year period).
1
Delaware VIP Trust — Delaware VIP Small Cap Value Series
Sector Allocation and Top 10 Holdings
As of June 30, 2007
Sector designations may be different than the sector designations presented in other Series materials.
Sector |
| Percentage |
|
Common Stock |
| 97.65 | % |
Basic Industry/Capital Goods |
| 9.46 | % |
Business Services |
| 2.25 | % |
Capital Spending |
| 9.18 | % |
Consumer Cyclical |
| 2.87 | % |
Consumer Services |
| 15.88 | % |
Consumer Staples |
| 2.41 | % |
Energy |
| 5.99 | % |
Financial Services |
| 16.50 | % |
Health Care |
| 6.15 | % |
Real Estate |
| 3.93 | % |
Technology |
| 16.06 | % |
Transportation |
| 3.65 | % |
Utilities |
| 3.32 | % |
Discount Note |
| 2.40 | % |
Securities Lending Collateral |
| 20.92 | % |
Fixed Rate Notes |
| 8.02 | % |
Variable Rate Notes |
| 12.90 | % |
Total Value of Securities |
| 120.97 | % |
Obligation to Return Securities Lending Collateral |
| (20.92 | )% |
Liabilities Net of Receivables and Other Assets |
| (0.05 | )% |
Total Net Assets |
| 100.00 | % |
Holdings are for informational purposes only and are subject to change at any time. They are not a recommendation to buy, sell, or hold any security.
Top 10 Holdings |
| Percentage |
|
Colonial BancGroup |
| 1.51 | % |
Emulex |
| 1.43 | % |
Compuware |
| 1.41 | % |
W-H Energy Services |
| 1.36 | % |
Pediatrix Medical Group |
| 1.33 | % |
Bank of Hawaii |
| 1.32 | % |
Parametric Technology |
| 1.32 | % |
Ruby Tuesday |
| 1.31 | % |
Wabtec |
| 1.31 | % |
Harsco |
| 1.30 | % |
2
Delaware VIP Trust — Delaware VIP Small Cap Value Series
Statement of Net Assets
June 30, 2007 (Unaudited)
|
| Number of |
| Value |
| ||
| COMMON STOCK–97.65% |
|
|
|
|
| |
| Basic Industry/Capital Goods–9.46% |
|
|
|
|
| |
| Albemarle |
| 335,900 |
| $ | 12,942,227 |
|
| Arch Coal |
| 229,500 |
| 7,986,600 |
| |
| Bowater |
| 491,900 |
| 12,272,905 |
| |
† | Crown Holdings |
| 611,000 |
| 15,256,670 |
| |
* | Cytec Industries |
| 190,100 |
| 12,122,677 |
| |
| FMC |
| 151,700 |
| 13,560,463 |
| |
† | Griffon |
| 320,830 |
| 6,987,677 |
| |
* | Quanex |
| 274,300 |
| 13,358,410 |
| |
* | Spartech |
| 131,000 |
| 3,478,050 |
| |
* | Texas Industries |
| 119,100 |
| 9,338,631 |
| |
*† | Trimas |
| 118,900 |
| 1,436,312 |
| |
| Valspar |
| 338,300 |
| 9,611,103 |
| |
|
|
|
|
| 118,351,725 |
| |
| Business Services–2.25% |
|
|
|
|
| |
| Brink’s |
| 256,700 |
| 15,887,163 |
| |
† | United Stationers |
| 183,200 |
| 12,208,448 |
| |
|
|
|
|
| 28,095,611 |
| |
| Capital Spending–9.18% |
|
|
|
|
| |
* | Actuant Class A |
| 255,600 |
| 16,118,136 |
| |
† | Casella Waste Systems |
| 502,400 |
| 5,415,872 |
| |
† | Gardner Denver |
| 292,900 |
| 12,462,895 |
| |
| Gibraltar Industries |
| 274,100 |
| 6,071,315 |
| |
| Harsco |
| 312,500 |
| 16,250,000 |
| |
† | Insituform Technologies Class A |
| 205,800 |
| 4,488,498 |
| |
* | Insteel Industries |
| 283,200 |
| 5,097,600 |
| |
* | Mueller Industries |
| 297,200 |
| 10,235,568 |
| |
* | Mueller Water Products Class B |
| 271,584 |
| 4,073,760 |
| |
| Timken |
| 271,900 |
| 9,818,309 |
| |
| Wabtec |
| 448,700 |
| 16,391,011 |
| |
| Walter Industries |
| 290,000 |
| 8,398,400 |
| |
|
|
|
|
| 114,821,364 |
| |
| Consumer Cyclical–2.87% |
|
|
|
|
| |
* | Beazer Homes USA |
| 329,800 |
| 8,136,166 |
| |
| Furniture Brands International |
| 243,300 |
| 3,454,860 |
| |
* | MDC Holdings |
| 250,200 |
| 12,099,672 |
| |
† | WCI Communities |
| 241,600 |
| 4,029,888 |
| |
*† | Williams Scotsman International |
| 345,600 |
| 8,228,736 |
| |
|
|
|
|
| 35,949,322 |
| |
| Consumer Services–15.88% |
|
|
|
|
| |
| Applebee’s International |
| 510,600 |
| 12,305,460 |
| |
| Belo Class A |
| 329,500 |
| 6,784,405 |
| |
| Borders Group |
| 515,100 |
| 9,817,806 |
| |
| Brunswick |
| 293,100 |
| 9,563,853 |
| |
* | Cato Class A |
| 516,100 |
| 11,323,234 |
| |
† | CEC Entertainment |
| 225,100 |
| 7,923,520 |
| |
* | Christopher & Banks |
| 412,100 |
| 7,067,515 |
| |
† | Dollar Tree Stores |
| 295,000 |
| 12,847,250 |
| |
* | Kenneth Cole Productions Class A |
| 200,700 |
| 4,957,290 |
| |
* | Men’s Wearhouse |
| 243,400 |
| 12,430,438 |
| |
| Meredith |
| 158,800 |
| 9,782,080 |
| |
| PETsMART |
| 269,400 |
| 8,742,030 |
| |
| Ross Stores |
| 376,600 |
| 11,599,280 |
| |
* | Ruby Tuesday |
| 623,600 |
| 16,419,388 |
| |
* | Stage Stores |
| 532,625 |
| 11,163,820 |
| |
* | Thor Industries |
| 176,800 |
| 7,980,752 |
| |
*† | Timberland Class A |
| 236,300 |
| 5,952,397 |
| |
| Tuesday Morning |
| 345,400 |
| 4,269,144 |
| |
*† | Warnaco Group |
| 169,100 |
| 6,652,394 |
| |
* | Wolverine World Wide |
| 354,850 |
| 9,832,894 |
| |
† | Zale |
| 471,800 |
| 11,233,558 |
| |
|
|
|
|
| 198,648,508 |
| |
| Consumer Staples–2.41% |
|
|
|
|
| |
| American Greetings Class A |
| 333,100 |
| 9,436,723 |
| |
† | Constellation Brands Class A |
| 386,200 |
| 9,376,936 |
| |
| Del Monte Foods |
| 936,400 |
| 11,386,624 |
| |
|
|
|
|
| 30,200,283 |
| |
| Energy–5.99% |
|
|
|
|
| |
† | Grey Wolf |
| 1,001,800 |
| 8,254,832 |
| |
† | Newfield Exploration |
| 295,600 |
| 13,464,580 |
| |
| Southwest Gas |
| 309,400 |
| 10,460,814 |
| |
† | TODCO |
| 226,800 |
| 10,707,228 |
| |
*† | W-H Energy Services |
| 275,200 |
| 17,037,632 |
| |
† | Whiting Petroleum |
| 369,300 |
| 14,964,036 |
| |
|
|
|
|
| 74,889,122 |
| |
| Financial Services–16.50% |
|
|
|
|
| |
| Bank of Hawaii |
| 319,800 |
| 16,514,472 |
| |
| BankUnited Financial Class A |
| 522,000 |
| 10,476,540 |
| |
| Berkley (W.R.) |
| 489,043 |
| 15,913,459 |
| |
* | Boston Private Financial Holdings |
| 485,400 |
| 13,042,698 |
| |
* | Colonial BancGroup |
| 757,800 |
| 18,922,266 |
| |
| First Midwest Bancorp |
| 207,800 |
| 7,378,978 |
| |
| Greater Bay Bancorp |
| 471,600 |
| 13,129,344 |
| |
| Harleysville Group |
| 196,600 |
| 6,558,576 |
| |
* | Independent Bank |
| 176,000 |
| 5,199,040 |
| |
* | Infinity Property & Casualty |
| 200,900 |
| 10,191,657 |
| |
| NBT Bancorp |
| 245,600 |
| 5,540,736 |
| |
| Platinum Underwriters Holdings |
| 421,000 |
| 14,629,750 |
| |
| Protective Life |
| 218,100 |
| 10,427,361 |
| |
| Provident Bankshares |
| 416,200 |
| 13,643,036 |
| |
* | Selective Insurance Group |
| 484,600 |
| 13,026,048 |
| |
| StanCorp Financial Group |
| 234,900 |
| 12,327,552 |
| |
| Sterling Financial |
| 428,320 |
| 12,395,581 |
| |
† | Triad Guaranty |
| 178,600 |
| 7,131,498 |
| |
|
|
|
|
| 206,448,592 |
| |
| Health Care–6.15% |
|
|
|
|
| |
† | Community Health Systems |
| 220,900 |
| 8,935,405 |
| |
* | Owens & Minor |
| 353,700 |
| 12,358,278 |
| |
† | Pediatrix Medical Group |
| 301,900 |
| 16,649,785 |
| |
| Service Corp International |
| 1,250,300 |
| 15,978,834 |
| |
* | STERIS |
| 422,500 |
| 12,928,500 |
| |
| Universal Health Services Class B |
| 164,900 |
| 10,141,350 |
| |
|
|
|
|
| 76,992,152 |
| |
| Real Estate–3.93% |
|
|
|
|
| |
| Ashford Hospitality Trust |
| 633,000 |
| 7,444,080 |
| |
| Brandywine Realty Trust |
| 504,433 |
| 14,416,695 |
| |
* | Education Realty Trust |
| 292,400 |
| 4,102,372 |
| |
| Highwoods Properties |
| 279,600 |
| 10,485,000 |
| |
* | Washington Real Estate Investment Trust |
| 374,100 |
| 12,719,400 |
| |
|
|
|
|
| 49,167,547 |
| |
3
|
| Number of |
| Value |
| |
| COMMON STOCK (continued) |
|
|
|
|
|
| Technology–16.06% |
|
|
|
|
|
| Acxiom |
| 508,300 |
| $13,444,535 |
|
† | BEA Systems |
| 518,000 |
| 7,091,420 |
|
† | Bell Microproducts |
| 536,200 |
| 3,496,024 |
|
† | Brocade Communications Systems |
| 768,300 |
| 6,008,106 |
|
*† | Checkpoint Systems |
| 420,100 |
| 10,607,525 |
|
† | Cirrus Logic |
| 478,800 |
| 3,974,040 |
|
*† | CommScope |
| 224,500 |
| 13,099,575 |
|
† | Compuware |
| 1,487,800 |
| 17,645,308 |
|
*† | Emulex |
| 819,100 |
| 17,889,144 |
|
† | Entegris |
| 719,300 |
| 8,545,284 |
|
*† | Insight Enterprises |
| 364,400 |
| 8,224,508 |
|
*† | Parametric Technology |
| 763,000 |
| 16,488,430 |
|
*† | Plexus |
| 149,200 |
| 3,430,108 |
|
*† | Premiere Global Services |
| 491,050 |
| 6,393,471 |
|
* | QAD |
| 358,500 |
| 2,975,550 |
|
*† | Sybase |
| 505,800 |
| 12,083,562 |
|
† | Sykes Enterprises |
| 579,400 |
| 11,002,806 |
|
† | Synopsys |
| 490,500 |
| 12,963,915 |
|
| Technitrol |
| 385,300 |
| 11,046,551 |
|
† | Vishay Intertechnology |
| 921,100 |
| 14,571,802 |
|
|
|
|
|
| 200,981,664 |
|
| Transportation–3.65% |
|
|
|
|
|
| Alexander & Baldwin |
| 283,800 |
| 15,072,618 |
|
*† | Kirby |
| 356,200 |
| 13,674,518 |
|
*† | Saia |
| 139,200 |
| 3,794,592 |
|
* | SkyWest |
| 312,200 |
| 7,439,726 |
|
† | YRC Worldwide |
| 154,700 |
| 5,692,960 |
|
|
|
|
|
| 45,674,414 |
|
| Utilities–3.32% |
|
|
|
|
|
* | Black Hills |
| 174,100 |
| 6,920,475 |
|
*† | El Paso Electric |
| 435,900 |
| 10,705,704 |
|
* | FairPoint Communications |
| 319,500 |
| 5,671,125 |
|
* | Otter Tail |
| 230,000 |
| 7,376,100 |
|
| PNM Resources |
| 390,650 |
| 10,856,164 |
|
|
|
|
|
| 41,529,568 |
|
| Total Common Stock |
|
|
| 1,221,749,872 |
|
|
| Principal Amount |
|
|
| ||
^ | DISCOUNT NOTE–2.40% |
|
|
|
|
| |
| Federal Home Loan Bank 4.802% 7/2/07 |
| $ | 29,982,000 |
| 29,978,002 |
|
| Total Discount Note |
|
|
| 29,978,002 |
| |
|
|
|
|
|
|
| |
| Total Value of Securities Before Securities Lending Collateral–100.05% |
|
|
| 1,251,727,874 |
| |
|
| Principal Amount |
| Value |
| |||
| SECURITIES LENDING COLLATERAL**–20.92% |
|
|
|
|
| ||
| Short-Term Investments–20.92% |
|
|
|
|
| ||
| Fixed Rate Notes–8.02% |
|
|
|
|
| ||
| Abbey National 5.31% 7/2/07 |
| $ | 10,300,015 |
| $ | 10,300,015 |
|
| American Express Centurion 5.32% 7/30/07 |
| 9,196,442 |
| 9,196,442 |
| ||
| BNP Paribas 5.37% 7/2/07 |
| 4,169,054 |
| 4,169,054 |
| ||
| Credit Agricole 5.31% 10/4/07 |
| 6,130,961 |
| 6,130,961 |
| ||
| Den Danske Bank 5.38% 7/2/07 |
| 10,300,015 |
| 10,300,015 |
| ||
| Fortis Bank 5.30% 7/23/07 |
| 5,517,865 |
| 5,517,865 |
| ||
| HBOS Treasury Services 5.42% 7/2/07 |
| 10,300,015 |
| 10,300,015 |
| ||
| ING Bank |
|
|
|
|
| ||
| 5.31% 7/3/07 |
| 3,678,577 |
| 3,678,577 |
| ||
| 5.33% 7/9/07 |
| 6,130,961 |
| 6,130,961 |
| ||
| M&T 5.34% 7/2/07 |
| 10,300,015 |
| 10,300,015 |
| ||
| Royal Bank of Canada 5.31% 7/23/07 |
| 9,196,442 |
| 9,196,442 |
| ||
| Societe Generale 5.33% 7/2/07 |
| 4,774,749 |
| 4,774,750 |
| ||
| Union Bank of Switzerland 5.33% 7/2/07 |
| 10,300,015 |
| 10,300,015 |
| ||
|
|
|
|
| 100,295,127 |
| ||
· | Variable Rate Notes–12.90% |
|
|
|
|
| ||
| ANZ National 5.32% 7/29/08 |
| 1,226,192 |
| 1,226,192 |
| ||
| Australia New Zealand 5.34% 7/29/08 |
| 6,130,961 |
| 6,130,961 |
| ||
| Bank of New York 5.32% 7/29/08 |
| 4,904,769 |
| 4,904,769 |
| ||
| Bayerische Landesbank 5.37% 7/29/08 |
| 6,130,961 |
| 6,130,961 |
| ||
| Bear Stearns 5.38% 12/28/07 |
| 8,583,346 |
| 8,583,346 |
| ||
| BNP Paribas 5.33% 7/29/08 |
| 6,130,961 |
| 6,130,961 |
| ||
| Calyon 5.33% 8/14/07 |
| 3,065,481 |
| 3,065,481 |
| ||
| Canadian Imperial Bank |
|
|
|
|
| ||
| 5.32% 7/29/08 |
| 4,291,673 |
| 4,291,673 |
| ||
| 5.33% 8/15/07 |
| 6,008,342 |
| 6,008,342 |
| ||
| CDC Financial Products 5.43% 7/27/07 |
| 7,970,250 |
| 7,970,250 |
| ||
| Citigroup Global Markets 5.45% 7/6/07 |
| 7,970,250 |
| 7,970,250 |
| ||
| Commonwealth Bank 5.32% 7/29/08 |
| 6,130,961 |
| 6,130,961 |
| ||
| Credit Suisse First Boston 5.32% 3/14/08 |
| 6,130,961 |
| 6,130,961 |
| ||
| Deutsche Bank |
|
|
|
|
| ||
| 5.34% 8/20/07 |
| 8,583,346 |
| 8,583,346 |
| ||
| 5.34% 9/21/07 |
| 919,644 |
| 919,644 |
| ||
| Dexia Bank 5.32% 9/28/07 |
| 8,583,328 |
| 8,582,922 |
| ||
| Goldman Sachs Group 5.52% 6/27/08 |
| 7,234,534 |
| 7,234,534 |
| ||
| Marshall & Ilsley Bank 5.32% 7/29/08 |
| 6,744,057 |
| 6,744,057 |
| ||
| Morgan Stanley 5.56% 7/29/08 |
| 7,970,250 |
| 7,970,250 |
| ||
| National Australia Bank 5.31% 7/29/08 |
| 7,602,392 |
| 7,602,392 |
| ||
| National Rural Utilities 5.33% 7/29/08 |
| 9,686,919 |
| 9,686,919 |
| ||
| Nordea Bank 5.33% 7/29/08 |
| 6,130,961 |
| 6,130,961 |
| ||
| Royal Bank of Scotland Group 5.33% 7/29/08 |
| 6,130,961 |
| 6,130,961 |
| ||
| Societe Generale 5.31% 7/29/08 |
| 3,065,481 |
| 3,065,481 |
| ||
| Sun Trust Bank 5.33% 7/30/07 |
| 7,970,250 |
| 7,970,250 |
| ||
| Wells Fargo 5.33% 7/29/08 |
| 6,130,961 |
| 6,130,961 |
| ||
|
|
|
|
| 161,427,786 |
| ||
| Total Securities Lending Collateral |
|
|
| 261,722,913 |
| ||
4
TOTAL VALUE OF SECURITIES–120.97% (cost $1,253,531,156) |
| $ | 1,513,450,787 | v |
OBLIGATION TO RETURN SECURITIES LENDING COLLATERAL**–(20.92%) |
| (261,722,913 | ) | |
LIABILITIES NET OF RECEIVABLES AND OTHER ASSETS–(0.05%) |
| (575,439 | ) | |
NET ASSETS APPLICABLE TO 37,926,520 SHARES OUTSTANDING–100.00% |
| $ | 1,251,152,435 |
|
NET ASSET VALUE-DELAWARE VIP SMALL CAP VALUE SERIES STANDARD CLASS ($497,888,951 / 15,079,022 Shares) |
| $ | 33.02 |
|
NET ASSET VALUE-DELAWARE VIP SMALL CAP VALUE SERIES SERVICE CLASS ($753,263,484 / 22,847,498 Shares) |
| $ | 32.97 |
|
COMPONENTS OF NET ASSETS AT JUNE 30, 2007: |
|
|
| |
Shares of beneficial interest (unlimited authorization–no par) |
| $ | 920,372,439 |
|
Undistributed net investment income |
| 2,574,192 |
| |
Accumulated net realized gain on investments |
| 68,286,173 |
| |
Net unrealized appreciation of investments |
| 259,919,631 |
| |
Total net assets |
| $ | 1,251,152,435 |
|
† |
| Non-income producing security for the period ended June 30, 2007. |
^ |
| Zero coupon security. The rate shown is the yield at the time of purchase. |
• |
| Variable rate security. The rate shown is the rate as of June 30, 2007. |
* |
| Fully or partially on loan. |
** |
| See Note 8 in “Notes to Financial Statements.” |
v |
| Includes $254,386,867 of securities loaned. |
See accompanying notes
5
Delaware VIP Trust —
Delaware VIP Small Cap Value Series
Statement of Operations
Six Months Ended June 30, 2007 (Unaudited)
INVESTMENT INCOME: |
|
|
| |
Dividends |
| $ | 6,584,679 |
|
Interest |
| 1,282,243 |
| |
Securities lending income |
| 183,061 |
| |
Foreign tax withheld |
| (3,510 | ) | |
|
| 8,046,473 |
| |
|
|
|
| |
EXPENSES: |
|
|
| |
Management fees |
| 4,350,704 |
| |
Distribution expenses - Service Class |
| 1,074,876 |
| |
Accounting and administration expenses |
| 244,848 |
| |
Reports and statements to shareholders |
| 95,702 |
| |
Legal fees |
| 87,011 |
| |
Dividend disbursing and transfer agent fees and expenses |
| 61,212 |
| |
Audit and tax |
| 38,142 |
| |
Trustees’ fees and benefits |
| 30,172 |
| |
Insurance fees |
| 16,241 |
| |
Custodian fees |
| 12,541 |
| |
Consulting fees |
| 9,653 |
| |
Dues and services |
| 4,130 |
| |
Taxes (other than taxes on income) |
| 2,994 |
| |
Trustees’ expenses |
| 1,913 |
| |
Pricing fees |
| 551 |
| |
|
| 6,030,690 |
| |
Less waiver of distribution expenses – Service Class |
| (179,146 | ) | |
Less expense paid indirectly |
| (1,537 | ) | |
Total operating expenses |
| 5,850,007 |
| |
|
|
|
| |
NET INVESTMENT INCOME |
| 2,196,466 |
| |
|
|
|
| |
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS AND FOREIGN CURRENCIES: |
|
|
| |
Net realized gain on: |
|
|
| |
Investments |
| 68,791,256 |
| |
Foreign currencies |
| 78 |
| |
Net realized gain |
| 68,791,334 |
| |
Net change in unrealized appreciation/depreciation of investments and foreign currencies |
| 19,021,663 |
| |
|
|
|
| |
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS AND FOREIGN CURRENCIES |
| 87,812,997 |
| |
|
|
|
| |
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS |
| $ | 90,009,463 |
|
Delaware VIP Trust —
Delaware VIP Small Cap Value Series
Statements of Changes in Net Assets
|
| Six Months |
| Year Ended |
| ||
|
| 6/30/07 |
| 12/31/06 |
| ||
|
| (Unaudited) |
|
|
| ||
INCREASE IN NET ASSETS FROM OPERATIONS: |
|
|
|
|
| ||
Net investment income |
| $ | 2,196,466 |
| $ | 3,404,557 |
|
Net realized gain on investments and foreign currencies |
| 68,791,334 |
| 97,476,334 |
| ||
Net change in unrealized appreciation/ depreciation of investments and foreign currencies |
| 19,021,663 |
| 52,899,077 |
| ||
Net increase in net assets resulting from operations |
| 90,009,463 |
| 153,779,968 |
| ||
|
|
|
|
|
| ||
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM: |
|
|
|
|
| ||
Net investment income: |
|
|
|
|
| ||
Standard Class |
| (2,479,346 | ) | (1,141,559 | ) | ||
Service Class |
| (1,850,947 | ) | (137,447 | ) | ||
Net realized gain on investments: |
|
|
|
|
| ||
Standard Class |
| (39,389,141 | ) | (30,306,999 | ) | ||
Service Class |
| (55,507,589 | ) | (37,402,855 | ) | ||
|
| (99,227,023 | ) | (68,988,860 | ) | ||
|
|
|
|
|
| ||
CAPITAL SHARE TRANSACTIONS: |
|
|
|
|
| ||
Proceeds from shares sold: |
|
|
|
|
| ||
Standard Class |
| 44,784,419 |
| 156,545,638 |
| ||
Service Class |
| 71,233,980 |
| 157,234,652 |
| ||
Net asset value of shares issued upon reinvestment of dividends and distributions: |
|
|
|
|
| ||
Standard Class |
| 41,868,487 |
| 31,448,558 |
| ||
Service Class |
| 57,358,536 |
| 37,540,302 |
| ||
|
| 215,245,422 |
| 382,769,150 |
| ||
Cost of shares repurchased: |
|
|
|
|
| ||
Standard Class |
| (87,834,171 | ) | (135,422,040 | ) | ||
Service Class |
| (52,023,218 | ) | (72,512,278 | ) | ||
|
| (139,857,389 | ) | (207,934,318 | ) | ||
Increase in net assets derived from capital share transactions |
| 75,388,033 |
| 174,834,832 |
| ||
|
|
|
|
|
| ||
NET INCREASE IN NET ASSETS |
| 66,170,473 |
| 259,625,940 |
| ||
|
|
|
|
|
| ||
NET ASSETS: |
|
|
|
|
| ||
Beginning of period |
| 1,184,981,962 |
| 925,356,022 |
| ||
End of period (including undistributed net investment income of $2,574,192 and $4,707,941, respectively) |
| $ | 1,251,152,435 |
| $ | 1,184,981,962 |
|
See accompanying notes
6
Delaware VIP Trust — Delaware VIP Small Cap Value Series
Financial Highlights
Selected data for each share of the Series outstanding throughout each period were as follows:
|
|
|
| VIP Small Cap Value Series Standard Class |
| ||||||||||||||
|
| Six Months |
|
|
| ||||||||||||||
|
| Ended |
| Year Ended |
| ||||||||||||||
|
| 6/30/07(1) |
| 12/31/06 |
| 12/31/05 |
| 12/31/04 |
| 12/31/03 |
| 12/31/02 |
| ||||||
|
| (Unaudited) |
|
|
|
|
|
|
|
|
|
|
| ||||||
Net asset value, beginning of period |
| $ | 33.420 |
| $ | 30.830 |
| $ | 30.450 |
| $ | 25.640 |
| $ | 18.140 |
| $ | 19.530 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Income (loss) from investment operations: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Net investment income(2) |
| 0.083 |
| 0.146 |
| 0.121 |
| 0.122 |
| 0.068 |
| 0.101 |
| ||||||
Net realized and unrealized gain (loss) on investments and foreign currencies |
| 2.354 |
| 4.703 |
| 2.539 |
| 5.270 |
| 7.513 |
| (1.149 | ) | ||||||
Total from investment operations |
| 2.437 |
| 4.849 |
| 2.660 |
| 5.392 |
| 7.581 |
| (1.048 | ) | ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Less dividends and distributions from: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Net investment income |
| (0.168 | ) | (0.082 | ) | (0.114 | ) | (0.053 | ) | (0.081 | ) | (0.104 | ) | ||||||
Net realized gain on investments |
| (2.669 | ) | (2.177 | ) | (2.166 | ) | (0.529 | ) | — |
| (0.238 | ) | ||||||
Total dividends and distributions |
| (2.837 | ) | (2.259 | ) | (2.280 | ) | (0.582 | ) | (0.081 | ) | (0.342 | ) | ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Net asset value, end of period |
| $ | 33.020 |
| $ | 33.420 |
| $ | 30.830 |
| $ | 30.450 |
| $ | 25.640 |
| $ | 18.140 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Total return(3) |
| 7.62 | % | 16.19 | % | 9.42 | % | 21.48 | % | 41.98 | % | (5.60 | )% | ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Ratios and supplemental data: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Net assets, end of period (000 omitted) |
| $ | 497,889 |
| $ | 502,801 |
| $ | 413,633 |
| $ | 339,542 |
| $ | 265,739 |
| $ | 170,630 |
|
Ratio of expenses to average net assets |
| 0.81 | % | 0.84 | % | 0.85 | % | 0.83 | % | 0.86 | % | 0.85 | % | ||||||
Ratio of net investment income to average net assets |
| 0.51 | % | 0.46 | % | 0.41 | % | 0.46 | % | 0.32 | % | 0.52 | % | ||||||
Portfolio turnover |
| 35 | % | 36 | % | 32 | % | 37 | % | 41 | % | 43 | % |
(1) |
| Ratios and portfolio turnover have been annualized and total return has not been annualized. |
(2) |
| The average shares outstanding method has been applied for per share information. |
(3) |
| Total investment return is based on the change in net asset value of a share during the period and assumes reinvestment of dividends and distributions at net asset value. |
See accompanying notes
7
Delaware VIP Small Cap Value Series
Financial Highlights (continued)
Selected data for each share of the Series outstanding throughout each period were as follows:
|
|
|
| VIP Small Cap Value Series Service Class |
| ||||||||||||||
|
| Six Months |
|
|
|
|
|
|
|
|
|
|
| ||||||
|
| Ended |
| Year Ended |
| ||||||||||||||
|
| 6/30/07(1) |
| 12/31/06 |
| 12/31/05 |
| 12/31/04 |
| 12/31/03 |
| 12/31/02 |
| ||||||
|
| (Unaudited) |
|
|
|
|
|
|
|
|
|
|
| ||||||
Net asset value, beginning of period |
| $ | 33.330 |
| $ | 30.760 |
| $ | 30.390 |
| $ | 25.610 |
| $ | 18.130 |
| $ | 19.520 |
|
Income (loss) from investment operations: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Net investment income(2) |
| 0.042 |
| 0.066 |
| 0.048 |
| 0.056 |
| 0.020 |
| 0.072 |
| ||||||
Net realized and unrealized gain (loss) on investments and foreign currencies |
| 2.356 |
| 4.689 |
| 2.536 |
| 5.258 |
| 7.512 |
| (1.147 | ) | ||||||
Total from investment operations |
| 2.398 |
| 4.755 |
| 2.584 |
| 5.314 |
| 7.532 |
| (1.075 | ) | ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Less dividends and distributions from: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Net investment income |
| (0.089 | ) | (0.008 | ) | (0.048 | ) | (0.005 | ) | (0.052 | ) | (0.077 | ) | ||||||
Net realized gain on investments |
| (2.669 | ) | (2.177 | ) | (2.166 | ) | (0.529 | ) | — |
| (0.238 | ) | ||||||
Total dividends and distributions |
| (2.758 | ) | (2.185 | ) | (2.214 | ) | (0.534 | ) | (0.052 | ) | (0.315 | ) | ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Net asset value, end of period |
| $ | 32.970 |
| $ | 33.330 |
| $ | 30.760 |
| $ | 30.390 |
| $ | 25.610 |
| $ | 18.130 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Total return(3) |
| 7.51 | % | 15.89 | % | 9.15 | % | 21.16 | % | 41.66 | % | (5.72 | %) | ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Ratios and supplemental data: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Net assets, end of period (000 omitted) |
| $ | 753,263 |
| $ | 682,181 |
| $ | 511,723 |
| $ | 399,347 |
| $ | 248,930 |
| $ | 124,241 |
|
Ratio of expenses to average net assets |
| 1.06 | % | 1.09 | % | 1.10 | % | 1.08 | % | 1.08 | % | 1.00 | % | ||||||
Ratio of expenses to average net assets prior to expense limitation and expenses paid indirectly |
| 1.11 | % | 1.14 | % | 1.15 | % | 1.13 | % | 1.11 | % | 1.00 | % | ||||||
Ratio of net investment income to average net assets |
| 0.26 | % | 0.21 | % | 0.16 | % | 0.21 | % | 0.10 | % | 0.37 | % | ||||||
Ratio of net investment income to average net assets prior to expense limitation and expenses paid indirectly |
| 0.21 | % | 0.16 | % | 0.11 | % | 0.16 | % | 0.07 | % | 0.37 | % | ||||||
Portfolio turnover |
| 35 | % | 36 | % | 32 | % | 37 | % | 41 | % | 43 | % |
(1) |
| Ratios and portfolio turnover have been annualized and total return has not been annualized. |
(2) |
| The average shares outstanding method has been applied for per share information. |
(3) |
| Total investment return is based on the change in net asset value of a share during the period and assumes reinvestment of dividends and distributions at net asset value. Total investment return reflects waivers and payment of fees by the distributor, as applicable. Performance would have been lower had the expense limitation and waiver not been in effect. |
See accompanying notes
8
Delaware VIP Trust — Delaware VIP Small Cap Value Series
Notes to Financial Statements
June 30, 2007 (Unaudited)
Delaware VIP Trust (Trust) is organized as a Delaware statutory trust and offers 14 series: Delaware VIP Balanced Series, Delaware VIP Capital Reserves Series, Delaware VIP Cash Reserve Series, Delaware VIP Diversified Income Series, Delaware VIP Emerging Markets Series, Delaware VIP Growth Opportunities Series, Delaware VIP High Yield Series, Delaware VIP International Value Equity Series, Delaware VIP REIT Series, Delaware VIP Select Growth Series, Delaware VIP Small Cap Value Series, Delaware VIP Trend Series, Delaware VIP U.S. Growth Series and Delaware VIP Value Series. These financial statements and the related notes pertain to Delaware VIP Small Cap Value Series (Series). The Trust is an open-end investment company. The Series is considered diversified under the Investment Company Act of 1940, as amended, and offers Standard Class and Service Class shares. The Standard Class shares do not carry a 12b-1 fee and the Service Class shares carry a 12b-1 fee. The shares of the Series are sold only to separate accounts of life insurance companies.
