UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number: 811-5162
Exact name of registrant as specified in charter: Delaware VIP Trust
Address of principal executive offices:
2005 Market Street
Philadelphia, PA 19103
Name and address of agent for service:
Richelle S. Maestro, Esq.
2005 Market Street
Philadelphia, PA 19103
Registrant's telephone number, including area code: (800) 523-1918
Date of fiscal year end: December 31
Date of reporting period: December 31, 2003
Item 1. Reports to Stockholders
FOR INCOME AND CAPITAL APPRECIATION
Delaware VIP Trust-Delaware VIP Balanced Series
Portfolio Snapshot
Investors witnessed a broad-based stock market rebound over much of the
12-month period ended December 31, 2003. A good portion of the advance was
attributed to the easy money policy of the Federal Reserve that sought to keep
interest rates low in order to spur borrowing, which in turn adds liquidity to
the economy. The bounce back in stock prices could also be credited to a wave of
corporate cost-cutting initiatives set in place after the recession of 2001. The
income gains that consumers experienced as a result of mortgage refinancings
also helped keep spending strong. In all, many significant market forces came
together during the period, allowing stocks to rise, including those of
large-size companies, as are the type found in the Series.
The stock market's advance for the better part of 2003 allowed the Series to
experience a sound return of +19.21% (Standard Class shares with distributions
reinvested). Combining equities and bonds into its portfolio to offer investors
a broadly-diversified vehicle, the Series typically trails the performance of a
rising stock market. The Standard & Poor's 500 Index, which serves as the
Series' stock benchmark, gained +28.67% for the 12-month period. Conversely,
the circumstances of the period generally allowed the Series to outperform its
bond benchmark, the Lehman Brothers Aggregate Bond Index, which rose +5.18%
during the fiscal year.
The Series displayed strength in its stock portfolio, which features both
growth- and value-style stocks, during the 12-month period. Performance
benefited from holdings in the technology sector, such as Texas Instruments and
Cisco Systems. In retailing, the Series benefited from heavier weightings in
retailers Staples and Lowe's, although performance in this area was impeded with
our position in Kohl's. The Series lost performance versus its benchmark in the
energy sector, where elevated energy prices inhibited exploration that is
typical in expanding economies. Natural calamities during the past 12 months
also hurt the performance of a particular property and casualty insurer we held
in the portfolio.
The Series' fixed-income allocation bested its performance benchmark for the
fiscal year. Return came notably from "spread" sector holdings, as with
mortgage-backed securities and corporate bonds, particularly those in the lower
end of the investment-grade spectrum. The Series will continue to seek
opportunities in these spread sector investments, as income will likely play a
greater role in shaping fixed-income total returns given the great runup in bond
prices over the past two years.
Investment Outlook
We anticipate continued economic growth, as well as stronger corporate
earnings, over the shorter term. Our expectation is that interest rates will go
higher, however, we believe rates will remain lower longer than the market
consensus. As a result, the strong total return performance experienced by bonds
in 2003 will not likely be replicated in the coming year. Rather, fixed-income
returns may more closely replicate the coupon or income paid out by a particular
bond class. In our opinion, we should witness a significant improvement in
relative performance by larger, more financially strong stocks, unlike the
smaller, more speculative names that served as market leaders in 2003.
Performance of a $10,000 Investment
December 31, 1993 through
December 31, 2003
Delaware VIP
Balanced Series Lehman Brothers S&P 500
(Standard Class Shares) Aggregate Bond Index Index
----------------------- -------------------- -------
Dec. '93 $10,000 $10,000 $10,000
Dec. '94 $ 9,985 $ 9,708 $10,132
Dec. '95 $12,640 $11,502 $13,940
Dec. '96 $14,650 $11,919 $17,140
Dec. '97 $16,772 $13,071 $22,859
Dec. '98 $21,967 $14,205 $29,390
Dec. '99 $20,248 $14,087 $35,578
Dec. '00 $19,611 $15,726 $32,338
Dec. '01 $18,109 $17,051 $28,495
Dec. '02 $15,162 $18,802 $22,196
Dec. '03 $18,074 $19,574 $28,565
Delaware VIP Balanced Series
Average Annual Total Returns
-------------------------------
Standard Class Service Class
Shares* Shares**
Lifetime +8.11% -1.83%
10 Years +6.10% --
Five Years -3.83% --
One Year +19.21% +18.90%
For the periods ended December 31, 2003
* Commenced operations on July 28, 1988.
** Commenced operations on May 1, 2000.
Past performance is not a guarantee of future results. Returns and share values
will fluctuate so that shares, when redeemed, may be worth more or less than
their original cost.
The chart shows a $10,000 investment in Delaware VIP Balanced Series Standard
Class shares, the S&P 500 Index, and the Lehman Brothers Aggregate Bond Index
for the 10-year period from December 31, 1993 through December 31, 2003. The
chart assumes all distributions were reinvested. Returns plotted on the chart
were as of the last day of each month shown. The S&P 500 Index measures the
performance of mostly large-capitalization U.S. companies. The Lehman Brothers
Aggregate Bond Index is a measure of investment grade domestic bonds. An index
is unmanaged and does not reflect the costs of operating a mutual fund, such as
the costs of buying, selling, and holding securities. You cannot invest directly
in an index. Earnings from a variable annuity investment compound tax-free until
withdrawal, so no adjustments were made for income taxes. An expense limitation
was in effect for Delaware VIP Balanced Series during the periods shown.
Performance does not reflect insurance fees related to a variable annuity or
variable life investment or the deferred sales charge that would apply to
certain withdrawals of investments held for fewer than eight years. Performance
shown here would have been reduced if such fees were included and the expense
limitation was removed. For more information about fees, consult your variable
annuity or variable life prospectus.
Balanced-1
Delaware VIP Trust-Delaware VIP Balanced Series
Statement of Net Assets
December 31, 2003
Number of Market
Shares Value
COMMON STOCK-60.72%
Aerospace & Defense-1.33%
Honeywell International ............................ 13,100 $ 437,933
Northrop Grumman ................................... 2,800 267,680
----------
705,613
----------
Automobiles & Automotive Parts-0.40%
General Motors ..................................... 4,000 213,600
----------
213,600
----------
Banking & Finance-10.91%
American Express ................................... 6,100 294,203
*+Ameritrade Holding ................................. 36,200 509,334
Bank of America .................................... 4,900 394,107
Capital One Financial .............................. 3,500 214,515
Charter One Financial .............................. 7,200 248,760
Citigroup .......................................... 11,200 543,648
Comerica ........................................... 5,700 319,542
J.P. Morgan Chase .................................. 16,300 598,699
KeyCorp ............................................ 10,200 299,064
Lehman Brothers Holdings ........................... 2,700 208,494
MBNA ............................................... 20,100 499,485
Mellon Financial ................................... 11,000 353,210
Merrill Lynch ...................................... 5,500 322,575
Morgan Stanley ..................................... 6,400 370,368
U.S. Bancorp ....................................... 11,000 327,580
Wells Fargo ........................................ 5,300 312,117
----------
5,815,701
----------
Basic Industry/Capital Goods-2.41%
Black & Decker ..................................... 7,500 369,900
General Electric ................................... 18,500 573,130
Newell Rubbermaid .................................. 14,900 339,273
----------
1,282,303
----------
Business Services-1.18%
+Cendant ............................................ 28,200 628,014
----------
628,014
----------
Business Services/Other-1.85%
+Accenture Limited-Class A .......................... 8,400 221,088
First Data ......................................... 10,400 427,336
United Parcel Service-Class B ...................... 4,500 335,475
----------
983,899
----------
Cable, Media & Publishing-2.10%
Clear Channel Communications ....................... 5,500 257,565
Gannett ............................................ 2,800 249,648
Moody's ............................................ 4,800 290,640
Viacom-Class B ..................................... 7,200 319,536
----------
1,117,389
----------
Chemicals-1.01%
Air Products & Chemicals ........................... 4,700 248,301
Dow Chemical ....................................... 7,000 290,990
----------
539,291
----------
Consumer Services/Entertainment & Leisure-0.64%
+Cox Communications-Class A ......................... 9,900 341,055
----------
341,055
----------
Consumer Services/Restaurants-0.53%
Marriott International-Class A ..................... 6,100 281,820
----------
281,820
----------
Number of Market
Shares Value
COMMON STOCK (continued)
Energy-4.95%
+BJ Services ......................................... 4,500 $ 161,550
ChevronTexaco ....................................... 4,800 414,672
Exxon Mobil ......................................... 12,000 492,000
Kerr-McGee .......................................... 8,600 399,814
+Noble ............................................... 11,400 407,892
Schlumberger Limited ................................ 7,100 388,512
+Transocean Sedco Forex .............................. 15,400 369,754
----------
2,634,194
----------
Food, Beverage & Tobacco-2.07%
Anheuser-Busch ...................................... 2,900 152,772
General Mills ....................................... 4,400 199,320
Kraft Foods-Class A ................................. 8,200 264,204
PepsiCo ............................................. 10,400 484,848
----------
1,101,144
----------
Healthcare & Pharmaceuticals-9.59%
Abbott Laboratories ................................. 11,500 535,900
+Amgen ............................................... 5,200 321,360
Baxter International ................................ 13,500 412,020
+Biogen Idec ......................................... 10,700 393,546
*+Caremark RX ......................................... 6,400 162,112
*+Genzyme ............................................. 3,300 162,822
*HCA ................................................. 10,800 463,968
Johnson & Johnson ................................... 7,100 366,786
Medtronic ........................................... 5,800 281,938
Pfizer .............................................. 31,500 1,112,895
*+Shire Pharmaceuticals ADR ........................... 4,600 133,630
UnitedHealth Group .................................. 3,600 209,448
Wyeth ............................................... 13,000 551,850
----------
5,108,275
----------
Insurance-3.13%
Chubb ............................................... 4,600 313,260
Cigna ............................................... 5,900 339,250
Marsh & McLennan .................................... 5,000 239,450
MGIC Investment ..................................... 5,700 324,558
XL Capital Limited-Class A .......................... 5,800 449,790
----------
1,666,308
----------
Leisure, Lodging & Entertainment-1.45%
*Carnival Cruise Lines ............................... 13,700 544,301
Disney (Walt) ....................................... 9,700 226,301
----------
770,602
----------
Metals & Mining-0.53%
Alcoa ............................................... 7,400 281,200
----------
281,200
----------
Packaging & Containers-0.44%
Packaging Corp of America ........................... 10,600 231,716
----------
231,716
----------
Paper & Forest Products-0.83%
International Paper ................................. 10,300 444,033
----------
444,033
----------
Retail-3.32%
Best Buy ............................................ 4,800 250,752
Gap ................................................. 11,000 255,310
Limited Brands ...................................... 20,200 364,206
Lowe's Companies .................................... 6,600 365,574
McDonald's .......................................... 5,700 141,531
+Staples ............................................. 14,200 387,660
----------
1,765,033
----------
Balanced-2
Delaware VIP Balanced Series
Statement of Net Assets (continued)
Number of Market
Shares Value
COMMON STOCK (continued)
Technology/Communications-1.31%
+Cisco Systems ..................................... 19,000 $ 461,510
*Nokia ............................................. 14,000 238,000
-----------
699,510
-----------
Technology/Hardware-6.00%
Analog Devices .................................... 8,200 374,330
+Applied Materials ................................. 17,100 383,895
+Dell .............................................. 6,500 220,740
+EMC ............................................... 15,000 193,800
Intel ............................................. 16,200 521,640
+Kla-Tencor ........................................ 2,700 158,409
Linear Technology ................................. 8,300 349,181
+Sungard Data Systems .............................. 12,600 349,146
Texas Instruments ................................. 11,400 334,932
+Xilinx ............................................ 7,900 306,046
-----------
3,192,119
-----------
Technology/Software-1.84%
+Intuit ............................................. 5,000 264,550
Microsoft ......................................... 7,500 206,550
+Oracle ............................................ 24,100 318,120
+VERITAS Software .................................. 5,100 189,516
-----------
978,736
-----------
Telecommunications-2.49%
*+Comcast-Special Class A ........................... 17,600 550,528
SBC Communications ................................ 13,000 338,910
Verizon Communications ............................ 12,500 438,500
-----------
1,327,938
-----------
Utilities-0.41%
Dominion Resources ................................ 3,400 217,022
-----------
217,022
-----------
Total Common Stock
(cost $27,363,989) ............................... 32,326,515
-----------
PREFERRED STOCK-0.60%
Energy-0.26%
Nexen 7.35% ....................................... 5,200 135,980
-----------
135,980
-----------
Telecommunications-0.34%
#Centaur Funding 9.08% 144A ........................ 150 184,453
-----------
184,453
-----------
Total Preferred Stock
(cost $281,612) .................................. 320,433
-----------
Principal Market
Amount Value
AGENCY ASSET-BACKED
SECURITIES-1.11%
***SLMA Student Loan Trust
Series 97-1 A2 1.509% 1/25/10 .................... $ 180,521 $ 181,329
Series 98-2 A2 1.656% 1/25/14 ................... 406,113 409,102
----------
Total Agency Asset-Backed Securities
(cost $588,833) ................................. 590,431
----------
AGENCY COLLATERALIZED
MORTGAGE OBLIGATIONS-0.87%
++Fannie Mae Interest Only
Strip Series 02-16 IG 6.00% 3/25/15 .............. 20,940 57
Freddie Mac
Series 02 Class NJ 6.50% 11/15/29 ................ 20,926 20,956
Series 14 Class CW 5.00% 2/15/29 ................. 165,000 160,339
Series 80 Class EH 6.00% 11/15/31 ................ 38,638 39,729
Freddie Mac Structure
Pass Through Securities
Series T-58 1A2 3.108% 5/25/35 ................... 50,000 50,260
Series T-58 2A 6.50% 9/25/43 ..................... 122,979 130,781
GNMA Series 02 62 B 4.763% 1/16/25 ............... 60,000 61,647
----------
Total Agency Collateralized Mortgage
Obligations (cost $482,830) ..................... 463,769
----------
AGENCY MORTGAGE-BACKED
SECURITIES-10.36%
Fannie Mae
4.50% 10/1/10 .................................... 128,913 131,008
5.00% 11/1/17 .................................... 238,349 243,489
5.00% 6/1/18 ..................................... 50,258 51,342
5.00% 6/1/18 ..................................... 171,653 175,354
5.00% 11/1/33 .................................... 79,875 79,675
5.50% 10/1/16 TBA ................................ 655,000 678,744
5.50% 1/1/33 TBA ................................. 200,000 202,625
5.50% 5/1/33 ..................................... 505,000 511,944
5.50% 8/1/33 ..................................... 142,548 144,508
5.50% 9/1/33 ..................................... 142,311 144,268
5.50% 11/1/33 .................................... 194,999 197,680
5.50% 12/1/33 .................................... 174,983 177,389
6.00% 4/1/17 ..................................... 106,905 112,284
6.00% 11/1/31 TBA ................................ 735,000 759,807
6.00% 5/1/33 ..................................... 226,266 234,044
6.00% 9/1/33 ..................................... 134,163 139,027
6.50% 11/1/33 .................................... 492,400 515,174
7.50% 6/1/31 ..................................... 148,881 159,163
7.50% 2/1/32 ..................................... 95,000 101,561
9.50% 6/1/19 ..................................... 20,809 23,157
Freddie Mac
5.00% 7/1/18 ..................................... 177,896 181,509
5.00% 9/1/33 ..................................... 149,071 148,466
5.50% 11/1/33 .................................... 189,999 192,433
GNMA
6.50% 9/15/32 .................................... 167,429 176,585
7.50% 1/15/32 .................................... 29,436 31,607
----------
Total Agency Mortgage-Backed
Securities (cost $5,478,835) .................... 5,512,843
----------
Balanced-3
Delaware VIP Balanced Series
Statement of Net Assets (continued)
Principal Market
Amount Value
AGENCY OBLIGATIONS-1.02%
Fannie Mae
2.375% 4/13/06 ..................................... $255,000 $255,026
4.00% 9/2/08 ....................................... 50,000 50,689
Federal Home Loan Bank
2.25% 12/15/05 ..................................... 60,000 60,404
*3.875% 2/12/10 ..................................... 175,000 174,507
--------
Total Agency Obligations
(cost $539,682) ................................... 540,626
--------
ASSET-BACKED SECURITIES-1.12%
Bank One Issuance Trust Series
02-A3 A3 3.59% 5/17/10 ............................. 65,000 66,033
Capital One Multi-Asset Execution Trust
Series 03-A2 A2 4.32% 4/15/09 ..................... 25,000 25,496
*Series 03-A6 A6 2.95% 8/17/09 ..................... 65,000 65,470
#Chase Funding Net Interest Margin
03-6A 144A 5.00% 1/27/35 ........................... 50,000 49,938
Citibank Credit Card Issuance Trust
03-A6 A6 2.90% 5/17/10 ............................. 60,000 58,666
Freddie Mac Structure Pass Through
Securities Series T-50 A3
2.182% 9/27/07 ..................................... 101,083 101,173
#GSAMP Trust 144A
Series 02-HE2N 8.25% 10/20/32 ..................... 15,499 15,558
Series 02-WFN 8.25% 10/20/32 ....................... 17,614 17,671
MBNA Credit Card Master Note
Trust Series 01-A1 A1 5.75% 10/15/08 ............... 90,000 96,793
Mid-State Trust Series 11 A1
4.864% 7/15/38 ..................................... 28,079 26,422
NationsCredit Grantor Trust Series
97-1 A 6.75% 8/15/13 ............................... 63,256 66,466
Sharp Series 02-HE2N N
9.50% 10/25/32 ..................................... 5,257 5,257
--------
Total Asset-Backed Securities
(cost $590,294) .................................... 594,943
--------
COMMERCIAL MORTGAGE-BACKED
SECURITIES-0.73%
Chase Commercial Mortgage Securities
Series 96-2C 6.90% 11/19/28 ........................ 350,000 387,612
--------
Total Commercial Mortgage-Backed
Securities (cost $345,886) ......................... 387,612
--------
CORPORATE BONDS-11.66%
Airlines-0.30%
*American Airlines 6.817% 5/23/11 .................... 30,000 27,014
*Continental Airlines 6.503% 6/15/11 ................. 95,000 93,708
Delta Air Lines 7.299% 9/18/06 ..................... 45,000 40,610
--------
161,332
--------
Automobiles & Automotive Parts-0.32%
Ford Motor 7.45% 7/16/31 ............................ 80,000 81,078
*General Motors
7.125% 7/15/13 ..................................... 35,000 38,451
8.375% 7/15/33 ..................................... 45,000 52,394
--------
171,923
--------
Principal Market
Amount Value
CORPORATE BONDS (continued)
BANKING & FINANCE-3.20%
Bear Stearns 4.65% 7/2/18 ........................ $ 55,000 $ 50,397
Citigroup
5.625% 8/27/12 .................................. 40,000 42,298
5.875% 2/22/33 .................................. 45,000 44,379
^^Countrywide Home Loans 1.652%
6/2/06 .......................................... 80,000 80,635
Credit Suisse First Boston USA
3.875% 1/15/09 .................................. 60,000 59,996
6.125% 11/15/11 ................................ 65,000 70,879
#ERAC USA Finance 144A
7.35% 6/15/08 ................................... 95,000 108,643
Ford Motor Credit 5.625% 10/1/08 ................. 95,000 97,627
Franklin Resources 3.70% 4/15/08 ................. 50,000 49,777
General Electric Capital 5.45% 1/15/13 ........... 70,000 72,953
GMAC
6.75% 1/15/06 ................................... 45,000 48,333
7.25% 3/2/11 .................................... 55,000 60,426
8.00% 11/1/31 ................................... 40,000 45,053
Goldman Sachs 5.25% 10/15/13 ..................... 45,000 45,518
Household Finance 4.125% 12/15/08 ................ 50,000 50,493
#ING Bank 144A 5.125% 5/1/15 ...................... 80,000 79,904
*International Lease Finance
5.875% 5/1/13 ................................... 25,000 26,386
Morgan Stanley 5.30% 3/1/13 ...................... 35,000 35,817
#Nordea Bank Sweden 144A
5.25% 11/30/12 .................................. 55,000 56,241
Popular North American 4.25% 4/1/08 .............. 65,000 66,239
#Rabobank Capital Funding 144A
5.26% 12/29/49 .................................. 35,000 35,129
***RBS Capital Trust 4.709% 12/29/49 ................ 60,000 57,499
Regions Financial 6.375% 5/15/12 ................. 60,000 66,115
Stilwell Financial 7.00% 11/1/06 ................. 40,000 43,734
UFJ Finance Aruba 6.75% 7/15/13 .................. 205,000 219,018
Westpac Banking 4.625% 6/1/18 .................... 45,000 42,029
Wilmington Trust 4.875% 4/15/13 .................. 45,000 44,314
----------
1,699,832
----------
Basic Industry/Capital Goods-0.12%
Johnson Controls
4.875% 9/15/13 .................................. 40,000 40,429
5.00% 11/15/06 .................................. 20,000 21,319
----------
61,748
----------
Building & Materials-0.16%
Valspar 6.00% 5/1/07 ............................. 40,000 43,441
York International 6.625% 8/15/06 ................ 40,000 43,193
----------
86,634
----------
Cable, Media & Publishing-0.50%
InterActive
6.75% 11/15/05 .................................. 90,000 95,953
7.00% 1/15/13 ................................... 40,000 44,178
Liberty Media 3.50% 9/25/06 ...................... 50,000 50,289
Thomson 5.75% 2/1/08 ............................. 30,000 32,564
Time Warner 7.70% 5/1/32 ......................... 35,000 41,003
----------
263,987
----------
Chemicals-0.09%
Dow Chemical 6.00% 10/1/12 ....................... 45,000 47,449
----------
47,449
----------
Balanced-4
Delaware VIP Balanced Series
Statement of Net Assets (continued)
Principal Market
Amount Value
CORPORATE BONDS (continued)
Energy-1.07%
*Amerada Hess 7.30% 8/15/31 ........................ $ 30,000 $ 31,071
Enterprise Products
6.875% 3/1/33..................................... 50,000 50,119
7.50% 2/1/11 ....................................... 35,000 39,167
#Halliburton 144A 5.50% 10/15/10 ................... 60,000 62,838
Kinder Morgan Energy Partners
7.75% 3/15/32 .................................... 15,000 17,951
Marathon Oil 9.125% 1/15/13 ....................... 40,000 51,411
North Border Pipeline 6.25% 5/1/07 ................ 60,000 65,254
*Transocean 6.75% 4/15/05 .......................... 50,000 52,810
Valero Energy 6.125% 4/15/07 ...................... 45,000 48,891
Valero Logistics 6.05% 3/15/13 .................... 80,000 83,398
Weatherford International
4.95% 10/15/13 ................................... 70,000 69,008
--------
571,918
--------
Food, Beverage & Tobacco-1.14%
*Altria Group 7.00% 11/4/13 ........................ 105,000 112,214
Anheuser-Busch 5.05% 10/15/16 .................... 90,000 89,616
Kraft Foods
4.00% 10/1/08 .................................... 100,000 100,703
5.625% 11/1/11 ................................... 40,000 42,213
Nabisco 6.85% 6/15/05 ............................. 40,000 42,761
Safeway 6.15% 3/1/06 .............................. 30,000 32,116
Universal 6.50% 2/15/06 ........................... 40,000 43,148
UST
6.625% 7/15/12 ................................... 55,000 61,282
8.80% 3/15/05 .................................... 75,000 80,819
--------
604,872
--------
Healthcare & Pharmaceuticals-0.37%
Medco Health Solutions 7.25% 8/15/13 .............. 85,000 92,893
Schering-Plough 5.30% 12/1/13 .................... 15,000 15,297
Wyeth 6.50% 2/1/34 ................................ 85,000 87,205
--------
195,395
--------
Industrial-0.36%
Hutchison Whampoa International
6.50% 2/13/13 .................................... 70,000 73,021
Tyco International Group
6.375% 2/15/06 ................................... 110,000 117,700
--------
190,721
--------
Insurance-0.72%
Aegon 4.75% 6/1/13 ................................ 50,000 48,846
AON 7.375% 12/14/12 ............................... 50,000 57,267
#Asif Global Financing 144A
4.90% 1/17/13 .................................... 10,000 9,957
#Farmers Insurance 144A
8.625% 5/1/24 .................................... 70,000 73,364
Harleysville Group 5.75% 7/15/13 .................. 20,000 18,893
*#Massachusetts Mutual Life 144A
5.625% 5/15/33 ................................... 40,000 38,988
#Nationwide 144A 7.875% 4/1/33 .................... 50,000 58,023
***#Oil Insurance 144A 5.15% 8/15/33 .................. 75,000 75,622
--------
380,960
--------
Metals & Mining-0.07%
Barrick Gold 7.50% 5/1/07 .......................... 35,000 39,859
--------
39,859
--------
Principal Market
Amount Value
CORPORATE BONDS (continued)
Real Estate-0.09%
Developers Diversified Realty
4.625% 8/1/10 ................................... $ 50,000 $ 49,796
----------
49,796
----------
Retail-0.12%
Lowe's Companies 7.50% 12/15/05 .................. 60,000 66,259
----------
66,259
----------
Technology/Hardware-0.12%
Dell 7.10% 4/15/28 ............................... 55,000 63,807
----------
63,807
----------
Telecommunications-1.57%
AT&T
7.25% 11/15/06 ................................. 25,000 27,668
8.75% 11/15/31 ................................. 35,000 41,041
#Intelsat 144A 5.25% 11/1/08 ..................... 30,000 30,905
#Singapore Telecommunications 144A
7.375% 12/1/31 ................................. 110,000 130,356
Sprint Capital
6.375% 5/1/09 .................................. 25,000 26,755
8.375% 3/15/12 ................................. 40,000 46,806
8.75% 3/15/32 .................................. 115,000 136,333
#Telefonos de Mexico 144A 4.50%
11/19/08 ....................................... 65,000 65,424
Time Warner Entertainment
8.18% 8/15/07 .................................. 65,000 75,332
8.375% 3/15/23 ................................. 25,000 31,075
*Verizon NY 7.375% 4/1/32 ........................ 145,000 160,241
Verizon Wireless 5.375% 12/15/06 ................ 60,000 64,079
----------
836,015
----------
Utilities-1.34%
Avista 7.75% 1/1/07 ............................. 130,000 144,250
Consumers Energy 6.00% 3/15/05 ................. 75,000 78,146
#Consumers Energy 144A 4.25% 4/15/08 ............. 25,000 25,274
Detroit Edison 5.05% 10/1/05 .................... 75,000 78,485
Exelon Generation 6.95% 6/15/11 ................. 40,000 44,999
FPL Group Capital 3.25% 4/11/06 ................. 80,000 81,451
Oncor Electric Delivery 7.00% 5/1/32 ............ 25,000 27,668
#Power Contract 144A 5.20% 2/1/06 ................ 75,000 76,164
PSEG Energy Holdings 7.75% 4/16/07 .............. 65,000 69,306
PSEG Power 8.625% 4/15/31 ....................... 25,000 32,317
Southern Capital 5.30% 2/1/07 ................... 30,000 32,389
TXU Energy 7.00% 3/15/13 ........................ 20,000 22,166
----------
712,615
----------
Total Corporate Bonds
(cost $5,978,033) .............................. 6,205,122
----------
NON-AGENCY COLLATERALIZED
MORTGAGE OBLIGATIONS-3.14%
Bank of America Alternative Loan Trust
Series 03-10 2A1 6.00% 12/25/33 ................ 124,382 127,744
Series 03-11 1A1 6.00% 1/25/34 ................. 60,000 61,641
^^Bank of America Mortgage Securities
Series 03-D 1A2 3.428% 5/25/33 ................. 10,764 10,942
Series 03-F 1A1 2.969% 7/25/33 ................. 38,604 38,632
Series 03-I 2A4 3.828% 10/25/33 ................ 85,000 85,349
Balanced-5
Delaware VIP Balanced Series
Statement of Net Assets (continued)
Principal Market
Amount Value
NON-AGENCY COLLATERALIZED
MORTGAGE OBLIGATIONS-(continued)
***Bear Stearns Adjustable Rate Mortgage Trust
Series 03-7 8A 4.83% 10/25/33 .................. $ 93,783 $ 95,346
Cendant Mortgage Series 02-4 A6
6.50% 7/25/32 ................................... 41,265 41,467
Countrywide Alternative Loan Trust Series
02-7 CB11 6.75% 8/25/32 ......................... 35,135 35,455
Credit Suisse First Boston
Mortgage Securities
Series 02-10 2A1 7.50% 5/25/32 .................. 50,190 53,825
Series 02-30 1A1 7.50% 11/25/32 ................. 27,308 28,945
Series 03-23 5A1 6.00% 9/25/33 .................. 52,942 54,641
Series 03-23 6A1 6.50% 9/25/33 .................. 124,585 129,381
Series 03-23 7A1 5.00% 9/25/18 .................. 87,795 88,771
Series 03-29 5A1 7.00% 12/25/33 ................. 140,000 147,722
First Horizon Mortgage Pass-Through
Trust Series 03-5 1A17 8.00% 7/25/33 ............ 34,692 37,346
^^Master Adjustable Rate Mortgages Trust
Series 03-6 1A2 3.134% 12/25/33 ................ 65,000 64,756
Master Alternative Loans Trust Series
03-9 1A1 5.50% 12/25/18 ........................ 100,000 103,031
Structured Asset Securities Corporation
***Series 02-22H 1A 7.00% 11/25/32 ................. 45,381 47,200
Series 03-33H 1A1 5.50% 10/25/33 ................ 93,493 93,989
Washington Mutual
^^Series 03-AR4 A7 3.95% 5/25/33 .................. 73,266 73,432
Series 03-S1 A1 5.00% 4/25/33 ................... 99,203 101,560
^^Wells Fargo Mortgage Backed
Securities Trust
Series 03-K 2A5 4.522% 11/25/33 ................ 55,000 50,050
Series 03-M A1 4.788% 12/25/33 ................. 104,293 103,022
----------
Total Non-Agency Collateralized
Mortgage Obligations
(cost $1,667,856) .............................. 1,674,247
----------
MUNICIPAL BONDS-0.62%
California State 5.00% 2/1/33 ................... 20,000 19,476
Forsyth Montana Pollution Control
Revenue 5.20% 5/1/33 .......................... 25,000 25,885
Illinois State Taxable Pension
5.10% 6/1/33 .................................. 115,000 105,187
Long Island Power Authority-Series A
5.00% 6/1/08 .................................. 40,000 43,576
Oregon State Taxable Pension
5.892% 6/1/27 .................................. 80,000 82,482
Wisconsin State General Revenue 5.70%
5/1/26 (FSA) ................................... 55,000 55,464
----------
Total Municipal Bonds
(cost $338,237) ................................ 332,070
----------
Principal Market
Amount Value
SOVEREIGN DEBT-0.12%
#Commonwealth of Bahamas 144A
6.625% 5/15/33 ................................. $ 60,000 $ 62,986
-----------
Total Sovereign Debt
(cost $59,833) ................................. 62,986
-----------
U.S. TREASURY OBLIGATIONS-6.68%
*^U.S. Treasury Bonds 5.375% 2/15/31 .............. 885,000 923,202
U.S. Treasury Inflation Index Notes
3.00% 7/15/12 .................................. 482,286 525,918
^ 3.375% 4/15/32 ................................. 291,043 359,768
U.S. Treasury Notes
1.625% 9/30/05 ................................. 895,000 894,930
3.375% 11/15/08 ................................ 10,000 10,082
* 4.25% 11/15/13 ................................. 845,000 844,340
-----------
Total U.S. Treasury Obligations
(cost $3,528,095) .............................. 3,558,240
-----------
REPURCHASE AGREEMENTS-5.28%
With BNP Paribas 0.85% 1/2/04
(dated 12/31/03, collateralized by $65,000
U.S. Treasury Bills due 3/25/04,
market value $64,961, $241,000
U.S. Treasury Notes 3.625%
due 3/31/04, market value
$244,737, $741,000
U.S. Treasury Notes 6.00%
due 8/15/04, market value
$780,443, and $382,000
U.S. Treasury Notes 1.625% due
1/31/05, market value $386,641) ................ 1,447,000 1,447,000
With UBS Warburg 0.85% 1/2/04
(dated 12/31/03, collateralized by $317,000
U.S. Treasury Notes 1.625% due 3/31/05,
market value $319,872, $11,000
U.S. Treasury Notes 5.50%
due 2/15/08, market value
$12,261, and $952,000
U.S. Treasury Notes 5.625% due 5/15/08,
market value $1,061,930) ....................... 1,365,000 1,365,000
-----------
Total Repurchase Agreements
(cost $2,812,000)............................... 2,812,000
-----------
Total Market Value of Securities Before
Securities Lending Collateral-104.03%
(cost $50,056,015) ............................. 55,381,837
-----------
Balanced-6
Delaware VIP Balanced Series
Statement of Net Assets (continued)
Principal Market
Amount Value
SECURITIES LENDING
COLLATERAL**-6.51%
Short-Term Investments
ABN AMRO Bank Chicago
0.96% 6/07/04 ...................................... $135,869 $135,863
Allied Irish Dublin 1.12% 1/20/04 ................... 155,276 155,279
Bayerische Landesbank 1.045% 8/30/04 ................ 38,796 38,802
CDC IXIS 1.485% 11/12/04 ............................ 154,959 155,279
Credit Suisse First Boston
1.60% 12/13/04 ..................................... 154,826 155,279
Deutsche Bank Financial
0.991% 1/16/04 ..................................... 155,324 155,334
Fannie Mae 0.955% 1/29/04 ........................... 776,399 776,387
Freddie Mac 1.12% 1/15/04 ........................... 87,841 87,907
General Electric Capital
1.068% 10/04/04 .................................... 58,291 58,380
1.069% 5/14/04 ..................................... 77,655 77,710
Goldman Sachs Group LP
1.18% 12/08/04 ..................................... 38,820 38,820
HBOS Treasury Services PLC
1.14% 4/08/04 ...................................... 155,264 155,279
Keybank NA 1.146% 1/26/04 ........................... 77,668 77,679
Lloyds Bank PLC 1.08% 2/09/04 ....................... 174,686 174,690
Marsh & McLennan 1.291% 6/15/04 ..................... 97,231 99,616
Merrill Lynch Mortgage Capital
1.10% 1/12/04 ..................................... 155,279 155,279
Mizuho Securities 1.03% 1/02/04 .................... 267,143 267,143
Morgan Stanley Dean Witter
1.283% 1/31/05 .................................... 38,757 38,820
1.330% 3/19/04 .................................... 97,006 97,050
Societe Generale 1.085% 12/08/04 ................... 155,240 155,240
Swiss Re Financial 1.103% 1/15/04 .................. 96,818 96,780
Wachovia Bank NA 1.064% 11/15/04 ................... 155,295 155,418
Wilmington Trust 1.11% 1/22/04 ..................... 155,275 155,279
----------
Total Securities Lending Collateral
(cost $3,463,313) ................................. 3,463,313
----------
TOTAL MARKET VALUE OF SECURITIES-110.54% (cost $53,519,328)................................... 58,845,150+++
OBLIGATION TO RETURN SECURITIES LENDING COLLATERAL-(6.51%)**.................................. (3,463,313)
LIABILITIES NET OF RECEIVABLES AND OTHER ASSETS-(4.03%)....................................... (2,144,362)
-----------
NET ASSETS APPLICABLE TO 4,130,415 SHARES OUTSTANDING-100.00%................................. $53,237,475
===========
NET ASSET VALUE-DELAWARE VIP BALANCED SERIES STANDARD CLASS ($53,232,804 / 4,130,052 shares).. $12.89
======
NET ASSET VALUE-DELAWARE VIP BALANCED SERIES SERVICE CLASS ($4,671 / 362.7 shares)............ $12.88
======
COMPONENTS OF NET ASSETS AT DECEMBER 31, 2003:
Shares of beneficial interest (unlimited authorization-no par)................................ $74,377,217
Undistributed net investment income........................................................... 1,054,243
Accumulated net realized loss on investments.................................................. (27,491,055)
Net unrealized appreciation of investments.................................................... 5,297,070
-----------
Total net assets.............................................................................. $53,237,475
===========
- --------------
*Fully or partially on loan.
**See Note #10 in "Notes to Financial Statements".
***Variable Rate Notes-the interest rate shown is the rate as of December 31,
2003.
^Fully or partially pledged as collateral for financial futures contracts and
options written.
^^Floating Rate Notes-the interest rate shown is the rate as of December 31,
2003 and the maturity date shown is the longer of the next interest
readjustment or the date the principal amount shown can be recovered through
demand.
#Security exempt from registration under Rule 144A of the Securities Act of
1933. See Note #11 in "Notes to Financial Statements."
+Non-income producing security for the year ended December 31, 2003.
++Interest only.
+++Includes $5,095,395 of securities on loan.
ADR-American Depositary Receipts
FSA-Insured by Financial Security Assurance
GNMA-Government National Mortgage Association
SLMA-Student Loan Marketing Association
TBA-To be announced
See accompanying notes
Balanced-7
Delaware VIP Trust-
Delaware VIP Balanced Series
Statement of Operations
Year Ended December 31, 2003
INVESTMENT INCOME:
Interest ....................................................... $ 786,394
Dividends ...................................................... 532,065
Securities lending income ...................................... 8,177
-----------
1,326,636
-----------
EXPENSES:
Management fees ............................................... 335,066
Accounting and administration expenses ........................ 21,984
Custodian fees ................................................ 10,240
Professional fees ............................................. 6,625
Dividend disbursing and transfer agent fees
and expenses ................................................ 5,172
Reports and statements to shareholders ........................ 4,683
Trustees' fees ................................................ 2,410
Registration fees ............................................. 335
Distribution expenses - Service Class ......................... 11
Other ......................................................... 12,912
-----------
399,438
-----------
Less waiver of distribution expenses - Service Class........... (2)
Less expenses paid indirectly ................................. (1,717)
Total expenses ................................................ 397,719
-----------
NET INVESTMENT INCOME ......................................... 928,917
-----------
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS:
Net realized gain (loss) on:
Investments .................................................. (26,403)
Futures contracts ............................................ (41,349)
Options written .............................................. 15,762
Swap agreements .............................................. 61,196
-----------
Net realized gain ............................................. 9,206
Net change in unrealized appreciation/depreciation
of investments .............................................. 8,023,420
-----------
NET REALIZED AND UNREALIZED GAIN
ON INVESTMENTS .............................................. 8,032,626
-----------
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS ............................................. $ 8,961,543
===========
See accompanying notes
Delaware VIP Trust-
Delaware VIP Balanced Series
Statement of Changes in Net Assets
Year Ended
12/31/03 12/31/02
-------- --------
INCREASE (DECREASE) IN NET
ASSETS FROM OPERATIONS:
Net investment income .......................... $ 928,917 $ 1,503,231
Net realized gain (loss) on investments ........ 9,206 (9,361,830)
Net change in unrealized appreciation/
depreciation of investments .................. 8,023,420 (5,206,494)
----------- -----------
Net increase (decrease) in net assets resulting
from operations .............................. 8,961,543 (13,065,093)
----------- -----------
DIVIDENDS AND DISTRIBUTIONS TO
SHAREHOLDERS FROM:
Net investment income:
Standard Class ................................ (1,598,053) (2,464,289)
Service Class ................................. (121) (126)
----------- -----------
(1,598,174) (2,464,415)
----------- -----------
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares sold:
Standard Class ................................ 1,971,439 1,028,220
Net asset value of shares issued upon
reinvestment of dividends and distributions:
Standard Class ................................ 1,598,053 2,464,289
Service Class ................................. 121 126
----------- -----------
3,569,613 3,492,635
----------- -----------
Cost of shares repurchased:
Standard Class ................................ (12,488,115) (23,552,847)
----------- -----------
(12,488,115) (23,552,847)
----------- -----------
Decrease in net assets derived from capital
share transactions ........................... (8,918,502) (20,060,212)
----------- -----------
NET DECREASE IN NET ASSETS ..................... (1,555,133) (35,589,720)
NET ASSETS:
Beginning of year .............................. 54,792,608 90,382,328
----------- -----------
End of year .................................... $53,237,475 $54,792,608
=========== ===========
See accompanying notes
Balanced-8
Delaware VIP Trust-Delaware VIP Balanced Series
Financial Highlights
Selected data for each share of the Series outstanding throughout each period
were as follows:
Delaware VIP Balanced Series Standard Class
Year Ended
12/31/03 12/31/02 12/31/01(1) 12/31/00 12/31/99
---------------------------------------------------------------------
Net asset value, beginning of period ..................... $11.170 $13.730 $15.230 $17.340 $20.040
Income (loss) from investment operations:
Net investment income(2) ................................. 0.211 0.258 0.329 0.399 0.408
Net realized and unrealized gain (loss) on investments ... 1.872 (2.430) (1.494) (0.956) (1.958)
------- ------- ------- ------- -------
Total from investment operations ......................... 2.083 (2.172) (1.165) (0.557) (1.550)
------- ------- ------- ------- -------
Less dividends and distributions from:
Net investment income .................................... (0.363) (0.388) (0.335) (0.451) (0.380)
Net realized gain on investments ......................... -- -- -- (1.102) (0.770)
------- ------- ------- ------- -------
Total dividends and distributions ........................ (0.363) (0.388) (0.335) (1.553) (1.150)
------- ------- ------- ------- -------
Net asset value, end of period ........................... $12.890 $11.170 $13.730 $15.230 $17.340
======= ======= ======= ======= =======
Total return(3) .......................................... 19.21% (16.27%) (7.66%) (3.12%) (7.85%)
Ratios and supplemental data:
Net assets, end of period (000 omitted) .................. $53,233 $54,789 $90,377 $120,705 $172,002
Ratio of expenses to average net assets .................. 0.77% 0.75% 0.73% 0.79% 0.74%
Ratio of expenses to average net assets prior to expense
limitation and expenses paid indirectly ................. 0.77% 0.76% 0.73% 0.79% 0.74%
Ratio of net investment income to average net assets ..... 1.80% 2.10% 2.37% 2.54 2.17%
Ratio of net investment income to average net assets prior
to expense limitation and expenses paid indirectly ...... 1.80% 2.09% 2.37% 2.54 2.17%
Portfolio turnover ....................................... 231% 303% 336% 179 107%
- -----------
(1) As required, effective January 1, 2001, the Series adopted the provisions of
the AICPA Audit and Accounting Guide for Investment Companies that requires
amortization of all premiums and discounts on debt securities and the
recording of paydown gains and losses on mortgage- and asset-backed
securities as an adjustment to interest income. The effect of these changes
for the year ended December 31, 2001 was a decrease in net investment income
per share of $0.009, an increase in net realized and unrealized gain (loss)
per share of $0.009, and a decrease in the ratio of net investment income to
average net assets of 0.07%. Per share data and ratios for periods prior to
January 1, 2001 have not been restated to reflect these changes in
accounting.
(2) The average shares outstanding method has been applied for per share
information for years ended December 31, 2003, 2002, 2001 and 2000.
(3) Total investment return is based on the change in net asset value of a share
during the period and assumes reinvestment of dividends and distributions at
net asset value and does not reflect the impact of a sales charge. Total
investment return reflects a waiver and payment of fees by the manager, as
applicable. Performance would have been lower had the expense limitation not
been in effect.
See accompanying notes
Balanced-9
Delaware VIP Balanced Series
Financial Highlights (continued)
Selected data for each share of the Series outstanding throughout each period
were as follows:
Delaware VIP Balanced Series Service Class
5/1/00(2)
Year Ended to
12/31/03 12/31/02 12/31/01(1) 12/31/00
-----------------------------------------------
Net asset value, beginning of period............................ $11.170 $13.720 $15.230 $15.080
Income (loss) from investment operations:
Net investment income(3)....................................... 0.186 0.238 0.308 0.246
Net realized and unrealized gain (loss) on investments......... 1.867 (2.421) (1.498) 0.024
------- ------- ------- -------
Total from investment operations............................... 2.053 (2.183) (1.190) 0.270
------- ------- ------- -------
Less dividends and distributions from:
Net investment income.......................................... (0.343) (0.367) (0.320) (0.120)
Net realized gain on investments............................... - - - -
------- ------- ------- -------
Total dividends and distributions.............................. (0.343) (0.367) (0.320) (0.120)
------- ------- ------- -------
Net asset value, end of period................................. $12.880 $11.170 $13.720 $15.230
======= ======= ======= =======
Total return(4)................................................ 18.90% (16.40%) (7.76%) 1.91%
Ratios and supplemental data:
Net assets, end of period (000 omitted)........................ $5 $4 $5 $5
Ratio of expenses to average net assets........................ 0.99% 0.90% 0.88% 0.94%
Ratio of expenses to average net assets prior to expense
limitation and expenses paid indirectly....................... 1.02% 0.91% 0.88% 0.94%
Ratio of net investment income to average net assets........... 1.58% 1.95% 2.22% 2.39%
Ratio of net investment income to average net assets prior
to expense limitation and expenses paid indirectly............ 1.55% 1.94% 2.22% 2.39%
Portfolio turnover............................................. 231% 303% 336% 179%
- ------------
(1) As required, effective January 1, 2001, the Series adopted the provisions of
the AICPA Audit and Accounting Guide for Investment Companies that requires
amortization of all premiums and discounts on debt securities and the
recording of paydown gains and losses on mortgage- and asset-backed
securities as an adjustment to interest income. The effect of these changes
for the year ended December 31, 2001 was a decrease in net investment income
per share of $0.009, an increase in net realized and unrealized gain (loss)
per share of $0.009, and a decrease in the ratio of net investment income to
average net assets of 0.07%. Per share data and ratios for periods prior to
January 1, 2001 have not been restated to reflect these changes in
accounting.
(2) Date of commencement of operations; ratios have been annualized and total
return has not been annualized.
(3) The average shares outstanding method has been applied for per share
information.
(4) Total investment return is based on the change in net asset value of a share
during the period and assumes reinvestment of dividends and distributions at
net asset value. Total investment return reflects a waiver and payment of
fees by the manager and distributor, as applicable. Performance would have
been lower had the expense limitation not been in effect.
See accompanying notes
Balanced-10
Delaware VIP Trust-Delaware VIP Balanced Series
Notes to Financial Statements
December 31, 2003
Delaware VIP Trust (the "Trust") is organized as a Delaware statutory trust and
offers 15 series: Delaware VIP Balanced Series, Delaware VIP Capital Reserves
Series, Delaware VIP Cash Reserve Series, Delaware VIP Diversified Income
Series, Delaware VIP Emerging Markets Series, Delaware VIP Global Bond Series,
Delaware VIP Growth Opportunities Series, Delaware VIP High Yield Series,
Delaware VIP International Value Equity Series, Delaware VIP Large Cap Value
Series, Delaware VIP REIT Series, Delaware VIP Select Growth Series, Delaware
VIP Small Cap Value Series, Delaware VIP Trend Series and Delaware VIP U.S.
Growth Series. These financial statements and the related notes pertain to
Delaware VIP Balanced Series (the "Series"). The Trust is an open-end investment
company. The Series is considered diversified under the Investment Company Act
of 1940, as amended, and offers Standard Class and Service Class shares. The
Standard Class shares do not carry a 12b-1 fee and the Service Class shares
carry a 12b-1 fee. The shares of the Series are sold only to separate accounts
of life insurance companies.
The investment objective of the Series is to seek a balance of capital
appreciation, income and preservation of capital.
1. Significant Accounting Policies
The following accounting policies are in accordance with accounting principles
generally accepted in the United States and are consistently followed by the
Series.
Security Valuation-All equity securities 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 Stock Market, Inc.
(NASDAQ) are valued in accordance with the NASDAQ Official Closing Price, which
may not be the last sales price. If on a particular day an equity security does
not trade, then the mean between the bid and asked prices will normally be used.
U.S. government and agency securities are valued at the mean between the bid and
asked prices. Other long-term debt securities are valued by an independent
pricing service and such prices are believed to reflect the fair value of such
securities. Short-term debt securities having less than 60 days to maturity are
valued at amortized cost, which approximates market value. Futures contracts and
options on futures contracts are valued at the daily quoted settlement prices.
Swap agreements and other securities and assets for which market quotations are
not readily available are valued at fair value as determined in good faith under
the direction of the Series' Board of Trustees.
Federal Income Taxes-The Series intends to continue to qualify for federal
income tax purposes as a regulated investment company and make the requisite
distributions to shareholders. Accordingly, no provision for federal income
taxes has been made in the financial statements.
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. 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 102% collateralized. However, in the
event of default or bankruptcy by the counterparty to the agreement, realization
of the collateral may be subject to legal proceedings.
Use of Estimates-The preparation of financial statements in conformity with
accounting principles generally accepted in the United States 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 common to all funds within the Delaware Investments Family of
Funds are allocated amongst the funds on the basis of average net assets.
Security transactions are recorded on the date the securities are purchased or
sold (trade date). 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. Premiums and discounts on all debt securities 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.
Certain expenses of the Series are paid through commission arrangements with
brokers. The amount of these expenses was approximately $1,237 for the year
ended December 31, 2003. In addition, the Series receives earnings credits from
its custodian when positive cash balances are maintained, which are used to
offset custody fees. The earnings credits for the year ended December 31, 2003,
were approximately $480. The expenses paid under the above arrangements are
included in their respective expense captions on the Statement of Operations
with the corresponding expense offset shown as "expenses paid indirectly."
2. Investment Management, Administration Agreements and Other Transactions with
Affiliates
In accordance with the terms of its investment management agreement, the Series
pays Delaware Management Company (DMC), a series of Delaware Management Business
Trust and the investment manager, an annual fee which is calculated daily at the
rate of 0.65% on the first $500 million of average daily net assets of the
Series, 0.60% on the next $500 million, 0.55% on the next $1.5 billion, and
0.50% on average daily net assets in excess of $2.5 billion.
DMC has contractually agreed to waive that portion, if any, of its management
fee and reimburse the Series to the extent necessary to ensure that annual
operating expenses, exclusive of taxes, interest, brokerage commissions,
distribution fees, certain insurance costs and extraordinary expenses, do not
exceed 0.80% of average daily net assets of the Series through April 30, 2004.
No reimbursement was due for the year ended December 31, 2003.
Balanced-11
Delaware VIP Balanced Series
Notes to Financial Statements (continued)
2. Investment Management, Administration Agreements and
Other Transactions with Affiliates (continued)
Delaware Service Company, Inc. (DSC), an affiliate of DMC, provides accounting,
administration, dividend disbursing and transfer agent services. The Series pays
DSC a monthly fee based on average net assets subject to certain minimums for
accounting and administration services. The Series pays DSC a monthly fee based
on average net assets for dividend disbursing and transfer agent services.
Pursuant to a distribution agreement and distribution plan, the Series pays
Delaware Distributors, L.P. (DDLP), the distributor and an affiliate of DMC, an
annual 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, 2004 in order to prevent distribution and service fees of the Service
Class shares from exceeding 0.25% of average daily net assets. Prior to May 1,
2003, the Board of Trustees had set the fee at an annual rate of 0.15% of the
Service Class shares' average daily net assets. No distribution expenses are
paid by Standard Class shares.
At December 31, 2003, the Series had liabilities payable to affiliates as
follows:
Dividend disbursing,
Investment transfer agent fees,
management accounting Other expenses
fee payable and other expenses payable to DMC
to DMC payable to DSC and affiliates*
----------- --------------------- ---------------
$29,227 $937 $5,930
- --------------
* 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, professional fees, custodian
fees and trustees' 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 year ended December 31, 2003, the Series made purchases and sales of
investment securities other than U.S. government securities and short-term
investments as follows:
Purchases.................... $91,189,923
Sales ....................... $101,011,711
At December 31, 2003, the cost of investments and unrealized appreciation
(depreciation) for federal income tax purposes for the Series were as follows:
Aggregate Aggregate
Cost of unrealized unrealized Net unrealized
investments appreciation depreciation appreciation
------------ ------------ ------------ --------------
$50,534,225 $5,177,478 $(329,866) $4,847,612
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 accounting principles
generally accepted in the United States. The tax character of dividends and
distributions paid during the years ended December 31, 2003 and 2002 was as
follows:
Year Year
Ended Ended
12/31/03 12/31/02
-------- --------
Ordinary income................. $1,598,174 $2,464,415
As of December 31, 2003, the components of net assets on a tax basis were as
follows:
Shares of beneficial interest.... $74,377,217
Undistributed ordinary income.... 1,054,243
Capital loss carryforwards....... (27,041,597)
Unrealized appreciation of
investments.................... 4,847,612
-----------
Net assets....................... $53,237,475
===========
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 federal income tax purposes, capital loss carryforwards may be carried
forward and applied against future capital gains. Such capital loss
carryforwards expire as follows: $8,963,267 expires in 2008, $8,028,969 expires
in 2009, $9,576,012 expires in 2010 and $473,349 expires in 2011.
Balanced-12
Delaware VIP Balanced Series
Notes to Financial Statements (continued)
5. Capital Shares
Transactions in capital shares were as follows:
Year Year
Ended Ended
12/31/03 12/31/02
-------- --------
Shares sold:
Standard Class................. 166,080 83,820
Shares issued upon reinvestment
of dividends and distributions:
Standard Class................. 145,278 185,424
Service Class.................. 11 9
---------- ----------
311,369 269,253
---------- ----------
Shares repurchased:
Standard Class................. (1,084,706) (1,948,157)
---------- ----------
Net decrease..................... (773,337) (1,678,904)
========== ==========
6. Line of Credit
The Series, along with certain other funds in the Delaware Investments Family of
Funds (the "Participants"), participates in a $177,300,000 revolving line of
credit facility to be used for temporary or emergency purposes as an additional
source of liquidity to fund redemptions of investor shares. The Participants are
charged an annual commitment fee, which is allocated across the Participants on
the basis of each fund's allocation of the entire facility. The Participants may
borrow up to a maximum of one third of their net assets under the agreement. The
Series had no amounts outstanding as of December 31, 2003, or at any time during
the period.
7. Futures Contracts
The Series may invest in financial futures contracts to hedge its existing
portfolio securities against fluctuations in fair value caused by changes in
prevailing market interest rates. Upon entering into a futures contract, the
Series deposits cash or pledges U.S. government securities to a broker, equal to
the minimum "initial margin" requirements of the exchange on which the contract
is traded. In some cases, due to the form of the futures agreement, initial
margin is held in a segregated account with the Series' custodian, rather than
directly with the broker. Subsequent payments are received from the broker or
paid to the broker (or added to the segregated account) each day, based on the
daily fluctuation in the market value of the contract. These receipts or
payments are known as "variation margin" and are recorded daily by the Series as
unrealized gains or losses until the contracts are closed. When the contracts
are closed, the Series records a realized gain or loss equal to the difference
between the value of the contract at the time it was opened and the value at the
time it was closed. Risks of entering into futures contracts include potential
imperfect correlation between the futures contracts and the underlying
securities and the possibility of an illiquid secondary market for these
instruments.
Financial futures contracts open at December 31, 2003 were as follows:
Unrealized
Contracts Notional Appreciation
to Buy (Sell) Cost (Proceeds) Expiration Date (Depreciation)
- ------------- --------------- --------------- --------------
(23) U.S. Treasury 5 year Notes $(2,534,540) 3/04 $(33,606)
4 U.S. Long Bond 435,176 3/04 2,074
--------
$(31,532)
========
The use of futures contracts involves elements of market risk and risks in
excess of the amount recognized in the financial statements. The notional
amounts presented above represent the Series' total exposure in such contracts,
whereas only the net unrealized appreciation (depreciation) is reflected in the
Series' net assets.
Balanced-13
Delaware VIP Balanced Series
Notes to Financial Statements (continued)
8. Options Written
During the year ended December 31, 2003, the Series entered into options
contracts in accordance with its investment objectives. When the Series writes
an option, a premium is received and a liability is recorded and adjusted on a
daily basis to reflect the current market value of the options written. Premiums
received from writing options that expire unexercised are treated by the Series
on the expiration date as realized gains. The difference between the premium
received and the amount paid on effecting a closing purchase transaction,
including brokerage commissions, is treated as realized gain or loss. If a call
option is exercised, the premium is added to the proceeds from the sale of the
underlying security in determining whether the Series has a realized gain or
loss. If a put option is exercised, the premium reduces the cost basis of the
securities purchased by the Series. The Series, as writer of an option, bears
the market risk of an unfavorable change in the price of the security underlying
the written option.
Transactions in options written during the year ended December 31, 2003 for the
Series, were as follows:
Number
of Contracts Premiums
------------ --------
Options outstanding at December 31, 2002 34 $33,660
Options written 32 12,280
Options terminated in closing purchase transaction (34) (33,660)
--- -------
Options outstanding at December 31, 2003 32 $12,280
=== =======
At December 31, 2003, the Series had the following options written outstanding:
Unrealized
Number of Notional Exercise Expiration Appreciation
Description Contracts Amount Price Date (Depreciation)
- -------------------- --------- -------- -------- ---------- --------------
Call Options Written
U.S. Treasury 10 year Future 16 $1,600,000 $115 2/21/04 $(1,860)
Put Options Written
U.S. Treasury 10 year Future 16 $1,600,000 $105 2/21/04 4,640
-------
$ 2,780
=======
Writing options contracts involves elements of market risk and risks in excess
of the amount recognized in the financial statements. The notional amounts
presented above represent the Series' total exposure in such contracts, whereas
only the net unrealized appreciation (depreciation) is reflected in the Series'
net assets.
9. Swap Agreements
During the year ended December 31, 2003, the Series entered into total return
swap agreements in accordance with its investment objectives. A swap is an
agreement to exchange the return generated by one instrument for the return
generated by another instrument. Total return 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 agreements
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 agreement.
There were no total return swap agreements were outstanding at December 31,
2003.
10. Securities Lending
The Series, along with other funds in the Delaware Investments Family of Funds,
may lend its securities pursuant to a security lending agreement (Lending
Agreement) with J.P. Morgan Chase. Initial security loans made pursuant to the
Lending Agreement are required to be secured by U.S. government obligations
and/or cash collateral not less than 102% of the market value of the securities
issued in the United States. With respect to each loan, if the aggregate market
value of the collateral held 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 invested in fixed-income
securities, with a weighted average maturity not to exceed 90 days, rated in one
of the top two tiers by Standard & Poor's Ratings Group or Moody's Investors
Service, Inc. or repurchase agreements collateralized by such securities.
However, in the event of default or bankruptcy by the lending agent, realization
and/or retention of the collateral may be subject to legal proceedings. In the
event the borrower fails
Balanced-14
Delaware VIP Balanced Series
Notes to Financial Statements (continued)
10. Securities Lending (continued)
to return loaned securities and the collateral received is insufficient to cover
the value of the loaned securities and provided such collateral shortfall is not
the result of investment losses, the lending agent has agreed to pay the amount
of the shortfall to the Series, or at the discretion of the lending agent,
replace the loaned securities. The Series continues to record dividends on the
securities loaned and is subject to change in fair value of the securities
loaned that may occur during the term of the loan. The Series has the right
under the Lending Agreement to recover the securities from the borrower on
demand.
With respect to security loans collateralized by U.S. Treasury obligations the
Series receives a fee from the securities lending agent. With respect to
security loans collateralized by cash collateral, the earnings from the
collateral investments are shared among the Series, the security lending agent
and the borrower. The Series records securities lending income net of the
allocations to the security lending agent and the borrower.
At December 31, 2003, the market value of the securities on loan was $5,095,395,
for which the Series received securities collateral, comprised of U.S.
government obligations valued at $1,716,863, and cash collateral of $3,463,313.
Investments purchased with cash collateral are presented on the Statement of Net
Assets under the caption "Securities Lending Collateral."
11. Credit and Market Risk
The Series invests in fixed-income securities whose value is derived from an
underlying pool of mortgages or consumer loans. Investors receive principal and
interest payments as the underlying mortgages and consumer loans are paid back.
Some of these securities are collateralized mortgage obligations (CMOs). CMOs
are debt securities issued by U.S. government agencies or by financial
institutions and other mortgage lenders, which are collateralized by a pool of
mortgages held under an indenture. Prepayment of mortgages may shorten the
stated maturity of the obligations and can result in a loss of premium, if any
has been paid. Certain of these securities may be stripped (securities, which
provide only the principal or interest feature of the underlying security). The
yield to maturity on an interest-only CMO is extremely sensitive not only to
changes in prevailing interest rates, but also to the rate of principal payments
(including prepayments) on the related underlying mortgage assets. A rapid rate
of principal payments may have a material adverse affect on the Series' yield to
maturity. If the underlying mortgage assets experience greater than anticipated
prepayments of principal, the Series may fail to fully recoup its initial
investment in these securities even if the securities are rated in the highest
rating categories.
The Series may invest up to 10% of its total assets in illiquid securities,
which may include securities with contractual restrictions on resale, securities
exempt from registration under Rule 144A of the Securities Act of 1933, as
amended, and other securities which may not be readily marketable. The relative
illiquidity of these securities may impair the Series from disposing of them in
a timely manner and at a fair price when it is necessary or desirable to do so.
12. Tax Information (Unaudited)
For the fiscal year ended December 31, 2003, the Series designates distributions
paid during the year as follows:
(A) (B)
Long-Term Ordinary
Capital Gains Income Total (C)
Distributions Distributions Distributions Qualifying
(Tax Basis) (Tax Basis) (Tax Basis) Dividends(1)
------------- ------------- ------------- -----------
-- 100% 100% 100%
- ----------
(A) and (B) are based on a percentage of the Series' total distributions.
(C) is based on a percentage of ordinary income of the Series.
(1) Qualifying dividends represent dividends which qualify for the corporate
dividends received deduction.
Balanced-15
Delaware VIP Trust-Delaware VIP Balanced Series
Report of Independent Auditors
To the Shareholders and Board of Trustees
Delaware VIP Trust - Delaware VIP Balanced Series
We have audited the accompanying statement of net assets of Delaware VIP
Balanced Series (the "Series") as of December 31, 2003, and the related
statement of operations for the year then ended, the statements of changes in
net assets for each of the two years in the period then ended, and the financial
highlights for each of the periods indicated therein. These financial statements
and financial highlights are the responsibility of the Series' management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements and financial highlights. Our procedures included
confirmation of securities owned as of December 31, 2003, by correspondence with
the custodian and brokers, or by other auditing procedures where replies from
brokers were not received. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Delaware VIP Balanced Series at December 31, 2003, the results of its operations
for the year then ended, the changes in its net assets for each of the two years
in the period then ended, and its financial highlights for each of the periods
indicated therein, in conformity with accounting principles generally accepted
in the United States.
Ernst & Young LLP
Philadelphia, Pennsylvania
February 6, 2004
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
A description of the policies and procedures that the Series uses to determine
how to vote proxies (if any) relating to portfolio securities is available
without charge (i) upon request, by calling 800 523-1918; (ii) on the Series'
website at http://www.delawareinvestments.com; and (iii) on the Commission's
website at http://www.sec.gov.; and beginning no later than August 31, 2004,
information (if any) regarding how the Series voted proxies relating to
portfolio securities during the most recent 12-month period ended June 30 is
available without charge (i) through the Series' website at
http://www.delawareinvestments.com; and (ii) on the Commission's website at
http://www.sec.gov.
- --------------------------------------------------------------------------------
Balanced-16
Delaware Investments Family of Funds
BOARD OF TRUSTEES/DIRECTORS AND OFFICERS ADDENDUM
A mutual fund is governed by a Board of Trustees/Directors which has oversight
responsibility for the management of a fund's business affairs.
Trustees/Directors establish procedures and oversee and review the performance
of the investment manager, the distributor and others that perform services for
the fund. The independent fund trustees, in particular, are advocates for
shareholder interests. The following is a list of the Trustees/Directors and
Officers with certain background and related information.
Number of Other
Principal Portfolios in Fund Directorships
Name, Position(s) Occupation(s) Complex Overseen Held by
Address Held with Length of Time During by Trustee/Director Trustee/Director
and Birthdate Fund(s) Served Past 5 Years or Officer or Officer
- -----------------------------------------------------------------------------------------------------------------------------------
INTERESTED TRUSTEES
Jude T. Driscoll(2) Chairman and 4 Years - Since August 2000, 80 None
2005 Market Street Trustee(4) Executive Officer Mr. Driscoll has served in
Philadelphia, PA various executive capacities
19103 Trustee since at different times at
May 15, 2003 Delaware Investments(1)
March 10, 1963
Senior Vice President and
Director of Fixed-Income Process -
Conseco Capital Management (June 1998 -
August 2000)
Managing Director -
NationsBanc Capital Markets (February
1996 - June 1998)
- -----------------------------------------------------------------------------------------------------------------------------------
INDEPENDENT TRUSTEES
Walter P. Babich Trustee 16 Years Board Chairman - 98 None
2005 Market Street Citadel Construction Corporation
Philadelphia, PA (1989 - Present)
19103
October 1, 1927
- -----------------------------------------------------------------------------------------------------------------------------------
John H. Durham Trustee 25 Years(3) Private Investor 98 Trustee - Abington
2005 Market Street Memorial Hospital
Philadelphia, PA
19103
President/Director-
22 WR Corporation
August 7, 1937
- -----------------------------------------------------------------------------------------------------------------------------------
John A. Fry Trustee(4) 3 Years President - 80 None
2005 Market Street Franklin & Marshall College
Philadelphia, PA (June 2002 - Present)
19103
Executive Vice President -
University of Pennsylvania
May 28, 1960 (April 1995 - June 2002)
- -----------------------------------------------------------------------------------------------------------------------------------
Anthony D. Knerr Trustee 11 Years Founder/Managing Director - 98 None
2005 Market Street Anthony Knerr & Associates
Philadelphia, PA (Strategic Consulting)
19103 (1990 - Present)
December 7, 1938
- -----------------------------------------------------------------------------------------------------------------------------------
Balanced-17
Number of Other
Principal Portfolios in Fund Directorships
Name, Position(s) Occupation(s) Complex Overseen Held by
Address Held with Length of Time During by Trustee/Director Trustee/Director
and Birthdate Fund(s) Served Past 5 Years or Officer or Officer
- -----------------------------------------------------------------------------------------------------------------------------------
INDEPENDENT TRUSTEES (continued)
Ann R. Leven Trustee 15 Years Treasurer/Chief Fiscal Officer - 98 Director - Andy
2005 Market Street National Gallery of Art Warhol Foundation
Philadelphia, PA (1994 - 1999)
19103 Director -
Systemax Inc.
November 1, 1940
- -----------------------------------------------------------------------------------------------------------------------------------
Thomas F. Madison Trustee 10 Years President/Chief 98 Director -
2005 Market Street Executive Officer - Banner Health
Philadelphia, PA MLM Partners, Inc.
19103 (Small Business Investing Director -
and Consulting) CenterPoint Energy
(January 1993 - Present)
February 25, 1936
Director -
Digital River Inc.
Director - Rimage
Corporation
- -----------------------------------------------------------------------------------------------------------------------------------
Janet L. Yeomans Trustee 5 Years Vice President/Mergers & 98 None
2005 Market Street Acquisitions - 3M Corporation
Philadelphia, PA (January 2003 - Present)
19103
Ms. Yeomans has held
July 31, 1948 various management positions
at 3M Corporation since 1983.
- -----------------------------------------------------------------------------------------------------------------------------------
OFFICERS
Joseph H. Hastings Executive Executive Mr. Hastings has served in 98 None
2005 Market Street Vice President Vice President various executive capacities
Philadelphia, PA and and at different times at
19103 Chief Financial Chief Financial Delaware Investments.
Officer Officer since
August 21, 2003
December 19, 1949
- -----------------------------------------------------------------------------------------------------------------------------------
Richelle S. Maestro Senior Vice President, Chief Legal Officer Ms. Maestro has served in 98 None
2005 Market Street Chief Legal Officer since various executive capacities
Philadelphia, PA and Secretary March 17, 2003 at different times at
19103 Delaware Investments.
November 26, 1957
- -----------------------------------------------------------------------------------------------------------------------------------
Michael P. Bishof Senior Vice President 8 Years Mr. Bishof has served in 98 None
2005 Market Street and Treasurer various executive capacities
Philadelphia, PA at different times at
19103 Delaware Investments.
August 18, 1962
- -----------------------------------------------------------------------------------------------------------------------------------
(1) Delaware Investments is the marketing name for Delaware Management Holdings,
Inc. and its subsidiaries, including the Registrant's investment advisor,
principal underwriter and its transfer agent.
(2) Mr. Driscoll is considered to be an "Interested Trustee" because he is an
executive officer of the Fund's manager and distributor.
(3) Mr. Durham served as a Director Emeritus from 1995 through 1998.
(4) Mr. Driscoll and Mr. Fry are not Trustees of the portfolios of Voyageur
Insured Funds, Voyageur Intermediate Tax Free Funds, Voyageur Investment
Trust, Voyageur Mutual Funds, Voyageur Mutual Funds II, Voyageur Mutual
Funds III and Voyageur Tax Free Funds.
The Statement of Additional Information for the Fund(s) includes additional
information about the Trustees/Directors and Officers and is available, without
charge, upon request by calling 800 523-1918.
(8533)
Balanced-19
FOR INCOME
Delaware VIP Trust-Delaware VIP Capital Reserves Series
Portfolio Snapshot
Delaware VIP Capital Reserves Series returned +4.63% (Standard Class shares
with distributions reinvested) for the year ended December 31, 2003. The Lehman
Brothers Intermediate Government/Credit Index gained +4.31% for the same period.
During the fiscal year, three relatively distinct periods emerged in the
fixed-income markets. First, from year-end 2002 to June 13, investors contended
with a generational low in interest rates. During this time, the Fed's publicly
stated concerns were with deflation. Economic readings were mixed; the capital
markets were not convinced that the recovery was in place.
After the June 13 lows, we saw fixed income interest rates climb steadily
through to September. Economic data were pointing to higher growth and the
capital markets affirmed that a sustainable recovery was in place. As rates
began to reflect this new level of economic recovery, bond prices declined. The
Treasury yield curve steepened as longer bonds were more greatly impacted by
rising rates. This trend continued until early September, when rates saw a
significant increase for two- through 30-year issues.
The last four months of 2003 were marked by a decline in volatility and a
leveling off of rates. With a recovery appearing more promising the Fed
announced that rates would be held steady for the near term.
The Series experienced a superior return versus its benchmark index due
particularly to the performance of high-grade corporates. As investors reached
for yield, the performance of Treasuries gave way to fixed-income securities of
slightly lesser quality. Corporate bonds benefited from general economic
strengthening, as evidenced by the Commerce Department's announcement that U.S.
gross domestic product (GDP) grew by +8.2% in the third quarter of 2003. They
also benefited from fundamental improvements in the business community, as with
better earnings and higher quality balance sheets.
Our asset allocation decision to be generally overweighted in corporates was
driven by our belief that continued economic strengthening would likely enhance
the appeal of corporate bonds. Furthermore, we thought the lower-quality sectors
of the high-grade market appeared attractively valued, and thus we stressed such
securities during the period. These decisions positively impacted the Series'
performance during the 12 months, as did our focus on such sectors of the
corporate bond market as media/telecommunications, automotive, and utilities.
Investment Outlook
We remain true to our investment discipline. Our process of analyzing economic
and market conditions to identify high-quality securities and market sectors
that may provide a high stable level of income has not changed. We will keep a
watchful eye on the Fed's perception of economic growth and its stance of easing
monetary policy through interest rate adjustments.
Performance of a $10,000 Investment:
December 31, 1993 through December 31, 2003
Delaware VIP Capital Lehman Brothers
Reserves Series Intermediate
(Standard Class Shares) Government/Credit Index
----------------------- ------------------------
Dec.'93 $10,000 $10,000
Dec.'94 $ 9,732 $ 9,807
Dec.'95 $11,101 $11,311
Dec.'96 $11,551 $11,769
Dec.'97 $12,429 $12,695
Dec.'98 $13,253 $13,764
Dec.'99 $13,228 $13,819
Dec.'00 $14,411 $15,214
Dec.'01 $15,610 $16,580
Dec.'02 $16,735 $18,212
Dec.'03 $17,510 $18,997
Delaware VIP Capital Reserves Series
Average Annual Total Returns
-------------------------------------
Standard Class Service Class
Shares* Shares**
Lifetime +6.58% +7.41%
10 Years +5.76% --
Five Years +5.70% --
One Year +4.63% +4.21%
For the periods ended December 31, 2003
*Commenced operations on July 28, 1988.
**Commenced operations on May 1, 2000.
Past performance is not a guarantee of future results. Returns and share values
will fluctuate so that shares, when redeemed, may be worth more or less than
their original cost.
The chart shows a $10,000 investment in Delaware VIP Capital Reserves Series
Standard Class shares and the Lehman Brothers Intermediate Government/Credit
Index for the 10-year period from December 31, 1993 through December 31, 2003.
All distributions were reinvested. Returns plotted on the chart were as of the
last day of each month shown. The Lehman Brothers Intermediate Government/Credit
Index measures the performance of U.S. government and corporate bonds. An index
is unmanaged and does not reflect the costs of operating a mutual fund, such as
the costs of buying, selling, and holding securities. Earnings from a variable
annuity investment compound tax-free until withdrawal, so no adjustments were
made for income taxes. An expense limitation for advisory fees was in effect for
Delaware VIP Capital Reserves Series during all periods shown. Performance for
the lifetime period would have been lower had an advisory fee waiver not been in
effect. A portion of 12b-1 fees was waived for the one-year and lifetime periods
for the Service Class shares. Performance does not reflect insurance fees
related to a variable annuity or variable life investment or the deferred sales
charge that would apply to certain withdrawals of investments held for fewer
than eight years. Performance shown here would have been reduced if such fees
were included and the expense limitation was removed. For more information about
fees, consult your variable annuity or variable life prospectus.
