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:
David F. Connor, 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, 2005
Item 1. Reports to Stockholders
DELAWARE VIP TRUST - DELAWARE VIP BALANCED SERIES
Delaware VIP Balanced Series combines equities and bonds in its portfolio,
offering investors a broad, diversified investment vehicle. For the 12-month
period ended December 31, 2005, this Series returned 3.68% for Standard Class
shares and 3.51% for Service Class shares (both figures reflect all
distributions reinvested). The S&P 500 Index and Lehman Brothers Aggregate Bond
Index--the benchmarks for the Series--returned 4.91% and 2.43%, respectively.
The equity portion of the Series underwent a major repositioning in
February 2005 when the Series' equity assets were transitioned to the Focus
Value Equity team of D. Tysen Nutt Jr., Jordan Irving, Anthony Lombardi, and Bob
Vogel. Prior to the management change, the Series' equity assets were allocated
across the stock market using a large-cap core strategy. In February, the
portfolio was repositioned to reflect the current team's particular investment
philosophy, creating a concentrated, well-diversified portfolio of value-style
investments with lower average price/earnings multiples and a higher dividend
yield. The current team believes that this more defensive positioning within the
equity portion of the Series offers better potential for long-term total return.
At the same time, the Series' investment strategy was changed to allow up
to an 8% maximum weighting in high-yield fixed-income securities. This change
provides management an opportunity to take advantage of additional opportunities
presented by high-yield bonds, which generally carry increased default risk and
offer higher yields. The Series previously did not invest in high-yield bonds.
At year end, the Series held 35 equity securities. Major new positions
included Merck, Limited Brands, Bristol-Myers Squibb, and Hewlett-Packard.
Performance of a $10,000 Investment:
Delaware VIP
Balanced Series Lehman Brothers
(Standard Class Shares) Aggregate Bond Index S&P 500 Index
----------------------- --------------------- -------------
12/31/95 $ 10,000 $ 10,000 $ 10,000
12/31/96 $ 11,591 $ 12,295 $ 10,363
12/31/97 $ 14,651 $ 16,395 $ 11,363
12/31/98 $ 17,379 $ 21,085 $ 12,351
12/31/99 $ 16,014 $ 25,519 $ 12,249
12/31/00 $ 15,515 $ 23,196 $ 13,674
12/31/01 $ 14,327 $ 20,441 $ 14,828
12/31/02 $ 11,996 $ 15,925 $ 16,348
12/31/03 $ 14,300 $ 20,491 $ 17,018
12/31/04 $ 15,135 $ 22,718 $ 17,757
12/31/05 $ 15,693 $ 23,834 $ 18,188
DELAWARE VIP BALANCED SERIES
AVERAGE ANNUAL TOTAL RETURNS
For the periods ended December 31, 2005
STANDARD CLASS SERVICE CLASS
SHARES* SHARES**
-------------- -------------
LIFETIME +7.72% +0.37%
10 YEAR +4.61% --
FIVE YEAR +0.23% +0.04%
ONE YEAR +3.68% +3.51%
* 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 for the period from December 31, 1995 through December 31, 2005.
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 measures the performance of government and corporate bonds,
mortgage-backed securities, and asset-backed securities. 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 withdrawn, 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. High yielding
non-investment grade bonds involve higher risk than investment-grade bonds.
Adverse conditions may affect the issuer's ability to pay interest and principal
on these securities. The Series may be invested in foreign high-yield corporate
bonds, which have special risks that include currency fluctuations, economic and
political change, and different accounting standards.
Balanced Series-1
DELAWARE VIP TRUST-DELAWARE VIP BALANCED SERIES
DISCLOSURE OF SERIES EXPENSES
For the Period July 1, 2005 to December 31, 2005
As a shareholder of the Series, you incur ongoing costs, including management
fees; distribution and/or service (12b-1) fees; and other Series expenses. This
Example is intended to help you understand your ongoing costs (in dollars) of
investing in the Series and to compare these costs with the ongoing costs of
investing in other mutual funds.
The Example is based on an investment of $1,000 invested at the beginning of the
period and held for the entire period from July 1, 2005 to December 31, 2005.
ACTUAL EXPENSES
The first section of the table shown, "Actual Series Return," provides
information about actual account values and actual expenses. You may use the
information in this section of the table, together with the amount you invested,
to estimate the expenses that you paid over the period. Simply divide your
account value by $1,000 (for example, an $8,600 account value divided by $1,000
= 8.6), then multiply the result by the number in the first section under the
heading entitled "Expenses Paid During Period" to estimate the expenses you paid
on your account during the period.
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The second section of the table shown, "Hypothetical 5% Return," provides
information about hypothetical account values and hypothetical expenses based on
the Series' actual expense ratio and an assumed rate of return of 5% per year
before expenses, which is not the Series' actual return. The hypothetical
account values and expenses may not be used to estimate the actual ending
account balance or expenses you paid for the period. You may use this
information to compare the ongoing costs of investing in the Series and other
funds. To do so, compare the 5% hypothetical example with the 5% hypothetical
examples that appear in the shareholder reports of other funds.
Please note that the expenses shown in the table are meant to highlight your
ongoing costs only. As a shareholder of the Series, you do not incur any
transaction costs, such as sales charges (loads), redemption fees or exchange
fees, but shareholders of other funds may incur such costs. Also, the fees
related to the variable annuity investment or the deferred sales charge that
could apply have not been included. Therefore, the second section of the table
is useful in comparing ongoing costs only, and will not help you determine the
relative total costs of owning different funds. The Series' actual expenses
shown in the table reflect fee waivers in effect. The expenses shown in the
table assume reinvestment of all dividends and distributions.
EXPENSE ANALYSIS OF AN INVESTMENT OF $1,000
EXPENSES
BEGINNING ENDING PAID DURING
ACCOUNT ACCOUNT ANNUALIZED PERIOD
VALUE VALUE EXPENSE 7/1/05 TO
7/1/05 12/31/05 RATIOS 12/31/05*
---------- ---------- ---------- -----------
ACTUAL SERIES RETURN
Standard Class $1,000.00 $ 1,022.70 0.80% $4.08
Service Class 1,000.00 1,021.90 1.05% 5.35
- --------------------------------------------------------------------------------------------------------
HYPOTHETICAL 5% RETURN (5% RETURN BEFORE EXPENSES)
Standard Class $1,000.00 $ 1,021.17 0.80% $4.08
Service Class 1,000.00 1,019.91 1.05% 5.35
- --------------------------------------------------------------------------------------------------------
*"Expenses Paid During Period" are equal to the Series' annualized expense
ratio, multiplied by the average account value over the period, multiplied by
184/365 (to reflect the one-half year period).
Balanced Series-2
DELAWARE VIP TRUST-DELAWARE VIP BALANCED SERIES
SECTOR ALLOCATION
As of December 31, 2005
Sector designations may be different than the sector designations presented in
other Series materials.
PERCENTAGE
SECTOR OF NET ASSETS
- -------------------------------------------------- -------------
COMMON STOCK 59.17%
-------------
Consumer Discretionary 5.31%
Consumer Staples 5.35%
Energy 4.82%
Financials 14.50%
Health Care 11.02%
Industrials 5.53%
Information Technology 5.42%
Materials 1.78%
Telecommunications 3.58%
Utilities 1.86%
-------------
PREFERRED STOCK 0.05%
-------------
AGENCY ASSET-BACKED SECURITIES 0.19%
-------------
AGENCY COLLATERALIZED MORTGAGE OBLIGATIONS 2.07%
-------------
AGENCY MORTGAGE-BACKED SECURITIES 6.06%
-------------
AGENCY OBLIGATIONS 2.30%
-------------
COMMERCIAL MORTGAGE-BACKED SECURITIES 3.08%
-------------
CORPORATE BONDS 12.57%
-------------
Banking 1.33%
Basic Industry 0.32%
Brokerage 0.54%
Capital Goods 0.41%
Communications 1.43%
Consumer Cyclical 0.87%
Consumer Non-Cyclical 1.21%
Electric 1.61%
Energy 0.68%
Finance Companies 0.98%
Insurance 1.38%
Natural Gas 0.86%
Real Estate 0.15%
Technology 0.27%
Transportation 0.53%
-------------
MUNICIPAL BONDS 1.83%
-------------
NON-AGENCY ASSET BACKED SECURITIES 2.44%
-------------
NON-AGENCY COLLATERALIZED MORTGAGE OBLIGATIONS 6.57%
-------------
U.S. TREASURY OBLIGATIONS 3.99%
-------------
REPURCHASE AGREEMENTS 2.40%
-------------
SECURITIES LENDING COLLATERAL 7.63%
-------------
TOTAL MARKET VALUE OF SECURITIES 110.35%
-------------
OBLIGATION TO RETURN SECURITIES LENDING COLLATERAL (7.63)%
-------------
LIABILITIES NET OF RECEIVABLES AND OTHER ASSETS (2.72)%
-------------
TOTAL NET ASSETS 100.00%
-------------
Balanced Series-3
DELAWARE VIP TRUST-DELAWARE VIP BALANCED SERIES
STATEMENT OF NET ASSETS
December 31, 2005
NUMBER OF MARKET
SHARES VALUE
------------ ------------
(U.S. $)
COMMON STOCK-59.17%
CONSUMER DISCRETIONARY-5.31%
Gap ...................................... 39,000 $ 687,960
Limited Brands ........................... 32,800 733,080
*Mattel ................................... 38,600 610,652
------------
2,031,692
------------
CONSUMER STAPLES-5.35%
*B&G Foods ................................ 50 726
ConAgra Foods ............................ 31,900 646,932
Kimberly-Clark ........................... 11,600 691,940
Safeway .................................. 29,800 705,068
------------
2,044,666
------------
ENERGY-4.82%
Chevron .................................. 11,000 624,470
ConocoPhillips ........................... 10,100 587,618
Exxon Mobil .............................. 11,200 629,104
------------
1,841,192
------------
FINANCIALS-14.50%
Allstate ................................. 12,000 648,840
Aon ...................................... 19,200 690,240
Chubb .................................... 7,300 712,845
Hartford Financial Services .............. 8,100 695,709
Huntington Bancshares .................... 30,500 724,375
Morgan Stanley ........................... 12,000 680,880
Wachovia ................................. 13,000 687,180
Washington Mutual ........................ 16,200 704,700
------------
5,544,769
------------
HEALTH CARE-11.02%
Abbott Laboratories ...................... 17,400 686,082
Baxter International ..................... 17,500 658,875
Bristol-Myers Squibb ..................... 31,400 721,572
Merck .................................... 23,500 747,535
Pfizer ................................... 29,000 676,280
Wyeth .................................... 15,700 723,299
------------
4,213,643
------------
INDUSTRIALS-5.53%
Boeing ................................... 9,800 688,352
Union Pacific ............................ 9,100 732,641
Waste Management ......................... 22,800 691,980
------------
2,112,973
------------
INFORMATION TECHNOLOGY-5.42%
Hewlett-Packard .......................... 25,000 715,750
International Business Machines .......... 8,100 665,820
+Xerox .................................... 47,200 691,480
------------
2,073,050
------------
MATERIALS-1.78%
duPont (E.I.) deNemours .................. 16,000 680,000
------------
680,000
------------
TELECOMMUNICATIONS-3.58%
AT&T ..................................... 27,800 680,822
Verizon Communications ................... 22,800 686,736
------------
1,367,558
------------
NUMBER OF MARKET
SHARES VALUE
------------ ------------
(U.S. $)
COMMON STOCK (CONTINUED)
UTILITIES-1.86%
*Progress Energy .......................... 16,200 $ 711,504
------------
711,504
------------
TOTAL COMMON STOCK
(COST $21,808,122) ..................... 22,621,047
------------
PREFERRED STOCK-0.05%
Nexen 7.35% .............................. 790 20,398
------------
TOTAL PREFERRED STOCK
(COST $19,750) ......................... 20,398
------------
PRINCIPAL
AMOUNT
------------
(U.S. $)
AGENCY ASSET-BACKED
SECURITIES-0.19%
~Fannie Mae Grantor Trust
Series 2004-T4 A2 3.93% 2/25/20 ........ $ 14,363 14,318
Series 2004-T4 A3 4.42% 8/25/24 ........ 50,000 49,786
~Fannie Mae Whole Loan Series
2002-W11 AV1 4.719% 11/25/32 ........... 10,194 10,196
------------
TOTAL AGENCY ASSET-BACKED SECURITIES
(COST $74,624) ......................... 74,300
------------
AGENCY COLLATERALIZED MORTGAGE
OBLIGATIONS-2.07%
Fannie Mae
Series 1996-46 ZA 7.50% 11/25/26 ......... 25,737 27,345
Series 2003-122 AJ 4.50% 2/25/28 ......... 24,933 24,395
Series 2005-110 MB 5.50% 9/25/35 ......... 60,000 60,500
Fannie Mae Grantor Trust Series
2001-T8 A2 9.50% 7/25/41 ................. 22,876 24,873
Fannie Mae Whole Loan
Series 2004-W3 A2 3.75% 5/25/34 .......... 75,000 74,151
Series 2004-W9 2A1 6.50% 2/25/44 ......... 38,561 39,497
Series 2004-W11 1A2 6.50% 5/25/44 ........ 42,366 43,402
Freddie Mac
Series 1730 Z 7.00% 5/15/24 .............. 21,064 22,098
Series 2326 ZQ 6.50% 6/15/31 ............. 87,017 91,312
Series 2480 EH 6.00% 11/15/31 ............ 5,953 5,968
Series 2550 QX 4.75% 6/15/27 ............. 25,000 24,892
Series 2662 MA 4.50% 10/15/31 ............ 45,487 44,673
Series 2872 GC 5.00% 11/15/29 ............ 40,000 39,278
Series 2890 PC 5.00% 7/15/30 ............. 65,000 63,887
Series 3022 MB 5.00% 12/15/28 ............ 30,000 29,676
Series 3063 PC 5.00% 2/15/29 ............. 60,000 59,231
>Freddie Mac Structured Pass
Through Securities
Series T-58 1A2 3.108% 5/25/35 ......... 12,298 12,231
Series T-58 2A 6.50% 9/25/43 ............. 42,157 43,189
GNMA Series 2002-62 B 4.763% 1/16/25 ..... 60,000 59,513
------------
TOTAL AGENCY COLLATERALIZED MORTGAGE
OBLIGATIONS (COST $799,521) ............ 790,111
------------
Balanced Series-4
DELAWARE VIP BALANCED SERIES
STATEMENT OF NET ASSETS (CONTINUED)
PRINCIPAL MARKET
AMOUNT VALUE
------------ ------------
(U.S. $) (U.S. $)
AGENCY MORTGAGE-BACKED
SECURITIES-6.06%
Fannie Mae
5.73% 12/1/08 .......................... $ 40,674 $ 41,424
6.50% 8/1/17 ........................... 29,062 29,816
6.765% 1/1/07 .......................... 4,447 4,478
Fannie Mae Relocation 30 yr
5.00% 11/1/33 .......................... 65,260 63,935
5.00% 11/1/34 .......................... 50,892 49,778
Fannie Mae S.F. 15 yr
4.50% 11/1/19 .......................... 92,427 90,117
6.00% 4/1/17 ........................... 52,347 53,525
Fannie Mae S.F. 15 yr TBA
4.50% 1/1/21 ........................... 295,000 287,072
5.00% 1/1/21 ........................... 10,000 9,894
Fannie Mae S.F. 20 yr 5.50% 8/1/25 ....... 43,052 42,972
Fannie Mae S.F. 30 yr
5.50% 3/1/29 ........................... 79,588 79,065
5.50% 4/1/29 ........................... 92,773 92,164
6.00% 8/1/35 ........................... 13,950 14,085
6.00% 8/1/35 ........................... 22,486 22,703
7.50% 6/1/31 ........................... 37,397 39,209
9.50% 6/1/19 ........................... 10,566 11,359
Fannie Mae S.F. 30 yr TBA
5.00% 1/1/36 ........................... 305,000 295,563
5.50% 1/1/36 ........................... 630,000 623,896
6.00% 1/25/36 .......................... 115,000 116,078
~Freddie Mac ARM 3.733% 4/1/34 ............ 37,317 37,527
Freddie Mac Relocation 30 yr
5.00% 9/1/33 ........................... 112,365 110,293
Freddie Mac S.F. 15 yr 4.00% 2/1/14 ...... 71,482 68,489
Freddie Mac S.F. 20 yr 5.50% 9/1/24 ...... 81,669 81,644
Freddie Mac S.F. 30 yr
6.50% 10/1/33 .......................... 21,030 21,563
7.00% 11/1/33 .......................... 19,116 19,923
GNMA S.F. 30 yr 7.50% 1/15/32 ............ 8,786 9,244
------------
TOTAL AGENCY MORTGAGE-BACKED SECURITIES
(COST $2,313,610) ...................... 2,315,816
------------
AGENCY OBLIGATIONS-2.30%
Fannie Mae
*3.125% 12/15/07 ......................... 15,000 14,560
*3.375% 12/15/08 ......................... 265,000 255,586
^6.06% 10/9/19 ........................... 15,000 7,305
*6.25% 2/1/11 ............................ 105,000 111,012
Federal Home Loan Bank
2.50% 3/15/06 .......................... 105,000 104,561
4.25% 9/14/07 .......................... 145,000 143,856
^Financing Corporation Principal Strips
CPN 1 4.898% 11/11/17 .................... 25,000 13,969
PRN 2 5.031% 11/30/17 .................... 140,000 79,187
PRN 13 4.883% 12/27/18 ................... 20,000 10,701
PRINCIPAL MARKET
AMOUNT VALUE
------------ ------------
(U.S. $) (U.S. $)
AGENCY OBLIGATIONS (CONTINUED)
^Residual Funding Principal Strips
5.122% 10/15/19 .......................... $ 60,000 $ 31,327
^Resolution Funding Corporation
5.24% 10/15/25 ........................... 275,000 107,457
------------
TOTAL AGENCY OBLIGATIONS
(COST $880,666) ........................ 879,521
------------
COMMERCIAL MORTGAGE-BACKED
SECURITIES-3.08%
Bank of America Commercial Mortgage
Securities
Series 2004-5 A3 4.561% 11/10/41 ....... 40,000 38,873
Series 2005-1 A3 4.877% 11/10/42 ....... 65,000 64,506
#Bear Stearns Commercial Mortgage
Securities Series 2004-ESA E 144A
5.064% 5/14/16 ......................... 40,000 40,062
~Citigroup/Deutsche Bank Commercial
Mortgage Trust Series 2005-CD1 AJ
5.225% 7/15/44 ......................... 15,000 14,987
>#Commercial Mortgage Pass Through
Certificates Series 2001-J1A A2 144A
6.457% 2/14/34 ......................... 29,592 31,036
#Crown Castle Towers Series
2005-1A C 144A 5.074% 6/15/35 .......... 25,000 24,547
First Union-Lehman Brothers-Bank
of America Series 1998-C2 A2
6.56% 11/18/35 ......................... 31,698 32,579
General Electric Capital Commercial
Mortgage Trust
Series 2002-1A A3 6.269% 12/10/35 ...... 75,000 79,444
*Series 2005-C2 A2 4.706% 5/10/43 ....... 60,000 59,146
Series 2005-C3 A3FX 4.863% 7/10/45 ..... 20,000 19,821
~Series 2005-C4 A2 5.305% 11/10/45 ...... 55,000 55,533
General Motors Acceptance Corporation
Commercial Mortgage Securities Series
1998-C2 A2 6.42% 5/15/35 ............... 94,839 97,656
*Greenwich Capital Commercial Funding
Series 2005-GG5 A2 5.117% 4/10/37 ...... 50,000 50,121
#Hilton Hotel Pool Trust Series 2000
HLTA A1 144A 7.055% 10/3/15 ............ 18,164 19,094
JPMorgan Chase Commercial
Mortgage Securities
Series 2002-C1 A3 5.376% 7/12/37 ....... 35,000 35,486
Series 2003-C1 A2 4.985% 1/12/37 ....... 68,000 67,497
~Series 2005-CB11 A4 5.335% 8/12/37 ....... 70,000 70,627
LB-UBS Commercial Mortgage Trust
Series 2002-C1 A4 6.462% 3/15/31 ....... 55,000 58,945
Series 2005-C5 A2 4.885% 9/15/30 ....... 55,000 54,605
Merrill Lynch Mortgage Trust
~Series 2004-BPC1 A3 4.467% 10/12/41 .... 25,000 24,160
Series 2005-CIP1 A2 4.96% 7/12/38 ...... 115,000 114,342
~Series 2005-CIP1 B 5.101% 7/12/38 ...... 25,000 24,783
Balanced Series-5
DELAWARE VIP BALANCED SERIES
STATEMENT OF NET ASSETS (CONTINUED)
PRINCIPAL MARKET
AMOUNT VALUE
------------ ------------
(U.S. $) (U.S. $)
COMMERCIAL MORTGAGE-BACKED
SECURITIES (CONTINUED)
Morgan Stanley Capital I
Series 2005-HQ6 A2A 4.882% 8/13/42 ..... $ 25,000 $ 24,815
~Series 2005-HQ7 A4 5.205% 11/14/42 ..... 30,000 30,250
#Tower Series 2004-2A A 144A
4.232% 12/15/14 ........................ 45,000 43,495
------------
TOTAL COMMERCIAL MORTGAGE-BACKED SECURITIES
(COST $1,201,442) ...................... 1,176,410
------------
Corporate Bonds-12.57%
BANKING-1.33%
~#Banco Santander 144A 4.81% 12/9/09 ....... 40,000 39,904
~Barclays Bank 6.278% 12/29/49 ............. 20,000 20,138
Citigroup 5.875% 2/22/33 ................. 45,000 46,298
Credit Suisse First Boston USA
6.125% 11/15/11 ........................ 55,000 57,807
#Mizuho Financial Group 144A
5.79% 4/15/14 .......................... 25,000 25,869
Popular North America 4.25% 4/1/08 ....... 55,000 53,973
Popular North America Capital Trust
6.564% 9/15/34 ......................... 50,000 51,594
~#Rabobank Capital Funding II 144A
5.26% 12/29/49 ......................... 35,000 34,731
~RBS Capital Trust I 4.709% 12/29/49 ...... 60,000 57,115
Regions Financial 6.375% 5/15/12 ......... 35,000 37,539
~#Resona Preferred Global Securities
Cayman 144A 7.191% 12/29/49 .............. 80,000 85,023
------------
509,991
------------
BASIC INDUSTRY-0.32%
Barrick Gold Finance 7.50% 5/1/07 ........ 15,000 15,442
Bowater 9.50% 10/15/12 ................... 10,000 10,350
#Codelco 144A 5.625% 9/21/35 .............. 30,000 29,992
*#Huntsman International 144A
7.375% 1/1/15 .......................... 5,000 4,850
Lubrizol 4.625% 10/1/09 .................. 30,000 29,429
Potlatch 13.00% 12/1/09 .................. 5,000 5,996
*Rhodia 8.875% 6/1/11 ..................... 5,000 5,150
Smurfit Capital Funding
7.50% 11/20/25 ......................... 10,000 8,850
++Solutia 6.72% 10/15/37 ................... 10,000 7,700
Tembec Industries 8.625% 6/30/09 ......... 10,000 5,750
------------
123,509
------------
BROKERAGE-0.54%
Amvescap 4.50% 12/15/09 .................. 55,000 54,016
Franklin Resources 3.70% 4/15/08 ......... 50,000 48,761
Goldman Sachs 6.345% 2/15/34 ............. 60,000 63,243
LaBranche & Company
11.00% 5/15/12 ......................... 5,000 5,575
Morgan Stanley 4.75% 4/1/14 .............. 35,000 33,624
------------
205,219
------------
PRINCIPAL MARKET
AMOUNT VALUE
------------ ------------
(U.S. $) (U.S. $)
CORPORATE BONDS (CONTINUED)
CAPITAL GOODS-0.41%
Aleris International 9.00% 11/15/14 ...... $ 5,000 $ 5,175
*Armor Holdings 8.25% 8/15/13 ............. 5,000 5,400
Casella Waste Systems 9.75% 2/1/13 ....... 10,000 10,575
General Electric 5.00% 2/1/13 ............ 70,000 70,067
Geo Subordinate 11.00% 5/15/12 ........... 10,000 9,850
*Graham Packaging 9.875% 10/15/14 ......... 5,000 4,900
Interface 10.375% 2/1/10 ................. 5,000 5,438
Intertape Polymer 8.50% 8/1/14 ........... 5,000 4,960
York International 6.625% 8/15/06 ........ 40,000 40,321
------------
156,686
------------
COMMUNICATIONS-1.43%
***Adelphia Communications
8.125% 7/15/06 ......................... 5,000 2,850
American Cellular 10.00% 8/1/11 .......... 5,000 5,450
*American Tower 7.125% 10/15/12 ........... 5,000 5,175
BellSouth
4.20% 9/15/09 ............................ 25,000 24,305
*6.00% 11/15/34 ........................... 5,000 5,013
*#CCH I LLC 144A 11.00% 10/1/15 ............ 4,000 3,380
Charter Communications Holdings
11.125% 1/15/11 ........................ 5,000 2,775
^^13.50% 1/15/11 ........................... 5,000 3,275
Comcast 6.50% 11/15/35 ................... 35,000 35,785
Cox Communications 4.625% 1/15/10 ........ 25,000 24,223
*CSC Holdings 10.50% 5/15/16 .............. 5,000 5,325
*Insight Midwest 10.50% 11/1/10 ........... 5,000 5,281
iPCS 11.50% 5/1/12 ....................... 5,000 5,763
MCI 7.688% 5/1/09 ........................ 5,000 5,175
Mediacom Capital 9.50% 1/15/13 ........... 5,000 4,906
*Rural Cellular 9.875% 2/1/10 ............. 5,000 5,300
SBC Communications
4.125% 9/15/09 ......................... 40,000 38,658
6.15% 9/15/34 .......................... 35,000 35,275
Sheridan Acquisition Group
10.25% 8/15/11 ......................... 5,000 5,169
*#Sirius Satellite Radio 144A
9.625% 8/1/13 .......................... 5,000 4,950
Sprint Capital
4.78% 8/17/06 .......................... 40,000 39,974
8.75% 3/15/32 .......................... 35,000 46,588
Telecom Italia Capital 4.00% 1/15/10 ..... 35,000 33,366
Telefonos de Mexico 4.50% 11/19/08 ....... 65,000 63,985
Thomson 5.75% 2/1/08 ..................... 30,000 30,441
Time Warner Entertainment
8.375% 3/15/23 ......................... 10,000 11,591
~US LEC 12.716% 10/1/09 ................... 5,000 5,400
Valor Telecom 7.75% 2/15/15 .............. 5,000 5,250
Verizon Global
4.90% 9/15/15 .......................... 5,000 4,849
5.85% 9/15/35 .......................... 10,000 9,670
Verizon Wireless 5.375% 12/15/06 ......... 60,000 60,211
*XM Satellite Radio 12.00% 6/15/10 ........ 5,000 5,638
------------
544,996
------------
Balanced Series-6
DELAWARE VIP BALANCED SERIES
STATEMENT OF NET ASSETS (CONTINUED)
PRINCIPAL MARKET
AMOUNT VALUE
------------ ------------
(U.S. $) (U.S. $)
CORPORATE BONDS (CONTINUED)
CONSUMER CYCLICAL-0.87%
*#CCM Merger 144A 8.00% 8/1/13 ............. $ 5,000 $ 4,825
~Centex 4.50% 8/1/07 ...................... 40,000 40,001
~DaimlerChrysler NA Holdings
4.78% 10/31/08 ......................... 30,000 30,040
Ford Motor Credit
5.625% 10/1/08 ......................... 25,000 21,950
5.70% 1/15/10 .......................... 25,000 21,270
6.625% 6/16/08 ......................... 35,000 31,764
General Motors Acceptance Corporation
6.875% 9/15/11 ......................... 40,000 36,519
Johnson Controls 5.00% 11/15/06 .......... 20,000 19,969
#Knowledge Learning 144A
7.75% 2/1/15 ........................... 10,000 9,550
Landry's Restaurant 7.50% 12/15/14 ....... 5,000 4,700
*Metaldyne 10.00% 11/1/13 ................. 5,000 4,550
Penn National Gaming
8.875% 3/15/10 ......................... 5,000 5,275
*Royal Caribbean Cruises
7.25% 3/15/18 .......................... 5,000 5,400
Time Warner 8.18% 8/15/07 ................ 75,000 78,482
^^Town Sports International
11.00% 2/1/14 .......................... 5,000 3,475
True Temper Sports 8.375% 9/15/11 ........ 5,000 4,525
#Uno Restaurant 144A 10.00% 2/15/11 ....... 5,000 4,525
Warner Music Group 7.375% 4/15/14 ........ 5,000 4,988
------------
331,808
------------
CONSUMER NON-CYCLICAL-1.21%
Amgen 4.00% 11/18/09 ..................... 6,000 5,823
Baxter International 5.196% 2/16/08 ...... 25,000 25,086
Caremark Rx 7.375% 10/1/06 ............... 70,000 71,225
Cott Beverages 8.00% 12/15/11 ............ 5,000 5,150
Kraft Foods 4.125% 11/12/09 .............. 55,000 53,268
Kroger 6.375% 3/1/08 ..................... 30,000 30,627
#Le-Natures 144A 10.00% 6/15/13 ........... 5,000 5,275
Medco Health Solutions
7.25% 8/15/13 .......................... 75,000 82,509
#Medtronic 144A 4.375% 9/15/10 ............ 5,000 4,904
Playtex Products 9.375% 6/1/11 ........... 5,000 5,263
Safeway 6.15% 3/1/06 ..................... 30,000 30,013
Universal 6.50% 2/15/06 .................. 40,000 40,080
US Oncology 10.75% 8/15/14 ............... 5,000 5,575
UST 6.625% 7/15/12 ....................... 30,000 31,236
^^Vanguard Health 11.25% 10/1/15 ........... 5,000 3,675
#Warner Chilcott 144A 8.75% 2/1/15 ........ 5,000 4,625
WellPoint 4.25% 12/15/09 ................. 25,000 24,373
Wyeth 5.50% 2/1/14 ....................... 35,000 35,511
------------
464,218
------------
PRINCIPAL MARKET
AMOUNT VALUE
------------ ------------
(U.S. $) (U.S. $)
CORPORATE BONDS (CONTINUED)
ELECTRIC-1.61%
Arizona Public Service 5.50% 9/1/35 ...... $ 25,000 $ 23,736
Avista 7.75% 1/1/07 ...................... 130,000 133,236
++Calpine 10.50% 5/15/06 ................... 5,000 2,200
++#Calpine 144A 9.90% 7/15/07 ............... 196 160
Detroit Edison 5.70% 10/1/37 ............. 45,000 44,468
~Dominion Resources 4.819% 9/28/07 ........ 30,000 30,028
Duke Capital 5.668% 8/15/14 .............. 35,000 35,358
*#Dynegy Holdings 144A
10.125% 7/15/13 ........................ 10,000 11,350
FPL Group Capital 4.086% 2/16/07 ......... 40,000 39,612
Midwest Generation 8.75% 5/1/34 .......... 5,000 5,531
Pepco Holdings 5.50% 8/15/07 ............. 40,000 40,257
#Power Contract Financing 144A
5.20% 2/1/06 ........................... 17,199 17,203
6.256% 2/1/10 .......................... 20,000 20,305
PSEG Funding Trust I
5.381% 11/16/07 ........................ 40,000 40,079
~SCANA 4.56% 3/1/08 ....................... 40,000 40,051
~Secunda International 12.15% 9/1/12 ...... 5,000 5,275
Southern California Edison
~4.555% 12/13/07 .......................... 30,000 30,014
6.00% 1/15/34 .......................... 35,000 37,168
Southern Capital Funding
5.30% 2/1/07 ........................... 25,000 24,998
#Texas Genco 144A 6.875% 12/15/14 ......... 5,000 5,438
TXU Electric Delivery 7.00% 5/1/32 ....... 25,000 28,536
------------
615,003
------------
ENERGY-0.68%
*Bluewater Finance 10.25% 2/15/12 ......... 5,000 5,400
#Canadian Oil Sands 144A
4.80% 8/10/09 .......................... 35,000 34,486
#Hilcorp Energy 144A 10.50% 9/1/10 ........ 2,000 2,225
Nexen 5.875% 3/10/35 ..................... 20,000 19,734
ONEOK 5.51% 2/16/08 ...................... 25,000 25,111
Reliant Energy 9.50% 7/15/13 ............. 5,000 5,038
USX 9.125% 1/15/13 ....................... 40,000 49,118
Valero Energy 6.125% 4/15/07 ............. 45,000 45,569
Weatherford International
4.95% 10/15/13 ......................... 70,000 68,585
Whiting Petroleum 7.25% 5/1/13 ........... 5,000 5,088
------------
260,354
------------
FINANCE COMPANIES-0.98%
America General Finance
4.875% 7/15/12 ......................... 30,000 29,347
5.40% 12/1/15 .......................... 35,000 34,955
FINOVA Group 7.50% 11/15/09 .............. 3,591 1,275
~HSBC Finance Capital Trust IX
5.911% 11/30/35 ........................ 100,000 101,038
Balanced Series-7
DELAWARE VIP BALANCED SERIES
STATEMENT OF NET ASSETS (CONTINUED)
PRINCIPAL MARKET
AMOUNT VALUE
------------ ------------
(U.S. $) (U.S. $)
CORPORATE BONDS (CONTINUED)
FINANCE COMPANIES (CONTINUED)
o#Premium Asset Trust Series 2005-2 144A
4.374% 2/2/07 .......................... $ 50,000 $ 49,906
Residential Capital
6.125% 11/21/08 ........................ 30,000 30,093
6.375% 6/30/10 ......................... 25,000 25,427
*6.875% 6/30/15 ......................... 95,000 101,123
------------
373,164
------------
INSURANCE-1.38%
Ambac Financial Group 5.95% 12/5/35 ...... 25,000 25,690
#Farmers Insurance Exchange 144A
6.00% 8/1/14 ........................... 10,000 10,176
8.625% 5/1/24 .......................... 70,000 85,178
~ING Groep NV 5.775% 12/29/49 ............. 15,000 15,231
Marsh & McLennan
~4.27% 7/13/07 .......................... 10,000 9,972
5.15% 9/15/10 .......................... 35,000 34,803
*5.375% 3/15/07 ......................... 40,000 40,090
5.375% 7/15/14 ......................... 5,000 4,929
5.75% 9/15/15 .......................... 14,000 14,139
MetLife
5.00% 6/15/15 .......................... 20,000 19,653
5.70% 6/15/35 .......................... 5,000 5,036
#Nationwide Mutual Insurance 144A
7.875% 4/1/33 .......................... 45,000 54,675
*#Nippon Life Insurance 144A
4.875% 8/9/10 .......................... 35,000 34,494
~#Oil Insurance 144A 5.15% 8/15/33 ......... 85,000 84,437
St. Paul Travelers 5.01% 8/16/07 ......... 35,000 34,997
Willis Group
*5.125% 7/15/10 ......................... 25,000 24,950
5.625% 7/15/15 ......................... 30,000 30,043
------------
528,493
------------
NATURAL GAS-0.86%
*~Atmos Energy 4.525% 10/15/07 ............. 40,000 40,063
El Paso Production Holding
7.75% 6/1/13 ........................... 5,000 5,213
Enterprise Products Operating
4.00% 10/15/07 ......................... 50,000 48,976
4.625% 10/15/09 ........................ 40,000 39,047
Inergy Finance 6.875% 12/15/14 ........... 5,000 4,575
Sempra Energy
4.621% 5/17/07 ......................... 60,000 59,594
~4.84% 5/21/08 .......................... 50,000 50,127
Valero Logistics Operations
6.05% 3/15/13 .......................... 80,000 82,763
------------
330,358
------------
REAL ESTATE-0.15%
American Real Estate Partners