The investment objective of the Series is to seek capital appreciation.
1. Significant Accounting Policies
The following accounting policies are in accordance with U.S. generally accepted accounting principles and are consistently followed by the Series.
Security Valuation—Equity securities, except those traded on the Nasdaq Stock Market, Inc. (Nasdaq) are valued at the last quoted sales price as of the time of the regular close of the New York Stock Exchange (NYSE) on the valuation date. Securities traded on the Nasdaq are valued in accordance with the Nasdaq Official Closing Price, which may not be the last sales price. If on a particular day an equity security does not trade, then the mean between the bid and asked prices will be used. Short-term debt securities having less than 60 days to maturity are valued at amortized cost, which approximates market value. Securities lending collateral is valued at amortized cost, which approximates market value. Other securities and assets for which market quotations are not readily available are valued at fair value as determined in good faith under the direction of the Series’ Board of Trustees. In determining whether market quotations are readily available or fair valuation will be used, various factors will be taken into consideration, such as market closures, or with respect to foreign securities, aftermarket trading, or significant events after local market trading (e.g., government actions or pronouncements, trading volume or volatility on markets, exchanges among dealers, or news events).
In September 2006, the Financial Accounting Standards Board (FASB) issued FASB Statement No. 157 “Fair Value Measurements” (Statement 157). Statement 157 establishes a framework for measuring fair value in generally accepted accounting principles, clarifies the definition of fair value within that framework, and expands disclosures about the use of fair value measurements. Statement 157 is intended to increase consistency and comparability among fair value estimates used in financial reporting. Statement 157 is effective for fiscal years beginning after November 15, 2007. Management does not expect the adoption of Statement 157 to have an impact on the amounts reported in the financial statements.
Federal Income Taxes—The Series intends to continue to qualify for federal income tax purposes as a regulated investment company and make the requisite distributions to shareholders. Accordingly, no provision for federal income taxes has been made in the financial statements.
Effective June 29, 2007, the Series adopted FASB Interpretation No. 48 “Accounting for Uncertainty in Income Taxes” (FIN 48). FIN 48 provides guidance for how uncertain tax positions should be recognized, measured, presented and disclosed in the financial statements. FIN 48 requires the evaluation of tax positions taken or expected to be taken in the course of preparing the Series’ tax returns to determine whether the tax positions are “more-likely-than-not” of being sustained by the applicable tax authority. Tax positions not deemed to meet the more-likely-than-not threshold are recorded as a tax benefit or expense in the current year. The adoption of FIN 48 did not result in the recording of any tax benefit or expense in the current period.
Class Accounting—Investment income, common expenses and realized and unrealized gain (loss) on investments are allocated to the classes of the Series on the basis of daily net assets of each class. Distribution expenses relating to a specific class are charged directly to that class.
Repurchase Agreements—The Series may invest in a pooled cash account along with members of the Delaware Investments® Family of Funds pursuant to an exemptive order issued by the Securities and Exchange Commission. The aggregate daily balance of the pooled cash account is invested in repurchase agreements secured by obligations of the U.S. government. The respective collateral is held by the Series’ custodian bank until the maturity of the respective repurchase agreements. Each repurchase agreement is at least 102% collateralized. However, in the event of default or bankruptcy by the counterparty to the agreement, realization of the collateral may be subject to legal proceedings.
Use of Estimates—The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Other—Expenses directly attributable to the Series are charged directly to the Series. Other expenses common to various funds within the Delaware Investments® Family of Funds are generally allocated amongst such funds on the basis of average net assets. Management fees and some other expenses are paid monthly. Security transactions are recorded on the date the securities are purchased or sold (trade date) for financial reporting purposes. Costs used in calculating realized gains and losses on the sale of investment securities are those of the specific securities sold. Dividend income is recorded on the ex-dividend date and interest income is recorded on the accrual basis. Distributions received from investments in Real Estate Investment Trusts are recorded as dividend income on ex-dividend date, subject to reclassification upon notice of the character of such distribution by the issuer.
The Series declares and pays dividends from net investment income and distributions from net realized gain on investments, if any, following the close of the fiscal year.
9
Subject to seeking best execution, the Series may direct certain security trades to brokers who have agreed to rebate a portion of the related brokerage commission to the Series in cash. Such commission rebates are included in realized gain on investments in the accompanying financial statements and totaled $818 for the six months ended June 30, 2007. In general, best execution refers to many factors, including the price paid or received for a security, the commission charged, the promptness and reliability of execution, the confidentiality and placement accorded the order, and other factors affecting the overall benefit obtained by the Series on the transaction.
The Series receives earnings credits from its custodian when positive cash balances are maintained, which are used to offset custody fees. The expense paid under this arrangement is included in custodian fees on the Statement of Operations with the corresponding expense offset shown as “expense paid indirectly.”
2. Investment Management, Administration Agreements and Other Transactions with Affiliates
In accordance with the terms of its investment management agreement, the Series pays Delaware Management Company (DMC), a series of Delaware Management Business Trust and the investment manager, an annual fee which is calculated daily at the rate of 0.75% on the first $500 million of average daily net assets of the Series, 0.70% on the next $500 million, 0.65% on the next $1.5 billion, and 0.60% on average daily net assets in excess of $2.5 billion.
Prior to May 1, 2007, DMC had contractually agreed to waive that portion, if any, of its management fee and reimburse the Series to the extent necessary to ensure that annual operating expenses, exclusive of taxes, interest, brokerage commissions, inverse floater program expenses, 12b-1 plan expenses, certain insurance costs and non-routine expenses or costs including, but not limited to, those relating to reorganizations, litigation, certain Trustee retirement plan expenses, conducting shareholder meetings, and liquidations, did not exceed 1.03% of average daily net assets of the Series through April 30, 2007. No reimbursement was due for the six months ended June 30, 2007.
Delaware Service Company, Inc. (DSC), an affiliate of DMC, provides accounting, administration, dividend disbursing and transfer agent services. The Series pays DSC a monthly fee computed at the annual rate of 0.04% of the Series’ average daily net assets for accounting and administrative services. The Series pays DSC a monthly fee based on average net assets for dividend disbursing and transfer agent services.
Pursuant to a distribution agreement and distribution plan, the Series pays Delaware Distributors, L.P. (DDLP), the distributor and an affiliate of DMC, an annual distribution and service fee not to exceed 0.30% of the average daily net assets of the Service Class shares. DDLP has contracted to waive distribution and service fees through April 30, 2008 in order to prevent distribution and service fees of the Service Class shares from exceeding 0.25% of average daily net assets. Standard Class shares pay no distribution and service expenses.
At June 30, 2007, the Series had liabilities payable to affiliates as follows:
Investment |
| Dividend Disbursing, |
| Distribution |
| Other |
| ||||
$ | 737,784 |
| $ |
| 156,450 |
| $ | 32,028 |
| ||
|
|
|
|
|
|
|
| ||||
* DMC, as part of its administrative services, pays operating expenses on behalf of the Series and is reimbursed on a periodic basis. Such expenses include items such as printing of shareholder reports, fees for audit, legal and tax services, custodian fees and trustees’ fees.
As provided in the investment management agreement, the Series bears the cost of certain legal and tax services, including internal legal and tax services provided to the Series by DMC and/or its affiliates’ employees. For the six months ended June 30, 2007, the Series was charged $27,821 for internal legal and tax services provided by DMC and/or its affiliates’ employees.
Trustees’ fees and benefits include expenses accrued by the Series for each Trustee’s retainer, per meeting fees and retirement benefits. Independent Trustees with over five years of uninterrupted service were eligible to participate in a retirement plan that provides for the payment of benefits upon retirement. The amount of the retirement benefit was determined based on factors set forth in the plan, including the number of years of service. On November 16, 2006, the Board of Trustees unanimously voted to terminate the retirement plan. Payments equal to the net present value of the earned benefits were made in 2007 to those independent Trustees so entitled. The retirement benefit payout for the Series was $138,000. Certain officers of DMC, DSC and DDLP are officers and/or Trustees of the Trust. These officers and Trustees are paid no compensation by the Series.
3. Investments
For the six months ended June 30, 2007, the Series made purchases and sales of investment securities other than short-term investments as follows:
Purchases |
| $ | 212,398,643 |
|
Sales |
| 203,054,400 |
|
10
At June 30, 2007, the cost of investments for federal income tax purposes has been estimated since the final tax characteristics cannot be determined until fiscal year end. At June 30, 2007, the cost of investments and unrealized appreciation (depreciation) for the Series were as follows:
Cost of |
| Aggregate |
| Aggregate |
| Net Unrealized |
| ||||
$ | 1,253,936,344 |
| $ | 292,197,467 |
| $ | (32,683,024 | ) | $ | 259,514,443 |
|
4. Dividend and Distribution Information
Income and long-term capital gain distributions are determined in accordance with federal income tax regulations, which may differ from U.S. generally accepted accounting principles. Additionally, gains (losses) on foreign currency transactions and net short-term gains on sales of investment securities are treated as ordinary income for federal income tax purposes. The tax character of dividends and distributions paid during the six months ended June 30, 2007 and the year ended December 31, 2006 was as follows:
| Six Months |
| Year |
| |||
Ordinary income |
| $ | 20,507,892 |
| $ | 20,780,190 |
|
Long term capital gain |
| 78,719,131 |
| 48,208,670 |
| ||
Total |
| $ | 99,227,023 |
| $ | 68,988,860 |
|
* Tax information for the six months ended June 30, 2007 is an estimate and the tax character of dividends and distributions may be redesignated at fiscal year end.
5. Components of Net Assets on a Tax Basis
The components of net assets are estimated since final tax characteristics cannot be determined until fiscal year end. As of June 30, 2007, the estimated components of net assets on a tax basis were as follows:
Shares of beneficial interest |
| $ | 920,372,439 |
|
Undistributed ordinary income |
| 19,337,920 |
| |
Undistributed long-term capital gain |
| 51,927,633 |
| |
Unrealized appreciation of investments and foreign currencies |
| 259,514,443 |
| |
Net assets |
| $ | 1,251,152,435 |
|
The differences between book basis and tax basis components of net assets are primarily attributable to tax deferral of losses on wash sales.
For financial reporting purposes, capital accounts are adjusted to reflect the tax character of permanent book/tax differences. Reclassifications are primarily due to tax treatment of gain (loss) on foreign currency transactions. Results of operations and net assets were not affected by these reclassifications. For the six months ended June 30, 2007, the Series recorded the following reclassifications:
Undistributed |
| Accumulated |
| ||
|
|
|
| ||
$ | 78 |
| $ | (78 | ) |
|
|
|
| ||
11
6. Capital Shares
Transactions in capital shares were as follows:
| Six Months |
| Year |
| |
Shares sold: |
|
|
|
|
|
Standard Class |
| 1,348,062 |
| 4,980,616 |
|
Service Class |
| 2,146,305 |
| 4,932,974 |
|
Shares issued upon reinvestment of dividends and distributions: |
|
|
|
|
|
Standard Class |
| 1,317,448 |
| 999,954 |
|
Service Class |
| 1,805,999 |
| 1,194,030 |
|
|
| 6,617,814 |
| 12,107,574 |
|
Shares repurchased: |
|
|
|
|
|
Standard Class |
| (2,633,503 | ) | (4,349,582 | ) |
Service Class |
| (1,570,976 | ) | (2,294,511 | ) |
|
| (4,204,479 | ) | (6,644,093 | ) |
Net increase |
| 2,413,335 |
| 5,463,481 |
|
7. Line of Credit
The Series, along with certain other funds in the Delaware Investments® Family of Funds (Participants), participates in a $225,000,000 revolving line of credit facility to be used for temporary or emergency purposes as an additional source of liquidity to fund redemptions of investor shares. The Participants are charged an annual commitment fee, which is allocated across the Participants on the basis of each Participant’s allocation of the entire facility. The Participants may borrow up to a maximum of one third of their net assets under the agreement. The Series had no amounts outstanding as of June 30, 2007 or at any time during the period then ended.
8. Securities Lending
The Series, along with other funds in the Delaware Investments® Family of Funds, may lend its securities pursuant to a security lending agreement (Lending Agreement) with JPMorgan Chase. Initial security loans made pursuant to the Lending Agreement are required to be secured by U.S. government obligations and/or cash collateral not less than 102% of the value of the securities issued in the United States and 105% of the value of securities issued outside the United States. With respect to each loan, if the aggregate value of the collateral held on any business day is less than the aggregate value of the securities which are the subject of such loan, the borrower will be notified to provide additional collateral not less than the applicable collateral requirements. Cash collateral received is invested in fixed income securities, with a weighted average maturity not to exceed 90 days, rated in one of the top two tiers by Standard & Poor’s Ratings Group or Moody’s Investors Service, Inc. or repurchase agreements collateralized by such securities. However, in the event of default or bankruptcy by the lending agent, realization and/or retention of the collateral may be subject to legal proceedings. In the event the borrower fails to return loaned securities and the collateral received is insufficient to cover the value of the loaned securities and provided such collateral shortfall is not the result of investment losses, the lending agent has agreed to pay the amount of the shortfall to the Series, or at the discretion of the lending agent, replace the loaned securities. The Series continues to record dividends on the securities loaned and is subject to change in value of the securities loaned that may occur during the term of the loan. The Series has the right under the Lending Agreement to recover the securities from the borrower on demand. The security lending agent and the borrower retain a portion of the earnings from the collateral investments. The Series records security lending income net of such allocation.
At June 30, 2007, the value of securities on loan was $254,386,867, for which cash collateral was received and invested in accordance with the Lending Agreement. Such investments are presented on the Statement of Net Assets under the caption “Securities Lending Collateral.”
9. Credit and Market Risk
The Series invests a significant portion of its assets in small companies and may be subject to certain risks associated with ownership of securities of such companies. Investments in small-sized companies may be more volatile than investments in larger companies for a number of reasons, which include limited financial resources or a dependence on narrow product lines.
The Series may invest up to 10% of its total assets in illiquid securities, which may include securities with contractual restrictions on resale, securities exempt from registration under Rule 144A of the Securities Act of 1933, as amended, and other securities which may not be readily marketable. The relative illiquidity of these securities may impair the Series from disposing of them in a timely manner and at a fair price when it is necessary or desirable to do so. While maintaining oversight, the Series’ Board of Trustees has delegated to DMC the day-to-day functions of determining whether individual securities are liquid for purposes of the Series’ limitation on investments in illiquid assets. As of June 30, 2007, there were no Rule 144A securities and no securities have been determined to be illiquid under the Series’ Liquidity Procedures.
12
10. Contractual Obligations
The Series enters into contracts in the normal course of business that contain a variety of indemnifications. The Series’ maximum exposure under these arrangements is unknown. However, the Series has not had prior claims or losses pursuant to these contracts. Management has reviewed the Series’ existing contracts and expects the risk of loss to be remote.
11. Subsequent Event
The Series has a new securities lending agreement with Mellon Bank, N.A. as of August 2, 2007.
The Series files its complete schedule of portfolio holdings with the Securities and Exchange Commission (the Commission) for the first and third quarters of each fiscal year on Form N-Q. The Series’ Forms N-Q, as well as a description of the policies and procedures that the Series uses to determine how to vote proxies (if any) relating to portfolio securities is available without charge (i) upon request, by calling 800 523-1918; and (ii) on the Commission’s website at http://www.sec.gov. In addition, a description of the policies and procedures that the Series uses to determine how to vote proxies (if any) relating to portfolio securities is available without charge on the Delaware Investments® Funds’ website at http://www.delawareinvestments.com. The Series’ Forms N-Q may be reviewed and copied at the Commission’s Public Reference Room in Washington, DC; information on the operation of the Public Reference Room may be obtained by calling 800 SEC-0330.
Information (if any) regarding how the Series voted proxies relating to portfolio securities during the most recently disclosed 12-month period ended June 30 is available without charge (i) through the Delaware Investments® Funds’ website at http://www.delawareinvestments.com; and (ii) on the Commission’s website at http://www.sec.gov.
13
Delaware VIP Trust — Delaware VIP Small Cap Value Series
Other Series Information
Board Consideration of Delaware VIP Small Cap Value Series Investment Advisory Agreement
At a meeting held on May 16-17, 2007 (Annual Meeting), the Board of Trustees (Board), including a majority of disinterested or independent Trustees, approved the renewal of the Investment Advisory Agreement for the VIP Small Cap Value Series (Series). In making its decision, the Board considered information furnished throughout the year at regular Board meetings, including reports detailing Series performance, investment strategies and expenses, as well as information prepared specifically in connection with the renewal of the investment advisory contracts. Information furnished specifically in connection with the renewal of the Investment Advisory Agreement with Delaware Management Company (DMC) included materials provided by DMC and its affiliates (Delaware Investments) concerning, among other things, the level of services provided to the Series, the costs of such services to the Series, economies of scale and the financial condition and profitability of Delaware Investments. In addition, in connection with the Meeting, the Board separately received and reviewed in mid-January 2007 independent historical and comparative reports prepared by Lipper Inc. (Lipper), an independent statistical compilation organization. The Lipper reports compared the Series’ investment performance and expenses with those of other comparable mutual funds. The Board requested and received certain information regarding management’s policy with respect to advisory fee levels and its philosophy with respect to breakpoints; the structure of portfolio manager compensation; the investment manager’s profitability; and any constraints or limitations on the availability of securities in certain investment styles which might inhibit DMC’s ability to fully invest in accordance with the Series’ policies.
In considering information relating to the approval of the Series’ advisory agreement, the independent Trustees received assistance and advice from and met separately with independent counsel. While attention was given to all information furnished, the following discusses under separate headings the primary factors taken into account by the Board in its contract renewal considerations.
NATURE, EXTENT AND QUALITY OF SERVICE. Consideration was given to the services provided by Delaware Investments to the Series and its shareholders. In reviewing the nature, extent and quality of services, the Board emphasized reports furnished to it throughout the year at regular Board meetings covering matters such as the relative performance of the Series, compliance of portfolio managers with the investment policies, strategies and restrictions for the Series, the compliance of management personnel with the Code of Ethics adopted throughout the Delaware Investments® Family of Funds complex and the adherence to fair value pricing procedures as established by the Board. The Board noted that it was pleased with the current staffing of the Series’ investment advisor and the emphasis placed on research in the investment process. Favorable consideration was given to DMC’s efforts to maintain, and in some instances increase, financial and human resources committed to fund matters. The Board also considered the transfer agent and shareholder services provided to Series shareholders by Delaware Investments’ affiliate, Delaware Service Company, Inc. (DSC), noting DSC’s commitment to maintain a high level of service and the continuing expenditures by Delaware Investments to improve the delivery of shareholder services. During 2006, management conducted extensive research into alternatives that could further improve the quality and cost of delivering investment accounting services to the Fund. The Board was satisfied with the nature, extent and quality of the overall services provided by Delaware Investments.