Capital Reserves-1
Delaware VIP Trust-Delaware VIP Capital Reserves Series
Statement of Net Assets
December 31, 2003
Principal Market
Amount Value
AGENCY ASSET-BACKED SECURITIES-3.38%
+SLMA Student Loan Trust
Series 96-3 A2 1.889% 10/25/11 ............ $ 550,000 $ 551,832
Series 97-1 A2 1.509% 1/25/10 ............. 99,286 99,731
Series 98-2 A2 1.656% 1/25/14 ............. 498,063 501,728
----------
Total Agency Asset-Backed Securities
(cost $1,151,908) 1,153,291
----------
AGENCY COLLATERALIZED MORTGAGE
OBLIGATIONS-3.40%
Fannie Mae
Series 03-18 Class DA 4.50% 11/25/14 ...... 200,000 204,384
Series 03-86 Class OJ 5.00% 3/25/17 ....... 155,000 160,989
Fannie Mae Whole Loan Series 02-W1
Class 1A2 4.81% 12/25/33 .................. 118,479 119,494
Freddie Mac Structured Pass Through
Securities
Series T-58 Class 1A2 3.108% 5/25/35 ...... 110,000 110,573
Series T-58 Class 2A 6.50% 9/25/43 ........ 236,499 251,502
GNMA
Series 02-61 Class BA 4.648% 3/16/26 ...... 80,000 82,128
Series 02-62 B 4.763% 1/16/25 ............. 80,000 82,196
Series 03-5 B 4.486% 10/16/25 ............. 145,000 146,067
----------
Total Agency Collateralized Mortgage
Obligations (cost $1,153,860) ............. 1,157,333
----------
AGENCY MORTGAGE-BACKED SECURITIES-9.31%
Fannie Mae
4.50% 10/1/10 ............................. 148,746 151,163
5.00% 11/1/17 ............................. 617,816 631,137
5.50% 10/1/16 TBA ......................... 1,300,000 1,347,126
6.50% 4/1/12 .............................. 160,924 170,780
6.52% 1/1/08 .............................. 204,636 225,163
7.50% 12/1/10 ............................. 29,022 30,636
7.50% 6/1/31 .............................. 185,000 197,777
8.50% 8/1/12 .............................. 54,904 58,902
9.00% 6/1/09 .............................. 181,879 203,137
Freddie Mac
3.50% 9/1/18 .............................. 122,500 118,059
3.50% 10/1/18 ............................. 19,822 19,103
GNMA
12.00% 6/20/14 ............................ 9,584 10,998
12.00% 3/20/15 ............................ 4,693 5,394
12.00% 2/20/16 ........................... 4,303 4,953
----------
Total Agency Mortgage-Backed
Securities (cost $3,153,946) .............. 3,174,328
----------
AGENCY OBLIGATIONS-4.30%
Fannie Mae 4.625% 10/15/13 .................. 150,000 149,234
Federal Home Loan Bank
2.15% 9/30/05 ............................. 345,000 345,492
3.875% 2/12/10 ............................ 155,000 154,563
Freddie Mac 2.10% 2/25/05 ................... 815,000 815,938
----------
Total Agency Obligations
(cost $1,465,314) 1,465,227
----------
ASSET-BACKED SECURITIES-4.26%
Bank One Issuance Trust Series
02-A3 A3 3.59% 5/17/10 .................... 125,000 126,986
Capital One Multi-Asset Execution Trust
Series 03-A6 A6 2.95% 8/17/09 ............. 120,000 120,869
Series 03-C2 C2 4.32% 4/15/09 ............. 55,000 56,092
Principal Market
Amount Value
ASSET-BACKED SECURITIES (continued)
Citibank Credit Card Issuance Trust
Series 03-A6 A6 2.90% 5/17/10 ............. $135,000 $ 131,999
Freddie Mac Structure Pass Through
Securities Series T-50 A3 2.182% 9/27/07 .. 294,059 294,321
#GSAMP Trust 144A
Series 02-HE2N 8.25% 10/20/32 ............. 31,967 32,089
Series 02-WFN 8.25% 10/20/32 .............. 23,779 23,855
MBNA Credit Card Master Note Trust
Series 01-A1 Class A1 5.75% 10/15/08 ...... 280,000 301,136
Mid-State Trust Series 11 A1
4.864% 7/15/38 ............................ 51,478 48,440
NationsCredit Grantor Trust Series
97-1 A 6.75% 8/15/13 ...................... 104,367 109,664
Navistar Financial Corporate Owner Trust
Series 02-B A4 3.52% 10/15/09 ............. 195,000 199,013
Sharp Series 02-HE2N N 9.50% 10/25/32 ...... 7,885 7,885
----------
Total Asset-Backed Securities
(cost $1,439,953) ......................... 1,452,349
----------
CORPORATE BONDS-58.24%
Airlines-1.01%
Continental Airlines 6.503% 6/15/11 ........ 280,000 276,192
Delta Airlines 7.299% 9/18/06 .............. 60,000 54,146
US Airways 6.85% 1/30/18 ................... 13,169 12,600
----------
342,938
----------
Banking & Finance-20.86%
Apache Financial 7.00% 3/15/09 ............. 220,000 254,704
Bear Stearns 4.65% 7/2/18 .................. 155,000 142,027
Citigroup 5.625% 8/27/12 ................... 235,000 248,501
Compass Bank 6.45% 5/1/09 .................. 120,000 134,533
Countrywide Home
1.652% 6/2/06 ............................. 285,000 287,262
5.25% 6/15/04 ............................. 90,000 91,528
Credit Suisse First Boston USA
3.875% 1/15/09 ............................ 195,000 194,988
6.125% 11/15/11 ........................... 155,000 169,019
#ERAC USA Finance 144A 7.35% 6/15/08 ........ 345,000 394,544
Ford Motor Credit
5.625% 10/1/08 ............................ 90,000 92,489
7.25% 10/25/11 ............................ 255,000 276,979
Franklin Resources 3.70% 4/15/08 ........... 150,000 149,332
Frost National Bank 6.875% 8/1/11 .......... 110,000 123,237
General Electric Capital 5.45% 1/15/13 ..... 205,000 213,647
GMAC
6.75% 1/15/06 ............................. 100,000 107,406
7.25% 3/2/11 .............................. 485,000 532,846
Goldman Sachs 5.25% 10/15/13 ............... 205,000 207,362
Household Finance 4.125% 12/15/08 .......... 150,000 151,480
#ING Bank 144A 5.125% 5/1/15 ................ 315,000 314,621
International Lease Finance 5.875% 5/1/13 .. 285,000 300,802
Morgan Stanley 5.30% 3/1/13 ................ 95,000 97,218
National Rural Utilities Cooperative Finance
3.875% 2/15/08 ............................ 205,000 207,774
Popular North American 4.25% 4/1/08 ........ 180,000 183,432
Regions Financial 6.375% 5/15/12 ........... 190,000 209,363
Stilwell Financial 7.00% 11/1/06 ........... 80,000 87,468
#TIAA Global Markets 144A 2.75% 1/13/06 ..... 200,000 202,481
UFJ Finance Aruba 6.75% 7/15/13. ........... 360,000 384,618
Union Bank Switzerland 7.25% 7/15/06 ....... 490,000 546,029
Capital Reserves-2
Delaware VIP Capital Reserves Series
Statement of Net Assets (continued)
Principal Market
Amount Value
CORPORATE BONDS (continued)
Banking & Finance (continued)
US Bank National Association
6.375% 8/1/11 ............................. $ 205,000 $ 228,915
Wells Fargo Financial 6.125% 4/18/12 ....... 275,000 301,610
Westpac Banking 4.625% 6/1/18 .............. 140,000 130,758
Wilmington Trust 4.875% 4/15/13 ............ 145,000 142,790
----------
7,109,763
----------
Basic Industry/Capital Goods-0.75%
Dow Chemical 6.00% 10/1/12 ................. 85,000 89,626
Johnson Controls 5.00% 11/15/06 ............ 155,000 165,224
----------
254,850
----------
Building & Materials-0.99%
Valspar 6.00% 5/1/07 ....................... 250,000 271,501
York International 6.625% 8/15/06 .......... 60,000 64,790
----------
336,291
----------
Cable, Media & Publishing-3.68%
Liberty Media
3.50% 9/25/06 ............................. 90,000 90,520
7.75% 7/15/09 ............................. 170,000 195,184
Thomson Multimedia 5.75% 2/1/08 ............ 200,000 217,091
Time Warner 6.875% 5/1/12 .................. 250,000 281,869
USA Interactive 7.00% 1/15/13 .............. 175,000 193,278
USA Networks 6.75% 11/15/05 ................ 260,000 277,201
----------
1,255,143
----------
Energy-2.91%
Enterprise Products 7.50% 2/1/11 ........... 185,000 207,028
#Halliburton Company 144A 5.50% 10/15/10 .... 110,000 115,202
Transocean Sedco Forex 6.75% 4/15/05 ....... 245,000 258,767
Valero Energy 6.125% 4/15/07 ............... 135,000 146,673
Valero Logistics 6.05% 3/15/13 ............. 255,000 265,829
----------
993,499
----------
Food, Beverage & Tobacco-4.78%
Altria Group 7.00% 11/4/13 ................. 295,000 315,267
Anheuser-Busch 5.05% 10/15/16 .............. 260,000 258,890
Kraft Foods
4.00% 10/1/08 ............................. 195,000 196,371
5.625% 11/1/11 ............................ 25,000 26,383
#Miller Brewing 144A 4.25% 8/15/08 ......... 305,000 309,388
Nabisco 6.85% 6/15/05 ...................... 145,000 155,008
Universal 6.50% 2/15/06 .................... 75,000 80,903
UST
6.625% 7/15/12 ............................ 165,000 183,847
8.80% 3/15/05 ............................. 95,000 102,371
----------
1,628,428
----------
Healthcare & Pharmaceuticals-1.15%
Medco Health Solutions 7.25% 8/15/13 ....... 250,000 273,215
Schering-Plough 5.30% 12/1/13 .............. 115,000 117,276
----------
390,491
----------
Industrial-1.36%
Hutchison Whamp International Limited
6.50% 2/13/13 ............................. 125,000 130,395
Tyco International Group 6.375% 2/15/06 .... 310,000 331,700
----------
462,095
----------
Insurance-1.50%
Aegon NV 4.75% 6/1/13 ...................... 125,000 122,116
AON 7.375% 12/14/12 ........................ 150,000 171,799
#Asif Global Financing 144A 4.90% 1/17/13 .. 130,000 129,437
Progressive 6.375% 1/15/12 ................. 80,000 88,330
----------
511,682
----------
Principal Market
Amount Value
CORPORATE BONDS (continued)
Metals & Mining-0.37%
Barrick Gold 7.50% 5/1/07 .................. $110,000 $ 125,272
-----------
125,272
-----------
Real Estate-0.28%
Developers Divers Realty
4.625% 8/1/10 ............................. 95,000 94,613
-----------
94,613
-----------
Retail-2.35%
CVS 3.875% 11/1/07 ......................... 135,000 138,729
Lowe's Companies 7.50% 12/15/05. ........... 190,000 209,821
Safeway 3.80% 8/15/05 ...................... 195,000 199,181
Target
5.875% 3/1/12 ............................. 130,000 141,323
5.95% 5/15/06 ............................. 105,000 113,559
-----------
802,613
-----------
Technology/Hardware-0.70%
Dell Computer 6.55% 4/15/08 ................ 215,000 240,405
-----------
240,405
-----------
Telecommunications-7.77%
AT&T 7.25% 11/15/06 ........................ 315,000 348,610
#Cable & Wire Finance 144A 8.125% 6/15/09 ... 145,000 172,094
#Intelsat 144A 5.25% 11/1/08 ................ 170,000 175,126
#Singapore Telecommunications 144A
6.375% 12/1/11 ............................ 90,000 99,663
Sprint Capital
6.375% 5/1/09 ............................. 75,000 80,264
8.375% 3/15/12 ............................ 485,000 567,526
Telefonica Europe 7.35% 9/15/05. ........... 95,000 103,141
#Telefonos de Mexico 144A 4.50% 11/19/08 .... 185,000 186,206
Time Warner 8.18% 8/15/07 .................. 125,000 144,869
Verizon Virginia 4.625% 3/15/13. ........... 315,000 304,264
Verizon Wireless 5.375% 12/15/06 ........... 210,000 224,275
Vodafone Group 5.375% 1/30/15 .............. 240,000 242,826
-----------
2,648,864
-----------
Utilities-7.78%
Avista 7.75% 1/1/07 ........................ 65,000 72,125
Boston Gas 8.87% 1/5/05 .................... 120,000 128,417
Consolidated Edison 3.625% 8/1/08 .......... 135,000 135,166
Consumers Energy 6.00% 3/15/05 ............. 75,000 78,146
#Consumers Energy 144A
4.25% 4/15/08 ............................. 70,000 70,768
Detroit Edison 5.05% 10/1/05 ............... 135,000 141,274
FPL Group Capital 3.25% 4/11/06 ............ 230,000 234,170
Hydro-Quebec 6.30% 5/11/11 ................. 350,000 395,438
Marathon Oil 9.375% 2/15/12 ................ 170,000 218,622
North Border Pipeline 6.25% 5/1/07 ......... 180,000 195,762
#Power Contract 144A 5.20% 2/1/06 ........... 165,000 167,561
Progress Energy 6.75% 3/1/06 ............... 210,000 227,809
PSEG Energy Holdings 7.75% 4/16/07 ......... 230,000 245,238
Southern Capital 5.30% 2/1/07 .............. 25,000 26,991
TXU Energy 7.00% 3/15/13 ................... 285,000 315,859
-----------
2,653,346
-----------
Total Corporate Bonds
(cost $19,381,155) ........................ 19,850,293
-----------
Capital Reserves-3
Delaware VIP Capital Reserves Series
Statement of Net Assets (continued)
Principal Market
Amount Value
NON-AGENCY COLLATERALIZED
MORTGAGE OBLIGATIONS-9.60%
Bank of America Alternative Loan Trust
Series 03-10 2A1 6.00% 12/25/33 .......... $343,295 $ 352,574
Series 03-11 1A1 6.00% 1/25/34 ........... 110,000 113,008
++Bank of America Mortgage Securities
Series 03-D 1A2 3.428% 5/25/33 ........... 24,219 24,619
Series 03-F 1A1 2.969% 7/25/33 ........... 73,699 73,752
Series 03-I 2A4 3.828% 10/25/33 .......... 165,000 165,678
+Bear Stearns Adjustable Rate Mortgage
Trust Series 03-7 8A 4.83% 10/25/33 ...... 157,950 160,582
Cendant Mortgage Series 02-4 A6
6.50% 7/25/32 ............................ 84,823 85,239
Countrywide Alternative Loan Trust
Series 02-7 6.75% 8/25/32 ................ 67,258 67,870
++Countrywide Home Loans Series 03-21
Class A1 4.19% 5/25/33 147,597 149,833
Credit Suisse First Boston Mortgage Securities
Series 02-10 2A1 7.50% 5/25/32 ........... 42,159 45,213
Series 02-30 1A1 7.50% 11/25/32 .......... 54,616 57,889
Series 03-23 5A1 6.00% 9/25/33 ........... 105,884 109,282
Series 03-23 7A1 5.00% 9/25/18 ........... 156,080 157,815
Series 03-29 5A1 7.00% 12/25/33 .......... 280,000 295,443
++Master Adjustable Rate Mortgages Trust
Series 03-6 1A2 3.134% 12/25/33 .......... 120,000 119,550
+Vendee Mortgage Trust
Series 00-1 1A 6.823% 1/15/30 ............ 358,718 381,390
Series 93-1 Class K 7.25% 4/15/12 ........ 255,000 263,675
Washington Mutual
++ Series 03-AR4 A7 3.95% 5/25/33 ........... 136,976 137,286
Series 03-S1 A1 5.00% 4/25/33 ............ 194,273 198,888
++Wells Fargo Mortgage Backed Securities Trust
Series 03-K 2A5 4.522% 11/25/33 .......... 105,000 95,551
Series 03-M A1 4.788% 12/25/33 ........... 218,518 215,856
----------
Total Non-Agency
Collateralized Mortgage Obligations
(cost $3,264,328) ........................ 3,270,993
----------
Principal Market
Amount Value
U.S. TREASURY OBLIGATIONS-6.82%
U.S. Treasury Inflation Index Notes
1.875% 7/15/13 $110,501 $ 109,741
*3.00% 7/15/12................. 733,690 800,066
3.375% 1/15/07................. 128,096 138,804
3.375% 4/15/32................. 296,240 366,193
3.625% 1/15/08................. 610,986 675,904
U.S. Treasury Note 4.25% 11/15/13 235,000 234,816
----------
Total U.S. Treasury Obligations
(cost $2,283,894) 2,325,524
----------
Repurchase Agreements-3.88%
With BNP Paribas 0.85% 1/2/04
(dated 12/31/03, collateralized by $31,000
U.S. Treasury Bills due 3/25/04, market
value $30,563, $113,000 U.S. Treasury
Notes 3.625% due 3/31/04, market
value $115,145, $349,000 U.S. Treasury
Notes 6.00% due 8/15/04, market
value $367,186, and $180,000 U.S. Treasury
Notes 1.625% due 1/31/05, market
value $181,908) ........................... 681,000 681,000
With UBS Warburg 0.85% 1/2/04
(dated 12/31/03, collateralized by $149,000
U.S. Treasury Notes 1.625% due 3/31/05,
market value $150,495, $5,000 U.S. Treasury
Notes 5.50% due 2/15/08, market value $5,769,
and $448,000 U.S. Treasury Notes 5.625% due
5/15/08, market value $499,621) ........... 642,000 642,000
----------
Total Repurchase Agreements
(cost $1,323,000) 1,323,000
----------
TOTAL MARKET VALUE OF SECURITIES-103.19% (COST $34,617,358)............................................ 35,172,338
LIABILITIES NET OF RECEIVABLES AND OTHER ASSETS-(3.19%)................................................ (1,088,667)
-----------
NET ASSETS APPLICABLE TO 3,402,912 SHARES OUTSTANDING-100.00%.......................................... $34,083,671
===========
NET ASSET VALUE-DELAWARE VIP CAPITAL RESERVES SERIES STANDARD CLASS ($34,077,185 / 3,402,263 SHARES)... $10.02
======
NET ASSET VALUE-DELAWARE VIP CAPITAL RESERVES SERIES SERVICE CLASS ($6,486 / 648.5 SHARES)............. $10.00
======
COMPONENTS OF NET ASSETS AT DECEMBER 31, 2003:
Shares of beneficial interest (unlimited authorization-no par)......................................... $35,092,926
Undistributed net investment income.................................................................... 3,044
Accumulated net realized loss on investments........................................................... (1,537,435)
Net unrealized appreciation of investments............................................................. 525,136
-----------
Total net assets....................................................................................... $34,083,671
-----------
*Fully or partially pledged as collateral for financial futures and options
contracts.
+Variable Rate Notes - the interest rate shown is the rate as of December 31,
2003.
++Floating Rate Notes - the interest rate shown is the rate as of December 31,
2003 and the maturity date shown is the longer of the net readjustment or the
date the principal amount shown can be recovered through demand.
#Security exempt from registration under Rule 144A of the Securities Act of
1933. See Note #10 in "Notes to Financial Statements."
GNMA-Government National Mortgage Association
SLMA-Student Loan Marketing Association
TBA-To be announced
See accompanying notes
Capital Reserves-4
Delaware VIP Trust-
Delaware VIP Capital Reserves Series
Statement of Operations
Year Ended December 31, 2003
INVESTMENT INCOME:
Interest ........................................................ $1,540,846
----------
EXPENSES:
Management fees .................................................. 192,857
Accounting and administration expenses ........................... 16,600
Custodian fees .............................................. . . 9,690
Professional fees ................................................ 4,542
Reports and statements to shareholders ........................... 4,472
Dividend disbursing and transfer agent fees
and expenses .................................................... 3,994
Trustees' fees ................................................... 1,850
Registration fees ................................................ 750
Distribution expenses - Service Class ............................ 16
Other ............................................................ 9,322
----------
244,093
Less waiver of distribution expenses - Service Class ............. (2)
Less expenses paid indirectly .................................... (926)
----------
Total expenses ................................................... 243,165
----------
NET INVESTMENT INCOME ............................................ 1,297,681
----------
NET REALIZED AND UNREALIZED GAIN
(LOSS) ON INVESTMENTS:
Net realized gain (loss) on:
Investments ..................................................... 1,147,434
Futures contracts ............................................... (199,849)
Options written ................................................. 27,664
Swap agreements ................................................. 89,961
----------
Net realized gain ................................................ 1,065,210
Net change in unrealized appreciation/
depreciation of investments ..................................... (658,121)
----------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS .................. 407,089
----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS ............. $1,704,770
==========
See accompanying notes
Delaware VIP Trust-
Delaware VIP Capital Reserves Series
Statements of Changes in Net Assets
Year Ended
12/31/03 12/31/02
------------ ------------
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS:
Net investment income ............................. $ 1,297,681 $ 1,406,042
Net realized gain on investments .................. 1,065,210 13,587
Net change in unrealized appreciation/
depreciation of investments ...................... (658,121) 900,834
------------ ------------
Net increase in net assets resulting
from operations .................................. 1,704,770 2,320,463
------------ ------------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income:
Standard Class ................................... (1,552,350) (1,519,894)
Service Class .................................... (244) (268)
------------ ------------
(1,552,594) (1,520,162)
------------ ------------
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares sold:
Standard Class ................................... 4,268,145 20,476,479
Net asset value of shares issued upon
reinvestment of dividends and distributions:
Standard Class ................................... 1,550,038 1,516,270
Service Class .................................... 242 269
------------ ------------
5,818,425 21,993,018
------------ ------------
COST OF SHARES REPURCHASED:
Standard Class ................................... (14,590,488) (11,091,327)
------------ ------------
Increase (decrease) in net assets derived from
capital share transactions ....................... (8,772,063) 10,901,691
------------ ------------
NET INCREASE (DECREASE)
IN NET ASSETS .................................... (8,619,887) 11,701,992
NET ASSETS:
Beginning of year ................................. 42,703,558 31,001,566
------------ ------------
End of year ....................................... $ 34,083,671 $ 42,703,558
============ ============
See accompanying notes
Capital Reserves-5
Delaware VIP Trust-Delaware VIP Capital Reserves Series
Financial Highlights
Selected data for each share of the Series outstanding throughout each period
were as follows:
Delaware VIP Capital Reserves Series Standard Class
Year Ended
12/31/03 12/31/02 12/31/01(1) 12/31/00 12/31/99
-------- -------- ----------- -------- --------
Net asset value, beginning of period ................. $ 9.970 $ 9.750 $ 9.530 $ 9.360 $ 9.880
Income (loss) from investment operations:
Net investment income ................................ 0.329 0.419 0.533 0.590 0.546
Net realized and unrealized gain (loss) on investments 0.125 0.253 0.239 0.170 (0.520)
------- ------- ------- ------- -------
Total from investment operations ..................... 0.454 0.672 0.772 0.760 0.026
------- ------- ------- ------- -------
Less dividends and distributions from:
Net investment income ................................ (0.404) (0.452) (0.552) (0.590) (0.546)
------- ------- ------- ------- -------
Total dividends and distributions .................... (0.404) (0.452) (0.552) (0.590) (0.546)
------- ------- ------- ------- -------
Net asset value, end of period ....................... $10.020 $ 9.970 $ 9.750 $ 9.530 $ 9.360
======= ======= ======= ======= =======
Total return(2) ...................................... 4.63% 7.09% 8.27% 8.46% 0.28%
Ratios and supplemental data:
Net assets, end of period (000 omitted) .............. $34,077 $42,698 $30,996 $27,813 $36,701
Ratio of expenses to average net assets .............. 0.63% 0.62% 0.58% 0.63% 0.79%
Ratio of net investment income to average net assets . 3.36% 4.21% 5.46% 6.34% 5.68%
Portfolio turnover ................................... 438% 427% 290% 177% 129%
- ----------------
(1) As required, effective January 1, 2001, the Series adopted the provisions
of the AICPA Audit and Accounting Guide for Investment Companies that
requires amortization of all premiums and discounts on debt securities and
the recording of paydown gains and losses on mortgage- and asset-backed
securities as an adjustment to interest income. The effect of these changes
for the year ended December 31, 2001 was a decrease in net investment
income per share of $0.019, an increase in net realized and unrealized gain
(loss) per share of $0.019, and a decrease in the ratio of net investment
income to average net assets of 0.20%. Per share data and ratios for
periods prior to January 1, 2001 have not been restated to reflect these
changes in accounting.
(2) Total investment return is based on the change in net asset value of a
share during the period and assumes reinvestment of dividends and
distributions at net asset value.
See accompanying notes
Capital Reserves-6
Delaware VIP Capital Reserves Series
Financial Highlights (continued)
Selected data for each share of the Series outstanding throughout each period
were as follows:
Delaware VIP Capital Reserves Series Service Class
5/1/00(2)
Year Ended to
12/31/03 12/31/02 12/31/01(1) 12/31/00
-------- -------- ----------- --------
Net asset value, beginning of period ............... $9.970 $ 9.760 $ 9.530 $ 9.210
Income from investment operations:
Net investment income .............................. 0.308 0.406 0.519 0.389
Net realized and unrealized gain on investments .... 0.105 0.243 0.249 0.320
------- ------- ------- -------
Total from investment operations ................... 0.413 0.649 0.768 0.709
------- ------- ------- -------
Less dividends and distributions from:
Net investment income .............................. (0.383) (0.439) (0.538) (0.389)
------- ------- ------- -------
Total dividends and distributions .................. (0.383) (0.439) (0.538) (0.389)
------- ------- ------- -------
Net asset value, end of period ..................... $10.000 $ 9.970 $ 9.760 $ 9.530
======= ======= ======= =======
Total return(3) .................................... 4.21% 6.84% 8.23% 7.88%
Ratios and supplemental data:
Net assets, end of period (000 omitted) ............ $6 $6 $6 $5
Ratio of expenses to average net assets ............ 0.85% 0.77% 0.73% 0.73%
Ratio of expenses to average net assets prior to
expense limitation and expenses paid indirectly ... 0.88% 0.77% 0.73% 0.73%
Ratio of net investment income to average net assets 3.14% 4.06% 5.31% 6.25%
Ratio of net investment income to average net assets
prior to expense limitation and expenses paid
indirectly ....................................... 3.11% 4.06% 5.31% 6.25%
Portfolio turnover ................................. 438% 427% 290% 177%
- ----------------
(1) As required, effective January 1, 2001, the Series adopted the provisions
of the AICPA Audit and Accounting Guide for Investment Companies that
requires amortization of all premiums and discounts on debt securities and
the recording of paydown gains and losses on mortgage- and asset-backed
securities as an adjustment to interest income. The effect of these changes
for the year ended December 31, 2001 was a decrease in net investment
income per share of $0.019, an increase in net realized and unrealized gain
(loss) per share of $0.019, and a decrease in the ratio of net investment
income to average net assets of 0.20%. Per share data and ratios for
periods prior to January 1, 2001 have not been restated to reflect these
changes in accounting.
(2) Date of commencement of operations; ratios and portfolio turnover have been
annualized and total return has not been annualized.
(3) Total investment return is based on the change in net asset value of a
share during the period and assumes reinvestment of dividends and
distributions at net asset value. Total investment return reflects a waiver
and payment of fees by the distributor, as applicable. Performance would
have been lower had the waiver not been in effect.
See accompanying notes
Capital Reserves-7
Delaware VIP Trust-Delaware VIP Capital Reserves Series
Notes to Financial Statements
December 31, 2003
Delaware VIP Trust (the "Trust") is organized as a Delaware
statutory trust and offers 15 series: Delaware VIP Balanced Series, Delaware VIP
Capital Reserves Series, Delaware VIP Cash Reserve Series, Delaware VIP
Diversified Income Series, Delaware VIP Emerging Markets Series, Delaware VIP
Global Bond Series, Delaware VIP Growth Opportunities Series, Delaware VIP High
Yield Series, Delaware VIP International Value Equity Series, Delaware VIP Large
Cap Value Series, Delaware VIP REIT Series, Delaware VIP Select Growth Series,
Delaware VIP Small Cap Value Series, Delaware VIP Trend Series and Delaware VIP
U.S. Growth Series. These financial statements and the related notes pertain to
Delaware VIP Capital Reserves Series (the "Series"). The Trust is an open-end
investment company. The Series is considered diversified under the Investment
Company Act of 1940, as amended, and offers Standard Class and Service Class
shares. The Standard Class shares do not carry a 12b-1 fee and the Service Class
shares carry a 12b-1 fee. The shares of the Series are sold only to separate
accounts of life insurance companies.
The investment objective of the Series is to seek a high, stable level of
current income while attempting to minimize fluctuations in principal and
provide maximum liquidity.
1. Significant Accounting Policies
The following accounting policies are in accordance with accounting principles
generally accepted in the United States and are consistently followed by the
Series.
Security Valuation--U.S. government and agency securities are valued at the mean
between the bid and asked prices. Other long-term debt securities are valued by
an independent pricing service and such prices are believed to reflect the fair
value of such securities. Short-term debt securities having less than 60 days to
maturity are valued at amortized cost, which approximates market value. Futures
contracts and options on futures contracts are valued at the daily quoted
settlement prices. Swap agreements and other securities and assets for which
market quotations are not readily available are valued at fair value as
determined in good faith under the direction of the Series' Board of Trustees.
Federal Income Taxes--The Series intends to continue to qualify for federal
income tax purposes as a regulated investment company and make the requisite
distributions to shareholders. Accordingly, no provision for federal income
taxes has been made in the financial statements.
Class Accounting--Investment income and common expenses are allocated to the
various classes of the Series on the basis of "settled shares" of each class in
relation to the net assets of the Series. Realized and unrealized gain (loss) on
investments is allocated to the classes of the Series on the basis of daily net
assets of each class. Distribution expenses relating to a specific class are
charged directly to that class.
Repurchase Agreements--The Series may invest in a pooled cash account along with
other members of the Delaware Investments Family of Funds. 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 102% collateralized. However, in the
event of default or bankruptcy by the counterparty to the agreement, realization
of the collateral may be subject to legal proceedings.
Use of Estimates--The preparation of financial statements in conformity with
accounting principles generally accepted in the United States 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 common to all funds within the Delaware Investments Family of
Funds are allocated amongst the funds on the basis of average net assets.
Security transactions are recorded on the date the securities are purchased or
sold (trade date). Costs used in calculating realized gains and losses on the
sale of investment securities are those of the specific securities sold.
Interest income is recorded on the accrual basis. Premiums and discounts on all
debt securities are amortized to interest income over the lives of the
respective securities. Realized gains (losses) on paydowns of mortgage- and
asset-backed securities are classified as interest income.
The Series declares dividends daily from net investment income and pays such
dividends monthly and declares and pays distributions from net realized gain on
investments, if any, following the close of the fiscal year.
Certain expenses of the Series are paid through commission arrangements with
brokers. The amount of these expenses was approximately $926 for the year ended
December 31, 2003. In addition, 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 year ended December 31,
2003. The expenses paid under the above arrangements are included in their
respective expense captions on the Statement of Operations with the
corresponding expense offset shown as "expenses paid indirectly."
2. Investment Management, Administration Agreements and Other Transactions with
Affiliates
In accordance with the terms of its investment management agreement, the Series
pays Delaware Management Company (DMC), a series of Delaware Management Business
Trust and the investment manager, an annual fee which is calculated daily at the
rate of 0.50% on the first $500 million of average daily net assets of the
Series, 0.475% on the next $500 million, 0.45% on the next $1.5 billion, and
0.425% on average daily net assets in excess of $2.5 billion.
DMC has contractually agreed to waive that portion, if any, of its management
fee and reimburse the Series to the extent necessary to ensure that annual
operating expenses, exclusive of taxes, interest, brokerage commissions,
distribution fees, certain insurance costs and extraordinary expenses, do not
exceed 0.80% of average daily net assets of the Series through April 30, 2004.
No reimbursement was due for the year ended December 31, 2003.
Capital Reserves-8
Delaware VIP Capital Reserves Series
Notes to Financial Statements (continued)
2. Investment Management, Administration Agreements and Other Transactions with
Affiliates (continued)
Delaware Service Company, Inc. (DSC), an affiliate of DMC, provides accounting,
administration, dividend disbursing and transfer agent services. The Series pays
DSC a monthly fee based on average net assets subject to certain minimums for
accounting and administration services. The Series pays DSC a monthly fee based
on average net assets for dividend disbursing and transfer agent services.
Pursuant to a distribution agreement and distribution plan, the Series pays
Delaware Distributors, L.P. (DDLP), the distributor and an affiliate of DMC, an
annual 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, 2004 in order to prevent distribution and service fees of the Service
Class shares from exceeding 0.25% of average daily net assets. Prior to May 1,
2003, the Board of Trustees had set the fee at an annual rate of 0.15% of the
Service Class shares' average daily net assets. No distribution expenses are
paid by Standard Class shares.
At December 31, 2003, the Series had liabilities payable to affiliates as
follows:
Dividend disbursing,
Investment transfer agent fees, Other expenses
management accounting payable
fee payable to and other expenses to DMC
DMC payable to DSC and affiliates*
- -------------- -------------------- ---------------
$14,631 $893 $3,981
- ----------------
*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, professional fees,
custodian fees and trustees' 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 year ended December 31, 2003, the Series made purchases and sales of
investment securities other than U.S. government securities and
short-term investments as follows:
Purchases.................... $99,139,829
Sales........................ $92,912,855
At December 31, 2003, the cost of investments and unrealized appreciation
(depreciation) for federal income tax purposes for the Series were as follows:
Aggregate Aggregate
Cost of unrealized unrealized Net unrealized
investments appreciation depreciation appreciation
----------- ------------ ------------ --------------
$34,717,051 $559,033 $(103,746) $455,287
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 accounting principles
generally accepted in the United States. The tax character of dividends and
distributions paid during the years ended December 31, 2003 and 2002 was as
follows:
Year Ended Year Ended
12/31/03 12/31/02
---------- ----------
Ordinary income............... $1,552,594 $1,520,162
As of December 31, 2003, the components of net assets on a tax basis were as
follows:
Shares of beneficial interest............. $35,092,926
Undistributed ordinary income............. 3,044
Capital loss carryforwards................ (1,467,586)
Unrealized appreciation of investments.... 455,287
-----------
Net assets................................ $34,083,671
===========
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 federal income tax purposes, capital loss carryforwards may be carried
forward and applied against future capital gains. Such capital loss
carryforwards expire as follows: $32,368 expires in 2007, $1,352,324 expires in
2008 and $82,894 expires in 2010.
Capital Reserves-9
Delaware VIP Capital Reserves Series
Notes to Financial Statements (continued)
5. Capital Shares
Transactions in capital shares were as follows:
Year Year
Ended Ended
12/31/03 12/31/02
-------- --------
Shares sold:
Standard Class.................................. 424,832 2,082,120
Shares issued upon reinvestment of dividends
and distributions:
Standard Class.................................. 154,918 155,209
Service Class................................... 24 28
---------- ----------
579,774 2,237,357
---------- ----------
Shares repurchased:
Standard Class.................................. (1,459,197) (1,133,918)
---------- ----------
Net increase (decrease).......................... (879,423) 1,103,439
========== ==========
6. Line of Credit
The Series, along with certain other funds in the Delaware Investments Family of
Funds (the "Participants"), participates in a $177,300,000 revolving line of
credit facility to be used for temporary or emergency purposes as an additional
source of liquidity to fund redemptions of investor shares. The Participants are
charged an annual commitment fee, which is allocated across the Participants on
the basis of each fund's allocation of the entire facility. The Participants may
borrow up to a maximum of one third of their net assets under the agreement. The
Series had no amounts outstanding as of December 31, 2003, or at any time during
the year.
7. Futures Contracts
The Series may invest in financial futures contracts to hedge its existing
portfolio securities against fluctuations in fair value caused by changes in
prevailing market interest rates. Upon entering into a futures contract, the
Series deposits cash or pledges U.S. government securities to a broker, equal to
the minimum "initial margin" requirements of the exchange on which the contract
is traded. In some cases, due to the form of the futures agreement, initial
margin is held in a segregated account with the Series' custodian, rather than
directly with the broker. Subsequent payments are received from the broker or
paid to the broker (or added to the segregated account) each day, based on the
daily fluctuation in the market value of the contract. These receipts or
payments are known as "variation margin" and are recorded daily by the Series as
unrealized gains or losses until the contracts are closed. When the contracts
are closed, the Series records a realized gain or loss equal to the difference
between the value of the contract at the time it was opened and the value at the
time it was closed. Risks of entering into futures contracts includes potential
imperfect correlation between the futures contracts and the underlying
securities and the possibility of an illiquid secondary market for these
instruments.
Financial futures contracts open at December 31, 2003 were as follows:
Unrealized
Contracts Notional Appreciation
to Buy (Sell) Cost (Proceeds) Expiration Date (Depreciation)
- ------------- --------------- --------------- --------------
(26) U.S. Treasury 5 year Notes $(2,865,011) 3/04 $(37,123)
4 U.S. Long Bond 435,176 3/04 2,074
--------
$(35,049)
========
The use of futures contracts involves elements of market risk and risks in
excess of the amount recognized in the financial statements. The notional
amounts presented above represent the Series' total exposure in such contracts,
whereas only the net unrealized appreciation (depreciation) is reflected in the
Series' net assets.
8. Options Written
During the year ended December 31, 2003, the Series entered into options
contracts in accordance with its investment objectives. When the Series writes
an option, a premium is received and a liability is recorded and adjusted on a
daily basis to reflect the current market value of the options written. Premiums
received from writing options that expire unexercised are treated by the Series
on the expiration date as realized gains. The difference between the premium
received and the amount paid on effecting a closing purchase transaction,
including brokerage commissions, is treated as realized gain or loss. If a call
option is exercised, the premium is added to the proceeds from the sale of the
underlying security in determining whether the Series has a realized gain or
loss. If a put option is exercised, the premium reduces the cost basis of the
securities purchased by the Series. The Series, as writer of an option, bears
the market risk of an unfavorable change in the price of the security underlying
the written option.
Capital Reserves-10
Delaware VIP Capital Reserves Series
Notes to Financial Statements (continued)
8. Options Written (continued)
Transactions in options written during the year ended December 31, 2003 for the
Series, were as follows:
Number of
Contracts Premiums
--------- --------
Options outstanding at December 31, 2002.. 62 $61,380
Options written........................... 60 23,017
Options terminated in closing purchase
transactions ........................... (62) (61,380)
--- -------
Options outstanding at December 31, 2003.. 60 $23,017
=== =======
At December 31, 2003, the Series had the following options written outstanding:
Unrealized
Number of Notional Exercise Expiration Appreciation
Description Contracts Amount Price Date (Depreciation)
----------- --------- -------- -------- ---------- --------------
Call Options Written
U.S. Treasury 10 year Future 30 $3,000,000 $115 2/21/04 $(3,491)
Put Options Written
U.S. Treasury 10 year Note 30 $3,000,000 $105 2/21/04 8,696
-------
$ 5,205
=======
Writing options contracts involves elements of market risk and risks in excess
of the amount recognized in the financial statements. The notional amounts
presented above represent the Series' total exposure in such contracts, whereas
only the net unrealized appreciation (depreciation) is reflected in the Series'
net assets.
9. Swap Agreements
During the year ended December 31, 2003, the Series entered into total return
swap agreements in accordance with its investment objectives. A swap is an
agreement to exchange the return generated by one instrument for the return
generated by another instrument. Total return 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 agreements
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 agreement.
No total return swap agreements were outstanding at December 31, 2003.
10. Credit and Market Risk
The Series invests in fixed-income securities whose value is derived from an
underlying pool of mortgages or consumer loans. Investors receive principal and
interest payments as the underlying mortgages and consumer loans are paid back.
Some of these securities are collateralized mortgage obligations (CMOs). CMOs
are debt securities issued by U.S. government agencies or by financial
institutions and other mortgage lenders, which are collateralized by a pool of
mortgages held under an indenture. Prepayment of mortgages may shorten the
stated maturity of the obligations and can result in a loss of premium, if any
has been paid. Certain of these securities may be stripped (securities, which
provide only the principal or interest feature of the underlying security). The
yield to maturity on an interest-only CMO is extremely sensitive not only to
changes in prevailing interest rates, but also to the rate of principal payments
(including prepayments) on the related underlying mortgage assets. A rapid rate
of principal payments may have a material adverse affect on the Series' yield to
maturity. If the underlying mortgage assets experience greater than anticipated
prepayments of principal, the Series may fail to recoup its initial investment
in these securities even if the securities are rated in the highest rating
categories.
The Series may invest up to 10% of its total assets in illiquid securities,
which may include securities with contractual restrictions on resale, securities
exempt from registration under Rule 144A of the Securities Act of 1933, as
amended, and other securities which may not be readily marketable. The relative
illiquidity of these securities may impair the Series from disposing of them in
a timely manner and at a fair price when it is necessary or desirable to do so.
Capital Reserves-11
Delaware VIP Capital Reserves Series
Notes to Financial Statements (continued)
11. Tax Information (Unaudited)
For the fiscal year ended December 31, 2003, the Series designates distributions
paid during the year as follows:
(A) (B)
Long-Term Ordinary
Capital Gains Income Total
Distributions Distributions Distributions
(Tax Basis) (Tax Basis) (Tax Basis)
-------------- ------------- -------------
-- 100% 100%
(A) and (B) are based on a percentage of the Series' total distributions.
Capital Reserves-12
Delaware VIP Trust-Delaware VIP Capital Reserves Series
Report of Independent Auditors
To the Shareholders and Board of Trustees
Delaware VIP Trust -- Delaware VIP Capital Reserves Series
We have audited the accompanying statement of net assets of Delaware VIP Capital
Reserves Series (the "Series") as of December 31, 2003, and the related
statement of operations for the year then ended, the statements of changes in
net assets for each of the two years in the period then ended, and the financial
highlights for each of the periods indicated therein. These financial statements
and financial highlights are the responsibility of the Series' management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements and financial highlights. Our procedures included
confirmation of securities owned as of December 31, 2003, by correspondence with
the custodian and brokers, or by other auditing procedures where replies from
brokers were not received. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Delaware VIP Capital Reserves Series at December 31, 2003, the results of its
operations for the year then ended, the changes in its net assets for each of
the two years in the period then ended, and its financial highlights for each of
the periods indicated therein, in conformity with accounting principles
generally accepted in the United States.
Ernst & Young LLP
Philadelphia, Pennsylvania
February 6, 2004
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
A description of the policies and procedures that the Series uses to determine
how to vote proxies (if any) relating to portfolio securities is available
without charge (i) upon request, by calling 800 523-1918; (ii) on the Series'
website at http://www.delawareinvestments.com; and (iii) on the Commission's
website at http://www.sec.gov.; and beginning no later than August 31, 2004,
information (if any) regarding how the Series voted proxies relating to
portfolio securities during the most recent 12-month period ended June 30 is
available without charge (i) through the Series' website at
http://www.delawareinvestments.com; and (ii) on the Commission's website at
http://www.sec.gov.
- --------------------------------------------------------------------------------
Capital Reserves-13
Delaware Investments Family of Funds
BOARD OF TRUSTEES/DIRECTORS AND OFFICERS ADDENDUM
A mutual fund is governed by a Board of Trustees/Directors which has oversight
responsibility for the management of a fund's business affairs.
Trustees/Directors establish procedures and oversee and review the performance
of the investment manager, the distributor and others that perform services for
the fund. The independent fund trustees, in particular, are advocates for
shareholder interests. The following is a list of the Trustees/Directors and
Officers with certain background and related information.
Number of Other
Principal Portfolios in Fund Directorships
Name, Position(s) Occupation(s) Complex Overseen Held by
Address Held with Length of Time During by Trustee/Director Trustee/Director
and Birthdate Fund(s) Served Past 5 Years or Officer or Officer
- -----------------------------------------------------------------------------------------------------------------------------------
INTERESTED TRUSTEES
Jude T. Driscoll(2) Chairman and 4 Years - Since August 2000, 80 None
2005 Market Street Trustee(4) Executive Officer Mr. Driscoll has served in
Philadelphia, PA various executive capacities
19103 Trustee since at different times at
May 15, 2003 Delaware Investments(1)
March 10, 1963
Senior Vice President and
Director of Fixed-Income Process -
Conseco Capital
Management (June 1998 -
August 2000)
Managing Director -
NationsBanc Capital Markets
(February 1996 - June 1998)
- -----------------------------------------------------------------------------------------------------------------------------------
INDEPENDENT TRUSTEES
Walter P. Babich Trustee 16 Years Board Chairman - 98 None
2005 Market Street Citadel Construction Corporation
Philadelphia, PA (1989 - Present)
19103
October 1, 1927
- -----------------------------------------------------------------------------------------------------------------------------------
John H. Durham Trustee 25 Years(3) Private Investor 98 Trustee - Abington
2005 Market Street Memorial Hospital
Philadelphia, PA
19103
President/Director-
22 WR Corporation
August 7, 1937
- -----------------------------------------------------------------------------------------------------------------------------------
John A. Fry Trustee(4) 3 Years President - 80 None
2005 Market Street Franklin & Marshall College
Philadelphia, PA (June 2002 - Present)
19103
Executive Vice President -
University of Pennsylvania
May 28, 1960 (April 1995 - June 2002)
- -----------------------------------------------------------------------------------------------------------------------------------
Anthony D. Knerr Trustee 11 Years Founder/Managing Director - 98 None
2005 Market Street Anthony Knerr & Associates
Philadelphia, PA (Strategic Consulting)
19103 (1990 - Present)
December 7, 1938
- -----------------------------------------------------------------------------------------------------------------------------------
Capital Reserves-14
Number of Other
Principal Portfolios in Fund Directorships
Name, Position(s) Occupation(s) Complex Overseen Held by
Address Held with Length of Time During by Trustee/Director Trustee/Director
and Birthdate Fund(s) Served Past 5 Years or Officer or Officer
- -----------------------------------------------------------------------------------------------------------------------------------
INDEPENDENT TRUSTEES
(continued)
Ann R. Leven Trustee 15 Years Treasurer/Chief Fiscal Officer - 98 Director - Andy
2005 Market Street National Gallery of Art Warhol Foundation
Philadelphia, PA (1994 - 1999)
19103 Director -
Systemax Inc.
November 1, 1940
- -----------------------------------------------------------------------------------------------------------------------------------
Thomas F. Madison Trustee 10 Years President/Chief 98 Director -
2005 Market Street Executive Officer - Banner Health
Philadelphia, PA MLM Partners, Inc.
19103 (Small Business Investing Director -
and Consulting) CenterPoint Energy
(January 1993 - Present)
February 25, 1936
Director -
Digital River Inc.
Director - Rimage
Corporation
- -----------------------------------------------------------------------------------------------------------------------------------
Janet L. Yeomans Trustee 5 Years Vice President/Mergers & 98 None
2005 Market Street Acquisitions - 3M Corporation
Philadelphia, PA (January 2003 - Present)
19103
Ms. Yeomans has held
July 31, 1948 various management positions
at 3M Corporation since 1983.
- -----------------------------------------------------------------------------------------------------------------------------------
OFFICERS
Joseph H. Hastings Executive Executive Mr. Hastings has served in 98 None
2005 Market Street Vice President Vice President various executive capacities
Philadelphia, PA and and at different times at
19103 Chief Financial Chief Financial Delaware Investments.
Officer Officer since
August 21, 2003
December 19, 1949
- -----------------------------------------------------------------------------------------------------------------------------------
Richelle S. Maestro Senior Vice President, Chief Legal Officer Ms. Maestro has served in 98 None
2005 Market Street Chief Legal Officer since various executive capacities
Philadelphia, PA and Secretary March 17, 2003 at different times at
19103 Delaware Investments.
November 26, 1957
- -----------------------------------------------------------------------------------------------------------------------------------
Michael P. Bishof Senior Vice President 8 Years Mr. Bishof has served in 98 None
2005 Market Street and Treasurer various executive capacities
Philadelphia, PA at different times at
19103 Delaware Investments.
August 18, 1962
- -----------------------------------------------------------------------------------------------------------------------------------
(1) Delaware Investments is the marketing name for Delaware Management Holdings,
Inc. and its subsidiaries, including the Registrant's investment advisor,
principal underwriter and its transfer agent.
(2) Mr. Driscoll is considered to be an "Interested Trustee" because he is an
executive officer of the Fund's manager and distributor.
(3) Mr. Durham served as a Director Emeritus from 1995 through 1998.
(4) Mr. Driscoll and Mr. Fry are not Trustees of the portfolios of Voyageur
Insured Funds, Voyageur Intermediate Tax Free Funds, Voyageur Investment
Trust, Voyageur Mutual Funds, Voyageur Mutual Funds II, Voyageur Mutual
Funds III and Voyageur Tax Free Funds.
The Statement of Additional Information for the Fund(s) includes additional
information about the Trustees/Directors and Officers and is available, without
charge, upon request by calling 800 523-1918.
(8533)
Capital Reserves-15
FOR INCOME
Delaware VIP Trust-Delaware VIP Cash Reserve Series
Portfolio Snapshot
After several downtrodden years in which weary investors flocked to the
security of low-risk investments, equities once again started their upward
climb. During this time, the Federal Reserve also slashed interest rates to
their lowest level in 40 years. The fed funds rate has for some time rested at
1.0% in order to spark the economy - reflecting a strategy that has been in
place for several years. Although the economy proved accommodative for equity
investors this past year, money market portfolios grappled with historic low
interest rates. This, in turn, resulted in an aggregate drop in yields for money
market portfolios. The Fed is currently in a holding pattern with the fed funds
rate, giving little insight as to when rates may start to climb once again.
Delaware VIP Cash Reserve Series returned +0.61% (Standard Class shares with
distributions reinvested) for the fiscal year ended December 31, 2003, while the
Consumer Price Index rose +1.99% for the same period.
The Series invests in high-quality money market securities that generally
have maturities of up to 270 days. More than half of the Series's assets are
invested in commercial paper, a short-term obligation issued by corporations and
banks to cover their immediate credit needs. We carefully review risk factors
within the portfolio, such as credit reviews and supply among particular
short-term sectors. We seek to keep a keen watch for any potential credit
concerns.
Investment Outlook
Consumers are generally continuing to spend, adding necessary fuel to the
economy. Our hope is that U.S. businesses will also see reason to increase their
capital spending in the months ahead, adding another layer of strength to the
economy and in turn boosting investor confidence. We believe money market
portfolios are well positioned to provide investors with a source of income and
offer a level of downside protection compared to other investment vehicles going
forward.
Performance of a $10,000 Investment:
December 31, 1993 through
December 31, 2003
Delaware VIP Cash
Reserve Series U.S. Consumer
(Standard Class Shares) Price Index
----------------------- -------------
Dec.'93 $10,000 $10,000
Dec.'94 $10,367 $10,268
Dec.'95 $10,936 $10,528
Dec.'96 411,475 410,878
Dec.'97 $12,060 $11,063
Dec.'98 $12,658 $11,241
Dec.'99 $13,265 $11,543
Dec.'00 $14,060 $11,934
Dec.'01 $14,624 $12,119
Dec.'02 $14,814 $12,599
Dec.'03 $14,905 $12,849
Delaware VIP
Cash Reserve Series
Average Annual Total Returns
- ---------------------------------------------
Standard Class Service Class
Shares* Shares**
Lifetime +4.62% +2.52%
10 Years +4.07% --
Five Years +3.30% --
One Year +0.61% +0.40%
For the periods ended December 31, 2003
* Commenced operations on July 28, 1988.
** Commenced operations on May 1, 2000.
Past performance is not a guarantee of future results. Returns and share values
will fluctuate so that shares, when redeemed, may be worth more or less than
their original cost.
The chart shows a $10,000 investment in Delaware VIP Cash Reserve Series
Standard Class shares and the U.S. Consumer Price Index for the 10-year period
from December 31, 1993 through December 31, 2003. The chart assumes all
distributions were reinvested. An investment in the Series is not insured or
guaranteed by the Federal Deposit Insurance Corporation [FDIC] or any other
government agency. Although the Series seeks to preserve the value of your
investment at $1.00 per share, it is possible to lose money by investing in the
Series. Returns plotted on the chart were as of the last day of each month
shown. The U.S. Consumer Price Index is calculated by the U.S. Department of
Labor and represents the change in the price of goods and services for all urban
consumers. An index is unmanaged and does not reflect the costs of operating a
mutual fund, such as the costs of buying, selling, and holding securities.
Earnings from a variable annuity investment compound tax-free until withdrawal,
so no adjustments were made for income taxes. An expense limitation for advisory
fees was in effect for Delaware VIP Cash Reserve Series during all periods
shown. Performance for the lifetime period would have been lower had an advisory
fee waiver not been in effect. A portion of 12b-1 fees was waived for the
one-year and lifetime periods for the Service Class shares. Performance does not
reflect insurance fees related to a variable annuity or variable life investment
or the deferred sales charge that would apply to certain withdrawals of
investments held for fewer than eight years. Performance shown here would have
been reduced if such fees were included and the expense limitation was removed.
For more information about fees, consult your variable annuity or variable life
prospectus.
Cash Reserve-1
Delaware VIP Trust-Delaware VIP Cash Reserve Series
Statement of Net Assets
December 31, 2003
Principal Market
Amount Value
+COMMERCIAL PAPER-90.37%
Financial Services-47.61%
Allianz Finance 1.09% 3/9/04... $ 500,000 $ 498,971
^Amstel Funding 1.09% 2/12/04... 1,500,000 1,498,093
^Barton Capital
1.09% 1/8/04.................. 1,000,000 999,788
1.09% 1/12/04................. 500,000 499,833
^Beta Finance 1.10% 1/5/04...... 1,500,000 1,499,816
CBA (Delaware) Finance 1.08% 1/9/04 1,500,000 1,499,640
^CRC Funding 1.10% 1/6/04....... 1,000,000 999,847
Danske 1.07% 1/14/04........... 500,000 499,807
^Eiffel Funding LLC 1.09% 1/15/04 500,000 499,788
^Fleet Funding 1.08% 2/3/04..... 1,000,000 999,010
^Moat Funding LLC 1.10% 2/20/04. 500,000 499,236
Nationwide Life Insurance .....
1.07% 1/6/04.................. 1,500,000 1,499,776
New York Life 1.03% 2/9/04..... 1,125,000 1,123,745
^Sigma Finance 1.08% 1/9/04..... 1,500,000 1,499,640
^Steamboat Funding
1.09% 1/20/04................. 498,000 497,719
1.12% 1/12/04................. 980,000 979,665
^Surrey Funding
1.09% 1/9/04.................. 500,000 499,879
1.10% 1/12/04................. 1,000,000 999,664
Swiss RE Financial Products....
1.09% 2/4/04................... 1,000,000 998,971
^Three Pillars Funding 1.09% 1/14/04 1,265,000 1,264,502
^Wal-Mart Funding 1.08% 1/20/04.. 1,000,000 999,430
----------
20,356,820
----------
INDUSTRIAL-3.68%
Archer Daniels Midland 1.08% 1/20/04 500,000 499,715
Koch Industries 1.06% 1/7/04... 500,000 499,912
Pfizer 1.03% 1/5/04............ 575,000 574,934
----------
1,574,561
----------
Mortgage Bankers & Brokers-28.56%
Bear Stearns 1.09% 1/27/04..... 1,500,000 1,498,819
Goldman Sachs 1.10% 1/20/04.... 1,035,000 1,034,399
HBOS Treasury Services PLC ....
1.09% 1/12/04................. 1,000,000 999,667
ING Funding LLC 1.08% 1/12/04.. 1,500,000 1,499,505
Merrill Lynch 1.02% 1/6/04..... 1,000,000 999,858
Morgan Stanley 1.07% 1/22/04... 500,000 499,688
National Bank of New Zealand
International 1.11% 2/5/04.... 1,000,000 998,921
Principal Market
Amount Value
COMMERCIAL PAPER (continued)
Mortgage Bankers & Brokers (continued)
Nordea North America
1.08% 1/14/04 ...................... $1,000,000 $ 999,610
1.08% 1/21/04 ...................... 500,000 499,700
Svenska Handelsbanken 1.08% 2/5/04 .. 1,185,000 1,183,756
Toronto Dominion Holding
1.09% 1/7/04 ....................... 1,000,000 999,819
Westpac Capital 1.07% 1/21/04 ....... 1,000,000 999,406
----------
12,213,148
----------
Other-10.52%
Swedish National Housing Finance
1.10% 1/8/04 ....................... 1,000,000 999,786
1.11% 2/3/04 ....................... 1,000,000 998,983
University of California
1.09% 1/14/04 ...................... 1,000,000 999,606
1.09% 1/21/04 ...................... 500,000 499,697
Yale University 1.09% 3/2/04 ........ 1,000,000 998,153
----------
4,496,225
----------
Total Commercial Paper
(cost $38,640,754) ................. 38,640,754
----------
CERTIFICATES OF DEPOSIT-2.34%
First Tennessee Bank 1.09% 1/5/04 ... 1,000,000 1,000,000
----------
Total Certificates of Deposit
(cost $1,000,000) .................. 1,000,000
----------
*FLOATING RATE NOTES-2.34%
Morgan Stanley 1.03% 8/27/04 ........ 1,000,000 1,000,000
----------
Total Floating Rate Notes
(cost $1,000,000) .................. 1,000,000
----------
MUNICIPAL BONDS-2.34%
*Clayton County Development Authority
1.12% 6/1/29 ....................... 500,000 500,000
*State of Mississippi 1.20% 11/1/23 .. 500,000 500,000
----------
Total Municipal Bonds
(cost $1,000,000) .................. 1,000,000
----------
YANKEE CDS-2.34%
Australia & New Zealand Banking Group
1.08% 1/21/04 ...................... 1,000,000 1,000,000
----------
Total Yankee CDs (cost $1,000,000) .. 1,000,000
----------
Cash Reserve-2
Delaware VIP Cash Reserve Series
Statement of Net Assets (continued)
Principal Market Principal Market
Amount Value Amount Value
REPURCHASE AGREEMENTS-0.01% REPURCHASE AGREEMENTS (continued)
With BNP Paribas 0.85% 1/2/04 With UBS Warburg 0.85% 1/2/04
(dated 12/31/03, collateralized (dated 12/31/03, collateralized by
by $69 U.S. Treasury Bills due $339 U.S. Treasury Notes 1.625%
3/25/04, market value $69, $257 due 3/31/05, market value $341,
U.S. Treasury Notes 3.625% due $12 U.S. Treasury Notes 5.50%
3/31/04, market value $261, $790 due 2/15/08, market value $13, and
U.S. Treasury Notes 6.00% due $1,016 U.S. Treasury Notes 5.625%
8/15/04, market value $833, and due 5/15/08, market value $1,133) .. $1,456 $1,456
$408 U.S. Treasury Notes 1.625% ------
due 1/31/05, market value $412)...... $1,544 $1,544 Total Repurchase Agreements
(cost $3,000)................... 3,000
-----
TOTAL MARKET VALUE OF SECURITIEs-99.74% (cost $42,643,754)**......................................... 42,643,754
RECEIVABLES AND OTHER ASSETS NET OF LIABILITIES-0.26%................................................ 109,558
-----------
NET ASSETS APPLICABLE TO 42,806,818 SHARES OUTSTANDING-100.00%....................................... $42,753,312
===========
NET ASSET VALUE-DELAWARE VIP CASH RESERVE SERIES STANDARD CLASS ($42,747,852 / 42,801,343 shares).... $1.00
=====
NET ASSET VALUE-DELAWARE VIP CASH RESERVE SERIES SERVICE CLASS ($5,460 / 5,475 shares)............... $1.00
=====
COMPONENTS OF NET ASSETS AT DECEMBER 31, 2003:
Shares of beneficial interest (unlimited authorization-no par)....................................... $42,806,818
Accumulated net realized loss on investments......................................................... (53,506)
-----------
Total net assets..................................................................................... $42,753,312
===========
_______________________
*Floating Rate Notes-the interest rate shown is the rate as of December 31,
2003 and the maturity date shown is the longer of the next interest
readjustment or the date the principal amount shown can be recovered through
demand.
** Also the cost for federal income tax purposes.
+Rates disclosed are yields at the time of purchase.
^Asset-backed Commercial Paper.
See accompanying notes
Cash Reserve-3
Delaware VIP Trust-
Delaware VIP Cash Reserve Series
Statement of Operations
Year Ended December 31, 2003
INVESTMENT INCOME:
Interest...................................... $535,222
--------
EXPENSES:
Management fees............................... 204,356
Accounting and administration expenses........ 19,175
Custodian fees................................ 9,608
Professional fees............................. 9,569
Dividend disbursing and transfer agent
fees and expenses........................... 4,576
Reports and statements to shareholders........ 3,221
Trustees' fees................................ 2,065
Registration fees............................. 530
Distribution expenses-Service Class........... 14
Other......................................... 9,833
--------
262,947
Less waiver of distribution expenses-Service
Class....................................... (2)
Less expenses paid indirectly................. (1,090)
--------
Total expenses................................ 261,855
--------
NET INVESTMENT INCOME......................... 273,367
--------
NET REALIZED GAIN ON INVESTMENTS.............. 942
--------
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS............................. $274,309
========
See accompanying notes
Delaware VIP Trust-
Delaware VIP Cash Reserve Series
Statements of Changes in Net Assets
Year Ended
12/31/03 12/31/02
-------- --------
INCREASE (DECREASE) IN NET
ASSETS FROM OPERATIONS:
Net investment income......................... $ 273,367 $ 532,131
Net realized gain (loss) on investments....... 942 (54,448)
----------- -----------
Net increase in net assets resulting
from operations............................. 274,309 477,683
----------- -----------
DIVIDENDS AND DISTRIBUTIONS
TO SHAREHOLDERS FROM:
Net investment income
Standard Class.............................. (278,357) (527,058)
Service Class............................... (22) (61)
----------- -----------
(278,379) (527,119)
----------- -----------
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares sold:
Standard Class.............................. 38,602,400 43,502,292
Net asset value of shares issued upon
reinvestment of dividends
and distributions:
Standard Class.............................. 286,364 531,289
Service Class............................... 23 61
----------- -----------
38,888,787 44,033,642
----------- -----------
Cost of shares repurchased:
Standard Class.............................. (45,946,199) (37,595,015)
----------- -----------
Increase (decrease) in net assets derived
from capital share transactions............. (7,057,412) 6,438,627
----------- -----------
NET INCREASE (DECREASE)
IN NET ASSETS (7,061,482) 6,389,191
NET ASSETS:
Beginning of year............................. 49,814,794 43,425,603
----------- -----------
End of year................................... $42,753,312 $49,814,794
=========== ===========
See accompanying notes
Cash Reserve-4
Delaware VIP Trust-Delaware VIP Cash Reserve Series
FINANCIAL HIGHLIGHTS
Selected data for each share of the Series outstanding throughout each period
were as follows:
Delaware VIP Cash Reserve Series Standard Class
Year Ended
12/31/03 12/31/02(1) 12/31/01(1) 12/31/00(1) 12/31/99(1)
----------------------------------------------------------------
Net asset value, beginning of period.......... $1.000 $1.000 $1.000 $1.000 $1.000
Income from investment operations:
Net investment income......................... 0.006 0.013 0.038 0.058 0.047
------- ------- ------- ------- -------
Total from investment operations.............. 0.006 0.013 0.038 0.058 0.047
------- ------- ------- ------- -------
Less dividends and distributions from:
Net investment income......................... (0.006) (0.013) (0.038) (0.058) (0.047)
------- ------- ------- ------- -------
Total dividends and distributions............. (0.006) (0.013) (0.038) (0.058) (0.047)
------- ------- ------- ------- -------
Net asset value, end of period................ $1.000 $1.000 $1.000 $1.000 $1.000
======= ======= ======= ======= =======
Total return(2).............................. 0.61% 1.26% 3.90% 6.01% 4.81%
Ratios and supplemental data:
Net assets, end of period (000 omitted)....... $42,748 $49,809 $43,421 $49,261 $57,421
Ratio of expenses to average net assets....... 0.58% 0.59% 0.60% 0.63% 0.56%
Ratio of net investment income to average
net assets................................... 0.60% 1.26% 3.78% 5.84% 4.72%
_______________________
(1)Effective December 20, 2002, the Series declared a 10 for 1 share split. Per
share data for periods prior to this date have been restated to reflect this
share split.
(2)Total investment return is based on the change in net asset value of a share
during the period and assumes reinvestment of dividends and distributions at
net asset value.
See accompanying notes
Cash Reserve-5
Delaware VIP Cash Reserve Series
FINANCIAL HIGHLIGHTS (continued)
Selected data for each share of the Series outstanding throughout each period
were as follows:
Delaware VIP Cash Reserve Series Service Class
5/1/00(1)
Year Ended to
12/31/03 12/31/02(2) 12/31/01(2) 12/31/00(2)
-----------------------------------------------------
Net asset value, beginning of period ........................ $1.000 $1.000 $1.000 $1.000
Income from investment operations:
Net investment income ....................................... 0.004 0.011 0.037 0.039
------ ------ ------ ------
Total from investment operations ............................ 0.004 0.011 0.037 0.039
------ ------ ------ ------
Less dividends and distributions from:
Net investment income ....................................... (0.004) (0.011) (0.037) (0.039)
------ ------ ------ ------
Total dividends and distributions ........................... (0.004) (0.011) (0.037) (0.039)
------ ------ ------ ------
Net asset value, end of period .............................. $1.000 $1.000 $1.000 $1.000
====== ====== ====== ======
Total return(3) ............................................. 0.40% 1.13% 3.75% 4.01%
Ratios and supplemental data:
Net assets, end of period (000 omitted) ..................... $5 $5 $5 $5
Ratio of expenses to average net assets ..................... 0.80% 0.74% 0.75% 0.79%
Ratio of expenses to average net assets prior to
expense limitation and expenses paid indirectly ........... 0.83% 0.74% 0.75% 0.79%
Ratio of net investment income to average net assets ........ 0.38% 1.11% 3.63% 5.90%
Ratio of net investment income to average net assets
prior to expense limitation and expenses paid indirectly .. 0.35% 1.11% 3.63% 5.90%
________________________
(1) Date of commencement of operations; ratios have been annualized and total
return has not been annualized.
(2) Effective December 20, 2002, the Series declared a 10 for 1 share split. Per
share data for periods prior to this date have been restated to reflect this
share split. 3-Total investment return is based on the change in net asset
value of a share during the period and assumes reinvestment of dividends and
distributions at net asset value. Total investment return reflects a waiver
and payment of fees by the distributor, as applicable. Performance would
have been lower had the waiver not been ~in effect.
See accompanying notes
Cash Reserve-6
Delaware VIP Trust-Delaware VIP Cash Reserve Series
Notes to Financial Statements
December 31, 2003
Delaware VIP Trust (the "Trust") is organized as a Delaware statutory trust and
offers 15 series: Delaware VIP Balanced Series, Delaware VIP Capital Reserves
Series, Delaware VIP Cash Reserve Series, Delaware VIP Diversified Income
Series, Delaware VIP Emerging Markets Series, Delaware VIP Global Bond Series,
Delaware VIP Growth Opportunities Series, Delaware VIP High Yield Series,
Delaware VIP International Value Equity Series, Delaware VIP Large Cap Value
Series, Delaware VIP REIT Series, Delaware VIP Select Growth Series, Delaware
VIP Small Cap Value Series, Delaware VIP Trend Series and Delaware VIP U.S.
Growth Series. These financial statements and the related notes pertain to
Delaware VIP Cash Reserve Series (the "Series"). The Trust is an open-end
investment company. The Series is considered diversified under the Investment
Company Act of 1940, as amended, and offers Standard Class and Service Class
shares. The Standard Class shares do not carry a 12b-1 fee and the Service Class
shares carry a 12b-1 fee. The shares of the Series are sold only to separate
accounts of life insurance companies.
The investment objective of the Series is to seek to provide maximum current
income, while preserving principal and maintaining liquidity, by investing its
assets in a diversified portfolio of money market securities and managing the
portfolio to maintain a constant net asset value of $1 per share.
1. Significant Accounting Policies
The following accounting policies are in accordance with accounting principles
generally accepted in the United States and are consistently followed by the
Series.
Security Valuation--Securities are valued at amortized cost, which approximates
market value.
Federal Income Taxes--The Series intends to continue to qualify for federal
income tax purposes as a regulated investment company and make the requisite
distributions to shareholders. Accordingly, no provision for federal income
taxes has been made in the financial statements.
Class Accounting--Investment income and common expenses are allocated to the
classes of the Series on the basis of "settled shares" of each class in relation
to the net assets of the Series. Realized and unrealized gain (loss) on
investments is allocated to the classes of the Series on the basis of daily net
assets of each class. Distribution expenses relating to a specific class are
charged directly to that class.
Repurchase Agreements--The Series may invest in a pooled cash account along with
other members of the Delaware Investments Family of Funds. 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 102% collateralized. However, in the
event of default or bankruptcy by the counterparty to the agreement, realization
of the collateral may be subject to legal proceedings.
Use of Estimates--The preparation of financial statements in conformity with
accounting principles generally accepted in the United States 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 common to all funds within the Delaware Investments Family of
Funds are allocated amongst the funds on the basis of average net assets.
Security transactions are recorded on the date the securities are purchased or
sold (trade date). Costs used in calculating realized gains and losses on the
sale of investment securities are those of the specific securities sold.
Interest income is recorded on the accrual basis. Discounts and premiums are
amortized to interest income over the lives of the respective securities.
The Series declares dividends daily from net investment income and pays such
dividends monthly and declares and pays distributions from net realized gain on
investments, if any, following the close of the fiscal year.
Certain expenses of the Series are paid through commission arrangements with
brokers. The amount of these expenses was approximately $1,090 for the year
ended December 31, 2003. In addition, 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 year ended December
31, 2003. The expenses paid under the above arrangements are included in their
respective expense captions on the Statement of Operations with the
corresponding expense offset shown as "expenses paid indirectly".
2. Investment Management, Administration Agreements and Other Transactions with
Affiliates
In accordance with the terms of its investment management agreement, the Series
pays Delaware Management Company (DMC), a series of Delaware Management Business
Trust and the investment manager, an annual fee which is calculated daily at the
rate of 0.45% on the first $500 million of average daily net assets of the
Series, 0.40% on the next $500 million, 0.35% on the next $1.5 billion, and
0.30% on average daily net assets in excess of $2.5 billion.
Cash Reserve-7
Delaware VIP Cash Reserve Series
Notes to Financial Statements (continued)
2. Investment Management, Administration Agreements and Other Transactions with
Affiliates (continued)
DMC has contractually agreed to waive that portion, if any, of its management
fee and reimburse the Series to the extent necessary to ensure that annual
operating expenses, exclusive of taxes, interest, brokerage commissions,
distribution fees, certain insurance costs and extraordinary expenses, do not
exceed 0.80% of average daily net assets of the Series through April 30, 2004.
No reimbursement was due for the year ended December 31, 2003.
Delaware Service Company, Inc. (DSC), an affiliate of DMC, provides accounting,
administration, dividend disbursing and transfer agent services. The Series pays
DSC a monthly fee based on average net assets subject to certain minimums for
accounting and administration services. The Series pays DSC a monthly fee based
on average net assets for dividend disbursing and transfer agent services.
Pursuant to a distribution agreement and distribution plan, the Series pays
Delaware Distributors, L.P. (DDLP), the distributor and an affiliate of DMC, an
annual 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, 2004 in order to prevent distribution and service fees of the Service
Class shares from exceeding 0.25% of average daily net assets. Prior to May 1,
2003, the Board of Trustees had set the fee at an annual rate of 0.15% of the
Service Class shares' average daily net assets. No distribution expenses are
paid by Standard Class shares.
At December 31, 2003, the Series had liabilities payable to affiliates as
follows:
Dividend disbursing,
Investment transfer agent fees, Other
management accountingpayable expenses
fee payable to and other expenses to DMC
DMC payable to DSC and affiliates*
-------------- -------------------- ---------------
$16,672 $1,363 $4,275
______________________
* 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, professional fees,
custodian fees and trustees' 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. Dividend and Distribution Information
Income and long-term capital gain distributions are determined in accordance
with federal income tax regulations, which may differ from accounting principles
generally accepted in the United States. The tax character of dividends and
distributions paid during the years ended December 31, 2003 and 2002 was as
follows:
Year Year
Ended Ended
12/31/03 12/31/02
-------- --------
Ordinary income............... $278,379 $527,119
As of December 31, 2003, the components of net assets on a tax basis were as
follows:
Shares of beneficial interest. $42,806,818
Capital loss carryforwards.... (53,506)
-----------
Net assets.................... $42,753,312
===========
For federal income tax purposes, capital loss carryforwards may be carried
forward and applied against future capital gains. Such capital loss
carryforwards expire as follows: $53,506 expires in 2010.
Cash Reserve-8
Delaware VIP Cash Reserve Series
Notes to Financial Statements (continued)
4. Capital Shares
Transactions in capital shares were as follows:
Year Year
Ended Ended
12/31/03 12/31/02*
-------- ---------
Shares sold:
Standard Class............... 38,602,400 43,502,292
Shares issued upon reinvestment of dividends
and distributions:
Standard Class............... 286,364 531,289
Service Class................ 23 61
----------- -----------
38,888,787 44,033,642
----------- -----------
Shares repurchased:
Standard Class................. (45,946,199) (37,595,015)
----------- -----------
Net increase (decrease)........ (7,057,412) 6,438,627
=========== ===========
*Capital share activity for periods prior to December 20, 2002 have been
restated to reflect a 10 for 1 share split. See Note #5.
5. Share Split
On December 5, 2002, the Board of Trustees of the Series unanimously voted to
approve a 10 for 1 share split, which was effected December 20, 2002.
6. Credit and Market Risks
An investment in the Series is not insured or guaranteed by the Federal Deposit
Insurance Corporation or any other government agency. Although the Series seeks
to preserve the value of your investment at $1.00 per share, it is possible to
lose money by investing in the Series.
7. Tax Information (Unaudited)
For the fiscal year ended December 31, 2003, the Series designates distributions
paid during the year as follows:
(A) (B)
Long-Term Ordinary
Capital Gains Income Total
Distributions Distributions Distributions
(Tax Basis) (Tax Basis) (Tax Basis)
------------- ------------- -------------
- 100% 100%
______________________
(A) and (B) are based on a percentage of the Series' total distributions.
Cash Reserve-9
Delaware VIP Trust-Delaware VIP Cash Reserve Series
Report of Independent Auditors
To the Shareholders and Board of Trustees
Delaware VIP Trust-Delaware VIP Cash Reserve Series
We have audited the accompanying statement of net assets of Delaware VIP Cash
Reserve Series (the "Series") as of December 31, 2003, and the related statement
of operations for the year then ended, the statements of changes in net assets
for each of the two years in the period then ended, and the financial highlights
for each of the periods indicated therein. These financial statements and
financial highlights are the responsibility of the Series' management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements and financial highlights. Our procedures included
confirmation of securities owned as of December 31, 2003, by correspondence with
the custodian and brokers. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Delaware VIP Cash Reserve Series at December 31, 2003, the results of its
operations for the year then ended, the changes in its net assets for each of
the two years in the period then ended, and its financial highlights for each of
the periods indicated therein, in conformity with accounting principles
generally accepted in the United States.
Ernst + Young LLP
Philadelphia, Pennsylvania
February 6, 2004
- --------------------------------------------------------------------------------
-----------------------------------------------------------------------
A description of the policies and procedures that the Series uses to
determine how to vote proxies (if any) relating to portfolio
securities is available without charge (i) upon request, by calling
800 523-1918; (ii) on the Series' website at
http://www.delawareinvestments.com; and (iii) on the Commission's
website at http://www.sec.gov.; and beginning no later than August 31,
2004, information (if any) regarding how the Series voted proxies
relating to portfolio securities during the most recent 12-month
period ended June 30 is available without charge (i) through the
Series' website at http://www.delawareinvestments.com; and (ii) on the
Commission's website at http://www.sec.gov.
-----------------------------------------------------------------------
Cash Reserve-10
Delaware Investments Family of Funds
BOARD OF TRUSTEES/DIRECTORS AND OFFICERS ADDENDUM
A mutual fund is governed by a Board of Trustees/Directors which has oversight
responsibility for the management of a fund's business affairs.
Trustees/Directors establish procedures and oversee and review the performance
of the investment manager, the distributor and others that perform services for
the fund. The independent fund trustees, in particular, are advocates for
shareholder interests. The following is a list of the Trustees/Directors and
Officers with certain background and related information.
Number of Other
Principal Portfolios in Fund Directorships
Name, Position(s) Occupation(s) Complex Overseen Held by
Address Held with Length of Time During by Trustee/Director Trustee/Director
and Birthdate Fund(s) Served Past 5 Years or Officer or Officer
- -----------------------------------------------------------------------------------------------------------------------------------
INTERESTED TRUSTEES
Jude T. Driscoll(2) Chairman and 4 Years - Since August 2000, 80 None
2005 Market Street Trustee(4) Executive Officer Mr. Driscoll has served in
Philadelphia, PA various executive capacities
19103 Trustee since at different times at
May 15, 2003 Delaware Investments(1)
March 10, 1963
Senior Vice President and
Director of Fixed-Income Process -
Conseco Capital Management
(June 1998 - August 2000)
Managing Director -
NationsBanc Capital Markets
(February 1996 - June 1998)
- -----------------------------------------------------------------------------------------------------------------------------------
INDEPENDENT TRUSTEES
Walter P. Babich Trustee 16 Years Board Chairman - 98 None
2005 Market Street Citadel Construction Corporation
Philadelphia, PA (1989 - Present)
19103
October 1, 1927
- -----------------------------------------------------------------------------------------------------------------------------------
John H. Durham Trustee 25 Years(3) Private Investor 98 Trustee - Abington
2005 Market Street Memorial Hospital
Philadelphia, PA
19103
President/Director-
22 WR Corporation
August 7, 1937
- -----------------------------------------------------------------------------------------------------------------------------------
John A. Fry Trustee(4) 3 Years President - 80 None
2005 Market Street Franklin & Marshall College
Philadelphia, PA (June 2002 - Present)
19103
Executive Vice President -
University of Pennsylvania
May 28, 1960 (April 1995 - June 2002)
- -----------------------------------------------------------------------------------------------------------------------------------
Anthony D. Knerr Trustee 11 Years Founder/Managing Director - 98 None
2005 Market Street Anthony Knerr & Associates
Philadelphia, PA (Strategic Consulting)
19103 (1990 - Present)
December 7, 1938
- -----------------------------------------------------------------------------------------------------------------------------------
Cash Reserve-11
Number of Other
Principal Portfolios in Fund Directorships
Name, Position(s) Occupation(s) Complex Overseen Held by
Address Held with Length of Time During by Trustee/Director Trustee/Director
and Birthdate Fund(s) Served Past 5 Years or Officer or Officer
- -----------------------------------------------------------------------------------------------------------------------------------
INDEPENDENT TRUSTEES
(continued)
Ann R. Leven Trustee 15 Years Treasurer/Chief Fiscal Officer - 98 Director - Andy
2005 Market Street National Gallery of Art Warhol Foundation
Philadelphia, PA (1994 - 1999)
19103 Director -
Systemax Inc.
November 1, 1940
- -----------------------------------------------------------------------------------------------------------------------------------
Thomas F. Madison Trustee 10 Years President/Chief 98 Director -
2005 Market Street Executive Officer - Banner Health
Philadelphia, PA MLM Partners, Inc.
19103 (Small Business Investing Director -
and Consulting) CenterPoint Energy
(January 1993 - Present)
February 25, 1936
Director -
Digital River Inc.
Director - Rimage
Corporation
- -----------------------------------------------------------------------------------------------------------------------------------
Janet L. Yeomans Trustee 5 Years Vice President/Mergers & 98 None
2005 Market Street Acquisitions - 3M Corporation
Philadelphia, PA 19103 (January 2003 - Present)
Ms. Yeomans has held
July 31, 1948 various management positions
at 3M Corporation since 1983.
- -----------------------------------------------------------------------------------------------------------------------------------
OFFICERS
Joseph H. Hastings Executive Executive Mr. Hastings has served in 98 None
2005 Market Street Vice President Vice President various executive capacities
Philadelphia, PA and and at different times at
19103 Chief Financial Chief Financial Delaware Investments.
Officer Officer since
August 21, 2003
December 19, 1949
- -----------------------------------------------------------------------------------------------------------------------------------
Richelle S. Maestro Senior Vice President, Chief Legal Officer Ms. Maestro has served in 98 None
2005 Market Street Chief Legal Officer since various executive capacities
Philadelphia, PA and Secretary March 17, 2003 at different times at
19103 Delaware Investments.
November 26, 1957
- -----------------------------------------------------------------------------------------------------------------------------------
Michael P. Bishof Senior Vice President 8 Years Mr. Bishof has served in 98 None
2005 Market Street and Treasurer various executive capacities
Philadelphia, PA at different times at
19103 Delaware Investments.
August 18, 1962
- -----------------------------------------------------------------------------------------------------------------------------------
1 Delaware Investments is the marketing name for Delaware Management Holdings,
Inc. and its subsidiaries, including the Registrant's investment advisor,
principal underwriter and its transfer agent.
2 Mr. Driscoll is considered to be an "Interested Trustee" because he is an
executive officer of the Fund's manager and distributor.
3 Mr. Durham served as a Director Emeritus from 1995 through 1998.
4 Mr. Driscoll and Mr. Fry are not Trustees of the portfolios of Voyageur
Insured Funds, Voyageur Intermediate Tax Free Funds, Voyageur Investment
Trust, Voyageur Mutual Funds, Voyageur Mutual Funds II, Voyageur Mutual Funds
III and Voyageur Tax Free Funds.
The Statement of Additional Information for the Fund(s) includes additional
information about the Trustees/Directors and Officers and is available, without
charge, upon request by calling 800 523-1918.
Cash Reserve-12
FOR HIGH YIELD
Delaware VIP Trust-Delaware VIP Diversified Income Series
Portfolio Snapshot
Substantial fiscal and monetary policy stimuli, combined with a weaker
U.S. currency, drove solid economic growth during the fiscal year. The improving
outlook for the business community meant investor attention would gravitate
toward the corporate sectors of the fixed-income universe. Investment-grade
bonds performed well for the 12-month period, but were outshadowed by their
high-yield counterparts, which rose +29.3% based upon the performance of the
Citigroup High-Yield Cash Pay Index (Source: Bloomberg). Investors were spurred
on by improving corporate fundamentals, declining default rates, and massive
cash inflows. Improved investor confidence and increased risk-taking also
characterized the investment environment throughout the fiscal year.
While mortgage-backed securities (MBS) generated consistent excess
return during much of the fiscal year, a volatile mid-year interest rate
environment detracted somewhat from their 12-month performance. International
bonds were a source of positive return for the Series during the fiscal year.
Thematically, they rose in value for much the same reasons as domestic bonds,
although they generally had the advantage of increasing values caused by a
falling dollar.
From its inception, May 16, 2003, until December 31, 2003, Delaware VIP
Diversified Income Series returned +5.18% (Standard Class shares with
distributions reinvested). For performance comparison, the Series' benchmark is
the Lehman Brothers Aggregate Bond Index. From the end of the Series' inception
month, May 31, 2003, until the close of its fiscal year, December 31, 2003, the
benchmark index returned -0.03%.
The period from May 16, 2003 - the Series' inception date - to December
31, 2003 may be remembered for some time as one of the bond market's more
volatile environments. On June 13, 2003, which was less than one month after the
Series' inception, the bond market reacted decisively to information that
interest rates, after a prolonged slump, might be moving higher. As a result,
selling dominated the fixed-income markets, as bonds typically experience
diminished values with rising rates. Bond prices fell through July, largely
stabilized in August, then began moving higher in September when added market
data led investors to believe that interest rates may not be moving higher - or
at least not to the degree as was speculated in June. The broad bond market then
ended 2003 with generally firming prices. Corporate bonds, as well as
international fixed income, regained the market leadership they exhibited
earlier in the year, which benefited the Series' performance.
Investment Outlook
We anticipate continued economic growth, as well as stronger corporate
earnings, over the shorter term. In our opinion, bond market volatility should
remain relatively stable at low levels. We believe the dollar may continue to
fall versus the euro and Asian currencies. Our expectation is that interest
rates will go higher, however, we believe rates will remain lower longer than
the market consensus.
Performance of a $10,000 Investment:
May 16, 2003 (Series' inception) through
December 31, 2003
Delaware VIP
Diversified
Income Series-- Lehman Brothers
(Standard Class Shares) Aggregate Bond Index
----------------------- --------------------
Dec.'93 $10,000
Dec.'94 $10,047 $10,000
Dec.'95 $10,059 $ 9,980
Dec.'96 $ 9,801 $ 9,645
Dec.'97 $ 9,883 $ 9,708
Dec.'98 $10,177 $ 9,966
Dec.'99 $10,201 $ 9,873
Dec.'00 $10,307 $ 9,897
Dec.'01 $10,518 $ 9,998
Delaware VIP Diversified Income Series
Cumulative Total Returns
--------------------------------------
Standard Class Service Class
Shares* Shares**
Lifetime +5.18% +5.06%
For the periods ended December 31, 2003
*Commenced operations on May 16, 2003.
**Commenced operations on May 16, 2003.
Past performance is not a guarantee of future results. Returns and share values
will fluctuate so that shares, when redeemed, may be worth more or less than
their original cost.
The chart shows a $10,000 investment in Delaware VIP Diversified Income Series
Standard Class shares for the period from the Series' inception on May 16, 2003
through December 31, 2003. The chart assumes all distributions were reinvested.
The chart also shows a $10,000 investment in the Lehman Brothers Aggregate Bond
Index at that month's end, May 31, 2003. After May 31, 2003, returns plotted on
the chart were as of the last day of each month shown. The Lehman Brothers
Aggregate Bond Index is a measure of investment-grade domestic bonds. An index
is unmanaged and does not reflect the costs of operating a mutual fund, such as
the costs of buying, selling, and holding securities. You cannot invest directly
in an index. Earnings from a variable annuity investment compound tax-free until
withdrawal, so no adjustments were made for income taxes. An expense limitation
was in effect for Delaware VIP Diversified Income Series during the periods
shown. Performance does not reflect insurance fees related to a variable annuity
or variable life investment or the deferred sales charge that would apply to
certain withdrawals of investments held for fewer than eight years. Performance
shown here would have been reduced if such fees were included and the expense
limitation was removed. For more information about fees, consult your variable
annuity or variable life prospectus.