8.125% 6/1/12 .......................... 4,000 4,170
BF Saul REIT 7.50% 3/1/14 ................ 5,000 5,113
Developers Diversified Realty
4.625% 8/1/10 .......................... 50,000 48,483
------------
57,766
------------
PRINCIPAL MARKET
AMOUNT VALUE
------------ ------------
(U.S. $) (U.S. $)
CORPORATE BONDS (CONTINUED)
TECHNOLOGY-0.27%
Motorola 4.608% 11/16/07 ................. $ 90,000 $ 89,477
*#Sunguard Data Systems 144A
10.25% 8/15/15 ......................... 5,000 5,025
*#Telcordia Technologies 144A
10.00% 3/15/13 ......................... 10,000 9,200
------------
103,702
------------
Transportation-0.53%
Continental Airlines 6.503% 6/15/11 ...... 95,000 93,396
~CSX 4.561% 8/3/06 ........................ 20,000 20,031
#Erac USA Finance 144A 7.35% 6/15/08 ...... 80,000 83,995
^^H-Lines Finance Holdings
11.00% 4/1/13 .......................... 5,000 4,163
------------
201,585
------------
TOTAL CORPORATE BONDS
(COST $4,781,828) ........................ 4,806,852
------------
MUNICIPAL BONDS-1.83%
Augusta, Georgia Water & Sewer Revenue
5.25% 10/1/39 (FSA) .................... 55,000 58,683
California State 5.00% 2/1/33 ............ 20,000 20,565
California State Economic Recovery
Series A 5.25% 7/1/13 .................... 40,000 44,071
California State University Systemwide
Revenue 5.00% 11/1/30 (AMBAC) ............ 20,000 21,027
Colorado Department of Transportation
Revenue Series B
5.00% 12/15/12 (FGIC) .................. 70,000 75,795
5.00% 12/15/13 (FGIC) .................. 125,000 135,904
Forsyth, Montana Pollution Control
Revenue (Portland General Project)
Series A 5.20% 5/1/33 .................... 25,000 25,898
>>Golden State, California Tobacco
Securitization Corporation Settlement
Series B 5.50% 6/1/43-13 ................. 35,000 38,953
Illinois State Taxable Pension
5.10% 6/1/33 ........................... 30,000 29,550
New Jersey Economic Development
Authority Revenue Cigarette Tax
5.75% 6/15/29 .......................... 40,000 42,344
New York State Sales Tax Asset
Receivables Series A
5.25% 10/15/27 (AMBAC) ................. 50,000 54,148
New York State Urban Development
Series A-1 5.25% 3/15/34 (FGIC) .......... 35,000 37,457
Oregon State Taxable Pension
5.892% 6/1/27 .......................... 35,000 37,882
West Virginia Economic
Development Authority
5.37% 7/1/20 (MBIA) .................... 15,000 15,450
6.07% 7/1/26 ........................... 60,000 63,398
------------
TOTAL MUNICIPAL BONDS
(COST $681,743) ........................ 701,125
------------
Balanced Series-8
DELAWARE VIP BALANCED SERIES
STATEMENT OF NET ASSETS (CONTINUED)
PRINCIPAL MARKET
AMOUNT VALUE
------------ ------------
(U.S. $) (U.S. $)
NON-AGENCY ASSET-BACKED
SECURITIES-2.44%
Capital One Auto Finance Trust
Series 2005-C A3 4.61% 7/15/10 ........... $ 35,000 $ 34,844
Citibank Credit Card Issuance Trust
Series 2003-A7 A7 4.15% 7/7/17 ........... 45,000 42,513
Countrywide Asset-Backed Certificates
~Series 2004-9 AF2 3.337% 9/25/23 ...... 8,959 8,932
Series 2004-S1 A2 3.872% 3/25/20 ....... 50,000 49,143
~Series 2005-12 2A2 4.898% 2/25/36 ...... 60,000 59,585
Credit-Based Asset Servicing and
Securitization Series 2005-CB8 AF1B
5.451% 12/25/35 ........................ 97,810 97,791
#GSAA Trust Series 2004-4N Note 144A
6.25% 5/25/34 .......................... 12,105 12,074
~Merrill Lynch Mortgage Investors Series
2005-NCB A1A 5.451% 7/25/36 .............. 28,014 28,014
Mid-State Trust
Series 11 A1 4.864% 7/15/38 ............ 21,448 20,478
Series 2004-1 A 6.005% 8/15/37 ......... 11,664 11,955
~Novastar Home Equity Loan
Series 2004-4 A2B 4.719% 3/25/35 ....... 75,000 75,139
~Option One Mortgage Loan Trust
Series 2005-4 A3 4.639% 11/25/35 ....... 75,000 75,019
Renaissance Home Equity Loan Trust
Series 2004-4 AF2 3.856% 2/25/35 ....... 55,000 54,327
Series 2005-4 A2 5.399% 2/25/36 ........ 35,000 35,000
~Residential Asset Mortgage Products
Series 2004-RS12 AII2
4.609% 12/25/34 ........................ 65,000 65,071
Series 2004-RZ2 AI3 4.30% 1/25/31 ........ 40,000 39,581
~Residential Funding Mortgage
Securities II Series 2005-HI2 A1
4.519% 5/25/35 ......................... 59,630 59,638
~Saxon Asset Securities Trust
Series 2005-1 A2B 4.599% 5/25/35 ....... 55,000 55,044
Structured Asset Securities
Series 2001-SB1 A2 3.375% 8/25/31 ...... 38,054 35,413
Series 2004-16XS A2 4.91% 8/25/34 ...... 72,040 71,789
------------
TOTAL NON-AGENCY ASSET-BACKED SECURITIES
(COST $931,842) ........................ 931,350
------------
NON-AGENCY COLLATERALIZED
MORTGAGE OBLIGATIONS-6.57%
~American Home Mortgage Investment Trust
Series 2004-2 4A2 3.635% 2/25/44 ....... 20,619 20,577
~Banc of America Mortgage Securities
Series 2005-E 2A1 4.981% 6/25/35 ....... 22,577 22,342
Bank of America Alternative Loan Trust
Series 2003-10 2A1 6.00% 12/25/33 ...... 77,050 77,363
Series 2004-2 1A1 6.00% 3/25/34 ........ 42,522 42,695
Series 2005-3 2A1 5.50% 4/25/20 ........ 44,987 45,071
Series 2005-5 2CB1 6.00% 6/25/35 ....... 49,730 50,077
Series 2005-9 5A1 5.50% 10/25/20 ....... 29,224 29,187
PRINCIPAL MARKET
AMOUNT VALUE
------------ ------------
(U.S. $) (U.S. $)
NON-AGENCY COLLATERALIZED
MORTGAGE OBLIGATIONS (CONTINUED)
Bank of America Mortgage Securities
~Series 2003-D 1A2 3.428% 5/25/33 ....... $ 2,583 $ 2,586
~Series 2003-I 2A4 3.828% 10/25/33 ...... 80,513 80,042
~Series 2004-A 1A1 3.459% 2/25/34 ....... 22,321 22,175
~Series 2004-E 1A1 3.516% 6/25/34 ....... 48,177 47,363
~eries 2005-9 2A1 4.75% 10/25/20 ........ 48,768 47,636
~Series 2005-F 2A3 4.731% 7/25/35 ....... 65,848 64,963
~Series 2005-I 2A1 4.887% 10/25/35 ...... 38,933 38,445
~Bear Stearns Adjustable Rate
Mortgage Trust
Series 2005-7 1A2 4.75% 8/25/35 ........ 22,851 22,376
Series 2005-10 A1 4.75% 10/25/35 ....... 47,999 47,522
Chase Mortgage Finance Corporation
Series 2003-S8 A2 5.00% 9/25/18 .......... 90,864 89,727
Countrywide Alternative Loan Trust
Series 2004-28CB 6A1 6.00% 1/25/35 ....... 21,957 22,055
~Series 2004-J7 1A2 4.673% 8/25/34 ...... 44,377 44,217
~Series 2005-63 3A1 5.909% 11/25/35 ..... 58,563 58,837
Credit Suisse First Boston
Mortgage Securities
Series 2003-29 5A1 7.00% 12/25/33 ...... 25,512 26,070
Series 2004-1 3A1 7.00% 2/25/34 ........ 15,473 15,754
First Horizon Alternative
Mortgage Securities
Series 2004-FA1 1A1 6.25% 10/25/34 ..... 60,949 61,688
First Horizon Asset Securities
Series 2003-5 1A17 8.00% 7/25/33 ....... 19,475 20,374
~Series 2004-AR5 4A1 5.686% 10/25/34 .... 38,371 38,405
#GSMPS Mortgage Loan Trust 144A
Series 1998-3 A 7.75% 9/19/27 .......... 41,649 43,796
Series 2005-RP1 1A3 8.00% 1/25/35 ...... 31,328 33,304
Series 2005-RP1 1A4 8.50% 1/25/35 ...... 19,640 21,195
oIndymac Index Mortgage Loan Trust
Series 2005-AR25 1A21
5.908% 12/25/35 ........................ 49,602 50,021
oJP Morgan Mortgage Trust
Series 2005-A2 2A1 4.727% 4/25/35 ...... 51,923 51,582
Series 2005-A6 1A2 5.154% 9/25/35 ...... 60,000 59,684
Lehman Mortgage Trust
Series 2005-2 2A3 5.50% 12/25/35 ......... 49,312 49,544
~MASTR Adjustable Rate Mortgages Trust
Series 2003-6 1A2 2.909% 12/25/33 ...... 54,704 54,394
MASTR Alternative Loans Trust
Series 2003-6 3A1 8.00% 9/25/33 ........ 11,482 11,736
Series 2005-3 7A1 6.00% 4/25/35 ........ 55,905 56,298
#MASTR Reperforming Loan Trust 144A
Series 2005-1 1A5 8.00% 8/25/34 ........ 47,226 50,098
Series 2005-2 1A4 8.00% 5/25/35 ........ 22,484 23,805
#MASTR Specialized Loan Trust 144A
Series 2005-2 A2 5.15% 7/25/35 ........... 39,577 39,003
Balanced Series-9
DELAWARE VIP BALANCED SERIES
STATEMENT OF NET ASSETS (CONTINUED)
PRINCIPAL MARKET
AMOUNT VALUE
------------ ------------
(U.S. $) (U.S. $)
NON-AGENCY COLLATERALIZED
MORTGAGE OBLIGATIONS (CONTINUED)
Nomura Asset Acceptance
~Series 2004-AP2 A2 4.099% 7/25/34 ...... $ 2,733 $ 2,725
Series 2005-WF1 2A2 4.786% 3/25/35 ..... 65,000 64,204
Prime Mortgage Trust
Series 2004-2 A2 4.75% 11/25/19 ........ 48,182 47,207
Series 2004-CL1 1A1 6.00% 2/25/34 ...... 24,490 24,452
Residential Asset Mortgage Products
Series 2004-SL1 A3 7.00% 11/25/31 ...... 28,387 29,029
Series 2004-SL4 A3 6.50% 7/25/32 ....... 35,143 35,933
Series 2005-SL1 A2 6.00% 5/25/32 ....... 45,632 46,475
~Structured Adjustable Rate
Mortgage Loan Trust
Series 2004-18 5A 5.50% 12/25/34 ....... 40,678 40,500
Series 2005-3XS A2 4.629% 1/25/35 ...... 85,000 85,027
Structured Asset Securities
~Series 2002-22H 1A 6.983% 11/25/32 ....... 14,536 14,790
Series 2004-12H 1A 6.00% 5/25/34 ......... 51,754 51,738
~Thornburg Mortgage Securities Trust
2005-3 A1 4.609% 10/25/35 .............. 57,954 57,960
>Washington Mutual Alternative
Mortgage Pass-Through Certificates
Series 2005-9 3CB 5.50% 10/25/20 ....... 58,458 58,531
Washington Mutual
~Series 2003-AR4 A7 3.95% 5/25/33 ....... 26,807 26,219
~Series 2003-AR9 1A7 4.053% 9/25/33 ..... 38,013 37,296
Series 2004-CB3 4A 6.00% 10/25/19 ...... 75,296 76,661
~Series 2005-AR3 A1 4.65% 3/25/35 ......... 60,885 59,949
~Wells Fargo Mortgage Backed
Securities Trust
Series 2004-DD 2A3 4.521% 1/25/35 ...... 60,000 58,982
Series 2004-I 1A1 3.39% 7/25/34 ........ 63,239 63,252
Series 2004-T A1 3.451% 9/25/34 ........ 47,200 47,174
------------
TOTAL NON-AGENCY COLLATERALIZED MORTGAGE
OBLIGATIONS (COST $2,538,757) .......... 2,510,111
------------
U.S. TREASURY OBLIGATIONS-3.99%
^U.S. Treasury Bill 3.715% 3/30/06 ........ 80,000 79,250
*U.S. Treasury Bond 5.375% 2/15/31 ........ 165,000 185,392
U.S. Treasury Inflation Index Notes
80.875% 4/15/10 ........................ 105,142 99,988
1.875% 7/15/15 ......................... 15,361 15,111
82.00% 7/15/14 ......................... 68,686 68,324
3.00% 7/15/12 .......................... 127,400 134,746
U.S. Treasury Notes
*3.625% 6/30/07 ......................... 390,000 385,673
*3.75% 3/31/07 .......................... 70,000 69,426
*4.125% 8/15/10 ......................... 140,000 138,666
*4.375% 11/15/08 ........................ 100,000 100,047
*4.375% 12/15/10 ........................ 10,000 10,011
5.375% 2/15/31 .......................... 75,000 84,270
*^U.S. Treasury Strip 4.202% 11/15/13 ...... 220,000 155,359
------------
TOTAL U.S. TREASURY OBLIGATIONS
(COST $1,530,366) ...................... 1,526,263
------------
PRINCIPAL MARKET
AMOUNT VALUE
------------ ------------
(U.S. $) (U.S. $)
REPURCHASE AGREEMENTS-2.40%
With BNP Paribas 3.30% 1/03/06 (dated
12/30/05, to be repurchased at
$579,212, collateralized by $12,000
U.S. Treasury Bills due 1/26/06,
market value $11,858, $8,000 U.S.
Treasury Bills due 2/23/06, market
value $8,106, $16,000 U.S. Treasury
Bills due 5/4/06, market value
$15,863, $107,000 U.S. Treasury Bills
due 6/1/06, market value $105,298,
$300,000 U.S. Treasury Bills due
6/29/08, market value $294,110,
$107,000 U.S. Treasury Notes 2.625%
due 5/15/08, market value $102,817
and $53,000 U.S. Treasury Notes
3.125% due 5/15/07, market value
$52,788) ............................... $ 579,000 $ 579,000
With UBS Warburg 3.40% 1/03/06 (dated
12/30/05, to be repurchased at
$338,128, collateralized by $39,000
U.S. Treasury Notes 2.00% due
5/15/06, market value $39,043 and
$296,000 U.S. Treasury Notes 5.625%
due 5/15/08, market value $306,028) .... 338,000 338,000
------------
TOTAL REPURCHASE AGREEMENTS
(COST $917,000) ........................ 917,000
------------
TOTAL MARKET VALUE OF SECURITIES
BEFORE SECURITIES LENDING
COLLATERAL-102.72%
(COST $38,479,271) ..................... 39,270,304
------------
SECURITIES LENDING COLLATERAL**-7.63%
SHORT-TERM INVESTMENTS
FIXED RATE NOTES-1.81%
Citigroup Global Markets 4.29% 1/3/06 .... 602,323 602,323
Wilmington Trust Company
4.05% 1/5/06 ........................... 88,287 88,287
------------
690,610
------------
~VARIABLE RATE NOTES-5.82%
Abbey National 4.14% 1/13/06 ............. 65,332 65,341
ANZ National 4.31% 1/30/07 ............... 17,657 17,657
Australia New Zealand 4.35% 1/30/07 ...... 88,287 88,287
Bank of New York 4.33% 4/4/06 ............ 70,630 70,630
Bank of the West 4.27% 3/2/06 ............ 88,287 88,287
Bayerische Landesbank 4.40% 8/25/06 ...... 88,287 88,287
Bear Stearns
4.14% 1/17/06 .......................... 17,657 17,660
4.39% 6/30/06 .......................... 105,944 105,944
Beta Finance 4.33% 4/18/06 ............... 88,287 88,283
Canadian Imperial Bank 4.35% 1/30/07 ..... 44,143 44,144
CDC Financial Products 4.35% 1/30/06 ..... 114,773 114,773
Citigroup Global Markets 4.32% 1/6/06 .... 114,773 114,773
Balanced Series-10
DELAWARE VIP BALANCED SERIES
STATEMENT OF NET ASSETS (CONTINUED)
PRINCIPAL MARKET
AMOUNT VALUE
------------ ------------
(U.S. $) (U.S. $)
SECURITIES LENDING COLLATERAL** (CONTINUED)
SHORT-TERM INVESTMENTS (CONTINUED)
~VARIABLE RATE NOTES (CONTINUED)
Commonwealth Bank Australia
4.35% 1/30/07 .......................... $ 88,287 $ 88,287
Credit Suisse First Boston New York
4.35% 4/18/06 .......................... 95,350 95,350
Goldman Sachs 4.39% 1/2/07 ............... 114,773 114,773
Manufacturers & Traders
4.36% 9/26/06 .......................... 88,287 88,271
Marshall & Ilsley Bank
4.35% 1/30/07 .......................... 97,116 97,116
Merrill Lynch Mortgage Capital
4.35% 1/12/06 .......................... 114,773 114,773
Morgan Stanley 4.43% 1/2/07 .............. 109,476 109,476
National City Bank 4.31% 1/23/06 ......... 100,647 100,649
PRINCIPAL MARKET
AMOUNT VALUE
------------ ------------
(U.S. $) (U.S. $)
SECURITIES LENDING COLLATERAL** (CONTINUED)
SHORT-TERM INVESTMENTS (CONTINUED)
~VARIABLE RATE NOTES (CONTINUED)
Nordea Bank Norge ASA
4.34% 1/30/07 .......................... $ 88,287 $ 88,287
Proctor & Gamble 4.46% 1/30/07 ........... 88,287 88,287
Royal Bank of Scotland 4.34% 1/30/07 ..... 88,287 88,287
Sigma Finance 4.33% 3/16/06 .............. 26,486 26,487
Societe Generale NY 4.26% 1/30/07 ........ 44,143 44,143
Toyota Motor Credit 4.30% 6/23/06 ........ 88,287 88,291
Wells Fargo 4.36% 1/30/07 ................ 88,287 88,287
------------
2,224,830
------------
TOTAL SECURITIES LENDING COLLATERAL
(COST 2,915,440) ....................... 2,915,440
------------
Balanced Series-11
DELAWARE VIP BALANCED SERIES
STATEMENT OF NET ASSETS (CONTINUED)
TOTAL MARKET VALUE OF SECURITIES-110.35%
(COST $41,394,711) ....................................... $ 42,185,744@
OBLIGATION TO RETURN SECURITIES LENDING
COLLATERAL-(7.63%)** ..................................... (2,915,440)
LIABILITIES NET OF RECEIVABLES AND OTHER
ASSETS-(2.72%) ........................................... (1,038,054)
------------
NET ASSETS APPLICABLE TO 2,825,189 SHARES
OUTSTANDING-100.00% ...................................... $ 38,232,250
============
NET ASSET VALUE-DELAWARE VIP BALANCED SERIES
STANDARD CLASS ($38,227,147/ 2,824,811 SHARES) ........... $ 13.53
============
NET ASSET VALUE-DELAWARE VIP BALANCED SERIES
SERVICE CLASS ($5,103/ 377.5 SHARES) ..................... $ 13.52
============
COMPONENTS OF NET ASSETS AT DECEMBER 31, 2005
Shares of beneficial interest
(unlimited authorization-no par) ......................... $ 57,327,123
Undistributed net investment income ........................ 1,113,970
Accumulated net realized loss on investments ............... (21,001,111)
Net unrealized appreciation of investments ................. 792,268
------------
Total net assets ........................................... $ 38,232,250
============
- ----------
*Fully or partially on loan.
**See Note 9 in "Notes to Financial Statements."
@Includes $3,223,229 of securities loaned.
+Non-income producing security for the year ended December 31, 2005.
++Non-income producing security. Security is currently in default.
***Security is currently in default. The issue has missed the maturity date.
Bankruptcy proceedings are in process to determine distribution of assets.
The date listed is the estimate of when proceedings will be finalized.
^Zero coupon security. The interest rate shown is the yield at the time of
purchase.
~Variable rate securities. The interest rate shown is the rate as of
December 31, 2005.
^^Step coupon bond. Indicates security that has a zero coupon that remains in
effect until a predetermined date at which time the stated interest rate
becomes effective.
#Security exempt from registration under Rule 144A of the Securities
Act of 1933. At December 31, 2005, the aggregate amount of Rule 144A
securities equals $1,152,165, which represented 3.01% of the Series' net
assets. See Note 10 in "Notes to Financial Statements."
##Fully or partially pledged as collateral for financial futures contracts.
>Pass Through Agreement. Security represents the contractual right to receive
a proportionate amount of underlying payments due to the counterparty
pursuant to various agreements related to the rescheduling of obligations
and the exchange of certain notes.
>>Pre-Refunded Bonds. Municipals that are generally backed or secured by U.S.
Treasury bonds. For pre-refunded bonds, the stated maturity is followed by
the year in which the bond is pre-refunded. See Note 10 in "Notes to
Financial Statements."
SUMMARY OF ABBREVIATIONS:
AMBAC - Insured by the AMBAC Assurance Corporation
ARM - Adjustable Rate Mortgage
CPN - Coupon
FGIC - Insured by the Financial Guaranty Insurance Company
FSA - Insured by Financial Security Assurance
GNMA - Government National Mortgage Association
MBIA - Insured by the Municipal Bond Insurance Association
PRN - Principal only strip
REIT - Real Estate Investment Trust
S.F. - Single
Family TBA - To be announced yr - Year
The following financial futures contracts were outstanding at December 31, 2005:
FUTURES CONTRACTS(1)
UNREALIZED
CONTRACTS NOTIONAL NOTIONAL APPRECIATION
TO BUY (SELL) COST (PROCEEDS) VALUE EXPIRATION DATE (DEPRECIATION)
- ------------------------------ --------------- ------------- --------------- --------------
(2) U.S. Treasury 10 year note $ (218,663) $ (218,813) 3/31/06 $ (150)
1 U.S. Treasury long Bond 112,803 114,188 3/31/06 1,385
--------------
$ 1,235
==============
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.
(1)See Note 7 in "Notes to Financial Statements."
See accompanying notes
Balanced Series-12
DELAWARE VIP TRUST-DELAWARE VIP BALANCED SERIES
STATEMENT OF OPERATIONS
Year Ended December 31, 2005
INVESTMENT INCOME:
Interest ................................................... $ 786,243
Dividends .................................................. 599,420
Securities lending income .................................. 6,514
------------
1,392,177
------------
EXPENSES:
Management fees ............................................ 268,826
Reports and statements to shareholders ..................... 18,150
Legal and professional fees ................................ 16,471
Accounting and administration expenses ..................... 15,158
Pricing fees ............................................... 11,431
Custodian fees ............................................. 9,940
Dividend disbursing and transfer agent fees and expenses ... 4,136
Insurance fees ............................................. 3,139
Trustees' fees ............................................. 2,191
Taxes (other than taxes on income) ......................... 1,176
Registration fees .......................................... 96
Distribution expenses - Service Class ...................... 15
Other ...................................................... 3,295
------------
354,024
Less expenses absorbed or waived ........................... (23,627)
Less waiver of distribution expenses - Service Class ....... (3)
Less expense paid indirectly ............................... (1,389)
------------
Total expenses ............................................. 329,005
------------
NET INVESTMENT INCOME ...................................... 1,063,172
------------
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS:
Net realized gain (loss) on:
Investments .............................................. 3,667,195
Futures contracts ........................................ 1,951
Swap agreements .......................................... (7,811)
------------
Net realized gain .......................................... 3,661,335
------------
Net change in unrealized appreciation/depreciation
of investments ........................................... (3,243,861)
------------
NET REALIZED AND UNREALIZED GAIN ON
INVESTMENTS .............................................. 417,474
------------
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS .......................................... $ 1,480,646
============
See accompanying notes
DELAWARE VIP TRUST-DELAWARE VIP BALANCED SERIES
STATEMENTS OF CHANGES IN NET ASSETS
YEAR ENDED
----------------------------
12/31/05 12/31/04
------------ ------------
INCREASE (DECREASE) IN NET
ASSETS FROM OPERATIONS:
Net investment income ....................... $ 1,063,172 $ 927,212
Net realized gain on investments
and foreign currencies .................... 3,661,335 2,950,197
Net change in unrealized appreciation/
depreciation of investments and
foreign currencies ........................ (3,243,861) (1,260,941)
------------ ------------
Net increase in net assets
resulting from operations ................. 1,480,646 2,616,468
------------ ------------
DIVIDENDS AND DISTRIBUTIONS
TO SHAREHOLDERS FROM:
Net investment income:
Standard Class ............................ (993,690) (1,058,365)
Service Class ............................. (102) (88)
------------ ------------
(993,792) (1,058,453)
------------ ------------
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares sold:
Standard Class ............................ 672,726 940,760
Net asset value of shares issued upon
reinvestment of dividends and distributions:
Standard Class ............................ 993,690 1,058,365
Service Class ............................. 102 88
------------ ------------
1,666,518 1,999,213
------------ ------------
Cost of shares repurchased:
Standard Class ............................ (9,333,352) (11,382,473)
------------ ------------
Decrease in net assets derived from
capital share transactions ................ (7,666,834) (9,383,260)
------------ ------------
NET DECREASE IN NET ASSETS .................. (7,179,980) (7,825,245)
------------ ------------
NET ASSETS:
Beginning of year ........................... 45,412,230 53,237,475
------------ ------------
End of year (including undistributed
net investment income of $1,113,970 and
$993,558, respectively) ................... $ 38,232,250 $ 45,412,230
============ ============
See accompanying notes
Balanced Series-13
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
------------------------------------------------------------------
12/31/05 12/31/04 12/31/03 12/31/02 12/31/01
---------- ---------- ---------- ---------- ----------
Net asset value, beginning of period ..................... $ 13.360 $ 12.890 $ 11.170 $ 13.730 $ 15.230
INCOME (LOSS) FROM INVESTMENT OPERATIONS:
Net investment income(1) ................................. 0.341 0.245 0.211 0.258 0.329
Net realized and unrealized gain (loss) on investments
and foreign currencies ................................. 0.135 0.493 1.872 (2.430) (1.494)
---------- ---------- ---------- ---------- ----------
Total from investment operations ......................... 0.476 0.738 2.083 (2.172) (1.165)
---------- ---------- ---------- ---------- ----------
LESS DIVIDENDS AND DISTRIBUTIONS FROM:
Net investment income .................................... (0.306) (0.268) (0.363) (0.388) (0.335)
---------- ---------- ---------- ---------- ----------
Total dividends and distributions ........................ (0.306) (0.268) (0.363) (0.388) (0.335)
---------- ---------- ---------- ---------- ----------
Net asset value, end of period ........................... $ 13.530 $ 13.360 $ 12.890 $ 11.170 $ 13.730
========== ========== ========== ========== ==========
Total return(2) .......................................... 3.68% 5.84% 19.21% (16.27)% (7.66)%
RATIOS AND SUPPLEMENTAL DATA:
Net assets, end of period (000 omitted) .................. $ 38,227 $ 45,407 $ 53,233 $ 54,789 $ 90,377
Ratio of expenses to average net assets .................. 0.80% 0.77% 0.77% 0.75% 0.73%
Ratio of expenses to average net assets prior to expense
limitation and expenses paid indirectly ................ 0.85% 0.77% 0.77% 0.76% 0.73%
Ratio of net investment income to average net assets ..... 2.57% 1.91% 1.80% 2.10% 2.37%
Ratio of net investment income to average net assets prior
to expense limitation and expenses paid indirectly ..... 2.52% 1.91% 1.80% 2.09% 2.37%
Portfolio turnover ....................................... 200% 247% 231% 303% 336%
- ----------
(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
Balanced Series-14
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 STANDARD CLASS
YEAR ENDED
------------------------------------------------------------------
12/31/05 12/31/04 12/31/03 12/31/02 12/31/01
---------- ---------- ---------- ---------- ----------
Net asset value, beginning of period ..................... $ 13.340 $ 12.880 $ 11.170 $ 13.720 $ 15.230
INCOME (LOSS) FROM INVESTMENT OPERATIONS:
Net investment income(1) ................................. 0.310 0.214 0.186 0.238 0.308
Net realized and unrealized gain (loss) on investments
and foreign currencies ................................. 0.145 0.488 1.867 (2.421) (1.498)
---------- ---------- ---------- ---------- ----------
Total from investment operations ......................... 0.455 0.702 2.053 (2.183) (1.190)
---------- ---------- ---------- ---------- ----------
LESS DIVIDENDS AND DISTRIBUTIONS FROM:
Net investment income .................................... (0.275) (0.242) (0.343) (0.367) (0.320)
---------- ---------- ---------- ---------- ----------
Total dividends and distributions ........................ (0.275) (0.242) (0.343) (0.367) (0.320)
---------- ---------- ---------- ---------- ----------
Net asset value, end of period ........................... $ 13.520 $ 13.340 $ 12.880 $ 11.170 $ 13.720
========== ========== ========== ========== ==========
Total return(2) .......................................... 3.51% 5.55% 18.90% (16.40)% (7.76)%
RATIOS AND SUPPLEMENTAL DATA:
Net assets, end of period (000 omitted) .................. $ 5 $ 5 $ 5 $ 4 $ 5
Ratio of expenses to average net assets .................. 1.05% 1.02% 0.99% 0.90% 0.88%
Ratio of expenses to average net assets prior to expense
limitation and expenses paid indirectly ................ 1.15% 1.07% 1.02% 0.91% 0.88%
Ratio of net investment income to average net assets ..... 2.32% 1.66% 1.58% 1.95% 2.22%
Ratio of net investment income to average net assets prior
to expense limitation and expenses paid indirectly ..... 2.22% 1.61% 1.55% 1.94% 2.22%
Portfolio turnover ....................................... 200% 247% 231% 303% 336%
- ----------
(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 and distributor, as applicable. Performance would have
been lower had the expense limitation not been in effect.
See accompanying notes
Balanced Series-15
DELAWARE VIP TRUST-DELAWARE VIP BALANCED SERIES
NOTES TO FINANCIAL STATEMENTS
December 31, 2005
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 REIT Series,
Delaware VIP Select Growth Series, Delaware VIP Small Cap Value Series, Delaware
VIP Trend Series, Delaware VIP U.S. Growth Series and Delaware VIP Value Series.
These financial statements and the related notes pertain to Delaware VIP
Balanced Series (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 U.S. generally accepted
accounting principles and are consistently followed by the Series.
Security Valuation--Equity securities, except those traded on the Nasdaq Stock
Market, Inc. (Nasdaq), are valued at the last quoted sales price as of the time
of the regular close of the New York Stock Exchange (NYSE) on the valuation
date. Securities traded on the Nasdaq are valued in accordance with the Nasdaq
Official Closing Price, which may not be the last sales price. If on a
particular day an equity security does not trade, then the mean between the bid
and asked prices will be used. U.S. government and agency securities are valued
at the mean between the bid and asked prices. Other long-term debt securities
are valued by an independent pricing service and such prices are believed to
reflect the fair value of such securities. Short-term debt securities having
less than 60 days to maturity are valued at amortized cost, which approximates
market value. Securities lending collateral is valued at amortized cost, which
approximates market value. Futures contracts and options on futures contracts
are valued at the daily quoted settlement prices. Exchange-traded options are
valued at the last reported sale price or, if no sales are reported, at the mean
between the last reported bid and asked prices. Swap 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 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 pursuant to an
exemptive order issued by the Securities and Exchange Commission. The aggregate
daily balance of the pooled cash account is invested in repurchase agreements
secured by obligations of the U.S. government. The respective collateral is held
by the Series' custodian bank until the maturity of the respective repurchase
agreements. Each repurchase agreement is 102% collateralized. However, in the
event of default or bankruptcy by the counterparty to the agreement, realization
of the collateral may be subject to legal proceedings.
Use of Estimates--The preparation of financial statements in conformity with
U.S. generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from those estimates.
Other--Expenses common to all funds within the Delaware Investments Family of
Funds are allocated amongst the funds on the basis of average net assets.
Management fess and some other expenses are paid monthly. Security transactions
are recorded on the date the securities are purchased or sold (trade date) for
financial reporting purposes. Costs used in calculating realized gains and
losses on the sale of investment securities are those of the specific securities
sold. Dividend income is recorded on the ex-dividend date and interest income is
recorded on the accrual basis. Discounts and premiums are amortized to interest
income over the lives of the respective securities. Realized gains (losses) on
paydowns of mortgage- and asset-backed securities are classified as interest
income.
The Series declares and pays dividends from net investment income and
distributions from net realized gain on investments, if any, following the close
of the fiscal year.
Subject to seeking best execution, the Series may direct certain security trades
to brokers who have agreed to rebate a portion of the related brokerage
commission to the Series in cash. There were no commission rebates during the
year ended December 31, 2005. In general, best execution refers to many factors,
including the price paid or received for a security, the commission charged, the
promptness and reliability of execution, the confidentiality and placement
accorded the order, and other factors affecting the overall benefit obtained by
the Series on the transaction.