INVESTMENT PERFORMANCE. The Board considered the investment performance of DMC and the Series. The Board placed significant emphasis on the investment performance of the Series in view of its importance to shareholders. While consideration was given to performance reports and discussions with portfolio managers at Board meetings throughout the year, particular weight was given to the Lipper reports furnished for the Annual Meeting. The Lipper reports prepared for the Series showed the investment performance of its Standard Class shares in comparison to a group of similar funds as selected by Lipper (Performance Universe). A fund with the best performance ranked first, and a fund with the poorest ranked last. The highest/best performing 25% of funds in the Performance Universe make up the first quartile; the next 25% — the second quartile; the next 25% — the third quartile; and the poorest/worst performing 25% of funds in the Performance Universe make up the fourth quartile. Comparative annualized performance for the Series was shown for the past one, three and five year periods ended December 31, 2006. The Board also considered comparative annualized performance for the Series for the same periods ended October 31, 2006. The performance comparison presented below is based upon the December 31, 2006 information. The Board noted its objective that the Series’ performance for the periods considered be at or above the median of its Performance Universe. The following paragraph summarizes the performance results for the Series and the Board’s view of such performance.
The Performance Universe for the Series consisted of the Series and all small cap value funds underlying variable insurance products as selected by Lipper. The Lipper report comparison showed that the Series’ total return for the one year period was in the third quartile of its Performance Universe. The report further showed that the Series’ total return for the three and five year periods was in the second quartile and first quartile, respectively. The Board noted that the Series’ performance results were mixed but on an overall basis tended toward above median, which was acceptable. Additionally, the Board recognized management’s efforts to increase portfolio management depth, noting particularly the recent hire of a new head of the equity department.
COMPARATIVE EXPENSES. The Board considered expense comparison data for the Delaware Investments Family of Funds as of October 31, 2006. Management provided the Board with information on pricing levels and fee structures for the Series. The Board focused particularly on the comparative analysis of the effective management fees and total expense ratios of the Series and the effective management fees and expense ratios of a group of similar funds as selected by Lipper (Expense Group). In reviewing comparative costs, the Series’ contractual management fee and the actual management fee incurred by the Series were compared with the contractual management fees (assuming all funds in the Expense Group were similar in size to the Series) and actual management fees (as reported by each fund) of other funds within the Expense Group, taking into account any applicable breakpoints and fee waivers. The Series’ total expenses were also compared with those of its Expense Group. The Lipper total expenses, for comparative consistency, were shown by Lipper for Standard Class shares which do not charge 12b-1 and non-12b-1 service fees. The Board also considered fees paid to Delaware Investments for non-management services. The Board noted its objective to limit the Series’ total expense ratio to an acceptable range as compared to the median of the Expense Group. The following paragraph summarizes the expense results for the Series and the Board’s view of such expenses.
The expense comparisons for the Series showed that its actual management fee was in the quartile with the lowest expenses of its Expense Group and its total expenses were in the quartile with the second lowest expenses of its Expense Group. The Board was satisfied with the management fee and total expenses of the Series in comparison to its Expense Group as shown in the Lipper report.
14
MANAGEMENT PROFITABILITY. The Board considered the level of profits, if any, realized by Delaware Investments in connection with the operation of the Series. In this respect, the Board reviewed the Investment Management Profitability Analysis that addressed the overall profitability of Delaware Investments’ business in providing management and other services to each of the individual funds and the Delaware Investments® Family of Funds as a whole. Specific attention was given to the methodology followed in allocating costs for the purpose of determining profitability. Management stated that the level of profits of Delaware Investments, to a certain extent, reflected operational cost savings and efficiencies initiated by Delaware Investments. The Board considered Delaware Investments’ efforts to improve services provided to fund shareholders and to meet additional regulatory and compliance requirements resulting from recent Securities and Exchange Commission initiatives. The Board also considered the extent to which Delaware Investments might derive ancillary benefits from fund operations, including the potential for procuring additional business as a result of the prestige and visibility associated with its role as service provider to the Delaware Investments Family of Funds and the benefits from allocation of fund brokerage to improve trading efficiencies. The Board found that the level of management fees was reasonable in light of the services rendered and the profitability of Delaware Investments.
ECONOMIES OF SCALE. The Trustees considered whether economies of scale are realized by Delaware Investments as the Series’ assets increase and the extent to which any economies of scale are reflected in the level of management fees charged. The Trustees took into account the standardized advisory fee pricing and structure, approved by the Board and shareholders and again reviewed by the Board this year, which includes breakpoints. Breakpoints in the advisory fee occur when the advisory fee rate is reduced on assets in excess of specified levels. This results in a lower advisory fee than would otherwise be the case on all assets when those asset levels specified are exceeded. The Board noted that the fee under the Series’ management contract fell within the standard structure. The Board also noted that the Series’ assets exceeded the second breakpoint level. The Board believed that, given the extent to which economies of scale might be realized by the advisor and its affiliates, the schedule of fees under the Investment Advisory Agreement provides a sharing of benefits with the Series and its shareholders.
15
Delaware VIP Trust — Delaware VIP Trend Series
Disclosure of Series Expenses
For the Period January 1, 2007 to June 30, 2007
As a shareholder of the Series, you incur ongoing costs, including management fees; distribution and/or service (12b-1) fees; and other Series expenses. This Example is intended to help you understand your ongoing costs (in dollars) of investing in the Series and to compare these costs with the ongoing costs of investing in other mutual funds.
The Example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period from January 1, 2007 to June 30, 2007.
Actual Expenses
The first section of the table shown, “Actual Series Return,” provides information about actual account values and actual expenses. You may use the information in this section of the table, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first section under the heading entitled “Expenses Paid During Period” to estimate the expenses you paid on your account during the period.
Hypothetical Example for Comparison Purposes
The second section of the table shown, “Hypothetical 5% Return,” provides information about hypothetical account values and hypothetical expenses based on the Series’ actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Series’ actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Series and other funds. To do so, compare the 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs only. As a shareholder of the Series, you do not incur any transaction costs, such as sales charges (loads), redemption fees or exchange fees, but shareholders of other funds may incur such costs. Also, the fees related to the variable annuity investment or the deferred sales charge that could apply have not been included. Therefore, the second section of the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. The Series’ actual expenses shown in the table reflect fee waivers in effect for Service Class shares. The expenses shown in the table assume reinvestment of all dividends and distributions.
Expense Analysis of an Investment of $1,000
|
| Beginning |
| Ending |
| Annualized |
| Expenses |
| |||
Actual Series Return |
|
|
|
|
|
|
|
|
| |||
Standard Class |
| $ | 1,000.00 |
| $ | 1,105.70 |
| 0.87 | % | $ | 4.54 |
|
Service Class |
| 1,000.00 |
| 1,104.30 |
| 1.12 | % | 5.84 |
| |||
|
|
|
|
|
|
|
|
|
| |||
Hypothetical 5% Return (5% return before expenses) |
|
|
|
|
| |||||||
Standard Class |
| $ | 1,000.00 |
| $ | 1,020.48 |
| 0.87 | % | $ | 4.36 |
|
Service Class |
| 1,000.00 |
| 1,019.24 |
| 1.12 | % | 5.61 |
|
* “Expenses Paid During Period” are equal to the Series’ annualized expense ratio, multiplied by the average account value over the period, multiplied by 181/365 (to reflect the one-half year period).
1
Delaware VIP Trust — Delaware VIP Trend Series
Sector Allocation and Top 10 Holdings
As of June 30, 2007
Sector designations may be different than the sector designations presented in other Series materials.
|
| Percentage |
|
Sector |
| of Net Assets |
|
Common Stocku |
| 96.48 | % |
Basic Industry/Capital Goods |
| 10.68 | % |
Business Services |
| 4.55 | % |
Consumer Durables |
| 1.63 | % |
Consumer Non-Durables |
| 12.91 | % |
Consumer Services |
| 5.98 | % |
Energy |
| 4.53 | % |
Financials |
| 9.66 | % |
Health Care |
| 14.70 | % |
Technology |
| 29.79 | % |
Transportation |
| 2.05 | % |
Discount Note |
| 3.12 | % |
Securities Lending Collateral |
| 25.02 | % |
Fixed Rate Notes |
| 9.59 | % |
Variable Rate Notes |
| 15.43 | % |
Total Value of Securities |
| 124.62 | % |
Obligation to Return Securities Lending Collateral |
| (25.02 | )% |
Receivables and Other Assets Net of Liabilities |
| 0.40 | % |
Total Net Assets |
| 100.00 | % |
u Narrow industries are utilized for compliance purposes for diversification whereas broad sectors are used for financial reporting.
Holdings are for informational purposes only and are subject to change at any time. They are not a recommendation to buy, sell, or hold any security.
Top 10 Holdings |
| Percentage |
|
Coach |
| 3.07 | % |
United Therapeutics |
| 2.26 | % |
Dick’s Sporting Goods |
| 2.18 | % |
Polycom |
| 2.16 | % |
Geo Group |
| 2.02 | % |
Nuance Communications |
| 1.98 | % |
Microsemi |
| 1.83 | % |
Cenveo |
| 1.73 | % |
NutriSystem |
| 1.68 | % |
Foundry Networks |
| 1.65 | % |
2
Delaware VIP Trust — Delaware VIP Trend Series
Statement of Net Assets
June 30, 2007 (Unaudited)
|
| Number of |
| Value |
| ||
| COMMON STOCK–96.48%u |
|
|
|
|
| |
| Basic Industry/Capital Goods–10.68% |
|
|
|
|
| |
* | AMCOL International |
| 115,900 |
| $ | 3,165,229 |
|
| Bucyrus International Class A |
| 98,950 |
| 7,003,681 |
| |
| Carpenter Technology |
| 56,700 |
| 7,388,577 |
| |
*† | Hexcel |
| 262,000 |
| 5,520,340 |
| |
| Kaydon |
| 57,500 |
| 2,996,900 |
| |
† | Mettler-Toledo International |
| 77,600 |
| 7,411,576 |
| |
*† | Middleby |
| 115,300 |
| 6,897,246 |
| |
| MSC Industrial Direct Class A |
| 156,400 |
| 8,602,000 |
| |
| UAP Holding |
| 265,800 |
| 8,011,212 |
| |
|
|
|
|
| 56,996,761 |
| |
| Business Services–4.55% |
|
|
|
|
| |
*† | Advisory Board |
| 145,200 |
| 8,067,312 |
| |
*† | Geo Group |
| 370,500 |
| 10,781,550 |
| |
† | Monster Worldwide |
| 102,900 |
| 4,229,190 |
| |
*† | PRA International |
| 46,900 |
| 1,186,570 |
| |
|
|
|
|
| 24,264,622 |
| |
| Consumer Durables–1.63% |
|
|
|
|
| |
† | THQ |
| 284,400 |
| 8,679,888 |
| |
|
|
|
|
| 8,679,888 |
| |
| Consumer Non-Durables–12.91% |
|
|
|
|
| |
*† | Bare Escentuals |
| 76,400 |
| 2,609,060 |
| |
† | Coach |
| 346,100 |
| 16,401,679 |
| |
*† | Crocs |
| 204,700 |
| 8,808,241 |
| |
† | Dick’s Sporting Goods |
| 199,700 |
| 11,616,549 |
| |
*† | DSW Class A |
| 151,300 |
| 5,268,266 |
| |
*† | J Crew Group |
| 152,300 |
| 8,237,907 |
| |
*† | Under Armour Class A |
| 180,700 |
| 8,248,955 |
| |
*† | Zumiez |
| 203,100 |
| 7,673,118 |
| |
|
|
|
|
| 68,863,775 |
| |
| Consumer Services–5.98% |
|
|
|
|
| |
† | Cenveo |
| 397,100 |
| 9,208,749 |
| |
*† | NutriSystem |
| 128,300 |
| 8,960,472 |
| |
*† | Sonic |
| 166,764 |
| 3,688,820 |
| |
*† | Texas Roadhouse Class A |
| 419,600 |
| 5,366,684 |
| |
*† | Wynn Resorts |
| 52,100 |
| 4,672,849 |
| |
|
|
|
|
| 31,897,574 |
| |
| Energy–4.53% |
|
|
|
|
| |
* | Carbo Ceramics |
| 148,650 |
| 6,512,357 |
| |
† | Core Laboratories |
| 55,200 |
| 5,613,288 |
| |
*† | Helix Energy Solutions Group |
| 216,700 |
| 8,648,497 |
| |
† | North American Energy Partners |
| 167,400 |
| 3,391,524 |
| |
|
|
|
|
| 24,165,666 |
| |
| Financials–9.66% |
|
|
|
|
| |
| Delphi Financial Group Class A |
| 135,950 |
| 5,685,429 |
| |
| Hanover Insurance Group |
| 151,300 |
| 7,381,927 |
| |
† | Investment Technology Group |
| 154,600 |
| 6,698,818 |
| |
* | KKR Financial Holdings |
| 198,600 |
| 4,947,126 |
| |
† | Meruelo Maddux Properties |
| 306,900 |
| 2,504,304 |
| |
*† | Nasdaq Stock Market |
| 123,400 |
| 3,666,214 |
| |
† | Signature Bank |
| 66,700 |
| 2,274,470 |
| |
| Waddell & Reed Financial Class A |
| 334,700 |
| 8,705,547 |
| |
| Webster Financial |
| 100,300 |
| 4,279,801 |
| |
* | Whitney Holding |
| 178,600 |
| 5,375,860 |
| |
|
|
|
|
| 51,519,496 |
| |
| Health Care–14.70% |
|
|
|
|
| |
*† | ACADIA Pharmaceuticals |
| 181,200 |
| 2,477,004 |
| |
*† | Align Technology |
| 255,600 |
| 6,175,296 |
| |
*† | Cepheid |
| 271,500 |
| 3,963,900 |
| |
*† | Chattem |
| 17,800 |
| 1,128,164 |
| |
*† | CollaGenex Pharmaceuticals |
| 149,600 |
| 1,855,040 |
| |
*† | Conceptus |
| 247,500 |
| 4,794,075 |
| |
† | Digene |
| 37,100 |
| 2,227,855 |
| |
*† | Hologic |
| 31,900 |
| 1,764,389 |
| |
*† | LifeCell |
| 219,200 |
| 6,694,368 |
| |
*† | Martek Biosciences |
| 65,200 |
| 1,693,244 |
| |
*† | Medarex |
| 424,100 |
| 6,060,389 |
| |
*† | Nektar Therapeutics |
| 143,300 |
| 1,359,917 |
| |
*† | NuVasive |
| 152,600 |
| 4,121,726 |
| |
*† | PDL BioPharma |
| 143,400 |
| 3,341,220 |
| |
*† | Progenics Pharmaceuticals |
| 201,400 |
| 4,344,198 |
| |
*† | Regeneron Pharmaceuticals |
| 173,300 |
| 3,105,536 |
| |
*† | Sciele Pharma |
| 171,000 |
| 4,028,760 |
| |
† | Techne |
| 81,600 |
| 4,668,336 |
| |
† | United Therapeutics |
| 188,900 |
| 12,044,264 |
| |
*† | Wright Medical Group |
| 106,000 |
| 2,556,720 |
| |
|
|
|
|
| 78,404,401 |
| |
| Technology–29.79% |
|
|
|
|
| |
† | Akamai Technologies |
| 148,300 |
| 7,213,312 |
| |
*† | American Reprographics |
| 170,300 |
| 5,243,537 |
| |
*† | Equinix |
| 94,100 |
| 8,607,327 |
| |
† | F5 Networks |
| 99,800 |
| 8,043,880 |
| |
† | Foundry Networks |
| 529,000 |
| 8,813,140 |
| |
*† | Informatica |
| 494,000 |
| 7,296,380 |
| |
*† | Itron |
| 91,600 |
| 7,139,304 |
| |
*† | Macrovision |
| 292,200 |
| 8,783,532 |
| |
*† | Microsemi |
| 407,900 |
| 9,769,205 |
| |
*† | Nuance Communications |
| 630,600 |
| 10,549,938 |
| |
*† | Opsware |
| 750,500 |
| 7,137,255 |
| |
† | Polycom |
| 342,900 |
| 11,521,439 |
| |
*† | Powerwave Technologies |
| 1,237,600 |
| 8,291,920 |
| |
† | Riverbed Technology |
| 170,300 |
| 7,462,546 |
| |
† | salesforce.com |
| 191,700 |
| 8,216,262 |
| |
*† | Shutterfly |
| 371,300 |
| 8,001,515 |
| |
† | Silicon Laboratories |
| 201,600 |
| 6,977,376 |
| |
*† | SiRF Technology Holdings |
| 3,200 |
| 66,368 |
| |
† | Solera Holdings |
| 378,800 |
| 7,341,144 |
| |
† | Super Micro Computer |
| 80,000 |
| 800,800 |
| |
† | Trident Microsystems |
| 296,200 |
| 5,435,270 |
| |
† | Varian Semiconductor Equipment Associates |
| 154,550 |
| 6,191,273 |
| |
|
|
|
|
| 158,902,723 |
| |
| Transportation–2.05% |
|
|
|
|
| |
*† | American Commercial Lines |
| 186,700 |
| 4,863,535 |
| |
* | Hunt (J.B.) Transport Services |
| 208,300 |
| 6,107,356 |
| |
|
|
|
|
| 10,970,891 |
| |
| Total Common Stock |
|
|
| 514,665,797 |
| |
3
|
| Principal |
| Value |
| |||
^ | DISCOUNT NOTE–3.12% |
|
|
|
|
| ||
| Federal Home Loan Bank 4.802% 7/2/07 |
| $ | 16,661,000 |
| $ | 16,658,779 |
|
| Total Discount Note |
|
|
| 16,658,779 |
| ||
|
|
|
|
|
|
| ||
| Total Value of Securities Before Securities Lending Collateral–99.60% |
|
|
| 531,324,576 |
| ||
|
|
|
|
|
|
| ||
| SECURITIES LENDING COLLATERAL**–25.02% |
|
|
|
|
| ||
| Short-Term Investments–25.02% |
|
|
|
|
| ||
| Fixed Rate Notes–9.59% |
|
|
|
|
| ||
| Abbey National 5.31% 7/2/07 |
| 5,252,181 |
| 5,252,181 |
| ||
| American Express Centurion 5.32% 7/30/07 |
| 4,689,447 |
| 4,689,447 |
| ||
| BNP Paribas 5.37% 7/2/07 |
| 2,125,883 |
| 2,125,883 |
| ||
| Credit Agricole 5.31% 10/4/07 |
| 3,126,298 |
| 3,126,298 |
| ||
| Den Danske Bank 5.38% 7/2/07 |
| 5,252,181 |
| 5,252,181 |
| ||
| Fortis Bank 5.30% 7/23/07 |
| 2,813,668 |
| 2,813,668 |
| ||
| HBOS Treasury Services 5.42% 7/2/07 |
| 5,252,181 |
| 5,252,181 |
| ||
| ING Bank |
|
|
|
|
| ||
| 5.31% 7/3/07 |
| 1,875,779 |
| 1,875,779 |
| ||
| 5.33% 7/9/07 |
| 3,126,298 |
| 3,126,298 |
| ||
| M&T 5.34% 7/2/07 |
| 5,252,181 |
| 5,252,181 |
| ||
| Royal Bank of Canada 5.31% 7/23/07 |
| 4,689,447 |
| 4,689,447 |
| ||
| Societe Generale 5.33% 7/2/07 |
| 2,434,739 |
| 2,434,739 |
| ||
| Union Bank of Switzerland 5.33% 7/2/07 |
| 5,252,181 |
| 5,252,181 |
| ||
|
|
|
|
| 51,142,464 |
| ||
• | Variable Rate Notes–15.43% |
|
|
|
|
| ||
| ANZ National 5.32% 7/29/08 |
| 625,260 |
| 625,260 |
| ||
| Australia New Zealand 5.34% 7/29/08 |
| 3,126,298 |
| 3,126,298 |
| ||
| Bank of New York 5.32% 7/29/08 |
| 2,501,038 |
| 2,501,038 |
| ||
| Bayerische Landesbank 5.37% 7/29/08 |
| 3,126,298 |
| 3,126,298 |
| ||
| Bear Stearns 5.38% 12/28/07 |
| 4,376,817 |
| 4,376,817 |
| ||
| BNP Paribas 5.33% 7/29/08 |
| 3,126,298 |
| 3,126,298 |
| ||
| Calyon 5.33% 8/14/07 |
| 1,563,149 |
| 1,563,149 |
| ||
| Canadian Imperial Bank |
|
|
|
|
| ||
| 5.32% 7/29/08 |
| 2,188,409 |
| 2,188,409 |
| ||
| 5.33% 8/15/07 |
| 3,063,772 |
| 3,063,772 |
| ||
| CDC Financial Products 5.43% 7/27/07 |
| 4,064,188 |
| 4,064,188 |
| ||
| Citigroup Global Markets 5.45% 7/6/07 |
| 4,064,188 |
| 4,064,188 |
| ||
| Commonwealth Bank 5.32% 7/29/08 |
| 3,126,298 |
| 3,126,298 |
| ||
| Credit Suisse First Boston 5.32% 3/14/08 |
| 3,126,298 |
| 3,126,298 |
| ||
| Deutsche Bank |
|
|
|
|
| ||
| 5.34% 8/20/07 |
| 4,376,817 |
| 4,376,817 |
| ||
| 5.34% 9/21/07 |
| 468,945 |
| 468,945 |
| ||
| Dexia Bank 5.32% 9/28/07 |
| 4,376,808 |
| 4,376,601 |
| ||
| Goldman Sachs Group 5.52% 6/27/08 |
| 3,689,032 |
| 3,689,032 |
| ||
| Marshall & Ilsley Bank 5.32% 7/29/08 |
| 3,438,928 |
| 3,438,928 |
| ||
| Morgan Stanley 5.56% 7/29/08 |
| 4,064,188 |
| 4,064,188 |
| ||
| National Australia Bank 5.31% 7/29/08 |
| 3,876,610 |
| 3,876,610 |
| ||
| National Rural Utilities 5.33% 7/29/08 |
| 4,939,551 |
| 4,939,551 |
| ||
| Nordea Bank 5.33% 7/29/08 |
| 3,126,298 |
| 3,126,298 |
| ||
| Royal Bank of Scotland Group 5.33% 7/29/08 |
| 3,126,298 |
| 3,126,298 |
| ||
| Societe Generale 5.31% 7/29/08 |
| 1,563,149 |
| 1,563,149 |
| ||
| Sun Trust Bank 5.33% 7/30/07 |
| 4,064,187 |
| 4,064,187 |
| ||
| Wells Fargo 5.33% 7/29/08 |
| 3,126,298 |
| 3,126,298 |
| ||
|
|
|
|
| 82,315,213 |
| ||
Total Securities Lending Collateral |
|
|
| 133,457,677 |
| |||
|
|
|
|
|
| |||
TOTAL VALUE OF SECURITIES–124.62% (cost $521,445,745) |
| 664,782,253 | v | |||||
OBLIGATION TO RETURN SECURITIES LENDING COLLATERAL**–(25.02%) |
| (133,457,677 | ) | |||||
RECEIVABLES AND OTHER ASSETS NET OF LIABILITIES–0.40% |
| 2,118,115 |
| |||||
NET ASSETS APPLICABLE TO 13,930,649 SHARES OUTSTANDING–100.00% |
| $ | 533,442,691 |
| ||||
NET ASSET VALUE-DELAWARE VIP TREND SERIES STANDARD CLASS ($400,486,731 / 10,419,707 Shares) |
| $ | 38.44 |
| ||||
NET ASSET VALUE-DELAWARE VIP TREND SERIES SERVICE CLASS ($132,955,960 / 3,510,942 Shares) |
| $ | 37.87 |
| ||||
COMPONENTS OF NET ASSETS AT JUNE 30, 2007: |
|
|
| |||||
Shares of beneficial interest (unlimited authorization–no par) |
| $ | 360,282,298 |
| ||||
Accumulated net realized gain on investments |
| 29,823,885 |
| |||||
Net unrealized appreciation of investments |
| 143,336,508 |
| |||||
Total net assets |
| $ | 533,442,691 |
| ||||
† |
| Non-income producing securities for the period ended June 30, 2007. |
^ |
| Zero coupon security. The rate shown is the yield at the time of purchase. |
· |
| Variable rate security. The rate shown is the rate as of June 30, 2007. |
* |
| Fully or partially on loan. |
** |
| See Note 8 in “Notes to Financial Statements.” |
v |
| Includes $130,268,101 of securities loaned. |
u |
| Narrow industries are utilized for compliance purposes for diversification whereas broad sectors are used for financial reporting. |
See accompanying notes
4
Delaware VIP Trust —
Delaware VIP Trend Series
Statement of Operations
Six Months Ended June 30, 2007 (Unaudited)
INVESTMENT INCOME: |
|
|
| |
Dividends |
| $ | 699,375 |
|
Interest |
| 283,434 |
| |
Securities lending income |
| 313,013 |
| |
|
| 1,295,822 |
| |
EXPENSES: |
|
|
| |
Management fees |
| 1,970,032 |
| |
Distribution expenses – Service Class |
| 194,396 |
| |
Reports and statements to shareholders |
| 118,004 |
| |
Accounting and administration expenses |
| 105,489 |
| |
Legal fees |
| 33,031 |
| |
Dividend disbursing and transfer agent fees and expenses |
| 26,372 |
| |
Audit and tax |
| 16,237 |
| |
Trustees’ fees and benefits |
| 13,279 |
| |
Custodian fees |
| 8,402 |
| |
Insurance fees |
| 6,863 |
| |
Consulting fees |
| 4,805 |
| |
Taxes (other than taxes on income) |
| 3,353 |
| |
Dues and services |
| 1,160 |
| |
Trustees’ expenses |
| 825 |
| |
Pricing fees |
| 384 |
| |
Registration fees |
| 18 |
| |
|
| 2,502,650 |
| |
Less waiver of distribution expenses – Service Class |
| (32,399 | ) | |
Less expense paid indirectly |
| (1,000 | ) | |
Total operating expenses |
| 2,469,251 |
| |
|
|
|
| |
NET INVESTMENT LOSS |
| (1,173,429 | ) | |
|
|
|
| |
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS: |
|
|
| |
Net realized gain on investments |
| 32,745,751 |
| |
Net change in unrealized appreciation/depreciation of investments |
| 21,458,303 |
| |
|
|
|
| |
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS |
| 54,204,054 |
| |
|
|
|
| |
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS |
| $ | 53,030,625 |
|
Delaware VIP Trust —
Delaware VIP Trend Series
Statements of Changes in Net Assets
|
| Six Months |
|
|
| ||
|
| Ended |
| Year Ended |
| ||
|
| 6/30/07 |
| 12/31/06 |
| ||
|
| (Unaudited) |
|
|
| ||
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS: |
|
|
|
|
| ||
Net investment loss |
| $ | (1,173,429 | ) | $ | (1,793,595 | ) |
Net realized gain on investments |
| 32,745,751 |
| 80,485,296 |
| ||
Net change in unrealized appreciation/depreciation of investments |
| 21,458,303 |
| (39,974,574 | ) | ||
Net increase in net assets resulting from operations |
| 53,030,625 |
| 38,717,127 |
| ||
|
|
|
|
|
| ||
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM: |
|
|
|
|
| ||
Net realized gain on investments: |
|
|
|
|
| ||
Standard Class |
| (2,703,675 | ) | — |
| ||
Service Class |
| (895,295 | ) | — |
| ||
|
| (3,598,970 | ) | — |
| ||
CAPITAL SHARE TRANSACTIONS: |
|
|
|
|
| ||
Proceeds from shares sold: |
|
|
|
|
| ||
Standard Class |
| 4,689,042 |
| 52,564,087 |
| ||
Service Class |
| 8,723,574 |
| 30,100,215 |
| ||
Net realized gain on investments: |
|
|
|
|
| ||
Standard Class |
| 2,703,675 |
| — |
| ||
Service Class |
| 895,295 |
| — |
| ||
|
| 17,011,586 |
| 82,664,302 |
| ||
Cost of shares repurchased: |
|
|
|
|
| ||
Standard Class |
| (54,448,279 | ) | (123,021,971 | ) | ||
Service Class |
| (17,628,220 | ) | (29,169,880 | ) | ||
|
| (72,076,499 | ) | (152,191,851 | ) | ||
Decrease in net assets derived from capital share transactions |
| (55,064,913 | ) | (69,527,549 | ) | ||
|
|
|
|
|
| ||
NET DECREASE IN NET ASSETS |
| (5,633,258 | ) | (30,810,422 | ) | ||
|
|
|
|
|
| ||
NET ASSETS: |
|
|
|
|
| ||
Beginning of period |
| 539,075,949 |
| 569,886,371 |
| ||
End of period (there was no undistributed net investment income at either period end) |
| $ | 533,442,691 |
| $ | 539,075,949 |
|
See accompanying notes
5
Delaware VIP Trust — Delaware VIP Trend Series
Financial Highlights
Selected data for each share of the Series outstanding throughout each period were as follows:
|
| Delaware VIP Trend Series Standard Class |
| ||||||||||||||||
|
| Six Months |
| Year Ended |
| ||||||||||||||
|
| 6/30/07(1) |
| 12/31/06 |
| 12/31/05 |
| 12/31/04 |
| 12/31/03 |
| 12/31/02 |
| ||||||
|
| (Unaudited) |
|
|
|
|
|
|
|
|
|
|
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Net asset value, beginning of period |
| $ | 35.000 |
| $ | 32.530 |
| $ | 30.730 |
| $ | 27.290 |
| $ | 20.200 |
| $ | 25.230 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Income (loss) from investment operations: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Net investment loss(2) |
