Selected data for each share of the Series outstanding throughout each period were as follows:
Delaware VIP® Trust — Delaware VIP High Yield Series
Notes to Financial Statements
June 30, 2009 (Unaudited)
Delaware VIP Trust (Trust) is organized as a Delaware statutory trust and offers 13 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 Limited-Term Diversified Income Series (formerly, Delaware VIP Capital Reserves 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 ask prices will be used. Other debt securities, credit default swap (CDS) contracts and interest rate swap contracts are valued by an independent pricing service or broker. To the extent current market prices are not available, the pricing service may take into account developments related to the specific security, as well as transactions in comparable securities. Investment companies are valued at net asset value per share. Generally, 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 (Board). 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 suspension of trading in a security. The Series may use fair value pricing more frequently for securities traded primarily in non-U.S. markets because, among other things, most foreign markets close well before the Series values its securities at 4:00 p.m. Eastern time. The earlier close of these foreign markets gives rise to the possibility that significant events, including broad market moves, government actions or pronouncements, aftermarket trading, or news events may have occurred in the interim. To account for this, the Series may frequently value foreign securities using fair value prices based on third-party vendor modeling tools (international fair value pricing).
Federal Income Taxes—No provision for federal income taxes has been made as the Series intends to continue to qualify for federal income tax purposes as a regulated investment company under Subchapter M of the Internal Revenue Code of 1986, as amended, and make the requisite distributions to shareholders. The Series evaluates 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 Series did not record 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 other 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. At June 30, 2009, the Series held no investments in repurchase agreements.
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. 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. There were no earnings credits for the six months ended June 30, 2009.
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.
High Yield Series-13
Delaware VIP® High Yield Series
Notes to Financial Statements (continued)
2. Investment Management, Administration Agreements and Other Transactions with Affiliates (continued)
Effective May 1, 2009, DMC has voluntarily agreed to waive that portion, if any, of its management fee and/or pay/reimburse the Series to the extent necessary to ensure that total annual operating expenses (excluding any 12b-1 plan expenses, taxes, interest, inverse floater program expenses, brokerage fees, certain insurance costs and nonroutine expenses or costs including, but not limited to, those relating to reorganizations, litigation, conducting shareholder meetings, and liquidations (collectively, “nonroutine expenses”)) do not exceed 0.77% of average daily net assets of the Series until such time as the voluntary expense cap is discontinued. Prior to May 1, 2009, 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 the total annual operating expenses (excluding any 12b-1 plan expenses, taxes, interest, inverse floater program expenses, brokerage fees, certain insurance costs, and nonroutine expenses did not exceed 0.74% of average daily net assets of the Series through April 30, 2009. For purposes of this waiver and reimbursement, nonroutine expenses may also include such additional costs and expenses, as may be agreed upon from time to time by the Series’ Board and DMC. This expense waiver and reimbursement applies only to expenses paid directly by the Series, and may be discontinued at any time because they are voluntary.
Delaware Service Company, Inc. (DSC), an affiliate of DMC, provides fund accounting and financial administration oversight services to the Series. For these services, the Series pays DSC fees based on the aggregate daily net assets of the Delaware Investments® Family of Funds at the following annual rate: 0.0050% of the first $30 billion; 0.0045% of the next $10 billion; 0.0040% of the next $10 billion; and 0.0025% of aggregate average daily net assets in excess of $50 billion. The fees payable to DSC under the service agreement described above are allocated among all funds in the Delaware Investments Family of Funds on a relative net asset value basis. For the six months ended June 30, 2009, the Series was charged $8,160 for these services.
DSC also provides dividend disbursing and transfer agency services. The Series pays DSC a monthly fee based on the number of shareholder accounts 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, 2010 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, 2009, the Series had liabilities payable to affiliates as follows:
| | | Dividend Disbursing, | | | | Other |
| Investment | | Transfer Agent and Fund | | | | Expenses |
| Management | | Accounting Oversight | | Distribution | | Payable |
| Fee Payable to | | Fees and Other Expenses | | Fee Payable | | to DMC |
| DMC | | Payable to DSC | | to DDLP | | and Affiliates* |
| $208,080 | | $4,297 | | $53,512 | | $5,728 |
____________________
*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, 2009, the Series was charged $18,747 for internal legal and tax services provided by DMC and/ or its affiliates’ employees.
Trustees’ fees include expenses accrued by the Series for each Trustee’s retainer and meeting fees. 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, 2009, the Series made purchases and sales of investment securities other than short-term investments as follows:
| Purchases | $ | 213,702,225 |
| Sales | $ | 138,487,954 |
At June 30, 2009, the cost of investments for federal income tax purposes has been estimated since final tax characteristics cannot be determined until fiscal year end. At June 30, 2009, the cost of investments and unrealized appreciation (depreciation) for the Series were as follows:
| | | Aggregate | | Aggregate | | |
| Cost of | | Unrealized | | Unrealized | | Net Unrealized |
| Investments | | Appreciation | | Depreciation | | Appreciation |
| $392,711,007 | | $22,079,032 | | $(18,490,241) | | $3,588,791 |
High Yield Series-14
Delaware VIP® High Yield Series
Notes to Financial Statements (continued)
3. Investments (continued)
The Series applies Financial Accounting Standards No. 157, Fair Value Measurements (FAS 157). FAS 157 defines fair value as the price that the Series would receive to sell an asset or pay to transfer a liability in an orderly transaction between market participants at the measurement date under current market conditions. FAS 157 also establishes a framework for measuring fair value and a three level hierarchy for fair value measurements based upon the transparency of inputs to the valuation of an asset or liability. Inputs may be observable or unobservable and refer broadly to the assumptions that market participants would use in pricing the asset or liability. Observable inputs reflect the assumptions market participants would use in pricing the asset or liability based on market data obtained from sources independent of the reporting entity. Unobservable inputs reflect the reporting entity’s own assumptions about the assumptions that market participants would use in pricing the asset or liability developed based on the best information available under the circumstances. The Series’ investment in its entirety is assigned a level based upon the observability of the inputs which are significant to the overall valuation. The three-tier hierarchy of inputs is summarized below.
Level 1 – inputs are quoted prices in active markets
Level 2 – inputs are observable, directly or indirectly
Level 3 – inputs are unobservable and reflect assumptions on the part of the reporting entity
The following table summarizes the valuation of the Series’ investments by the FAS 157 fair value hierarchy levels as of June 30, 2009:
| Level 1 | | Level 2 | | Level 3 | | Total |
| Corporate Debt | $ | – | | $ | 366,132,056 | | $ | 404,836 | | $ | 366,536,892 |
| Common Stock | | 2,044,813 | | | – | | | 19 | | | 2,044,832 |
| Short Term | | – | | | 5,262,895 | | | – | | | 5,262,895 |
| U.S. Treasury Obligations | | 1,291,149 | | | – | | | – | | | 1,291,149 |
| Other | | – | | | 921,173 | | | 4 | | | 921,177 |
| Securities Lending Collateral | | 6,893,355 | | | 13,349,449 | | | 49 | | | 20,242,853 |
| Total | $ | 10,229,317 | | $ | 385,665,573 | | $ | 404,908 | | $ | 396,299,798 |
The following is a reconciliation of investments in which significant unobservable inputs (Level 3) were used in determining fair value:
| | | | | | | | | | | | | | | | | | Securities |
| Total | | Corporate | | Common | | | | | | Lending |
| Series | | Debt | | Stock | | Other | | Collateral |
| Balance as of 12/31/08 | | $ | 402,947 | | | $ | 386,715 | | | $ | 19 | | | $ | 4 | | | $ | 16,209 | |
| Net change in unrealized appreciation/depreciation | | | (16,160 | ) | | | – | | | | – | | | | – | | | | (16,160 | ) |
| Net purchases, sales, and settlements | | | 18,121 | | | | | 18,121 | | | | | – | | | | | – | | | | | – | |
| Balance as of 6/30/09 | | $ | 404,908 | | | | $ | 404,836 | | | | $ | 19 | | | | $ | 4 | | | | $ | 49 | |
| |
| Net change in unrealized appreciation/depreciation | | | | | | | | | | | | | | | | | | | | |
| from investments still held as of 6/30/09 | | $ | (16,160 | ) | | $ | – | | | | $ | – | | | | $ | – | | | $ | (16,160 | ) |
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, distributions from 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, 2009 and the year ended December 31, 2008 was as follows:
| | Six Months | | Year |
| | Ended | | Ended |
| | 6/30/09* | | 12/31/08 |
| Ordinary income | | $26,733,071 | | $26,514,981 |
____________________
*Tax information for the period ended June 30, 2009 is an estimate and the tax character of dividends and distributions may be redesignated at fiscal year end.
High Yield Series-15
Delaware VIP® High Yield Series
Notes to Financial Statements (continued)
5. Components of Net Assets on a Tax Basis
The components of net assets are estimated since the final tax characteristics cannot be determined until fiscal year end. As of June 30, 2009, the estimated components of net assets on a tax basis were as follows:
| Shares of beneficial interest | $ | 464,000,320 | |
| Undistributed ordinary income | | 15,136,454 | |
| Capital loss carryforwards as of 12/31/08 | | (59,562,179 | ) |
| Realized losses 1/1/09 – 6/30/09 | | (34,926,774 | ) |
| Unrealized appreciation of investments | | 3,588,791 | |
| Net assets | $ | 388,236,612 | |
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 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 market discount and premium on certain debt instruments and tax treatment of CDS contracts. Results of operations and net assets were not affected by these reclassifications. For the six months ended June 30, 2009, the Series recorded an estimate of these differences since final tax characteristics cannot be determined until fiscal year end.
| Undistributed | | Accumulated |
| Net Investment | | Net Realized |
| Income | | Loss |
| $(1,288,521) | | $1,288,521 |
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, 2008 will expire as follows: $18,082,790 expires in 2009; $4,569,135 expires in 2010; $561,008 expires in 2015; and $36,349,246 expires in 2016.
For the six months ended June 30, 2009, the Series had capital losses of $34,926,774, which may increase the capital loss carryforwards.
6. Capital Shares
Transactions in capital shares were as follows:
| Six Months | | Year |
| Ended | | Ended |
| 6/30/09 | | 12/31/08 |
| Shares sold: | | | | | | | |
| Standard Class | | 6,355,113 | | | | 8,048,858 | |
| Service Class | | 20,575,100 | | | | 16,546,987 | |
| |
| Shares issued upon reinvestment of dividends and distributions: | | | | | | | |
| Standard Class | | 2,186,834 | | | | 1,955,632 | |
| Service Class | | 4,118,136 | | | | 3,066,144 | |
| | | 33,235,183 | | | | 29,617,621 | |
| Shares repurchased: | | | | | | | |
| Standard Class | | (3,950,123 | ) | | | (9,830,584 | ) |
| Service Class | | (13,310,329 | ) | | | (13,234,600 | ) |
| | | (17,260,452 | ) | | | (23,065,184 | ) |
| Net increase | | 15,974,731 | | | | 6,552,437 | |
7. Line of Credit
The Series, along with certain other funds in the Delaware Investments® Family of Funds (Participants), participates in a $35,000,000 revolving line of credit with The Bank of New York Mellon (BNY Mellon) to be used for temporary or emergency purposes as an additional source of liquidity to fund redemptions of investor shares. Under the agreement, 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 agreement expires on November 17, 2009. The Series had no amounts outstanding as of June 30, 2009, or at any time during the period then ended.
High Yield Series-16
Delaware VIP® High Yield Series
Notes to Financial Statements (continued)
8. Swap Contracts
The Series may enter into interest rate swap contracts, index swap contracts and CDS contracts in the normal course of pursuing 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 futures 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.
Interest Rate Swaps. 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. A Series’ maximum risk of loss from counterparty credit risk is the discounted net value of the cash flows to be received from/paid to the counterparty over the interest rate swap contract’s remaining life, to the extent that the amount is positive. This risk is mitigated by having a netting arrangement between the Series and the counterparty and by the posting of collateral by the counterparty to the Series to cover the Series’ exposure to the counterparty.
Index Swaps. 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. The Series’ maximum risk of loss from counterparty credit risk is the discounted net value of the cash flows to be received from/paid to the counterparty over the index swap contract’s remaining life, to the extent that the amount is positive. This risk is mitigated by having a netting arrangement between the Series and the counterparty and by the posting of collateral by the counterparty to the Series to cover the Series’ exposure to the counterparty.
Credit Default Swaps. A CDS contract is a risk-transfer instrument through which one party (purchaser of protection) transfers to another party (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, 2009, the Series entered into CDS contracts as a purchaser of protection. Periodic payments on such contracts are accrued daily and recorded as unrealized losses (gains) on swap contracts. Upon payment, such amounts are recorded as realized losses (gains) on swap contracts. Upfront payments made or received in connection with CDS contracts are amortized over the expected life of the CDS contracts as unrealized 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 (as defined in the CDS agreement) or the maturity or termination of the agreement. For the six months ended June 30, 2009, the series did not enter into any CDS contracts as a seller of protection. There were no outstanding swap contracts at June 30, 2009.
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. The Series’ maximum risk of loss from counterparty credit risk, either as the seller of protection or the buyer of protection, is the fair value of the contract. This risk is mitigated by having a netting arrangement between the Series and the counterparty and by the posting of collateral by the counterparty to the Series to cover the Series’ exposure to the counterparty.
Swaps Generally. 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 contracts 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 movement 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 on the statements of net assets.
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 BNY Mellon. With respect to each loan, if the aggregate market value of securities collateral held plus cash collateral received on any business day is less than the aggregate market 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 generally invested in the Mellon GSL DBT II Collateral Fund (Collective Trust) established by BNY Mellon for the purpose of investment on behalf of clients participating in its securities lending programs. The Collective Trust may invest in fixed income securities, with a weighted average maturity not to exceed 90 days, rated in one of the top three tiers by Standard & Poor’s Ratings Group (S&P) or Moody’s Investors Service, Inc. (Moody’s) or repurchase agreements collateralized by such securities. The Collective Trust seeks to maintain a net asset value per unit of $1.00, but there can be no assurance that it will always be able to do so. At June 30, 2009, the Collective Trust held only cash and assets with a maturity of one business day or less (Cash/Overnight Assets). The Series may incur investment losses as a result of investing securities lending collateral in the Collective Trust. This could occur if an investment in the Collective Trust defaulted or if it were necessary to liquidate assets in the Collective Trust to meet returns on outstanding security loans at a time when the Collective Trust’s net asset value per unit was less than $1.00. Under those circumstances, the Series may not receive an amount from the Collective Trust that is equal in amount to the collateral the Series would be required to return to the borrower of the securities and the Series would be required to make up for this shortfall. Effective April 20, 2009, BNY Mellon transferred the assets of the Collective Trust other than the Cash/Overnight Assets to the BNY Mellon SL
High Yield Series-17
Delaware VIP® High Yield Series
Notes to Financial Statements (continued)
9. Securities Lending (continued)
DBT II Liquidating Fund (Liquidating Fund), effectively bifurcating the collateral investment pool. The Series’ exposure to the Liquidating Fund is expected to decrease as the Liquidating Fund’s assets mature or are sold. In October 2008, BNY Mellon transferred certain distressed securities from the Collective Trust into the Mellon GSL Reinvestment Trust II. The Series can also accept U.S. government securities and letters of credit (non-cash collateral) in connection with securities loans. 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 or interest, as applicable, 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 non-cash collateral, the Series receives loan premiums paid by the borrower. 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 security lending income net of allocations to the security lending agent and the borrower.
At June 30, 2009, the value of the securities on loan was $20,879,780, for which the Series received collateral, comprised of securities collateral valued at $356,072, and cash collateral of $21,076,538. Investments purchased with cash collateral are presented on the Statement of Net Assets under the caption “Securities Lending Collateral.”
10. Credit and Market Risk
The Series invests in high yield fixed income securities, which carry ratings of BB or lower by S&P and/or Ba or lower by Moody’s. 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 net 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 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. Securities eligible for resale pursuant to Rule 144A, which are determined to be liquid, are not subject to the Series’ 15% limit on investments in illiquid securities. Rule 144A and illiquid securities have been identified on the Statement of Net Assets.
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
Effective June 30, 2009, the Series adopted Financial Accounting Standards Board Statement of Financial Accounting Standards No. 165, Subsequent Events (FAS 165). In accordance with FAS 165, management has evaluated whether any events or transactions occurred subsequent to June 30, 2009 through August 15, 2009, date of issuance of the Series’ financial statements, and determined that there were no material events or transactions that would require recognition or disclosure in the Series’ financial statements.
The Series files its complete schedule of portfolio holdings with the Securities and Exchange Commission (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. |
High Yield Series-18
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 19-21, 2009 (the “Annual Meeting”), the Board of Trustees (the “Board”), including a majority of disinterested or independent Trustees, approved the renewal of the Investment Advisory Agreement for the Delaware VIP High Yield Series (the “Series”). In making its decision, the Board considered information furnished specifically in connection with the renewal of the Investment Advisory Agreement with Delaware Management Company (“DMC”), which included materials provided by DMC and its affiliates (“Delaware Investments”) concerning, among other things, the nature, extent and quality 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. Reference was made to information furnished at regular quarterly 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 and sub-advisory contracts. In addition, in connection with the Annual Meeting, reports were provided in February 2009 and included 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 independent Trustees reviewed and discussed the Lipper reports with counsel to the independent Trustees. The Board requested and received information regarding DMC’s policy with respect to advisory fee levels and its breakpoint philosophy; 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 had in the past year inhibited, or which were likely in the future to inhibit, DMC’s ability to invest fully in accordance with 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 counsel to the independent Trustees. Although the Board gave attention to all information furnished, the following discussion identifies, under separate headings, the primary factors taken into account by the Board during its contract renewal considerations.
NATURE, EXTENT AND QUALITY OF SERVICE. The Board considered the services provided by Delaware Investments to the Series and its shareholders. In reviewing the nature, extent and quality of services, the Board considered reports furnished to it throughout the year, which covered matters such as the relative performance of the Series, compliance of portfolio managers with the investment policies, strategies and restrictions for the Series, compliance by DMC and Delaware Distributors, L.P. (together, “Management”) personnel with the Code of Ethics adopted throughout the Delaware Investments® Family of Funds complex and adherence to fair value pricing procedures as established by the Board. The Board was pleased with the current staffing of the Series’ investment advisor and the emphasis placed on research in the investment process. The Board gave favorable consideration to DMC’s efforts to control expenditures while maintaining service levels committed to fund matters. The Board also considered the transfer agent and shareholder services provided to Series shareholders by DMC’s affiliate, Delaware Service Company, Inc. (“DSC”), noting DSC’s high level of service. The Board noted that Management finished upgrading investment accounting functions through outsourcing to improve the quality and lower the cost of delivering investment accounting services to the Series. The Board was satisfied with the nature, extent and quality of the overall services provided by Delaware Investments.
INVESTMENT PERFORMANCE. The Board placed significant emphasis on the investment performance of the Series in view of its importance to shareholders. Although the Board gave appropriate consideration to performance reports and discussions with portfolio managers at Board meetings throughout the year, the Board gave particular weight 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 performance 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, 2008. The Board’s objective is 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-year period was in the second quartile of its Performance Universe. The report further showed that the Series’ total return for the three- and five-year periods was in the first quartile and the Series’ total return for the ten-year period was in the third quartile. The Board noted that the Series’ performance results were mixed but on an overall basis tended toward median, which was acceptable.
COMPARATIVE EXPENSES. The Board considered expense comparison data for the Delaware Investments Family of Funds. Management provided the Board with information on pricing levels and fee structures for the Series as of October 31, 2008 and, for comparative funds, information as of their respective fiscal year end occurring on or before August 31, 2008. The Board also focused on the comparative analysis of effective management fees and total expense ratios of the Series versus 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) 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 considered fees paid to Delaware Investments for nonmanagement services. The Board’s objective is to limit the Series’ total expense ratio to be competitive with that 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 the actual management fee and total expenses were in the quartile with the second highest expenses of its Expense Group. The Series’ total expenses were not in line with the Board’s objective. In evaluating total expenses, the Board considered various initiatives being implemented by Management, such as the outsourcing of certain transfer agency and investment accounting services, created as 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.
High Yield Series-19
Delaware VIP® High Yield Series
Other Series Information (continued)
MANAGEMENT PROFITABILITY. The Board considered the level of profits 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, reflect recent 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 industry-wide 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 management fees were 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 reviewed the standardized advisory fee pricing and structure approved by the Board and shareholders, which includes breakpoints. Breakpoints in the advisory fee occur when the advisory fee rate is reduced on assets in excess of specified levels. Breakpoints result in a lower advisory fee than would otherwise be the case on all assets when the 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.
PO14207 SA-VIPHY [6/09] DG3 8/09 (4772) | High Yield Series-20 |
| Delaware VIP® Trust |
| Delaware VIP International Value Equity Series |
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| June 30, 2009 |
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Delaware VIP® Trust — Delaware VIP International Value Equity Series
Disclosure of Series Expenses
For the Period January 1, 2009 to June 30, 2009
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, 2009 to June 30, 2009.
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
| | | | | | | | | | | | | | Expenses |
| | Beginning | | Ending | | | | Paid During |
| | Account | | Account | | Annualized | | Period |
| | Value | | Value | | Expense | | 1/1/09 to |
| | 1/1/09 | | 6/30/09 | | Ratios | | 6/30/09* |
| Actual Series Return | | | | | | | | | | | | | | | | | |
| Standard Class | | | $ | 1,000.00 | | | | $ | 1,071.60 | | | 1.01% | | | $ | 5.19 | |
| Service Class | | | | 1,000.00 | | | | | 1,071.70 | | | 1.26% | | | | 6.47 | |
| Hypothetical 5% Return (5% return before expenses) | | | | | |
| Standard Class | | | $ | 1,000.00 | | | | $ | 1,019.79 | | | 1.01% | | | $ | 5.06 | |
| Service Class | | | | 1,000.00 | | | | | 1,018.55 | | | 1.26% | | | | 6.31 | |
*“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).
International Value Equity Series-1
Delaware VIP® Trust — Delaware VIP International Value Equity Series
Country and Sector Allocations
As of June 30, 2009
Sector designations may be different than the sector designations presented in other Series materials. The sector designations may represent the investment manager’s internal sector classifications, which may result in the sector designations for one Series being different than another Series’ sector designations.
| | Percentage |
| Country | | of Net Assets |
| Common Stock | | | 96.18 | % | |
| Australia | | | 3.09 | % | |
| Brazil | | | 0.49 | % | |
| Canada | | | 6.42 | % | |
| Denmark | | | 2.08 | % | |
| Finland | | | 2.33 | % | |
| France | | | 22.43 | % | |
| Germany | | | 8.64 | % | |
| Hong Kong | | | 3.60 | % | |
| Italy | | | 4.48 | % | |
| Japan | | | 12.24 | % | |
| Netherlands | | | 2.00 | % | |
| Republic of Korea | | | 2.03 | % | |
| Singapore | | | 1.65 | % | |
| Sweden | | | 1.84 | % | |
| Switzerland | | | 2.36 | % | |
| Taiwan | | | 2.05 | % | |
| United Kingdom | | | 16.85 | % | |
| United States | | | 1.60 | % | |
| Discount Note | | | 3.46 | % | |
| U.S. Treasury Obligation | | | 0.85 | % | |
| Securities Lending Collateral | | | 14.39 | % | |
| Total Value of Securities | | | 114.88 | % | |
| Obligation to Return Securities Lending Collateral | | | (14.99 | %) | |
| Receivables and Other Assets Net of Liabilities | | | 0.11 | % | |
| Total Net Assets | | | 100.00 | % | |
| | | | | | |
| | Percentage |
| Sector | | of Net Assets |
| Consumer Discretionary | | | 17.77 | % | |
| Consumer Staples | | | 8.12 | % | |
| Energy | | | 9.05 | % | |
| Financials | | | 8.35 | % | |
| Health Care | | | 8.34 | % | |
| Industrials | | | 17.70 | % | |
| Information Technology | | | 9.68 | % | |
| Materials | | | 7.03 | % | |
| Telecommunication Services | | | 8.03 | % | |
| Utilities | | | 2.11 | % | |
| Total | | | 96.18 | % | |
International Value Equity Series-2
Delaware VIP® Trust — Delaware VIP International Value Equity Series
Statement of Net Assets
June 30, 2009 (Unaudited)
| | Number of | | Value |
| | Shares | | (U.S. $) |
| COMMON STOCK–96.18%D | | | | | | |
| Australia–3.09% | | | | | | |
| Coca-Cola Amatil | | | 259,130 | | $ | 1,796,601 |
| Telstra | | | 331,842 | | | 905,861 |
| | | | | | 2,702,462 |
| Brazil-0.49% | | | | | | |
| Vale ADR | | | 24,400 | | | 430,172 |
| | | | | | 430,172 |
| Canada–6.42% | | | | | | |
| Agrium | | | 41,000 | | | 1,635,490 |
| †CGI Group Class A | | | 353,003 | | | 3,138,344 |
| TELUS | | | 31,882 | | | 845,673 |
| | | | | | 5,619,507 |
| Denmark–2.08% | | | | | | |
| Novo Nordisk Class B | | | 33,690 | | | 1,820,807 |
| | | | | | 1,820,807 |
| Finland–2.33% | | | | | | |
| Nokia | | | 139,353 | | | 2,040,421 |
| | | | | | 2,040,421 |
| France–22.43% | | | | | | |
| *AXA | | | 77,143 | | | 1,448,705 |
| *Compagnie de Saint-Gobain | | | 34,274 | | | 1,145,251 |
| France Telecom | | | 60,556 | | | 1,372,465 |
| *Lafarge | | | 36,363 | | | 2,460,707 |
| *PPR | | | 21,344 | | | 1,740,868 |
| *Publicis Groupe | | | 46,326 | | | 1,411,846 |
| Sanofi-Aventis | | | 27,929 | | | 1,640,066 |
| Teleperformance | | | 73,430 | | | 2,231,697 |
| *Total | | | 54,830 | | | 2,959,075 |
| *Vallourec | | | 11,658 | | | 1,414,795 |
| Vivendi | | | 75,438 | | | 1,802,334 |
| | | | | | 19,627,809 |
| Germany–8.64% | | | | | | |
| Bayerische Motoren Werke | | | 49,386 | | | 1,858,349 |
| Deutsche Post | | | 180,174 | | | 2,333,630 |
| Linde | | | 19,825 | | | 1,620,172 |
| Metro | | | 36,594 | | | 1,747,038 |
| | | | | | 7,559,189 |
| Hong Kong–3.60% | | | | | | |
| Esprit Holdings | | | 304,454 | | | 1,699,072 |
| Techtronic Industries | | | 2,094,359 | | | 1,451,207 |
| | | | | | 3,150,279 |
| Italy–4.48% | | | | | | |
| Finmeccanica | | | 124,081 | | | 1,745,457 |
| Parmalat | | | 902,683 | | | 2,176,276 |
| | | | | | 3,921,733 |
| Japan–12.24% | | | | | | |
| *Asahi Glass | | | 224,000 | | | 1,802,138 |
| *Canon | | | 46,280 | | | 1,518,165 |
| *Don Quijote | | | 94,300 | | | 1,813,951 |
| Mitsubishi UFJ Financial Group | | | 424,135 | | | 2,632,957 |
| Round One | | | 125,935 | | | 1,256,343 |
| Toyota Motor | | | 44,243 | | | 1,685,579 |
| | | | | | 10,709,133 |
| Netherlands–2.00% | | | | | | |
| Koninklijke Philips Electronics | | | 95,122 | | | 1,750,988 |
| | | | | | 1,750,988 |
| Republic of Korea–2.03% | | | | | | |
| Samsung Electronics | | | 3,819 | | | 1,773,492 |
| | | | | | 1,773,492 |
| Singapore–1.65% | | | | | | |
| Singapore Airlines | | | 157,000 | | | 1,441,660 |
| | | | | | 1,441,660 |
| Sweden–1.84% | | | | | | |
| Nordea Bank | | | 202,788 | | | 1,605,674 |
| | | | | | 1,605,674 |
| Switzerland–2.36% | | | | | | |
| Novartis | | | 51,052 | | | 2,069,238 |
| | | | | | 2,069,238 |
| Taiwan–2.05% | | | | | | |
| Chunghwa Telecom ADR | | | 90,396 | | | 1,792,553 |
| | | | | | 1,792,553 |
| United Kingdom–16.85% | | | | | | |
| AstraZeneca | | | 40,233 | | | 1,767,871 |
| BP | | | 453,413 | | | 3,563,307 |
| Greggs | | | 225,810 | | | 1,385,368 |
| National Grid | | | 205,285 | | | 1,848,649 |
| †Standard Chartered | | | 86,086 | | | 1,614,174 |
| Tomkins | | | 664,465 | | | 1,620,242 |
| Vodafone Group | | | 1,093,939 | | | 2,109,691 |
| WPP Group | | | 125,355 | | | 831,952 |
| | | | | | 14,741,254 |
| United States–1.60% | | | | | | |
| †Transocean | | | 18,800 | | | 1,396,652 |
| | | | | | 1,396,652 |
| Total Common Stock | | | | | | |
| (cost $100,363,612) | | | | | | 84,153,023 |
| |
| | Principal | | | |
| | Amount | | | |
| ¹DISCOUNT NOTE–3.46% | | | | | | |
| Federal Home Loan Bank 0.01% 7/1/09 | | $ | 3,028,132 | | | 3,028,132 |
| Total Discount Note | | | | | | |
| (cost $3,028,132) | | | | | | 3,028,132 |
| |
| ¹U.S. TREASURY OBLIGATION–0.85% | | | | | | |
| U.S. Treasury Bill 7/23/09 0.088% 7/23/09 | | | 742,935 | | | 742,893 |
| Total U.S. Treasury Obligation | | | | | | |
| (cost $742,893) | | | | | | 742,893 |
| |
| Total Value of Securities Before | | | | | | |
| Securities Lending Collateral–100.49% | | | | | | |
| (cost $104,134,637) | | | | | | 87,924,048 |
| |
| | Number of | | | |
| | Shares | | | |
| SECURITIES LENDING COLLATERAL**–14.39% | | | |
| Investment Companies | | | | | | |
| Mellon GSL DBT II Collateral Fund | | | 4,698,670 | | | 4,698,670 |
| BNY Mellon SL DB II Liquidating Fund | | | 8,090,892 | | | 7,888,470 |
| †Mellon GSL Reinvestment Trust II | | | 322,640 | | | 32 |
| Total Securities Lending Collateral | | | | | | |
| (cost $13,112,202) | | | | | | 12,587,172 |
International Value Equity Series-3
Delaware VIP® International Value Equity Series
Statement of Net Assets (continued)
| TOTAL VALUE OF SECURITIES–114.88% (cost $117,246,839) | | $ | 100,511,220 | © |
| OBLIGATION TO RETURN SECURITIES LENDING COLLATERAL**–(14.99%) | | | (13,112,202 | ) |
| RECEIVABLES AND OTHER ASSETS NET OF LIABILITIES–0.11% | | | 97,666 | |
| NET ASSETS APPLICABLE TO 11,085,806 SHARES OUTSTANDING–100.00% | | $ | 87,496,684 | |
| NET ASSET VALUE–DELAWARE VIP INTERNATIONAL VALUE EQUITY SERIES | | | | | |
| STANDARD CLASS ($87,488,132 / 11,084,722 Shares) | | | | $7.89 | |
| NET ASSET VALUE–DELAWARE VIP INTERNATIONAL VALUE EQUITY SERIES | | | | | |
| SERVICE CLASS ($8,552 / 1,084 Shares) | | | | $7.89 | |
| COMPONENTS OF NET ASSETS AT JUNE 30, 2009: | | | | |
| Shares of beneficial interest (unlimited authorization–no par) | | $ | 128,972,236 | |
| Undistributed net investment income | | | 1,715,651 | |
| Accumulated net realized loss on investments | | | (26,457,215 | ) |
| Net unrealized depreciation of investments and foreign currencies | | | (16,733,988 | ) |
| Total net assets | | $ | 87,496,684 | |
____________________
| D | Securities have been classified by country of origin. Classification by type of business has been presented on 2 page in “Country and Sector allocations.” |
| † | Non income producing security. |
¹ | The rate shown is the effective yield at the time of purchase. |
| * | Fully or partially on loan. |
| ** | See Note 9 in “Notes to Financial Statements.” |
| © | Includes $12,481,591 of securities loaned. |
ADR – American Depositary Receipts
See accompanying notes
International Value Equity Series-4
Delaware VIP® Trust —
Delaware VIP International Value Equity Series
Statement of Operations
Six Months Ended June 30, 2009 (Unaudited)
| INVESTMENT INCOME: | | | |
| Dividends | $ | 2,369,959 | |
| Securities lending income | | 147,994 | |
| Interest | | 34,349 | |
| Foreign tax withheld | | (216,856 | ) |
| | 2,335,446 | |
| |
| EXPENSES: | | | |
| Management fees | | 329,136 | |
| Custodian fees | | 17,091 | |
| Reports and statements to shareholders | | 15,995 | |
| Accounting and administration expenses | | 15,489 | |
| Dividend disbursing and transfer agent fees and expenses | | 11,161 | |
| Audit and tax | | 8,589 | |
| Legal fees | | 6,825 | |
| Trustees’ fees | | 2,775 | |
| Pricing fees | | 1,916 | |
| Insurance fees | | 1,149 | |
| Dues and services | | 1,035 | |
| Consulting fees | | 630 | |
| Trustees’ expenses | | 201 | |
| Registration fees | | 85 | |
| Distribution expenses – Service Class | | 16 | |
| | | 412,093 | |
| Less fees waived | | (22,653 | ) |
| Less waiver of distribution expenses – Service Class | | (3 | ) |
| Total operating expenses | | 389,437 | |
| |
| NET INVESTMENT INCOME | | 1,946,009 | |
| |
NET REALIZED AND UNREALIZED LOSS ON
INVESTMENTS AND FOREIGN CURRENCIES: | | | |
| Net realized loss on: | | | |
| Investments | | (6,637,901 | ) |
| Foreign currencies | | (156,566 | ) |
| Net realized loss | | (6,794,467 | ) |
Net change in unrealized appreciation/depreciation
of investments and foreign currencies | | 11,451,269 | |
| | | | |
NET REALIZED AND UNREALIZED GAIN
ON INVESTMENTS AND FOREIGN CURRENCIES | | 4,656,802 | |
| | | | |
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS | $ | 6,602,811 | |
See accompanying notes
Delaware VIP Trust —
Delaware VIP International Value Equity Series
Statements of Changes in Net Assets
| | Six Months | | | | |
| | Ended | | Year |
| | 6/30/09 | | Ended |
| | (Unaudited) | | 12/31/08 |
INCREASE (DECREASE) IN NET
ASSETS FROM OPERATIONS: | | | | | | | | | | |
| Net investment income | | | $ | 1,946,009 | | | | $ | 3,187,459 | |
Net realized loss on investments and
foreign currencies | | | | (6,794,467 | ) | | | | (19,787,228 | ) |
Net change in unrealized appreciation/
depreciation of investments and
foreign currencies | | | | 11,451,269 | | | | | (43,258,358 | ) |
Net increase (decrease) in net assets
resulting from operations | | | | 6,602,811 | | | | | (59,858,127 | ) |
| |
DIVIDENDS AND DISTRIBUTIONS
TO SHAREHOLDERS FROM: | | | | | | | | | | |
| Net investment income: | | | | | | | | | | |
| Standard Class | | | | (2,825,544 | ) | | | | (2,740,721 | ) |
| Service Class | | | | (249 | ) | | | | (2,558 | ) |
| Net realized gain on investments: | | | | | | | | | | |
| Standard Class | | | | – | | | | | (10,032,456 | ) |
| Service Class | | | | – | | | | | (10,984 | ) |
| | | | (2,825,793 | ) | | | | (12,786,719 | ) |
| |
| CAPITAL SHARE TRANSACTIONS: | | | | | | | | | | |
| Proceeds from shares sold: | | | | | | | | | | |
| Standard Class | | | | 12,194,319 | | | | | 3,040,855 | |
| Service Class | | | | 343 | | | | | 8,082 | |
Net asset value of shares issued upon
reinvestment of dividends and distributions: | | | | | | | | | | |
| Standard Class | | | | 2,825,544 | | | | | 12,773,177 | |
| Service Class | | | | 249 | | | | | 13,542 | |
| | | | | 15,020,455 | | | | | 15,835,656 | |
| Cost of shares repurchased: | | | | | | | | | | |
| Standard Class | | | | (5,022,115 | ) | | | | (23,233,738 | ) |
| Service Class | | | | (8,710 | ) | | | | (98,506 | ) |
| | | | | (5,030,825 | ) | | | | (23,332,244 | ) |
Increase (decrease) in net assets derived
from capital share transactions | | | | 9,989,630 | | | | | (7,496,588 | ) |
| |
NET INCREASE (DECREASE)
IN NET ASSETS | | | | 13,766,648 | | | | | (80,141,434 | ) |
| |
| NET ASSETS: | | | | | | | | | | |
| Beginning of period | | | | 73,730,036 | | | | | 153,871,470 | |
End of period (including undistributed
net investment income of $1,715,651
and $2,752,001, respectively) | | | $ | 87,496,684 | | | | $ | 73,730,036 | |
See accompanying notes
International Value Equity Series-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 | | | | | | | | | | | |
| | Ended | | | | | | | | | | | |
| | 6/30/091 | | Year Ended |
| | (Unaudited) | | 12/31/08 | | 12/31/07 | | 12/31/06 | | 12/31/05 | | 12/31/04 | |
| Net asset value, beginning of period | | | $7.640 | | $14.700 | | $23.100 | | $20.380 | | $18.550 | | $15.660 | |
| | |
| Income (loss) from investment operations: | | | | | | | | | | | | | | |
| Net investment income2 | | | 0.180 | | 0.306 | | 0.273 | | 0.512 | | 0.496 | | 0.396 | |
Net realized and unrealized gain (loss) on investments
and foreign currencies | | | 0.330 | | (6.103 | ) | 0.858 | | 4.043 | | 1.838 | | 2.920 | |
| Total from investment operations | | | 0.510 | | (5.797 | ) | 1.131 | | 4.555 | | 2.334 | | 3.316 | |
| | |
| Less dividends and distributions from: | | | | | | | | | | | | | | |
| Net investment income | | | (0.260 | ) | (0.271 | ) | (0.508 | ) | (0.616 | ) | (0.291 | ) | (0.426 | ) |
| Net realized gain on investments | | | – | | (0.992 | ) | (9.023 | ) | (1.219 | ) | (0.213 | ) | – | |
| Total dividends and distributions | | | (0.260 | ) | (1.263 | ) | (9.531 | ) | (1.835 | ) | (0.504 | ) | (0.426 | ) |
| | |
| Net asset value, end of period | | | $7.890 | | $7.640 | | $14.700 | | $23.100 | | $20.380 | | $18.550 | |
| | |
| Total return3 | | | 7.16% | | (42.42% | ) | 5.24% | | 23.59% | | 12.87% | | 21.79% | |
| | |
| Ratios and supplemental data: | | | | | | | | | | | | | | |
| Net assets, end of period (000 omitted) | | | $87,488 | | $73,712 | | $153,691 | | $173,017 | | $161,293 | | $164,544 | |
| Ratio of expenses to average net assets | | | 1.01% | | 1.04% | | 0.99% | | 1.01% | | 1.00% | | 0.99% | |
Ratio of expenses to average net assets
prior to fees waived and expense paid indirectly | | | 1.06% | | 1.05% | | 0.99% | | 1.01% | | 1.02% | | 0.99% | |
| Ratio of net investment income to average net assets | | | 5.02% | | 2.79% | | 1.66% | | 2.44% | | 2.63% | | 2.46% | |
Ratio of net investment income to average net assets
prior to fees waived and expense paid indirectly | | | 4.97% | | 2.78% | | 1.66% | | 2.44% | | 2.61% | | 2.46% | |
| Portfolio turnover | | | 38% | | 35% | | 21% | | 114% | | 8% | | 10% | |
____________________
| 1Ratios and portfolio turnover have been annualized and total return has not been annualized. |
| 2The average shares outstanding method has been applied for per share information. |
| 3Total 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 by the manager, as applicable. Performance would have been lower had the waiver not been in effect. |
See accompanying notes
International Value Equity Series-6
Delaware VIP® International Value Equity Series
Financial Highlights (continued)
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 | | | | | | | | | | | |
| | Ended | | | | | | | | | | | |
| | 6/30/091 | | Year Ended |
| | (Unaudited) | | 12/31/08 | | 12/31/07 | | 12/31/06 | | 12/31/05 | | 12/31/04 | |
| Net asset value, beginning of period | | | $7.620 | | $14.660 | | $23.050 | | $20.350 | | $18.520 | | $15.650 | |
| | |
| Income (loss) from investment operations: | | | | | | | | | | | | | | |
| Net investment income2 | | | 0.171 | | 0.279 | | 0.233 | | 0.459 | | 0.449 | | 0.356 | |
Net realized and unrealized gain (loss) on investments
and foreign currencies | | | 0.332 | | (6.096 | ) | 0.856 | | 4.029 | | 1.845 | | 2.911 | |
| Total from investment operations | | | 0.503 | | (5.817 | ) | 1.089 | | 4.488 | | 2.294 | | 3.267 | |
| | |
| Less dividends and distributions from: | | | | | | | | | | | | | | |
| Net investment income | | | (0.233 | ) | (0.231 | ) | (0.456 | ) | (0.569 | ) | (0.251 | ) | (0.397 | ) |
| Net realized gain on investments | | | – | | (0.992 | ) | (9.023 | ) | (1.219 | ) | (0.213 | ) | – | |
| Total dividends and distributions | | | (0.233 | ) | (1.223 | ) | (9.479 | ) | (1.788 | ) | (0.464 | ) | (0.397 | ) |
| | |
| Net asset value, end of period | | | $7.890 | | $7.620 | | $14.660 | | $23.050 | | $20.350 | | $18.520 | |
| | |
| Total return3 | | | 7.17% | | (42.67% | ) | 4.98% | | 23.24% | | 12.65% | | 21.44% | |
| | |
| Ratios and supplemental data: | | | | | | | | | | | | | | |
| Net assets, end of period (000 omitted) | | | $9 | | $18 | | $180 | | $60 | | $62 | | $95 | |
| Ratio of expenses to average net assets | | | 1.26% | | 1.29% | | 1.24% | | 1.26% | | 1.25% | | 1.24% | |
Ratio of expenses to average net assets
prior to fees waived and expense paid indirectly | | | 1.36% | | 1.35% | | 1.29% | | 1.31% | | 1.32% | | 1.29% | |
| Ratio of net investment income to average net assets | | | 4.77% | | 2.54% | | 1.41% | | 2.19% | | 2.38% | | 2.21% | |
Ratio of net investment income to average net assets
prior to fees waived and expense paid indirectly | | | 4.67% | | 2.48% | | 1.36% | | 2.14% | | 2.31% | | 2.16% | |
| Portfolio turnover | | | 38% | | 35% | | 21% | | 114% | | 8% | | 10% | |
____________________
| 1Ratios and portfolio turnover have been annualized and total return has not been annualized. |
| 2The average shares outstanding method has been applied for per share information. |
| 3Total 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 by the manager and distributor, as applicable. Performance would have been lower had the waivers not been in effect. |
See accompanying notes
International Value Equity Series-7
Delaware VIP® Trust — Delaware VIP International Value Equity Series
Notes to Financial Statements
June 30, 2009 (Unaudited)
Delaware VIP Trust (Trust) is organized as a Delaware statutory trust and offers 13 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 Limited-Term Diversified Income Series (formerly, Delaware VIP Capital Reserves 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 ask prices will be used. Securities listed on a foreign exchange are valued at the last quoted sales price on the valuation date. Investment companies are valued at net asset value per share. Foreign currency exchange contracts are valued at the mean between the bid and ask prices. Interpolated values are derived when the settlement date of the contract is an interim date for which quotations are not available. Generally, 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 (Board). 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 suspension of trading in a security. The Series may use fair value pricing more frequently for securities traded primarily in non-U.S. markets because, among other things, most foreign markets close well before the Series values its securities at 4:00 p.m. Eastern time. The earlier close of these foreign markets gives rise to the possibility that significant events, including broad market moves, government actions or pronouncements, aftermarket trading, or news events may have occurred in the interim. To account for this, the Series may frequently value foreign securities using fair value prices based on third-party vendor modeling tools (international fair value pricing).