The Series receives earnings credits from its custodian when positive cash
balances are maintained, which are used to offset custody fees. The expense paid
under the above arrangement is included in custodian fees on the Statement of
Operations with the corresponding expense offset shown as "expense paid
indirectly."
2. INVESTMENT MANAGEMENT, ADMINISTRATION AGREEMENTS AND OTHER TRANSACTIONS WITH
AFFILIATES
In accordance with the terms of its investment management agreement, the Series
pays Delaware Management Company (DMC), a series of Delaware Management Business
Trust and the investment manager, an annual fee which is calculated daily at the
rate of 0.65% on the first $500 million of average daily net assets of the
Series, 0.60% on the next $500 million, 0.55% on the next $1.5 billion, and
0.50% on average daily net assets in excess of $2.5 billion.
Balanced Series-16
DELAWARE VIP BALANCED 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 June 30, 2006.
Delaware Service Company, Inc. (DSC), an affiliate of DMC, provides accounting,
administration, dividend disbursing and transfer agent services. Effective May
19, 2005, the Series pays DSC a monthly fee computed at the annual rate of 0.04%
of the Series' average daily net assets for accounting and administrative
services. Prior to May 19, 2005, the Series paid 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 distribution and service fee not to exceed 0.30% of the average daily net
assets of the Service Class shares. DDLP has contracted to waive distribution
and service fees through June 30, 2006 in order to prevent distribution and
service fees of the Service Class shares from exceeding 0.25% of average daily
net assets. Standard Class shares pay no distribution and service expenses.
At December 31, 2005, the Series had liabilities payable to affiliates as
follows:
DIVIDEND DISBURSING, OTHER
INVESTMENT TRANSFER AGENT, ACCOUNTING EXPENSES
MANAGEMENT AND ADMINISTRATION FEES DISTRIBUTION PAYABLE
FEE PAYABLE TO AND OTHER EXPENSES FEE PAYABLE TO DMC
DMC PAYABLE TO DSC TO DDLP AND AFFILIATES*
-------------- --------------------------- ------------ ---------------
$7,064 $2,033 $2 $26,779
- ----------
*DMC, as part of its administrative services, pays operating expenses on behalf
of the Series and is reimbursed on a periodic basis. Such expenses include items
such as printing of shareholder reports, fees for audit, legal and tax services,
custodian fees and trustees' fees.
As provided in the investment management agreement, the Series bears the cost of
certain legal services expenses, including internal legal services provided to
the Series by DMC employees. For the year ended December 31, 2005, the Series
was charged $2,568 for internal legal services provided by DMC.
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, 2005, the Series made purchases and sales of
investment securities other than short-term investments as follows:
Purchases other than U.S. government securities $ 70,261,087
Purchases of U.S. government securities 12,428,407
Sales other than U.S. government securities 76,422,864
Sales of U.S. government securities 13,105,345
At December 31, 2005, the cost of investments for federal income tax purposes
and unrealized appreciation (depreciation) for the Series were as follows:
AGGREGATE AGGREGATE
COST OF UNREALIZED UNREALIZED NET UNREALIZED
INVESTMENTS APPRECIATION DEPRECIATION APPRECIATION
------------ ------------ ------------ --------------
$41,486,291 $2,012,831 $(1,313,378) $699,453
4. DIVIDEND AND DISTRIBUTION INFORMATION
Income and long-term capital gain distributions are determined in accordance
with federal income tax regulations, which may differ from U.S. generally
accepted accounting principles. Additionally, gains (losses) on foreign currency
transactions and net short-term gains on sales of investment securities are
treated as ordinary income for federal income tax purposes. The tax character of
dividends and distributions paid during the years ended December 31, 2005 and
2004 was as follows:
YEAR YEAR
ENDED ENDED
12/31/05 12/31/04
--------- -----------
Ordinary income ......... $993,792 $1,058,453
Balanced Series-17
DELAWARE VIP BALANCED SERIES
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
4. DIVIDEND AND DISTRIBUTION INFORMATION (CONTINUED)
As of December 31, 2005, the components of net assets on a tax basis were as
follows:
Shares of beneficial interest.................. $57,327,123
Undistributed ordinary income.................. 1,121,068
Post-October losses............................ (5,438)
Capital loss carryforwards..................... (20,909,956)
Unrealized appreciation of investments......... 699,453
------------
Net assets..................................... $38,232,250
============
The differences between book basis and tax basis components of net assets are
primarily attributable to tax deferral of losses on wash sales, mark-to-market
of futures contracts, tax treatment of market discount and premium on debt
instruments and tax treatment of contingent payment debt instruments.
Post-October losses represent losses realized on investment transactions from
November 1, 2005 through December 31, 2005 that, in accordance with federal
income tax regulations, the Series has elected to defer and treat as having
arisen in the following fiscal year.
For financial reporting purposes, capital accounts are adjusted to reflect the
tax character of permanent book/tax differences. Reclassifications are primarily
due to tax treatment of gain (loss) on paydowns of mortgage- and asset-backed
securities and market discount and premium on certain debt instruments. Results
of operations and net assets were not affected by these reclassifications. For
the year ended December 31, 2005, the Series recorded the following
reclassifications.
UNDISTRIBUTED ACCUMULATED
NET NET REALIZED
INVESTMENT INCOME GAIN (LOSS)
----------------- ------------
$51,032 $(51,032)
For federal income tax purposes, capital loss carryforwards may be carried
forward and applied against future capital gains. $3,374,408 was utilized in
2005. Capital loss carryforwards remaining at December 31, 2005 will expire as
follows: $2,831,626 expires in 2008, $8,028,969 expires in 2009, $9,576,012
expires in 2010 and $473,349 expires in 2011.
5. CAPITAL SHARES
Transactions in capital shares were as follows:
YEAR YEAR
ENDED ENDED
12/31/05 12/31/04
--------- ---------
Shares sold:
Standard Class.................................... 51,036 74,219
Shares issued upon reinvestment of dividends
and distributions:
Standard Class.................................... 77,210 83,731
Service Class..................................... 8 7
--------- ---------
128,254 157,957
--------- ---------
Shares repurchased:
Standard Class....................................... (703,125) (888,312)
--------- ---------
Net decrease......................................... (574,871) (730,355)
========= =========
Balanced Series-18
DELAWARE VIP BALANCED SERIES
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
6. LINE OF CREDIT
The Series, along with certain other funds in the Delaware Investments Family of
Funds (the "Participants"), participates in a $225,000,000 revolving line of
credit facility to be used for temporary or emergency purposes as an additional
source of liquidity to fund redemptions of investor shares. The Participants are
charged an annual commitment fee, which is allocated across the Participants on
the basis of each 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, 2005, 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 include potential
imperfect correlation between the futures contracts and the underlying
securities and the possibility of an illiquid secondary market for these
instruments.
8. SWAP AGREEMENTS
During the year ended December 31, 2005, 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 swap agreements were outstanding at December 31, 2005.
9. SECURITIES LENDING
The Series, along with other funds in the Delaware Investments Family of Funds,
may lend its securities pursuant to a security lending agreement (Lending
Agreement) with 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 to return loaned securities and the collateral received
is insufficient to cover the value of the loaned securities and provided such
collateral shortfall is not the result of investment losses, the lending agent
has agreed to pay the amount of the shortfall to the Series, or at the
discretion of the lending agent, replace the loaned securities. The Series
continues to record dividends on the securities loaned and is subject to change
in value of the securities loaned that may occur during the term of the loan.
The Series has the right under the Lending Agreement to recover the securities
from the borrower on demand. With respect to security loans collateralized by
U.S. Treasury obligations the Series receives a fee from the securities lending
agent. With respect to security loans collateralized by cash collateral, the
earnings from the collateral investments are shared among the Series, the
security lending agent and the borrower. The Series records securities lending
income net of allocations to the security lending agent and the borrower.
At December 31, 2005, the market value of the securities on loan was $3,223,229,
for which the Series received securities collateral, comprised of U.S.
government obligations valued at $1,455,975, and cash collateral of $1,767,254.
Investments purchased with cash collateral are presented on the Statement of Net
Assets under the caption "Securities Lending Collateral."
10. CREDIT AND MARKET RISK
The Series invests in 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.
Balanced Series-19
DELAWARE VIP BALANCED SERIES
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
10. CREDIT AND MARKET RISK (CONTINUED)
The Series may invest in advanced refunded bonds, escrow secured bonds or
defeased bonds. Under current federal tax laws and regulations, state and local
government borrowers are permitted to refinance outstanding bonds by issuing new
bonds. The issuer refinances the outstanding debt to either reduce interest
costs or to remove or alter restrictive covenants imposed by the bonds being
refinanced. A refunding transaction where the municipal securities are being
refunded within 90 days or less from the issuance of the refunding issue is
known as a "current refunding". "Advance refunded bonds" are bonds in which the
refunded bond issue remains outstanding for more than 90 days following the
issuance of the refunding issue. In an advance refunding, the issuer will use
the proceeds of a new bond issue to purchase high grade interest bearing debt
securities which are then deposited in an irrevocable escrow account held by an
escrow agent to secure all future payments of principal and interest and bond
premium of the advance refunded bond. Bonds are "escrowed to maturity" when the
proceeds of the refunding issue are deposited in an escrow account for
investment sufficient to pay all of the principal and interest on the original
interest payment and maturity dates.
Bonds are considered "pre-refunded" when the refunding issue's proceeds are
escrowed only until a permitted call date or dates on the refunded issue with
the refunded issue being redeemed at the time, including any required premium.
Bonds become "defeased" when the rights and interests of the bondholders and of
their lien on the pledged revenues or other security under the terms of the bond
contract and are substituted with an alternative source of revenues (the escrow
securities) sufficient to meet payments of principal and interest to maturity or
to the first call dates. Escrowed secured bonds will often receive a rating of
AAA from Moody's, S&P, and/or Fitch due to the strong credit quality of the
escrow securities and the irrevocable nature of the escrow deposit agreement.
The Series may invest up to 10% of its total assets in illiquid securities,
which may include securities with contractual restrictions on resale, securities
exempt from registration under Rule 144A of the Securities Act of 1933, as
amended, and other securities which may not be readily marketable. The relative
illiquidity of these securities may impair the Series from disposing of them in
a timely manner and at a fair price when it is necessary or desirable to do so.
While maintaining oversight, the Board of Trustees has delegated to DMC the
day-to-day functions of determining whether individual securities are liquid for
purposes of the Series' limitation on investments in illiquid assets. At
December 31, 2005, no securities have been determined to be illiquid under the
Series' Liquidity Procedures.
11. CONTRACTUAL OBLIGATIONS
The Series enters into contracts in the normal course of business that contain a
variety of indemnifications. The Series' maximum exposure under these
arrangements is unknown. However, the Series has not had prior claims or losses
pursuant to these contracts. Management has reviewed the Series' existing
contracts and expects the risk of loss to be remote.
12. TAX INFORMATION (UNAUDITED)
For the fiscal year ended December 31, 2005, the Series designates distributions
paid during the year as follows:
(A) (B)
LONG-TERM ORDINARY
CAPITAL GAIN INCOME TOTAL (C)
DISTRIBUTIONS DISTRIBUTIONS DISTRIBUTIONS QUALIFYING
(TAX BASIS) (TAX BASIS) (TAX BASIS) DIVIDENDS(1)
------------- ------------- ------------- ------------
- 100% 100% 50%
- ----------
(A) and (B) are based on a percentage of the Series' total distributions.
(C) is based on a percentage of the Series' ordinary income distributions.
(1) Qualifying dividends represent dividends which qualify for the corporate
dividends received deduction.
Balanced Series-20
DELAWARE VIP TRUST-DELAWARE VIP BALANCED SERIES
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and Board of Trustees
Delaware VIP Trust-Delaware VIP Balanced Series
We have audited the accompanying statement of net assets of the Delaware VIP
Balanced Series (one of the series constituting Delaware VIP Trust) (the
"Series") as of December 31, 2005, 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
five years in the period then ended. 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 the standards of the Public Company
Accounting Oversight Board (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. We were
not engaged to perform an audit of the Series' internal control over financial
reporting. Our audits included consideration of internal control over financial
reporting as a basis for designing audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion on the
effectiveness of the Series' internal control over financial reporting.
Accordingly, we express no such opinion. An audit also includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements and financial highlights, assessing the accounting principles used
and significant estimates made by management, and evaluating the overall
financial statement presentation. Our procedures included confirmation of
securities owned as of December 31, 2005, by correspondence with the custodian
and brokers or by other appropriate auditing procedures where replies from
brokers were not received. 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 the
Delaware VIP Balanced Series of Delaware VIP Trust at December 31, 2005, 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 five years in the period then ended, in conformity with U.S.
generally accepted accounting principles.
Ernst & Young LLP
Philadelphia, Pennsylvania
February 10, 2006
The Series files its complete schedule of portfolio holdings with the Securities
and Exchange Commission for the first and third quarters of each fiscal year on
Form N-Q. The Series' Forms N-Q, as well as a description of the policies and
procedures that the Series uses to determine how to vote proxies (if any)
relating to portfolio securities is available without charge (i) upon request,
by calling 800-523-1918; (ii) on the Series' website at
http://www.delawareinvestments.com; and (iii) on the Commission's website at
http://www.sec.gov. The Series' Forms N-Q may be reviewed and copied at the
Commission's Public Reference Room in Washington, DC; information on the
operation of the Public Reference Room may be obtained by calling
1-800-SEC-0330. Information (if any) regarding how the Series voted proxies
relating to portfolio securities during the most recently disclosed 12-month
period ended June 30 is available without charge (i) through the Series' website
at http://www.delawareinvestments.com; and (ii) on the Commission's website at
http://www.sec.gov.
Balanced Series-21
DELAWARE INVESTMENTS(R)FAMILY OF FUNDS
BOARD OF TRUSTEES/DIRECTORS AND OFFICERS ADDENDUM
A mutual fund is governed by a Board of Trustees/Directors ("Trustees"), which
has oversight responsibility for the management of a fund's business affairs.
Trustees establish procedures and oversee and review the performance of the
investment manager, the distributor and others who perform services for the
fund. The independent fund trustees, in particular, are advocates for
shareholder interests. Each trustee has served in that capacity since he or she
was elected to or appointed to the Board of Trustees, and will continue to serve
until his or her retirement or the election of a new trustee in his or her
place. The following is a list of the Trustees 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 TRUSTEE
AND BIRTHDATE FUND(S) SERVED PAST 5 YEARS OR OFFICER OR OFFICER
- ----------------------- ------------------ -------------------- ---------------------------- ------------------ --------------
INTERESTED TRUSTEES
JUDE T. DRISCOLL(2) Chairman, 5 Years - Since August 2000, 87 None
2005 Market Street President, Executive Officer Mr. Driscoll has served in
Philadelphia, PA Chief Executive various executive capacities
19103 Officer and 2 Years - at different times at
Trustee Trustee Delaware Investments(1)
March 10, 1963
INDEPENDENT TRUSTEES
THOMAS L. BENNETT Trustee Since Private Investor - 87 None
2005 Market Street March 23, 2005 (March 2004 - Present)
Philadelphia, PA
19103 Investment Manager -
Morgan Stanley & Co.
October 4, 1947 (January 1984 - March 2004)
JOHN A. FRY Trustee 4 Years President - 87 Director -
2005 Market Street Franklin & Marshall College Community
Philadelphia, PA (June 2002 - Present) Health Systems
19103
Executive Vice President -
May 28, 1960 University of Pennsylvania
(April 1995 - June 2002)
ANTHONY D. KNERR Trustee 12 Years Founder/Managing Director - 87 None
2005 Market Street Anthony Knerr & Associates
Philadelphia, PA (Strategic Consulting)
19103 (1990 - Present)
December 7, 1938
LUCINDA S. LANDRETH Trustee Since Chief Investment Officer - 87 None
2005 Market Street March 23, 2005 Assurant, Inc.
Philadelphia, PA (Insurance)
19103 (2002 - 2004)
June 24, 1947
ANN R. LEVEN Trustee 16 Years Treasurer/Chief Fiscal 87 Director and
2005 Market Street Officer - National Audit Committee
Philadelphia, PA Gallery of Art Chairperson
19103 (1994 - 1999) Andy Warhol
Foundation
November 1, 1940 Director and
Audit
Committee
Member
Systemax Inc.
Balanced Series-22
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 TRUSTEE
AND BIRTHDATE FUND(S) SERVED PAST 5 YEARS OR OFFICER OR OFFICER
- ----------------------- ------------------ -------------------- ---------------------------- ------------------ --------------
INDEPENDENT TRUSTEES
(CONTINUED)
THOMAS F. MADISON Trustee 11 Years President/Chief 87 Director -
2005 Market Street Executive Officer Banner Health
Philadelphia, PA MLM Partners, Inc.
19103 (Small Business Investing Director -
and Consulting) CenterPoint
February 25, 1936 (January 1993 - Present) Energy
Director and
Audit
Committee
Member -
Digital River
Inc.
Director and
Audit
Committee
Member -
Rimage
Corporation
Director -
Valmont
Industries,
Inc.
JANET L. YEOMANS Trustee 6 Years Vice President 87 None
2005 Market Street (January 2003 - Present)
Philadelphia, PA and Treasurer
19103 (January 2006 - Present)
3M Corporation
July 31, 1948
Ms. Yeomans has held
various management positions
at 3M Corporation
since 1983.
J. RICHARD ZECHER Trustee Since Founder - 87 Director and
2005 Market Street March 23, 2005 Investor Analytics Audit
Philadelphia, PA (Risk Management) Committee
19103 (May 1999 - Present) Member -
Investor
Analytics
Director and
July 3, 1940 Audit
Committee
Member -
Oxigene, Inc.
OFFICERS
MICHAEL P. BISHOF Senior Chief Financial Mr. Bishof has served in 87 None(3)
2005 Market Street Vice President Officer since various executive capacities
Philadelphia, PA and February 17, 2005 at different times at
19103 Chief Financial Delaware Investments.
Officer
August 18, 1962
DAVID F. CONNOR Vice President, Vice President since Mr. Connor has served as 87 None(3)
2005 Market Street Deputy General September 21, 2000 Vice President and Deputy
Philadelphia, PA Counsel and and Secretary General Counsel of Delaware
19103 Secretary since Investments since 2000.
October 25, 2005
December 2, 1963
DAVID P. O'CONNOR Senior Vice Senior Vice President, Mr. O'Connor has served in 87 None(3)
2005 Market Street President, General Counsel and various executive and legal
Philadelphia, PA General Counsel Chief Legal Officer capacities at different time
19103 and Chief since at Delaware Investments.
Legal Officer October 25, 2005
February 21, 1966
JOHN J. O'CONNOR Senior Vice Treasurer Mr. O'Connor has served in 87 None(3)
2005 Market Street President and since various executive capacities
Philadelphia, PA Treasurer February 17, 2005 at different times at
19103 Delaware Investments.
June 16, 1957
(1)Delaware Investments is the marketing name for Delaware Management Holdings,
Inc. and its subsidiaries, including the Fund's(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(s') manager and distributor.
(3)Mr. Bishof, Mr. Connor, Mr. David P. O'Connor and Mr. John J. O'Connor serve
in similar capacities for the six portfolios of the Optimum Fund Trust, which
have the same investment advisor, principal underwriter, and transfer agent
as the registrant. Mr. John J. O'Connor also serves in a similar capacity for
Lincoln Variable Insurance Products Trust, which has the same investment
advisor as the registrant.
The Statement of Additional Information for the Fund(s) includes additional
information about the Trustees and Officers and is available, without charge,
upon request by calling 800 523-1918.
Balanced Series-23
DELAWARE VIP TRUST - DELAWARE VIP CAPITAL RESERVES SERIES
Delaware VIP Capital Reserves Series Standard Class shares returned +1.79%
and its Service Class shares returned +1.35% (both figures reflect all
distributions reinvested) for the fiscal year ended December 31, 2005. By
comparison, the Series' benchmark, the Lehman Brothers Intermediate
Government/Credit Index, gained +2.37% during the same time period. Our heavier
weighting versus the benchmark, in corporate bonds in general provided a source
of positive return, as the asset class posted the best excess return among the
index sectors. More specifically, our overweighting in lower quality BBB-rated
bonds relative to the benchmark generated positive performance late in the year
as investors continued to search for incremental yield among investment-grade
corporate bonds.
At year end, we had the portfolio positioned with the anticipation that
over the next six to nine months, positive economic growth and corporate
earnings would continue to trend upward, but at a declining rate. We anticipate
that volatility will remain at relatively low levels, providing a backdrop for
potential outperformance in non-Treasury sectors. Despite the positive economic
backdrop, valuations in all spread sectors are at the higher end of their
ranges. In 2006, we intend to reduce our exposure to non-Treasury sectors.
DELAWARE VIP
CAPITAL RESERVES SERIES
AVERAGE ANNUAL TOTAL RETURNS
For the periods ended December 31, 2005
Div Inc Lehman
--------- ----------
DEC 95 $ 10,000 $ 10,000
DEC 96 $ 10,405 $ 10,290
DEC 97 $ 11,196 $ 11,294
DEC 98 $ 11,938 $ 12,364
DEC 99 $ 11,970 $ 12,098
DEC 00 $ 12,981 $ 13,532
DEC 01 $ 14,061 $ 14,682
DEC 02 $ 15,062 $ 16,303
DEC 03 $ 15,756 $ 17,064
DEC 04 $ 16,334 $ 17,779
DEC 05 $ 16,643 $ 18,200
STANDARD CLASS SERVICE CLASS
SHARES* SHARES**
-------------- ---------------
LIFETIME +6.13% +5.57%
TEN YEAR +5.23% --
FIVE YEAR +5.06% +4.74%
ONE YEAR +1.79% +1.35%
* 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 the Delaware VIP Capital Reserves Series
Standard Class shares and the Lehman Brothers Intermediate Government/Credit
Index for the 10-year period from December 31, 1995 through December 31, 2005.
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 was in effect for the Delaware VIP
Capital Reserves Series Service Class shares 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.
Capital Reserves-1
DELAWARE VIP TRUST-DELAWARE VIP CAPITAL RESERVES SERIES
DISCLOSURE OF SERIES EXPENSES
For the period July 1, 2005 to December 31, 2005
As a shareholder of the Series, you incur ongoing costs, including management
fees; distribution and/or service (12b-1) fees; and other Series expenses. This
Example is intended to help you understand your ongoing costs (in dollars) of
investing in the Series and to compare these costs with the ongoing costs of
investing in other mutual funds.
The Example is based on an investment of $1,000 invested at the beginning of the
period and held for the entire period from July 1, 2005 to December 31, 2005.
ACTUAL EXPENSES
The first section of the table shown, "Actual Series Return," provides
information about actual account values and actual expenses. You may use the
information in this section of the table, together with the amount you invested,
to estimate the expenses that you paid over the period. Simply divide your
account value by $1,000 (for example, an $8,600 account value divided by $1,000
= 8.6), then multiply the result by the number in the first section under the
heading entitled "Expenses Paid During Period" to estimate the expenses you paid
on your account during the period.
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The second section of the table shown, "Hypothetical 5% Return," provides
information about hypothetical account values and hypothetical expenses based on
the Series' actual expense ratio and an assumed rate of return of 5% per year
before expenses, which is not the Series' actual return. The hypothetical
account values and expenses may not be used to estimate the actual ending
account balance or expenses you paid for the period. You may use this
information to compare the ongoing costs of investing in the Series and other
funds. To do so, compare the 5% hypothetical example with the 5% hypothetical
examples that appear in the shareholder reports of other funds.
Please note that the expenses shown in the table are meant to highlight your
ongoing costs only. As a shareholder of the Series, you do not incur any
transaction costs, such as sales charges (loads), redemption fees or exchange
fees, but shareholders of other funds may incur such costs. Also, the fees
related to the variable annuity investment or the deferred sales charge that
could apply have not been included. Therefore, the second section of the table
is useful in comparing ongoing costs only, and will not help you determine the
relative total costs of owning different funds. The Series' actual expenses
shown in the table reflect fee waivers in effect for Service Class shares. The
expenses shown in the table assume reinvestment of all dividends and
distributions.
EXPENSE ANALYSIS OF AN INVESTMENT OF $1,000
EXPENSES
PAID DURING
BEGINNING ENDING PERIOD
ACCOUNT ACCOUNT ANNUALIZED 7/1/05 TO
VALUE VALUE EXPENSE 12/31/05*
7/1/05 12/31/05 RATIOS
---------- ---------- ---------- -----------
ACTUAL SERIES RETURN
Standard Class $1,000.00 $1,002.00 0.73% $3.68
Service Class 1,000.00 999.70 0.98% 4.94
- ---------------------------------------------------------------------------------------------------------
HYPOTHETICAL 5% RETURN (5% RETURN BEFORE EXPENSES)
Standard Class $1,000.00 $1,021.53 0.73% $3.72
Service Class 1,000.00 1,020.27 0.98% 4.99
- ---------------------------------------------------------------------------------------------------------
*"Expenses Paid During Period" are equal to the Series' annualized expense
ratio, multiplied by the average account value over the period, multiplied by
184/365 (to reflect the one-half year period).
Capital Reserves-2
DELAWARE VIP TRUST-DELAWARE VIP CAPITAL RESERVES SERIES
SECTOR ALLOCATION
As of December 31, 2005
Sector designations may be different than the sector designations presented in
other Series materials.