| (0.069 | ) | (0.088 | ) | (0.108 | ) | (0.108 | ) | (0.082 | ) | (0.085 | ) | ||||||
Net realized and unrealized gain (loss) on investments and foreign currencies |
| 3.755 |
| 2.558 |
| 1.908 |
| 3.548 |
| 7.172 |
| (4.945 | ) | ||||||
Total from investment operations |
| 3.686 |
| 2.470 |
| 1.800 |
| 3.440 |
| 7.090 |
| (5.030 | ) | ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Less dividends and distributions from: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Net realized gain on investments |
| (0.246 | ) | — |
| — |
| — |
| — |
| — |
| ||||||
Total dividends and distributions |
| (0.246 | ) | — |
| — |
| — |
| — |
| — |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Net asset value, end of period |
| $ | 38.440 |
| $ | 35.000 |
| $ | 32.530 |
| $ | 30.730 |
| $ | 27.290 |
| $ | 20.200 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Total return(3) |
| 10.57 | % | 7.59 | % | 5.86 | % | 12.60 | % | 35.10 | % | (19.94 | )% | ||||||
Ratios and supplemental data: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Net assets, end of period (000 omitted) |
| $ | 400,487 |
| $ | 410,167 |
| $ | 450,525 |
| $ | 521,392 |
| $ | 515,829 |
| $ | 415,098 |
|
Ratio of expenses to average net assets |
| 0.87 | % | 0.87 | % | 0.87 | % | 0.84 | % | 0.84 | % | 0.84 | % | ||||||
Ratio of net investment loss to average net assets |
| (0.38 | )% | (0.26 | )% | (0.36 | )% | (0.38 | )% | (0.36 | )% | (0.38 | )% | ||||||
Portfolio turnover |
| 69 | % | 64 | % | 63 | % | 48 | % | 50 | % | 43 | % |
(1) | Ratios and portfolio turnover have been annualized and total return has not been annualized. |
(2) | The average shares outstanding method has been applied for per share information. |
(3) | Total investment return is based on the change in net asset value of a share during the period and assumes reinvestment of dividends and distributions at net asset value. |
See accompanying notes
6
Selected data for each share of the Series outstanding throughout each period were as follows:
|
| Delaware VIP Trend Series Service Class |
| ||||||||||||||||
|
| Six Months |
|
|
| ||||||||||||||
|
| Ended |
| Year Ended |
| ||||||||||||||
|
| 6/30/07(1) |
| 12/31/06 |
| 12/31/05 |
| 12/31/04 |
| 12/31/03 |
| 12/31/02 |
| ||||||
|
| (Unaudited) |
|
|
|
|
|
|
|
|
|
|
| ||||||
Net asset value, beginning of period |
| $ | 34.530 |
| $ | 32.170 |
| $ | 30.460 |
| $ | 27.120 |
| $ | 20.120 |
| $ | 25.170 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Income (loss) from investment operations: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Net investment loss(2) |
| (0.114 | ) | (0.171 | ) | (0.182 | ) | (0.178 | ) | (0.135 | ) | (0.117 | ) | ||||||
Net realized and unrealized gain (loss) on investments and foreign currencies |
| 3.700 |
| 2.531 |
| 1.892 |
| 3.518 |
| 7.135 |
| (4.933 | ) | ||||||
Total from investment operations |
| 3.586 |
| 2.360 |
| 1.710 |
| 3.340 |
| 7.000 |
| (5.050 | ) | ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Less dividends and distributions from: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Net realized gain on investments |
| (0.246 | ) | — |
| — |
| — |
| — |
| — |
| ||||||
Total dividends and distributions |
| (0.246 | ) | — |
| — |
| — |
| — |
| — |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Net asset value, end of period |
| $ | 37.870 |
| $ | 34.530 |
| $ | 32.170 |
| $ | 30.460 |
| $ | 27.120 |
| $ | 20.120 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Total return(3) |
| 10.43 | % | 7.34 | % | 5.61 | % | 12.32 | % | 34.79 | % | (20.06 | )% | ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Ratios and supplemental data: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Net assets, end of period (000 omitted) |
| $ | 132,956 |
| $ | 128,909 |
| $ | 119,361 |
| $ | 109,832 |
| $ | 55,662 |
| $ | 22,136 |
|
Ratio of expenses to average net assets |
| 1.12 | % | 1.12 | % | 1.12 | % | 1.09 | % | 1.06 | % | 0.99 | % | ||||||
Ratio of expenses to average net assets prior to expense limitation and expenses paid indirectly |
| 1.17 | % | 1.17 | % | 1.17 | % | 1.14 | % | 1.09 | % | 0.99 | % | ||||||
Ratio of net investment loss to average net assets |
| (0.63 | )% | (0.51 | )% | (0.61 | )% | (0.63 | )% | (0.58 | )% | (0.53 | )% | ||||||
Ratio of net investment loss to average net assets prior to expense limitation and expenses paid indirectly |
| (0.68 | )% | (0.56 | )% | (0.66 | )% | (0.68 | )% | (0.61 | )% | (0.53 | )% | ||||||
Portfolio turnover |
| 69 | % | 64 | % | 63 | % | 48 | % | 50 | % | 43 | % |
(1) Ratios and portfolio turnover have been annualized and total return has not been annualized.
(2) The average shares outstanding method has been applied for per share information.
(3) Total investment return is based on the change in net asset value of a share during the period and assumes reinvestment of dividends and distributions at net asset value. Total investment return reflects waivers and payment of fees by the distributor, as applicable. Performance would have been lower had the expense limitation not been in effect.
See accompanying notes
7
Delaware VIP Trust — Delaware VIP Trend Series
Notes to Financial Statements
June 30, 2007 (Unaudited)
Delaware VIP Trust (Trust) is organized as a Delaware statutory trust and offers 14 series: Delaware VIP Balanced Series, Delaware VIP Capital Reserves Series, Delaware VIP Cash Reserve Series, Delaware VIP Diversified Income Series, Delaware VIP Emerging Markets Series, Delaware VIP Growth Opportunities Series, Delaware VIP High Yield Series, Delaware VIP International Value Equity Series, Delaware VIP REIT Series, Delaware VIP Select Growth Series, Delaware VIP Small Cap Value Series, Delaware VIP Trend Series, Delaware VIP U.S. Growth Series and Delaware VIP Value Series. These financial statements and the related notes pertain to Delaware VIP Trend Series (Series). The Trust is an open-end investment company. The Series is considered diversified under the Investment Company Act of 1940, as amended, and offers Standard Class and Service Class shares. The Standard Class shares do not carry a 12b-1 fee and the Service Class shares carry a 12b-1 fee. The shares of the Series are sold only to separate accounts of life insurance companies.
The investment objective of the Series is to seek long-term capital appreciation.
1. Significant Accounting Policies
The following accounting policies are in accordance with U.S. generally accepted accounting principles and are consistently followed by the Series.
Security Valuation—Equity securities, except those traded on the Nasdaq Stock Market, Inc. (Nasdaq), are valued at the last quoted sales price as of the time of the regular close of the New York Stock Exchange (NYSE) on the valuation date. Securities traded on the Nasdaq are valued in accordance with the Nasdaq Official Closing Price, which may not be the last sales price. If on a particular day an equity security does not trade, then the mean between the bid and asked prices will be used. Short-term debt securities having less than 60 days to maturity are valued at amortized cost, which approximates market value. Securities lending collateral is valued at amortized cost, which approximates value. Other securities and assets for which market quotations are not readily available are valued at fair value as determined in good faith under the direction of the Series’ Board of Trustees. In determining whether market quotations are readily available or fair valuation will be used, various factors will be taken into consideration, such as market closures, or with respect to foreign securities, aftermarket trading, or significant events after local market trading (e.g., government actions or pronouncements, trading volume or volatility on markets, exchanges among dealers, or news events).
In September 2006, the Financial Accounting Standards Board (FASB) issued FASB Statement No. 157 “Fair Value Measurements” (Statement 157). Statement 157 establishes a framework for measuring fair value in generally accepted accounting principles, clarifies the definition of fair value within that framework, and expands disclosures about the use of fair value measurements. Statement 157 is intended to increase consistency and comparability among fair value estimates used in financial reporting. Statement 157 is effective for fiscal years beginning after November 15, 2007. Management does not expect the adoption of Statement 157 to have an impact on the amounts reported in the financial statements.
Federal Income Taxes—The Series intends to continue to qualify for federal income tax purposes as a regulated investment company and make the requisite distributions to shareholders. Accordingly, no provision for federal income taxes has been made in the financial statements.
Effective June 29, 2007, the Series adopted FASB Interpretation No. 48 “Accounting for Uncertainty in Income Taxes” (FIN 48). FIN 48 provides guidance for how uncertain tax positions should be recognized, measured, presented and disclosed in the financial statements. FIN 48 requires the evaluation of tax positions taken or expected to be taken in the course of preparing the Series’ tax returns to determine whether the tax positions are “more-likely-than-not” of being sustained by the applicable tax authority. Tax positions not deemed to meet the more-likely-than-not threshold are recorded as a tax benefit or expense in the current year. The adoption of FIN 48 did not result in the recording of any tax benefit or expense in the current period.
Class Accounting—Investment income, common expenses and realized and unrealized gain (loss) on investments are allocated to the classes of the Series on the basis of daily net assets of each class. Distribution expenses relating to a specific class are charged directly to that class.
Repurchase Agreements—The Series may invest in a pooled cash account along with members of the Delaware Investments® Family of Funds pursuant to an exemptive order issued by the Securities and Exchange Commission. The aggregate daily balance of the pooled cash account is invested in repurchase agreements secured by obligations of the U.S. government. The respective collateral is held by the Series’ custodian bank until the maturity of the respective repurchase agreements. Each repurchase agreement is at least 102% collateralized. However, in the event of default or bankruptcy by the counterparty to the agreement, realization of the collateral may be subject to legal proceedings.
Use of Estimates—The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
8
Other—Expenses directly attributable to the Series are charged directly to the Series. Other expenses common to various funds within the Delaware Investments® Family of Funds are generally allocated amongst such funds on the basis of average net assets. Management fees and some other expenses are paid monthly. Security transactions are recorded on the date the securities are purchased or sold (trade date) for financial reporting purposes. Costs used in calculating realized gains and losses on the sale of investment securities are those of the specific securities sold. Dividend income is recorded on the ex-dividend date and interest income is recorded on the accrual basis.
The Series declares and pays dividends from net investment income and distributions from net realized gain on investments, if any, following the close of the fiscal year.
Subject to seeking best execution, the Series may direct certain security trades to brokers who have agreed to rebate a portion of the related brokerage commission to the Series in cash. Such commission rebates are included in realized gain on investments in the accompanying financial statements and totaled $10,117 for the six months ended June 30, 2007. In general, best execution refers to many factors, including the price paid or received for a security, the commission charged, the promptness and reliability of execution, the confidentiality and placement accorded the order, and other factors affecting the overall benefit obtained by the Series on the transaction.
The Series receives earnings credits from its custodian when positive cash balances are maintained, which are used to offset custody fees. The expense paid under this arrangement is included in custodian fees on the Statement of Operations with the corresponding expense offset shown as “expense paid indirectly.”
2. Investment Management, Administration Agreements and Other Transactions with Affiliates
In accordance with the terms of its investment management agreement, the Series pays Delaware Management Company (DMC), a series of Delaware Management Business Trust and the investment manager, an annual fee which is calculated daily at the rate of 0.75% on the first $500 million of average daily net assets of the Series, 0.70% on the next $500 million, 0.65% on the next $1.5 billion, and 0.60% on average daily net assets in excess of $2.5 billion.
Prior to May 1, 2007, DMC had contractually agreed to waive that portion, if any, of its management fee and reimburse the Series to the extent necessary to ensure that annual operating expenses, exclusive of taxes, interest, brokerage commissions, inverse floater program expenses, 12b-1 plan expenses, certain insurance costs and non-routine expenses or costs including, but not limited to, those relating to reorganizations, litigation, certain Trustee retirement plan expenses, conducting shareholder meetings, and liquidations, do not exceed 0.92% of average daily net assets of the Series through April 30, 2007. No reimbursement was due for the six months ended June 30, 2007.
Delaware Service Company, Inc. (DSC), an affiliate of DMC, provides accounting, administration, dividend disbursing and transfer agent services. The Series pays DSC a monthly fee computed at the annual rate of 0.04% of the Series’ average daily net assets for accounting and administrative services. The Series pays DSC a monthly fee based on average net assets for dividend disbursing and transfer agent services.
Pursuant to a distribution agreement and distribution plan, the Series pays Delaware Distributors, L.P. (DDLP), the distributor and an affiliate of DMC, an annual distribution and service fee not to exceed 0.30% of the average daily net assets of the Service Class shares. DDLP has contracted to waive distribution and service fees through April 30, 2008 in order to prevent distribution and service fees of the Service Class shares from exceeding 0.25% of average daily net assets. Standard Class shares pay no distribution and service expenses.
At June 30, 2007, the Series had liabilities payable to affiliates as follows:
Investment |
| Dividend Disbursing, |
| Distribution |
| Other |
| ||||
$ | 329,230 |
| $ | 22,421 |
| $ | 27,439 |
| $ | 21,852 |
|
* | DMC, as part of its administrative services, pays operating expenses on behalf of the Series and is reimbursed on a periodic basis. Such expenses include items such as printing of shareholder reports, fees for audit, legal and tax services, custodian fees and trustees’ fees. |
As provided in the investment management agreement, the Series bears the cost of certain legal and tax services, including internal legal and tax services provided to the Series by DMC and/or its affiliates’ employees. For the six months ended June 30, 2007, the Series was charged $11,907 for internal legal and tax services provided by DMC and/or its affiliates’ employees.
Trustees’ fees and benefits include expenses accrued by the Series for each Trustee’s retainer, per meeting fees and retirement benefits. Independent Trustees with over five years of uninterrupted service were eligible to participate in a retirement plan that provides for the payment of benefits upon retirement. The amount of the retirement benefit was determined based on factors set forth in the plan, including the number of years of service. On November 16, 2006, the Board of Trustees unanimously voted to terminate the retirement plan. Payments equal to the net present value of the earned benefits were made in 2007 to those independent Trustees so entitled. The retirement benefit payout for the Series is $66,232. Certain officers of DMC, DSC and DDLP are officers and/or Trustees of the Trust. These officers and Trustees are paid no compensation by the Series.
9
3. Investments
For the six months ended June 30, 2007, the Series made purchases and sales of investment securities other than short-term investments as follows:
Purchases |
| $ 177,296,898 |
|
Sales |
| 247,323,195 |
|
At June 30, 2007, the cost of investments for federal income tax purposes has been estimated since the final tax characteristics cannot be determined until fiscal year end. At June 30, 2007, the cost of investments and unrealized appreciation (depreciation) for the Series were as follows:
Cost of |
| Aggregate |
| Aggregate |
| Net Unrealized |
| ||||
$ | 522,706,725 |
| $ | 152,215,758 |
| $ | (10,140,230 | ) | $ | 142,075,528 |
|
4. Dividend and Distribution Information
Income and long-term capital gain distributions are determined in accordance with federal income tax regulations, which may differ from U.S. generally accepted accounting principles. Additionally, net short-term gains on sales of investment securities are treated as ordinary income for federal income tax purposes. There were no dividends and distributions paid for the year ended December 31, 2006. The tax character of dividends and distributions paid during the six months ended June 30, 2007 was as follows:
| Six Months |
| ||
Long-term capital gain |
| $ | 3,598,970 |
|
* Tax information for the six months ended June 30, 2007 is an estimate and the tax character of dividends and distributions may be redesignated at fiscal year end.
5. Components of Net Assets on a Tax Basis
The components of net assets are estimated since final tax characteristics cannot be determined until fiscal year end. As of June 30, 2007, the estimated components of net assets on a tax basis were as follows:
Shares of beneficial interest |
| $ | 360,282,298 |
|
Undistributed long-term capital gains |
| 31,084,865 |
| |
Unrealized appreciation of investments |
| 142,075,528 |
| |
Net assets |
| $ | 533,442,691 |
|
The differences between book basis and tax basis components of net assets are primarily attributable to tax deferral of losses on wash sales.
For financial reporting purposes, capital accounts are adjusted to reflect the tax character of permanent book/tax differences. Reclassifications are primarily due to tax treatment of net operating losses. Results of operations and net assets were not affected by these reclassifications. For the six months ended June 30, 2007, the Series recorded an estimate of these differences since the final tax characteristics cannot be determined until fiscal year end:
Accumulated |
| Paid-in |
| ||
$ | 1,173,429 |
| $ | (1,173,429 | ) |
10
6. Capital Shares
Transactions in capital shares were as follows:
| Six Months |
| Year |
| |
Shares sold: |
|
|
|
|
|
Standard Class |
| 127,778 |
| 1,664,925 |
|
Service Class |
| 242,949 |
| 899,447 |
|
|
|
|
|
|
|
Shares issued upon reinvestment of dividends and distributions: |
|
|
|
|
|
Standard Class |
| 74,811 |
| — |
|
Service Class |
| 25,128 |
| — |
|
|
| 470,666 |
| 2,564,372 |
|
Shares repurchased: |
|
|
|
|
|
Standard Class |
| (1,500,448 | ) | (3,796,588 | ) |
Service Class |
| (489,893 | ) | (876,515 | ) |
|
| (1,990,341 | ) | (4,673,103 | ) |
Net decrease |
| (1,519,675 | ) | (2,108,731 | ) |
7. Line of Credit
The Series, along with certain other funds in the Delaware Investments® Family of Funds (Participants), participates in a $225,000,000 revolving line of credit facility to be used for temporary or emergency purposes as an additional source of liquidity to fund redemptions of investor shares. The Participants are charged an annual commitment fee, which is allocated across the Participants on the basis of each Participant’s allocation of the entire facility. The Participants may borrow up to a maximum of one third of their net assets under the agreement. The Series had no amounts outstanding as of June 30, 2007, or at any time during the period then ended.
8. Securities Lending
The Series, along with other funds in the Delaware Investments® Family of Funds, may lend its securities pursuant to a security lending agreement (Lending Agreement) with JPMorgan Chase. Initial security loans made pursuant to the Lending Agreement are required to be secured by U.S. government obligations and/or cash collateral not less than 102% of the value of the securities issued in the United States and 105% of the value of securities issued outside the United States. With respect to each loan, if the aggregate value of the collateral held on any business day is less than the aggregate value of the securities which are the subject of such loan, the borrower will be notified to provide additional collateral not less than the applicable collateral requirements. Cash collateral received is invested in fixed income securities, with a weighted average maturity not to exceed 90 days, rated in one of the top two tiers by Standard & Poor’s Ratings Group or Moody’s Investors Service, Inc. or repurchase agreements collateralized by such securities. However, in the event of default or bankruptcy by the lending agent, realization and/or retention of the collateral may be subject to legal proceedings. In the event the borrower fails to return loaned securities and the collateral received is insufficient to cover the value of the loaned securities and provided such collateral shortfall is not the result of investment losses, the lending agent has agreed to pay the amount of the shortfall to the Series, or at the discretion of the lending agent, replace the loaned securities. The Series continues to record dividends on the securities loaned and is subject to change in value of the securities loaned that may occur during the term of the loan. The Series has the right under the Lending Agreement to recover the securities from the borrower on demand. The security lending agent and the borrower retain a portion of the earnings from the collateral investments. The Series records security lending income net of such allocation.
At June 30, 2007, the value of securities on loan was $130,268,101, for which cash collateral was received and invested in accordance with the Lending Agreement. Such investments are presented on the Statement of Net Assets under the caption “Securities Lending Collateral.”
9. Credit and Market Risk
The Series invests a significant portion of its assets in small companies and may be subject to certain risks associated with ownership of securities of such companies. Investments in small-sized companies may be more volatile than investments in larger companies for a number of reasons, which include limited financial resources or a dependence on narrow product lines.
The Series may invest up to 10% of its total assets in illiquid securities, which may include securities with contractual restrictions on resale, securities exempt from registration under Rule 144A of the Securities Act of 1933, as amended, and other securities which may not be readily marketable. The relative illiquidity of these securities may impair the Series from disposing of them in a timely manner and at a fair price when it is necessary or desirable to do so. While maintaining oversight, the Series’ Board of Trustees has delegated to DMC the day-to-day functions of determining whether individual securities are liquid for purposes of the Series’ limitation on investments in illiquid assets. As of June 30, 2007, there were no Rule 144A securities and no securities have been determined to be illiquid under the Series’ Liquidity Procedures.
11
10. Contractual Obligations
The Series enters into contracts in the normal course of business that contain a variety of indemnifications. The Series’ maximum exposure under these arrangements is unknown. However, the Series has not had prior claims or losses pursuant to these contracts. Management has reviewed the Series’ existing contracts and expects the risk of loss to be remote.
11. Subsequent Event
The Series has a new securities lending agreement with Mellon Bank, N.A. as of August 2, 2007.
The Series files its complete schedule of portfolio holdings with the Securities and Exchange Commission (the Commission) for the first and third quarters of each fiscal year on Form N-Q. The Series’ Forms N-Q, as well as a description of the policies and procedures that the Series uses to determine how to vote proxies (if any) relating to portfolio securities is available without charge (i) upon request, by calling 800 523-1918; and (ii) on the Commission’s website at http://www.sec.gov. In addition, a description of the policies and procedures that the Series uses to determine how to vote proxies (if any) relating to portfolio securities is available without charge on the Delaware Investments® Funds’ website at http://www.delawareinvestments.com. The Series’ Forms N-Q may be reviewed and copied at the Commission’s Public Reference Room in Washington, DC; information on the operation of the Public Reference Room may be obtained by calling 800 SEC-0330.