Federal Income Taxes—No provision for federal income taxes has been made as the Series intends to continue to qualify for federal income tax purposes as a regulated investment company under Subchapter M of the Internal Revenue Code of 1986, as amended, and make the requisite distributions to shareholders. The Series evaluates 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 Series did not record 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 other 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. At June 30, 2009, the Series held no investments in repurchase agreements.
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, whereas 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.
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.
International Value Equity Series-8
Delaware VIP® International Value Equity Series
Notes to Financial Statements (continued)
1. Significant Accounting Policies (continued)
The Series may receive earnings credits from its custodian when positive cash balances are maintained, which are used to offset custody fees. There were no earnings credits for the six months ended June 30, 2009.
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.
Effective May 1, 2009, DMC has voluntarily agreed to waive that portion, if any, of its management fee and/or pay/reimburse the Series to the extent necessary to ensure that total annual operating expenses (excluding any 12b-1 plan expenses, taxes, interest, inverse floater program expenses, brokerage fees, certain insurance costs, and nonroutine expenses or costs including, but not limited to, those relating to reorganizations, litigation, conducting shareholder meetings, and liquidations (collectively, “nonroutine expenses”)) does not exceed 1.00% of average daily net assets of the Series until such time as the voluntary expense cap is discontinued. Prior to May 1, 2009, 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 the total annual operating expenses (excluding any 12b-1 plan expenses, taxes, interest, inverse floater program expenses, brokerage fees, certain insurance costs, and nonroutine expenses did not exceed 1.01% of average daily net assets of the Series through April 30, 2009. For purposes of this waiver and reimbursement, nonroutine expenses may also include such additional costs and expenses, as may be agreed upon from time to time by the Series’ Board and DMC. This expense waiver and reimbursement applies only to expenses paid directly by the Series, and may be discontinued at any time because they are voluntary.
Delaware Service Company, Inc. (DSC), an affiliate of DMC, provides fund accounting and financial administration oversight services to the Series. For these services, the Series pays DSC fees based on the aggregate daily net assets of the Delaware Investments® Family of Funds at the following annual rate: 0.0050% of the first $30 billion; 0.0045% of the next $10 billion; 0.0040% of the next $10 billion; and 0.0025% of aggregate average daily net assets in excess of $50 billion. The fees payable to DSC under the service agreement described above are allocated among all funds in the Delaware Investments Family of Funds on a relative net asset value basis. For the six months ended June 30, 2009, the Series was charged $1,936 for these services.
DSC also provides dividend disbursing and transfer agency services. The Series pays DSC a monthly fee based on the number of shareholder accounts 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, 2010 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, 2009, the Series had liabilities payable to affiliates as follows:
| | | Dividend Disbursing, | | | | Other |
| Investment | | Transfer Agent and Fund | | | | Expenses |
| Management | | Accounting Oversight | | Distribution | | Payable |
| Fee Payable to | | Fees and Other Expenses | | Fee Payable | | to DMC |
| DMC | | Payable to DSC | | to DDLP | | and Affiliates* |
| $55,055 | | $1,203 | | $2 | | $1,312 |
____________________
*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, 2009, the Series was charged $4,270 for internal legal and tax services provided by DMC and/or its affiliates’ employees.
Trustees’ fees include expenses accrued by the Series for each Trustee’s retainer and meeting fees. 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, 2009, the Series made purchases and sales of investment securities other than short-term investments as follows:
| Purchases | $ | 20,974,340 |
| Sales | | 14,363,787 |
International Value Equity Series-9
Delaware VIP® International Value Equity Series
Notes to Financial Statements (continued)
3. Investments (continued)
At June 30, 2009, the cost of investments for federal income tax purposes has been estimated since final tax characteristics cannot be determined until fiscal year end. At June 30, 2009, the cost of investments and unrealized appreciation (depreciation) for the Series were as follows:
| | | Aggregate | | Aggregate | | Net |
| Cost of | | Unrealized | | Unrealized | | Unrealized |
| | Investments | | Appreciation | | Depreciation | | Depreciation |
| $118,256,431 | | $3,507,504 | | $(21,252,715) | | $(17,745,211) |
The Series applies Financial Accounting Standards No. 157, Fair Value Measurements (FAS 157). FAS 157 defines fair value as the price that the Series would receive to sell an asset or pay to transfer a liability in an orderly transaction between market participants at the measurement date under current market conditions. FAS 157 also establishes a framework for measuring fair value and a three level hierarchy for fair value measurements based upon the transparency of inputs to the valuation of an asset or liability. Inputs may be observable or unobservable and refer broadly to the assumptions that market participants would use in pricing the asset or liability. Observable inputs reflect the assumptions market participants would use in pricing the asset or liability based on market data obtained from sources independent of the reporting entity. Unobservable inputs reflect the reporting entity’s own assumptions about the assumptions that market participants would use in pricing the asset or liability developed based on the best information available under the circumstances. The Series’ investment in its entirety is assigned a level based upon the observability of the inputs which are significant to the overall valuation. The three-tier hierarchy of inputs is summarized below.
Level 1 – inputs are quoted prices in active markets
Level 2 – inputs are observable, directly or indirectly
Level 3 – inputs are unobservable and reflect assumptions on the part of the reporting entity
The following table summarizes the valuation of the Series’ investments by the FAS 157 fair value hierarchy levels as of June 30, 2009:
| | Level 1 | | Level 2 | | Level 3 | | Total |
| Common Stock | | $ | 84,153,023 | | $ | – | | | $ | – | | | $ | 84,153,023 |
| Short-Term | | | – | | | 3,028,132 | | | | – | | | | 3,028,132 |
| U.S. Treasury Obligations | | | 742,893 | | | – | | | | – | | | | 742,893 |
| Securities Lending Collateral | | | 4,698,670 | | | 7,888,470 | | | | 32 | | | | 12,587,172 |
| Total | | $ | 89,594,586 | | $ | 10,916,602 | | | $ | 32 | | | $ | 100,511,220 |
The following is a reconciliation of investments in which significant unobservable inputs (Level 3) were used in determining fair value:
| | | | | | | | | | Securities |
| | Total | | Common | | Lending |
| | Series | | Stock | | Collateral |
| Balance as of 12/31/08 | | $ | 1,059,478 | | | $ | 1,048,831 | | | | $ | 10,647 | | |
| Net realized gain (loss) | | | (569,868 | ) | | | (569,868 | ) | | | | – | | |
| Net change in unrealized appreciation/depreciation | | | 559,253 | | | | 569,868 | | | | | (10,615 | ) | |
| Net purchases, sales, and settlements | | | (100,172 | ) | | | (100,172 | ) | | | | – | | |
| Net transfers in and/or out of Level 3 | | | (948,659 | ) | | | (948,659 | ) | | | | – | | |
| Balance as of 6/30/09 | | $ | 32 | | | $ | – | | | | $ | 32 | | |
| | |
Net change in unrealized
appreciation/depreciation from
investments still held as of 6/30/09 | | $ | (10,615 | ) | | $ | – | | | | $ | (10,615 | ) | |
International Value Equity Series-10
Delaware VIP® International Value Equity Series
Notes to Financial Statements (continued)
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, distributions from net gains 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, 2009 and the year ended December 31, 2008 was as follows:
| | Six Months | | Year |
| | Ended | | Ended |
| | 6/30/09* | | 12/31/08 |
| Ordinary income | | | $ | 2,825,793 | | | $ | 5,279,879 |
| Long-term capital gain | | | | – | | | | 7,506,840 |
| Total | | | $ | 2,825,793 | | | $ | 12,786,719 |
____________________
*Tax information for the period ended June 30, 2009 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 the final tax characteristics cannot be determined until fiscal year end. As of June 30, 2009, the estimated components of net assets on a tax basis were as follows:
| Shares of beneficial interest | | $ | 128,972,236 | |
| Undistributed ordinary income | | | 1,715,651 | |
| Capital loss carryforwards as of 12/31/08 | | | (12,753,714 | ) |
| Realized losses 1/1/09 – 6/30/09 | | | (12,693,909 | ) |
Unrealized depreciation of investments
and foreign currencies | | | (17,743,580 | ) |
| Net assets | | $ | 87,496,684 | |
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, 2009, the Series recorded an estimate of these differences since final tax characteristics cannot be determined until fiscal year end.
| | Undistributed | | Accumulated | |
| Net Investment | | Net Realized | |
| Income | | Loss | |
| $(156,566) | | $156,566 | |
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, 2008 will expire as follows: $ 12,753,714 expires in 2016.
For the six months ended June 30, 2009, the Series had capital losses of $12,693,909, which may increase the capital loss carryforwards.
International Value Equity Series-11
Delaware VIP® International Value Equity Series
Notes to Financial Statements (continued)
6. Capital Shares
Transactions in capital shares were as follows:
| | Six Months | | Year |
| | Ended | | Ended |
| | 6/30/09 | | 12/31/08 |
| Shares sold: | | | | | | | | |
| Standard Class | | | 1,732,355 | | | | 268,376 | |
| Service Class | | | 44 | | | | 744 | |
| |
| Shares issued upon reinvestment of dividends and distributions: | | | | | | | | |
| Standard Class | | | 408,906 | | | | 1,090,792 | |
| Service Class | | | 36 | | | | 1,157 | |
| | | 2,141,341 | | | | 1,361,069 | |
| Shares repurchased: | | | | | | | | |
| Standard Class | | | (709,082 | ) | | | (2,161,739 | ) |
| Service Class | | | (1,308 | ) | | | (11,916 | ) |
| | | (710,390 | ) | | | (2,173,655 | ) |
| Net increase (decrease) | | | 1,430,951 | | | | (812,586 | ) |
7. Line of Credit
The Series, along with certain other funds in the Delaware Investments® Family of Funds (Participants), participates in a $35,000,000 revolving line of credit with The Bank of New York Mellon (BNY Mellon) to be used for temporary or emergency purposes as an additional source of liquidity to fund redemptions of investor shares. Under the agreement, 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 agreement expires on November 17, 2009. The Series had no amounts outstanding as of June 30, 2009, 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 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 Series’ maximum risk of loss from counterparty credit risk is the value of its currency exchanged with the counterparty. The risk is generally mitigated by having a netting arrangement between the Series and the counterparty and by the posting of collateral by the counterparty to the Series to cover the Series’ exposure to the counterparty. There were no foreign currency exchange contracts outstanding at June 30, 2009.
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 BNY Mellon. With respect to each loan, if the aggregate market value of securities collateral held plus cash collateral received on any business day is less than the aggregate market 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 generally invested in the Mellon GSL DBT II Collateral Fund (Collective Trust) established by BNY Mellon for the purpose of investment on behalf of clients participating in its securities lending programs. The Collective Trust may invest in fixed income securities, with a weighted average maturity not to exceed 90 days, rated in one of the top three tiers by Standard & Poor’s Ratings Group or Moody’s Investors Service, Inc. or repurchase agreements collateralized by such securities. The Collective Trust seeks to maintain a net asset value per unit of $1.00, but there can be no assurance that it will always be able to do so. At June 30, 2009, the Collective Trust held only cash and assets with a maturity of one business day or less (Cash/Overnight Assets). The Series may incur investment losses as a result of investing securities lending collateral in the Collective Trust. This could occur if an investment in the Collective Trust defaulted or if it were necessary to liquidate assets in the Collective Trust to meet returns on outstanding security loans at a time when the Collective Trust’s net asset value per unit was less than $1.00. Under those circumstances, the Series may not receive an amount from the Collective Trust that is equal in amount to the collateral the Series would be required to return to the borrower of the securities and the Series would be required to make up for this shortfall. Effective April 20, 2009, BNY Mellon transferred the assets of the Collective Trust other than the Cash/Overnight Assets to the BNY Mellon SL DBT II Liquidating Fund (Liquidating Fund), effectively bifurcating the collateral investment pool. The Series’ exposure to the Liquidating Fund is expected to decrease as the Liquidating Fund’s assets mature or are sold. In October 2008, BNY Mellon transferred certain distressed securities from the Collective Trust into the Mellon GSL Reinvestment Trust II. The Series can also accept U.S. government securities and letters of credit (non-cash collateral) in connection with securities loans. 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
International Value Equity Series-12
Delaware VIP® International Value Equity Series
Notes to Financial Statements (continued)
9. Securities Lending (continued)
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 or interest, as applicable, 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 non-cash collateral, the Series receives loan premiums paid by the borrower. 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 security lending income net of allocations to the security lending agent and the borrower.
At June 30, 2009, the value of the securities on loan was $12,481,591, 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.”
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 net 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 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. Securities eligible for resale pursuant to Rule 144A, which are determined to be liquid, are not subject to the Series’ limit on investments in illiquid securities. As of June 30, 2009, 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
Effective June 30, 2009, the Series adopted Financial Accounting Standards Board Statement of Financial Accounting Standards No. 165, Subsequent Events (FAS 165). In accordance with FAS 165, management has evaluated whether any events or transactions occurred subsequent to June 30, 2009 through August 15, 2009, date of issuance of the Series’ financial statements, and determined that there were no material events or transactions that would require recognition or disclosure in the Series’ financial statements.
The Series files its complete schedule of portfolio holdings with the Securities and Exchange Commission (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. |
International Value Equity Series-13
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 19-21, 2009 (the “Annual Meeting”), the Board of Trustees (the “Board”), including a majority of disinterested or independent Trustees, approved the renewal of the Investment Advisory Agreement for the Delaware VIP International Value Equity Series (the “Series”). In making its decision, the Board considered information furnished specifically in connection with the renewal of the Investment Advisory Agreement with Delaware Management Company (“DMC”), which included materials provided by DMC and its affiliates (“Delaware Investments”) concerning, among other things, the nature, extent and quality 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. Reference was made to information furnished at regular quarterly 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 and sub-advisory contracts. In addition, in connection with the Annual Meeting, reports were provided in February 2009 and included 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 independent Trustees reviewed and discussed the Lipper reports with counsel to the independent Trustees. The Board requested and received information regarding DMC’s policy with respect to advisory fee levels and its breakpoint philosophy; 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 had in the past year inhibited, or which were likely in the future to inhibit, DMC’s ability to invest fully in accordance with 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 counsel to the independent Trustees. Although the Board gave attention to all information furnished, the following discussion identifies, under separate headings, the primary factors taken into account by the Board during its contract renewal considerations.
NATURE, EXTENT AND QUALITY OF SERVICE. The Board considered the services provided by Delaware Investments to the Series and its shareholders. In reviewing the nature, extent and quality of services, the Board considered reports furnished to it throughout the year, which covered matters such as the relative performance of the Series, compliance of portfolio managers with the investment policies, strategies and restrictions for the Series, compliance by DMC and Delaware Distributors, L.P. (together, “Management”) personnel with the Code of Ethics adopted throughout the Delaware Investments® Family of Funds complex and adherence to fair value pricing procedures as established by the Board. The Board was pleased with the current staffing of the Series’ investment advisor and the emphasis placed on research in the investment process. The Board gave favorable consideration to DMC’s efforts to control expenditures while maintaining service levels committed to fund matters. The Board also considered the transfer agent and shareholder services provided to Series shareholders by DMC’s affiliate, Delaware Service Company, Inc. (“DSC”), noting DSC’s high level of service. The Board noted that Management finished upgrading investment accounting functions through outsourcing to improve the quality and lower the cost of delivering investment accounting services to the Series. The Board was satisfied with the nature, extent and quality of the overall services provided by Delaware Investments.
INVESTMENT PERFORMANCE. The Board placed significant emphasis on the investment performance of the Series in view of its importance to shareholders. Although the Board gave appropriate consideration to performance reports and discussions with portfolio managers at Board meetings throughout the year, the Board gave particular weight 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 performance 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, 2008. The Board’s objective is 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 value funds underlying variable insurance products as selected by Lipper. The Lipper report comparison showed that the Series’ total return for the one- and ten-year periods was in the second quartile of its Performance Universe. The report further showed that the Series’ total return for the three- and five-year periods was in the third quartile. The Series’ performance results were mixed but on an overall basis tended toward median, which was acceptable.
COMPARATIVE EXPENSES. The Board considered expense comparison data for the Delaware Investments Family of Funds. Management provided the Board with information on pricing levels and fee structures for the Series as of October 31, 2008 and, for comparative funds, information as of their respective fiscal year end occurring on or before August 31, 2008. The Board also focused on the comparative analysis of effective management fees and total expense ratios of the Series versus 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) 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 considered fees paid to Delaware Investments for nonmanagement services. The Board’s objective is to limit the Series’ total expense ratio to be competitive with that 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 those of its Expense Group.
International Value Equity Series-14
Delaware VIP® International Value Equity Series
Other Series Information (continued)
MANAGEMENT PROFITABILITY. The Board considered the level of profits 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, reflect recent 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 industry-wide 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 management fees were 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 reviewed the standardized advisory fee pricing and structure approved by the Board and shareholders, which includes breakpoints. Breakpoints in the advisory fee occur when the advisory fee rate is reduced on assets in excess of specified levels. Breakpoints result in a lower advisory fee than would otherwise be the case on all assets when the 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.
PO14207 SA-VIPIVE [6/09] DG3 8/09 (4772) | International Value Equity Series-15 |
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Delaware VIP® Trust — Delaware VIP REIT Series
Disclosure of Series Expenses
For the Period January 1, 2009 to June 30, 2009
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, 2009 to June 30, 2009.
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 | | |
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| | | | | | | | | Expenses |
| | Beginning | | Ending | | | | Paid During |
| | Account | | Account | | Annualized | | Period |
| | Value | | Value | | Expense | | 1/1/09 to |
| | 1/1/09 | | 6/30/09 | | Ratios | | 6/30/09* |
| Actual Series Return | | | | | | | | | |
| Standard Class | | $1,000.00 | | $ | 872.00 | | 0.92% | | $4.27 |
| Service Class | | 1,000.00 | | | 871.90 | | 1.17% | | 5.43 |
| Hypothetical 5% Return (5% return before expenses) | | |
| Standard Class | | $1,000.00 | | $ | 1,020.23 | | 0.92% | | $4.61 |
| Service Class | | 1,000.00 | | | 1,018.99 | | 1.17% | | 5.86 |
*“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).
REIT Series-1
Delaware VIP® Trust — Delaware VIP REIT Series
Sector Allocation and Top 10 Holdings
As of June 30, 2009
Sector designations may be different than the sector designations presented in other Series materials. The sector designations may represent the investment manager’s internal sector classifications, which may result in the sector designations for one Series being different than another Series’ sector designations.