PERCENTAGE
SECTOR OF NET ASSETS
- ------------------------------------------------------- -------------
AGENCY ASSET-BACKED SECURITIES 0.67%
-------------
AGENCY COLLATERALIZED MORTGAGE OBLIGATIONS 4.26%
-------------
AGENCY MORTGAGE-BACKED SECURITIES 11.94%
-------------
AGENCY OBLIGATIONS 1.35%
-------------
COMMERCIAL MORTGAGE-BACKED SECURITIES 1.13%
-------------
CORPORATE BONDS 22.16%
-------------
Banking 1.21%
Basic Industry 0.50%
Brokerage 1.27%
Capital Goods 0.21%
Communications 2.60%
Consumer Cyclical 3.93%
Consumer Non-Cyclical 2.44%
Electric 2.95%
Energy 0.36%
Finance Companies 1.34%
Insurance 2.31%
Natural Gas 0.51%
Real Estate 0.34%
Technology 0.46%
Transportation 1.73%
-------------
NON-AGENCY ASSET-BACKED SECURITIES 24.08%
-------------
NON-AGENCY COLLATERALIZED MORTGAGE OBLIGATIONS 12.05%
-------------
U.S. TREASURY OBLIGATIONS 16.44%
-------------
REPURCHASE AGREEMENTS 2.00%
-------------
TOTAL MARKET VALUE OF SECURITIES 96.08%
-------------
RECEIVABLES AND OTHER ASSETS NET OF LIABILITIES 3.92%
-------------
TOTAL NET ASSETS 100.00%
-------------
Capital Reserves-3
DELAWARE VIP TRUST-DELAWARE VIP CAPITAL RESERVES SERIES
STATEMENT OF NET ASSETS
December 31, 2005
PRINCIPAL MARKET
AMOUNT VALUE
------------ -----------
AGENCY ASSET-BACKED SECURITIES-0.67%
~Fannie Mae Grantor Trust
Series 2004-T4 A2 3.93% 2/25/20 ............. $ 18,671 $ 18,613
Series 2004-T4 A3 4.42% 8/25/24 ............. 70,000 69,702
~>FHLMC Structured Pass Through
Securities Series T-30 A5
7.61% 12/25/30 .............................. 46,449 46,420
Nelnet Education Loan Funding
Series 2001-A A1 5.76% 7/1/12 ............... 53,750 54,596
-----------
TOTAL AGENCY ASSET-BACKED SECURITIES
(COST $190,441) ................................ 189,331
-----------
AGENCY COLLATERALIZED MORTGAGE OBLIGATIONS-4.26%
Fannie Mae Grantor Trust
Series 2001-T8 A2 9.50% 7/25/41 ............. 35,353 38,440
Series 2003-T1 A 3.807% 11/25/12 ............ 122,378 118,082
Fannie Mae Series 2003-122 AJ
4.50% 2/25/28 ............................... 37,400 36,593
Fannie Mae Whole Loan
Series 2004-W3 A2 3.75% 5/25/34 ............. 110,000 108,755
Series 2004-W9 2A1 6.50% 2/25/44 ............ 80,088 82,031
Freddie Mac
Series 2326 ZQ 6.50% 6/15/31 ................ 140,565 147,502
Series 2550 QX 4.75% 6/15/27 ................ 45,000 44,805
Series 2627 KP 2.87% 12/15/16 ............... 117,169 110,441
Series 2662 MA 4.50% 10/15/31 ............... 69,979 68,728
~Freddie Mac Strip
Series 19 F 4.153% 6/1/28 ................... 34,991 34,847
Freddie Mac Stated Final
Series 5 GC 2.95% 12/15/09 .................. 170,000 164,799
>Freddie Mac Structured Pass
Through Securities
Series T-58 1A2 3.108% 5/25/35 .............. 27,055 26,908
Series T-58 2A 6.50% 9/25/43 ................ 84,314 86,377
GNMA
Series 2002-61 BA 4.648% 3/16/26 ............ 62,011 61,408
Series 2002-62 B 4.763% 1/16/25 ............. 80,000 79,351
-----------
TOTAL AGENCY COLLATERALIZED
MORTGAGE OBLIGATIONS
(COST $1,223,812) ........................... 1,209,067
-----------
AGENCY MORTGAGE-BACKED SECURITIES-11.94%
Fannie Mae
5.73% 12/1/08 ............................... 99,425 101,258
6.50% 8/1/17 ................................ 39,960 40,997
6.52% 1/1/08 ................................ 197,789 201,497
6.765% 1/1/07 ............................... 44,470 44,776
7.00% 11/15/16 .............................. 143,832 147,203
8.50% 9/20/10 ............................... 16,179 16,513
9.00% 4/1/09 ................................ 11,714 12,329
~Fannie Mae ARM
3.025% 6/1/34 ............................... 130,377 128,282
3.244% 10/1/33 .............................. 282,334 281,807
3.771% 8/1/34 ............................... 96,615 96,163
4.271% 12/1/33 .............................. 125,992 128,451
5.074% 8/1/35 ............................... 73,470 72,207
PRINCIPAL MARKET
AMOUNT VALUE
------------ -----------
AGENCY MORTGAGE-BACKED SECURITIES (CONTINUED)
Fannie Mae FHAVA
9.00% 6/1/09 ................................ $ 81,184 $ 86,893
Fannie Mae Relocation 30 yr
5.00% 1/1/34 ................................ 185,929 181,862
5.00% 1/1/34 ................................ 124,544 122,014
Fannie Mae S.F. 15 yr
7.50% 3/1/15 ................................ 23,113 24,312
8.00% 10/1/14 ............................... 27,071 28,146
8.00% 10/1/16 ............................... 76,848 81,747
Fannie Mae S.F. 15 yr TBA
5.00% 1/1/21 ................................ 15,000 14,841
Fannie Mae S.F. 30 yr
7.50% 12/1/10 ............................... 12,633 12,882
7.50% 6/1/31 ................................ 38,857 40,740
8.50% 5/1/11 ................................ 7,180 7,490
8.50% 8/1/12 ................................ 17,657 18,385
9.00% 7/1/20 ................................ 61,922 66,876
10.00% 8/1/19 ............................... 70,704 78,260
~Freddie Mac ARM
3.733% 4/1/34 ............................... 52,866 53,163
3.871% 4/1/33 ............................... 117,633 120,039
Freddie Mac Balloon 5 yr
4.00% 6/1/08 ................................ 23,310 22,771
4.00% 1/1/09 ................................ 134,459 131,139
4.50% 1/1/10 ................................ 242,187 238,402
Freddie Mac Balloon 7 yr
5.00% 6/1/11 ................................ 238,332 237,215
5.00% 11/1/11 ............................... 251,230 250,052
Freddie Mac Relocation 15 yr
3.50% 9/1/18 ................................ 97,255 91,024
3.50% 10/1/18 ............................... 14,484 13,556
Freddie Mac S.F. 15 yr
8.00% 5/1/15 ................................ 64,289 68,447
8.50% 10/1/15 ............................... 17,496 18,666
Freddie Mac S.F. 30 yr
7.00% 11/1/33 ............................... 38,233 39,845
9.25% 9/1/08 ................................ 5,712 5,983
GNMA S.F. 15 yr
6.00% 1/15/09 ............................... 7,588 7,757
8.50% 8/15/10 ............................... 4,306 4,446
GNMA S.F. 30 yr 8.00% 5/15/08 .................. 36,623 37,310
GNMA II S.F. 30 yr
12.00% 6/20/14 .............................. 7,353 8,407
12.00% 3/20/15 .............................. 743 826
12.00% 2/20/16 .............................. 3,842 4,272
-----------
TOTAL AGENCY MORTGAGE-BACKED SECURITIES
(COST $3,455,271) ........................... 3,389,251
-----------
AGENCY OBLIGATIONS-1.35%
Federal Home Loan Bank
4.25% 9/14/07 ............................... 180,000 178,580
Freddie Mac 4.625% 12/19/08 ................... 205,000 204,650
-----------
TOTAL AGENCY OBLIGATIONS
(cost $383,545) ............................... 383,230
-----------
Capital Reserves-4
PRINCIPAL MARKET
AMOUNT VALUE
------------ -----------
COMMERCIAL MORTGAGE-BACKED SECURITIES-1.13%
#Bear Stearns Commercial Mortgage
Securities Series 2004-ESA E 144A
5.064% 5/14/16 .............................. $ 65,000 $ 65,100
>#Commercial Mortgage Pass Through
Certificates Series 2001-J1A A2 144A
6.457% 2/14/34 .............................. 49,320 51,727
First Union-Lehman Brothers-Bank of
America Series 1998-C2 A2
6.56% 11/18/35 .............................. 95,095 97,736
General Motors Acceptance Corporation
Commercial Mortgage Securities
Series 1998-C2 A2 6.42% 5/15/35 ............. 68,710 70,752
#Hilton Hotel Pool Trust Series 2000
HLTA A1 144A 7.055% 10/3/15 ................. 24,219 25,459
Morgan Stanley Capital I Series
1998-XL1 A2 6.45% 6/3/30 .................... 11,630 11,627
-----------
TOTAL COMMERCIAL MORTGAGE-BACKED
SECURITIES (COST $334,943) .................. 322,401
-----------
CORPORATE BONDS-22.16%
BANKING-1.21%
Marshall & Ilsley 3.95% 8/14/09 ................ 145,000 141,123
Popular North America 4.25% 4/1/08 ............. 205,000 201,172
-----------
342,295
-----------
BASIC INDUSTRY-0.50%
Abitibi-Consolidated 7.875% 8/1/09 ............. 80,000 79,600
Norske Skog Canada 8.625% 6/15/11 .............. 65,000 62,400
-----------
142,000
-----------
BROKERAGE-1.27%
Amvescap 4.50% 12/15/09 ........................ 120,000 117,852
Bear Stearns 4.00% 1/31/08 ..................... 125,000 122,775
Credit Suisse First Boston USA
4.625% 1/15/08 .............................. 40,000 39,828
Nuveen Investments 5.00% 9/15/10 ............... 80,000 78,796
359,251
-----------
CAPITAL GOODS-0.21%
York International 6.625% 8/15/06 .............. 60,000 60,482
-----------
60,482
-----------
COMMUNICATIONS-2.60%
Alaska Communications Systems
9.875% 8/15/11 .............................. 70,000 76,475
BellSouth 4.20% 9/15/09 ........................ 90,000 87,498
Comcast Cable Communications
6.20% 11/15/08 .............................. 65,000 66,768
Cox Communications 4.625% 1/15/10 .............. 60,000 58,136
GTE California 7.65% 3/15/07 ................... 105,000 107,642
Insight Midwest 10.50% 11/1/10 ................. 50,000 52,813
SBC Communications 4.125% 9/15/09 .............. 30,000 28,993
Sprint Capital 4.78% 8/17/06 ................... 60,000 59,961
Telecom Italia Capital 4.00% 1/15/10 ........... 50,000 47,666
Telefonos de Mexico 4.50% 11/19/08 ............. 155,000 152,582
-----------
738,534
-----------
PRINCIPAL MARKET
AMOUNT VALUE
------------ -----------
CORPORATE BONDS (CONTINUED)
CONSUMER CYCLICAL-3.93%
CVS 3.875% 11/1/07 ............................. $ 155,000 $ 152,109
Ford Motor Credit
5.625% 10/1/08 .............................. 90,000 79,019
5.80% 1/12/09 ............................... 95,000 82,927
6.625% 6/16/08 .............................. 55,000 49,915
~General Motors Acceptance Corporation
5.10% 7/16/07 ............................... 105,000 98,462
Johnson Controls 5.00% 11/15/06 ................. 120,000 119,812
~Liberty Media 5.991% 9/17/06 .................... 99,000 99,699
May Department Stores
3.95% 7/15/07 ............................... 115,000 113,123
MGM MIRAGE 9.75% 6/1/07 ........................ 50,000 52,938
Time Warner 8.18% 8/15/07 ...................... 190,000 198,821
Wal-Mart Stores 6.875% 8/10/09 ................. 65,000 69,233
-----------
1,116,058
-----------
CONSUMER NON-CYCLICAL-2.44%
Amgen 4.00% 11/18/09 ........................... 16,000 15,529
Baxter International 5.196% 2/16/08 ............ 45,000 45,155
Biovail 7.875% 4/1/10 .......................... 50,000 52,063
Kraft Foods 4.125% 11/12/09 .................... 220,000 213,072
MedPartners 7.375% 10/1/06 ..................... 110,000 111,925
Safeway 6.15% 3/1/06 ........................... 135,000 135,057
Universal 6.50% 2/15/06 ........................ 85,000 85,169
WellPoint 4.25% 12/15/09 ....................... 35,000 34,122
-----------
692,092
-----------
ELECTRIC-2.95%
Ameren 4.263% 5/15/07 .......................... 80,000 78,880
America Electric Power 4.709% 8/16/07 .......... 95,000 94,448
CC Fund Trust I 6.90% 2/16/07 .................. 45,000 45,878
~Dominion Resources 4.819% 9/28/07 .............. 85,000 85,080
Duke Capital 4.331% 11/16/06 ................... 60,000 59,595
FPL Group Capital 4.086% 2/16/07 ............... 105,000 103,982
Pacific Gas & Electric 3.60% 3/1/09 ............ 115,000 110,439
Potomac Electric Power 6.25% 10/15/07 .......... 75,000 76,588
#Power Contract Financing 144A
5.20% 2/1/06 ................................ 37,838 37,846
6.256% 2/1/10 ............................... 60,000 60,916
PSEG Funding Trust I 5.381% 11/16/07 ........... 60,000 60,118
Southern Capital Funding 5.30% 2/1/07 .......... 25,000 24,998
-----------
838,768
-----------
ENERGY-0.36%
Valero Energy 6.125% 4/15/07 ................... 100,000 101,264
101,264
FINANCE COMPANIES-1.34%
American Express 3.75% 11/20/07 ................ 65,000 63,834
International Lease Finance
4.625% 6/2/08 ............................... 60,000 59,438
#Power Receivables Finance 144A
6.29% 1/1/12 ................................ 86,742 88,285
Residential Capital
~5.67% 11/21/08 .............................. 45,000 45,095
6.125% 11/21/08 ............................. 80,000 80,247
6.375% 6/30/10 .............................. 43,000 43,735
-----------
380,634
-----------
Capital Reserves-5
DELAWARE VIP CAPITAL RESERVES SERIES
STATEMENT OF NET ASSETS (CONTINUED)
PRINCIPAL MARKET
AMOUNT VALUE
------------ -----------
CORPORATE BONDS (CONTINUED)
INSURANCE-2.31%
Marsh & McLennan
~4.27% 7/13/07 ............................... $ 75,000 $ 74,791
5.15% 9/15/10 ............................... 50,000 49,719
5.375% 3/15/07 .............................. 95,000 95,214
#Nippon Life Insurance 144A
4.875% 8/9/10 ............................... 90,000 88,698
~#Oil Insurance 144A 5.15% 8/15/33 ............... 190,000 188,741
St. Paul Travelers 5.01% 8/16/07 ............... 90,000 89,992
Willis Group 5.125% 7/15/10 .................... 70,000 69,859
-----------
657,014
-----------
NATURAL GAS-0.51%
Sempra Energy
4.621% 5/17/07 .............................. 85,000 84,425
~4.84% 5/21/08 ............................... 60,000 60,152
-----------
144,577
-----------
REAL ESTATE-0.34%
Developers Diversified Realty
4.625% 8/1/10 ............................... 100,000 96,967
-----------
96,967
-----------
TECHNOLOGY-0.46%
Motorola 4.608% 11/16/07 ....................... 130,000 129,245
-----------
129,245
-----------
TRANSPORTATION-1.73%
Continental Airlines
6.503% 6/15/11 .............................. 245,000 240,864
~CSX 4.561% 8/3/06 .............................. 24,000 24,037
#Erac USA Finance 144A 7.35% 6/15/08 ............ 215,000 225,738
-----------
490,639
-----------
TOTAL CORPORATE BONDS
(COST $6,373,362) ........................... 6,289,820
-----------
NON-AGENCY ASSET-BACKED SECURITIES- 24.08%
Advanta Mortgage Loan Trust Series
2000-1 A4 8.61% 3/25/28 ..................... 23,595 23,699
Ameriquest Mortgage Securities
Series 2003-5 A4 4.272% 4/25/33 ............. 51,587 51,232
Series 2003-11 AF 6 5.14% 1/25/34 ........... 65,000 64,609
Series 2004-FR1 A4 3.243% 5/25/34 ........... 150,000 148,583
Argent Securities Series 2003-W5 AF4
4.66% 10/25/33 .............................. 40,000 39,848
BMW Vehicle Owner Trust Series
2004-A A3 2.67% 3/25/08 ..................... 242,842 240,446
Capital One Auto Finance Trust Series
2005-C A3 4.61% 7/15/10 ..................... 60,000 59,733
Chase Funding Mortgage Loan
Asset-Backed Certificates
Series 2002-3 1A6 4.707% 9/25/13 ............ 215,000 212,947
Series 2003-2 1A4 3.986% 8/25/29 ............ 60,462 59,961
Series 2003-3 1A4 3.303% 11/25/29 ........... 275,000 270,501
Series 2003-4 1A3 2.734% 9/25/24 ............ 31,632 31,433
Chase Manhattan Auto Owner Trust
Series 2005-B A4 4.88% 6/15/12 .............. 100,000 100,175
PRINCIPAL MARKET
AMOUNT VALUE
------------ -----------
NON-AGENCY ASSET-BACKED SECURITIES (CONTINUED)
CIT Equipment Collateral Series
2005-VT1 A4 4.36% 11/20/12 .................. $ 290,000 $ 286,961
CitiFinancial Mortgage Securities
Series 2003-2 AF4 4.098% 5/25/33 ............ 220,000 215,483
Countrywide Asset-Backed Certificates
Series 2004-9 AF2 3.337% 9/25/23 ............ 11,647 11,611
Series 2004-13 AF2 3.683% 8/25/24 ........... 130,000 129,128
~Series 2004-13 AV2 4.639% 5/25/34 ........... 158,860 159,040
#Series 2004-BC1N Note 144A
5.50% 4/25/35 ............................... 6,634 6,610
Series 2004-S1 A2 3.872% 3/25/20 ............ 210,000 206,400
~Series 2005-7 AF2 4.367% 11/25/35 ........... 280,000 275,679
~Series 2005-12 2A2 4.898% 2/25/36 ........... 100,000 99,308
Credit-Based Asset Servicing
and Securitization
Series 2004-CB4 A3 4.632% 5/25/35 ........... 205,000 204,038
Series 2005-CB8 AF1B
5.451% 12/25/35 ............................. 107,591 107,570
~Equifirst Mortgage Loan Trust
Series 2004-3 A2 4.709% 12/25/34 ............ 130,000 130,212
Equity One ABS Series 2004-1 AF3
3.054% 4/25/34 .............................. 124,095 123,147
General Motors Acceptance Corporation
Mortgage Loan Trust
Series 2003-HE2 A3 4.12% 10/25/26 ........... 195,000 193,086
Series 2004-HLT1 A2 3.87% 5/25/25 ........... 89,827 88,686
~Merrill Lynch Mortgage Investors
Series 2005-NCB A1A 5.45% 7/25/36 ........... 46,690 46,690
Navistar Financial Corporation
Owner Trust
Series 2002-A A4 4.76% 4/15/09 .............. 484,096 484,056
Series 2002-B A4 3.52% 10/15/09 ............. 84,547 83,881
New Century Home Equity Loan Trust
Series 2003-5 AI4 4.76% 11/25/33 ............ 100,000 99,383
New South Home Equity Trust
Series 1999-1 A4 6.75% 3/25/26 .............. 25,552 25,496
Onyx Acceptance Grantor Trust
Series 2002-C A4 4.07% 4/15/09 .............. 158,745 158,549
~Option One Mortgage Loan Trust
Series 2005-4 A3 4.639% 11/25/35 ............ 125,000 125,032
Renaissance Home Equity Loan Trust
Series 2004-4 AF2 3.856% 2/25/35 ............ 110,000 108,655
Series 2005-2 AF2 4.361% 8/25/35 ............ 65,000 64,149
~Series 2005-4 A2 5.399% 2/25/36 ............. 40,000 40,000
~Series 2005-4 A3 5.565% 2/25/36 ............. 25,000 25,000
Residential Asset Mortgage Products
Series 2004-RS12 AII2
4.609% 12/25/34 ............................. 70,000 70,076
Series 2004-RZ2 AI3 4.30% 1/25/31 ........... 60,000 59,372
Residential Asset Securities
Series 1999-KS4 AI4 7.22% 6/25/28 ........... 38,186 38,334
Series 2002-KS2 AI5 6.779% 4/25/32 75,000 75,784
Capital Reserves-6
PRINCIPAL MARKET
AMOUNT VALUE
------------ -----------
NON-AGENCY ASSET-BACKED SECURITIES (CONTINUED)
Residential Funding Mortgage
Securities II
Series 2001-HI3 AI6 6.68% 10/25/22 .......... $ 2,745 $ 2,736
Series 2001-HS2 A5 6.92% 4/25/31 ............ 49,795 49,636
Series 2002-HI2 AI6 6.51% 11/25/19 .......... 24,995 24,997
Series 2005-HI1 A2 3.89% 8/25/34 ............ 240,000 237,931
Series 2005-HI3 A2 5.09% 9/25/35 ............ 160,000 159,251
Saxon Asset Securities Trust
Series 2003-2 AF4 3.546% 8/25/29 ............ 185,858 185,191
~Series 2005-1 A2B 4.599% 5/25/35 ............ 180,000 180,144
#Sharp Net Interest Margin Trust
Series 2003-HE1N 144A
6.90% 11/25/33 .............................. 2,400 2,396
#Silverleaf Finance Series 2005-A A 144A
4.857% 11/15/16 ............................. 131,223 130,106
Structured Asset Securities
Series 2001-SB1 A2 3.375% 8/25/31 ........... 51,644 48,060
Series 2005-4XS 1A2B 4.67% 3/25/35 .......... 110,000 108,921
Series 2005-9XS 1A2A 4.84% 6/25/35 .......... 95,000 93,545
Series 2005-NC1 A1 3.645% 2/25/35 ........... 39,070 38,934
Series 2005-NC1 A2 3.92% 2/25/35 ............ 125,000 123,473
~Series 2005-NC1 A7 4.609% 2/25/35 ........... 70,000 70,081
World Omni Auto Receivables Trust
Series 2004-A A2 2.58% 7/12/07 .............. 335,335 334,780
-----------
TOTAL NON-AGENCY ASSET-BACKED SECURITIES
(COST $6,860,440) ........................... 6,834,765
-----------
NON-AGENCY COLLATERALIZED MORTGAGE
OBLIGATIONS-12.05%
American Home Mortgage Investment Trust
Series 2004-2 4A2 3.635% 2/25/44 ............ 36,084 36,011
Bank of America Alternative Loan Trust
Series 2003-10 2A1 6.00% 12/25/33 ........... 104,788 105,213
Series 2004-2 1A1 6.00% 3/25/34 ............. 85,045 85,390
Series 2004-11 1CB1 6.00% 12/25/34 .......... 46,075 46,572
Series 2005-9 5A1 5.50% 10/25/20 ............ 131,506 131,340
Bank of America Mortgage Securities
Series 2003-D 1A2 3.428% 5/25/33 ............ 5,811 5,819
Series 2003-I 2A4 3.828% 10/25/33 ........... 156,290 155,374
~Series 2004-A 1A1 3.487% 2/25/34 ............ 39,062 38,806
~Series 2004-E 1A1 3.52% 6/25/34 ............. 73,872 72,624
Series 2005-9 2A1 4.75% 10/25/20 ............ 73,152 71,454
~Series 2005-F 2A3 4.735% 7/25/35 ............ 94,068 92,804
~Series 2005-I 2A1 4.894% 10/25/35 ........... 155,733 153,779
Bear Stearns Adjustable Rate
Mortgage Trust
Series 2005-7 1A2 4.75% 8/25/35 ............. 36,562 35,802
Series 2005-10 A1 4.75% 10/25/35 ............ 71,998 71,282
Countrywide Alternative Loan Trust
Series 2004-28CB 6A1 6.00% 1/25/35 .......... 113,442 113,953
~Series 2004-J7 1A2 4.673% 8/25/34 .......... 59,169 58,955
>~Countrywide Home Loan Mortgage
Pass Through Trust
Series 2003-21 A1 4.10% 5/25/33 ............. 51,937 51,364
PRINCIPAL MARKET
AMOUNT VALUE
------------ -----------
NON-AGENCY COLLATERALIZED MORTGAGE
OBLIGATIONS (CONTINUED)
Credit Suisse First Boston
Mortgage Securities
Series 2003-29 5A1 7.00% 12/25/33 ........... $ 51,025 $ 52,141
Series 2004-1 3A1 7.00% 2/25/34 ............. 12,660 12,890
First Horizon Alternative Mortgage
Securities Series 2004-FA1 1A1
6.25% 10/25/34 .............................. 97,519 98,701
~First Horizon Asset Securities
Series 2004-AR5 4A1 5.689% 10/25/34 ......... 55,158 55,208
#GSMPS Mortgage Loan Trust 144A
Series 1998-3 A 7.75% 9/19/27 ............... 41,649 43,796
Series 2005-RP1 1A3 8.00% 1/25/35 ........... 46,993 49,956
Series 2005-RP1 1A4 8.50% 1/25/35 ........... 23,568 25,434
GSR Mortgage Home Loan Trust
Series 2004-2F 9A1 6.00% 9/25/19 ............ 61,015 61,451
~JPMorgan Mortgage Trust
Series 2005-A2 2A1 4.731% 4/25/35 ........... 47,929 47,615
Series 2005-A6 1A2 5.158% 9/25/35 ........... 105,000 104,447
Lehman Mortgage Trust
Series 2005-2 2A3 5.50% 12/25/35 ............ 93,694 94,133
~MASTR Adjustable Rate Mortgages
Trust Series 2003-6 1A2
2.902% 12/25/33 ............................. 100,992 100,420
#MASTR Reperforming Loan Trust
Series 2005-1 1A5 144A 8.00% 8/25/34 ........ 90,517 96,022
#MASTR Specialized Loan Trust
Series 2005-2 A2 144A 5.15% 7/25/35 ......... 51,450 50,704
~MLCC Mortgage Investors
Series 2005-1 1A 4.728% 4/25/35 ............. 62,751 62,359
Nomura Asset Acceptance
Series 2004-AP2 A2 4.099% 7/25/34 ........... 4,373 4,360
Series 2005-WF1 2A2 4.786% 3/25/35 .......... 100,000 98,775
Residential Asset Mortgage Products
Series 2004-SL1 A3 7.00% 11/25/31 ........... 49,203 50,316
Series 2004-SL4 A3 6.50% 7/25/32 ............ 47,923 48,999
Structured Adjustable Rate Mortgage
Loan Trust
Series 2004-18 5A 5.50% 12/25/34 ............ 48,813 48,600
~Series 2005-3XS A2 4.629% 1/25/35 ........... 130,000 130,041
Structured Asset Securities
Series 2004-5H A2 4.43% 12/25/33 ............ 94,000 93,465
Series 2004-12H 1A 6.00% 5/25/34 ............ 45,665 45,651
~Thornburg Mortgage Securities Trust
Series 2005-3 A1 4.609% 10/25/35 ............ 96,591 96,600
Washington Mutual
Series 2003-AR4 A7 3.95% 5/25/33 ............ 50,117 49,018
~Series 2003-AR9 1A7 4.055% 9/25/33 .......... 29,241 28,689
Series 2004-AR4 A2 2.98% 6/25/34 ............ 115,000 113,403
~Series 2005-AR3 A1 4.65% 3/25/35 ............ 108,724 107,052
Capital Reserves-7
PRINCIPAL MARKET
AMOUNT VALUE
------------ -----------
NON-AGENCY COLLATERALIZED MORTGAGE
OBLIGATIONS (CONTINUED)
~Wells Fargo Mortgage Backed
Securities Trust
Series 2004-DD 2A3 4.524% 1/25/35 ........... $ 80,000 $ 78,643
Series 2004-I 1A1 3.399% 7/25/34 ............ 86,126 86,143
Series 2004-T A1 3.451% 9/25/34 ............. 60,685 60,652
-----------
TOTAL NON-AGENCY COLLATERALIZED
MORTGAGE OBLIGATIONS
(COST $3,461,404) ............................ 3,422,226
-----------
U.S. TREASURY OBLIGATIONS-16.44%
@U.S. Treasury Bill 3.786% 3/30/06 .............. 80,000 79,250
U.S. Treasury Inflation Index Notes
0.875% 4/15/10 .............................. 156,662 148,982
8 3.00% 7/15/12 ............................. 365,584 386,662
3.625% 1/15/08 .............................. 197,270 202,626
3.875% 1/15/09 .............................. 321,858 338,379
U.S. Treasury Notes
1.625% 2/28/06 .............................. 810,000 807,216
3.75% 3/31/07 ............................... 1,905,000 1,889,374
4.125% 8/15/10 .............................. 35,000 34,666
4.25% 11/30/07 .............................. 45,000 44,882
4.375% 11/15/08 ............................. 170,000 170,080
4.375% 12/15/10 ............................. 565,000 565,618
-----------
TOTAL U.S. TREASURY OBLIGATIONS
(COST $4,703,972) ........................... 4,667,735
-----------
PRINCIPAL MARKET
AMOUNT VALUE
------------ -----------
REPURCHASE AGREEMENTS-2.00%
With BNP Paribas 3.30% 1/03/06
(dated 12/30/05, to be repurchased
at $358,131, collateralized by
$7,000 U.S. Treasury Bills due 1/26/06,
market value $7,332, $5,000 U.S. Treasury
Bills due 2/23/06, market value $5,012,
$10,000 U.S. Treasury Bills due 5/4/06,
market value $9,808, $66,000 U.S. Treasury
Bills due 6/1/06, market value $65,108,
$186,000 U.S. Treasury Bills due 6/29/06,
market value $181,854, $66,000 U.S. Treasury
Notes 2.625% due 5/15/08, market value
$63,574 and $33,000 U.S. Treasury Notes
3.125% due 5/15/07, market value $32,640) ... $ 358,000 $ 358,000
With UBS Warburg 3.40% 1/03/06
(dated 12/30/05, to be repurchased
at $209,079, collateralized by $24,000 U.S.
Treasury Notes 2.00% due 5/15/06, market
value $24,141 and $183,000 U.S. Treasury
Notes 5.625% due 5/15/08, market value
$189,224)....................................... 209,000 209,000
-----------
TOTAL REPURCHASE AGREEMENTS
(COST $567,000) 567,000
-----------
Capital Reserves-8
DELAWARE VIP CAPITAL RESERVES SERIES
STATEMENT OF NET ASSETS (CONTINUED)
TOTAL MARKET VALUE OF SECURITIES-96.08% (COST $27,554,190) .. $ 27,274,826
RECEIVABLES AND OTHER ASSETS NET OF LIABILITIES-3.92% ....... 1,113,031
---------------
NET ASSETS APPLICABLE TO 2,925,963 SHARES OUTSTANDING-100.00% $ 28,387,857
===============
NET ASSET VALUE-DELAWARE VIP CAPITAL RESERVES SERIES
STANDARD CLASS ($23,894,505 / 2,460,462 SHARES) ............ $ 9.71
===============
NET ASSET VALUE-DELAWARE VIP CAPITAL RESERVES SERIES SERVICE
CLASS ($4,493,352 / 465,501 SHARES) ........................ $ 9.65
===============
COMPONENTS OF NET ASSETS AT DECEMBER 31, 2005:
Shares of beneficial interest (unlimited authorization-no par) $ 30,224,369
Undistributed net investment income ......................... 4,035
Accumulated net realized loss on investments ................ (1,554,073)
Net unrealized depreciation of investments .................. (286,474)
---------------
Total net assets ............................................ $ 28,387,857
===============
- ----------
> Pass Through Agreement. Security represents the contractual right to receive
a proportionate amount of underlying payments due to the counterparty
pursuant to various agreements related to the rescheduling of obligations and
the exchange of certain notes.
~ Variable rate securities. The interest rate shown is the rate as of December
31, 2005.
# Security exempt from registration under Rule 144A of the Securities Act of
1933. At December 31, 2005, the aggregate amount of Rule 144A securities
equals $1,237,534, which represented 4.36% of the Series' net assets. See
Note 9 in "Notes to Financial Statements."
## Fully or partially pledged as collateral for financial futures contracts.
@ The interest rate shown is the effective yield as of the time of purchase.
Summary of Abbreviations:
ARM - Adjustable Rate Mortgage
FHAVA - Federal Housing Administration & Veterans Administration
FHLMC - Federal Home Loan Mortgage Company
GNMA - Government National Mortgage Association
S.F. - Single Family
TBA - To be announced
yr - Year
The following futures contracts were outstanding at December 31, 2005:
FUTURES CONTRACTS(1)
UNREALIZED
CONTRACTS NOTIONAL NOTIONAL APPRECIATION
TO BUY (SELL) COST (PROCEEDS) VALUE EXPIRATION DATE (DEPRECIATION)
- ----------------------------------- --------------- ------------ --------------- --------------
(7) U.S. Treasury 2 year Notes $ (1,436,595) $ (1,436,313) 3/31/06 $ 282
(19)U.S. Treasury 5 year Notes (2,013,728) (2,020,531) 3/31/06 (6,803)
4 U.S. Treasury 10 year Notes 438,214 437,625 3/31/06 (589)
--------------
$ (7,110)
==============
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,
where only the net unrealized appreciation (depreciation) is reflected in the
Series' net assets.
(1)See Note 7 in "Notes to Financial Statements."
See accompanying notes
Capital Reserves-9
DELAWARE VIP TRUST-
DELAWARE VIP CAPITAL RESERVES SERIES
STATEMENT OF OPERATIONS
Year Ended December 31, 2005
INVESTMENT INCOME:
Interest ................................................... $ 1,100,973
------------
EXPENSES:
Management fees ............................................ 127,550
Legal and professional fees ................................ 13,342
Custodian fees ............................................. 11,566
Accounting and administration expenses ..................... 9,405
Pricing fees ............................................... 7,731
Reports and statements to shareholders ..................... 5,587
Distribution expenses - Service Class ...................... 3,874
Dividend disbursing and transfer agent fees and expenses ... 2,551
Insurance fees ............................................. 1,788
Trustees' fees ............................................. 1,371
Registration fees .......................................... 284
Other ...................................................... 922
------------
185,971
Less waiver of distribution expenses - Service Class ....... (646)
Less expense paid indirectly ............................... (1,971)
------------
Total expenses ............................................. 183,354
------------
NET INVESTMENT INCOME ...................................... 917,619
------------
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS:
Net realized gain (loss) on:
Investments ................................................ (55,198)
Futures contracts .......................................... 44,101
Swap agreements ............................................ (10,249)
------------
Net realized loss .......................................... (21,346)
Net change in unrealized appreciation/depreciation
of investments .......................................... (437,959)
------------
NET REALIZED AND UNREALIZED LOSS ON
INVESTMENTS ............................................. (459,305)
------------
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS ......................................... $ 458,314
============
See accompanying notes
DELAWARE VIP TRUST-
DELAWARE VIP CAPITAL RESERVES SERIES
STATEMENT OF CHANGES IN NET ASSETS
YEAR ENDED
----------------------------
12/13/05 12/31/04
------------ ------------
INCREASE (DECREASE) IN NET
ASSETS FROM OPERATIONS:
Net investment income ........................ $ 917,619 $ 1,057,878
Net realized gain (loss) on investments ...... (21,346) 384,377
Net change in unrealized appreciation/
depreciation of investments ................. (437,959) (373,651)
------------ ------------
Net increase in net assets resulting
from operations ............................. 458,314 1,068,604
------------ ------------
DIVIDENDS AND DISTRIBUTIONS TO
SHAREHOLDERS FROM:
Net investment income:
Standard Class .............................. (998,134) (1,305,428)
Service Class ............................... (50,338) (275)
------------ ------------
(1,048,472) (1,305,703)
------------ ------------
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares sold:
Standard Class .............................. 3,108,074 1,525,636
Service Class ............................... 7,736,817 -
Net asset value of shares issued upon
reinvestment of dividends and distributions:
Standard Class .............................. 1,000,606 1,317,012
Service Class ............................... 46,785 276
------------ ------------
11,892,282 2,842,924
------------ ------------
Cost of shares repurchased:
Standard Class .............................. (5,608,419) (10,727,189)
Service Class ............................... (3,268,155) -
------------ ------------
(8,876,574) (10,727,189)
------------ ------------
Increase (decrease) in net assets derived from
capital share transactions .................. 3,015,708 (7,884,265)
------------ ------------
NET INCREASE (DECREASE) IN
NET ASSETS .................................. 2,425,550 (8,121,364)
NET ASSETS:
Beginning of year ............................ 25,962,307 34,083,671
------------ ------------
End of year (including undistributed
net investment income of $4,035
and $4,033, respectively) ................... $ 28,387,857 $ 25,962,307
============ ============
See accompanying notes
Capital Reserves-10
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
----------------------------------------------------------------------
12/31/05 12/31/04 12/31/03 12/31/02 12/31/01
---------- ---------- ---------- ---------- ----------
Net asset value, beginning of period .................. $ 9.940 $ 10.020 $ 9.970 $ 9.750 $ 9.530
INCOME (LOSS) FROM INVESTMENT OPERATIONS:
Net investment income(1) .............................. 0.355 0.356 0.329 0.419 0.533
Net realized and unrealized gain (loss) on investments (0.180) 0.004 0.125 0.253 0.239
---------- ---------- ---------- ---------- ----------
Total from investment operations ...................... 0.175 0.360 0.454 0.672 0.772
---------- ---------- ---------- ---------- ----------
LESS DIVIDENDS AND DISTRIBUTIONS FROM:
Net investment income ................................. (0.405) (0.440) (0.404) (0.452) (0.552)
---------- ---------- ---------- ---------- ----------
Total dividends and distributions ..................... (0.405) (0.440) (0.404) (0.452) (0.552)
---------- ---------- ---------- ---------- ----------
Net asset value, end of period ........................ $ 9.710 $ 9.940 $ 10.020 $ 9.970 $ 9.750
---------- ---------- ---------- ---------- ----------
Total return(2)........................................ 1.79% 3.66% 4.63% 7.09% 8.27%
========== ========== ========== ========== ==========
RATIOS AND SUPPLEMENTAL DATA:
Net assets, end of period (000 omitted) ............... $ 23,895 $ 25,955 $ 34,077 $ 42,698 $ 30,996
Ratio of expenses to average net assets ............... 0.71% 0.62% 0.63% 0.62% 0.58%
Ratio of net investment income to average net assets .. 3.61% 3.57% 3.36% 4.21% 5.46%
Portfolio turnover .................................... 259% 252% 438% 427% 290%
- ----------
(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.
See accompanying notes
Capital Reserves-11
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 STANDARD CLASS
YEAR ENDED
----------------------------------------------------------------------
12/31/05 12/31/04 12/31/03 12/31/02 12/31/01
---------- ---------- ---------- ---------- ----------
Net asset value, beginning of period .................. $ 9.900 $ 10.000 $ 9.970 $ 9.760 $ 9.530
INCOME (LOSS) FROM INVESTMENT OPERATIONS:
Net investment income(1) .............................. 0.331 0.333 0.308 0.406 0.519
Net realized and unrealized gain (loss) on investments (0.200) (0.017) 0.105 0.243 0.249
---------- ---------- ---------- ---------- ----------
Total from investment operations ...................... 0.131 0.316 0.413 0.649 0.768
---------- ---------- ---------- ---------- ----------
LESS DIVIDENDS AND DISTRIBUTIONS FROM:
Net investment income ................................. (0.381) (0.416) (0.383) (0.439) (0.538)
---------- ---------- ---------- ---------- ----------
Total dividends and distributions ..................... (0.381) (0.416) (0.383) (0.439) (0.538)
---------- ---------- ---------- ---------- ----------
Net asset value, end of period ........................ $ 9.650 $ 9.900 $ 10.000 $ 9.970 $ 9.760
---------- ---------- ---------- ---------- ----------
Total return(2) ....................................... 1.35% 3.23% 4.21% 6.84% 8.23%
========== ========== ========== ========== ==========
RATIOS AND SUPPLEMENTAL DATA:
Net assets, end of period (000 omitted) ............... $ 4,493 $ 7 $ 6 $ 6 $ 6
Ratio of expenses to average net assets ............... 0.96% 0.87% 0.85% 0.77% 0.73%
Ratio of expenses to average net assets prior to
expense limitation and expenses paid indirectly ...... 1.01% 0.92% 0.88% 0.77% 0.73%
Ratio of net investment income to average net assets .. 3.36% 3.32% 3.14% 4.06% 5.31%
Ratio of net investment income to average net assets
prior to expense limitation and expenses paid
indirectly ........................................... 3.31% 3.27% 3.11% 4.06% 5.31%
Portfolio turnover .................................... 259% 252% 438% 427% 290%
- ----------
(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 distributor, as applicable. Performance would have been lower
had the waiver not been in effect.
See accompanying notes
Capital Reserves-12
DELAWARE VIP TRUST-DELAWARE VIP CAPITAL RESERVES SERIES
NOTES TO FINANCIAL STATEMENTS
December 31, 2005
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 REIT Series,
Delaware VIP Select Growth Series, Delaware VIP Small Cap Value Series, Delaware
VIP Trend Series, Delaware VIP U.S. Growth Series and Delaware VIP Value Series.
These financial statements and the related notes pertain to Delaware VIP Capital
Reserves Series (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 U.S. generally accepted
accounting principles and are consistently followed by the Series.
Security Valuation--U.S. government and agency securities are valued at the mean
between the bid and asked prices. Other long-term debt securities are valued by
an independent pricing service and such prices are believed to reflect the fair
value of such securities. Short-term debt securities having less than 60 days to
maturity are valued at amortized cost, which approximates market value. 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.
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 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 pursuant to an
exemptive order issued by the Securities and Exchange Commission. The aggregate
daily balance of the pooled cash account is invested in repurchase agreements
secured by obligations of the U.S. government. The respective collateral is held
by the Series' custodian bank until the maturity of the respective repurchase
agreements. Each repurchase agreement is 102% collateralized. However, in the
event of default or bankruptcy by the counterparty to the agreement, realization
of the collateral may be subject to legal proceedings.
Use of Estimates--The preparation of financial statements in conformity with
U.S. generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from those estimates.
Other--Expenses common to all funds within the Delaware Investments Family of
Funds are allocated amongst the funds on the basis of average net assets.
Management fees and some other expenses are paid monthly. Security transactions
are recorded on the date the securities are purchased or sold (trade date) for
financial reporting purposes. Costs used in calculating realized gains and
losses on the sale of investment securities are those of the specific securities
sold. Interest income is recorded on the accrual basis. Discounts and premiums
are amortized to interest income over the lives of the respective securities.
Realized gains (losses) on paydowns of mortgage- and asset-backed securities are
classified as interest income.
The Series declares dividends daily from net investment income and pays such
dividends monthly and declares and pays distributions from net realized gain on
investments, if any, following the close of the fiscal year.
The Series may receive earnings credits from its custodian when positive cash
balances are maintained, which are used to offset custody fees. The expense paid
under the above arrangement is included in custodian fees on the Statement of
Operations with the corresponding expense offset shown as "expense paid
indirectly."
2. INVESTMENT MANAGEMENT, ADMINISTRATION AGREEMENTS AND OTHER TRANSACTIONS WITH
AFFILIATES
In accordance with the terms of its investment management agreement, the Series
pays Delaware Management Company (DMC), a series of Delaware Management Business
Trust and the investment manager, an annual fee which is calculated daily at the
rate of 0.50% on the first $500 million of average daily net assets of the
Series, 0.475% on the next $500 million, 0.45% on the next $1.5 billion, and
0.425% on average daily net assets in excess of $2.5 billion.