Information (if any) regarding how the Series voted proxies relating to portfolio securities during the most recently disclosed 12-month period ended June 30 is available without charge (i) through the Delaware Investments® Funds’ website at http://www.delawareinvestments.com; and (ii) on the Commission’s website at http://www.sec.gov.
12
Delaware VIP Trust — Delaware VIP Trend Series
Other Series Information
Board Consideration of Delaware VIP Trend Series Investment Advisory Agreement
At a meeting held on May 16-17, 2007 (Annual Meeting), the Board of Trustees (Board), including a majority of disinterested or independent Trustees, approved the renewal of the Investment Advisory Agreement for the VIP Trend Series (Series). In making its decision, the Board considered information furnished throughout the year at regular Board meetings, including reports detailing Series performance, investment strategies and expenses, as well as information prepared specifically in connection with the renewal of the investment advisory contracts. Information furnished specifically in connection with the renewal of the Investment Advisory Agreement with Delaware Management Company (DMC) included materials provided by DMC and its affiliates (Delaware Investments) concerning, among other things, the level of services provided to the Series, the costs of such services to the Series, economies of scale and the financial condition and profitability of Delaware Investments. In addition, in connection with the Meeting, the Board separately received and reviewed in mid-January 2007 independent historical and comparative reports prepared by Lipper Inc. (Lipper), an independent statistical compilation organization. The Lipper reports compared the Series’ investment performance and expenses with those of other comparable mutual funds. The Board requested and received certain information regarding management’s policy with respect to advisory fee levels and its philosophy with respect to breakpoints; the structure of portfolio manager compensation; the investment manager’s profitability; and any constraints or limitations on the availability of securities in certain investment styles which might inhibit DMC’s ability to fully invest in accordance with the Series’ policies.
In considering information relating to the approval of the Series’ advisory agreement, the independent Trustees received assistance and advice from and met separately with independent counsel. While attention was given to all information furnished, the following discusses under separate headings the primary factors taken into account by the Board in its contract renewal considerations.
NATURE, EXTENT AND QUALITY OF SERVICE. Consideration was given to the services provided by Delaware Investments to the Series and its shareholders. In reviewing the nature, extent and quality of services, the Board emphasized reports furnished to it throughout the year at regular Board meetings covering matters such as the relative performance of the Series, compliance of portfolio managers with the investment policies, strategies and restrictions for the Series, the compliance of management personnel with the Code of Ethics adopted throughout the Delaware Investments® Family of Funds complex and the adherence to fair value pricing procedures as established by the Board. The Board noted that it was pleased with the current staffing of the Series’ investment advisor and the emphasis placed on research in the investment process. Favorable consideration was given to DMC’s efforts to maintain, and in some instances increase, financial and human resources committed to fund matters. The Board also considered the transfer agent and shareholder services provided to Series shareholders by Delaware Investments’ affiliate, Delaware Service Company, Inc. (DSC), noting DSC’s commitment to maintain a high level of service and the continuing expenditures by Delaware Investments to improve the delivery of shareholder services. During 2006, management conducted extensive research into alternatives that could further improve the quality and cost of delivering investment accounting services to the Fund. The Board was satisfied with the nature, extent and quality of the overall services provided by Delaware Investments.
INVESTMENT PERFORMANCE. The Board considered the investment performance of DMC and the Series. The Board placed significant emphasis on the investment performance of the Series in view of its importance to shareholders. While consideration was given to performance reports and discussions with portfolio managers at Board meetings throughout the year, particular weight was given to the Lipper reports furnished for the Annual Meeting. The Lipper reports prepared for the Series showed the investment performance of its Standard Class shares in comparison to a group of similar funds as selected by Lipper (Performance Universe). A fund with the best performance ranked first, and a fund with the poorest ranked last. The highest/best performing 25% of funds in the Performance Universe make up the first quartile; the next 25% — the second quartile; the next 25% — the third quartile; and the poorest/worst performing 25% of funds in the Performance Universe make up the fourth quartile. Comparative annualized performance for the Series was shown for the past one, three, five and ten year periods ended December 31, 2006. The Board also considered comparative annualized performance for the Series for the same periods ended October 31, 2006. The performance comparison presented below is based upon the December 31, 2006 information. The Board noted its objective that the Series’ performance for the periods considered be at or above the median of its Performance Universe. The following paragraph summarizes the performance results for the Series and the Board’s view of such performance.
The Performance Universe for the Series consisted of the Series and all mid-cap growth funds underlying variable insurance products as selected by Lipper. The Lipper report comparison showed that the Series’ total return for the one year period was in the third quartile of its Performance Universe. The report further showed that the Series’ total return for the three, five and ten year periods was in the fourth quartile, second quartile and first quartile, respectively. The Board noted that the Series’ performance results were mixed. In evaluating the Series’ performance, the Board considered the transitions in the Series’ portfolio management team that took place in 2005 and on-going oversight by management. Additionally, the Board recognized management’s efforts to increase portfolio management depth, noting particularly the recent hire of a new head of the equity department. The Board was satisfied that management was taking effective action to improve Series performance and meet the Board’s performance objective.
COMPARATIVE EXPENSES. The Board considered expense comparison data for the Delaware Investments Family of Funds as of October 31, 2006. Management provided the Board with information on pricing levels and fee structures for the Series. The Board focused particularly on the comparative analysis of the effective management fees and total expense ratios of the Series and the effective management fees and expense ratios of a group of similar funds as selected by Lipper (Expense Group). In reviewing comparative costs, the Series’ contractual management fee and the actual management fee incurred by the Series were compared with the contractual management fees (assuming all funds in the Expense Group were similar in size to the Series) and actual management fees (as reported by each fund) of other funds within the Expense Group, taking into account any applicable breakpoints and fee waivers. The Series’ total expenses were also compared with those of its Expense Group. The Lipper total expenses, for comparative consistency, were shown by Lipper for Standard Class shares which do not charge 12b-1 and non-12b-1 service fees. The Board also considered fees paid to Delaware Investments for non-management services. The Board noted its objective to limit the Series’ total expense ratio to an acceptable range as compared to the median of the Expense Group. The following paragraph summarizes the expense results for the Series and the Board’s view of such expenses.
The expense comparisons for the Series showed that its actual management fee and total expenses were in the quartile with the second lowest expenses of its Expense Group. The Board was satisfied with the management fee and total expenses of the Series in comparison to its Expense Group as shown in the Lipper report.
13
MANAGEMENT PROFITABILITY. The Board considered the level of profits, if any, realized by Delaware Investments in connection with the operation of the Series. In this respect, the Board reviewed the Investment Management Profitability Analysis that addressed the overall profitability of Delaware Investments’ business in providing management and other services to each of the individual funds and the Delaware Investments® Family of Funds as a whole. Specific attention was given to the methodology followed in allocating costs for the purpose of determining profitability. Management stated that the level of profits of Delaware Investments, to a certain extent, reflected operational cost savings and efficiencies initiated by Delaware Investments. The Board considered Delaware Investments’ efforts to improve services provided to fund shareholders and to meet additional regulatory and compliance requirements resulting from recent Securities and Exchange Commission initiatives. The Board also considered the extent to which Delaware Investments might derive ancillary benefits from fund operations, including the potential for procuring additional business as a result of the prestige and visibility associated with its role as service provider to the Delaware Investments Family of Funds and the benefits from allocation of fund brokerage to improve trading efficiencies. The Board found that the level of management fees was reasonable in light of the services rendered and the profitability of Delaware Investments.
ECONOMIES OF SCALE. The Trustees considered whether economies of scale are realized by Delaware Investments as the Series’ assets increase and the extent to which any economies of scale are reflected in the level of management fees charged. The Trustees took into account the standardized advisory fee pricing and structure, approved by the Board and shareholders and again reviewed by the Board this year, which includes breakpoints. Breakpoints in the advisory fee occur when the advisory fee rate is reduced on assets in excess of specified levels. This results in a lower advisory fee than would otherwise be the case on all assets when those asset levels specified are exceeded. The Board noted that the fee under the Series’ management contract fell within the standard structure. The Board also noted that the Series’ assets exceeded the first breakpoint level. The Board believed that, given the extent to which economies of scale might be realized by the advisor and its affiliates, the schedule of fees under the Investment Advisory Agreement provides a sharing of benefits with the Series and its shareholders.
14
Delaware VIP Trust — Delaware VIP U.S. Growth Series
Disclosure of Series Expenses
For the Period January 1, 2007 to June 30, 2007
As a shareholder of the Series, you incur ongoing costs, including management fees; distribution and/or service (12b-1) fees; and other Series expenses. This Example is intended to help you understand your ongoing costs (in dollars) of investing in the Series and to compare these costs with the ongoing costs of investing in other mutual funds.
The Example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period from January 1, 2007 to June 30, 2007.
Actual Expenses
The first section of the table shown, “Actual Series Return,” provides information about actual account values and actual expenses. You may use the information in this section of the table, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first section under the heading entitled “Expenses Paid During Period” to estimate the expenses you paid on your account during the period.
Hypothetical Example for Comparison Purposes
The second section of the table shown, “Hypothetical 5% Return,” provides information about hypothetical account values and hypothetical expenses based on the Series’ actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Series’ actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Series and other funds. To do so, compare the 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs only. As a shareholder of the Series, you do not incur any transaction costs, such as sales charges (loads), redemption fees or exchange fees, but shareholders of other funds may incur such costs. Also, the fees related to the variable annuity investment or the deferred sales charge that could apply have not been included. Therefore, the second section of the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. The Series’ actual expenses shown in the table reflect fee waivers in effect for Service Class shares. The expenses shown in the table assume reinvestment of all dividends and distributions.
Expense Analysis of an Investment of $1,000
|
| Beginning |
| Ending |
| Annualized |
| Expenses |
| |||
Actual Series Return |
|
|
|
|
|
|
|
|
| |||
Standard Class |
| $ | 1,000.00 |
| $ | 1,040.20 |
| 0.75 | % | $ | 3.79 |
|
Service Class |
| 1,000.00 |
| 1,039.10 |
| 1.00 | % | 5.06 |
| |||
|
|
|
|
|
|
|
|
|
| |||
Hypothetical 5% Return (5% return before expenses) |
|
|
|
|
|
|
|
|
| |||
Standard Class |
| $ | 1,000.00 |
| $ | 1,021.08 |
| 0.75 | % | $ | 3.76 |
|
Service Class |
| 1,000.00 |
| 1,019.84 |
| 1.00 | % | 5.01 |
|
* “Expenses Paid During Period” are equal to the Series’ annualized expense ratio, multiplied by the average account value over the period, multiplied by 181/365 (to reflect the one-half year period).
1
Delaware VIP Trust — Delaware VIP U.S. Growth Series
Sector Allocation and Top 10 Holdings
As of June 30, 2007
Sector designations may be different than the sector designations presented in other Series materials.
Sector |
| Percentage |
|
Common Stock |
| 98.59 | % |
Basic Industry/Capital Goods |
| 3.90 | % |
Business Services |
| 14.84 | % |
Consumer Non-Durables |
| 14.74 | % |
Consumer Services |
| 16.87 | % |
Financials |
| 9.40 | % |
Health Care |
| 16.34 | % |
Technology |
| 22.50 | % |
Discount Note |
| 1.48 | % |
Total Value of Securities |
| 100.07 | % |
Liabilities Net of Receivables and Other Assets |
| (0.07 | )% |
Total Net Assets |
| 100.00 | % |
Holdings are for informational purposes only and are subject to change at any time. They are not a recommendation to buy, sell, or hold any security.
Top 10 Holdings |
| Percentage |
|
QUALCOMM |
| 5.54 | % |
IntercontinentalExchange |
| 5.47 | % |
Google Class A |
| 5.01 | % |
Genentech |
| 4.59 | % |
eBay |
| 4.52 | % |
UnitedHealth Group |
| 4.24 | % |
Research in Motion |
| 4.09 | % |
United Parcel Service Class B |
| 3.96 | % |
Chicago Mercantile Exchange Holdings Class A |
| 3.92 | % |
Praxair |
| 3.91 | % |
2
Delaware VIP Trust — Delaware VIP U.S. Growth Series
Statement of Net Assets
June 30, 2007 (Unaudited)
|
| Number of |
| Value |
| ||
| COMMON STOCK–98.59% |
|
|
|
|
| |
| Basic Industry/Capital Goods–3.90% |
|
|
|
|
| |
| Praxair |
| 85,000 |
| $ | 6,119,150 |
|
|
|
|
|
| 6,119,150 |
| |
| Business Services–14.84% |
|
|
|
|
| |
| Expeditors International Washington |
| 125,000 |
| 5,162,500 |
| |
| Paychex |
| 140,000 |
| 5,476,800 |
| |
† | Research in Motion |
| 32,000 |
| 6,399,680 |
| |
| United Parcel Service Class B |
| 85,000 |
| 6,205,000 |
| |
|
|
|
|
| 23,243,980 |
| |
| Consumer Non-Durables–14.74% |
|
|
|
|
| |
| Procter & Gamble |
| 100,000 |
| 6,119,000 |
| |
| Staples |
| 255,000 |
| 6,051,150 |
| |
| Walgreen |
| 135,000 |
| 5,877,900 |
| |
| Wal-Mart Stores |
| 105,000 |
| 5,051,550 |
| |
|
|
|
|
| 23,099,600 |
| |
| Consumer Services–16.87% |
|
|
|
|
| |
† | eBay |
| 220,000 |
| 7,079,600 |
| |
| International Game Technology |
| 140,000 |
| 5,558,000 |
| |
† | MGM MIRAGE |
| 70,000 |
| 5,773,600 |
| |
| Weight Watchers International |
| 90,000 |
| 4,575,600 |
| |
| Western Union |
| 165,000 |
| 3,436,950 |
| |
|
|
|
|
| 26,423,750 |
| |
| Financials–9.40% |
|
|
|
|
| |
| Chicago Mercantile Exchange Holdings Class A |
| 11,500 |
| 6,145,140 |
| |
† | IntercontinentalExchange |
| 58,000 |
| 8,575,300 |
| |
|
|
|
|
| 14,720,440 |
| |
| Health Care–16.34% |
|
|
|
|
| |
| Allergan |
| 104,000 |
| 5,994,560 |
| |
† | Genentech |
| 95,000 |
| 7,187,700 |
| |
| UnitedHealth Group |
| 130,000 |
| 6,648,200 |
| |
† | Zimmer Holdings |
| 68,000 |
| 5,772,520 |
| |
|
|
|
|
| 25,602,980 |
| |
| Technology–22.50% |
|
|
|
|
| |
† | Crown Castle International |
| 98,900 |
| 3,587,103 |
| |
† | Google Class A |
| 15,000 |
| 7,850,700 |
| |
† | Intuit |
| 200,000 |
| 6,016,000 |
| |
| QUALCOMM |
| 200,000 |
| 8,678,000 |
| |
† | SanDisk |
| 75,000 |
| 3,670,500 |
| |
| Seagate Technology |
| 250,000 |
| 5,442,500 |
| |
|
|
|
|
| 35,244,803 |
| |
| Total Common Stock |
|
|
| 154,454,703 |
| |
|
| Principal |
|
|
| ||
^ | DISCOUNT NOTE–1.48% |
|
|
|
|
| |
| Federal Home Loan Bank 4.802% 7/2/07 |
| $ | 2,321,000 |
| 2,320,691 |
|
| Total Discount Note |
|
|
| 2,320,691 |
| |
TOTAL VALUE OF SECURITIES–100.07% (cost $141,725,678) |
| 156,775,394 |
| |
LIABILITIES NET OF RECEIVABLES AND OTHER ASSETS–(0.07%) |
| (114,104 | ) | |
NET ASSETS APPLICABLE TO 18,939,170 SHARES OUTSTANDING–100.00% |
| $ | 156,661,290 |
|
NET ASSET VALUE-DELAWARE VIP U.S. GROWTH SERIES STANDARD CLASS ($117,102,832 / 14,134,743 Shares) |
| $ | 8.28 |
|
NET ASSET VALUE-DELAWARE VIP U.S. GROWTH SERIES SERVICE CLASS ($39,558,458 / 4,804,427 Shares) |
| $ | 8.23 |
|
COMPONENTS OF NET ASSETS AT JUNE 30, 2007: |
|
|
| |
Shares of beneficial interest (unlimited authorization–no par) |
| $ | 143,021,399 |
|
Undistributed net investment income |
| 92,756 |
| |
Accumulated net realized loss on investments |
| (1,502,581 | ) | |
Net unrealized appreciation of investments |
| 15,049,716 |
| |
Total net assets |
| $ | 156,661,290 |
|
† Non-income producing security for the period ended June 30, 2007.
^ Zero coupon security. The rate shown is the yield at the time of purchase.
See accompanying notes
3
Delaware VIP Trust —
Delaware VIP U.S. Growth Series
Statement of Operations
Six Months Ended June 30, 2007 (Unaudited)
INVESTMENT INCOME: |
|
|
| |
Dividends |
| $ | 779,038 |
|
Interest |
| 70,514 |
| |
|
| 849,552 |
| |
|
|
|
| |
EXPENSES: |
|
|
| |
Management fees |
| 616,559 |
| |
Distribution expenses – Service Class |
| 58,719 |
| |
Accounting and administration expenses |
| 37,942 |
| |
Audit and tax |
| 13,038 |
| |
Legal fees |
| 11,720 |
| |
Dividend disbursing and transfer agent fees and expenses |
| 9,486 |
| |
Reports and statements to shareholders |
| 8,018 |
| |
Trustees’ fees and benefits |
| 4,699 |
| |
Insurance fees |
| 2,165 |
| |
Custodian fees |
| 2,123 |
| |
Consulting fees |
| 1,802 |
| |
Dues and services |
| 324 |
| |
Trustees’ expenses |
| 289 |
| |
Pricing fees |
| 123 |
| |
Taxes (other than taxes on income) |
| 75 |
| |
|
| 767,082 |
| |
Less waiver of distribution expenses – Service Class |
| (9,786 | ) | |
Less expense paid indirectly |
| (500 | ) | |
Total operating expenses |
| 756,796 |
| |
|
|
|
| |
NET INVESTMENT INCOME |
| 92,756 |
| |
|
|
|
| |
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS: |
|
|
| |
Net realized gain on investments |
| 14,578,611 |
| |
Net change in unrealized appreciation/depreciation of investments |
| (7,002,473 | ) | |
|
|
|
| |
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS |
| 7,576,138 |
| |
|
|
|
| |
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS |
| $ | 7,668,894 |
|
Delaware VIP Trust —
Delaware VIP U.S. Growth Series
Statements of Changes in Net Assets
|
| Six Months |
|
|
| ||
|
| Ended |
| Year Ended |
| ||
|
| 6/30/07 |
| 12/31/06 |
| ||
|
| (Unaudited) |
|
|
| ||
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS: |
|
|
|
|
| ||
Net investment income (loss) |
| $ | 92,756 |
| $ | (149,210 | ) |
Net realized gain (loss) on investments |
| 14,578,611 |
| (5,942,640 | ) | ||
Net change in unrealized appreciation/ depreciation of investments |
| (7,002,473 | ) | 11,250,393 |
| ||
Net increase in net assets resulting from operations |
| 7,668,894 |
| 5,158,543 |
| ||
|
|
|
|
|
| ||
CAPITAL SHARE TRANSACTIONS: |
|
|
|
|
| ||
Proceeds from shares sold: |
|
|
|
|
| ||
Standard Class |
| 46,980,420 |
| 102,645,141 |
| ||
Service Class |
| 3,434,948 |
| 4,028,901 |
| ||
|
| 50,415,368 |
| 106,674,042 |
| ||
Cost of shares repurchased: |
|
|
|
|
| ||
Standard Class |
| (74,586,189 | ) | (14,132,286 | ) | ||
Service Class |
| (3,981,282 | ) | (8,271,201 | ) | ||
|
| (78,567,471 | ) | (22,403,487 | ) | ||
Increase (decrease) in net assets derived from capital share transactions |
| (28,152,103 | ) | 84,270,555 |
| ||
|
|
|
|
|
| ||
NET INCREASE (DECREASE) IN NET ASSETS |
| (20,483,209 | ) | 89,429,098 |
| ||
|
|
|
|
|
| ||
NET ASSETS: |
|
|
|
|
| ||
Beginning of period |
| 177,144,499 |
| 87,715,401 |
| ||
End of period (including undistributed net investment income of $92,756 and $-, respectively) |
| $ | 156,661,290 |
| $ | 177,144,499 |
|
See accompanying notes
4
Delaware VIP Trust — Delaware VIP U.S. Growth Series
Financial Highlights
Selected data for each share of the Series outstanding throughout each period were as follows:
|
| Delaware VIP U.S. Growth Series Standard Class |
| ||||||||||||||||
|
| Six Months |
|
|
|
|
|
|
|
|
|
|
| ||||||
|
| Ended |
| Year Ended |
| ||||||||||||||
|
| 6/30/07(1) |
| 12/31/06 |
| 12/31/05 |
| 12/31/04 |
| 12/31/03 |
| 12/31/02 |
| ||||||
|
| (Unaudited) |
|
|
|
|
|
|
|
|
|
|
| ||||||
Net asset value, beginning of period |
| $ | 7.960 |
| $ | 7.780 |
| $ | 6.830 |
| $ | 6.620 |
| $ | 5.370 |
| $ | 7.600 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Income (loss) from investment operations: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Net investment income (loss)(2) |
| 0.006 |
| (0.003 | ) | (0.005 | ) | 0.049 |
| 0.010 |
| 0.010 |
| ||||||
Net realized and unrealized gain (loss) on investments |
| 0.314 |
| 0.183 |
| 0.997 |
| 0.169 |
| 1.251 |
| (2.215 | ) | ||||||
Total from investment operations |
| 0.320 |
| 0.180 |
| 0.992 |
| 0.218 |
| 1.261 |
| (2.205 | ) | ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Less dividends and distributions from: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Net investment income |
| — |
| — |
| (0.042 | ) | (0.008 | ) | (0.011 | ) | (0.025 | ) | ||||||
Total dividends and distributions |
| — |
| — |
| (0.042 | ) | (0.008 | ) | (0.011 | ) | (0.025 | ) | ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Net asset value, end of period |
| $ | 8.280 |
| $ | 7.960 |
| $ | 7.780 |
| $ | 6.830 |
| $ | 6.620 |
| $ | 5.370 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Total return(3) |
| 4.02 | % | 2.31 | % | 14.65 | % | 3.30 | % | 23.75 | % | (29.24 | )% | ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Ratios and supplemental data: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Net assets, end of period (000 omitted) |
| $ | 117,103 |
| $ | 138,548 |
| $ | 45,653 |
| $ | 10,438 |
| $ | 11,862 |
| $ | 9,595 |
|
Ratio of expenses to average net assets |
| 0.75 | % | 0.77 | % | 0.81 | % | 0.76 | % | 0.75 | % | 0.75 | % | ||||||
Ratio of net investment income (loss) to average net assets |
| 0.15 | % | (0.04 | )% | (0.07 | )% | 0.77 | % | 0.17 | % | 0.15 | % | ||||||
Portfolio turnover |
| 52 | % | 21 | % | 91 | % | 167 | % | 102 | % | 101 | % |
(1) Ratios and portfolio turnover have been annualized and total return has not been annualized.
(2) The average shares outstanding method has been applied for per share information.
(3) Total investment return is based on the change in net asset value of a share during the period and assumes reinvestment of dividends and distributions at net asset value.