Diversified Income-1
Delaware VIP Trust-Delaware VIP Diversified Income Series
Statement of Net Assets
December 31, 2003
Principal Market
Amount* Value
(U.S. $)
AGENCY ASSET-BACKED SECURITIES-1.94%
+SLMA Student Loan Trust
Series 97-2 Certificates
1.756% 10/25/12 ...................... USD 10,000 $10,030
Series 98-2 A2 1.656% 1/25/14 ........ USD 30,650 30,875
-------
Total Agency Asset-Backed Securities
(cost $40,886) ....................... 40,905
-------
AGENCY COLLATERALIZED MORTGAGE
OBLIGATIONS-0.69%
Freddie Mac Series 2480 EH
6.00% 11/15/31 ...................... USD 4,293 4,414
Freddie Mac Structured Pass
Through Securities
Series T-58 1A2 3.108% 5/25/35 ....... USD 5,000 5,026
Series T-58 2A 6.50% 9/25/43 ......... USD 4,730 5,030
-------
Total Agency Collateralized Mortgage
Obligations (cost $14,373) ........... 14,470
-------
AGENCY MORTGAGE-BACKED SECURITIES-11.89%
Fannie Mae
5.00% 6/1/18 ......................... USD 37,229 38,032
5.50% 5/1/33 ......................... USD 58,502 59,306
5.50% 9/1/33 ......................... USD 4,908 4,975
5.50% 11/1/33 ........................ USD 9,999 10,137
5.50% 1/1/34 TBA ..................... USD 30,000 31,088
6.00% 9/1/33 ......................... USD 4,626 4,794
6.00% 1/1/34 TBA ..................... USD 40,000 41,350
6.50% 8/1/32 ......................... USD 33,032 34,559
7.50% 3/1/32 ......................... USD 14,976 16,010
Freddie Mac 5.00% 9/1/33 ............... USD 9,938 9,898
-------
Total Agency Mortgage-Backed Securities
(cost $247,639) ...................... 250,149
-------
AGENCY OBLIGATIONS-0.72%
Fannie Mae 4.00% 9/2/08 ................ USD 5,000 5,069
Federal Home Loan Bank
2.25% 12/15/05 ....................... USD 10,000 10,067
-------
Total Agency Obligations
(cost $14,996) ....................... 15,136
-------
ASSET-BACKED SECURITIES-0.70%
Bank One Issuance Trust Series 02-A3
3.59% 5/17/10 ........................ USD 5,000 5,079
PP&L Transition Bond Series 99-1 A5
6.83% 3/25/07 ........................ USD 9,276 9,608
-------
Total Asset-Backed Securities
(cost $14,776) ....................... 14,687
-------
CORPORATE BONDS-50.64%
Automobiles & Automotive Parts-2.55%
Advanced Accessory 10.75% 6/15/11 ...... USD 5,000 5,531
**Erac USA Finance 144A 7.35% 6/15/08 .... USD 5,000 5,718
Ford Motor 7.45% 7/16/31 ............... USD 5,000 5,067
Ford Motor Credit 5.625% 10/1/08 ....... USD 5,000 5,138
Principal Market
Amount* Value
(U.S. $)
CORPORATE BONDS (continued)
Automobiles & Automotive Parts (continued)
General Motors
7.125% 7/15/13 ......................... USD 5,000 $ 5,493
8.375% 7/15/33 ......................... USD 5,000 5,822
Johnson Controls 5.00% 11/15/06 .......... USD 5,000 5,330
**Metaldyne 144A 10.00% 11/1/13 ............ USD 10,000 10,150
**UIS 144A 9.375% 6/15/13 .................. USD 5,000 5,488
---------
53,737
---------
Banking, Finance & Insurance-8.09%
Aegon NV 4.75% 6/1/13 .................... USD 5,000 4,885
Allstate 5.35% 6/1/33 .................... USD 5,000 4,620
**ASIF Global Financing 144A
4.90% 1/17/13 .......................... USD 5,000 4,978
Bear Stearns 4.65% 7/2/18 ................ USD 5,000 4,582
Citigroup 5.875% 2/22/33 ................. USD 5,000 4,931
Credit Suisse First Boston USA
6.125% 11/15/11 ........................ USD 5,000 5,452
**Crum & Forster Holdings 144A
10.375% 6/15/13 ........................ USD 5,000 5,581
**Farmers Exchange Capital 144A
7.20% 7/15/48 .......................... USD 15,000 13,485
**Farmers Insurance Exchange 144A
8.625% 5/1/24 .......................... USD 5,000 5,240
Finova Group 7.50% 11/15/09 .............. USD 15,000 9,074
Franklin Resources 3.70% 4/15/08 ......... USD 5,000 4,978
General Electric Capital 5.45% 1/15/13 ... USD 5,000 5,211
General Motor Acceptance
7.25% 3/2/11 ........................... USD 10,000 10,986
**ING Bank 144A 5.125% 5/1/15 .............. USD 5,000 4,994
JP Morgan Chase 5.75% 1/2/13 ............. USD 5,000 5,282
KFW International Finance
1.75% 3/23/10 .......................... JPY 2,000,000 19,763
**Massachusetts Mutual Life 144A
5.625% 5/15/33 ......................... USD 5,000 4,873
Morgan Stanley 5.30% 3/1/13 .............. USD 5,000 5,117
**Nationwide Mutual Insurance 144A
7.875% 4/1/33 .......................... USD 5,000 5,801
**Oil Insurance 144A 5.15% 8/15/33 ......... USD 5,000 5,042
Popular NA 4.25% 4/1/08 .................. USD 5,000 5,095
Prudential Financial 5.75% 7/15/33 ....... USD 5,000 4,739
+RBS Capital Trust I 4.709% 12/29/49 ...... USD 5,000 4,792
Regions Financial 6.375% 5/15/12 ......... USD 5,000 5,510
Wells Fargo Financial 6.125% 4/18/12 ..... USD 5,000 5,484
Westpac Banking 4.625% 6/1/18 ............ USD 5,000 4,670
Wilmington Trust 4.875% 4/15/13 .......... USD 5,000 4,924
---------
170,089
---------
Building & Materials-1.30%
**Lone Star Industries 144A
8.85% 6/15/05 .......................... USD 10,000 10,500
Standard-Pacific 9.25% 4/15/12 ........... USD 5,000 5,600
Technical Olympic USA 10.375% 7/1/12 ..... USD 5,000 5,625
WCI Communities 10.625% 2/15/11 .......... USD 5,000 5,675
---------
27,400
---------
Business Services-0.28%
Brickman Group 11.75% 12/15/09 ........... USD 5,000 5,850
---------
5,850
---------
Diversified Income-2
Delaware VIP Diversified Income Series
Statement of Net Assets (continued)
Principal Market
Amount* Value
(U.S. $)
CORPORATE BONDS (continued)
Cable, Media & Publishing-4.74%
Charter Communication Holdings
10.75% 10/1/09 .............. USD 25,000 $23,062
**Granite Broadcasting 144A
9.75% 12/1/10 ............... USD 5,000 5,013
Insight Midwest 10.50% 11/1/10 .. USD 10,000 10,924
**Insight Midwest 144A
10.50% 11/1/10 .............. USD 5,000 5,463
Lodgenet Entertainment
9.50% 6/15/13 ............... USD 10,000 10,999
Mediacom Broadband
11.00% 7/15/13 .............. USD 5,000 5,638
Panamsat 8.50% 2/1/12 ........... USD 5,000 5,575
Rogers Cablesystems
10.00% 3/15/05 .............. USD 5,000 5,388
**Sheridan Acquisition 144A
10.25% 8/15/11 .............. USD 5,000 5,331
Time Warner Entertainment
8.375% 3/15/23 .............. USD 5,000 6,215
Vertis 10.875% 6/15/09 .......... USD 5,000 5,338
XM Satellite Radio 12.00% 6/15/10 USD 5,000 5,675
**Young Broadcasting 144A
8.75% 1/15/14 ............... USD 5,000 5,088
-------
99,709
-------
Chemicals-1.25%
Dow Chemical 6.00% 10/1/12 ...... USD 5,000 5,272
++**Johnsondiversey Holdings 144A
10.67% 5/15/13 .............. USD 10,000 7,700
**Nalco 144A 7.75% 11/15/11 ....... USD 5,000 5,375
**Rhodia SA 144A 8.875% 6/1/11 .... USD 5,000 4,625
^Solutia 6.72% 10/15/37 .......... USD 10,000 3,400
-------
26,372
-------
Computers & Technology-0.75%
Activant Solutions 10.50% 6/15/11 USD 5,000 5,407
Northern Telecom Capital
7.875% 6/15/26 .............. USD 5,000 5,025
**Stratus Technologies 144A
10.375% 12/1/08 ............. USD 5,000 5,331
-------
15,763
-------
Consumer Products-1.02%
American Greetings 11.75% 7/15/08 USD 5,000 5,800
**Hines Nursery 144A 10.25% 10/1/11 USD 5,000 5,475
Salton 10.75% 12/15/05 .......... USD 10,000 10,250
-------
21,525
-------
Consumer Services-0.27%
Alderwoods Group 12.25% 1/2/09 .. USD 5,000 5,650
-------
5,650
-------
Energy-3.75%
Citgo Petroleum 11.375% 2/1/11 .. USD 5,000 5,825
Dynegy Holdings 8.75% 2/15/12 ... USD 5,000 5,069
**Dynegy Holdings 144A
10.125% 7/15/13 ............. USD 15,000 17,326
Enterprise Products Partners
7.50% 2/1/11 ................ USD 5,000 5,595
**Halliburton Company 144A
5.50% 10/15/10 .............. USD 5,000 5,236
Principal Market
Amount* Value
(U.S. $)
CORPORATE BONDS (continued)
Energy (continued)
oHanover Compressor 11.385% 3/31/07 ... USD 5,000 $ 3,700
Hanover Equipment Trust
8.50% 9/1/08 ....................... USD 5,000 5,325
**Hilcorp Energy/Finance 144A
10.50% 9/1/10 ...................... USD 5,000 5,500
**Massey Energy 144A 6.625% 11/15/10 ... USD 5,000 5,150
Petroleum Geo-Services ASA
10.00% 11/5/10 ..................... USD 5,000 5,375
Sonat 7.625% 7/15/11 ................. USD 5,000 4,656
Valero Logistics Operations
6.05% 3/15/13 ...................... USD 5,000 5,212
Weatherford International
4.95% 10/15/13 ..................... USD 5,000 4,929
-------
78,898
-------
Environmental Services-0.53%
IESI 10.25% 6/15/12 .................. USD 10,000 11,163
-------
11,163
-------
Food, Beverage & Tobacco-3.49%
Altria Group 7.00% 11/4/13 ........... USD 5,000 5,344
Anheuser-Busch 5.05% 10/15/16 ........ USD 5,000 4,979
**Commonwealth Brands 144A
10.625% 9/1/08 ..................... USD 5,000 5,525
Denny's 12.75% 9/30/07 ............... USD 5,000 5,175
Kraft Foods
4.00% 10/1/08 ..................... USD 5,000 5,035
5.625% 11/1/11 .................... USD 5,000 5,277
**Le-Natures 144A 9.00% 6/15/13 ........ USD 10,000 10,599
**Miller Brewing 144A 4.25% 8/15/08 .... USD 5,000 5,072
**National Beef Packing 144A
10.50% 8/1/11 ...................... USD 5,000 5,175
**O'Charleys 144A 9.00% 11/1/13 ........ USD 5,000 5,050
**Pinnacle Foods Holding 144A
8.25% 12/1/13 ...................... USD 5,000 5,200
**Seminis 144A 10.25% 10/1/13 .......... USD 5,000 5,400
UST 6.625% 7/15/12 ................... USD 5,000 5,571
-------
73,402
-------
Healthcare & Pharmaceuticals-1.50%
Alliance Imaging 10.375% 4/15/11 ..... USD 5,000 5,325
**Mariner Health Care 144A
8.25% 12/15/13 ..................... USD 10,000 10,150
Medco Health Solutions 7.25% 8/15/13 . USD 5,000 5,464
Team Health 12.00% 3/15/09 ........... USD 5,000 5,425
Wyeth 6.50% 2/1/34 ................... USD 5,000 5,130
-------
31,494
-------
Industrial Machinery-0.51%
Interline Brands
11.50% 5/15/11 ..................... USD 5,000 5,538
**Sensus Metering 144A
8.625% 12/15/13 .................... USD 5,000 5,156
-------
10,694
-------
Leisure, Lodging & Entertainment-2.30%
**Gaylord Entertainment 144A
8.00% 11/15/13 ..................... USD 10,000 10,600
**Hard Rock Hotel 144A 8.875% 6/1/13 ... USD 10,000 10,700
Herbst Gaming 10.75% 9/1/08 .......... USD 10,000 11,299
Diversified Income-3
Delaware VIP Diversified Income Series
Statement of Net Assets (continued)
Principal Market
Amount* Value
(U.S. $)
CORPORATE BONDS (continued)
Leisure, Lodging & Entertainment (continued)
**Imax 144A 9.625% 12/1/10 ................... USD 10,000 $10,563
**Poster Financial Group 144A
8.75% 12/1/11 ............................ USD 5,000 5,313
-------
48,475
-------
Metals & Mining-1.03%
AK Steel 7.75% 6/15/12 ..................... USD 5,000 4,300
Barrick Gold Finance 7.50% 5/1/07 .......... USD 5,000 5,694
US Steel 10.75% 8/1/08 ..................... USD 10,000 11,750
-------
21,744
-------
Miscellaneous-0.25%
Hutchison Whampoa International
6.50% 2/13/13 ............................ USD 5,000 5,216
-------
5,216
-------
Packaging & Containers-1.17%
AEP Industries 9.875% 11/15/07 ............. USD 5,000 5,050
Portola Packaging 10.75% 10/1/05 ........... USD 5,000 5,038
Radnor Holdings 11.00% 3/15/10 ............. USD 10,000 9,174
**Tekni-Plex 144A 8.75% 11/15/13 ............. USD 5,000 5,238
-------
24,500
-------
Paper & Forest Products-1.35%
Consolidated Container
10.125% 7/15/09 .......................... USD 5,000 3,050
**Georgia-Pacific 144A 8.00% 1/15/24 ......... USD 20,000 20,500
Smurfit Capital 7.50% 11/20/25 ............. USD 5,000 4,894
-------
28,444
-------
Real Estate-0.26%
Tanger Properties 9.125% 2/15/08 ........... USD 5,000 5,475
-------
5,475
-------
Retail-0.82%
Jafra Cosmetics International
10.75% 5/15/11 ........................... USD 5,000 5,513
Office Depot 10.00% 7/15/08 ................ USD 5,000 5,975
Petco Animal Supplies 10.75% 11/1/11 ....... USD 5,000 5,875
-------
17,363
-------
Telecommunications-5.66%
Alamosa Delaware 11.00% 7/31/10 ............ USD 3,000 3,270
**Alaska Communications Systems
Holdings 144A 9.875% 8/15/11 ............... USD 5,000 5,275
**American Tower 144A 7.25% 12/1/11 .......... USD 10,000 10,225
AT&T 8.75% 11/15/31 ........................ USD 5,000 5,863
Centennial Cellular Operating
10.125% 6/15/13 .......................... USD 20,000 22,049
Crown Castle International
10.75% 8/1/11 ............................ USD 5,000 5,650
**144A 7.50% 12/1/13 USD 5,000 5,050
**Dobson Communications 144A
8.875% 10/1/13 ........................... USD 5,000 5,088
InterActiveCorp 7.00% 1/15/13 .............. USD 5,000 5,522
**Level 3 Financing 144A 10.75% 10/15/11 ..... USD 10,000 10,625
Qwest Capital Funding 5.875% 8/3/04 ........ USD 5,000 5,038
**Qwest Services 144A 13.50% 12/15/10 ........ USD 5,000 6,100
Sprint Capital 8.75% 3/15/32 ............... USD 10,000 11,854
Time Warner Telecommunications
9.75% 7/15/08 ............................ USD 5,000 5,175
Verizon New York 7.375% 4/1/32 ............. USD 5,000 5,526
Principal Market
Amount* Value
(U.S. $)
CORPORATE BONDS (continued)
Telecommunications (continued)
Vodafone Group 5.375% 1/30/15 ............. USD 5,000 $ 5,059
^Worldcom 7.50% 5/15/11 .................... USD 5,000 1,688
----------
119,057
----------
Transportation & Shipping-0.99%
Continental Airlines 6.503% 6/15/11 ....... USD 5,000 4,932
Hornbeck Offshore Services
10.625% 8/1/08 .......................... USD 5,000 5,550
**OMI 144A 7.625% 12/1/13 ................... USD 5,000 5,069
Overseas Shipholding Group
8.25% 3/15/13 ........................... USD 5,000 5,381
----------
20,932
----------
Utilities-6.78%
**Allegheny Energy Supply Statutory
Trust 2001 144A
10.25% 11/15/07 ......................... USD 5,000 5,225
13.00% 11/15/07 ......................... USD 5,000 4,975
Aquila 9.95% 2/1/11 ....................... USD 5,000 5,363
Avista 9.75% 6/1/08 ....................... USD 5,000 5,975
Calpine 10.50% 5/15/06 .................... USD 5,000 4,825
Cogentrix Energy 8.75% 10/15/08 ........... USD 5,000 5,063
Detroit Edison 6.35% 10/15/32 ............. USD 5,000 5,322
El Paso 7.875% 6/15/12 .................... USD 5,000 4,750
El Paso Natural Gas 7.625% 8/1/10 ......... USD 5,000 5,163
**Gemstone Investor 144A
7.71% 10/31/04 .......................... USD 5,000 5,075
Homer City Funding 8.137% 10/1/19 ......... USD 5,000 5,400
Illinois Power 7.50% 6/15/09 .............. USD 5,000 5,525
Midland Funding II 11.75% 7/23/05 ......... USD 4,582 4,972
Midwest Generation 8.30% 7/2/09 ........... USD 5,000 5,213
^Mirant Americas Generation
7.625% 5/1/06 ........................... USD 10,000 8,499
**NRG Energy 144A 8.00% 12/15/13 ............ USD 5,000 5,281
Oncor Electric 7.00% 5/1/32 ............... USD 5,000 5,534
Orion Power Holdings 12.00% 5/1/10 ........ USD 5,000 6,100
**Power Contract Financing 144A
5.20% 2/1/06 ............................ USD 5,000 5,078
PSEG Energy Holdings 7.75% 4/16/07 ........ USD 5,000 5,331
PSEG Power 8.625% 4/15/31 ................. USD 5,000 6,463
**Reliant Resource 144A
9.50% 7/15/13 ........................... USD 5,000 5,375
Tennessee Gas Pipeline
8.375% 6/15/32 .......................... USD 5,000 5,331
Williams Companies 8.125% 3/15/12 ......... USD 15,000 16,724
----------
142,562
----------
Total Corporate Bonds
(cost $1,032,408) ....................... 1,065,514
----------
FOREIGN BONDS-21.35%#
Argentina-0.15%
+Republic of Argentina 1.162% 8/3/12........ USD 5,000 3,139
----------
3,139
----------
Aruba-0.51%
UFJ Finance Aruba 6.75% 7/15/13 ........... USD 10,000 10,684
----------
10,684
----------
Diversified Income-4
Delaware VIP Diversified Income Series
Statement of Net Assets (continued)
Principal Market
Amount* Value
(U.S. $)
FOREIGN BONDS (CONTINUED)
Australia-1.09%
New South Wales Treasury
8.00% 3/1/08 ...................... AUD 14,000 $ 11,442
Queensland Treasury 6.00% 8/14/13 ... AUD 15,000 11,495
---------
22,937
---------
Austria-0.78%
Republic of Austria 5.25% 1/4/11 .... EUR 12,000 16,308
---------
16,308
---------
Bahamas-0.25%
**Bahamas Government International Bond
144A 6.625% 5/15/33 ............... USD 5,000 5,249
---------
5,249
---------
Canada-1.10%
Ainsworth Lumber 12.50% 7/15/07 ..... USD 15,000 17,700
**Hollinger 144A 11.875% 3/1/11 ....... USD 5,000 5,456
---------
23,156
---------
Cayman Islands-0.25%
Bluewater Finance 10.25% 2/15/12 .... USD 5,000 5,225
---------
5,225
---------
Columbia-0.26%
Republic of Colombia 10.375% 1/28/33 USD 5,000 5,388
---------
5,388
---------
Dominican Republic-0.40%
Dominican Republic 9.04% 1/23/13 .... USD 11,000 8,407
---------
8,407
---------
Eurobonds-0.24%
Republic of Peru 8.75% 11/21/33 ..... USD 5,000 5,025
---------
5,025
---------
Finland-0.64%
Republic of Finland 5.00% 4/25/09 ... EUR 10,000 13,425
---------
13,425
---------
France-0.59%
Government of France 4.00% 4/25/13 .. EUR 10,000 12,376
---------
12,376
---------
Germany-2.48%
Deutsche Bundesrepublik
5.00% 7/4/11 ...................... EUR 30,000 40,099
4.75% 7/4/28 ...................... EUR 10,000 12,291
---------
52,390
---------
Greece-2.87%
Hellenic Republic 8.60% 3/26/08 ..... EUR 40,000 60,527
---------
60,527
---------
Italy-1.87%
Republic of Italy 3.75% 6/8/05 ...... JPY 4,000,000 39,284
---------
39,284
---------
Liberia-0.23%
Royal Caribbean Cruises
7.50% 10/15/27 .................... USD 5,000 4,925
---------
4,925
---------
Luxembourg-0.25%
Tyco International Group
6.375% 2/15/06 .................... USD 5,000 5,350
---------
5,350
---------
Principal Market
Amount* Value
(U.S. $)
FOREIGN BONDS (continued)
Mexico-0.24%
**Telefonos de Mexico SA de CV 144A
4.50% 11/19/08 ....................... USD 5,000 $ 5,033
---------
5,033
---------
Norway-0.22%
Ocean Rig Norway 10.25% 6/1/08 ......... USD 5,000 4,725
---------
4,725
---------
Philippines-0.27%
Republic of Philippines 10.625% 3/16/25 USD 5,000 5,588
---------
5,588
---------
Poland-1.42%
Poland Government
8.50% 11/12/06 ....................... PLZ 30,000 8,442
5.00% 10/24/13 ....................... PLZ 90,000 21,480
---------
29,922
---------
Russia-0.27%
+Siberian Oil 10.75% 1/15/09 ............ USD 5,000 5,651
---------
5,651
---------
Singapore-0.28%
**Singapore Telecommunications 144A
7.375% 12/1/31 ....................... USD 5,000 5,925
---------
5,925
---------
Spain-1.92%
Kingdom of Spain 3.10% 9/20/06 ......... JPY 4,000,000 40,301
---------
40,301
---------
Supranational-0.47%
Inter-American Development Bank
1.90% 7/8/09 ......................... JPY 1,000,000 9,912
---------
9,912
---------
Sweden-1.99%
**Nordea Bank Sweden AB 144A
5.25% 11/30/12 ....................... USD 5,000 5,113
Swedish Government
5.00% 1/28/09 ........................ SEK 110,000 15,883
6.75% 5/5/14 ......................... SEK 130,000 20,942
---------
41,938
---------
Venezuela-0.31%
**Republic of Venezuela 144A
10.75% 9/19/13 ....................... USD 6,000 6,435
---------
6,435
---------
Total Foreign Bonds
(cost $427,601) ...................... 449,225
---------
MUNICIPAL BONDS-0.88%
Airport Revenue Bonds-0.20%
New Jersey Economic Development
Authority Continental Airlines Project
6.25% 9/15/29 ........................ USD 5,000 4,172
---------
4,172
---------
Miscellaneous Revenue Bonds-0.25%
State of Oregon 5.892% 6/1/27 .......... USD 5,000 5,155
---------
5,155
---------
State General Obligation Bonds-0.43%
State of Illinois 5.10% 6/1/33 ......... USD 10,000 9,147
---------
9,147
---------
Total Municipal Bonds
(cost $19,343) ....................... 18,474
---------
Diversified Income-5
Delaware VIP Diversified Income Series
Statement of Net Assets (continued)
Principal Market
Amount* Value
(U.S. $)
Non-Agency Collateralized
Mortgage Obligations-4.96%
Bank of America Alternative Loan Trust
Series 03-10 2A1 6.00% 12/25/33 ............. USD 4,975 $ 5,110
Series 03-11 1A1 6.00% 1/25/34 .............. USD 5,000 5,137
+Bank of America Mortgage Securities
Series 03-F 1A1 2.969% 7/25/33 .............. USD 3,509 3,512
Series 03-I 2A4 3.828% 10/25/33 ............. USD 5,000 5,021
+Bear Stearns Adjustable Rate
Mortgage Trust Series 03-7 8A
4.83% 10/25/33 .............................. USD 4,936 5,018
Countrywide Alternative Loan Trust
Series 02-7 6.75% 8/25/32 ................... USD 2,008 2,026
+Countrywide Home Loans Series 03-21 A1
4.19% 5/25/33 ............................... USD 3,690 3,746
Credit Suisse First Boston Mortgage Securities
Series 03-23 5A1 6.00% 9/25/33 .............. USD 4,813 4,967
Series 03-23 6A1 6.50% 9/25/33 .............. USD 4,792 4,976
Series 03-23 7A1 5.00% 9/25/18 .............. USD 4,878 4,932
Series 03-29 5A1 7.00% 12/25/33 ............. USD 10,000 10,552
First Union - Lehman Brothers -
Bank of America Series 98-C2 A2
6.56% 11/18/35 .............................. USD 10,000 11,155
+Master Adjustable Rate Mortgages
Trust Series 03-6 1A2
3.134% 12/25/33 ............................. USD 5,000 4,981
Master Alternative Loans Trust
Series 03-9 1A1 5.50% 12/25/18 .............. USD 5,000 5,152
Nomura Asset Securities 98-D6 A1B
6.59% 3/15/30 ............................... USD 10,000 11,189
Structured Asset Securities
+Series 02-22H 1A 7.00% 11/25/32 .............. USD 2,269 2,360
Series 03-33H 1A1 5.50% 10/25/33 ............. USD 4,921 4,947
+Wells Fargo Mortgage Backed Securities Trust
Series 03-K 2A5 4.522% 11/25/33 .............. USD 5,000 4,550
Series 03-M A1 4.788% 12/25/33 ............... USD 4,966 4,906
--------
Total Non-Agency Collateralized
Mortgage Obligations
(cost $103,838) ............................. 104,237
--------
Principal Market
Amount* Value
(U.S. $)
U.S. Treasury Obligations-3.72%
U.S. Treasury Bond 5.375% 2/15/31 . USD 15,000 $15,647
U.S. Treasury Inflation Index Notes
1.875% 7/15/13 .................. USD 15,109 15,005
3.375% 1/15/07 .................. USD 11,677 12,653
U.S. Treasury Notes
1.625% 9/30/05 .................. USD 20,000 19,999
3.375% 11/15/08 ................. USD 5,000 5,041
4.25% 11/15/13 .................. USD 10,000 9,992
-------
Total U.S. Treasury Obligations
(cost $77,931) .................. 78,337
-------
Number of
Shares
Preferred Stock-0.87%
Cable, Media & Publishing-0.50%
CSC Holdings 11.75% ............... 100 10,425
-------
10,425
-------
Leisure, Lodging & Entertainment-0.29%
Host Marriott Class B 10.00% ...... 225 6,075
-------
6,075
-------
Paper & Forest Products-0.08%
Alamosa Delaware 7.50% ............ 5 1,731
-------
1,731
-------
Total Preferred Stock
(cost $17,241) .................. 18,231
-------
Diversified Income-6
Delaware VIP Diversified Income Series
Statement of Net Assets (continued)
Principal Market
Amount* Value
(U.S. $)
REPURCHASE AGREEMENTS-1.57%
With BNP Paribas 0.85% 1/2/04
(dated 12/31/03, collateralized
by $760 U.S. Treasury Bills due 3/25/04,
market value $762, $2,830 U.S.
Treasury Notes 3.625% due 3/31/04,
market value $2,872, $8,690 U.S.
Treasury Notes 6.00% due 8/15/04,
market value $9,159, and $4,490
U.S. Treasury Notes 1.625%
due 1/31/05, market value $4,537)............... USD 16,990 $16,990
Principal Market
Amount* Value
(U.S. $)
REPURCHASE AGREEMENTS (continued)
With UBS Warburg 0.85% 1/2/04
(dated 12/31/03, collateralized
by $3,720 U.S. Treasury Notes
1.625% due 3/31/05, market
value $3,754, $130 U.S. Treasury
Notes 5.50% due 2/15/08, market
value $144, and $11,170 U.S. Treasury
Notes 5.625% due 5/15/08,
market value $12,462)........................... USD 16,010 $16,010
-------
Total Repurchase Agreements
(cost $33,000)................................... 33,000
-------
TOTAL MARKET VALUE OF SECURITIES-99.93% (cost $2,044,032) .................................................... 2,102,365
RECEIVABLES AND OTHER ASSETS NET OF LIABILITIES-0.07%......................................................... 1,505
----------
NET ASSETS APPLICABLE TO 235,296 SHARES OUTSTANDING-100.00% .................................................. $2,103,870
==========
NET ASSET VALUE-DELAWARE VIP DIVERSIFIED INCOME SERIES STANDARD CLASS ($2,103,861 / 235,295 shares)........... $8.94
=====
NET ASSET VALUE-DELAWARE VIP DIVERSIFIED INCOME SERIES SERVICE CLASS ($8.93 / 1 share) ....................... $8.93
=====
COMPONENTS OF NET ASSETS AT DECEMBER 31, 2003:
Shares of beneficial interest (unlimited authorization-no par)................................................ $2,000,018
Undistributed net investment income***........................................................................ 54,558
Accumulated net realized loss on investments ................................................................. (10,013)
Net unrealized appreciation of investments and foreign currencies............................................. 59,307
----------
Total net assets.............................................................................................. $2,103,870
==========
- --------------------
*Principal amount is stated in the currency in which each bond is denominated.
AUD - Australian Dollar
EUR - European Monetary Unit
JPY - Japanese Yen
PLZ - Polish Zloty
SEK - Swedish Krona
USD - U.S. Dollar
**Securities exempt from registration under Rule 144A of the Securities Act of
1933. See Note #10 in "Notes to Financial Statements."
***Undistributed net investment income includes net realized gains (losses) on
foreign currencies. Net realized gains (losses) on foreign currencies are
treated as net investment income in accordance with provisions of the
Internal Revenue Code.
+Variable Rate Notes - the interest rate shown is the rate as of December
31, 2003.
++Step coupon bond.
#Securities have been classified by country of origin. Classification by type
of business has been presented in Note #11 in "Notes to Financial
Statements."
oZero coupon bond. The interest rate shown is the yield at the time of
purchase.
^Non-income producing security. Security is currently in default.
SLMA - Student Loan Marketing Association.
TBA - To be announced
See accompanying notes
Diversified Income-7
Delaware VIP Trust-
Delaware VIP Diversified Income Series
Statement of Assets and Liabilities
December 31, 2003
ASSETS:
Investments at market (cost $2,044,032)........... $2,102,365
Cash.............................................. 15,592
Receivables for securities sold................... 59,326
Dividends receivable.............................. 434
Interest receivable............................... 35,181
Due from DMC...................................... 4,626
---------
Total assets...................................... 2,217,524
---------
LIABILITIES:
Payables for securities purchased................. 113,266
Payable on closed swap agreement.................. 388
---------
Total liabilities................................. 113,654
---------
Total net assets.................................. $2,103,870
==========
See accompanying notes
Delaware VIP Trust-
Delaware VIP Diversified Income Series
Statement of Operations
Period May 16, 2003* to December 31, 2003
INVESTMENT INCOME:
Interest.......................................... $ 65,282
Dividends......................................... 575
---------
65,857
---------
EXPENSES:
Management fees................................... 8,177
Custodian fees.................................... 5,906
Reports and statements to shareholders............ 4,420
Accounting and administration expenses............ 475
Trustees' fees.................................... 252
Professional fees................................. 217
Registration fees................................. 145
Dividend disbursing and transfer agent fees
and expenses..................................... 119
Other............................................. 271
---------
19,982
Less expenses absorbed or waived.................. (9,889)
Less expenses paid indirectly..................... (30)
---------
Total expenses.................................... 10,063
---------
NET INVESTMENT INCOME............................. 55,794
---------
NET REALIZED AND UNREALIZED GAIN
(LOSS) ON INVESTMENTS AND
FOREIGN CURRENCIES:
Net realized loss on:
Investments...................................... (8,641)
Futures contracts................................ (264)
Swap agreements.................................. (388)
Foreign currencies............................... (1,956)
---------
Net realized loss................................. (11,249)
Net change in unrealized appreciation/depreciation
of investments and foreign currencies............ 59,307
---------
NET REALIZED AND UNREALIZED GAIN ON
INVESTMENTS AND FOREIGN CURRENCIES............... 48,058
---------
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS.................................. $103,852
========
*Commencement of operations.
See accompanying notes
Diversified Income-8
Delaware VIP Trust-
Delaware VIP Diversified Income Series
Statement of Changes in Net Assets
Period
5/16/03* to
12/31/03
-----------
INCREASE (DECREASE) IN NET ASSETS
FROM OPERATIONS:
Net investment income............................. $ 55,794
Net realized loss on investments and
foreign currencies............................... (11,249)
Net change in unrealized appreciation/depreciation
of investments and foreign currencies............ 59,307
---------
Net increase in net assets resulting from
operations........................................ 103,852
---------
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares sold:
Standard Class................................... 2,000,009
Service Class.................................... 9
---------
2,000,018
---------
Increase in net assets derived from
capital share transactions....................... 2,000,018
---------
NET INCREASE IN NET ASSETS........................ 2,103,870
NET ASSETS:
Beginning of period............................... -
---------
End of period..................................... $2,103,870
==========
*Commencement of operations.
See accompanying notes
Diversified Income-9
Delaware VIP Trust-Delaware VIP Diversified Income Series
Financial Highlights
Selected data for each share of the Series outstanding throughout the period
was as follows:
Delaware VIP Diversified Income Series Standard Class
5/16/03(1)
to
12/31/03
----------
Net asset value, beginning of period.............. $8.500
Income from investment operations:
Net investment income(2).......................... 0.240
Net realized and unrealized gain on investments
and foreign currencies........................... 0.200
------
Total from investment operations.................. 0.440
------
Net asset value, end of period.................... $8.940
======
Total return(3)................................... 5.18%
Ratios and supplemental data:
Net assets, end of period (000 omitted)........... $2,104
Ratio of expenses to average net assets........... 0.80%
Ratio of expenses to average net assets prior to
expense limitation and expenses paid indirectly.. 1.59%
Ratio of net investment income to average net
assets........................................... 4.43%
Ratio of net investment income to average net
assets prior to expense limitation and expenses
paid indirectly.................................. 3.64%
Portfolio turnover................................ 521%
___________________________
(1)Commencement of operations; ratios and portfolio turnover have been
annualized and total return has not been annualized.
(2)The average shares outstanding method has been applied for per share
information.
(3)Total investment return is based on the change in net asset value of a share
during the period and assumes reinvestment of dividends and distributions at
net asset value. Total investment return reflects a waiver and payment of
fees by the manager. Performance would have been lower had the expense
limitation not been in effect.
See accompanying notes
Diversified Income-10
Delaware VIP Diversified Income Series
Financial Highlights
Selected data for each share of the Series outstanding throughout the period was
as follows:
Delaware VIP Diversified Income Series Service Class
5/16/03(1)
to
12/31/03
----------
Net asset value, beginning of period.............. $ 8.500
Income from investment operations:
Net investment income(2).......................... 0.216
Net realized and unrealized gain on investments
and foreign currencies........................... 0.214
-------
Total from investment operations.................. 0.430
-------
Net asset value, end of period.................... $ 8.930
=======
Total return(3)................................... 5.06%
Ratios and supplemental data:
Net assets, end of period (000 omitted)........... $ -
Ratio of expenses to average net assets........... 1.05%
Ratio of expenses to average net assets prior to
expense limitation and expenses paid indirectly.. 1.89%
Ratio of net investment income to average net
assets........................................... 4.18%
Ratio of net investment income to average net
assets prior to expense limitation and expenses
paid indirectly.................................. 3.34%
Portfolio turnover................................ 521%
___________________________
(1)Commencement of operations; ratios and portfolio turnover have been
annualized and total return has not been annualized.
(2)The average shares outstanding method has been applied for per share
information.
(3)Total investment return is based on the change in net asset value of a share
during the period and assumes reinvestment of dividends and distributions at
net asset value. Total investment return reflects a waiver and payment of
fees by the manager and distributor. Performance would have been lower had
the expense limitation not been in effect.
See accompanying notes
Diversified Income-11
Delaware VIP Trust-Delaware VIP Diversified Income Series
Notes to Financial Statements
December 31, 2003
Delaware VIP Trust (the "Trust") is organized as a Delaware statutory trust and
offers 15 series: Delaware VIP Balanced Series, Delaware VIP Capital Reserves
Series, Delaware VIP Cash Reserve Series, Delaware VIP Diversified Income
Series, Delaware VIP Emerging Markets Series, Delaware VIP Global Bond Series,
Delaware VIP Growth Opportunities Series, Delaware VIP High Yield Series,
Delaware VIP International Value Equity Series, Delaware VIP Large Cap Value
Series, Delaware VIP REIT Series, Delaware VIP Select Growth Series, Delaware
VIP Small Cap Value Series, Delaware VIP Trend Series and Delaware VIP U.S.
Growth Series. These financial statements and the related notes pertain to
Delaware VIP Diversified Income Series (the "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 high current income and total
return.
1. Significant Accounting Policies
The following accounting policies are in accordance with accounting principles
generally accepted in the United States and are consistently followed by the
Series.
Security Valuation--All equity securities 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 Stock Market, Inc.
(NASDAQ) are valued in accordance with the NASDAQ Official Closing Price, which
may not be the last sales price. If on a particular day an equity security does
not trade, then the mean between the bid and asked prices will normally be used.
Securities listed on a foreign exchange are valued at the last quoted sales
price before the Series is valued. U.S. government and agency securities are
valued at the mean between the bid and asked prices. Other long-term debt
securities are valued by an independent pricing service and such prices are
believed to reflect the fair value of such securities. Short-term debt
securities having less than 60 days to maturity are valued at amortized cost,
which approximates market value. Forward foreign currency exchange contracts are
valued at the mean between the bid and asked prices of the contracts and are
marked-to-market daily. Interpolated values are derived when the settlement date
of the contract is an interim date for which quotations are not available.
Futures contracts are valued at the daily quoted settlement prices. Swap
agreements and other securities and assets for which market quotations are not
readily available are valued at fair value as determined in good faith under the
direction of the Series' Board of Trustees. In determining whether market
quotations are readily available or fair valuation will be used, various factors
will be taken into consideration, such as market closures, or with respect to
foreign securities, aftermarket trading, or significant events after local
market trading (e.g., government actions or pronouncements, trading volume or
volatility on markets, exchanges among dealers, or news events).
Federal Income Taxes--The Series intends to qualify for federal income tax
purposes as a regulated investment company and make the requisite distributions
to shareholders. Accordingly, no provision for federal income taxes has been
made in the financial statements.
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. 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 102% collateralized. However, in the
event of default or bankruptcy by the counterparty to the agreement, realization
of the collateral may be subject to legal proceedings.
Foreign Currency Transactions--Transactions denominated in foreign currencies
are recorded at the prevailing exchange rates on the valuation date. The value
of all assets and liabilities denominated in foreign currencies are translated
into U.S. dollars at the exchange rate of such currencies against the U.S.
dollar daily. Transaction gains or losses resulting from changes in exchange
rates during the reporting period or upon settlement of the foreign currency
transaction are reported in operations for the current period. The Series
isolates that portion of realized gains and losses on investments in debt
securities, which are due to changes in the foreign exchange rates from that
which are due to changes in market prices of debt securities. The Series reports
certain foreign currency related transactions as components of realized gains
(losses) for financial reporting purposes, where such components are treated as
ordinary income (loss) for federal income tax purposes.
Use of Estimates--The preparation of financial statements in conformity with
accounting principles generally accepted in the United States 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 common to all funds within the Delaware Investments Family of
Funds are allocated amongst the funds on the basis of average net assets.
Security transactions are recorded on the date the securities are purchased or
sold (trade date). Costs used in calculating realized gains and losses on the
sale of investment securities are those of the specific securities sold.
Dividend income is recorded on the ex-dividend date and interest income is
recorded on the accrual basis. Withholding taxes have been provided for in
accordance with the Series' understanding of the applicable country's tax rules
and rates. Premiums and discounts 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.
Certain expenses of the Series are paid through commission arrangements with
brokers. The amount of these expenses was approximately $30 for the period ended
December 31, 2003. The expense paid under the above arrangement is included in
"other" on the Statement of Operations with the corresponding expense offset
shown as "expenses paid indirectly.
Diversified Income-12
Delaware VIP Diversified Income 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 the average daily net assets in excess of $2.5 billion. DMC has entered
into a sub-advisory agreement with Delaware International Advisers Ltd. (DIAL),
an affiliate of DMC, related to the foreign securities portion of the Series.
For the services provided, DMC pays DIAL a portion of the management fee based
on the portion of foreign assets in the portfolio. The Series does not pay any
fees directly to DIAL.
DMC has contractually agreed to waive that portion, if any, of its management
fee and reimburse the Series to the extent necessary to ensure that annual
operating expenses, exclusive of taxes, interest, brokerage commissions,
distribution fees, certain insurance costs and extraordinary expenses, do not
exceed 0.80% of average daily net assets of the Series through April 30, 2004.
Delaware Service Company, Inc. (DSC), an affiliate of DMC and DIAL, provides
accounting, administration, dividend disbursing and transfer agent services. The
Series pays DSC a monthly fee based on average net assets subject to certain
minimums for accounting and administration services. The Series pays DSC a
monthly fee based on average net assets for dividend disbursing and transfer
agent services.
Pursuant to a distribution agreement and distribution plan, the Series pays
Delaware Distributors, L.P. (DDLP), the distributor and an affiliate of DMC, an
annual 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, 2004 in order to prevent distribution and service fees of the Service
Class shares from exceeding 0.25% of average daily net assets. No distribution
expenses are paid by Standard Class shares.
At December 31, 2003, the Series had receivables from or liabilities payable to
affiliates as follows:
Dividend disbursing, Other Receivable
transfer agent fees, expenses from DMC
accounting payable under expense
and other expenses to DMC limitation
payable to DSC and affiliates* agreement
------------------- --------------- -------------
$(84) $(307) $4,626
* 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, professional fees, custodian fees and
trustees' fees.
Certain officers of DMC, DIAL, 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 period ended December 31, 2003, the Series made purchases and sales of
investment securities other than U.S. government securities and short-term
investments as follows:
Purchases..................... $6,393,693
Sales......................... $4,882,974
At December 31, 2003, the cost of investments and unrealized appreciation
(depreciation) for federal income tax purposes for the Series were as follows:
Aggregate Aggregate
Cost of unrealized unrealized Net unrealized
investments appreciation depreciation appreciation
----------- ------------ ------------ --------------
$2,044,731 $71,750 $(14,116) $57,634
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 accounting principles generally accepted in the United
States. There were no distributions for the period ended December 31, 2003.
As of December 31, 2003, the components of net assets on a tax basis were as
follows:
Shares of beneficial interest.......... $2,000,018
Undistributed ordinary income.......... 54,558
Capital loss carryforwards............. (7,716)
Post-October losses.................... (1,598)
Unrealized appreciation of investments
and foreign currencies................ 58,608
----------
Net assets............................. $2,103,870
==========
Diversified Income-13
Delaware VIP Diversified Income Series
Notes to Financial Statements (continued)
4. Dividend and Distribution Information (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 captial gains. Such capital loss
carryforwards expire as follows: $7,716 expires in 2011.
Post-October losses represent losses realized on investment transactions from
November 1, 2003 through December 31, 2003 that, in accordance with federal
income tax regulations, the Series has elected to defer and treat as having
arisen in the following fiscal year.
5. Capital Shares
Transactions in capital shares were as follows:
Period*
Ended
12/31/03
--------
Shares sold:
Standard Class........................ 235,295
Service Class......................... 1
-------
Net increase........................... 235,296
-------
*Commenced operations on May 16, 2003.
6. Line of Credit
The Series, along with certain other funds in the Delaware Investments Family of
Funds (the "Participants"), participates in a $177,300,000 revolving line of
credit facility to be used for temporary or emergency purposes as an additional
source of liquidity to fund redemptions of investor shares. The Participants are
charged an annual commitment fee, which is allocated across the Participants on
the basis of each fund's allocation of the entire facility. The Participants may
borrow up to a maximum of one third of their net assets under the agreement. The
Series had no amounts outstanding as of December 31, 2003, or at any time during
the period.
7. Foreign Exchange Contracts
The Series may enter into forward foreign currency exchange contracts as a way
of managing foreign exchange rate risk. The Series may enter into these
contracts to fix the U.S. dollar value of a security that it has agreed to buy
or sell for the period between the date the trade was entered into and the date
the security is delivered and paid for. The Series may also use these contracts
to hedge the U.S. dollar value of securities it already owns that are
denominated in foreign currencies.
The change in market value is recorded as an unrealized gain or loss. When the
contract is closed, a realized gain or loss is recorded equal to the difference
between the value of the contract at the time it was opened and the value at the
time it was closed.
The use of forward foreign currency exchange contracts does not eliminate
fluctuations in the underlying prices of the securities, but does establish a
rate of exchange that can be achieved in the future. Although forward 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.
No forward foreign currency exchange contracts were outstanding at December 31,
2003.
8. Futures Contracts
The Series may invest in financial futures contracts to hedge its existing
portfolio securities against fluctuations in fair value caused by changes in
prevailing market interest rates. Upon entering into a futures contract, the
Series deposits cash or pledges U.S. government securities to a broker, equal to
the minimum "initial margin" requirements of the exchange on which the contract
is traded. In some cases, due to the form of the futures agreement, initial
margin is held in a segregated account with the Series' custodian, rather than
directly with the broker. Subsequent payments are received from the broker or
paid to the broker (or added to the segregated account) each day, based on the
daily fluctuation in the market value of the contract. These receipts or
payments are known as "variation margin" and are recorded daily by the Series as
unrealized gains or losses until the contracts are closed. When the contracts
are closed, the Series records a realized gain or loss equal to the difference
between the value of the contract at the time it was opened and the value at the
time it was closed. Risks of entering into futures contracts include potential
imperfect correlation between the futures contracts and the underlying
securities and the possibility of an illiquid secondary market for these
instruments.
No financial futures contracts were open at December 31, 2003.
Diversified Income-14
Delaware VIP Diversified Income Series
Notes to Financial Statements (continued)
9. Swap Agreements
During the period ended December 31, 2003, the Series entered into total return
swap agreements in accordance with its investment objectives. A swap is an
agreement to exchange the return generated by one instrument for the return
generated by another instrument. Total return 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 agreements
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 agreement.
No total return swap agreements were outstanding at December 31, 2003.
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 securities listed on the major securities exchanges in emerging markets
are held by a smaller number of investors. This may limit the number of shares
available for acquisition or disposition by the Series.
The Series invests in fixed-income securities whose value is derived from
underlying mortgages or consumer loans. Investors receive principal and interest
payments as the underlying mortgages or consumer loans are paid back. Some of
these securities are collateralized mortgage obligations (CMOs). CMOs are debt
securities issued by U.S. government agencies or by financial institutions and
other mortgage lenders, which are collateralized by a pool of mortgages held
under an indenture. Prepayment of mortgages may shorten the stated maturity of
the obligations and can result in a loss of premium, if any has been paid.
Certain of these securities may be stripped (securities, which provide only the
principal or interest feature of the underlying security). The yield to maturity
on an interest-only CMO is extremely sensitive not only to changes in prevailing
interest rates, but also to the rate of principal payments (including
prepayments) on the related underlying mortgage assets. A rapid rate of
principal payments may have a material adverse affect on the Series' yield to
maturity. If the underlying mortgage assets experience greater than anticipated
prepayments of principal, the Series may fail to fully recoup its initial
investment in these securities even if the securities are rated in the highest
rating categories.
The Series invests 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 10% of its total assets in illiquid securities,
which may include securities with contractual restrictions on resale, securities
exempt from registration under Rule 144A of the Securities Act of 1933, as
amended, and other securities which may not be readily marketable. Securities
with contractual restrictions on resale or Rule 144A securities, if liquid, may
not be subject to the Series' 10% restriction on investing in such assets. 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.
11. Industry Allocation
As of December 31, 2003, the foreign bond holdings of the Series, classified by
type of business, was a follows:
Industry Percentage of Net Assets
- -------- ------------------------
Banking, Finance & Insurance........... 1.47%
Cable, Media & Publishing.............. 0.26%
Energy................................. 0.27%
Foreign Government..................... 17.29%
Leisure, Lodging & Entertainment....... 0.23%
Manufacturing.......................... 0.25%
Paper & Forest Products................ 0.84%
Telecommunications..................... 0.52%
Transportation & Shipping.............. 0.22%
------
Total.................................. 21.35%
======
Diversified Income-15
Delaware VIP Trust-Delaware VIP Diversified Income Series
Report of Independent Auditors
To the Shareholders and Board of Trustees
Delaware VIP Trust - Delaware VIP Diversified Income Series
We have audited the accompanying statement of net assets and statement of assets
and liabilities of Delaware VIP Diversified Income Series (the "Series") as of
December 31, 2003, and the related statement of operations, statement of changes
in net assets, and financial highlights for the period May 16, 2003
(commencement of operations) through December 31, 2003. These financial
statements and financial highlights are the responsibility of the Series'
management. Our responsibility is to express an opinion on these financial
statements and financial highlights based on our audit.
We conducted our audit in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements and financial highlights. Our procedures included
confirmation of securities owned as of December 31, 2003, by correspondence with
the custodian and brokers, or by other auditing procedures where replies from
brokers were not received. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Delaware VIP Diversified Income Series at December 31, 2003, and the results of
its operations, the changes in its net assets, and its financial highlights for
the period May 16, 2003 (commencement of operations) through December 31, 2003,
in conformity with accounting principles generally accepted in the United
States.
Ernst & Young LLP
Philadelphia, Pennsylvania
February 6, 2004
- --------------------------------------------------------------------------------
-----------------------------------------------------------------------
A description of the policies and procedures that the Series uses to
determine how to vote proxies (if any) relating to portfolio
securities is available without charge (i) upon request, by calling
800 523-1918; (ii) on the Series' website at
http://www.delawareinvestments.com; and (iii) on the Commission's
website at http://www.sec.gov.; and beginning no later than August 31,
2004, information (if any) regarding how the Series voted proxies
relating to portfolio securities during the most recent 12-month
period ended June 30 is available without charge (i) through the
Series' website at http://www.delawareinvestments.com; and (ii) on the
Commission's website at http://www.sec.gov.
-----------------------------------------------------------------------
Diversified Income-16
Delaware Investments Family of Funds
BOARD OF TRUSTEES/DIRECTORS AND OFFICERS ADDENDUM
A mutual fund is governed by a Board of Trustees/Directors which has oversight
responsibility for the management of a fund's business affairs.
Trustees/Directors establish procedures and oversee and review the performance
of the investment manager, the distributor and others that perform services for
the fund. The independent fund trustees, in particular, are advocates for
shareholder interests. The following is a list of the Trustees/Directors and
Officers with certain background and related information.
Number of Other
Principal Portfolios in Fund Directorships
Name, Position(s) Occupation(s) Complex Overseen Held by
Address Held with Length of Time During by Trustee/Director Trustee/Director
and Birthdate Fund(s) Served Past 5 Years or Officer or Officer
- -----------------------------------------------------------------------------------------------------------------------------------
INTERESTED TRUSTEES
Jude T. Driscoll(2) Chairman and 4 Years - Since August 2000, 80 None
2005 Market Street Trustee(4) Executive Officer Mr. Driscoll has served in
Philadelphia, PA various executive capacities
19103 Trustee since at different times at
May 15, 2003 Delaware Investments(1)
March 10, 1963
Senior Vice President and
Director of Fixed-Income Process -
Conseco Capital Management (June 1998 -
August 2000)
Managing Director -
NationsBanc Capital Markets (February
1996 - June 1998)
- -----------------------------------------------------------------------------------------------------------------------------------
INDEPENDENT TRUSTEES
Walter P. Babich Trustee 16 Years Board Chairman - 98 None
2005 Market Street Citadel Construction Corporation
Philadelphia, PA (1989 - Present)
19103
October 1, 1927
- -----------------------------------------------------------------------------------------------------------------------------------
John H. Durham Trustee 25 Years(3) Private Investor 98 Trustee - Abington
2005 Market Street Memorial Hospital
Philadelphia, PA
19103
President/Director-
22 WR Corporation
August 7, 1937
- -----------------------------------------------------------------------------------------------------------------------------------
John A. Fry Trustee(4) 3 Years President - 80 None
2005 Market Street Franklin & Marshall College
Philadelphia, PA (June 2002 - Present)
19103
Executive Vice President -
University of Pennsylvania
May 28, 1960 (April 1995 - June 2002)
- -----------------------------------------------------------------------------------------------------------------------------------
Anthony D. Knerr Trustee 11 Years Founder/Managing Director - 98 None
2005 Market Street Anthony Knerr & Associates
Philadelphia, PA (Strategic Consulting)
19103 (1990 - Present)
December 7, 1938
- -----------------------------------------------------------------------------------------------------------------------------------
Diversified Income-17
Number of Other
Principal Portfolios in Fund Directorships
Name, Position(s) Occupation(s) Complex Overseen Held by
Address Held with Length of Time During by Trustee/Director Trustee/Director
and Birthdate Fund(s) Served Past 5 Years or Officer or Officer
- -----------------------------------------------------------------------------------------------------------------------------------
INDEPENDENT TRUSTEES
(continued)
Ann R. Leven Trustee 15 Years Treasurer/Chief Fiscal Officer - 98 Director - Andy
2005 Market Street National Gallery of Art Warhol Foundation
Philadelphia, PA (1994 - 1999)
19103 Director -
Systemax Inc.
November 1, 1940
- -----------------------------------------------------------------------------------------------------------------------------------
Thomas F. Madison Trustee 10 Years President/Chief 98 Director -
2005 Market Street Executive Officer - Banner Health
Philadelphia, PA MLM Partners, Inc.
19103 (Small Business Investing Director -
and Consulting) CenterPoint Energy
(January 1993 - Present)
February 25, 1936
Director -
Digital River Inc.
Director - Rimage
Corporation
- -----------------------------------------------------------------------------------------------------------------------------------
Janet L. Yeomans Trustee 5 Years Vice President/Mergers & 98 None
2005 Market Street Acquisitions - 3M Corporation
Philadelphia, PA 19103 (January 2003 - Present)
Ms. Yeomans has held
July 31, 1948 various management positions
at 3M Corporation since 1983.
- -----------------------------------------------------------------------------------------------------------------------------------
OFFICERS
Joseph H. Hastings Executive Executive Mr. Hastings has served in 98 None
2005 Market Street Vice President Vice President various executive capacities
Philadelphia, PA 19103 and and at different times at
Chief Financial Chief Financial Delaware Investments.
Officer Officer since
August 21, 2003
December 19, 1949
- -----------------------------------------------------------------------------------------------------------------------------------
Richelle S. Maestro Senior Vice President, Chief Legal Officer Ms. Maestro has served in 98 None
2005 Market Street Chief Legal Officer since various executive capacities
Philadelphia, PA and Secretary March 17, 2003 at different times at
19103 Delaware Investments.
November 26, 1957
- -----------------------------------------------------------------------------------------------------------------------------------
Michael P. Bishof Senior Vice President 8 Years Mr. Bishof has served in 98 None
2005 Market Street and Treasurer various executive capacities
Philadelphia, PA at different times at
19103 Delaware Investments.
August 18, 1962
- -----------------------------------------------------------------------------------------------------------------------------------
(1) Delaware Investments is the marketing name for Delaware Management
Holdings, Inc. and its subsidiaries, including the Registrant's investment
advisor, principal underwriter and its transfer agent.
(2) Mr. Driscoll is considered to be an "Interested Trustee" because he is an
executive officer of the Fund's manager and distributor.
(3) Mr. Durham served as a Director Emeritus from 1995 through 1998.
(4) Mr. Driscoll and Mr. Fry are not Trustees of the portfolios of Voyageur
Insured Funds, Voyageur Intermediate Tax Free Funds, Voyageur Investment
Trust, Voyageur Mutual Funds, Voyageur Mutual Funds II, Voyageur Mutual
Funds III and Voyageur Tax Free Funds.
The Statement of Additional Information for the Fund(s) includes additional
information about the Trustees/Directors and Officers and is available, without
charge, upon request by calling 800 523-1918.
Diversified Income-18
FOR INTERNATIONAL DIVERSIFICATION
Delaware VIP Trust-Delaware VIP Emerging Markets Series
Portfolio Snapshot
For the year ended December 31, 2003, emerging market equities were up
strongly as a whole, generally outperforming stocks in countries with more
established capital markets. Throughout our fiscal year, emerging markets seemed
to consistently attract the attention of investors seeking alternative
investment ideas.
During the 12-month period, Delaware VIP Emerging Markets Series returned
+70.54% (Standard Class shares with distributions reinvested). A majority of the
countries that make up the Morgan Stanley Capital International (MSCI) Emerging
Markets Free (EMF) Index posted strong double-digit percentage gains for the
period. The MSCI EMF Index appreciated +56.28%, outpacing the +28.67% return of
the S&P 500 Index in the U.S. and also strongly outperforming most global
indexes that track the world's established markets.
A strengthening global economy can generally be credited for the strong
performance on the year, and outperformance of non-U.S. stocks was partially
attributable to a decline in the value of the U.S. dollar. The dollar's decline
often provided an exchange-rate boost to U.S. investors who held international
fund shares.
During the 12-month period, the Series benefited from a modest overweighting
in Brazil, especially in resource companies. We increased our exposure to Mexico
late in the period, owing to attractive valuations that emerged from that
nation's generally poor stock market showing in 2003. The Fund also benefited
from underweighted positions in Taiwan, where structural domestic problems have
led us to believe that stock opportunities have diminished, and Korea, which
suffers from a weak financial system and poor corporate governance. Lastly, we
have underweighted the Series in Russia, as a three-year runup in that market
has left us with few stocks that we would categorize as attractively valued.
Investment Outlook
As a general rule, we believe some of the best emerging market opportunities
frequently lie in relatively insulated markets with internally-generated growth,
like China and India, as well as in laggard markets such as Mexico. We continue
to stress the risks inherent in emerging markets--including both geopolitical
turmoil and the dangers that global recovery may be too slow to give much
near-term support for exports or access to capital in emerging markets.
Performance of a $10,000 Investment:
May 1, 1997 (Series' inception) through
December 31, 2003
Delaware VIP
Emerging Market
Series MSCI Emerging
(Standard Markets
Class Shares) Free Index
--------------- -------------
May 31 '97 10000 10300
Dec.'97 7910 8880
Dec.'98 5906 5996
Dec.'99 9828 8890
Dec.'00 6820 6792
Dec.'01 7151 7151
Dec.'02 6722 7521
Dec.'03 10505 12826
Delaware VIP Emerging
Markets Series
Average Annual Total Returns
- -------------------------------------------------
Standard Class Service Class
Shares* Shares**
Lifetime +3.80% +13.12%
Five Years +16.43% --
One Year +70.54% +70.10%
For the periods ended December 31, 2003
* Commenced operations on May 1, 1997.
** Commenced operations on May 1, 2000.
Past performance is not a guarantee of future results. Returns and share values
will fluctuate so that shares, when redeemed, may be worth more or less than
their original cost.
The chart shows a $10,000 investment in Delaware VIP Emerging Markets Series
Standard Class shares for the period from the Series' inception on May 1, 1997
through December 31, 2003. The chart assumes all distributions were reinvested.
The chart also shows a $10,000 investment in the MSCI Emerging Markets Free
Index at that month's end, May 31, 1997. After May 31, 1997, returns plotted on
the chart were as of the last day of each month shown. The return plotted for
the Series on May 31, 1997 reflects any gains or losses that may have occurred
between its inception on May 4, 1997 to May 31, 1998. The MSCI Emerging Markets
Free Index is an unmanaged index of stocks in the world's emerging markets
regions. An index is unmanaged and does not reflect the costs of operating a
mutual fund, such as the costs of buying, selling, and holding securities. You
cannot invest directly in an index. Earnings from a variable annuity investment
compound tax-free until withdrawn, so no adjustments were made for income taxes.
An expense limitation was in effect for Delaware VIP Emerging Markets Series
during the periods shown. Performance does not reflect insurance fees related to
a variable annuity or variable life investment or the deferred sales charge
that would apply to certain withdrawals of investments held for fewer than eight
years. Performance shown here would have been reduced if such fees were
included and the expense limitation was removed. For more information about
fees, consult your variable annuity or variable life prospectus.
Emerging Markets-1
Delaware VIP Trust-Delaware VIP Emerging Markets Series
Statement of Net Assets**
December 31, 2003
Number of Market
Shares Value
(U.S. $)
COMMON STOCK-96.83%
Brazil-13.04%
Aracruz Celulose ADR ................ 4,062 $ 142,332
Companhia de Saneamento Basico
de Estado de Sao Paulo ............ 2,740,000 154,998
Companhia Siderurgica Nacional ...... 5,500,000 298,735
Companhia Vale do Rio Doce ADR ...... 3,900 228,150
Empresa Brasiliera de Aeronautica ADR 6,854 240,096
Petroleo Brasileiro ADR ............. 3,300 87,978
Petroleo Brasileiro Preferred Shares 7,573 200,547
Ultrapar Participacoes .............. 17,800,000 230,073
Votorantim Celulose e Papel ADR ..... 9,600 300,960
----------
1,883,869
----------
Chile-1.02%
Administradora de Fonfos
de Pensiones Provida ADR .......... 5,229 147,510
----------
147,510
----------
China-9.03%++
Asia Aluminum ....................... 1,276,000 253,109
Beijing Capital International Airport 528,000 180,226
Chaoda Modern Agriculture ........... 645,500 214,097
Fountain Set ........................ 206,000 140,631
Guangshen Railway ................... 702,000 198,928
Texwinca ............................ 176,000 128,085
Zhejiang Expressway ................. 270,000 189,538
----------
1,304,614
----------
Croatia-1.96%
Pliva GDR ........................... 17,369 283,115
----------
283,115
----------
Czech Republic-3.33%
CEZ ................................. 40,570 230,209
Philip Morris CR .................... 409 250,528
----------
480,737
----------
Egypt-1.48%
MobiNil - Egyptian Mobile Services .. 17,512 214,490
----------
214,490
----------
Estonia-3.00%
Eesti Telekom GDR ................... 6,143 153,575
#Eesti Telekom GDR 144A .............. 4,091 102,327
Hansabank ........................... 6,552 176,857
----------
432,759
----------
Hungary-3.81%
Gedeon Richter GDR .................. 606 71,508
#Gedeon Richter GDR 144A ............. 1,214 143,719
Magyar Tavkozlesi ................... 50,246 191,375
+OTP Bank ............................ 11,149 143,786
----------
550,388
----------
India-5.57%
Gail India GDR ...................... 10,159 340,327
#Gail India GDR 144A ................. 1,087 37,216
ICICI Bank ADR ...................... 20,212 347,242
Videsh Sanchar Nigam ADR ............ 12,126 80,032
----------
804,817
----------
Indonesia-3.53%
Hanjaya Mandala Sampoerna ........... 479,000 254,500
Telekomunikasi Indonesia ............ 319,000 255,654
----------
510,154
----------
Number of Market
Shares Value
(U.S. $)
COMMON STOCK (continued)
Israel-1.09%
Bank Hapoalim....................... 64,130 $157,589
----------
157,589
----------
Malaysia-4.20%
IOI Corporation Berhad.............. 82,100 166,361
PLUS Expressways Berhad............. 337,000 226,145
Tanjong............................. 75,200 213,726
----------
606,232
----------
Mexico-10.89%
Apasco de C.V....................... 17,500 144,208
Cemex de C.V........................ 55,525 290,293
Grupo Continental................... 97,300 164,515
Grupo Elektra de C.V................ 32,560 172,402
+Grupo Financiero BBVA Bancomer......
de C.V. Class B................... 168,100 143,608
Kimberly-Clark de Mexico de C.V. ADR 62,900 161,207
Telefonos de Mexico de C.V. ADR..... 8,000 264,240
Tenaris ADR......................... 7,000 233,240
----------
1,573,713
----------
Republic of Korea-10.58%
Hyundai Motor....................... 7,470 316,605
Kookmin Bank........................ 6,580 246,577
KT ADR.............................. 13,227 252,239
#KT&G GDR 144A....................... 30,696 269,357
POSCO............................... 1 137
POSCO ADR........................... 8,069 274,104
Samsung Electronics................. 450 170,332
----------
1,529,351
----------
Russia-1.46%
LUKOIL ADR.......................... 2,266 210,738
----------
210,738
----------
South Africa-15.46%
ABSA Group.......................... 30,781 194,324
African Bank Investments............ 233,034 329,563
Alexander Forbes.................... 174,546 307,253
Aspen Pharmacare Holdings........... 99,086 184,070
Impala Platinum Holdings............ 1,523 132,336
Nampak.............................. 77,903 151,721
Network Healthcare Holdings......... 197,532 149,740
Sappi............................... 9,739 132,771
Sasol............................... 24,538 349,229
Steinhoff International Holdings.... 264,841 303,526
----------
2,234,533
----------
Taiwan-5.34%
Asustek Computer.................... 93,875 207,383
China Steel GDR..................... 10,579 176,140
Pihsiang Machinery Manufacturing.... 20,000 69,514
President Chain Store............... 123,232 188,750
+Yageo GDR........................... 57,116 129,653
----------
771,440
----------
Thailand-2.04%
Thai Union Frozen Products.......... 329,400 266,030
Thai Union Frozen Products NVDR..... 36,300 28,401
----------
294,431
----------
Total Common Stock
(cost $10,109,086) ............... 13,990,480
----------
Emerging Markets-2
Delaware VIP Emerging Markets Series
Statement of Net Assets** (continued)
Principal Market
Amount Value
(U.S. $)
REPURCHASE AGREEMENTS-2.28%
With BNP Paribas 0.85% 1/2/04 (dated
12/31/03, collateralized by $8,000
U.S. Treasury Bills due 3/25/04, market
value $7,600, $28,000 U.S. Treasury
Notes 3.625% due 3/31/04, market
value $28,634, $87,000 U.S. Treasury
Notes 6.00% due 8/15/04, market value
$91,311, and $45,000 U.S. Treasury
Notes 1.625% due 1/31/05, market value $45,236)....... $169,000 $169,000
Principal Market
Amount Value
(U.S. $)
REPURCHASE AGREEMENTS (CONTINUED)
With UBS Warburg 0.85% 1/2/04 (dated
12/31/03, collateralized by $37,000
U.S. Treasury Notes 1.625% due 3/31/05,
market value $37,425, $1,000
U.S. Treasury Notes 5.50% due 2/15/08,
market value $1,434, and $111,000
U.S. Treasury Notes 5.625% due 5/15/08,
market value $124,244).............................. $160,000 $160,000
--------
Total Repurchase Agreements (cost $329,000)........... 329,000
--------
TOTAL MARKET VALUE OF SECURITIES-99.11% (cost $10,438,086)........................................... 14,319,480
RECEIVABLES AND OTHER ASSETS NET OF LIABILITIES-0.89%................................................ 129,033
-----------
NET ASSETS APPLICABLE TO 1,292,655 SHARES OUTSTANDING-100.00%........................................ $14,448,513
===========
NET ASSET VALUE-DELAWARE VIP EMERGING MARKETS SERIES STANDARD CLASS ($14,304,276 / 1,279,746 shares). $11.18
======
NET ASSET VALUE-DELAWARE VIP EMERGING MARKETS SERIES SERVICE CLASS ($144,237 / 12,909 shares)........ $11.17
======
COMPONENTS OF NET ASSETS AT DECEMBER 31, 2003:
Shares of beneficial interest (unlimited authorization-no par)....................................... $12,310,828
Undistributed net investment income*................................................................. 266,302
Accumulated net realized loss on investments......................................................... (2,010,645)
Net unrealized appreciation of investments and foreign currencies.................................... 3,882,028
-----------
Total net assets..................................................................................... $14,448,513
===========
- -------------------
+Non-income producing security for the year ended December 31,2003.
++Hong Kong listed securities.
#Securities exempt from registration under Rule 144A of the Securities Act of
1933. See Note #8 in "Notes to Financial Statements."
*Undistributed net investment income includes net realized gains (losses) on
foreign currencies. Net realized gains (losses) on foreign currencies are
treated as net investment income in accordance with provisions of the
Internal Revenue Code.
**Securities have been classified by country of origin. Classification by type
of business has been presented in Note #9 to the Financial Statements.
ADR - American Depositary Receipts
GDR - Global Depositary Receipts
NVDR - Non-Voting Depositary Receipts
See accompanying notes
Emerging Markets-3
Delaware VIP Trust-
Delaware VIP Emerging Markets Series
Statement of Operations
Year Ended December 31, 2003
INVESTMENT INCOME:
Dividends................................................... $ 508,329
Interest.................................................... 2,682
Foreign tax withheld........................................ (25,606)
----------
485,405
----------
EXPENSES:
Management fees............................................. 146,975
Custodian fees.............................................. 26,616
Accounting and administration expenses...................... 5,000
Professional fees........................................... 1,385
Dividend disbursing and transfer agent fees
and expenses.............................................. 1,176
Reports and statements to shareholders...................... 1,054
Trustees' fees.............................................. 766
Distribution expenses-Service Class......................... 594
Registration fees........................................... 100
Other....................................................... 2,853
----------
186,519
Less expenses absorbed or waived............................ (10,419)
Less waiver of distribution expenses-Service Class.......... (44)
Less expenses paid indirectly............................... (282)
----------
Total expenses.............................................. 175,774
----------
NET INVESTMENT INCOME....................................... 309,631
----------
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS AND FOREIGN CURRENCIES:
Net realized gain (loss) on:
Investments................................................. 1,439,611
Foreign currencies.......................................... (32,769)
----------
Net realized gain........................................... 1,406,842
Net change in unrealized appreciation/depreciation
of investments and foreign currencies..................... 4,305,489
----------
NET REALIZED AND UNREALIZED GAIN ON
INVESTMENTS AND FOREIGN CURRENCIES ....................... 5,712,331
----------
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS ........................................... $6,021,962
==========
See accompanying notes
Delaware VIP Trust-
Delaware VIP Emerging Markets Series
Statements of Changes in Net Assets
Year Ended
12/31/03 12/31/02
-------- --------
INCREASE (DECREASE) IN NET
ASSETS FROM OPERATIONS:
Net investment income............................. $ 309,631 $ 437,532
Net realized gain (loss) on investments and
foreign currencies.............................. 1,406,842 (924,302)
Net change in unrealized appreciation/
depreciation of investments and
foreign currencies.............................. 4,305,489 924,491
----------- -----------
Net increase in net assets resulting
from operations................................. 6,021,962 437,721
----------- -----------
DIVIDENDS AND DISTRIBUTIONS
TO SHAREHOLDERS FROM:
Net investment income:
Standard Class................................... (350,352) (352,450)
Service Class.................................... (17,011) (22,689)
----------- -----------
(367,363) (375,139)
----------- -----------
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares sold:
Standard Class................................... 2,008,291 5,060,976
Service Class.................................... 2,044,496 4,917,858
Net asset value of shares issued upon
reinvestment of dividends and distributions:
Standard Class................................... 350,352 352,450
Service Class.................................... 17,011 22,689
----------- -----------
4,420,150 10,353,973
----------- -----------
Cost of shares repurchased:
Standard Class................................... (6,334,313) (4,913,827)
Service Class.................................... (2,594,805) (4,840,602)
----------- -----------
(8,929,118) (9,754,429)
----------- -----------
Increase (decrease) in net assets derived
from capital share transactions................. (4,508,968) 599,544
----------- -----------
NET INCREASE IN NET ASSETS........................ 1,145,631 662,126
NET ASSETS:
Beginning of year................................. 13,302,882 12,640,756
----------- -----------
End of year....................................... $14,448,513 $13,302,882
=========== ===========
See accompanying notes
Emerging Markets-4
Delaware VIP Trust-Delaware VIP Emerging Markets Series
Financial Highlights
Selected data for each share of the Series outstanding throughout each period
were as follows:
Delaware VIP Emerging Markets Series Standard Class
Year Ended
12/31/03 12/31/02 12/31/01 12/31/00 12/31/99
--------------------------------------------------------------------
Net asset value, beginning of period.......... $6.770 $6.610 $6.310 $8.400 $5.810
Income (loss) from investment operations:
Net investment income(1)...................... 0.210 0.215 0.199 0.116 0.126
Net realized and unrealized gain (loss) on
investments and foreign currencies.......... 4.410 0.137 0.133 (2.064) 2.597
------- ------- ------- ------- -------
Total from investment operations.............. 4.620 0.352 0.332 (1.948) 2.723
------- ------- ------- ------- -------
Less dividends and distributions from:
Net investment income......................... (0.210) (0.192) (0.032) (0.142) (0.133)
------- ------- ------- ------- -------
Total dividends and distributions............. (0.210) (0.192) (0.032) (0.142) (0.133)
------- ------- ------- ------- -------
Net asset value, end of period................ $11.180 $6.770 $6.610 $6.310 $8.400
======= ======= ======= ======= =======
Total return(2)............................... 70.54% 5.17% 5.28% (23.60%) 48.28%
Ratios and supplemental data:
Net assets, end of period (000 omitted)....... $14,304 $12,651 $12,071 $12,148 $13,349
Ratio of expenses to average net assets....... 1.49% 1.43% 1.45% 1.52% 1.47%
Ratio of expenses to average net assets
prior to expense limitation and expenses
paid indirectly............................. 1.58% 1.46% 1.45% 1.68% 1.53%
Ratio of net investment income to average
net assets.................................. 2.64% 3.15% 3.04% 1.55% 1.88%
Ratio of net investment income to average
net assets prior to expense limitation
and expenses paid indirectly................ 2.55% 3.12% 3.04% 1.37% 1.82%
Portfolio turnover............................ 71% 39% 41% 19% 20%
- -------------------
(1) The average shares outstanding method has been applied for per share
information.
(2) Total investment return is based on the change in net asset value of a
share during the period and assumes reinvestment of dividends and
distributions at net asset value. Total investment return reflects waivers
and payment of fees by the manager, as applicable. Performance would have
been lower had the expense limitation not been in effect.
See accompanying notes
Emerging Markets-5
Delaware VIP Emerging Markets Series
Financial Highlights (continued)
Selected data for each share of the Series outstanding throughout each period
were as follows:
Delaware VIP Emerging Markets Series Service Class
5/01/00(1)
Year Ended to
12/31/03 12/31/02 12/31/01 12/31/00
--------------------------------------------------
Net asset value, beginning of period ..................... $ 6.770 $ 6.610 $ 6.310 $ 7.540
Income (loss) from investment operations:
Net investment income(2) ................................. 0.197 0.204 0.189 0.064
Net realized and unrealized gain (loss) on investments
and foreign currencies ................................. 4.402 0.138 0.135 (1.294)
------- ------- ------- --------
Total from investment operations ......................... 4.599 0.342 0.324 (1.230)
------- ------- ------- --------
Less dividends and distributions from:
Net investment income .................................... (0.199) (0.182) (0.024) --
------- ------- ------- --------
Total dividends and distributions ........................ (0.199) (0.182) (0.024) --
------- ------- ------- --------
Net asset value, end of period ........................... $11.170 $ 6.770 $ 6.610 $ 6.310
======= ======= ======= ========
Total return(3)........................................... 70.10% 5.03% 5.15% (16.31%)
Ratios and supplemental data:
Net assets, end of period (000 omitted) .................. $ 144 $ 652 $ 570 $ 45
Ratio of expenses to average net assets .................. 1.71% 1.58% 1.60% 1.67%
Ratio of expenses to average net assets prior to expense
limitation and expenses paid indirectly ................ 1.83% 1.61% 1.60% 1.90%
Ratio of net investment income to average net assets ..... 2.42% 3.00% 2.89% 1.37%
Ratio of net investment income to average net assets prior
to expense limitation and expenses paid indirectly ..... 2.30% 2.97% 2.89% 1.10%
Portfolio turnover ....................................... 71% 39% 41% 19%
- -------------------
(1) Date of commencement of operations; ratios and portfolio turnover have been
annualized and total return has not been annualized.
(2) The average shares outstanding method has been applied for per share
information.
(3) Total investment return is based on the change in net asset value of a
share during the period and assumes reinvestment of dividends and
distributions at net asset value. Total investment return reflects waivers
and payment of fees by the manager and distributor, as applicable.
Performance would have been lower had the expense limitation and waiver not
been in effect.
See accompanying notes
Emerging Markets-6
Delaware VIP Trust-Delaware VIP Emerging Markets Series
Notes to Financial Statements
December 31, 2003
Delaware VIP Trust (the "Trust") is organized as a Delaware statutory trust and
offers 15 series: Delaware VIP Balanced Series, Delaware VIP Capital Reserves
Series, Delaware VIP Cash Reserve Series, Delaware VIP Diversified Income
Series, Delaware VIP Emerging Markets Series, Delaware VIP Global Bond Series,
Delaware VIP Growth Opportunities Series, Delaware VIP High Yield Series,
Delaware VIP International Value Equity Series, Delaware VIP Large Cap Value
Series, Delaware VIP REIT Series, Delaware VIP Select Growth Series, Delaware
VIP Small Cap Value Series, Delaware VIP Trend Series and Delaware VIP U.S.
Growth Series. These financial statements and the related notes pertain to
Delaware VIP Emerging Markets Series (the "Series"). The Trust is an open-end
investment company. The Series is considered non-diversified under the
Investment Company Act of 1940, as amended, and offers Standard Class and
Service Class shares. The Standard Class shares do not carry a 12b-1 fee and the
Service Class shares carry a 12b-1 fee. The shares of the Series are sold only
to separate accounts of life insurance companies.
The investment objective of the Series is to seek long-term capital
appreciation.
1. Significant Accounting Policies
The following accounting policies are in accordance with accounting principles
generally accepted in the United States and are consistently followed by the
Series.
Security Valuation--All equity securities 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. If on a particular day an equity security does not trade,
then the mean between the bid and asked prices will normally be used. Securities
listed on a foreign exchange are valued at the last quoted sales price before
the Series is valued. Short-term debt securities having less than 60 days to
maturity are valued at amortized cost, which approximates market value. Forward
foreign currency exchange contracts are valued at the mean between the bid and
asked prices of the contracts and are marked-to-market daily. Interpolated
values are derived when the settlement date of the contract is an interim date
for which quotations are not available. Other securities and assets for which
market quotations are not readily available are valued at fair value as
determined in good faith under the direction of the Series' Board of Trustees.
In determining whether market quotations are readily available or fair valuation
will be used, various factors will be taken into consideration, such as market
closures, aftermarket trading, or significant events after local market trading
(e.g., government actions or pronouncements, trading volume or volatility on
markets, exchanges among dealers, or news events).
Federal Income Taxes--The Series intends to continue to qualify for federal
income tax purposes as a regulated investment company and make the requisite
distributions to shareholders. Accordingly, no provision for federal income
taxes has been made in the financial statements.
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. 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 102% collateralized. However, in the
event of default or bankruptcy by the counterparty to the agreement, realization
of the collateral may be subject to legal proceedings.
Foreign Currency Transactions--Transactions denominated in foreign currencies
are recorded at the prevailing exchange rates on the valuation date. The value
of all assets and liabilities denominated in foreign currencies are translated
into U.S. dollars at the exchange rate of such currencies against the U.S.
dollar daily. Transaction gains or losses resulting from changes in exchange
rates during the reporting period or upon settlement of the foreign currency
transaction are reported in operations for the current period. The Series does
not isolate that portion of realized gains and losses on investments which are
due to changes in foreign exchange rates from that which are due to changes in
market prices. The Series reports certain foreign currency related transactions
as components of realized gains (losses) for financial reporting purposes, where
such components are treated as ordinary income (loss) for federal income tax
purposes.
Use of Estimates--The preparation of financial statements in conformity with
accounting principles generally accepted in the United States 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 common to all funds within the Delaware Investments Family of
Funds are allocated amongst the funds on the basis of average net assets.
Security transactions are recorded on the date the securities are purchased or
sold (trade date). 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.
Emerging Markets-7
Delaware VIP Emerging Markets Series
Notes to Financial Statements (continued)
1. Significant Accounting Policies (continued)
Certain expenses of the Series are paid through commission arrangements with
brokers. The amount of these expenses was approximately $282 for the year ended
December 31, 2003. The expense paid under the above arrangement is included in
"other" on the Statement of Operations with the corresponding expense offset
shown as "expenses paid indirectly."
2. Investment Management, Administration Agreements and Other Transactions with
Affiliates
In accordance with the terms of its investment management agreement, the Series
pays Delaware International Advisers Ltd. (DIAL), the investment manager, an
annual fee which is calculated daily at the rate of 1.25% on the first $500
million of average daily net assets of the Series, 1.20% on the next $500
million, 1.15% on the next $1.5 billion, and 1.10% on average daily net assets
in excess of $2.5 billion.
DIAL has contractually agreed to waive that portion, if any, of its management
fee and reimburse the Series to the extent necessary to ensure that annual
operating expenses, exclusive of taxes, interest, brokerage commissions,
distribution fees, certain insurance costs and extraordinary expenses, do not
exceed 1.50% of average daily net assets of the Series through April 30, 2004.
Delaware Service Company, Inc. (DSC), an affiliate of DIAL, provides accounting,
administration, dividend disbursing and transfer agent services. The Series pays
DSC a monthly fee based on average net assets subject to certain minimums for
accounting and administration services. The Series pays DSC a monthly fee based
on average net assets for dividend disbursing and transfer agent services.
Pursuant to a distribution agreement and distribution plan, the Series pays
Delaware Distributors, L.P. (DDLP), the distributor and an affiliate of DIAL, an
annual 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, 2004 in order to prevent distribution and service fees of the Service
Class shares from exceeding 0.25% of average daily net assets. Prior to May 1,
2003, the Board of Trustees had set the fee at an annual rate of 0.15% of the
Service Class shares' average daily net assets. No distribution expenses are
paid by Standard Class shares.
At December 31, 2003, the Series had liabilities payable to affiliates as
follows:
Dividend disbursing,
Investment transfer agent fees,
management accounting Other expenses
fee payable to and other expenses payable to
DIAL payable to DSC affiliates*
- -------------- -------------------- --------------
$8,033 $558 $1,615
* Delaware Management Company (DMC), a Series of Delaware Management Business
Trust and an affiliate of DIAL, 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, professional fees, custodian fees and trustees' fees.
Certain officers of DIAL, 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 year ended December 31, 2003, the Series made purchases and sales of
investment securities other than short-term investments as follows:
Purchases.................... $ 8,220,485
Sales........................ $12,746,347
At December 31, 2003, the cost of investments and unrealized appreciation
(depreciation) for federal income tax purposes for the Series were as follows:
Aggregate Aggregate
Cost of unrealized unrealized Net unrealized
investments appreciation depreciation appreciation
----------- ------------ ------------ --------------
$10,935,642 $3,528,146 $(144,308) $3,383,838
Emerging Markets-8
Delaware VIP Emerging Markets 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 accounting principles
generally accepted in the United States. The tax character of dividends and
distributions paid during the years ended December 31, 2003 and 2002 was as
follows:
Year Year
Ended Ended
12/31/03 12/31/02
-------- --------
Ordinary income $367,363 $375,139
As of December 31, 2003, the components of net assets on a tax basis were as
follows:
Shares of beneficial interest...................... $12,310,828
Undistributed ordinary income...................... 430,870
Capital loss carryforwards......................... (1,669,183)
Post-October currency losses....................... (8,474)
Unrealized appreciation of investments and
foreign currencies............................... 3,384,472
-----------
Net assets......................................... $14,448,513
===========
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. Such capital loss
carryforwards expire as follows: $1,126,966 expires in 2009, and $542,217
expires in 2010.
Post-October currency losses represent losses realized on foreign currency
transactions from November 1, 2003 through December 31, 2003 that, in accordance
with federal income tax regulations, the Series has elected to defer and treat
as having arisen in the following fiscal year.