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 June 30, 2006. No
reimbursement was due for the year ended December 31, 2005.
Capital Reserves-13
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. Effective May
19, 2005, the Series pays DSC a monthly fee computed at the annual rate of 0.04%
of the Series' average daily net assets for accounting and administrative
services. Prior to May 19, 2005, the Series paid 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 distribution and service fee not to exceed 0.30% of the average daily net
assets of the Service Class shares. DDLP has contracted to waive distribution
and service fees through June 30, 2006 in order to prevent distribution and
service fees of the Service Class shares from exceeding 0.25% of average daily
net assets. Standard Class shares pay no distribution and service expenses.
At December 31, 2005, the Series had liabilities payable to affiliates as
follows:
DIVIDEND DISBURSING, OTHER
INVESTMENT TRANSFER AGENT, EXPENSES
MANAGEMENT ACCOUNTING AND ADMINISTRATION DISTRIBUTION PAYABLE
FEE PAYABLE FEES AND OTHER EXPENSES FEE PAYABLE TO DMC AND
TO DMC PAYABLE TO DSC TO DDLP AFFILIATES*
------------ ----------------------------- ------------ ------------
$11,717 $1,434 $1,546 $19,732
- ----------
*DMC, as part of its administrative services, pays operating expenses on behalf
of the Series and is reimbursed on a periodic basis. Such expenses include items
such as printing of shareholder reports, fees for audit, legal and tax services,
custodian fees and trustees' fees.
As provided in the investment management agreement the Series bears the cost of
certain legal services expenses, including internal legal services provided to
the Series by DMC employees. For the year ended December 31, 2005, the Series
was charged $1,636 for internal legal services provided by DMC.
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, 2005, the Series made purchases and sales of
investment securities other than short-term investments as follows:
Purchases other than U.S. government securities ............. $ 29,275,221
Purchases of U.S. government securities ..................... 36,032,867
Sales other than U.S. government securities ................. 30,368,205
Sales of U.S. government securities ......................... 33,767,506
At December 31, 2005, the cost of investments for federal income tax purposes
and unrealized appreciation (depreciation) for the Series were as follows:
AGGREGATE AGGREGATE
COST OF UNREALIZED UNREALIZED NET UNREALIZED
INVESTMENTS APPRECIATION DEPRECIATION DEPRECIATION
-------------- -------------- -------------- --------------
$27,650,759 $17,309 $(393,242) $(375,933)
4. DIVIDEND AND DISTRIBUTION INFORMATION
Income and long-term capital gain distributions are determined in accordance
with federal income tax regulations, which may differ from U.S. generally
accepted accounting principles. Additionally, net short-term gains on sales of
investment securities are treated as ordinary income for federal income tax
purposes. The tax character of dividends and distributions paid during the years
ended December 31, 2005 and 2004 was as follows:
YEAR YEAR
ENDED ENDED
12/31/05 12/31/04
------------ -------------
Ordinary income .... $1,048,472 $1,305,703
Capital Reserves-14
DELAWARE VIP CAPITAL RESERVES SERIES
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
4. DIVIDEND AND DISTRIBUTION INFORMATION (CONTINUED)
As of December 31, 2005, the components of net assets on a tax basis were as
follows:
Shares of beneficial interest ....................... $30,224,369
Undistributed ordinary income ....................... 20,175
Post-October losses ................................. (39,241)
Capital loss carryforwards .......................... (1,441,513)
Unrealized depreciation of investments .............. (375,933)
-----------
Net assets .......................................... $28,387,857
-----------
The differences between book basis and tax basis components of net assets are
primarily attributable to tax deferral of losses on wash sales, mark-to-market
of futures contracts, treatment of contingent payment debt instruments and tax
treatment of market discount and premium on debt instruments.
Post-October losses represent losses realized on investment transactions from
November 1, 2005 through December 31, 2005 that, in accordance with federal
income tax regulations, the Series has elected to defer and treat as having
arisen in the following fiscal year.
For financial reporting purposes, capital accounts are adjusted to reflect the
tax character of permanent book/tax differences. Reclassifications are primarily
due to tax treatment of paydown gains (losses) of mortgage- and asset-backed
securities and market discount and premium on certain debt instruments. Results
of operations and net assets were not affected by these reclassifications. For
the year ended December 31, 2005, the Series recorded the following
reclassifications.
UNDISTRIBUTED ACCUMULATED
NET NET REALIZED
INVESTMENT INCOME GAIN (LOSS)
----------------- ------------
$130,855 $(130,855)
For federal income tax purposes, capital loss carryforwards may be carried
forward and applied against future capital gains. Capital loss carryforwards
remaining at December 31, 2005 will expire as follows: $1,132,035 expires in
2008, $82,894 expires in 2010 and $226,584 expires in 2013.
5.CAPITAL SHARES
Transactions in capital shares were as follows:
YEAR YEAR
ENDED ENDED
12/31/05 12/31/04
------------ ------------
Shares sold:
Standard Class ................... 317,536 153,311
Service Class .................... 797,328 -
Shares issued upon reinvestment of
dividends and distributions:
Standard Class ................... 101,984 131,957
Service Class .................... 4,829 28
------------ ------------
1,221,677 285,296
------------ ------------
Shares repurchased:
Standard Class ................... (570,499) (1,076,090)
Service Class .................... (337,333) -
------------ ------------
(907,832) (1,076,090)
------------ ------------
Net increase (decrease) ........... 313,845 (790,794)
============ ============
6. LINE OF CREDIT
The Series, along with certain other funds in the Delaware Investments Family of
Funds (the "Participants"), participates in a $225,000,000 revolving line of
credit facility to be used for temporary or emergency purposes as an additional
source of liquidity to fund redemptions of investor shares. The Participants are
charged an annual commitment fee, which is allocated across the Participants on
the basis of each 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, 2005, or at any time during
the year.
Capital Reserves-15
DELAWARE VIP CAPITAL RESERVES SERIES
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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.
8. SWAP AGREEMENTS
During the year ended December 31, 2005, 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 swap agreements were outstanding at December 31, 2005.
9. CREDIT AND MARKET RISK
The Series invests in fixed income securities whose value is derived from an
underlying pool of mortgages or consumer loans. Investors receive principal and
interest payments as the underlying mortgages and consumer loans are paid back.
Some of these securities are collateralized mortgage obligations (CMOs). CMOs
are debt securities issued by U.S. government agencies or by financial
institutions and other mortgage lenders, which are collateralized by a pool of
mortgages held under an indenture. Prepayment of mortgages may shorten the
stated maturity of the obligations and can result in a loss of premium, if any
has been paid. Certain of these securities may be stripped (securities, which
provide only the principal or interest feature of the underlying security). The
yield to maturity on an interest-only CMO is extremely sensitive not only to
changes in prevailing interest rates, but also to the rate of principal payments
(including prepayments) on the related underlying mortgage assets. A rapid rate
of principal payments may have a material adverse affect on the Series' yield to
maturity. If the underlying mortgage assets experience greater than anticipated
prepayments of principal, the Series may fail to recoup its initial investment
in these securities even if the securities are rated in the highest rating
categories.
The Series may invest up to 10% of its total assets in illiquid securities,
which may include securities with contractual restrictions on resale, securities
exempt from registration under Rule 144A of the Securities Act of 1933, as
amended, and other securities which may not be readily marketable. The relative
illiquidity of these securities may impair the Series from disposing of them in
a timely manner and at a fair price when it is necessary or desirable to do so.
While maintaining oversight, the Board of Trustees has delegated to DMC the
day-to-day functions of determining whether individual securities are liquid for
purposes of the Series' limitation on investments in illiquid assets. At
December 31, 2005, no securities have been determined to be illiquid under the
Series' Liquidity Procedures.
10. CONTRACTUAL OBLIGATIONS
The Series enters into contracts in the normal course of business that contain a
variety of indemnifications. The Series' maximum exposure under these
arrangements is unknown. However, the Series has not had prior claims or losses
pursuant to these contracts. Management has reviewed the Series' existing
contracts and expects the risk of loss to be remote.
11. TAX INFORMATION (UNAUDITED)
For the fiscal year ended December 31, 2005, the Series designates distributions
paid during the year as follows:
(A) (B)
LONG-TERM ORDINARY
CAPITAL GAINS INCOME TOTAL
DISTRIBUTIONS DISTRIBUTIONS DISTRIBUTION
(TAX BASIS) (TAX BASIS) (TAX BASIS)
-------------- --------------- -------------
- 100% 100%
- ----------
(A) and (B) are based on a percentage of the Series' total distributions.
Capital Reserves-16
DELAWARE VIP TRUST-DELAWARE VIP CAPITAL RESERVES SERIES
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
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 the Delaware VIP
Capital Reserves Series (one of the series constituting Delaware VIP Trust) (the
"Series") as of December 31, 2005, 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
five years in the period then ended. 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 the standards of the Public Company
Accounting Oversight Board (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. We were
not engaged to perform an audit of the Series' internal control over financial
reporting. Our audits included consideration of internal control over financial
reporting as a basis for designing audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion on the
effectiveness of the Series' internal control over financial reporting.
Accordingly, we express no such opinion. An audit also includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements and financial highlights, assessing the accounting principles used
and significant estimates made by management, and evaluating the overall
financial statement presentation. Our procedures included confirmation of
securities owned as of December 31, 2005, by correspondence with the custodian
and brokers or by other appropriate auditing procedures where replies from
brokers were not received. 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 the
Delaware VIP Capital Reserves Series of Delaware VIP Trust at December 31, 2005,
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 five years in the period then ended, in conformity
with U.S. generally accepted accounting principles.
Ernest & Young LLP
Philadelphia, Pennsylvania
February 10, 2006
The Series files its complete schedule of portfolio holdings with the Securities
and Exchange Commission for the first and third quarters of each fiscal year on
Form N-Q. The Series' Forms N-Q, as well as a description of the policies and
procedures that the Series uses to determine how to vote proxies (if any)
relating to portfolio securities is available without charge (i) upon request,
by calling 800-523-1918; (ii) on the Series' website at
http://www.delawareinvestments.com; and (iii) on the Commission's website at
http://www.sec.gov. The Series' Forms N-Q may be reviewed and copied at the
Commission's Public Reference Room in Washington, DC; information on the
operation of the Public Reference Room may be obtained by calling
1-800-SEC-0330.
Information (if any) regarding how the Series voted proxies relating to
portfolio securities during the most recently disclosed 12-month period ended
June 30 is available without charge (i) through the Series' website at
http://www.delawareinvestments.com; and (ii) on the Commission's website at
http://www.sec.gov.
Capital Reserves-17
DELAWARE INVESTMENTS(R) FAMILY OF FUNDS
BOARD OF TRUSTEES/DIRECTORS AND OFFICERS ADDENDUM
A mutual fund is governed by a Board of Trustees/Directors ("Trustees"), which
has oversight responsibility for the management of a fund's business affairs.
Trustees establish procedures and oversee and review the performance of the
investment manager, the distributor and others who perform services for the
fund. The independent fund trustees, in particular, are advocates for
shareholder interests. Each trustee has served in that capacity since he or she
was elected to or appointed to the Board of Trustees, and will continue to serve
until his or her retirement or the election of a new trustee in his or her
place. The following is a list of the Trustees and Officers with certain
background and related information.
NUMBER OF OTHER
PRINCIPAL PORTFOLIOS IN FUND DIRECTORSHIPS
NAME, POSITION(S) LENGTH OCCUPATION(S) COMPLEX OVERSEEN HELD BY
ADDRESS HELD WITH OF TIME DURING BY TRUSTEE TRUSTEE
AND BIRTHDATE FUND(S) SERVED PAST 5 YEARS OR OFFICER OR OFFICER
- ------------------------ ------------------- -------------- ---------------------------- ------------------ ------------------
INTERESTED TRUSTEES
JUDE T. DRISCOLL(2) Chairman, 5 Years - Since August 2000, 87 None
2005 Market Street President, Executive Mr. Driscoll has served in
Philadelphia, PA Chief Executive Officer various executive capacities
19103 Officer and 2 Years - at different times at
Trustee Trustee Delaware Investments(1)
March 10, 1963
INDEPENDENT TRUSTEES
THOMAS L. BENNETT Trustee Since Private Investor - 87 None
2005 Market Street March 23, 2005 (March 2004 - Present)
Philadelphia, PA
19103 Investment Manager -
Morgan Stanley & Co.
October 4, 1947 (January 1984 - March 2004)
JOHN A. FRY Trustee 4 Years President - 87 Director -
2005 Market Street Franklin & Marshall College Community Health
Philadelphia, PA (June 2002 - Present) Systems
19103
Executive Vice President -
May 28, 1960 University of Pennsylvania
(April 1995 - June 2002)
ANTHONY D. KNERR Trustee 12 Years Founder/Managing Director - 87 None
2005 Market Street Anthony Knerr & Associates
Philadelphia, PA (Strategic Consulting)
19103 (1990 - Present)
December 7, 1938
LUCINDA S. LANDRETH Trustee Since Chief Investment Officer - 87 None
2005 Market Street March 23, 2005 Assurant, Inc.
Philadelphia, PA (Insurance)
19103 (2002 - 2004)
June 24, 1947
ANN R. LEVEN Trustee 16 Years Treasurer/Chief Fiscal 87 Director and
2005 Market Street Officer - National Gallery Audit Committee
Philadelphia, PA of Art (1994 - 1999) Chairperson - Andy
19103 Warhol Foundation
November 1, 1940 Director and Audit
Committee Member -
Systemax Inc.
Capital Reserves-18
NUMBER OF OTHER
PRINCIPAL PORTFOLIOS IN FUND DIRECTORSHIPS
NAME, POSITION(S) LENGTH OCCUPATION(S) COMPLEX OVERSEEN HELD BY
ADDRESS HELD WITH OF TIME DURING BY TRUSTEE TRUSTEE
AND BIRTHDATE FUND(S) SERVED PAST 5 YEARS OR OFFICER OR OFFICER
- ------------------------ ------------------- -------------- ---------------------------- ------------------ ------------------
INDEPENDENT TRUSTEES
THOMAS F. MADISON Trustee 11 Years President/Chief 87 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 and Audit
Committee Member -
Digital River Inc.
Director and Audit
Committee Member -
Rimage Corporation
Director - Valmont
Industries, Inc.
JANET L. YEOMANS Trustee 6 Years Vice President 87 None
2005 Market Street (January 2003 - Present)
Philadelphia, PA and Treasurer
19103 (January 2006 - Present)
3M Corporation
July 31, 1948 Ms. Yeomans has held
various management positions
at 3M Corporation
since 1983.
J. RICHARD ZECHER Trustee Since Founder - 87 Director and Audit
2005 Market Street March 23, 2005 Investor Analytics Committee Member -
Philadelphia, PA (Risk Management) Investor Analytics
19103 (May 1999 - Present)
Director and Audit
July 3, 1940 Committee Member -
Oxigene, Inc.
OFFICERS
MICHAEL P. BISHOF Senior Chief Mr. Bishof has served in 87 None(3)
2005 Market Street Vice President and Financial various executive capacities
Philadelphia, PA Chief Financial since Officer at different times at
19103 Officer February 17, Delaware Investments.
2005
August 18, 1962
DAVID F. CONNOR Vice President, Vice President Mr. Connor has served as 87 None(3)
2005 Market Street Deputy General since Vice President and Deputy
Philadelphia, PA Counsel and September 21, General Counsel of Delaware
19103 Secretary 2000 and Investments since 2000.
Secretary
since
October 25,
2005
December 2, 1963
DAVID P. O'CONNOR Senior Vice Senior Vice Mr. O'Connor has served in 87 None(3)
2005 Market Street President, President, various executive and legal
Philadelphia, PA General Counsel General capacities at different
19103 and Chief Counsel and times at Delaware
Legal Officer Chief Legal Investments.
Officer since
October 25,
2005
February 21, 1966
John J. O'Connor Senior Vice Treasurer Mr. O'Connor has served in 87 None(3)
2005 Market Street President and since various executive capacities
Philadelphia, PA Treasurer February 17, at different times at
19103 2005 Delaware Investments.
June 16, 1957
- ----------
(1) Delaware Investments is the marketing name for Delaware Management
Holdings, Inc. and its subsidiaries, including the Fund's(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(s') manager and distributor.
(3) Mr. Bishof, Mr. Connor, Mr. David P. O'Connor and Mr. John J. O'Connor
serve in similar capacities for the six portfolios of the Optimum Fund
Trust, which have the same investment advisor, principal underwriter, and
transfer agent as the registrant. Mr. John J. O'Connor also serves in a
similar capacity for Lincoln Variable Insurance Products Trust, which has
the same investment advisor as the registrant.
The Statement of Additional Information for the Fund(s) includes additional
information about the Trustees and Officers and is available, without charge,
upon request by calling 800 523-1918.
Capital Reserves-19
DELAWARE VIP TRUST - DELAWARE VIP CASH RESERVE SERIES
For the fiscal year ended December 31, 2005, Delaware VIP Cash Reserve
Series returned +2.69% for Standard Class shares and +2.43% for Service Class
shares (both figures reflect all distributions reinvested). Concurrently, the
U.S. Consumer Price Index rose +3.42%. (source: Bureau of Labor Statistics)
During this time span, we generally managed the average maturity of securities
found in the Series toward the lower end of our typical range as to better
benefit from the rising interest rates that characterized money markets in 2005.
At year end, the portfolio was made up primarily of commercial paper and other
short-term money-market instruments, with an average rating of AAA. (source
Bloomberg, L.P.)
One key trend that spanned 2005 was a progressively higher federal funds
rate, implemented by the Federal Reserve Open Market Committee (FOMC), as part
of a campaign to reach a point of "neutral" monetary stimulus that "neither
stimulates nor restrains the economy." As a short-term interest rate, the
federal funds rate is a significant bellwether for the Series for several
reasons, including its role in helping shape yields of money-market instruments,
which dominate the portfolio. As 2005 began, the federal funds rate was 2.25%.
In February, the first rate hike of 25 basis points was instituted. Increases of
a like amount continued throughout the year, including those that closely
followed Hurricanes Katrina and Rita. The last occurred on December 13, 2005.
Thus, 2006 begins with a federal funds rate of 4.25% (source: Bureau of Economic
Analysis).
PERFORMANCE OF A $10,000 INVESTMENT:
DECEMBER 31, 1995 THROUGH
DECEMBER 31, 2005
DELAWARE VIP
CASH RESERVE SERIES U.S. CONSUMER PRICE
(STANDARD CLASS SHARES) INDEX
----------------------- -------------------
12/31/1995 $ 10,000 $ 10,000
12/31/1996 $ 10,493 $ 10,332
12/31/1997 $ 11,028 $ 10,508
12/31/1997 $ 11,575 $ 10,677
12/31/1999 $ 12,130 $ 10,963
12/31/2000 $ 12,857 $ 11,335
12/31/2001 $ 13,373 $ 11,510
12/31/2002 $ 13,543 $ 11,784
12/31/2003 $ 13,628 $ 12,006
12/31/2004 $ 13,742 $ 12,397
12/31/2005 $ 14,118 $ 12,821
DELAWARE VIP CASH RESERVE SERIES
AVERAGE ANNUAL TOTAL RETURNS
For the periods ended December 31, 2005
STANDARD CLASS SERVICE CLASS
SHARES* SHARES**
-------------- --------------
LIFETIME +4.29% +2.16%
10 YEAR +3.51% --
FIVE YEAR +1.86% +1.65%
ONE YEAR +2.69% +2.43%
* 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 the Delaware VIP Cash Reserve Series
Standard Class shares and the U.S. Consumer Price Index for the 10-year period
from December 31, 1995 through December 31, 2005. All distributions were
reinvested. 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 was in
effect for the Delaware VIP Cash Reserve Series Service Class shares 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. 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 an investment at $1.00 per
share, it is possible to lose money by investing in the Series.
Cash Reserve-1
DELAWARE VIP TRUST-DELAWARE VIP CASH RESERVE SERIES
DISCLOSURE OF SERIES EXPENSES
For the Period July 1, 2005 to December 31, 2005
As a shareholder of the Series, you incur ongoing costs, including management
fees; distribution and/or service (12b-1) fees; and other Series expenses. This
Example is intended to help you understand your ongoing costs (in dollars) of
investing in the Series and to compare these costs with the ongoing costs of
investing in other mutual funds.
The Example is based on an investment of $1,000 invested at the beginning of the
period and held for the entire period from July 1, 2005 to December 31, 2005.
ACTUAL EXPENSES
The first section of the table shown, "Actual Series Return," provides
information about actual account values and actual expenses. You may use the
information in this section of the table, together with the amount you invested,
to estimate the expenses that you paid over the period. Simply divide your
account value by $1,000 (for example, an $8,600 account value divided by
$1,000 = 8.6), then multiply the result by the number in the first section under
the heading entitled "Expenses Paid During Period" to estimate the expenses you
paid on your account during the period.
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The second section of the table shown, "Hypothetical 5% Return," provides
information about hypothetical account values and hypothetical expenses based on
the Series' actual expense ratio and an assumed rate of return of 5% per year
before expenses, which is not the Series' actual return. The hypothetical
account values and expenses may not be used to estimate the actual ending
account balance or expenses you paid for the period. You may use this
information to compare the ongoing costs of investing in the Series and other
funds. To do so, compare the 5% hypothetical example with the 5% hypothetical
examples that appear in the shareholder reports of other funds.
Please note that the expenses shown in the table are meant to highlight your
ongoing costs only. As a shareholder of the Series, you do not incur any
transaction costs, such as sales charges (loads), redemption fees or exchange
fees, but shareholders of other funds may incur such costs. Also, the fees
related to the variable annuity investment or the deferred sales charge that
could apply have not been included. Therefore, the second section of the table
is useful in comparing ongoing costs only, and will not help you determine the
relative total costs of owning different funds. The Series' actual expenses
shown in the table reflect fee waivers in effect for Service Class shares. The
expenses shown in the table assume reinvestment of all dividends and
distributions.
EXPENSE ANALYSIS OF AN INVESTMENT OF $1,000
EXPENSES
BEGINNING ENDING PAID DURING
ACCOUNT ACCOUNT ANNUALIZED PERIOD
VALUE VALUE EXPENSE 7/1/05 TO
7/1/05 12/31/05 RATIOS 12/31/05*
------------ ------------ ------------ ------------
ACTUAL SERIES RETURN
Standard Class $1,000.00 $1,015.80 0.66% $3.35
Service Class 1,000.00 1,014.40 0.91% 4.62
- --------------------------------------------------------------------------------------------------------------
HYPOTHETICAL 5% RETURN (5% RETURN BEFORE EXPENSES)
Standard Class $1,000.00 $1,021.88 0.66% $3.36
Service Class 1,000.00 1,020.62 0.91% 4.63
- --------------------------------------------------------------------------------------------------------------
*"Expenses Paid During Period" are equal to the Series' annualized expense
ratio, multiplied by the average account value over the period, multiplied by
184/365 (to reflect the one-half year period).
Cash Reserve-2
DELAWARE VIP TRUST-DELAWARE VIP CASH RESERVE SERIES
SECTOR ALLOCATION
As of December 31, 2005
Sector designations may be different than the sector designations presented in
other Series materials.
PERCENTAGE
SECTOR OF NET ASSETS
- -------------------------------------------------- -------------
CERTIFICATES OF DEPOSIT 11.74%
-------------
DISCOUNTED COMMERCIAL PAPER 71.95%
-------------
Colleges & Universities 5.33%
Energy 3.30%
Financial Services 48.65%
Mortgage Bankers & Brokers 12.98%
Sovereign Agency 1.69%
-------------
FLOATING RATE NOTES 8.53%
-------------
INTEREST BEARING COMMERCIAL PAPER 4.27%
-------------
VARIABLE RATE DEMAND NOTES 3.41%
-------------
REPURCHASE AGREEMENTS 0.01%
-------------
TOTAL MARKET VALUE OF SECURITIES 99.91%
-------------
RECEIVABLES AND OTHER ASSETS NET OF LIABILITIES 0.09%
-------------
TOTAL NET ASSETS 100.00%
-------------
Cash Reserve-3
DELAWARE VIP TRUST-DELAWARE VIP CASH RESERVE SERIES
STATEMENT OF NET ASSETS
December 31, 2005
PRINCIPAL MARKET
AMOUNT VALUE
------------ ------------
CERTIFICATES OF DEPOSIT-11.74%
American Express 4.33% 1/23/06 ....... $ 750,000 $ 750,000
First Tennessee Bank 4.22% 1/17/06 ... 1,000,000 1,000,000
Suntrust Bank 4.14% 1/24/06 .......... 1,000,000 1,000,000
------------
TOTAL CERTIFICATES OF DEPOSIT
(COST $2,750,000) ................... 2,750,000
------------
DISCOUNTED COMMERCIAL PAPER-71.95%
COLLEGES & UNIVERSITIES-5.33%
Leland Stanford Junior University
4.190% 1/10/06 ..................... 750,000 749,220
University of California
3.906% 1/10/06 ..................... 500,000 499,518
------------
1,248,738
------------
ENERGY-3.30%
Koch Industries 4.337% 1/23/06 ....... 775,000 772,954
------------
772,954
------------
FINANCIAL SERVICES-48.65%
**Amstel Funding 4.428% 3/15/06 ........ 750,000 743,339
**Aquinas Funding 4.469% 3/22/06 ....... 750,000 742,633
**Barton Capital
4.222% 1/3/06 ...................... 270,000 269,937
4.293% 1/23/06 ..................... 730,000 728,095
**Cafco 4.239% 1/19/06 ................. 750,000 748,421
CBA Finance
4.218% 1/25/06 ..................... 400,000 398,885
4.296% 2/7/06 ...................... 300,000 298,686
Dexia Delaware 4.258% 1/23/06 ........ 500,000 498,708
**Eiffel Funding 4.279% 1/25/06 ........ 750,000 747,875
**Fountain Square 4.313% 2/3/06 ........ 500,000 498,038
ING America Insurance Holdings
4.309% 2/13/06 ..................... 500,000 497,450
JPMorgan Chase 4.342% 2/6/06 ......... 738,000 734,819
Santander Central 4.378% 2/16/06 ..... 500,000 497,227
**Starbird Funding 4.343% 2/6/06 ....... 750,000 746,768
**Steamboat Funding 4.357% 1/4/06 ...... 750,000 749,728
**Surrey Funding 4.288% 1/9/06 ......... 750,000 749,288
Swedish Export Credit 4.367% 1/24/06.. 750,000 747,916
UBS Finance 4.192% 1/3/06 ............ 1,005,000 1,004,767
------------
11,402,580
------------
MORTGAGE BANKERS & BROKERS-12.98%
Bear Stearns 4.333% 2/6/06 ........... 750,000 746,775
Credit Suisse First Boston
4.261% 1/30/06 ..................... 500,000 498,296
Depfa Bank 3.976% 2/21/06 ............ 250,000 248,615
ING Funding 4.331% 2/6/06 ............ 250,000 248,925
Morgan Stanley 4.373% 1/4/06 ......... 1,000,000 999,636
Westpac Banking 4.204% 1/17/06 ....... 300,000 299,444
------------
3,041,691
------------
PRINCIPAL MARKET
AMOUNT VALUE
------------ ------------
DISCOUNTED COMMERCIAL PAPER (CONTINUED)
SOVEREIGN AGENCY-1.69%
Swedish National Finance
4.386% 3/22/06 ..................... $ 400,000 $ 396,160
396,160
------------
TOTAL DISCOUNTED COMMERCIAL PAPER
(COST $16,862,123) .................. 16,862,123
------------
~Floating Rate Notes-8.53%
Bank of America 4.31% 6/7/06 ......... 1,000,000 1,000,000
Washington Mutual Bank
4.301% 5/31/06 ..................... 1,000,000 1,000,000
------------
TOTAL FLOATING RATE NOTES
(COST $2,000,000) ................... 2,000,000
------------
Interest Bearing Commercial
Paper-4.27%
#Goldman Sachs 144A 4.301% 8/7/06 ..... 1,000,000 1,000,000
------------
TOTAL INTEREST BEARING COMMERCIAL
PAPER (COST $1,000,000) ............. 1,000,000
------------
~VARIABLE RATE DEMAND NOTES-3.41%
North Texas Higher Education Authority
4.38% 12/1/44 (AMBAC) ............... 800,000 800,000
------------
TOTAL VARIABLE RATE DEMAND NOTES
(COST $800,000) ....................... 800,000
------------
REPURCHASE AGREEMENTS-0.01%
With BNP Paribas 3.30% 1/03/06
(dated 12/30/05, to be repurchased at
$1,263, collateralized by $26
U.S. Treasury Bills due 1/26/06,
market value $26, $18 U.S.
Treasury Bills due 2/23/06,
market value $18, $35
U.S. Treasury Bills due 5/4/06,
market value $35, $234 U.S.
Treasury Bills due 6/1/06,
market value $230, $655
U.S. Treasury Bills due 6/29/06,
market value $641, $233
U.S. Treasury Notes 2.625%
due 5/15/08, market value $224,
and $117 U.S. Treasury Notes
3.125% due 5/15/07, market
value $115) ........................ 1,263 1,263
With UBS Warburg 3.40% 1/03/06
(dated 12/30/05, to be repurchased at
$737, collateralized by $86 U.S.
Treasury Notes 2.00% due 5/15/06,
market value $85, and $645 U.S.
Treasury Notes 5.625% due 5/15/08,
market value $667) .................. 737 737
------------
TOTAL REPURCHASE AGREEMENTS
(COST $2,000) ....................... 2,000
------------
Cash Reserve-4
DELAWARE VIP CASH RESERVE SERIES
STATEMENT OF NET ASSETS (CONTINUED)
TOTAL MARKET VALUE OF SECURITIES-99.91%
(COST $23,414,123)^ ................................ $ 23,414,123
RECEIVABLES AND OTHER ASSETS NET OF
LIABILITIES-0.09% .................................. 21,882
NET ASSETS APPLICABLE TO 23,435,923
SHARES OUTSTANDING-100.00% ......................... $ 23,436,005
============
NET ASSET VALUE-DELAWARE VIP CASH
RESERVE SERIES STANDARD CLASS
($23,430,369 / 23,430,287 SHARES) .................. $ 1.00
============
NET ASSET VALUE-DELAWARE VIP CASH
RESERVE SERIES SERVICE CLASS
($5,636 / 5,636 SHARES) ............................ $ 1.00
============
COMPONENTS OF NET ASSETS AT
DECEMBER 31, 2005:
Shares of beneficial interest
(unlimited authorization-no par) ................... $ 23,489,321
Accumulated net realized loss on
investments ........................................ (53,316)
------------
Total net assets .................................... $ 23,436,005
============
- ----------
@ The interest rate shown is the effective yield as of the time of purchase.
** Asset-backed Commercial Paper.
^ Also the cost for federal income tax purposes.
~ Variable rate securities. The interest rate shown is the rate as of
December 31, 2005.
# Security exempt from registration under Rule 144A of the Securities Act of
1933. At December 31, 2005, the aggregate amount of Rule 144A securities
equals $1,000,000, which represented 4.27% of the Series' net assets. See
Note 4 in "Notes to Financial Statements."
SUMMARY OF ABBREVIATIONS:
AMBAC - Insured by the AMBAC Assurance Corporation
See accompanying notes
Cash Reserve-5
DELAWARE VIP TRUST-
DELAWARE VIP CASH RESERVE SERIES
STATEMENT OF OPERATIONS
Year Ended December 31, 2005
INVESTMENT INCOME:
Interest .............................................. $ 861,239
---------------
EXPENSES:
Management fees ....................................... 120,019
Legal and professional fees ........................... 13,574
Accounting and administration expenses ................ 9,748
Custodian fees ........................................ 5,269
Reports and statements to shareholders ................ 4,998
Dividend disbursing and transfer agent fees
and expenses ......................................... 2,666
Insurance fees ........................................ 2,377
Trustees' fees ........................................ 1,413
Pricing fees .......................................... 906
Registration fees ..................................... 25
Distribution expenses - Service Class ................. 18
Other ................................................. 926
--------------
161,939
Less waiver of distribution expenses - Service Class .. (3)
Less expense paid indirectly .......................... (256)
--------------
Total expenses ........................................ 161,680
--------------
NET INVESTMENT INCOME ................................. 699,559
NET REALIZED GAIN ON INVESTMENTS ...................... 82
--------------
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS ...................................... $ 699,641
==============
See accompanying notes
DELAWARE VIP TRUST-
DELAWARE VIP CASH RESERVE SERIES
STATEMENTS OF CHANGES IN NET ASSETS
YEAR ENDED
-------------------------------
12/31/05 12/31/04
-------------- --------------
INCREASE IN NET ASSETS
FROM OPERATIONS:
Net investment income ................................. $ 699,559 $ 296,837
Net realized gain on investments ...................... 82 53,506
-------------- --------------
Net increase in net assets resulting
from operations ...................................... 699,641 350,343
-------------- --------------
DIVIDENDS AND DISTRIBUTIONS TO
SHAREHOLDERS FROM:
Net investment income:
Standard Class ...................................... (699,425) (296,804)
Service Class ....................................... (134) (33)
-------------- --------------
(699,559) (296,837)
-------------- --------------
CAPITAL SHARE TRANSACTIONS
(at $1.00 per share):
Proceeds from shares sold:
Standard Class ...................................... 7,755,610 8,766,737
Net asset value of shares issued upon
reinvestment of dividends and
distributions:
Standard Class ...................................... 690,782 289,054
Service Class ....................................... 130 31
-------------- --------------
8,446,522 9,055,822
-------------- --------------
Cost of shares repurchased:
Standard Class ...................................... (14,846,540) (22,026,699)
-------------- --------------
Decrease in net assets derived
from capital share transactions ...................... (6,400,018) (12,970,877)
-------------- --------------
NET DECREASE IN NET ASSETS ............................ (6,399,936) (12,917,371)
NET ASSETS:
Beginning of year ..................................... 29,835,941 42,753,312
-------------- --------------
End of year (there was no undistributed
net investment income at either
year end) ............................................ $ 23,436,005 $ 29,835,941
============== ==============
See accompanying notes
Cash Reserve-6
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
------------------------------------------------------------------------
12/31/05 12/31/04(1) 12/31/03 12/31/02(2) 12/31/01(3)
------------ ------------ ------------ ------------ ------------
Net asset value, beginning of period .................. $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
INCOME FROM INVESTMENT OPERATIONS:
Net investment income ................................. 0.027 0.009 0.006 0.013 0.038
------------ ------------ ------------ ------------ ------------
Total from investment operations ...................... 0.027 0.009 0.006 0.013 0.038
------------ ------------ ------------ ------------ ------------
LESS DIVIDENDS AND DISTRIBUTIONS FROM:
Net investment income ................................. (0.027) (0.009) (0.006) (0.013) (0.038)
------------ ------------ ------------ ------------ ------------
Total dividends and distributions ..................... (0.027) (0.009) (0.006) (0.013) (0.038)
------------ ------------ ------------ ------------ ------------
Net asset value, end of period ........................ $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
============ ============ ============ ============ ============
Total return(3) ....................................... 2.69% 0.87% 0.61% 1.26% 3.90%
RATIOS AND SUPPLEMENTAL DATA:
Net assets, end of period (000 omitted) ............... $ 23,430 $ 29,831 $ 42,748 $ 49,809 $ 43,421
Ratio of expenses to average net assets ............... 0.61% 0.55% 0.58% 0.59% 0.60%
Ratio of net investment income to average net assets .. 2.62% 0.82% 0.60% 1.26% 3.78%
- ----------
(1) On June 10, 2004, DMC voluntarily made a capital contribution of $0.001 per
share to the Series in order to eliminate the potential deviation in the
Series' net asset value of $1.00 per share caused by accumulated net
realized losses. This contribution had no impact on the Series' total
return.