See accompanying notes
5
Selected data for each share of the Series outstanding throughout each period were as follows:
|
| Delaware VIP U.S. Growth Series Service Class |
| ||||||||||||||||
|
| Six Months |
|
|
|
|
|
|
|
|
|
|
| ||||||
|
| Ended |
| Year Ended |
| ||||||||||||||
|
| 6/30/07(1) |
| 12/31/06 |
| 12/31/05 |
| 12/31/04 |
| 12/31/03 |
| 12/31/02 |
| ||||||
|
| (Unaudited) |
|
|
|
|
|
|
|
|
|
|
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Net asset value, beginning of period |
| $ | 7.920 |
| $ | 7.760 |
| $ | 6.810 |
| $ | 6.610 |
| $ | 5.360 |
| $ | 7.590 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Income (loss) from investment operations: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Net investment income (loss)(2) |
| (0.004 | ) | (0.022 | ) | (0.023 | ) | 0.033 |
| (0.005 | ) | 0.001 |
| ||||||
Net realized and unrealized gain (loss) on investments |
| 0.314 |
| 0.182 |
| 0.999 |
| 0.167 |
| 1.257 |
| (2.218 | ) | ||||||
Total from investment operations |
| 0.310 |
| 0.160 |
| 0.976 |
| 0.200 |
| 1.252 |
| (2.217 | ) | ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Less dividends and distributions from: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Net investment income |
| — |
| — |
| (0.026 | ) | — |
| (0.002 | ) | (0.013 | ) | ||||||
Total dividends and distributions |
| — |
| — |
| (0.026 | ) | — |
| (0.002 | ) | (0.013 | ) | ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Net asset value, end of period |
| $ | 8.230 |
| $ | 7.920 |
| $ | 7.760 |
| $ | 6.810 |
| $ | 6.610 |
| $ | 5.360 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Total return(3) |
| 3.91 | % | 2.06 | % | 14.41 | % | 3.03 | % | 23.37 | % | (29.26 | )% | ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Ratios and supplemental data: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Net assets, end of period (000 omitted) |
| $ | 39,558 |
| $ | 38,596 |
| $ | 42,062 |
| $ | 37,653 |
| $ | 9,718 |
| $ | 666 |
|
Ratio of expenses to average net assets |
| 1.00 | % | 1.02 | % | 1.06 | % | 1.01 | % | 0.97 | % | 0.90 | % | ||||||
Ratio of expenses to average net assets prior to expense limitation and expenses paid indirectly |
| 1.05 | % | 1.07 | % | 1.11 | % | 1.06 | % | 1.00 | % | 0.90 | % | ||||||
Ratio of net investment income (loss) to average net assets |
| (0.10 | )% | (0.29 | )% | (0.32 | )% | 0.52 | % | (0.05 | )% | 0.00 | % | ||||||
Ratio of net investment income (loss) to average net assets prior to expense limitation and expenses paid indirectly |
| (0.15 | )% | (0.34 | )% | (0.37 | )% | 0.47 | % | (0.08 | )% | 0.00 | % | ||||||
Portfolio turnover |
| 52 | % | 21 | % | 91 | % | 167 | % | 102 | % | 101 | % |
(1) |
| Ratios and portfolio turnover have been annualized and total return has not been annualized. |
(2) |
| The average shares outstanding method has been applied for per share information. |
(3) |
| Total investment return is based on the change in net asset value of a share during the period and assumes reinvestment of dividends and distributions at net asset value. Total investment return reflects waivers and payment of fees by the distributor, as applicable. Performance would have been lower had the expense limitation and waiver not been in effect. |
See accompanying notes
6
Delaware VIP Trust — Delaware VIP U.S. Growth Series
Notes to Financial Statements
June 30, 2007 (Unaudited)
Delaware VIP Trust (Trust) is organized as a Delaware statutory trust and offers 14 series: Delaware VIP Balanced Series, Delaware VIP Capital Reserves Series, Delaware VIP Cash Reserve Series, Delaware VIP Diversified Income Series, Delaware VIP Emerging Markets Series, Delaware VIP Growth Opportunities Series, Delaware VIP High Yield Series, Delaware VIP International Value Equity Series, Delaware VIP REIT Series, Delaware VIP Select Growth Series, Delaware VIP Small Cap Value Series, Delaware VIP Trend Series, Delaware VIP U.S. Growth Series and Delaware VIP Value Series. These financial statements and the related notes pertain to Delaware VIP U.S. Growth Series (Series). The Trust is an open-end investment company. The Series is considered diversified under the Investment Company Act of 1940, as amended, and offers Standard Class and Service Class shares. The Standard Class shares do not carry a 12b-1 fee and the Service Class shares carry a 12b-1 fee. The shares of the Series are sold only to separate accounts of life insurance companies.
The investment objective of the Series is to seek long-term capital appreciation.
1. Significant Accounting Policies
The following accounting policies are in accordance with U.S. generally accepted accounting principles and are consistently followed by the Series.
Security Valuation—Equity securities, except those traded on the Nasdaq Stock Market, Inc. (Nasdaq), are valued at the last quoted sales price as of the time of the regular close of the New York Stock Exchange (NYSE) on the valuation date. Securities traded on the Nasdaq are valued in accordance with the Nasdaq Official Closing Price, which may not be the last sales price. If on a particular day an equity security does not trade, then the mean between the bid and asked prices will be used. Short-term debt securities having less than 60 days to maturity are valued at amortized cost, which approximates market value. Other securities and assets for which market quotations are not readily available are valued at fair value as determined in good faith under the direction of the Series’ Board of Trustees. In determining whether market quotations are readily available or fair valuation will be used, various factors will be taken into consideration, such as market closures, or with respect to foreign securities, aftermarket trading or significant events after local market trading (e.g., government actions or pronouncements, trading volume or volatility on markets, exchanges among dealers, or news events).
In September 2006, the Financial Accounting Standards Board (FASB) issued FASB Statement No. 157 “Fair Value Measurements” (Statement 157). Statement 157 establishes a framework for measuring fair value in generally accepted accounting principles, clarifies the definition of fair value within that framework, and expands disclosures about the use of fair value measurements. Statement 157 is intended to increase consistency and comparability among fair value estimates used in financial reporting. Statement 157 is effective for fiscal years beginning after November 15, 2007. Management does not expect the adoption of Statement 157 to have an impact on the amounts reported in the financial statements.
Federal Income Taxes—The Series intends to continue to qualify for federal income tax purposes as a regulated investment company and make the requisite distributions to shareholders. Accordingly, no provision for federal income taxes has been made in the financial statements.
Effective June 29, 2007, the Series adopted FASB Interpretation No. 48 “Accounting for Uncertainty in Income Taxes”
(FIN 48). FIN 48 provides guidance for how uncertain tax positions should be recognized, measured, presented and disclosed in the financial statements. FIN 48 requires the evaluation of tax positions taken or expected to be taken in the course of preparing the Series’ tax returns to determine whether the tax positions are “more-likely-than-not” of being sustained by the applicable tax authority. Tax positions not deemed to meet the more-likely-than-not threshold are recorded as a tax benefit or expense in the current year. The adoption of FIN 48 did not result in the recording of any tax benefit or expense in the current period.
Class Accounting—Investment income, common expenses and realized and unrealized gain (loss) on investments are allocated to the classes of the Series on the basis of daily net assets of each class. Distribution expenses relating to a specific class are charged directly to that class.
Repurchase Agreements—The Series may invest in a pooled cash account along with members of the Delaware Investments® Family of Funds pursuant to an exemptive order issued by the Securities and Exchange Commission. The aggregate daily balance of the pooled cash account is invested in repurchase agreements secured by obligations of the U.S. government. The respective collateral is held by the Series’ custodian bank until the maturity of the respective repurchase agreements. Each repurchase agreement is at least 102% collateralized. However, in the event of default or bankruptcy by the counterparty to the agreement, realization of the collateral may be subject to legal proceedings.
Use of Estimates—The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Other—Expenses directly attributable to the Series are charged directly to the Series. Other expenses common to various funds within the Delaware Investments® Family of Funds are generally allocated amongst such funds on the basis of average net assets. Management fees and some other expenses are paid monthly. Security transactions are recorded on the date the securities are purchased or sold (trade date) for financial reporting purposes. Costs used in calculating realized gains and losses on the sale of investment securities are those of the specific securities sold. Dividend income is recorded on the ex-dividend date and interest income is recorded on the accrual basis.
The Series declares and pays dividends from net investment income and distributions from net realized gain on investments, if any, following the close of the fiscal year.
Subject to seeking best execution, the Series may direct certain security trades to brokers who have agreed to rebate a portion of the related brokerage commission to the Series in cash. Such commission rebates are included in realized gain on investments in the accompanying financial statements and totaled $3,805 for the six months ended June 30, 2007. In general, best execution refers to many factors, including the price paid or received for a security, the commission charged, the promptness and reliability of execution, the confidentiality and placement accorded the order, and other factors affecting the overall benefit obtained by the Series on the transaction.
7
The Series receives earnings credits from its custodian when positive cash balances are maintained, which are used to offset custody fees. The expense paid under this arrangement is included in custodian fees on the Statement of Operations with the corresponding expense offset shown as “expense paid indirectly.”
2. Investment Management, Administration Agreements and Other Transactions with Affiliates
In accordance with the terms of its investment management agreement, the Series pays Delaware Management Company (DMC), a series of Delaware Management Business Trust and the investment manager, an annual fee which is calculated daily at the rate of 0.65% on the first $500 million of average daily net assets of the Series, 0.60% on the next $500 million, 0.55% on the next $1.5 billion and 0.50% on average daily net assets in excess of $2.5 billion.
Prior to May 1, 2007, DMC had contractually agreed to waive that portion, if any, of its management fee and reimburse the Series to the extent necessary to ensure that annual operating expenses, exclusive of taxes, interest, brokerage commissions, inverse floater program expenses,12b-1 plan expenses, certain insurance costs and non-routine expenses or costs including, but not limited to, those relating to reorganizations, litigation, certain Trustee retirement plan expenses, conducting shareholder meetings, and liquidations, did not exceed 0.87% of average daily net assets of the Series through April 30, 2007. No reimbursement was due for the six months ended June 30, 2007.
Delaware Service Company, Inc. (DSC), an affiliate of DMC, provides accounting, administration, dividend disbursing and transfer agent services. The Series pays DSC a monthly fee computed at the annual rate of 0.04% of the Series’ average daily net assets for accounting and administrative services. The Series pays DSC a monthly fee based on average net assets for dividend disbursing and transfer agent services.
Pursuant to a distribution agreement and distribution plan, the Series pays Delaware Distributors, L.P. (DDLP), the distributor and an affiliate of DMC, an annual distribution and service fee not to exceed 0.30% of the average daily net assets of the Service Class shares. DDLP has contracted to waive distribution and service fees through April 30, 2008 in order to prevent distribution and service fees of the Service Class shares from exceeding 0.25% of average daily net assets. Standard Class shares pay no distribution and service expenses.
At June 30, 2007, the Series had liabilities payable to affiliates as follows:
|
| Dividend Disbursing, |
| Distribution |
| Other |
| |||
$ 82,132 |
| $ | 6,320 |
| $ | 8,145 |
| $ | 4,753 |
|
* DMC, as part of its administrative services, pays operating expenses on behalf of the Series and is reimbursed on a periodic basis. Such expenses include items such as printing of shareholder reports, fees for audit, legal and tax services, custodian fees and trustees’ fees.
As provided in the investment management agreement, the Series bears the cost of certain legal and tax services, including internal legal and tax services provided to the Series by DMC and/or its affiliates’ employees. For the six months ended June 30, 2007, the Series was charged $4,165 for internal legal and tax services provided by DMC and/or its affiliates’ employees.
Trustees’ fees and benefits include expenses accrued by the Series for each Trustee’s retainer, per meeting fees and retirement benefits. Independent Trustees with over five years of uninterrupted service were eligible to participate in a retirement plan that provides for the payment of benefits upon retirement. The amount of the retirement benefit was determined based on factors set forth in the plan, including the number of years of service. On November 16, 2006, the Board of Trustees unanimously voted to terminate the retirement plan. Payments equal to the net present value of the earned benefits were made in 2007 to those independent Trustees so entitled. The retirement benefit payout for the Series was $17,853. Certain officers of DMC, DSC and DDLP are officers and/or Trustees of the Trust. These officers and Trustees are paid no compensation by the Series.
3. Investments
For the six months ended June 30, 2007, the Series made purchases and sales of investment securities other than short-term investments as follows:
Purchases |
| $ | 46,254,515 |
|
Sales |
| 75,261,156 |
|
At June 30, 2007, the cost of investments for federal income tax purposes has been estimated since the final tax characteristics cannot be determined until fiscal year end. At June 30, 2007, the cost of investments and unrealized appreciation (depreciation) for the Series were as follows:
|
| Aggregate |
| Aggregate |
| Net Unrealized |
| ||
$ 142,242,204 |
| $ | 16,061,716 |
| $ (1,528,526 | ) | $ | 14,533,190 |
|
8
4. Dividend and Distribution Information
Income and long-term capital gain distributions are determined in accordance with federal income tax regulations, which may differ from U.S. generally accepted accounting principles. Additionally, net short-term gains on sales of investment securities are treated as ordinary income for federal income tax purposes. There were no distributions paid during the six months ended June 30, 2007 and the year ended December 31, 2006.
5. Components of Net Assets on a Tax Basis
The components of net assets are estimated since final tax characteristics cannot be determined until fiscal year end. As of June 30, 2007, the estimated components of net assets on a tax basis were as follows:
Shares of beneficial interest |
| $ | 143,021,399 |
|
Undistributed ordinary income |
| 92,756 |
| |
Capital loss carryforwards as of 12/31/06 |
| (14,949,348 | ) | |
Realized gains 1/1/07 – 6/30/07 |
| 13,963,293 |
| |
Unrealized appreciation of investments |
| 14,533,190 |
| |
Net assets |
| $ | 156,661,290 |
|
The differences between book basis and tax basis components of net assets are primarily attributable to tax deferral of losses on wash sales.
For federal income tax purposes, capital loss carryforwards may be carried forward and applied against future capital gains. Capital loss carryforwards remaining at December 31, 2006 will expire as follows: $75,384 expires in 2008; $4,507,939 expires in 2009; $3,675,553 expires in 2010; $1,428,622 expires in 2011; $450,672 expires in 2012; and $4,811,178 expires in 2014.
For the six months ended June 30, 2007, the Series had capital gains of $13,963,293, which may reduce the capital loss carryforwards.
6. Capital Shares
Transactions in capital shares were as follows:
| Six Months |
| Year |
| |
Shares sold: |
|
|
|
|
|
Standard Class |
| 5,746,363 |
| 13,447,718 |
|
Service Class |
| 422,015 |
| 525,533 |
|
|
| 6,168,378 |
| 13,973,251 |
|
Shares repurchased: |
|
|
|
|
|
Standard Class |
| (9,024,423 | ) | (1,906,393 | ) |
Service Class |
| (490,766 | ) | (1,073,004 | ) |
|
| (9,515,189 | ) | (2,979,397 | ) |
Net increase (decrease) |
| (3,346,811 | ) | 10,993,854 |
|
7. Line of Credit
The Series, along with certain other funds in the Delaware Investments® Family of Funds (Participants), participates in a $225,000,000 revolving line of credit facility to be used for temporary or emergency purposes as an additional source of liquidity to fund redemptions of investor shares. The Participants are charged an annual commitment fee, which is allocated across the Participants on the basis of each Participant’s allocation of the entire facility. The Participants may borrow up to a maximum of one third of their net assets under the agreement. The Series had no amounts outstanding as of June 30, 2007, or at any time during the period then ended.
8. Credit and Market Risk
The Series may invest up to 15% of its total assets in illiquid securities, which may include securities with contractual restrictions on resale, securities exempt from registration under Rule 144A of the Securities Act of 1933, as amended, and other securities which may not be readily marketable. The relative illiquidity of these securities may impair the Series from disposing of them in a timely manner and at a fair price when it is necessary or desirable to do so. While maintaining oversight, the Series’ Board of Trustees has delegated to DMC the day-to-day functions of determining whether individual securities are liquid for purposes of the Series’ limitation on investments in illiquid assets. As of June 30, 2007, there were no Rule 144A securities and no securities have been determined to be illiquid under the Series’ Liquidity Procedures.
9
9. Contractual Obligations
The Series enters into contracts in the normal course of business that contain a variety of indemnifications. The Series’ maximum exposure under these arrangements is unknown. However, the Series has not had prior claims or losses pursuant to these contracts. Management has reviewed the Series’ existing contracts and expects the risk of loss to be remote.
10. Subsequent Event
The Series has a new securities lending agreement with Mellon Bank, N.A. as of August 2, 2007.
The Series files its complete schedule of portfolio holdings with the Securities and Exchange Commission (the Commission) for the first and third quarters of each fiscal year on Form N-Q. The Series’ Forms N-Q, as well as a description of the policies and procedures that the Series uses to determine how to vote proxies (if any) relating to portfolio securities is available without charge (i) upon request, by calling 800 523-1918; and (ii) on the Commission’s website at http://www.sec.gov. In addition, a description of the policies and procedures that the Series uses to determine how to vote proxies (if any) relating to portfolio securities is available without charge on the Delaware Investments® Funds’ website at http://www.delawareinvestments.com. The Series’ Forms N-Q may be reviewed and copied at the Commission’s Public Reference Room in Washington, DC; information on the operation of the Public Reference Room may be obtained by calling 800 SEC-0330.
Information (if any) regarding how the Series voted proxies relating to portfolio securities during the most recently disclosed 12-month period ended June 30 is available without charge (i) through the Delaware Investments® Funds’ website at http://www.delawareinvestments.com; and (ii) on the Commission’s website at http://www.sec.gov.
10
Delaware VIP Trust — Delaware VIP U.S. Growth Series
Other Series Information
Board Consideration of Delaware VIP U.S. Growth Series Investment Advisory Agreement
At a meeting held on May 16-17, 2007 (Annual Meeting), the Board of Trustees (Board), including a majority of disinterested or independent Trustees, approved the renewal of the Investment Advisory Agreement for the VIP U.S. Growth Series (Series). In making its decision, the Board considered information furnished throughout the year at regular Board meetings, including reports detailing Series performance, investment strategies and expenses, as well as information prepared specifically in connection with the renewal of the investment advisory contracts. Information furnished specifically in connection with the renewal of the Investment Advisory Agreement with Delaware Management Company (DMC) included materials provided by DMC and its affiliates (Delaware Investments) concerning, among other things, the level of services provided to the Series, the costs of such services to the Series, economies of scale and the financial condition and profitability of Delaware Investments. In addition, in connection with the Meeting, the Board separately received and reviewed in mid-January 2007 independent historical and comparative reports prepared by Lipper Inc. (Lipper), an independent statistical compilation organization. The Lipper reports compared the Series’ investment performance and expenses with those of other comparable mutual funds. The Board requested and received certain information regarding management’s policy with respect to advisory fee levels and its philosophy with respect to breakpoints; the structure of portfolio manager compensation; the investment manager’s profitability; and any constraints or limitations on the availability of securities in certain investment styles which might inhibit DMC’s ability to fully invest in accordance with the Series’ policies.
In considering information relating to the approval of the Series’ advisory agreement, the independent Trustees received assistance and advice from and met separately with independent counsel. While attention was given to all information furnished, the following discusses under separate headings the primary factors taken into account by the Board in its contract renewal considerations.
NATURE, EXTENT AND QUALITY OF SERVICE. Consideration was given to the services provided by Delaware Investments to the Series and its shareholders. In reviewing the nature, extent and quality of services, the Board emphasized reports furnished to it throughout the year at regular Board meetings covering matters such as the relative performance of the Series, compliance of portfolio managers with the investment policies, strategies and restrictions for the Series, the compliance of management personnel with the Code of Ethics adopted throughout the Delaware Investments® Family of Funds complex and the adherence to fair value pricing procedures as established by the Board. The Board noted that it was pleased with the current staffing of the Series’ investment advisor and the emphasis placed on research in the investment process. Favorable consideration was given to DMC’s efforts to maintain, and in some instances increase, financial and human resources committed to fund matters. The Board also considered the transfer agent and shareholder services provided to Series shareholders by Delaware Investments’ affiliate, Delaware Service Company, Inc. (DSC), noting DSC’s commitment to maintain a high level of service and the continuing expenditures by Delaware Investments to improve the delivery of shareholder services. During 2006, management conducted extensive research into alternatives that could further improve the quality and cost of delivering investment accounting services to the Fund. The Board was satisfied with the nature, extent and quality of the overall services provided by Delaware Investments.
INVESTMENT PERFORMANCE. The Board considered the investment performance of DMC and the Series. The Board placed significant emphasis on the investment performance of the Series in view of its importance to shareholders. While consideration was given to performance reports and discussions with portfolio managers at Board meetings throughout the year, particular weight was given to the Lipper reports furnished for the Annual Meeting. The Lipper reports prepared for the Series showed the investment performance of its Standard Class shares in comparison to a group of similar funds as selected by Lipper (Performance Universe). A fund with the best performance ranked first, and a fund with the poorest ranked last. The highest/best performing 25% of funds in the Performance Universe make up the first quartile; the next 25% - the second quartile; the next 25% - the third quartile; and the poorest/worst performing 25% of funds in the Performance Universe make up the fourth quartile. Comparative annualized performance for the Series was shown for the past one, three and five year periods ended December 31, 2006. The Board also considered comparative annualized performance for the Series for the same periods ended October 31, 2006. The performance comparison presented below is based upon the December 31, 2006 information. The Board noted its objective that the Series’ performance for the periods considered be at or above the median of its Performance Universe. The following paragraph summarizes the performance results for the Series and the Board’s view of such performance.
The Performance Universe for the Series consisted of the Series and all large cap growth funds underlying variable insurance products as selected by Lipper. The Lipper report comparison showed that the Series’ total return for the one year period was in the fourth quartile of its Performance Universe. The report further showed the Series’ total return for the three and five year periods was in the third quartile. The Board noted that the Series’ performance results were not in line with the Board’s objective. In evaluating the Series’ performance, the Board considered the new investment team assigned to the Series in 2005 and the policy and investment strategy changes implemented in order to take advantage of the new team’s investment approach. The Board encouraged management to re-evaluate the team’s strategy and investment approach in an effort to enhance Series performance and meet the Board’s performance objective. Additionally, the Board recognized management’s efforts to increase portfolio management depth, noting particularly the recent hire of a new head of the equity department.
COMPARATIVE EXPENSES. The Board considered expense comparison data for the Delaware Investments Family of Funds as of October 31, 2006. Management provided the Board with information on pricing levels and fee structures for the Series. The Board focused particularly on the comparative analysis of the effective management fees and total expense ratios of the Series and the effective management fees and expense ratios of a group of similar funds as selected by Lipper (Expense Group). In reviewing comparative costs, the Series’ contractual management fee and the actual management fee incurred by the Series were compared with the contractual management fees (assuming all funds in the Expense Group were similar in size to the Series) and actual management fees (as reported by each fund) of other funds within the Expense Group, taking into account any applicable breakpoints and fee waivers. The Series’ total expenses were also compared with those of its Expense Group. The Lipper total expenses, for comparative consistency, were shown by Lipper for Standard Class shares which do not charge 12b-1 and non-12b-1 service fees. The Board also considered fees paid to Delaware Investments for non-management services. The Board noted its objective to limit the Series’ total expense ratio to an acceptable range as compared to the median of the Expense Group. The following paragraph summarizes the expense results for the Series and the Board’s view of such expenses.
11
The expense comparisons for the Series showed that its actual management fee and total expenses were in the quartile with the lowest expenses of its Expense Group. The Board was satisfied with the management fee and total expenses of the Series in comparison to its Expense Group as shown in the Lipper report.
MANAGEMENT PROFITABILITY. The Board considered the level of profits, if any, realized by Delaware Investments in connection with the operation of the Series. In this respect, the Board reviewed the Investment Management Profitability Analysis that addressed the overall profitability of Delaware Investments’ business in providing management and other services to each of the individual funds and the Delaware Investments® Family of Funds as a whole. Specific attention was given to the methodology followed in allocating costs for the purpose of determining profitability. Management stated that the level of profits of Delaware Investments, to a certain extent, reflected operational cost savings and efficiencies initiated by Delaware Investments. The Board considered Delaware Investments’ efforts to improve services provided to fund shareholders and to meet additional regulatory and compliance requirements resulting from recent Securities and Exchange Commission initiatives. The Board also considered the extent to which Delaware Investments might derive ancillary benefits from fund operations, including the potential for procuring additional business as a result of the prestige and visibility associated with its role as service provider to the Delaware Investments Family of Funds and the benefits from allocation of fund brokerage to improve trading efficiencies. The Board found that the level of management fees was reasonable in light of the services rendered and the profitability of Delaware Investments.
ECONOMIES OF SCALE. The Trustees considered whether economies of scale are realized by Delaware Investments as the Series’ assets increase and the extent to which any economies of scale are reflected in the level of management fees charged. The Trustees took into account the standardized advisory fee pricing and structure, approved by the Board and shareholders and again reviewed by the Board this year, which includes breakpoints. Breakpoints in the advisory fee occur when the advisory fee rate is reduced on assets in excess of specified levels. This results in a lower advisory fee than would otherwise be the case on all assets when those asset levels specified are exceeded. The Board noted that the fee under the Series’ management contract fell within the standard structure. Although the Series has not reached a size at which the advantages of breakpoints would be realized, the Board recognized that the fee was structured so that when the Series grows, economies of scale may be shared.
12
Delaware VIP Trust — Delaware VIP Value Series
Disclosure of Series Expenses
For the Period January 1, 2007 to June 30, 2007
As a shareholder of the Series, you incur ongoing costs, including management fees; distribution and/or service (12b-1) fees; and other Series expenses. This Example is intended to help you understand your ongoing costs (in dollars) of investing in the Series and to compare these costs with the ongoing costs of investing in other mutual funds.
The Example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period from January 1, 2007 to June 30, 2007.
Actual Expenses
The first section of the table shown, “Actual Series Return,” provides information about actual account values and actual expenses. You may use the information in this section of the table, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first section under the heading entitled “Expenses Paid During Period” to estimate the expenses you paid on your account during the period.
Hypothetical Example for Comparison Purposes
The second section of the table shown, “Hypothetical 5% Return,” provides information about hypothetical account values and hypothetical expenses based on the Series’ actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Series’ actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Series and other funds. To do so, compare the 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs only. As a shareholder of the Series, you do not incur any transaction costs, such as sales charges (loads), redemption fees or exchange fees, but shareholders of other funds may incur such costs. Also, the fees related to the variable annuity investment or the deferred sales charge that could apply have not been included. Therefore, the second section of the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. The Series’ actual expenses shown in the table reflect fee waivers in effect. The expenses shown in the table assume reinvestment of all dividends and distributions.
Expense Analysis of an Investment of $1,000
|
| Beginning |
| Ending |
| Annualized |
| Expenses |
| |||
Actual Series Return |
|
|
|
|
|
|
|
|
| |||
Standard Class |
| $ | 1,000.00 |
| $ | 1,070.30 |
| 0.70 | % | $ | 3.59 |
|
Service Class |
| 1,000.00 |
| 1,068.40 |
| 0.95 | % | 4.87 |
| |||
|
|
|
|
|
|
|
|
|
| |||
Hypothetical 5% Return (5% return before expenses) |
|
|
|
|
|
|
|
|
| |||
Standard Class |
| $ | 1,000.00 |
| $ | 1,021.32 |
| 0.70 | % | $ | 3.51 |
|
Service Class |
| 1,000.00 |
| 1,020.08 |
| 0.95 | % | 4.76 |
|
* “Expenses Paid During Period” are equal to the Series’ annualized expense ratio, multiplied by the average account value over the period, multiplied by 181/365 (to reflect the one-half year period).
1
Delaware VIP Trust — Delaware VIP Value Series
Sector Allocation and Top 10 Holdings
As of June 30, 2007
Sector designations may be different than the sector designations presented in other Series materials.