5. Capital Shares
Transactions in capital shares were as follows:
Year Year
Ended Ended
12/31/03 12/31/02
---------- ----------
Shares sold:
Standard Class..................... 224,698 715,076
Service Class...................... 304,630 690,134
Shares issued upon reinvestment of
dividends and distributions:
Standard Class..................... 54,572 49,363
Service Class...................... 2,646 3,173
---------- ----------
586,546 1,457,746
---------- ----------
Shares repurchased:
Standard Class..................... (868,270) (721,590)
Service Class...................... (390,664) (683,196)
---------- ----------
(1,258,934) (1,404,786)
---------- ----------
Net increase (decrease)............. (672,388) 52,960
========== ==========
6. Line of Credit
The Series, along with certain other funds in the Delaware Investments Family of
Funds (the "Participants"), participates in a $177,300,000 revolving line of
credit facility to be used for temporary or emergency purposes as an additional
source of liquidity to fund redemptions of investor shares. The Participants are
charged an annual commitment fee, which is allocated across the Participants on
the basis of each fund's allocation of the entire facility. The Participants may
borrow up to a maximum of one third of their net assets under the agreement. The
Series had no amounts outstanding as of December 31, 2003, or at any time during
the year.
7. Foreign Exchange Contracts
The Series may enter into forward foreign currency exchange contracts as a way
of managing foreign exchange rate risk. The Series may enter into these
contracts to fix the U.S. dollar value of a security that it has agreed to buy
or sell for the period between the date the trade was entered into and the date
the security is delivered and paid for. The Series may also use these contracts
to hedge the U.S. dollar value of securities it already owns that are
denominated in foreign currencies.
Emerging Markets-9
Delaware VIP Emerging Markets Series
Notes to Financial Statements (continued)
7. Foreign Exchange Contracts (continued)
The change in market value is recorded as an unrealized gain or loss. When the
contract is closed, a realized gain or loss is recorded equal to the difference
between the value of the contract at the time it was opened and the value at the
time it was closed.
The use of forward foreign currency exchange contracts does not eliminate
fluctuations in the underlying prices of the securities, but does establish a
rate of exchange that can be achieved in the future. Although forward 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.
No forward foreign currency exchange contracts were outstanding at December 31,
2003.
8. Credit and Market Risk
Some countries in which the Series may invest require governmental approval for
the repatriation of investment income, capital or the proceeds of sales of
securities by foreign investors. In addition, if there is deterioration in a
country's balance of payments or for other reasons, a country may impose
temporary restrictions on foreign capital remittances abroad.
The securities exchanges of certain foreign markets are substantially smaller,
less liquid and more volatile than the major securities markets in the United
States. Consequently, acquisition and disposition of securities by the Series
may be inhibited. In addition, a significant portion of the aggregate market
value of equity securities listed on the major securities exchanges in emerging
markets are held by a smaller number of investors. This may limit the number of
shares available for acquisition or disposition by the Series.
The Series may invest up to 10% of its total assets in illiquid securities,
which may include securities with contractual restrictions on resale, securities
exempt from registration under Rule 144A of the Securities Act of 1933 as
amended, and other securities which may not be readily marketable. The relative
illiquidity of these securities may impair the Series from disposing of them in
a timely manner and at a fair price when it is necessary or desirable to do so.
9. Industry Allocation
As of December 31, 2003, the Series' investment in equity securities classified
by type of business were as follows:
Industry Percentage of net assets
- -------- ------------------------
Automobiles & Components.............. 2.19%
Banking & Finance..................... 15.19
Building & Materials............. .... 17.48
Capital Goods......................... 1.66
Electronics & Electrical Equipment.... 2.08
Energy................................ 9.08
Food, Beverage & Tobacco.............. 11.17
Healthcare & Pharmaceuticals.......... 6.24
Retail................................ 9.05
Technology............................ 1.43
Telecommunications.................... 10.48
Transportation........................ 5.50
Utilities............................. 5.28
-----
96.83%
=====
10. Tax Information (Unaudited)
For the fiscal year ended December 31, 2003, the Series designates distributions
paid during the year as follows:
(A) (B)
Long-Term Ordinary
Capital Gains Income Total
Distributions Distributions Distributions
(Tax Basis) (Tax Basis) (Tax Basis)
------------- ------------- -------------
-- 100% 100%
- -------------------
(A) and (B) are based on a percentage of the Series' total distributions.
Emerging Markets-10
Delaware VIP Trust-Delaware VIP Emerging Markets Series
Report of Independent Auditors
To the Shareholders and Board of Trustees
Delaware VIP Trust-Delaware VIP Emerging Markets Series
We have audited the accompanying statement of net assets of Delaware VIP
Emerging Markets Series (the "Series") as of December 31, 2003, and the related
statement of operations for the year then ended, the statements of changes in
net assets for each of the two years in the period then ended, and the financial
highlights for each of the periods indicated therein. These financial statements
and financial highlights are the responsibility of the Series' management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements and financial highlights. Our procedures included
confirmation of securities owned as of December 31, 2003, by correspondence with
the custodian and brokers. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Delaware VIP Emerging Markets Series at December 31, 2003, the results of its
operations for the year then ended, the changes in its net assets for each of
the two years in the period then ended, and its financial highlights for each of
the periods indicated therein, in conformity with accounting principles
generally accepted in the United States.
/s/ Ernst & Young LLP
Philadelphia, Pennsylvania
February 6, 2004
- --------------------------------------------------------------------------------
A description of the policies and procedures that the Series uses to determine
how to vote proxies (if any) relating to portfolio securities is available
without charge (i) upon request, by calling 800 523-1918; (ii) on the Series'
website at http://www.delawareinvestments.com; and (iii) on the Commission's
website at http://www.sec.gov.; and beginning no later than August 31, 2004,
information (if any) regarding how the Series voted proxies relating to
portfolio securities during the most recent 12-month period ended June 30 is
available without charge (i) through the Series' website at
http://www.delawareinvestments.com; and (ii) on the Commission's website at
http://www.sec.gov.
Emerging Markets-11
Delaware Investments Family of Funds
BOARD OF TRUSTEES/DIRECTORS AND OFFICERS ADDENDUM
A mutual fund is governed by a Board of Trustees/Directors which has oversight
responsibility for the management of a fund's business affairs.
Trustees/Directors establish procedures and oversee and review the performance
of the investment manager, the distributor and others that perform services for
the fund. The independent fund trustees, in particular, are advocates for
shareholder interests. The following is a list of the Trustees/Directors and
Officers with certain background and related information.
Number of Other
Principal Portfolios in Fund Directorships
Name, Position(s) Occupation(s) Complex Overseen Held by
Address Held with Length of Time During by Trustee/Director Trustee/Director
and Birthdate Fund(s) Served Past 5 Years or Officer or Officer
- -----------------------------------------------------------------------------------------------------------------------------------
INTERESTED TRUSTEES
Jude T. Driscoll(2) Chairman and 4 Years - Since August 2000, 80 None
2005 Market Street Trustee(4) Executive Officer Mr. Driscoll has served in
Philadelphia, PA various executive capacities
19103 Trustee since at different times at
May 15, 2003 Delaware Investments(1)
March 10, 1963
Senior Vice President and
Director of Fixed-Income Process -
Conseco Capital Management
(June 1998 - August 2000)
Managing Director -
NationsBanc Capital Markets
(February 1996 - June 1998)
- -----------------------------------------------------------------------------------------------------------------------------------
INDEPENDENT TRUSTEES
Walter P. Babich Trustee 16 Years Board Chairman - 98 None
2005 Market Street Citadel Construction Corporation
Philadelphia, PA (1989 - Present)
19103
October 1, 1927
- -----------------------------------------------------------------------------------------------------------------------------------
John H. Durham Trustee 25 Years(3) Private Investor 98 Trustee - Abington
2005 Market Street Memorial Hospital
Philadelphia, PA
19103
President/Director -
22 WR Corporation
August 7, 1937
- -----------------------------------------------------------------------------------------------------------------------------------
John A. Fry Trustee(4) 3 Years President - 80 None
2005 Market Street Franklin & Marshall College
Philadelphia, PA (June 2002 - Present)
19103
Executive Vice President -
University of Pennsylvania
May 28, 1960 (April 1995 - June 2002)
- -----------------------------------------------------------------------------------------------------------------------------------
Anthony D. Knerr Trustee 11 Years Founder/Managing Director - 98 None
2005 Market Street Anthony Knerr & Associates
Philadelphia, PA (Strategic Consulting)
19103 (1990 - Present)
December 7, 1938
- -----------------------------------------------------------------------------------------------------------------------------------
Emerging Markets-12
Number of Other
Principal Portfolios in Fund Directorships
Name, Position(s) Occupation(s) Complex Overseen Held by
Address Held with Length of Time During by Trustee/Director Trustee/Director
and Birthdate Fund(s) Served Past 5 Years or Officer or Officer
- -----------------------------------------------------------------------------------------------------------------------------------
INDEPENDENT TRUSTEES
(continued)
Ann R. Leven Trustee 15 Years Treasurer/Chief Fiscal Officer - 98 Director - Andy
2005 Market Street National Gallery of Art Warhol Foundation
Philadelphia, PA (1994 - 1999)
19103 Director -
Systemax Inc.
November 1, 1940
- -----------------------------------------------------------------------------------------------------------------------------------
Thomas F. Madison Trustee 10 Years President/Chief 98 Director -
2005 Market Street Executive Officer - Banner Health
Philadelphia, PA MLM Partners, Inc.
19103 (Small Business Investing Director -
and Consulting) CenterPoint Energy
(January 1993 - Present)
February 25, 1936
Director -
Digital River Inc.
Director - Rimage
Corporation
- -----------------------------------------------------------------------------------------------------------------------------------
Janet L. Yeomans Trustee 5 Years Vice President/Mergers & 98 None
2005 Market Street Acquisitions - 3M Corporation
Philadelphia, PA (January 2003 - Present)
19103
Ms. Yeomans has held
July 31, 1948 various management positions
at 3M Corporation since 1983.
- -----------------------------------------------------------------------------------------------------------------------------------
OFFICERS
Joseph H. Hastings Executive Executive Mr. Hastings has served in 98 None
2005 Market Street Vice President Vice President various executive capacities
Philadelphia, PA and and at different times at
19103 Chief Financial Chief Financial Delaware Investments.
Officer Officer since
August 21, 2003
December 19, 1949
- -----------------------------------------------------------------------------------------------------------------------------------
Richelle S. Maestro Senior Vice President, Chief Legal Officer Ms. Maestro has served in 98 None
2005 Market Street Chief Legal Officer since various executive capacities
Philadelphia, PA and Secretary March 17, 2003 at different times at
19103 Delaware Investments.
November 26, 1957
- -----------------------------------------------------------------------------------------------------------------------------------
Michael P. Bishof Senior Vice President 8 Years Mr. Bishof has served in 98 None
2005 Market Street and Treasurer various executive capacities
Philadelphia, PA at different times at
19103 Delaware Investments.
August 18, 1962
- -----------------------------------------------------------------------------------------------------------------------------------
(1) Delaware Investments is the marketing name for Delaware Management
Holdings, Inc. and its subsidiaries, including the Registrant's investment
advisor, principal underwriter and its transfer agent.
(2) Mr. Driscoll is considered to be an "Interested Trustee" because he is an
executive officer of the Fund's manager and distributor.
(3) Mr. Durham served as a Director Emeritus from 1995 through 1998.
(4) Mr. Driscoll and Mr. Fry are not Trustees of the portfolios of Voyageur
Insured Funds, Voyageur Intermediate Tax Free Funds, Voyageur Investment
Trust, Voyageur Mutual Funds, Voyageur Mutual Funds II, Voyageur Mutual
Funds III and Voyageur Tax Free Funds.
The Statement of Additional Information for the Fund(s) includes additional
information about the Trustees/Directors and Officers and is available, without
charge, upon request by calling 800 523-1918.
(8533)
Emerging Markets-13
FOR INTERNATIONAL DIVERSIFICATION
Delaware VIP Trust-Delaware VIP Global Bond Series
Portfolio Snapshot
For the year ended December 31, 2003, Delaware VIP Global Bond Series
returned +20.36% (Standard Class shares with distributions reinvested). In
contrast, the benchmark Citigroup World Government Bond Index was up +14.91%
during the same period.
Strong performance for the Series came in part through the continuation of
generally low interest rates worldwide and a declining U.S. dollar. Our
investment style must likewise be credited, as we seek a competitive return by
factoring for both the income that a bond generates and worldwide currency
valuations. We would like to point out to investors, however, that the past two
years have been positive for global fixed-income investors, and that yearly
returns in excess of 20% cannot be sustained.
Investment Outlook
We are encouraged by the global economic recovery and believe the outlook for
global fixed-income securities is attractive relative to U.S. dollar bonds. We
think that a continued fall in the U.S. dollar is still possible. We also note
that something unusual is happening in Japan, where we have been underweighted
for some time - the economy is picking up. Excess capacity still needs to be
reduced, and Japanese banks will need to return to health before inflation
really takes hold - something likely to take several years. Nonetheless, we
think that Japan's recovery is more likely to be sustained, which bodes well for
international investors and for the global economy in general.
Performance of a $10,000 Investment:
May 2, 1996 (Series' inception) through
December 31, 2003
Delaware VIP Citigroup World
Global Bond Government Bond
Series Index
------------ ---------------
May 2 '96 $10,000
May 31 '96 10,000 10,000
Dec. 31 '96 11,179 10,600
Dec. 31 '97 11,278 10,625
Dec. 31 '97 12,160 12,251
Dec. 31 '99 11,722 11,728
Dec. 31 '00 11,823 11,915
Dec. 31 '01 11,766 11,797
Dec. 31 '02 14,718 14,096
Dec. 31 '03 17,715 16,198
Delaware VIP Global Bond Series
Average Annual Total Returns
-------------------------------
Standard Class Service Class
Shares* Shares**
Lifetime +7.74% +13.27%
Five Years +7.82% --
One Year +20.36% +20.04%
For the periods ended December 31, 2003
* Commenced operations on May 2, 1996.
** Commenced operations on May 1, 2000.
Past performance is not a guarantee of future results. Returns and share
values will fluctuate so that shares, when redeemed, may be worth more or less
than their original cost.
The chart shows a $10,000 investment in Delaware VIP Global Bond Series Standard
Class shares for the period from the Series' inception on May 2, 1996 through
December 31, 2003. The chart assumes all distributions were reinvested. The
chart also shows a $10,000 investment in the Citigroup World Government Bond
Index at that month's end, May 31, 1996. After May 31, 1996, returns plotted on
the chart were as of the last day of each month shown. The Citigroup World
Government Bond Index is an unmanaged composite that measures the general
performance of world bond markets. The Salomon Smith Barney World Government
Bond Index has changed names to the Citigroup World Government Bond Index. An
index is unmanaged and does not reflect the costs of operating a mutual fund,
such as the costs of buying, selling, and holding securities. You cannot invest
in an index. Earnings from a variable annuity investment compound tax-free until
withdrawal, so no adjustments were made for income taxes. An expense limitation
was in effect for Delaware VIP Global Bond Series during the periods shown.
Performance does not reflect insurance fees related to a variable annuity or
variable life investment or the deferred sales charge that would apply to
certain withdrawals of investments held for fewer than eight years. Performance
shown here would have been reduced if such fees were included and the expense
limitation was removed. For more information about fees, consult your variable
annuity or variable life prospectus.
Global Bond-1
Delaware VIP Trust-Delaware VIP Global Bond Series***
Statement of Net Assets
December 31, 2003
Principal Market
Amount* Value
(U.S. $)
Bonds-97.04%
Australia-4.13%
Queensland Treasury
6.00% 7/14/09 ......................... AUD 1,200,000 $ 908,829
6.00% 6/14/11 ......................... AUD 4,500,000 3,442,220
-----------
4,351,049
-----------
Austria-5.07%
Republic of Austria
5.25% 1/4/11 .......................... EUR 3,400,000 4,620,506
7.25% 5/3/07 .......................... DEM 1,000,000 723,991
-----------
5,344,497
-----------
Belgium-1.85%
Kingdom of Belgium 5.75% 9/28/10 ....... EUR 1,400,000 1,953,574
-----------
1,953,574
-----------
Canada-4.71%
Canada Government 0.70% 3/20/06 ........ JPY 25,000,000 4,964,598
-----------
4,964,598
-----------
Finland-4.97%
Republic of Finland 5.00% 4/25/09 ...... EUR 3,900,000 5,235,731
-----------
5,235,731
-----------
France-3.31%
Government of France
4.00% 10/25/09 ........................ EUR 1,500,000 1,917,187
5.50% 10/25/07 ........................ EUR 450,000 612,403
5.50% 4/25/10 ......................... EUR 700,000 964,024
-----------
3,493,614
-----------
Germany-10.96%
Deutschland Republic
5.00% 7/4/11 .......................... EUR 640,000 855,477
6.25% 1/4/24 .......................... EUR 3,300,000 4,912,601
Kredit Fuer Wiederaufbau 5.25% 7/4/12 .. EUR 850,000 1,150,426
Muenchener Hypotheken 5.00% 1/16/12 .... EUR 3,500,000 4,645,659
-----------
11,564,163
-----------
Greece-4.95%
Hellenic Republic 6.30% 1/29/09 ........ EUR 3,700,000 5,225,284
-----------
5,225,284
-----------
Italy - 4.03%
Republic of Italy 3.75% 6/8/05 ......... JPY 433,000,000 4,252,535
-----------
4,252,535
-----------
Netherlands-9.89%
Bank Nederlandse Gemeenten
5.625% 10/25/10 ....................... EUR 2,800,000 3,862,351
DSL Finance
5.75% 3/19/09 ......................... DEM 1,000,000 701,524
6.00% 2/21/06 ......................... DEM 1,400,000 959,998
Netherlands Government 5.50% 7/15/10 ... EUR 3,560,000 4,905,315
-----------
10,429,188
-----------
Principal Market
Amount* Value
(U.S. $)
Bonds (continued)
Poland-9.36%
Poland Government
5.00% 10/24/13 ........................ PLZ 14,600,000 $ 3,484,426
6.00% 11/24/09 ........................ PLZ 6,300,000 1,625,497
6.00% 11/24/10 ........................ PLZ 15,000,000 3,857,263
8.50% 11/12/06 ........................ PLZ 3,200,000 900,499
-----------
9,867,685
-----------
Spain-4.83%
Kingdom of Spain 3.10% 9/20/06 ......... JPY 506,000,000 5,098,055
------------
5,098,055
Supranational-11.09%
Eurofima 6.50% 8/22/11 ................. AUD 1,900,000 1,459,581
Inter-American Development Bank
1.90% 7/8/09 .......................... JPY 682,000,000 6,760,187
International Bank Reconstruction
& Development
2.00% 2/18/08 ......................... JPY 160,000,000 1,590,502
4.75% 12/20/04 ........................ JPY 60,000,000 585,350
5.25% 1/12/09 ......................... USD 1,200,000 1,296,023
-----------
11,691,643
-----------
Sweden-10.03%
Swedish Government
Series 1041 6.75% 5/5/14 .............. SEK 22,300,000 3,592,280
Series 1043 5.00% 1/28/09 ............. SEK 23,500,000 3,393,265
Series 1044 3.50% 4/20/06 ............. SEK 1,500,000 208,994
Series 1046 5.50% 10/8/12 ............. SEK 23,000,000 3,388,748
-----------
10,583,287
-----------
United States-7.86%
KFW International Finance
1.00% 12/20/04 ........................ JPY 210,000,000 1,977,935
U.S. Treasury Note
3.625% 5/15/13 ........................ USD 1,000,000 961,524
4.75% 11/15/08 ........................ USD 5,000,000 5,354,300
-----------
8,293,759
-----------
Total Bonds
(cost $90,610,774) 102,348,662
-----------
Global Bond-2
Delaware VIP Global Bond Series
Statement of Net Assets (continued)
Principal Market
Amount* Value
(U.S. $)
Repurchase Agreements-0.97%
With BNP Paribas 0.85% 1/2/04
(dated 12/31/03, collateralized by
$24,000 U.S. Treasury Bills due
3/25/04, market value $23,656,
$88,000 U.S. Treasury Notes 3.625%
due 3/31/04, market value $89,122,
$270,000 U.S. Treasury Notes
6.00% due 8/15/04, market value
$284,201, and $139,000 U.S. Treasury
Notes 1.625% due 1/31/05,
market value $140,797) ................................................. USD 527,000 $ 527,000
With UBS Warburg 0.85% 1/2/04
(dated 12/31/03, collateralized by
$116,000 U.S. Treasury Notes 1.625%
due 3/31/05, market value $116,483,
$4,000 U.S. Treasury Notes 5.50%
due 2/15/08, market value $4,465,
and $347,000 U.S. Treasury Notes
5.625% due 5/15/08, market
value $386,706) ......................................................... USD 497,000 $ 497,000
-----------
Total Repurchase Agreements
(cost $1,024,000) 1,024,000
-----------
TOTAL MARKET VALUE OF SECURITIES-98.01% (cost $91,634,774) .......................................... 103,372,662
RECEIVABLES AND OTHER ASSETS NET OF LIABILITIES-1.99%................................................ 2,098,055
------------
NET ASSETS APPLICABLE TO 7,566,183 SHARES OUTSTANDING-100.00%........................................ $105,470,717
============
NET ASSET VALUE-DELAWARE VIP GLOBAL BOND SERIES STANDARD CLASS ($105,462,816 / 7,565,616 shares)..... $13.94
======
NET ASSET VALUE-DELAWARE VIP GLOBAL BOND SERIES SERVICE CLASS ($7,901 / 567.474 shares).............. $13.92
======
COMPONENTS OF NET ASSETS AT DECEMBER 31, 2003:
Shares of beneficial interest (unlimited authorization-no par)....................................... $80,306,367
Undistributed net investment income**................................................................ 12,004,091
Accumulated net realized gain on investments......................................................... 1,241,118
Net unrealized appreciation of investments and foreign currencies.................................... 11,919,141
------------
Total net assets..................................................................................... $105,470,717
============
- ----------
*Principal amount is stated in the currency in which each bond is denominated.
AUD - Australian Dollar
DEM - German Mark
EUR - European Monetary Unit
JPY - Japanese Yen
PLZ - Polish Zloty
SEK - Swedish Krona
USD - U.S. Dollar
**Undistributed net investment income includes net realized gains (losses) on
foreign currencies. Net realized gains (losses) on foreign currencies are
treated as net investment income in accordance with provisions of the
Internal Revenue Code.
***Securities have been classified by country of issuance.
See accompanying notes
Global Bond-3
Delaware VIP Trust-
Delaware VIP Global Bond Series
Statement of Operations
Year Ended December 31, 2003
Investment Income:
Interest ..................................................... $ 4,116,471
-----------
Expenses:
Management fees .............................................. 840,196
Custodian fees ............................................... 59,483
Accounting and administration expenses ....................... 47,720
Reports and statements to shareholders ....................... 19,848
Dividend disbursing and transfer agent fees
and expenses ................................................ 11,200
Professional fees ............................................ 10,242
Registration fees ............................................ 6,401
Trustees' fees ............................................... 3,592
Distribution expenses - Service Class ........................ 18
Other ........................................................ 17,106
-----------
1,015,806
Less expenses absorbed or waived ............................. (40,481)
Less waiver of distribution expenses - Service Class ......... (2)
Less expenses paid indirectly ................................ (2,689)
-----------
Total expenses ............................................... 972,634
-----------
NET INVESTMENT INCOME ........................................ 3,143,837
-----------
NET REALIZED AND UNREALIZED GAIN ON
INVESTMENTS AND FOREIGN CURRENCIES:
Net realized gain on:
Investments ................................................. 2,635,820
Foreign currencies .......................................... 7,833,819
-----------
Net realized gain ............................................ 10,469,639
Net change in unrealized appreciation/depreciation
of investments and foreign currencies ....................... 5,879,371
-----------
NET REALIZED AND UNREALIZED GAIN ON
INVESTMENTS AND FOREIGN CURRENCIES .......................... 16,349,010
-----------
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS ............................................. $19,492,847
===========
See accompanying notes
Delaware VIP Trust-
Delaware VIP Global Bond Series
Statements of Changes in Net Assets
Year Ended
12/31/03 12/31/02
------------ -----------
INCREASE IN NET ASSETS
FROM OPERATIONS:
Net investment income ......................... $ 3,143,837 $ 1,589,888
Net realized gain on investments and
foreign currencies ........................... 10,469,639 595,101
Net change in unrealized appreciation/
depreciation on investments and
foreign currencies ........................... 5,879,371 7,544,574
------------ -----------
Net increase in net assets resulting
from operations .............................. 19,492,847 9,729,563
------------ -----------
DIVIDENDS AND DISTRIBUTIONS TO
SHAREHOLDERS FROM:
Net investment income:
Standard Class ............................... (1,808,910) (106,883)
Service Class ................................ (98) (26)
------------ -----------
(1,809,008) (106,909)
------------ -----------
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares sold:
Standard Class ............................... 47,028,158 71,855,881
Net asset value of shares issued upon
reinvestment of dividends
and distributions:
Standard Class ............................... 1,808,910 106,883
Service Class ................................ 98 26
------------ -----------
48,837,166 71,962,790
------------ -----------
Cost of shares repurchased:
Standard Class ............................... (53,001,915) (6,651,544)
------------ -----------
Increase (decrease) in net assets derived
from capital share transactions .............. (4,164,749) 65,311,246
------------ -----------
NET INCREASE IN NET ASSETS .................... 13,519,090 74,933,900
NET ASSETS:
Beginning of year ............................. 91,951,627 17,017,727
------------ -----------
End of year ................................... $105,470,717 $91,951,627
============ ===========
See accompanying notes
Global Bond-4
Delaware VIP Trust-Delaware VIP Global Bond Series
Financial Highlights
Selected data for each share of the Series outstanding throughout each period were as follows:
Delaware VIP Global Bond Series Standard Class
Year Ended
12/31/03 12/31/02 12/31/01(1) 12/31/00 12/31/99
---------------------------------------------------------------
Net asset value, beginning of period ............................. $11.770 $9.470 $9.730 $9.730 $10.680
Income (loss) from investment operations:
Net investment income(2) ......................................... 0.356 0.404 0.411 0.534 0.576
Net realized and unrealized gain (loss) on investments
and foreign currencies .......................................... 2.005 1.957 (0.464) (0.453) (0.950)
------- ------ ------- ------- -------
Total from investment operations ................................. 2.361 2.361 (0.053) 0.081 (0.374)
------- ------ ------- ------- -------
Less dividends and distributions from:
Net investment income ............................................ (0.191) (0.061) (0.207) (0.081) (0.514)
Net realized gain on investments ................................. -- -- -- -- (0.062)
------- ------ ------- ------- -------
Total dividends and distributions ................................ (0.191) (0.061) (0.207) (0.081) (0.576)
------- ------ ------- ------- -------
Net asset value, end of period ................................... $13.940 $11.770 $ 9.470 $ 9.730 $ 9.730
======= ======= ======= ======= =======
Total return(3) .................................................. 20.36% 25.09% (0.48%) 0.86% (3.60%)
Ratios and supplemental data:
Net assets, end of period (000 omitted) .......................... $105,463 $91,945 $17,012 $16,463 $20,231
Ratio of expenses to average net assets .......................... 0.87% 0.81% 0.85% 0.85% 0.85%
Ratio of expenses to average net assets prior to expense
limitation and expenses paid indirectly ......................... 0.91% 0.81% 1.11% 0.95% 0.85%
Ratio of net investment income to average net assets ............. 2.81% 3.76% 4.34% 5.75% 5.64%
Ratio of net investment income to average net assets prior
to expense limitation and expenses paid indirectly .............. 2.77% 3.76% 4.08% 5.65% 5.64%
Portfolio turnover ............................................... 111% 49% 51% 39% 100%
- ---------------------
(1) As required, effective January 1, 2001, the Series adopted the provisions
of the AICPA Audit and Accounting Guide for Investment Companies that
requires amortization of all premiums and discounts on debt securities. The
effect of this change for the year ended December 31, 2001 was a decrease
in net investment income per share of $0.057, an increase in net realized
and unrealized gain (loss) per share of $0.057 and a decrease in the ratio
of net investment income to average net assets of 0.61%. Per share data and
ratios for periods prior to January 1, 2001 have not been restated to
reflect this change in accounting.
(2) The average shares outstanding method has been applied for per share
information.
(3) Total investment return is based on the change in net asset value of a
share during the period and assumes reinvestment of dividends and
distributions at net asset value. Total investment return reflects a waiver
and payment of fees by the manager, as applicable. Performance would have
been lower had the expense limitation not been in effect.
See accompanying notes
Global Bond-5
Delaware VIP Global Bond Series
Financial Highlights (continued)
Selected data for each share of the Series outstanding throughout each period were as follows:
Delaware VIP Global Bond Series Service Class
5/1/00(2)
Year Ended to
12/31/03 12/31/02 12/31/01(1) 12/31/00
-----------------------------------------------------
Net asset value, beginning of period ............................. $11.770 $ 9.460 $9.730 $9.180
Income (loss) from investment operations:
Net investment income(3) ......................................... 0.328 0.389 0.397 0.346
Net realized and unrealized gain (loss) on investments
and foreign currencies .......................................... 1.998 1.968 (0.470) 0.204
------- ------- ------ ------
Total from investment operations ................................. 2.326 2.357 (0.073) 0.550
------- ------- ------ ------
Less dividends and distributions from:
Net investment income ............................................ (0.176) (0.047) (0.197) --
------- ------- ------ ------
Total dividends and distributions ................................ (0.176) (0.047) (0.197) --
------- ------- ------ ------
Net asset value, end of period ................................... $13.920 $11.770 $9.460 $9.730
======= ======= ====== ======
Total return(4) .................................................. 20.04% 25.04% (0.70%) 5.99%
Ratios and supplemental data:
Net assets, end of period (000 omitted) .......................... $8 $7 $5 $5
Ratio of expenses to average net assets .......................... 1.09% 0.96% 1.00% 1.00%
Ratio of expenses to average net assets prior to expense
limitation and expenses paid indirectly ......................... 1.16% 0.96% 1.26% 1.16%
Ratio of net investment income to average net assets ............. 2.59% 3.61% 4.19% 5.65%
Ratio of net investment income to average net assets prior
to expense limitation and expenses paid indirectly .............. 2.52% 3.61% 3.93% 5.49%
Portfolio turnover ............................................... 111% 49% 51% 39%
- ---------
(1) As required, effective January 1, 2001, the Series adopted the provisions
of the AICPA Audit and Accounting Guide for Investment Companies that
requires amortization of all premiums and discounts on debt securities. The
effect of this change for the year ended December 31, 2001 was a decrease
in net investment income per share of $0.057, an increase in net realized
and unrealized gain (loss) per share of $0.057 and a decrease in the ratio
of net investment income to average net assets of 0.61%. Per share data and
ratios for periods prior to January 1, 2001 have not been restated to
reflect this change in accounting.
(2) Date of commencement of operations; ratios and portfolio turnover have been
annualized and total return has not been annualized.
(3) The average shares outstanding method has been applied for per share
information.
(4) Total investment return is based on the change in net asset value of a
share during the period and assumes reinvestment of dividends and
distributions at net asset value. Total investment return reflects a waiver
and payment of fees by the manager and distributor, as applicable.
Performance would have been lower had the expense limitation not been in
effect.
See accompanying notes
Global Bond-6
Delaware VIP Trust-Delaware VIP Global Bond Series
Notes to Financial Statements
December 31, 2003
Delaware VIP Trust (the "Trust") is organized as a Delaware statutory trust and
offers 15 series: Delaware VIP Balanced Series, Delaware VIP Capital Reserves
Series, Delaware VIP Cash Reserve Series, Delaware VIP Diversified Income
Series, Delaware VIP Emerging Markets Series, Delaware VIP Global Bond Series,
Delaware VIP Growth Opportunities Series, Delaware VIP High Yield Series,
Delaware VIP International Value Equity Series, Delaware VIP Large Cap Value
Series, Delaware VIP REIT Series, Delaware VIP Select Growth Series, Delaware
VIP Small Cap Value Series, Delaware VIP Trend Series and Delaware VIP U.S.
Growth Series. These financial statements and the related notes pertain to
Delaware VIP Global Bond Series (the "Series"). The Trust is an open-end
investment company. The Series is considered non-diversified under the
Investment Company Act of 1940, as amended, and offers Standard Class and
Service Class shares. The Standard Class shares do not carry a 12b-1 fee and the
Service Class shares carry a 12b-1 fee. The shares of the Series are sold only
to separate accounts of life insurance companies.
The investment objective of the Series is to seek current income consistent with
the preservation of principal.
1. Significant Accounting Policies
The following accounting policies are in accordance with accounting principles
generally accepted in the United States and are consistently followed by the
Series.
Security Valuation--Securities listed on a foreign exchange are valued at the
last quoted sales price before the Series is valued. U.S. government and agency
securities are valued at the mean between the bid and asked prices. Other
long-term debt securities are valued by an independent pricing service and such
prices are believed to reflect the fair value of such securities. Short-term
debt securities having less than 60 days to maturity are valued at amortized
cost, which approximates market value. Forward foreign currency exchange
contracts are valued at the mean between the bid and asked prices of the
contracts and are marked-to-market daily. Interpolated values are derived when
the settlement date of the contract is an interim date for which quotations are
not available. Other securities and assets for which market quotations are not
readily available are valued at fair value as determined in good faith under the
direction of the Series' Board of Trustees. In determining whether market
quotations are readily available or fair valuation will be used, various factors
will be taken into consideration, such as market closures, aftermarket trading,
or significant events after local market trading (e.g., government actions or
pronouncements, trading volume or volatility on markets, exchanges among
dealers, or news events).
Federal Income Taxes--The Series intends to continue to qualify for federal
income tax purposes as a regulated investment company and make the requisite
distributions to shareholders. Accordingly, no provision for federal income
taxes has been made in the financial statements.
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. 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 102% collateralized. However, in the
event of default or bankruptcy by the counterparty to the agreement, realization
of the collateral may be subject to legal proceedings.
Foreign Currency Transactions--Transactions denominated in foreign currencies
are recorded at the prevailing exchange rates on the valuation date. The value
of all assets and liabilities denominated in foreign currencies are translated
into U.S. dollars at the exchange rate of such currencies against the U.S.
dollar daily. Transaction gains or losses resulting from changes in exchange
rates during the reporting period or upon settlement of the foreign currency
transaction are reported in operations for the current period. The Series
isolates that portion of realized gains and losses on investments in debt
securities, which are due to changes in foreign exchange rates from that which
are due to changes in market prices of debt securities. The Series reports
certain foreign currency related transactions as components of realized gains
(losses) for financial reporting purposes, where such components are treated as
ordinary income (loss) for federal income tax purposes.
Use of Estimates--The preparation of financial statements in conformity with
accounting principles generally accepted in the United States 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 common to all funds within the Delaware Investments Family of
Funds are allocated amongst the funds on the basis of average net assets.
Security transactions are recorded on the date the securities are purchased or
sold (trade date). Costs used in calculating realized gains and losses on the
sale of investment securities are those of the specific securities sold.
Interest income is recorded on the accrual basis. Premiums and discounts on all
debt securities are amortized to interest income over the lives of the
respective securities.
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.
Certain expenses of the Series are paid through commission arrangements with
brokers. The amount of these expenses was approximately $2,689 for the year
ended December 31, 2003. The expense paid under the above arrangement is
included in "other" on the Statement of Operations with the corresponding
expense offset shown as "expenses paid indirectly."
2. Investment Management, Administration Agreements and Other Transactions with
Affiliates
In accordance with the terms of its investment management agreement, the Series
pays Delaware International Advisers Ltd. (DIAL), 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.
Global Bond-7
Delaware VIP Global Bond Series
Notes to Financial Statements (continued)
2. Investment Management, Administration Agreements and Other Transactions with
Affiliates (continued)
DIAL has contractually agreed to waive that portion, if any, of its management
fee and reimburse the Series to the extent necessary to ensure that annual
operating expenses, exclusive of taxes, interest, brokerage commissions,
distribution fees, certain insurance costs and extraordinary expenses, do not
exceed 1.00% of average daily net assets of the Series through April 30, 2004.
Delaware Service Company, Inc. (DSC), an affiliate of DIAL, provides accounting,
administration, dividend disbursing and transfer agent services. The Series pays
DSC a monthly fee based on average net assets subject to certain minimums for
accounting and administration services. The Series pays DSC a monthly fee based
on average net assets for dividend disbursing and transfer agent services.
Pursuant to a distribution agreement and distribution plan, the Series pays
Delaware Distributors, L.P. (DDLP), the distributor and an affiliate of DIAL, an
annual 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, 2004 in order to prevent distribution and service fees of the Service
Class shares from exceeding 0.25% of average daily net assets. Prior to May 1,
2003, the Board of Trustees had set the fee at an annual rate of 0.15% of the
Service Class shares' average daily net assets. No distribution expenses are
paid by Standard Class shares.
At December 31, 2003, the Series had liabilities payable to affiliates as
follows:
Dividend disbursing,
Investment transfer agent fees, Other
management accounting expenses
fee payable to and other expenses payable to
DIAL payable to DSC affiliates*
- -------------- --------------------- -----------
$42,073 $4,259 $12,238
*Delaware Management Company (DMC), a Series of Delaware Management Business
Trust and an affiliate of DIAL, 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,
professional fees, custodian fees and trustees' fees.
Certain officers of DIAL, 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 year ended December 31, 2003, the Series made purchases and sales of
investment securities other than U.S. government securities and short-term
investments as follows:
Purchases ............... $96,602,931
Sales ................... $99,190,236
At December 31, 2003, the cost of investments and unrealized appreciation
(depreciation) for federal income tax purposes for the Series was as follows:
Aggregate Aggregate
Cost of unrealized unrealized Net unrealized
investments appreciation depreciation appreciation
- ------------- ------------ ------------ --------------
$92,277,039 $11,552,989 $(457,366) $11,095,623
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 accounting principles
generally accepted in the United States. The tax character of dividends and
distributions paid during the years ended December 31, 2003 and 2002 was as
follows:
Year Year
Ended Ended
12/31/03 12/31/02
--------- --------
Ordinary income.............. $1,809,008 $106,909
Global Bond-8
Delaware VIP Global Bond Series
Notes to Financial Statements (continued)
4. Dividend and Distribution Information (continued)
As of December 31, 2003, the components of net assets on a tax basis were as
follows:
Shares of beneficial interest ................... $80,306,367
Undistributed ordinary income ................... 13,071,106
Undistributed long-term capital gain ............ 816,368
Unrealized appreciation of investments
and foreign currencies ......................... 11,276,876
------------
Net assets ...................................... $105,470,717
============
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.
5. Capital Shares
Transactions in capital shares were as follows:
Year Year
Ended Ended
12/31/03 12/31/02
---------- ---------
Shares sold:
Standard Class .................................. 3,793,472 6,631,149
Shares issued upon reinvestment of dividends
and distributions:
Standard Class .................................. 154,212 11,334
Service Class ................................... 8 2
---------- ---------
3,947,692 6,642,485
---------- ---------
Shares repurchased:
Standard Class .................................. (4,190,901) (630,884)
---------- ---------
(4,190,901) (630,884)
---------- ---------
Net increase (decrease) .......................... (243,209) 6,011,601
========== =========
6. Line of Credit
The Series, along with certain other funds in the Delaware Investments Family of
Funds (the "Participants"), participates in a $177,300,000 revolving line of
credit facility to be used for temporary or emergency purposes as an additional
source of liquidity to fund redemptions of investor shares. The Participants are
charged an annual commitment fee, which is allocated across the Participants on
the basis of each fund's allocation of the entire facility. The Participants may
borrow up to a maximum of one third of their net assets under the agreement. The
Series had no amounts outstanding as of December 31, 2003, or at any time during
the year.
7. Foreign Exchange Contracts
The Series may enter into forward foreign currency exchange contracts as a way
of managing foreign exchange rate risk. The Series may enter into these
contracts to fix the U.S. dollar value of a security that it has agreed to buy
or sell for the period between the date the trade was entered into and the date
the security is delivered and paid for. The Series may also use these contracts
to hedge the U.S. dollar value of securities it already owns that are
denominated in foreign currencies.
The change in market value is recorded as an unrealized gain or loss. When the
contract is closed, a realized gain or loss is recorded equal to the difference
between the value of the contract at the time it was opened and the value at the
time it was closed.
The use of forward foreign currency exchange contracts does not eliminate
fluctuations in the underlying prices of the securities, but does establish a
rate of exchange that can be achieved in the future. Although forward 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.
No forward foreign currency exchange contracts were outstanding at December 31,
2003.
Global Bond-9
Delaware VIP Global Bond Series
Notes to Financial Statements (continued)
8. 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 a 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.
The Series may invest up to 10% of its total assets in illiquid securities,
which may include securities with contractual restrictions on resale, securities
exempt from registration under Rule 144A of the Securities Act of 1933, as
amended, and other securities which may not be readily marketable. The relative
illiquidity of these securities may impair the Series from disposing of them in
a timely manner and at a fair price when it is necessary or desirable to do so.
9. Tax Information (Unaudited)
For the fiscal year ended December 31, 2003, the Series designates distributions
paid during the year as follows:
(A) (B)
Long-Term Ordinary
Capital Gains Income Total
Distributions Distributions Distributions
(Tax Basis) (Tax Basis) (Tax Basis)
----------- ----------- -----------
- 100% 100%
- ----------
(A) and (B) are based on a percentage of the Series' total distributions.
Global Bond-10
Delaware VIP Trust-Delaware VIP Global Bond Series
Report of Independent Auditors
To the Shareholders and Board of Trustees
Delaware VIP Trust-Delaware VIP Global Bond Series
We have audited the accompanying statement of net assets of Delaware VIP Global
Bond Series (the "Series") as of December 31, 2003, and the related statement of
operations for the year then ended, the statements of changes in net assets for
each of the two years in the period then ended, and the financial highlights for
each of the periods indicated therein. These financial statements and financial
highlights are the responsibility of the Series' management. Our responsibility
is to express an opinion on these financial statements and financial highlights
based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements and financial highlights. Our procedures included
confirmation of securities owned as of December 31, 2003, by correspondence with
the custodian and brokers. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Delaware VIP Global Bond Series at December 31, 2003, the results of its
operations for the year then ended, the changes in its net assets for each of
the two years in the period then ended, and its financial highlights for each of
the periods indicated therein, in conformity with accounting principles
generally accepted in the United States.
Ernst & Young LLP
Philadelphia, Pennsylvania
February 6, 2004
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
A description of the policies and procedures that the Series uses to determine
how to vote proxies (if any) relating to portfolio securities is available
without charge (i) upon request, by calling 800 523-1918; (ii) on the Series'
website at http://www.delawareinvestments.com; and (iii) on the Commission's
website at http://www.sec.gov.; and beginning no later than August 31, 2004,
information (if any) regarding how the Series voted proxies relating to
portfolio securities during the most recent 12-month period ended June 30 is
available without charge (i) through the Series' website at
http://www.delawareinvestments.com; and (ii) on the Commission's website at
http://www.sec.gov.
- --------------------------------------------------------------------------------
Global Bond-11
Delaware Investments Family of Funds
BOARD OF TRUSTEES/DIRECTORS AND OFFICERS ADDENDUM
A mutual fund is governed by a Board of Trustees/Directors which has oversight
responsibility for the management of a fund's business affairs.
Trustees/Directors establish procedures and oversee and review the performance
of the investment manager, the distributor and others that perform services for
the fund. The independent fund trustees, in particular, are advocates for
shareholder interests. The following is a list of the Trustees/Directors and
Officers with certain background and related information.
Number of Other
Principal Portfolios in Fund Directorships
Name, Position(s) Occupation(s) Complex Overseen Held by
Address Held with Length of Time During by Trustee/Director Trustee/Director
and Birthdate Fund(s) Served Past 5 Years or Officer or Officer
- -----------------------------------------------------------------------------------------------------------------------------------
INTERESTED TRUSTEES
Jude T. Driscoll(2) Chairman and 4 Years - Since August 2000, 80 None
2005 Market Street Trustee(4) Executive Officer Mr. Driscoll has served in
Philadelphia, PA various executive capacities
19103 Trustee since at different times at
May 15, 2003 Delaware Investments(1)
March 10, 1963
Senior Vice President and
Director of Fixed-Income Process -
Conseco Capital Management
(June 1998 - August 2000)
Managing Director -
NationsBanc Capital Markets
(February 1996 - June 1998)
- -----------------------------------------------------------------------------------------------------------------------------------
INDEPENDENT TRUSTEES
Walter P. Babich Trustee 16 Years Board Chairman - 98 None
2005 Market Street Citadel Construction Corporation
Philadelphia, PA (1989 - Present)
19103
October 1, 1927
- -----------------------------------------------------------------------------------------------------------------------------------
John H. Durham Trustee 25 Years(3) Private Investor 98 Trustee - Abington
2005 Market Street Memorial Hospital
Philadelphia, PA
19103
President/Director-
22 WR Corporation
August 7, 1937
- -----------------------------------------------------------------------------------------------------------------------------------
John A. Fry Trustee(4) 3 Years President - 80 None
2005 Market Street Franklin & Marshall College
Philadelphia, PA (June 2002 - Present)
19103
Executive Vice President -
University of Pennsylvania
May 28, 1960 (April 1995 - June 2002)
- -----------------------------------------------------------------------------------------------------------------------------------
Anthony D. Knerr Trustee 11 Years Founder/Managing Director - 98 None
2005 Market Street Anthony Knerr & Associates
Philadelphia, PA (Strategic Consulting)
19103 (1990 - Present)
December 7, 1938
- -----------------------------------------------------------------------------------------------------------------------------------
Global Bond-12
Number of Other
Principal Portfolios in Fund Directorships
Name, Position(s) Occupation(s) Complex Overseen Held by
Address Held with Length of Time During by Trustee/Director Trustee/Director
and Birthdate Fund(s) Served Past 5 Years or Officer or Officer
- -----------------------------------------------------------------------------------------------------------------------------------
INDEPENDENT TRUSTEES
(continued)
Ann R. Leven Trustee 15 Years Treasurer/Chief Fiscal Officer - 98 Director - Andy
2005 Market Street National Gallery of Art Warhol Foundation
Philadelphia, PA (1994 - 1999)
19103 Director -
Systemax Inc.
November 1, 1940
- -----------------------------------------------------------------------------------------------------------------------------------
Thomas F. Madison Trustee 10 Years President/Chief 98 Director -
2005 Market Street Executive Officer - Banner Health
Philadelphia, PA MLM Partners, Inc.
19103 (Small Business Investing Director -
and Consulting) CenterPoint Energy
(January 1993 - Present)
February 25, 1936
Director -
Digital River Inc.
Director - Rimage
Corporation
- -----------------------------------------------------------------------------------------------------------------------------------
Janet L. Yeomans Trustee 5 Years Vice President/Mergers & 98 None
2005 Market Street Acquisitions - 3M Corporation
Philadelphia, PA 19103 (January 2003 - Present)
Ms. Yeomans has held
July 31, 1948 various management positions
at 3M Corporation since 1983.
- -----------------------------------------------------------------------------------------------------------------------------------
OFFICERS
Joseph H. Hastings Executive Executive Mr. Hastings has served in 98 None
2005 Market Street Vice President Vice President various executive capacities
Philadelphia, PA 19103 and and at different times at
Chief Financial Chief Financial Delaware Investments.
Officer Officer since
August 21, 2003
December 19, 1949
- -----------------------------------------------------------------------------------------------------------------------------------
Richelle S. Maestro Senior Vice President, Chief Legal Officer Ms. Maestro has served in 98 None
2005 Market Street Chief Legal Officer since various executive capacities
Philadelphia, PA and Secretary March 17, 2003 at different times at
19103 Delaware Investments.
November 26, 1957
- -----------------------------------------------------------------------------------------------------------------------------------
Michael P. Bishof Senior Vice President 8 Years Mr. Bishof has served in 98 None
2005 Market Street and Treasurer various executive capacities
Philadelphia, PA at different times at
19103 Delaware Investments.
August 18, 1962
- -----------------------------------------------------------------------------------------------------------------------------------
(1) Delaware Investments is the marketing name for Delaware Management
Holdings, Inc. and its subsidiaries, including the Registrant's investment
advisor, principal underwriter and its transfer agent.
(2) Mr. Driscoll is considered to be an "Interested Trustee" because he is an
executive officer of the Fund's manager and distributor.
(3) Mr. Durham served as a Director Emeritus from 1995 through 1998.
(4) Mr. Driscoll and Mr. Fry are not Trustees of the portfolios of Voyageur
Insured Funds, Voyageur Intermediate Tax Free Funds, Voyageur Investment
Trust, Voyageur Mutual Funds, Voyageur Mutual Funds II, Voyageur Mutual
Funds III and Voyageur Tax Free Funds.
The Statement of Additional Information for the Fund(s) includes additional
information about the Trustees/Directors and Officers and is available, without
charge, upon request by calling 800 523-1918.
Global Bond-13
FOR CAPITAL APPRECIATION
Delaware VIP Trust-Delaware VIP Growth Opportunities Series
Portfolio Snapshot
The growth style of investing, which favors the stock of companies with the
potential to grow their earnings in excess of the market norm, performed
especially well during the 12 months ended December 31, 2003. With virtually all
stocks feeling the brunt of the recent market downturn of recent years, growth
stocks were especially disaffected by an economy that was slow to recover from
the recession in 2001. However, the combination of fiscal stimulus, tax cuts
enacted in May, and monetary stimulus, historically low interest rates, helped
produce robust economic expansion in the U.S. As is often the case historically,
the stock market will typically move higher before the confirmation of an
economic rebound, and 2003 was no exception. Investors cast off the pessimism
and risk aversion they exhibited in prior years and began acquiring stocks en
masse in March. Buying continued through the remainder of the year, and as a
result, most market indexes posted very strong returns for the 12-month period.
Of note, stocks of lesser quality often provided market leadership, with
questionable earnings and less-than-favorable financials. In our management of
the Series, we favor more reputable companies that have demonstrated noteworthy
balance sheets and earnings that are reputable and sustainable. While this
preference worked against the Series versus its benchmark in 2003, any
large-scale investor shift back to quality-oriented growth should be to the
benefit of the Series.
During the year, the Series returned +41.05% (Standard Class shares with
distributions reinvested). By comparison, the Russell Midcap Growth Index, which
serves as the Series' performance benchmark, rose +42.71% for the same period.
The Series enjoyed successes in the technology sector, which rebounded sharply
after struggling through lean times after its heyday in the latter 1990s. We
lost a measure of performance relative to our benchmarks in the healthcare
arena, where investors came to question some of the sector's growth prospects in
light of Medicare concerns and product pipeline considerations. A name that
detracted from Series performance included Wyeth, which we liquidated. Just as
some retailers benefited the Series, the stock of Kohl's impeded performance due
to diminished sales.
Investment Outlook
Looking forward, we remain optimistic that the overall economy will continue
to show improvement. Within equity markets, the fourth quarter marked a change
from the rest of the year in that the poorest-quality issues did not lead the
market. We believe that this shift towards higher-quality issues should continue
if the strongest companies within individual industries benefit from the
improving macroeconomic environment and leverage their inherent strengths. We
believe our investment strategy of focusing on these industry leaders should
perform well if this shift occurs.
[GRAPHIC OMITTED]
Performance of a $10,000 Investment:
December 31, 1993 through
December 31, 2003
Delaware VIP Growth
Opportunities Series Russell Midcap
(Standard Class Series) Growth Index
----------------------- --------------
Dec.'93 $10,000 $10,000
Dec.'94 $ 9,646 $ 9,785
Dec.'95 $12,495 $13,111
Dec.'96 $14,301 $15,402
Dec.'97 $16,432 $18,874
Dec.'98 $19,523 $22,245
Dec.'99 $31,811 $33,655
Dec.'00 $29,100 $29,701
Dec.'01 $24,508 $23,715
Dec.'02 $18,396 $17,214
Dec.'03 $25,948 $24,568
Delaware VIP
Growth Opportunities Series
Average Annual Total Returns
-----------------------------------
Standard Class Service Class
Shares* Shares**
Lifetime +9.93% -7.24%
10 Years +10.00% --
Five Years +5.85% --
One Year +41.05% +40.86%
For the periods ended December 31, 2003
* Commenced operations on July 12, 1991.
** Commenced operations on May 1, 2000.
Past performance is not a guarantee of future results. Returns and share values
will fluctuate so that shares, when redeemed, may be worth more or less than
their original cost.
The chart shows a $10,000 investment in the Delaware VIP Growth Opportunities
Series Standard Class shares and the Russell Midcap Growth Index for the 10-year
period from December 31, 1993 through December 31, 2003. The chart assumes all
distributions were reinvested. Returns plotted on the chart were as of the last
day of each month shown. The Russell Midcap Growth Index measures the
performance of those Russell mid-cap companies with higher price-to-book ratios
and higher forecasted growth values. An index is unmanaged and does not reflect
the costs of operating a mutual fund, such as the costs of buying, selling, and
holding securities. You cannot invest directly in an index. Earnings from a
variable annuity investment compound tax-free until withdrawal, so no
adjustments were made for income taxes. An expense limitation was in effect for
Delaware VIP Growth Opportunities Series during some of the periods shown.
Performance does not reflect insurance fees related to a variable annuity or
variable life investment or the deferred sales charge that would apply to
certain withdrawals of investments held for fewer than eight years. Performance
shown here would have been reduced if such fees were included and the expense
limitation was removed. For more information about fees, consult your variable
annuity or variable life prospectus.
Growth Opportunities-1
Delaware VIP Trust-Delaware VIP Growth Opportunities Series
Statement of Net Assets
December 31, 2003
Number of Market
Shares Value
COMMON STOCK-99.34%
Banking, Finance & Insurance-18.66%
Ambac Financial Group .......................... 33,100 $ 2,296,809
+AmeriTrade Holdings ............................ 145,500 2,047,185
Cullen/Frost Bankers ........................... 19,000 770,830
Eaton Vance .................................... 23,500 861,040
HCC Insurance Holdings ......................... 41,000 1,303,800
Lehman Brothers Holdings ....................... 22,900 1,768,338
MBIA ........................................... 27,100 1,605,133
Moody's Investors Services ..................... 18,600 1,126,230
PartnerRe ...................................... 46,000 2,670,300
Sovereign Bancorp .............................. 38,100 904,875
-----------
15,354,540
-----------
Basic Industry/Capital Goods-3.03%
Beckman Coulter ................................ 17,200 874,276
+Mettler Toledo International ................... 38,400 1,620,864
-----------
2,495,140
-----------
Business Services-12.65%
*+Allied Waste Industries ........................ 90,100 1,250,588
Expeditors International ....................... 21,900 824,754
+Fiserv ......................................... 51,800 2,046,618
*Fisher Scientific International ................ 61,200 2,531,844
*Manpower ....................................... 27,500 1,294,700
+Robert Half International ...................... 32,800 765,552
+United Rentals ................................. 87,900 1,692,954
-----------
10,407,010
-----------
Consumer Durables-1.40%
KB HOME ........................................ 15,900 1,153,068
-----------
1,153,068
-----------
Consumer Non-Durables-13.85%
+Amazon.com ..................................... 28,500 1,500,240
+Bed Bath & Beyond .............................. 30,300 1,313,505
Cintas ......................................... 16,200 812,106
Dollar Tree Stores ............................. 33,550 1,008,513
+Kohl's ......................................... 13,500 606,690
+Staples ........................................ 63,400 1,730,820
+Starbucks ...................................... 65,800 2,175,348
Tiffany ........................................ 28,100 1,270,120
+Williams-Sonoma ................................ 28,000 973,560
-----------
11,390,902
-----------
Consumer Services-14.23%
+Cendant ........................................ 107,900 2,402,933
*+Host Marriott .................................. 95,600 1,177,792
Marriott International Class A ................. 29,200 1,349,040
Outback Steakhouse ............................. 30,500 1,348,405
+P.F. Chang's China Bistro ...................... 19,000 966,720
*Royal Caribbean Cruises ........................ 76,000 2,644,040
Westwood One ................................... 53,200 1,819,972
-----------
11,708,902
-----------
Number of Market
Shares Value
Healthcare & Pharmaceuticals-14.57%
Aetna.......................................... 14,600 $ 986,668
Allergan....................................... 10,700 821,867
*AmerisourceBergen.............................. 6,900 387,435
*+Anthem......................................... 22,200 1,665,000
*+Biogen Idec.................................... 52,930 1,946,765
*+Caremark RX.................................... 32,200 815,626
+Gilead Sciences................................ 19,500 1,133,730
*+Invitrogen..................................... 15,800 1,106,000
Omnicare....................................... 22,800 920,892
*+Pharmaceutical Product Development 21,900 590,643
Teva Pharmaceutical Industries ADR 16,300 924,373
+Watson Pharmaceuticals......................... 15,000 690,000
-----------
11,988,999
-----------
Real Estate-2.50%
American Financial Realty Trust................ 120,500 2,054,525
-----------
2,054,525
-----------
Technology-18.45%
*+Agere Systems.................................. 298,400 910,120
+Altera......................................... 30,400 690,080
*Applied Micro Circuits......................... 159,100 951,418
ASML Holdings.................................. 76,400 1,531,820
+Broadcom....................................... 35,300 1,203,377
*+CIENA.......................................... 124,897 829,316
*Emulex......................................... 32,000 853,760
*+L-3 Communications Holdings.................... 26,000 1,335,360
*+Lam Research................................... 34,900 1,127,270
Linear Technology.............................. 32,700 1,375,689
+Network Appliance.............................. 27,800 570,734
+Novellus Systems............................... 25,500 1,072,275
*+Red Hat........................................ 27,800 521,806
+VERITAS Software............................... 18,550 689,318
+Xilinx......................................... 39,200 1,518,609
-----------
15,180,952
-----------
Total Common Stock
(cost $62,425,430)............................ 81,734,038
-----------
Growth Opportunities-2
Delaware VIP Growth Opportunities Series
Statement of Net Assets (continued)
Principal Market
Amount Value
REPURCHASE AGREEMENTS-0.67%
With BNP Paribas 0.85% 1/2/04
(dated 12/31/03, collateralized by
$13,000 U.S. Treasury Bills due
3/25/04, market value $12,613,
$47,000 U.S. Treasury Notes 3.625%
due 3/31/04, market value $47,520,
$144,000 U.S. Treasury Notes 6.00%
due 8/15/04, market value $151,537,
and $74,000 U.S. Treasury
Notes 1.625% due 1/31/05, market
value $75,073)..................................... $281,000 $ 281,000
With UBS Warburg 0.85%
1/2/04 (dated 12/31/03, collateralized
by $62,000 U.S. Treasury Notes
1.625% due 3/31/05, market
value $62,109, $2,000 U.S. Treasury Notes
5.50% due 2/15/08, market value
$2,381, and $185,000 U.S. Treasury Notes
5.625% due 5/15/08, market
value $206,193).................................... 265,000 265,000
-----------
Total Repurchase Agreements
(cost $546,000).................................... 546,000
-----------
Total Market Value of Securities
Before Securities Lending
Collateral-100.01%
(cost $62,971,430)................................ 82,280,038
-----------
SECURITIES LENDING COLLATERAL**-18.33%
Short-Term Investments
ABN AMRO Bank Chicago
0.96% 6/07/04....................................... $ 591,553 $ 591,527
Allied Irish Dublin 1.12% 1/20/04 .................. 676,051 676,066
Bayerische Landesbank 1.045% 8/30/04 ............... 168,912 168,937
CDC IXIS 1.485% 11/12/04............................ 674,672 676,066
Credit Suisse First Boston
1.60% 12/13/04..................................... 674,093 676,066
Deutsche Bank Financial 0.991% 1/16/04.............. 676,264 676,305
Fannie Mae 0.955% 1/29/04........................... 3,380,340 3,380,286
Freddie Mac 1.12% 1/15/04........................... 382,450 382,736
General Electric Capital
1.068% 10/04/04.................................... 253,791 254,178
1.069% 5/14/04..................................... 338,102 338,340
Goldman Sachs Group LP 1.18% 12/08/04 .............. 169,016 169,016
HBOS Treasury Services PLC
1.14% 4/08/04...................................... 676,002 676,066
Keybank NA 1.146% 1/26/04........................... 338,152 338,202
Lloyds Bank PLC 1.08% 2/09/04....................... 760,556 760,574
Marsh & McLennan 1.291% 6/15/04..................... 423,331 433,713
Merrill Lynch Mortgage Capital
1.10% 1/12/04...................................... 676,066 676,066
Mizuho Securities USA 1.03% 1/02/04 ................ 1,163,105 1,163,105
Morgan Stanley Dean Witter
1.283% 1/31/05..................................... 168,741 169,016
1.33% 3/19/04...................................... 422,349 422,541
Societe Generale 1.085% 12/08/04.................... 675,895 675,895
Swiss Re Financial 1.103% 1/15/04 .................. 421,529 421,366
Wachovia Bank NA 1.064% 11/15/04.................... 676,134 676,667
Wilmington Trust 1.11% 1/22/04...................... 676,050 676,066
-----------
Total Securities Lending Collateral
(cost $15,078,800)................................. 15,078,800
-----------
TOTAL MARKET VALUE OF SECURITIES-118.34% (cost $78,050,230)................................................. 97,358,838++
OBLIGATION TO RETURN SECURITIES LENDING COLLATERAL-(18.33%)................................................. (15,078,800)
LIABILITIES NET OF RECEIVABLES AND OTHER ASSETS-(0.01%)..................................................... (5,657)
------------
NET ASSETS APPLICABLE TO 5,806,034 SHARES OUTSTANDING-100.00%............................................... $82,274,381
------------
NET ASSET VALUE-DELAWARE VIP GROWTH OPPORTUNITIES SERIES STANDARD CLASS ($65,368,496 / 4,606,888 shares).... $14.19
======
NET ASSET VALUE-DELAWARE VIP GROWTH OPPORTUNITIES SERIES SERVICE CLASS ($16,905,885 / 1,199,146 shares)..... $14.10
======
COMPONENTS OF NET ASSETS AT DECEMBER 31, 2003:
Shares of beneficial interest (unlimited authorization-no par).............................................. $ 94,827,778
Accumulated net realized loss on investments................................................................ (31,862,005)
Net unrealized appreciation of investments.................................................................. 19,308,608
------------
Total net assets............................................................................................ $ 82,274,381
============
- ---------------------
+Non-income producing security for the year ended December 31, 2003.
++Includes $14,757,505 of securities loaned.
*Fully or partially on loan.
**See Note #7 in "Notes to Financial Statements."
ADR-American Depositary Receipts
See accompanying notes
Growth Opportunities-3
Delaware VIP Trust-
Delaware VIP Growth Opportunities Series
Statement of Operations
Year Ended December 31, 2003
INVESTMENT INCOME:
Dividends.................................................. $ 411,188
Interest................................................... 13,447
Securities lending income.................................. 10,882
Foreign tax withheld....................................... (210)
-----------
435,307
-----------
EXPENSES:
Management fees............................................ 566,090
Distribution expenses - Service Class...................... 38,760
Accounting and administration expenses..................... 31,979
Professional fees.......................................... 8,355
Dividend disbursing and transfer agent fees
and expenses.............................................. 7,548
Custodian fees............................................. 4,906
Reports and statements to shareholders..................... 3,713
Trustees' fees............................................. 3,100
Registration fees.......................................... 683
Other...................................................... 14,500
-----------
679,634
Less waiver of distribution expenses - Service Class....... (5,309)
Less expenses paid indirectly.............................. (1,840)
-----------
Total expenses............................................. 672,485
-----------
NET INVESTMENT LOSS........................................ (237,178)
-----------
NET REALIZED AND UNREALIZED GAIN
ON INVESTMENTS:
Net realized gain on investments........................... 5,640,255
Net change in unrealized appreciation/
depreciation of investments............................... 20,452,045
-----------
NET REALIZED AND UNREALIZED GAIN
ON INVESTMENTS............................................ 26,092,300
-----------
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS........................................... $25,855,122
===========
See accompanying notes
Delaware VIP Trust-
Delaware VIP Growth Opportunities Series
Statements of Changes in Net Assets
Year Ended
12/31/03 12/31/02
-------- --------
INCREASE (DECREASE) IN NET
ASSETS FROM OPERATIONS:
Net investment loss.............................. $ (237,178) $ (269,596)
Net realized gain (loss) on investments 5,640,255 (16,808,666)
Net change in unrealized appreciation/
depreciation of investments..................... 20,452,045 (16,064,284)
----------- ------------
Net increase (decrease) in net assets
resulting from operations....................... 25,855,122 (33,142,546)
----------- ------------
DIVIDENDS AND DISTRIBUTIONS
TO SHAREHOLDERS FROM:
Return of capital:
Standard Class.................................. - (11,778,054)
Service Class................................... - (3,103,956)
----------- ------------
- (14,882,010)
----------- ------------
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares sold:
Standard Class.................................. 495,276 327,050
Service Class................................... 1,847,311 3,455,773
Net asset value of shares issued upon
reinvestment of dividends and distributions:
Standard Class.................................. - 11,778,054
Service Class................................... - 3,103,956
----------- ------------
2,342,587 18,664,833
----------- ------------
COST OF SHARES REPURCHASED:
Standard Class.................................. (16,762,775) (30,630,017)
Service Class................................... (5,399,680) (9,190,445)
----------- ------------
(22,162,455) (39,820,462)
----------- ------------
Decrease in net assets derived from
capital share transactions...................... (19,819,868) (21,155,629)
----------- ------------
NET INCREASE (DECREASE) IN NET ASSETS............ 6,035,254 (69,180,185)
NET ASSETS:
Beginning of year................................ 76,239,127 145,419,312
----------- ------------
End of year...................................... $82,274,381 $ 76,239,127
=========== ============
See accompanying notes
Growth Opportunities-4
Delaware VIP Trust-Delaware VIP Growth Opportunities Series
Financial Highlights
Selected data for each share of the Series outstanding throughout each period
were as follows:
Delaware VIP Growth Opportunities Series Standard Class
Year Ended
12/31/03 12/31/02 12/31/01 12/31/00 12/31/99
------------------------------------------------------------
Net asset value, beginning of period ........................ $10.060 $15.010 $23.990 $28.550 $18.550
Income (loss) from investment operations:
Net investment loss(1) ...................................... (0.032) (0.025) (0.010) (0.106) (0.055)
Net realized and unrealized gain (loss) on investments ...... 4.162 (3.351) (4.209) (1.459) 11.055
------- ------- ------- ------- -------
Total from investment operations ............................ 4.130 (3.376) (4.219) (1.565) 11.000
------- ------- ------- ------- -------
Less dividends and distributions from:
Net realized gain on investments ............................ - - (4.761) (2.995) (1.000)
Return of capital ........................................... - (1.574) - - -
------- ------- ------- ------- -------
Total dividends and distributions ........................... - (1.574) (4.761) (2.995) (1.000)
------- ------- ------- ------- -------
Net asset value, end of period .............................. $14.190 $10.060 $15.010 $23.990 $28.550
======= ======= ======= ======= =======
Total return(2) ............................................. 41.05% (24.94%) (15.78%) (8.52%) 62.94%
Ratios and supplemental data:
Net assets, end of period (000 omitted) ..................... $65,368 $60,964 $117,527 $180,008 $216,062
Ratio of expenses to average net assets ..................... 0.85% 0.87% 0.85% 0.84% 0.82%
Ratio of expenses to average net assets prior to expense
limitation and expenses paid indirectly .................... 0.85% 0.87% 0.87% 0.84% 0.82%
Ratio of net investment loss to average net assets .......... (0.27%) (0.21%) (0.06%) (0.36%) (0.27%)
Ratio of net investment loss to average net assets
prior to expense limitation and expenses paid indirectly ... (0.27%) (0.21%) (0.08%) (0.36%) (0.27%)
Portfolio turnover .......................................... 94% 88% 117% 128% 132%
(1) The average shares outstanding method has been applied for per share
information.
(2) Total investment return is based on the change in net asset value of a share
during the period and assumes reinvestment of dividends and distributions at
net asset value. Total investment return reflects a waiver and payment of
fees by the manager, as applicable. Performance would have been lower had
the expense limitation not been in effect.
See accompanying notes
Growth Opportunities-5
Delaware VIP Growth Opportunities Series
Financial Highlights (continued)
Selected data for each share of the Series outstanding throughout each period
were as follows:
Delaware VIP Growth Opportunities Series Service Class
5/1/00(1)
Year Ended to
12/31/03 12/31/02 12/31/01 12/31/00
-------------------------------------------------
Net asset value, beginning of period...................................... $10.010 $14.970 $23.980 $28.020
Income (loss) from investment operations:
Net investment loss(2).................................................... (0.058) (0.043) (0.033) (0.087)
Net realized and unrealized gain (loss) on investments.................... 4.148 (3.343) (4.216) (3.953)
------- ------- ------- -------
Total from investment operations.......................................... 4.090 (3.386) (4.249) (4.040)
------- ------- ------- -------
Less dividends and distributions from:
Net realized gain on investments.......................................... - - (4.761) -
Return of capital......................................................... - (1.574) - -
------- ------- ------- -------
Total dividends and distributions......................................... - (1.574) (4.761) -
------- ------- ------- -------
Net asset value, end of period............................................ $14.100 $10.010 $14.970 $23.980
======= ======= ======= =======
Total return(3)........................................................... 40.86% (25.09%) (15.94%) (14.42%)
Ratios and supplemental data:
Net assets, end of period (000 omitted)................................... $16,906 $15,275 $27,893 $28,122
Ratio of expenses to average net assets................................... 1.07% 1.02% 1.00% 0.99%
Ratio of expenses to average net assets prior to expense limitation and
expenses paid indirectly................................................. 1.10% 1.02% 1.02% 0.99%
Ratio of net investment loss to average net assets........................ (0.49%) (0.36%) (0.21%) (0.47%)
Ratio of net investment loss to average net assets prior to expense
limitation and expenses paid indirectly.................................. (0.52%) (0.36%) (0.23%) (0.47%)
Portfolio turnover........................................................ 94% 88% 117% 128%
- -----------------
(1) Date of commencement of operations; ratios and portfolio turnover have been
annualized and total return has not been annualized.
(2) The average shares outstanding method has been applied for per share
information.
(3) Total investment return is based on the change in net asset value of a share
during the period and assumes reinvestment of dividends and distributions at
net asset value. Total investment return reflects a waiver and payment of
fees by the manager and distributor, as applicable. Performance would have
been lower had the expense limitation and waiver not been in effect.
See accompanying notes
Growth Opportunities-6
Delaware VIP Trust-Delaware VIP Growth Opportunities Series
Notes to Financial Statements
December 31, 2003
Delaware VIP Trust (the "Trust") is organized as a Delaware statutory trust and
offers 15 series: Delaware VIP Balanced Series, Delaware VIP Capital Reserves
Series, Delaware VIP Cash Reserve Series, Delaware VIP Diversified Income
Series, Delaware VIP Emerging Markets Series, Delaware VIP Global Bond Series,
Delaware VIP Growth Opportunities Series, Delaware VIP High Yield Series,
Delaware VIP International Value Equity Series, Delaware VIP Large Cap Value
Series, Delaware VIP REIT Series, Delaware VIP Select Growth Series, Delaware
VIP Small Cap Value Series, Delaware VIP Trend Series and Delaware VIP U.S.
Growth Series. These financial statements and the related notes pertain to
Delaware VIP Growth Opportunities Series (the "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 accounting principles
generally accepted in the United States and are consistently followed by the
Series.
Security Valuation--All equity securities 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 Stock Market, Inc.
(NASDAQ) are valued in accordance with the NASDAQ Official Closing Price, which
may not be the last sales price. If on a particular day an equity security does
not trade, then the mean between the bid and asked prices will normally be used.
Short-term debt securities having less than 60 days to maturity are valued at
amortized cost, which approximates market value. Other securities and assets for
which market quotations are not readily available are valued at fair value as
determined in good faith under the direction of the Series' Board of Trustees.
In determining whether market quotations are readily available or fair valuation
will be used, various factors will be taken into consideration, such as market
closures, or with respect to foreign securities, aftermarket trading, or
significant events after local market trading (e.g., government actions or
pronouncements, trading volume or volatility on markets, exchanges among
dealers, or news events).
Federal Income Taxes--The Series intends to continue to qualify for federal
income tax purposes as a regulated investment company and make the requisite
distributions to shareholders. Accordingly, no provision for federal income
taxes has been made in the financial statements.
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. 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 102% collateralized. However, in the
event of default or bankruptcy by the counterparty to the agreement, realization
of the collateral may be subject to legal proceedings.
Use of Estimates--The preparation of financial statements in conformity with
accounting principles generally accepted in the United States 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 common to all funds within the Delaware Investments Family of
Funds are allocated amongst the funds on the basis of average net assets.
Security transactions are recorded on the date the securities are purchased or
sold (trade date). 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.
Certain expenses of the Series are paid through commission arrangements with
brokers. The amount of these expenses was approximately $1,811 for the year
ended December 31, 2003. In addition, the Series receives earnings credits from
its custodian when positive cash balances are maintained, which are used to
offset custody fees. The earnings credits for the year ended December 31, 2003,
were approximately $29. The expenses paid under the above arrangements are
included in their respective expense captions on the Statement of Operations
with the corresponding expense offset shown as "expenses paid indirectly".
2. Investment Management, Administration Agreements and Other Transactions with
Affiliates
In accordance with the terms of its investment management agreement, the Series
pays Delaware Management Company (DMC), a series of Delaware Management Business
Trust and the investment manager, an annual fee which is calculated daily at the
rate of 0.75% on the first $500 million of average daily net assets of the
Series, 0.70% on the next $500 million, 0.65% on the next $1.5 billion, and
0.60% on average daily net assets in excess of $2.5 billion.
DMC has contracted to waive that portion, if any, of its management fee and
reimburse the Series to the extent necessary to ensure that annual operating
expenses, exclusive of taxes, interest, brokerage commissions, distribution
fees, certain insurance costs and extraordinary expenses, do not exceed 0.90% of
average daily net assets of the Series through April 30, 2004. No reimbursement
was due for the year ended December 31, 2003.
Growth Opportunities-7
Delaware VIP Growth Opportunities Series
Notes to Financial Statements (continued)
2. Investment Management, Administration Agreements and Other Transactions with
Affiliates (continued)
Delaware Service Company, Inc. (DSC), an affiliate of DMC, provides accounting,
administration, dividend disbursing and transfer agent services. The Series pays
DSC a monthly fee based on average net assets subject to certain minimums for
accounting and administration services. The Series pays DSC a monthly fee based
on average net assets for dividend disbursing and transfer agent services.
Pursuant to a distribution agreement and distribution plan, the Series pays
Delaware Distributors, L.P. (DDLP), the distributor and an affiliate of DMC, an
annual 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, 2004 in order to prevent distribution and service fees of the Service
Class shares from exceeding 0.25% of average daily net assets. Prior to May 1,
2003, the Board of Trustees had set the fee at an annual rate of 0.15% of the
Service Class shares' average daily net assets. No distribution expenses are
paid by Standard Class shares.
At December 31, 2003, the Series had liabilities payable to affiliates as
follows:
Dividend disbursing,
Investment transfer agent fees,
management accounting Other expenses
fee payable to and other expenses payable to DMC
DMC payable to DSC and affiliates*
--------------- -------------------- ---------------
$51,637 $3,277 $10,168
*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, professional fees, custodian fees and
trustees' 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 year ended December 31, 2003, the Series made purchases and sales of
investment securities other than short-term investments as follows:
Purchases.................... $70,452,366
Sales........................ $90,609,365
At December 31, 2003, the cost of investments and unrealized appreciation
(depreciation) for federal income tax purposes for the Series were as follows:
Aggregate Aggregate
Cost of unrealized unrealized Net unrealized
investments appreciation depreciation appreciation
----------- ------------ ------------ --------------
$64,467,721 $19,255,466 $(1,443,149) $17,812,317
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 accounting principles
generally accepted in the United States. The tax character of dividends and
distributions paid during the years December 31, 2003 and 2002 was as follows:
Year Year
Ended Ended
12/31/03 12/31/02
-------- -----------
Return of capital.................. $ - $14,882,010
As of December 31, 2003, the components of net assets on a tax basis were as
follows:
Shares of beneficial interest.............. $94,827,778
Capital loss carryforwards................. (30,365,714)
Unrealized appreciation of investments..... 17,812,317
-----------
Net assets................................. $82,274,381
===========
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. Such capital loss
carryforwards expire as follows: $14,329,660 expires in 2009 and $16,036,054
expires in 2010.
Growth Opportunities-8
Delaware VIP Growth Opportunities Series
Notes to Financial Statements (continued)
5. Capital Shares
Transactions in capital shares were as follows:
Year Year
Ended Ended
12/31/03 12/31/02
-------- --------
Shares sold:
Standard Class................................ 41,561 24,408
Service Class................................. 153,996 263,973
Shares issued upon reinvestment of dividends
and distributions:
Standard Class................................ - 897,718
Service Class................................. - 237,305
---------- ----------
195,557 1,423,404
---------- ----------
Shares repurchased:
Standard Class................................ (1,496,223) (2,692,483)
Service Class................................. (480,170) (839,283)
---------- ----------
(1,976,393) (3,531,766)
---------- ----------
Net decrease................................... (1,780,836) (2,108,362)
========== ==========
6. Line of Credit
The Series, along with certain other funds in the Delaware Investments Family of
Funds (the "Participants"), participates in a $177,300,000 revolving line of
credit facility to be used for temporary or emergency purposes as an additional
source of liquidity to fund redemptions of investor shares. The Participants are
charged an annual commitment fee, which is allocated across the Participants on
the basis of each fund's allocation of the entire facility. The Participants may
borrow up to a maximum of one third of their net assets under the agreement. The
Series had no amounts outstanding as of December 31, 2003, or at any time during
the year.
7. 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 J.P. Morgan Chase. Initial security loans made pursuant to the
Lending Agreement are required to be secured by U.S. government obligations
and/or cash collateral not less than 102% of the market value of the securities
issued in the United States and 105% of the market value of securities issued
outside the United States. With respect to each loan, if the aggregate market
value of the collateral held 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 invested in fixed-income
securities, with a weighted average maturity not to exceed 90 days, rated in one
of the top two tiers by Standard & Poor's Ratings Group or Moody's Investors
Service, Inc. or repurchase agreements collateralized by such securities.
However, in the event of default or bankruptcy by the lending agent, realization
and/or retention of the collateral may be subject to legal proceedings. In the
event the borrower fails to return loaned securities and the collateral received
is insufficient to cover the value of the loaned securities and provided such
collateral shortfall is not the result of investment losses, the lending agent
has agreed to pay the amount of the shortfall to the Series, or at the
discretion of the lending agent, replace the loaned securities. The Series
continues to record dividends on the securities loaned and is subject to change
in fair value of the securities loaned that may occur during the term of the
loan. The Series has the right under the Lending Agreement to recover the
securities from the borrower on demand. The security lending agent and the
borrower retain a portion of the earnings from the collateral investments. The
Series records security lending income net of such allocation.
At December 31, 2003, the market value of securities on loan was $14,757,505,
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".
8. Credit and Market Risk
The Series invests a significant portion of its assets in small- and mid-sized
companies and may be subject to certain risks associated with ownership of
securities of small- and mid-sized 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.
Growth Opportunities-9
Delaware VIP Trust-Delaware VIP Growth Opportunities Series
Report of Independent Auditors
To the Shareholders and Board of Trustees
Delaware VIP Trust - Delaware VIP Growth Opportunities Series
We have audited the accompanying statement of net assets of Delaware VIP Growth
Opportunities Series (the "Series") as of December 31, 2003, and the related
statement of operations for the year then ended, the statements of changes in
net assets for each of the two years in the period then ended, and the financial
highlights for each of the periods indicated therein. These financial statements
and financial highlights are the responsibility of the Series' management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements and financial highlights. Our procedures included
confirmation of securities owned as of December 31, 2003, by correspondence with
the custodian and brokers. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Delaware VIP Growth Opportunities Series at December 31, 2003, the results of
its operations for the year then ended, the changes in its net assets for each
of the two years in the period then ended, and its financial highlights for each
of the periods indicated therein, in conformity with accounting principles
generally accepted in the United States.
Ernst & Young LLP
Philadelphia, Pennsylvania
February 6, 2004
- --------------------------------------------------------------------------------
A description of the policies and procedures that the Series uses to determine
how to vote proxies (if any) relating to portfolio securities is available
without charge (i) upon request, by calling 800 523-1918; (ii) on the Series'
website at http://www.delawareinvestments.com; and (iii) on the Commission's
website at http://www.sec.gov.; and beginning no later than August 31, 2004,
information (if any) regarding how the Series voted proxies relating to
portfolio securities during the most recent 12-month period ended June 30 is
available without charge (i) through the Series' website at
http://www.delawareinvestments.com; and (ii) on the Commission's website at
http://www.sec.gov.
- --------------------------------------------------------------------------------
Growth Opportunities-10
Delaware Investments Family of Funds
BOARD OF TRUSTEES/DIRECTORS AND OFFICERS ADDENDUM
A mutual fund is governed by a Board of Trustees/Directors which has oversight
responsibility for the management of a fund's business affairs.
Trustees/Directors establish procedures and oversee and review the performance
of the investment manager, the distributor and others that perform services for
the fund. The independent fund trustees, in particular, are advocates for
shareholder interests. The following is a list of the Trustees/Directors and
Officers with certain background and related information.