(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.
See accompanying notes
Cash Reserve-7
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
YEAR ENDED
------------------------------------------------------------------------
12/31/05 12/31/04(1) 12/31/03 12/31/02(2) 12/31/01(2)
------------ ------------ ------------ ------------ ------------
Net asset value, beginning of period .................. $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
INCOME FROM INVESTMENT OPERATIONS:
Net investment income ................................. 0.024 0.006 0.004 0.011 0.037
------------ ------------ ------------ ------------ ------------
Total from investment operations ...................... 0.024 0.006 0.004 0.011 0.037
------------ ------------ ------------ ------------ ------------
LESS DIVIDENDS AND DISTRIBUTIONS FROM:
Net investment income ................................. (0.024) (0.006) (0.004) (0.011) (0.037)
------------ ------------ ------------ ------------ ------------
Total dividends and distributions ..................... (0.024) (0.006) (0.004) (0.011) (0.037)
------------ ------------ ------------ ------------ ------------
Net asset value, end of period ........................ $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
============ ============ ============ ============ ============
Total return(3) ....................................... 2.43% 0.60% 0.40% 1.13% 3.75%
RATIOS AND SUPPLEMENTAL DATA:
Net assets, end of period (000 omitted) ............... $ 6 $ 5 $ 5 $ 5 $ 5
Ratio of expenses to average net assets ............... 0.86% 0.80% 0.80% 0.74% 0.75%
Ratio of expenses to average net assets prior to
expense limitation and expenses paid indirectly ...... 0.91% 0.85% 0.83% 0.74% 0.75%
Ratio of net investment income to average net assets .. 2.37% 0.57% 0.38% 1.11% 3.63%
Ratio of net investment income to average net assets
prior to expense limitation and expenses
paid indirectly ...................................... 2.32% 0.52% 0.35% 1.11% 3.63%
- ----------
(1) On June 10, 2004, DMC voluntarily made a capital contribution of $0.001 per
share to the Series in order to eliminate the potential deviation in the
Series' net asset value of $1.00 per share caused by accumulated net
realized losses. This contribution had no impact on the Series' total
return.
(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-8
DELAWARE VIP TRUST-DELAWARE VIP CASH RESERVE SERIES
NOTES TO FINANCIAL STATEMENTS
December 31, 2005
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 REIT Series,
Delaware VIP Select Growth Series, Delaware VIP Small Cap Value Series, Delaware
VIP Trend Series, Delaware VIP U.S. Growth Series and Delaware VIP Value Series.
These financial statements and the related notes pertain to Delaware VIP Cash
Reserve Series (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 the highest level
of current income, consistent with preserving capital and liquidity, by
investing its assets in short-term money market instruments.
1. SIGNIFICANT ACCOUNTING POLICIES
The following accounting policies are in accordance with U.S. generally accepted
accounting principles and are consistently followed by the Series.
Security Valuation--Securities are valued at amortized cost, which approximates
market value.
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 pursuant to an
exemptive order issued by the Securities and Exchange Commission. The aggregate
daily balance of the pooled cash account is invested in repurchase agreements
secured by obligations of the U.S. government. The respective collateral is held
by the Series' custodian bank until the maturity of the respective repurchase
agreements. Each repurchase agreement is 102% collateralized. However, in the
event of default or bankruptcy by the counterparty to the agreement, realization
of the collateral may be subject to legal proceedings.
Use of Estimates--The preparation of financial statements in conformity with
U.S. generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from those estimates.
Other--Expenses common to all funds within the Delaware Investments Family of
Funds are allocated amongst the funds on the basis of average net assets.
Management fees and some other expenses are paid monthly. Security transactions
are recorded on the date the securities are purchased or sold (trade date) for
financial reporting purposes. Costs used in calculating realized gains and
losses on the sale of investment securities are those of the specific securities
sold. Interest income is recorded on the accrual basis. Discounts and premiums
are amortized to interest income over the lives of the respective securities.
The Series declares dividends daily from net investment income and pays such
dividends monthly and declares and pays distributions from net realized gain on
investments, if any, following the close of the fiscal year.
The Series may receive earnings credits from its custodian when positive cash
balances are maintained, which are used to offset custody fees. The expense paid
under the above arrangement is included in custodian fees on the Statement of
Operations with the corresponding expense offset shown as "expense paid
indirectly."
2. INVESTMENT MANAGEMENT, ADMINISTRATION AGREEMENTS AND OTHER TRANSACTIONS WITH
AFFILIATES
In accordance with the terms of its investment management agreement, the Series
pays Delaware Management Company (DMC), a series of Delaware Management Business
Trust and the investment manager, an annual fee which is calculated daily at the
rate of 0.45% 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.
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 June 30, 2006. No
reimbursement was due for the year ended December 31, 2005.
Delaware Service Company, Inc. (DSC), an affiliate of DMC, provides accounting,
administration, dividend disbursing and transfer agent services. Effective May
19, 2005, the Series pays DSC a monthly fee computed at the annual rate of 0.04%
of the Series' average daily net assets for accounting and administrative
services. Prior to May 19, 2005, the Series paid 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.
Cash Reserve-9
DELAWARE VIP CASH RESERVE 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 distribution and service fee not to exceed 0.30% of the average daily net
assets of the Service Class shares. DDLP has contracted to waive distribution
and service fees through June 30, 2006 in order to prevent distribution and
service fees of the Service Class shares from exceeding 0.25% of average daily
net assets. Standard Class shares pay no distribution and service expenses.
At December 31, 2005, the Series had liabilities payable to affiliates as
follows:
DIVIDEND DISBURSING, OTHER
INVESTMENT TRANSFER AGENT, EXPENSES
MANAGEMENT ACCOUNTING AND ADMINISTRATION DISTRIBUTION PAYABLE
FEE PAYABLE TO FEES AND OTHER EXPENSES FEES PAYABLE TO DMC
DMC PAYABLE TO DSC TO DDLP AND AFFILIATES*
-------------- ----------------------------- ------------ ---------------
$8,982 $1,255 $2 $18,361
*DMC, as part of its administrative services, pays operating expenses on behalf
of the Series and is reimbursed on a periodic basis. Such expenses include items
such as printing of shareholder reports, fees for audit, legal and tax services,
custodian fees and trustees' fees.
As provided in the investment management agreement the Series bears the cost of
certain legal services expenses, including internal legal services provided to
the Series by DMC employees. For the year ended December 31, 2005, the Series
was charged $1,706 for internal legal services provided by DMC.
Certain officers of DMC, DSC and DDLP are officers and/or trustees of the Trust.
These officers and trustees are paid no compensation by the Series.
3. DIVIDEND AND DISTRIBUTION INFORMATION
Income and long-term capital gain distributions are determined in accordance
with federal income tax regulations, which may differ from U.S. generally
accepted accounting principles. Additionally, net short-term gains on sales of
investment securities are treated as ordinary income for federal income tax
purposes. The tax character of dividends and distributions paid during the years
ended December 31, 2005 and 2004 was as follows:
YEAR YEAR
ENDED ENDED
12/31/05 12/31/04
------------ ------------
Ordinary income ......... $699,559 $296,837
As of December 31, 2005, the components of net assets on a tax basis were as
follows:
Shares of beneficial interest ..... $ 23,489,321
Post-October losses ............... (3)
Capital loss carryforwards ........ (53,313)
Net assets ........................ $ 23,436,005
Post-October losses represent losses realized on investment transactions from
November 1, 2005 through December 31, 2005 that, in accordance with federal
income tax regulations, the Series has elected to defer and treat as having
arisen in the following fiscal year.
For federal income tax purposes, capital loss carryforwards may be carried
forward and applied against future capital gains. $85 was utilized in 2005.
Capital loss carryforwards remaining at December 31, 2005 will expire as
follows: $53,313 expires in 2010.
Cash Reserve-10
DELAWARE VIP CASH RESERVE SERIES
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
4. 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.
The Series may invest up to 10% of its total assets in illiquid securities,
which may include securities with contractual restrictions on resale, securities
exempt from registration under Rule 144A of the Securities Act of 1933, as
amended, and other securities which may not be readily marketable. The relative
illiquidity of these securities may impair the Series from disposing of them in
a timely manner and at a fair price when it is necessary or desirable to do so.
While maintaining oversight, the Board of Trustees has delegated to DMC the
day-to-day functions of determining whether individual securities are liquid for
purposes of the Series' limitation on investments in illiquid assets. At
December 31, 2005, no securities have been determined to be illiquid under the
Series' Liquidity Procedures.
5. CONTRACTUAL OBLIGATIONS
The Series enters into contracts in the normal course of business that contain a
variety of indemnifications. The Series' maximum exposure under these
arrangements is unknown. However, the Series has not had prior claims or losses
pursuant to these contracts. Management has reviewed the Series' existing
contracts and expects the risk of loss to be remote.
6. TAX INFORMATION (UNAUDITED)
For the fiscal year ended December 31, 2005, the Series designates distributions
paid during the year as follows:
(A) (B)
LONG-TERM ORDINARY
CAPITAL GAINS INCOME TOTAL
DISTRIBUTIONS DISTRIBUTIONS DISTRIBUTION
(TAX BASIS) (TAX BASIS) (TAX BASIS)
------------- ------------- -------------
- 100% 100%
- ----------
(A) and (B) are based on a percentage of the Series' total distributions.
Cash Reserve-11
DELAWARE VIP TRUST-DELAWARE VIP CASH RESERVE SERIES
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
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 the Delaware VIP
Cash Reserve Series (one of the series constituting Delaware VIP Trust) (the
"Series") as of December 31, 2005, 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 of the
five years in the period then ended. 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 the standards of the Public Company
Accounting Oversight Board (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. We were
not engaged to perform an audit of the Series' internal control over financial
reporting. Our audits included consideration of internal control over financial
reporting as a basis for designing audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion on the
effectiveness of the Series' internal control over financial reporting.
Accordingly, we express no such opinion. An audit also includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements and financial highlights, assessing the accounting principles used
and significant estimates made by management, and evaluating the overall
financial statement presentation. Our procedures included confirmation of
securities owned as of December 31, 2005, by correspondence with the custodian
and brokers. 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 the
Delaware VIP Cash Reserve Series of Delaware VIP Trust at December 31, 2005, 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 five years in the period then ended, in conformity with U.S.
generally accepted accounting principles.
ERNEST & YOUNG LLP
Philadelphia, Pennsylvania
February 10, 2006
The Series files its complete schedule of portfolio holdings with the
Securities and Exchange Commission for the first and third quarters of
each fiscal year on Form N-Q. The Series' Forms N-Q, as well as a
description of the policies and procedures that the Series uses to
determine how to vote proxies (if any) relating to portfolio
securities is available without charge (i) upon request, by calling
800-523-1918; (ii) on the Series' website at
http://www.delawareinvestments.com; and (iii) on the Commission's
website at http://www.sec.gov. The Series' Forms N-Q may be reviewed
and copied at the Commission's Public Reference Room in Washington,
DC; information on the operation of the Public Reference Room may be
obtained by calling 1-800-SEC-0330.
Information (if any) regarding how the Series voted proxies relating
to portfolio securities during the most recently disclosed 12-month
period ended June 30 is available without charge (i) through the
Series' website at http://www.delawareinvestments.com; and (ii) on the
Commission's website at http://www.sec.gov.
Cash Reserve-12
DELAWARE INVESTMENTS(R) FAMILY OF FUNDS
BOARD OF TRUSTEES/DIRECTORS AND OFFICERS ADDENDUM
A mutual fund is governed by a Board of Trustees/Directors ("Trustees"), which
has oversight responsibility for the management of a fund's business affairs.
Trustees establish procedures and oversee and review the performance of the
investment manager, the distributor and others who perform services for the
fund. The independent fund trustees, in particular, are advocates for
shareholder interests. Each trustee has served in that capacity since he or she
was elected to or appointed to the Board of Trustees, and will continue to serve
until his or her retirement or the election of a new trustee in his or her
place. The following is a list of the Trustees 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 TRUSTEE
AND BIRTHDATE FUND(S) SERVED PAST 5 YEARS OR OFFICER OR OFFICER
- --------------------- --------------- ----------------- -------------------------------- ------------------ ------------------
INTERESTED TRUSTEES
Jude T. Driscoll(2) Chairman, 5 Years - Since August 2000, 87 None
2005 Market Street President, Executive Officer Mr. Driscoll has served in
Philadelphia, PA Chief Executive various executive capacities
19103 Officer and 2 Years - at different times at
Trustee Trustee Delaware Investments(1)
March 10, 1963
- --------------------- --------------- ----------------- -------------------------------- ------------------ ------------------
INDEPENDENT TRUSTEES
Thomas L. Bennett Trustee Since Private Investor - 87 None
2005 Market Street March 23, 2005 (March 2004 - Present)
Philadelphia, PA
19103 Investment Manager -
Morgan Stanley & Co.
October 4, 1947 (January 1984 - March 2004)
John A. Fry Trustee 4 Years President - 87 Director -
2005 Market Street Franklin & Marshall College Community Health
Philadelphia, PA (June 2002 - Present) Systems
19103
Executive Vice President -
May 28, 1960 University of Pennsylvania
(April 1995 - June 2002)
Anthony D. Knerr Trustee 12 Years Founder/Managing Director - 87 None
2005 Market Street Anthony Knerr & Associates
Philadelphia, PA (Strategic Consulting)
19103 (1990 - Present)
December 7, 1938
Lucinda S. Landreth Trustee Since Chief Investment Officer - 87 None
2005 Market Street March 23, 2005 Assurant, Inc.
Philadelphia, PA (Insurance)
19103 (2002 - 2004)
June 24, 1947
Ann R. Leven Trustee 16 Years Treasurer/Chief Fiscal Officer - 87 Director and
2005 Market Street National Gallery of Art Audit Committee
Philadelphia, PA (1994 - 1999) Chairperson - Andy
19103 Warhol Foundation
November 1, 1940 Director and Audit
Committee Member -
Systemax Inc.
Cash Reserve-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 TRUSTEE
AND BIRTHDATE FUND(S) SERVED PAST 5 YEARS OR OFFICER OR OFFICER
- --------------------- --------------- ----------------- -------------------------------- ------------------ -----------------
INDEPENDENT TRUSTEES
Thomas F. Madison Trustee 11 Years President/Chief 87 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 and Audit
Committee Member -
Digital River Inc.
Director and Audit
Committee Member -
Rimage
Corporation
Director - Valmont
Industries, Inc.
Janet L. Yeomans Trustee 6 Years Vice President 87 None
2005 Market Street (January 2003 - Present)
Philadelphia, PA and Treasurer
19103 (January 2006 - Present)
3M Corporation
July 31, 1948
Ms. Yeomans has held
various management positions
at 3M Corporation since 1983.
J. Richard Zecher Trustee Since Founder - 87 Director and Audit
2005 Market Street March 23, 2005 Investor Analytics Committee Member -
Philadelphia, PA (Risk Management) Investor Analytics
19103 (May 1999 - Present)
Director and Audit
July 3, 1940 Committee Member -
Oxigene, Inc.
- --------------------- --------------- ----------------- -------------------------------- ------------------ ------------------
OFFICERS
Michael P. Bishof Senior Chief Financial Mr. Bishof has served in 87 None(3)
2005 Market Street Vice President Officer since various executive capacities
Philadelphia, PA and February 17, 2005 at different times at
19103 Chief Financial Delaware Investments.
Officer
August 18, 1962
David F. Connor Vice President, Vice President Mr. Connor has served as 87 None(3)
2005 Market Street Deputy General since Vice President and Deputy
Philadelphia, PA Counsel and September 21, General Counsel of Delaware
19103 Secretary 2000 and Investments since 2000.
Secretary since
October 25, 2005
December 2, 1963
David P. O'Connor Senior Vice Senior Vice Mr. O'Connor has served in 87 None(3)
2005 Market Street President, President, various executive and legal
Philadelphia, PA General Counsel General Counsel capacities at different times
19103 and Chief and Chief Legal at Delaware Investments.
Legal Officer Officer since
October 25, 2005
February 21, 1966
John J. O'Connor Senior Vice Treasurer Mr. O'Connor has served in 87 None(3)
2005 Market Street President and since various executive capacities
Philadelphia, PA Treasurer February 17, 2005 at different times at
19103 Delaware Investments.
June 16, 1957
(1) Delaware Investments is the marketing name for Delaware Management
Holdings, Inc. and its subsidiaries, including the Fund's(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(s') manager and distributor.
(3) Mr. Bishof, Mr. Connor, Mr. David P. O'Connor and Mr. John J. O'Connor
serve in similar capacities for the six portfolios of the Optimum Fund
Trust, which have the same investment advisor, principal underwriter, and
transfer agent as the registrant. Mr. John J. O'Connor also serves in a
similar capacity for Lincoln Variable Insurance Products Trust, which has
the same investment advisor as the registrant.
The Statement of Additional Information for the Fund(s) includes additional
information about the Trustees and Officers and is available, without charge,
upon request by calling 800 523-1918.
Cash Reserve-14
DELAWARE VIP TRUST - DELAWARE VIP DIVERSIFIED INCOME SERIES
For the 12-month period ended December 31, 2005, Delaware VIP Diversified
Income Series returned -0.45% for Standard Class shares and -0.59% for Service
Class shares (both figures reflect all distributions reinvested). During the
same 12-month period, the Series' benchmark, the Lehman Brothers Aggregate Bond
Index, outperformed compared to the Series with a return of 2.43%.
The U.S. dollar surprised us with strong returns in 2005, and we have held
more foreign currency exposure than the average competitor portfolio.
Additionally, high yield bond exposure in the Series has been between 20% and
30%. High yield bond returns in the Series did not equal the yield from that
sector. For instance, performance of auto sector bonds was a negative influence
near the end of the year. Auto sector downgrades and the increase in shareholder
friendly and LBO activity contributed to a price correction. For the year, the
Merrill Lynch High Yield index had a return of only 2.83%.
Generally speaking, we will be looking for investments with a forecasted
return of 6% to 8% in 2006. As all fixed-income markets (and some equity
markets) will have significant challenges in returning above 6%, much of our
efforts will be directed toward finding these trades. Our end-of-year position
included some hedged foreign bond exposure, where central banks have already
completed a tightening cycle, and the local currency bonds are expected to
rally.
PERFORMANCE OF A $10,000 INVESTMENT:
Delaware VIP
Diversified Income Series Lehman Brothers
(Standard Class Shares) Aggregate Bond Index
------------------------- --------------------
May 16,'03 $ 10,000
June 30,'03 $ 10,000
Sept 30,'03 $ 10,059 $ 9,980
Dec 31,'03 $ 10,518 $ 9,997
March 31,'04 $ 10,503 $ 10,012
June 30,'04 $ 11,408 $ 10,430
Sept 30,'04 $ 11,468 $ 10,692
Dec 31,'04 $ 11,357 $ 10,684
DELAWARE VIP
DIVERSIFIED INCOME SERIES
AVERAGE ANNUAL TOTAL RETURNS
STANDARD CLASS SERVICE CLASS
SHARES* SHARES*
-------------- -------------
LIFETIME +4.96% +4.67%
ONE YEAR -0.45% -0.59%
FOR THE PERIODS ENDED DECEMBER 31, 2005
*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, 2005. 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 16, 2003, returns plotted on the chart were
as of the last day of each month shown. The Lehman Brothers Aggregate Bond Index
measures the performance of government and corporate bonds, mortgage-backed
securities, and asset-backed securities. Earnings from a variable annuity
investment compound tax-free until withdrawn, so no adjustments were made for
income taxes. 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. 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
DISCLOSURE OF SERIES EXPENSES
For the Period July 1, 2005 to December 31, 2005
As a shareholder of the Series, you incur ongoing costs, including management
fees; distribution and/or service (12b-1) fees; and other Series expenses. This
Example is intended to help you understand your ongoing costs (in dollars) of
investing in the Series and to compare these costs with the ongoing costs of
investing in other mutual funds.
The Example is based on an investment of $1,000 invested at the beginning of the
period and held for the entire period from July 1, 2005 to December 31, 2005.
ACTUAL EXPENSES
The first section of the table shown, "Actual Series Return," provides
information about actual account values and actual expenses. You may use the
information in this section of the table, together with the amount you invested,
to estimate the expenses that you paid over the period. Simply divide your
account value by $1,000 (for example, an $8,600 account value divided by $1,000
= 8.6), then multiply the result by the number in the first section under the
heading entitled "Expenses Paid During Period" to estimate the expenses you paid
on your account during the period.
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The second section of the table shown, "Hypothetical 5% Return," provides
information about hypothetical account values and hypothetical expenses based on
the Series' actual expense ratio and an assumed rate of return of 5% per year
before expenses, which is not the Series' actual return. The hypothetical
account values and expenses may not be used to estimate the actual ending
account balance or expenses you paid for the period. You may use this
information to compare the ongoing costs of investing in the Series and other
funds. To do so, compare the 5% hypothetical example with the 5% hypothetical
examples that appear in the shareholder reports of other funds.
Please note that the expenses shown in the table are meant to highlight your
ongoing costs only. As a shareholder of the Series, you do not incur any
transaction costs, such as sales charges (loads), redemption fees or exchange
fees, but shareholders of other funds may incur such costs. Also, the fees
related to the variable annuity investment or the deferred sales charge that
could apply have not been included. Therefore, the second section of the table
is useful in comparing ongoing costs only, and will not help you determine the
relative total costs of owning different funds. The Series' actual expenses
shown in the table reflect fee waivers in effect. The expenses shown in the
table assume reinvestment of all dividends and distributions.
EXPENSE ANALYSIS OF AN INVESTMENT OF $1,000
EXPENSES
BEGINNING ENDING PAID DURING
ACCOUNT ACCOUNT ANNUALIZED PERIOD
VALUE VALUE EXPENSE 7/1/05 TO
7/1/05 12/31/05 RATIOS 12/31/05*
- ----------------------------------------------------------------------------------
ACTUAL SERIES RETURN
Standard Class $1,000.00 $990.40 0.79% $3.96
Service Class 1,000.00 989.30 1.04% 5.21
- ----------------------------------------------------------------------------------
HYPOTHETICAL 5% RETURN
(5% RETURN BEFORE EXPENSES)
Standard Class $1,000.00 $1,021.22 0.79% $4.02
Service Class 1,000.00 1,019.96 1.04% 5.30
- ----------------------------------------------------------------------------------
*"Expenses Paid During Period" are equal to the Series' annualized expense
ratio, multiplied by the average account value over the period, multiplied by
184/365 (to reflect the one-half year period).
Diversified Income-2
DELAWARE VIP TRUST-DELAWARE VIP DIVERSIFIED INCOME SERIES
SECTOR ALLOCATION
As of December 31, 2005
Sector designations may be different than the sector designations presented in
other Series materials.
PERCENTAGE
SECTOR OF NET ASSETS
- -----------------------------------------------------------------------------
AGENCY ASSET-BACKED SECURITIES 0.28%
- -----------------------------------------------------------------------------
AGENCY COLLATERALIZED MORTGAGE OBLIGATIONS 2.42%
- -----------------------------------------------------------------------------
AGENCY MORTGAGE-BACKED SECURITIES 10.52%
- -----------------------------------------------------------------------------
AGENCY OBLIGATIONS 3.01%
- -----------------------------------------------------------------------------
COMMERCIAL MORTGAGE-BACKED SECURITIES 1.38%
- -----------------------------------------------------------------------------
CORPORATE BONDS 34.73%
- -----------------------------------------------------------------------------
Banking 2.04%
Basic Industry 3.28%
Brokerage 1.13%
Capital Goods 1.34%
Communications 6.35%
Consumer Cyclical 4.94%
Consumer Non-Cyclical 3.22%
Electric 2.22%
Emerging Markets 0.36%
Energy 0.97%
Financials 2.64%
Industrial - Other 0.61%
Insurance 2.60%
Natural Gas 0.54%
Real Estate 0.59%
Technology 0.72%
Transportation 1.18%
- -----------------------------------------------------------------------------
FOREIGN AGENCIES 2.29%
- -----------------------------------------------------------------------------
Austria 0.82%
Germany 1.38%
Mexico 0.02%
Ukraine 0.07%
- -----------------------------------------------------------------------------
FOREIGN MUNICIPAL BONDS 0.12%
- -----------------------------------------------------------------------------
Canada 0.12%
- -----------------------------------------------------------------------------
MUNICIPAL BONDS 0.44%
- -----------------------------------------------------------------------------
NON-AGENCY ASSET-BACKED SECURITIES 4.27%
- -----------------------------------------------------------------------------
NON-AGENCY COLLATERALIZED MORTGAGE OBLIGATIONS 8.20%
- -----------------------------------------------------------------------------
REGIONAL AGENCIES 0.39%
- -----------------------------------------------------------------------------
Australia 0.39%
- -----------------------------------------------------------------------------
REGIONAL AUTHORITY 1.93%
- -----------------------------------------------------------------------------
Canada 1.93%
- -----------------------------------------------------------------------------
SOVEREIGN AGENCIES 0.46%
- -----------------------------------------------------------------------------
Canada 0.34%
Japan 0.12%
- -----------------------------------------------------------------------------
PERCENTAGE
SECTOR OF NET ASSETS
- -----------------------------------------------------------------------------
SOVEREIGN DEBT 12.36%
- -----------------------------------------------------------------------------
Argentina 0.24%
Austria 0.76%
Brazil 0.34%
Colombia 0.13%
Dominican Republic 0.09%
El Salvador 0.20%
France 0.47%
Germany 1.62%
Netherlands 0.63%
Norway 0.34%
Panama 0.11%
Peru 0.15%
Philippines 0.12%
Poland 0.90%
Portugal 0.29%
Russia 0.11%
Spain 0.40%
Sweden 1.78%
Turkey 0.31%
United Kingdom 3.12%
Venezuela 0.25%
- -----------------------------------------------------------------------------
SUPRANATIONAL BANKS 1.90%
- -----------------------------------------------------------------------------
U.S. TREASURY OBLIGATIONS 12.23%
- -----------------------------------------------------------------------------
CONVERTIBLE BONDS 0.05%
- -----------------------------------------------------------------------------
COMMON STOCK 0.04%
- -----------------------------------------------------------------------------
PREFERRED STOCK 0.03%
- -----------------------------------------------------------------------------
WARRANT 0.03%
- -----------------------------------------------------------------------------
CURRENCY OPTIONS PURCHASED 0.05%
- -----------------------------------------------------------------------------
REPURCHASE AGREEMENTS 5.94%
- -----------------------------------------------------------------------------
TOTAL MARKET VALUE OF SECURITIES 103.07%
- -----------------------------------------------------------------------------
LIABILITIES NET OF RECEIVABLES AND OTHER ASSETS (3.07%)
- -----------------------------------------------------------------------------
TOTAL NET ASSETS 100.00%
- -----------------------------------------------------------------------------
Diversified Income-3
DELAWARE VIP TRUST-DELAWARE VIP DIVERSIFIED INCOME SERIES
STATEMENT OF NET ASSETS
December 31, 2005
PRINCIPAL MARKET
AMOUNT~ VALUE
------------ ------------
(U.S.$)
AGENCY ASSET-BACKED SECURITIES-0.28%
@Fannie Mae Grantor Trust
Series 2004-T4 A2 3.93% 2/25/20 .................. USD 15,799 $ 15,749
Series 2004-T4 A3 4.42% 8/25/24 .................. 35,000 34,850
@Fannie Mae Whole Loan
Series 2002-W11 AV1
4.719% 11/25/32 .................................. 60,461 60,473
>FHLMC Structured Pass-Through
Securities Series T-30 A5
7.61% 12/25/30 ................................... 274,598 274,427
@SLMA Student Loan Trust
Series 2004-1 A1 4.24% 1/26/15 ................... 228,667 228,753
------------
TOTAL AGENCY ASSET-BACKED SECURITIES
(COST $614,088) .................................. 614,252
------------
AGENCY COLLATERALIZED MORTGAGE OBLIGATIONS-2.42%
Fannie Mae Grantor Trust
Series 1999-T2 A1 7.50% 1/19/39 .................. 2,459 2,577
Series 2001-T8 A2 9.50% 7/25/41 .................. 22,876 24,873
Series 2002-T4 A3 7.50% 12/25/41 ................. 52,411 54,864
Series 2004-T1 1A2 6.50% 1/25/44 ................. 51,504 53,069
Fannie Mae
Series 1996-46 ZA 7.50% 11/25/26 ................. 8,579 9,115
Series 2002-90 A1 6.50% 6/25/42 .................. 27,858 28,494
Series 2002-90 A2 6.50% 11/25/42 ................. 123,498 126,929
Series 2003-122 AJ 4.50% 2/25/28 ................. 127,783 125,026
Series 2005-110 MB 5.50% 9/25/35 ................. 730,000 736,088
Fannie Mae Whole Loan
Series 2002-W6 2A1 7.00% 6/25/42 ................. 89,275 92,679
Series 2003-W12 2A3 2.42% 6/25/43 ................ 167,980 167,303
Series 2003-W14 1A5 4.71% 9/25/43 ................ 40,874 40,740
Series 2003-W18 1A5 4.61% 8/25/43 ................ 235,000 232,687
Series 2004-W3 A2 3.75% 5/25/34 .................. 450,000 444,909
Series 2004-W9 2A1 6.50% 2/25/44 ................. 14,831 15,191
Series 2004-W11 1A2 6.50% 5/25/44 ................ 169,464 173,608
Freddie Mac
Series 1730 Z 7.00% 5/15/24 ...................... 206,429 216,562
Series 2326 ZQ 6.50% 6/15/31 ..................... 281,130 295,005
Series 2480 EH 6.00% 11/15/31 .................... 661 663
Series 2550 QX 4.75% 6/15/27 ..................... 170,000 169,265
Series 2552 KB 4.25% 6/15/27 ..................... 199,839 198,300
Series 2627 KP 2.87% 12/15/16 .................... 277,507 261,571
Series 2662 MA 4.50% 10/15/31 .................... 321,905 316,150
Series 2872 GC 5.00% 11/15/29 .................... 220,000 216,029
Series 2890 PC 5.00% 7/15/30 ..................... 105,000 103,203
Series 2915 KP 5.00% 11/15/29 .................... 265,000 260,397
Series 3022 MB 5.00% 12/15/28 .................... 165,000 163,218
Series 3063 PC 5.00% 2/15/29 ..................... 540,000 533,075
>Freddie Mac Structured Pass-Through
Securities
Series T-54 2A 6.50% 2/25/43 ..................... 50,439 51,731
Series T-58 1A2 3.108% 5/25/35 ................... 2,460 2,446
Series T-58 2A 6.50% 9/25/43 ..................... 19,838 20,324
PRINCIPAL MARKET
AMOUNT~ VALUE
------------ ------------
(U.S.$)
AGENCY COLLATERALIZED MORTGAGE OBLIGATIONS (CONTINUED)
GNMA
Series 2002-62 B 4.763% 1/16/25 ............ USD 5,000 $ 4,959
Series 2005-87 A 4.449% 3/16/25 ............ 234,442 230,498
------------
TOTAL AGENCY COLLATERALIZED
MORTGAGE OBLIGATIONS
(COST $5,408,834) ......................... 5,371,548
------------
AGENCY MORTGAGE-BACKED SECURITIES-10.52%
FANNIE MAE
5.50% 1/1/13 ............................... 307,578 309,212
5.73% 12/1/08 .............................. 22,597 23,013
6.203% 5/1/09 .............................. 40,906 41,864
6.50% 8/1/17 ............................... 87,186 89,448
6.765% 1/1/07 .............................. 22,235 22,388
@Fannie Mae ARM
3.249% 10/1/33 ............................. 588,415 587,319
5.07% 8/1/35 ............................... 269,391 264,759
Fannie Mae Relocation 15 yr 4.00% 9/1/20 ..... 610,659 585,088
Fannie Mae Relocation 30 yr