Sector |
| Percentage |
|
Common Stock |
| 99.51 | % |
Consumer Discretionary |
| 9.02 | % |
Consumer Staples |
| 8.77 | % |
Energy |
| 6.51 | % |
Financials |
| 23.50 | % |
Health Care |
| 17.98 | % |
Industrials |
| 6.38 | % |
Information Technology |
| 15.08 | % |
Materials |
| 2.99 | % |
Telecommunications |
| 6.30 | % |
Utilities |
| 2.98 | % |
Discount Note |
| 0.33 | % |
Securities Lending Collateral |
| 6.79 | % |
Fixed Rate Notes |
| 2.60 | % |
Variable Rate Notes |
| 4.19 | % |
Total Value of Securities |
| 106.63 | % |
Obligation to Return Securities Lending Collateral |
| (6.79 | )% |
Receivables and Other Assets Net of Liabilities |
| 0.16 | % |
Total Net Assets |
| 100.00 | % |
Holdings are for informational purposes only and are subject to change at any time. They are not a recommendation to buy, sell, or hold any security.
Top 10 Holdings |
| Percentage |
|
Intel |
| 3.37 | % |
ConocoPhillips |
| 3.31 | % |
Waste Management |
| 3.20 | % |
Chevron |
| 3.20 | % |
Donnelley (R.R.) & Sons |
| 3.18 | % |
Verizon Communications |
| 3.16 | % |
Bristol-Myers Squibb |
| 3.14 | % |
AT&T |
| 3.14 | % |
Huntington Bancshares |
| 3.11 | % |
Aon |
| 3.11 | % |
2
Delaware VIP Trust — Delaware VIP Value Series
Statement of Net Assets
June 30, 2007 (Unaudited)
|
|
| Number of |
| Value |
| |
| COMMON STOCK–99.51% |
|
|
|
|
| |
| Consumer Discretionary–9.02% |
|
|
|
|
| |
| Gap |
| 1,132,100 |
| $ | 21,623,110 |
|
* | Limited Brands |
| 788,200 |
| 21,636,090 |
| |
| Mattel |
| 769,700 |
| 19,465,713 |
| |
|
|
|
|
| 62,724,913 |
| |
| Consumer Staples–8.77% |
|
|
|
|
| |
| Heinz (H.J.) |
| 443,000 |
| 21,029,210 |
| |
| Kimberly-Clark |
| 311,100 |
| 20,809,479 |
| |
| Safeway |
| 562,200 |
| 19,131,666 |
| |
|
|
|
|
| 60,970,355 |
| |
| Energy–6.51% |
|
|
|
|
| |
| Chevron |
| 264,000 |
| 22,239,360 |
| |
| ConocoPhillips |
| 293,300 |
| 23,024,050 |
| |
|
|
|
|
| 45,263,410 |
| |
| Financials–23.50% |
|
|
|
|
| |
| Allstate |
| 326,900 |
| 20,107,619 |
| |
| Aon |
| 507,900 |
| 21,641,619 |
| |
| Chubb |
| 372,400 |
| 20,161,736 |
| |
| Hartford Financial Services Group |
| 199,300 |
| 19,633,043 |
| |
* | Huntington Bancshares |
| 951,700 |
| 21,641,658 |
| |
| Morgan Stanley |
| 225,800 |
| 18,940,104 |
| |
| Wachovia |
| 389,800 |
| 19,977,250 |
| |
* | Washington Mutual |
| 500,600 |
| 21,345,584 |
| |
|
|
|
|
| 163,448,613 |
| |
| Health Care–17.98% |
|
|
|
|
| |
| Abbott Laboratories |
| 363,600 |
| 19,470,780 |
| |
| Baxter International |
| 380,600 |
| 21,443,004 |
| |
| Bristol-Myers Squibb |
| 692,900 |
| 21,867,924 |
| |
| Merck |
| 398,800 |
| 19,860,240 |
| |
* | Pfizer |
| 817,500 |
| 20,903,475 |
| |
| Wyeth |
| 374,700 |
| 21,485,298 |
| |
|
|
|
|
| 125,030,721 |
| |
| Industrials–6.38% |
|
|
|
|
| |
| Donnelley (R.R.) & Sons |
| 508,200 |
| 22,111,782 |
| |
| Waste Management |
| 570,100 |
| 22,262,405 |
| |
|
|
|
|
| 44,374,187 |
| |
| Information Technology–15.08% |
|
|
|
|
| |
| Hewlett-Packard |
| 443,900 |
| 19,806,818 |
| |
| Intel |
| 986,300 |
| 23,434,488 |
| |
| International Business Machines |
| 195,200 |
| 20,544,800 |
| |
| Motorola |
| 1,111,500 |
| 19,673,550 |
| |
† | Xerox |
| 1,156,700 |
| 21,375,816 |
| |
|
|
|
|
| 104,835,472 |
| |
| Materials–2.99% |
|
|
|
|
| |
| duPont (E.I.) deNemours |
| 409,100 |
| 20,798,644 |
| |
|
|
|
|
| 20,798,644 |
| |
| Telecommunications–6.30% |
|
|
|
|
| |
| AT&T |
| 525,824 |
| 21,821,696 |
| |
| Verizon Communications |
| 534,100 |
| 21,988,897 |
| |
|
|
|
|
| 43,810,593 |
| |
| Utilities–2.98% |
|
|
|
|
| |
| Progress Energy |
| 454,300 |
| 20,711,537 |
| |
|
|
|
|
| 20,711,537 |
| |
| Total Common Stock |
|
|
| 691,968,445 |
| |
|
| Principal |
|
|
| ||
^ | DISCOUNT NOTE–0.33% |
|
|
|
|
| |
| Federal Home Loan Bank 4.802% 7/2/07 |
| $ | 2,321,000 |
| 2,320,691 |
|
| Total Discount Note |
|
|
| 2,320,691 |
| |
|
|
|
|
|
|
| |
| Total Value of Securities Before Securities Lending Collateral–99.84% |
|
|
| 694,289,136 |
| |
| SECURITIES LENDING COLLATERAL**–6.79% |
|
|
|
|
| |
| Short-Term Investments–6.79% |
|
|
|
|
| |
| Fixed Rate Notes–2.60% |
|
|
|
|
| |
| Abbey National 5.31% 7/2/07 |
| 1,858,706 |
| 1,858,706 |
| |
| American Express Centurion 5.32% 7/30/07 |
| 1,659,559 |
| 1,659,559 |
| |
| BNP Paribas 5.37% 7/2/07 |
| 752,333 |
| 752,333 |
| |
| Credit Agricole 5.31% 10/4/07 |
| 1,106,373 |
| 1,106,373 |
| |
| Den Danske Bank 5.38% 7/2/07 |
| 1,858,706 |
| 1,858,706 |
| |
| Fortis Bank 5.30% 7/23/07 |
| 995,735 |
| 995,735 |
| |
| HBOS Treasury Services 5.42% 7/2/07 |
| 1,858,706 |
| 1,858,706 |
| |
| ING Bank |
|
|
|
|
| |
| 5.31% 7/3/07 |
| 663,823 |
| 663,823 |
| |
| 5.33% 7/9/07 |
| 1,106,372 |
| 1,106,372 |
| |
| M&T 5.34% 7/2/07 |
| 1,858,706 |
| 1,858,706 |
| |
| Royal Bank of Canada 5.31% 7/23/07 |
| 1,659,559 |
| 1,659,559 |
| |
| Societe Generale 5.33% 7/2/07 |
| 861,635 |
| 861,635 |
| |
| Union Bank of Switzerland 5.33% 7/2/07 |
| 1,858,706 |
| 1,858,706 |
| |
|
|
|
|
| 18,098,919 |
| |
• | Variable Rate Notes–4.19% |
|
|
|
|
| |
| ANZ National 5.32% 7/29/08 |
| 221,274 |
| 221,274 |
| |
| Australia New Zealand 5.34% 7/29/08 |
| 1,106,372 |
| 1,106,372 |
| |
| Bank of New York 5.32% 7/29/08 |
| 885,098 |
| 885,098 |
| |
| Bayerische Landesbank 5.37% 7/29/08 |
| 1,106,373 |
| 1,106,373 |
| |
| Bear Stearns 5.38% 12/28/07 |
| 1,548,922 |
| 1,548,922 |
| |
| BNP Paribas 5.33% 7/29/08 |
| 1,106,372 |
| 1,106,372 |
| |
| Calyon 5.33% 8/14/07 |
| 553,186 |
| 553,186 |
| |
| Canadian Imperial Bank |
|
|
|
|
| |
| 5.32% 7/29/08 |
| 774,461 |
| 774,461 |
| |
| 5.33% 8/15/07 |
| 1,084,245 |
| 1,084,245 |
| |
| CDC Financial Products 5.43% 7/27/07 |
| 1,438,284 |
| 1,438,284 |
| |
| Citigroup Global Markets 5.45% 7/6/07 |
| 1,438,284 |
| 1,438,284 |
| |
| Commonwealth Bank 5.32% 7/29/08 |
| 1,106,373 |
| 1,106,373 |
| |
3
|
| Principal |
| Value |
| |||
SECURITIES LENDING COLLATERAL (continued) |
|
|
|
|
| |||
| Short-Term Investments (continued) |
|
|
|
|
| ||
• | Variable Rate Notes (continued) |
|
|
|
|
| ||
| Credit Suisse First Boston 5.32% 3/14/08 |
| $ | 1,106,373 |
| $ | 1,106,373 |
|
Deutsche Bank |
|
|
|
|
| |||
| 5.34% 8/20/07 |
| 1,548,922 |
| 1,548,922 |
| ||
5.34% 9/21/07 |
| 165,956 |
| 165,956 |
| |||
| Dexia Bank 5.32% 9/28/07 |
| 1,548,918 |
| 1,548,845 |
| ||
Goldman Sachs Group 5.52% 6/27/08 |
| 1,305,520 |
| 1,305,520 |
| |||
| Marshall & Ilsley Bank 5.32% 7/29/08 |
| 1,217,010 |
| 1,217,010 |
| ||
Morgan Stanley 5.56% 7/29/08 |
| 1,438,284 |
| 1,438,284 |
| |||
| National Australia Bank 5.31% 7/29/08 |
| 1,371,902 |
| 1,371,902 |
| ||
National Rural Utilities 5.33% 7/29/08 |
| 1,748,069 |
| 1,748,069 |
| |||
| Nordea Bank 5.33% 7/29/08 |
| 1,106,373 |
| 1,106,373 |
| ||
Royal Bank of Scotland Group 5.33% 7/29/08 |
| 1,106,373 |
| 1,106,373 |
| |||
| Societe Generale 5.31% 7/29/08 |
| 553,186 |
| 553,186 |
| ||
Sun Trust Bank 5.33% 7/30/07 |
| 1,438,284 |
| 1,438,284 |
| |||
| Wells Fargo 5.33% 7/29/08 |
| 1,106,373 |
| 1,106,373 |
| ||
|
|
|
| 29,130,714 |
| |||
| Total Securities Lending Collateral |
|
|
| 47,229,633 |
| ||
TOTAL VALUE OF SECURITIES–106.63% (cost $585,171,690) |
| 741,518,769 | v | |
OBLIGATION TO RETURN SECURITIES LENDING COLLATERAL**–(6.79%) |
| (47,229,633 | ) | |
RECEIVABLES AND OTHER ASSETS NET OF LIABILITIES–0.16% |
| 1,132,081 |
| |
NET ASSETS APPLICABLE TO 29,491,679 SHARES OUTSTANDING–100.00% |
| $ | 695,421,217 |
|
NET ASSET VALUE-DELAWARE VIP VALUE SERIES STANDARD CLASS ($510,259,656 / |
| $ | 23.59 |
|
NET ASSET VALUE-DELAWARE VIP VALUE SERIES SERVICE CLASS ($185,161,561 / |
| $ | 23.56 |
|
COMPONENTS OF NET ASSETS AT JUNE 30, 2007: |
|
|
| |
Shares of beneficial interest (unlimited authorization–no par) |
| $ | 531,514,112 |
|
Undistributed net investment income |
| 6,295,832 |
| |
Accumulated net realized gain on investments |
| 1,264,194 |
| |
Net unrealized appreciation of investments |
| 156,347,079 |
| |
Total net assets |
| $ | 695,421,217 |
|
* | Fully or partially on loan. |
• | Variable rate security. The rate shown is the rate as of June 30, 2007. |
** | See Note 8 in “Notes to Financial Statements.” |
v | Includes $46,688,858 of securities loaned. |
† | Non-income producing security for the period ended June 30, 2007. |
^ | Zero coupon security. The rate shown is the yield at the time of purchase. |
See accompanying notes
4
Delaware VIP Trust —
Delaware VIP Value Series
Statement of Operations
Six Months Ended June 30, 2007 (Unaudited)
INVESTMENT INCOME: |
|
|
| |
Dividends |
| $ | 8,541,779 |
|
Interest |
| 327,510 |
| |
Securities lending income |
| 27,861 |
| |
|
| 8,897,150 |
| |
|
|
|
| |
EXPENSES: |
|
|
| |
Management fees |
| 2,171,815 |
| |
Distribution expenses – Service Class |
| 246,139 |
| |
Accounting and administration expenses |
| 136,523 |
| |
Reports and statements to shareholders |
| 59,178 |
| |
Legal fees |
| 41,720 |
| |
Dividend disbursing and transfer agent fees and expenses |
| 34,131 |
| |
Audit and tax |
| 20,685 |
| |
Trustees’ fees and benefits |
| 16,744 |
| |
Insurance fees |
| 8,987 |
| |
Consulting fees |
| 5,100 |
| |
Custodian fees |
| 4,668 |
| |
Dues and services |
| 1,328 |
| |
Trustees’ expenses |
| 1,061 |
| |
Pricing fees |
| 199 |
| |
Registration fees |
| 141 |
| |
|
| 2,748,419 |
| |
Less management fees absorbed or waived |
| (123,972 | ) | |
Less waiver of distribution expenses – Service Class |
| (41,023 | ) | |
Less expense paid indirectly |
| (773 | ) | |
Total operating expenses |
| 2,582,651 |
| |
|
|
|
| |
NET INVESTMENT INCOME |
| 6,314,499 |
| |
|
|
|
| |
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS: |
|
|
| |
Net realized gain on investments |
| 5,818,481 |
| |
Net change in unrealized appreciation/depreciation of investments |
| 35,500,939 |
| |
|
|
|
| |
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS |
| 41,319,420 |
| |
|
|
|
| |
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS |
| $ | 47,633,919 |
|
Delaware VIP Trust —
Delaware VIP Value Series
Statements of Changes in Net Assets
|
| Six Months |
| Year Ended |
| ||
|
| (Unaudited) |
|
|
| ||
INCREASE IN NET ASSETS FROM OPERATIONS: |
|
|
|
|
| ||
Net investment income |
| $ | 6,314,499 |
| $ | 10,437,467 |
|
Net realized gain on investments |
| 5,818,481 |
| 18,468,335 |
| ||
Net change in unrealized appreciation/depreciation of investments |
| 35,500,939 |
| 83,021,350 |
| ||
Net increase in net assets resulting from operations |
| 47,633,919 |
| 111,927,152 |
| ||
|
|
|
|
|
| ||
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM: |
|
|
|
|
| ||
Net investment income: |
|
|
|
|
| ||
Standard Class |
| (8,265,695 | ) | (6,076,791 | ) | ||
Service Class |
| (2,192,836 | ) | (1,195,237 | ) | ||
Net realized gain on investments: |
|
|
|
|
| ||
Standard Class |
| (13,046,395 | ) | (8,040,632 | ) | ||
Service Class |
| (4,027,094 | ) | (1,846,025 | ) | ||
|
| (27,532,020 | ) | (17,158,685 | ) | ||
|
|
|
|
|
| ||
CAPITAL SHARE TRANSACTIONS: |
|
|
|
|
| ||
Proceeds from shares sold: |
|
|
|
|
| ||
Standard Class |
| 67,517,537 |
| 228,533,309 |
| ||
Service Class |
| 47,969,881 |
| 65,252,069 |
| ||
Net asset value of shares issued upon reinvestment of dividends and distributions: |
|
|
|
|
| ||
Standard Class |
| 21,312,090 |
| 14,117,423 |
| ||
Service Class |
| 6,219,930 |
| 3,041,262 |
| ||
|
| 143,019,438 |
| 310,944,063 |
| ||
Cost of shares repurchased: |
|
|
|
|
| ||
Standard Class |
| (91,292,781 | ) | (169,612,666 | ) | ||
Service Class |
| (17,337,806 | ) | (20,390,780 | ) | ||
|
| (108,630,587 | ) | (190,003,446 | ) | ||
Increase in net assets derived from capital share transactions |
| 34,388,851 |
| 120,940,617 |
| ||
|
|
|
|
|
| ||
NET INCREASE IN NET ASSETS |
| 54,490,750 |
| 215,709,084 |
| ||
|
|
|
|
|
| ||
NET ASSETS: |
|
|
|
|
| ||
Beginning of period |
| 640,930,467 |
| 425,221,383 |
| ||
End of period (including undistributed net investment income of $6,295,832 and $10,435,756, respectively) |
| $ | 695,421,217 |
| $ | 640,930,467 |
|
See accompanying notes
5
Delaware VIP Trust — Delaware VIP Value Series
Financial Highlights
Selected data for each share of the Series outstanding throughout each period were as follows:
|
| Delaware VIP Value Series Standard Class |
| ||||||||||||||||
|
| Six Months |
| Year Ended |
| ||||||||||||||
|
| 6/30/07(1) |
| 12/31/06 |
| 12/31/05 |
| 12/31/04 |
| 12/31/03 |
| 12/31/02 |
| ||||||
|
| (Unaudited) |
|
|
|
|
|
|
|
|
|
|
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Net asset value, beginning of period |
| $ | 22.980 |
| $ | 19.230 |
| $ | 18.460 |
| $ | 16.330 |
| $ | 13.000 |
| $ | 16.210 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Income (loss) from investment operations: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Net investment income(2) |
| 0.220 |
| 0.437 |
| 0.369 |
| 0.313 |
| 0.265 |
| 0.235 |
| ||||||
Net realized and unrealized gain (loss) on investments and foreign currencies |
| 1.344 |
| 4.075 |
| 0.722 |
| 2.082 |
| 3.337 |
| (3.215 | ) | ||||||
Total from investment operations |
| 1.564 |
| 4.512 |
| 1.091 |
| 2.395 |
| 3.602 |
| (2.980 | ) | ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Less dividends and distributions from: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Net investment income |
| (0.370 | ) | (0.328 | ) | (0.321 | ) | (0.265 | ) | (0.272 | ) | (0.230 | ) | ||||||
Net realized gain on investments |
| (0.584 | ) | (0.434 | ) | — |
| — |
| — |
| — |
| ||||||
Total dividends and distributions |
| (0.954 | ) | (0.762 | ) | (0.321 | ) | (0.265 | ) | (0.272 | ) | (0.230 | ) | ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Net asset value, end of period |
| $ | 23.590 |
| $ | 22.980 |
| $ | 19.230 |
| $ | 18.460 |
| $ | 16.330 |
| $ | 13.000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Total return(3) |
| 7.03 | % | 24.10 | % | 6.03 | % | 14.93 | % | 28.29 | % | (18.68 | )% | ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Ratios and supplemental data: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Net assets, end of period (000 omitted) |
| $ | 510,260 |
| $ | 497,525 |
| $ | 349,443 |
| $ | 310,704 |
| $ | 302,266 |
| $ | 240,752 |
|
Ratio of expenses to average net assets |
| 0.70 | % | 0.72 | % | 0.73 | % | 0.70 | % | 0.70 | % | 0.70 | % | ||||||
Ratio of expenses to average net assets prior to expense limitation and expenses paid indirectly |
| 0.73 | % | 0.77 | % | 0.78 | % | 0.75 | % | 0.75 | % | 0.75 | % | ||||||
Ratio of net investment income to average net assets |
| 1.91 | % | 2.12 | % | 1.98 | % | 1.87 | % | 1.88 | % | 1.61 | % | ||||||
Ratio of net investment income to average net assets prior to expense limitation and expenses paid indirectly |
| 1.88 | % | 2.07 | % | 1.93 | % | 1.82 | % | 1.83 | % | 1.56 | % | ||||||
Portfolio turnover |
| 21 | % | 14 | % | 23 | % | 124 | % | 79 | % | 100 | % |
(1) Ratios and portfolio turnover have been annualized and total return has not been annualized.
(2) The average shares outstanding method has been applied for per share information.
(3) Total investment return is based on the change in net asset value of a share during the period and assumes reinvestment of dividends and distributions at net asset value. Total investment return reflects waivers and payment of fees by the manager. Performance would have been lower had the waiver not been in effect.
See accompanying notes
6
Selected data for each share of the Series outstanding throughout each period were as follows:
|
| Delaware VIP Value Series Service Class |
| ||||||||||||||||
|
| Six Months |
| Year Ended |
| ||||||||||||||
|
| 6/30/07(1) |
| 12/31/06 |
| 12/31/05 |
| 12/31/04 |
| 12/31/03 |
| 12/31/02 |
| ||||||
|
| (Unaudited) |
|
|
|
|
|
|
|
|
|
|
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Net asset value, beginning of period |
| $ | 22.940 |
| $ | 19.200 |
| $ | 18.430 |
| $ | 16.320 |
| $ | 12.990 |
| $ | 16.200 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Income (loss) from investment operations: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Net investment income(2) |
| 0.191 |
| 0.385 |
| 0.323 |
| 0.271 |
| 0.233 |
| 0.214 |
| ||||||
Net realized and unrealized gain (loss) on investments and foreign currencies |
| 1.331 |
| 4.070 |
| 0.726 |
| 2.072 |
| 3.348 |
| (3.218 | ) | ||||||
Total from investment operations |
| 1.522 |
| 4.455 |
| 1.049 |
| 2.343 |
| 3.581 |
| (3.004 | ) | ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Less dividends and distributions from: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Net investment income |
| (0.318 | ) | (0.281 | ) | (0.279 | ) | (0.233 | ) | (0.251 | ) | (0.206 | ) | ||||||
Net realized gain on investments |
| (0.584 | ) | (0.434 | ) | — |
| — |
| — |
| — |
| ||||||
Total dividends and distributions |
| (0.902 | ) | (0.715 | ) | (0.279 | ) | (0.233 | ) | (0.251 | ) | (0.206 | ) | ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Net asset value, end of period |
| $ | 23.560 |
| $ | 22.940 |
| $ | 19.200 |
| $ | 18.430 |
| $ | 16.320 |
| $ | 12.990 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Total return(3) |
| 6.84 | % | 23.79 | % | 5.79 | % | 14.59 | % | 28.10 | % | (18.81 | )% | ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Ratios and supplemental data: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Net assets, end of period (000 omitted) |
| $ | 185,161 |
| $ | 143,405 |
| $ | 75,778 |
| $ | 33,642 |
| $ | 14,737 |
| $ | 5,463 |
|
Ratio of expenses to average net assets |
| 0.95 | % | 0.97 | % | 0.98 | % | 0.95 | % | 0.92 | % | 0.85 | % | ||||||
Ratio of expenses to average net assets prior to expense limitation and expenses paid indirectly |
| 1.03 | % | 1.07 | % | 1.08 | % | 1.05 | % | 1.00 | % | 0.90 | % | ||||||
Ratio of net investment income to average net assets |
| 1.66 | % | 1.87 | % | 1.73 | % | 1.62 | % | 1.66 | % | 1.46 | % | ||||||
Ratio of net investment income to average net assets prior to expense limitation and expenses paid indirectly |
| 1.58 | % | 1.77 | % | 1.63 | % | 1.52 | % | 1.58 | % | 1.41 | % | ||||||
Portfolio turnover |
| 21 | % | 14 | % | 23 | % | 124 | % | 79 | % | 100 | % |
(1) Ratios and portfolio turnover have been annualized and total return has not been annualized.
(2) The average shares outstanding method has been applied for per share information.
(3) Total investment return is based on the change in net asset value of a share during the period and assumes reinvestment of dividends and distributions at net asset value. Total investment return reflects waivers and payment of fees by the manager and distributor. Performance would have been lower had the waiver not been in effect.
See accompanying notes
7
Delaware VIP Trust — Delaware VIP Value Series
Notes to Financial Statements
June 30, 2007 (Unaudited)
Delaware VIP Trust (Trust) is organized as a Delaware statutory trust and offers 14 series: Delaware VIP Balanced Series, Delaware VIP Capital Reserves Series, Delaware VIP Cash Reserve Series, Delaware VIP Diversified Income Series, Delaware VIP Emerging Markets Series, Delaware VIP Growth Opportunities Series, Delaware VIP High Yield Series, Delaware VIP International Value Equity Series, Delaware VIP REIT Series, Delaware VIP Select Growth Series, Delaware VIP Small Cap Value Series, Delaware VIP Trend Series, Delaware VIP U.S. Growth Series and Delaware VIP Value Series. These financial statements and the related notes pertain to Delaware VIP Value Series (Series). The Trust is an open-end investment company. The Series is considered diversified under the Investment Company Act of 1940, as amended, and offers Standard Class and Service Class shares. The Standard Class shares do not carry a 12b-1 fee and the Service Class shares carry a 12b-1 fee. The shares of the Series are sold only to separate accounts of life insurance companies.
The investment objective of the Series is to seek long-term capital appreciation.
1. Significant Accounting Policies
The following accounting policies are in accordance with U.S. generally accepted accounting principles and are consistently followed by the Series.