Number of Other
Principal Portfolios in Fund Directorships
Name, Position(s) Occupation(s) Complex Overseen Held by
Address Held with Length of Time During by Trustee/Director Trustee/Director
and Birthdate Fund(s) Served Past 5 Years or Officer or Officer
- -----------------------------------------------------------------------------------------------------------------------------------
INTERESTED TRUSTEES
Jude T. Driscoll(2) Chairman and 4 Years - Since August 2000, 80 None
2005 Market Street Trustee(4) Executive Officer Mr. Driscoll has served in
Philadelphia, PA various executive capacities
19103 Trustee since at different times at
May 15, 2003 Delaware Investments(1)
March 10, 1963
Senior Vice President and
Director of Fixed-Income Process -
Conseco Capital Management
(June 1998 - August 2000)
Managing Director -
NationsBanc Capital Markets
(February 1996 - June 1998)
- -----------------------------------------------------------------------------------------------------------------------------------
INDEPENDENT TRUSTEES
Walter P. Babich Trustee 16 Years Board Chairman - 98 None
2005 Market Street Citadel Construction Corporation
Philadelphia, PA (1989 - Present)
19103
October 1, 1927
- -----------------------------------------------------------------------------------------------------------------------------------
John H. Durham Trustee 25 Years(3) Private Investor 98 Trustee - Abington
2005 Market Street Memorial Hospital
Philadelphia, PA
19103
President/Director -
22 WR Corporation
August 7, 1937
- -----------------------------------------------------------------------------------------------------------------------------------
John A. Fry Trustee(4) 3 Years President - 80 None
2005 Market Street Franklin & Marshall College
Philadelphia, PA (June 2002 - Present)
19103
Executive Vice President -
University of Pennsylvania
May 28, 1960 (April 1995 - June 2002)
- -----------------------------------------------------------------------------------------------------------------------------------
Anthony D. Knerr Trustee 11 Years Founder/Managing Director - 98 None
2005 Market Street Anthony Knerr & Associates
Philadelphia, PA (Strategic Consulting)
19103 (1990 - Present)
December 7, 1938
- -----------------------------------------------------------------------------------------------------------------------------------
Growth Opportunities-11
Number of Other
Principal Portfolios in Fund Directorships
Name, Position(s) Occupation(s) Complex Overseen Held by
Address Held with Length of Time During by Trustee/Director Trustee/Director
and Birthdate Fund(s) Served Past 5 Years or Officer or Officer
- -----------------------------------------------------------------------------------------------------------------------------------
INDEPENDENT TRUSTEES (continued)
Ann R. Leven Trustee 15 Years Treasurer/Chief Fiscal Officer - 98 Director - Andy
2005 Market Street National Gallery of Art Warhol Foundation
Philadelphia, PA (1994 - 1999)
19103 Director -
Systemax Inc.
November 1, 1940
- -----------------------------------------------------------------------------------------------------------------------------------
Thomas F. Madison Trustee 10 Years President/Chief 98 Director -
2005 Market Street Executive Officer - Banner Health
Philadelphia, PA MLM Partners, Inc.
19103 (Small Business Investing Director -
and Consulting) CenterPoint Energy
(January 1993 - Present)
February 25, 1936
Director -
Digital River Inc.
Director - Rimage
Corporation
- -----------------------------------------------------------------------------------------------------------------------------------
Janet L. Yeomans Trustee 5 Years Vice President/Mergers & 98 None
2005 Market Street Acquisitions - 3M Corporation
Philadelphia, PA (January 2003 - Present)
19103
Ms. Yeomans has held
July 31, 1948 various management positions
at 3M Corporation since 1983.
- -----------------------------------------------------------------------------------------------------------------------------------
OFFICERS
Joseph H. Hastings Executive Executive Mr. Hastings has served in 98 None
2005 Market Street Vice President Vice President various executive capacities
Philadelphia, PA and and at different times at
19103 Chief Financial Chief Financial Delaware Investments.
Officer Officer since
August 21, 2003
December 19, 1949
- -----------------------------------------------------------------------------------------------------------------------------------
Richelle S. Maestro Senior Vice President, Chief Legal Officer Ms. Maestro has served in 98 None
2005 Market Street Chief Legal Officer since various executive capacities
Philadelphia, PA and Secretary March 17, 2003 at different times at
19103 Delaware Investments.
November 26, 1957
- -----------------------------------------------------------------------------------------------------------------------------------
Michael P. Bishof Senior Vice President 8 Years Mr. Bishof has served in 98 None
2005 Market Street and Treasurer various executive capacities
Philadelphia, PA at different times at
19103 Delaware Investments.
August 18, 1962
- -----------------------------------------------------------------------------------------------------------------------------------
(1) Delaware Investments is the marketing name for Delaware Management Holdings,
Inc. and its subsidiaries, including the Registrant's investment advisor,
principal underwriter and its transfer agent.
(2) Mr. Driscoll is considered to be an "Interested Trustee" because he is an
executive officer of the Fund's manager and distributor.
(3) Mr. Durham served as a Director Emeritus from 1995 through 1998.
(4) Mr. Driscoll and Mr. Fry are not Trustees of the portfolios of Voyageur
Insured Funds, Voyageur Intermediate Tax Free Funds, Voyageur Investment
Trust, Voyageur Mutual Funds, Voyageur Mutual Funds II, Voyageur Mutual
Funds III and Voyageur Tax Free Funds.
The Statement of Additional Information for the Fund(s) includes additional
information about the Trustees/Directors and Officers and is available, without
charge, upon request by calling 800 523-1918.
(8533)
Growth Opportunities-12
FOR HIGH YIELD
Delaware VIP Trust-Delaware VIP High Yield Series
Portfolio Snapshot
The high-yield bond market experienced strong returns for the 12-month period
ended December 31, 2003, with the Series up +28.74% (Standard Class shares with
distributions reinvested). For comparison, the benchmark Citigroup High-Yield
Cash Pay Index rose +29.36% for the year. In general, these bonds performed well
due to steady strengthening in the economy. This positive trend has decreased
the level of corporate defaults by roughly 50 percent from levels set in 2002.
Also, high-yield bonds fell to historically low levels relative to high-grade
bonds, such as U.S. Treasuries, and thus were viewed as attractively priced in
2003. Investor interest was bolstered by diminished returns in other
fixed-income asset classes. New high-yield bonds coming to market grew steadily
in the year's second quarter, and are on track to challenge record issuance
levels set in 1998. Positive performance came from virtually all major market
sectors. Those that typically performed poorly in 2002 turned in some of 2003's
top results, as with companies in the telecommunications and cable-related
industries.
The Series benefited from a greater weighting in utility bonds versus its
benchmark, due in part to the presence of "fallen angels" -- high-grade bonds
that were downgraded to high-yield status. Given our strong commitment to
fundamental research capabilities, we believed we could identify attractive
candidates for acquisition among such bonds given their high-income production
and potential for appreciation. Issues that provided sound positive performance
for the Series included Charter Communications, a company we believe possesses
adequate assets with which to cover its liabilities, not to mention its general
operations that continue to show signs of improvement. Conversely, Foster
Wheeler exhibited weakness during the 12-month period due to a restructuring
with its bondholders.
Investment Outlook
We anticipate continued economic growth, as well as stronger corporate
earnings, over the shorter term. We expect the coupon component will become more
evenly balanced to the capital appreciation component of high yield's total
return moving forward. A lower corporate default rate, coupled with lower market
volatility and continued investor interest in higher income-producing assets
should create a rather positive marketplace, as well as an environment for
generally stable total return, in our opinion.
[Graphic Omitted]
Performance of a $10,000 Investment:
December 31, 1993 through
December 31, 2003
Citigroup
Delaware VIP High Yield
High Yield Series Cash Pay
(Standard Class Shares) Index
----------------------- ----------
Dec.'92 $10,000 $10,000
Dec.'93 $ 9,714 $ 9,875
Dec.'94 $11,219 $11,791
Dec.'95 $12,653 $13,156
Dec.'96 $14,379 $14,891
Dec.'97 $14,080 $15,428
Dec.'98 $13,707 $15,695
Dec.'99 $11,509 $14,804
Dec.'00 $11,037 $15,823
Dec.'01 $11,240 $15,733
Dec.'02 $14,470 $20,352
Delaware VIP High Yield Series
Average Annual Total Returns
--------------------------------
Standard Class Service Class
Shares* Shares**
Lifetime +6.49% +3.16%
10 Years +3.76% --
Five Years +0.50% --
One Year +28.74% +28.61%
For the periods ended December 31, 2003
*Commenced operations on July 28, 1988.
**Commenced operations on May 1, 2000.
Past performance is not a guarantee of future results. Returns and share values
will fluctuate so that shares, when redeemed, may be worth more or less than
their original cost.
The chart shows a $10,000 investment in Delaware VIP High Yield Series Standard
Class shares and the Citigroup High-Yield Cash Pay Index (formerly known as the
Salomon Smith Barney High-Yield Cash Pay Index) for the 10-year period from
December 31, 1993 through December 31, 2003. The chart assumes all distributions
were reinvested. Returns plotted on the chart were as of the last day of each
month shown. The Citigroup High-Yield Cash Pay Index measures the performance of
U.S. high-yield corporate bonds. An index is unmanaged and does not reflect the
costs of operating a mutual fund, such as the costs of buying, selling, and
holding securities. Earnings from a variable annuity investment compound
tax-free until withdrawal, so no adjustments were made for income taxes. An
expense limitation for advisory fees was in effect for Delaware VIP High Yield
Opportunities Series during all periods shown. Performance for the lifetime
period would have been lower had an advisory fee waiver not been in effect. A
portion of 12b-1 fees was waived for the one-year and lifetime periods for the
Service Class shares. Performance does not reflect insurance fees related to a
variable annuity or variable life investment or the deferred sales charge that
would apply to certain withdrawals of investments held for fewer than eight
years. Performance shown here would have been reduced if such fees were included
and the expense limitation was removed. For more information about fees, consult
your variable annuity or variable life prospectus.
High Yield-1
Delaware VIP Trust-Delaware VIP High Yield Series
Statement of Net Assets
December 31, 2003
Principal Market
Amount Value
(U.S. $) (U.S. $)
ASSET-BACKED SECURITIES-0.64%
**GSAMP Trust 2002-HE2N
144A 8.25% 10/20/32 .................... $ 58,123 $ 58,343
**Master NIM Trust 2003-OPT2
144A 9.79% 5/26/33 ..................... 287,771 289,209
**South Street CBO 1999-1A A1 144A
7.16% 7/1/11 ........................... 600,000 550,540
----------
Total Asset-Backed Securities
(cost $882,843) ........................ 898,092
----------
COLLATERALIZED MORTGAGE OBLIGATIONS-0.39%
#**Prudential Securities Secured
Financing 1998 C1-J 144A
7.336% 5/15/13 ......................... 180,000 147,973
#**Salomon Brothers Mortgage
Securities 99 C1-J 144A
7.00% 5/18/32 .......................... 500,000 398,150
----------
Total Collateralized Mortgage Obligations
(cost $527,517) ........................ 546,123
----------
CORPORATE BONDS-82.47%
Aerospace & Defense-0.86%
Argo-Tech 8.625% 10/1/07 ................ 350,000 343,000
**Armor Holdings 144A 8.25% 8/15/13 ....... 800,000 860,000
----------
1,203,000
----------
Automobiles & Automotive Parts-2.17%
Advanced Accessory Systems
10.75% 6/15/11 ......................... 375,000 414,844
Collins & Aikman Products
10.75% 12/31/11 ........................ 275,000 271,563
General Motors 8.375% 7/15/33 ........... 775,000 902,334
**Metaldyne 144A 10.00% 11/1/13 ........... 675,000 685,125
**UIS 144A 9.375% 6/15/13 ................. 675,000 740,813
*Venture Holdings Trust
12.00% 6/1/09 .......................... 790,000 3,950
----------
3,018,629
----------
Banking, Finance & Insurance-1.58%
**Crum & Forster Holdings 144A
10.375% 6/15/13 ........................ 900,000 1,004,625
**Farmers Exchange Capital 144A
7.20% 7/15/48 .......................... 520,000 467,499
Finova Group 7.50% 11/15/09 ............. 535,000 323,675
TIG Holdings 8.125% 4/15/05 ............. 400,000 408,000
----------
2,203,799
----------
Building & Materials-2.77%
**Lone Star Industries 144A
8.85% 6/15/05 .......................... 475,000 498,750
Schuler Homes 10.50% 7/15/11 ............ 400,000 466,000
Standard-Pacific 9.25% 4/15/12 .......... 825,000 924,000
Technical Olympic USA
10.375% 7/1/12 ......................... 825,000 928,125
WCI Communities 10.625% 2/15/11 ......... 920,000 1,044,200
----------
3,861,075
----------
Business Services-0.34%
Brickman Group 11.75% 12/15/09 .......... 400,000 468,000
----------
468,000
----------
Cable, Media & Publishing-11.97%
Charter Communications Holdings
10.75% 10/1/09 ......................... 3,950,000 3,643,874
Principal Market
Amount Value
(U.S. $) (U.S. $)
CORPORATE BONDS (continued)
Cable, Media & Publishing (continued)
**Granite Broadcasting 144A
9.75% 12/1/10 .................... $ 650,000 $ 651,625
**Hollinger 144A 11.875% 3/1/11 ..... 475,000 518,344
Insight Midwest 10.50% 11/1/10 .... 1,675,000 1,829,938
**Insight Midwest 144A
10.50% 11/1/10 ................... 850,000 928,625
Lodgenet Entertainment
9.50% 6/15/13 .................... 1,300,000 1,430,000
Mediacom Broadband
11.00% 7/15/13 ................... 1,750,000 1,973,125
PanAmSat 8.50% 2/1/12 ............. 625,000 696,875
PEI Holdings 11.00% 3/15/10 ....... 400,000 466,000
Rogers Cablesystems
10.00% 3/15/05 ................... 850,000 915,875
**Sheridan Acquisition 144A
10.25% 8/15/11 ................... 725,000 773,031
Vertis 10.875% 6/15/09 ............ 1,010,000 1,078,175
XM Satellite Radio 12.00% 6/15/10 . 800,000 908,000
**Young Broadcasting 144A
8.75% 1/15/14 .................... 850,000 864,875
-----------
16,678,362
-----------
Chemicals-4.28%
Huntsman International
9.875% 3/1/09 .................... 625,000 687,500
**++Johnsondiversey Holdings
10.67% 5/15/13 ................... 1,000,000 770,000
**Kraton Polymers 144A
8.125% 1/15/14 ................... 475,000 496,375
Lyondell Chemical 9.625% 5/1/07 ... 750,000 798,750
**Nalco 144A 7.75% 11/15/11 ......... 875,000 940,625
**Resolution Performance Products
144A 8.00% 12/15/09 .............. 400,000 416,000
**Rhodia SA 144A 8.875% 6/1/11 ...... 1,100,000 1,017,500
*Solutia 6.72% 10/15/37 ............ 2,475,000 841,500
-----------
5,968,250
-----------
Computers & Technology-2.76%
Activant Solutions 10.50% 6/15/11 . 590,000 637,938
Amkor Technologies 7.75% 5/15/13 .. 125,000 134,688
Chippac International 12.75% 8/1/09 355,000 394,050
Northern Telecom Capital
7.875% 6/15/26 ................... 1,650,000 1,658,249
**Stratus Technologies 144A
10.375% 12/1/08 .................. 950,000 1,012,938
-----------
3,837,863
-----------
Consumer Products-1.89%
American Greetings 11.75% 7/15/08 . 620,000 719,200
**Hines Nurseries 144A 10.25% 10/1/11 700,000 766,500
Salton 10.75% 12/15/05 ............ 1,125,000 1,153,125
-----------
2,638,825
-----------
Consumer Services-1.03%
Alderwoods Group 12.25% 1/2/09 .... 1,125,000 1,271,250
**Corrections Corporation of America
144A 7.50% 5/1/11 ................ 150,000 158,250
-----------
1,429,500
-----------
Energy-4.65%
Citgo Petroleum 11.375% 2/1/11 .... 750,000 873,750
High Yield-2
Delaware VIP High Yield Series
Statement of Net Assets (continued)
Principal Market
Amount Value
(U.S. $) (U.S. $)
CORPORATE BONDS (continued)
Energy (continued)
Dynegy Holdings
8.75% 2/15/12 ....................... $ 500,000 $ 506,875
10.125% 7/15/13 ..................... 1,025,000 1,183,876
+++Hanover Compressor 11.365% 3/31/07 ... 1,025,000 758,500
Hanover Equipment Trust 2001
8.50% 9/1/08 ........................ 495,000 527,175
**Hilcorp Energy 144A 10.50% 9/1/10 .... 675,000 742,500
**Massey Energy 144A
6.625% 11/15/10 ..................... 685,000 705,550
Petroleum Geo-Services ASA
8.00% 11/5/06 ....................... 475,650 482,784
10.00% 11/5/10 ...................... 368,712 396,366
Sonat 7.625% 7/15/11 ................. 325,000 302,656
----------
6,480,032
----------
Environmental Services-1.41%
IESI 10.25% 6/15/12 .................. 1,550,000 1,730,188
**MSW Energy Holdings 144A
7.375% 9/1/10 ....................... 225,000 236,250
----------
1,966,438
----------
Food, Beverage & Tobacco-5.03%
*Avado Brands 9.75% 6/1/06 ............ 300,000 127,500
B&G Foods 9.625% 8/1/07 .............. 775,000 803,094
**Commonwealth Brands 144A
10.625% 9/1/08 ...................... 1,050,000 1,160,249
Denny's 12.75% 9/30/07 ............... 625,000 646,875
Di Giorgio 10.00% 6/15/07 ............ 950,000 897,750
**Land O Lakes 144A 9.00% 12/15/10 ..... 150,000 151,875
**Le-Natures 144A 9.00% 6/15/13 ........ 675,000 715,500
**National Beef Packing 144A
10.50% 8/1/11 ....................... 625,000 646,875
**O'Charleys 144A 9.00% 11/1/13 ........ 350,000 353,500
**Pinnacle Foods Holding 144A
8.25% 12/1/13 ....................... 975,000 1,014,000
**Seminis 144A 10.25% 10/1/13 ......... 450,000 486,000
----------
7,003,218
----------
Healthcare & Pharmaceuticals-2.36%
Alliance Imaging 10.375% 4/15/11 ..... 800,000 852,000
**Mariner Health 144A
8.25% 12/15/13 ...................... 1,225,000 1,243,375
Team Health 12.00% 3/15/09 ........... 1,100,000 1,193,500
----------
3,288,875
----------
Industrial Machinery-1.25%
Foster Wheeler 6.75% 11/15/05 ........ 725,000 540,125
**Interline Brands 144A
11.50% 5/15/11 ...................... 575,000 636,812
**Sensus Metering 144A
8.625% 12/15/13 ..................... 550,000 567,188
----------
1,744,125
----------
Leisure, Lodging & Entertainment-3.73%
Boyd Gaming 9.25% 8/1/09 ............. 775,000 869,938
**Gaylord Entertainment 144A
8.00% 11/15/13 ...................... 625,000 662,500
**Hard Rock Hotel 144A
8.875% 6/1/13 ....................... 765,000 818,550
Herbst Gaming 10.75% 9/1/08 .......... 750,000 847,500
**Imax 144A 9.625% 12/1/10 ............. 440,000 464,750
Principal Market
Amount Value
(U.S. $) (U.S. $)
CORPORATE BONDS (continued)
Leisure, Lodging & Entertainment (continued)
Mandalay Resort Group
9.375% 2/15/10 ................................... $ 625,000 $ 731,250
**Poster Financial Group 144A
8.75% 12/1/11 .................................... 760,000 807,500
----------
5,201,988
----------
Metals & Mining-0.97%
AK Steel 7.75% 6/15/12 ............................ 950,000 817,000
United States Steel 10.75% 8/1/08 ................. 450,000 528,750
----------
1,345,750
----------
Packaging & Containers-2.19%
AEP Industries 9.875% 11/15/07 .................... 725,000 732,250
**Great Lakes Dredge & Dock 144A
7.75% 12/15/13 ................................... 450,000 465,188
Portola Packaging 10.75% 10/1/05 .................. 415,000 418,113
Radnor Holdings 11.00% 3/15/10 .................... 800,000 733,999
**Tekni-Plex 144A 8.75% 11/15/13 .................... 675,000 707,063
----------
3,056,613
----------
Paper & Forest Products-3.40%
Consolidated Container
10.125% 7/15/09 .................................. 1,075,000 655,750
**Georgia-Pacific 144A 8.00% 1/15/24 ................ 2,600,000 2,665,000
Pacifica Papers 10.00% 3/15/09 .................... 400,000 426,000
Smurfit Capital Funding
7.50% 11/20/25 ................................... 1,005,000 983,644
----------
4,730,394
----------
Real Estate-0.57%
Tanger Properties 9.125% 2/15/08 .................. 725,000 793,875
----------
793,875
----------
Retail-3.15%
**++J Crew Intermediate 144A
16.00% 5/15/08 ................................... 1,213,103 970,482
J Crew Operating 10.375% 10/15/07 ................. 600,000 615,750
Jafra Cosmetics International
10.75% 5/15/11 ................................... 825,000 909,563
Office Depot 10.00% 7/15/08 ....................... 675,000 806,625
Petco Animal Supplies
10.75% 11/1/11 ................................... 500,000 587,500
Remington Arms 10.50% 2/1/11 ...................... 475,000 508,250
----------
4,398,170
----------
Telecommunications-7.70%
Alamosa Delaware 11.00% 7/31/10 .................. 390,000 425,100
**Alaska Communications Systems
Holdings 144A 9.875% 8/15/11 ..................... 850,000 896,750
*Allegiance Telecom 11.75% 2/15/08 ................. 550,000 189,750
**American Tower 144A 7.25% 12/1/11 ................. 675,000 690,188
Centennial Cellular Operating
10.125% 6/15/13 .................................. 975,000 1,074,937
Cincinnati Bell 144A 8.375% 1/15/14 ............... 400,000 432,000
Crown Castle International
10.75% 8/1/11 .................................... 350,000 395,500
**144A 7.50% 12/1/13 ................................ 575,000 580,750
**Dobson Communications 144A
8.875% 10/1/13 ................................... 725,000 737,688
**Level 3 Finance 144A
10.75% 10/15/11 .................................. 950,000 1,009,374
**MetroPCS 144A 10.75% 10/1/11 ...................... 925,000 924,999
High Yield-3
Delaware VIP High Yield Series
Statement of Net Assets (continued)
Principal Market
Amount Value
(U.S. $) (U.S. $)
CORPORATE BONDS (continued)
Telecommunications (continued)
Nextel Partners 12.50% 11/15/09.... $ 239,000 $ 278,435
Qwest Capital Funding
5.875% 8/3/04 .................... 500,000 503,750
**Qwest Services 144A
13.50% 12/15/10 .................. 675,000 823,500
Time Warner Telecommunications
9.75% 7/15/08 .................... 750,000 776,250
++UbiquiTel Operating 14.00% 4/15/10 850,000 599,250
*WorldCom 7.50% 5/15/11 ............ 1,175,000 396,563
-----------
10,734,784
-----------
Textiles, Apparel & Furniture-0.35%
**Warnaco 144A 8.875% 6/15/13 ...... 475,000 491,625
-----------
491,625
-----------
Transportation & Shipping-3.79%
Hornbeck Offshore Services
10.625% 8/1/08 ................... 425,000 471,750
Kansas City Southern Railway
9.50% 10/1/08 .................... 905,000 1,009,075
**OMI 144A 7.625% 12/1/13 ........... 800,000 811,000
Overseas Shipholding Group
8.25% 3/15/13 .................... 800,000 861,000
**Seabulk International 144A
9.50% 8/15/13 .................... 850,000 888,250
Stena AB 9.625% 12/1/12 ........... 1,100,000 1,245,750
-----------
5,286,825
-----------
Utilities-12.27%
**Allegheny Energy Supply Statutory
Trust 2001 144A
Series A 10.25% 11/15/07 .......... 835,000 872,575
Series B 13.00% 11/15/07 .......... 175,000 174,125
Aquila 9.95% 2/1/11 ............... 675,000 723,938
Avista 9.75% 6/1/08 ............... 725,000 866,375
Calpine
8.25% 8/15/05 .................... 350,000 340,375
10.50% 5/15/06 ................... 1,200,000 1,157,999
Cogentrix Energy 8.75% 10/15/08 .. 950,000 961,875
Edison Mission Energy
7.73% 6/15/09 .................... 400,000 383,000
9.875% 4/15/11 ................... 420,000 438,900
El Paso Natural Gas
7.625% 8/1/10 .................... 775,000 800,188
7.875% 6/15/12 ................... 700,000 665,000
Elwood Energy 8.159% 7/5/26 ....... 378,168 392,349
**Gemstone Investor 144A
7.71% 10/31/04 ................... 375,000 380,625
Homer City Funding 8.137% 10/1/19 . 325,000 351,000
Illinois Power 7.50% 6/15/09 ...... 1,150,000 1,270,749
Midland Funding II 11.75% 7/23/05 . 256,604 278,415
Midwest Generation 8.30% 7/2/09 .. 1,075,000 1,120,727
*Mirant Americas Generation
7.625% 5/1/06 .................... 850,000 722,500
**NRG Energy 144A 8.00% 12/15/13 .... 950,000 1,003,438
Orion Power Holdings
12.00% 5/1/10 .................... 575,000 701,500
Principal Market
Amount Value
(U.S. $) (U.S. $)
CORPORATE BONDS (continued)
Utilities (continued)
PSEG Energy Holdings
7.75% 4/16/07 .................. $ 500,000 $ 533,125
**Reliant Resource 144A
9.50% 7/15/13 .................. 550,000 591,250
Southern Natural Gas
8.875% 3/15/10 ................. 400,000 452,000
Tennessee Gas Pipeline
8.375% 6/15/32 ................. 600,000 639,750
*,**USGen New England 144A
7.459% 1/2/15 .................. 475,000 213,460
Williams Companies
8.125% 3/15/12 ................. 950,000 1,059,250
------------
17,094,488
------------
Total Corporate Bonds
(cost $109,709,744) ............. 114,924,503
------------
FOREIGN BONDS-6.80%
Argentina-0.42%
#Republic of Argentina
1.162% 8/3/12 .................. 925,000 580,719
------------
580,719
------------
Canada-0.78%
Ainsworth Lumber 12.50% 7/15/07 925,000 1,091,499
------------
1,091,499
------------
Cayman Islands-0.49%
Bluewater Finance 10.25% 2/15/12 650,000 679,250
------------
679,250
------------
Colombia-0.60%
Republic of Colombia
10.375% 1/28/33 ................ 775,000 835,063
------------
835,063
------------
Dominican Republic-0.59%
Dominican Republic
#2.063% 8/30/24 .................. 850,000 612,000
**144A 9.04% 1/23/13 .............. 275,000 210,375
------------
822,375
------------
Liberia-0.41%
Royal Caribbean Cruises
7.50% 10/15/27 ................. 575,000 566,375
------------
566,375
------------
Norway-0.44%
Ocean Rig Norway AS 10.25% 6/1/08 650,000 614,250
------------
614,250
------------
Peru-0.56%
Republic of Peru 8.75% 11/21/33 775,000 778,875
------------
778,875
------------
Philippines-0.94%
Republic of Philippines
10.625% 3/16/25 ................ 1,175,000 1,313,062
------------
1,313,062
------------
Russia-0.93%
Siberian Oil
10.75% 1/15/09 ................. 675,000 762,898
11.50% 2/13/07 ................. 475,000 536,031
------------
1,298,929
------------
High Yield-4
Delaware VIP High Yield Series
Statement of Net Assets (continued)
Principal Market
Amount Value
(U.S. $) (U.S. $)
FOREIGN BONDS (continued)
Venezuela-0.64%
Republic of Venezuela 6.75% 3/31/20 .. $ 950,000 $ 885,035
----------
885,035
----------
Total Foreign Bonds
(cost $9,978,088) ................... 9,465,432
----------
MUNICIPAL BONDS-0.42%
Airport Revenue Bonds-0.42%
New Jersey Economic Development
Authority Continental Airlines Project
6.25% 9/15/29 ....................... 700,000 584,143
----------
Total Municipal Bonds
(cost $593,686) ..................... 584,143
----------
Number of
Shares
COMMON STOCK-0.28%
Energy-0.02%
+Petroleum Geo-Services ADR ........... 829 32,389
----------
32,389
----------
Retail-0.18%
+Kmart Holdings ....................... 10,542 252,481
----------
252,481
----------
Telecommunications-0.08%
+NII Holdings Class B ................. 1,484 110,751
----------
110,751
----------
Total Common Stock
(cost $409,584) ..................... 395,621
----------
Number of Market
Shares Value
(U.S. $)
CONVERTIBLE PREFERRED STOCK-0.15%
Alamosa Delaware 7.50% ............... 600 $ 207,750
----------
Total Convertible Preferred Stock
(cost $194,700) ..................... 207,750
----------
PREFERRED STOCKS-1.14%
Cable, Media & Publishing-1.04%
CSC Holdings PIK 11.75% .............. 14,000 1,459,509
----------
1,459,509
----------
Utilities-0.10%
TNP Enterprises PIK 14.50% ........... 125 135,938
----------
135,938
----------
Total Preferred Stocks
(cost $1,510,845) ................... 1,595,447
----------
Warrants-0.35%
**+American Tower 144A .................. 275 34,513
**+Horizon PCS 144A ..................... 1,050 11
**+Solutia 144A ......................... 850 9
+XM Satellite Radio ................... 225 454,499
----------
Total Warrants
(cost $234,010) ..................... 489,032
----------
High Yield-5
Delaware VIP High Yield Series
Statement of Net Assets (continued)
Principal Market
Amount Value
(U.S. $) (U.S. $)
Repurchase Agreements-5.93%
With BNP Paribas 0.85% 1/2/04
(dated 12/31/03, collateralized by
$191,000 U.S. Treasury Bills due
3/25/04, market value $190,794,
$708,000 U.S. Treasury Notes
3.625% due 3/31/04, market
value $718,805, $2,176,000 U.S.
Treasury Notes 6.00% due
8/15/04, market value $2,292,206,
and $1,123,000 U.S. Treasury
Notes 1.625% due 1/31/05,
market value $1,135,585)............... $4,251,000 $4,251,000
Principal Market
Amount Value
(U.S. $) (U.S. $)
Repurchase Agreements (continued)
With UBS Warburg 0.85% 1/2/04
(dated 12/31/03, collateralized by
$932,000 U.S. Treasury Notes
1.625% due 3/31/05, market
value $939,483, $32,000 U.S.
Treasury Notes 5.50% due 2/15/08,
market value $36,011, and $2,796,000
U.S. Treasury Notes 5.625% due
5/15/08, market value $3,118,947)...... $4,008,000 $ 4,008,000
Total Repurchase Agreements
(cost $8,259,000)...................... 8,259,000
-----------
TOTAL MARKET VALUE OF SECURITIES-98.57% (cost $132,300,017)........................................................ 137,365,143
RECEIVABLES AND OTHER ASSETS NET OF LIABILITIES-1.43%.............................................................. 1,991,086
------------
NET ASSETS APPLICABLE TO 24,503,848 SHARES OUTSTANDING-100.00%..................................................... $139,356,229
============
NET ASSET VALUE-DELAWARE VIP HIGH YIELD SERIES STANDARD CLASS ($71,061,469 / 12,485,518 shares).................... $5.69
=====
NET ASSET VALUE-DELAWARE VIP HIGH YIELD SERIES SERVICE CLASS ($68,294,760 / 12,018,330 shares)..................... $5.68
=====
COMPONENTS OF NET ASSETS AT DECEMBER 31, 2003:
Shares of beneficial interest (unlimited authorization-no par)..................................................... $177,589,686
Undistributed net investment income................................................................................ 8,874,827
Accumulated net realized loss on investments....................................................................... (52,173,410)
Net unrealized appreciation of investments......................................................................... 5,065,126
------------
Total net assets................................................................................................... $139,356,229
============
- ---------------
+Non-income producing security for the year ended December 31, 2003.
++Step coupon bond.
+++Zero coupon bond. The interest rate shown is the yield at the time of
purchase.
*Non-income producing security. Security is currently in default.
**Securities exempt from registration under Rule 144A of the Securities Act of
1933. See Note #7 in "Notes to Financial Statements."
#Variable Rate Notes-the interest rate shown is the rate as of December 31,
2003.
ADR - American Depositary Receipts
NIM - Net Interest Margin
PIK - Pay-in-kind
See accompanying notes
High Yield-6
Delaware VIP Trust-
Delaware VIP High Yield Series
Statement of Operations
Year Ended December 31, 2003
INVESTMENT INCOME:
Interest ......................................... $ 9,926,272
Dividends ........................................ 119,919
------------
10,046,191
------------
EXPENSES:
Management fees .................................. 646,550
Distribution expenses-Service Class .............. 104,836
Accounting and administration expenses ........... 41,686
Custodian fees ................................... 26,088
Professional fees ................................ 12,797
Dividend disbursing and transfer agent
fees and expenses ................................ 9,889
Reports and statements to shareholders ........... 9,393
Trustees' fees ................................... 3,270
Registration fees ................................ 410
Other ............................................ 16,692
------------
871,611
Less waiver of distribution expenses-Service Class (15,638)
Less expenses paid indirectly .................... (2,387)
------------
Total expenses ................................... 853,586
------------
NET INVESTMENT INCOME ............................ 9,192,605
------------
NET REALIZED AND UNREALIZED
GAIN ON INVESTMENTS:
Net realized gain on investments ................. 8,449,734
Net change in unrealized appreciation/
depreciation of investments ..................... 6,285,528
------------
NET REALIZED AND UNREALIZED
GAIN ON INVESTMENTS ............................. 14,735,262
------------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS ....................... $ 23,927,867
============
See accompanying notes
Delaware VIP Trust-
Delaware VIP High Yield Series
Statements of Changes in Net Assets
Year Ended
12/31/03 12/31/02
------------- -------------
INCREASE (DECREASE) IN NET ASSETS
FROM OPERATIONS:
Net investment income ................. $ 9,192,605 $ 6,205,287
Net realized gain (loss) on investments 8,449,734 (5,199,110)
Net change in unrealized appreciation/
depreciation of investments .......... 6,285,528 60,975
------------- -------------
Net increase in net assets resulting
from operations ...................... 23,927,867 1,067,152
------------- -------------
DIVIDENDS AND DISTRIBUTIONS
TO SHAREHOLDERS FROM:
Net investment income:
Standard Class ....................... (4,020,009) (5,152,255)
Service Class ........................ (1,817,569) (755,343)
------------- -------------
(5,837,578) (5,907,598)
------------- -------------
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares sold:
Standard Class ....................... 47,908,366 22,263,252
Service Class ........................ 93,817,400 13,549,301
Net asset value of shares issued upon
reinvestment of dividends and
distributions:
Standard Class ....................... 4,020,009 5,152,254
Service Class ........................ 1,817,569 755,343
------------- -------------
147,563,344 41,720,150
------------- -------------
Cost of shares repurchased:
Standard Class ....................... (39,773,047) (26,350,080)
Service Class ........................ (48,142,677) (6,085,155)
------------- -------------
(87,915,724) (32,435,235)
------------- -------------
Increase in net assets derived from
capital share transactions ........... 59,647,620 9,284,915
------------- -------------
NET INCREASE IN NET ASSETS ............ 77,737,909 4,444,469
NET ASSETS:
Beginning of year ..................... 61,618,320 57,173,851
------------- -------------
End of year ........................... $ 139,356,229 $ 61,618,320
============= =============
High Yield-7
Delaware VIP Trust-Delaware VIP High Yield Series
Financial Highlights
Selected data for each share of the Series outstanding throughout each period
were as follows:
Delaware VIP High Yield Series Standard Class
Year Ended
12/31/03 12/31/02 12/31/01(1) 12/31/00 12/31/99
---------------------------------------------------------
Net asset value, beginning of period ................... $4.790 $5.220 $6.000 $7.420 $8.460
Income (loss) from investment operations:
Net investment income(2)................................ 0.489 0.517 0.586 0.722 0.781
Net realized and unrealized gain (loss) on investments . 0.804 (0.413) (0.821) (1.896) (0.987)
------ ------ ------ ------ -------
Total from investment operations ....................... 1.293 0.104 (0.235) (1.174) (0.206)
------ ------ ------ ------ -------
Less dividends and distributions from:
Net investment income .................................. (0.393) (0.534) (0.545) (0.246) (0.784)
Net realized gain on investments ....................... -- -- -- -- (0.050)
------ ------ ------ ------ -------
Total dividends and distributions ...................... (0.393) (0.534) (0.545) (0.246) (0.834)
------ ------ ------ ------ -------
Net asset value, end of period ......................... $5.690 $4.790 $5.220 $6.000 $7.420
====== ====== ====== ====== ======
Total return(3)......................................... 28.74% 1.84% (4.10%) (16.26%) (2.64%)
Ratios and supplemental data:
Net assets, end of period (000 omitted) ................ $71,061 $48,089 $51,459 $59,441 $102,633
Ratio of expenses to average net assets ................ 0.77% 0.78% 0.79% 0.77% 0.72%
Ratio of net investment income to average net assets ... 9.33% 10.96% 10.82% 10.80% 9.75%
Portfolio turnover ..................................... 716% 587% 557% 226% 110%
- -------------
(1) As required, effective January 1, 2001, the Series adopted the provisions
of the AICPA Audit and Accounting Guide for Investment Companies that
require amortization of all premiums and discounts on debt securities. The
effect of this change for the year ended December 31, 2001 was an increase
in net investment income per share of $0.007, a decrease in net realized
and unrealized gain (loss) per share of $0.007, and an increase in the
ratio of net investment income to average net assets of 0.13%. Per share
data and ratios for periods prior to January 1, 2001 have not been restated
to reflect this change in accounting.
(2) The average shares outstanding method has been applied for per share
information for the years ended December 31, 2003, 2002, 2001 and 2000.
(3) Total investment return is based on the change in net asset value of a
share during the period and assumes reinvestment of dividends and
distributions at net asset value.
See accompanying notes
High Yield-8
Delaware VIP High Yield Series
Financial Highlights (continued)
Selected data for each share of the Series outstanding throughout each period
were as follows:
Delaware VIP High Yield Series Service Class
5/01/00(2)
Year Ended to
12/31/03 12/31/02 12/31/01(1) 12/31/00
--------------------------------------------------------
Net asset value, beginning of period ..................... $4.780 $5.220 $6.000 $6.690
Income (loss) from investment operations:
Net investment income(3) ................................. 0.477 0.510 0.578 0.474
Net realized and unrealized gain (loss) on investments ... 0.809 (0.424) (0.818) (1.164)
------ ------ ------ ------
Total from investment operations ......................... 1.286 0.086 (0.240) (0.690)
------ ------ ------ ------
Less dividends and distributions from:
Net investment income .................................... (0.386) (0.526) (0.540) --
------ ------ ------ ------
Total dividends and distributions ........................ (0.386) (0.526) (0.540) --
------ ------ ------ ------
Net asset value, end of period ........................... $5.680 $4.780 $5.220 $6.000
====== ====== ====== ======
Total return(4) .......................................... 28.61% 1.65% (4.38%) (10.31%)
Ratios and supplemental data:
Net assets, end of period (000 omitted) .................. $68,295 $13,529 $5,715 $850
Ratio of expenses to average net assets .................. 0.99% 0.93% 0.94% 0.93%
Ratio of expenses to average net assets prior to expense
limitation and expenses paid indirectly ................. 1.02% 0.93% 0.94% 0.93%
Ratio of net investment income to average net assets ..... 9.11% 10.81% 10.67% 11.00%
Ratio of net investment income to average net assets prior
to expense limitation and expenses paid indirectly ...... 9.08% 10.81% 10.67% 11.00%
Portfolio turnover ....................................... 716% 587% 557% 226%
(1) As required, effective January 1, 2001, the Series adopted the provisions
of the AICPA Audit and Accounting Guide for Investment Companies that
require amortization of all premiums and discounts on debt securities. The
effect of this change for the year ended December 31, 2001 was an increase
in net investment income per share of $0.007, a decrease in net realized
and unrealized gain (loss) per share of $0.007, and an increase in the
ratio of net investment income to average net assets of 0.13%. Per share
data and ratios for periods prior to January 1, 2001 have not been restated
to reflect this change in accounting.
(2) Date of commencement of operations; ratios and portfolio turnover have been
annualized and total return has not been annualized.
(3) The average shares outstanding method has been applied for per share
information.
(4) Total investment return is based on the change in net asset value of a
share during the period and assumes reinvestment of dividends and
distributions at net asset value. Total investment return reflects a waiver
and payment of fees by the distributor, as applicable. Performance would
have been lower had the expense limitation not been in effect.
See accompanying notes
High Yield-9
Delaware VIP Trust-Delaware VIP High Yield Series
Notes to Financial Statements
December 31, 2003
Delaware VIP Trust (the "Trust") is organized as a Delaware statutory trust and
offers 15 series: Delaware VIP Balanced Series, Delaware VIP Capital Reserves
Series, Delaware VIP Cash Reserve Series, Delaware VIP Diversified Income
Series, Delaware VIP Emerging Markets Series, Delaware VIP Global Bond Series,
Delaware VIP Growth Opportunities Series, Delaware VIP High Yield Series,
Delaware VIP International Value Equity Series, Delaware VIP Large Cap Value
Series, Delaware VIP REIT Series, Delaware VIP Select Growth Series, Delaware
VIP Small Cap Value Series, Delaware VIP Trend Series and Delaware VIP U.S.
Growth Series. These financial statements and the related notes pertain to
Delaware VIP High Yield Series (the "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 accounting principles
generally accepted in the United States and are consistently followed by the
Series.
Security Valuation--All equity securities 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 Stock Market, Inc.
(NASDAQ) are valued in accordance with the NASDAQ Official Closing Price, which
may not be the last sales price. If on a particular day an equity security does
not trade, then the mean between the bid and asked prices will normally be used.
Long-term debt securities are valued by an independent pricing service and such
prices are believed to reflect the fair value of such securities. Short-term
debt securities having less than 60 days to maturity are valued at amortized
cost, which approximates market value. Other securities and assets for which
market quotations are not readily available are valued at fair value as
determined in good faith under the direction of the Series' Board of Trustees.
In determining whether market quotations are readily available or fair valuation
will be used, various factors will be taken into consideration, such as market
closures, or with respect to foreign securities, aftermarket trading or
significant events after local market trading (e.g., government actions or
pronouncements, trading volume or volatility on markets, exchanges among
dealers, or news events).
Federal Income Taxes--The Series intends to continue to qualify for federal
income tax purposes as a regulated investment company and make the requisite
distributions to shareholders. Accordingly, no provision for federal income
taxes has been made in the financial statements.
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. 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 102% collateralized. However, in the
event of default or bankruptcy by the counterparty to the agreement, realization
of the collateral may be subject to legal proceedings.
Use of Estimates--The preparation of financial statements in conformity with
accounting principles generally accepted in the United States 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 common to all funds within the Delaware Investments Family of
Funds are allocated amongst the funds on the basis of average net assets.
Security transactions are recorded on the date the securities are purchased or
sold (trade date). 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. Premiums and discounts on all debt securities 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.
Certain expenses of the Series are paid through commission arrangements with
brokers. The amount of these expenses was approximately $2,387 for the year
ended December 31, 2003. In addition, 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 year ended December
31, 2003. The expenses paid under the above arrangements are included in their
respective expense captions on the Statement of Operations with the
corresponding expense offset shown as "expenses paid indirectly."
2. Investment Management, Administration Agreements and Other Transactions with
Affiliates
In accordance with the terms of its investment management agreement, the Series
pays Delaware Management Company (DMC), a series of Delaware Management Business
Trust and the investment manager, an annual fee which is calculated daily at the
rate of 0.65% on the first $500 million of average daily net assets of the
Series, 0.60% on the next $500 million, 0.55% on the next $1.5 billion, and
0.50% on average daily net assets in excess of $2.5 billion.
High Yield-10
Delaware VIP High Yield Series
Notes to Financial Statements (continued)
2. Investment Management, Administration Agreements and Other Transactions
with Affiliates (continued)
DMC has contractually agreed to waive that portion, if any, of its management
fee and reimburse the Series to the extent necessary to ensure that annual
operating expenses, exclusive of taxes, interest, brokerage commissions,
distribution fees, certain insurance costs and extraordinary expenses, do not
exceed 0.80% of average daily net assets of the Series through April 30, 2004.
No reimbursement was due for the year ended December 31, 2003.
Delaware Service Company, Inc. (DSC), an affiliate of DMC, provides accounting,
administration, dividend disbursing and transfer agent services. The Series pays
DSC a monthly fee based on average net assets subject to certain minimums for
accounting and administration services. The Series pays DSC a monthly fee based
on average net assets for dividend disbursing and transfer agent services.
Pursuant to a distribution agreement and distribution plan, the Series pays
Delaware Distributors, L.P. (DDLP), the distributor and an affiliate of DMC, an
annual 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, 2004 in order to prevent distribution and service fees of the Service
Class shares from exceeding 0.25% of average daily net assets. Prior to May 1,
2003, the Board of Trustees had set the fee at an annual rate of 0.15% of the
Service Class shares' average daily net assets. No distribution expenses are
paid by Standard Class shares.
At December 31, 2003, the Series had liabilities payable to affiliates as
follows:
Dividend disbursing, Other
Investment transfer agent fees, expenses
management accounting fees payable
fee payable to and other expenses to DMC
DMC payable to DSC and affiliates*
------------- ----------------- ---------------
$38,356 $5,371 $23,830
*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, professional fees, custodian fees and
trustees' 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 year ended December 31, 2003, the Series made purchases and sales of
investment securities other than U.S. government securities and short-term
investments as follows:
Purchases.................... $713,272,004
Sales........................ $658,947,675
At December 31, 2003, the cost of investments and unrealized appreciation
(depreciation) for federal income tax purposes for the Series were as follows:
Aggregate Aggregate
Cost of unrealized unrealized Net unrealized
investments appreciation depreciation appreciation
----------- ------------ ------------ ------------
$132,052,344 $7,886,235 $(2,573,436) $5,312,799
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 accounting principles
generally accepted in the United States. The tax character of dividends and
distributions paid during the years ended December 31, 2003 and 2002 was as
follows:
Year Year
Ended Ended
12/31/03 12/31/02
-------- --------
Ordinary income............................ $5,837,578 $5,907,598
As of December 31, 2003, the components of net assets on a tax basis were as
follows:
Shares of beneficial interest.............. $177,589,686
Undistributed ordinary income ............. 8,874,827
Capital loss carryforwards.... ............ (52,421,083)
Unrealized appreciation of investments .... 5,312,799
------------
Net assets.................... ............ $139,356,229
============
High Yield-11
Delaware VIP High Yield Series
Notes to Financial Statements (continued)
4. Dividend and Distribution Information (continued)
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 federal income tax purposes, capital loss carryforwards may be carried
forward and applied against future capital gains. Such capital loss
carryforwards expire as follows: $5,323,536 expires in 2007, $24,445,622 expires
in 2008, $18,082,790 expires in 2009 and $4,569,135 expires in 2010.
5. Capital Shares
Transactions in capital shares were as follows:
Year Year
Ended Ended
12/31/03 12/31/02
-------- --------
Shares sold:
Standard Class............... 9,295,186 4,787,904
Service Class................ 18,039,638 2,884,504
Shares issued upon reinvestment of
dividends and distributions:
Standard Class............... 857,145 1,080,138
Service Class................ 387,541 158,022
----------- -----------
28,579,510 8,910,568
----------- -----------
Shares repurchased:
Standard Class............... (7,716,701) (5,667,880)
Service Class................ (9,238,073) (1,307,993)
----------- -----------
(16,954,774) (6,975,873)
----------- -----------
Net increase.................. 11,624,736 1,934,695
=========== ===========
6. Line of Credit
The Series, along with certain other funds in the Delaware Investments Family of
Funds (the "Participants"), participates in a $177,300,000 revolving line of
credit facility to be used for temporary or emergency purposes as an additional
source of liquidity to fund redemptions of investor shares. The Participants are
charged an annual commitment fee, which is allocated across the Participants on
the basis of each fund's allocation of the entire facility. The Participants may
borrow up to a maximum of one third of their net assets under the agreement. The
Series had no amounts outstanding as of December 31, 2003, or at any time during
the year.
7. 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 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.
8. Tax Information (Unaudited)
For the fiscal year ended December 31, 2003, the Series designates distributions
paid during the year as follows:
(A) (B)
Long-Term Ordinary
Capital Gains Income Total (C)
Distributions Distributions Distributions Qualifying
(Tax Basis) (Tax Basis) (Tax Basis) Dividends(1)
----------- ----------- ----------- ------------
-- 100% 100% --
(A) and (B) are based on a percentage of the Series' total distributions.
(C) is based on a percentage of ordinary income of the Series.
(1) Qualifying dividends represent dividends which qualify for the corporate
dividends received deduction.
High Yield-12
Delaware VIP Trust-Delaware VIP High Yield Series
Report of Independent Auditors
To the Shareholders and Board of Trustees
Delaware VIP Trust-Delaware VIP High Yield Series
We have audited the accompanying statement of net assets of Delaware VIP High
Yield Series (the "Series") as of December 31, 2003, and the related statement
of operations for the year then ended, the statements of changes in net assets
for each of the two years in the period then ended, and the financial highlights
for each of the periods indicated therein. These financial statements and
financial highlights are the responsibility of the Series' management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements and financial highlights. Our procedures included
confirmation of securities owned as of December 31, 2003, by correspondence with
the custodian and brokers, or by other appropriate auditing procedures where
replies from brokers were not received. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Delaware VIP High Yield Series at December 31, 2003, the results of its
operations for the year then ended, the changes in its net assets for each of
the two years in the period then ended, and its financial highlights for each of
the periods indicated therein, in conformity with accounting principles
generally accepted in the United States.
/s/ Ernst & Young LLP
Philadelphia, Pennsylvania
February 6, 2004
- --------------------------------------------------------------------------------
A description of the policies and procedures that the Series uses to determine
how to vote proxies (if any) relating to portfolio securities is available
without charge (i) upon request, by calling 800 523-1918; (ii) on the Series'
website at http://www.delawareinvestments.com; and (iii) on the Commission's
website at http://www.sec.gov.; and beginning no later than August 31, 2004,
information (if any) regarding how the Series voted proxies relating to
portfolio securities during the most recent 12-month period ended June 30 is
available without charge (i) through the Series' website at
http://www.delawareinvestments.com; and (ii) on the Commission's website at
http://www.sec.gov.
- --------------------------------------------------------------------------------
High Yield-13
Delaware Investments Family of Funds
BOARD OF TRUSTEES/DIRECTORS AND OFFICERS ADDENDUM
A mutual fund is governed by a Board of Trustees/Directors which has oversight
responsibility for the management of a fund's business affairs.
Trustees/Directors establish procedures and oversee and review the performance
of the investment manager, the distributor and others that perform services for
the fund. The independent fund trustees, in particular, are advocates for
shareholder interests. The following is a list of the Trustees/Directors and
Officers with certain background and related information.
Number of Other
Principal Portfolios in Fund Directorships
Name, Position(s) Occupation(s) Complex Overseen Held by
Address Held with Length of Time During by Trustee/Director Trustee/Director
and Birthdate Fund(s) Served Past 5 Years or Officer or Officer
- -----------------------------------------------------------------------------------------------------------------------------------
INTERESTED TRUSTEES
Jude T. Driscoll(2) Chairman and 4 Years - Since August 2000, 80 None
2005 Market Street Trustee(4) Executive Officer Mr. Driscoll has served in
Philadelphia, PA various executive capacities
19103 Trustee since at different times at
May 15, 2003 Delaware Investments(1)
March 10, 1963
Senior Vice President and
Director of Fixed-Income Process -
Conseco Capital Management
(June 1998 - August 2000)
Managing Director -
NationsBanc Capital Markets
(February 1996 - June 1998)
- -----------------------------------------------------------------------------------------------------------------------------------
INDEPENDENT TRUSTEES
Walter P. Babich Trustee 16 Years Board Chairman - 98 None
2005 Market Street Citadel Construction Corporation
Philadelphia, PA (1989 - Present)
19103
October 1, 1927
- -----------------------------------------------------------------------------------------------------------------------------------
John H. Durham Trustee 25 Years(3) Private Investor 98 Trustee - Abington
2005 Market Street Memorial Hospital
Philadelphia, PA
19103
President/Director-
22 WR Corporation
August 7, 1937
- -----------------------------------------------------------------------------------------------------------------------------------
John A. Fry Trustee(4) 3 Years President - 80 None
2005 Market Street Franklin & Marshall College
Philadelphia, PA (June 2002 - Present)
19103
Executive Vice President -
University of Pennsylvania
May 28, 1960 (April 1995 - June 2002)
- -----------------------------------------------------------------------------------------------------------------------------------
Anthony D. Knerr Trustee 11 Years Founder/Managing Director - 98 None
2005 Market Street Anthony Knerr & Associates
Philadelphia, PA (Strategic Consulting)
19103 (1990 - Present)
December 7, 1938
- -----------------------------------------------------------------------------------------------------------------------------------
High Yield-14
Number of Other
Principal Portfolios in Fund Directorships
Name, Position(s) Occupation(s) Complex Overseen Held by
Address Held with Length of Time During by Trustee/Director Trustee/Director
and Birthdate Fund(s) Served Past 5 Years or Officer or Officer
- -----------------------------------------------------------------------------------------------------------------------------------
INDEPENDENT TRUSTEES (continued)
Ann R. Leven Trustee 15 Years Treasurer/Chief Fiscal Officer - 98 Director - Andy
2005 Market Street National Gallery of Art Warhol Foundation
Philadelphia, PA (1994 - 1999)
19103 Director -
Systemax Inc.
November 1, 1940
- -----------------------------------------------------------------------------------------------------------------------------------
Thomas F. Madison Trustee 10 Years President/Chief 98 Director -
2005 Market Street Executive Officer - Banner Health
Philadelphia, PA MLM Partners, Inc.
19103 (Small Business Investing Director -
and Consulting) CenterPoint Energy
(January 1993 - Present)
February 25, 1936 Director -
Digital River Inc.
Director - Rimage
Corporation
- -----------------------------------------------------------------------------------------------------------------------------------
Janet L. Yeomans Trustee 5 Years Vice President/Mergers & 98 None
2005 Market Street Acquisitions - 3M Corporation
Philadelphia, PA 19103 (January 2003 - Present)
Ms. Yeomans has held
July 31, 1948 various management positions
at 3M Corporation since 1983.
- -----------------------------------------------------------------------------------------------------------------------------------
OFFICERS
Joseph H. Hastings Executive Executive Mr. Hastings has served in 98 None
2005 Market Street Vice President Vice President various executive capacities
Philadelphia, PA 19103 and and at different times at
Chief Financial Chief Financial Delaware Investments.
Officer Officer since
August 21, 2003
December 19, 1949
- -----------------------------------------------------------------------------------------------------------------------------------
Richelle S. Maestro Senior Vice President, Chief Legal Officer Ms. Maestro has served in 98 None
2005 Market Street Chief Legal Officer since various executive capacities
Philadelphia, PA and Secretary March 17, 2003 at different times at
19103 Delaware Investments.
November 26, 1957
- -----------------------------------------------------------------------------------------------------------------------------------
Michael P. Bishof Senior Vice President 8 Years Mr. Bishof has served in 98 None
2005 Market Street and Treasurer various executive capacities
Philadelphia, PA at different times at
19103 Delaware Investments.
August 18, 1962
- -----------------------------------------------------------------------------------------------------------------------------------
(1) Delaware Investments is the marketing name for Delaware Management
Holdings, Inc. and its subsidiaries, including the Registrant's investment
advisor, principal underwriter and its transfer agent.
(2) Mr. Driscoll is considered to be an "Interested Trustee" because he is an
executive officer of the Fund's manager and distributor.
(3) Mr. Durham served as a Director Emeritus from 1995 through 1998.
(4) Mr. Driscoll and Mr. Fry are not Trustees of the portfolios of Voyageur
Insured Funds, Voyageur Intermediate Tax Free Funds, Voyageur Investment
Trust, Voyageur Mutual Funds, Voyageur Mutual Funds II, Voyageur Mutual
Funds III and Voyageur Tax Free Funds.
The Statement of Additional Information for the Fund(s) includes additional
information about the Trustees/Directors and Officers and is available, without
charge, upon request by calling 800 523-1918.
(8533)
High Yield-15
FOR INTERNATIONAL DIVERSIFICATION
Delaware VIP Trust-Delaware VIP International Value Equity Series
Portfolio Snapshot
For the fiscal year ended December 31, 2003, Delaware VIP International Value
Equity Series returned +43.44% (Standard Class shares with distributions
reinvested). The Series benchmark, the Morgan Stanley Capital International
Europe, Australasia, Far East (MSCI EAFE) Index, also rose sharply, gaining
+39.17% for the same period.
A strengthening global economy can generally be credited for the strong
performance on the year, and outperformance of non-U.S. stocks was partially
attributable to a decline in the value of the U.S. dollar. Influenced by the
growing U.S. current account deficit, the dollar declined significantly against
key currencies such as the yen and the euro during the year. The current
account- a national ledger of foreign trade that includes all exchange of
merchandise goods and services, plus investment income and gifts - continued to
widen in the U.S. and reached troubling proportions. The dollar's decline not
only allowed the euro to reach all-time highs for its short history, but often
provided an exchange-rate boost to U.S. investors who held international fund
shares.
The main highlights of our strategy throughout much of the year included, as
always, a strong value emphasis at the individual stock level. From a top-down
viewpoint, we maintained an underweighted position relative to the MSCI EAFE
Index in Japan, where we remain largely skeptical of a recovery and currently
believe stocks to be overvalued, and an overweighted position in the
Australasian markets, where domestic economies were relatively robust and stock
markets undervalued in our opinion.
Investment Outlook
The euro zone is enjoying moderately strong money growth. This bodes well for
a reasonable recovery in the euro zone in 2004. Further, Germany and France have
both started to tackle the issue of inefficient labor markets, although the
measures they have brought in will only have full effect over many years. In
light of this, and the adverse effects on euro zone exports due to a strong
euro, we remain cautious about the medium-term prospects for continental Europe.
Performance of a $10,000 Investment:
December 31, 1993 through
December 31, 2003
Delaware VIP
MSCI International Value
EAFE Equity Series
Index (Standard Class Shares)
------- -----------------------
Dec.31,'92 $ 10,000 $ 10,000
Dec.31,'93 $ 10,806 $ 10,258
Dec.31,'94 $ 12,054 $ 11,691
Dec.31,'95 $ 12,821 $ 14,032
Dec.31,'96 $ 13,085 $ 14,959
Dec.31,'97 $ 15,746 $ 16,504
Dec.31,'98 $ 20,044 $ 19,103
Dec.31,'99 $ 17,246 $ 19,205
Dec.31,'00 $ 13,589 $ 16,741
Dec.31,'01 $ 11,461 $ 15,000
Dec.31,'02 $ 15,950 $ 21,515
Delaware VIP International
Value Equity Series
Average Annual Total Returns
----------------------------
Standard Class Service Class
Shares* Shares**
Lifetime +8.55% +4.90%
10 Years +7.96% --
Five Years +5.45% --
One Year +43.44% +43.11%
For the periods ended December 31, 2003
*Commenced operations on October 29, 1992.
**Commenced operations on May 1, 2000.
Past performance is not a guarantee of future results. Returns and share values
will fluctuate so that shares, when redeemed, may be worth more or less than
their original cost.
The chart shows a $10,000 investment in Delaware VIP International Value Equity
Series Standard Class shares and the MSCI EAFE Index for the 10-year period from
December 31, 1993 through December 31, 2003. The chart assumes all distributions
were reinvested. Returns plotted on the chart were as of the last day of each
month shown. The MSCI EAFE Index tracks the performance of stocks in Europe,
Australasia, and Far East markets. An index is unmanaged and does not reflect
the costs of operating a mutual fund, such as the costs of buying, selling, and
holding securities. You cannot invest in an index. Earnings from a variable
annuity investment compound tax-free until withdrawn, so no adjustments were
made for income taxes. An expense limitation was in effect for Delaware VIP
International Value Equity Series during the periods shown. Performance does not
reflect insurance fees related to a variable annuity or variable life investment
or the deferred sales charge that would apply to certain withdrawals of
investments held for fewer than eight years. Performance shown here would have
been reduced if such fees were included and the expense limitation was removed.
For more information about fees, consult your variable annuity or variable life
prospectus. Foreign investments are subject to risks not ordinarily associated
with domestic investments, such as currency, economic and political risks and
different accounting standards.
International Value Equity-1
Delaware VIP Trust-Delaware VIP International Value Equity Series
Statement of Net Assets***
December 31, 2003
Market
Number Value
of Shares (U.S. $)
COMMON STOCK-99.02%
Australia-12.29%
Amcor............................. 583,286 $ 3,630,079
Coles Myer........................ 459,697 2,618,472
Foster's Group.................... 1,379,091 4,675,842
National Australia Bank........... 201,401 4,544,780
+Orica............................. 171,834 1,807,378
Telstra........................... 927,396 3,367,958
-----------
20,644,509
-----------
Belgium-0.94%
Electrabel........................ 5,021 1,578,243
-----------
1,578,243
-----------
Finland-0.96%
*UPM-Kymmene....................... 84,476 1,611,093
-----------
1,611,093
-----------
France-7.77%
Compagnie de Saint-Gobain......... 66,341 3,247,591
Societe Generale.................. 54,950 4,851,783
Total Fina Elf.................... 26,586 4,942,948
-----------
13,042,322
-----------
Germany-6.38%
Bayer............................. 128,052 3,779,530
+Bayerische Hypo-und Vereinsbank... 94,057 2,194,818
RWE............................... 118,844 4,736,963
-----------
10,711,311
-----------
Hong Kong-3.33%
Hong Kong & China Gas............. 545,000 831,863
Hong Kong Electric................ 527,000 2,083,943
Wharf Holdings.................... 965,285 2,673,196
-----------
5,589,002
-----------
Italy-3.37%
Banca Intesa...................... 1,449,213 5,666,691
-----------
5,666,691
-----------
Japan-16.38%
Canon............................. 88,000 4,097,415
Eisai............................. 110,000 2,966,315
Hitachi........................... 414,000 2,495,512
*Kinki Coca-Cola Bottling.......... 57,000 414,323
Matsushita Electric Industrial.... 215,000 2,973,127
Millea Holdings................... 162 2,116,264
Murata Manufacturing.............. 64,900 3,506,308
Takeda Chemical Industries........ 98,600 3,910,143
Toyota Motor...................... 100,400 3,391,322
West Japan Railway................ 418 1,642,045
-----------
27,512,774
-----------
Market
Number Value
of Shares (U.S.$)
COMMON STOCK (continued)
Netherlands-6.58%
ING Groep......................... 150,864 $ 3,518,505
Reed Elsevier..................... 198,481 2,465,987
Royal Dutch Petroleum............. 96,005 5,061,809
-----------
11,046,301
-----------
New Zealand-2.44%
*Telecom Corporation of New Zealand 1,160,217 4,090,546
-----------
4,090,546
-----------
Republic of Korea-1.54%
POSCO ADR......................... 76,271 2,590,926
-----------
2,590,926
-----------
Singapore-2.37%
Jardine Matheson.................. 268,222 2,440,820
Oversea Chinese Banking........... 215,000 1,531,826
-----------
3,972,646
-----------
South Africa-1.51%
Sasol............................. 178,195 2,536,109
-----------
2,536,109
-----------
Spain-7.59%
Banco Santander Central
Hispanoamericano.................. 355,531 4,210,936
*Iberdrola......................... 151,941 3,003,168
Telefonica........................ 377,019 5,535,436
-----------
12,749,540
-----------
United Kingdom-25.57%
Aviva............................. 202,836 1,780,131
BG Group.......................... 751,140 3,859,155
Boots............................. 383,369 4,755,976
BP ADR............................ 433,760 3,517,524
Brambles Industries............... 616,688 2,246,567
+British Airways................... 223,976 939,227
GKN............................... 327,124 1,565,019
GlaxoSmithKline................... 210,182 4,827,382
GUS............................... 245,798 3,396,918
HBOS.............................. 307,509 3,988,280
Intercontinental Hotels Group..... 295,129 2,800,123
Lloyds TSB Group.................. 569,184 4,559,688
Mitchells & Butlers............... 236,934 955,392
Rio Tinto......................... 135,375 3,736,907
-----------
42,928,289
-----------
Total Common Stock
(cost $134,924,914).............. 166,270,302
-----------
International Value Equity-2
Delaware VIP International Value Equity Series
Statement of Net Assets*** (continued)
Market
Principal Value
Amount (U.S.$)
REPURCHASE AGREEMENTS-0.64%
With BNP Paribas 0.85% 1/2/04
(dated 12/31/03, collateralized
by $25,000 U.S. Treasury Bills
due 3/25/04, market value $24,903, $92,000
U.S. Treasury Notes 3.625% due 3/31/04,
market value $93,822, $284,000
U.S. Treasury Notes 6.00%
due 8/15/04, market value $299,188,
and $147,000 U.S. Treasury Notes 1.625%
due 1/31/05, market value $148,221).......... $555,000 $555,000
With UBS Warburg 0.85% 1/2/04
(dated 12/31/03, collateralized by $122,000
U.S. Treasury Notes 1.625% due 3/31/05,
market value $122,625, $4,000 U.S.
Treasury Notes 5.50% due 2/15/08,
market value $4,700, and $365,000
U.S. Treasury Notes 5.625% due 5/15/08,
market value $407,098)......................... 523,000 523,000
-----------
Total Repurchase Agreements
(cost $1,078,000).............................. 1,078,000
-----------
Total Market Value of Securities Before
Securities Lending Collateral - 99.66%
(cost $136,002,914)............................ 167,348,302
-----------
SECURITIES LENDING COLLATERAL-3.64%#
Short-Term Investments
ABN AMRO Bank Chicago 0.96% 6/07/04............. 239,821 239,811
Allied Irish Dublin 1.12% 1/20/04............... 274,078 274,084
Bayerische Landesbank 1.045% 8/30/04............ 68,478 68,489
CDC IXIS 1.485% 11/12/04........................ 273,519 274,084
Market
Principal Value
Amount (U.S.$)
SECURITIES LENDING COLLATERAL (continued)
Credit Suisse First Boston
1.60% 12/13/04................................. $ 273,284 $ 274,084
Deutsche Bank Financial
0.991% 1/16/04................................. 274,164 274,181
Fannie Mae 0.955% 1/29/04....................... 1,370,424 1,370,403
Freddie Mac 1.12% 1/15/04....................... 155,049 155,165
General Electric Capital
1.068% 10/04/04................................ 102,890 103,046
1.069% 5/14/04................................. 137,070 137,166
Goldman Sachs Group LP
1.18% 12/08/04................................. 68,521 68,521
HBOS Treasury Services PLC
1.14% 4/08/04.................................. 274,058 274,084
Keybank NA 1.146% 1/26/04....................... 137,090 137,111
Lloyds Bank PLC 1.08% 2/09/04................... 308,337 308,344
Marsh & McLennan 1.291% 6/15/04................. 171,623 175,832
Merrill Lynch Mortgage Capital
1.10% 1/12/04.................................. 274,084 274,084
Mizuho Securities 1.03% 1/02/04................. 471,535 471,535
Morgan Stanley Dean Witter
1.283% 1/31/05................................. 68,409 68,521
1.33% 3/19/04.................................. 171,225 171,302
Societe Generale 1.085% 12/08/04................ 274,015 274,015
Swiss Re Financial 1.103% 1/15/04............... 170,892 170,826
Wachovia Bank NA 1.064% 11/15/04................ 274,112 274,328
Wilmington Trust 1.11% 1/22/04.................. 274,077 274,084
-----------
Total Securities Lending Collateral
(cost $6,113,100).............................. 6,113,100
-----------
TOTAL MARKET VALUE OF SECURITIES-103.30% (cost $142,116,014) ....................................... 173,461,402++
OBLIGATION TO RETURN SECURITIES LENDING COLLATERAL-(3.64%)#......................................... (6,113,100)
RECEIVABLES AND OTHER ASSETS NET OF LIABILITIES-0.34%............................................... 573,428
------------
NET ASSETS APPLICABLE TO 10,723,898 SHARES OUTSTANDING-100.00%...................................... $167,921,730
============
NET ASSET VALUE-DELAWARE VIP INTERNATIONAL VALUE EQUITY SERIES STANDARD CLASS
($167,812,453 / 10,716,915 shares)................................................................. $15.66
======
NET ASSET VALUE-DELAWARE VIP INTERNATIONAL VALUE EQUITY SERIES SERVICE CLASS ($109,277 / 6,983 shares) $15.65
======
COMPONENTS OF NET ASSETS AT DECEMBER 31, 2003:
Shares of beneficial interest (unlimited authorization-no par)...................................... $143,066,677
Undistributed net investment income **.............................................................. 4,305,828
Accumulated net realized loss on investments........................................................ (10,131,682)
Net unrealized appreciation of investments and foreign currencies................................... 30,680,907
------------
Total net assets.................................................................................... $167,921,730
============
_____________________
+Non-income producing security for the year ended December 31, 2003.
++Includes $5,871,498 of securities loaned.
#See Note #8 in "Notes to Financial Statements."
*Fully or partially on loan.
**Undistributed net investment income includes net realized gains (losses) on
foreign currencies. Net realized gains (losses) on foreign currencies are
treated as net investment income in accordance with provisions of the
Internal Revenue Code.
***Securities have been classified by country of origin. Classification by type
of business has been presented in Note #10 to the Financial Statements.
ADR - American Depositary Receipts
See accompanying notes
International Value Equity-3
Delaware VIP Trust-
Delaware VIP International Value Equity Series
Statement of Operations
Year Ended December 31, 2003
INVESTMENT INCOME:
Dividends.......................................... $6,146,310
Interest........................................... 14,117
Securities lending income.......................... 64,411
Foreign tax withheld............................... (508,233)
-----------
5,716,605
-----------
EXPENSES:
Management fees.................................... 1,231,864
Custodian fees..................................... 68,276
Accounting and administration expenses............. 61,339
Dividend disbursing and transfer agent fees
and expenses...................................... 14,555
Professional fees.................................. 14,084
Reports and statements to shareholders............. 12,085
Trustees' fees..................................... 5,630
Distribution expenses - Service Class.............. 235
Other.............................................. 33,045
-----------
1,441,113
Less expenses absorbed or waived.................. (15,419)
Less waiver of distribution expenses - Service
Class............................................. (34)
Less expenses paid indirectly...................... (3,478)
-----------
Total expenses..................................... 1,422,182
-----------
NET INVESTMENT INCOME.............................. 4,294,423
-----------
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS AND FOREIGN CURRENCIES:
Net realized gain (loss) on:
Investments....................................... (7,063,038)
Foreign currencies................................ 85,529
-----------
Net realized loss.................................. (6,977,509)
Net change in unrealized appreciation/depreciation
of investments and foreign currencies ............ 55,984,862
-----------
NET REALIZED AND UNREALIZED GAIN
ON INVESTMENTS AND FOREIGN CURRENCIES............. 49,007,353
-----------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS........................................ $53,301,776
===========
See accompanying notes
Delaware VIP Trust-
Delaware VIP International Value Equity Series
Statements of Changes in Net Assets
Year Ended
12/31/03 12/31/02
-------- ---------
INCREASE (DECREASE) IN NET
ASSETS FROM OPERATIONS:
Net investment income........................... $4,294,423 $3,468,020
Net realized gain (loss) on investments
and foreign currencies......................... (6,977,509) 834,317
Net change in unrealized appreciation/
depreciation of investments and
foreign currencies............................. 55,984,862 (21,645,927)
------------ ------------
Net increase (decrease) in net assets
resulting from operations...................... 53,301,776 (17,343,590)
------------ ------------
DIVIDENDS AND DISTRIBUTIONS
TO SHAREHOLDERS FROM:
Net investment income:
Standard Class................................. (3,587,303) (3,851,460)
Service Class.................................. (2,115) (305)
Net realized gain on investments:
Standard Class................................. (3,473,057) (10,360,969)
Service Class.................................. (2,172) (888)
------------ ------------
(7,064,647) (14,213,622)
------------ ------------
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares sold:
Standard Class................................. 34,151,947 66,928,065
Service Class.................................. 93,080 51,573
Net asset value of shares issued upon
reinvestment of dividends and distributions:
Standard Class................................. 7,060,360 14,212,429
Service Class.................................. 4,287 1,193
------------ ------------
41,309,674 81,193,260
------------ ------------
Cost of shares repurchased:
Standard Class................................. (61,667,879) (99,007,046)
Service Class.................................. (76,099) (1,904)
------------ ------------
(61,743,978) (99,008,950)
------------ ------------
Decrease in net assets derived from
capital share transactions..................... (20,434,304) (17,815,690)
------------ ------------
NET INCREASE (DECREASE)
IN NET ASSETS.................................. 25,802,825 (49,372,902)
NET ASSETS:
Beginning of year............................... 142,118,905 191,491,807
------------ ------------
End of year..................................... $167,921,730 $142,118,905
============ ============
See accompanying notes
International Value Equity-4
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
Year Ended
12/31/03 12/31/02 12/31/01 12/31/00 12/31/99
--------------------------------------------------------------
Net asset value, beginning of period................... $11.550 $13.900 $17.940 $18.630 $16.480
Income (loss) from investment operations:
Net investment income(1)............................... 0.373 0.254 0.277 0.387 0.371
Net realized and unrealized gain (loss)
on investments and foreign currencies................. 4.355 (1.556) (2.578) (0.340) 2.161
------- ------- ------- ------- -------
Total from investment operations....................... 4.728 (1.302) (2.301) 0.047 2.532
------- ------- ------- ------- -------
Less dividends and distributions from:
Net investment income.................................. (0.314) (0.284) (0.435) (0.405) (0.356)
Net realized gain on investments....................... (0.304) (0.764) (1.304) (0.332) (0.026)
------- ------- ------- ------- -------
Total dividends and distributions...................... (0.618) (1.048) (1.739) (0.737) (0.382)
------- ------- ------- ------- -------
Net asset value, end of period......................... $15.660 $11.550 $13.900 $17.940 $18.630
======= ======= ======= ======= =======
Total return(2)........................................ 43.44% (10.40%) (12.83%) 0.53% 15.76%
Ratios and supplemental data:
Net assets, end of period (000 omitted)................ $167,813 $142,065 $191,481 $270,167 $304,060
Ratio of expenses to average net assets................ 0.98% 0.98% 0.95% 0.95% 0.92%
Ratio of expenses to average net assets prior to
expense limitation and expenses paid indirectly....... 0.99% 1.02% 1.01% 1.02% 0.94%
Ratio of net investment income to average net assets... 2.96% 1.99% 1.84% 2.24% 2.16%
Ratio of net investment income to average net assets
prior to expense limitation and expenses
paid indirectly....................................... 2.95% 1.95% 1.78% 2.17% 2.14%
Portfolio turnover..................................... 11% 13% 11% 9% 9%
_________________________
(1) The average shares outstanding method has been applied for per share
information.
(2) Total investment return is based on the change in net asset value of a share
during the period and assumes reinvestment of dividends and distributions at
net asset value. Total investment return reflects waivers and payment of
fees by the manager. Performance would have been lower had the expense
limitation not been in effect.
See accompanying notes
International Value Equity-5
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
5/1/00(1)
Year Ended to
12/31/03 12/31/02 12/31/01 12/31/00
-------------------------------------------------
Net asset value, beginning of period................... $11.550 $13.900 $17.930 $16.780
Income (loss) from investment operations:
Net investment income(2)............................... 0.345 0.236 0.255 0.270
Net realized and unrealized gain (loss) on investments
and foreign currencies............................... 4.355 (1.559) (2.561) 0.880
------- ------- ------- -------
Total from investment operations....................... 4.700 (1.323) (2.306) 1.150
------- ------- ------- -------
Less dividends and distributions from:
Net investment income.................................. (0.296) (0.263) (0.420) -
Net realized gain on investments....................... (0.304) (0.764) (1.304) -
------- ------- ------- -------
Total dividends and distributions...................... (0.600) (1.027) (1.724) -
------- ------- ------- -------
Net asset value, end of period......................... $15.650 $11.550 $13.900 $17.930
======= ======= ======= =======
Total return(3)........................................ 43.11% (10.54%) (12.88%) 6.85%
Ratios and supplemental data:
Net assets, end of period (000 omitted)................ $109 $54 $11 $5
Ratio of expenses to average net assets................ 1.20% 1.13% 1.10% 1.09%
Ratio of expenses to average net assets prior to
expense limitation and expenses paid indirectly....... 1.24% 1.17% 1.16% 1.17%
Ratio of net investment income to average net assets... 2.74% 1.84% 1.69% 2.34%
Ratio of net investment income to average net assets
prior to expense limitation and expenses paid
indirectly............................................ 2.70% 1.80% 1.63% 2.26%
Portfolio turnover..................................... 11% 13% 11% 9%
_______________________
(1) Date of commencement of operations; ratios and portfolio turnover have been
annualized and total return has not been annualized.
(2) The average shares outstanding method has been applied for per share
information.
(3) Total investment return is based on the change in net asset value of a share
during the period and assumes reinvestment of dividends and distributions at
net asset value. Total investment return reflects waivers and payment of
fees by the manager and distributor, as applicable. Performance would have
been lower had the expense limitation and waiver not been in effect.
See accompanying notes
International Value Equity-6
Delaware VIP Trust - Delaware VIP International Value Equity Series
Notes to Financial Statements
December 31, 2003Delaware VIP Trust (the "Trust") is organized as a Delaware
statutory trust and offers 15 series: Delaware VIP Balanced Series, Delaware VIP
Capital Reserves Series, Delaware VIP Cash Reserve Series, Delaware VIP
Diversified Income Series, Delaware VIP Emerging Markets Series, Delaware VIP
Global Bond Series, Delaware VIP Growth Opportunities Series, Delaware VIP High
Yield Series, Delaware VIP International Value Equity Series, Delaware VIP Large
Cap Value Series, Delaware VIP REIT Series, Delaware VIP Select Growth Series,
Delaware VIP Small Cap Value Series, Delaware VIP Trend Series and Delaware VIP
U.S. Growth Series. These financial statements and the related notes pertain to
Delaware VIP International Value Equity Series (the "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 accounting principles
generally accepted in the United States and are consistently followed by the
Series.
Security Valuation--All equity securities 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 Stock Market, Inc.
(NASDAQ) are valued in accordance with the NASDAQ Official Closing Price, which
may not be the last sales price. If on a particular day an equity security does
not trade, then the mean between the bid and asked prices will normally be used.
Securities listed on a foreign exchange are valued at the last quoted sales
price before the Series is valued. Short-term debt securities having less than
60 days to maturity are valued at amortized cost, which approximates market
value. Forward foreign currency exchange contracts are valued at the mean
between the bid and asked prices of the contracts and are marked-to-market
daily. Interpolated values are derived when the settlement date of the contract
is an interim date for which quotations are not available. Other securities and
assets for which market quotations are not readily available are valued at fair
value as determined in good faith under the direction of the Series' Board of
Trustees. In determining whether market quotations are readily available or fair
valuation will be used, various factors will be taken into consideration, such
as market closures, aftermarket trading, or significant events after local
market trading (e.g., government actions or pronouncements, trading volume or
volatility on markets, exchanges among dealers, or news events).
Federal Income Taxes--The Series intends to continue to qualify for federal
income tax purposes as a regulated investment company and make the requisite
distributions to shareholders. Accordingly, no provision for federal income
taxes has been made in the financial statements.
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. 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 102% collateralized. However, in the
event of default or bankruptcy by the counterparty to the agreement, realization
of the collateral may be subject to legal proceedings.
Foreign Currency Transactions--Transactions denominated in foreign currencies
are recorded at the prevailing exchange rates on the valuation date. The value
of all assets and liabilities denominated in foreign currencies are translated
into U.S. dollars at the exchange rate of such currencies against the U.S.
dollar daily. Transaction gains or losses resulting from changes in exchange
rates during the reporting period or upon settlement of the foreign currency
transaction are reported in operations for the current period. The Series does
not isolate that portion of realized gains and losses on investments which are
due to changes in foreign exchange rates from that which are due to changes in
market prices. The Series reports certain foreign currency related transactions
as components of realized gains (losses) for financial reporting purposes, where
such components are treated as ordinary income (loss) for federal income tax
purposes.
Use of Estimates--The preparation of financial statements in conformity with
accounting principles generally accepted in the United States 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 common to all funds within the Delaware Investments Family of
Funds are allocated amongst the funds on the basis of average net assets.
Security transactions are recorded on the date the securities are purchased or
sold (trade date). 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.
Certain expenses of the Series are paid through commission arrangements with
brokers. The amount of these expenses was approximately $3,478 for the year
ended December 31, 2003. The expense paid under the above arrangement is
included in "other" on the Statement of Operations with the corresponding
expense offset shown as "expenses paid indirectly."
International Value Equity-7
Delaware VIP International Value Equity 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 International Advisers Ltd. (DIAL), 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.
DIAL has contractually agreed to waive that portion, if any, of its management
fee and reimburse the Series to the extent necessary to ensure that annual
operating expenses, exclusive of taxes, interest, brokerage commissions,
distribution fees, certain insurance costs and extraordinary expenses, do not
exceed 1.00% of average daily net assets of the Series through April 30, 2004.
Delaware Service Company, Inc. (DSC), an affiliate of DIAL, provides accounting,
administration, dividend disbursing and transfer agent services. The Series pays
DSC a monthly fee based on average net assets subject to certain minimums for
accounting and administration services. The Series pays DSC a monthly fee based
on average net assets for dividend disbursing and transfer agent services.
Pursuant to a distribution agreement and distribution plan, the Series pays
Delaware Distributors, L.P. (DDLP), the distributor and an affiliate of DIAL, an
annual 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, 2004 in order to prevent distribution and service fees of the Service
Class shares from exceeding 0.25% of average daily net assets. Prior to May 1,
2003, the Board of Trustees had set the fee at an annual rate of 0.15% of the
Service Class shares' average daily net assets. No distribution expenses are
paid by Standard Class shares.
At December 31, 2003, the Series had liabilities payable to affiliates as
follows:
Dividend disbursing,
Investment transfer agent fees, Other
management accounting expenses
fee payable to and other expenses payable to
DIAL payable to DSC affiliates*
-------------- ------------------- -----------
$42,694 $4,553 $17,951
* Delaware Management Company (DMC), a Series of Delaware Management Business
Trust and an affiliate of DIAL, 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,
professional fees, custodian fees and trustees' fees.