5.00% 11/1/33 .............................. 12,236 11,988
5.00% 8/1/34 ............................... 79,483 77,744
5.00% 11/1/34 .............................. 116,170 113,629
5.00% 4/1/35 ............................... 298,011 290,933
5.00% 10/1/35 .............................. 493,508 481,787
Fannie Mae S.F. 15 yr 4.50% 11/1/19 .......... 681,045 664,018
Fannie Mae S.F. 15 yr TBA
4.50% 1/1/21 ............................... 3,400,000 3,308,625
5.00% 1/1/21 ............................... 1,150,000 1,137,781
5.50% 1/1/21 ............................... 635,000 638,969
Fannie Mae S.F. 20 yr 5.50% 8/1/25 ........... 1,004,555 1,002,672
Fannie Mae S.F. 30 yr
5.50% 3/1/29 ............................... 3,979 3,953
5.50% 4/1/29 ............................... 4,217 4,189
6.00% 8/1/35 ............................... 547,151 552,452
7.00% 6/1/35 ............................... 49,705 51,880
7.50% 3/1/32 ............................... 2,115 2,216
7.50% 4/1/32 ............................... 8,662 9,077
7.50% 6/1/34 ............................... 102,620 107,527
Fannie Mae S.F. 30 yr TBA
5.00% 1/1/36 ............................... 3,725,000 3,609,758
5.50% 1/1/36 ............................... 6,085,000 6,026,053
6.00% 1/25/36 .............................. 1,950,000 1,968,281
7.00% 1/1/36 ............................... 320,000 333,900
Freddie Mac 7.00% 1/1/08 ..................... 174,072 175,812
@Freddie Mac ARM
2.996% 12/1/33 ............................. 784,221 773,792
3.733% 4/1/34 .............................. 18,658 18,763
Freddie Mac Relocation 30 yr
5.00% 9/1/33 ............................... 22,473 22,059
------------
TOTAL AGENCY MORTGAGE-BACKED
SECURITIES (COST $23,264,370) ................ 23,310,949
------------
Diversified Income-4
DELAWARE VIP DIVERSIFIED INCOME SERIES
STATEMENT OF NET ASSETS (CONTINUED)
PRINCIPAL MARKET
AMOUNT~ VALUE
------------ ------------
(U.S.$)
AGENCY OBLIGATIONS-3.01%
Fannie Mae
3.00% 8/15/07 .............................................. USD 40,000 $ 38,934
^5.721% 10/9/19 ............................................. USD 185,000 90,097
6.375% 8/15/07 ............................................. AUD 1,012,000 749,961
Federal Home Loan Bank
4.25% 9/14/07 .............................................. USD 970,000 962,350
^Financing Corporation Principal
Strip CPN 1
4.413% 11/11/13 ............................................ 685,000 471,303
4.898% 11/11/17 ............................................ 290,000 162,037
^Financing Corporation Principal Strip
PRN 1 5.00% 5/11/18 ........................................ 1,800,000 994,420
PRN 13 4.883% 12/27/18 ..................................... 255,000 136,434
PRN 15 5.24% 3/7/19 ........................................ 155,000 82,088
PRN 16 4.674% 4/5/19 ....................................... 340,000 179,353
PRN D 4.57% 9/26/19 ........................................ 1,335,000 686,967
Freddie Mac 4.625% 12/19/08 ................................. 1,060,000 1,058,189
^Residual Funding Strip Principal Only
5.044% 10/15/19 ............................................ 900,000 469,902
^Resolution Funding Strip Principal Only
5.209% 1/15/25 ............................................. 825,000 333,208
5.24% 10/15/25 ............................................. 685,000 267,665
------------
TOTAL AGENCY OBLIGATIONS
(COST $6,642,555) .......................................... 6,682,908
------------
COMMERCIAL MORTGAGE-BACKED SECURITIES-1.38%
Bank of America Commercial Mortgage
Securities Series 2004-5 A3
4.561% 11/10/41 ............................................ 40,000 38,873
#Bear Stearns Commercial Mortgage
Securities Series 2004-ESA E 144A
5.064% 5/14/16 ............................................. 215,000 215,331
@Citigroup/Deutsche Bank Commercial
Mortgage Trust
Series 2005-CD1 AJ 5.225% 7/15/44 .......................... 115,000 114,897
>#Commercial Mortgage Pass-Through
Certificates Series 2001-J1A A2 144A
6.457% 2/14/34 ............................................. 192,348 201,734
#Crown Castle Towers Series
2005-1A C 144A 5.074% 6/15/35 .............................. 90,000 88,369
#First Union National Bank
Commercial Mortgage Series
2001-C2 L 144A 6.46% 1/12/43 ............................... 200,000 199,032
GE Capital Commercial
Mortgage Trust
Series 2002-1A A3 6.269% 12/10/35 .......................... 365,000 386,626
Series 2005-C3 A3FX 4.863% 7/10/45 ......................... 50,000 49,553
General Motors Acceptance Corporation
Commercial Mortgage Securities
Series 1998-C2 A2 6.42% 5/15/35 ............................ 208,065 214,248
Greenwich Capital Commercial
Funding Series 2005-GG3 A2
4.305% 8/10/42 ............................................ 40,000 38,950
#Hilton Hotel Pool Trust
Series 2000 HLTA A1 144A
7.055% 10/3/15 ........................................... 15,137 15,912
PRINCIPAL MARKET
AMOUNT~ VALUE
------------ ------------
(U.S.$)
COMMERCIAL MORTGAGE-BACKED SECURITIES (CONTINUED)
JPMORGAN CHASE COMMERCIAL
Mortgage Securities
Series 2002-C1 A3 5.376% 7/12/37 ......................... USD 290,000 $ 294,023
Series 2002-C2 A2 5.05% 12/12/34 ......................... 280,000 278,780
Series 2003-C1 A2 4.985% 1/12/37 ......................... 20,000 19,852
LB-UBS Commercial Mortgage Trust
Series 2002-C1 A4 6.462% 3/15/31 ......................... 110,000 117,889
Merrill Lynch Mortgage Trust
@Series 2004-BPC1 A3
4.467% 10/12/41 .......................................... 25,000 24,160
Series 2005-CIP1 A2
4.96% 7/12/38 ............................................ 300,000 298,287
@Series 2005-CIP1 B 5.101% 7/12/38 ........................ 80,000 79,305
Morgan Stanley Capital I
Series 2005-HQ6 A2A
4.882% 8/13/42 ........................................... 115,000 114,151
@Series 2005-HQ7 A4
5.205% 11/14/42 .......................................... 205,000 206,709
#Tower Series 2004-2A A 144A
4.232% 12/15/14 .......................................... 65,000 62,826
------------
Total Commercial Mortgage-Backed
Securities (cost $3,121,108) ............................. 3,059,507
------------
CORPORATE BONDS-34.73%
BANKING-2.04%
#Banco BMG 144A 9.15% 11/15/16 ............................... 258,000 254,711
#Banco Continental 144A
6.625% 12/1/10 ........................................... 530,000 531,403
@#Banco Santander 144A 4.81% 12/9/09 .......................... 60,000 59,856
Bank Nederlandse Gemeenten
6.75% 9/21/11 ............................................ NZD 449,000 309,397
@Barclays Bank 6.278% 12/29/49 ............................... USD 130,000 130,894
Citigroup 5.875% 2/22/33 .................................... 210,000 216,058
Credit Suisse First Boston USA
6.125% 11/15/11 .......................................... 75,000 78,827
Deustche Bank AG 8.00% 9/29/06 .............................. ISK 7,100,000 111,608
@#HBOS 144A 5.92% 9/29/49 ..................................... USD 300,000 303,338
#ICICI Bank 144A 5.75% 11/16/10 .............................. 225,000 226,336
Popular North America 4.25% 4/1/08 .......................... 185,000 181,545
Popular North America Capital Trust
6.564% 9/15/34 ........................................... 130,000 134,144
@#Rabobank Capital Funding II 144A
5.26% 12/29/49 ........................................... 110,000 109,155
@RBS Capital Trust I 4.709% 12/29/49 ......................... 95,000 90,432
Regions Financial 6.375% 5/15/12 ............................ 170,000 182,330
@#Resona Bank 144A 5.85% 9/29/49 .............................. 305,000 304,291
@#Resona Preferred 144A
7.191% 12/29/49 .......................................... 970,000 1,030,914
Western Financial 9.625% 5/15/12 ............................ 235,000 264,375
------------
4,519,614
------------
BASIC INDUSTRY-3.28%
Abitibi-Consolidated
6.95% 12/15/06 ........................................... 20,000 20,250
6.95% 4/1/08 ............................................. 61,000 61,305
7.875% 8/1/09 ............................................ 500,000 497,500
Diversified Income-5
DELAWARE VIP DIVERSIFIED INCOME SERIES
STATEMENT OF NET ASSETS (CONTINUED)
PRINCIPAL MARKET
AMOUNT~ VALUE
------------ ------------
(U.S.$)
CORPORATE BONDS (CONTINUED)
BASIC INDUSTRY (CONTINUED)
AK Steel 7.875% 2/15/09 ...................................... USD 240,000 $ 229,200
Barrick Gold Finance 7.50% 5/1/07 ............................ 60,000 61,767
Bowater
9.00% 8/1/09 ................................................ 195,000 201,825
9.50% 10/15/12 .............................................. 660,000 683,099
#Codelco 144A 5.625% 9/21/35 .................................. 190,000 189,955
Donohue Forest Products
7.625% 5/15/07 .............................................. 275,000 280,500
#Evraz Group SA 144A 8.25% 11/10/15 ........................... 370,000 366,855
Georgia-Pacific
8.875% 5/15/31 .............................................. 605,000 609,537
9.50% 12/1/11 ............................................... 365,000 386,444
Gold Kist 10.25% 3/15/14 .................................... 150,000 168,000
Huntsman International
10.125% 7/1/09 .............................................. 80,000 83,000
#Huntsman International 144A
7.375% 1/1/15 ............................................... 465,000 451,050
Lubrizol 4.625% 10/1/09 ...................................... 40,000 39,238
Lyondell Chemical 10.50% 6/1/13 .............................. 50,000 57,063
Norske Skog Canada 8.625% 6/15/11 ............................ 580,000 556,800
*#Novelis 144A 7.50% 2/15/15 ................................. 30,000 28,125
#Port Townsend Paper 144A
12.00% 4/15/11 .............................................. 190,000 122,550
Potlatch 13.00% 12/1/09 ...................................... 150,000 179,870
Rhodia
8.875% 6/1/11 ............................................... 250,000 257,500
10.25% 6/1/10 ............................................... 250,000 275,000
Smurfit Capital Funding
7.50% 11/20/25 .............................................. 535,000 473,475
!Solutia 6.72% 10/15/37 ....................................... 275,000 211,750
Stone Container 9.75% 2/1/11 ................................. 290,000 294,350
Tembec Industries 8.625% 6/30/09 ............................. 625,000 359,375
Witco 6.875% 2/1/26 .......................................... 125,000 119,375
------------
7,264,758
------------
BROKERAGE-1.13%
Amvescap 4.50% 12/15/09 ...................................... 150,000 147,315
E Trade Financial 8.00% 6/15/11 .............................. 710,000 741,951
FINOVA Group 7.50% 11/15/09 .................................. 377,000 133,835
Franklin Resources 3.70% 4/15/08 ............................. 5,000 4,876
Goldman Sachs 6.345% 2/15/34 ................................. 215,000 226,622
Labranche & Company
9.50% 5/15/09 ............................................... 150,000 159,000
11.00% 5/15/12 .............................................. 270,000 301,050
@Merrill Lynch 5.49% 3/12/07 .................................. 95,000 94,185
Morgan Stanley
4.75% 4/1/14 ................................................ 125,000 120,085
5.05% 1/21/11 ............................................... 320,000 320,448
5.375% 10/15/15 ............................................. 255,000 255,728
------------
2,505,095
------------
CAPITAL GOODS-1.34%
Aleris International 9.00% 11/15/14 .......................... 296,000 306,360
Allied Waste North America 9.25% 9/1/12 ...................... 374,000 406,725
Armor Holdings 8.25% 8/15/13 ................................. 510,000 550,799
Casella Waste Systems 9.75% 2/1/13 ........................... 375,000 396,563
General Electric 5.00% 2/1/13 ................................ 175,000 175,167
PRINCIPAL MARKET
AMOUNT~ VALUE
------------ ------------
(U.S.$)
CORPORATE BONDS (CONTINUED)
CAPITAL GOODS (CONTINUED)
Geo Subordinate 11.00% 5/15/12 .............................. USD 195,000 $ 192,075
Graham Packaging 9.875% 10/15/14 ............................ 385,000 377,300
Interface 10.375% 2/1/10 .................................... 255,000 277,313
Intertape Polymer 8.50% 8/1/14 .............................. 285,000 282,729
------------
2,965,031
------------
COMMUNICATIONS-6.35%
**Adelphia Communications
8.125% 7/15/06 ........................................... 80,000 45,600
Alaska Communications Systems Holdings
9.875% 8/15/11 ........................................... 320,000 349,600
American Cellular 10.00% 8/1/11 ............................. 130,000 141,700
American Tower 7.125% 10/15/12 .............................. 135,000 139,725
Bellsouth
4.20% 9/15/09 ............................................ 40,000 38,888
6.00% 11/15/34 ........................................... 55,000 55,138
#CCH I 144A 11.00% 10/1/15 ................................... 555,000 468,975
#Centennial Communications 144A
10.00% 1/1/13 ............................................ 170,000 172,550
Cenveo 9.625% 3/15/12 .................................... 220,000 238,700
#Charter Communications 144A
5.875% 11/16/09 .......................................... 65,000 48,669
Charter Communications Holdings
11.125% 1/15/11 .......................................... 355,000 197,025
<13.50% 1/15/11 ........................................... 320,000 209,600
#Charter Communications Operating 144A
8.375% 4/30/14 ........................................... 260,000 260,000
Cincinnati Bell 8.375% 1/15/14 .............................. 322,000 318,378
@#Cleveland Unlimited 144A
12.73% 12/15/10 .......................................... 100,000 101,000
Comcast 6.50% 11/15/35 ...................................... 280,000 286,284
Cox Communications 4.625% 1/15/10 ........................... 60,000 58,136
CSC Holdings 10.50% 5/15/16 ................................. 727,000 774,254
Dex Media East 12.125% 11/15/12 ............................. 175,000 205,625
#Digicel Limited 144A 9.25% 9/1/12 ........................... 100,000 103,250
GTE California 7.65% 3/15/07 ................................ 470,000 481,827
#Hanarotelecom 144A 7.00% 2/1/12 ............................. 340,000 335,433
<Inmarsat Finance 10.375% 11/15/12 ........................... 995,000 834,555
Insight Midwest 10.50% 11/1/10 .............................. 754,000 796,412
iPCS 11.50% 5/1/12 .......................................... 80,000 92,200
IWO Escrow Company
o8.35% 1/15/12 .......................................... 25,000 26,063
<10.75% 1/15/15 ........................................... 20,000 14,550
@Liberty Media 5.991% 9/17/06 ................................ 62,000 62,438
MCI
6.908% 5/1/07 ............................................ 105,000 106,050
7.688% 5/1/09 ............................................ 455,000 470,925
Mediacom Capital 9.50% 1/15/13 .............................. 665,000 652,531
PanAmSat 9.00% 8/15/14 ...................................... 140,000 147,350
Qwest 7.875% 9/1/11 ......................................... 255,000 276,038
@#Qwest 144A 7.741% 6/15/13 ................................... 125,000 135,469
Rural Cellular 9.875% 2/1/10 ................................ 225,000 238,500
@#Rural Cellular 144A 10.041% 11/1/12 ......................... 130,000 131,625
SBC Communications
4.125% 9/15/09 ........................................... 245,000 236,777
6.15% 9/15/34 ............................................ 340,000 342,667
Diversified Income-6
PRINCIPAL MARKET
AMOUNT~ VALUE
------------ ------------
(U.S.$)
CORPORATE BONDS (CONTINUED)
COMMUNICATIONS (CONTINUED)
Sheridan Acquisition 10.25% 8/15/11 .......................... USD 425,000 $ 439,344
#Sirius Satellite 144A 9.625% 8/1/13 .......................... 330,000 326,700
Sprint Capital
*4.78% 8/17/06 .............................................. 105,000 104,932
8.75% 3/15/32 .............................................. 325,000 432,607
Telecom Italia Capital 4.00% 1/15/10 ....................... 105,000 100,098
#Telecom Personal 144A 9.25% 12/22/10 ......................... 255,000 256,275
Telefonos de Mexico 4.50% 11/19/08 ........................... 180,000 177,192
Time Warner Entertainment
8.375% 3/15/23 ............................................. 155,000 179,661
Triton Communications 9.375% 2/1/11 ........................ 225,000 165,375
@US LEC 12.716% 10/1/09 ....................................... 135,000 145,800
US Unwired 10.00% 6/15/12 .................................... 180,000 203,400
Valor Telecom Enterprises
7.75% 2/15/15 .............................................. 275,000 288,750
Verizon Global
4.90% 9/15/15 .............................................. 95,000 92,135
5.85% 9/15/35 .............................................. 190,000 183,728
Verizon Wireless 5.375% 12/15/06 ............................. 260,000 260,916
Vertis 10.875% 6/15/09 ....................................... 495,000 490,050
#Wind Acquisition 144A 10.75% 12/1/15 ......................... 265,000 274,938
XM Satellite Radio 12.00% 6/15/10 ............................ 318,000 358,545
------------
14,074,953
------------
CONSUMER CYCLICAL-4.94%
Accuride 8.50% 2/1/15 ........................................ 330,000 326,700
Ameristar Casinos 10.75% 2/15/09 ............................. 100,000 106,500
Autonation 9.00% 8/1/08 ...................................... 225,000 242,719
@Centex 4.50% 8/1/07 .......................................... 130,000 130,004
Corrections Corporation of America
7.50% 5/1/11 ............................................... 330,000 343,200
@DaimlerChrysler NA Holdings
4.78% 10/31/08 ............................................. 210,000 210,282
Denny's 10.00% 10/1/12 ..................................... 100,000 102,000
DR Horton 5.25% 2/15/15 .................................... 440,000 414,101
Ford Motor 7.45% 7/16/31 ................................... 725,000 496,625
Ford Motor Credit
5.625% 10/1/08 ............................................. 10,000 8,780
5.70% 1/15/10 .............................................. 105,000 89,333
6.625% 6/16/08 ............................................. 155,000 140,670
#Galaxy Entertainment Finance 144A
9.875% 12/15/12 ............................................ 480,000 489,600
Gaylord Entertainment
6.75% 11/15/14 ............................................. 40,000 39,400
8.00% 11/15/13 ............................................. 60,000 63,150
General Motors 8.375% 7/15/33 ................................ 325,000 216,125
General Motors Acceptance Corporation
6.75% 12/1/14 .............................................. 325,000 292,848
6.875% 9/15/11 ............................................. 180,000 164,337
8.00% 11/1/31 .............................................. 775,000 744,325
JC Penney 7.375% 8/15/08 ..................................... 120,000 126,743
Johnson Controls 5.00% 11/15/06 .............................. 20,000 19,969
Landry's Restaurant 7.50% 12/15/14 ........................... 155,000 145,700
Lodgenet Entertainment 9.50% 6/15/13 ......................... 680,000 742,900
#Majestic Star 144A 9.75% 1/15/11 ............................. 120,000 121,500
Mandalay Resort Group 10.25% 8/1/07 .......................... 385,000 412,431
PRINCIPAL MARKET
AMOUNT~ VALUE
------------ ------------
(U.S.$)
CORPORATE BONDS (CONTINUED)
CONSUMER CYCLICAL (CONTINUED)
Metaldyne 10.00% 11/1/13 ..................................... USD 380,000 $ 345,800
MGM MIRAGE 9.75% 6/1/07 ...................................... 50,000 52,938
#Neiman Marcus 144A 9.00% 10/15/15 ............................ 445,000 457,238
O'Charleys 9.00% 11/1/13 ..................................... 160,000 163,200
Penn National Gaming 8.875% 3/15/10 .......................... 725,000 764,874
Royal Caribbean Cruises 7.25% 3/15/18 ........................ 375,000 405,000
Schuler Homes 10.50% 7/15/11 ................................. 80,000 86,400
Time Warner 8.18% 8/15/07 .................................... 210,000 219,749
<Town Sports International
11.00% 2/1/14 ............................................ 130,000 90,350
True Temper Sports 8.375% 9/15/11 ........................ 260,000 235,300
#Uno Restaurant 144A 10.00% 2/15/11 ........................... 175,000 158,375
Visteon
7.00% 3/10/14 ............................................ 205,000 159,388
8.25% 8/1/10 ............................................. 790,000 675,450
Warnaco 8.875% 6/15/13 ....................................... 185,000 200,263
Warner Music Group 7.375% 4/15/14 ............................ 455,000 453,863
Wheeling Island Gaming .......................................
10.125% 12/15/09 ......................................... 285,000 300,319
------------
10,958,449
------------
CONSUMER NON-CYCLICAL-3.22%
#Accellent 144A 10.50% 12/1/13 ................................ 175,000 180,250
Amgen 4.00% 11/18/09 ......................................... 30,000 29,117
Baxter International 5.196% 2/16/08 .......................... 190,000 190,654
Biovail 7.875% 4/1/10 ........................................ 688,000 716,379
Brickman Group 11.75% 12/15/09 ............................... 300,000 333,750
Constellation Brands 8.125% 1/15/12 .......................... 360,000 376,200
Cott Beverages 8.00% 12/15/11 ................................ 295,000 303,850
#Doane Pet Care 144A 10.625% 11/15/15 ......................... 195,000 204,263
HCA 5.50% 12/1/09 ............................................ 130,000 129,043
HealthSouth 10.75% 10/1/08 ................................... 390,000 391,950
Kraft Foods
4.125% 11/12/09 .......................................... 65,000 62,953
6.50% 11/1/31 ............................................ 60,000 66,225
#Le-Natures 144A 10.00% 6/15/13 ............................... 285,000 300,675
Medco Health Solutions 7.25% 8/15/13 ......................... 265,000 291,537
MedPartners 7.375% 10/1/06 ................................... 410,000 417,175
#Miller Brewing 144A 4.25% 8/15/08 ............................ 65,000 63,829
National Beef Packing 10.50% 8/1/11 .......................... 370,000 384,800
NDCHealth 10.50% 12/1/12 ..................................... 225,000 258,188
Pilgrim's Pride 9.625% 9/15/11 ............................... 310,000 331,700
Playtex Products 9.375% 6/1/11 ............................... 270,000 284,175
Safeway 6.15% 3/1/06 ......................................... 75,000 75,032
Universal 6.50% 2/15/06 ...................................... 90,000 90,179
US Oncology 10.75% 8/15/14 ................................... 275,000 306,625
UST 6.625% 7/15/12 ........................................... 130,000 135,357
<Vanguard Health 11.25% 10/1/15 ............................... 495,000 363,825
#Warner Chilcott 144A 8.75% 2/1/15 ............................ 540,000 499,500
WellPoint 4.25% 12/15/09 ..................................... 80,000 77,993
Wyeth 5.50% 2/1/14 ........................................... 275,000 279,013
------------
7,144,237
------------
ELECTRIC-2.22%
Arizona Public Service 5.50% 9/1/35 .......................... 160,000 151,908
Avista 9.75% 6/1/08 .......................................... 10,000 10,965
Diversified Income-7
DELAWARE VIP DIVERSIFIED INCOME SERIES
STATEMENT OF NET ASSETS (CONTINUED)
PRINCIPAL MARKET
AMOUNT~ VALUE
------------ ------------
(U.S.$)
CORPORATE BONDS (CONTINUED)
ELECTRIC (CONTINUED)
!Calpine
7.625% 4/15/06 ............................................ USD 105,000 $ 47,513
10.50% 5/15/06 ............................................ 170,000 74,800
!#Calpine 144A 9.90% 7/15/07 .................................. 180,838 147,835
#Central Elet Brasileiras 144A
7.75% 11/30/15 ............................................ 195,000 199,388
CMS Energy 9.875% 10/15/07 ................................ 250,000 268,750
@Dominion Resources 4.819% 9/28/07 ............................ 600,000 600,562
Duke Capital 5.668% 8/15/14 .................................. 95,000 95,972
#Dynegy Holdings 144A 10.125% 7/15/13 ......................... 345,000 391,574
Elwood Energy 8.159% 7/5/26 .................................. 273,114 295,265
Midwest Generation
8.30% 7/2/09 .............................................. 295,000 307,537
8.75% 5/1/34 .............................................. 240,000 265,500
Mirant Americas Generation
8.30% 5/1/11 .............................................. 200,000 254,000
#Mirant North America 144A
7.375% 12/31/13 ........................................... 200,000 203,250
Oncor Electric Delivery 7.00% 5/1/32 ......................... 20,000 22,828
Orion Power Holdings 12.00% 5/1/10 ........................... 190,000 215,650
Pepco Holdings 5.50% 8/15/07 ................................. 250,000 251,609
#Power Contract Financing 144A
5.20% 2/1/06 .............................................. 2,293 2,294
6.256% 2/1/10 ............................................. 200,000 203,055
Progress Energy 6.75% 3/1/06 ................................. 210,000 210,668
PSEG Energy Holdings 7.75% 4/16/07 ........................... 10,000 10,400
Reliant Energy 9.50% 7/15/13 ................................. 60,000 60,450
@SCANA 4.56% 3/1/08 ........................................... 80,000 80,102
Southern California Edison
@4.555% 12/13/07 .......................................... 75,000 75,036
6.00% 1/15/34 ............................................. 120,000 127,434
#Tenaska Alabama 144A 7.00% 6/30/21 ........................... 99,664 100,764
#Texas Genco 144A 6.875% 12/15/14 ............................. 110,000 119,625
#Verasun Energy 144A 9.875% 12/15/12 .......................... 120,000 122,400
------------
4,917,134
------------
EMERGING MARKETS-0.36%
Siberian Oil 10.75% 1/15/09 .................................. 205,000 232,901
#Southern Peru 144A 7.50% 7/27/35 ............................. 560,000 559,377
------------
792,278
------------
ENERGY-0.97%
#Adaro Finance 144A 8.50% 12/8/10 ............................. 205,000 207,563
#Atlas Pipeline 144A 8.125% 12/15/15 .......................... 325,000 329,468
Bluewater Finance 10.25% 2/15/12 ............................. 110,000 118,800
#Canadian Oil Sands 144A
4.80% 8/10/09 ............................................. 10,000 9,853
#Compton Petroleum Finance 144A
7.625% 12/1/13 ............................................ 110,000 113,025
#Hilcorp Energy 144A
7.75% 11/1/15 ............................................. 275,000 281,188
10.50% 9/1/10 ............................................. 78,000 86,775
#Kinder Morgan 144A 5.35% 1/5/11 .............................. 330,000 330,830
Nexen 5.875% 3/10/35 ......................................... 95,000 93,738
Oneok 5.51% 2/16/08 .......................................... 180,000 180,801
@Secunda International 12.15% 9/1/12 .......................... 115,000 121,325
SESI 8.875% 5/15/11 .......................................... 95,000 99,988
PRINCIPAL MARKET
AMOUNT~ VALUE
------------ ------------
(U.S.$)
CORPORATE BONDS (CONTINUED)
ENERGY
Weatherford International
4.95% 10/15/13 ........................................... USD 72,000 $ 70,545
Whiting Petroleum 7.25% 5/1/13 .............................. 105,000 106,838
------------
2,150,737
------------
FINANCIALS-2.64%
American General Finance
4.875% 7/15/12 ........................................... 385,000 376,626
5.40% 12/1/15 ............................................ 345,000 344,559
@Berkshire Hathaway Finance
4.165% 1/11/08 ........................................... 75,000 75,120
#CCM Merger 144A 8.00% 8/1/13 ................................ 595,000 574,175
#E Trade Group 144A 8.00% 6/15/11 ............................ 50,000 52,250
#FTI Consulting 144A 7.625% 6/15/13 .......................... 175,000 181,125
@HSBC Finance Capital Trust IX
5.911% 11/30/35 .......................................... 500,000 505,192
@#ILFC E-Capital Trust I 144A
5.90% 12/21/65 ........................................... 265,000 266,324
@#ILFC E-Capital Trust II 144A
6.25% 12/21/65 ........................................... 120,000 122,032
International Lease Finance
4.625% 6/2/08 ............................................ 25,000 24,766
NewPage 10.00% 5/1/12 ....................................... 175,000 172,813
@#Premium Asset Trust
Series 2005-2 144A 4.374% 2/2/07 ......................... 85,000 84,841
Residential Capital
6.125% 11/21/08 .......................................... 340,000 341,049
6.375% 6/30/10 ........................................... 180,000 183,077
6.875% 6/30/15 ........................................... 980,000 1,043,155
SLM 6.50% 6/15/10 ........................................... NZD 2,230,000 1,508,128
------------
5,855,232
------------
INDUSTRIAL-OTHER-0.61%
Adesa 7.625% 6/15/12 ........................................ USD 290,000 289,999
Foster Wheeler 10.359% 9/15/11 .............................. 44,000 49,500
Interline Brands 11.50% 5/15/11 ............................. 232,000 259,840
#Knowledge Learn 144A 7.75% 2/1/15 ........................... 115,000 109,825
<Mueller Holdings 14.75% 4/15/14 ............................. 245,000 185,588
#Nell AF SARL 144A 8.375% 8/15/15 ............................ 150,000 149,250
#Panolam Industrial 144A
10.75% 10/1/13 ........................................... 115,000 111,263
Trimas 9.875% 6/15/12 ....................................... 235,000 195,050
------------
1,350,315
------------
INSURANCE-2.60%
Ambac Financial Group 5.95% 12/5/35 ......................... 450,000 462,429
#Farmers Exchange Capital 144A
7.05% 7/15/28 ............................................ 250,000 265,190
#Farmers Insurance Exchange 144A
6.00% 8/1/14 ............................................. 70,000 71,234
8.625% 5/1/24 ............................................ 5,000 6,084
@ING Groep NV 5.775% 12/29/49 ................................ 290,000 294,467
Diversified Income-8
DELAWARE VIP DIVERSIFIED INCOME SERIES
STATEMENT OF NET ASSETS (CONTINUED)
PRINCIPAL MARKET
AMOUNT~ VALUE
------------ ------------
(U.S.$)
CORPORATE BONDS (CONTINUED)
INSURANCE (CONTINUED)
Marsh & McLennan
@4.27% 7/13/07 ............................................ USD 205,000 $ 204,428
5.15% 9/15/10 ............................................ 230,000 228,706
5.375% 3/15/07 ........................................... 170,000 170,383
5.375% 7/15/14 ........................................... 55,000 54,224
5.75% 9/15/15 ............................................ 294,000 296,909
MetLife 5.00% 6/15/15 ...................................... 80,000 78,611
#Nationwide Mutual Insurance
144A 7.875% 4/1/33 ....................................... 225,000 273,375
#Nippon Life Insurance 144A
4.875% 8/9/10 ............................................ 205,000 202,035
>@#North Front Pass-Through Trust 144A
5.81% 12/15/24 ........................................... 500,000 501,327
@#Oil Insurance 144A 5.15% 8/15/33 ........................... 215,000 213,576
St. Paul Travelers 5.01% 8/16/07 ........................... 235,000 234,979
>@#Twin Reefs Pass-Through Trust 144A
5.36% 12/31/49 ........................................... 100,000 100,107
#Unumprovident Finance 144A
6.85% 11/15/15 ........................................... 185,000 193,047
Willis Group
5.125% 7/15/10 ........................................... 580,000 578,830
5.625% 7/15/15 ........................................... 325,000 325,467
@#ZFS Finance USA 144A
6.15% 12/15/65 .......................................... 500,000 504,165
6.45% 12/15/65 .......................................... 500,000 507,907
------------
5,767,480
------------
NATURAL GAS-0.54%
@Atmos Energy 4.525% 10/15/07 ............................... 45,000 45,071
El Paso Natural Gas 7.625% 8/1/10 .......................... 60,000 63,395
El Paso Production Holding
7.75% 6/1/13 ............................................. 150,000 156,375
Enterprise Products Operating
4.00% 10/15/07 ........................................... 30,000 29,386
4.625% 10/15/09 .......................................... 225,000 219,638
Inergy Finance 6.875% 12/15/14 ............................. 75,000 68,625
Sempra Energy
4.621% 5/17/07 ........................................... 220,000 218,513
o4.84% 5/21/08 ........................................ 115,000 115,291
Tennessee Gas Pipeline
8.375% 6/15/32 ........................................... 80,000 91,168
Valero Logistics Operations
6.05% 3/15/13 ............................................ 190,000 196,564
------------
1,204,026
------------
REAL ESTATE-0.59%
American Real Estate Partners
8.125% 6/1/12 ............................................ 305,000 317,963
BF Saul REIT 7.50% 3/1/14 .................................. 335,000 342,537
Developers Diversified Realty
5.25% 4/15/11 ............................................ 95,000 94,149
5.375% 10/15/12 .......................................... 320,000 315,614
Tanger Properties 9.125% 2/15/08 ........................... 225,000 240,750
------------
1,311,013
------------
TECHNOLOGY-0.72%
Magnachip Semiconductor
8.00% 12/15/14 ........................................... 280,000 268,800
Motorola 7.625% 11/15/10 ................................... 8,000 8,902
Sanmina-SCI 10.375% 1/15/10 ................................ 300,000 333,000
PRINCIPAL MARKET
AMOUNT~ VALUE
------------ ------------
(U.S.$)
CORPORATE BONDS (CONTINUED)
TECHNOLOGY (CONTINUED)
#Sunguard Data Systems 144A
9.125% 8/15/13 ............................................. USD 40,000 $ 41,600
10.25% 8/15/15 ............................................. 539,000 541,695
#Telcordia Technologies 144A
10.00% 3/15/13 ............................................. 445,000 409,400
------------
1,603,397
------------
TRANSPORTATION - 1.18%
American Airlines 6.817% 5/23/11 ........................... 125,000 119,405
Continental Airlines 6.503% 6/15/11 ........................ 205,000 201,540
@CSX 4.561% 8/3/06 ........................................... 31,000 31,047
#Erac USA Finance 144A
5.30% 11/15/08 ............................................. 100,000 100,440
7.35% 6/15/08 .............................................. 200,000 209,988
IH-Lines Finance Holdings
11.00% 4/1/13 .............................................. 466,000 387,944
#Hertz 144A
8.875% 1/1/14 .............................................. 125,000 127,969
10.50% 1/1/16 .............................................. 65,000 67,275
Horizon Lines 9.00% 11/1/12 ................................ 115,000 121,613