Security Valuation—Equity securities, except those traded on the Nasdaq Stock Market, Inc. (Nasdaq), are valued at the last quoted sales price as of the time of the regular close of the New York Stock Exchange (NYSE) on the valuation date. Securities traded on the Nasdaq are valued in accordance with the Nasdaq Official Closing Price, which may not be the last sales price. If on a particular day an equity security does not trade, then the mean between the bid and asked prices will be used. Short-term debt securities having less than 60 days to maturity are valued at amortized cost, which approximates market value. Securities lending collateral is valued at amortized cost, which approximates value. Other securities and assets for which market quotations are not readily available are valued at fair value as determined in good faith under the direction of the Series’ Board of Trustees. In determining whether market quotations are readily available or fair valuation will be used, various factors will be taken into consideration, such as market closures, or with respect to foreign securities, aftermarket trading, or significant events after local market trading (e.g., government actions or pronouncements, trading volume or volatility on markets, exchanges among dealers, or news events).
In September 2006, the Financial Accounting Standards Board (FASB) issued FASB Statement No. 157 “Fair Value Measurements” (Statement 157). Statement 157 establishes a framework for measuring fair value in generally accepted accounting principles, clarifies the definition of fair value within that framework, and expands disclosures about the use of fair value measurements. Statement 157 is intended to increase consistency and comparability among fair value estimates used in financial reporting. Statement 157 is effective for fiscal years beginning after November 15, 2007. Management does not expect the adoption of Statement 157 to have an impact on the amounts reported in the financial statements.
Federal Income Taxes—The Series intends to continue to qualify for federal income tax purposes as a regulated investment company and make the requisite distributions to shareholders. Accordingly, no provision for federal income taxes has been made in the financial statements.
Effective June 29, 2007, the Series adopted FASB Interpretation No. 48 “Accounting for Uncertainty in Income Taxes” (FIN 48). FIN 48 provides guidance for how uncertain tax positions should be recognized, measured, presented, and disclosed in the financial statements. FIN 48 requires the evaluation of tax positions taken or expected to be taken in the course of preparing the Series’ tax returns to determine whether the tax positions are “more-likely-than-not” of being sustained by the applicable tax authority. Tax positions not deemed to meet the more-likely-than-not threshold are recorded as a tax benefit or expense in the current year. The adoption of FIN 48 did not result in the recording of any tax benefit or expense in the current period.
Class Accounting—Investment income, common expenses and realized and unrealized gain (loss) on investments are allocated to the classes of the Series on the basis of daily net assets of each class. Distribution expenses relating to a specific class are charged directly to that class.
Repurchase Agreements—The Series may invest in a pooled cash account along with members of the Delaware Investments® Family of Funds pursuant to an exemptive order issued by the Securities and Exchange Commission. The aggregate daily balance of the pooled cash account is invested in repurchase agreements secured by obligations of the U.S. government. The respective collateral is held by the Series’ custodian bank until the maturity of the respective repurchase agreements. Each repurchase agreement is at least 102% collateralized. However, in the event of default or bankruptcy by the counterparty to the agreement, realization of the collateral may be subject to legal proceedings.
Use of Estimates—The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Other—Expenses directly attributable to the Series are charged directly to the Series. Other expenses common to various funds within the Delaware Investments® Family of Funds are generally allocated amongst such funds on the basis of average net assets. Management fees and some other expenses are paid monthly. Security transactions are recorded on the date the securities are purchased or sold (trade date) for financial reporting purposes. Costs used in calculating realized gains and losses on the sale of investment securities are those of the specific securities sold. Dividend income is recorded on the ex-dividend date and interest income is recorded on the accrual basis.
The Series declares and pays dividends from net investment income and distributions from net realized gain on investments, if any, following the close of the fiscal year.
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Subject to seeking best execution, the Series may direct certain security trades to brokers who have agreed to rebate a portion of the related brokerage commission to the Series in cash. Such commission rebates are included in realized gain on investments in the accompanying financial statements and totaled $1,089 for the six months ended June 30, 2007. In general, best execution refers to many factors, including the price paid or received for a security, the commission charged, the promptness and reliability of execution, the confidentiality and placement accorded the order, and other factors affecting the overall benefit obtained by the Series on the transaction.
The Series receives earnings credits from its custodian when positive cash balances are maintained, which are used to offset custody fees. The expense paid under this arrangement is included in custodian fees on the Statement of Operations with the corresponding expense offset shown as “expense paid indirectly.”
2. Investment Management, Administration Agreements and Other Transactions with Affiliates
In accordance with the terms of its investment management agreement, the Series pays Delaware Management Company (DMC), a series of Delaware Management Business Trust and the investment manager, an annual fee which is calculated daily at the rate of 0.65% on the first $500 million of average daily net assets of the Series, 0.60% on the next $500 million, 0.55% on the next $1.5 billion, and 0.50% on average daily net assets in excess of $2.5 billion. DMC has voluntarily agreed to waive management fees in the amount of 0.05% on the first $500 million of average daily net assets until such time as the waiver is discontinued. The waiver may be discontinued at any time because it is voluntary.
Prior to May 1, 2007, DMC had also contractually agreed to waive that portion, if any, of its management fee and reimburse the Series to the extent necessary to ensure that annual operating expenses, exclusive of taxes, interest, brokerage commissions, inverse floater program expenses, 12b-1 plan expenses, certain insurance costs and non-routine expenses or costs including, but not limited to, those relating to reorganizations, litigation, certain Trustee retirement plan expenses, conducting shareholder meetings, and liquidations, did not exceed 0.86% of average daily net assets of the Series through April 30, 2007. No reimbursement was due for the six months ended June 30, 2007 under the limitation agreement.
Delaware Service Company, Inc. (DSC), an affiliate of DMC, provides accounting, administration, dividend disbursing and transfer agent services. The Series pays DSC a monthly fee computed at the annual rate of 0.04% of the Series’ average daily net assets for accounting and administrative services. The Series pays DSC a monthly fee based on average net assets for dividend disbursing and transfer agent services.
Pursuant to a distribution agreement and distribution plan, the Series pays Delaware Distributors, L.P. (DDLP), the distributor and an affiliate of DMC, an annual distribution and service fee not to exceed 0.30% of the average daily net assets of the Service Class shares. DDLP has contracted to waive distribution and service fees through April 30, 2008 in order to prevent distribution and service fees of the Service Class shares from exceeding 0.25% of average daily net assets. Standard Class shares pay no distribution and service expenses.
At June 30, 2007, the Series had liabilities payable to affiliates as follows:
Investment |
| Dividend Disbursing, |
| Distribution |
| Other |
| ||||
$ | 343,184 |
| $ | 28,608 |
| $ | 38,033 |
| $ | 47,628 |
|
* DMC, as part of its administrative services, pays operating expenses on behalf of the Series and is reimbursed on a periodic basis. Such expenses include items such as printing of shareholder reports, fees for audit, legal and tax services, custodian fees and trustees’ fees.
As provided in the investment management agreement, the Series bears the cost of certain legal and tax services, including internal legal and tax services provided to the Series by DMC and/or its affiliates’ employees. For the six months ended June 30, 2007, the Series was charged $15,406 for internal legal and tax services provided by DMC and/or its affiliates’ employees.
Trustees’ fees and benefits include expenses accrued by the Series for each Trustee’s retainer, per meeting fees and retirement benefits. Independent Trustees with over five years of uninterrupted service were eligible to participate in a retirement plan that provides for the payment of benefits upon retirement. The amount of the retirement benefit was determined based on factors set forth in the plan, including the number of years of service. On November 16, 2006, the Board of Trustees unanimously voted to terminate the retirement plan. Payments equal to the net present value of the earned benefits were made in 2007 to those independent Trustees so entitled. The retirement benefit payout for the Series was $67,805. Certain officers of DMC, DSC and DDLP are officers and/or Trustees of the Trust. These officers and Trustees are paid no compensation by the Series.
3. Investments
For the six months ended June 30, 2007, the Series made purchases and sales of investment securities other than short-term investments as follows:
Purchases |
| $ | 92,591,603 |
|
Sales |
| 70,002,436 |
|
7
At June 30, 2007, the cost of investments for federal income tax purposes has been estimated since the final tax characteristics cannot be determined until fiscal year end. At June 30, 2007, the cost of investments and unrealized appreciation (depreciation) for the Series were as follows:
Cost of |
| Aggregate |
| Aggregate |
| Net Unrealized |
| ||||
$ | 586,470,595 |
| $ | 156,215,023 |
| $ | (1,166,849 | ) | $ | 155,048,174 |
|
4. Dividend and Distribution Information
Income and long-term capital gain distributions are determined in accordance with federal income tax regulations, which may differ from U.S. generally accepted accounting principles. Additionally, net short-term gains on sales of investment securities are treated as ordinary income for federal income tax purposes. The tax character of dividends and distributions paid during the six months ended June 30, 2007 and the year ended December 31, 2006 was as follows:
| Six Months |
| Year |
| |||
Ordinary income |
| $ | 12,074,366 |
| $ | 7,279,764 |
|
Long-term capital gain |
| 15,457,654 |
| 9,878,921 |
| ||
| $ | 27,532,020 |
| $ | 17,158,685 |
|
* Tax information for the six months ended June 30, 2007 is an estimate and the tax character of dividends and distributions may be redesignated at fiscal year end.
5. Components of Net Assets on a Tax Basis
The components of net assets are estimated since final tax characteristics cannot be determined until fiscal year end. As of June 30, 2007, the estimated components of net assets on a tax basis were as follows:
Shares of beneficial interest |
| $ | 531,514,112 |
|
Undistributed ordinary income |
| 6,295,832 |
| |
*Capital loss carryforwards as of 12/31/06 |
| (3,436,856 | ) | |
Realized gains 1/1/07 – 6/30/07 |
| 5,999,955 |
| |
Unrealized appreciation of investments |
| 155,048,174 |
| |
Net assets |
| $ | 695,421,217 |
|
The differences between book basis and tax basis components of net assets are primarily attributable to tax deferral of losses on wash sales.
For financial reporting purposes, capital accounts are adjusted to reflect the tax character of permanent book/tax differences. Reclassifications are primarily due to tax treatment of dividends and distributions. Results of operations and net assets were not affected by these reclassifications. For the six months ended June 30, 2007, the Series recorded an estimate of these differences since the final tax characteristics cannot be determined until fiscal year end:
Undistributed |
| Accumulated |
| ||
$ | 4,108 |
| $ | (4,108 | ) |
For federal income tax purposes, capital loss carryforwards may be carried forward and applied against future capital gains. Capital loss carryforwards remaining at December 31, 2006 will expire as follows: $1,956,870 expires in 2009 and $1,479,986 expires in 2010.
* The amount of this loss which can be utilized in subsequent years is subject to an annual limitation in accordance with the Internal Revenue Code due to the fund merger with Delaware VIP Devon Series in 2003.
For the six months ended June 30, 2007, the Series had capital gains of $5,999,955, which may reduce the capital loss carryforwards.
8
6. Capital Shares
Transactions in capital shares were as follows:
| Six Months |
| Year |
| |
Shares sold: |
|
|
|
|
|
Standard Class |
| 2,910,973 |
| 11,365,108 |
|
Service Class |
| 2,074,743 |
| 3,147,358 |
|
Shares issued upon reinvestment of dividends and distributions: |
|
|
|
|
|
Standard Class |
| 952,708 |
| 713,001 |
|
Service Class |
| 278,172 |
| 153,599 |
|
|
| 6,216,596 |
| 15,379,066 |
|
Shares repurchased: |
|
|
|
|
|
Standard Class |
| (3,876,174 | ) | (8,598,802 | ) |
Service Class |
| (746,264 | ) | (996,179 | ) |
|
| (4,622,438 | ) | (9,594,981 | ) |
Net increase |
| 1,594,158 |
| 5,784,085 |
|
7. Line of Credit
The Series, along with certain other funds in the Delaware Investments® Family of Funds (Participants), participates in a $225,000,000 revolving line of credit facility to be used for temporary or emergency purposes as an additional source of liquidity to fund redemptions of investor shares. The Participants are charged an annual commitment fee, which is allocated across the Participants on the basis of each fund’s allocation of the entire facility. The Participants may borrow up to a maximum of one third of their net assets under the agreement. The Series had no amounts outstanding as of June 30, 2007, or at any time during the period then ended.
8. Securities Lending
The Series, along with other funds in the Delaware Investments Family® of Funds, may lend its securities pursuant to a security lending agreement (Lending Agreement) with JPMorgan Chase. Initial security loans made pursuant to the Lending Agreement are required to be secured by U.S. government obligations and/or cash collateral not less than 102% of the value of the securities issued in the United States and 105% of the value of securities issued outside the United States. With respect to each loan, if the aggregate value of the collateral held on any business day is less than the aggregate value of the securities which are the subject of such loan, the borrower will be notified to provide additional collateral not less than the applicable collateral requirements. Cash collateral received is invested in fixed income securities, with a weighted average maturity not to exceed 90 days, rated in one of the top two tiers by Standard & Poor’s Ratings Group or Moody’s Investors Service, Inc. or repurchase agreements collateralized by such securities. However, in the event of default or bankruptcy by the lending agent, realization and/or retention of the collateral may be subject to legal proceedings. In the event the borrower fails to return loaned securities and the collateral received is insufficient to cover the value of the loaned securities and provided such collateral shortfall is not the result of investment losses, the lending agent has agreed to pay the amount of the shortfall to the Series, or at the discretion of the lending agent, replace the loaned securities. The Series continues to record dividends on the securities loaned and is subject to change in value of the securities loaned that may occur during the term of the loan. The Series has the right under the Lending Agreement to recover the securities from the borrower on demand. The security lending agent and the borrower retain a portion of the earnings from the collateral investments. The Series records security lending income net of such allocation.
At June 30, 2007, the market value of securities on loan was $46,688,858, for which cash collateral was received and invested in accordance with the Lending Agreement. Such investments are presented on the Statement of Net Assets under the caption “Securities Lending Collateral.”
9. Credit and Market Risk
The Series may invest up to 10% of its total assets in illiquid securities, which may include securities with contractual restrictions on resale, securities exempt from registration under Rule 144A of the Securities Act of 1933, as amended, and other securities which may not be readily marketable. The relative illiquidity of these securities may impair the Series from disposing of them in a timely manner and at a fair price when it is necessary or desirable to do so. While maintaining oversight, the Series’ Board of Trustees has delegated to DMC the day-to-day functions of determining whether individual securities are liquid for purposes of the Series’ limitation on investments in illiquid assets. As of June 30, 2007, there were no Rule 144A securities and no securities have been determined to be illiquid under the Series’ Liquidity Procedures.
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10. Contractual Obligations
The Series enters into contracts in the normal course of business that contain a variety of indemnifications. The Series’ maximum exposure under these arrangements is unknown. However, the Series has not had prior claims or losses pursuant to these contracts. Management has reviewed the Series’ existing contracts and expects the risk of loss to be remote.
11. Subsequent Event
The Series has a new securities lending agreement with Mellon Bank, N.A. as of August 2, 2007.
The Series files its complete schedule of portfolio holdings with the Securities and Exchange Commission (the Commission) for the first and third quarters of each fiscal year on Form N-Q. The Series’ Forms N-Q as well as a description of the policies and procedures that the Series uses to determine how to vote proxies (if any) relating to portfolio securities is available without charge (i) upon request, by calling 800 523-1918; and (ii) on the Commission’s website at http://www.sec.gov. In addition, a description of the policies and procedures that the Series uses to determine how to vote proxies (if any) relating to portfolio securities is available without charge on the Delaware Investments® Funds’ website at http://www.delawareinvestments.com. The Series’ Forms N-Q may be reviewed and copied at the Commission’s Public Reference Room in Washington, DC; information on the operation of the Public Reference Room may be obtained by calling 800 SEC-0330.
Information (if any) regarding how the Series voted proxies relating to portfolio securities during the most recently disclosed 12-month period ended June 30 is available without charge (i) through the Delaware Investments® Funds’ website at http://www.delawareinvestments.com; and (ii) on the Commission’s website at http://www.sec.gov.
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Delaware VIP Trust — Delaware VIP Value Series
Other Series Information
Board Consideration of Delaware VIP Value Series Investment Advisory Agreement
At a meeting held on May 16-17, 2007 (Annual Meeting), the Board of Trustees (Board), including a majority of disinterested or independent Trustees, approved the renewal of the Investment Advisory Agreement for the VIP Value Series (Series). In making its decision, the Board considered information furnished throughout the year at regular Board meetings, including reports detailing Series performance, investment strategies and expenses, as well as information prepared specifically in connection with the renewal of the investment advisory contracts. Information furnished specifically in connection with the renewal of the Investment Advisory Agreement with Delaware Management Company (DMC) included materials provided by DMC and its affiliates (Delaware Investments) concerning, among other things, the level of services provided to the Series, the costs of such services to the Series, economies of scale and the financial condition and profitability of Delaware Investments. In addition, in connection with the Meeting, the Board separately received and reviewed in mid-January 2007 independent historical and comparative reports prepared by Lipper Inc. (Lipper), an independent statistical compilation organization. The Lipper reports compared the Series’ investment performance and expenses with those of other comparable mutual funds. The Board requested and received certain information regarding management’s policy with respect to advisory fee levels and its philosophy with respect to breakpoints; the structure of portfolio manager compensation; the investment manager’s profitability; and any constraints or limitations on the availability of securities in certain investment styles which might inhibit DMC’s ability to fully invest in accordance with the Series’ policies.
In considering information relating to the approval of the Series’ advisory agreement, the independent Trustees received assistance and advice from and met separately with independent counsel. While attention was given to all information furnished, the following discusses under separate headings the primary factors taken into account by the Board in its contract renewal considerations.
NATURE, EXTENT AND QUALITY OF SERVICE. Consideration was given to the services provided by Delaware Investments to the Series and its shareholders. In reviewing the nature, extent and quality of services, the Board emphasized reports furnished to it throughout the year at regular Board meetings covering matters such as the relative performance of the Series, compliance of portfolio managers with the investment policies, strategies and restrictions for the Series, the compliance of management personnel with the Code of Ethics adopted throughout the Delaware Investments® Family of Funds complex and the adherence to fair value pricing procedures as established by the Board. The Board noted that it was pleased with the current staffing of the Series’ investment advisor and the emphasis placed on research in the investment process. Favorable consideration was given to DMC’s efforts to maintain, and in some instances increase, financial and human resources committed to fund matters. The Board also considered the transfer agent and shareholder services provided to Series shareholders by Delaware Investments’ affiliate, Delaware Service Company, Inc. (DSC), noting DSC’s commitment to maintain a high level of service and the continuing expenditures by Delaware Investments to improve the delivery of shareholder services. During 2006, management conducted extensive research into alternatives that could further improve the quality and cost of delivering investment accounting services to the Fund. The Board was satisfied with the nature, extent and quality of the overall services provided by Delaware Investments.
INVESTMENT PERFORMANCE. The Board considered the investment performance of DMC and the Series. The Board placed significant emphasis on the investment performance of the Series in view of its importance to shareholders. While consideration was given to performance reports and discussions with portfolio managers at Board meetings throughout the year, particular weight was given to the Lipper reports furnished for the Annual Meeting. The Lipper reports prepared for the Series showed the investment performance of its Standard Class shares in comparison to a group of similar funds as selected by Lipper (Performance Universe). A fund with the best performance ranked first, and a fund with the poorest ranked last. The highest/best performing 25% of funds in the Performance Universe make up the first quartile; the next 25% — the second quartile; the next 25% — the third quartile; and the poorest/worst performing 25% of funds in the Performance Universe make up the fourth quartile. Comparative annualized performance for the Series was shown for the past one, three, five and ten year periods ended December 31, 2006. The Board also considered comparative annualized performance for the Series for the same periods ended October 31, 2006. The performance comparison presented below is based upon the December 31, 2006 information. The Board noted its objective that the Series’ performance for the periods considered be at or above the median of its Performance Universe. The following paragraph summarizes the performance results for the Series and the Board’s view of such performance.
The Performance Universe for the Series consisted of the Series and all large-cap value funds underlying variable insurance products as selected by Lipper. The Lipper report comparison showed that the Series’ total return for the one, three and five year periods was in the first quartile of its Performance Universe. The report further showed that the Series’ total return for the ten year period was in the second quartile. The Board was satisfied with performance. Additionally, the Board was pleased with management’s efforts to increase portfolio management depth, noting particularly the recent hire of a new head of the equity department.
COMPARATIVE EXPENSES. The Board considered expense comparison data for the Delaware Investments Family of Funds as of October 31, 2006. Management provided the Board with information on pricing levels and fee structures for the Series. The Board focused particularly on the comparative analysis of the effective management fees and total expense ratios of the Series and the effective management fees and expense ratios of a group of similar funds as selected by Lipper (Expense Group). In reviewing comparative costs, the Series’ contractual management fee and the actual management fee incurred by the Series were compared with the contractual management fees (assuming all funds in the Expense Group were similar in size to the Series) and actual management fees (as reported by each fund) of other funds within the Expense Group, taking into account any applicable breakpoints and fee waivers. The Series’ total expenses were also compared with those of its Expense Group. The Lipper total expenses, for comparative consistency, were shown by Lipper for Standard Class shares which do not charge 12b-1 and non-12b-1 service fees. The Board also considered fees paid to Delaware Investments for non-management services. The Board noted its objective to limit the Series’ total expense ratio to an acceptable range as compared to the median of the Expense Group. The following paragraph summarizes the expense results for the Series and the Board’s view of such expenses.
The expense comparisons for the Series showed that its actual management fee was in the quartile with the lowest expenses of its Expense Group and its total expenses were in the quartile with the second highest expenses of its Expense Group. The Board gave favorable consideration to the Series’ management fee, but noted that the Series’ total expenses were not in line with the Board’s objective. In evaluating the total expenses, the Board considered fee waivers in place through April 1, 2007 and recent initiatives implemented by management, such as the outsourcing of certain transfer agency services, creating an opportunity for a reduction in expenses. The Board was satisfied with management’s efforts to improve the Series’ total expense ratio and bring it in line with the Board’s objective.
11
MANAGEMENT PROFITABILITY. The Board considered the level of profits, if any, realized by Delaware Investments in connection with the operation of the Series. In this respect, the Board reviewed the Investment Management Profitability Analysis that addressed the overall profitability of Delaware Investments’ business in providing management and other services to each of the individual funds and the Delaware Investments® Family of Funds as a whole. Specific attention was given to the methodology followed in allocating costs for the purpose of determining profitability. Management stated that the level of profits of Delaware Investments, to a certain extent, reflected operational cost savings and efficiencies initiated by Delaware Investments. The Board considered Delaware Investments’ efforts to improve services provided to fund shareholders and to meet additional regulatory and compliance requirements resulting from recent Securities and Exchange Commission initiatives. The Board also considered the extent to which Delaware Investments might derive ancillary benefits from fund operations, including the potential for procuring additional business as a result of the prestige and visibility associated with its role as service provider to the Delaware Investments Family of Funds and the benefits from allocation of fund brokerage to improve trading efficiencies. The Board found that the level of management fees was reasonable in light of the services rendered and the profitability of Delaware Investments.
ECONOMIES OF SCALE. The Trustees considered whether economies of scale are realized by Delaware Investments as the Series’ assets increase and the extent to which any economies of scale are reflected in the level of management fees charged. The Trustees took into account the standardized advisory fee pricing and structure, approved by the Board and shareholders and again reviewed by the Board this year, which includes breakpoints. Breakpoints in the advisory fee occur when the advisory fee rate is reduced on assets in excess of specified levels. This results in a lower advisory fee than would otherwise be the case on all assets when those asset levels specified are exceeded. The Board noted that the fee under the Series’ management contract fell within the standard structure. The Board also noted that the Series’ assets exceeded the first breakpoint level. The Board believed that, given the extent to which economies of scale might be realized by the advisor and its affiliates, the schedule of fees under the Investment Advisory Agreement provides a sharing of benefits with the Series and its shareholders.
12
Item 2. Code of Ethics
Not applicable.
Item 3. Audit Committee Financial Expert
Not applicable.
Item 4. Principal Accountant Fees and Services
Not applicable.
Item 5. Audit Committee of Listed Registrants
Not applicable.
Item 6. Schedule of Investments
Included as part of report to shareholders filed under Item 1 of this Form N-CSR.
Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End Management Investment Companies
Not applicable.
Item 8. Portfolio Managers of Closed-End Management Investment Companies
Not applicable.
Item 9. Purchases of Equity Securities by Closed-End Management Investment Companies and Affiliated Purchasers
Not applicable.
Item 10. Submission of Matters to a Vote of Security Holders
Not applicable.
Item 11. Controls and Procedures
The registrant’s principal executive officer and principal financial officer have evaluated the registrant’s disclosure controls and procedures within 90 days of the filing of this report and have concluded that they are effective in providing reasonable assurance that the information required to be disclosed by the registrant in its reports or
statements filed under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission.
There were no significant changes in the registrant’s internal control over financial reporting that occurred during the second fiscal quarter of the period covered by the report to stockholders included herein (i.e., the registrant’s second fiscal quarter) that have materially affected, or are reasonably likely to materially affect, the registrant’s internal control over financial reporting.
Item 12. Exhibits
(a) (1) Code of Ethics
Not applicable.
(2) Certifications of Principal Executive Officer and Principal Financial Officer pursuant to Rule 30a-2 under the Investment Company Act of 1940 are attached hereto as Exhibit 99.CERT.
(3) Written solicitations to purchase securities pursuant to Rule 23c-1 under the Securities Exchange Act of 1934.
Not applicable.
(b) Certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 are furnished herewith as Exhibit 99.906CERT.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf, by the undersigned, thereunto duly authorized.
Name of Registrant: Delaware VIP Trust
PATRICK P. COYNE |
| |
By: | Patrick P. Coyne | |
Title: | Chief Executive Officer | |
Date: | September 5, 2007 | |
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
PATRICK P. COYNE |
| |
By: | Patrick P. Coyne | |
Title: | Chief Executive Officer | |
Date: | September 5, 2007 | |
RICHARD SALUS |
| |
By: | Richard Salus | |
Title: | Chief Financial Officer | |
Date: | September 5, 2007 | |