| Percentage |
| Sector | of Net Assets |
| Common Stock | 98.06 | % |
| Diversified REITs | 4.48 | % |
| Health Care REITs | 16.21 | % |
| Hotel REITs | 3.52 | % |
| Industrial REITs | 4.52 | % |
| Mall REITs | 12.19 | % |
| Manufactured Housing REITs | 2.29 | % |
| Multifamily REITs | 13.89 | % |
| Office REITs | 12.14 | % |
| Office/Industrial REITs | 4.99 | % |
| Self-Storage REITs | 6.87 | % |
| Shopping Center REITs | 11.42 | % |
| Single Tenant REITs | 1.19 | % |
| Specialty REITs | 4.35 | % |
| Discount Note | 2.04 | % |
| U.S. Treasury Obligation | 0.50 | % |
| Securities Lending Collateral | 23.97 | % |
| Total Value of Securities | 124.57 | % |
| Obligation to Return Securities Lending Collateral | (24.87 | %) |
| Receivables and Other Assets Net of Liabilities | 0.30 | % |
| 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 | 9.82 | % |
| Public Storage | 6.87 | % |
| Equity Residential | 4.71 | % |
| Vornado Realty Trust | 4.48 | % |
| Boston Properties | 4.32 | % |
| Ventas | 3.86 | % |
| Federal Realty Investment Trust | 3.55 | % |
| Health Care REIT | 3.53 | % |
| AvalonBay Communities | 3.53 | % |
| HCP | 3.15 | % |
REIT Series-2
Delaware VIP® Trust — Delaware VIP REIT Series
Statement of Net Assets
June 30, 2009 (Unaudited)
| Number of | | | |
| Shares | | Value |
| COMMON STOCK–98.06% | | | | | |
| Diversified REITs–4.48% | | | | | |
| *Vornado Realty Trust | | 211,656 | | $ | 9,530,870 |
| | | | | | 9,530,870 |
| Health Care REITs–16.21% | | | | | |
| *HCP | | 316,700 | | | 6,710,873 |
| *Health Care REIT | | 220,600 | | | 7,522,460 |
| *Nationwide Health Properties | | 242,200 | | | 6,234,228 |
| *Omega Healthcare Investors | | 198,275 | | | 3,077,228 |
| Senior Housing Properties Trust | | 167,725 | | | 2,737,272 |
| *Ventas | | 275,400 | | | 8,223,443 |
| | | | | | 34,505,504 |
| Hotel REITs–3.52% | | | | | |
| *Host Hotels & Resorts | | 622,646 | | | 5,224,000 |
| *LaSalle Hotel Properties | | 183,450 | | | 2,263,773 |
| | | | | | 7,487,773 |
| Industrial REITs–4.52% | | | | | |
| AMB Property | | 176,930 | | | 3,328,053 |
| DCT Industrial Trust | | 327,509 | | | 1,336,237 |
| *EastGroup Properties | | 66,000 | | | 2,179,320 |
| ProLogis | | 344,833 | | | 2,779,354 |
| | | | | | 9,622,964 |
| Mall REITs–12.19% | | | | | |
| *Macerich | | 167,675 | | | 2,952,757 |
| *Simon Property Group | | 406,493 | | | 20,905,935 |
| *Taubman Centers | | 77,900 | | | 2,092,394 |
| | | | | | 25,951,086 |
| Manufactured Housing REITs–2.29% | | | | | |
| *Equity Lifestyle Properties | | 131,159 | | | 4,876,492 |
| | | | | | 4,876,492 |
| Multifamily REITs–13.89% | | | | | |
| Apartment Investment & Management | | 59,775 | | | 529,009 |
| *AvalonBay Communities | | 134,390 | | | 7,517,777 |
| *BRE Properties | | 79,950 | | | 1,899,612 |
| *Camden Property Trust | | 122,000 | | | 3,367,200 |
| *Equity Residential | | 450,625 | | | 10,017,393 |
| *Essex Property Trust | | 29,391 | | | 1,829,002 |
| *Mid-America Apartment Communities | | 59,050 | | | 2,167,726 |
| UDR | | 216,356 | | | 2,234,957 |
| | | | | | 29,562,676 |
| Office REITs–12.14% | | | | | |
| *Alexandria Real Estate Equities | | 120,346 | | | 4,307,183 |
| *Boston Properties | | 192,800 | | | 9,196,560 |
| Brandywine Realty Trust | | 310,000 | | | 2,309,500 |
| *Highwoods Properties | | 135,450 | | | 3,030,017 |
| *Mack-Cali Realty | | 190,900 | | | 4,352,520 |
| SL Green Realty | | 115,912 | | | 2,659,021 |
| | | | | | 25,854,801 |
| Office/Industrial REITs–4.99% | | | | | |
| *Digital Realty Trust | | 149,050 | | | 5,343,443 |
| *Liberty Property Trust | | 159,000 | | | 3,663,360 |
| PS Business Parks | | 33,575 | | | 1,626,373 |
| | | | | | 10,633,176 |
| Self-Storage REITs–6.87% | | | | | |
| *Public Storage | | 223,325 | | | 14,623,321 |
| | | | | | 14,623,321 |
| Shopping Center REITs–11.42% | | | | | |
| *Federal Realty Investment Trust | | 146,814 | | | 7,563,857 |
| *Kimco Realty | | 405,050 | | | 4,070,753 |
| Kite Realty Group Trust | | 102,496 | | | 299,288 |
| *Regency Centers | | 175,389 | | | 6,122,830 |
| *Tanger Factory Outlet Centers | | 102,775 | | | 3,332,993 |
| *Weingarten Realty Investors | | 200,900 | | | 2,915,059 |
| | | | | | 24,304,780 |
| Single Tenant REITs–1.19% | | | | | |
| *National Retail Properties | | 145,600 | | | 2,526,160 |
| | | | | | 2,526,160 |
| Specialty REITs–4.35% | | | | | |
| *Plum Creek Timber | | 217,850 | | | 6,487,573 |
| *Rayonier | | 76,175 | | | 2,768,961 |
| | | | | | 9,256,534 |
| Total Common Stock | | | | | |
| (cost $239,892,151) | | | | | 208,736,137 |
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| Principal | | | |
| Amount | | | |
| ¹DISCOUNT NOTE–2.04% | | | | | |
| Federal Home Loan Bank 0.01% 7/1/09 | $ | 4,353,090 | | | 4,353,090 |
| Total Discount Note | | | | | |
| (cost $4,353,090) | | | | | 4,353,090 |
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| ¹U.S. TREASURY OBLIGATION–0.50% | | | | | |
| U.S. Treasury Bill 0.088% 7/23/09 | | 1,068,007 | | | 1,067,947 |
| Total U.S. Treasury Obligation | | | | | |
| (cost $1,067,947) | | | | | 1,067,947 |
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| Total Value of Securities | | | | | |
| Before Securities Lending | | | | | |
| Collateral–100.60% | | | | | |
| (cost $245,313,188) | | | | | 214,157,174 |
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| Number of | | | |
| Shares | | | |
| SECURITIES LENDING | | | | | |
| COLLATERAL**–23.97% | | | | | |
| Investment Companies | | | | | |
| Mellon GSL DBT II Collateral Fund | | 30,259,627 | | | 30,259,627 |
| BNY Mellon SL DBT II Liquidating Fund | | 21,303,871 | | | 20,770,881 |
| †Mellon GSL Reinvestment Trust II | | 1,389,278 | | | 139 |
| Total Securities Lending Collateral | | | | | |
| (cost $52,952,776) | | | | | 51,030,647 |
REIT Series-3
Delaware VIP® REIT Series
Statement of Net Assets (continued)
| TOTAL VALUE OF SECURITIES–124.57% (cost $298,265,964) | $ | 265,187,821 | © |
| OBLIGATION TO RETURN SECURITIES LENDING COLLATERAL**–(24.87%) | | (52,952,776 | ) |
| RECEIVABLES AND OTHER ASSETS NET OF LIABILITIES–0.30% | | 634,889 | |
| NET ASSETS APPLICABLE TO 38,809,118 SHARES OUTSTANDING–100.00% | $ | 212,869,934 | |
| NET ASSET VALUE–DELAWARE VIP REIT SERIES STANDARD CLASS ($110,056,742 / 20,080,676 Shares) | | | $5.48 | |
| NET ASSET VALUE–DELAWARE VIP REIT SERIES SERVICE CLASS ($102,813,192 / 18,728,442 Shares) | | | $5.49 | |
| COMPONENTS OF NET ASSETS AT JUNE 30, 2009: | | | |
| Shares of beneficial interest (unlimited authorization–no par) | $ | 489,544,503 | |
| Undistributed net investment income | | 5,806,203 | |
| Accumulated net realized loss on investments | | (249,402,629 | ) |
| Net unrealized depreciation of investments | | (33,078,143 | ) |
| Total net assets | $ | 212,869,934 | |
____________________
| * | Fully or partially on loan. |
| ** | See Note 8 in “Notes to Financial Statements.” |
| © | Includes $51,591,968 of securities loaned. |
| ¹ | The rate shown is the effective yield at the time of purchase. |
REIT – Real Estate Investment Trust
See accompanying notes
REIT Series-4
Delaware VIP® Trust —
Delaware VIP REIT Series
Statement of Operations
Six Months Ended June 30, 2009 (Unaudited)
| INVESTMENT INCOME: | | | |
| Dividends | $ | 6,268,772 | |
| Interest | | 55,545 | |
| Securities lending income | | 111,935 | |
| | 6,436,252 | |
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| EXPENSES: | | | |
| Management fees | | 772,996 | |
| Distribution expenses – Service Class | | 149,084 | |
| Reports and statements to shareholders | | 59,216 | |
| Accounting and administration expenses | | 41,226 | |
| Dividend disbursing and transfer agent fees and expenses | | 22,966 | |
| Legal fees | | 20,019 | |
| Audit and tax | | 12,466 | |
| Trustees’ fees | | 7,399 | |
| Custodian fees | | 4,011 | |
| Insurance fees | | 2,825 | |
| Registration fees | | 2,313 | |
| Dues and services | | 1,773 | |
| Consulting fees | | 1,630 | |
| Trustees’ expenses | | 509 | |
| Pricing fees | | 174 | |
| | | 1,098,607 | |
| Less fees waived | | (3,340 | ) |
| Less waiver of distribution expenses – Service Class | | (24,847 | ) |
| Total operating expenses | | 1,070,420 | |
| |
| NET INVESTMENT INCOME | | 5,365,832 | |
| |
| NET REALIZED AND UNREALIZED GAIN (LOSS) | | | |
| ON INVESTMENTS: | | | |
| Net realized loss on investments | | (123,536,828 | ) |
| Net change in unrealized appreciation/depreciation | | | |
| of investments | | 83,568,918 | |
| |
| NET REALIZED AND UNREALIZED LOSS | | | |
| ON INVESTMENTS | | (39,967,910 | ) |
| |
| NET DECREASE IN NET ASSETS RESULTING | | | |
| FROM OPERATIONS | $ | (34,602,078 | ) |
See accompanying notes
Delaware VIP Trust —
Delaware VIP REIT Series
Statements of Changes in Net Assets
| Six Months | | | | |
| Ended | | Year |
| 6/30/09 | | Ended |
| (Unaudited) | | 12/31/08 |
| INCREASE (DECREASE) IN NET | | | | | | | |
| ASSETS FROM OPERATIONS: | | | | | | | |
| Net investment income | $ | 5,365,832 | | | $ | 8,961,691 | |
| Net realized loss on investments | | (123,536,828 | ) | | | (117,494,372 | ) |
| Net change in unrealized appreciation/ | | | | | | | |
| depreciation of investments | | 83,568,918 | | | | (42,310,886 | ) |
| Net decrease in net assets | | | | | | | |
| resulting from operations | | (34,602,078 | ) | | | (150,843,567 | ) |
| |
| DIVIDENDS AND DISTRIBUTIONS | | | | | | | |
| TO SHAREHOLDERS FROM: | | | | | | | |
| Net investment income: | | | | | | | |
| Standard Class | | (5,646,592 | ) | | | (4,888,716 | ) |
| Service Class | | (4,865,041 | ) | | | (4,122,163 | ) |
| Net realized gain on investments: | | | | | | | |
| Standard Class | | – | | | | (75,971,767 | ) |
| Service Class | | – | | | | (74,308,853 | ) |
| | | (10,511,633 | ) | | | (159,291,499 | ) |
| |
| CAPITAL SHARE TRANSACTIONS: | | | | | | | |
| Proceeds from shares sold: | | | | | | | |
| Standard Class | | 8,037,606 | | | | 27,792,892 | |
| Service Class | | 7,526,057 | | | | 26,395,289 | |
| Net asset value of shares issued upon | | | | | | | |
| reinvestment of dividends and distributions: | | | | | | | |
| Standard Class | | 5,646,592 | | | | 80,860,483 | |
| Service Class | | 4,865,041 | | | | 78,431,016 | |
| | | 26,075,296 | | | | 213,479,680 | |
| Cost of shares repurchased: | | | | | | | |
| Standard Class | | (16,452,386 | ) | | | (61,947,148 | ) |
| Service Class | | (14,272,360 | ) | | | (66,198,679 | ) |
| | | (30,724,746 | ) | | | (128,145,827 | ) |
| Increase (decrease) in net assets derived | | | | | | | |
| from capital share transactions | | (4,649,450 | ) | | | 85,333,853 | |
| |
| NET DECREASE IN NET ASSETS | | (49,763,161 | ) | | | (224,801,213 | ) |
| |
| NET ASSETS: | | | | | | | |
| Beginning of period | | 262,633,095 | | | | 487,434,308 | |
| End of period (including undistributed | | | | | | | |
| net investment income of $5,806,203 | | | | | | | |
| and $10,952,004, respectively) | $ | 212,869,934 | | | $ | 262,633,095 | |
See accompanying notes
REIT Series-5
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 | | | | | | | | | | | | | | | |
| | 6/30/091 | | Year Ended | |
| | (Unaudited) | | 12/31/08 | | | 12/31/07 | | | 12/31/06 | | | 12/31/05 | | | 12/31/04 | |
| Net asset value, beginning of period | | | $6.640 | | | $15.830 | | | $22.860 | | | $18.770 | | | $19.080 | | | $15.140 | |
| |
| Income (loss) from investment operations: | | | | | | | | | | | | | | | | | | | |
| Net investment income2 | | | 0.141 | | | 0.244 | | | 0.253 | | | 0.378 | | | 0.523 | | | 0.504 | |
| Net realized and unrealized gain (loss) on investments | | | (1.011 | ) | | (3.678 | ) | | (2.541 | ) | | 5.424 | | | 0.618 | | | 4.112 | |
| Total from investment operations | | | (0.870 | ) | | (3.434 | ) | | (2.288 | ) | | 5.802 | | | 1.141 | | | 4.616 | |
| |
| Less dividends and distributions from: | | | | | | | | | | | | | | | | | | | |
| Net investment income | | | (0.290 | ) | | (0.348 | ) | | (0.297 | ) | | (0.395 | ) | | (0.360 | ) | | (0.332 | ) |
| Net realized gain on investments | | | – | | | (5.408 | ) | | (4.445 | ) | | (1.317 | ) | | (1.091 | ) | | (0.344 | ) |
| Total dividends and distributions | | | (0.290 | ) | | (5.756 | ) | | (4.742 | ) | | (1.712 | ) | | (1.451 | ) | | (0.676 | ) |
| |
| Net asset value, end of period | | | $5.480 | | | $6.640 | | | $15.830 | | | $22.860 | | | $18.770 | | | $19.080 | |
| |
| Total return3 | | | (12.80% | ) | | (35.06% | ) | | (13.94% | ) | | 32.63% | | | 7.17% | | | 31.38% | |
| |
| Ratios and supplemental data: | | | | | | | | | | | | | | | | | | | |
| Net assets, end of period (000 omitted) | | | $110,057 | | | $136,561 | | | $250,072 | | | $672,738 | | | $637,889 | | | $624,223 | |
| Ratio of expenses to average net assets | | | 0.92% | | | 0.87% | | | 0.83% | | | 0.84% | | | 0.85% | | | 0.84% | |
| Ratio of net investment income to average net assets | | | 5.33% | | | 2.37% | | | 1.30% | | | 1.87% | | | 2.89% | | | 3.11% | |
| Portfolio turnover | | | 159% | | | 106% | | | 72% | | | 100% | | | 42% | | | 38% | |
____________________
| 1Ratios and portfolio turnover have been annualized and total return has not been annualized. |
| 2The average shares outstanding method has been applied for per share information. |
| 3Total 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
REIT Series-6
Delaware VIP® REIT Series
Financial Highlights (continued)
Selected data for each share of the Series outstanding throughout each period were as follows:
| | | | | | Delaware VIP REIT Series Service Class |
| | Six Months | | | | | | | | | | | | | | | |
| | Ended | | | | | | | | | | | | | | | |
| | 6/30/091 | | Year Ended | |
| | (Unaudited) | | 12/31/08 | | | 12/31/07 | | | 12/31/06 | | | 12/31/05 | | | 12/31/04 | |
| Net asset value, beginning of period | | | $6.620 | | | $15.790 | | | $22.820 | | | $18.740 | | | $19.050 | | | $15.130 | |
| |
| Income (loss) from investment operations: | | | | | | | | | | | | | | | | | | | |
| Net investment income2 | | | 0.134 | | | 0.218 | | | 0.205 | | | 0.327 | | | 0.478 | | | 0.464 | |
| Net realized and unrealized gain (loss) on investments | | | (1.000 | ) | | (3.680 | ) | | (2.544 | ) | | 5.420 | | | 0.622 | | | 4.102 | |
| Total from investment operations | | | (0.866 | ) | | (3.462 | ) | | (2.339 | ) | | 5.747 | | | 1.100 | | | 4.566 | |
| |
| Less dividends and distributions from: | | | | | | | | | | | | | | | | | | | |
| Net investment income | | | (0.264 | ) | | (0.300 | ) | | (0.246 | ) | | (0.350 | ) | | (0.319 | ) | | (0.302 | ) |
| Net realized gain on investments | | | – | | | (5.408 | ) | | (4.445 | ) | | (1.317 | ) | | (1.091 | ) | | (0.344 | ) |
| Total dividends and distributions | | | (0.264 | ) | | (5.708 | ) | | (4.691 | ) | | (1.667 | ) | | (1.410 | ) | | (0.646 | ) |
| |
| Net asset value, end of period | | | $5.490 | | | $6.620 | | | $15.790 | | | $22.820 | | | $18.740 | | | $19.050 | |
| |
| Total return3 | | | (12.81% | ) | | (35.28% | ) | | (14.18% | ) | | 32.32% | | | 6.86% | | | 31.09% | |
| |
| Ratios and supplemental data: | | | | | | | | | | | | | | | | | | | |
| Net assets, end of period (000 omitted) | | | $102,813 | | | $126,072 | | | $237,362 | | | $314,551 | | | $201,883 | | | $160,976 | |
| Ratio of expenses to average net assets | | | 1.17% | | | 1.12% | | | 1.08% | | | 1.09% | | | 1.10% | | | 1.09% | |
| Ratio of expenses to average net assets | | | | | | | | | | | | | | | | | | | |
| prior to fees waived and expense paid indirectly | | | 1.22% | | | 1.17% | | | 1.13% | | | 1.14% | | | 1.15% | | | 1.14% | |
| Ratio of net investment income to average net assets | | | 5.08% | | | 2.12% | | | 1.05% | | | 1.62% | | | 2.64% | | | 2.86% | |
| Ratio of net investment income to average net assets | | | | | | | | | | | | | | | | | | | |
| prior to fees waived and expense paid indirectly | | | 5.03% | | | 2.07% | | | 1.00% | | | 1.57% | | | 2.59% | | | 2.81% | |
| Portfolio turnover | | | 159% | | | 106% | | | 72% | | | 100% | | | 42% | | | 38% | |
____________________
| 1Ratios and portfolio turnover have been annualized and total return has not been annualized. |
| 2The average shares outstanding method has been applied for per share information. |
| 3Total 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 by the distributor. Performance would have been lower had the waiver not been in effect. |
See accompanying notes
REIT Series-7
Delaware VIP® Trust — Delaware VIP REIT Series
Notes to Financial Statements
June 30, 2009 (Unaudited)
Delaware VIP Trust (Trust) is organized as a Delaware statutory trust and offers 13 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 Limited-Term Diversified Income Series (formerly, Delaware VIP Capital Reserves 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 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 ask prices will be used. Investment companies are valued at net asset value per share. Generally, 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 (Board). 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 suspension of trading in a security. The Series may use fair value pricing more frequently for securities traded primarily in non-U.S. markets because, among other things, most foreign markets close well before the Series values its securities at 4:00 p.m. Eastern time. The earlier close of these foreign markets gives rise to the possibility that significant events, including broad market moves, government actions or pronouncements, aftermarket trading, or news events may have occurred in the interim. To account for this, the Series may frequently value foreign securities using fair value prices based on third-party vendor modeling tools (international fair value pricing).
Federal Income Taxes—No provision for federal income taxes has been made as the Series intends to continue to qualify for federal income tax purposes as a regulated investment company under Subchapter M of the Internal Revenue Code of 1986, as amended, and make the requisite distributions to shareholders. The Series evaluates 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 Series did not record 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 other 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. At June 30, 2009, the Series held no investments in repurchase agreements.
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 (REITs) 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.
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 $1,822 for the six months ended June 30, 2009. 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. There were no earnings credits for the six months ended June 30, 2009.
REIT Series-8
Delaware VIP® REIT Series
Notes to Financial Statements (continued)
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.
Effective May 1, 2009, DMC has voluntarily agreed to waive that portion, if any, of its management fee and/or pay/reimburse the Series to the extent necessary to ensure that total annual operating expenses (excluding any 12b-1 plan expenses, taxes, interest, inverse floater program expenses, brokerage fees, certain insurance costs, and nonroutine expenses or costs including, but not limited to, those relating to reorganizations, litigation, conducting shareholder meetings, and liquidations (collectively, “nonroutine expenses”)) does not exceed 0.86% of average daily net assets of the Series until such time as the voluntary expense cap is discontinued. For purposes of this waiver and reimbursement, nonroutine expenses may also include such additional costs and expenses, as may be agreed upon from time to time by the Series’ Board and DMC. This expense waiver and reimbursement applies only to expenses paid directly by the Series, and may be discontinued at any time because they are voluntary.
Delaware Service Company, Inc. (DSC), an affiliate of DMC, provides fund accounting and financial administration oversight services to the Series. For these services, the Series pays DSC fees based on the aggregate daily net assets of the Delaware Investments® Family of Funds at the following annual rate: 0.0050% of the first $30 billion; 0.0045% of the next $10 billion; 0.0040% of the next $10 billion; and 0.0025% of aggregate average daily net assets in excess of $50 billion. The fees payable to DSC under the service agreement described above are allocated among all funds in the Delaware Investments Family of Funds on a relative net asset value basis. For the six months ended June 30, 2009, the Series was charged $5,153 for these services.
DSC also provides dividend disbursing and transfer agency services. The Series pays DSC a monthly fee based on the number of shareholder accounts 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, 2010 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, 2009, the Series had liabilities payable to affiliates as follows:
| | | Dividend Disbursing, | | | | Other |
| Investment | | Transfer Agent and Fund | | | | Expenses |
| Management | | Accounting Oversight | | Distribution | | Payable |
| Fee Payable to | | Fees and Other Expenses | | Fee Payable | | to DMC |
| DMC | | Payable to DSC | | to DDLP | | and Affiliates* |
| | $134,360 | | $2,565 | | $21,897 | | $3,279 |
____________________
*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, 2009, the Series was charged $11,286 for internal legal and tax services provided by DMC and/or its affiliates’ employees.
Trustees’ fees include expenses accrued by the Series for each Trustee’s retainer and meeting fees. 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, 2009, the Series made purchases and sales of investment securities other than short-term investments as follows:
| Purchases | | $160,299,349 |
| Sales | | 159,158,410 |
At June 30, 2009, the cost of investments for federal income tax purposes has been estimated since final tax characteristics cannot be determined until fiscal year end. At June 30, 2009, the cost of investments and unrealized appreciation (depreciation) for the Series were as follows:
| | | Aggregate | | Aggregate | | Net |
| Cost of | | Unrealized | | Unrealized | | Unrealized |
| Investments | | Appreciation | | Depreciation | | Depreciation |
| | $397,497,477 | | $1,801,709 | | $(134,111,365) | | $(132,309,656) |
REIT Series-9
Delaware VIP® REIT Series
Notes to Financial Statements (continued)
3. Investments (continued)
The Series applies Financial Accounting Standards No. 157, Fair Value Measurements (FAS 157). FAS 157 defines fair value as the price that the Series would receive to sell an asset or pay to transfer a liability in an orderly transaction between market participants at the measurement date under current market conditions. FAS 157 also establishes a framework for measuring fair value and a three level hierarchy for fair value measurements based upon the transparency of inputs to the valuation of an asset or liability. Inputs may be observable or unobservable and refer broadly to the assumptions that market participants would use in pricing the asset or liability. Observable inputs reflect the assumptions market participants would use in pricing the asset or liability based on market data obtained from sources independent of the reporting entity. Unobservable inputs reflect the reporting entity’s own assumptions about the assumptions that market participants would use in pricing the asset or liability developed based on the best information available under the circumstances. The Series’ investment in its entirety is assigned a level based upon the observability of the inputs which are significant to the overall valuation. The three-tier hierarchy of inputs is summarized below.
Level 1 – inputs are quoted prices in active markets
Level 2 – inputs are observable, directly or indirectly
Level 3 – inputs are unobservable and reflect assumptions on the part of the reporting entity
The following table summarizes the valuation of the Series’ investments by the FAS 157 fair value hierarchy levels as of June 30, 2009:
| Level 1 | | Level 2 | | Level 3 | | Total |
| Common Stock | $ | 208,736,137 | | $ | – | | $ | – | | $ | 208,736,137 |
| Short-Term | | – | | | 4,353,090 | | | – | | | 4,353,090 |
| U.S. Treasury Obligations | | 1,067,947 | | | – | | | – | | | 1,067,947 |
| Securities Lending Collateral | | 30,259,627 | | | 20,770,881 | | | 139 | | | 51,030,647 |
| Total | $ | 240,063,711 | | $ | 25,123,971 | | $ | 139 | | $ | 265,187,821 |
The following is a reconciliation of investments in which significant unobservable inputs (Level 3) were used in determining fair value:
| Securities |
| Lending |
| Collateral |
| Balance as of 12/31/08 | | $ 45,846 | |
| Net change in unrealized | | | |
| appreciation/depreciation | | (45,707 | ) |
| Balance as of 12/31/08 | | $ 139 | |
| |
| Net change in unrealized | | | |
| appreciation/depreciation from | | | |
| investments still held as of 6/30/09 | | $(45,707 | ) |
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, distributions from 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, 2009 and the year ended December 31, 2008 was as follows:
| Six Months | | Year |
| Ended | | Ended |
| 6/30/09* | | 12/31/08 |
| Ordinary income | $ | 10,511,633 | | $ | 39,881,561 |
| Long-term capital gain | | – | | | 119,409,938 |
| Total | $ | 10,511,633 | | $ | 159,291,499 |
____________________
*Tax information for the period ended June 30, 2009 is an estimate and the tax character of dividends and distributions may be redesignated at fiscal year end.
REIT Series-10
Delaware VIP® REIT Series
Notes to Financial Statements (continued)
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, 2009, the estimated components of net assets on a tax basis were as follows:
| Shares of beneficial interest | $ | 489,544,503 | |
| Undistributed ordinary income | | 5,806,203 | |
| Capital loss carryforwards as of 12/31/08 | | (59,739,771 | ) |
| Realized losses 1/1/09 – 6/30/09 | | (90,431,345 | ) |
| Unrealized depreciation of investments | | (132,309,656 | ) |
| Net assets | $ | 212,869,934 | |
The differences between book basis and tax basis components of net assets are primarily attributable to tax deferral of losses on wash sales and return of capital from investments.
The undistributed earnings for the Series may be subject to reclassification upon notice of the tax character of distributions received from investments in REITs.
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, 2008 will expire as follows: $59,739,771 expires in 2016.
For the six months ended June 30, 2009, the Series had capital losses of $90,431,345, which may increase the capital loss carryforwards.
6. Capital Shares
Transactions in capital shares were as follows:
| Six Months | | Year |
| Ended | | Ended |
| 6/30/09 | | 12/31/08 |
| Shares sold: | | | | | |
| Standard Class | 1,525,133 | | | 2,742,925 | |
| Service Class | 1,464,426 | | | 2,656,786 | |
| |
| Shares issued upon reinvestment of dividends and distributions: | | | | | |
| Standard Class | 1,100,701 | | | 7,700,998 | |
| Service Class | 946,506 | | | 7,469,621 | |
| | 5,036,766 | | | 20,570,330 | |
| Shares repurchased: | | | | | |
| Standard Class | (3,124,011 | ) | | (5,662,973 | ) |
| Service Class | (2,719,343 | ) | | (6,121,105 | ) |
| | (5,843,354 | ) | | (11,784,078 | ) |
| Net increase (decrease) | (806,588 | ) | | 8,786,252 | |
7. Line of Credit
The Series, along with certain other funds in the Delaware Investments® Family of Funds (Participants), participates in a $35,000,000 revolving line of credit with The Bank of New York Mellon (BNY Mellon) to be used for temporary or emergency purposes as an additional source of liquidity to fund redemptions of investor shares. Under the agreement, 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 agreement expires on November 17, 2009. The Series had no amounts outstanding as of June 30, 2009, 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 BNY Mellon. With respect to each loan, if the aggregate market value of securities collateral held plus cash collateral received on any business day is less than the aggregate market 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 generally invested in the Mellon GSL DBT II Collateral Fund (Collective Trust) established by BNY Mellon for the purpose of investment on behalf of clients participating in its securities lending programs. The Collective Trust may invest in fixed income securities, with a weighted average maturity not to exceed 90 days, rated in one of the top three tiers by Standard & Poor’s Ratings Group (S&P) or Moody’s Investors Service, Inc. (Moody’s) or repurchase agreements collateralized by such securities. The Collective Trust seeks to maintain a net asset value per unit of $1.00, but there can be no assurance that it will always be able to do so. At June 30, 2009, the Collective Trust held only cash and assets with a maturity of one business day or less (Cash/Overnight Assets). The Series may incur investment losses as a result of investing securities lending collateral in the Collective Trust. This could occur if an investment in the Collective Trust defaulted or if it were necessary to liquidate assets in the Collective Trust to meet returns on outstanding security loans at a time when the Collective Trust’s net asset value per unit was less than $1.00. Under those circumstances, the Series may not receive an
REIT Series-11
Delaware VIP® REIT Series
Notes to Financial Statements (continued)
8. Securities Lending (continued)
amount from the Collective Trust that is equal in amount to the collateral the Series would be required to return to the borrower of the securities and the Series would be required to make up for this shortfall. Effective April 20, 2009, BNY Mellon transferred the assets of the Collective Trust other than the Cash/Overnight Assets to the BNY Mellon SL DBT II Liquidating Fund (Liquidating Fund), effectively bifurcating the collateral investment pool. The Series’ exposure to the Liquidating Fund is expected to decrease as the Liquidating Fund’s assets mature or are sold. In October 2008, BNY Mellon transferred certain distressed securities from the Collective Trust into the Mellon GSL Reinvestment Trust II. The Series can also accept U.S. government securities and letters of credit (non-cash collateral) in connection with securities loans. 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 or interest, as applicable, 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 non-cash collateral, the Series receives loan premiums paid by the borrower. 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 security lending income net of allocations to the security lending agent and the borrower.
At June 30, 2009, the value of the securities on loan was $51,591,968, for which the Series received collateral, comprised of non-cash collateral valued at $166,401, and cash collateral of $52,952,776. Investments purchased with cash collateral are presented on the Statement of Net Assets under the caption “Securities Lending Collateral.”
9. Credit and Market Risk
The Series concentrates its investments in the real estate industry and is subject to 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 REITs 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 net 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 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. Securities eligible for resale pursuant to Rule 144A, which are determined to be liquid, are not subject to the Series’ 10% limit on investments in illiquid securities. As of June 30, 2009, there were no Rule 144A securities and no securities have been determined to be illiquid under the Series’ Liquidity Procedures.
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
Effective June 30, 2009, the Series adopted Financial Accounting Standards Board Statement of Financial Accounting Standards No. 165, Subsequent Events (FAS 165). In accordance with FAS 165, management has evaluated whether any events or transactions occurred subsequent to June 30, 2009 through August 15, 2009, date of issuance of the Series’ financial statements, and determined that there were no material events or transactions that would require recognition or disclosure in the Series’ financial statements.
The Series files its complete schedule of portfolio holdings with the Securities and Exchange Commission (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. |
REIT Series-12
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 19-21, 2009 (the “Annual Meeting”), the Board of Trustees (the “Board”), including a majority of disinterested or independent Trustees, approved the renewal of the Investment Advisory Agreement for the Delaware VIP REIT Series (the “Series”). In making its decision, the Board considered information furnished specifically in connection with the renewal of the Investment Advisory Agreement with Delaware Management Company (“DMC”), which included materials provided by DMC and its affiliates (“Delaware Investments”) concerning, among other things, the nature, extent and quality 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. Reference was made to information furnished at regular quarterly 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 and sub-advisory contracts. In addition, in connection with the Annual Meeting, reports were provided in February 2009 and included 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 independent Trustees reviewed and discussed the Lipper reports with counsel to the independent Trustees. The Board requested and received information regarding DMC’s policy with respect to advisory fee levels and its breakpoint philosophy; 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 had in the past year inhibited, or which were likely in the future to inhibit, DMC’s ability to invest fully in accordance with 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 counsel to the independent Trustees. Although the Board gave attention to all information furnished, the following discussion identifies, under separate headings, the primary factors taken into account by the Board during its contract renewal considerations.
NATURE, EXTENT AND QUALITY OF SERVICE. The Board considered the services provided by Delaware Investments to the Series and its shareholders. In reviewing the nature, extent and quality of services, the Board considered reports furnished to it throughout the year, which covered matters such as the relative performance of the Series, compliance of portfolio managers with the investment policies, strategies and restrictions for the Series, compliance by DMC and Delaware Distributors, L.P. (together, “Management”) personnel with the Code of Ethics adopted throughout the Delaware Investments® Family of Funds complex and adherence to fair value pricing procedures as established by the Board. The Board was pleased with the current staffing of the Series’ investment advisor and the emphasis placed on research in the investment process. The Board gave favorable consideration to DMC’s efforts to control expenditures while maintaining service levels committed to fund matters. The Board also considered the transfer agent and shareholder services provided to Series shareholders by DMC’s affiliate, Delaware Service Company, Inc. (“DSC”), noting DSC’s high level of service. The Board noted that Management finished upgrading investment accounting functions through outsourcing to improve the quality and lower the cost of delivering investment accounting services to the Series. The Board was satisfied with the nature, extent and quality of the overall services provided by Delaware Investments.
INVESTMENT PERFORMANCE. The Board placed significant emphasis on the investment performance of the Series in view of its importance to shareholders. Although the Board gave appropriate consideration to performance reports and discussions with portfolio managers at Board meetings throughout the year, the Board gave particular weight 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 performance 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, 2008. The Board’s objective is 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- and three-year periods was in the first quartile of its Performance Universe. The report further showed that the Series’ total return for the five- and ten-year periods was in the third quartile. The Series’ performance results were mixed. In evaluating the Series’ performance the Board considered the improved performance for the one- and three-year periods and was satisfied that Management was taking effective action to improve the Series performance and to meet the Board’s performance objective.
COMPARATIVE EXPENSES. The Board considered expense comparison data for the Delaware Investments Family of Funds. Management provided the Board with information on pricing levels and fee structures for the Series as of October 31, 2008 and, for comparative funds, information as of their respective fiscal year end occurring on or before August 31, 2008. The Board also focused on the comparative analysis of effective management fees and total expense ratios of the Series versus 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) 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 considered fees paid to Delaware Investments for nonmanagement services. The Board’s objective is to limit the Series’ total expense ratio to be competitive with that 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 the 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 those of its Expense Group.
REIT Series-13
Delaware VIP® REIT Series
Other Series Information (continued)
MANAGEMENT PROFITABILITY. The Board considered the level of profits 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, reflect recent 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 industry-wide 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 management fees were 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 reviewed the standardized advisory fee pricing and structure approved by the Board and shareholders, which includes breakpoints. Breakpoints in the advisory fee occur when the advisory fee rate is reduced on assets in excess of specified levels. Breakpoints result in a lower advisory fee than would otherwise be the case on all assets when the 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.
PO14207 SA-VIPREIT [6/09] DG3 8/09 (4772) | REIT Series-14 |
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Delaware VIP® Trust — Delaware VIP Select Growth Series
Disclosure of Series Expenses
For the Period January 1, 2009 to June 30, 2009
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, 2009 to June 30, 2009.
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
| | | | | | | | | Expenses |
| | | Beginning | | Ending | | | | | Paid During |
| | | Account | | Account | | Annualized | | Period |
| | | Value | | Value | | Expense | | 1/1/09 to |
| | | 1/1/09 | | 6/30/09 | | Ratios | | 6/30/09* |
| Actual Series Return | | | | | | | | | | | | | | | | |
| Standard Class | | | $ | 1,000.00 | | | $ | 1,243.50 | | | 0.95 | % | | $ | 5.28 | |
| Service Class | | | | 1,000.00 | | | | 1,240.50 | | | 1.20 | % | | | 6.67 | |
| Hypothetical 5% Return (5% return before expenses) |
| Standard Class | | | $ | 1,000.00 | | | $ | 1,020.08 | | | 0.95 | % | | $ | 4.76 | |
| Service Class | | | | 1,000.00 | | | | 1,018.84 | | | 1.20 | % | | | 6.01 | |
*“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). |
Select Growth Series-1
Delaware VIP® Trust — Delaware VIP Select Growth Series
Sector Allocation and Top 10 Holdings
As of June 30, 2009
Sector designations may be different than the sector designations presented in other Series materials. The sector designations may represent the investment manager’s internal sector classifications, which may result in the sector designations for one Series being different than another Series’ sector designations.
| | Percentage |
| Sector | of Net Assets |
| Common Stock² | 95.61 | % |
| Basic Industry/Capital Goods | 7.28 | % |
| Business Services | 8.17 | % |
| Consumer Non-Durables | 4.31 | % |
| Consumer Services | 9.70 | % |
| Energy | 4.64 | % |
| Financials | 14.49 | % |
| Health Care | 14.41 | % |
| Technology | 32.61 | % |
| Discount Note | 3.98 | % |
| U.S. Treasury Obligation | 0.97 | % |
| Securities Lending Collateral | 9.65 | % |
| Total Value of Securities | 110.21 | % |
| Obligation to Return Securities Lending Collateral | (10.06 | %) |
| Liabilities Net of Receivables and Other Assets | (0.15 | %) |
| Total Net Assets | 100.00 | % |
²Narrow 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.