Certain officers of DIAL, 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 year ended December 31, 2003, the Series made purchases and sales of
investment securities other than short-term investments as follows:
Purchases......... $15,867,053
Sales............. $39,501,373
At December 31, 2003, the cost of investments and unrealized appreciation
(depreciation) for federal income tax purposes for the Series was as follows:
Aggregate Aggregate
Cost of unrealized unrealized Net unrealized
investments appreciation depreciation appreciation
------------ ------------ ------------ -------------
$137,380,131 $39,940,410 $(9,972,239) $29,968,171
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 accounting principles
generally accepted in the United States. The tax character of dividends and
distributions paid during the years ended December 31, 2003 and 2002 was as
follows:
Year Year
Ended Ended
12/31/03 12/31/02
-------- --------
Ordinary income............... $3,589,418 $ 3,936,366
Long-term capital gain........ 3,475,229 10,277,256
---------- -----------
Total......................... $7,064,647 $14,213,622
========== ===========
International Value Equity-8
Delaware VIP International Value Equity Series
Notes to Financial Statements (continued)
4. Dividend and Distribution Information (continued)
As of December 31, 2003, the components of net assets on a tax basis were as
follows:
Shares of beneficial interest......... $143,066,677
Undistributed ordinary income......... 4,297,286
Capital loss carryforwards............ (8,452,795)
Post-October losses................... (301,670)
Post-October currency losses.......... (662,098)
Unrealized appreciation of investments
and foreign currencies................ 29,974,330
------------
Net assets............................ $167,921,730
============
The differences between book basis and tax basis components of net assets are
primarily attributable to tax deferral of losses on wash sales and mark to
market of forward foreign currency contracts for tax purposes.
For federal income tax purposes, capital loss carryforwards may be carried
forward and applied against future capital gains. Such capital loss
carryforwards expire as follows: $8,452,795 expires in 2011.
Post-October losses represent losses realized on investment and foreign currency
transactions from November 1, 2003 through December 31, 2003 that, in accordance
with federal income tax regulations, the Series has elected to defer and treat
as having arisen in the following fiscal year.
5. Capital Shares
Transactions in capital shares were as follows:
Year Year
Ended Ended
12/31/03 12/31/02
-------- --------
Shares sold:
Standard Class........................ 2,339,146 5,051,203
Service Class......................... 7,704 3,994
Shares issued upon reinvestment of
dividends and distributions:
Standard Class........................ 661,702 1,061,421
Service Class......................... 401 89
---------- ----------
3,008,953 6,116,707
---------- ----------
Shares repurchased:
Standard Class........................ (4,578,781) (7,588,979)
Service Class......................... (5,804) (156)
---------- ----------
(4,584,585) (7,589,135)
---------- ----------
Net decrease........................... (1,575,632) (1,472,428)
========== ==========
6. Line of Credit
The Series, along with certain other funds in the Delaware Investments Family of
Funds (the "Participants"), participates in a $177,300,000 revolving line of
credit facility to be used for temporary or emergency purposes as an additional
source of liquidity to fund redemptions of investor shares. The Participants are
charged an annual commitment fee, which is allocated across the Participants on
the basis of each fund's allocation of the entire facility. The Participants may
borrow up to a maximum of one third of their net assets under the agreement. The
Series had no amounts outstanding as of December 31, 2003, or at any time during
the year.
7. Foreign Exchange Contracts
The Series may enter into forward foreign currency exchange contracts as a way
of managing foreign exchange rate risk. The Series may enter into these
contracts to fix the U.S. dollar value of a security that it has agreed to buy
or sell for the period between the date the trade was entered into and the date
the security is delivered and paid for. The Series may also use these contracts
to hedge the U.S. dollar value of securities it already owns that are
denominated in foreign currencies.
The change in market value is recorded as an unrealized gain or loss. When the
contract is closed, a realized gain or loss is recorded equal to the difference
between the value of the contract at the time it was opened and the value at the
time it was closed.
The use of forward foreign currency exchange contracts does not eliminate
fluctuations in the underlying prices of the securities, but does establish a
rate of exchange that can be achieved in the future. Although forward 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.
International Value Equity-9
Delaware VIP International Value Equity Series
Notes to Financial Statements (continued)
7. Foreign Exchange Contracts (continued)
The following forward foreign currency exchange contracts were outstanding at
December 31, 2003:
Contract to In Settlement Unrealized
Deliver Exchange for Date Depreciation
------------------------ ------------ ---------- ------------
6,950,000 British Pounds US$11,741,782 1/30/04 US$(670,640)
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 J.P. Morgan Chase. Initial security loans made pursuant to the
Lending Agreement are required to be secured by U.S. government obligations
and/or cash collateral not less than 102% of the market value of securities
issued in the United States and 105% of the market value of the securities
issued outside the United States. With respect to each loan, if the aggregate
market value of the collateral held 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 invested in
fixed-income securities, with a weighted average maturity not to exceed 90 days,
rated in one of the top two tiers by Standard & Poor's Rati ngs Group or Moody's
Investors Service, Inc. or repurchase agreements collateralized by such
securities. However, in the event of default or bankruptcy by the lending agent,
realization and/or retention of the collateral may be subject to legal
proceedings. In the event the borrower fails to return loaned securities and the
collateral received is insufficient to cover the value of the loaned securities
and provided such collateral shortfall is not the result of investment losses,
the lending agent has agreed to pay the amount of the shortfall to the Series,
or at the discretion of the lending agent, replace the loaned securities. The
Series continues to record dividends on the securities loaned and is subject to
change in fair value of the securities loaned that may occur during the term of
the loan. The Series has the right under the Lending Agreement to recover the
securities from the borrower on demand. The security lending agent and the
borrower retain a portion of the earnings from the collateral investments. The
Series records security lending income net of such allocation.
At December 31, 2003, the market value of securities on loan was $5,871,498, 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
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.
International Value Equity-10
Delaware VIP International Value Equity Series
Notes to Financial Statements (continued)
10. Industry Allocation
As of December 31, 2003, the Series' investment in equity securities classified
by type of business were as follows:
Industry Percentage of net assets
- -------- ------------------------
Automobiles & Auto Parts............... 2.95%
Banking & Finance...................... 23.93%
Capital Goods.......................... 1.93%
Commercial Services.................... 1.34%
Consumer Durables...................... 1.77%
Energy................................. 11.86%
Food, Beverage & Tobacco............... 3.03%
Healthcare & Pharmaceuticals........... 6.97%
Insurance.............................. 2.32%
Leisure, Lodging & Entertainment....... 2.24%
Materials.............................. 10.22%
Media.................................. 1.47%
Retail................................. 6.41%
Technology............................. 6.01%
Telecommunications..................... 7.74%
Transportation......................... 1.54%
Utilities.............................. 7.29%
------
99.02%
======
11. Tax Information (Unaudited)
For the fiscal year ended December 31, 2003, the Series designates distributions
paid during the year as follows:
(A) (B)
Long-Term Ordinary
Capital Gains Income Total
Distributions Distributions Distributions
(Tax Basis) (Tax Basis) (Tax Basis)
------------- ------------- -------------
49% 51% 100%
________________________
(A) and (B) are based on a percentage of the Series' total distributions.
International Value Equity-11
Delaware VIP Trust-Delaware VIP International Value Equity Series
Report of Independent Auditors
To the Shareholders and Board of Trustees
Delaware VIP Trust - Delaware VIP International Value Equity Series
We have audited the accompanying statement of net assets of Delaware VIP
International Value Equity Series (the "Series") as of December 31, 2003, and
the related statement of operations for the year then ended, the statements of
changes in net assets for each of the two years in the period then ended, and
the financial highlights for each of the periods indicated therein. These
financial statements and financial highlights are the responsibility of the
Series' management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements and financial highlights. Our procedures included
confirmation of securities owned as of December 31, 2003, by correspondence with
the custodian and brokers. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Delaware VIP International Value Equity Series at December 31, 2003, the results
of its operations for the year then ended, the changes in its net assets for
each of the two years in the period then ended, and its financial highlights for
each of the periods indicated therein, in conformity with accounting principles
generally accepted in the United States.
/s/ Ernst & Young LLP
Philadelphia, Pennsylvania
February 6, 2004
- --------------------------------------------------------------------------------
------------------------------------------------------------
A description of the policies and procedures that the Series
uses to determine how to vote proxies (if any) relating to
portfolio securities is available without charge (i) upon
request, by calling 800 523-1918; (ii) on the Series'
website at http://www.delawareinvestments.com; and (iii) on
the Commission's website at http://www.sec.gov.; and
beginning no later than August 31, 2004, information (if
any) regarding how the Series voted proxies relating to
portfolio securities during the most recent 12-month period
ended June 30 is available without charge (i) through the
Series' website at http://www.delawareinvestments.com; and
(ii) on the Commission's website at http://www.sec.gov.
------------------------------------------------------------
International Value Equity-12
Delaware Investments Family of Funds
BOARD OF TRUSTEES/DIRECTORS AND OFFICERS ADDENDUM
A mutual fund is governed by a Board of Trustees/Directors which has oversight
responsibility for the management of a fund's business affairs.
Trustees/Directors establish procedures and oversee and review the performance
of the investment manager, the distributor and others that perform services for
the fund. The independent fund trustees, in particular, are advocates for
shareholder interests. The following is a list of the Trustees/Directors and
Officers with certain background and related information.
Number of Other
Principal Portfolios in Fund Directorships
Name, Position(s) Occupation(s) Complex Overseen Held by
Address Held with Length of Time During by Trustee/Director Trustee/Director
and Birthdate Fund(s) Served Past 5 Years or Officer or Officer
- -----------------------------------------------------------------------------------------------------------------------------------
INTERESTED TRUSTEES
Jude T. Driscoll(2) Chairman and 4 Years - Since August 2000, 80 None
2005 Market Street Trustee(4) Executive Officer Mr. Driscoll has served in
Philadelphia, PA various executive capacities
19103 Trustee since at different times at
May 15, 2003 Delaware Investments(1)
March 10, 1963
Senior Vice President and
Director of Fixed-Income Process -
Conseco Capital Management
(June 1998 - August 2000)
Managing Director -
NationsBanc Capital Markets
(February 1996 - June 1998)
- -----------------------------------------------------------------------------------------------------------------------------------
INDEPENDENT TRUSTEES
Walter P. Babich Trustee 16 Years Board Chairman - 98 None
2005 Market Street Citadel Construction Corporation
Philadelphia, PA (1989 - Present)
19103
October 1, 1927
- -----------------------------------------------------------------------------------------------------------------------------------
John H. Durham Trustee 25 Years(3) Private Investor 98 Trustee - Abington
2005 Market Street Memorial Hospital
Philadelphia, PA
19103
President/Director-
22 WR Corporation
August 7, 1937
- -----------------------------------------------------------------------------------------------------------------------------------
John A. Fry Trustee(4) 3 Years President - 80 None
2005 Market Street Franklin & Marshall College
Philadelphia, PA (June 2002 - Present)
19103
Executive Vice President -
University of Pennsylvania
May 28, 1960 (April 1995 - June 2002)
- -----------------------------------------------------------------------------------------------------------------------------------
Anthony D. Knerr Trustee 11 Years Founder/Managing Director - 98 None
2005 Market Street Anthony Knerr & Associates
Philadelphia, PA (Strategic Consulting)
19103 (1990 - Present)
December 7, 1938
- -----------------------------------------------------------------------------------------------------------------------------------
International Value Equity-13
Number of Other
Principal Portfolios in Fund Directorships
Name, Position(s) Occupation(s) Complex Overseen Held by
Address Held with Length of Time During by Trustee/Director Trustee/Director
and Birthdate Fund(s) Served Past 5 Years or Officer or Officer
- -----------------------------------------------------------------------------------------------------------------------------------
INDEPENDENT TRUSTEES (continued)
Ann R. Leven Trustee 15 Years Treasurer/Chief Fiscal Officer - 98 Director - Andy
2005 Market Street National Gallery of Art Warhol Foundation
Philadelphia, PA (1994 - 1999)
19103 Director -
Systemax Inc.
November 1, 1940
- -----------------------------------------------------------------------------------------------------------------------------------
Thomas F. Madison Trustee 10 Years President/Chief 98 Director -
2005 Market Street Executive Officer - Banner Health
Philadelphia, PA MLM Partners, Inc.
19103 (Small Business Investing Director -
and Consulting) CenterPoint Energy
(January 1993 - Present)
February 25, 1936
Director -
Digital River Inc.
Director - Rimage
Corporation
- -----------------------------------------------------------------------------------------------------------------------------------
Janet L. Yeomans Trustee 5 Years Vice President/Mergers & 98 None
2005 Market Street Acquisitions - 3M Corporation
Philadelphia, PA (January 2003 - Present)
19103
Ms. Yeomans has held
July 31, 1948 various management positions
at 3M Corporation since 1983.
- -----------------------------------------------------------------------------------------------------------------------------------
OFFICERS
Joseph H. Hastings Executive Executive Mr. Hastings has served in 98 None
2005 Market Street Vice President Vice President various executive capacities
Philadelphia, PA and and at different times at
19103 Chief Financial Chief Financial Delaware Investments.
Officer Officer since
August 21, 2003
December 19, 1949
- -----------------------------------------------------------------------------------------------------------------------------------
Richelle S. Maestro Senior Vice President, Chief Legal Officer Ms. Maestro has served in 98 None
2005 Market Street Chief Legal Officer since various executive capacities
Philadelphia, PA and Secretary March 17, 2003 at different times at
19103 Delaware Investments.
November 26, 1957
- -----------------------------------------------------------------------------------------------------------------------------------
Michael P. Bishof Senior Vice President 8 Years Mr. Bishof has served in 98 None
2005 Market Street and Treasurer various executive capacities
Philadelphia, PA at different times at
19103 Delaware Investments.
August 18, 1962
- -----------------------------------------------------------------------------------------------------------------------------------
(1) Delaware Investments is the marketing name for Delaware Management Holdings,
Inc. and its subsidiaries, including the Registrant's investment advisor,
principal underwriter and its transfer agent.
(2) Mr. Driscoll is considered to be an "Interested Trustee" because he is an
executive officer of the Fund's manager and distributor.
(3) Mr. Durham served as a Director Emeritus from 1995 through 1998.
(4) Mr. Driscoll and Mr. Fry are not Trustees of the portfolios of Voyageur
Insured Funds, Voyageur Intermediate Tax Free Funds, Voyageur Investment
Trust, Voyageur Mutual Funds, Voyageur Mutual Funds II, Voyageur Mutual
Funds III and Voyageur Tax Free Funds.
The Statement of Additional Information for the Fund(s) includes additional
information about the Trustees/Directors and Officers and is available, without
charge, upon request by calling 800 523-1918.
(8521)
International Value Equity-14
FOR INCOME
Delaware VIP Trust-Delaware VIP Large Cap Value Series
Performance Snapshot
In early 2003, the broad domestic stock market generally moved lower until
March, amid uncertainty over the impending war with Iraq and lack of investor
confidence in the economic outlook. Once the end of major combat seemed assured,
investor optimism rose, and the stock market responded enthusiastically. The
Federal Reserve's maintenance of low interest rates and Congress's approval in
May 2003 of a huge stimulus package, including reductions in dividend income tax
rates, helped stimulate the economy and set the stage for a strong market
rebound that spanned to the year's conclusion.
For the year ended December 31, 2003, Delaware VIP Large Cap Value Series
returned +28.29% (Standard Class shares with distributions reinvested). The
Series finished the year slightly below its benchmark as measured by the
broad-based S&P 500 Index, which gained +28.69%.
In the financial services sector, we were able to acquire well-run companies
at appealing prices, in our opinion. We likewise found compelling valuations
among a number of healthcare companies. Our conservative style of stock
investing meant we were less heavily weighted versus our benchmarks in
technology stocks. As technology experienced a significant runup for much of
2003, this decision unfortunately detracted from the Series return relative to
its benchmark index.
Investment Outlook
A year ago, we positioned the Series for forthcoming economic and stock
market recovery. However, we believed the market would experience volatility for
a time, the likes of which would create attractive buying opportunities. We
believe large-cap companies are poised to set the pace of the market in 2004
after experiencing the surge in small-cap appreciation.
Delaware VIP
S&P 500 Large Cap
Index Value Series
------- ------------
Dec.31,'92 $10,000 $10,000
Dec.31,'93 $10,132 $ 9,980
Dec.31,'94 $13,940 $13,584
Dec.31,'95 $17,140 $16,399
Dec.31,'96 $22,859 $21,483
Dec.31,'97 $29,390 $23,921
Dec.31,'98 $35,578 $23,208
Dec.31,'99 $32,338 $25,836
Dec.31,'00 $28,495 $24,832
Dec.31,'01 $22,196 $20,194
Dec.31,'02 $28,565 $25,909
Delaware VIP Large Cap Value Series
Average Annual Total Returns
-----------------------------------------
Standard Class Service Class
Shares* Shares**
Lifetime +9.34% +4.40%
10 Years +9.99% --
Five Years +1.61% --
One Year +28.29% +28.10%
For the periods ended December 31, 2003
*Commenced operations on July 28, 1988.
**Commenced operations on May 1, 2000.
Past performance is not a guarantee of future results. Returns and share values
will fluctuate so that shares, when redeemed, may be worth more or less than
their original cost.
The chart shows a $10,000 investment in Delaware VIP Large Cap Value Series
Standard Class shares and the S&P 500 Index for the 10-year period from December
31, 1993 through December 31, 2003. The chart assumes all distributions were
reinvested. Returns plotted on the chart were as of the last day of each month
shown. The S&P 500 Index is a stock composite of mostly large-capitalization
U.S. companies. An index is unmanaged and does not reflect the costs of
operating a mutual fund, such as the costs of buying, selling, and holding
securities. You cannot invest in an index. Earnings from a variable annuity
investment compound tax-free until withdrawn, so no adjustments were made for
income taxes. An expense limitation was in effect for Delaware VIP Large Cap
Value Series during the periods shown. Performance does not reflect insurance
fees related to a variable annuity or variable life investment or the deferred
sales charge that would apply to certain withdrawals of investments held for
fewer than eight years. Performance shown here would have been reduced if such
fees were included and the expense limitation was removed. For more information
about fees, consult your variable annuity or variable life prospectus.
Large Cap Value-1
Delaware VIP Trust-Delaware VIP Large Cap Value Series
Statement of Net Assets
December 31, 2003
Number of Market
Shares Value
COMMON STOCK-97.26%
Aerospace & Defense-1.54%
Honeywell International............... 145,600 $ 4,867,408
-----------
4,867,408
-----------
Automobiles & Automotive Parts-1.49%
General Motors........................ 88,700 4,736,580
-----------
4,736,580
-----------
Banking & Finance-21.97%
American Express...................... 111,300 5,367,999
Bank of America....................... 78,811 6,338,769
Charter One Financial................. 93,100 3,216,605
Citigroup............................. 98,100 4,761,774
Comerica.............................. 61,300 3,436,478
FleetBoston Financial................. 55,300 2,413,845
Goldman Sachs......................... 64,300 6,348,339
J.P. Morgan Chase..................... 206,690 7,591,724
*KeyCorp............................... 156,600 4,591,512
Mellon Financial...................... 115,400 3,705,494
Morgan Stanley........................ 108,300 6,267,321
SLM................................... 84,200 3,172,656
U.S. Bancorp.......................... 208,300 6,203,174
Wells Fargo........................... 106,200 6,254,118
-----------
69,669,808
-----------
Cable, Media & Publishing-1.61%
Knight-Ridder......................... 30,200 2,336,574
+Westwood One.......................... 80,800 2,764,168
-----------
5,100,742
-----------
Chemicals-3.38%
Air Products & Chemicals.............. 58,700 3,101,121
Dow Chemical.......................... 103,300 4,294,181
duPont (E.I.) deNemours............... 72,600 3,331,614
-----------
10,726,916
-----------
Computers & Technology-6.50%
+Cisco Systems......................... 130,300 3,164,987
First Data............................ 102,600 4,215,834
+Intuit................................ 78,300 4,142,853
Microsoft............................. 168,300 4,634,982
+Oracle................................ 335,800 4,432,560
-----------
20,591,216
-----------
Consumer Products-5.25%
Black & Decker........................ 86,900 4,285,908
Clorox................................ 107,500 5,220,200
Kimberly-Clark........................ 43,000 2,540,870
Procter & Gamble...................... 46,100 4,604,468
-----------
16,651,446
-----------
Electronics & Electrical Equipment-5.39%
Eaton................................. 30,600 3,304,188
Emerson Electric...................... 53,500 3,464,125
General Electric...................... 205,200 6,357,096
Intel................................. 123,400 3,973,480
-----------
17,098,889
-----------
Energy-8.81%
BP ADR................................ 19,100 942,585
ChevronTexaco......................... 58,900 5,088,371
Exxon Mobil........................... 194,906 7,991,146
Kerr-McGee............................ 94,600 4,397,954
+Noble................................. 99,800 3,570,844
Occidental Petroleum.................. 140,200 5,922,048
-----------
27,912,948
-----------
Number of Market
Shares Value
COMMON STOCK (continued)
Food, Beverage & Tobacco-7.23%
Anheuser-Busch........................ 121,000 $ 6,374,280
Coca-Cola............................. 81,900 4,156,425
General Mills......................... 90,100 4,081,530
Kraft Foods Class A................... 57,000 1,836,540
PepsiCo............................... 139,000 6,480,180
-----------
22,928,955
-----------
Healthcare & Pharmaceuticals-10.89%
Abbott Laboratories................... 116,600 5,433,560
Baxter International.................. 151,300 4,617,676
Bristol-Myers Squibb.................. 118,700 3,394,820
*HCA................................... 95,300 4,094,088
+Laboratory Corporation of America
Holdings.............................. 70,800 2,616,060
Merck & Company....................... 75,500 3,488,100
Pfizer................................ 135,980 4,804,173
Wyeth................................. 143,000 6,070,350
-----------
34,518,827
-----------
Insurance-8.28%
Chubb................................. 61,400 4,181,340
Cigna................................. 78,000 4,485,000
Marsh & McLennan...................... 83,000 3,974,870
MGIC Investment....................... 39,400 2,243,436
Prudential Financial.................. 115,800 4,836,966
Travelers Property Casualty Class A... 2 34
Travelers Property Casualty Class B... 1 17
XL Capital Class A.................... 84,000 6,514,200
-----------
26,235,863
-----------
Leisure, Lodging & Entertainment-1.00%
Starwood Hotels & Resorts Worldwide... 88,500 3,183,345
-----------
3,183,345
-----------
Metals & Mining-0.60%
Alcoa................................. 49,800 1,892,400
-----------
1,892,400
-----------
Packaging & Containers-0.69%
Packaging Corporation of America...... 99,800 2,181,628
-----------
2,181,628
-----------
Paper & Forest Products-1.50%
International Paper................... 110,167 4,749,299
-----------
4,749,299
-----------
Retail-3.54%
Home Depot............................ 134,600 4,776,954
Limited Brands........................ 163,200 2,942,496
TJX................................... 158,300 3,490,515
-----------
11,209,965
-----------
Telecommunications-3.69%
ALLTEL................................ 59,700 2,780,826
BCE................................... 97,300 2,175,628
SBC Communications.................... 134,624 3,509,647
Verizon Communications................ 92,170 3,233,324
-----------
11,699,425
-----------
Textiles, Apparel & Furniture-0.71%
NIKE.................................. 33,000 2,259,180
-----------
2,259,180
-----------
Large Cap Value-2
Delaware VIP Large Cap Value Series
Statement of Net Assets (continued)
Number of Market
Shares Value
COMMON STOCK (continued)
Utilities-3.19%
Dominion Resources..................... 35,600 $ 2,272,348
Exelon................................. 34,700 2,302,692
FirstEnergy............................ 67,200 2,365,440
FPL Group.............................. 48,400 3,166,328
-----------
10,106,808
-----------
Total Common Stock
(cost $259,222,748)................... 308,321,648
-----------
Principal
Amount
REPURCHASE AGREEMENTS-3.21%
With BNP Paribas 0.85% 1/2/04 (dated
12/31/03, collateralized by $236,000
U.S. Treasury Bills due 3/25/04,
market value $235,264, $872,000 U.S.
Treasury Notes 3.625% due 3/31/04,
market value $886,343, $2,683,000 U.S.
Treasury Notes 6.00% due 8/15/04,
market value $2,826,471, and
$1,385,000 U.S. Treasury Notes 1.625%
due 1/31/05, market value $1,400,266)..... $5,242,000 5,242,000
With UBS Warburg 0.85% 1/2/04 (dated
12/31/03, collateralized by
$1,149,000 U.S. Treasury Notes 1.625%
due 3/31/05, market value $1,158,457,
$40,000 U.S. Treasury Notes 5.50% due
2/15/08, market value $44,404, and
$3,448,000 U.S. Treasury Notes 5.625%
due 5/15/08, market value $3,845,908)..... 4,942,000 4,942,000
----------
Total Repurchase Agreements
(cost $10,184,000).................... 10,184,000
----------
Total Market Value of Securities Before
Securities Lending Collateral-100.47%
(cost $269,406,748)....................... 318,505,648
-----------
Principal Market
Amount Value
SECURITIES LENDING COLLATERAL**-0.64%
Short-Term Investments
ABN AMRO Bank Chicago 0.96%
6/7/04................................ $79,778 $79,775
Allied Irish Dublin 1.12% 1/20/04 91,174 91,176
Bayherische Landesbank 1.045%
8/30/04............................... 22,781 22,784
CDC IXIS 1.485% 11/12/04............... 90,988 91,176
Credit Suisse First Boston 1.60%
12/13/04.............................. 90,910 91,176
Deutsche Bank Financial 0.991% 1/16/04 91,203 91,209
Fannie Mae 0.955% 1/29/04.............. 455,883 455,876
Freddie Mac 1.12% 1/15/04.............. 51,579 51,617
General Electric Capital
1.068% 10/4/04........................ 34,227 34,279
1.069% 5/14/04........................ 45,598 45,630
Goldman Sachs Group LP 1.18% 12/8/04 22,794 22,794
HBOS Treasury Services PLC 1.14%
4/8/04................................ 91,167 91,176
Keybank NA 1.146% 1/26/04.............. 45,604 45,611
Lloyds Bank PLC 1.08% 2/9/04........... 102,572 102,574
Marsh & McLennan 1.291% 6/15/04........ 57,092 58,492
Merrill Lynch Mortgage Capital 1.10%
1/12/04............................... 91,176 91,176
Mizuho Securities 1.03% 1/2/04......... 156,860 156,860
Morgan Stanley Dean Witter
1.283% 1/31/05........................ 22,757 22,794
1.33% 3/19/04......................... 56,959 56,985
Societe Generale 1.085% 12/8/04........ 91,154 91,154
Swiss Re Financial 1.103% 1/15/04...... 56,849 56,827
Wachovia Bank N.A. 1.064% 11/15/04..... 91,186 91,258
Wilmington Trust Company 1.11%
1/22/04............................... 91,174 91,176
---------
Total Securities Lending Collateral
(cost $2,033,575)...................... 2,033,575
---------
TOTAL MARKET VALUE OF SECURITIES-101.11% (cost $271,440,323).................... 320,539,223++
OBLIGATION TO RETURN SECURITIES LENDING COLLATERAL-(0.64%)**.................... (2,033,575)
LIABILITIES NET OF RECEIVABLES AND OTHER ASSETS-(0.47%)......................... (1,502,528)
------------
NET ASSETS APPLICABLE TO 19,409,101 SHARES OUTSTANDING-100.00%.................. $317,003,120
============
NET ASSET VALUE-DELAWARE VIP LARGE CAP VALUE SERIES STANDARD CLASS
($302,266,515 /18,505,961 shares).............................................. $16.33
======
NET ASSET VALUE-DELAWARE VIP LARGE CAP VALUE SERIES SERVICE CLASS
($14,736,605 / 903,140 shares)................................................. $16.32
======
COMPONENTS OF NET ASSETS AT DECEMBER 31, 2003:
Shares of beneficial interest (unlimited authorization - no par)................ $333,913,436
Undistributed net investment income............................................. 5,035,006
Accumulated net realized loss on investments.................................... (71,044,462)
Net unrealized appreciation of investments and foreign currencies............... 49,099,140
------------
Total net assets................................................................ $317,003,120
============
______________________
+Non-income producing security for the year ended December 31, 2003.
++Includes $2,001,475 of securities loaned.
*Fully or partially on loan.
**See Note #8 in "Notes to Financial Statements."
ADR-American Depositary Receipts
See accompanying notes
Large Cap Value-3
Delaware VIP Trust-
Delaware VIP Large Cap Value Series
Statement of Operations
Year Ended December 31, 2003
INVESTMENT INCOME:
Dividends.............................. $ 6,885,700
Interest............................... 56,875
Securities lending income.............. 13,577
-----------
6,956,152
-----------
EXPENSES:
Management fees........................ 1,763,575
Accounting and administration expenses. 114,654
Professional fees...................... 59,332
Dividend disbursing and transfer agent
fees and expenses..................... 27,045
Distribution expenses-Service Class.... 22,570
Custodian fees......................... 10,664
Trustees' fees......................... 9,242
Reports and statements to shareholders. 7,414
Other.................................. 36,662
-----------
2,051,158
Less expenses absorbed or waived....... (134,724)
Less waiver of distribution
expenses-Service Class................ (3,276)
Less expenses paid indirectly.......... (6,475)
-----------
Total expenses......................... 1,906,683
-----------
NET INVESTMENT INCOME.................. 5,049,469
---------
NET REALIZED AND UNREALIZED GAIN
ON INVESTMENTS AND FOREIGN CURRENCIES:
Net realized gain on:
Investments........................... 1,332,382
Foreign currencies.................... 295
-----------
Net realized gain...................... 1,332,677
Net change in unrealized appreciation/
depreciation of investments and
foreign currencies.................... 62,940,840
-----------
NET REALIZED AND UNREALIZED GAIN
ON INVESTMENTS AND FOREIGN
CURRENCIES............................ 64,273,517
-----------
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS....................... $69,322,986
===========
See accompanying notes
Delaware VIP Trust-
Delaware VIP Large Cap Value Series
Statement of Changes in Net Assets
Year Ended
12/31/03 12/31/02
-------- --------
INCREASE (DECREASE) IN NET ASSETS
FROM OPERATIONS:
Net investment income.................. $ 5,049,469 $ 4,869,789
Net realized gain (loss) on investments
and foreign currencies................ 1,332,677 (13,762,872)
Net change in unrealized appreciation/
depreciation of investments and
foreign currencies.................... 62,940,840 (54,125,984)
------------ ------------
Net increase (decrease) in net assets
resulting from operations............. 69,322,986 (63,019,067)
------------ ------------
DIVIDENDS AND DISTRIBUTIONS TO
SHAREHOLDERS FROM:
Net investment income:
Standard Class........................ (4,760,909) (4,892,083)
Service Class......................... (120,704) (43,275)
------------ ------------
(4,881,613) (4,935,358)
------------ ------------
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares sold:
Standard Class........................ 21,787,092 19,755,583
Service Class......................... 8,354,495 4,264,426
Net assets from merger1:
Standard Class........................ 18,756,872 -
Service Class......................... 3,269 -
Net asset value of shares issued upon
reinvestment of dividends and
distributions:
Standard Class........................ 4,760,909 4,892,083
Service Class......................... 120,704 43,275
------------ ------------
53,783,341 28,955,367
------------ ------------
Cost of shares repurchased:
Standard Class........................ (46,008,811) (71,932,364)
Service Class......................... (1,428,611) (769,487)
------------ ------------
(47,437,422) (72,701,851)
------------ ------------
Increase (decrease) in net assets
derived from capital share
transactions.......................... 6,345,919 (43,746,484)
------------ ------------
NET INCREASE (DECREASE) IN
NET ASSETS............................ 70,787,292 (111,700,909)
NET ASSETS
Beginning of year...................... 246,215,828 357,916,737
------------ ------------
End of year............................ $317,003,120 $246,215,828
============ ============
(1)See Note #6.
See accompanying notes
Large Cap Value-4
Delaware VIP Trust-Delaware VIP Large Cap Value Series
Financial Highlights
Selected data for each share of the Series outstanding throughout each period
were as follows:
Delaware VIP Large Cap Value Series Standard Class
Year Ended
12/31/03 12/31/02 12/31/01 12/31/00 12/31/99
-------------------------------------------------------------
Net asset value, beginning of period................... $13.000 $16.210 $16.910 $17.020 $19.420
Income (loss) from investment operations:
Net investment income(1)............................... 0.265 0.235 0.217 0.268 0.323
Net realized and unrealized gain (loss) on investments 3.337 (3.215) (0.886) 1.329 (0.882)
------- ------- ------- ------- -------
Total from investment operations....................... 3.602 (2.980) (0.669) 1.597 (0.559)
------- ------- ------- ------- -------
Less dividends and distributions from:
Net investment income.................................. (0.272) (0.230) (0.031) (0.275) (0.361)
Net realized gain on investments....................... - - - (1.432) (1.480)
------- ------- ------- ------- -------
Total dividends and distributions...................... (0.272) (0.230) (0.031) (1.707) (1.841)
------- ------- ------- ------- -------
Net asset value, end of period......................... $16.330 $13.000 $16.210 $16.910 $17.020
======= ======= ======= ======= =======
Total return(2)........................................ 28.29% (18.68%) (3.89%) 11.33% (2.98%)
Ratios and supplemental data:
Net assets, end of period (000 omitted)................ $302,266 $240,752 $355,015 $440,442 $501,928
Ratio of expenses to average net assets................ 0.70% 0.70% 0.68% 0.68% 0.71%
Ratio of expenses to average net assets prior to
expense limitation and expenses paid indirectly....... 0.75% 0.75% 0.73% 0.68% 0.71%
Ratio of net investment income to average net assets... 1.88% 1.61% 1.34% 1.75% 1.75%
Ratio of net investment income to average net assets
prior to expenses limitation and expenses paid
indirectly............................................ 1.83% 1.56% 1.29% 1.75% 1.75%
Portfolio turnover..................................... 79% 100% 102% 80% 92%
_________________________
(1) The average shares outstanding method has been applied for per share
information for the years ended December 31, 2003, 2002, 2001 and 2000.
(2) Total investment return is based on the change in net asset value of a share
during the period and assumes reinvestment of dividends and distributions at
net asset value. Total investment return reflects a waiver and payment of
fees by the manager, as applicable. Performance would have been lower had
the expense limitation not been in effect.
See accompanying notes
Large Cap Value-5
Delaware VIP Large Cap Value Series
Financial Highlights (continued)
Selected data for each share of the Series outstanding throughout each period
were as follows:
Delaware VIP Large Cap Value Series Service Class
Year Year Year 5/1/00(1)
Ended Ended Ended to
12/31/03 12/31/02 12/31/01 12/31/00
--------------------------------------------------
Net asset value, beginning of period................... $12.990 $16.200 $16.910 $14.640
Income (loss) from investment operations:
Net investment income(2)............................... 0.233 0.214 0.193 0.167
Net realized and unrealized gain (loss) on investments 3.348 (3.218) (0.886) 2.353
------- ------- ------- -------
Total from investment operations....................... 3.581 (3.004) (0.693) 2.520
------- ------- ------- -------
Less dividends and distributions from:
Net investment income.................................. (0.251) (0.206) (0.017) (0.250)
------- ------- ------- -------
Total dividends and distributions...................... (0.251) (0.206) (0.017) (0.250)
------- ------- ------- -------
Net asset value, end of period......................... $16.320 $12.990 $16.200 $16.910
======= ======= ======= =======
Total return(3)........................................ 28.10% (18.81%) (4.03%) 17.34%
Ratios and supplemental data:
Net assets, end of period (000 omitted)................ $14,737 $5,463 $2,902 $421
Ratio of expenses to average net assets................ 0.92% 0.85% 0.83% 0.79%
Ratio of expenses to average net assets prior to
expense limitation and expenses paid indirectly.1.00%. 0.90% 0.88% 0.79%
Ratio of net investment income to average net assets... 1.66% 1.46% 1.19% 1.63%
Ratio of net investment income to average net assets
prior to expense limitation and expenses paid
indirectly............................................ 1.58% 1.41% 1.14% 1.63%
Portfolio turnover..................................... 79% 100% 102% 80%
______________________
(1) Date of commencement of operations; ratios and portfolio turnover have been
annualized and total return has not been annualized.
(2) The average shares outstanding method has been applied for per share
information.
(3) Total investment return is based on the change in net asset value of a share
during the period and assumes reinvestment of dividends and distributions at
net asset value. Total investment return reflects a waiver and payment of
fees by the manager and distributor, as applicable. Performance would have
been lower had the expense limitation not been in effect.
See accompanying notes
Large Cap Value-6
Delaware VIP Trust-Delaware VIP Large Cap Value Series
Notes to Financial Statements
December 31, 2003
Delaware VIP Trust (the "Trust") is organized as a Delaware statutory trust and
offers 15 series: Delaware VIP Balanced Series, Delaware VIP Capital Reserves
Series, Delaware VIP Cash Reserve Series, Delaware VIP Diversified Income
Series, Delaware VIP Emerging Markets Series, Delaware VIP Global Bond Series,
Delaware VIP Growth Opportunities Series, Delaware VIP High Yield Series,
Delaware VIP International Value Equity Series, Delaware VIP Large Cap Value
Series, Delaware VIP REIT Series, Delaware VIP Select Growth Series, Delaware
VIP Small Cap Value Series, Delaware VIP Trend Series and Delaware VIP U.S.
Growth Series. These financial statements and the related notes pertain to
Delaware VIP Large Cap Value Series (the "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 with
current income as a secondary objective.
1. Significant Accounting Policies
The following accounting policies are in accordance with accounting principles
generally accepted in the United States and are consistently followed by the
Series.
Security Valuation--All equity securities 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 Stock Market, Inc.
(NASDAQ) are valued in accordance with the NASDAQ Official Closing Price, which
may not be the last sales price. If on a particular day an equity security does
not trade, then the mean between the bid and asked prices will normally be used.
Short-term debt securities having less than 60 days to maturity are valued at
amortized cost, which approximates market value. Other securities and assets for
which market quotations are not readily available are valued at fair value as
determined in good faith under the direction of the Series' Board of Trustees.
Federal Income Taxes--The Series intends to continue to qualify for federal
income tax purposes as a regulated investment company and make the requisite
distributions to shareholders. Accordingly, no provision for federal income
taxes has been made in the financial statements.
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. 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 102% collateralized. However, in the
event of default or bankruptcy by the counterparty to the agreement, realization
of the collateral may be subject to legal proceedings.
Use of Estimates--The preparation of financial statements in conformity with
accounting principles generally accepted in the United States 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 common to all funds within the Delaware Investments Family of
Funds are allocated amongst the funds on the basis of average net assets.
Security transactions are recorded on the date the securities are purchased or
sold (trade date). 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.
Certain expenses of the Series are paid through commission arrangements with
brokers. The amount of these expenses was approximately $6,475 for the year
ended December 31, 2003. In addition, 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 year ended December
31, 2003. The expenses paid under the above arrangements are included in their
respective expense captions on the Statement of Operations with the
corresponding expense offset shown as "expenses paid indirectly."
2. Investment Management, Administration Agreements and Other Transactions with
Affiliates
In accordance with the terms of its investment management agreement, the Series
pays Delaware Management Company (DMC), a series of Delaware Management Business
Trust and the investment manager, an annual fee which is calculated daily at the
rate of 0.65% on the first $500 million of average daily net assets of the
Series, 0.60% on the next $500 million, 0.55% on the next $1.5 billion, and
0.50% on average daily net assets in excess of $2.5 billion. DMC has elected to
waive the management fee to 0.60%, indefinitely.
DMC has contractually agreed to waive that portion, if any, of its management
fee and reimburse the Series to the extent necessary to ensure that annual
operating expenses, exclusive of taxes, interest, brokerage commissions,
distribution fees, certain insurance costs and extraordinary expenses, do not
exceed 0.80% of average daily net assets of the Series through April 30, 2004.
No reimbursement was due for the year ended December 31, 2003 under the 0.80%
limit, although DMC did waive the management fee to 0.60%.
Delaware Service Company, Inc. (DSC), an affiliate of DMC, provides accounting,
administration, dividend disbursing and transfer agent services. The Series pays
DSC a monthly fee based on average net assets subject to certain minimums for
accounting and administration services. The Series pays DSC a monthly fee based
on average net assets for dividend disbursing and transfer agent services.
Large Cap Value-7
Delaware VIP Large Cap Value Series
Notes to Financial Statements (continued)
2. Investment Management, Administration Agreements and Other Transactions with
Affiliates (continued)
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 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, 2004 in order to prevent distribution and service fees of the Service
Class shares from exceeding 0.25% of average daily net assets. Prior to May 1,
2003, the Board of Trustees had set the fee at an annual rate of 0.15% of the
Service Class shares' average daily net assets. No distribution expenses are
paid by Standard Class shares.
At December 31, 2003, the Series had liabilities payable to affiliates as
follows:
Dividend disbursing, Other
Investment transfer agent fees, expenses
management accounting payable
fee payable to and other expenses to DMC
DMC payable to DSC and affiliates*
-------------- -------------------- ---------------
$156,030 $12,449 $36,407
*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, professional fees, custodian fees
and trustees' 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 year ended December 31, 2003, the Series made purchases and sales of
investment securities other than short-term investments as follows:
Purchases.................... $209,264,069
Sales........................ $223,285,509
At December 31, 2003, the cost of investments and unrealized appreciation
(depreciation) for federal income tax purposes for the Series was as follows:
Aggregate Aggregate
Cost of unrealized unrealized Net unrealized
investments appreciation depreciation appreciation
------------ ------------ ------------ --------------
$275,941,491 $43,391,401 $(827,244) $42,564,157
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 accounting principles
generally accepted in the United States. The tax character of dividends and
distributions paid during the years ended December 31, 2003 and 2002 was as
follows:
Year Year
Ended Ended
12/31/03 12/31/02
-------- --------
Ordinary income.............. $4,881,613 $4,935,358
As of December 31, 2003, the components of net assets on a tax basis were as
follows:
Shares of beneficial interest........ $333,913,436
Undistributed ordinary income........ 5,035,006
Capital loss carryforwards........... (64,509,719)
Unrealized appreciation of
investments and foreign currencies. 42,564,397
------------
Net assets........................... $317,003,120
============
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. Such capital loss
carryforwards expire as follows: $2,345,618 expires in 2006, $4,548,127 expires
in 2007, $41,247,008 expires in 2008, $3,876,264 expires in 2009, $7,139,658
expires in 2010 and $5,353,044 expires in 2011.
Large Cap Value-8
Delaware VIP Large Cap Value Series
Notes to Financial Statements (continued)
5. Capital Shares
Transactions in capital shares were as follows:
Year Year
Ended Ended
12/31/03 12/31/02
-------- ---------
Shares sold:
Standard Class................... 1,536,259 1,356,754
Service Class.................... 573,493 293,417
Shares sold from merger(1):
Standard Class................... 1,429,640 -
Service Class.................... 249 -
Shares issued upon reinvestment of
dividends and distributions:
Standard Class................... 373,112 298,662
Service Class.................... 9,452 2,641
3,922,205 1,951,474
Shares repurchased:
Standard Class................... (3,351,748) (5,043,283)
Service Class.................... (100,483) (54,743)
(3,452,231) (5,098,026)
Net increase (decrease)........... 469,974 (3,146,552)
- -----------------
(1) See Note #6
6. Fund Merger
Effective April 28, 2003, the Series acquired all of the assets and assumed all
of the liabilities of Delaware VIP Devon Series, an open-end investment company,
pursuant to a Plan and Agreement of Reorganization (the "Reorganization"). The
shareholders of Delaware VIP Devon Series received shares of the respective
class of the Series equal to the aggregate net asset value of their shares prior
to the Reorganization based on the net asset value per share of the respective
classes of the Series.
The Reorganization was treated as a non-taxable event and, accordingly, the
Series' basis in the securities acquired reflected the historical cost basis as
of the date of transfer. The net assets, net unrealized depreciation and
accumulated realized losses of Delaware VIP Devon Series as of the close of
business on April 25, 2003 were as follows:
Net Accumulated
Unrealized Net Realized
Net Assets Depreciation Loss
----------- ------------- -------------
Delaware VIP Devon Series $18,760,141 $(2,349,079) $(16,787,911)
The net assets of the Delaware VIP Large Cap Value Series prior to the
reorganization were $257,983,938.
7. Line of Credit
The Series, along with certain other funds in the Delaware Investments Family of
Funds (the "Participants"), participates in a $177,300,000 revolving line of
credit facility to be used for temporary or emergency purposes as an additional
source of liquidity to fund redemptions of investor shares. The Participants are
charged an annual commitment fee, which is allocated across the Participants on
the basis of each fund's allocation of the entire facility. The Participants may
borrow up to a maximum of one third of their net assets under the agreement. The
Series had no amounts outstanding as of December 31, 2003, or at any time during
the year.
Large Cap Value-9
Delaware VIP Large Cap Value Series
Notes to Financial Statements (continued)
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 J.P. Morgan Chase. Initial security loans made pursuant to the
Lending Agreement are required to be secured by U.S. government obligations
and/or cash collateral not less than 102% of the market value of the securities
issued in the United States and 105% of the market value of securities issued
outside the United States. With respect to each loan, if the aggregate market
value of the collateral held 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 invested in fixed-income
securities, with a weighted average maturity not to exceed 90 days, rated in one
of the top two tiers by Standard & Poor's Ratings Group or Moody's Investors
Service, Inc. or repurchase agreements collateralized by such securities.
However, in the event of default or bankruptcy by the lending agent, realization
and/or retention of the collateral may be subject to legal proceedings. In the
event the borrower fails to return loaned securities and the collateral received
is insufficient to cover the value of the loaned securities and provided such
collateral shortfall is not the result of investment losses, the lending agent
has agreed to pay the amount of the shortfall to the Series, or at the
discretion of the lending agent, replace the loaned securities. The Series
continues to record dividends on the securities loaned and is subject to change
in fair value of the securities loaned that may occur during the term of the
loan. The Series has the right under the Lending Agreement to recover the
securities from the borrower on demand. The security lending agent and the
borrower retain a portion of the earnings from the collateral investments. The
Series records security lending income net of such allocation.
At December 31, 2003, the market value of securities on loan was $2,001,475, 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. Tax Information (Unaudited)
For the fiscal year ended December 31, 2003, the Series designates distributions
paid during the year as follows:
(A) (B)
Long-Term Ordinary
Capital Gains Income Total (C)
Distributions Distributions Distributions Qualifying
(Tax Basis) (Tax Basis) (Tax Basis) Dividends(1)
------------- ------------- ------------- ------------
- 100% 100% 100%
______________________
(A) and (B) are based on a percentage of the Series' total distributions.
(C) is based on a percentage of ordinary income of the Series.
(1) Qualifying dividends represent dividends which qualify for the corporate
dividends received deduction.
Large Cap Value-10
Delaware VIP Trust-Delaware VIP Large Cap Value Series
Report of Independent Auditors
To the Shareholders and Board of Trustees
Delaware VIP Trust-Delaware VIP Large Cap Value Series
We have audited the accompanying statement of net assets of Delaware VIP Large
Cap Value Series (the "Series") as of December 31, 2003, and the related
statement of operations for the year then ended, the statements of changes in
net assets for each of the two years in the period then ended, and the financial
highlights for each of the periods indicated therein. These financial statements
and financial highlights are the responsibility of the Series' management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements and financial highlights. Our procedures included
confirmation of securities owned as of December 31, 2003, by correspondence with
the custodian and brokers, or by other auditing procedures where replies from
brokers were not received. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Delaware VIP Large Cap Value Series at December 31, 2003, the results of its
operations for the year then ended, the changes in its net assets for each of
the two years in the period then ended, and its financial highlights for each of
the periods indicated therein, in conformity with accounting principles
generally accepted in the United States.
/s/ Ernest & Young LLP
Philadelphia, Pennsylvania
February 6, 2004
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
A description of the policies and procedures that the Series uses to determine
how to vote proxies (if any) relating to portfolio securities is available
without charge (i) upon request, by calling 800 523-1918; (ii) on the Series'
website at http://www.delawareinvestments.com; and (iii) on the Commission's
website at http://www.sec.gov.; and beginning no later than August 31, 2004,
information (if any) regarding how the Series voted proxies relating to
portfolio securities during the most recent 12-month period ended June 30 is
available without charge (i) through the Series' website at
http://www.delawareinvestments.com; and (ii) on the Commission's website at
http://www.sec.gov.
- --------------------------------------------------------------------------------
Large Cap Value-11
Delaware Investments Family of Funds
BOARD OF TRUSTEES/DIRECTORS AND OFFICERS ADDENDUM
A mutual fund is governed by a Board of Trustees/Directors which has oversight
responsibility for the management of a fund's business affairs.
Trustees/Directors establish procedures and oversee and review the performance
of the investment manager, the distributor and others that perform services for
the fund. The independent fund trustees, in particular, are advocates for
shareholder interests. The following is a list of the Trustees/Directors and
Officers with certain background and related information.
Number of Other
Principal Portfolios in Fund Directorships
Name, Position(s) Occupation(s) Complex Overseen Held by
Address Held with Length of Time During by Trustee/Director Trustee/Director
and Birthdate Fund(s) Served Past 5 Years or Officer or Officer
- -----------------------------------------------------------------------------------------------------------------------------------
INTERESTED TRUSTEES
Jude T. Driscoll(2) Chairman and 4 Years - Since August 2000, 80 None
2005 Market Street Trustee(4) Executive Officer Mr. Driscoll has served in
Philadelphia, PA various executive capacities
19103 Trustee since at different times at
May 15, 2003 Delaware Investments(1)
March 10, 1963
Senior Vice President and
Director of Fixed-Income Process -
Conseco Capital Management
(June 1998 -August 2000)
Managing Director -
NationsBanc Capital Markets
(February 1996 - June 1998)
- -----------------------------------------------------------------------------------------------------------------------------------
INDEPENDENT TRUSTEES
Walter P. Babich Trustee 16 Years Board Chairman - 98 None
2005 Market Street Citadel Construction Corporation
Philadelphia, PA (1989 - Present)
19103
October 1, 1927
- -----------------------------------------------------------------------------------------------------------------------------------
John H. Durham Trustee 25 Years(3) Private Investor 98 Trustee - Abington
2005 Market Street Memorial Hospital
Philadelphia, PA
19103
President/Director-
22 WR Corporation
August 7, 1937
- -----------------------------------------------------------------------------------------------------------------------------------
John A. Fry Trustee(4) 3 Years President - 80 None
2005 Market Street Franklin & Marshall College
Philadelphia, PA (June 2002 - Present)
19103
Executive Vice President -
University of Pennsylvania
May 28, 1960 (April 1995 - June 2002)
- -----------------------------------------------------------------------------------------------------------------------------------
Anthony D. Knerr Trustee 11 Years Founder/Managing Director - 98 None
2005 Market Street Anthony Knerr & Associates
Philadelphia, PA (Strategic Consulting)
19103 (1990 - Present)
December 7, 1938
- -----------------------------------------------------------------------------------------------------------------------------------
Large Cap Value-12
Number of Other
Principal Portfolios in Fund Directorships
Name, Position(s) Occupation(s) Complex Overseen Held by
Address Held with Length of Time During by Trustee/Director Trustee/Director
and Birthdate Fund(s) Served Past 5 Years or Officer or Officer
- -----------------------------------------------------------------------------------------------------------------------------------
INDEPENDENT TRUSTEES (continued)
Ann R. Leven Trustee 15 Years Treasurer/Chief Fiscal Officer - 98 Director - Andy
2005 Market Street National Gallery of Art Warhol Foundation
Philadelphia, PA (1994 - 1999)
19103 Director -
Systemax Inc.
November 1, 1940
- -----------------------------------------------------------------------------------------------------------------------------------
Thomas F. Madison Trustee 10 Years President/Chief 98 Director -
2005 Market Street Executive Officer - Banner Health
Philadelphia, PA MLM Partners, Inc.
19103 (Small Business Investing Director -
and Consulting) CenterPoint Energy
(January 1993 - Present)
February 25, 1936
Director -
Digital River Inc.
Director - Rimage
Corporation
- -----------------------------------------------------------------------------------------------------------------------------------
Janet L. Yeomans Trustee 5 Years Vice President/Mergers & 98 None
2005 Market Street Acquisitions - 3M Corporation
Philadelphia, PA (January 2003 - Present)
19103
Ms. Yeomans has held
July 31, 1948 various management positions
at 3M Corporation since 1983.
- -----------------------------------------------------------------------------------------------------------------------------------
OFFICERS
Joseph H. Hastings Executive Executive Mr. Hastings has served in 98 None
2005 Market Street Vice President Vice President various executive capacities
Philadelphia, PA and and at different times at
19103 Chief Financial Chief Financial Delaware Investments.
Officer Officer since
August 21, 2003
December 19, 1949
- -----------------------------------------------------------------------------------------------------------------------------------
Richelle S. Maestro Senior Vice President, Chief Legal Officer Ms. Maestro has served in 98 None
2005 Market Street Chief Legal Officer since various executive capacities
Philadelphia, PA and Secretary March 17, 2003 at different times at
19103 Delaware Investments.
November 26, 1957
- -----------------------------------------------------------------------------------------------------------------------------------
Michael P. Bishof Senior Vice President 8 Years Mr. Bishof has served in 98 None
2005 Market Street and Treasurer various executive capacities
Philadelphia, PA at different times at
19103 Delaware Investments.
August 18, 1962
- -----------------------------------------------------------------------------------------------------------------------------------
(1) Delaware Investments is the marketing name for Delaware Management Holdings,
Inc. and its subsidiaries, including the Registrant's investment advisor,
principal underwriter and its transfer agent.
(2) Mr. Driscoll is considered to be an "Interested Trustee" because he is an
executive officer of the Fund's manager and distributor.
(3) Mr. Durham served as a Director Emeritus from 1995 through 1998.
(4) Mr. Driscoll and Mr. Fry are not Trustees of the portfolios of Voyageur
Insured Funds, Voyageur Intermediate Tax Free Funds, Voyageur Investment
Trust, Voyageur Mutual Funds, Voyageur Mutual Funds II, Voyageur Mutual
Funds III and Voyageur Tax Free Funds.
The Statement of Additional Information for the Fund(s) includes additional
information about the Trustees/Directors and Officers and is available, without
charge, upon request by calling 800 523-1918.
(8521)
Large Cap Value-12
FOR TOTAL RETURN
Delaware VIP Trust-Delaware VIP REIT Series
Portfolio Snapshot
Equity real estate investment trusts (REITs) turned in another year of strong
performance in 2003. The NAREIT Equity REIT Index gained +37.13% for the year,
while Delaware VIP REIT Series posted a +34.02% return (Standard Class shares
with distributions reinvested).
REIT market performance had generally slowed in late 2002, following a
stretch of outsized growth. REIT market indexes were relatively calm during the
first quarter of 2003 as investors worried about the economy and the approaching
war in Iraq. Like the rest of the U.S. stock market, REIT performance turned up
during the spring and summer, as major combat ended in Iraq and the U.S. economy
showed signs of increasing strength. The NAREIT Equity REIT Index gained in
excess of +13% in the second quarter, and more than +9% in each of the two
subsequent quarters.
We maintained a cautious approach during much of the year, focusing on
securities we believe to be of higher quality with compelling valuations and the
ability to generate stable cash flows. In particular, we emphasized more
cyclically oriented sectors including regional malls and shopping centers that
generated strong performance.
Investment Outlook
Investors grew optimistic in 2003 as signs of economic growth emerged. While
increased growth in business activity and industrial production signal a
healthier economic climate, the fundamentals of the REIT market did not gain the
same momentum. As an asset class, REITs typically lag behind the broader market
during the early stages of a recovery. However, as the economy continues to
strengthen, REITs as a group should benefit as a result. We also remain
confident that investors will continue to be attracted to REITs for their
compelling yields, attractive long-term diversification benefits, and lower
volatility compared with other sectors of the market.
Performance of a $10,000 Investment:
May 4, 1998 (Series' inception)
through December 31, 2003
[GRAPHIC OMITTED]
Delaware VIP
Nareit Equity REIT Series
REIT Index (Standard Class Shares)
------------- -----------------------
May. 4,'98 $10,000
May.31,'98 $10,000 $ 9,900
Dec.31,'98 $ 8,628 $ 9,100
Dec.31,'99 $ 8,229 $ 8,685
Dec.31,'00 $10,399 $10,879
Dec.31,'01 $11,848 $12,662
Dec.31,'02 $12,300 $13,234
Dec.31,'03 $16,852 $17,738
Delaware VIP REIT Series
Average Annual Total Returns
----------------------------
Standard Class Service Class
Shares* Shares**
Lifetime +10.63% +17.74%
Five Years +14.28% --
One Year +34.02% +33.73%
For the periods ended December 31, 2003
*Commenced operations on May 4, 1998.
**Commenced operations on May 1, 2000.
Past performance is not a guarantee of future results. Returns and share values
will fluctuate so that shares, when redeemed, may be worth more or less than
their original cost.
The chart shows a $10,000 investment in Delaware VIP REIT Series Standard Class
shares for the period from the Series' inception on May 4, 1998 through December
31, 2003. The chart assumes all distributions were reinvested. The return
plotted for the Series on May 31, 1998 reflects any gains or losses that may
have occurred between its inception on May 4, 1998 to May 31, 1998. The chart
also shows a $10,000 investment in the NAREIT Equity REIT Index at that month's
end, May 31, 1998. After May 31, 1998, returns plotted on the chart were as of
the last day of each month shown. The NAREIT Equity REIT Index is an unmanaged
index of real estate investment trusts that invest in many types of U.S.
property. An index is unmanaged and does not reflect the costs of operating a
mutual fund, such as the costs of buying, selling, and holding securities. You
cannot invest in an index. Earnings from a variable annuity investment compound
tax-free until withdrawal, so no adjustments were made for income taxes. An
expense limitation was in effect for Delaware VIP REIT Series during the periods
shown. Performance does not reflect insurance fees related to a variable annuity
or variable life investment or the deferred sales charge that would apply to
certain withdrawals of investments held for fewer than eight years. Performance
shown here would have been reduced if such fees were included and the expense
limitation was removed. For more information about fees, consult your variable
annuity or variable life prospectus. Series' that invest a significant portion
of their assets in one industry or in related industries may involve greater
risks than more diversified funds, including greater potential for volatility.
Series' that invest in REITs are subject to many of the risks associated with
direct real estate ownership and, as such, may be adversely affected by declines
in real estate values and general and local economic conditions.
REIT-1
Delaware VIP Trust-Delaware VIP REIT Series
Statement of Net Assets
December 31, 2003
Number of Market
Shares Value
COMMON STOCK-94.58%
Diversified REITs-4.25%
Vornado Realty Trust ............ 332,300 $18,193,425
-----------
18,193,425
-----------
Healthcare REITs-1.35%
Nationwide Health Properties .... 296,600 5,798,530
-----------
5,798,530
-----------
Hotel REITs-5.25%
Hersha Hospitality Trust ........ 327,900 3,311,790
+Highland Hospitality ............ 346,800 3,780,120
+Host Marriott ................... 368,600 4,541,152
LaSalle Hotel Properties ........ 585,100 10,853,605
-----------
22,486,667
-----------
Industrial REITs-6.79%
AMB Property .................... 199,590 6,562,519
+First Potomac Realty Trust ...... 74,900 1,403,626
Keystone Property Trust ......... 458,400 10,126,056
ProLogis ........................ 342,500 10,990,825
-----------
29,083,026
-----------
Mall REITs-16.91%
CBL & Associates Properties ..... 214,400 12,113,600
General Growth Properties ....... 742,100 20,593,275
Rouse ........................... 375,100 17,629,700
Simon Property Group ............ 476,550 22,083,327
-----------
72,419,902
-----------
Manufactured Housing REITs-1.46%
Sun Communities ................. 161,760 6,260,112
-----------
6,260,112
-----------
Mortgage REITs-1.37%
+Fieldstone Investment Corporate
144A .......................... 350,300 5,867,525
-----------
5,867,525
-----------
Multifamily REITs-9.51%
Apartment Investment & Management
Class A ....................... 295,810 10,205,445
AvalonBay Communities ........... 163,973 7,837,909
Camden Property Trust ........... 299,100 13,250,130
Equity Residential .............. 319,800 9,437,298
-----------
40,730,782
-----------
Number of Market
Shares Value
COMMON STOCK (continued)
Office REITs-21.23%
Alexandria Real Estate Equities ....... 194,770 $11,277,183
American Financial Realty Trust ....... 524,000 8,934,200
CarrAmerica Realty .................... 504,680 15,029,370
Equity Office Properties Trust ........ 974,311 27,914,010
Prentiss Properties Trust ............. 473,280 15,613,507
SL Green Realty ....................... 294,390 12,084,710
-----------
90,852,980
-----------
Office/Industrial REITs-8.30%
Duke Realty ........................... 418,800 12,982,800
Liberty Property Trust ................ 230,360 8,961,004
Reckson Associates Realty ............. 560,290 13,615,047
-----------
35,558,851
-----------
Real Estate Operating Companies-4.41%
Catellus Development .................. 436,271 10,522,857
Starwood Hotels & Resorts Worldwide ... 232,100 8,348,637
-----------
18,871,494
-----------
Retail Outlet Center REITs-4.26%
Chelsea Property Group ................ 333,100 18,257,211
-----------
18,257,211
-----------
Retail Strip Centers REITs-9.49%
Developers Diversified Realty ......... 444,400 14,918,508
Equity One ............................ 195,100 3,293,288
Federal Realty Investment Trust ....... 244,600 9,390,194
Ramco-Gershenson Properties ........... 333,700 9,443,710
Regency Centers ....................... 90,600 3,610,410
-----------
40,656,110
-----------
Total Common Stock
(cost $338,624,017) ................. 405,036,615
-----------
REIT-2
Delaware VIP REIT Series
Statement of Net Assets (continued)
Principal Market
Amount Value
REPURCHASE AGREEMENTS-7.46%
With BNP Paribas 0.85% 1/2/04 (dated
12/31/03, collateralized by $739,000
U.S. Treasury Bills due 3/25/04, market
value $737,673, $2,736,000
U.S. Treasury Notes 3.625% due 3/31/04,
market value $2,779,136, $8,414,000
U.S. Treasury Notes 6.00% due 8/15/04,
market value $8,862,418, and $4,342,000
U.S. Treasury Notes 1.625% due 1/31/05,
market value $4,390,542)...................... $16,436,000 $16,436,000
Principal Market
Amount Value
REPURCHASE AGREEMENTS (continued)
With UBS Warburg 0.85% 1/2/04 (dated
12/31/03, collateralized by $3,604,000
U.S. Treasury Notes 1.625% due 3/31/05,
market value $3,632,349, $124,000
U.S. Treasury Notes 5.50% due 2/15/08,
market value $139,229, and $10,811,000
U.S. Treasury Notes 5.625% due 5/15/08,
market value $12,058,870)..................... $15,496,000 $15,496,000
-----------
Total Repurchase Agreements
(cost $31,932,000)........................... 31,932,000
-----------
TOTAL MARKET VALUE OF SECURITIES-102.04% (COST $370,556,017)................................. 436,968,615
LIABILITIES NET OF RECEIVABLES AND OTHER ASSETS-(2.04%)...................................... (8,734,422)
------------
NET ASSETS APPLICABLE TO 28,280,672 SHARES OUTSTANDING-100.00%............................... $428,234,193
============
NET ASSET VALUE-DELAWARE VIP REIT SERIES STANDARD CLASS ($359,957,685 / 23,768,557 SHARES)... $15.14
======
NET ASSET VALUE-DELAWARE VIP REIT SERIES SERVICE CLASS ($68,276,508 / 4,512,115 SHARES)...... $15.13
======
COMPONENTS OF NET ASSETS AT DECEMBER 31, 2003:
Shares of beneficial interest (unlimited authorization-no par)............................... $337,559,110
Undistributed net investment income.......................................................... 16,467,451
Accumulated net realized gain on investments................................................. 7,795,034
Net unrealized appreciation of investments................................................... 66,412,598
------------
Total net assets............................................................................. $428,234,193
============
- ------------
+Non-income producing security for the year ended December 31, 2003.
REIT-Real Estate Investment Trust
See accompanying notes
REIT-3
Delaware VIP Trust-
Delaware VIP REIT Series
Statement of Operations
Year Ended December 31, 2003
INVESTMENT INCOME:
Dividends*................................................... $16,477,446
Interest..................................................... 204,050
-----------
16,681,496
-----------
EXPENSES:
Management fees.............................................. 2,328,229
Accounting and administration expenses ...................... 128,650
Distribution expenses - Service Class........................ 111,777
Reports and statements to shareholders....................... 50,719
Professional fees............................................ 38,120
Dividend disbursing and transfer agent
fees and expenses........................................... 31,101
Custodian fees............................................... 17,893
Trustees' fees............................................... 8,770
Registration fees............................................ 7,114
Other........................................................ 65,889
-----------
2,788,262
Less waiver of distribution expenses - Service Class......... (16,133)
Less expenses paid indirectly ............................... (8,543)
-----------
Total expenses............................................... 2,763,586
-----------
NET INVESTMENT INCOME........................................ 13,917,910
-----------
NET REALIZED AND UNREALIZED GAIN
ON INVESTMENTS:
Net realized gain on investments............................. 9,441,405
Net change in unrealized appreciation /
depreciation of investments................................. 71,007,114
-----------
NET REALIZED AND UNREALIZED GAIN
ON INVESTMENTS............................................. 80,448,519
-----------
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS............................................. $94,366,429
===========
*Includes non-cash dividends of $806,864.
See accompanying notes
REIT-4
Delaware VIP Trust- Delaware VIP REIT Series
Statements of Changes in Net Assets
Year Ended
12/31/03 12/31/02
INCREASE (DECREASE) IN NET
ASSETS FROM OPERATIONS:
Net investment income ............................. $ 13,917,910 $ 8,762,528
Net realized gain on investments................... 9,441,405 1,102,096
Net change in unrealized appreciation /
depreciation of investments ..................... 71,007,114 (10,504,963)
------------ ------------
Net increase (decrease) in net assets
resulting from operations ....................... 94,366,429 (640,339)
------------ ------------
DIVIDENDS AND DISTRIBUTIONS TO
SHAREHOLDERS FROM:
Net investment income:
Standard Class.................................... (6,332,149) (3,095,769)
Service Class..................................... (876,297) (275,611)
Net realized gain on investments:
Standard Class.................................... (1,944,081) (1,923,869)
Service Class..................................... (283,985) (180,984)
------------ ------------
(9,436,512) (5,476,233)
------------ ------------
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares sold:
Standard Class.................................... 99,035,035 170,102,287
Service Class..................................... 34,637,154 28,862,813
Net asset value of shares issued upon
reinvestment of dividends and distributions:
Standard Class.................................... 8,276,230 5,019,638
Service Class..................................... 1,160,282 456,595
------------ ------------
143,108,701 204,441,333
------------ ------------
Cost of shares repurchased:
Standard Class.................................... (46,081,982) (43,587,371)
Service Class..................................... (7,700,660) (9,165,279)
------------ ------------
(53,782,642) (52,752,650)
------------ ------------
Increase in net assets derived from capital
share transactions................................ 89,326,059 151,688,683
------------ ------------
NET INCREASE IN NET ASSETS......................... 174,255,976 145,572,111
NET ASSETS:
Beginning of year.................................. 253,978,217 108,406,106
------------ ------------
End of year........................................ $428,234,193 $253,978,217
============ ============
See accompanying notes
REIT-4
Delaware VIP Trust-
Delaware VIP REIT Series
Financial Highlights
Selected data for each share of the Series outstanding throughout each period
were as follows:
Delaware VIP REIT Series Standard Class
Year Ended
12/31/03 12/31/02 12/31/01 12/31/00 2/31/99
-----------------------------------------------------------------
Net asset value, beginning of period............. $11.730 $11.700 $11.020 $ 8.670 $9.100
Income (loss) from investment operations:
Net investment income(1)......................... 0.586 0.534 0.571 0.532 0.334
Net realized and unrealized gain (loss) on
investments.................................... 3.271 0.010 0.361 2.100 (0.574)
------- ------- ------- ------- ------
Total from investment operations................. 3.857 0.544 0.932 2.632 (0.240)
------- ------- ------- ------- ------
Less dividends and distributions from:
Net investment income............................ (0.342) (0.317) (0.209) (0.282) (0.190)
Net realized gain on investments................. (0.105) (0.197) (0.043) -- --
------- ------- ------- ------- ------
Total dividends and distributions................ (0.447) (0.514) (0.252) (0.282) (0.190)
------- ------- ------- ------- ------
Net asset value, end of period................... $15.140 $11.730 $11.700 $11.020 $8.670
======= ======= ======= ======= ======
Total return(2).................................. 34.02% 4.52% 8.79% 31.33% (2.61%)
Ratios and supplemental data:
Net assets, end of period (000 omitted).......... $359,958 $225,826 $99,787 $57,664 $11,624
Ratio of expenses to average net assets.......... .0.86% 0.84% 0.85% 0.85% 0.85%
Ratio of expenses to average net assets prior
to expenselimitation and expenses paid
indirectly..................................... 0.86% 0.84% 0.89% 1.03% 0.96%
Ratio of net investment income to average net
assets......................................... 4.51% 4.52% 5.16% 5.63% 5.65%
Ratio of net investment income to average net
assets prior to expense limitation and expenses
paid indirectly ............................... 4.51% 4.52% 5.12% 5.45% 5.54%
Portfolio turnover............................... 37% 53% 56% 31% 33%
- -----------------
(1) The average shares outstanding method has been applied for per share
information for the years ended December 31, 2003, 2002, 2001 and 2000.
(2) Total investment return is based on the change in net asset value of a share
during the period and assumes reinvestment of dividends and distributions at
net asset value. Total investment return reflects waivers and payment of
fees by the manager, as applicable. Performance would have been lower had
the expense limitation not been in effect.
See accompanying notes
REIT-5
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
5/1/00(1)
Year Ended to
12/31/03 12/31/02 12/31/01 12/31/00
---------------------------------------------------
Net asset value, beginning of period............. $11.720 $11.700 $11.020 $9.180
Income from investment operations:
Net investment income(2)......................... 0.556 0.517 0.555 0.389
Net realized and unrealized gain on investments.. 3.283 -- 0.366 1.451
------- ------- ------- -------
Total from investment operations................. 3.839 0.517 0.921 1.840
------- ------- ------- -------
Less dividends and distributions from:
Net investment income............................ (0.324) (0.300) (0.198) --
Net realized gain on investments................. (0.105) (0.197) (0.043) --
------- ------- ------- -------
Total dividends and distributions................ (0.429) (0.497) (0.241) --
------- ------- ------- -------
Net asset value, end of period................... $15.130 $11.720 $11.700 $11.020
======= ======= ======= =======
Total return(3).................................. 33.73% 4.38% 8.67% 20.04%
Ratios and supplemental data:
Net assets, end of period (000 omitted).......... $68,276 $28,152 $8,619 $2,501
Ratio of expenses to average net assets.......... 1.08% 0.99% 1.00% 1.00%
Ratio of expenses to average net assets prior to
expense limitation and expenses paid
indirectly..................................... 1.11% 0.99% 1.04% 1.21%
Ratio of net investment income to average net
assets ........................................ 4.29% 4.37% 5.01% 5.69%
Ratio of net investment income to average net
assets prior to expense limitation and expenses
paid indirectly................................ 4.26% 4.37% 4.97% 5.48%
Portfolio turnover............................... 37% 53% 56% 31%
- ----------------
(1) Date of commencement of operations; ratios and portfolio turnover have been
annualized and total return has not been annualized.
(2) The average shares outstanding method has been applied for per share
information.
(3) Total investment return is based on the change in net asset value of a share
during the period and assumes reinvestment of dividends and distributions at
net asset value. Total investment return reflects waivers and payment of
fees by the manager and distributor, as applicable. Performance would have
been lower had the expense limitation and waiver not been in effect.
See accompanying notes
REIT-6
Delaware VIP Trust-Delaware VIP REIT Series
Notes to Financial Statements
December 31, 2003
Delaware VIP Trust (the "Trust") is organized as a Delaware statutory trust and
offers 15 series: Delaware VIP Balanced Series, Delaware VIP Capital Reserves
Series, Delaware VIP Cash Reserve Series, Delaware VIP Diversified Income
Series, Delaware VIP Emerging Markets Series, Delaware VIP Global Bond Series,
Delaware VIP Growth Opportunities Series, Delaware VIP High Yield Series,
Delaware VIP International Value Equity Series, Delaware VIP Large Cap Value
Series, Delaware VIP REIT Series, Delaware VIP Select Growth Series, Delaware
VIP Small Cap Value Series, Delaware VIP Trend Series and Delaware VIP U.S.
Growth Series. These financial statements and the related notes pertain to
Delaware VIP REIT Series (the "Series"). The Trust is an open-end investment
company. The Series is considered non-diversified under the Investment Company
Act of 1940, as amended, and offers Standard Class and Service Class shares. The
Standard Class shares do not carry a 12b-1 fee and the Service Class shares
carry a 12b-1 fee. The shares of the Series are sold only to separate accounts
of life insurance companies.
The investment objective of the Series is to seek maximum long-term total
return, with capital appreciation as a secondary objective.
1. Significant Accounting Policies
The following accounting policies are in accordance with accounting principles
generally accepted in the United States and are consistently followed by the
Series.
Security Valuation--All equity securities 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 Stock Market, Inc.
(NASDAQ) are valued in accordance with the NASDAQ Official Closing Price, which
may not be the last sales price. If on a particular day an equity security does
not trade, then the mean between the bid and asked prices will normally be used.
Short-term debt securities having less than 60 days to maturity are valued at
amortized cost, which approximates market value. Other securities and assets for
which market quotations are not readily available are valued at fair value as
determined in good faith under the direction of the Series' Board of Trustees.
In determining whether market quotations are readily available or fair valuation
will be used, various factors will be taken into consideration, such as market
closures, or with respect to foreign securities, aftermarket trading or
significant events after local market trading (e.g., government actions or
pronouncements, trading volume or volatility on markets, exchanges among
dealers, or news events).
Federal Income Taxes--The Series intends to continue to qualify for federal
income tax purposes as a regulated investment company and make the requisite
distributions to shareholders. Accordingly, no provision for federal income
taxes has been made in the financial statements.
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. 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 102% collateralized. However, in the
event of default or bankruptcy by the counterparty to the agreement, realization
of the collateral may be subject to legal proceedings.
Use of Estimates--The preparation of financial statements in conformity with
accounting principles generally accepted in the United States 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 common to all funds within the Delaware Investments Family of
Funds are allocated amongst the funds on the basis of average net assets.
Security transactions are recorded on the date the securities are purchased or
sold (trade date). Costs used in calculating realized gains and losses on the
sale of investment securities are those of the specific securities sold.
Dividend income is recorded on the ex-dividend date and interest income is
recorded on the accrual basis. Taxable non-cash dividends are recorded as
dividend income. Distributions received from investments in Real Estate
Investment Trusts are recorded as dividend income on ex-dividend date, subject
to reclassification upon notice of the character of such distribution by the
issuer.
The Series declares and pays dividends from net investment income and
distributions from net realized gain on investments, if any, following the close
of the fiscal year.
Certain expenses of the Series are paid through commission arrangements with
brokers. The amount of these expenses was approximately $7,450 for the year
ended December 31, 2003. In addition, the Series receives earnings credits from
its custodian when positive cash balances are maintained, which are used to
offset custody fees. The earnings credits for the year ended December 31, 2003
were approximately $1,093. The expenses paid under the above arrangements are
included in their respective expense captions on the Statement of Operations
with the corresponding expense offset shown as "expenses paid indirectly."
2. Investment Management, Administration Agreements and Other Transactions with
Affiliates
In accordance with the terms of its investment management agreement, the Series
pays Delaware Management Company (DMC), a series of Delaware Management Business
Trust and the investment manager, an annual fee which is calculated daily at the
rate of 0.75% on the first $500 million of average daily net assets of the
Series, 0.70% on the next $500 million, 0.65% on the next $1.5 billion, and
0.60% on average daily net assets in excess of $2.5 billion.
REIT-7
Delaware VIP REIT Series
Notes to Financial Statements (continued)
2. Investment Management, Administration Agreements and Other Transactions with
Affiliates (continued)
DMC has contractually agreed to waive that portion, if any, of its management
fee and reimburse the Series to the extent necessary to ensure that annual
operating expenses, exclusive of taxes, interest, brokerage commissions,
distribution fees, certain insurance costs and extraordinary expenses do not
exceed 0.95% of average daily net assets of the Series through April 30, 2004.
No reimbursement was due for the year ended December 31, 2003.
Delaware Service Company, Inc. (DSC), an affiliate of DMC, provides accounting,
administration, dividend disbursing and transfer agent services. The Series pays
DSC a monthly fee based on average net assets subject to certain minimums for
accounting and administration services. The Series pays DSC a monthly fee based
on average net assets for dividend disbursing and transfer agent services.
Pursuant to a distribution agreement and distribution plan, the Series pays
Delaware Distributors, L.P. (DDLP), the distributor and an affiliate of DMC, an
annual 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, 2004 in order to prevent distribution and service fees of the Service
Class shares from exceeding 0.25% of average daily net assets. Prior to May 1,
2003, the Board of Trustees had set the fee at an annual rate of 0.15% of the
Service Class shares' average daily net assets. No distribution expenses are
paid by Standard Class shares.
At December 31, 2003, the Series had liabilities payable to affiliates as
follows:
Dividend disbursing,
Investment transfer agent fees,
management accounting Other expenses
fee payable to and other expenses payable to DMC
DMC payable to DSC and affiliates*
-------------- -------------------- ---------------
$263,467 $16,802 $54,655
*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, professional fees, custodian fees and
trustees 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 year ended December 31, 2003, the Series made purchases and sales of
investment securities other than short-term investments as follows:
Purchases.................... $192,367,377
Sales........................ $109,315,081
At December 31, 2003, the cost of investments and unrealized appreciation
(depreciation) for federal income tax purposes for the Series was as follows:
Aggregate Aggregate
Cost of unrealized unrealized Net unrealized
investments appreciation depreciation appreciation
----------- ------------ ------------ --------------
$370,818,515 $68,306,072 $(2,155,972) $66,150,100
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 accounting principles
generally accepted in the United States. The tax character of dividends and
distributions paid during the years ended December 31, 2003 and 2002 was as
follows:
Year Year
Ended Ended
12/31/03 12/31/02
-------- --------
Ordinary income.............. $7,208,446 $3,926,328
Long-term capital gain ...... 2,228,066 1,549,905
---------- ----------
Total........................ $9,436,512 $5,476,233
========== ==========
REIT-8
Delaware VIP REIT Series
Notes to Financial Statements (continued)
4. Dividend and Distribution Information (continued)
As of December 31, 2003, the components of net assets on a tax basis were as
follows:
Shares of beneficial interest........... $337,559,110
Undistributed ordinary income........... 17,645,896
Net long-term capital gain.............. 6,879,087
Unrealized appreciation of investments.. 66,150,100
------------
Net assets.............................. $428,234,193
============
The differences between book basis and tax basis components of net assets are
primarily attributable to tax deferral of losses on wash sales.
The undistributed earnings for the Series are estimated pending final
notification of the tax character of dividends received from investments in Real
Estate Investment Trusts.
5. Capital Shares
Transactions in capital shares were as follows:
Year Year
Ended Ended
12/31/03 12/31/02
-------- --------
Shares sold:
Standard Class............... 7,600,678 14,077,683
Service Class................ 2,621,018 2,412,302
Shares issued upon
reinvestment of dividends
and distributions:
Standard Class............... 710,406 415,533
Service Class................ 99,424 37,766
----------- ----------
11,031,526 16,943,284
----------- ----------
Shares repurchased:
Standard Class............... (3,799,870) (3,766,494)
Service Class................ (609,461) (785,912)
----------- ----------
(4,409,331) (4,552,406)
----------- ----------
Net increase.................. 6,622,195 12,390,878
=========== ==========
6. Line of Credit
The Series, along with certain other funds in the Delaware Investments Family of
Funds (the "Participants"), participates in a $177,300,000 revolving line of
credit facility to be used for temporary or emergency purposes as an additional
source of liquidity to fund redemptions of investor shares. The Participants are
charged an annual commitment fee, which is allocated across the Participants on
the basis of each fund's allocation of the entire facility. The Participants may
borrow up to a maximum of one third of their net assets under the agreement. The
Series had no amounts outstanding as of December 31, 2003, or at any time during
the year.
7. Credit and Market Risk
The Series concentrates its investments in the real estate industry and is
subject to some of the risks associated with that industry. If the Series holds
real estate directly as a result of defaults or receives rental income directly
from real estate holdings, its tax status as a regulated investment company may
be jeopardized. The Series is also affected by interest rate changes,
particularly if the real estate investment trusts it holds use floating rate
debt to finance their ongoing operations. Its investments may also tend to
fluctuate more in value than a portfolio that invests in a broader range of
industries.
8. Tax Information (Unaudited)
For the fiscal year ended December 31, 2003, the Series designates distributions
paid during the year as follows:
(A) (B)
Long-Term Ordinary
Capital Gains Income Total (C)
Distributions Distributions Distributions Qualifying
(Tax Basis) (Tax Basis) (Tax Basis) Dividends(1)
------------- -------------- ------------- ------------
24% 76% 100% --
- ------------
(A) and (B) are based on a percentage of the Series' total distributions.