| | Percentage |
| Top 10 Holdings | of Net Assets |
| Apple | 4.91 | % |
| IntercontinentalExchange | 4.72 | % |
| QUALCOMM | 4.36 | % |
| CME Group | 3.90 | % |
| Heartland Payment Systems | 3.22 | % |
| Interval Leisure Group | 2.94 | % |
| VeriSign | 2.89 | % |
| Gilead Sciences | 2.64 | % |
| Allergan | 2.62 | % |
| Google Class A | 2.51 | % |
Select Growth Series-2
Delaware VIP® Trust — Delaware VIP Select Growth Series
Statement of Net Assets
June 30, 2009 (Unaudited)
| | Number of | | |
| | Shares | | Value |
| COMMON STOCK–95.61%² | | | | | |
| Basic Industry/Capital Goods–7.28% | | | | | |
| Deere & Co. | | 1,700 | | $ | 67,915 |
| Monsanto | | 1,200 | | | 89,208 |
| Newmont Mining | | 3,400 | | | 138,958 |
| Praxair | | 800 | | | 56,856 |
| Syngenta ADR | | 3,900 | | | 181,428 |
| *Yamana Gold | | 5,300 | | | 46,852 |
| | | | | | 581,217 |
| Business Services–8.17% | | | | | |
| Expeditors International of Washington | | 3,200 | | | 106,688 |
| †Hansen Transmissions | | 15,300 | | | 38,314 |
| *†Lamar Advertising Class A | | 1,500 | | | 22,905 |
| MasterCard Class A | | 1,050 | | | 175,676 |
| †Research in Motion | | 1,800 | | | 127,890 |
| *Visa Class A | | 2,900 | | | 180,554 |
| | | | | | 652,027 |
| Consumer Non-Durables–4.31% | | | | | |
| *†NetFlix | | 2,300 | | | 95,082 |
| *NIKE Class B | | 1,200 | | | 62,136 |
| †Peet’s Coffee & Tea | | 1,500 | | | 37,800 |
| Procter & Gamble | | 300 | | | 15,330 |
| Staples | | 2,600 | | | 52,442 |
| *†Whole Foods Market | | 4,300 | | | 81,614 |
| | | | | | 344,404 |
| Consumer Services–9.70% | | | | | |
| DineEquity | | 2,200 | | | 68,618 |
| *†eBay | | 1,800 | | | 30,834 |
| Heartland Payment Systems | | 26,900 | | | 257,433 |
| †Interval Leisure Group | | 25,200 | | | 234,864 |
| Weight Watchers International | | 7,100 | | | 182,967 |
| | | | | | 774,716 |
| Energy–4.64% | | | | | |
| *Core Laboratories | | 2,100 | | | 183,015 |
| EnCana | | 900 | | | 44,523 |
| EOG Resources | | 2,100 | | | 142,632 |
| | | | | | 370,170 |
| Financials–14.49% | | | | | |
| †Affiliated Managers Group | | 1,500 | | | 87,285 |
| Bank of New York Mellon | | 5,941 | | | 174,131 |
| CME Group | | 1,000 | | | 311,110 |
| †IntercontinentalExchange | | 3,300 | | | 376,992 |
| optionsXpress Holdings | | 12,800 | | | 198,784 |
| Schwab (Charles) | | 500 | | | 8,770 |
| | | | | | 1,157,072 |
| Health Care–14.41% | | | | | |
| †Abiomed | | 7,200 | | | 63,504 |
| Allergan | | 4,400 | | | 209,352 |
| †Gilead Sciences | | 4,500 | | | 210,780 |
| *†Intuitive Surgical | | 600 | | | 98,196 |
| †Medco Health Solutions | | 3,900 | | | 177,879 |
| Novo Nordisk ADR | | 2,700 | | | 147,042 |
| Techne | | 1,000 | | | 63,810 |
| UnitedHealth Group | | 7,200 | | | 179,856 |
| | | | | | 1,150,419 |
| Technology–32.61% | | | | | |
| *†Adobe Systems | | 4,800 | | | 135,840 |
| †Apple | | 2,750 | | | 391,683 |
| †athenahealth | | 1,500 | | | 55,515 |
| Blackbaud | | 1,900 | | | 29,545 |
| †Crown Castle International | | 7,500 | | | 180,150 |
| †Google Class A | | 475 | | | 200,255 |
| †Intuit | | 3,800 | | | 107,008 |
| †j2 Global Communications | | 5,800 | | | 130,848 |
| †Juniper Networks | | 3,200 | | | 75,520 |
| *†priceline.com | | 800 | | | 89,240 |
| QUALCOMM | | 7,700 | | | 348,040 |
| *†SBA Communications Class A | | 2,400 | | | 58,896 |
| †Symantec | | 7,100 | | | 110,476 |
| Tandberg | | 11,795 | | | 198,473 |
| †Teradata | | 6,200 | | | 145,266 |
| *†VeriFone Holdings | | 15,400 | | | 115,654 |
| *†VeriSign | | 12,500 | | | 231,000 |
| | | | | | 2,603,409 |
| Total Common Stock | | | | | |
| (cost $7,128,579) | | | | | 7,633,434 |
| |
| | Principal | | | |
| | Amount | | | |
| ¹DISCOUNT NOTE–3.98% | | | | | |
| Federal Home Loan Bank 0.01% 7/1/09 | $ | 317,990 | | | 317,990 |
| Total Discount Note | | | | | |
| (cost $317,990) | | | | | 317,990 |
| |
| ¹U.S. TREASURY OBLIGATION–0.97% | | | | | |
| U.S. Treasury Bill 0.088% 7/23/09 | | 78,017 | | | 78,013 |
| Total U.S. Treasury Obligation | | | | | |
| (cost $78,013) | | | | | 78,013 |
| |
| Total Value of Securities | | | | | |
| Before Securities Lending | | | | | |
| Collateral–100.56% | | | | | |
| (cost $7,524,582) | | | | | 8,029,437 |
| |
| | Number of | | | |
| | Shares | | | |
| SECURITIES LENDING | | | | | |
| COLLATERAL**–9.65% | | | | | |
| Investment Companies | | | | | |
| Mellon GSL DBT II Collateral Fund | | 202,360 | | | 202,360 |
| BNY Mellon SL DB II Liquidating Fund | | 582,525 | | | 567,951 |
| †Mellon GSL Reinvestment Trust II | | 18,508 | | | 2 |
| Total Securities Lending Collateral | | | | | |
| (cost $803,393) | | | | | 770,313 |
Select Growth Series-3
Delaware VIP® Select Growth Series
Statement of Net Assets (continued)
| TOTAL VALUE OF SECURITIES–110.21% (cost $8,327,975) | $ | 8,799,750 | © |
| OBLIGATION TO RETURN SECURITIES LENDING COLLATERAL**–(10.06%) | | (803,393 | ) |
| LIABILITIES NET OF RECEIVABLES AND OTHER ASSETS–(0.15%) | | (12,190 | ) |
| NET ASSETS APPLICABLE TO 1,045,282 SHARES OUTSTANDING–100.00% | $ | 7,984,167 | |
| NET ASSET VALUE–DELAWARE VIP SELECT GROWTH SERIES | | | | |
| STANDARD CLASS ($6,189,929 / 807,368 Shares) | | | $7.67 | |
| NET ASSET VALUE–DELAWARE VIP SELECT GROWTH SERIES | | | | |
| SERVICE CLASS ($1,794,238 / 237,914 Shares) | | | $7.54 | |
| COMPONENTS OF NET ASSETS AT JUNE 30, 2009: | | | |
| Shares of beneficial interest (unlimited authorization–no par) | $ | 54,966,201 | |
| Accumulated net realized loss on investments | | (47,453,809 | ) |
| Net unrealized appreciation of investments | | 471,775 | |
| Total net assets | $ | 7,984,167 | |
____________________
| ² | Narrow industries are utilized for compliance purposes for diversification whereas broad sectors are used for financial reporting. |
| * | Fully or partially on loan. |
| ** | See Note 8 in “Notes to Financial Statements.” |
| † | Non income producing security. |
| © | Includes $781,660 of securities loaned. |
| ¹ | The rate shown is the effective yield at the time of purchase. |
ADR – American Depositary Receipts
See accompanying notes
Select Growth Series-4
Delaware VIP® Trust —
Delaware VIP Select Growth Series
Statement of Operations
Six Months Ended June 30, 2009 (Unaudited)
| INVESTMENT INCOME: | | | |
| Dividends | $ | 28,754 | |
| Securities lending income | | 5,168 | |
| Interest | | 121 | |
| Foreign tax withheld | | (1,214 | ) |
| | | 32,829 | |
| |
| EXPENSES: | | | |
| Management fees | | 26,757 | |
| Audit and tax | | 5,973 | |
| Dividend disbursing and transfer agent fees and expenses | | 4,171 | |
| Reports and statements to shareholders | | 3,180 | |
| Distribution expenses – Service Class | | 2,305 | |
| Accounting and administration expenses | | 1,427 | |
| Custodian fees | | 936 | |
| Dues and services | | 842 | |
| Legal fees | | 632 | |
| Trustees’ fees | | 258 | |
| Pricing fees | | 257 | |
| Insurance fees | | 101 | |
| Consulting fees | | 64 | |
| Registration fees | | 22 | |
| Trustees’ expenses | | 19 | |
| | | 46,944 | |
| Less fees waived | | (10,602 | ) |
| Less waiver of distribution expenses – Service Class | | (384 | ) |
| Total operating expenses | | 35,958 | |
| |
| NET INVESTMENT LOSS | | (3,129 | ) |
| |
| NET REALIZED AND UNREALIZED GAIN (LOSS) | | | |
| ON INVESTMENTS AND FOREIGN CURRENCIES: | | | |
| Net realized loss on: | | | |
| Investments | | (1,485,928 | ) |
| Foreign currencies | | (1,711 | ) |
| Net realized loss | | (1,487,639 | ) |
| Net change in unrealized appreciation/depreciation | | | |
| of investments | | 3,093,599 | |
| |
| NET REALIZED AND UNREALIZED GAIN | | | |
| ON INVESTMENTS AND FOREIGN CURRENCIES | | 1,605,960 | |
| |
| NET INCREASE IN NET ASSETS RESULTING | | | |
| FROM OPERATIONS | $ | 1,602,831 | |
See accompanying notes
Delaware VIP Trust —
Delaware VIP Select Growth Series
Statements of Changes in Net Assets
| | Six Months | | |
| | Ended | | Year |
| | 6/30/09 | | Ended |
| | (Unaudited) | | 12/31/08 |
| INCREASE (DECREASE) IN NET | | | | | | | |
| ASSETS FROM OPERATIONS: | | | | | | | |
| Net investment income (loss) | $ | (3,129 | ) | | $ | 23,834 | |
| Net realized loss on investments and | | | | | | | |
| foreign currencies | | (1,487,639 | ) | | | (891,454 | ) |
| Net change in unrealized appreciation/ | | | | | | | |
| depreciation of investments | | 3,093,599 | | | | (5,167,385 | ) |
| Net increase (decrease) in net assets | | | | | | | |
| resulting from operations | | 1,602,831 | | | | (6,035,005 | ) |
| |
| DIVIDENDS AND DISTRIBUTIONS | | | | | | | |
| TO SHAREHOLDERS FROM: | | | | | | | |
| Net investment income: | | | | | | | |
| Standard Class | | (20,511 | ) | | | – | |
| Service Class | | (470 | ) | | | – | |
| | | (20,981 | ) | | | – | |
| |
| CAPITAL SHARE TRANSACTIONS: | | | | | | | |
| Proceeds from shares sold: | | | | | | | |
| Standard Class | | 108,353 | | | | 175,856 | |
| Service Class | | 236,325 | | | | 100,071 | |
| Net asset value of shares issued upon | | | | | | | |
| reinvestment of dividends and distributions: | | | | | | | |
| Standard Class | | 20,511 | | | | – | |
| Service Class | | 470 | | | | – | |
| | | 365,659 | | | | 275,927 | |
| Cost of shares repurchased: | | | | | | | |
| Standard Class | | (794,529 | ) | | | (2,036,523 | ) |
| Service Class | | (279,440 | ) | | | (1,378,170 | ) |
| | | (1,073,969 | ) | | | (3,414,693 | ) |
| Decrease in net assets derived | | | | | | | |
| from capital share transactions | | (708,310 | ) | | | (3,138,766 | ) |
| |
| NET INCREASE (DECREASE) | | | | | | | |
| IN NET ASSETS | | 873,540 | | | | (9,173,771 | ) |
| |
| NET ASSETS: | | | | | | | |
| Beginning of period | | 7,110,627 | | | | 16,284,398 | |
| End of period (including undistributed | | | | | | | |
| net investment income of $– and | | | | | | | |
| $20,695, respectively) | $ | 7,984,167 | | | $ | 7,110,627 | |
See accompanying notes
Select Growth Series-5
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 | | | | | | | | | | | | | | | |
| | Ended | | | | | | | | | | | | | | | |
| | 6/30/091 | | Year Ended |
| | (Unaudited) | | 12/31/08 | | | 12/31/07 | | | 12/31/06 | | | 12/31/05 | | | 12/31/04 | |
| Net asset value, beginning of period | | $6.190 | | | $11.030 | | | $10.060 | | | $9.880 | | | $8.460 | | | $7.810 | |
| |
| Income (loss) from investment operations: | | | | | | | | | | | | | | | | | | |
| Net investment income (loss)2 | | (0.001 | ) | | 0.024 | | | (0.028 | ) | | (0.035 | ) | | (0.022 | ) | | (0.011 | ) |
| Net realized and unrealized gain (loss) on investments | | | | | | | | | | | | | | | | | | |
| and foreign currencies | | 1.505 | | | (4.864 | ) | | 0.998 | | | 0.215 | | | 1.442 | | | 0.661 | |
| Total from investment operations | | 1.504 | | | (4.840 | ) | | 0.970 | | | 0.180 | | | 1.420 | | | 0.650 | |
| |
| Less dividends and distributions from: | | | | | | | | | | | | | | | | | | |
| Net investment income | | (0.024 | ) | | – | | | – | | | – | | | – | | | – | |
| Total dividends and distributions | | (0.024 | ) | | – | | | – | | | – | | | – | | | – | |
| |
| Net asset value, end of period | | $7.670 | | | $6.190 | | | $11.030 | | | $10.060 | | | $9.880 | | | $8.460 | |
| |
| Total return3 | | 24.35% | | | (43.88% | ) | | 9.64% | | | 1.82% | | | 16.78% | | | 8.32% | |
| |
| Ratios and supplemental data: | | | | | | | | | | | | | | | | | | |
| Net assets, end of period (000 omitted) | | $6,190 | | | $5,623 | | | $12,234 | | | $14,901 | | | $18,612 | | | $20,493 | |
| Ratio of expenses to average net assets | | 0.95% | | | 0.99% | | | 0.93% | | | 0.91% | | | 0.90% | | | 0.83% | |
| Ratio of expenses to average net assets | | | | | | | | | | | | | | | | | | |
| prior to fees waived and expense paid indirectly | | 1.25% | | | 1.10% | | | 0.95% | | | 0.94% | | | 0.97% | | | 0.83% | |
| Ratio of net investment income (loss) to average net assets | | (0.03% | ) | | 0.26% | | | (0.26% | ) | | (0.36% | ) | | (0.26% | ) | | (0.14% | ) |
| Ratio of net investment income (loss) to average net assets | | | | | | | | | | | | | | | | | | |
| prior to fees waived and expense paid indirectly | | (0.33% | ) | | 0.15% | | | (0.28% | ) | | (0.39% | ) | | (0.33% | ) | | (0.14% | ) |
| Portfolio turnover | | 56% | | | 57% | | | 46% | | | 50% | | | 133% | | | 86% | |
____________________
| 1Ratios and portfolio turnover have been annualized and total return has not been annualized. |
2The average shares outstanding method has been applied for per share information. |
3Total 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 by the manager, as applicable. Performance would have been lower had the waiver not been in effect. |
See accompanying notes
Select Growth Series-6
Delaware VIP® Select Growth Series
Financial Highlights (continued)
Selected data for each share of the Series outstanding throughout each period were as follows:
| | Delaware VIP Select Growth Series Service Class |
| | Six Months | | | | | | | | | | | | | | | |
| | Ended | | | | | | | | | | | | | | | |
| | 6/30/091 | | Year Ended |
| | (Unaudited) | | 12/31/08 | | | 12/31/07 | | | 12/31/06 | | | 12/31/05 | | | 12/31/04 | |
| Net asset value, beginning of period | | $6.080 | | | $10.860 | | | $9.930 | | | $9.780 | | | $8.390 | | | $7.760 | |
| |
| Income (loss) from investment operations: | | | | | | | | | | | | | | | | | | |
| Net investment income (loss)2 | | (0.009 | ) | | 0.001 | | | (0.054 | ) | | (0.059 | ) | | (0.043 | ) | | (0.030 | ) |
| Net realized and unrealized gain (loss) on investments | | | | | | | | | | | | | | | | | | |
| and foreign currencies | | 1.471 | | | (4.781 | ) | | 0.984 | | | 0.209 | | | 1.433 | | | 0.660 | |
| Total from investment operations | | 1.462 | | | (4.780 | ) | | 0.930 | | | 0.150 | | | 1.390 | | | 0.630 | |
| |
| Less dividends and distributions from: | | | | | | | | | | | | | | | | | | |
| Net investment income | | (0.002 | ) | | – | | | – | | | – | | | – | | | – | |
| Total dividends and distributions | | (0.002 | ) | | – | | | – | | | – | | | – | | | – | |
| |
| Net asset value, end of period | | $7.540 | | | $6.080 | | | $10.860 | | | $9.930 | | | $9.780 | | | $8.390 | |
| |
| Total return3 | | 24.05% | | | (44.01% | ) | | 9.37% | | | 1.53% | | | 16.57% | | | 8.12% | |
| |
| Ratios and supplemental data: | | | | | | | | | | | | | | | | | | |
| Net assets, end of period (000 omitted) | | $1,794 | | | $1,488 | | | $4,050 | | | $4,571 | | | $5,076 | | | $5,148 | |
| Ratio of expenses to average net assets | | 1.20% | | | 1.24% | | | 1.18% | | | 1.16% | | | 1.15% | | | 1.08% | |
| Ratio of expenses to average net assets | | | | | | | | | | | | | | | | | | |
| prior to fees waived and expense paid indirectly | | 1.55% | | | 1.40% | | | 1.25% | | | 1.24% | | | 1.27% | | | 1.13% | |
| Ratio of net investment income (loss) to average net assets | | (0.28% | ) | | 0.01% | | | (0.51% | ) | | (0.61% | ) | | (0.51% | ) | | (0.39% | ) |
| Ratio of net investment loss to average net assets | | | | | | | | | | | | | | | | | | |
| prior to fees waived and expense paid indirectly | | (0.63% | ) | | (0.15% | ) | | (0.58% | ) | | (0.69% | ) | | (0.63% | ) | | (0.44% | ) |
| Portfolio turnover | | 56% | | | 57% | | | 46% | | | 50% | | | 133% | | | 86% | |
____________________
| 1Ratios and portfolio turnover have been annualized and total return has not been annualized. |
2The average shares outstanding method has been applied for per share information. |
3Total 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 by the manager and distributor, as applicable. Performance would have been lower had the waiver not been in effect. |
See accompanying notes
Select Growth Series-7
Delaware VIP® Trust — Delaware VIP Select Growth Series
Notes to Financial Statements
June 30, 2009 (Unaudited)
Delaware VIP Trust (Trust) is organized as a Delaware statutory trust and offers 13 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 Limited-Term Diversified Income Series (formerly, Delaware VIP Capital Reserves 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 ask prices will be used. Investment companies are valued at net asset value per share. Generally, 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 (Board). 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 suspension of trading in a security. The Series may use fair value pricing more frequently for securities traded primarily in non-U.S. markets because, among other things, most foreign markets close well before the Series values its securities at 4:00 p.m. Eastern time. The earlier close of these foreign markets gives rise to the possibility that significant events, including broad market moves, government actions or pronouncements, aftermarket trading, or news events may have occurred in the interim. To account for this, the Series may frequently value foreign securities using fair value prices based on third-party vendor modeling tools (international fair value pricing).
Federal Income Taxes—No provision for federal income taxes has been made as the Series intends to continue to qualify for federal income tax purposes as a regulated investment company under Subchapter M of the Internal Revenue Code of 1986, as amended, and make the requisite distributions to shareholders. The Series evaluates 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 Series did not record 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 other 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. At June 30, 2009, the Series held no investments in repurchase agreements.
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. 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.
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 $1,050 for the six months ended June 30, 2009. 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. There were no earnings credits for the six months ended June 30, 2009.
Select Growth Series-8
Delaware VIP® Select Growth Series
Notes to Financial Statements (continued)
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.
Effective May 1, 2009, DMC has voluntarily agreed to waive that portion, if any, of its management fee and/or pay/reimburse the Series to the extent necessary to ensure that total annual operating expenses (excluding any 12b-1 plan expenses, taxes, interest, inverse floater program expenses, brokerage fees, certain insurance costs, and nonroutine expenses or costs including, but not limited to, those relating to reorganizations, litigation, conducting shareholder meetings, and liquidations (collectively, “nonroutine expenses”)) does not exceed 0.94% of average daily net assets of the Series until such time as the voluntary expense cap is discontinued. Prior to May 1, 2009, 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 total annual operating expenses (excluding any 12b-1 plan expenses, taxes, interest, inverse floater program expenses, brokerage fees, certain insurance costs, and nonroutine expenses did not exceed 0.96% of average daily net assets of the Series through April 30, 2009. For purposes of this waiver and reimbursement, nonroutine expenses may also include such additional costs and expenses, as may be agreed upon from time to time by the Series’ Board and DMC. This expense waiver and reimbursement applies only to expenses paid directly by the Series, and may be discontinued at any time because they are voluntary.
Delaware Service Company, Inc. (DSC), an affiliate of DMC, provides fund accounting and financial administration oversight services to the Series. For these services, the Series pays DSC fees based on the aggregate daily net assets of the Delaware Investments® Family of Funds at the following annual rate: 0.0050% of the first $30 billion; 0.0045% of the next $10 billion; 0.0040% of the next $10 billion; and 0.0025% of aggregate average daily net assets in excess of $50 billion. The fees payable to DSC under the service agreement described above are allocated among all funds in the Delaware Investments Family of Funds on a relative net asset value basis. For the six months ended June 30, 2009, the Series was charged $178 for these services.
DSC also provides dividend disbursing and transfer agency services. The Series pays DSC a monthly fee based on the number of shareholder accounts 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, 2010 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, 2009, the Series had liabilities payable to affiliates as follows:
| | | | Dividend Disbursing, | | | | Other |
| Investment | | Transfer Agent and Fund | | | | Expenses |
| Management | | Accounting Oversight | | Distribution | | Payable |
| Fee Payable to | | Fees and Other Expenses | | Fee Payable | | to DMC |
| DMC | | Payable to DSC | | to DDLP | | and Affiliates* |
| | $2,436 | | $371 | | $377 | | $119 |
____________________
*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, 2009, the Series was charged $397 for internal legal and tax services provided by DMC and/ or its affiliates’ employees.
Trustees’ fees include expenses accrued by the Series for each Trustee’s retainer and meeting fees. 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, 2009, the Series made purchases and sales of investment securities other than short-term investments as follows:
| Purchases | $ | 1,951,382 |
| Sales | | 2,913,917 |
Select Growth Series-9
Delaware VIP® Select Growth Series
Notes to Financial Statements (continued)
3. Investments (continued)
At June 30, 2009, the cost of investments for federal income tax purposes has been estimated since final tax characteristics cannot be determined until fiscal year end. At June 30, 2009, the cost of investments and unrealized appreciation (depreciation) for the Series were as follows:
| | | Aggregate | | Aggregate | | Net |
| Cost of | | Unrealized | | Unrealized | | Unrealized |
| | Investments | | Appreciation | | Depreciation | | Depreciation |
| | $8,477,693 | | $1,110,823 | | $(788,766) | | $322,057 |
The Series applies Financial Accounting Standards No. 157, Fair Value Measurements (FAS 157). FAS 157 defines fair value as the price that the Series would receive to sell an asset or pay to transfer a liability in an orderly transaction between market participants at the measurement date under current market conditions. FAS 157 also establishes a framework for measuring fair value and a three level hierarchy for fair value measurements based upon the transparency of inputs to the valuation of an asset or liability. Inputs may be observable or unobservable and refer broadly to the assumptions that market participants would use in pricing the asset or liability. Observable inputs reflect the assumptions market participants would use in pricing the asset or liability based on market data obtained from sources independent of the reporting entity. Unobservable inputs reflect the reporting entity’s own assumptions about the assumptions that market participants would use in pricing the asset or liability developed based on the best information available under the circumstances. The Series’ investment in its entirety is assigned a level based upon the observability of the inputs which are significant to the overall valuation. The three-tier hierarchy of inputs is summarized below.
Level 1 – inputs are quoted prices in active markets
Level 2 – inputs are observable, directly or indirectly
Level 3 – inputs are unobservable and reflect assumptions on the part of the reporting entity
The following table summarizes the valuation of the Series’ investments by the FAS 157 fair value hierarchy levels as of June 30, 2009:
| | Level 1 | | Level 2 | | Level 3 | | Total |
| Common Stock | $ | 7,633,434 | | $ | – | | | $– | | | $ | 7,633,434 |
| Short-Term | | – | | | 317,990 | | | – | | | | 317,990 |
| U.S. Treasury Obligations | | 78,013 | | | – | | | – | | | | 78,013 |
| Securities Lending Collateral | | 202,360 | | | 567,951 | | | 2 | | | | 770,313 |
| Total | $ | 7,913,807 | | $ | 885,941 | | | $2 | | | $ | 8,799,750 |
The following is a reconciliation of investments in which significant unobservable inputs (Level 3) were used in determining fair value:
| | | Securities |
| | | Lending |
| | | Collateral |
| Balance as of 12/31/08 | | | $ | 611 | |
| Net change in unrealized appreciation/depreciation | | | | (609 | ) |
| Balance as of 6/30/09 | | | $ | 2 | |
| |
| Net change in unrealized | | | | | |
| appreciation/depreciation from | | | | | |
| investments still held as of 6/30/09 | | | $ | (609 | ) |
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, distributions from net gains 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 year ended December 31, 2008. The tax character of dividends and distributions paid during the six months ended June 30, 2009 was as follows:
| | Six Months |
| | Ended |
| | 6/30/09* |
| Ordinary income | $20,981 |
____________________
*Tax information for the period ended June 30, 2009 is an estimate and the tax character of dividends and distributions may be redesignated at fiscal year end.
Select Growth Series-10
Delaware VIP® Select Growth Series
Notes to Financial Statements (continued)
5. Components of Net Assets on a Tax Basis
The components of net assets are estimated since the final tax characteristics cannot be determined until fiscal year end. As of June 30, 2009, the estimated components of net assets on a tax basis were as follows:
| Shares of beneficial interest | $ | 54,966,201 | |
| Capital loss carryforwards as of 12/31/08 | | (45,279,240 | ) |
| Realized losses 1/1/09 – 6/30/09 | | (2,024,851 | ) |
| Unrealized appreciation of investments | | 322,057 | |
| Net assets | $ | 7,984,167 | |
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 and dividends and distributions. Results of operations and net assets were not affected by these reclassifications. For the six months ended June 30, 2009, the Series recorded and estimate of these differences since final tax characteristics cannot be determined until fiscal year end.
| Accumulated | | Accumulated | | |
| Net Investment | | Net Realized | | Paid-in |
| Loss | | Loss | | Capital |
| $3,415 | | $1,711 | | $(5,126) |
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, 2008 will expire as follows: $30,958,389 expires in 2009; $10,812,739 expires in 2010, $3,283,750 expires in 2011, and $224,362 expires in 2016.
For the six months ended June 30, 2009, the Series had capital losses of $2,024,851, which may increase the capital loss carryforwards.
6. Capital Shares
Transactions in capital shares were as follows:
| | Six Months | | Year |
| | Ended | | Ended |
| | 6/30/09 | | 12/31/08 |
| Shares sold: | | | | | |
| Standard Class | 17,404 | | | 18,891 | |
| Service Class | 34,775 | | | 10,600 | |
| |
| Shares issued upon reinvestment of dividends and distributions: | | | | | |
| Standard Class | 3,034 | | | – | |
| Service Class | 71 | | | – | |
| | 55,284 | | | 29,491 | |
| Shares repurchased: | | | | | |
| Standard Class | (120,864 | ) | | (220,117 | ) |
| Service Class | (41,654 | ) | | (138,941 | ) |
| | (162,518 | ) | | (359,058 | ) |
| Net decrease | (107,234 | ) | | (329,567 | ) |
7. Line of Credit
The Series, along with certain other funds in the Delaware Investments® Family of Funds (Participants), participates in a $35,000,000 revolving line of credit with The Bank of New York Mellon (BNY Mellon) to be used for temporary or emergency purposes as an additional source of liquidity to fund redemptions of investor shares. Under the agreement, 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 agreement expires on November 17, 2009. The Series had no amounts outstanding as of June 30, 2009, 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 BNY Mellon. With respect to each loan, if the aggregate market value of securities collateral held plus cash collateral received on any business day is less than the aggregate market 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 generally invested in the Mellon GSL DBT II Collateral Fund (Collective Trust) established by BNY Mellon for the purpose of investment on behalf of
Select Growth Series-11
Delaware VIP® Select Growth Series
Notes to Financial Statements (continued)
8. Securities Lending (continued)
clients participating in its securities lending programs. The Collective Trust may invest in fixed income securities, with a weighted average maturity not to exceed 90 days, rated in one of the top three tiers by Standard & Poor’s Ratings Group or Moody’s Investors Service, Inc. or repurchase agreements collateralized by such securities. The Collective Trust seeks to maintain a net asset value per unit of $1.00, but there can be no assurance that it will always be able to do so. At June 30, 2009, the Collective Trust held only cash and assets with a maturity of one business day or less (Cash/Overnight Assets). The Series may incur investment losses as a result of investing securities lending collateral in the Collective Trust. This could occur if an investment in the Collective Trust defaulted or if it were necessary to liquidate assets in the Collective Trust to meet returns on outstanding security loans at a time when the Collective Trust’s net asset value per unit was less than $1.00. Under those circumstances, the Series may not receive an amount from the Collective Trust that is equal in amount to the collateral the Series would be required to return to the borrower of the securities and the Series would be required to make up for this shortfall. Effective April 20, 2009, BNY Mellon transferred the assets of the Collective Trust other than the Cash/Overnight Assets to the BNY Mellon SL DBT II Liquidating Fund (Liquidating Fund), effectively bifurcating the collateral investment pool. The Series’ exposure to the Liquidating Fund is expected to decrease as the Liquidating Fund’s assets mature or are sold. In October 2008, BNY Mellon transferred certain distressed securities from the Collective Trust into the Mellon GSL Reinvestment Trust II. The Series can also accept U.S. government securities and letters of credit (non-cash collateral) in connection with securities loans. 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 or interest, as applicable, 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 non-cash collateral, the Series receives loan premiums paid by the borrower. 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 security lending income net of allocations to the security lending agent and the borrower.
At June 30, 2009, the value of the securities on loan was $781,660, 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 15% of its net 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 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. Securities eligible for resale pursuant to Rule 144A, which are determined to be liquid, are not subject to the Series’ 15% limit on investments in illiquid securities. As of June 30, 2009, there were no Rule 144A securities and no securities have been determined to be illiquid under the Series’ Liquidity Procedures.
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. Liquidation
On May 21, 2009, the Board unanimously voted and approved a proposal to liquidate and dissolve the Series. The liquidation and dissolution is expected to take effect close of business on July 31, 2009. As of June 1, 2009, the Series is closed to new investors. However, the Series will continue to accept purchases from existing contract holders (including reinvested dividends or capital gains) until the last business day before the liquidation.
12. Subsequent Event
Effective June 30, 2009, the Series adopted Financial Accounting Standards Board Statement of Financial Accounting Standards No. 165, Subsequent Events (FAS 165). In accordance with FAS 165, management has evaluated whether any events or transactions occurred subsequent to June 30, 2009 through August 15, 2009, date of issuance of the Series’ financial statements, and determined that there were no material events or transactions that would require recognition or disclosure in the Series’ financial statements.
Select Growth Series-12
Delaware VIP® Trust — Delaware VIP Select Growth Series
The Series files its complete schedule of portfolio holdings with the Securities and Exchange Commission (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. |
Other Series Information
Board Consideration of Delaware VIP Select Growth Series Investment Advisory Agreement
At a meeting held on May 19-21, 2009 (the “Annual Meeting”), the Board of Trustees (the “Board”), including a majority of disinterested or independent Trustees, approved the renewal of the Investment Advisory Agreement for the Delaware VIP Select Growth Series (the “Series”). In making its decision, the Board considered information furnished specifically in connection with the renewal of the Investment Advisory Agreement with Delaware Management Company (“DMC”), which included materials provided by DMC and its affiliates (“Delaware Investments”) concerning, among other things, the nature, extent and quality 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. Reference was made to information furnished at regular quarterly 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 and sub-advisory contracts. In addition, in connection with the Annual Meeting, reports were provided in February 2009 and included 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 independent Trustees reviewed and discussed the Lipper reports with counsel to the independent Trustees. The Board requested and received information regarding DMC’s policy with respect to advisory fee levels and its breakpoint philosophy; 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 had in the past year inhibited, or which were likely in the future to inhibit, DMC’s ability to invest fully in accordance with 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 counsel to the independent Trustees. Although the Board gave attention to all information furnished, the following discussion identifies, under separate headings, the primary factors taken into account by the Board during its contract renewal considerations.
NATURE, EXTENT AND QUALITY OF SERVICE. The Board considered the services provided by Delaware Investments to the Series and its shareholders. In reviewing the nature, extent and quality of services, the Board considered reports furnished to it throughout the year, which covered matters such as the relative performance of the Series, compliance of portfolio managers with the investment policies, strategies and restrictions for the Series, compliance by DMC and Delaware Distributors, L.P. (together, “Management”) personnel with the Code of Ethics adopted throughout the Delaware Investments® Family of Funds complex and adherence to fair value pricing procedures as established by the Board. The Board was pleased with the current staffing of the Series’ investment advisor and the emphasis placed on research in the investment process. The Board gave favorable consideration to DMC’s efforts to control expenditures while maintaining service levels committed to fund matters. The Board also considered the transfer agent and shareholder services provided to Series shareholders by DMC’s affiliate, Delaware Service Company, Inc. (“DSC”), noting DSC’s high level of service. The Board noted that Management finished upgrading investment accounting functions through outsourcing to improve the quality and lower the cost of delivering investment accounting services to the Series. The Board was satisfied with the nature, extent and quality of the overall services provided by Delaware Investments.
INVESTMENT PERFORMANCE. The Board placed significant emphasis on the investment performance of the Series in view of its importance to shareholders. Although the Board gave appropriate consideration to performance reports and discussions with portfolio managers at Board meetings throughout the year, the Board gave particular weight 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 performance ranked
Select Growth Series-13
Delaware VIP® Trust — Delaware VIP Select Growth Series
Other Series Information (continued)
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, 2008. The Board’s objective is 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 multi-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- and five-year periods was in the fourth quartile. The Series’ performance results were not in line with the Board’s objective. In evaluating the Series’ performance, the Board considered recent improvements in performance in early 2009 as well as Management’s efforts to increase portfolio management depth. The Board noted that Management recommended that the Series be liquidated.
COMPARATIVE EXPENSES. The Board considered expense comparison data for the Delaware Investments® Family of Funds. Management provided the Board with information on pricing levels and fee structures for the Series as of October 31, 2008 and, for comparative funds, information as of their respective fiscal year end occurring on or before August 31, 2008. The Board also focused on the comparative analysis of effective management fees and total expense ratios of the Series versus 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) 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 considered fees paid to Delaware Investments for nonmanagement services. The Board’s objective is to limit the Series’ total expense ratio to be competitive with that 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 the actual management fee and total expenses were in the quartile with the second highest expenses of its Expense Group. The Series’ total expenses were not in line with the Board’s objective. In evaluating total expenses, the Board considered various initiatives implemented by Management, such as the outsourcing of certain transfer agency and investment accounting services, created as 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 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, reflect recent 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 industry-wide 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 management fees were 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 reviewed the standardized advisory fee pricing and structure approved by the Board and shareholders, which includes breakpoints. Breakpoints in the advisory fee occur when the advisory fee rate is reduced on assets in excess of specified levels. Breakpoints result in a lower advisory fee than would otherwise be the case on all assets when the 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.
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Delaware VIP® Trust — Delaware VIP Small Cap Value Series
Disclosure of Series Expenses
For the Period January 1, 2009 to June 30, 2009
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, 2009 to June 30, 2009.
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
| | | | | | | | | | Expenses |
| | | Beginning | | Ending | | | | | Paid During |
| | | Account | | Account | | Annualized | | Period |
| | | Value | | Value | | Expense | | 1/1/09 to |
| | | 1/1/09 | | 6/30/09 | | Ratios | | 6/30/09* |
| Actual Series Return | | | | | | | | | | | | | | | | |
| Standard Class | | | $ | 1,000.00 | | | $ | 1,005.40 | | | 0.88 | % | | $ | 4.38 | |
| Service Class | | | | 1,000.00 | | | | 1,004.60 | | | 1.13 | % | | | 5.62 | |
| Hypothetical 5% Return (5% return before expenses) |
| Standard Class | | | $ | 1,000.00 | | | $ | 1,020.43 | | | 0.88 | % | | $ | 4.41 | |
| Service Class | | | | 1,000.00 | | | | 1,019.19 | | | 1.13 | % | | | 5.66 | |
*“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). |
Small Cap Value Series-1
Delaware VIP® Trust — Delaware VIP Small Cap Value Series
Sector Allocation and Top 10 Holdings
As of June 30, 2009
Sector designations may be different than the sector designations presented in other Series materials. The sector designations may represent the investment manager’s internal sector classifications, which may result in the sector designations for one Series being different than another Series’ sector designations.
| | Percentage |
| Sector | of Net Assets |
| Common Stock | 95.51 | % |
| Basic Industry | 10.03 | % |
| Business Services | 3.67 | % |
| Capital Spending | 7.16 | % |
| Consumer Cyclical | 1.96 | % |
| Consumer Services | 13.61 | % |
| Consumer Staples | 2.56 | % |
| Energy | 6.21 | % |
| Financial Services | 21.26 | % |
| Health Care | 3.53 | % |
| Real Estate | 4.96 | % |
| Technology | 15.03 | % |
| Transportation | 3.19 | % |
| Utilities | 2.34 | % |
| Discount Note | 3.54 | % |
| U.S. Treasury Obligation | 0.87 | % |
| Securities Lending Collateral | 11.87 | % |
| Total Value of Securities | 111.79 | % |
| Obligation to Return Securities Lending Collateral | (12.25 | %) |
| Receivables and Other Assets Net of Liabilities | 0.46 | % |
| 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 Equity Holdings | of Net Assets |
| Tech Data | 2.57 | % |
| Platinum Underwriters Holdings | 2.42 | % |
| Crown Holdings | 2.33 | % |
| FMC | 2.21 | % |
| Walter Industries | 2.02 | % |
| Newfield Exploration | 1.94 | % |
| Synopsys | 1.92 | % |
| Del Monte Foods | 1.74 | % |
| NBT Bancorp | 1.72 | % |
| Bank of Hawaii | 1.68 | % |
Small Cap Value Series-2
Delaware VIP® Trust — Delaware VIP Small Cap Value Series
Statement of Net Assets
June 30, 2009 (Unaudited)
| | Number of | | |
| | Shares | | Value |
| COMMON STOCK–95.51% | | | | |
| Basic Industry–10.03% | | | | |
| *Albemarle | 387,500 | | $ | 9,908,375 |
| *Arch Coal | 144,800 | | | 2,225,576 |
| †Crown Holdings | 607,200 | | | 14,657,808 |
| Cytec Industries | 363,800 | | | 6,773,956 |
| *FMC | 294,500 | | | 13,929,850 |
| Kaiser Aluminum | 125,700 | | | 4,513,887 |
| †Thompson Creek Metals | 273,200 | | | 2,792,104 |
| Valspar | 373,100 | | | 8,405,943 |
| | | | | 63,207,499 |
| Business Services–3.67% | | | | |
| *Brink’s | 283,500 | | | 8,230,005 |
| †Brink’s Home Security Holding | 289,900 | | | 8,207,069 |
| †United Stationers | 113,300 | | | 3,951,904 |
| Viad | 158,400 | | | 2,727,648 |
| | | | | 23,116,626 |
| Capital Spending–7.16% | | | | |
| *Actuant Class A | 478,800 | | | 5,841,360 |
| †Altra Holdings | 167,506 | | | 1,254,620 |
| †Casella Waste Systems | 187,200 | | | 372,528 |
| *†Colfax | 100,200 | | | 773,544 |
| †Gardner Denver | 269,400 | | | 6,780,798 |
| Harsco | 111,975 | | | 3,168,893 |
| Insteel Industries | 330,400 | | | 2,722,496 |
| Mueller Water Products Class A | 376,984 | | | 1,409,920 |
| *Regal Beloit | 155,900 | | | 6,192,348 |
| *Wabtec | 119,000 | | | 3,828,230 |
| Walter Industries | 351,900 | | | 12,752,856 |
| | | | | 45,097,593 |
| Consumer Cyclical–1.96% | | | | |
| Autoliv | 100,000 | | | 2,877,000 |
| MDC Holdings | 314,000 | | | 9,454,540 |
| | | | | 12,331,540 |
| Consumer Services–13.61% | | | | |
| *Advance Auto Parts | 45,100 | | | 1,871,199 |
| bebe Stores | 332,200 | | | 2,285,536 |
| Cato Class A | 532,000 | | | 9,278,080 |
| *†CEC Entertainment | 219,200 | | | 6,462,016 |
| †Children’s Place Retail Stores | 171,700 | | | 4,538,031 |
| *†Collective Brands | 212,200 | | | 3,091,754 |
| Finish Line Class A | 470,600 | | | 3,491,852 |
| †Genesco | 206,000 | | | 3,874,860 |
| *†Jack in the Box | 312,900 | | | 7,024,605 |
| Men’s Wearhouse | 417,900 | | | 8,015,322 |
| *Meredith | 259,500 | | | 6,630,225 |
| Movado Group | 338,250 | | | 3,565,155 |
| PETsMART | 340,900 | | | 7,315,714 |
| Phillips-Van Heusen | 121,000 | | | 3,471,490 |
| †Skechers U.S.A. Class A | 203,300 | | | 1,986,241 |
| Stage Stores | 437,225 | | | 4,853,198 |
| †Warnaco Group | 184,100 | | | 5,964,840 |
| Wolverine World Wide | 63,650 | | | 1,404,119 |
| †Zale | 177,700 | | | 611,288 |
| | | | | 85,735,525 |
| Consumer Staples–2.56% | | | | |
| American Greetings Class A | 236,100 | | | 2,757,648 |
| Del Monte Foods | 1,171,100 | | | 10,984,918 |
| Schweitzer-Mauduit International | 87,600 | | | 2,383,596 |
| | | | | 16,126,162 |
| Energy–6.21% | | | | |
| *†Encore Acquisition | 151,500 | | | 4,673,775 |
| *†Forest Oil | 280,000 | | | 4,177,600 |
| †Newfield Exploration | 374,400 | | | 12,231,648 |
| Southwest Gas | 397,000 | | | 8,817,370 |
| *†Whiting Petroleum | 263,100 | | | 9,250,596 |
| | | | | 39,150,989 |
| Financial Services–21.26% | | | | |
| Bank of Hawaii | 296,200 | | | 10,612,846 |
| Berkley (W.R.) | 393,543 | | | 8,449,368 |
| Boston Private Financial Holdings | 700,800 | | | 3,139,584 |
| Community Bank System | 299,800 | | | 4,365,088 |
| CVB Financial | 269,100 | | | 1,606,527 |
| East West Bancorp | 716,100 | | | 4,647,489 |
| First Financial Bancorp | 359,000 | | | 2,699,680 |
| First Midwest Bancorp | 355,000 | | | 2,595,050 |
| Hancock Holding | 289,000 | | | 9,389,610 |
| Harleysville Group | 340,300 | | | 9,603,266 |
| Independent Bank | 364,800 | | | 7,186,560 |
| Infinity Property & Casualty | 280,500 | | | 10,227,030 |
| IPC Holdings | 288,600 | | | 7,890,324 |
| NBT Bancorp | 500,500 | | | 10,865,855 |
| Platinum Underwriters Holdings | 533,000 | | | 15,238,469 |
| S&T Bancorp | 168,900 | | | 2,053,824 |
| Selective Insurance Group | 734,500 | | | 9,379,565 |
| *StanCorp Financial Group | 119,600 | | | 3,430,128 |
| Sterling Bancshares | 1,218,600 | | | 7,713,738 |
| Wesbanco | 195,700 | | | 2,845,478 |
| | | | | 133,939,479 |
| Health Care–3.53% | | | | |
| †Alliance HealthCare Services | 392,800 | | | 2,879,224 |
| *Service Corporation International | 1,225,800 | | | 6,717,384 |
| STERIS | 154,800 | | | 4,037,184 |
| Universal Health Services Class B | 175,600 | | | 8,578,060 |
| | | | | 22,211,852 |
| Real Estate–4.96% | | | | |
| Brandywine Realty Trust | 588,633 | | | 4,385,316 |
| *Education Realty Trust | 408,700 | | | 1,753,323 |
| †Government Properties Income Trust | 197,500 | | | 4,054,675 |
| Highwoods Properties | 422,700 | | | 9,455,799 |
| †Walter Investment Management | 128,522 | | | 1,706,772 |
| Washington Real Estate Investment Trust | 443,200 | | | 9,914,384 |
| | | | | 31,270,269 |
| Technology–15.03% | | | | |
| *†Amkor Technology | 1,020,500 | | | 4,826,965 |
| †Brocade Communications Systems | 694,800 | | | 5,433,336 |
| †Checkpoint Systems | 379,600 | | | 5,955,924 |
| *†Cirrus Logic | 1,414,000 | | | 6,363,000 |
| †Compuware | 829,000 | | | 5,686,940 |
| †Electronics for Imaging | 197,538 | | | 2,105,755 |
Small Cap Value Series-3
Delaware VIP® Small Cap Value Series
Statement of Net Assets (continued)
| | Number of | | | |
| | Shares | | Value | |
| COMMON STOCK (continued) | | | | | | |
| Technology (continued) | | | | | | |
| *†ON Semiconductor | | 613,000 | | $ | 4,205,180 | |
| †Parametric Technology | | 647,700 | | | 7,571,613 | |
| †Premiere Global Services | | 621,950 | | | 6,741,938 | |
| @*QAD | | 358,500 | | | 1,165,125 | |
| *†Sybase | | 295,700 | | | 9,267,238 | |
| †Synopsys | | 621,100 | | | 12,117,661 | |
| *†Tech Data | | 494,300 | | | 16,168,553 | |
| *†Vishay Intertechnology | | 1,040,200 | | | 7,062,958 | |
| | | | | | 94,672,186 | |
| Transportation–3.19% | | | | | | |
| *Alexander & Baldwin | | 359,400 | | | 8,424,336 | |
| *†Kirby | | 215,500 | | | 6,850,745 | |
| †Saia | | 269,600 | | | 4,855,496 | |
| | | | | | 20,130,577 | |
| Utilities–2.34% | | | | | | |
| *Black Hills | | 162,600 | | | 3,738,174 | |
| †El Paso Electric | | 551,700 | | | 7,701,732 | |
| *Otter Tail | | 152,700 | | | 3,334,968 | |
| | | | | | 14,774,874 | |
| Total Common Stock | | | | | | |
| (cost $697,716,750) | | | | | 601,765,171 | |
| | Principal | | | | |
| | Amount | | | |
| ¹DISCOUNT NOTE–3.54% | | | | | | |
| Federal Home Loan Bank 0.01% 7/1/09 | $ | 22,329,161 | | | 22,329,161 | |
| Total Discount Note | | | | | | |
| (cost $22,329,161) | | | | | 22,329,161 | |
| | |
| ¹U. S. TREASURY OBLIGATION–0.87% | | | | | | |
| U. S. Treasury Bill 0.088% 7/23/09 | | 5,478,335 | | | 5,478,028 | |
| Total U.S. Treasury Obligation | | | | | | |
| (cost $5,478,028) | | | | | 5,478,028 | |
| | |
| Total Value of Securities | | | | | | |
| Before Securities | | | | | | |
| Lending Collateral–99.92% | | | | | | |
| (cost $725,523,939) | | | | | 629,572,360 | |
| | |
| | Number of | | | | |
| | Shares | | | | |
| SECURITIES LENDING | | | | | | |
| COLLATERAL**–11.87% | | | | | | |
| Investment Companies | | | | | | |
| Mellon GSL DBT II Collateral Fund | | 25,588,573 | | | 25,588,573 | |
| BNY Mellon SL DB II Liquidating Fund | | 50,435,069 | | | 49,173,261 | |
| †Mellon GSL Reinvestment Trust II | | 1,155,865 | | | 116 | |
| Total Securities Lending Collateral | | | | | | |
| (cost $77,179,507) | | | | | 74,761,950 | |
| | | | | | | |
| | | | | | | |
| TOTAL VALUE OF SECURITIES–111.79% (cost $802,703,446) | | | | | 704,334,310 | © |
| OBLIGATION TO RETURN SECURITIES LENDING COLLATERAL**–(12.25%) | | | | | (77,179,507 | ) |
| RECEIVABLES AND OTHER ASSETS NET OF LIABILITIES–0.46% | | | | | 2,905,242 | |
| NET ASSETS APPLICABLE TO 33,973,225 SHARES OUTSTANDING–100.00% | | | | $ | 630,060,045 | |
| NET ASSET VALUE–DELAWARE VIP SMALL CAP VALUE SERIES | | | | | | |
| STANDARD CLASS ($231,028,042 / 12,455,638 Shares) | | | | | | $18.55 | |
| NET ASSET VALUE–DELAWARE VIP SMALL CAP VALUE SERIES | | | | | | |
| SERVICE CLASS ($399,032,003 / 21,517,587 Shares) | | | | | | $18.54 | |
| COMPONENTS OF NET ASSETS AT JUNE 30, 2009: | | | | | | |
| Shares of beneficial interest (unlimited authorization–no par) | | | | $ | 804,312,910 | |
| Undistributed net investment income | | | | | 2,924,078 | |
| Accumulated net realized loss on investments | | | | | (78,807,807 | ) |
| Net unrealized depreciation of investments | | | | | (98,369,136 | ) |
| Total net assets | | | | $ | 630,060,045 | |
____________________
| * | Fully or partially on loan. |
| † | Non income producing security. |
| @ | Illiquid security. At June 30, 2009, the aggregate amount of illiquid securities was $1,165,125, which represented 0.18% of the Series’ net assets. See Note 9 in “Notes to Financial Statements.” |
| ¹ | The rate shown is the effective yield at the time of purchase. |
| ** | See Note 8 in “Notes to Financial Statements.” |
| © | Includes $74,993,199 of securities loaned. |
See accompanying notes
Small Cap Value Series-4
Delaware VIP® Trust —
Delaware VIP Small Cap Value Series
Statement of Operations
Six Months Ended June 30, 2009 (Unaudited)
| INVESTMENT INCOME: | | | |
| Dividends | $ | 5,038,946 | |
| Interest | | 256,508 | |
| Securities lending income | | 122,102 | |
| Foreign tax withheld | | (5,235 | ) |
| | | 5,412,321 | |
| |
| EXPENSES: | | | |
| Management fees | | 2,192,263 | |
| Distribution expenses – Service Class | | 559,957 | |
| Accounting and administration expenses | | 118,188 | |
| Reports and statements to shareholders | | 86,912 | |
| Dividend disbursing and transfer agent fees and expenses | | 55,819 | |
| Legal fees | | 52,831 | |
| Audit and tax | | 52,554 | |
| Trustees’ fees | | 21,456 | |
| Insurance fees | | 8,401 | |
| Custodian fees | | 5,375 | |
| Consulting fees | | 4,955 | |
| Dues and services | | 3,055 | |
| Trustees’ expenses | | 1,505 | |
| Pricing fees | | 389 | |
| Registration fees | | 143 | |
| | | 3,163,803 | |
| Less waiver of distribution expenses – Service Class | | (93,326 | ) |
| Total operating expenses | | 3,070,477 | |
| |
| NET INVESTMENT INCOME | | 2,341,844 | |
| |
| NET REALIZED AND UNREALIZED GAIN (LOSS) | | | |
| ON INVESTMENTS AND FOREIGN CURRENCIES: | | | |
| Net realized loss on: | | | |
| Investments | | (46,163,945 | ) |
| Foreign currencies | | (496 | ) |
| Net realized loss | | (46,164,441 | ) |
| Net change in unrealized appreciation/depreciation | | | |
| of investments and foreign currencies | | 43,657,069 | |
| |
| NET REALIZED AND UNREALIZED LOSS | | | |
| ON INVESTMENTS | | (2,507,372 | ) |
| |
| NET DECREASE IN NET ASSETS RESULTING | | | |
| FROM OPERATIONS | $ | (165,528 | ) |
See accompanying notes
Delaware VIP Trust —
Delaware VIP Small Cap Value Series
Statements of Changes in Net Assets
| | Six Months | | |
| | Ended | | Year |
| | 6/30/09 | | Ended |
| | (Unaudited) | | 12/31/08 |
| INCREASE (DECREASE) IN NET | | | | | | | |
| ASSETS FROM OPERATIONS: | | | | | | | |
| Net investment income | $ | 2,341,844 | | | $ | 5,168,450 | |
| Net realized loss on investments and | | | | | | | |
| foreign currencies | | (46,164,441 | ) | | | (29,423,642 | ) |
| Net change in unrealized appreciation/ | | | | | | | |
| depreciation of investments and | | | | | | | |
| foreign currencies | | 43,657,069 | | | | (253,727,101 | ) |
| Net decrease in net assets | | | | | | | |
| resulting from operations | | (165,528 | ) | | | (277,982,293 | ) |
| |
| DIVIDENDS AND DISTRIBUTIONS | | | | | | | |
| TO SHAREHOLDERS FROM: | | | | | | | |
| Net investment income: | | | | | | | |
| Standard Class | | (2,410,976 | ) | | | (2,314,150 | ) |
| Service Class | | (2,827,390 | ) | | | (2,528,148 | ) |
| Net realized gain on investments: | | | | | | | |
| Standard Class | | – | | | | (20,274,716 | ) |
| Service Class | | – | | | | (36,492,362 | ) |
| | | (5,238,366 | ) | | | (61,609,376 | ) |
| |
| CAPITAL SHARE TRANSACTIONS: | | | | | | | |
| Proceeds from shares sold: | | | | | | | |
| Standard Class | | 20,238,540 | | | | 67,819,194 | |
| Service Class | | 21,814,281 | | | | 85,050,259 | |
| Net asset value of shares issued upon | | | | | | | |
| reinvestment of dividends and distributions: | | | | | | | |
| Standard Class | | 2,410,976 | | | | 22,588,865 | |
| Service Class | | 2,827,390 | | | | 39,020,510 | |
| | | 47,291,187 | | | | 214,478,828 | |
| Cost of shares repurchased: | | | | | | | |
| Standard Class | | (30,786,255 | ) | | | (82,634,357 | ) |
| Service Class | | (35,909,885 | ) | | | (116,855,931 | ) |
| | | (66,696,140 | ) | | | (199,490,288 | ) |
| Increase (decrease) in net assets derived | | | | | | | |
| from capital share transactions | | (19,404,953 | ) | | | 14,988,540 | |
| |
| NET DECREASE IN NET ASSETS | | (24,808,847 | ) | | | (324,603,129 | ) |
| |
| NET ASSETS: | | | | | | | |
| Beginning of period | | 654,868,892 | | | | 979,472,021 | |
| End of period (including undistributed | | | | | | | |
| net investment income of $2,924,078 | | | | | | | |
| and $5,821,096, respectively) | $ | 630,060,045 | | | $ | 654,868,892 | |
See accompanying notes
Small Cap Value Series-5
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 | | | | | | | | | | | | | | | |
| | | 6/30/091 | | Year Ended |
| | | (Unaudited) | | 12/31/08 | | | 12/31/07 | | | 12/31/06 | | | 12/31/05 | | | 12/31/04 | |
| Net asset value, beginning of period | | | $18.630 | | | $28.650 | | | $33.420 | | | $30.830 | | | $30.450 | | | $25.640 | |
| |
| Income (loss) from investment operations: | | | | | | | | | | | | | | | | | | | |
| Net investment income2 | | | 0.081 | | | 0.190 | | | 0.194 | | | 0.146 | | | 0.121 | | | 0.122 | |
| Net realized and unrealized gain (loss) on investments | | | | | | | | | | | | | | | | | | | |
| and foreign currencies | | | 0.031 | | | (8.248 | ) | | (2.127 | ) | | 4.703 | | | 2.539 | | | 5.270 | |
| Total from investment operations | | | 0.112 | | | (8.058 | ) | | (1.933 | ) | | 4.849 | | | 2.660 | | | 5.392 | |
| |
| Less dividends and distributions from: | | | | | | | | | | | | | | | | | | | |
| Net investment income | | | (0.192 | ) | | (0.201 | ) | | (0.168 | ) | | (0.082 | ) | | (0.114 | ) | | (0.053 | ) |
| Net realized gain on investments | | | – | | | (1.761 | ) | | (2.669 | ) | | (2.177 | ) | | (2.166 | ) | | (0.529 | ) |
| Total dividends and distributions | | | (0.192 | ) | | (1.962 | ) | | (2.837 | ) | | (2.259 | ) | | (2.280 | ) | | (0.582 | ) |
| |
| Net asset value, end of period | | | $18.550 | | | $18.630 | | | $28.650 | | | $33.420 | | | $30.830 | | | $30.450 | |
| |
| Total return3 | | | 0.54% | | | (29.88% | ) | | (6.62% | ) | | 16.19% | | | 9.42% | | | 21.48% | |
| |
| Ratios and supplemental data: | | | | | | | | | | | | | | | | | | | |
| Net assets, end of period (000 omitted) | | | $231,028 | | | $241,427 | | | $353,412 | | | $502,801 | | | $413,633 | | | $339,542 | |
| Ratio of expenses to average net assets | | | 0.88% | | | 0.85% | | | 0.81% | | | 0.84% | | | 0.85% | | | 0.83% | |
| Ratio of net investment income to average net assets | | | 0.95% | | | 0.78% | | | 0.61% | | | 0.46% | | | 0.41% | | | 0.46% | |
| Portfolio turnover | | | 27% | | | 29% | | | 27% | | | 36% | | | 32% | | | 37% | |
____________________
| 1Ratios and portfolio turnover have been annualized and total return has not been annualized. |
2The average shares outstanding method has been applied for per share information. |
3Total 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
Small Cap Value Series-6
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 | | | | | | | | | | | | | | | |
| | | 6/30/091 | | Year Ended |
| | | (Unaudited) | | 12/31/08 | | | 12/31/07 | | | 12/31/06 | | | 12/31/05 | | | 12/31/04 | |
| Net asset value, beginning of period | | | $18.590 | | | $28.570 | | | $33.330 | | | $30.760 | | | $30.390 | | | $25.610 | |
| |
| Income (loss) from investment operations: | | | | | | | | | | | | | | | | | | | |
| Net investment income2 | | | 0.060 | | | 0.129 | | | 0.115 | | | 0.066 | | | 0.048 | | | 0.056 | |
| Net realized and unrealized gain (loss) on investments | | | | | | | | | | | | | | | | | | | |
| and foreign currencies | | | 0.020 | | | (8.226 | ) | | (2.117 | ) | | 4.689 | | | 2.536 | | | 5.258 | |
| Total from investment operations | | | 0.080 | | | (8.097 | ) | | (2.002 | ) | | 4.755 | | | 2.584 | | | 5.314 | |
| |
| Less dividends and distributions from: | | | | | | | | | | | | | | | | | | | |
| Net investment income | | | (0.130 | ) | | (0.122 | ) | | (0.089 | ) | | (0.008 | ) | | (0.048 | ) | | (0.005 | ) |
| Net realized gain on investments | | | – | | | (1.761 | ) | | (2.669 | ) | | (2.177 | ) | | (2.166 | ) | | (0.529 | ) |
| Total dividends and distributions | | | (0.130 | ) | | (1.883 | ) | | (2.758 | ) | | (2.185 | ) | | (2.214 | ) | | (0.534 | ) |
| |
| Net asset value, end of period | | | $18.540 | | | $18.590 | | | $28.570 | | | $33.330 | | | $30.760 | | | $30.390 | |
| |
| Total return3 | | | 0.46% | | | (30.07% | ) | | (6.84% | ) | | 15.89% | | | 9.15% | | | 21.16% | |
| |
| Ratios and supplemental data: | | | | | | | | | | | | | | | | | | | |
| Net assets, end of period (000 omitted) | | | $399,032 | | | $413,442 | | | $626,060 | | | $682,181 | | | $511,723 | | | $399,347 | |
| Ratio of expenses to average net assets | | | 1.13% | | | 1.10% | | | 1.06% | | | 1.09% | | | 1.10% | | | 1.08% | |
| Ratio of expenses to average net assets | | | | | | | | | | | | | | | | | | | |
| prior to fees waived and expenses paid indirectly | | | 1.18% | | | 1.15% | | | 1.11% | | | 1.14% | | | 1.15% | | | 1.13% | |
| Ratio of net investment income to average net assets | | | 0.70% | | | 0.53% | | | 0.36% | | | 0.21% | | | 0.16% | | | 0.21% | |
| Ratio of net investment income to average net assets | | | | | | | | | | | | | | | | | | | |
| prior to fees waived and expenses paid indirectly | | | 0.65% | | | 0.48% | | | 0.31% | | | 0.16% | | | 0.11% | | | 0.16% | |
| Portfolio turnover | | | 27% | | | 29% | | | 27% | | | 36% | | | 32% | | | 37% | |
____________________
| 1Ratios and portfolio turnover have been annualized and total return has not been annualized. |
2The average shares outstanding method has been applied for per share information. |
3Total 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 by the distributor. Performance would have been lower had the waiver not been in effect. |
See accompanying notes
Small Cap Value Series-7
Delaware VIP® Trust — Delaware VIP Small Cap Value Series
Notes to Financial Statements
June 30, 2009 (Unaudited)
Delaware VIP Trust (Trust) is organized as a Delaware statutory trust and offers 13 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 Limited-Term Diversified Income Series (formerly, Delaware VIP Capital Reserves 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 ask prices will be used. Investment companies are valued at net asset value per share. Generally, 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 (Board). 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 suspension of trading in a security. The Series may use fair value pricing more frequently for securities traded primarily in non-U.S. markets because, among other things, most foreign markets close well before the Series values its securities at 4:00 p.m. Eastern time. The earlier close of these foreign markets gives rise to the possibility that significant events, including broad market moves, government actions or pronouncements, aftermarket trading, or news events may have occurred in the interim. To account for this, the Series may frequently value foreign securities using fair value prices based on third-party vendor modeling tools (international fair value pricing).
Federal Income Taxes—No provision for federal income taxes has been made as the Series intends to continue to qualify for federal income tax purposes as a regulated investment company under Subchapter M of the Internal Revenue Code of 1986, as amended, and make the requisite distributions to shareholders. The Series evaluates 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 Series did not record 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 other 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. At June 30, 2009, the Series held no investments in repurchase agreements.
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. 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.
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. 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. There were no commission rebates during the six months ended June 30, 2009.
The Series receives earnings credits from its custodian when positive cash balances are maintained, which are used to offset custody fees. There were no earnings credits for the six months ended June 30, 2009.
Small Cap Value Series-8
Delaware VIP® Small Cap Value Series
Notes to Financial Statements (continued)
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.
Effective May 1, 2009, DMC has voluntarily agreed to waive that portion, if any, of its management fee and/or pay/reimburse the Series to the extent necessary to ensure that total annual operating expenses (excluding any 12b-1 plan expenses, taxes, interest, inverse floater program expenses, brokerage fees, certain insurance costs, and nonroutine expenses or costs including, but not limited to, those relating to reorganizations, litigation, conducting shareholder meetings, and liquidations (collectively, “nonroutine expenses”)) does not exceed 0.87% of average daily net assets of the Series until such time as the voluntary expense cap is discontinued. For purposes of this waiver and reimbursement, nonroutine expenses may also include such additional costs and expenses, as may be agreed upon from time to time by the Series’ Board and DMC. This expense waiver and reimbursement applies only to expenses paid directly by the Series, and may be discontinued at any time because they are voluntary.
Delaware Service Company, Inc. (DSC), an affiliate of DMC, provides fund accounting and financial administration oversight services to the Series. For these services, the Series pays DSC fees based on the aggregate daily net assets of the Delaware Investments® Family of Funds at the following annual rate: 0.0050% of the first $30 billion; 0.0045% of the next $10 billion; 0.0040% of the next $10 billion; and 0.0025% of aggregate average daily net assets in excess of $50 billion. The fees payable to DSC under the service agreement described above are allocated among all funds in the Delaware Investments Family of Funds on a relative net asset value basis. For the six months ended June 30, 2009, the Series was charged $14,773 for these services.
DSC also provides dividend disbursing and transfer agency services. The Series pays DSC a monthly fee based on the number of shareholder accounts 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, 2010 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, 2009, the Series had liabilities payable to affiliates as follows:
| | | | Dividend Disbursing, | | | | Other |
| Investment | | Transfer Agent and Fund | | | | Expenses |
| Management | | Accounting Oversight | | Distribution | | Payable |
| Fee Payable to | | Fees and Other Expenses | | Fee Payable | | to DMC |
| DMC | | Payable to DSC | | to DDLP | | and Affiliates* |
| | $392,911 | | $6,949 | | $84,084 | | $9,569 |
____________________
*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, 2009, the Series was charged $32,489 for internal legal and tax services provided by DMC and/or its affiliates’ employees.
Trustees’ fees include expenses accrued by the Series for Each Trustee’s retainer and meeting fees. 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, 2009, the Series made purchases and sales of investment securities other than short-term investments as follows:
| Purchases | $ | 76,765,276 |
| Sales | | 87,194,684 |
At June 30, 2009, the cost of investments for federal income tax purposes has been estimated since final tax characteristics cannot be determined until fiscal year end. At June 30, 2009, the cost of investments and unrealized appreciation (depreciation) for the Series were as follows:
| | | | Aggregate | | Aggregate | | Net |
| Cost of | | Unrealized | | Unrealized | | Unrealized |
| | Investments | | Appreciation | | Depreciation | | Depreciation |
| | $803,529,909 | | $70,704,344 | | $(169,899,943) | | $(99,195,599) |
Small Cap Value Series-9
Delaware VIP® Small Cap Value Series
Notes to Financial Statements (continued)
3. Investments (continued)
The Series applies Financial Accounting Standards No. 157, Fair Value Measurements (FAS 157). FAS 157 defines fair value as the price that the Series would receive to sell an asset or pay to transfer a liability in an orderly transaction between market participants at the measurement date under current market conditions. FAS 157 also establishes a framework for measuring fair value and a three level hierarchy for fair value measurements based upon the transparency of inputs to the valuation of an asset or liability. Inputs may be observable or unobservable and refer broadly to the assumptions that market participants would use in pricing the asset or liability. Observable inputs reflect the assumptions market participants would use in pricing the asset or liability based on market data obtained from sources independent of the reporting entity. Unobservable inputs reflect the reporting entity’s own assumptions about the assumptions that market participants would use in pricing the asset or liability developed based on the best information available under the circumstances. The Series’ investment in its entirety is assigned a level based upon the observability of the inputs which are significant to the overall valuation. The three-tier hierarchy of inputs is summarized below.
Level 1 – inputs are quoted prices in active markets
Level 2 – inputs are observable, directly or indirectly
Level 3 – inputs are unobservable and reflect assumptions on the part of the reporting entity
The following table summarizes the valuation of the Series’ investments by the FAS 157 fair value hierarchy levels as of June 30, 2009:
| | Level 1 | | Level 2 | | Level 3 | | Total |
| Common Stock | $ | 601,765,171 | | $ | – | | $ | – | | $ | 601,765,171 |
| Short-Term | | – | | | 22,329,161 | | | – | | | 22,329,161 |
| U.S. Treasury Obligations | | 5,478,028 | | | – | | | – | | | 5,478,028 |
| Securities Lending Collateral | | 25,588,573 | | | 49,173,261 | | | 116 | | | 74,761,950 |
| Total | $ | 632,831,772 | | $ | 71,502,422 | | $ | 116 | | $ | 704,334,310 |
The following is a reconciliation of investments in which significant unobservable inputs (Level 3) were used in determining fair value:
| | Securities |
| | Lending |
| | Collateral |
| Balance as of 12/31/08 | $ | 38,144 | |
| Net change in unrealized appreciation/depreciation | | (38,028 | ) |
| Balance as of 6/30/09 | $ | 116 | |
| |
| Net change in unrealized | | | |
| appreciation/depreciation from | | | |
| investments still held as of 6/30/09 | $ | (38,028 | ) |
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, distributions from net gains 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, 2009 and the year ended December 31, 2008 was as follows:
| | Six Months | | Year |
| | Ended | | Ended |
| | 6/30/09* | | 12/31/08 |
| Ordinary income | $ | 5,238,366 | | $ | 7,766,562 |
| Long-term capital gain | | – | | | 53,842,814 |
| Total | $ | 5,238,366 | | $ | 61,609,376 |
____________________
*Tax information for the period ended June 30, 2009 is an estimate and the tax character of dividends and distributions may be redesignated at fiscal year end.
Small Cap Value Series-10
Delaware VIP® Small Cap Value Series
Notes to Financial Statements (continued)
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, 2009, the estimated components of net assets on a tax basis were as follows:
| Shares of beneficial interest | $ | 804,312,910 | |
| Undistributed ordinary income | | 2,924,078 | |
| Capital loss carryforwards as of 12/31/08 | | (8,993,730 | ) |
| Realized losses 1/1/09 – 6/30/09 | | (68,987,614 | ) |
| Unrealized appreciation of investments | | (99,195,599 | ) |
| Net assets | $ | 630,060,045 | |
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, 2009, the Series recorded an estimate of these differences since final tax characteristics cannot be determined until fiscal year end.
| Undistributed | | Accumulated |
| Net Investment | | Realized |
| Income | | Gain (Loss) |
| $(496) | | $496 |
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, 2008 will expire as follows: $8,993,730 expires in 2016.
For the six months ended June 30, 2009, the Series had capital losses of $68,987,614, which may increase the capital loss carryforwards.
6. Capital Shares
Transactions in capital share s were as follows:
| | Six Months | | Year |
| | Ended | | Ended |
| | 6/30/09* | | 12/31/08 |
| Shares sold: | | | | | | |
| Standard Class | | 1,172,629 | | | 3,108,369 | |
| Service Class | | 1,274,648 | | | 3,512,245 | |
| |
| Shares issued upon reinvestment of dividends and distributions: | | | | | | |
| Standard Class | | 135,753 | | | 896,028 | |
| Service Class | | 159,200 | | | 1,549,047 | |
| | | 2,742,230 | | | 9,065,689 | |
| Shares repurchased: | | | | | | |
| Standard Class | | (1,808,625 | ) | | (3,385,869 | ) |
| Service Class | | (2,156,948 | ) | | (4,736,423 | ) |
| | | (3,965,573 | ) | | (8,122,292 | ) |
| Net increase (decrease) | | (1,223,343 | ) | | 943,397 | |
7. Line of Credit
The Series, along with certain other funds in the Delaware Investments® Family of Funds (Participants), participates in a $35,000,000 revolving line of credit with The Bank of New York Mellon (BNY Mellon) to be used for temporary or emergency purposes as an additional source of liquidity to fund redemptions of investor shares. Under the agreement, 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 agreement expires on November 17, 2009. The Series had no amounts outstanding as of June 30, 2009, 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 BNY Mellon. With respect to each loan, if the aggregate market value of securities collateral held plus cash collateral received on any business day is less than the aggregate market 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.
Small Cap Value Series-11
Delaware VIP® Small Cap Value Series
Notes to Financial Statements (continued)
8. Securities Lending (continued)
Cash collateral received is generally invested in the Mellon GSL DBT II Collateral Fund (Collective Trust) established by BNY Mellon for the purpose of investment on behalf of clients participating in its securities lending programs. The Collective Trust may invest in fixed income securities, with a weighted average maturity not to exceed 90 days, rated in one of the top three tiers by Standard & Poor’s Ratings Group or Moody’s Investors Service, Inc. or repurchase agreements collateralized by such securities. The Collective Trust seeks to maintain a net asset value per unit of $1.00, but there can be no assurance that it will always be able to do so. At June 30, 2009, the Collective Trust held only cash and assets with a maturity of one business day or less (Cash/Overnight Assets). The Series may incur investment losses as a result of investing securities lending collateral in the Collective Trust. This could occur if an investment in the Collective Trust defaulted or if it were necessary to liquidate assets in the Collective Trust to meet returns on outstanding security loans at a time when the Collective Trust’s net asset value per unit was less than $1.00. Under those circumstances, the Series may not receive an amount from the Collective Trust that is equal in amount to the collateral the Series would be required to return to the borrower of the securities and the Series would be required to make up for this shortfall. Effective April 20, 2009, BNY Mellon transferred the assets of the Collective Trust other than the Cash/Overnight Assets to the BNY Mellon SL DBT II Liquidating Fund (Liquidating Fund), effectively bifurcating the collateral investment pool. The Series’ exposure to the Liquidating Fund is expected to decrease as the Liquidating Fund’s assets mature or are sold. In October 2008, BNY Mellon transferred certain distressed securities from the Collective Trust into the Mellon GSL Reinvestment Trust II. The Series can also accept U.S. government securities and letters of credit (non-cash collateral) in connection with securities loans. 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 or interest, as applicable, 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 non-cash collateral, the Series receives loan premiums paid by the borrower. 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 security lending income net of allocations to the security lending agent and the borrower.
At June 30, 2009, the value of the securities on loan was $74,993,199, 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 net 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 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. Securities eligible for resale pursuant to Rule 144A, which are determined to be liquid, are not subject to the Series’ 10% limit on investments in illiquid securities. As of June 30, 2009, there were no Rule 144A securities. Illiquid securities have been identified on the Statement of Net Assets.
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
Effective June 30, 2009, the Series adopted Financial Accounting Standards Board Statement of Financial Accounting Standards No. 165, Subsequent Events (FAS 165). In accordance with FAS 165, management has evaluated whether any events or transactions occurred subsequent to June 30, 2009 through August 15, 2009, date of issuance of the Series’ financial statements, and determined that there were no material events or transactions that would require recognition or disclosure in the Series’ financial statements.
The Series files its complete schedule of portfolio holdings with the Securities and Exchange Commission (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. |
Small Cap Value Series-12
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 19-21, 2009 (the “Annual Meeting”), the Board of Trustees (the “Board”), including a majority of disinterested or independent Trustees, approved the renewal of the Investment Advisory Agreement for the Delaware VIP Small Cap Value Series (the “Series”). In making its decision, the Board considered information furnished specifically in connection with the renewal of the Investment Advisory Agreement with Delaware Management Company (“DMC”), which included materials provided by DMC and its affiliates (“Delaware Investments”) concerning, among other things, the nature, extent and quality 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. Reference was made to information furnished at regular quarterly 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 and sub-advisory contracts. In addition, in connection with the Annual Meeting, reports were provided in February 2009 and included 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 independent Trustees reviewed and discussed the Lipper reports with counsel to the independent Trustees. The Board requested and received information regarding DMC’s policy with respect to advisory fee levels and its breakpoint philosophy; 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 had in the past year inhibited, or which were likely in the future to inhibit, DMC’s ability to invest fully in accordance with 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 counsel to the independent Trustees. Although the Board gave attention to all information furnished, the following discussion identifies, under separate headings, the primary factors taken into account by the Board during its contract renewal considerations.
NATURE, EXTENT AND QUALITY OF SERVICE. The Board considered the services provided by Delaware Investments to the Series and its shareholders. In reviewing the nature, extent and quality of services, the Board considered reports furnished to it throughout the year, which covered matters such as the relative performance of the Series, compliance of portfolio managers with the investment policies, strategies and restrictions for the Series, compliance by DMC and Delaware Distributors, L.P. (together, “Management”) personnel with the Code of Ethics adopted throughout the Delaware Investments® Family of Funds complex and adherence to fair value pricing procedures as established by the Board. The Board was pleased with the current staffing of the Series’ investment advisor and the emphasis placed on research in the investment process. The Board gave favorable consideration to DMC’s efforts to control expenditures while maintaining service levels committed to fund matters. The Board also considered the transfer agent and shareholder services provided to Series shareholders by DMC’s affiliate, Delaware Service Company, Inc. (“DSC”), noting DSC’s high level of service. The Board noted that Management finished upgrading investment accounting functions through outsourcing to improve the quality and lower the cost of delivering investment accounting services to the Series. The Board was satisfied with the nature, extent and quality of the overall services provided by Delaware Investments.
INVESTMENT PERFORMANCE. The Board placed significant emphasis on the investment performance of the Series in view of its importance to shareholders. Although the Board gave appropriate consideration to performance reports and discussions with portfolio managers at Board meetings throughout the year, the Board gave particular weight 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 performance 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, 2008. The Board’s objective is 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- and five-year periods was in the second quartile of its Performance Universe. The Series’ total return for the three- and ten-year periods was in the third quartile. The Board noted that the Series’ performance results, although mixed, were on an overall basis tended toward median, which was acceptable.
COMPARATIVE EXPENSES. The Board considered expense comparison data for the Delaware Investments Family of Funds. Management provided the Board with information on pricing levels and fee structures for the Series as of October 31, 2008 and, for comparative funds, information as of their respective fiscal year end occurring on or before August 31, 2008. The Board also focused on the comparative analysis of effective management fees and total expense ratios of the Series versus 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) 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 considered fees paid to Delaware Investments for nonmanagement services. The Board’s objective is to limit the Series’ total expense ratio to be competitive with that 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 the actual management fee was in the quartile with the lowest expenses of its Expense Group and the 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 those of its Expense Group.
Small Cap Value Series-13
Delaware VIP® Small Cap Value Series
Other Series Information (continued)
MANAGEMENT PROFITABILITY. The Board considered the level of profits 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, reflect recent 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 industry-wide 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 management fees were 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 reviewed the standardized advisory fee pricing and structure approved by the Board and shareholders, which includes breakpoints. Breakpoints in the advisory fee occur when the advisory fee rate is reduced on assets in excess of specified levels. Breakpoints result in a lower advisory fee than would otherwise be the case on all assets when the 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.
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Delaware VIP® Trust — Delaware VIP Trend Series
Disclosure of Series Expenses
For the Period January 1, 2009 to June 30, 2009
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, 2009 to June 30, 2009.
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 | | |
| |
| | | | | | | | Expenses |
| Beginning | | Ending | | | | Paid During |
| Account | | Account | | Annualized | | Period |
| Value | | Value | | Expense | | 1/1/09 to |
| 1/1/09 | | 6/30/09 | | Ratios | | 6/30/09* |
| Actual Series Return | | | | | | | | |
| Standard Class | $1,000.00 | | $ | 1,192.70 | | 0.91% | | $4.95 |
| Service Class | 1,000.00 | | | 1,190.90 | | 1.16% | | 6.30 |
| 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).