(C) is based on a percentage of ordinary income of the Series.
(1) Qualifying dividends represent dividends which qualify for the corporate
dividends received deduction.
REIT-9
Delaware VIP Trust-Delaware VIP REIT Series
Report of Independent Auditors
To the Shareholders and Board of Trustees
Delaware VIP Trust-Delaware VIP REIT Series
We have audited the accompanying statement of net assets of Delaware VIP REIT
Series (the "Series") as of December 31, 2003, and the related statement of
operations for the year then ended, the statements of changes in net assets for
each of the two years in the period then ended, and the financial highlights for
each of the periods indicated therein. These financial statements and financial
highlights are the responsibility of the Series' management. Our responsibility
is to express an opinion on these financial statements and financial highlights
based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements and financial highlights. Our procedures included
confirmation of securities owned as of December 31, 2003, by correspondence with
the custodian and brokers, or by other auditing procedures where replies from
brokers were not received. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Delaware VIP REIT Series at December 31, 2003, the results of its operations for
the year then ended, the changes in its net assets for each of the two years in
the period then ended, and its financial highlights for each of the periods
indicated therein, in conformity with accounting principles generally accepted
in the United States.
Philadelphia, Pennsylvania
February 6, 2004
Ernst & Young LLP
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
A description of the policies and procedures that the Series uses to determine
how to vote proxies (if any) relating to portfolio securities is available
without charge (i) upon request, by calling 800 523-1918; (ii) on the Series'
website at http://www.delawareinvestments.com; and (iii) on the Commission's
website at http://www.sec.gov.; and beginning no later than August 31, 2004,
information (if any) regarding how the Series voted proxies relating to
portfolio securities during the most recent 12-month period ended June 30 is
available without charge (i) through the Series' website at
http://www.delawareinvestments.com; and (ii) on the Commission's website at
http://www.sec.gov.
- --------------------------------------------------------------------------------
REIT-10
Delaware Investments Family of Funds
BOARD OF TRUSTEES/DIRECTORS AND OFFICERS ADDENDUM
A mutual fund is governed by a Board of Trustees/Directors which has oversight
responsibility for the management of a fund's business affairs.
Trustees/Directors establish procedures and oversee and review the performance
of the investment manager, the distributor and others that perform services for
the fund. The independent fund trustees, in particular, are advocates for
shareholder interests. The following is a list of the Trustees/Directors and
Officers with certain background and related information.
Number of Other
Principal Portfolios in Fund Directorships
Name, Position(s) Occupation(s) Complex Overseen Held by
Address Held with Length of Time During by Trustee/Director Trustee/Director
and Birthdate Fund(s) Served Past 5 Years or Officer or Officer
- -----------------------------------------------------------------------------------------------------------------------------------
INTERESTED TRUSTEES
Jude T. Driscoll(2) Chairman and 4 Years - Since August 2000, 80 None
2005 Market Street Trustee(4) Executive Officer Mr. Driscoll has served in
Philadelphia, PA various executive capacities
19103 Trustee since at different times at
May 15, 2003 Delaware Investments(1)
March 10, 1963
Senior Vice President and
Director of Fixed-Income Process -
Conseco Capital Management
(June 1998 - August 2000)
Managing Director -
NationsBanc Capital Markets
(February 996 - June 1998)
- -----------------------------------------------------------------------------------------------------------------------------------
INDEPENDENT TRUSTEES
Walter P. Babich Trustee 16 Years Board Chairman - 98 None
2005 Market Street Citadel Construction Corporation
Philadelphia, PA (1989 - Present)
19103
October 1, 1927
- -----------------------------------------------------------------------------------------------------------------------------------
John H. Durham Trustee 25 Years(3) Private Investor 98 Trustee - Abington
2005 Market Street Memorial Hospital
Philadelphia, PA
19103
President/Director-
22 WR Corporation
August 7, 1937
- -----------------------------------------------------------------------------------------------------------------------------------
John A. Fry Trustee(4) 3 Years President - 80 None
2005 Market Street Franklin & Marshall College
Philadelphia, PA (June 2002 - Present)
19103
Executive Vice President -
University of Pennsylvania
May 28, 1960 (April 1995 - June 2002)
- -----------------------------------------------------------------------------------------------------------------------------------
Anthony D. Knerr Trustee 11 Years Founder/Managing Director - 98 None
2005 Market Street Anthony Knerr & Associates
Philadelphia, PA (Strategic Consulting)
19103 (1990 - Present)
December 7, 1938
- -----------------------------------------------------------------------------------------------------------------------------------
REIT-11
Number of Other
Principal Portfolios in Fund Directorships
Name, Position(s) Occupation(s) Complex Overseen Held by
Address Held with Length of Time During by Trustee/Director Trustee/Director
and Birthdate Fund(s) Served Past 5 Years or Officer or Officer
- -----------------------------------------------------------------------------------------------------------------------------------
INDEPENDENT TRUSTEES (continued)
Ann R. Leven Trustee 15 Years Treasurer/Chief Fiscal Officer - 98 Director - Andy
2005 Market Street National Gallery of Art Warhol Foundation
Philadelphia, PA (1994 - 1999)
19103 Director -
Systemax Inc.
November 1, 1940
- -----------------------------------------------------------------------------------------------------------------------------------
Thomas F. Madison Trustee 10 Years President/Chief 98 Director -
2005 Market Street Executive Officer - Banner Health
Philadelphia, PA MLM Partners, Inc.
19103 (Small Business Investing Director -
and Consulting) CenterPoint Energy
(January 1993 - Present)
February 25, 1936
Director -
Digital River Inc.
Director - Rimage
Corporation
- -----------------------------------------------------------------------------------------------------------------------------------
Janet L. Yeomans Trustee 5 Years Vice President/Mergers & 98 None
2005 Market Street Acquisitions - 3M Corporation
Philadelphia, PA (January 2003 - Present)
19103
Ms. Yeomans has held
July 31, 1948 various management positions
at 3M Corporation since 1983.
- -----------------------------------------------------------------------------------------------------------------------------------
OFFICERS
Joseph H. Hastings Executive Executive Mr. Hastings has served in 98 None
2005 Market Street Vice President Vice President various executive capacities
Philadelphia, PA and and at different times at
19103 Chief Financial Chief Financial Delaware Investments.
Officer Officer since
August 21, 2003
December 19, 1949
- -----------------------------------------------------------------------------------------------------------------------------------
Richelle S. Maestro Senior Vice President, Chief Legal Officer Ms. Maestro has served in 98 None
2005 Market Street Chief Legal Officer since various executive capacities
Philadelphia, PA and Secretary March 17, 2003 at different times at
19103 Delaware Investments.
November 26, 1957
- -----------------------------------------------------------------------------------------------------------------------------------
Michael P. Bishof Senior Vice President 8 Years Mr. Bishof has served in 98 None
2005 Market Street and Treasurer various executive capacities
Philadelphia, PA at different times at
19103 Delaware Investments.
August 18, 1962
- -----------------------------------------------------------------------------------------------------------------------------------
(1) Delaware Investments is the marketing name for Delaware Management Holdings,
Inc. and its subsidiaries, including the Registrant's investment advisor,
principal underwriter and its transfer agent.
(2) Mr. Driscoll is considered to be an "Interested Trustee" because he is an
executive officer of the Fund's manager and distributor.
(3) Mr. Durham served as a Director Emeritus from 1995 through 1998.
(4) Mr. Driscoll and Mr. Fry are not Trustees of the portfolios of Voyageur
Insured Funds, Voyageur Intermediate Tax Free Funds, Voyageur Investment
Trust, Voyageur Mutual Funds, Voyageur Mutual Funds II, Voyageur Mutual
Funds III and Voyageur Tax Free Funds.
The Statement of Additional Information for the Fund(s) includes additional
information about the Trustees/Directors and Officers and is available, without
charge, upon request by calling 800 523-1918.
(8521)
REIT-12
FOR CAPITAL APPRECIATION
Delaware VIP Trust-Delaware VIP Select Growth Series
Portfolio Snapshot
Stocks experienced rising values for much of the period following the end of
major combat in the Iraqi conflict. Cause for the steady runup included robust
economic expansion, as evidenced by the Commerce Department's revision of third
quarter gross domestic product (GDP) to +8.2%, a level not seen in nearly two
decades. With the backdrop of a strengthening economy, investors witnessed
accelerating corporate earnings. Investors also appeared to be willing to take
on added risk during the 12-month period, as evidenced by the outperformance of
companies with less-desirable market fundamentals, such as those with low prices
relative to earnings. This trend contributed to the relative outperformance of
growth-oriented stocks versus value-oriented names. Among the notable market
trends during the period, investors appeared drawn to stocks of down-and-out
market sectors, such as technology, as well as smaller-sized companies.
Fortunately, these trends aligned themselves well with the type of stocks within
the Series. As a result, the Series returned +39.46% (Standard Class shares with
distributions reinvested) for the year. As a gauge of performance, the Series'
benchmark, the Standard & Poor's 500 Index returned +28.67%.
In review, the Series benefited from its exposure to such technology-related
companies as Xilinx and Analog Devices. The Series also gained performance
during the 12-month period from its position in Watson Pharmaceuticals, which
rose more than 20 percent in the month of November. The Series lost a measure of
performance with its holding of Kohl's, which suffered from disappointing sales
results during the year, as well as CV Therapeutics, which slipped after
investors discovered the introduction of its new heart-related drug might be
delayed.
Investment Outlook
Looking forward, we remain optimistic that the overall economy will continue
to show improvement. Within equity markets, the fourth quarter marked a change
from the rest of the year in that the poorest-quality issues did not lead the
market. We believe that this shift towards higher-quality issues should continue
if the strongest companies within individual industries benefit from the
improving macroeconomic environment and leverage their inherent strengths. We
believe our investment strategy of focusing on these industry leaders should
perform well if this shift occurs.
[GRAPHIC OMITTED]
Performance of a $10,000 Investment:
May 3, 1999 (Series inception)
through December 31, 2003
Delaware VIP
Select Growth Series
S&P 500 Index (Standard Class Shares)
------------- -----------------------
May.31,'99 $10,000 $10,000
Dec.31,'99 $11,368 $14,290
Dec.31,'00 $10,333 $11,081
Dec.31,'01 $ 9,105 $ 8,445
Dec.31,'02 $ 7,093 $ 5,698
Dec.31,'02 $ 9,127 $ 7,947
Delaware VIP Select Growth Series
Average Annual Total Returns
---------------------------------
Standard Class Service Class
Shares* Shares**
Lifetime -4.80% -13.41%
One Year +39.46% +39.07%
For the periods ended December 31, 2003
*Commenced operations on May 3, 1999.
**Commenced operations on May 1, 2000.
Past performance is not a guarantee of future results. Returns and share
values will fluctuate so that shares, when redeemed, may be worth more or less
than their original cost.
The chart shows a $10,000 investment in Delaware VIP Select Growth Series
Standard Class shares for the period from the Series' inception on May 3, 1999
through December 31, 2003. The chart assumes all distributions were reinvested.
The chart also shows a $10,000 investment in the S&P 500 Index at that month's
end, May 31, 1999. After May 31, 1999, returns plotted on the chart were as of
the last day of each month shown. The S&P 500 Index measures the performance of
mostly large-capitalization U.S. companies. An index is unmanaged and does not
reflect the costs of operating a mutual fund, such as the costs of buying,
selling, and holding securities. You cannot invest directly in an index.
Earnings from a variable annuity investment compound tax-free until withdrawn,
so no adjustments were made for income taxes. An expense limitation was in
effect for Delaware VIP Select Growth Series during the periods shown.
Performance does not reflect insurance fees related to a variable annuity or
variable life investment or the deferred sales charge that would apply to
certain withdrawals of investments held for fewer than eight years. Performance
shown here would have been reduced if such fees were included and the expense
limitation was removed. For more information about fees, consult your variable
annuity or variable life prospectus.
Select Growth-1
Delaware VIP Trust-Delaware VIP Select Growth Series
Statement of Net Assets
December 31, 2003
Number of Market
Shares Value
COMMON STOCK-97.36%
Banking & Finance-12.84%
+AmeriTrade Holding................... 47,300 $665,511
City National........................ 8,100 503,172
Eaton Vance.......................... 9,400 344,416
First Tennessee National............. 7,300 321,930
IndyMac Bancorp...................... 24,700 735,813
Lehman Brothers Holdings............. 5,500 424,710
Webster Financial.................... 7,400 339,364
Westcorp............................. 9,700 354,535
---------
3,689,451
---------
Business Services-8.35%
+Affiliated Computer Services Class A 5,600 304,976
+Cendant.............................. 43,600 970,972
Manpower............................. 9,000 423,720
+United Rentals....................... 36,500 702,990
---------
2,402,658
---------
Cable, Media & Publishing-8.41%
Clear Channel Communications......... 6,100 285,663
+Comcast Special Class A.............. 30,200 944,656
+Mediacom Communications.............. 57,200 495,924
+Westwood One......................... 20,200 691,042
---------
2,417,285
---------
Computer Software-1.47%
Henry (Jack) & Associates............ 20,600 423,948
---------
423,948
---------
Computers & Technology-3.31%
ASML Holding N.V..................... 22,700 455,135
#+Convera Restricted................... 31,900 97,662
#+EOS International Restricted......... 212,900 84,308
+Fiserv............................... 8,000 316,080
---------
953,185
---------
Consumer Non-Durables-10.70%
+Amazon.com........................... 9,200 484,288
+Bed Bath & Beyond.................... 10,100 437,835
Gap.................................. 15,400 357,434
+Kohl's............................... 4,700 211,218
Lowe's Companies..................... 11,500 636,985
+Staples.............................. 22,300 608,790
+Williams - Sonoma.................... 9,800 340,746
---------
3,077,296
---------
Electronics & Electrical
Equipment-2.96%
+Fisher Scientific International...... 20,600 852,222
---------
852,222
---------
Healthcare & Pharmaceuticals-18.79%
+Acusphere............................ 10,000 87,800
Allergan............................. 3,700 284,197
+Amgen................................ 8,500 525,300
+Anthem............................... 3,900 292,500
+Biogen Idec.......................... 19,000 698,820
Number of Market
Shares Value
COMMON STOCK (continued)
Healthcare & Pharmaceuticals (continued)
+Conceptus............................ 26,500 $281,430
+CV Therapeutics...................... 1,500 21,990
+ImClone Systems...................... 3,500 138,810
+IntraBiotics Pharmaceuticals......... 6,208 99,954
+Invitrogen........................... 5,200 364,000
Johnson & Johnson.................... 11,200 578,592
+Nektar Therapeutics.................. 29,300 398,773
+Pain Therapeutics.................... 83,200 578,240
+Protein Design Labs.................. 34,100 610,390
+SciClone Pharmaceuticals............. 29,000 196,620
+Watson Pharmaceuticals............... 5,300 243,800
----------
5,401,216
----------
Insurance-8.73%
AMBAC Financial Group................ 11,800 818,802
Berkley (W.R.)....................... 10,327 360,929
HCC Insurance........................ 17,000 540,600
PartnerRe............................ 13,600 789,480
----------
2,509,811
----------
Leisure, Lodging & Entertainment-5.32%
Marriott International Class A....... 11,900 549,780
Royal Caribbean Cruises.............. 28,200 981,078
----------
1,530,858
----------
Retail-1.04%
+Krispy Kreme Doughnuts............... 8,200 300,120
----------
300,120
----------
Semiconductors-10.52%
+Agere Systems Class A................ 124,600 380,030
Analog Devices....................... 13,400 611,710
+Emulex............................... 10,100 269,468
Linear Technology.................... 8,500 357,595
+Micrel............................... 26,100 406,638
+Novellus Systems..................... 10,800 454,140
+Xilinx............................... 14,100 546,234
----------
3,025,815
----------
Technology/Hardware-3.11%
+EMC.................................. 26,100 337,212
Intel................................ 11,300 363,860
+Network Appliance.................... 9,400 192,982
----------
894,054
----------
Telecommunications-0.77%
+Cisco Systems........................ 9,100 221,039
----------
221,039
----------
Transportation-1.04%
+Marten Transport..................... 19,450 299,141
----------
299,141
----------
Total Common Stock (cost $22,698,749) 27,998,099
----------
Select Growth-2
Delaware VIP Select Growth Series
Statement of Net Assets (continued)
Principal Market
Amount Value
REPURCHASE AGREEMENTS-3.06%
With BNP Paribas 0.85% 1/2/04 (dated
12/31/03, collateralized by $20,000
U.S. Treasury Bills due 3/25/04,
market value $20,352, $75,000
U.S. Treasury Notes 3.625% due 3/31/04,
market value $76,676, $232,000
U.S. Treasury Notes 6.00% due 8/15/04,
market value $244,513, and $120,000
U.S. Treasury Notes 1.625% due 1/31/05,
market value $121,135)............... $453,000 $453,000
Principal Market
Amount Value
REPURCHASE AGREEMENTS (continued)
With UBS Warburg 0.85% 1/2/04 (dated
12/31/03, collateralized by $99,000
U.S. Treasury Notes 1.625% due 3/31/05,
market value $100,216, $3,000
U.S. Treasury Notes 5.50% due 2/15/08,
market value $3,841 and $298,000
U.S. Treasury Notes 5.625% due 5/15/08,
market value $332,703)............... $428,000 $428,000
--------
Total Repurchase Agreements
(cost $881,000)..................... 881,000
--------
TOTAL MARKET VALUE OF SECURITIES-100.42% (cost $23,579,749)................................28,879,099
LIABILITIES NET OF RECEIVABLES AND OTHER ASSETS-(0.42%)......................................(121,003)
-----------
NET ASSETS APPLICABLE TO 3,688,619 SHARES OUTSTANDING-100.00%.............................$28,758,096
===========
NET ASSET VALUE-DELAWARE VIP SELECT GROWTH SERIES STANDARD CLASS
($23,088,579 / 2,957,898 shares)..............................................................$7.81
=====
NET ASSET VALUE-DELAWARE VIP SELECT GROWTH SERIES SERVICE CLASS
($5,669,517 / 730,721 shares).................................................................$7.76
=====
COMPONENTS OF NET ASSETS AT DECEMBER 31, 2003:
Shares of beneficial interest (unlimited authorization-no par)............................$79,947,696
Accumulated net realized loss on investments..............................................(56,488,950)
Net unrealized appreciation of investments..................................................5,299,350
-----------
Total net assets..........................................................................$28,758,096
===========
_____________________
+Non-income producing security for the year ended December 31, 2003.
#Restricted Security-Investment in a security not registered under the
Securities Act of 1933. This security has certain restrictions on resale which
may limit its liquidity. At December 31, 2003, the aggregate amount of
restricted securities equals $181,970 or 0.63% of the Series' net assets. The
Security is being fair valued in accordance with the Series' fair valuation
policy (see Note #1 to the Financial Statements).
See accompanying notes
Select Growth-3
Delaware VIP Trust
Delaware VIP Select Growth Series
Statement of Operations
Year Ended December 31, 2003
INVESTMENT INCOME:
Dividends.............................. $167,881
Interest............................... 6,352
----------
174,233
----------
EXPENSES:
Management fees........................ 220,835
Distribution expenses-Service Class.... 14,200
Accounting and administration expenses. 9,883
Dividend disbursing and transfer agent
fees and expenses..................... 2,763
Custodian fees......................... 2,604
Professional fees...................... 1,492
Reports and statements to shareholders. 1,376
Trustees' fees......................... 1,334
Other.................................. 4,521
----------
259,008
Less waiver of distribution
expenses-Service Class................ (1,814)
Less expenses paid indirectly.......... (707)
----------
Total expenses......................... 256,487
----------
NET INVESTMENT LOSS.................... (82,254)
----------
NET REALIZED AND UNREALIZED GAIN
(LOSS) ON INVESTMENTS:
Net realized loss on investments....... (1,302,849)
Net change in unrealized appreciation/
depreciation of investments........... 11,105,063
----------
NET REALIZED AND UNREALIZED GAIN
ON INVESTMENTS........................ 9,802,214
----------
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS....................... $9,719,960
==========
See accompanying notes
Delaware VIP Trust-
Delaware VIP Select Growth Series
Statements of Changes in Net Assets
Year Ended
12/31/03 12/31/02
-------- --------
INCREASE (DECREASE) IN NET
ASSETS FROM OPERATIONS:
Net investment loss.................... $ (82,254) $ (189,178)
Net realized loss on investments....... (1,302,849) (9,046,917)
Net change in unrealized appreciation/
depreciation of investments........... 11,105,063 (11,733,410)
----------- -----------
Net increase (decrease) in net assets
resulting from operations............. 9,719,960 (20,969,505)
----------- -----------
Capital Share Transactions:
Proceeds from shares sold:
Standard Class........................ 1,545,512 4,204,618
Service Class......................... 1,132,995 1,577,606
----------- -----------
2,678,507 5,782,224
----------- -----------
COST OF SHARES REPURCHASED:
Standard Class........................ (13,343,355) (15,655,086)
Service Class......................... (4,371,098) (4,685,359)
----------- -----------
(17,714,453) 20,340,445)
----------- -----------
Decrease in net assets derived from
capital ~share transactions........... (15,035,946) (14,558,221)
----------- -----------
NET DECREASE IN NET ASSETS............. (5,315,986) (35,527,726)
NET ASSETS:
Beginning of year...................... 34,074,082 69,601,808
----------- -----------
End of year............................ $28,758,096 $34,074,082
=========== ===========
See accompanying notes
Select Growth-4
Delaware VIP Trust-Delaware VIP Select Growth Series
Financial Highlights
Selected data for each share of the Series outstanding throughout each period
were as follows:
Delaware VIP Select Growth Series Standard Class
5/3/99(1)
Year Ended to
12/31/03 12/31/02 12/31/01 12/31/00 12/31/99
---------------------------------------------------------------------
Net asset value, beginning of period.......... $5.600 $8.300 $10.890 $14.300 $10.000
Income (loss) from investment operations:
Net investment income (loss)(2)............... (0.016) (0.024) (0.019) (0.040) 0.011
Net realized and unrealized gain (loss)
on investments............................... 2.226 (2.676) (2.571) (3.078) 4.289
------- ------- ------- ------- -------
Total from investment operations.............. 2.210 (2.700) (2.590) (3.118) 4.300
------- ------- ------- ------- -------
Less dividends and distributions from:
Net investment income......................... - - - (0.007) -
Net realized gain on investments.............. - - - (0.285) -
------- ------- ------- ------- -------
Total dividends and distributions............. - - - (0.292) -
------- ------- ------- ------- -------
Net asset value, end of period................ $7.810 $5.600 $8.300 $10.890 $14.300
======= ======= ======= ======== ========
Total return(3)............................... 39.46% (32.53%) (23.78%) (22.46%) 42.90%
Ratios and supplemental data:
Net assets, end of period (000 omitted)....... $23,089 $27,056 $55,104 $80,443 $53,529
Ratio of expenses to average net assets....... 0.83% 0.86% 0.85% 0.82% 0.80%
Ratio of expenses to average net asset
prior to expense~limitation and expenses
paid indirectly.............................. 0.83% 0.86% 0.88% 0.89% 0.81%
Ratio of net investment income (loss) to
average net assets........................... (0.24%) (0.35%) (0.22%) (0.30%) 0.32%
Ratio of net investment income (loss) to
average net assets prior to expense
limitation and expenses paid indirectly...... (0.24%) (0.35%) (0.25%) (0.37%) 0.29%
Portfolio turnover............................ 72% 106% 135% 158% 174%
______________________
(1) Date of commencement of operations; ratios and portfolio turnover have been
annualized and total return has not been annualized.
(2) The average shares outstanding method has been applied for per share
information for the years ended December 31, 2003, 2002, 2001 and 2000.
(3) Total investment return is based on the change in net asset value of a share
during the period and assumes reinvestment of dividends and distributions at
net asset value. Total investment return reflects a waiver and payment of
fees by the manager, as applicable. Performance would have been lower had
the expense limitation not been in effect.
See accompanying notes
Select Growth-5
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
5/1/00(1)
Year Ended to
12/31/03 12/31/02 12/31/01 12/31/00
-------- -------- -------- --------
Net asset value, beginning of period.......... $5.580 $8.280 $10.880 $13.160
Income (loss) from investment operations:
Net investment loss(2)........................ (0.030) (0.034) (0.032) (0.043)
Net realized and unrealized gain (loss)
on investments............................... 2.210 (2.666) (2.568) (2.237)
------- ------- ------- -------
Total from investment operations.............. 2.180 (2.700) (2.600) (2.280)
------- ------- ------- -------
Net asset value, end of period................ $7.760 $5.580 $8.280 $10.880
======= ======= ======= ========
Total return(3)............................... 39.07% (32.61%) (23.90%) (17.33%)
Ratios and supplemental data:
Net assets, end of period (000 omitted)....... $5,670 $7,018 $14,498 $16,916
Ratio of expenses to average net assets....... 1.05% 1.01% 1.00% 0.99%
Ratio of expenses to average net assets prior
to expense limitation and expenses paid
indirectly................................... 1.08% 1.01% 1.03% 1.06%
Ratio of net investment loss to average
net assets................................... (0.46%) (0.50%) (0.37%) (0.48%)
Ratio of net investment loss to average
net assets prior to expense limitation
and expenses paid indirectly................. (0.49%) (0.50%) (0.40%) (0.55%)
Portfolio turnover............................ 72% 106% 135% 158%
_____________________
(1) Date of commencement of operations; ratios and portfolio turnover have been
annualized and total return has not been annualized.
(2) The average shares outstanding method has been applied for per share
information.
(3) Total investment return is based on the change in net asset value of a share
during the period and assumes reinvestment of dividends and distributions at
net asset value. Total investment return reflects a waiver and payment of
fees by the manager and distributor, as applicable. Performance would have
been lower had the expense limitation not been in effect.
See accompanying notes
Select Growth-6
Delaware VIP Trust-Delaware VIP Select Growth Series
Notes to Financial Statements
December 31, 2003
Delaware VIP Trust (the "Trust") is organized as a Delaware statutory trust and
offers 15 series: Delaware VIP Balanced Series, Delaware VIP Capital Reserves
Series, Delaware VIP Cash Reserve Series, Delaware VIP Diversified Income
Series, Delaware VIP Emerging Markets Series, Delaware VIP Global Bond Series,
Delaware VIP Growth Opportunities Series, Delaware VIP High Yield Series,
Delaware VIP International Value Equity Series, Delaware VIP Large Cap Value
Series, Delaware VIP REIT Series, Delaware VIP Select Growth Series, Delaware
VIP Small Cap Value Series, Delaware VIP Trend Series and Delaware VIP U.S.
Growth Series. These financial statements and the related notes pertain to
Delaware VIP Select Growth Series (the "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 accounting principles
generally accepted in the United States and are consistently followed by the
Series.
Security Valuation--All equity securities 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 Stock Market, Inc.
(NASDAQ) are valued in accordance with the NASDAQ Official Closing Price, which
may not be the last sales price. If on a particular day an equity security does
not trade, then the mean between the bid and asked prices will normally be used.
Short-term debt securities having less than 60 days to maturity are valued at
amortized cost, which approximates market value. Other securities and assets for
which market quotations are not readily available are valued at fair value as
determined in good faith under the direction of the Series' Board of Trustees.
Federal Income Taxes--The Series intends to continue to qualify for federal
income tax purposes as a regulated investment company and make the requisite
distributions to shareholders. Accordingly, no provision for federal income
taxes has been made in the financial statements.
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. 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 102% collateralized. However, in the
event of default or bankruptcy by the counterparty to the agreement, realization
of the collateral may be subject to legal proceedings.
Use of Estimates--The preparation of financial statements in conformity with
accounting principles generally accepted in the United States 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 common to all funds within the Delaware Investments Family of
Funds are allocated amongst the funds on the basis of average net assets.
Security transactions are recorded on the date the securities are purchased or
sold (trade date). 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.
Certain expenses of the Series are paid through commission arrangements with
brokers. The amount of these expenses was approximately $707 for the year ended
December 31, 2003. In addition, 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 year ended December 31,
2003. The expenses paid under the above arrangements are included in their
respective expense captions on the Statement of Operations with the
corresponding expense offset shown as "expenses paid indirectly".
2. Investment Management, Administration Agreements and Other Transactions with
Affiliates In accordance with the terms of its investment management agreement,
the Series pays Delaware Management Company (DMC), a series of Delaware
Management Business Trust and the investment manager, an annual fee which is
calculated daily at the rate of 0.75% on the first $500 million of average daily
net assets of the Series, 0.70% on the next $500 million, 0.65% on the next
$1.5 billion, and 0.60% on average daily net assets in excess of $2.5 billion.
DMC has contractually agreed to waive that portion, if any, of its management
fee and reimburse the Series to the extent necessary to ensure that annual
operating expenses, exclusive of taxes, interest, brokerage commissions,
distribution fees, certain insurance costs and extraordinary expenses, do not
exceed 0.90% of average daily net assets of the Series through April 30, 2004.
No reimbursement was due for the year ended December 31, 2003.
Select Growth-7
Delaware VIP Select Growth Series
Notes to Financial Statements (continued)
2. Investment Management, Administration Agreements and Other Transactions with
Affiliates (continued) Delaware Service Company, Inc. (DSC), an affiliate of
DMC, provides accounting, administration, dividend disbursing and transfer agent
services. The Series pays DSC a monthly fee based on average net assets subject
to certain minimums for accounting and administration services. The Series pays
DSC a monthly fee based on average net assets for dividend disbursing and
transfer agent services.
Pursuant to a distribution agreement and distribution plan, the Series pays
Delaware Distributors, L.P. (DDLP), the distributor and an affiliate of DMC, an
annual 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, 2004 in order to prevent distribution and service fees of the Service
Class shares from exceeding 0.25% of average daily net assets. Prior to May 1,
2003, the Board of Trustees had set the fee at an annual rate of 0.15% of the
Service Class shares' average daily net assets. No distribution expenses are
paid by Standard Class shares.
At December 31, 2003, the Series had liabilities payable to affiliates as
follows:
Dividend disbursing,
Investment transfer agent fees,
management accounting Other expenses
fee payable to and other expenses payable to DMC
DMC payable to DSC and affiliates*
-------------- -------------------- ---------------
$18,080 $1,147 $4,120
*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, professional fees, custodian fees and
trustees' 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 year ended December 31, 2003, the Series made purchases and sales of
investment securities other than short-term investments as follows:
Purchases..................... $20,734,590
Sales......................... $36,500,228
At December 31, 2003, the cost of investments and unrealized appreciation
(depreciation) for federal income tax purposes for the Series were as follows:
Aggregate Aggregate
Cost of unrealized unrealized Net unrealized
investments appreciation depreciation appreciation
- ----------- ------------ ------------ ---------------
24,424,838 $5,221,381 $(767,120) $4,454,261
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 accounting principles
generally accepted in the United States. There were no dividends and
distributions paid during the years ended December 31, 2003 and 2002.
As of December 31, 2003, the components of net assets on a tax basis were as
follows:
Shares of beneficial interest............. $79,947,696
Capital loss carryforwards................ (55,643,861)
Unrealized appreciation of investments.... 4,454,261
Net assets................................ $28,758,096
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. Such capital loss
carryforwards expire as follows: $10,588,983 expires in 2008, $30,958,389
expires in 2009, $10,812,739 expires in 2010 and $3,283,750 expires in 2011.
Select Growth-8
Delaware VIP Select Growth Series
Notes to Financial Statements (continued)
5. Capital Shares Transactions in capital shares were as follows:
Year Year
Ended Ended
12/31/03 12/31/02
-------- --------
Shares sold:
Standard Class............... 234,538 584,464
Service Class................ 168,600 226,208
---------- ----------
403,138 810,672
---------- ----------
Shares repurchased:
Standard Class............... (2,109,730) (2,388,088)
Service Class................ (696,514) (717,922)
---------- ----------
(2,806,244) (3,106,010)
---------- ----------
Net decrease.................. (2,403,106) (2,295,338)
========== ==========
6. Line of Credit
The Series, along with certain other funds in the Delaware Investments Family of
Funds (the "Participants"), participates in a $177,300,000 revolving line of
credit facility to be used for temporary or emergency purposes as an additional
source of liquidity to fund redemptions of investor shares. The Participants are
charged an annual commitment fee, which is allocated across the Participants on
the basis of each fund's allocation of the entire facility. The Participants may
borrow up to a maximum of one third of their net assets under the agreement. The
Series had no amounts outstanding as of December 31, 2003, or at any time during
the year.
7. 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 ~small- and mid-sized 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.
Select Growth-9
Delaware VIP Trust-Delaware VIP Select Growth Series
Report of Independent Auditors
To the Shareholders and
Board of Trustees Delaware VIP Trust-Delaware VIP Select Growth Series
We have audited the accompanying statement of net assets of Delaware VIP Select
Growth Series (the "Series") as of December 31, 2003, and the related statement
of operations for the year then ended, the statements of changes in net assets
for each of the two years in the period then ended, and the financial highlights
for each of the periods indicated therein. These financial statements and
financial highlights are the responsibility of the Series' management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements and financial highlights. Our procedures included
confirmation of securities owned as of December 31, 2003, by correspondence with
the custodian and brokers, or by other auditing procedures where replies from
brokers were not received. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Delaware VIP Select Growth Series at December 31, 2003, the results of its
operations for the year then ended, the changes in its net assets for each of
the two years in the period then ended, and its financial highlights for each of
the periods indicated therein, in conformity with accounting principles
generally accepted in the United States.
Ernest & Young LLP
Philadelphia, Pennsylvania
February 6, 2004
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
A description of the policies and procedures that the Series uses to determine
how to vote proxies (if any) relating to portfolio securities is available
without charge (i) upon request, by calling 800 523-1918; (ii) on the Series'
website at http://www.delawareinvestments.com; and (iii) on the Commission's
website at http://www.sec.gov.; and beginning no later than August 31, 2004,
information (if any) regarding how the Series voted proxies relating to
portfolio securities during the most recent 12-month period ended June 30 is
available without charge (i) through the Series' website at
http://www.delawareinvestments.com; and (ii) on the Commission's website at
http://www.sec.gov.
- --------------------------------------------------------------------------------
Select Growth-10
Delaware Investments Family of Funds
BOARD OF TRUSTEES/DIRECTORS AND OFFICERS ADDENDUM
A mutual fund is governed by a Board of Trustees/Directors which has oversight
responsibility for the management of a fund's business affairs.
Trustees/Directors establish procedures and oversee and review the performance
of the investment manager, the distributor and others that perform services for
the fund. The independent fund trustees, in particular, are advocates for
shareholder interests. The following is a list of the Trustees/Directors and
Officers with certain background and related information.
Number of Other
Principal Portfolios in Fund Directorships
Name, Position(s) Occupation(s) Complex Overseen Held by
Address Held with Length of Time During by Trustee/Director Trustee/Director
and Birthdate Fund(s) Served Past 5 Years or Officer or Officer
- -----------------------------------------------------------------------------------------------------------------------------------
INTERESTED TRUSTEES
Jude T. Driscoll(2) Chairman and 4 Years - Since August 2000, 80 None
2005 Market Street Trustee(4) Executive Officer Mr. Driscoll has served in
Philadelphia, PA various executive capacities
19103 Trustee since at different times at
May 15, 2003 Delaware Investments(1)
March 10, 1963
Senior Vice President and
Director of Fixed-Income Process -
Conseco Capital Management
(June 1998 - August 2000)
Managing Director -
NationsBanc Capital Markets
(February 1996 - June 1998)
- -----------------------------------------------------------------------------------------------------------------------------------
INDEPENDENT TRUSTEES
Walter P. Babich Trustee 16 Years Board Chairman - 98 None
2005 Market Street Citadel Construction Corporation
Philadelphia, PA (1989 - Present)
19103
October 1, 1927
- -----------------------------------------------------------------------------------------------------------------------------------
John H. Durham Trustee 25 Years(3) Private Investor 98 Trustee - Abington
2005 Market Street Memorial Hospital
Philadelphia, PA
19103
President/Director-
22 WR Corporation
August 7, 1937
- -----------------------------------------------------------------------------------------------------------------------------------
John A. Fry Trustee(4) 3 Years President - 80 None
2005 Market Street Franklin & Marshall College
Philadelphia, PA (June 2002 - Present)
19103
Executive Vice President -
University of Pennsylvania
May 28, 1960 (April 1995 - June 2002)
- -----------------------------------------------------------------------------------------------------------------------------------
Anthony D. Knerr Trustee 11 Years Founder/Managing Director - 98 None
2005 Market Street Anthony Knerr & Associates
Philadelphia, PA (Strategic Consulting)
19103 (1990 - Present)
December 7, 1938
- -----------------------------------------------------------------------------------------------------------------------------------
International Value Equity-13
Number of Other
Principal Portfolios in Fund Directorships
Name, Position(s) Occupation(s) Complex Overseen Held by
Address Held with Length of Time During by Trustee/Director Trustee/Director
and Birthdate Fund(s) Served Past 5 Years or Officer or Officer
- -----------------------------------------------------------------------------------------------------------------------------------
INDEPENDENT TRUSTEES (continued)
Ann R. Leven Trustee 15 Years Treasurer/Chief Fiscal Officer - 98 Director - Andy
2005 Market Street National Gallery of Art Warhol Foundation
Philadelphia, PA (1994 - 1999)
19103 Director -
Systemax Inc.
November 1, 1940
- -----------------------------------------------------------------------------------------------------------------------------------
Thomas F. Madison Trustee 10 Years President/Chief 98 Director -
2005 Market Street Executive Officer - Banner Health
Philadelphia, PA MLM Partners, Inc.
19103 (Small Business Investing Director -
and Consulting) CenterPoint Energy
(January 1993 - Present)
February 25, 1936
Director -
Digital River Inc.
Director - Rimage
Corporation
- -----------------------------------------------------------------------------------------------------------------------------------
Janet L. Yeomans Trustee 5 Years Vice President/Mergers & 98 None
2005 Market Street Acquisitions - 3M Corporation
Philadelphia, PA (January 2003 - Present)
19103
Ms. Yeomans has held
July 31, 1948 various management positions
at 3M Corporation since 1983.
- -----------------------------------------------------------------------------------------------------------------------------------
OFFICERS
Joseph H. Hastings Executive Executive Mr. Hastings has served in 98 None
2005 Market Street Vice President Vice President various executive capacities
Philadelphia, PA and and at different times at
19103 Chief Financial Chief Financial Delaware Investments.
Officer Officer since
August 21, 2003
December 19, 1949
- -----------------------------------------------------------------------------------------------------------------------------------
Richelle S. Maestro Senior Vice President, Chief Legal Officer Ms. Maestro has served in 98 None
2005 Market Street Chief Legal Officer since various executive capacities
Philadelphia, PA and Secretary March 17, 2003 at different times at
19103 Delaware Investments.
November 26, 1957
- -----------------------------------------------------------------------------------------------------------------------------------
Michael P. Bishof Senior Vice President 8 Years Mr. Bishof has served in 98 None
2005 Market Street and Treasurer various executive capacities
Philadelphia, PA at different times at
19103 Delaware Investments.
August 18, 1962
- -----------------------------------------------------------------------------------------------------------------------------------
(1) Delaware Investments is the marketing name for Delaware Management Holdings,
Inc. and its subsidiaries, including the Registrant's investment advisor,
principal underwriter and its transfer agent.
(2) Mr. Driscoll is considered to be an "Interested Trustee" because he is an
executive officer of the Fund's manager and distributor.
(3) Mr. Durham served as a Director Emeritus from 1995 through 1998.
(4) Mr. Driscoll and Mr. Fry are not Trustees of the portfolios of Voyageur
Insured Funds, Voyageur Intermediate Tax Free Funds, Voyageur Investment
Trust, Voyageur Mutual Funds, Voyageur Mutual Funds II, Voyageur Mutual
Funds III and Voyageur Tax Free Funds.
The Statement of Additional Information for the Fund(s) includes additional
information about the Trustees/Directors and Officers and is available, without
charge, upon request by calling 800 523-1918.
(8533)
Select Growth-12
FOR CAPITAL APPRECIATION
Delaware VIP Trust-Delaware VIP Small Cap Value Series
Portfolio Snapshot
It was an outstanding year for small-cap value stocks, as smaller issues
generally led a bull market that started in the spring and continued through the
end of 2003. The Russell 2000 Value Index advanced +46.03% for 2003, and
Delaware VIP Small Cap Value Series returned +41.98% (Standard Class shares with
distributions reinvested).
Investor optimism for continued economic growth also generally led to
inflated valuations for lower-quality names. Often during the period, investors
bought stocks of companies with no earnings potential, high earnings multiples,
and highly leveraged balance sheets. In fact, lower-quality companies led the
market after mid-March. Nonetheless, we continue to focus on companies that we
believe have the ability to generate strong free cash flow, the potential to
increase dividends, and a commitment to reducing debt -- attributes that remain
a core part of our stock selection process.
As the economy gained strength, we emphasized economically sensitive sectors
of the market. A good example is the basic industries sector, which has
significant concentrations in metal, forest and paper, materials and mining, and
specialty/chemicals companies. We also became increasingly optimistic about
consumer-oriented stocks, particularly those in capital spending and consumer
services. While we were cautious with regard to the technology sector, selecting
only those companies with strong earnings prospects, we increased our position
to a modest overweighting by year end.
Investment Outlook
Generally speaking, we are encouraged by the state of the economy and expect
to see continued momentum in 2004. Over the short term, we anticipate that our
small-cap portfolio will become more defensive in certain sectors while
maintaining exposure to some industries that we think will have pricing power
during this current economic environment.
Delaware VIP
Small Cap
Russell 2000 Value Series
Value Index (Standard Class Shares)
----------- -----------------------
May 4, '98 $10,000 $10,000
May 31, '98 $ 9,845 $10,078
Dec. 31, '98 $12,380 $12,482
Dec. 31, '99 $15,026 $15,296
Dec. 31, '00 $19,787 $20,330
Dec. 31, '01 $18,511 $19,356
Dec. 31, '02 $18,235 $18,415
$22,393 $21,763
$25,548 $24,340
$22,631 $22,977
$33,047 $32,621
Delaware VIP Small Cap Value Series
Average Annual Total Returns
Standard Class Service Class
Shares* Shares**
-------------- -------------
Lifetime +12.77% +16.86%
10 Years +12.55% --
Five Years +11.00% --
One Year +41.98% +41.66%
For the periods ended December 31, 2003
*Commenced operations on December 27, 1993.
**Commenced operations on May 1, 2000.
Past performance is not a guarantee of future results. Returns and share values
will fluctuate so that shares, when redeemed, may be worth more or less than
their original cost.
The chart shows a $10,000 investment in Delaware VIP Small Cap Value Series
Standard Class shares and the Russell 2000 Value Index for the 10-year period
from December 31, 1993 through December 31, 2003. The chart assumes all
distributions were reinvested. Returns plotted on the chart were as of the last
day of each month shown. The Russell 2000 Value Index is an unmanaged stock
composite that measures the stocks of small, value-oriented companies. An index
is unmanaged and does not reflect the costs of operating a mutual fund, such as
the costs of buying, selling, and holding securities. You cannot invest in an
index. Earnings from a variable annuity investment compound tax-free until
withdrawal, so no adjustments were made for income taxes. An expense limitation
was in effect for Delaware VIP Small Cap Value Series during the periods shown.
Performance does not reflect insurance fees related to a variable annuity or
variable life investment or the deferred sales charge that would apply to
certain withdrawals of investments held for fewer than eight years. Performance
shown here would have been reduced if such fees were included and the expense
limitation was removed. For more information about fees, consult your variable
annuity or variable life prospectus.
Small Cap Value-1
Delaware VIP Trust-Delaware VIP Small Cap Value Series
Statement of Net Assets
December 31, 2003
Number of Market
Shares Value
COMMON STOCK-91.41%
Aerospace & Defense-1.08%
*+Armor Holdings.................. 82,000 $ 2,157,420
+Herley Industries............... 163,100 3,376,170
-----------
5,533,590
-----------
Banking, Finance & Insurance-14.19%
AmerUs Group.................... 140,600 4,916,782
Berkley (W.R.).................. 136,275 4,762,811
*Boston Private Financial Holdings 173,100 4,299,804
Colonial BancGroup.............. 378,000 6,546,960
Commercial Federal.............. 149,500 3,993,145
Compass Bancshares.............. 158,400 6,226,704
First Federal Capital........... 110,100 2,479,452
First Republic Bank............. 101,100 3,619,380
Gold Banc....................... 262,600 3,692,156
*Greater Bay Bancorp............. 203,500 5,795,680
Harleysville Group.............. 135,300 2,691,117
MAF Bancorp..................... 107,600 4,508,440
Platinum Underwriters Holdings.. 76,100 2,283,000
*Provident Bankshares............ 138,300 4,071,552
RenaissanceRe Holdings.......... 95,400 4,679,370
Republic Bancorp................ 185,150 2,497,674
Riggs National.................. 204,700 3,383,691
*+Sterling Financial.............. 75,852 2,596,414
-----------
73,044,132
-----------
Basic Industry/Capital Goods-7.55%
*Brink's Company................. 218,100 4,931,241
Crane........................... 151,000 4,641,740
Federal Signal.................. 98,900 1,732,728
*+Griffon......................... 368,430 7,464,391
Harsco.......................... 103,000 4,513,460
Kaydon.......................... 175,800 4,542,672
+Mueller Industries.............. 88,900 3,054,604
Smith (A.O.).................... 87,350 3,061,618
*+Terex........................... 172,100 4,901,408
-----------
38,843,862
-----------
Buildings & Materials-2.08%
Florida Rock Industries......... 89,300 4,898,105
*+Insituform Technologies Class A 159,900 2,638,350
Texas Industries................ 86,200 3,189,400
-----------
10,725,855
-----------
Business Services-1.11%
*+Integrated Alarm Services....... 175,900 1,495,150
+United Stationers............... 102,900 4,210,668
-----------
5,705,818
-----------
Cable, Media & Publishing-0.47%
Belo Class A.................... 85,200 2,414,568
-----------
2,414,568
-----------
Chemicals-2.78%
Fuller (H.B.)................... 113,700 3,381,438
MacDermid....................... 172,500 5,906,400
+PolyOne......................... 373,300 2,385,387
Spartech........................ 105,900 2,609,376
-----------
14,282,601
-----------
Computers & Technology-10.87%
*+Actel........................... 162,800 3,923,480
*+ASM International N.V........... 243,200 4,922,368
+Bell Microproducts.............. 237,900 2,155,374
*+Comverse Technology............. 278,500 4,898,815
Number of Market
Shares Value
COMMON STOCK (continued)
Computers & Technology (continued)
+FileNet......................... 118,200 $ 3,200,856
+Ingram Micro Class A............ 253,200 4,025,880
+International Rectifier......... 100,100 4,945,941
*+Lawson Software................. 473,200 3,894,436
+Overland Storage................ 175,300 3,295,640
*+Photronics...................... 116,100 2,312,712
*+Plexus.......................... 231,600 3,976,572
+Storage Technology.............. 105,900 2,726,925
Symbol Technologies............. 167,000 2,820,630
+Tech Data....................... 84,500 3,353,805
*+Veeco Instruments............... 194,200 5,476,440
-----------
55,929,874
-----------
Consumer Non-Durables-0.58%
*Oakley.......................... 216,800 3,000,512
-----------
3,000,512
-----------
Energy-5.75%
Arch Coal....................... 151,000 4,706,670
Chesapeake Energy............... 319,000 4,332,020
+Comstock Resources.............. 258,300 4,985,190
*+Grey Wolf....................... 731,500 2,735,810
*+Magnum Hunter Resources......... 436,200 4,148,262
+Newfield Exploration............ 110,400 4,917,216
+Whiting Petroleum............... 204,100 3,755,440
-----------
29,580,608
-----------
Engineering & Construction-0.66%
+Jacobs Engineering Group........ 70,300 3,375,103
-----------
3,375,103
-----------
Environmental Services-0.82%
+Tetra Tech...................... 170,300 4,233,658
-----------
4,233,658
-----------
Food, Beverage & Tobacco-2.69%
*+American Italian Pasta-Class A.. 132,400 5,547,560
Bunge Limited................... 107,300 3,532,316
*+Constellation Brands............ 144,800 4,768,264
-----------
13,848,140
-----------
Healthcare & Pharmaceuticals-6.43%
Cooper.......................... 48,900 2,304,657
+Genesis Healthcare.............. 53,700 1,223,286
+Humana.......................... 226,400 5,173,240
+IDEXX Laboratories.............. 58,800 2,721,264
+NeighborCare.................... 107,400 2,121,150
Owens & Minor................... 190,600 4,176,046
+Pharmaceutical Resources........ 47,900 3,120,685
*+Protein Design Labs............. 261,400 4,679,060
+Province Healthcare............. 245,900 3,934,400
+Sola International.............. 194,700 3,660,360
-----------
33,114,148
-----------
Home Builders-1.60%
KB HOME......................... 86,400 6,265,728
*+WCI Communities................. 96,500 1,988,865
-----------
8,254,593
-----------
Small Cap Value-2
Delaware VIP Small Cap Value Series
Statement of Net Assets (continued)
Number of Market
Shares Value
COMMON STOCK (continued)
Metals & Mining-2.71%
*Freeport-McMoRan Copper & Gold
Class B........................ 102,100 $ 4,301,473
Gibraltar Steel................. 125,800 3,163,870
*+Golden Star Resources........... 501,700 3,496,849
*+Meridian Gold................... 204,200 2,983,362
----------
13,945,554
----------
Packaging & Containers-1.96%
+Crown Holdings.................. 346,400 3,138,384
+Pactiv.......................... 290,600 6,945,340
----------
10,083,724
----------
Paper & Forest Products-2.12%
+Louisiana-Pacific............... 334,800 5,986,224
Universal Forest Products....... 52,500 1,689,450
Wausau-Mosinee Paper............ 238,900 3,229,928
----------
10,905,602
----------
Real Estate-5.80%
Camden Property Trust........... 116,600 5,165,380
Chelsea Property Group.......... 72,100 3,951,801
Keystone Property Trust......... 150,600 3,326,754
Pan Pacific Retail Properties... 141,000 6,718,650
Prentiss Properties Trust....... 120,600 3,978,594
Reckson Associates Realty....... 140,400 3,411,720
St. Joe......................... 88,500 3,300,165
----------
29,853,064
----------
Retail-9.54%
*+AnnTaylor Stores................ 151,900 5,924,100
+Barnes & Noble.................. 132,300 4,346,055
Cato Class A.................... 156,600 3,210,300
+CEC Entertainment............... 101,200 4,795,868
+Department 56................... 106,800 1,399,080
*+Electronics Boutique Holdings... 180,800 4,138,512
*Goody's Family Clothing......... 253,000 2,368,080
*+Insight Enterprises............. 242,100 4,551,480
*+Jo-Ann Stores................... 96,355 1,965,642
*+Movie Gallery................... 143,700 2,684,316
Pier 1 Imports.................. 166,100 3,630,946
+Shoe Carnival................... 98,900 1,760,420
*+Shopko Stores................... 178,000 2,714,500
*+Sports Authority................ 55,518 2,131,891
+Take-Two Interactive Software... 95,200 2,742,712
+Whitehall Jewellers............. 74,900 739,263
----------
49,103,165
----------
Number of Market
Shares Value
COMMON STOCK (continued)
Textiles, Apparel & Furniture-4.47%
+Carter's........................ 51,700 $ 1,315,765
Furniture Brands International.. 270,800 7,942,564
Kellwood........................ 127,400 5,223,400
Phillips-Van Heusen............. 113,600 2,015,264
Reebok International............ 86,900 3,416,908
Wolverine World Wide............ 151,400 3,085,532
-----------
22,999,433
-----------
Transportation & Shipping-3.80%
Alexander & Baldwin............. 204,100 6,876,129
+Continental Airlines Class B.... 130,800 2,128,116
+Kirby........................... 121,800 4,248,384
+SCS Transportation.............. 69,700 1,225,326
SkyWest......................... 96,200 1,743,144
*+Yellow Roadway.................. 92,000 3,327,640
-----------
19,548,739
-----------
Utilities-2.35%
Black Hills..................... 58,500 1,745,055
+El Paso Electric................ 211,900 2,828,865
PNM Resources................... 131,200 3,686,720
Southwest Gas................... 171,500 3,850,175
-----------
12,110,815
-----------
Total Common Stock
(cost $354,500,005)............ 470,437,158
-----------
EXCHANGE TRADED FUNDS-2.50%
iShares Russell 2000 Value
Index Fund..................... 79,900 12,847,920
-----------
Total Exchange Traded Funds
(cost $11,521,094)............. 12,847,920
-----------
WARRANTS-0.00%
+Magnum Hunter Resources......... 34,780 19,129
-----------
Total Warrants (cost $0)........ 19,129
-----------
Small Cap Value-3
Delaware VIP Small Cap Value Series
Statement of Net Assets (continued)
Principal Market
Amount Value
Repurchase Agreements-5.80%
With BNP Paribas 0.85% 1/2/04
(dated 12/31/03, collateralized
by $691,000 U.S. Treasury Bills
due 3/25/04, market value $689,645,
$2,558,000 U.S. Treasury Notes
3.625% due 3/31/04, market
value $2,598,194, $7,866,000
U.S. Treasury Notes 6.00%
due 8/15/04, market value
$8,285,412, and $4,060,000
U.S. Treasury Notes 1.625%
due 1/31/05, market
value $4,104,687)......................... $15,366,000 $15,366,000
With UBS Warburg 0.85% 1/2/04
(dated 12/31/03, collateralized by
$3,369,000 U.S. Treasury Notes
1.625% due 3/31/05, market value
$3,395,858, $116,000
U.S. Treasury Notes 5.50% due 2/15/08,
market value $130,164, and $10,107,000
U.S. Treasury Notes 5.625% due 5/15/08,
market value $11,273,752)................. 14,487,000 14,487,000
-----------
Total Repurchase Agreements
(cost $29,853,000)........................ 29,853,000
-----------
Total Market Value of Securities Before
Securities Lending Collateral-99.71%
(cost $395,874,099)....................... 513,157,207
-----------
SECURITIES LENDING COLLATERAL-12.76%**
Short-Term Investments
ABN AMBRO Bank Chicago
0.96% 6/7/04.............................. 2,576,075 2,575,963
Allied Irish Dublin 1.12% 1/20/04.......... 2,944,047 2,944,111
Principal Market
Amount Value
SECURITIES LENDING COLLATERAL (continued)
Short-Term Investments (continued)
Bayerische Landesbank 1.045% 8/30/04....... $ 735,570 $ 735,680
CDC IXIS 1.485% 11/12/04................... 2,938,041 2,944,111
Credit Swiss First Boston
1.60% 12/13/04............................ 2,935,517 2,944,111
Deutsche Bank Financial
0.991% 1/16/04............................ 2,944,971 2,945,152
Fannie Mae 0.95% 1/29/04................... 14,720,607 14,720,373
Freddie Mac 1.12% 1/15/04.................. 1,665,483 1,666,727
General Electric Capital
1.068% 10/4/04............................ 1,105,203 1,106,887
1.069% 5/14/04 ........................... 1,472,358 1,473,393
Goldman Sachs Group LP
1.18% 12/8/04............................. 736,028 736,028
HBOS Treasury Services PLC
1.14% 4/8/04.............................. 2,943,830 2,944,111
Keybank NA 1.146% 1/26/04.................. 1,472,573 1,472,791
Lloyds Bank PLC 1.08% 2/9/04............... 3,312,047 3,312,125
Marsh & McLennan 1.291% 6/15/04............ 1,843,515 1,888,726
Merrill Lynch Mortgage Capital
1.10% 1/12/04............................. 2,944,111 2,944,111
Mizuho Securitites 1.03% 1/2/04............ 5,065,055 5,065,055
Morgan Stanley Dean Witter
1.283% 1/31/05............................ 734,829 736,028
1.33% 3/19/04............................. 1,839,234 1,840,070
Societe Generale 1.085% 12/8/04............ 2,943,370 2,943,370
Swiss Re Financial 1.103% 1/15/04.......... 1,835,664 1,834,953
Wachovia Bank N.A. 1.064% 11/15/04......... 2,944,409 2,946,732
Wilmington Trust Company
1.11% 1/22/04............................. 2,944,039 2,944,111
----------
Total Securities Lending Collateral
(cost $65,664,719)........................ 65,664,719
----------
TOTAL MARKET VALUE OF SECURITIES-112.47% (cost $461,538,818)........................................... 578,821,926++
------------
OBLIGATION TO RETURN SECURITIES LENDING COLLATERAL-(12.76%)**.......................................... (65,664,719)
RECEIVABLES AND OTHER ASSETS NET OF LIABILITIES-0.29%.................................................. 1,511,939
------------
NET ASSETS APPLICABLE TO 20,083,560 SHARES OUTSTANDING-100.00%......................................... $514,669,146
============
NET ASSET VALUE-DELAWARE VIP SMALL CAP VALUE SERIES STANDARD CLASS ($265,739,148 / 10,363,728 shares).. $25.64
======
NET ASSET VALUE-DELAWARE VIP SMALL CAP VALUE SERIES SERVICE CLASS ($248,929,998 / 9,719,832 shares).... $25.61
======
Components of Net Assets at December 31, 2003:
Shares of beneficial interest (unlimited authorization-no par)......................................... $385,798,903
Undistributed net investment income.................................................................... 1,077,904
Accumulated net realized gain on investments........................................................... 10,509,231
Net unrealized appreciation of investments............................................................. 117,283,108
------------
Total net assets....................................................................................... $514,669,146
============
______________________
+Non-income producing security for the year ended December 31, 2003.
++Includes $63,320,087 of securities loaned.
*Fully or partially on loan.
**See Note #7 in "Notes to Financial Statements."
See accompanying notes
Small Cap Value-4
Delaware VIP Trust-
Delaware VIP Small Cap Value Series
Statement of Operations
Year Ended December 31, 2003
INVESTMENT INCOME:
Dividends.................................. $ 4,010,030
Interest................................... 222,177
Securities lending income.................. 87,127
------------
4,319,334
------------
EXPENSES:
Management fees............................ 2,747,128
Distribution expenses - Service Class...... 435,216
Accounting and administration expenses..... 153,641
Reports and statements to shareholders..... 66,563
Professional fees.......................... 49,101
Dividend disbursing and transfer
agent fees and expenses.................. 36,067
Custodian fees............................. 15,008
Trustees' fees............................. 10,723
Registration fees.......................... 6,502
Other...................................... 71,874
------------
3,591,823
Less waiver of distribution
expenses - Service Class................. (62,482)
Less expenses paid indirectly.............. (9,266)
------------
Total expenses............................. 3,520,075
------------
NET INVESTMENT INCOME...................... 799,259
------------
NET REALIZED AND UNREALIZED GAIN
ON INVESTMENTS:
Net realized gain on investments........... 18,144,806
Net change in unrealized appreciation/
depreciation of investments.............. 113,235,168
------------
NET REALIZED AND UNREALIZED GAIN
ON INVESTMENTS........................... 131,379,974
------------
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS.......................... $132,179,233
============
See accompanying notes
Delaware VIP Trust-
Delaware VIP Small Cap Value Series
Statements of Changes in Net Assets
Year Ended
12/31/03 12/31/02
------------ ------------
INCREASE (DECREASE) IN NET
ASSETS FROM OPERATIONS:
Net investment income...................... $ 799,259 $ 1,338,642
Net realized gain (loss) on investments.... 18,144,806 (6,770,192)
Net change in unrealized appreciation/
depreciation of investments............... 113,235,168 (23,899,199)
------------ ------------
Net increase (decrease) in net assets
resulting from operations................. 132,179,233 (29,330,749)
------------ ------------
DIVIDENDS AND DISTRIBUTIONS
TO SHAREHOLDERS FROM:
Net investment income:
Standard Class............................ (734,858) (923,546)
Service Class............................. (354,693) (278,344)
Net realized gain on investments:
Standard Class............................ - (2,113,500)
Service Class............................. - (860,337)
------------ ------------
(1,089,551) (4,175,727)
------------ ------------
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares sold:
Standard Class............................ 61,919,485 109,997,552
Service Class............................. 81,971,591 114,146,812
Net asset value of shares issued upon
reinvestment of dividends and
distributions:
Standard Class........................... 734,858 3,037,046
Service Class............................ 354,693 1,138,681
------------ ------------
144,980,627 228,320,091
------------ ------------
Cost of shares repurchased:
Standard Class........................... (39,192,301) (78,807,020)
Service Class............................ (17,080,623) (20,010,687)
------------ ------------
(56,272,924) (98,817,707)
------------ ------------
Increase in net assets derived from
capital share transactions............... 88,707,703 129,502,384
------------ ------------
NET INCREASE IN NET ASSETS................. 219,797,385 95,995,908
NET ASSETS:
Beginning of year.......................... 294,871,761 198,875,853
------------ ------------
End of year................................ $514,669,146 $294,871,761
============ ============
See accompanying notes
Small Cap Value-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:
Delaware VIP Small Cap Value Series Standard Class
Year Ended
12/31/03 12/31/02 12/31/01 12/31/00 12/31/99
----------------------------------------------------------
Net asset value, beginning of period....................... $18.140 $19.530 $17.650 $15.360 $16.450
Income (loss) from investment operations:
Net investment income(1)................................... 0.068 0.101 0.162 0.182 0.182
Net realized and unrealized gain (loss) on investments..... 7.513 (1.149) 1.899 2.524 (0.997)
------- ------- ------- ------- -------
Total from investment operations........................... 7.581 (1.048) 2.061 2.706 (0.815)
------- ------- ------- ------- -------
Less dividends and distributions from:
Net investment income...................................... (0.081) (0.104) (0.181) (0.185) (0.195)
Net realized gain on investments........................... - (0.238) - (0.231) (0.080)
------- ------- ------- ------- -------
Total dividends and distributions.......................... (0.081) (0.342) (0.181) (0.416) (0.275)
------- ------- ------- ------- -------
Net asset value, end of period............................. $25.640 $18.140 $19.530 $17.650 $15.360
======= ======= ======= ======= =======
Total return(2)............................................ 41.98% (5.60%) 11.84% 18.18% (4.86%)
Ratios and supplemental data:
Net assets, end of period (000 omitted).................... $265,739 $170,630 $152,827 $103,914 $95,425
Ratio of expenses to average net assets.................... 0.86% 0.85% 0.84% 0.85% 0.85%
Ratio of expenses to average net assets prior to expense
limitation and expenses paid indirectly.................. 0.86% 0.85% 0.86% 0.89% 0.85%
Ratio of net investment income to average net assets....... 0.32% 0.52% 0.89% 1.18% 1.16%
Ratio of net investment income to average net assets prior
to expense limitation and expenses paid indirectly....... 0.32% 0.52% 0.87% 1.14% 1.16%
Portfolio turnover......................................... 41% 43% 73% 84% 47%
________________________
(1) The average shares outstanding method has been applied for per share
information for the years ended December 31, 2003, 2002, 2001 and 2000.
(2) Total investment return is based on the change in net asset value of a share
during the period and assumes reinvestment of dividends and distributions at
net asset value. Total investment return reflects a waiver and payment of
fees by the manager, as applicable. Performance would have been lower had
the expense limitation not been in effect.
See accompanying notes
Small Cap Value-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:
Delaware VIP Small Cap Value Series Service Class
5/1/00(1)
Year Ended to
12/31/03 12/31/02 12/31/01 12/31/00
-----------------------------------------------------
Net asset value, beginning of period....................... $18.130 $19.520 $17.650 $14.860
Income (loss) from investment operations:
Net investment income(2)................................... 0.020 0.072 0.135 0.124
Net realized and unrealized gain (loss)
on investments........................................... 7.512 (1.147) 1.900 2.666
------- ------- ------- ------
Total from investment operations........................... 7.532 (1.075) 2.035 2.790
------- ------- ------- ------
Less dividends and distributions from:
Net investment income...................................... (0.052) (0.077) (0.165) -
Net realized gain on investments........................... - (0.238) - -
------- ------- ------- ------
Total dividends and distributions.......................... (0.052) (0.315) (0.165) -
------- ------- ------- ------
Net asset value, end of period............................. $25.610 $18.130 $19.520 $17.650
======= ======= ======= =======
Total return(3)............................................ 41.66% (5.72%) 11.68% 18.78%
Ratios and supplemental data:
Net assets, end of period (000 omitted).................... $248,930 $124,241 $46,049 $1,254
Ratio of expenses to average net assets.................... 1.08% 1.00% 0.99% 1.00%
Ratio of expenses to average net assets prior
to expense limitation and expenses paid
indirectly............................................... 1.11% 1.00% 1.01% 1.06%
Ratio of net investment income to average net assets....... 0.10% 0.37% 0.74% 1.02%
Ratio of net investment income to average net assets prior
to expense limitation and expenses paid indirectly....... 0.07% 0.37% 0.72% 0.96%
Portfolio turnover......................................... 41% 43% 73% 84%
________________________
(1) Date of commencement of operations; ratios and portfolio turnover have been
annualized and total return has not been annualized.
(2) The average shares outstanding method has been applied for per share
information.
(3) Total investment return is based on the change in net asset value of a share
during the period and assumes reinvestment of dividends and distributions at
net asset value. Total investment return reflects a waiver and payment of
fees by the manager and distributor, as applicable. Performance would have
been lower had the expense limitation not been in effect.
See accompanying notes
Small Cap Value-7
Delaware VIP Trust-Delaware VIP Small Cap Value Series
Notes to Financial Statements
December 31, 2003
Delaware VIP Trust (the "Trust") is organized as a Delaware statutory trust and
offers 15 series: Delaware VIP Balanced Series, Delaware VIP Capital Reserves
Series, Delaware VIP Cash Reserve Series, Delaware VIP Diversified Income
Series, Delaware VIP Emerging Markets Series, Delaware VIP Global Bond Series,
Delaware VIP Growth Opportunities Series, Delaware VIP High Yield Series,
Delaware VIP International Value Equity Series, Delaware VIP Large Cap Value
Series, Delaware VIP REIT Series, Delaware VIP Select Growth Series, Delaware
VIP Small Cap Value Series, Delaware VIP Trend Series and Delaware VIP U.S.
Growth Series. These financial statements and the related notes pertain to
Delaware VIP Small Cap Value Series (the "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 accounting principles
generally accepted in the United States and are consistently followed by the
Series.
Security Valuation--All equity securities 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 Stock Market, Inc.
(NASDAQ) are valued in accordance with the NASDAQ Official Closing Price, which
may not be the last sales price. If on a particular day an equity security does
not trade, then the mean between the bid and asked prices will normally be used.
Short-term debt securities having less than 60 days to maturity are valued at
amortized cost, which approximates market value. Other securities and assets for
which market quotations are not readily available are valued at fair value as
determined in good faith under the direction of the Series' Board of Trustees.
Federal Income Taxes--The Series intends to continue to qualify for federal
income tax purposes as a regulated investment company and make the requisite
distributions to shareholders. Accordingly, no provision for federal income
taxes has been made in the financial statements.
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. 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 102% collateralized. However, in the
event of default or bankruptcy by the counterparty to the agreement, realization
of the collateral may be subject to legal proceedings.
Use of Estimates--The preparation of financial statements in conformity with
accounting principles generally accepted in the United States 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 common to all funds within the Delaware Investments Family of
Funds are allocated amongst the funds on the basis of average net assets.
Security transactions are recorded on the date the securities are purchased or
sold (trade date). Costs used in calculating realized gains and losses on the
sale of investment securities are those of the specific securities sold.
Dividend income is recorded on the ex-dividend date and interest income is
recorded on the accrual basis. Distributions received from investments in Real
Estate Investment Trusts are recorded as dividend income on ex-dividend date,
subject to reclassification upon notice of the character of such distribution by
the issuer.
The Series declares and pays dividends from net investment income and
distributions from net realized gain on investments, if any, following the close
of the fiscal year.
Certain expenses of the Series are paid through commission arrangements with
brokers. The amount of these expenses was approximately $8,791 for the year
ended December 31, 2003. In addition, the Series receives earnings credits from
its custodian when positive cash balances are maintained, which are used to
offset custody fees. The earnings credits for the year ended December 31, 2003
were approximately $475. The expenses paid under the above arrangements are
included in their respective expense captions on the Statement of Operations
with the corresponding expense offset shown as "expenses paid indirectly."
2. Investment Management, Administration Agreements and Other Transactions with
Affiliates
In accordance with the terms of its investment management agreement, the Series
pays Delaware Management Company (DMC), a series of Delaware Management Business
Trust and the investment manager, an annual fee which is calculated daily at the
rate of 0.75% on the first $500 million of average daily net assets of the
Series, 0.70% on the next $500 million, 0.65% on the next $1.5 billion, and
0.60% on average daily net assets in excess of $2.5 billion.
DMC has contractually agreed to waive that portion, if any, of its management
fee and reimburse the Series to the extent necessary to ensure that annual
operating expenses, exclusive of taxes, interest, brokerage commissions,
distribution fees, certain insurance costs and extraordinary expenses, do not
exceed 0.95% of average daily net assets of the Series through April 30, 2004.
No reimbursement was due for year ended December 31, 2003.
Delaware Service Company, Inc. (DSC), an affiliate of DMC, provides accounting,
administration, dividend disbursing and transfer agent services. The Series pays
DSC a monthly fee based on average net assets subject to certain minimums for
accounting and administration services. The Series pays DSC a monthly fee based
on average net assets for dividend disbursing and transfer agent services.
Small Cap Value-8
Delaware VIP Small Cap Value Series
Notes to Financial Statements (continued)
2. Investment Management, Administration Agreements and Other Transactions with
Affiliates (continued) 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 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, 2004 in order to prevent distribution and
service fees of the Service Class shares from exceeding 0.25% of average daily
net assets. Prior to May 1, 2003, the Board of Trustees had set the fee at an
annual rate of 0.15% of the Service Class shares' average daily net assets. No
distribution expenses are paid by Standard Class shares.
At December 31, 2003, the Series had liabilities payable to affiliates as
follows:
Dividend disbursing, Other
Investment transfer agent fees, expenses
management accounting payable
fee payable to and other expenses to DMC
DMC payable to DSC and affiliates*
-------------- ------------------- ---------------
$319,884 $20,305 $95,903
*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, professional fees, custodian fees and
trustees' 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 year ended December 31, 2003, the Series made purchases and sales of
investment securities other than short-term investments as follows:
Purchases.................... $212,864,610
Sales........................ $142,016,683
At December 31, 2003, the cost of investments and unrealized appreciation
(depreciation) for federal income tax purposes for the Series were as follows:
Aggregate Aggregate
Cost of unrealized unrealized Net unrealized
investments appreciation depreciation appreciation
------------ ------------ ------------- --------------
$396,608,076 $119,749,798 $(3,200,667) $116,549,131
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 accounting principles
generally accepted in the United States. The tax character of dividends and
distributions paid during the years ended December 31, 2003 and 2002 was as
follows:
Year Year
Ended Ended
12/31/03 12/31/02
---------- ----------
Ordinary income............... $1,089,551 $1,417,308
Long-term capital gain........ - 2,758,419
---------- ----------
Total......................... $1,089,551 $4,175,727
========== ==========
As of December 31, 2003, the components of net assets on a tax basis were as
follows:
Shares of beneficial interest............ $385,798,903
Undistributed ordinary income............ 3,707,243
Undistributed long-term capital gain..... 8,613,869
Unrealized appreciation of investments... 116,549,131
------------
Net assets............................... $514,669,146
============
The differences between book basis and tax basis components of net assets are
primarily attributable to tax deferral of losses on wash sales.
Small Cap Value-9
Delaware VIP Small Cap Value Series
Notes to Financial Statements (continued)
5. Capital Shares
Transactions in capital shares were as follows:
Year Year
Ended Ended
12/31/03 12/31/02
Shares sold: -------- ---------
Standard Class............... 2,857,738 5,392,568
Service Class................ 3,711,205 5,538,250
Shares issued upon reinvestment
of dividends and distributions:
Standard Class............... 40,600 144,897
Service Class................ 19,585 54,301
6,629,128 11,130,016
Shares repurchased:
Standard Class............... (1,942,071) (3,956,962)
Service Class................ (865,093) (1,097,733)
(2,807,164) (5,054,695)
Net increase.................. 3,821,964 6,075,321
6. Line of Credit
The Series, along with certain other funds in the Delaware Investments Family of
Funds (the "Participants"), participates in a $177,300,000 revolving line of
credit facility to be used for temporary or emergency purposes as an additional
source of liquidity to fund redemptions of investor shares. The Participants are
charged an annual commitment fee, which is allocated across the Participants on
the basis of each fund's allocation of the entire facility. The Participants may
borrow up to a maximum of one third of their net assets under the agreement. The
Series had no amounts outstanding as of December 31, 2003 or at any time during
the year.
7. 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 J.P. Morgan Chase. Initial security loans made pursuant to the
Lending Agreement are required to be secured by U.S. government obligations
and/or cash collateral not less than 102% of the market value of the securities
issued in the United States and 105% of the market value of securities issued
outside the United States. With respect to each loan, if the aggregate market
value of the collateral held 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 invested in fixed-income
securities, with a weighted average maturity not to exceed 90 days, rated in one
of the top two tiers by Standard & Poor's Ratings Group or Moody's Investors
Service, Inc. or repurchase agreements collateralized by such securities.
However, in the event of default or bankruptcy by the lending agent, realization
and/or retention of the collateral may be subject to legal proceedings. In the
event the borrower fails to return loaned securities and the collateral received
is insufficient to cover the value of the loaned securities and provided such
collateral shortfall is not the result of investment losses, the lending agent
has agreed to pay the amount of the shortfall to the Series, or at the
discretion of the lending agent, replace the loaned securities. The Series
continues to record dividends on the securities loaned and is subject to change
in fair value of the securities loaned that may occur during the term of the
loan. The Series has the right under the Lending Agreement to recover the
securities from the borrower on demand. The security lending agent and the
borrower retain a portion of the earnings from the collateral investments. The
Series records security lending income net of such allocation.
At December 31, 2003, the market value of securities on loan was $63,320,087,
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."
8. 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 small
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.
Small Cap Value-10
Delaware VIP Small Cap Value Series
Notes to Financial Statements (continued)
9. Tax Information (Unaudited)
For the fiscal year ended December 31, 2003, the Series designates distributions
paid during the year as follows:
(A) (B)
Long-Term Ordinary
Capital Gains Income Total (C)
Distributions Distributions Distributions Qualifying
(Tax Basis) (Tax Basis) (Tax Basis) Dividends(1)
------------- ------------- ------------- ------------
- 100% 100% 100%
________________________
(A) and (B) are based on a percentage of the Series' total distributions.
(C) is based on a percentage of ordinary income of the Series.
(1) Qualifying dividends represent dividends which qualify for the corporate
dividends received deduction.
Small Cap Value-11
Delaware VIP Trust-Delaware VIP Small Cap Value Series
Report of Independent Auditors
To the Shareholders and Board of Trustees
Delaware VIP Trust-Delaware VIP Small Cap Value Series
We have audited the accompanying statement of net assets of Delaware VIP Small
Cap Value Series (the "Series") as of December 31, 2003, and the related
statement of operations for the year then ended, the statements of changes in
net assets for each of the two years in the period then ended, and the financial
highlights for each of the periods indicated therein. These financial statements
and financial highlights are the responsibility of the Series' management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements and financial highlights. Our procedures included
confirmation of securities owned as of December 31, 2003, by correspondence with
the custodian and brokers. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Delaware VIP Small Cap Value Series at December 31, 2003, the results of its
operations for the year then ended, the changes in its net assets for each of
the two years in the period then ended, and its financial highlights for each of
the periods indicated therein, in conformity with accounting principles
generally accepted in the United States.
/s/ Ernst & Young LLP
Philadelphia, Pennsylvania
February 6, 2004
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
A description of the policies and procedures that the Series uses to determine
how to vote proxies (if any) relating to portfolio securities is available
without charge (i) upon request, by calling 800 523-1918; (ii) on the Series'
website at http://www.delawareinvestments.com; and (iii) on the Commission's
website at http://www.sec.gov.; and beginning no later than August 31, 2004,
information (if any) regarding how the Series voted proxies relating to
portfolio securities during the most recent 12-month period ended June 30 is
available without charge (i) through the Series' website at
http://www.delawareinvestments.com; and (ii) on the Commission's website at
http://www.sec.gov.
- --------------------------------------------------------------------------------
Small Cap Value-12
Delaware Investments Family of Funds
BOARD OF TRUSTEES/DIRECTORS AND OFFICERS ADDENDUM
A mutual fund is governed by a Board of Trustees/Directors which has oversight
responsibility for the management of a fund's business affairs.
Trustees/Directors establish procedures and oversee and review the performance
of the investment manager, the distributor and others that perform services for
the fund. The independent fund trustees, in particular, are advocates for
shareholder interests. The following is a list of the Trustees/Directors and
Officers with certain background and related information.
Number of Other
Principal Portfolios in Fund Directorships
Name, Position(s) Occupation(s) Complex Overseen Held by
Address Held with Length of Time During by Trustee/Director Trustee/Director
and Birthdate Fund(s) Served Past 5 Years or Officer or Officer
- -----------------------------------------------------------------------------------------------------------------------------------
INTERESTED TRUSTEES
Jude T. Driscoll(2) Chairman and 4 Years - Since August 2000, 80 None
2005 Market Street Trustee(4) Executive Officer Mr. Driscoll has served in
Philadelphia, PA various executive capacities
19103 Trustee since at different times at
May 15, 2003 Delaware Investments(1)
March 10, 1963
Senior Vice President and
Director of Fixed-Income Process -
Conseco Capital Management
(June 1998 - August 2000)
Managing Director -
NationsBanc Capital Markets
(February 1996 - June 1998)
- -----------------------------------------------------------------------------------------------------------------------------------
INDEPENDENT TRUSTEES
Walter P. Babich Trustee 16 Years Board Chairman - 98 None
2005 Market Street Citadel Construction Corporation
Philadelphia, PA (1989 - Present)
19103
October 1, 1927
- -----------------------------------------------------------------------------------------------------------------------------------
John H. Durham Trustee 25 Years(3) Private Investor 98 Trustee - Abington
2005 Market Street Memorial Hospital
Philadelphia, PA
19103
President/Director-
22 WR Corporation
August 7, 1937
- -----------------------------------------------------------------------------------------------------------------------------------
John A. Fry Trustee(4) 3 Years President - 80 None
2005 Market Street Franklin & Marshall College
Philadelphia, PA (June 2002 - Present)
19103
Executive Vice President -
University of Pennsylvania
May 28, 1960 (April 1995 - June 2002)
- -----------------------------------------------------------------------------------------------------------------------------------
Anthony D. Knerr Trustee 11 Years Founder/Managing Director - 98 None
2005 Market Street Anthony Knerr & Associates
Philadelphia, PA (Strategic Consulting)
19103 (1990 - Present)
December 7, 1938
- -----------------------------------------------------------------------------------------------------------------------------------
Small Cap Value-13
Number of Other
Principal Portfolios in Fund Directorships
Name, Position(s) Occupation(s) Complex Overseen Held by
Address Held with Length of Time During by Trustee/Director Trustee/Director
and Birthdate Fund(s) Served Past 5 Years or Officer or Officer
- -----------------------------------------------------------------------------------------------------------------------------------
INDEPENDENT TRUSTEES (continued)
Ann R. Leven Trustee 15 Years Treasurer/Chief Fiscal Officer - 98 Director - Andy
2005 Market Street National Gallery of Art Warhol Foundation
Philadelphia, PA (1994 - 1999)
19103 Director -
Systemax Inc.
November 1, 1940
- -----------------------------------------------------------------------------------------------------------------------------------
Thomas F. Madison Trustee 10 Years President/Chief 98 Director -
2005 Market Street Executive Officer - Banner Health
Philadelphia, PA MLM Partners, Inc.
19103 (Small Business Investing Director -
and Consulting) CenterPoint Energy
(January 1993 - Present)
February 25, 1936 Director -
Digital River Inc.
Director - Rimage
Corporation
- -----------------------------------------------------------------------------------------------------------------------------------
Janet L. Yeomans Trustee 5 Years Vice President/Mergers & 98 None
2005 Market Street Acquisitions - 3M Corporation
Philadelphia, PA 19103 (January 2003 - Present)
Ms. Yeomans has held
July 31, 1948 various management positions
at 3M Corporation since 1983.
- -----------------------------------------------------------------------------------------------------------------------------------
OFFICERS
Joseph H. Hastings Executive Executive Mr. Hastings has served in 98 None
2005 Market Street Vice President Vice President various executive capacities
Philadelphia, PA 19103 and and at different times at
Chief Financial Chief Financial Delaware Investments.
Officer Officer since
August 21, 2003
December 19, 1949
- -----------------------------------------------------------------------------------------------------------------------------------
Richelle S. Maestro Senior Vice President, Chief Legal Officer Ms. Maestro has served in 98 None
2005 Market Street Chief Legal Officer since various executive capacities
Philadelphia, PA and Secretary March 17, 2003 at different times at
19103 Delaware Investments.
November 26, 1957
- -----------------------------------------------------------------------------------------------------------------------------------
Michael P. Bishof Senior Vice President 8 Years Mr. Bishof has served in 98 None
2005 Market Street and Treasurer various executive capacities
Philadelphia, PA at different times at
19103 Delaware Investments.
August 18, 1962
- -----------------------------------------------------------------------------------------------------------------------------------
(1) Delaware Investments is the marketing name for Delaware Management Holdings,
Inc. and its subsidiaries, including the Registrant's investment advisor,
principal underwriter and its transfer agent.
(2) Mr. Driscoll is considered to be an "Interested Trustee" because he is an
executive officer of the Fund's manager and distributor.
(3) Mr. Durham served as a Director Emeritus from 1995 through 1998.