Trend Series-2
Delaware VIP® Trust — Delaware VIP Trend Series
Sector Allocation and Top 10 Holdings
As of June 30, 2009
Sector designations may be different than the sector designations presented in other Series materials. The sector designations may represent the investment manager’s internal sector classifications, which may result in the sector designations for one Series being different than another Series’ sector designations.
| Percentage |
| Sector | of Net Assets |
| Common Stock² | 98.71 | % |
| Basic Industry/Capital Goods | 9.43 | % |
| Business Services | 7.82 | % |
| Consumer Non-Durables | 8.62 | % |
| Consumer Services | 6.51 | % |
| Energy | 4.15 | % |
| Financials | 3.90 | % |
| Health Care | 24.67 | % |
| Technology | 28.44 | % |
| Transportation | 5.17 | % |
| Discount Note | 0.93 | % |
| U.S. Treasury Obligation | 0.23 | % |
| Securities Lending Collateral | 13.97 | % |
| Total Value of Securities | 113.84 | % |
| Obligation to Return Securities Lending Collateral | (14.32 | %) |
| Receivables and Other Assets Net of Liabilities | 0.48 | % |
| Total Net Assets | 100.00 | % |
|
²Narrow 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.
| Percentage |
| Top 10 Holdings | of Net Assets |
| Medarex | 3.50 | % |
| Sepracor | 3.19 | % |
| Charles River Laboratories International | 2.82 | % |
| F5 Networks | 2.80 | % |
| CommScope | 2.36 | % |
| Sybase | 2.25 | % |
| Perrigo | 2.15 | % |
| Abraxis BioScience | 2.14 | % |
| Nuance Communications | 1.90 | % |
| Microsemi | 1.83 | % |
Trend Series-3
Delaware VIP® Trust — Delaware VIP Trend Series
Statement of Net Assets
June 30, 2009 (Unaudited)
| Number of | | | |
| Shares | | Value |
| COMMON STOCK–98.71%² | | | | |
| Basic Industry/Capital Goods–9.43% | | | | |
| *Bucyrus International Class A | 155,200 | | $ | 4,432,512 |
| Dynamic Materials | 181,200 | | | 3,493,536 |
| †Hexcel | 199,600 | | | 1,902,188 |
| †*Itron | 62,900 | | | 3,463,903 |
| †Mettler-Toledo International | 25,300 | | | 1,951,895 |
| †Middleby | 90,700 | | | 3,983,544 |
| †*Tetra Tech | 103,100 | | | 2,953,815 |
| *Titan International | 333,800 | | | 2,493,486 |
| | | | | 24,674,879 |
| Business Services–7.82% | | | | |
| †*Clean Harbors | 57,200 | | | 3,088,228 |
| †Emergency Medical Services Class A | 121,000 | | | 4,455,220 |
| †*FTI Consulting | 51,500 | | | 2,612,080 |
| †Geo Group | 231,700 | | | 4,304,986 |
| †Net 1 UEPS Technologies | 211,600 | | | 2,875,644 |
| †Solera Holdings | 123,300 | | | 3,131,820 |
| | | | | 20,467,978 |
| Consumer Non-Durables–8.62% | | | | |
| †*Aeropostale | 93,700 | | | 3,211,099 |
| †Dick’s Sporting Goods | 32,100 | | | 552,120 |
| †FGX International Holdings | 100,500 | | | 1,143,690 |
| †*LKQ | 224,800 | | | 3,697,960 |
| †lululemon athletica | 205,600 | | | 2,678,968 |
| Penske Automotive Group | 136,600 | | | 2,273,024 |
| †Titan Machinery | 257,000 | | | 3,261,330 |
| †*Tractor Supply | 65,800 | | | 2,718,856 |
| †Ulta Salon Cosmetics & Fragrance | 272,200 | | | 3,026,864 |
| | | | | 22,563,911 |
| Consumer Services–6.51% | | | | |
| †*BJ’s Restaurants | 224,400 | | | 3,785,628 |
| †@*Cardtronics | 675,600 | | | 2,574,036 |
| †*Chipotle Mexican Grill Class A | 8,100 | | | 648,000 |
| †*First Cash Financial Services | 159,500 | | | 2,794,440 |
| †*P.F. Chang’s China Bistro | 35,600 | | | 1,141,336 |
| †*RHI Entertainment | 318,900 | | | 1,017,291 |
| *Royal Caribbean Cruises | 43,500 | | | 588,990 |
| †Texas Roadhouse Class A | 208,000 | | | 2,269,280 |
| †*Wynn Resorts | 63,100 | | | 2,227,430 |
| | | | | 17,046,431 |
| Energy–4.15% | | | | |
| *Carbo Ceramics | 99,650 | | | 3,408,030 |
| *Core Laboratories | 49,089 | | | 4,278,106 |
| †*Goodrich Petroleum | 129,400 | | | 3,181,946 |
| | | | | 10,868,082 |
| Financials–3.90% | | | | |
| Duff & Phelps Class A | 63,700 | | | 1,132,586 |
| Hanover Insurance Group | 70,400 | | | 2,682,944 |
| Lazard Class A | 118,700 | | | 3,195,404 |
| †ProAssurance | 69,200 | | | 3,197,732 |
| | | | | 10,208,666 |
| Health Care–24.67% | | | | |
| †@Abraxis BioScience | 151,849 | | | 5,597,154 |
| †*Acadia Pharmaceuticals | 499,400 | | | 1,093,686 |
| †Affymetrix | 744,420 | | | 4,414,411 |
| †*BioMarin Pharmaceuticals | 60,900 | | | 950,649 |
| †*Cardiome Pharma | 253,600 | | | 943,392 |
| †Celera | 151,300 | | | 1,154,419 |
| †*Charles River Laboratories International | 218,700 | | | 7,381,125 |
| †Cypress Bioscience | 156,900 | | | 1,477,998 |
| *Healthcare Services Group | 222,400 | | | 3,976,512 |
| †Medarex | 1,097,800 | | | 9,166,630 |
| †Medivation | 30,800 | | | 690,228 |
| PDL BioPharma | 348,400 | | | 2,752,360 |
| *Perrigo | 202,900 | | | 5,636,562 |
| Pharmaceutical Product Development | 61,700 | | | 1,432,674 |
| †Regeneron Pharmaceuticals | 184,200 | | | 3,300,864 |
| †Sepracor | 481,900 | | | 8,346,508 |
| †Syneron Medical | 253,900 | | | 1,833,158 |
| †*Vanda Pharmaceuticals | 137,500 | | | 1,618,375 |
| †*Wright Medical Group | 171,500 | | | 2,788,590 |
| | | | | 64,555,295 |
| Technology–28.44% | | | | |
| Applied Signal Technology | 93,000 | | | 2,372,430 |
| †*ArcSight | 151,910 | | | 2,699,441 |
| †*Ariba | 7,900 | | | 77,736 |
| †BigBand Networks | 723,200 | | | 3,738,944 |
| †Brocade Communications Systems | 566,200 | | | 4,427,684 |
| †Cogent | 299,300 | | | 3,211,489 |
| †CommScope | 235,100 | | | 6,173,726 |
| †*F5 Networks | 212,000 | | | 7,333,080 |
| Henry (Jack) & Associates | 148,300 | | | 3,077,225 |
| †Informatica | 99,900 | | | 1,717,281 |
| Intersil Class A | 216,100 | | | 2,716,377 |
| †*Lam Research | 110,600 | | | 2,875,600 |
| †*Microsemi | 347,400 | | | 4,794,120 |
| †*Nuance Communications | 411,800 | | | 4,978,662 |
| †Perot Systems Class A | 217,500 | | | 3,116,775 |
| †*Polycom | 77,200 | | | 1,564,844 |
| †*Rosetta Stone | 131,000 | | | 3,594,640 |
| †*salesforce.com | 42,200 | | | 1,610,774 |
| †*Sybase | 187,600 | | | 5,879,384 |
| †TriQuint Semiconductor | 832,800 | | | 4,422,168 |
| †*Varian Semiconductor | | | | |
| Equipment Associates | 113,300 | | | 2,718,067 |
| †Veeco Instruments | 116,200 | | | 1,346,758 |
| | | | | 74,447,205 |
| Transportation–5.17% | | | | |
| *Diana Shipping | 112,100 | | | 1,493,172 |
| *Genco Shipping & Trading | 65,900 | | | 1,431,348 |
| †Genesee & Wyoming Class A | 76,400 | | | 2,025,364 |
| *Hunt (J.B.) Transport Services | 121,200 | | | 3,700,236 |
| Knight Transportation | 212,000 | | | 3,508,600 |
| †Marten Transport | 66,400 | | | 1,378,464 |
| | | | | 13,537,184 |
| Total Common Stock | | | | |
| (cost $248,043,920) | | | | 258,369,631 |
Trend Series-4
Delaware VIP® Trend Series
Statement of Net Assets (continued)
| Principal | | | | |
| Amount | | Value |
| ¹DISCOUNT NOTE–0.93% | | | | | | |
| Federal Home Loan Bank 0.01% 7/1/09 | $ | 2,427,484 | | $ | 2,427,484 | |
| Total Discount Note (cost $2,427,484) | | | | | 2,427,484 | |
| | |
| ¹U.S. TREASURY OBLIGATION–0.23% | | | | | | |
| U.S. Treasury Bill 0.088% 7/23/09 | | 595,570 | | | 595,536 | |
| Total U.S. Treasury Obligation | | | | | | |
| (cost $595,536) | | | | | 595,536 | |
| | |
| Total Value of Securities | | | | | | |
| Before Securities Lending | | | | | | |
| Collateral–99.87% | | | | | | |
| (cost $251,066,940) | | | | | 261,392,651 | |
| | | | | |
| Number of | | | | |
| Shares | | Value |
| SECURITIES LENDING | | | | | | |
| COLLATERAL**–13.97% | | | | | | |
| Investment Companies | | | | | | |
| Mellon GSL DBT II Collateral Fund | | 19,373,332 | | $ | 19,373,332 | |
| BNY Mellon SL DB II Liquidating Fund | | 17,629,688 | | | 17,188,620 | |
| †Mellon GSL Reinvestment Trust II | | 462,002 | | | 46 | |
| Total Securities Lending Collateral | | | | | | |
| (cost $37,465,022) | | | | | 36,561,998 | |
| TOTAL VALUE OF SECURITIES–113.84% (cost $288,531,962) | | | 297,954,649 | © |
| OBLIGATION TO RETURN SECURITIES LENDING COLLATERAL**–(14.32%) | | | (37,465,022 | ) |
| RECEIVABLES AND OTHER ASSETS NET OF LIABILITIES–0.48% | | | 1,253,203 | |
| NET ASSETS APPLICABLE TO 13,295,683 SHARES OUTSTANDING–100.00% | | $ | 261,742,830 | |
| NET ASSET VALUE–DELAWARE VIP TREND SERIES STANDARD CLASS ($193,008,688 / 9,742,550 Shares) | | | | $19.81 | |
| NET ASSET VALUE–DELAWARE VIP TREND SERIES SERVICE CLASS ($68,734,142 / 3,553,133 Shares) | | | | $19.34 | |
| COMPONENTS OF NET ASSETS AT JUNE 30, 2009: | | | | |
| Shares of beneficial interest (unlimited authorization–no par) | | $ | 340,187,293 | |
| Accumulated net realized loss on investments | | | (87,867,150 | ) |
| Net unrealized appreciation of investments | | | 9,422,687 | |
| Total net assets | | $ | 261,742,830 | |
____________________
| ² | Narrow industries are utilized for compliance purposes for diversification whereas broad sectors are used for financial reporting. |
| † | Non income producing security. |
| @ | Illiquid security. At June 30, 2009, the aggregate amount of illiquid securities was $8,171,190, which represented 3.12% of the Series’ net assets. See Note 9 in “Notes to Financial Statements.” |
| ¹ | The rate shown is the effective yield at the time of purchase. |
| * | Fully or partially on loan. |
| ** | See Note 8 in “Notes to Financial Statements.” |
| © | Includes $36,485,816 of securities loaned. |
See accompanying notes
Trend Series-5
Delaware VIP® Trust —
Delaware VIP Trend Series
Statement of Operations
Six Months Ended June 30, 2009 (Unaudited)
| INVESTMENT INCOME: | | | |
| Dividends | $ | 290,899 | |
| Interest income | | 8,807 | |
| Securities lending income | | 283,513 | |
| Foreign tax withheld | | (1,674 | ) |
| | 581,545 | |
| |
| EXPENSES: | | | |
| Management fees | | 854,590 | |
| Distribution expenses – Service Class | | 90,140 | |
| Reports and statements to shareholders | | 50,216 | |
| Accounting and administration expenses | | 45,578 | |
| Audit and tax | | 25,660 | |
| Legal fees | | 19,427 | |
| Dividend disbursing and transfer agent fees and expenses | | 18,512 | |
| Trustees’ fees | | 8,178 | |
| Insurance fees | | 3,257 | |
| Custodian fees | | 2,173 | |
| Consulting fees | | 1,838 | |
| Dues and services | | 1,719 | |
| Trustees’ expenses | | 571 | |
| Pricing fees | | 311 | |
| Registration fees | | 197 | |
| | 1,122,367 | |
| Less waiver of distribution expenses – Service Class | | (15,023 | ) |
| Total operating expenses | | 1,107,344 | |
| |
| NET INVESTMENT LOSS | | (525,799 | ) |
| |
| NET REALIZED AND UNREALIZED GAIN (LOSS) | | | |
| ON INVESTMENTS: | | | |
| Net realized loss on investments | | (38,154,175 | ) |
| Net change in unrealized appreciation/depreciation | | | |
| of investments | | 80,538,909 | |
| |
| NET REALIZED AND UNREALIZED GAIN | | | |
| ON INVESTMENTS | | 42,384,734 | |
| |
| NET INCREASE IN NET ASSETS RESULTING | | | |
| FROM OPERATIONS | $ | 41,858,935 | |
See accompanying notes
Delaware VIP Trust —
Delaware VIP Trend Series
Statements of Changes in Net Assets
| Six Months | | | | |
| Ended | | Year |
| 6/30/09 | | Ended |
| (Unaudited) | | 12/31/08 |
| INCREASE (DECREASE) IN NET | | | | | | | |
| ASSETS FROM OPERATIONS: | | | | | | | |
| Net investment loss | $ | (525,799 | ) | | $ | (1,235,926 | ) |
| Net realized loss on investments | | (38,154,175 | ) | | | (49,057,624 | ) |
| Net change in unrealized appreciation/ | | | | | | | |
| depreciation of investments | | 80,538,909 | | | | (166,809,876 | ) |
| Net increase (decrease) in net assets | | | | | | | |
| resulting from operations | | 41,858,935 | | | | (217,103,426 | ) |
| |
| DIVIDENDS AND DISTRIBUTIONS | | | | | | | |
| TO SHAREHOLDERS FROM: | | | | | | | |
| Net realized gain on investments: | | | | | | | |
| Standard Class | | – | | | | (57,555,485 | ) |
| Service Class | | – | | | | (20,580,629 | ) |
| | | – | | | | (78,136,114 | ) |
| CAPITAL SHARE TRANSACTIONS: | | | | | | | |
| Proceeds from shares sold: | | | | | | | |
| Standard Class | | 3,974,196 | | | | 7,884,284 | |
| Service Class | | 4,479,243 | | | | 18,679,554 | |
| Net asset value of shares issued upon | | | | | | | |
| reinvestment of dividends and distributions: | | | | | | | |
| Standard Class | | – | | | | 57,555,485 | |
| Service Class | | – | | | | 20,580,629 | |
| | | 8,453,439 | | | | 104,699,952 | |
| Cost of shares repurchased: | | | | | | | |
| Standard Class | | (12,787,817 | ) | | | (52,450,665 | ) |
| Service Class | | (7,637,100 | ) | | | (33,343,678 | ) |
| | | (20,424,917 | ) | | | (85,794,343 | ) |
| Increase (decrease) in net assets derived | | | | | | | |
| from capital share transactions | | (11,971,478 | ) | | | 18,905,609 | |
| |
| NET INCREASE (DECREASE) | | | | | | | |
| IN NET ASSETS | | 29,887,457 | | | | (276,333,931 | ) |
| |
| NET ASSETS: | | | | | | | |
| Beginning of period | | 231,855,373 | | | | 508,189,304 | |
| End of period (there was no undistributed net | | | | | | | |
| investment income at either period end) | $ | 261,742,830 | | | $ | 231,855,373 | |
See accompanying notes
Trend Series-6
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 | | | | | | | | | | | | | | | |
| | Ended | | | | | | | | | | | | | | | |
| | 6/30/091 | | Year Ended | |
| | (Unaudited) | | 12/31/08 | | | 12/31/07 | | | 12/31/06 | | | 12/31/05 | | | 12/31/04 | |
| Net asset value, beginning of period | | | $16.610 | | | $38.500 | | | $35.000 | | | $32.530 | | | $30.730 | | | $27.290 | |
| |
| Income (loss) from investment operations: | | | | | | | | | | | | | | | | | | | |
| Net investment loss2 | | | (0.033 | ) | | (0.069 | ) | | (0.090 | ) | | (0.088 | ) | | (0.108 | ) | | (0.108 | ) |
| Net realized and unrealized gain (loss) on investments | | | | | | | | | | | | | | | | | | | |
| and foreign currencies | | | 3.233 | | | (15.699 | ) | | 3.836 | | | 2.558 | | | 1.908 | | | 3.548 | |
| Total from investment operations | | | 3.200 | | | (15.768 | ) | | 3.746 | | | 2.470 | | | 1.800 | | | 3.440 | |
| |
| Less dividends and distributions from: | | | | | | | | | | | | | | | | | | | |
| Net realized gain on investments | | | – | | | (6.122 | ) | | (0.246 | ) | | – | | | – | | | – | |
| Total dividends and distributions | | | – | | | (6.122 | ) | | (0.246 | ) | | – | | | – | | | – | |
| |
| Net asset value, end of period | | | $19.810 | | | $16.610 | | | $38.500 | | | $35.000 | | | $32.530 | | | $30.730 | |
| |
| Total return3 | | | 19.27% | | | (46.74% | ) | | 10.75% | | | 7.59% | | | 5.86% | | | 12.60% | |
| |
| Ratios and supplemental data: | | | | | | | | | | | | | | | | | | | |
| Net assets, end of period (000 omitted) | | | $193,009 | | | $170,993 | | | $376,101 | | | $410,167 | | | $450,525 | | | $521,392 | |
| Ratio of expenses to average net assets | | | 0.91% | | | 0.87% | | | 0.86% | | | 0.87% | | | 0.87% | | | 0.84% | |
| Ratio of net investment loss to average net assets | | | (0.40% | ) | | (0.26% | ) | | (0.24% | ) | | (0.26% | ) | | (0.36% | ) | | (0.38% | ) |
| Portfolio turnover | | | 98% | | | 93% | | | 78% | | | 64% | | | 63% | | | 48% | |
____________________
| 1Ratios and portfolio turnover have been annualized and total return has not been annualized. |
| 2The average shares outstanding method has been applied for per share information. |
3Total 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
Trend Series-7
Delaware VIP® Trend Series
Financial Highlights (continued)
Selected data for each share of the Series outstanding throughout each period were as follows:
| | Delaware VIP Trend Series Service Class |
| | Six Months | | | | | | | | | | | | | | | |
| | Ended | | | | | | | | | | | | | | | |
| | 6/30/091 | | Year Ended | |
| | (Unaudited) | | 12/31/08 | | | 12/31/07 | | | 12/31/06 | | | 12/31/05 | | | 12/31/04 | |
| Net asset value, beginning of period | | | $16.240 | | | $37.880 | | | $34.530 | | | $32.170 | | | $30.460 | | | $27.120 | |
| |
| Income (loss) from investment operations: | | | | | | | | | | | | | | | | | | | |
| Net investment loss2 | | | (0.054 | ) | | (0.133 | ) | | (0.184 | ) | | (0.171 | ) | | (0.182 | ) | | (0.178 | ) |
| Net realized and unrealized gain (loss) on investments | | | | | | | | | | | | | | | | | | | |
| and foreign currencies | | | 3.154 | | | (15.385 | ) | | 3.780 | | | 2.531 | | | 1.892 | | | 3.518 | |
| Total from investment operations | | | 3.100 | | | (15.518 | ) | | 3.596 | | | 2.360 | | | 1.710 | | | 3.340 | |
| |
| Less dividends and distributions from: | | | | | | | | | | | | | | | | | | | |
| Net realized gain on investments | | | – | | | (6.122 | ) | | (0.246 | ) | | – | | | – | | | – | |
| Total dividends and distributions | | | – | | | (6.122 | ) | | (0.246 | ) | | – | | | – | | | – | |
| |
| Net asset value, end of period | | | $19.340 | | | $16.240 | | | $37.880 | | | $34.530 | | | $32.170 | | | $30.460 | |
| |
| Total return3 | | | 19.09% | | | (46.86% | ) | | 10.46% | | | 7.34% | | | 5.61% | | | 12.32% | |
| |
| Ratios and supplemental data: | | | | | | | | | | | | | | | | | | | |
| Net assets, end of period (000 omitted) | | | $68,734 | | | $60,862 | | | $132,088 | | | $128,909 | | | $119,361 | | | $109,832 | |
| Ratio of expenses to average net assets | | | 1.16% | | | 1.12% | | | 1.11% | | | 1.12% | | | 1.12% | | | 1.09% | |
| Ratio of expenses to average net assets | | | | | | | | | | | | | | | | | | | |
| prior to fees waived and expense paid indirectly | | | 1.21% | | | 1.17% | | | 1.16% | | | 1.17% | | | 1.17% | | | 1.14% | |
| Ratio of net investment loss to average net assets | | | (0.65% | ) | | (0.51% | ) | | (0.49% | ) | | (0.51% | ) | | (0.61% | ) | | (0.63% | ) |
| Ratio of net investment loss to average net assets | | | | | | | | | | | | | | | | | | | |
| prior to fees waived and expense paid indirectly | | | (0.70% | ) | | (0.56% | ) | | (0.54% | ) | | (0.56% | ) | | (0.66% | ) | | (0.68% | ) |
| Portfolio turnover | | | 98% | | | 93% | | | 78% | | | 64% | | | 63% | | | 48% | |
____________________
| 1Ratios and portfolio turnover have been annualized and total return has not been annualized. |
| 2The average shares outstanding method has been applied for per share information. |
3Total 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 by the distributor. Performance would have been lower had the waiver not been in effect. |
See accompanying notes
Trend Series-8
Delaware VIP® Trust — Delaware VIP Trend Series
Notes to Financial Statements
June 30, 2009 (Unaudited)
Delaware VIP Trust (Trust) is organized as a Delaware statutory trust and offers 13 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 Limited-Term Diversified Income Series, (formerly, Delaware VIP Capital Reserves 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 ask prices will be used. Investment companies are valued at net asset value per share. Generally, 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 (Board). 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 suspension of trading in a security. The Series may use fair value pricing more frequently for securities traded primarily in non-U.S. markets because, among other things, most foreign markets close well before the Series values its securities at 4:00 p.m. Eastern time. The earlier close of these foreign markets gives rise to the possibility that significant events, including broad market moves, government actions or pronouncements, aftermarket trading, or news events may have occurred in the interim. To account for this, the Series may frequently value foreign securities using fair value prices based on third-party vendor modeling tools (international fair value pricing).
Federal Income Taxes—No provision for federal income taxes has been made as the Series intends to continue to qualify for federal income tax purposes as a regulated investment company under Subchapter M of the Internal Revenue Code of 1986, as amended, and make the requisite distributions to shareholders. The Series evaluates 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 Series did not record 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 other 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. At June 30, 2009, the Series held no investments in repurchase agreements.
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. 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. There were no commission rebates during the six months ended June 30, 2009.
The Series may receive earnings credits from its custodian when positive cash balances are maintained, which are used to offset custody fees. There were no earnings credits for the six months ended June 30, 2009.
Trend Series-9
Delaware VIP® Trend Series
Notes to Financial Statements (continued)
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.
Delaware Service Company, Inc. (DSC), an affiliate of DMC, provides fund accounting and financial administration oversight services to the Series. For these services, the Series pays DSC fees based on the aggregate daily net assets of the Delaware Investments® Family of Funds at the following annual rate: 0.0050% of the first $30 billion; 0.0045% of the next $10 billion; 0.0040% of the next $10 billion; and 0.0025% of aggregate average daily net assets in excess of $50 billion. The fees payable to DSC under the service agreement described above are allocated among all funds in the Delaware Investments Family of Funds on a relative net asset value basis. For the six months ended June 30, 2009, the Series was charged $5,697 for these services.
DSC also provides dividend disbursing and transfer agency services. The Series pays DSC a monthly fee based on the number of shareholder accounts 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, 2010 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, 2009, the Series had liabilities payable to affiliates as follows:
| | | Dividend Disbursing, | | | | Other |
| Investment | | Transfer Agent and Fund | | | | Expenses |
| Management | | Accounting Oversight | | Distribution | | Payable |
| Fee Payable to | | Fees and Other Expenses | | Fee Payable | | to DMC |
| DMC | | Payable to DSC | | to DDLP | | and Affiliates* |
| | $162,042 | | $2,997 | | $14,250 | | $3,902 |
____________________
*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, 2009, the Series was charged $12,620 for internal legal and tax services provided by DMC and/or its affiliates’ employees.
Trustees’ fees include expenses accrued by the Series for each Trustee’s retainer and meeting fees. 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, 2009, the Series made purchases and sales of investment securities other than short-term investments as follows:
| Purchases | | $107,432,572 |
| Sales | | 110,478,501 |
At June 30, 2009, the cost of investments for federal income tax purposes has been estimated since final tax characteristics cannot be determined until fiscal year end. At June 30, 2009, the cost of investments and unrealized appreciation (depreciation) for the Series were as follows:
| | | Aggregate | | Aggregate | | Net |
| Cost of | | Unrealized | | Unrealized | | Unrealized |
| Investments | | Appreciation | | Depreciation | | Appreciation |
| | $294,290,624 | | $36,700,250 | | $(33,036,225) | | $3,664,025 |
The Series applies Financial Accounting Standards No. 157, Fair Value Measurements (FAS 157). FAS 157 defines fair value as the price that the Series would receive to sell an asset or pay to transfer a liability in an orderly transaction between market participants at the measurement date under current market conditions. FAS 157 also establishes a framework for measuring fair value and a three level hierarchy for fair value measurements based upon the transparency of inputs to the valuation of an asset or liability. Inputs may be observable or unobservable and refer broadly to the assumptions that market participants would use in pricing the asset or liability. Observable inputs reflect the assumptions market participants would use in pricing the asset or liability based on market data obtained from sources independent of the reporting entity. Unobservable
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Delaware VIP® Trend Series
Notes to Financial Statements (continued)
3. Investments (continued)
inputs reflect the reporting entity’s own assumptions about the assumptions that market participants would use in pricing the asset or liability developed based on the best information available under the circumstances. The Series’ investment in its entirety is assigned a level based upon the observability of the inputs which are significant to the overall valuation. The three-tier hierarchy of inputs is summarized below.
Level 1 – inputs are quoted prices in active markets
Level 2 – inputs are observable, directly or indirectly
Level 3 – inputs are unobservable and reflect assumptions on the part of the reporting entity
The following table summarizes the valuation of the Series’ investments by the FAS 157 fair value hierarchy levels as of June 30, 2009:
| Level 1 | | Level 2 | | Level 3 | | Total |
| Common Stock | $ | 258,369,631 | | $ | – | | $ | – | | $ | 258,369,631 |
| Short-Term | | – | | | 2,427,484 | | | – | | | 2,427,484 |
| U.S. Treasury Obligations | | 595,536 | | | – | | | – | | | 595,536 |
| Securities Lending Collateral | | 19,373,332 | | | 17,188,620 | | | 46 | | | 36,561,998 |
| Total | $ | 278,338,499 | | $ | 19,616,104 | | $ | 46 | | $ | 297,954,649 |
The following is a reconciliation of investments in which significant unobservable inputs (Level 3) were used in determining fair value:
| Securities |
| Lending |
| Collateral |
| Balance as of 12/31/08 | | $ 15,246 | |
| Net change in unrealized appreciation/depreciation | | (15,200 | ) |
| Balance as of 6/30/09 | | $ 46 | |
| |
| Net change in unrealized | | | |
| appreciation/depreciation from | | | |
| investments still held as of 6/30/09 | | $(15,200 | ) |
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, distributions from 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, 2009. The tax character of dividends and distributions paid during the year ended December 31, 2008 was as follows:
| Year |
| Ended |
| 12/31/08 |
| Ordinary income | $ | 742,584 |
| Long-term capital gain | | 77,390,754 |
| Return of capital | | 2,776 |
| Total | $ | 78,136,114 |
5. Components of Net Assets on a Tax Basis
The components of net assets are estimated since the final tax characteristics cannot be determined until fiscal year end. As of June 30, 2009, the estimated components of net assets on a tax basis were as follows:
| Shares of beneficial interest | $ | 340,187,293 | |
| Capital loss carryforwards as of 12/31/08 | | (22,165,948 | ) |
| Realized losses 1/1/09 – 6/30/09 | | (59,942,540 | ) |
| Unrealized appreciation of investments | | 3,664,025 | |
| Net assets | $ | 261,742,830 | |
The differences between book basis and tax basis components of net assets are primarily attributable to tax deferral of losses on wash sales.
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Delaware VIP® Trend Series
Notes to Financial Statements (continued)
5. Components of Net Assets on a Tax Basis (continued)
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, 2009, the Series recorded an estimate of these differences since final tax characteristics cannot be determined until fiscal year end.
| Accumulated | | |
| Net Investment | | Paid-in |
| Loss | | Capital |
| $525,799 | | $(525,799) |
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, 2008 will expire as follows: $22,165,948 expires in 2016.
For the six months ended June 30, 2009, the Series had capital losses of $59,942,540, which may increase the capital loss carryforwards.
6. Capital Shares
Transactions in capital shares were as follows:
| Six Months | | Year |
| Ended | | Ended |
| 6/30/09 | | 12/31/08 |
| Shares sold: | | | | | | |
| Standard Class | | 225,460 | | | 326,899 | |
| Service Class | | 268,828 | | | 726,090 | |
| |
| Shares issued upon reinvestment of dividends and distributions: | | | | | | |
| Standard Class | | – | | | 2,205,191 | |
| Service Class | | – | | | 805,189 | |
| | | 494,288 | | | 4,063,369 | |
| Shares repurchased: | | | | | | |
| Standard Class | | (779,724 | ) | | (2,005,114 | ) |
| Service Class | | (464,395 | ) | | (1,269,512 | ) |
| | | (1,244,119 | ) | | (3,274,626 | ) |
| Net increase (decrease) | | (749,831 | ) | | 788,743 | |
7. Line of Credit
The Series, along with certain other funds in the Delaware Investments® Family of Funds (Participants), participates in a $35,000,000 revolving line of credit with The Bank of New York Mellon (BNY Mellon) to be used for temporary or emergency purposes as an additional source of liquidity to fund redemptions of investor shares. Under the agreement, 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 agreement expires on November 17, 2009. The Series had no amounts outstanding as of June 30, 2009, 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 BNY Mellon. With respect to each loan, if the aggregate market value of securities collateral held plus cash collateral received on any business day is less than the aggregate market 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 generally invested in the Mellon GSL DBT II Collateral Fund (Collective Trust) established by BNY Mellon for the purpose of investment on behalf of clients participating in its securities lending programs. The Collective Trust may invest in fixed income securities, with a weighted average maturity not to exceed 90 days, rated in one of the top three tiers by Standard & Poor’s Ratings Group or Moody’s Investors Service, Inc. or repurchase agreements collateralized by such securities. The Collective Trust seeks to maintain a net asset value per unit of $1.00, but there can be no assurance that it will always be able to do so. At June 30, 2009, the Collective Trust held only cash and assets with a maturity of one business day or less (Cash/Overnight Assets). The Series may incur investment losses as a result of investing securities lending collateral in the Collective Trust. This could occur if an investment in the Collective Trust defaulted or if it were necessary to liquidate assets in the Collective Trust to meet returns on outstanding security loans at a time when the Collective Trust’s net asset value per unit was less than $1.00. Under those circumstances, the Series may not receive an amount from the Collective Trust that is equal in amount to the collateral the Series would be required to return to the borrower of the securities and the Series would be required to make up for this shortfall. Effective April 20, 2009, BNY Mellon transferred the assets of the Collective Trust other than the Cash/Overnight Assets to the BNY Mellon SL DBT II Liquidating Fund (Liquidating Fund), effectively bifurcating the collateral investment pool. The Series’ exposure to the Liquidating Fund is expected to decrease as the Liquidating Fund’s assets mature or are sold. In October 2008, BNY Mellon transferred certain distressed securities from the Collective Trust into the Mellon GSL Reinvestment Trust II. The Series can also accept U.S. government securities and letters of credit (non-cash collateral) in connection with securities loans. 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
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Delaware VIP® Trend Series
Notes to Financial Statements (continued)
8. Securities Lending (continued)
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 or interest, as applicable, 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 non-cash collateral, the Series receives loan premiums paid by the borrower. 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 security lending income net of allocations to the security lending agent and the borrower.
At June 30, 2009, the value of the securities on loan was $36,485,816, 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 net 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 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. Securities eligible for resale pursuant to Rule 144A, which are determined to be liquid, are not subject to the Series’ 10% limit on investments in illiquid assets. As of June 30, 2009, there were no Rule 144A securities. Illiquid securities have been identified on the Statement of Net Assets.
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
Effective June 30, 2009, the Series adopted Financial Accounting Standards Board Statement of Financial Accounting Standards No. 165, Subsequent Events (FAS 165). In accordance with FAS 165, management has evaluated whether any events or transactions occurred subsequent to June 30, 2009 through August 15, 2009, date of issuance of the Series’ financial statements, and determined that there were no material events or transactions that would require recognition or disclosure in the Series’ financial statements.
The Series files its complete schedule of portfolio holdings with the Securities and Exchange Commission (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 Trend Series
Other Series Information
Board Consideration of Delaware VIP Trend Series Investment Advisory Agreement
At a meeting held on May 19-21, 2009 (the “Annual Meeting”), the Board of Trustees (the “Board”), including a majority of disinterested or independent Trustees, approved the renewal of the Investment Advisory Agreement for the Delaware VIP Trend Series (the “Series”). In making its decision, the Board considered information furnished specifically in connection with the renewal of the Investment Advisory Agreement with Delaware Management Company (“DMC”), which included materials provided by DMC and its affiliates (“Delaware Investments”) concerning, among other things, the nature, extent and quality 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. Reference was made to information furnished at regular quarterly 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 and sub-advisory contracts. In addition, in connection with the Annual Meeting, reports were provided in February 2009 and included 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 independent Trustees reviewed and discussed the Lipper reports with counsel to the independent Trustees. The Board requested and received information regarding DMC’s policy with respect to advisory fee levels and its breakpoint philosophy; 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 had in the past year inhibited, or which were likely in the future to inhibit, DMC’s ability to invest fully in accordance with 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 counsel to the independent Trustees. Although the Board gave attention to all information furnished, the following discussion identifies, under separate headings, the primary factors taken into account by the Board during its contract renewal considerations.
NATURE, EXTENT AND QUALITY OF SERVICE. The Board considered the services provided by Delaware Investments to the Series and its shareholders. In reviewing the nature, extent and quality of services, the Board considered reports furnished to it throughout the year, which covered matters such as the relative performance of the Series, compliance of portfolio managers with the investment policies, strategies and restrictions for the Series, compliance by DMC and Delaware Distributors, L.P. (together, “Management”) personnel with the Code of Ethics adopted throughout the Delaware Investments® Family of Funds complex and adherence to fair value pricing procedures as established by the Board. The Board was pleased with the current staffing of the Series’ investment advisor and the emphasis placed on research in the investment process. The Board gave favorable consideration to DMC’s efforts to control expenditures while maintaining service levels committed to fund matters. The Board also considered the transfer agent and shareholder services provided to Series shareholders by DMC’s affiliate, Delaware Service Company, Inc. (“DSC”), noting DSC’s high level of service. The Board noted that Management finished upgrading investment accounting functions through outsourcing to improve the quality and lower the cost of delivering investment accounting services to the Series. The Board was satisfied with the nature, extent and quality of the overall services provided by Delaware Investments.