(4) Mr. Driscoll and Mr. Fry are not Trustees of the portfolios of Voyageur
Insured Funds, Voyageur Intermediate Tax Free Funds, Voyageur Investment
Trust, Voyageur Mutual Funds, Voyageur Mutual Funds II, Voyageur Mutual
Funds III and Voyageur Tax Free Funds.
The Statement of Additional Information for the Fund(s) includes additional
information about the Trustees/Directors and Officers and is available, without
charge, upon request by calling 800 523-1918.
(8521)
Small Cap Value-14
FOR CAPITAL APPRECIATION
Delaware VIP Trust-Trend Series
Portfolio Snapshot
It was an outstanding year for small- and mid-cap growth stocks, as smaller
issues generally led a bull market that started in the spring and continued
through the end of 2003. The three straight calendar quarters of gains that
closed 2003 constituted the longest period of sustained increases since 1999.
Continued strong economic reports and positive outlooks from many companies were
the primary drivers of performance. Delaware VIP Trend Series returned +35.10%
(Standard Class shares with distributions reinvested) during the year.
Although our small-to-mid-capitalization portfolio turned in strong gains, it
trailed the benchmark Russell 2000 Growth Index, which gained +48.54% over the
same time frame. The Series' return in comparison to the benchmark was hurt by
poor stock selection at times, in addition to the fact that companies with poor
earnings and balance sheet quality often led the market during much of the year.
We remained focused on market-leading companies that we believe exhibit quality
earnings and financial health. Somewhat counter-intuitively, these types of
issues often underperformed as investors became more aggressive during 2003,
although higher-quality companies had reassumed leadership in the stock market
by years end.
Investment Outlook
Looking forward, we remain optimistic that the overall economy will continue
to show improvement. We believe that the shift in general investor sentiment
toward higher-quality issues will continue. The strongest companies within
individual industries should benefit from the improving macroeconomic
environment and leverage their inherent strengths. Our investment strategy of
focusing on these industry leaders should perform well if this shift continues.
Performance of a $10,000
Investment:
December 31, 1993 through
December 31, 2003
Delaware VIP
Russell 2000 Trend Series
Growth Index (Standard Class Shares)
------------ -----------------------
Dec 31 '93 $ 1,0000 $ 10,000
Dec 31 '94 $ 9,757 $ 9,961
Dec 31 '95 $ 12,785 $ 13,867
Dec 31 '96 $ 14,225 $ 15,391
Dec 31 '97 $ 16,068 $ 18,680
Dec 31 '98 $ 16,266 $ 21,676
Dec 31 '99 $ 23,276 $ 36,947
Dec 31 '00 $ 18,054 $ 34,403
Dec 31 '01 $ 16,407 $ 29,127
Dec 31 '02 $ 11,441 $ 23,320
Dec 31 '03 $ 16,993 $ 31,505
Delaware VIP Trend Series
Average Annual Total Returns
--------------------------------
Standard Class Service Class
Shares* Shares**
Lifetime +12.36% -6.90%
10 Years +12.16% --
Five Years +7.77% --
One Year +35.10% +34.79%
For the periods ended December 31, 2003
*Commenced operations on December 27, 1993.
**Commenced operations on May 1, 2000.
Past performance is not a guarantee of future results. Returns and share
values will fluctuate so that shares, when redeemed, may be worth more or less
than their original cost.
The chart shows a $10,000 investment in Delaware VIP Trend Series Standard Class
shares and the Russell 2000 Growth Index for the 10-year period from December
31, 1993 through December 31, 2003. The chart assumes all distributions were
reinvested. Returns plotted on the chart were as of the last day of each month
shown. The Russell 2000 Growth Index is an unmanaged stock composite that
measures the stocks of small, growth-oriented companies. An index is unmanaged
and does not reflect the costs of operating a mutual fund, such as the costs of
buying, selling, and holding securities. You cannot invest in an index. Earnings
from a variable annuity investment compound tax-free until withdrawal, so no
adjustments were made for income taxes. An expense limitation was in effect for
Delaware VIP Trend Series during the periods shown. Performance does not reflect
insurance fees related to a variable annuity or variable life investment or the
deferred sales charge that would apply to certain withdrawals of investments
held for fewer than eight years. Performance shown here would have been reduced
if such fees were included and the expense limitation was removed. For more
information about fees, consult your variable annuity or variable life
prospectus.
Trend-1
Delaware VIP Trust-Delaware VIP Trend Series
Statement of Net Assets
December 31, 2003
Number of Market
Shares Value
COMMON STOCK-96.16%
Banking & Finance-8.67%
City National................................. 146,800 $ 9,119,216
Cullen/Frost Bankers.......................... 215,600 8,746,892
Doral Financial............................... 89,986 2,904,748
Downey Financial.............................. 135,900 6,699,870
First Niagara Financial Group................. 175,944 2,623,325
Friedman Billings Ramsey Class A ............. 94,620 2,183,830
IndyMac Bancorp............................... 153,500 4,572,765
Sovereign Bancorp............................. 243,200 5,776,000
Webster Financial............................. 150,300 6,892,758
-----------
49,519,404
-----------
Basic Industry/Capital Goods-4.36%
Beckman Coulter............................... 112,400 5,713,292
+Mettler Toledo International.................. 253,200 10,687,572
MSC Industrial Direct Class A ................ 310,100 8,527,750
-----------
24,928,614
-----------
Business Services-8.96%
+Advisory Board................................ 139,700 4,876,927
+Bright Horizons Family Solutions ............. 143,700 6,035,400
+Digital Insight............................... 193,600 4,820,640
*+Fisher Scientific International .............. 419,800 17,367,126
*+Intergrated Alarm Services ................... 327,200 2,781,200
*+Monster Worldwide............................. 250,400 5,498,784
+Resources Connection.......................... 196,300 5,360,953
*+Sirva......................................... 228,800 4,470,752
-----------
51,211,782
-----------
Consumer Durables-7.91%
D.R. Horton................................... 150,641 6,516,730
Gentex........................................ 405,400 17,902,464
*+Group 1 Automotive............................ 121,600 4,400,704
KB HOME....................................... 92,000 6,671,840
*+Toll Brothers................................. 148,600 5,908,336
*+WCI Communities............................... 184,500 3,802,545
-----------
45,202,619
-----------
Consumer Non-Durables-11.14%
*+American Italian Pasta Class A................ 97,800 4,097,820
+Coach......................................... 534,900 20,192,475
*+Conn's........................................ 71,500 1,151,150
+Cost Plus..................................... 301,225 12,350,225
+Dollar Tree Stores............................ 231,100 6,946,866
+Krispy Kreme Doughnuts........................ 165,700 6,064,620
*+Peet's Coffee & Tea........................... 148,700 2,588,867
PETsMART...................................... 431,900 10,279,220
-----------
63,671,243
-----------
Consumer Services-16.37%
Cash America International.................... 335,300 7,101,654
*+Cheesecake Factory............................ 278,525 12,263,455
+Cumulus Media................................. 252,100 5,546,200
Extended Stay America......................... 369,400 5,348,912
*Four Seasons Hotels........................... 122,100 6,245,415
+Getty Images.................................. 211,100 10,582,443
Gray Television Class B....................... 292,200 4,418,064
+LIN TV Class A................................ 344,500 8,891,545
*+Mediacom Communications....................... 566,800 4,914,156
+Radio One..................................... 158,500 3,098,675
+Sonic......................................... 209,462 6,413,726
*+West.......................................... 234,400 5,445,112
Number of Market
Shares Value
COMMON STOCK (continued)
Consumer Services (continued)
+Westwood One.................................. 170,100 $ 5,819,121
*+Wynn Resorts.................................. 266,300 7,459,063
-----------
93,547,541
-----------
Energy-0.87%
+Rowan Companies............................... 213,000 4,935,210
-----------
4,935,210
-----------
Healthcare & Pharmaceuticals-13.56%
+Abgenix....................................... 404,900 5,045,054
+Align Technology.............................. 161,000 2,659,720
*+Andrx Group................................... 123,800 2,976,152
+Coventry Health Care.......................... 97,900 6,313,571
+Cv Theraputics................................ 38,700 567,342
+Exelixis...................................... 445,200 3,152,016
*+ImClone Systems............................... 69,800 2,768,268
+Inspire Pharmaceuticals....................... 294,400 4,168,704
*+Martek Biosciences............................ 150,000 9,745,500
Medicis Pharmaceutical Class A................ 138,100 9,846,530
*+MGI Pharma.................................... 83,300 3,427,795
*+Nektar Therapeutics........................... 560,400 7,627,044
*+Neurocrine Biosciences........................ 124,900 6,812,046
*+NitroMed...................................... 306,700 2,203,640
*+Protein Design Labs........................... 552,700 9,893,330
*+United Therapeutics........................... 11,800 270,810
-----------
77,477,522
-----------
Insurance-6.49%
Berkley (W.R.)................................ 155,500 5,434,725
Delphi Financial Group Class A................ 99,900 3,596,400
HCC Insurance Holdings........................ 168,500 5,358,300
IPC Holdings.................................. 96,900 3,773,286
PartnerRe..................................... 240,700 13,972,635
RenaissanceRe Holdings........................ 101,200 4,963,860
-----------
37,099,206
-----------
Technology-15.71%
+Akamai Technologies........................... 469,200 5,043,900
+AMIS Holdings................................. 228,800 4,182,464
*+ASK Jeeves.................................... 362,300 6,564,876
+Brocade Communications Systems................ 915,200 5,289,856
+CIENA......................................... 855,197 5,678,508
*+Cymer......................................... 240,600 11,113,314
*+Emulex........................................ 213,500 5,696,180
*Henry (Jack) & Associates..................... 480,900 9,896,922
+Intergated Circuit Systems.................... 255,000 7,264,950
*+Micrel........................................ 450,000 7,011,000
+Power Integrations............................ 127,800 4,276,188
*+Skyworks Solutions............................ 556,600 4,842,420
*+Tekelec....................................... 320,500 4,983,775
+Varian Semiconductor Equipment................ 182,100 7,955,949
-----------
89,800,302
-----------
Transportation-2.12%
+Hunt (J.B.) Transportation Services........... 252,900 6,830,829
*UTI Worldwide................................. 139,600 5,295,028
-----------
12,125,857
-----------
Total Common Stock
(cost $391,851,175).......................... 549,519,300
-----------
Trend-2
Delaware VIP Trend Series
Statement of Net Assets (continued)
Principal Market
Amount Value
REPURCHASE AGREEMENTS-3.52%
With BNP Paribas 0.85% 1/2/04
(dated 12/31/03, collateralized by $466,000
U.S. Treasury Bills due 3/25/04, market value
$465,030, $1,725,000 U.S. Treasury Notes 3.625%
due 3/31/04, market value $1,751,973, $5,304,000
U.S. Treasury Notes 6.00% due 8/15/04,
market value $5,586,887, and $2,737,000
U.S. Treasury Notes 1.625% due 1/31/05,
market value $2,767,807)............................ $10,361,000 $10,361,000
With UBS Warburg 0.85% 1/2/04
(dated 12/31/03, collateralized by $2,272,000
U.S. Treasury Notes 1.625% due 3/31/05,
market value $2,289,841, $78,000
U.S. Treasury Notes 5.50% due 2/15/08,
market value $87,770, and $6,815,000
U.S. Treasury Notes 5.625% due 5/15/08,
market value $7,601,937)............................ 9,769,000 9,769,000
-----------
Total Repurchase Agreements
(cost $20,130,000).................................. 20,130,000
-----------
Total Market Value of Securities
Before Securities Lending Collateral-99.68%
(cost $411,981,175)................................. 569,649,300
-----------
Principal Market
Amount Value
SECURITIES LENDING COLLATERAL**-14.02%
Short-Term Investments
ABN AMRO Bank Chicago 0.96% 6/07/04................. $3,142,736 $ 3,142,599
Allied Irish Dublin 1.12% 1/20/04................... 3,591,650 3,591,729
Bayerische Landesbank 1.045% 8/30/04................ 897,374 897,508
CDC IXIS 1.485% 11/12/04............................ 3,584,324 3,591,729
Credit Suisse First Boston 1.60% 12/13/04........... 3,581,244 3,591,728
Deutsche Bank Financial 0.991% 1/16/04.............. 3,592,778 3,592,998
Fannie Mae 0.955% 1/29/04........................... 17,958,703 17,958,418
Freddie Mac 1.12% 1/15/04........................... 2,031,841 2,033,358
General Electric Capital
1.068% 10/04/04.................................... 1,348,315 1,350,369
1.069% 5/14/04..................................... 1,796,233 1,797,495
Goldman Sachs Group LP 1.18% 12/08/04 .............. 897,932 897,932
HBOS Treasury Services PLC
1.14% 4/08/04...................................... 3,591,386 3,591,728
Keybank NA 1.146% 1/26/04........................... 1,796,496 1,796,762
Lloyds Bank PLC 1.08% 2/09/04....................... 4,040,600 4,040,695
Marsh & McLennan 1.291% 6/15/04..................... 2,249,034 2,304,190
Merrill Lynch Mortgage Capital
1.10% 1/12/04...................................... 3,591,728 3,591,728
Mizuho Securities 1.03% 1/02/04..................... 6,179,216 6,179,216
Morgan Stanley Dean Witter
1.283% 1/31/05..................................... 896,469 897,932
1.33% 3/19/04...................................... 2,243,810 2,244,830
Societe Generale 1.085% 12/08/04 ................... 3,590,824 3,590,824
Swiss Re Financial 1.103% 1/15/04................... 2,239,456 2,238,588
Wachovia Bank NA 1.064% 11/15/04 ................... 3,592,092 3,594,926
Wilmington Trust 1.11% 1/22/04...................... 3,591,642 3,591,729
-----------
Total Securities Lending Collateral
(cost $80,109,011).................................. 80,109,011
-----------
TOTAL MARKET VALUE OF SECURITIES-113.70% (cost $492,090,186)...................................... 649,758,311#
OBLIGATION TO RETURN SECURITY LENDING COLLATERAL-(14.02%)**....................................... (80,109,011)
RECEIVABLES AND OTHER ASSETS NET OF LIABILITIES-0.32%............................................. 1,841,483
------------
NET ASSETS APPLICABLE TO 20,955,951 SHARES OUTSTANDING-100.00%.................................... $571,490,783
============
NET ASSET VALUE-DELAWARE VIP TREND SERIES STANDARD CLASS ($515,828,405 / 18,903,742 shares)....... $27.29
======
NET ASSET VALUE-DELAWARE VIP TREND SERIES SERVICE CLASS ($55,662,378 / 2,052,209 shares).......... $27.12
======
Components of Net Assets at December 31, 2003:
Shares of beneficial interest (unlimited authorization-no par).................................... $592,324,080
Accumulated net realized loss on investments...................................................... (178,501,422)
Net unrealized appreciation of investments........................................................ 157,668,125
------------
Total net assets.................................................................................. $571,490,783
============
- -------------
*Fully or partially on loan.
**See note #7 in "Notes to Financial Statements."
+Non-income producing security for the year ended December 31, 2003.
#Includes $77,441,590 of securities loaned.
See accompanying notes
Trend-3
Delaware VIP Trust-
Delaware VIP Trend Series
Statement of Operations
Year Ended December 31, 2003
INVESTMENT INCOME:
Dividends....................................................... $ 2,078,189
Interest........................................................ 171,799
Securities lending income....................................... 91,919
------------
2,341,907
------------
EXPENSES:
Management fees................................................. 3,628,041
Accounting and administration expenses.......................... 204,572
Distribution expenses-Service Class............................. 89,737
Professional fees............................................... 50,636
Dividend disbursing and transfer agent fees
and expenses................................................... 48,481
Trustees' fees.................................................. 16,000
Custodian fees.................................................. 14,058
Reports and statements to shareholders.......................... 13,444
Other........................................................... 103,575
------------
4,168,544
Less waiver of distribution expenses-Service Class.............. (13,060)
Less expenses paid indirectly................................... (11,747)
------------
Total expenses.................................................. 4,143,737
------------
NET INVESTMENT LOSS............................................. (1,801,830)
------------
NET REALIZED AND UNREALIZED GAIN
ON INVESTMENTS:
Net realized gain on investments................................ 4,418,912
Net change in unrealized appreciation/
depreciation of investments................................... 144,722,565
------------
NET REALIZED AND UNREALIZED GAIN
ON INVESTMENTS................................................ 149,141,477
------------
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS............................................... $147,339,647
============
See accompanying notes
Trend-4
Delaware VIP Trust-
Delaware VIP Trend Series
Statements of Changes in Net Assets
Year Ended
12/31/03 12/31/02
-------- --------
INCREASE (DECREASE) IN NET ASSETS
FROM OPERATIONS:
Net investment loss.............................. $ (1,801,830) $ (1,973,952)
Net realized gain (loss) on investments.......... 4,418,912 (35,844,692)
------------ ------------
Net change in unrealized appreciation/
depreciation of investments..................... 144,722,565 (83,502,365)
------------ ------------
Net increase (decrease) in net assets
resulting from operations....................... 147,339,647 (121,321,009)
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares sold:
Standard Class.................................. 29,151,078 45,173,552
Service Class................................... 27,493,766 15,083,393
------------ ------------
56,644,844 60,256,945
------------ ------------
Cost of shares repurchased:
Standard Class.................................. (65,361,562) (103,025,829)
Service Class................................... (4,366,405) (3,368,061)
------------ ------------
(69,727,967) (106,393,890)
------------ ------------
Decrease in net assets derived from capital
share transactions.............................. (13,083,123) (46,136,945)
------------ ------------
NET INCREASE (DECREASE)
IN NET ASSETS.................................. 134,256,524 (167,457,954)
NET ASSETS:
Beginning of year................................ 437,234,259 604,692,213
------------ ------------
End of year...................................... $571,490,783 $437,234,259
============ ============
See accompanying notes
Trend-4
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
Year Ended
12/31/03 12/31/02 12/31/01 12/31/00 12/31/99
-------------------------------------------------------------
Net asset value, beginning of period................ $20.200 $25.230 $29.800 $33.660 $19.760
Income (loss) from investment operations:
Net investment loss(1).............................. (0.082) (0.085) (0.086) (0.051) (0.043)
Net realized and unrealized gain (loss) on
investments....................................... 7.172 (4.945) (4.484) (1.676) 13.945
------- ------- ------- ------- -------
Total from investment operations.................... 7.090 (5.030) (4.570) (1.727) 13.902
------- ------- ------- ------- -------
Less dividends and distributions from:
Net investment income............................... -- -- -- -- (0.002)
Net realized gain on investments.................... -- -- -- (2.133) --
------- ------- ------- ------- -------
Total dividends and distributions................... -- -- -- (2.133) (0.002)
------- ------- ------- ------- -------
Net asset value, end of period...................... $27.290 $20.200 $25.230 $29.800 $33.660
======= ======= ======= ======= =======
Total return(2)..................................... 35.10% (19.94%) (15.34%) (6.88%) 70.45%
Ratios and supplemental data:
Net assets, end of period (000 omitted)............. $515,829 $415,098 $590,742 $760,320 $503,657
Ratio of expenses to average net assets............. 0.84% 0.84% 0.85% 0.83% 0.82%
Ratio of expenses to average net assets prior to
expense limitation and expenses paid indirectly... 0.84% 0.84% 0.90% 0.84% 0.82%
Ratio of net investment loss to average net assets.. (0.36%) (0.38%) (0.35%) (0.14%) (0.18%)
Ratio of net investment loss to average net assets
prior to expense limitation and expenses paid
indirectly ....................................... (0.36%) (0.38%) (0.40%) (0.15%) (0.18%)
Portfolio turnover.................................. 50% 43% 51% 61% 82%
- ----------------
(1) The average shares outstanding method has been applied for per share
information.
(2) Total investment return is based on the change in net asset value of a share
during the period and assumes reinvestment of dividends and distributions at
net asset value. Total investment return reflects a waiver and payment of
fees by the manager, as applicable. Performance would have been lower had
the expense limitation not been in effect.
See accompanying notes
Trend-5
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
5/1/00(1)
Year Ended to
12/31/03 12/31/02 12/31/01 12/31/00
------------------------------------------------
Net asset value, beginning of period................ $20.120 $25.170 $29.770 $35.260
Income (loss) from investment operations:
Net investment loss(2).............................. (0.135) (0.117) (0.122) (0.074)
Net realized and unrealized gain (loss) on
investments....................................... 7.135 (4.933) (4.478) (5.416)
------- ------- ------- -------
Total from investment operations.................... 7.000 (5.050) (4.600) (5.490)
------- ------- ------- -------
Net asset value, end of period...................... $27.120 $20.120 $25.170 $29.770
======= ======= ======= =======
Total return(3)..................................... 34.79% (20.06%) (15.45%) (15.57%)
Ratios and supplemental data:
Net assets, end of period (000 omitted)............. $55,662 $22,136 $13,950 $8,363
Ratio of expenses to average net assets............. 1.06% 0.99% 1.00% 1.00%
Ratio of expenses to average net assets prior to
expense limitation and expenses paid indirectly... 1.09% 0.99% 1.05% 1.01%
Ratio of net investment loss to average net assets.. (0.58%) (0.53%) (0.50%) (0.31%)
Ratio of net investment loss to average net assets
prior to expense limitation and expenses paid
indirectly........................................ (0.61%) (0.53%) (0.55%) (0.32%)
Portfolio turnover.................................. 50% 43% 51% 61%
- ----------------
(1) Date of commencement of operations, ratios and portfolio turnover have been
annualized and total return has not been annualized.
(2) The average shares outstanding method has been applied for per share
information.
(3) Total investment return is based on the change in net asset value of a share
during the period and assumes reinvestment of dividends and distributions at
net asset value. Total investment return reflects a waiver and payment of
fees by the manager and distributor, as applicable. Performance would have
been lower had the expense limitation not been in effect.
See accompanying notes
Trend-6
Delaware VIP Trust-Delaware VIP Trend Series
Notes to Financial Statements
December 31, 2003
Delaware VIP Trust (the "Trust") is organized as a Delaware statutory trust and
offers 15 series: Delaware VIP Balanced Series, Delaware VIP Capital Reserves
Series, Delaware VIP Cash Reserve Series, Delaware VIP Diversified Income
Series, Delaware VIP Emerging Markets Series, Delaware VIP Global Bond Series,
Delaware VIP Growth Opportunities Series, Delaware VIP High Yield Series,
Delaware VIP International Value Equity Series, Delaware VIP Large Cap Value
Series, Delaware VIP REIT Series, Delaware VIP Select Growth Series, Delaware
VIP Small Cap Value Series, Delaware VIP Trend Series and Delaware VIP U.S.
Growth Series. These financial statements and the related notes pertain to
Delaware VIP Trend Series (the "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 accounting principles
generally accepted in the United States and are consistently followed by the
Series.
Security Valuation--All equity securities 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 Stock Market, Inc.
(NASDAQ) are valued in accordance with the NASDAQ Official Closing Price, which
may not be the last sales price. If on a particular day an equity security does
not trade, then the mean between the bid and asked prices will normally be used.
Short-term debt securities having less than 60 days to maturity are valued at
amortized cost, which approximates market value. Other securities and assets for
which market quotations are not readily available are valued at fair value as
determined in good faith under the direction of the Series' Board of Trustees.
Federal Income Taxes--The Series intends to continue to qualify for federal
income tax purposes as a regulated investment company and make the requisite
distributions to shareholders. Accordingly, no provision for federal income
taxes has been made in the financial statements.
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. 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 102% collateralized. However, in the
event of default or bankruptcy by the counterparty to the agreement, realization
of the collateral may be subject to legal proceedings.
Use of Estimates--The preparation of financial statements in conformity with
accounting principles generally accepted in the United States 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 common to all funds within the Delaware Investments Family of
Funds are allocated amongst the funds on the basis of average net assets.
Security transactions are recorded on the date the securities are purchased or
sold (trade date). 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.
Certain expenses of the Series are paid through commission arrangements with
brokers. The amount of these expenses was approximately $11,635 for the year
ended December 31, 2003. In addition, the Series receives earnings credits from
its custodian when positive cash balances are maintained, which are used to
offset custody fees. The earnings credits for the year ended December 31, 2003
were approximately $112. The expenses paid under the above arrangements are
included in their respective expense captions on the Statement of Operations
with the corresponding expense offset shown as "expenses paid indirectly."
2. Investment Management, Administration Agreements and Other Transactions with
Affiliates
In accordance with the terms of its investment management agreement, the Series
pays Delaware Management Company (DMC), a series of Delaware Management Business
Trust and the investment manager, an annual fee which is calculated daily at the
rate of 0.75% on the first $500 million of average daily net assets of the
Series, 0.70% on the next $500 million, 0.65% on the next $1.5 billion, and
0.60% on average daily net assets in excess of $2.5 billion.
DMC has contractually agreed to waive that portion, if any, of its management
fee and reimburse the Series to the extent necessary to ensure that annual
operating expenses, exclusive of taxes, interest, brokerage commissions,
distribution fees, certain insurance costs and extraordinary expenses, do not
exceed 0.95% of average daily net assets of the Series through April 30, 2004.
No reimbursement was due for the year ended December 31, 2003.
Trend-7
Delaware VIP Trend Series
Notes to Financial Statements (continued)
2. Investment Management, Administration Agreements and Other Transactions with
Affiliates (continued)
Delaware Service Company, Inc. (DSC), an affiliate of DMC, provides accounting,
administration, dividend disbursing and transfer agent services. The Series pays
DSC a monthly fee based on average net assets subject to certain minimums for
accounting and administration services. The Series pays DSC a monthly fee based
on average net assets for dividend disbursing and transfer agent services.
Pursuant to a distribution agreement and distribution plan, the Series pays
Delaware Distributors, L.P. (DDLP), the distributor and an affiliate of DMC, an
annual 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, 2004 in order to prevent distribution and service fees of the Service
Class shares from exceeding 0.25% of average daily net assets. Prior to May 1,
2003, the Board of Trustees had set the fee at an annual rate of 0.15% of the
Service Class shares' average daily net assets. No distribution expenses are
paid by Standard Class shares.
At December 31, 2003, the Series had liabilities payable to affiliates as
follows:
Dividend disbursing,
Investment transfer agent fees, Other expenses
management accounting payable
fee payable to and other expenses to DMC
DMC payable to DSC and affiliates*
-------------- -------------------- ---------------
$139,910 $21,887 $70,531
*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, professional fees, custodian fees and
trustees' 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 year ended December 31, 2003, the Series made purchases and sales of
investment securities other than short-term investments as follows:
Purchases.................... $234,479,962
Sales........................ $254,026,325
At December 31, 2003, the cost of investments and unrealized appreciation
(depreciation) for federal income tax purposes for the Series was as follows:
Aggregate Aggregate
Cost of unrealized unrealized Net unrealized
investments appreciation depreciation appreciation
----------- ------------ ------------ --------------
$418,268,181 $167,965,499 $(16,584,380) $151,381,119
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 accounting principles
generally accepted in the United States. There were no dividends and
distributions paid for years ended December 31, 2003 and 2002.
As of December 31, 2003, the components of net assets on a tax basis were as
follows:
Shares of beneficial interest............. $592,324,080
Capital loss carryforwards................ (172,214,416)
Unrealized appreciation of investments.... 151,381,119
------------
Net assets................................ $571,490,783
============
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. Such capital loss
carryforwards expire as follows: $8,971,847 expires in 2008, $127,778,829
expires in 2009, $35,292,270 expires in 2010 and $171,470 expires in 2011.
Trend-8
Delaware VIP Trend Series
Notes to Financial Statements (continued)
5. Capital Shares
Transactions in capital shares were as follows:
Year Year
Ended Ended
12/31/03 12/31/02
-------- --------
Shares sold:
Standard Class................ 1,250,756 1,980,860
Service Class................. 1,144,584 708,762
---------- ----------
2,395,340 2,689,622
---------- ----------
Shares repurchased:
Standard Class................ (2,899,619) (4,845,770)
Service Class................. (192,642) (162,789)
---------- ----------
(3,092,261) (5,008,559)
---------- ----------
Net decrease................... (696,921) (2,318,937)
========== ==========
6. Line of Credit
The Series, along with certain other funds in the Delaware Investments Family of
Funds (the "Participants"), participates in a $177,300,000 revolving line of
credit facility to be used for temporary or emergency purposes as an additional
source of liquidity to fund redemptions of investor shares. The Participants are
charged an annual commitment fee, which is allocated across the Participants on
the basis of each fund's allocation of the entire facility. The Participants may
borrow up to a maximum of one third of their net assets under the agreement. The
Series had no amounts outstanding as of December 31, 2003, or at any time during
the year.
7. 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 J.P. Morgan Chase. Initial security loans made pursuant to the
Lending Agreement are required to be secured by U.S. government obligations
and/or cash collateral not less than 102% of the market value of the securities
issued in the United States and 105% of the market value of securities issued
outside the United States. With respect to each loan, if the aggregate market
value of the collateral held 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 invested in fixed-income
securities, with a weighted average maturity not to exceed 90 days, rated in one
of the top two tiers by Standard & Poor's Ratings Group or Moody's Investors
Service, Inc. or repurchase agreements collateralized by such securities.
However, in the event of default or bankruptcy by the lending agent, realization
and/or retention of the collateral may be subject to legal proceedings. In the
event the borrower fails to return loaned securities and the collateral received
is insufficient to cover the value of the loaned securities and provided such
collateral shortfall is not the result of investment losses, the lending agent
has agreed to pay the amount of the shortfall to the Series, or at the
discretion of the lending agent, replace the loaned securities. The Series
continues to record dividends on the securities loaned and is subject to change
in fair value of the securities loaned that may occur during the term of the
loan. The Series has the right under the Lending Agreement to recover the
securities from the borrower on demand. The security lending agent and the
borrower retain a portion of the earnings from the collateral investments. The
Series records security lending income net of such allocation.
At December 31, 2003, the market value of securities on loan was $77,441,590,
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."
8. 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 small
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.
Trend-9
Delaware VIP Trust-Delaware VIP Trend Series
Report of Independent Auditors
To the Shareholders and Board of Trustees
Delaware VIP Trust-Delaware VIP Trend Series
We have audited the accompanying statement of net assets of Delaware VIP Trend
Series (the "Series") as of December 31, 2003, and the related statement of
operations for the year then ended, the statements of changes in net assets for
each of the two years in the period then ended, and the financial highlights for
each of the periods indicated therein. These financial statements and financial
highlights are the responsibility of the Series' management. Our responsibility
is to express an opinion on these financial statements and financial highlights
based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements and financial highlights. Our procedures included
confirmation of securities owned as of December 31, 2003, by correspondence with
the custodian and brokers, or by other auditing procedures where replies from
brokers were not received. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Delaware VIP Trend Series at December 31, 2003, the results of its operations
for the year then ended, the changes in its net assets for each of the two years
in the period then ended, and its financial highlights for each of the periods
indicated therein, in conformity with accounting principles generally accepted
in the United States.
/s/ Ernst & Young LLP
Philadelphia, Pennsylvania
February 6, 2004
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
A description of the policies and procedures that the Series uses to determine
how to vote proxies (if any) relating to portfolio securities is available
without charge (i) upon request, by calling 800 523-1918; (ii) on the Series'
website at http://www.delawareinvestments.com; and (iii) on the Commission's
website at http://www.sec.gov.; and beginning no later than August 31, 2004,
information (if any) regarding how the Series voted proxies relating to
portfolio securities during the most recent 12-month period ended June 30 is
available without charge (i) through the Series' website at
http://www.delawareinvestments.com; and (ii) on the Commission's website at
http://www.sec.gov.
- --------------------------------------------------------------------------------
Trend-10
Delaware Investments Family of Funds
BOARD OF TRUSTEES/DIRECTORS AND OFFICERS ADDENDUM
A mutual fund is governed by a Board of Trustees/Directors which has oversight
responsibility for the management of a fund's business affairs.
Trustees/Directors establish procedures and oversee and review the performance
of the investment manager, the distributor and others that perform services for
the fund. The independent fund trustees, in particular, are advocates for
shareholder interests. The following is a list of the Trustees/Directors and
Officers with certain background and related information.
Number of Other
Principal Portfolios in Fund Directorships
Name, Position(s) Occupation(s) Complex Overseen Held by
Address Held with Length of Time During by Trustee/Director Trustee/Director
and Birthdate Fund(s) Served Past 5 Years or Officer or Officer
- -----------------------------------------------------------------------------------------------------------------------------------
INTERESTED TRUSTEES
Jude T. Driscoll(2) Chairman and 4 Years - Since August 2000, 80 None
2005 Market Street Trustee(4) Executive Officer Mr. Driscoll has served in
Philadelphia, PA various executive capacities
19103 Trustee since at different times at
May 15, 2003 Delaware Investments(1)
March 10, 1963
Senior Vice President and
Director of Fixed-Income Process -
Conseco Capital Management
(June 1998 - August 2000)
Managing Director -
NationsBanc Capital Markets (February
1996 - June 1998)
- -----------------------------------------------------------------------------------------------------------------------------------
INDEPENDENT TRUSTEES
Walter P. Babich Trustee 16 Years Board Chairman - 98 None
2005 Market Street Citadel Construction Corporation
Philadelphia, PA (1989 - Present)
19103
October 1, 1927
- -----------------------------------------------------------------------------------------------------------------------------------
John H. Durham Trustee 25 Years(3) Private Investor 98 Trustee - Abington
2005 Market Street Memorial Hospital
Philadelphia, PA
19103
President/Director-
22 WR Corporation
August 7, 1937
- -----------------------------------------------------------------------------------------------------------------------------------
John A. Fry Trustee(4) 3 Years President - 80 None
2005 Market Street Franklin & Marshall College
Philadelphia, PA (June 2002 - Present)
19103
Executive Vice President -
University of Pennsylvania
May 28, 1960 (April 1995 - June 2002)
- -----------------------------------------------------------------------------------------------------------------------------------
Anthony D. Knerr Trustee 11 Years Founder/Managing Director - 98 None
2005 Market Street Anthony Knerr & Associates
Philadelphia, PA (Strategic Consulting)
19103 (1990 - Present)
December 7, 1938
- -----------------------------------------------------------------------------------------------------------------------------------
Trend-11
Number of Other
Principal Portfolios in Fund Directorships
Name, Position(s) Occupation(s) Complex Overseen Held by
Address Held with Length of Time During by Trustee/Director Trustee/Director
and Birthdate Fund(s) Served Past 5 Years or Officer or Officer
- -----------------------------------------------------------------------------------------------------------------------------------
INDEPENDENT TRUSTEES (continued)
Ann R. Leven Trustee 15 Years Treasurer/Chief Fiscal Officer - 98 Director - Andy
2005 Market Street National Gallery of Art Warhol Foundation
Philadelphia, PA (1994 - 1999)
19103 Director -
Systemax Inc.
November 1, 1940
- -----------------------------------------------------------------------------------------------------------------------------------
Thomas F. Madison Trustee 10 Years President/Chief 98 Director -
2005 Market Street Executive Officer - Banner Health
Philadelphia, PA MLM Partners, Inc.
19103 (Small Business Investing Director -
and Consulting) CenterPoint Energy
(January 1993 - Present)
February 25, 1936 Director -
Digital River Inc.
Director - Rimag
Corporation
- -----------------------------------------------------------------------------------------------------------------------------------
Janet L. Yeomans Trustee 5 Years Vice President/Mergers & 98 None
2005 Market Street Acquisitions - 3M Corporation
Philadelphia, PA (January 2003 - Present)
19103
Ms. Yeomans has held
July 31, 1948 various management positions
at 3M Corporation since 1983.
- -----------------------------------------------------------------------------------------------------------------------------------
OFFICERS
Joseph H. Hastings Executive Executive Mr. Hastings has served in 98 None
2005 Market Street Vice President Vice President various executive capacities
Philadelphia, PA and and at different times at
19103 Chief Financial Chief Financial Delaware Investments.
Officer Officer since
August 21, 2003
December 19, 1949
- -----------------------------------------------------------------------------------------------------------------------------------
Richelle S. Maestro Senior Vice President, Chief Legal Officer Ms. Maestro has served in 98 None
2005 Market Street Chief Legal Officer since various executive capacities
Philadelphia, PA and Secretary March 17, 2003 at different times at
19103 Delaware Investments.
November 26, 1957
- -----------------------------------------------------------------------------------------------------------------------------------
Michael P. Bishof Senior Vice President 8 Years Mr. Bishof has served in 98 None
2005 Market Street and Treasurer various executive capacities
Philadelphia, PA at different times at
19103 Delaware Investments.
August 18, 1962
- -----------------------------------------------------------------------------------------------------------------------------------
(1) Delaware Investments is the marketing name for Delaware Management Holdings,
Inc. and its subsidiaries, including the Registrant's investment advisor,
principal underwriter and its transfer agent.
(2) Mr. Driscoll is considered to be an "Interested Trustee" because he is an
executive officer of the Fund's manager and distributor.
(3) Mr. Durham served as a Director Emeritus from 1995 through 1998.
(4) Mr. Driscoll and Mr. Fry are not Trustees of the portfolios of Voyageur
Insured Funds, Voyageur Intermediate Tax Free Funds, Voyageur Investment
Trust, Voyageur Mutual Funds, Voyageur Mutual Funds II, Voyageur Mutual
Funds III and Voyageur Tax Free Funds.
The Statement of Additional Information for the Fund(s) includes additional
information about the Trustees/Directors and Officers and is available, without
charge, upon request by calling 800 523-1918.
(8521)
Trend-12
FOR CAPITAL APPRECIATION
Delaware VIP Trust-Delaware VIP U.S. Growth Series
Portfolio Snapshot
Cause for the market's dynamic advance through much of 2003 was laid in place
some time before, notably when the Federal Reserve embarked on an aggressive
policy to inject liquidity into the economy following the 2001 recession.
Steadily, the Fed lowered interest rates, eventually ending at a 40-year low of
1.0% with its fed funds rate. Given a macroeconomic environment marked by low
inflationary pressures, interest rates in general moved lower, re-directing
great sums of money into the economy. The instance of the housing market was a
fine example of monetary policy in action, as homeowners used low mortgage rates
to decrease monthly payments, freeing up what in some cases amounted to several
hundred dollars per month from household budgets.
The benefit of lower rates did not stop there, however. Reduced interest
rates provided the business community a tool with which to repair balance sheets
impacted by the recession in 2001. Through other measures, notably cost cutting
and reduced spending, many companies weathered the post-recession storm and
during the year often posted strong earnings. With increased profits,
corporations appear to be ramping up capital expenditure, such as buildings,
machinery, and technology. If this trend continues, it should lend support to
the economy and take pressure off consumer spending, which reached a high of 70
percent of the U.S. economy (Source: Bloomberg).
For the 12-month period, the Series, with a return of +23.75% (Standard Class
shares with distributions reinvested) trailed the performance of its benchmark,
the Russell 1000 Growth Index with its return of +30.03%, and its former
benchmark, the Standard & Poor's 500 Index, which rose +28.67%. The Series
enjoyed sound performance within the technology sector, as with Xilinx and
Analog Devices. Technology stocks in general performed well after falling
precipitously when the market reached a cyclical top in early 2000. Where the
Series lagged its benchmark was in its attention to high-quality stocks.
Throughout the year, companies exhibiting controvertible financials and dubious
earnings led the market higher. Also, the Series had several stocks fail to meet
our expectations, as with Kohl's, the retailer that experienced diminishing
sales during the 12-month period. Several quality names in the healthcare sector
lagged behind the market due to issues involving patent expirations and some
shortcomings in new product development.
Investment Outlook
Looking forward, we remain optimistic that the overall economy will continue
to show improvement. Within equity markets, the fourth quarter marked a change
from the rest of the year in that the poorest-quality issues did not lead the
market. We believe that this shift towards higher-quality issues should continue
if the strongest companies within individual industries benefit from the
improving macroeconomic environment and leverage their inherent strengths. We
believe our investment strategy of focusing on these industry leaders should
perform well if this shift continues.
Performance of a
$10,000 Investment:
November 15, 1999
(Series' inception through
December 31, 2003
Delaware VIP
U.S. GROWTH SERIES RUSSELL 1000 S&P 500
(STANDARD CLASS SHARES) GROWTH INDEX INDEX
----------------------- ------------ -------
Nov. 15, '99 10,000 10,000 10,000
Nov. 30, '99 9,990 10,000 10,000
Dec. 31, '99 10,590 11,040 10,589
Dec. 31, '00 10,150 8,564 9,625
Dec. 31, '01 7,666 6,816 8,481
Dec. 31, '02 5,424 4,915 6,608
Dec. 31, '03 6,712 6,377 8,502
Delaware VIP U.S. Growth Series
Average Annual Total Returns
-------------------------------
Standard Class Service Class
Shares* Shares**
Lifetime -9.20% -12.57%
One Year +23.75% +23.37%
For the periods ended December 31, 2003
*Commenced operations on November 15, 1999.
**Commenced operations on May 1, 2000.
Past performance is not a guarantee of future results. Returns and share values
will fluctuate so that shares, when redeemed, may be worth more or less than
their original cost.
The Series' benchmark index has been changed from the S&P 500 Index to the
Russell 1000 Growth Index. The Russell 1000 Growth Index is an unmanaged index
that is comprised of those stocks found in the Russell 1000 Index that exhibit a
greater-than-average growth orientation, as well as typically higher
price-to-book ratios. Series management has determined that the Russell 1000
Growth Index is an appropriate benchmark for the Series based upon the Series
investment objective and policies. The Series and the Russell 1000 Growth Index
focus largely on large-capitalization, growth-oriented stocks. The S&P 500 Index
measures the performance of mostly large-capitalization U.S. companies.
The chart shows a $10,000 investment in Delaware VIP U.S. Growth Series Standard
Class shares for the period from the Series' inception on November 15, 1999
through December 31, 2003. The chart assumes all distributions were reinvested.
The chart also shows a $10,000 investment in the Russell 1000 Growth Index and
the S&P 500 Index at that month's end, December 31, 1999. After December 31,
1999, returns plotted on the chart were as of the last day of each month shown.
You cannot invest directly in an index. An index is unmanaged and does not
reflect the costs of operating a mutual fund, such as the costs of buying,
selling, and holding securities. Earnings from a variable annuity investment
compound tax-free until withdrawal, so no adjustments were made for income
taxes. An expense limitation was in effect for Delaware VIP U.S. Growth Series
during the periods shown. Performance does not reflect insurance fees related to
a variable annuity investment or the deferred sales charge that would apply to
certain withdrawals of investments held for fewer than eight years. Performance
shown here would have been reduced if such fees were included and the expense
limitation was removed. For more information about fees, consult your variable
annuity prospectus.
U.S. Growth-1
Delaware VIP Trust-Delaware VIP U.S. Growth Series
Statement of Net Assets
December 31, 2003
Number of Market
Shares Value
COMMON STOCK-93.53%
Banking, Finance & Insurance-14.28%
American Express.......................... 7,600 $ 366,548
+AmeriTrade Holdings....................... 45,600 641,592
Capital One Financial..................... 4,300 263,547
Charter One Financial..................... 9,000 310,950
Citigroup................................. 5,600 271,824
Lehman Brothers Holdings.................. 3,600 277,992
MBNA...................................... 7,300 181,405
Merrill Lynch............................. 6,900 404,685
Moody's Investors Services................ 6,000 363,300
----------
3,081,843
----------
Basic Industry/Capital Goods-1.46%
Northrop Grumman.......................... 3,300 315,480
----------
315,480
----------
Business Services-4.87%
+Accenture Class A......................... 11,000 289,520
Gannett................................... 3,600 320,976
+SunGard Data Systems...................... 15,900 440,589
----------
1,051,085
----------
Consumer Non-Durables-9.72%
Anheuser-Busch............................ 3,600 189,648
Best Buy.................................. 6,200 323,888
Gap....................................... 13,200 306,372
Lowe's Companies.......................... 8,400 465,276
PepsiCo................................... 7,300 340,326
+Staples................................... 17,300 472,290
----------
2,097,800
----------
Consumer Services-19.58%
Carnival Cruise Lines..................... 17,200 683,356
+Cendant................................... 35,400 788,358
Clear Channel Communications.............. 6,900 323,127
+Comcast - Special Class A................. 22,800 713,184
+Cox Communications Class A................ 13,200 454,740
Disney (Walt)............................. 15,300 356,949
Marriott International Class A............ 7,100 328,020
McDonald's................................ 7,100 176,293
Viacom Class B............................ 9,050 401,639
----------
4,225,666
----------
Number of Market
Shares Value
COMMON STOCK (continued)
Energy-2.26%
Schlumberger.............................. 8,900 $ 487,008
-----------
487,008
-----------
Healthcare & Pharmaceuticals-18.83%
Abbott Laboratories....................... 5,000 233,000
+Amgen..................................... 6,500 401,700
+Anthem.................................... 2,200 165,000
+Biogen Idec............................... 17,100 628,938
+Caremark RX............................... 8,100 205,173
+Genzyme-General Division.................. 4,300 212,162
Johnson & Johnson......................... 9,100 470,106
Medtronic................................. 7,200 349,992
Pfizer.................................... 21,000 741,930
+Shire Pharmaceuticals ADR................. 5,800 168,490
UnitedHealth Group........................ 4,500 261,810
Wyeth..................................... 5,300 224,985
-----------
4,063,286
-----------
Technology-20.73%
Analog Devices............................ 10,600 483,890
+Applied Materials......................... 23,100 518,595
+Cisco Systems............................. 23,100 561,099
+Dell...................................... 8,600 292,056
+EMC....................................... 19,400 250,648
Intel..................................... 15,000 483,000
+KLA Instruments........................... 3,500 205,345
Linear Technology......................... 9,800 412,286
Nokia..................................... 16,400 278,800
Texas Instruments......................... 14,100 414,258
+VERITAS Software.......................... 5,100 189,516
+Xilinx.................................... 9,900 383,526
-----------
4,473,019
-----------
Transportation & Shipping-1.80%
United Parcel Service Class B............. 5,200 387,660
-----------
387,660
-----------
Total Common Stock
(cost $18,829,212)...................... 20,182,847
-----------
U.S.Growth-2
Delaware VIP U.S. Growth Series
Statement of Net Assets (continued)
Principal Market
Amount Value
REPURCHASE AGREEMENTS-7.97%
With BNP Paribas 0.85% 1/2/04
(dated 12/31/03, collateralized
by $40,000 U.S. Treasury Bills due
3/25/04, market value $39,757,
$147,000 U.S. Treasury Notes 3.625%
due 3/31/04, market value $149,784,
$453,000 U.S. Treasury Notes
6.00% due 8/15/04, market
value $477,647, and $234,000
U.S. Treasury Notes 1.625% due
1/31/05, market value $236,632).............. $886,000 $886,000
Principal Market
Amount Value
REPURCHASE AGREEMENTS (continued)
With UBS Warburg 0.85% 1/2/04
(dated 12/31/03, collateralized by
$194,000 U.S. Treasury Notes
1.625% due 3/31/05, market value
$195,768, $7,000 U.S. Treasury
Notes 5.50% due 2/15/08, market
value $7,504, and $583,000 U.S.
Treasury Notes 5.625% due 5/15/08,
market value $649,922)....................... $835,000 $ 835,000
----------
Total Repurchase Agreements
(cost $1,721,000)............................ 1,721,000
----------
TOTAL MARKET VALUE OF SECURITIES-101.50% (cost $20,550,212)............................................... 21,903,847
LIABILITIES NET OF RECEIVABLES AND OTHER ASSETS-(1.50%)................................................... (324,109)
-----------
NET ASSETS APPLICABLE TO 3,261,730 SHARES OUTSTANDING-100.00%............................................. $21,579,738
===========
NET ASSET VALUE-DELAWARE VIP U.S. GROWTH SERIES STANDARD CLASS ($11,862,080 / 1,792,358 shares)........... $6.62
=====
NET ASSET VALUE-DELAWARE VIP U.S. GROWTH SERIES SERVICE CLASS ($9,717,658 / 1,469,372 shares)............. $6.61
=====
COMPONENTS OF NET ASSETS AT DECEMBER 31, 2003:
Shares of beneficial interest (unlimited authorization-no par)............................................ $31,130,773
Undistributed net investment income....................................................................... 13,028
Accumulated net realized loss on investments.............................................................. (10,917,698)
Net unrealized appreciation of investments................................................................ 1,353,635
-----------
Total net assets.......................................................................................... $21,579,738
===========
- -------------
+Non-income producing security for the year ended December 31, 2003.
ADR-American Depositary Receipts
See accompanying notes
U.S. Growth-3
Delaware VIP Trust-
Delaware VIP U.S. Growth Series
Statement of Operations
Year Ended December 31, 2003
INVESTMENT INCOME:
Dividends....................................................... $ 106,965
Interest........................................................ 9,650
----------
116,615
----------
EXPENSES:
Management fees................................................. 83,078
Distribution expenses-Service Class............................. 7,769
Accounting and administration
expenses...................................................... 5,219
Custodian fees.................................................. 1,814
Professional fees............................................... 1,363
Dividend disbursing and transfer agent
fees and expenses............................................. 1,261
Trustees' fees.................................................. 622
Reports and statements to shareholders.......................... 146
Registration fees............................................... 50
Other........................................................... 2,216
----------
103,538
Less waiver of distribution expenses-Service Class.............. (1,233)
Less expenses paid indirectly................................... (321)
----------
Total expenses.................................................. 101,984
----------
NET INVESTMENT INCOME........................................... 14,631
----------
NET REALIZED AND UNREALIZED GAIN
(LOSS) ON INVESTMENTS:
Net realized loss on investments................................ (1,322,239)
Net change in unrealized appreciation/
depreciation of investments................................... 4,119,316
----------
NET REALIZED AND UNREALIZED
GAIN ON INVESTMENTS........................................... 2,797,077
----------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS..................................... $2,811,708
==========
See accompanying notes
Delaware VIP Trust-
Delaware VIP U.S. Growth Series
Statements of Changes in Net Assets
Year Ended
12/31/03 12/31/02
INCREASE (DECREASE) IN NET
ASSETS FROM OPERATIONS:
Net investment income............................... $ 14,631 $ 20,299
Net realized loss on investments.................... (1,322,239) (3,706,405)
Net change in unrealized appreciation/
depreciation of investments....................... 4,119,316 (1,078,234)
----------- -----------
Net increase (decrease) in net assets
resulting from operations ........................ 2,811,708 (4,764,340)
----------- -----------
DIVIDENDS AND DISTRIBUTIONS
TO SHAREHOLDERS FROM:
Net investment income:
Standard Class.................................... (18,159) (55,355)
Service Class..................................... (295) (209)
----------- -----------
(18,454) (55,564)
----------- -----------
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares sold:
Standard Class.................................... 2,198,472 1,642,438
Service Class..................................... 8,936,229 891,846
Net asset value of shares issued upon
reinvestment of dividends
and distributions:
Standard Class.................................... 18,159 55,355
Service Class..................................... 295 209
----------- -----------
11,153,155 2,589,848
----------- -----------
Cost of shares repurchased:
Standard Class.................................... (2,075,204) (4,300,228)
Service Class..................................... (552,269) (105,213)
----------- -----------
(2,627,473) (4,405,441)
----------- -----------
Increase (decrease) in net assets derived
from capital share transactions................... 8,525,682 (1,815,593)
----------- -----------
NET INCREASE (DECREASE)
IN NET ASSETS..................................... 11,318,936 (6,635,497)
NET ASSETS:
Beginning of year................................... 10,260,802 16,896,299
----------- -----------
End of year......................................... $21,579,738 $10,260,802
=========== ===========
See accompanying notes
U.S. Growth-4
Delaware VIP Trust-Delaware VIP U.S. Growth Series
Financial Statements
Selected data for each share of the Series outstanding throughout each period
were as follows:
Delaware VIP U.S. Growth Series Standard Class
11/15/99(1)
Year Ended to
12/31/03 12/31/02 12/31/01 12/31/00 12/31/99
-----------------------------------------------------------------
Net asset value, beginning of period................. $5.370 $7.600 $10.140 $10.590 $10.000
Income (loss) from investment operations:
Net investment income(2)............................. 0.010 0.010 0.022 0.076 0.026
Net realized and unrealized gain (loss) on
investments........................................ 1.251 (2.215) (2.503) (0.515) 0.564
------ ------ ------- ------- -------
Total from investment operations..................... 1.261 (2.205) (2.481) (0.439) 0.590
------ ------ ------- ------- -------
Less dividends and distributions from:
Net investment income................................ (0.011) (0.025) (0.059) (0.011) --
------ ------ ------- ------- -------
Total dividends and distributions.................... (0.011) (0.025) (0.059) (0.011) --
------ ------ ------- ------- -------
Net asset value, end of period....................... $6.620 $5.370 $ 7.600 $10.140 $10.590
====== ====== ======= ======= =======
Total return(3)...................................... 23.75% (29.24%) (24.47%) (4.16%) 5.90%
Ratios and supplemental data:
Net assets, end of period (000 omitted).............. $11,862 $9,595 $16,856 $27,231 $8,744
Ratio of expenses to average net assets.............. 0.75% 0.75% 0.75% 0.74% 0.75%
Ratio of expenses to average net assets prior to
expense limitation and expenses paid indirectly.... 0.75% 0.75% 0.86% 0.74% 0.79%
Ratio of net investment income to average net assets. 0.17% 0.15% 0.27% 0.57% 3.33%
Ratio of net investment income to average net assets
prior to expense limitation and expenses paid
indirectly......................................... 0.17% 0.15% 0.16% 0.57% 3.29%
Portfolio turnover................................... 102% 101% 78% 91% 0%
- -------------
(1) Date of commencement of operations; ratios and portfolio turnover have been
annualized and total return has not been annualized.
(2) The average shares outstanding method has been applied for per share
information for the years ended December 31, 2003, 2002, 2001 and 2000.
(3) Total investment return is based on the change in net asset value of a share
during the period and assumes reinvestment of dividends and distributions at
net asset value. Total investment return reflects a waiver and payment of
fees by the manager, as applicable. Performance would have been lower had
the expense limitation not been in effect.
See accompanying notes
U.S. Growth-5
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
5/1/00(1)
Year Ended to
12/31/03 12/31/02 12/31/01 12/31/00
----------------------------------------------------
Net asset value, beginning of period................. $5.360 $7.590 $10.130 $10.910
Income (loss) from investment operations:
Net investment income (loss)(2)...................... (0.005) 0.001 0.011 0.004
Net realized and unrealized gain (loss) on
investments........................................ 1.257 (2.218) (2.503) (0.784)
------ ------ ------- -------
Total from investment operations..................... 1.252 (2.217) (2.492) (0.780)
------ ------ ------- -------
Less dividends and distributions from:
Net investment income................................ (0.002) (0.013) (0.048) --
------ ------ ------- -------
Total dividends and distributions.................... (0.002) (0.013) (0.048) --
------ ------ ------- -------
Net asset value, end of period....................... $6.610 $5.360 $ 7.590 $10.130
====== ====== ======= =======
Total return(3)...................................... 23.37% (29.26%) (24.61%) (7.15%)
Ratios and supplemental data:
Net assets, end of period (000 omitted).............. $9,718 $666 $40 $5
Ratio of expenses to average net assets.............. 0.97% 0.90% 0.90% 0.89%
Ratio of expenses to average net assets prior to
expense limitation and expenses paid indirectly.... 1.00% 0.90% 1.01% 0.89%
Ratio of net investment income (loss) to average net
assets............................................. (0.05%) 0.00% 0.12% 0.05%
Ratio of net investment income (loss) to average net
assets prior to expense limitation and expenses
paid indirectly.................................... (0.08%) 0.00% 0.01% 0.05%
Portfolio turnover................................... 102% 101% 78% 91%
- ------------
(1) Date of commencement of operations; ratios and portfolio turnover have been
annualized and total return has not been annualized.
(2) The average shares outstanding method has been applied for per share
information.
(3) Total investment return is based on the change in net asset value of a share
during the period and assumes reinvestment of dividends and distributions at
net asset value. Total investment return reflects a waiver and payment of
fees by the manager and distributor, as applicable. Performance would have
been lower had the expense limitation not been in effect.
See accompanying notes
U.S. Growth-6
Delaware VIP Trust-Delaware VIP U.S. Growth Series
Notes to Financial Statements
December 31, 2003
Delaware VIP Trust (the "Trust") is organized as a Delaware statutory trust and
offers 15 series: Delaware VIP Balanced Series, Delaware VIP Capital Reserves
Series, Delaware VIP Cash Reserve Series, Delaware VIP Diversified Income
Series, Delaware VIP Emerging Markets Series, Delaware VIP Global Bond Series,
Delaware VIP Growth Opportunities Series, Delaware VIP High Yield Series,
Delaware VIP International Value Equity Series, Delaware VIP Large Cap Value
Series, Delaware VIP REIT Series, Delaware VIP Select Growth Series, Delaware
VIP Small Cap Value Series, Delaware VIP Trend Series and Delaware VIP U.S.
Growth Series. These financial statements and the related notes pertain to
Delaware VIP U.S Growth Series (the "Series"). The Trust is an open-end
investment company. The Series is considered diversified under the Investment
Company Act of 1940, as amended, and offers Standard Class and Service Class
shares. The Standard Class shares do not carry a 12b-1 fee and the Service Class
shares carry a 12b-1 fee. The shares of the Series are sold only to separate
accounts of life insurance companies.
The investment objective of the Series is to seek to maximize capital
appreciation.
1. Significant Accounting Policies
The following accounting policies are in accordance with accounting principles
generally accepted in the United States and are consistently followed by the
Series.
Security Valuation--All equity securities 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 Stock Market, Inc.
(NASDAQ) are valued in accordance with the NASDAQ Official Closing Price, which
may not be the last sales price. If on a particular day an equity security does
not trade, then the mean between the bid and asked prices will normally be used.
Short-term debt securities having less than 60 days to maturity are valued at
amortized cost, which approximates market value. Other securities and assets for
which market quotations are not readily available are valued at fair value as
determined in good faith under the direction of the Series' Board of Trustees.
In determining whether market quotations are readily available or fair valuation
will be used, various factors will be taken into consideration, such as market
closures, or with respect to foreign securities, aftermarket trading or
significant events after local market trading (e.g., government actions or
pronouncements, trading volume or volatility on markets, exchanges among
dealers, or news events).
Federal Income Taxes--The Series intends to continue to qualify for federal
income tax purposes as a regulated investment company and make the requisite
distributions to shareholders. Accordingly, no provision for federal income
taxes has been made in the financial statements.
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. 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 102% collateralized. However, in the
event of default or bankruptcy by the counterparty to the agreement, realization
of the collateral may be subject to legal proceedings.
Use of Estimates--The preparation of financial statements in conformity with
accounting principles generally accepted in the United States 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 common to all funds within the Delaware Investments Family of
Funds are allocated amongst the funds on the basis of average net assets.
Security transactions are recorded on the date the securities are purchased or
sold (trade date). 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.
Certain expenses of the Series are paid through commission arrangements with
brokers. The amount of these expenses was approximately $307 for the year ended
December 31, 2003. In addition, the Series receives earnings credits from its
custodian when positive cash balances are maintained, which are used to offset
custody fees. The earnings credits for the year ended December 31, 2003 were
approximately $14. The expenses paid under the above arrangements are included
in their respective expense captions on the Statement of Operations with the
corresponding expense offset shown as "expenses paid indirectly".
2. Investment Management, Administration Agreements and Other Transactions with
Affiliates
In accordance with the terms of its investment management agreement, the Series
pays Delaware Management Company (DMC), a series of Delaware Management Business
Trust and the investment manager, an annual fee which is calculated daily at the
rate of 0.65% on the first $500 million of average daily net assets of the
Series, 0.60% on the next $500 million, 0.55% on the next $1.5 billion and 0.50%
on average daily net assets in excess of $2.5 billion.
DMC has contractually agreed to waive that portion, if any, of its management
fee and reimburse the Series to the extent necessary to ensure that annual
operating expenses, exclusive of taxes, interest, brokerage commissions,
distribution fees, certain insurance costs and extraordinary expenses, do not
exceed 0.80% of average daily net assets of the Series through April 30, 2004.
No reimbursement was due for the year ended December 31, 2003.
U.S. Growth-7
Delaware VIP U.S. Growth Series
Notes to Financial Statements (continued)
2. Investment Management, Administration Agreements and Other Transactions with
Affiliates (continued)
Delaware Service Company, Inc. (DSC), an affiliate of DMC, provides accounting,
administration, dividend disbursing and transfer agent services. The Series pays
DSC a monthly fee based on average net assets subject to certain minimums for
accounting and administration services. The Series pays DSC a monthly fee based
on average net assets for dividend disbursing and transfer agent services.
Pursuant to a distribution agreement and distribution plan, the Series pays
Delaware Distributors, L.P. (DDLP), the distributor and an affiliate of DMC, an
annual 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, 2004 in order to prevent distribution and service fees of the Service
Class shares from exceeding 0.25% of average daily net assets. Prior to May 1,
2003, the Board of Trustees had set the fee at an annual rate of 0.15% of the
Service Class shares' average daily net assets. No distribution expenses are
paid by Standard Class shares.
At December 31, 2003, the Series had liabilities payable to affiliates as
follows:
Dividend disbursing,
Investment transfer agent fees,
management accounting Other expenses
fee payable to and other expenses payable to DMC
DMC payable to DSC and affiliates*
-------------- ------------------ ---------------
$10,895 $798 $3,443
*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, professional fees, custodian fees and
trustees' 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 year ended December 31, 2003, the Series made purchases and sales of
investment securities other than short-term investments as follows:
Purchases.................... $20,117,339
Sales........................ $12,373,003
At December 31, 2003, the cost of investments and unrealized appreciation
(depreciation) for federal income tax purposes for the Series were as follows:
Aggregate Aggregate
Cost of unrealized unrealized Net unrealized
investments appreciation depreciation appreciation
- ----------- ------------ ------------ --------------
$20,735,627 $1,550,002 $(381,782) $1,168,220
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 accounting principles
generally accepted in the United States. The tax character of dividends and
distributions paid during the years ended December 31, 2003 and 2002 was as
follows:
Year Year
Ended Ended
12/31/03 12/31/02
-------- --------
Ordinary income............... $18,454 $55,564
As of December 31, 2003, the components of net assets on a tax basis were as
follows:
Shares of beneficial interest............. $31,130,773
Undistributed ordinary income............. 13,028
Capital loss carryforwards................ (10,690,034)
Post-October losses....................... (42,249)
Unrealized appreciation of investments.... 1,168,220
-----------
Net assets................................. $21,579,738
===========
The differences between book basis and tax basis components of net assets are
primarily attributable to tax deferral of losses on wash sales.
U.S. Growth-8
Delaware VIP U.S. Growth Series
Notes to Financial Statements (continued)
4. Dividend and Distribution Information (continued)
For federal income tax purposes, capital loss carryforwards may be carried
forward and applied against future capital gains. Such capital loss
carryforwards expire as follows: $1,077,920 expires in 2008, $4,507,939 expires
in 2009, $3,675,553 expires in 2010 and $1,428,622 expires in 2011.
Post-October losses represent losses realized on investment transactions from
November 1, 2003 through December 31, 2003 that, in accordance with federal
income tax regulations, the Series has elected to defer and treat as having
arisen in the following fiscal year.
5. Capital Shares
Transactions in capital shares were as follows:
Year Year
Ended Ended
12/31/03 12/31/02
-------- --------
Shares sold:
Standard Class....................... 364,982 242,262
Service Class........................ 1,433,320 137,432
Shares issued upon reinvestment of
dividends and distributions:
Standard Class....................... 3,254 7,226
Service Class........................ 53 28
--------- --------
1,801,609 386,948
--------- --------
Shares repurchased:
Standard Class....................... (364,364) (679,882)
Service Class........................ (88,081) (18,636)
--------- --------
(452,445) (698,518)
--------- --------
Net increase (decrease)............... 1,349,164 (311,570)
========= ========
6. Line of Credit
The Series, along with certain other funds in the Delaware Investments Family of
Funds (the "Participants"), participates in a $177,300,000 revolving line of
credit facility to be used for temporary or emergency purposes as an additional
source of liquidity to fund redemptions of investor shares. The Participants are
charged an annual commitment fee, which is allocated across the Participants on
the basis of each fund's allocation of the entire facility. The Participants may
borrow up to a maximum of one third of their net assets under the agreement. The
Series had no amounts outstanding as of December 31, 2003, or at any time during
the year.
7. Tax Information (Unaudited)
For the fiscal year ended December 31, 2003, the Series designates distributions
paid during the year as follows:
(A) (B)
Long-Term Ordinary
Capital Gains Income Total (C)
Distributions Distributions Distributions Qualifying
(Tax Basis) (Tax Basis) (Tax Basis) Dividends(1)
------------- ------------- ------------- ------------
-- 100% 100% 100%
- -------------
(A) and (B) are based on a percentage of the Series' total distributions.
(C) is based on a percentage of ordinary income of the Series.
(1) Qualifying dividends represent dividends which qualify for the corporate
dividends received deduction.
U.S. Growth-9
Delaware VIP Trust-Delaware VIP U.S. Growth Series
Report of Independent Auditors
To the Shareholders and Board of Trustees
Delaware VIP Trust-Delaware VIP U.S. Growth Series
We have audited the accompanying statement of net assets of Delaware VIP U.S.
Growth Series (the "Series") as of December 31, 2003, and the related statement
of operations for the year then ended, the statements of changes in net assets
for each of the two years in the period then ended, and the financial highlights
for each of the periods indicated therein. These financial statements and
financial highlights are the responsibility of the Series' management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements and financial highlights. Our procedures included
confirmation of securities owned as of December 31, 2003, by correspondence with
the custodian and brokers, or by other auditing procedures where replies from
brokers were not received. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Delaware VIP U.S. Growth Series at December 31, 2003, the results of its
operations for the year then ended, the changes in its net assets for each of
the two years in the period then ended, and its financial highlights for each of
the periods indicated therein, in conformity with accounting principles
generally accepted in the United States.
/s/ Ernst & Young LLP
Philadelphia, Pennsylvania
February 6, 2004
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
A description of the policies and procedures that the Series uses to determine
how to vote proxies (if any) relating to portfolio securities is available
without charge (i) upon request, by calling 800 523-1918; (ii) on the Series'
website at http://www.delawareinvestments.com; and (iii) on the Commission's
website at http://www.sec.gov.; and beginning no later than August 31, 2004,
information (if any) regarding how the Series voted proxies relating to
portfolio securities during the most recent 12-month period ended June 30 is
available without charge (i) through the Series' website at
http://www.delawareinvestments.com; and (ii) on the Commission's website at
http://www.sec.gov.
- --------------------------------------------------------------------------------
U.S. Growth-10
Delaware Investments Family of Funds
BOARD OF TRUSTEES/DIRECTORS AND OFFICERS ADDENDUM
A mutual fund is governed by a Board of Trustees/Directors which has oversight
responsibility for the management of a fund's business affairs.
Trustees/Directors establish procedures and oversee and review the performance
of the investment manager, the distributor and others that perform services for
the fund. The independent fund trustees, in particular, are advocates for
shareholder interests. The following is a list of the Trustees/Directors and
Officers with certain background and related information.
Number of Other
Principal Portfolios in Fund Directorships
Name, Position(s) Occupation(s) Complex Overseen Held by
Address Held with Length of Time During by Trustee/Director Trustee/Director
and Birthdate Fund(s) Served Past 5 Years or Officer or Officer
- -----------------------------------------------------------------------------------------------------------------------------------
INTERESTED TRUSTEES
Jude T. Driscoll(2) Chairman and 4 Years - Since August 2000, 80 None
2005 Market Street Trustee(4) Executive Officer Mr. Driscoll has served in
Philadelphia, PA various executive capacities
19103 Trustee since at different times at
May 15, 2003 Delaware Investments(1)
March 10, 1963
Senior Vice President and
Director of Fixed-Income Process -
Conseco Capital Management
(June 1998 - August 2000)
Managing Director -
NationsBanc Capital Markets (February
1996 - June 1998)
- -----------------------------------------------------------------------------------------------------------------------------------
INDEPENDENT TRUSTEES
Walter P. Babich Trustee 16 Years Board Chairman - 98 None
2005 Market Street Citadel Construction Corporation
Philadelphia, PA (1989 - Present)
19103
October 1, 1927
- -----------------------------------------------------------------------------------------------------------------------------------
John H. Durham Trustee 25 Years(3) Private Investor 98 Trustee - Abington
2005 Market Street Memorial Hospital
Philadelphia, PA
19103
President/Director-
August 7, 1937 22 WR Corporation
- -----------------------------------------------------------------------------------------------------------------------------------
John A. Fry Trustee(4) 3 Years President - 80 None
2005 Market Street Franklin & Marshall College
Philadelphia, PA (June 2002 - Present)
19103
Executive Vice President -
University of Pennsylvania
May 28, 1960 (April 1995 - June 2002)
- -----------------------------------------------------------------------------------------------------------------------------------
Anthony D. Knerr Trustee 11 Years Founder/Managing Director - 98 None
2005 Market Street Anthony Knerr & Associates
Philadelphia, PA (Strategic Consulting)
19103 (1990 - Present)
December 7, 1938
- -----------------------------------------------------------------------------------------------------------------------------------
U.S. Growth-11
Number of Other
Principal Portfolios in Fund Directorships
Name, Position(s) Occupation(s) Complex Overseen Held by
Address Held with Length of Time During by Trustee/Director Trustee/Director
and Birthdate Fund(s) Served Past 5 Years or Officer or Officer
- -----------------------------------------------------------------------------------------------------------------------------------
INDEPENDENT TRUSTEES
(continued)
Ann R. Leven Trustee 15 Years Treasurer/Chief Fiscal Officer - 98 Director - Andy
2005 Market Street National Gallery of Art Warhol Foundation
Philadelphia, PA (1994 - 1999)
19103 Director -
Systemax Inc.
November 1, 1940
- -----------------------------------------------------------------------------------------------------------------------------------
Thomas F. Madison Trustee 10 Years President/Chief 98 Director -
2005 Market Street Executive Officer - Banner Health
Philadelphia, PA MLM Partners, Inc.
19103 (Small Business Investing Director -
and Consulting) CenterPoint Energy
February 25, 1936 (January 1993 - Present)
Director -
Digital River Inc.
Director - Rimage
Corporation
- -----------------------------------------------------------------------------------------------------------------------------------
Janet L. Yeomans Trustee 5 Years Vice President/Mergers & 98 None
2005 Market Street Acquisitions - 3M Corporation
Philadelphia, PA (January 2003 - Present)
19103
Ms. Yeomans has held
July 31, 1948 various management positions
at 3M Corporation since 1983.
- -----------------------------------------------------------------------------------------------------------------------------------
OFFICERS
Joseph H. Hastings Executive Executive Mr. Hastings has served in 98 None
2005 Market Street Vice President Vice President various executive capacities
Philadelphia, PA 19103 and and at different times at
Chief Financial Chief Financial Delaware Investments.
Officer Officer since
August 21, 2003
December 19, 1949
- -----------------------------------------------------------------------------------------------------------------------------------
Richelle S. Maestro Senior Vice President, Chief Legal Officer Ms. Maestro has served in 98 None
2005 Market Street Chief Legal Officer since various executive capacities
Philadelphia, PA and Secretary March 17, 2003 at different times at
19103 Delaware Investments.
November 26, 1957
- -----------------------------------------------------------------------------------------------------------------------------------
Michael P. Bishof Senior Vice President 8 Years Mr. Bishof has served in 98 None
2005 Market Street and Treasurer various executive capacities
Philadelphia, PA at different times at
19103 Delaware Investments.
August 18, 1962
- -----------------------------------------------------------------------------------------------------------------------------------
(1) Delaware Investments is the marketing name for Delaware Management Holdings,
Inc. and its subsidiaries, including the Registrant's investment advisor,
principal underwriter and its transfer agent.
(2) Mr. Driscoll is considered to be an "Interested Trustee" because he is an
executive officer of the Fund's manager and distributor.
(3) Mr. Durham served as a Director Emeritus from 1995 through 1998.
(4) Mr. Driscoll and Mr. Fry are not Trustees of the portfolios of Voyageur
Insured Funds, Voyageur Intermediate Tax Free Funds, Voyageur Investment
Trust, Voyageur Mutual Funds, Voyageur Mutual Funds II, Voyageur Mutual
Funds III and Voyageur Tax Free Funds.
The Statement of Additional Information for the Fund(s) includes additional
information about the Trustees/Directors and Officers and is available, without
charge, upon request by calling 800 523-1918.
(8533)
U.S. Growth-12
Item 2. Code of Ethics
The registrant has adopted a code of ethics that applies to the
registrant's principal executive officer, principal financial officer, principal
accounting officer or controller, or persons performing similar functions,
regardless of whether these individuals are employed by the registrant or a
third party. A copy of the registrant's Code of Business Ethics has been posted
on Delaware Investments' internet website at www.delawareinvestments.com. Any
amendments to the Code of Business Ethics, and information on any waiver from
its provisions granted by the registrant, will also be posted on this website
within five business days of such amendment or waiver and will remain on the
website for at least 12 months.
Item 3. Audit Committee Financial Expert
The registrant's Board of Trustees/Directors has determined that each
member of the registrant's Audit Committee is an audit committee financial
expert, as defined below. For purposes of this item, an "audit committee
financial expert" is a person who has the following attributes:
a. An understanding of generally accepted accounting principles and
financial statements;
b. The ability to assess the general application of such principles in
connection with the accounting for estimates, accruals, and reserves;
c. Experience preparing, auditing, analyzing, or evaluating financial
statements that present a breadth and level of complexity of accounting issues
that are generally comparable to the breadth and complexity of issues that can
reasonably be expected to be raised by the registrant's financial statements, or
experience actively supervising one or more persons engaged in such activities;
d. An understanding of internal controls and procedures for financial
reporting; and
e. An understanding of audit committee functions.
An "audit committee financial expert" shall have acquired such attributes
through:
a. Education and experience as a principal financial officer, principal
accounting officer, controller, public accountant, or auditor or experience in
one or more positions that involve the performance of similar functions;
b. Experience actively supervising a principal financial officer,
principal accounting officer, controller, public accountant, auditor, or person
performing similar functions;
c. Experience overseeing or assessing the performance of companies or
public accountants with respect to the preparation, auditing, or evaluation of
financial statements; or
d. Other relevant experience.
The registrant's Board of Trustees/Directors has also determined that
each member of the registrant's Audit Committee is independent. In order to be
"independent" for purposes of this item, the Audit Committee member may not: (i)
other than in his or her capacity as a member of the Board of Trustees/Directors
or any committee thereof, accept directly or indirectly any consulting, advisory
or other compensatory fee from the issuer; or (ii) be an "interested person" of
the registrant as defined in Section 2(a)(19) of the Investment Company Act of
1940.
The names of the audit committee financial experts on the registrant's
Audit Committee are set forth below:
Ann R. Leven
Thomas F. Madison
Janet L. Yeomans (1)
Item 4. Principal Accountant Fees and Services
(a) Audit fees.
The aggregate fees billed for services provided to the Registrant by
its independent auditors for the audit of the Registrant's annual financial
statements and for services normally provided by the independent auditors in
connection with statutory and regulatory filings or engagements were $167,200
for the fiscal year ended December 31, 2003.
The aggregate fees billed for services provided to the Registrant by
its independent auditors for the audit of the Registrant's annual financial
statements and for services normally provided by the independent auditors in
connection with statutory and regulatory filings or engagements were $173,250
for the fiscal year ended December 31, 2002.
- -----------------------
(1) The instructions to Form N-CSR require disclosure on the relevant experience
of persons who qualify as audit committee financial experts based on "other
relevant experience." The Board of Trustees/Directors has determined that Ms.
Yeomans qualifies as an audit committee financial expert by virtue of her
education and experience as the Treasurer of a large global corporation.
(b) Audit-related fees.
The aggregate fees billed by the Registrant's independent auditors for
services relating to the performance of the audit of the Registrant's financial
statements and not reported under paragraph (a) of this Item were $0
for the fiscal year ended December 31, 2003.
The aggregate fees billed for services relating to the performance of
the audit of the financial statements of the Registrant's investment adviser(s)
and other service providers under common control with the adviser(s) and that
relate directly to the operations or financial reporting of the Registrant were
$31,000 for the Registrant's fiscal year ended December 31, 2003. The percentage
of these fees relating to services approved by the Registrant's Audit Committee
pursuant to the de minimis exception from the pre-approval requirement in Rule
2-01(c)(7)(i)(C) of Regulation S-X was 0%. These audit-related services were as
follows: Preparation of report concerning transfer agents' system of internal
accounting control and related procedures; and preparation of procedures report
to the Funds' Board in connection with the annual transfer agent contract
renewals and in connection with the pass-through of internal legal costs
relating to the operations of the Funds.
The aggregate fees billed by the Registrant's independent auditors for
services relating to the performance of the audit of the Registrant's financial
statements and not reported under paragraph (a) of this Item were $0
for the fiscal year ended December 31, 2002.
The aggregate fees billed by the Registrant's independent auditors for
services relating to the performance of the audit of the financial statements of
the Registrant's investment adviser(s) and other service providers under common
control with the adviser(s) and that relate directly to the operations or
financial reporting of the Registrant were $36,400 for the Registrant's fiscal
year ended December 31, 2002. The percentage of these fees relating to services
approved by the Registrant's Audit Committee pursuant to the de minimis
exception from the pre-approval requirement in Rule 2-01(c)(7)(i)(C) of
Regulation S-X was 0%. These audit-related services were as follows: Preparation
of report concerning transfer agents' system of internal accounting control and
related procedures; and preparation of procedures report to the Funds' Board in
connection with the annual transfer agent contract renewals and in connection
with the pass-through of internal legal costs relating to the operations of the
Funds.
(c) Tax fees.
The aggregate fees billed by the Registrant's independent auditors for
tax-related services provided to the Registrant were $25,000 for the fiscal
year ended December 31, 2003. The percentage of these fees relating to services
approved by the Registrant's Audit Committee pursuant to the de minimis
exception from the pre-approval requirement in Rule 2-01(c)(7)(i)(C) of
Regulation S-X was 0%.
The aggregate fees billed by the Registrant's independent auditors for
tax-related services provided to the Registrant's investment adviser(s) and
other service providers under common control with the adviser(s) and that relate
directly to the operations or financial reporting of the Registrant were
$0 for the Registrant's fiscal year ended December 31, 2003.
The aggregate fees billed by the Registrant's independent auditors for
tax-related services provided to the Registrant were $21,850 for the fiscal
year ended December 31, 2002. The percentage of these fees relating to services
approved by the Registrant's Audit Committee pursuant to the de minimis
exception from the pre-approval requirement in Rule 2-01(c)(7)(i)(C) of
Regulation S-X was 0%.
The aggregate fees billed by the Registrant's independent auditors for
tax-related services provided to the Registrant's adviser(s) and other service
providers under common control with the adviser(s) and that relate directly to
the operations or financial reporting of the Registrant were $0 for the
Registrant's fiscal year ended December 31, 2002.
(d) All other fees.
The aggregate fees billed for all services provided by the independent
auditors to the Registrant other than those set forth in paragraphs (a), (b) and
(c) of this Item were $0 for the fiscal year ended December 31, 2003.
The aggregate fees billed for all services other than those set forth
in paragraphs (b) and (c) of this Item provided by the Registrant's independent
auditors to the Registrant's adviser(s) and other service providers under common
control with the adviser(s) and that relate directly to the operations or
financial reporting of the Registrant were $0 for the Registrant's
fiscal year ended December 31, 2003.
The aggregate fees billed for all services provided by the independent
auditors to the Registrant other than those set forth in paragraphs (a), (b) and
(c) of this Item were $0 for the fiscal year ended December 31, 2002.
The aggregate fees billed for all services other than those set forth
in paragraphs (b) and (c) of this Item provided by the Registrant's independent
auditors to the Registrant's adviser(s) and other service providers under common
control with the adviser(s) and that relate directly to the operations or
financial reporting of the Registrant were $0 for the Registrant's
fiscal year ended December 31, 2002.
(e) The Registrant's Audit Committee has not established pre-approval
policies and procedures as permitted by Rule 2-01(c)(7)(i)(B) of Regulation S-X.
(f) Not applicable.
(g) The aggregate non-audit fees billed by the Registrant's independent
auditors for services rendered to the Registrant and to its investment
adviser(s) and other service providers under common control with the adviser(s)
were $240,980 and $270,000 for the Registrant's fiscal years ended
December 31, 2003 and December 31, 2002, respectively.
(h) In connection with its selection of the independent auditors, the
Registrant's Audit Committee has considered the independent auditors' provision
of non-audit services to the Registrant's investment adviser(s) and other
service providers under common control with the adviser(s) that were not
required to be pre-approved pursuant to Rule 2-01(c)(7)(ii) of Regulation S-X.
The Audit Committee has determined that the independent auditors' provision of
these services is compatible with maintaining the auditors' independence.
Item 5. Audit Committee of Listed Registrants
Not applicable.
Item 6. [Reserved]
Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End
Management Investment Companies
Not applicable.
Item 8. Purchases of Equity Securities by Closed-End Management Investment
Company and Affiliated Purchasers
Not applicable.
Item 9. Submission of Matters to a Vote of Security Holders.
Not applicable.
Item 10. 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 registrant's last fiscal
half-year (the registrant's second fiscal half-year in the case of an annual
report) that have materially affected, or are reasonably likely to materially
affect, the registrant's internal control over financial reporting.
Item 11. 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
JUDE T. DRISCOLL
By: Jude T. Driscoll
-----------------
Title: Chairman
Date: 3/5/04
-------------------
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.
JUDE T. DRISCOLL
By: Jude T. Driscoll
----------------
Title: Chairman
Date: 3/5/04
-------------------
JOSEPH H. HASTINGS
By: Joseph H. Hastings
------------------
Title: Chief Financial Officer
Date: 3/5/04
--------------------------