INVESTMENT PERFORMANCE. The Board placed significant emphasis on the investment performance of the Series in view of its importance to shareholders. Although the Board gave appropriate consideration to performance reports and discussions with portfolio managers at Board meetings throughout the year, the Board gave particular weight 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 performance 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, 2008. The Board’s objective is 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 growth 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. Although the report further showed that the Series’ total return for the ten-year period was in the second quartile, the Series’ performance results were not in line with the Board’s objective. However, in evaluating the Series’ performance, the Board considered Management’s efforts to increase portfolio management depth and effectiveness. The Board was satisfied that Management was taking action to improve Series performance and to meet the Board’s performance objective.
COMPARATIVE EXPENSES. The Board considered expense comparison data for the Delaware Investments Family of Funds. Management provided the Board with information on pricing levels and fee structures for the Series as of October 31, 2008 and, for comparative funds, information as of their respective fiscal year end occurring on or before August 31, 2008. The Board also focused on the comparative analysis of effective management fees and total expense ratios of the Series versus 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) 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 considered fees paid to Delaware Investments for nonmanagement services. The Board’s objective is to limit the Series’ total expense ratio to be competitive with that 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 the 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 those of its Expense Group.
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Delaware VIP® Trend Series
Other Series Information (continued)
MANAGEMENT PROFITABILITY. The Board considered the level of profits 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, reflect recent 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 industry-wide 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 management fees were 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 reviewed the standardized advisory fee pricing and structure approved by the Board and shareholders, which includes breakpoints. Breakpoints in the advisory fee occur when the advisory fee rate is reduced on assets in excess of specified levels. Breakpoints result in a lower advisory fee than would otherwise be the case on all assets when the 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.
PO14207 SA-VIPT [6/09] DG3 8/09 (4772) | Trend Series-15 |
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Delaware VIP® Trust — Delaware VIP U.S. Growth Series
Disclosure of Series Expenses
For the Period January 1, 2009 to June 30, 2009
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, 2009 to June 30, 2009.
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
| | | | | | | | Expenses |
| | Beginning | | Ending | | | | Paid During |
| | Account | | Account | | Annualized | | Period |
| | Value | | Value | | Expense | | 1/1/09 to |
| | 1/1/09 | | 6/30/09 | | Ratios | | 6/30/09* |
| Actual Series Return | | | | | | | | |
| Standard Class | | $1,000.00 | | $1,152.80 | | 0.77% | | $4.11 |
| Service Class | | 1,000.00 | | 1,153.20 | | 1.02% | | 5.45 |
| Hypothetical 5% Return (5% return before expenses) | | |
| Standard Class | | $1,000.00 | | $1,020.98 | | 0.77% | | $3.86 |
| Service Class | | 1,000.00 | | 1,019.74 | | 1.02% | | 5.11 |
*“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).
U.S. Growth Series-1
Delaware VIP® Trust — Delaware VIP U.S. Growth Series
Sector Allocation and Top 10 Holdings
As of June 30, 2009
Sector designations may be different than the sector designations presented in other Series materials. The sector designations may represent the investment manager’s internal sector classifications, which may result in the sector designations for one Series being different than another Series’ sector designations.
| Percentage |
| Sector | of Net Assets |
| Common Stock² | | 98.17% | | |
| Basic Industry/Capital Goods | | 5.02% | | |
| Business Services | | 18.06% | | |
| Consumer Non-Durables | | 9.53% | | |
| Consumer Services | | 1.86% | | |
| Energy | | 3.35% | | |
| Financials | | 11.92% | | |
| Health Care | | 20.59% | | |
| Technology | | 27.84% | | |
| Discount Note | | 1.69% | | |
| U.S. Treasury Obligation | | 0.41% | | |
| Securities Lending Collateral | | 8.81% | | |
| Total Value of Securities | | 109.08% | | |
| Obligation to Return Securities Lending Collateral | | (9.14% | ) | |
| Receivables and Other Assets Net of Liabilities | | 0.06% | | |
| Total Net Assets | | 100.00% | | |
²Narrow 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.
| Percentage |
| Top 10 Holdings | of Net Assets |
| QUALCOMM | | 5.46% | | |
| IntercontinentalExchange | | 4.62% | | |
| Visa Class A | | 4.56% | | |
| Google Class A | | 4.56% | | |
| Apple | | 4.56% | | |
| Allergan | | 4.00% | | |
| Intuit | | 3.91% | | |
| CME Group | | 3.76% | | |
| UnitedHealth Group | | 3.58% | | |
| Bank of New York Mellon | | 3.54% | | |
U.S. Growth Series-2
Delaware VIP® Trust — Delaware VIP U.S. Growth Series
Statement of Net Assets
June 30, 2009 (Unaudited)
| | Number of | | | |
| | Shares | | Value |
| COMMON STOCK–98.17%² | | | | | | |
| Basic Industry/Capital Goods–5.02% | | | | | | |
| Praxair | | | 56,300 | | $ | 4,001,241 |
| Syngenta ADR | | | 81,600 | | | 3,796,032 |
| | | | | | 7,797,273 |
| Business Services–18.06% | | | | | | |
| Expeditors International of Washington | | | 142,200 | | | 4,740,948 |
| †Google Class A | | | 16,800 | | | 7,082,712 |
| *MasterCard Class A | | | 28,100 | | | 4,701,411 |
| *United Parcel Service Class B | | | 89,100 | | | 4,454,109 |
| *Visa Class A | | | 113,800 | | | 7,085,188 |
| | | | | | 28,064,368 |
| Consumer Non-Durables–9.53% | | | | | | |
| *NIKE Class B | | | 89,700 | | | 4,644,666 |
| Procter & Gamble | | | 98,500 | | | 5,033,350 |
| Staples | | | 254,300 | | | 5,129,231 |
| | | | | | 14,807,247 |
| Consumer Services–1.86% | | | | | | |
| Weight Watchers International | | | 112,500 | | | 2,899,125 |
| | | | | | 2,899,125 |
| Energy–3.35% | | | | | | |
| EOG Resources | | | 76,700 | | | 5,209,464 |
| | | | | | 5,209,464 |
| Financials–11.92% | | | | | | |
| Bank of New York Mellon | | | 187,600 | | | 5,498,556 |
| CME Group | | | 18,800 | | | 5,848,868 |
| †IntercontinentalExchange | | | 62,800 | | | 7,174,272 |
| | | | | | 18,521,696 |
| Health Care–20.59% | | | | | | |
| Allergan | | | 130,600 | | | 6,213,948 |
| †Gilead Sciences | | | 94,400 | | | 4,421,696 |
| †*Intuitive Surgical | | | 8,500 | | | 1,391,110 |
| †Medco Health Solutions | | | 117,200 | | | 5,345,492 |
| Novo-Nordisk ADR | | | 75,100 | | | 4,089,946 |
| UnitedHealth Group | | | 222,700 | | | 5,563,046 |
| Walgreen | | | 168,900 | | | 4,965,660 |
| | | | | | 31,990,898 |
| Technology–27.84% | | | | | | |
| †Adobe Systems | | | 135,200 | | | 3,826,160 |
| †Apple | | | 49,700 | | | 7,078,771 |
| †Crown Castle International | | | 206,300 | | | 4,955,326 |
| †Intuit | | | 215,600 | | | 6,071,296 |
| QUALCOMM | | | 187,600 | | | 8,479,520 |
| †Symantec | | | 245,500 | | | 3,819,980 |
| †Teradata | | | 215,900 | | | 5,058,537 |
| †*VeriSign | | | 214,700 | | | 3,967,656 |
| | | | | | 43,257,246 |
| Total Common Stock | | | | | | |
| (cost $168,439,083) | | | | | | 152,547,317 |
| |
| | Principal | | | |
| | Amount | | | |
| ¹DISCOUNT NOTE–1.69% | | | | | | |
| Federal Home Loan Bank 0.01% 7/1/09 | | $ | 2,629,841 | | | 2,629,841 |
| Total Discount Note | | | | | | |
| (cost $2,629,841) | | | | | | 2,629,841 |
| |
| ¹U.S. TREASURY OBLIGATION–0.41% | | | | | | |
| U.S. Treasury Bill 0.088% 7/23/09 | | | 645,217 | | | 645,181 |
| Total U.S. Treasury Obligation | | | | | | |
| (cost $645,181) | | | | | | 645,181 |
| |
Total Value of Securities
Before Securities Lending
Collateral–100.27%
(cost $171,714,105) | | | | | | 155,822,339 |
| |
| | Number of | | | |
| | Shares | | | |
SECURITIES LENDING
COLLATERAL**–8.81% | | | | | | |
| Investment Companies | | | | | | |
| Mellon GSL DBT II Collateral Fund | | | 5,170,470 | | | 5,170,470 |
| BNY Mellon SL DB II Liquidating Fund | | | 8,741,010 | | | 8,522,323 |
| †Mellon GSL Reinvestment Trust II | | | 289,789 | | | 29 |
| Total Securities Lending Collateral | | | | | | |
| (cost $14,201,269) | | | | | | 13,692,822 |
U.S. Growth Series-3
Delaware VIP® U.S. Growth Series
Statement of Net Assets (continued)
| TOTAL VALUE OF SECURITIES–109.08% (cost $185,915,374) | $ | 169,515,161 | © |
| OBLIGATION TO RETURN SECURITIES LENDING COLLATERAL**–(9.14%) | | (14,201,269 | ) |
| RECEIVABLES AND OTHER ASSETS NET OF LIABILITIES–0.06% | | 87,509 | |
| NET ASSETS APPLICABLE TO 27,001,950 SHARES OUTSTANDING–100.00% | $ | 155,401,401 | |
NET ASSET VALUE–DELAWARE VIP U.S. GROWTH SERIES STANDARD CLASS
($120,276,127 / 20,859,119 Shares) | | | $5.77 | |
NET ASSET VALUE–DELAWARE VIP U.S. GROWTH SERIES SERVICE CLASS
($35,125,274 / 6,142,831 Shares) | | | $5.72 | |
| COMPONENTS OF NET ASSETS AT JUNE 30, 2009: | | | |
| Shares of beneficial interest (unlimited authorization–no par) | $ | 214,748,795 | |
| Undistributed net investment income | | 207,684 | |
| Accumulated net realized loss on investments | | (43,154,865 | ) |
| Net unrealized depreciation of investments | | (16,400,213 | ) |
| Total net assets | $ | 155,401,401 | |
____________________
| * | Fully or partially on loan. |
| ** | See Note 8 in “Notes to Financial Statements.” |
| © | Includes $13,829,883 of securities loaned. |
| ¹ | The rate shown is the effective yield at the time of purchase. |
| † | Non income producing security. |
| ² | Narrow industries are utilized for compliance purposes for diversification whereas broad sectors are used for financial reporting. |
ADR – American Depositary Receipts
See accompanying notes
U.S. Growth Series-4
Delaware VIP® Trust —
Delaware VIP U.S. Growth Series
Statement of Operations
Six Months Ended June 30, 2009 (Unaudited)
| INVESTMENT INCOME: | | | | |
| Dividends | | $ | 804,740 | |
| Interest | | | 30,910 | |
| Securities lending income | | | 38,769 | |
| Foreign tax withheld | | | (24,472 | ) |
| | | 849,947 | |
| |
| EXPENSES: | | | | |
| Management fees | | | 494,085 | |
| Distribution expenses – Service Class | | | 39,850 | |
| Accounting and administration expenses | | | 30,405 | |
| Audit and tax | | | 14,704 | |
| Legal fees | | | 13,386 | |
| Reports and statements to shareholders | | | 10,206 | |
| Dividend disbursing and transfer agent fees and expenses | | | 9,946 | |
| Trustees’ fees | | | 5,598 | |
| Insurance fees | | | 2,326 | |
| Custodian fees | | | 1,973 | |
| Consulting fees | | | 1,309 | |
| Dues and services | | | 1,199 | |
| Trustee’ expenses | | | 389 | |
| Pricing fees | | | 113 | |
| Registration fees | | | 54 | |
| | | 625,543 | |
| Less waiver of distribution expenses – Service Class | | | (6,642 | ) |
| Total operating expenses | | | 618,901 | |
| |
| NET INVESTMENT INCOME | | | 231,046 | |
| |
| NET REALIZED AND UNREALIZED GAIN (LOSS) | | | | |
| ON INVESTMENTS: | | | | |
| Net realized loss on investments | | | (34,999,122 | ) |
| Net change in unrealized appreciation/depreciation | | | | |
| of investments | | | 56,904,357 | |
| |
| NET REALIZED AND UNREALIZED GAIN | | | | |
| ON INVESTMENTS | | | 21,905,235 | |
| |
| NET INCREASE IN NET ASSETS RESULTING | | | | |
| FROM OPERATIONS | | $ | 22,136,281 | |
See accompanying notes
Delaware VIP Trust —
Delaware VIP U.S. Growth Series
Statements of Changes in Net Assets
| | Six Months | | | | |
| | Ended | | Year |
| | 6/30/09 | | Ended |
| | (Unaudited) | | 12/31/08 |
| INCREASE (DECREASE) IN NET | | | | | | | | |
| ASSETS FROM OPERATIONS: | | | | | | | | |
| Net investment income | | $ | 231,046 | | | $ | 333,379 | |
| Net realized loss on investments | | | | | | | | |
| and foreign currencies | | | (34,999,122 | ) | | | (7,378,733 | ) |
| Net change in unrealized appreciation/ | | | | | | | | |
| depreciation of investments | | | 56,904,357 | | | | (96,205,240 | ) |
| Net increase (decrease) in net assets | | | | | | | | |
| resulting from operations | | | 22,136,281 | | | | (103,250,594 | ) |
| |
| DIVIDENDS AND DISTRIBUTIONS | | | | | | | | |
| TO SHAREHOLDERS FROM: | | | | | | | | |
| Net investment income: | | | | | | | | |
| Standard Class | | | (348,065 | ) | | | (56,897 | ) |
| Net realized gain on investments: | | | | | | | | |
| Standard Class | | | – | | | | (3,698,278 | ) |
| Service Class | | | – | | | | (884,275 | ) |
| | | (348,065 | ) | | | (4,639,450 | ) |
| |
| CAPITAL SHARE TRANSACTIONS: | | | | | | | | |
| Proceeds from shares sold: | | | | | | | | |
| Standard Class | | | 13,045,474 | | | | 76,187,409 | |
| Service Class | | | 11,520,839 | | | | 8,400,728 | |
| Net asset value of shares issued upon | | | | | | | | |
| reinvestment of dividends and distributions: | | | | | | | | |
| Standard Class | | | 348,065 | | | | 3,755,174 | |
| Service Class | | | – | | | | 884,275 | |
| | | | 24,914,378 | | | | 89,227,586 | |
| Cost of shares repurchased: | | | | | | | | |
| Standard Class | | | (38,295,661 | ) | | | (16,255,762 | ) |
| Service Class | | | (3,381,508 | ) | | | (10,295,194 | ) |
| | | | (41,677,169 | ) | | | (26,550,956 | ) |
| Increase (decrease) in net assets derived | | | | | | | | |
| from capital share transactions | | | (16,762,791 | ) | | | 62,676,630 | |
| |
| NET INCREASE (DECREASE) IN | | | | | | | | |
| NET ASSETS | | | 5,025,425 | | | | (45,213,414 | ) |
| |
| NET ASSETS: | | | | | | | | |
| Beginning of period | | | 150,375,976 | | | | 195,589,390 | |
| End of period (including undistributed | | | | | | | | |
| net investment income of $207,684 | | | | | | | | |
| and $324,703, respectively) | | $ | 155,401,401 | | | $ | 150,375,976 | |
See accompanying notes
U.S. Growth Series-5
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 | | | | | | | | | | | | | | |
| 6/30/091 | | Year Ended |
| (Unaudited) | | 12/31/08 | | | 12/31/07 | | 12/31/06 | | | 12/31/05 | | | 12/31/04 | |
| Net asset value, beginning of period | | $5.010 | | | $8.960 | | | $7.960 | | $7.780 | | | $6.830 | | | $6.620 | |
| | |
| Income (loss) from investment operations: | | | | | | | | | | | | | | | | | |
| Net investment income (loss)2 | | 0.009 | | | 0.016 | | | 0.007 | | (0.003 | ) | | (0.005 | ) | | 0.049 | |
| Net realized and unrealized gain (loss) on investments | | | | | | | | | | | | | | | | | |
| and foreign currencies | | 0.765 | | | (3.768 | ) | | 0.993 | | 0.183 | | | 0.997 | | | 0.169 | |
| Total from investment operations | | 0.774 | | | (3.752 | ) | | 1.000 | | 0.180 | | | 0.992 | | | 0.218 | |
| | |
| Less dividends and distributions from: | | | | | | | | | | | | | | | | | |
| Net investment income | | (0.014 | ) | | (0.003 | ) | | – | | – | | | (0.042 | ) | | (0.008 | ) |
| Net realized gain on investments | | – | | | (0.195 | ) | | – | | – | | | – | | | – | |
| Total dividends and distributions | | (0.014 | ) | | (0.198 | ) | | – | | – | | | (0.042 | ) | | (0.008 | ) |
| | |
| Net asset value, end of period | | $5.770 | | | $5.010 | | | $8.960 | | $7.960 | | | $7.780 | | | $6.830 | |
| | |
| Total return3 | | 15.28% | | | (42.66% | ) | | 12.56% | | 2.31% | | | 14.65% | | | 3.30% | |
| | |
| Ratios and supplemental data: | | | | | | | | | | | | | | | | | |
| Net assets, end of period (000 omitted) | | $120,276 | | | $127,338 | | | $153,839 | | $138,548 | | | $45,653 | | | $10,438 | |
| Ratio of expenses to average net assets | | 0.77% | | | 0.76% | | | 0.74% | | 0.77% | | | 0.81% | | | 0.76% | |
| Ratio of net investment income (loss) to average net assets | | 0.35% | | | 0.22% | | | 0.08% | | (0.04% | ) | | (0.07% | ) | | 0.77% | |
| Portfolio turnover | | 58% | | | 28% | | | 52% | | 21% | | | 91% | | | 167% | |
____________________
1Ratios and portfolio turnover have been annualized and total return has not been annualized. |
2The average shares outstanding method has been applied for per share information. |
3Total 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
U.S. Growth Series-6
Delaware VIP® U.S. Growth Series
Financial Highlights (continued)
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 | | | | | | | | | | | | | | |
| 6/30/091 | | Year Ended |
| (Unaudited) | | 12/31/08 | | | 12/31/07 | | | 12/31/06 | | | 12/31/05 | | | 12/31/04 |
| Net asset value, beginning of period | | $4.960 | | | $8.900 | | | $7.920 | | | $7.760 | | | $6.810 | | | $6.610 |
| |
| Income (loss) from investment operations: | | | | | | | | | | | | | | | | | |
| Net investment income (loss)2 | | 0.003 | | | (0.002 | ) | | (0.014 | ) | | (0.022 | ) | | (0.023 | ) | | 0.033 |
| Net realized and unrealized gain (loss) on investments | | | | | | | | | | | | | | | | | |
| and foreign currencies | | 0.757 | | | (3.743 | ) | | 0.994 | | | 0.182 | | | 0.999 | | | 0.167 |
| Total from investment operations | | 0.760 | | | (3.745 | ) | | 0.980 | | | 0.160 | | | 0.976 | | | 0.200 |
| |
| Less dividends and distributions from: | | | | | | | | | | | | | | | | | |
| Net investment income | | – | | | – | | | – | | | – | | | (0.026 | ) | | – |
| Net realized gain on investments | | – | | | (0.195 | ) | | – | | | – | | | – | | | – |
| Total dividends and distributions | | – | | | (0.195 | ) | | – | | | – | | | (0.026 | ) | | – |
| |
| Net asset value, end of period | | $5.720 | | | $4.960 | | | $8.900 | | | $7.920 | | | $7.760 | | | $6.810 |
| |
| Total return3 | | 15.32% | | | (42.86% | ) | | 12.37% | | | 2.06% | | | 14.41% | | | 3.03% |
| |
| Ratios and supplemental data: | | | | | | | | | | | | | | | | | |
| Net assets, end of period (000 omitted) | | $35,125 | | | $23,038 | | | $41,750 | | | $38,596 | | | $42,062 | | | $37,653 |
| Ratio of expenses to average net assets | | 1.02% | | | 1.01% | | | 0.99% | | | 1.02% | | | 1.06% | | | 1.01% |
| Ratio of expenses to average net assets | | | | | | | | | | | | | | | | | |
| prior to fees waived and expenses paid indirectly | | 1.07% | | | 1.06% | | | 1.04% | | | 1.07% | | | 1.11% | | | 1.06% |
| Ratio of net investment income (loss) to average net assets | | 0.10% | | | (0.03% | ) | | (0.17% | ) | | (0.29% | ) | | (0.32% | ) | | 0.52% |
| Ratio of net investment income (loss) to average net assets | | | | | | | | | | | | | | | | | |
| prior to fees waived and expenses paid indirectly | | 0.05% | | | (0.08% | ) | | (0.22% | ) | | (0.34% | ) | | (0.37% | ) | | 0.47% |
| Portfolio turnover | | 58% | | | 28% | | | 52% | | | 21% | | | 91% | | | 167% |
____________________
1Ratios and portfolio turnover have been annualized and total return has not been annualized. |
2The average shares outstanding method has been applied for per share information. |
3Total 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 by the distributor. Performance would have been lower had the waiver not been in effect. |
See accompanying notes
U.S. Growth Series-7
Delaware VIP® Trust — Delaware VIP U.S. Growth Series
Notes to Financial Statements
June 30, 2009 (Unaudited)
Delaware VIP Trust (Trust) is organized as a Delaware statutory trust and offers 13 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 Limited-Term Diversified Income Series, (formerly, Delaware VIP Capital Reserves 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 ask prices will be used. Investment companies are valued at net asset value per share. Generally, 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 (Board). 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 suspension of trading in a security. The Series may use fair value pricing more frequently for securities traded primarily in non-U.S. markets because, among other things, most foreign markets close well before the Series values its securities at 4:00 p.m. Eastern time. The earlier close of these foreign markets gives rise to the possibility that significant events, including broad market moves, government actions or pronouncements, aftermarket trading, or news events may have occurred in the interim. To account for this, the Series may frequently value foreign securities using fair value prices based on third-party vendor modeling tools (international fair value pricing).
Federal Income Taxes—No provision for federal income taxes has been made as the Series intends to continue to qualify for federal income tax purposes as a regulated investment company under Subchapter M of the Internal Revenue Code of 1986, as amended, and make the requisite distributions to shareholders. The Series evaluates 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 Series did not record 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 other 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. At June 30, 2009, the Series held no investments in repurchase agreements.
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. 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. There were no commission rebates during the six months ended June 30, 2009.
The Series may receive earnings credits from its custodian when positive cash balances are maintained, which are used to offset custody fees. There were no earnings credits for the six months ended June 30, 2009.
U.S. Growth Series-8
Delaware VIP® U.S. Growth Series
Notes to Financial Statements (continued)
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.
Delaware Service Company, Inc. (DSC), an affiliate of DMC, provides fund accounting and financial administration oversight services to the Series. For these services, the Series pays DSC fees based on the aggregate daily net assets of the Delaware Investments® Family of Funds at the following annual rate: 0.0050% of the first $30 billion; 0.0045% of the next $10 billion; 0.0040% of the next $10 billion; and 0.0025% of aggregate average daily net assets in excess of $50 billion. The fees payable to DSC under the service agreement described above are allocated among all funds in the Delaware Investments Family of Funds on a relative net asset value basis. For the six months ended June 30, 2009, the Series was charged $3,801 for these services.
DSC also provides dividend disbursing and transfer agency services. The Series pays DSC a monthly fee based on the number of shareholder accounts 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, 2010 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, 2009, the Series had liabilities payable to affiliates as follows:
| | Dividend Disbursing, | | | | Other |
| Investment | | Transfer Agent and Fund | | | | Expenses |
| Management | | Accounting Oversight | | Distribution | | Payable |
| Fee Payable to | | Fees and Other Expenses | | Fee Payable | | to DMC |
| DMC | | Payable to DSC | | to DDLP | | and Affiliates* |
| $85,589 | | $1,936 | | $6,978 | | $2,358 |
*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, 2009, the Series was charged $8,435 for internal legal and tax services provided by DMC and/or its affiliates’ employees.
Trustees’ fees include expenses accrued by the Series for each Trustee’s retainer and meeting fees. 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, 2009, the Series made purchases and sales of investment securities other than short-term investments as follows:
| Purchases | $42,144,091 |
| Sales | 57,808,026 |
At June 30, 2009, the cost of investments for federal income tax purposes has been estimated since final tax characteristics cannot be determined until fiscal year end. At June 30, 2009, the cost of investments and unrealized appreciation (depreciation) for the Series were as follows:
| | Aggregate | | Aggregate | | Net |
| Cost of | | Unrealized | | Unrealized | | Unrealized |
| Investments | | Appreciation | | Depreciation | | Depreciation |
| $187,673,494 | | $5,853,632 | | $(24,011,965) | | $(18,158,333) |
The Series applies Financial Accounting Standards No. 157, Fair Value Measurements (FAS 157). FAS 157 defines fair value as the price that the Series would receive to sell an asset or pay to transfer a liability in an orderly transaction between market participants at the measurement date under current market conditions. FAS 157 also establishes a framework for measuring fair value and a three level hierarchy for fair value measurements based upon the transparency of inputs to the valuation of an asset or liability. Inputs may be observable or unobservable and refer broadly to the assumptions that market participants would use in pricing the asset or liability. Observable inputs reflect the assumptions market participants would use in pricing the asset or liability based on market data obtained from sources independent of the reporting entity. Unobservable
U.S. Growth Series-9
Delaware VIP® U.S. Growth Series
Notes to Financial Statements (continued)
3. Investments (continued)
inputs reflect the reporting entity’s own assumptions about the assumptions that market participants would use in pricing the asset or liability developed based on the best information available under the circumstances. The Series’ investment in its entirety is assigned a level based upon the observability of the inputs which are significant to the overall valuation. The three-tier hierarchy of inputs is summarized below.
Level 1 – inputs are quoted prices in active markets
Level 2 – inputs are observable, directly or indirectly
Level 3 – inputs are unobservable and reflect assumptions on the part of the reporting entity
The following table summarizes the valuation of the Series’ investments by the FAS 157 fair value hierarchy levels as of June 30, 2009:
| Level 1 | | Level 2 | | Level 3 | | Total |
| Common Stock | $ | 152,547,317 | | $ | – | | $ | – | | $ | 152,547,317 |
| Short-Term | | – | | | 2,629,841 | | | – | | | 2,629,841 |
| U.S. Treasury Obligations | | 645,181 | | | – | | | – | | | 645,181 |
| Securities Lending Collateral | | 5,170,470 | | | 8,522,323 | | | 29 | | | 13,692,822 |
| Total | $ | 158,362,968 | | $ | 11,152,164 | | $ | 29 | | $ | 169,515,161 |
The following is a reconciliation of investments in which significant unobservable inputs (Level 3) were used in determining fair value:
| Securities |
| Lending |
| Collateral |
| Balance as of 12/31/2008 | $ | 9,563 | |
| Net change in unrealized appreciation/depreciation | | (9,534 | ) |
| Balance as of 6/30/09 | $ | 29 | |
| | |
| Net change in unrealized | | | |
| appreciation/depreciation from | | | |
| investments still held as of 6/30/09 | $ | (9,534 | ) |
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, distributions from net gains 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, 2009 and the year ended December 31, 2008 was as follows:
| Six Months | | Year |
| Ended | | Ended |
| 6/30/09* | | 12/31/08 |
| Ordinary income | $ | 348,065 | | $ | 260,076 |
| Long-term capital gain | | – | | | 4,379,374 |
| Total | $ | 348,065 | | $ | 4,639,450 |
*Tax information for the period ended June 30, 2009 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 the final tax characteristics cannot be determined until fiscal year end. As of June 30, 2009, the estimated components of net assets on a tax basis were as follows:
| Shares of beneficial interest | $214,748,795 | |
| Undistributed ordinary income | 207,684 | |
| Capital loss carryforwards as of 12/31/08 | (7,434,024 | ) |
| Realized losses 1/1/09 – 6/30/09 | (33,962,721 | ) |
| Unrealized depreciation of investments | (18,158,333 | ) |
| Net assets | $155,401,401 | |
U.S. Growth Series-10
Delaware VIP® U.S. Growth Series
Notes to Financial Statements (continued)
5. Components of Net Assets on a Tax Basis (continued)
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, 2008 will expire as follows: $7,434,024 expires in 2016.
For the six months ended June 30, 2009, the Series had capital losses of $33,962,721, which may increase the capital loss carryforwards.
6. Capital Shares
Transactions in capital shares were as follows:
| Six Months | | Year |
| Ended | | Ended |
| 6/30/09 | | 12/31/08 |
| Shares sold: | | | | | |
| Standard Class | 2,540,389 | | | 10,444,266 | |
| Service Class | 2,159,893 | | | 1,299,985 | |
| | |
| Shares issued upon reinvestment of dividends and distributions: | | | | | |
| Standard Class | 66,298 | | | 484,539 | |
| Service Class | – | | | 114,990 | |
| | 4,766,580 | | | 12,343,780 | |
| Shares repurchased: | | | | | |
| Standard Class | (7,176,890 | ) | | (2,664,066 | ) |
| Service Class | (662,642 | ) | | (1,462,521 | ) |
| | (7,839,532 | ) | | (4,126,587 | ) |
| Net increase (decrease) | (3,072,952 | ) | | 8,217,193 | |
7. Line of Credit
The Series, along with certain other funds in the Delaware Investments® Family of Funds (Participants), participates in a $35,000,000 revolving line of credit with The Bank of New York Mellon (BNY Mellon) to be used for temporary or emergency purposes as an additional source of liquidity to fund redemptions of investor shares. Under the agreement, 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 agreement expires on November 17, 2009. The Series had no amounts outstanding as of June 30, 2009, 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 BNY Mellon. With respect to each loan, if the aggregate market value of securities collateral held plus cash collateral received on any business day is less than the aggregate market 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 generally invested in the Mellon GSL DBT II Collateral Fund (Collective Trust) established by BNY Mellon for the purpose of investment on behalf of clients participating in its securities lending programs. The Collective Trust may invest in fixed income securities, with a weighted average maturity not to exceed 90 days, rated in one of the top three tiers by Standard & Poor’s Ratings Group or Moody’s Investors Service, Inc. or repurchase agreements collateralized by such securities. The Collective Trust seeks to maintain a net asset value per unit of $1.00, but there can be no assurance that it will always be able to do so. At June 30, 2009, the Collective Trust held only cash and assets with a maturity of one business day or less (Cash/Overnight Assets). The Series may incur investment losses as a result of investing securities lending collateral in the Collective Trust. This could occur if an investment in the Collective Trust defaulted or if it were necessary to liquidate assets in the Collective Trust to meet returns on outstanding security loans at a time when the Collective Trust’s net asset value per unit was less than $1.00. Under those circumstances, the Series may not receive an amount from the Collective Trust that is equal in amount to the collateral the Series would be required to return to the borrower of the securities and the Series would be required to make up for this shortfall. Effective April 20, 2009, BNY Mellon transferred the assets of the Collective Trust other than the Cash/Overnight Assets to the BNY Mellon SL DBT II Liquidating Fund (Liquidating Fund), effectively bifurcating the collateral investment pool. The Series’ exposure to the Liquidating Fund is expected to decrease as the Liquidating Fund’s assets mature or are sold. In October 2008, BNY Mellon transferred certain distressed securities from the Collective Trust into the Mellon GSL Reinvestment Trust II. The Series can also accept U.S. government securities and letters of credit (non-cash collateral) in connection with securities loans. 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 or interest, as applicable, 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 non-cash collateral, the Series receives loan premiums paid by the borrower. 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 security lending income net of allocations to the security lending agent and the borrower.
U.S. Growth Series-11
Delaware VIP® U.S. Growth Series
Notes to Financial Statements (continued)
8. Securities Lending (continued)
At June 30, 2009, the value of the securities on loan was $13,829,883, 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 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 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. Securities eligible for resale pursuant to Rule 144A, which are determined to be liquid, are not subject to the Series’ 15% limit on investments in illiquid securities. As of June 30, 2009, there were no Rule 144A securities and no securities have been determined to be illiquid under the Series’ Liquidity Procedures.
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
Effective June 30, 2009, the Series adopted Financial Accounting Standards Board Statement of Financial Accounting Standards No. 165, Subsequent Events (FAS 165). In accordance with FAS 165, management has evaluated whether any events or transactions occurred subsequent to June 30, 2009 through August 15, 2009, date of issuance of the Series’ financial statements, and determined that there were no material events or transactions that would require recognition or disclosure in the Series’ financial statements.
The Series files its complete schedule of portfolio holdings with the Securities and Exchange Commission (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. |
U.S. Growth Series-12
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 19-21, 2009 (the “Annual Meeting”), the Board of Trustees (the “Board”), including a majority of disinterested or independent Trustees, approved the renewal of the Investment Advisory Agreement for the Delaware VIP U.S. Growth Series (the “Series”). In making its decision, the Board considered information furnished specifically in connection with the renewal of the Investment Advisory Agreement with Delaware Management Company (“DMC”), which included materials provided by DMC and its affiliates (“Delaware Investments”) concerning, among other things, the nature, extent and quality 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. Reference was made to information furnished at regular quarterly 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 and sub-advisory contracts. In addition, in connection with the Annual Meeting, reports were provided in February 2009 and included 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 independent Trustees reviewed and discussed the Lipper reports with counsel to the independent Trustees. The Board requested and received information regarding DMC’s policy with respect to advisory fee levels and its breakpoint philosophy; 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 had in the past year inhibited, or which were likely in the future to inhibit, DMC’s ability to invest fully in accordance with 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 counsel to the independent Trustees. Although the Board gave attention to all information furnished, the following discussion identifies, under separate headings, the primary factors taken into account by the Board during its contract renewal considerations.
NATURE, EXTENT AND QUALITY OF SERVICE. The Board considered the services provided by Delaware Investments to the Series and its shareholders. In reviewing the nature, extent and quality of services, the Board considered reports furnished to it throughout the year, which covered matters such as the relative performance of the Series, compliance of portfolio managers with the investment policies, strategies and restrictions for the Series, compliance by DMC and Delaware Distributors, L.P. (together, “Management”) personnel with the Code of Ethics adopted throughout the Delaware Investments® Family of Funds complex and adherence to fair value pricing procedures as established by the Board. The Board was pleased with the current staffing of the Series’ investment advisor and the emphasis placed on research in the investment process. The Board gave favorable consideration to DMC’s efforts to control expenditures while maintaining service levels committed to fund matters. The Board also considered the transfer agent and shareholder services provided to Series shareholders by DMC’s affiliate, Delaware Service Company, Inc. (“DSC”), noting DSC’s high level of service. The Board noted that Management finished upgrading investment accounting functions through outsourcing to improve the quality and lower the cost of delivering investment accounting services to the Series. The Board was satisfied with the nature, extent and quality of the overall services provided by Delaware Investments.
INVESTMENT PERFORMANCE. The Board placed significant emphasis on the investment performance of the Series in view of its importance to shareholders. Although the Board gave appropriate consideration to performance reports and discussions with portfolio managers at Board meetings throughout the year, the Board gave particular weight 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 performance 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, 2008. The Board’s objective is 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 third quartile of its Performance Universe. The report further showed the Series’ total return for the three- and five-year periods was in the fourth quartile. The Series’ performance results were not in line with the Board’s objective. In evaluating the Series’ performance, the Board considered Management’s efforts to increase portfolio management depth and effectiveness. The Board was satisfied that Management was taking action to improve Series performance and to meet the Board’s performance objective.
COMPARATIVE EXPENSES. The Board considered expense comparison data for the Delaware Investments Family of Funds. Management provided the Board with information on pricing levels and fee structures for the Series as of October 31, 2008 and, for comparative funds, information as of their respective fiscal year end occurring on or before August 31, 2008. The Board also focused on the comparative analysis of effective management fees and total expense ratios of the Series versus 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) 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 considered fees paid to Delaware Investments for nonmanagement services. The Board’s objective is to limit the Series’ total expense ratio to be competitive with that 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 the actual management fee was in the quartile with the lowest expenses of the Expense Group and the 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 those of its Expense Group.
U.S. Growth Series-13
Delaware VIP® U.S. Growth Series
Other Series Information (continued)
MANAGEMENT PROFITABILITY. The Board considered the level of profits 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, reflect recent 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 industry-wide 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 management fees were 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 reviewed the standardized advisory fee pricing and structure approved by the Board and shareholders, which includes breakpoints. Breakpoints in the advisory fee occur when the advisory fee rate is reduced on assets in excess of specified levels. Breakpoints result in a lower advisory fee than would otherwise be the case on all assets when the 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.
PO14207 SA-VIPUSG [6/09] DG3 8/09 (4772) | U.S. Growth Series-14 |
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Delaware VIP® Trust — Delaware VIP Value Series
Disclosure of Series Expenses
For the Period January 1, 2009 to June 30, 2009
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, 2009 to June 30, 2009.
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
| | | | | | | | | | | Expenses |
| Beginning | | Ending | | | | | Paid During |
| Account | | Account | | Annualized | | Period |
| Value | | Value | | Expense | | 1/1/09 to |
| 1/1/09 | | 6/30/09 | | Ratios | | 6/30/09* |
| Actual Series Return | | | | | | | | | | | | | |
| Standard Class | $ | 1,000.00 | | | $ | 987.30 | | 0.74 | % | | $ | 3.65 | |
| Service Class | | 1,000.00 | | | | 986.20 | | 0.99 | % | | | 4.88 | |
| 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).
Value Series-1
Delaware VIP® Trust — Delaware VIP Value Series
Sector Allocation and Top 10 Holdings
As of June 30, 2009
Sector designations may be different than the sector designations presented in other Series materials. The sector designations may represent the investment manager’s internal sector classifications, which may result in the sector designations for one Series being different than another Series’ sector designations.
| Percentage |
| Sector | of Net Assets |
| Common Stock | 98.28 | % |
| Consumer Discretionary | 6.49 | % |
| Consumer Staples | 18.46 | % |
| Energy | 9.06 | % |
| Financials | 9.58 | % |
| Health Care | 21.02 | % |
| Industrials | 5.82 | % |
| Information Technology | 12.73 | % |
| Materials | 2.82 | % |
| Telecommunications | 6.23 | % |
| Utilities | 6.07 | % |
| Discount Note | 1.29 | % |
| U.S. Treasury Obligation | 0.32 | % |
| Securities Lending Collateral | 3.55 | % |
| Total Value of Securities | 103.44 | % |
| Obligation to Return Securities Lending Collateral | (3.63 | %) |
| Receivables and Other Assets Net of Liabilities | 0.19 | % |
| 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 |
| Mattel | 3.50 | % |
| International Business Machines | 3.49 | % |
| Wyeth | 3.49 | % |
| Quest Diagnostics | 3.41 | % |
| Verizon Communications | 3.37 | % |
| Travelers | 3.37 | % |
| Merck | 3.34 | % |
| Archer-Daniels-Midland | 3.33 | % |
| Marathon Oil | 3.28 | % |
| Intel | 3.24 | % |
Value Series-2
Delaware VIP® Trust — Delaware VIP Value Series
Statement of Net Assets
June 30, 2009 (Unaudited)
| Number of | | | |
| Shares | | Value |
| COMMON STOCK–98.28% | | | | | |
| Consumer Discretionary–6.49% | | | | | |
| Gap | | 775,900 | | $ | 12,724,760 |
| Mattel | | 924,500 | | | 14,838,225 |
| | | | | 27,562,985 |
| Consumer Staples–18.46% | | | | | |
| Archer-Daniels-Midland | | 527,500 | | | 14,121,175 |
| CVS Caremark | | 419,500 | | | 13,369,465 |
| Heinz (H.J.) | | 354,900 | | | 12,669,930 |
| Kimberly-Clark | | 247,900 | | | 12,997,397 |
| Kraft Foods Class A | | 495,200 | | | 12,548,368 |
| Safeway | | 619,700 | | | 12,623,289 |
| | | | | 78,329,624 |
| Energy–9.06% | | | | | |
| Chevron | | 187,200 | | | 12,402,000 |
| ConocoPhillips | | 288,300 | | | 12,125,898 |
| *Marathon Oil | | 462,100 | | | 13,923,073 |
| | | | | 38,450,971 |
| Financials–9.58% | | | | | |
| Allstate | | 542,900 | | | 13,246,760 |
| Bank of New York Mellon | | 448,100 | | | 13,133,811 |
| Travelers | | 348,100 | | | 14,286,024 |
| | | | | 40,666,595 |
| Health Care–21.02% | | | | | |
| Bristol-Myers Squibb | | 563,500 | | | 11,444,685 |
| Cardinal Health | | 356,100 | | | 10,878,855 |
| Johnson & Johnson | | 226,600 | | | 12,870,880 |
| *Merck | | 506,700 | | | 14,167,332 |
| Pfizer | | 706,100 | | | 10,591,500 |
| Quest Diagnostics | | 256,400 | | | 14,468,652 |
| Wyeth | | 326,100 | | | 14,801,680 |
| | | | | 89,223,584 |
| Industrials–5.82% | | | | | |
| Northrop Grumman | | 253,900 | | | 11,598,152 |
| *Waste Management | | 465,000 | | | 13,094,400 |
| | | | | 24,692,552 |
| Information Technology–12.73% | | | | | |
| Intel | | 830,900 | | | 13,751,395 |
| International Business Machines | | 141,800 | | | 14,806,756 |
| Motorola | | 1,986,200 | | | 13,168,506 |
| Xerox | | 1,901,700 | | | 12,323,016 |
| | | | | 54,049,673 |
| Materials–2.82% | | | | | |
| duPont (E.I.) deNemours | | 466,300 | | | 11,946,606 |
| | | | | 11,946,606 |
| Telecommunications–6.23% | | | | | |
| AT&T | | 489,624 | | | 12,162,260 |
| Verizon Communications | | 464,900 | | | 14,286,377 |
| | | | | 26,448,637 |
| Utilities–6.07% | | | | | |
| Edison International | | 409,700 | | | 12,889,162 |
| Progress Energy | | 340,400 | | | 12,877,332 |
| | | | | 25,766,494 |
| Total Common Stock | | | | | |
| | (cost $453,122,174) | | | | | 417,137,721 |
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| Principal | | | |
| Amount | | | |
| ¹DISCOUNT NOTE–1.29% | | | | | |
| Federal Home Loan Bank 0.01% 7/1/09 | $ | 5,466,055 | | | 5,466,055 |
| Total Discount Note | | | | | |
| (cost $5,466,055) | | | | | 5,466,055 |
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| ¹U.S. TREASURY OBLIGATION–0.32% | | | | | |
| U.S. Treasury Bill 0.088% 7/23/09 | | 1,341,066 | | | 1,340,991 |
| Total U.S. Treasury Obligation | | | | | |
| (cost $1,340,991) | | | | | 1,340,991 |
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| Total Value of Securities Before | | | | | |
| Securities Lending Collateral–99.89% | | | | | |
| (cost $459,929,220) | | | | | 423,944,767 |
| |
| Number of | | | |
| Shares | | | |
| SECURITIES LENDING | | | | | |
| COLLATERAL**–3.55% | | | | | |
| Investment Companies | | | | | |
| Mellon GSL DBT II Collateral Fund | | 14,933,731 | | | 14,933,731 |
| BNY Mellon SL DB II Liquidating Fund | | 151,822 | | | 148,024 |
| † | Mellon GSL Reinvestment Trust II | | 302,595 | | | 30 |
| Total Securities Lending Collateral | | | | | |
| (cost $15,388,148) | | | | | 15,081,785 |
Value Series-3
Delaware VIP® Value Series
Statement of Net Assets (continued)
| TOTAL VALUE OF SECURITIES–103.44% (cost $475,317,368) | $ | 439,026,552 | © |
| OBLIGATION TO RETURN SECURITIES LENDING COLLATERAL**–(3.63%) | | (15,388,148 | ) |
| RECEIVABLES AND OTHER ASSETS NET OF LIABILITIES–0.19% | | 801,242 | |
| NET ASSETS APPLICABLE TO 34,725,256 SHARES OUTSTANDING–100.00% | $ | 424,439,646 | |
| NET ASSET VALUE–DELAWARE VIP VALUE SERIES STANDARD CLASS ($318,603,722 / 26,069,885 Shares) | | | $12.22 | |
| NET ASSET VALUE–DELAWARE VIP VALUE SERIES SERVICE CLASS ($105,835,924 / 8,655,371 Shares) | | | $12.23 | |
| COMPONENTS OF NET ASSETS AT JUNE 30, 2009: | | | |
| Shares of beneficial interest (unlimited authorization–no par) | $ | 609,361,512 | |
| Undistributed net investment income | | 5,465,370 | |
| Accumulated net realized loss on investments | | (154,096,420 | ) |
| Net unrealized depreciation of investments | | (36,290,816 | ) |
| Total net assets | $ | 424,439,646 | |
____________________
| * | Fully or partially on loan. |
| ** | See Note 8 in “Notes to Financial Statements.” |
| © | Includes $14,823,721 of securities loaned. |
| ¹ | The rate shown is the effective yield at the time of purchase. |
| † | Non income producing security. |
See accompanying notes
Value Series-4
Delaware VIP® Trust —
Delaware VIP Value Series
Statement of Operations
Six Months Ended June 30, 2009 (Unaudited)
| INVESTMENT INCOME: | | | |
| Dividends | $ | 7,055,660 | |
| Interest | | 11,878 | |
| Securities lending income | | 26,646 | |
| | 7,094,184 | |
| |
| EXPENSES: | | | |
| Management fees | | 1,299,368 | |
| Distribution expenses – Service Class | | 145,992 | |
| Accounting and administration expenses | | 79,961 | |
| Reports and statements to shareholders | | 47,092 | |
| Legal fees | | 35,770 | |
| Dividend disbursing and transfer agent fees and expenses | | 26,393 | |
| Audit and tax | | 23,465 | |
| Trustees’ fees | | 14,497 | |
| Insurance fees | | 5,914 | |
| Custodian fees | | 3,573 | |
| Consulting fees | | 3,382 | |
| Dues and services | | 2,291 | |
| Trustees’ expenses | | 1,028 | |
| Registration fees | | 208 | |
| Pricing fees | | 141 | |
| | | 1,689,075 | |
| Less fees waived | | (64,287 | ) |
| Less waiver of distribution expenses – Service Class | | (24,332 | ) |
| Total operating expenses | | 1,600,456 | |
| |
| NET INVESTMENT INCOME | | 5,493,728 | |
| |
| NET REALIZED AND UNREALIZED GAIN (LOSS) | | | |
| ON INVESTMENTS: | | | |
| Net realized loss on investments | | (45,017,064 | ) |
| Net change in unrealized appreciation/depreciation | | | |
| of investments | | 32,822,788 | |
| |
| NET REALIZED AND UNREALIZED LOSS | | | |
| ON INVESTMENTS | | (12,194,276 | ) |
| |
| NET DECREASE IN NET ASSETS RESULTING | | | |
| FROM OPERATIONS | $ | (6,700,548 | ) |
See accompanying notes
Delaware VIP Trust —
Delaware VIP Value Series
Statements of Changes in Net Assets
| Six Months | | | | |
| Ended | | Year |
| 6/30/09 | | Ended |
| (Unaudited) | | 12/31/08 |
| INCREASE (DECREASE) IN NET | | | | | | | |
| ASSETS FROM OPERATIONS: | | | | | | | |
| Net investment income | $ | 5,493,728 | | | $ | 13,467,008 | |
| Net realized loss on investments | | (45,017,064 | ) | | | (105,103,524 | ) |
| Net change in unrealized appreciation/ | | | | | | | |
| depreciation of investments | | 32,822,788 | | | | (117,233,839 | ) |
| Net decrease in net assets | | | | | | | |
| resulting from operations | | (6,700,548 | ) | | | (208,870,355 | ) |
| |
| DIVIDENDS AND DISTRIBUTIONS | | | | | | | |
| TO SHAREHOLDERS FROM: | | | | | | | |
| Net investment income: | | | | | | | |
| Standard Class | | (10,376,155 | ) | | | (9,996,705 | ) |
| Service Class | | (3,114,029 | ) | | | (3,566,223 | ) |
| Net realized gain on investments: | | | | | | | |
| Standard Class | | – | | | | (28,701,479 | ) |
| Service Class | | – | | | | (11,521,643 | ) |
| | | (13,490,184 | ) | | | (53,786,050 | ) |
| |
| CAPITAL SHARE TRANSACTIONS: | | | | | | | |
| Proceeds from shares sold: | | | | | | | |
| Standard Class | | 37,368,284 | | | | 157,490,543 | |
| Service Class | | 11,624,391 | | | | 31,719,084 | |
| Net asset value of shares issued upon | | | | | | | |
| reinvestment of dividends and distributions: | | | | | | | |
| Standard Class | | 10,376,155 | | | | 38,698,184 | |
| Service Class | | 3,114,029 | | | | 15,087,866 | |
| | | 62,482,859 | | | | 242,995,677 | |
| Cost of shares repurchased: | | | | | | | |
| Standard Class | | (44,314,719 | ) | | | (101,483,937 | ) |
| Service Class | | (10,247,189 | ) | | | (47,039,106 | ) |
| | | (54,561,908 | ) | | | (148,523,043 | ) |
| Increase in net assets derived | | | | | | | |
| from capital share transactions | | 7,920,951 | | | | 94,472,634 | |
| |
| NET DECREASE IN NET ASSETS | | (12,269,781 | ) | | | (168,183,771 | ) |
| |
| NET ASSETS: | | | | | | | |
| Beginning of period | | 436,709,427 | | | | 604,893,198 | |
| End of period (including undistributed | | | | | | | |
| net investment income of $5,465,370 | | | | | | | |
| and $13,461,826, respectively) | $ | 424,439,646 | | | $ | 436,709,427 | |
See accompanying notes
Value Series-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 | | | | | | | | | | | | | | | |
| Ended | | | | | | | | | | | | | | | |
| 6/30/091 | | Year Ended |
| (Unaudited) | | 12/31/08 | | | 12/31/07 | | | 12/31/06 | | | 12/31/05 | | | 12/31/04 | |
| Net asset value, beginning of period | | $12.830 | | | $21.440 | | | $22.980 | | | $19.230 | | | $18.460 | | | $16.330 | |
| |
| Income (loss) from investment operations: | | | | | | | | | | | | | | | | | | |
| Net investment income2 | | 0.164 | | | 0.438 | | | 0.472 | | | 0.437 | | | 0.369 | | | 0.313 | |
| Net realized and unrealized gain (loss) on investments | | | | | | | | | | | | | | | | | | |
| and foreign currencies | | (0.355 | ) | | (7.066 | ) | | (1.058 | ) | | 4.075 | | | 0.722 | | | 2.082 | |
| Total from investment operations | | (0.191 | ) | | (6.628 | ) | | (0.586 | ) | | 4.512 | | | 1.091 | | | 2.395 | |
| |
| Less dividends and distributions from: | | | | | | | | | | | | | | | | | | |
| Net investment income | | (0.419 | ) | | (0.512 | ) | | (0.370 | ) | | (0.328 | ) | | (0.321 | ) | | (0.265 | ) |
| Net realized gain on investments | | – | | | (1.470 | ) | | (0.584 | ) | | (0.434 | ) | | – | | | – | |
| Total dividends and distributions | | (0.419 | ) | | (1.982 | ) | | (0.954 | ) | | (0.762 | ) | | (0.321 | ) | | (0.265 | ) |
| |
| Net asset value, end of period | | $12.220 | | | $12.830 | | | $21.440 | | | $22.980 | | | $19.230 | | | $18.460 | |
| |
| Total return3 | | (1.27% | ) | | (33.42% | ) | | (2.72% | ) | | 24.10% | | | 6.03% | | | 14.93% | |
| |
| Ratios and supplemental data: | | | | | | | | | | | | | | | | | | |
| Net assets, end of period (000 omitted) | | $318,604 | | | $330,717 | | | $427,011 | | | $497,525 | | | $349,443 | | | $310,704 | |
| Ratio of expenses to average net assets | | 0.74% | | | 0.71% | | | 0.69% | | | 0.72% | | | 0.73% | | | 0.70% | |
| Ratio of expenses to average net assets | | | | | | | | | | | | | | | | | | |
| prior to fees waived and expenses paid indirectly | | 0.77% | | | 0.76% | | | 0.73% | | | 0.77% | | | 0.78% | | | 0.75% | |
| Ratio of net investment income to average net assets | | 2.81% | | | 2.69% | | | 2.07% | | | 2.12% | | | 1.98% | | | 1.87% | |
| Ratio of net investment income to average net assets | | | | | | | | | | | | | | | | | | |
| prior to fees waived and expenses paid indirectly | | 2.78% | | | 2.65% | | | 2.03% | | | 2.07% | | | 1.93% | | | 1.82% | |
| Portfolio turnover | | 22% | | | 38% | | | 29% | | | 14% | | | 23% | | | 124% | |
____________________
1Ratios and portfolio turnover have been annualized and total return has not been annualized.
2The average shares outstanding method has been applied for per share information.
3Total 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 by the manager. Performance would have been lower had the waiver not been in effect.
See accompanying notes
Value Series-6
Delaware VIP® Value Series
Financial Highlights (continued)
Selected data for each share of the Series outstanding throughout each period were as follows:
| Delaware VIP Value Series Service Class |
| Six Months | | | | | | | | | | | | | | | |
| Ended | | | | | | | | | | | | | | | |
| 6/30/091 | | Year Ended |
| (Unaudited) | | 12/31/08 | | | 12/31/07 | | | 12/31/06 | | | 12/31/05 | | | 12/31/04 | |
| Net asset value, beginning of period | | $12.810 | | | $21.390 | | | $22.940 | | | $19.200 | | | $18.430 | | | $16.320 | |
| |
| Income (loss) from investment operations: | | | | | | | | | | | | | | | | | | |
| Net investment income2 | | 0.150 | | | 0.397 | | | 0.415 | | | 0.385 | | | 0.323 | | | 0.271 | |
| Net realized and unrealized gain (loss) on investments | | | | | | | | | | | | | | | | | | |
| and foreign currencies | | (0.352 | ) | | (7.052 | ) | | (1.063 | ) | | 4.070 | | | 0.726 | | | 2.072 | |
| Total from investment operations | | (0.202 | ) | | (6.655 | ) | | (0.648 | ) | | 4.455 | | | 1.049 | | | 2.343 | |
| |
| Less dividends and distributions from: | | | | | | | | | | | | | | | | | | |
| Net investment income | | (0.378 | ) | | (0.455 | ) | | (0.318 | ) | | (0.281 | ) | | (0.279 | ) | | (0.233 | ) |
| Net realized gain on investments | | – | | | (1.470 | ) | | (0.584 | ) | | (0.434 | ) | | – | | | – | |
| Total dividends and distributions | | (0.378 | ) | | (1.925 | ) | | (0.902 | ) | | (0.715 | ) | | (0.279 | ) | | (0.233 | ) |
| |
| Net asset value, end of period | | $12.230 | | | $12.810 | | | $21.390 | | | $22.940 | | | $19.200 | | | $18.430 | |
| |
| Total return3 | | (1.38% | ) | | (33.57% | ) | | (3.00% | ) | | 23.79% | | | 5.79% | | | 14.59% | |
| |
| Ratios and supplemental data: | | | | | | | | | | | | | | | | | | |
| Net assets, end of period (000 omitted) | | $105,836 | | | $105,992 | | | $177,882 | | | $143,405 | | | $75,778 | | | $33,642 | |
| Ratio of expenses to average net assets | | 0.99% | | | 0.96% | | | 0.94% | | | 0.97% | | | 0.98% | | | 0.95% | |
| Ratio of expenses to average net assets | | | | | | | | | | | | | | | | | | |
| prior to fees waived and expenses paid indirectly | | 1.07% | | | 1.06% | | | 1.03% | | | 1.07% | | | 1.08% | | | 1.05% | |
| Ratio of net investment income to average net assets | | 2.56% | | | 2.44% | | | 1.82% | | | 1.87% | | | 1.73% | | | 1.62% | |
| Ratio of net investment income to average net assets | | | | | | | | | | | | | | | | | | |
| prior to fees waived and expenses paid indirectly | | 2.48% | | | 2.35% | | | 1.73% | | | 1.77% | | | 1.63% | | | 1.52% | |
| Portfolio turnover | | 22% | | | 38% | | | 29% | | | 14% | | | 23% | | | 124% | |
____________________
1Ratios and portfolio turnover have been annualized and total return has not been annualized.
2The average shares outstanding method has been applied for per share information.
3Total 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 by the manager and distributor. Performance would have been lower had the waivers not been in effect.
See accompanying notes
Value Series-7
Delaware VIP® Trust — Delaware VIP Value Series
Notes to Financial Statements
June 30, 2009 (Unaudited)
Delaware VIP Trust (Trust) is organized as a Delaware statutory trust and offers 13 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 Limited-Term Diversified Income Series (formerly, Delaware VIP Capital Reserves 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 ask prices will be used. Investment companies are valued at net asset value per share. Generally, 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 (Board). 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 suspension of trading in a security. The Series may use fair value pricing more frequently for securities traded primarily in non-U.S. markets because, among other things, most foreign markets close well before the Series values its securities at 4:00 p.m. Eastern time. The earlier close of these foreign markets gives rise to the possibility that significant events, including broad market moves, government actions or pronouncements, aftermarket trading, or news events may have occurred in the interim. To account for this, the Series may frequently value foreign securities using fair value prices based on third-party vendor modeling tools (international fair value pricing).
Federal Income Taxes—No provision for federal income taxes has been made as the Series intends to continue to qualify for federal income tax purposes as a regulated investment company under Subchapter M of the Internal Revenue Code of 1986, as amended, and make the requisite distributions to shareholders. The Series evaluates 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 Series did not record 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 other 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. At June 30, 2009, the Series held no investments in repurchase agreements.
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. 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. There were no commission rebates during the six months ended June 30, 2009.
The Series may receive earnings credits from its custodian when positive cash balances are maintained, which are used to offset custody fees. There were no earnings credits for the six months ended June 30, 2009.
Value Series-8
Delaware VIP® Value Series
Notes to Financial Statements (continued)
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 had 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 was discontinued. DMC’s voluntary waiver prevented its management fees from exceeding 0.60% of the Series’ average daily net assets until such time as the waiver was discontinued. The waiver was discontinued effective close of business April 30, 2009.
Delaware Service Company, Inc. (DSC), an affiliate of DMC, provides fund accounting and financial administration oversight services to the Series. For these services, the Series pays DSC fees based on the aggregate daily net assets of the Delaware Investments® Family of Funds at the following annual rate: 0.0050% of the first $30 billion; 0.0045% of the next $10 billion; 0.0040% of the next $10 billion; and 0.0025% of aggregate average daily net assets in excess of $50 billion. The fees payable to DSC under the service agreement described above are allocated among all funds in the Delaware Investments Family of Funds on a relative net asset value basis. For the six months ended June 30, 2009, the Series was charged $9,995 for these services.
DSC also provides dividend disbursing and transfer agency services. The Series pays DSC a monthly fee based on the number of shareholder accounts 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, 2010 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, 2009, the Series had liabilities payable to affiliates as follows:
| | | Dividend Disbursing, | | | | Other |
| Investment | | Transfer Agent and Fund | | | | Expenses |
| Management | | Accounting Oversight | | Distribution | | Payable |
| Fee Payable to | | Fees and Other Expenses | | Fee Payable | | to DMC |
| DMC | | Payable to DSC | | to DDLP | | and Affiliates* |
| $247,515 | | $4,710 | | $21,585 | | $6,361 |
____________________
*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, 2009, the Series was charged $21,731 for internal legal and tax services provided by DMC and/or its affiliates’ employees.
Trustees’ fees include expenses accrued by the Series for each Trustee’s retainer and meeting fees. 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, 2009, the Series made purchases and sales of investment securities other than short-term investments as follows:
| Purchases | $ | 46,374,803 |
| Sales | | 43,566,407 |
At June 30, 2009, the cost of investments for federal income tax purposes has been estimated since final tax characteristics cannot be determined until fiscal year end. At June 30, 2009, the cost of investments and unrealized appreciation (depreciation) for the Series were as follows:
| | | Aggregate | | Aggregate | | Net |
| Cost of | | Unrealized | | Unrealized | | Unrealized |
| Investments | | Appreciation | | Depreciation | | Depreciation |
| $476,559,263 | | $21,340,428 | | $(58,873,139) | | $(37,532,711) |
Value Series-9
Delaware VIP® Value Series
Notes to Financial Statements (continued)
3. Investments (continued)
The Series applies Financial Accounting Standards No. 157, Fair Value Measurements (FAS 157). FAS 157 defines fair value as the price that the Series would receive to sell an asset or pay to transfer a liability in an orderly transaction between market participants at the measurement date under current market conditions. FAS 157 also establishes a framework for measuring fair value and a three level hierarchy for fair value measurements based upon the transparency of inputs to the valuation of an asset or liability. Inputs may be observable or unobservable and refer broadly to the assumptions that market participants would use in pricing the asset or liability. Observable inputs reflect the assumptions market participants would use in pricing the asset or liability based on market data obtained from sources independent of the reporting entity. Unobservable inputs reflect the reporting entity’s own assumptions about the assumptions that market participants would use in pricing the asset or liability developed based on the best information available under the circumstances. The Series’ investment in its entirety is assigned a level based upon the observability of the inputs which are significant to the overall valuation. The three-tier hierarchy of inputs is summarized below.
Level 1 – inputs are quoted prices in active markets
Level 2 – inputs are observable, directly or indirectly
Level 3 – inputs are unobservable and reflect assumptions on the part of the reporting entity
The following table summarizes the valuation of the Series’ investments by the FAS 157 fair value hierarchy levels as of June 30, 2009:
| Level 1 | | Level 2 | | Level 3 | | Total |
| Common Stock | $ | 417,137,721 | | $ | – | | $ | – | | | $ | 417,137,721 |
| Short-Term | | – | | | 5,466,055 | | | – | | | | 5,466,055 |
| U.S. Treasury Obligations | | 1,340,991 | | | – | | | – | | | | 1,340,991 |
| Securities Lending Collateral | | 14,933,731 | | | 148,024 | | | | 30 | | | | 15,081,785 |
| Total | $ | 433,412,443 | | $ | 5,614,079 | | | $ | 30 | | | $ | 439,026,552 |
The following is a reconciliation of investments in which significant unobservable inputs (Level 3) were used in determining fair value:
| Securities |
| Lending |
| Collateral |
| Balance as of 12/31/08 | $ | 9,986 | |
| Net change in unrealized appreciation/depreciation | | | (9,956 | ) |
| Balance as of 6/30/09 | | $ | 30 | |
| |
| Net change in unrealized appreciation/depreciation | | | |
| from investments still held as of 6/30/09 | | $ | (9,956 | ) |
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, distributions from 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, 2009 and the year ended December 31, 2008 was as follows:
| Six Months | | Year |
| Ended | | Ended |
| 6/30/09* | | 12/31/08 |
| Ordinary income | $ | 13,490,184 | | $ | 22,204,211 |
| Long-term capital gain | | – | | | 31,581,839 |
| $ | 13,490,184 | | $ | 53,786,050 |
____________________
*Tax information for the period ended June 30, 2009 is an estimate and the tax character of dividends and distributions may be redesignated at fiscal year end.
Value Series-10
Delaware VIP® Value Series
Notes to Financial Statements (continued)
5. Components of Net Assets on a Tax Basis
The components of net assets are estimated since the final tax characteristics cannot be determined until fiscal year end. As of June 30, 2009, the estimated components of net assets on a tax basis were as follows:
| Shares of beneficial interest | $ | 609,361,512 | |
| Undistributed ordinary income | | 5,465,370 | |
| *Capital loss carryforwards as of 12/31/08 | | (104,714,217 | ) |
| Realized losses 1/1/09 – 6/30/09 | | (48,140,308 | ) |
| Unrealized depreciation of investments | | (37,532,711 | ) |
| Net assets | $ | 424,439,646 | |
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, 2008 will expire as follows: $1,097,656 expires in 2009, $1,479,986 expires in 2010, and $102,136,575 expires in 2016.
____________________
*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, 2009, the Series had capital losses of $48,140,308, which may increase the capital loss carryforwards.
6. Capital Shares
Transactions in capital shares were as follows:
| Six Months | | Year |
| Ended | | Ended |
| 6/30/09 | | 12/31/08 |
| Shares sold: | | | | | | | |
| Standard Class | | 3,171,064 | | | | 10,050,871 | |
| Service Class | | 991,279 | | | | 1,912,509 | |
| |
| Shares issued upon reinvestment of dividends and distributions: | | | | | | | |
| Standard Class | | 907,007 | | | | 2,197,512 | |
| Service Class | | 271,730 | | | | 856,292 | |
| | | 5,341,080 | | | | 15,017,184 | |
| Shares repurchased: | | | | | | | |
| Standard Class | | (3,783,648 | ) | | | (6,391,399 | ) |
| Service Class | | (882,672 | ) | | | (2,809,337 | ) |
| | | (4,666,320 | ) | | | (9,200,736 | ) |
| Net increase | | 674,760 | | | | 5,816,448 | |
7. Line of Credit
The Series, along with certain other funds in the Delaware Investments® Family of Funds (Participants), participates in a $35,000,000 revolving line of credit with The Bank of New York Mellon (BNY Mellon) to be used for temporary or emergency purposes as an additional source of liquidity to fund redemptions of investor shares. Under the agreement, 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 agreement expires on November 17, 2009. The Series had no amounts outstanding as of June 30, 2009, 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 BNY Mellon. With respect to each loan, if the aggregate market value of securities collateral held plus cash collateral received on any business day is less than the aggregate market 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 generally invested in the Mellon GSL DBT II Collateral Fund (Collective Trust) established by BNY Mellon for the purpose of investment on behalf of clients participating in its securities lending programs. The Collective Trust may invest in fixed income securities, with a weighted average maturity not to exceed 90 days, rated in one of the top three tiers by Standard & Poor’s Ratings Group or Moody’s Investors Service, Inc. or repurchase agreements collateralized by such securities. The Collective Trust seeks to maintain a net asset value per unit of $1.00, but there can be no assurance that it will always be able to do so. At June 30, 2009, the Collective Trust held only cash and assets with a maturity of one business day or less (Cash/Overnight Assets). The Series may incur investment losses as a result of investing securities lending collateral
Value Series-11
Delaware VIP® Value Series
Notes to Financial Statements (continued)
8. Securities Lending (continued)
in the Collective Trust. This could occur if an investment in the Collective Trust defaulted or if it were necessary to liquidate assets in the Collective Trust to meet returns on outstanding security loans at a time when the Collective Trust’s net asset value per unit was less than $1.00. Under those circumstances, the Series may not receive an amount from the Collective Trust that is equal in amount to the collateral the Series would be required to return to the borrower of the securities and the Series would be required to make up for this shortfall. Effective April 20, 2009, BNY Mellon transferred the assets of the Collective Trust other than the Cash/Overnight Assets to the BNY Mellon SL DBT II Liquidating Fund (Liquidating Fund), effectively bifurcating the collateral investment pool. The Series’ exposure to the Liquidating Fund is expected to decrease as the Liquidating Fund’s assets mature or are sold. In October 2008, BNY Mellon transferred certain distressed securities from the Collective Trust into the Mellon GSL Reinvestment Trust II. The Series can also accept U.S. government securities and letters of credit (non-cash collateral) in connection with securities loans. 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 or interest, as applicable, 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 non-cash collateral, the Series receives loan premiums paid by the borrower. 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 security lending income net of allocations to the security lending agent and the borrower.
At June 30, 2009, the value of the securities on loan was $14,823,721, 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 net 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 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. Securities eligible for resale pursuant to Rule 144A, which are determined to be liquid, are not subject to the Series’ 10% limit on investments in illiquid securities. As of June 30, 2009, there were no Rule 144A securities and no securities have been determined to be illiquid under the Series’ Liquidity Procedures.
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
Effective June 30, 2009, the Series adopted Financial Accounting Standards Board Statement of Financial Accounting Standards No. 165, Subsequent Events (FAS 165). In accordance with FAS 165, management has evaluated whether any events or transactions occurred subsequent to June 30, 2009 through August 15, 2009, date of issuance of the Series’ financial statements, and determined that there were no material events or transactions that would require recognition or disclosure in the Series’ financial statements.
The Series files its complete schedule of portfolio holdings with the Securities and Exchange Commission (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. |
Value Series-12
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 19-21, 2009 (the “Annual Meeting”), the Board of Trustees (the “Board”), including a majority of disinterested or independent Trustees, approved the renewal of the Investment Advisory Agreement for the Delaware VIP Value Series (the “Series”). In making its decision, the Board considered information furnished specifically in connection with the renewal of the Investment Advisory Agreement with Delaware Management Company (“DMC”), which included materials provided by DMC and its affiliates (“Delaware Investments”) concerning, among other things, the nature, extent and quality 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. Reference was made to information furnished at regular quarterly 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 and sub-advisory contracts. In addition, in connection with the Annual Meeting, reports were provided in February 2009 and included 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 independent Trustees reviewed and discussed the Lipper reports with counsel to the independent Trustees. The Board requested and received information regarding DMC’s policy with respect to advisory fee levels and its breakpoint philosophy; 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 had in the past year inhibited, or which were likely in the future to inhibit, DMC’s ability to invest fully in accordance with 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 counsel to the independent Trustees. Although the Board gave attention to all information furnished, the following discussion identifies, under separate headings, the primary factors taken into account by the Board during its contract renewal considerations.
NATURE, EXTENT AND QUALITY OF SERVICE. The Board considered the services provided by Delaware Investments to the Series and its shareholders. In reviewing the nature, extent and quality of services, the Board considered reports furnished to it throughout the year, which covered matters such as the relative performance of the Series, compliance of portfolio managers with the investment policies, strategies and restrictions for the Series, compliance by DMC and Delaware Distributors, L.P. (together, “Management”) personnel with the Code of Ethics adopted throughout the Delaware Investments® Family of Funds complex and adherence to fair value pricing procedures as established by the Board. The Board was pleased with the current staffing of the Series’ investment advisor and the emphasis placed on research in the investment process. The Board gave favorable consideration to DMC’s efforts to control expenditures while maintaining service levels committed to fund matters. The Board also considered the transfer agent and shareholder services provided to Series shareholders by DMC’s affiliate, Delaware Service Company, Inc. (“DSC”), noting DSC’s high level of service. The Board noted that Management finished upgrading investment accounting functions through outsourcing to improve the quality and lower the cost of delivering investment accounting services to the Series. The Board was satisfied with the nature, extent and quality of the overall services provided by Delaware Investments.
INVESTMENT PERFORMANCE. The Board placed significant emphasis on the investment performance of the Series in view of its importance to shareholders. Although the Board gave appropriate consideration to performance reports and discussions with portfolio managers at Board meetings throughout the year, the Board gave particular weight 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 performance 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, 2008. The Board’s objective is 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 Series’ total return for the ten-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. Management provided the Board with information on pricing levels and fee structures for the Series as of October 31, 2008 and, for comparative funds, information as of their respective fiscal year end occurring on or before August 31, 2008. The Board also focused on the comparative analysis of effective management fees and total expense ratios of the Series versus 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) 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 considered fees paid to Delaware Investments for nonmanagement services. The Board’s objective is to limit the Series’ total expense ratio to be competitive with that 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 the actual management fee was in the quartile with the lowest expenses of its Expense Group and the 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 those of its Expense Group.
Value Series-13
Delaware VIP® Value Series
Other Series Information (continued)
MANAGEMENT PROFITABILITY. The Board considered the level of profits 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, reflect recent 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 industry-wide 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 management fees were 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 reviewed the standardized advisory fee pricing and structure approved by the Board and shareholders, which includes breakpoints. Breakpoints in the advisory fee occur when the advisory fee rate is reduced on assets in excess of specified levels. Breakpoints result in a lower advisory fee than would otherwise be the case on all assets when the 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.
PO14207 SA-VIPV [6/09] DG3 8/09 (4772) | Value Series-14 |
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. Investments
(a) Included as part of report to shareholders filed under Item 1 of this Form N-CSR.
(b) Divestment of securities in accordance with Section 13(c) of the Investment Company Act of 1940.
Not applicable.
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: | August 25, 2009 |
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: | August 25, 2009 |
| |
| |
| |
| RICHARD SALUS |
| By: | Richard Salus |
| Title: | Chief Financial Officer |
| Date: | August 25, 2009 |