Kansas City Southern Railway
9.50% 10/1/08 .............................................. 270,000 293,625
OMI 7.625% 12/1/13 ......................................... 290,000 295,438
Seabulk International 9.50% 8/15/13 ........................ 115,000 129,806
Stena 9.625% 12/1/12 ....................................... 300,000 327,375
United AirLines 7.73% 7/1/10 ............................... 204,843 203,870
------------
2,617,335
------------
TOTAL CORPORATE BONDS
(cost $77,910,650) ......................................... 77,001,084
------------
FOREIGN AGENCIES-2.29%
Austria-0.82%
Oesterreichesche Kontrollbank
1.80% 3/22/10 .............................................. JPY 206,000,000 1,829,592
------------
1,829,592
------------
GERMANY-1.38%
KFW
6.00% 2/28/11 .............................................. NZD 143,000 95,081
6.50% 11/15/11 ............................................. NZD 689,000 471,975
KFW International Finance
1.75% 3/23/10 .............................................. JPY 172,000,000 1,524,605
Rentenbank 1.375% 4/25/13 ..................................... JPY 112,000,000 960,928
------------
3,052,589
------------
MEXICO-0.02%
#Pemex Project Funding
Master Trust 144A 6.625% 6/15/35 ........................... USD 40,000 40,150
------------
40,150
------------
UKRAINE-0.07%
Exim of Ukraine 7.75% 9/23/09 ................................. USD 155,000 161,526
------------
161,526
------------
TOTAL FOREIGN AGENCIES
(cost $5,409,098) .......................................... 5,083,857
------------
Diversified Income-9
DELAWARE VIP DIVERSIFIED INCOME SERIES
STATEMENT OF NET ASSETS (CONTINUED)
PRINCIPAL MARKET
AMOUNT~ VALUE
------------ ------------
(U.S.$)
FOREIGN MUNICIPAL BONDS-0.12%
CANADA-0.12%
Vancouver City 3.85% 10/6/12 .................................. CAD 305,000 $ 256,161
------------
TOTAL FOREIGN MUNICIPAL BONDS
(COST $260,413) .............................................. 256,161
------------
MUNICIPAL BONDS-0.44%
Augusta, Georgia Water &
Sewer Revenue 5.25% 10/1/39 (FSA) ............................ USD 85,000 90,692
California State 5.00% 2/1/33 ................................. 25,000 25,745
California State University Systemwide
Revenue 5.00% 11/1/30 (AMBAC) ................................ 95,000 99,877
Colorado Department of
Transportation Revenue
5.00% 12/15/12 (FGIC) ........................................ 5,000 5,414
5.00% 12/15/13 (FGIC) ........................................ 40,000 43,490
Illinois State Taxable Pension
5.10% 6/1/33 ................................................. 10,000 9,850
Massachusetts Health & Education
Facilities Authority Revenue
Series A 5.00% 7/15/36 ....................................... 220,000 231,946
Massachusetts School Building
Authority 5.00% 8/15/30 (FSA) ................................ 320,000 336,841
New Jersey Economic Development
Authority Revenue Cigarette Tax
5.75% 6/15/29 ................................................ 25,000 26,465
New York State Sales Tax Asset
Receivables Series A
5.25% 10/15/27 (AMBAC) ....................................... 45,000 48,733
New York State Urban Development
Series A-1 5.25% 3/15/34 (FGIC) .............................. 40,000 42,808
Oregon State Taxable Pension
5.892% 6/1/27 ................................................ 5,000 5,412
West Virginia Economic Development
Authority 6.07% 7/1/26 ....................................... 5,000 5,283
------------
TOTAL MUNICIPAL BONDS
(cost $963,734) .............................................. 972,556
------------
NON-AGENCY ASSET-BACKED SECURITIES-4.27%
AmeriCredit Automobile Receivables Trust
Series 2001-C A4 5.01% 7/14/08 ............................... 32,806 32,808
Series 2001-D A4 4.41% 11/12/08 .............................. 29,233 29,225
Argent Securities Series 2003-W3 AF3
3.991% 9/25/30 ............................................... 54,575 54,405
Capital One Auto Finance Trust
Series 2005-C A3 4.61% 7/15/10 ............................... 255,000 253,865
Chase Funding Mortgage Loan
Asset-Backed Certificates
Series 2002-3 1A6 4.707% 9/25/13 ............................. 820,000 812,169
Chase Manhattan Auto Owner Trust
Series 2005-B A4 4.88% 6/15/12 ............................... 1,260,000 1,262,206
Citibank Credit Card Issuance Trust
Series 2003-A7 A7 4.15% 7/7/17 ............................... 10,000 9,447
Series 2005-A7 A7 4.75% 10/22/12 ............................. 325,000 323,578
PRINCIPAL MARKET
AMOUNT~ VALUE
------------ ------------
(U.S.$)
NON-AGENCY ASSET-BACKED SECURITIES (CONTINUED)
Countrywide Asset-Backed Certificates
oSeries 2004-9 AF2 3.337% 9/25/23 ........................... USD 4,480 $ 4,466
Series 2004-S1 A2 3.872% 3/25/20 ............................ 230,000 226,057
oSeries 2005-12 2A2 4.898% 2/25/36 ......................... 385,000 382,336
Credit-Based Asset Servicing and
Securitization Series 2005-CB8 AF1B
5.451% 12/25/35 ............................................. 430,365 430,279
GMAC Mortgage Corporation
Loan Trust Series 2004-HLT1 A2
3.87% 5/25/25 ............................................... 567,546 560,337
Household Automotive Trust
Series 2002-1 A4 4.39% 5/18/09 .............................. 11,719 11,693
#MBNA Master Credit Card Trust
Series 2000-D C 144A 8.40% 9/15/09 .......................... 25,000 26,048
@Merrill Lynch Mortgage Investors
Series 2005-NCB A1A
5.451% 7/25/36 .............................................. 205,436 205,436
Mid-State Trust
Series 11 A1 4.864% 7/15/38 ................................. 21,448 20,478
Series 2004-1 A 6.005% 8/15/37 .............................. 11,664 11,955
Series 2005-1 A 5.745% 1/15/40 .............................. 271,806 271,891
@Novastar Home Equity Loan
Series 2004-4 A2B 4.719% 3/25/35 ............................ 70,000 70,130
@Option One Mortgage Loan Trust
Series 2005-4 A3 4.639% 11/25/35 ............................ 455,000 455,118
Renaissance Home Equity Loan Trust
Series 2004-4 AF2 3.856% 2/25/35 ............................ 95,000 93,838
Series 2005-2 AF2 4.361% 8/25/35 ............................ 570,000 562,535
Series 2005-4 A2 5.399% 2/25/36 ............................. 170,000 170,000
Series 2005-4 A3 5.565% 2/25/36 ............................. 110,000 110,000
@Residential Asset Mortgage Products
Series 2004-RS12 AII2
4.609% 12/25/34 ............................................. 390,000 390,423
Series 2004-RZ2 AI3 4.30% 1/25/31 ........................... 50,000 49,477
@Residential Funding Mortgage
Securities II Series 2005-HI2 A1
4.519% 5/25/35 .............................................. 380,967 381,018
Saxon Asset Securities Trust
Series 2003-2 AF4 3.546% 8/25/29 ............................ 1,103,346 1,099,387
@Series 2005-1 A2B 4.60% 5/25/35 ............................ 180,000 180,144
Structured Asset Securities
Series 2001-SB1 A2 3.375% 8/25/31 ........................... 57,081 53,119
Series 2004-16XS A2 4.91% 8/25/34 ........................... 803,247 800,442
@Series 2005-NC1 A7 4.609% 2/25/35 ........................... 100,000 100,116
WFS Financial Owner Trust
Series 2002-2 A4 4.50% 2/20/10 .............................. 28,807 28,803
------------
TOTAL NON-AGENCY ASSET-BACKED
SECURITIES (COST $9,484,897) ................................ 9,473,229
------------
NON-AGENCY COLLATERALIZED MORTGAGE
OBLIGATIONS-8.20%
@American Home Mortgage Investment
Trust Series 2004-2 4A2
3.635% 2/25/44 .............................................. 275,784 275,223
Diversified Income-10
DELAWARE VIP DIVERSIFIED INCOME SERIES
STATEMENT OF NET ASSETS (CONTINUED)
PRINCIPAL MARKET
AMOUNT~ VALUE
------------ ------------
(U.S.$)
NON-AGENCY COLLATERALIZED MORTGAGE
OBLIGATIONS (CONTINUED)
Bank of America Alternative Loan Trust
Series 2003-10 2A1 6.00% 12/25/33 .......................... USD 12,328 $ 12,378
Series 2004-2 1A1 6.00% 3/25/34 ............................ 3,544 3,558
Series 2004-10 1CB1 6.00% 11/25/34 ......................... 97,575 98,628
Series 2005-3 2A1 5.50% 4/25/20 ............................ 85,475 85,635
Series 2005-5 2CB1 6.00% 6/25/35 ........................... 235,087 236,729
Series 2005-6 7A1 5.50% 7/25/20 ............................ 304,873 305,254
Series 2005-9 5A1 5.50% 10/25/20 ........................... 599,082 598,333
Bank of America Mortgage Securities
@Series 2003-D 1A2 3.428% 5/25/33 ........................... 646 646
@Series 2003-I 2A4 3.828% 10/25/33 .......................... 56,833 56,500
@Series 2004-A 1A1 3.459% 2/25/34 ........................... 70,684 70,220
@Series 2004-E 1A1 3.516% 6/25/34 ........................... 157,380 154,720
Series 2005-9 2A1 4.75% 10/25/20 ........................... 395,021 385,852
@Series 2005-A 1A1 4.062% 2/25/35 ........................... 154,289 151,782
@Series 2005-A 2A1 4.465% 2/25/35 ........................... 186,057 182,815
@Series 2005-B 2A1 4.399% 3/25/35 ........................... 604,379 592,778
@Series 2005-E 2A1 4.981% 6/25/35 ........................... 76,761 75,962
@Series 2005-F 2A3 4.731% 7/25/35 ........................... 319,831 315,533
@Bear Stearns Adjustable Rate
Mortgage Trust
Series 2005-7 1A2 4.75% 8/25/35 ............................ 137,106 134,257
Series 2005-10 A1 4.75% 10/25/35 ........................... 239,993 237,607
Chase Mortgage Finance Corporation
Series 2003-S8 A2 5.00% 9/25/18 ............................ 674,986 666,554
Countrywide Alternative Loan Trust
@Series 2004-J7 1A2 4.673% 8/25/34 ......................... 73,961 73,694
Series 2004-28 CB 6A1 6.00% 1/25/35 ......................... 515,980 518,303
@Series 2005-63 3A1 5.909% 11/25/35 ........................ 419,699 421,666
>@Countrywide Home Loan Mortgage
Pass-Through Trust
Series 2003-21 A1 4.088% 5/25/33 ........................... 1,298 1,284
Credit Suisse First Boston
Mortgage Securities
Series 2003-29 5A1 7.00% 12/25/33 .......................... 6,958 7,110
@Series 2003-AR22 2A3 4.107% 9/25/33 ....................... 76,930 76,542
First Horizon Alternative Mortgage
Securities Series 2004-FA1 1A1
6.25% 10/25/34 ............................................. 505,879 512,009
First Horizon Asset Securities
Series 2003-5 1A17 8.00% 7/25/33 ........................... 2,434 2,547
@Series 2004-AR5 4A1 5.686% 10/25/34 ....................... 33,574 33,605
@Series 2004-AR7 1A1 4.464% 2/25/35 ........................ 854,827 856,752
#GSMPS Mortgage Loan Trust 144A
Series 2005-RP1 1A3 8.00% 1/25/35 .......................... 438,597 466,253
Series 2005-RP1 1A4 8.50% 1/25/35 .......................... 388,871 419,654
@Indymac Index Mortgage Loan Trust
Series 2004-AR4 1A 4.629% 8/25/34 .......................... 333,315 332,866
Series 2005-AR25 1A21
5.908% 12/25/35 ............................................ 441,458 445,187
PRINCIPAL MARKET
AMOUNT~ VALUE
------------ ------------
(U.S.$)
NON-AGENCY COLLATERALIZED MORTGAGE
OBLIGATIONS (CONTINUED)
@JP Morgan Mortgage Trust
Series 2005-A2 2A1 4.727% 4/25/35 ........................... USD 267,604 $ 265,848
Series 2005-A6 1A2 5.154% 9/25/35 ........................... 855,000 850,494
Lehman Mortgage Trust
Series 2005-2 2A2 5.50% 12/25/35 ............................ 369,843 371,577
@MASTR Adjustable Rate Mortgages
Trust Series 2003-6 1A2
2.909% 12/25/33 ............................................. 12,624 12,553
MASTR Alternative Loans Trust
Series 2003-9 1A1 5.50% 12/25/18 ............................ 28,553 28,589
Series 2005-3 7A1 6.00% 4/25/35 ............................. 120,411 121,258
#MASTR Reperforming Loan Trust 144A
Series 2005-1 1A5 8.00% 8/25/34 ............................. 106,259 112,721
Series 2005-2 1A4 8.00% 5/25/35 ............................. 413,712 438,017
#MASTR Specialized Loan Trust
Series 2005-2 A2 144A 5.15% 7/25/35 ......................... 296,827 292,523
@Merrill Lynch Mortgage Investors
Series 2005-A5 A9 4.88% 6/25/35 ............................. 411,288 407,122
@MLCC Mortgage Investors
Series 2005-1 1A 4.742% 4/25/35 ............................. 347,225 345,054
Nomura Asset Acceptance
Series 2005-WF1 2A2 4.786% 3/25/35 .......................... 275,000 271,631
Prime Mortgage Trust
Series 2004-2 A2 4.75% 11/25/19 ............................. 305,155 298,975
Series 2004-CL1 1A1 6.00% 2/25/34 ........................... 14,694 14,671
Residential Asset Mortgage Products
Series 2004-SL1 A3 7.00% 11/25/31 ........................... 1,892 1,935
Series 2004-SL4 A3 6.50% 7/25/32 ............................ 63,897 65,332
Series 2005-SL1 A2 6.00% 5/25/32 ............................ 178,723 182,029
@Structured Adjustable Rate
Mortgage Loan Trust
Series 2004-18 5A 5.50% 12/25/34 ............................ 40,678 40,500
Series 2005-18 6A1 5.34% 9/25/35 ............................ 769,509 766,134
Series 2005-3XS A2 4.629% 1/25/35 ........................... 685,000 685,219
Structured Asset Securities
oSeries 2002-22H 1A 6.991% 11/25/32 ........................ 2,180 2,218
Series 2004-5H A2 4.43% 12/25/33 ............................ 400,000 397,724
Series 2004-12H 1A 6.00% 5/25/34 ............................ 51,754 51,738
@Thornburg Mortgage Securities
Trust 2005-3 A1 4.609% 10/25/35 ............................. 415,340 415,379
>Washington Mutual Alternative Mortgage
Pass-Through Certificates
Series 2005-1 5A2 6.00% 3/25/35 ............................. 67,807 67,838
Series 2005-1 6A2 6.50% 3/25/35 ............................. 16,799 17,006
Series 2005-9 3CB 5.50% 10/25/20 ............................ 311,778 312,168
Washington Mutual
@Series 2003-AR4 A7 3.95% 5/25/33 .......................... 5,828 5,700
@Series 2003-AR9 1A7 4.053% 9/25/33 ........................ 29,241 28,689
Series 2004-CB3 1A 6.00% 10/25/34 ........................... 62,635 62,733
Series 2004-CB3 4A 6.00% 10/25/19 ........................... 19,815 20,174
@Series 2005-AR3 A1 4.65% 3/25/35 .......................... 478,385 471,031
Diversified Income-11
DELAWARE VIP DIVERSIFIED INCOME SERIES
STATEMENT OF NET ASSETS (CONTINUED)
PRINCIPAL MARKET
AMOUNT~ VALUE
------------ ------------
(U.S.$)
NON-AGENCY COLLATERALIZED MORTGAGE
OBLIGATIONS (CONTINUED)
Wells Fargo Mortgage Backed
Securities Trust
oSeries 2004-DD 2A3
4.521% 1/25/35 ............................................... USD 100,000 $ 98,304
@Series 2004-I 1A1 3.39% 7/25/34 ............................. 119,251 119,275
@Series 2004-T A1 3.451% 9/25/34 ............................. 239,370 239,238
Series 2005-12 1A7 5.50% 11/25/35 ............................ 511,983 497,903
Series 2005-17 1A2 5.50% 1/25/36 ............................. 415,000 402,550
@Series 2005-AR16 2A1
4.944% 10/25/35 .............................................. 586,592 583,379
------------
TOTAL NON-AGENCY COLLATERALIZED
MORTGAGE OBLIGATIONS
(COST $18,271,423) ........................................... 18,173,665
------------
REGIONAL AGENCIES-0.39%
AUSTRALIA-0.39%
Queensland Treasury
6.00% 8/14/13 ................................................ AUD 498,000 380,086
6.00% 10/14/15 ............................................... AUD 645,000 496,223
------------
TOTAL REGIONAL AGENCIES
(COST $896,236) .............................................. 876,309
------------
REGIONAL AUTHORITY-1.93%
CANADA - 1.93%
Ontario Province
1.875% 1/25/10 ............................................... JPY 205,000,000 1,825,315
4.50% 3/8/15 ................................................. CAD 867,000 759,556
5.00% 3/8/14 ................................................. CAD 170,000 154,100
Quebec Province
5.00% 12/1/15 ................................................ CAD 1,264,000 1,137,529
6.75% 11/9/15 ................................................ NZD 570,000 393,496
------------
TOTAL REGIONAL AUTHORITY
(COST $4,353,083) ............................................. 4,269,996
------------
SOVEREIGN AGENCIES-0.46%
CANADA-0.34%
Canada Housing Trust No 1
3.75% 3/15/10 ................................................ CAD 885,000 752,739
------------
752,739
------------
JAPAN-0.12%
Development Bank of Japan
1.70% 9/20/22 ................................................ JPY 33,000,000 275,424
------------
275,424
------------
TOTAL SOVEREIGN AGENCIES
(COST $1,038,676)............................................. 1,028,163
------------
SOVEREIGN DEBT-12.36%
ARGENTINA-0.24%
Republic of Argentina
*1.33% 12/31/38 .............................................. USD 1,110,000 369,075
@4.005% 8/3/12 ............................................... USD 210,000 165,480
------------
534,555
------------
PRINCIPAL MARKET
AMOUNT~ VALUE
------------ ------------
(U.S.$)
SOVEREIGN DEBT (CONTINUED)
AUSTRIA-0.76%
Republic of Austria
5.25% 1/4/11 ................................................. EUR 523,000 $ 680,972
9.00% 9/15/06 ................................................ ISK 63,800,000 1,011,848
------------
1,692,820
------------
BRAZIL-0.34%
Federal Republic of Brazil
12.25% 3/6/30 ................................................ USD 373,000 538,985
12.50% 1/5/16 ................................................ BRL 485,000 208,453
------------
747,438
------------
COLOMBIA-0.13%
Republic of Colombia
10.375% 1/28/33 .............................................. USD 135,000 178,538
10.50% 7/9/10 ................................................ USD 92,000 109,020
------------
287,558
------------
DOMINICAN REPUBLIC-0.09%
Dominican Republic 9.04% 1/23/18 .............................. USD 188,349 198,943
------------
198,943
------------
EL SALVADOR- 0.20%
Republic of El Salvador
7.65% 6/15/35 ................................................ USD 440,000 454,300
------------
454,300
------------
FRANCE-0.47%
Government of France
3.50% 4/25/15 ................................................. EUR 858,000 1,032,170
------------
1,032,170
------------
GERMANY-1.62%
Deutschland Republic
4.50% 1/4/13 ................................................. EUR 948,000 1,213,547
4.75% 7/4/08 ................................................. EUR 1,168,000 1,443,561
6.25% 1/4/24 ................................................. EUR 584,000 941,566
------------
3,598,674
------------
NETHERLANDS-0.63%
Netherlands Government
5.75% 2/15/07 ................................................ EUR 1,149,000 1,405,221
------------
1,405,221
------------
NORWAY-0.34%
Norwegian Government
5.00% 5/15/15 ................................................ NOK 4,586,000 751,536
------------
751,536
------------
PANAMA-0.11%
Republic of Panama
8.125% 4/28/34 ............................................... USD 210,000 235,200
------------
235,200
------------
PERU-0.15%
Republic of Peru 7.35% 7/21/25 ................................ USD 340,000 336,600
------------
336,600
------------
PHILIPPINES-0.12%
Republic of Philippines
10.625% 3/16/25 .............................................. USD 205,000 261,375
------------
261,375
Diversified Income-12
DELAWARE VIP DIVERSIFIED INCOME SERIES
STATEMENT OF NET ASSETS (CONTINUED)
PRINCIPAL MARKET
AMOUNT~ VALUE
------------ ------------
(U.S.$)
SOVEREIGN DEBT (CONTINUED)
POLAND-0.90%
Poland Government
^4.292% 4/12/07 ............................................ PLN 1,382,000 $ 402,449
5.75% 9/23/22 ............................................. PLN 1,222,000 400,061
6.00% 5/24/09 ............................................. PLN 2,486,000 792,903
6.25% 10/24/15 ............................................ PLN 1,223,000 410,125
------------
2,005,538
------------
PORTUGAL-0.29%
Portuguese Government
3.20% 4/15/11 ............................................. EUR 537,000 636,912
------------
636,912
------------
RUSSIA-0.11%
Russian Ministry of Finance
3.00% 5/14/08 ............................................. USD 260,000 247,234
------------
247,234
------------
SPAIN-0.40%
Spanish Government 5.50% 7/30/17 ............................ EUR 616,000 876,920
------------
876,920
------------
SWEDEN-1.78%
Sweden Government 4.00% 12/1/09 ............................. SEK 6,065,000 790,034
Swedish Government
5.00% 12/1/20 ............................................. SEK 11,955,000 1,792,889
8.00% 8/15/07 ............................................. SEK 9,945,000 1,357,928
------------
3,940,851
------------
TURKEY-0.31%
Republic of Turkey
7.25% 3/15/15 ............................................. USD 320,000 338,400
8.00% 2/14/34 ............................................. USD 310,000 342,938
------------
681,338
------------
UNITED KINGDOM-3.12%
U.K. Treasury
4.75% 6/7/10 .............................................. GBP 879,000 1,548,316
4.75% 9/7/15 .............................................. GBP 612,000 1,107,460
6.25% 11/25/10 ............................................ GBP 1,722,000 3,236,861
8.00% 6/7/21 .............................................. GBP 415,500 1,031,484
------------
6,924,121
------------
VENEZUELA-0.25%
Venezuela Government
7.65% 4/21/25 ............................................. USD 350,000 355,250
9.375% 1/13/34 ............................................ USD 175,000 207,813
------------
563,063
------------
TOTAL SOVEREIGN DEBT
(COST $27,666,485) ........................................ 27,412,367
------------
SUPRANATIONAL BANKS-1.90%
Asia Development Bank
0.50% 10/9/12 ............................................. AUD 370,000 194,889
European Investment Bank
1.40% 6/20/17 ............................................. JPY 23,300,000 195,028
4.00% 10/15/37 ............................................ EUR 454,000 562,619
4.375% 7/8/15 ............................................. GBP 327,000 564,641
5.375% 6/7/21 ............................................. GBP 296,000 568,229
^#European Investment Bank 144A
17.804% 9/12/08 ........................................... BRL 1,480,340 435,552
PRINCIPAL MARKET
AMOUNT~ VALUE
------------ ------------
(U.S.$)
SUPRANATIONAL BANKS (CONTINUED)
Inter-American Development Bank
1.90% 7/8/09 ................................................ JPY 190,000,000 $ 1,687,211
------------
TOTAL SUPRANATIONAL BANKS
(COST $4,350,313) ........................................... 4,208,169
------------
U.S. TREASURY OBLIGATIONS-12.23%
^U.S. Treasury Bill 3.715% 3/30/06 ............................ USD 620,000 614,186
U.S. Treasury Bond 5.375% 2/15/31 ............................ 450,000 505,617
U.S. Treasury Inflation Index Notes
0.875% 4/15/10 ............................................. 278,626 264,967
1.875% 7/15/15 ............................................. 76,804 75,556
3.00% 7/15/12 .............................................. 1,999,633 2,114,926
3.375% 4/15/32 ............................................. 84,164 109,511
U.S. Treasury Notes
~ 4.125% 8/15/10 7,211,000 7,142,272
4.375% 12/15/10 1,120,000 1,121,225
4.50% 11/15/15 14,035,000 14,154,522
5.375% 2/15/31 50,000 56,180
^U.S. Treasury Strip 4.198% 11/15/13 1,335,000 942,745
------------
TOTAL U.S. TREASURY OBLIGATIONS
(COST $27,065,604) 27,101,707
------------
CONVERTIBLE BONDS-0.05%
Mirant, 2.50% 6/15/21, exercise price
$67.95, expiration date 6/15/21 110,000 118,250
------------
TOTAL CONVERTIBLE BONDS
(COST $91,160) 118,250
------------
NUMBER OF
SHARES
------------
COMMON STOCK-0.04%
B&G Foods .................................................... USD 3,500 50,820
+Foster Wheeler ............................................... 1,044 38,398
------------
TOTAL COMMON STOCK
(COST $74,711) ............................................. 89,218
------------
PREFERRED STOCK-0.03%
Alamosa Delaware 7.50% ....................................... 40 54,855
Nexen 7.35% .................................................. 200 5,164
------------
TOTAL PREFERRED STOCK
(COST $41,290) ............................................. 60,019
------------
WARRANT-0.03%
Republic of Argentina 8.28% 12/15/35 ......................... 1,110,000 56,888
------------
TOTAL WARRANT
(COST $50,960) ............................................. 56,888
------------
CURRENCY OPTIONS PURCHASED-0.05%
Call JPY 1,437,068,400,
Put USD 11,857,000,
expiration date 1/13/06 .................................... 3,273
Put EUR 11,367,071,
Call USD 13,387,000,
expiration date 1/13/06 .................................... 104,084
------------
TOTAL CURRENCY OPTIONS PURCHASED
(COST $98,423) ............................................. 107,357
------------
Diversified Income-13
DELAWARE VIP DIVERSIFIED INCOME SERIES
STATEMENT OF NET ASSETS (CONTINUED)
PRINCIPAL MARKET
AMOUNT^ VALUE
----------- -------------
(U.S.$)
REPURCHASE AGREEMENTS-5.94%
With BNP Paribas 3.30% 1/03/06 (dated 12/30/05, to be repurchased
at $8,311,046, collateralized by $171,000 U.S. Treasury Bills
due 1/26/06, market value $170,143, $117,000 U.S. Treasury
Bills due 2/23/06, market value $116,307, $231,000 U.S.
Treasury Bills due 5/4/06, market value $227,600, $1,537,000 U.S.
Treasury Bills due 6/1/06, market value $1,510,801,
$4,309,000 U.S. Treasury Bills due 6/29/06, market value
$4,219,847, $1,530,000 U.S. Treasury Notes 2.625% due 5/15/08,
market value $1,475,199 and $767,000 U.S. Treasury Notes 3.125%
due 5/15/07, market value $757,395) .................................. USD 8,308,000 $ 8,308,000
With UBS Warburg 3.40% 1/03/06 (dated 12/30/05, to be repurchased
at $4,850,832, collateralized by $563,000 U.S. Treasury Notes
2.00% due 5/15/06, market value $560,178 and $4,243,000 U.S.
Treasury Notes 5.625% due 5/15/08, market value $4,390,854) .......... USD 4,849,000 $ 4,849,000
-------------
TOTAL REPURCHASE AGREEMENTS (cost $13,157,000) ........................ 13,157,000
-------------
TOTAL MARKET VALUE OF SECURITIES- 103.07% (COST $230,235,111) ............................. 228,485,159
LIABILITIES NET OF RECEIVABLES AND OTHER ASSETS-(3.07%) ................................... (6,804,358)
-------------
NET ASSETS APPLICABLE TO 23,986,280 SHARES OUTSTANDING-100.00% ............................ $ 221,680,801
=============
NET ASSET VALUE-DELAWARE VIP DIVERSIFIED INCOME SERIES STANDARD
CLASS ($90,810,577 / 9,802,470 SHARES) ........ .......................................... $ 9.26
=============
NET ASSET VALUE-DELAWARE VIP DIVERSIFIED INCOME SERIES SERVICE
CLASS ($130,870,224 / 14,183,810 SHARES) ................................................. $ 9.23
=============
COMPONENTS OF NET ASSET AT DECEMBER 31, 2005:
Shares of beneficial interest (unlimited authorization-no par) ............................ $ 220,945,134
Undistributed net investment income ..... ................................................. 3,793,628
Accumulated net realized loss on investments .............................................. (1,402,460)
Net unrealized depreciation of investments and foreign currencies.......................... (1,655,501)
-------------
Total net assets .......................................................................... $ 221,680,801
=============
- ----------
o Principal amount shown is stated in the currency in which each security is
denominated.
AUD - Australian Dollar EUR - European Monetary Unit JPY - Japanese Yen PLN - Polish Zloty
BRL - Brazilian Real GBP - British Pound Sterling NOK - Norwegian Krone SEK - Swedish Krona
CAD - Canadian Dollar ISK - Iceland Krona NZD - New Zealand Dollar USD - U.S. Dollar
# Security exempt from registration under Rule 144A of the Securities Act of
1933. At December 31, 2005, the aggregate amount of Rule 144A securities
equals $21,478,538, which represented 9.69% of the Series' net assets. See
Note 10 in "Notes to Financial Statements."
@ Variable rate securities. The interest rate shown is the rate as of December
31, 2005.
^ Zero coupon security. The interest rate shown is the yield at the time of
purchase.
! Non-income producing security. Security is currently in default.
< Step coupon bond. Indicates security that has a zero coupon that remains in
effect until a predetermined date at which time the stated interest rate
becomes effective.
* Step coupon bond. Coupon increases periodically based on a predetermined
schedule. Stated interest rate in effect at December 31, 2005.
~ Fully or partially pledged as collateral for financial futures contracts.
** Security is currently in default. The issue has missed the maturity date.
Bankruptcy proceedings are in process to determine distribution of assets.
The date listed is the estimate of when proceedings will be finalized.
> Pass Through Agreement. Security represents the contractual right to receive
a proportionate amount of underlying payments due to the counterparty
pursuant to various agreements related to the rescheduling of obligations
and the exchange of certain notes.
+ Non-income producing security for the year ended December 31, 2005.
Diversified Income-14
DELAWARE VIP DIVERSIFIED INCOME SERIES
STATEMENT OF NET ASSETS (CONTINUED)
SUMMARY OF ABBREVIATIONS:
AMBAC - Insured by the AMBAC Assurance Corporation
ARM - Adjustable Rate Mortgage
FGIC - Insured by the Financial Guaranty Insurance Company
FHLMC - Federal Home Loan Mortgage Corporation
FSA - Insured by Financial Security Assurance
GNMA - Government National Mortgage Association
PRN - Principal Only Strip
REIT - Real Estate Investment Trust
S.F. - Single Family
SLMA - Student Loan Marketing Association
TBA - To be Announced
yr - Year
The following foreign currency exchange contracts and futures contracts were
outstanding at December 31, 2005:
FOREIGN CURRENCY EXCHANGE CONTRACTS(1)
UNREALIZED
APPRECIATION
CONTRACTS TO RECEIVE (DELIVER) IN EXCHANGE FOR SETTLEMENT DATE (DEPRECIATION)
- ------------------------------------ --------------- --------------- --------------
(2,035,000) Australian Dollars JPY 180,476,010 1/13/06 $ 41,181
(2,169,000) Australian Dollars USD 1,620,048 1/13/06 29,689
(1,095,000) British Pounds EUR 1,611,408 1/13/06 24,896
(1,912,000) British Pounds USD 3,324,829 3/23/06 34,766
798,310 European Monetary Units USD (956,000) 1/13/06 (10,232)
113,996,308 Japanese Yen USD (956,000) 1/13/06 12,490
1,100,440 New Zealand Dollars USD (750,170) 1/4/06 1,092
507,000 New Zealand Dollars USD (345,896) 1/5/06 194
(1,600,000) New Zealand Dollars AUD 1,507,287 1/13/06 13,863
(2,455,200) New Zealand Dollars USD 1,659,131 3/23/06 (5,931)
7,124,129 Norwegian Krone GBP (610,000) 1/13/06 6,778
(3,029,000) Polish Zloty EUR 787,531 1/13/06 473
(12,661,000) Swedish Krona USD 1,581,498 1/13/06 (13,291)
--------------
$ 135,968
==============
FUTURES CONTRACTS(2)
NOTIONAL NOTIONAL UNREALIZED
CONTRACTS TO BUY (SELL) COST (PROCEEDS) VALUE EXPIRATION DATE DEPRECIATION
- ------------------------------------ --------------- --------------- --------------- ------------
22 U.S. Treasury 5 year Notes $ 2,341,424 $ 2,339,563 3/31/06 $ (1,861)
(20) U.S. Treasury 10 year Interest
Rate Swap (2,135,807) (2,163,125) 3/13/06 (27,318)
------------
$ (29,179)
============
The use of futures contracts involves elements of market risks in excess of the
amount recognized in the financial statements. The notional amounts presented
above represent the Series' total exposure in such contracts, whereas only the
net unrealized appreciation (depreciation) is reflected in the Series' net
assets.
(1) See Note 7 in "Notes to Financial Statements."
(2) See Note 8 in "Notes to Financial Statements."
See accompanying notes
Diversified Income-15
DELAWARE VIP TRUST-
DELAWARE VIP DIVERSIFIED INCOME SERIES
STATEMENT OF ASSETS AND LIABILITIES
December 31, 2005
ASSETS:
Investments at market (cost $230,235,111) .................. $ 228,485,159
Cash ....................................................... 6,688,636
Foreign currencies (cost $472,800) ......................... 473,989
Dividends and interest receivable .......................... 2,558,753
Subscriptions receivable ................................... 577,835
Receivable for securities sold ............................. 6,643,659
Net unrealized appreciation on foreign currency
exchange contracts ........................................ 135,968
Variation margin receivable on futures contracts ........... 2,094
--------------
Total assets ............................................... 245,566,093
--------------
LIABILITIES:
Payable for securities purchased ........................... 23,563,202
Liquidations payable ....................................... 89,277
Swap agreement payable ..................................... 16,393
Due to manager and affiliates .............................. 155,063
Other accrued expenses ..................................... 61,357
--------------
Total liabilities .......................................... 23,885,292
--------------
Total net assets ........................................... $ 221,680,801
==============
See accompanying notes
DELAWARE VIP TRUST-
DELAWARE VIP DIVERSIFIED INCOME SERIES
STATEMENT OF OPERATIONS
Year Ended December 31, 2005
INVESTMENT INCOME:
Interest ................................................... $ 6,552,694
Dividends .................................................. 3,942
--------------
6,556,636
--------------
EXPENSES:
Management fees ............................................ 887,478
Distribution expenses - Service Class ...................... 274,028
Reports and statements to shareholders ..................... 78,165
Accounting and administration expenses ..................... 51,787
Custodian fees ............................................. 47,165
Professional fees .......................................... 30,413
Pricing fees ............................................... 19,473
Registration fees .......................................... 14,853
Dividend disbursing and transfer agent fees
and expenses .............................................. 14,032
Insurance fees ............................................. 8,023
Trustees' fees ............................................. 7,002
Taxes (other than taxes on income) ......................... 405
Other ...................................................... 9,920
--------------
1,442,744
--------------
Less expenses absorbed or waived ........................... (96,346)
Less waiver of distribution expenses - Service Class ....... (45,671)
Total expenses ............................................. 1,300,727
--------------
NET INVESTMENT INCOME ...................................... 5,255,909
--------------
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS AND FOREIGN CURRENCIES:
Net realized loss on:
Investments .............................................. (1,211,747)
Futures contracts ........................................ (89,511)
Swap agreements .......................................... (47,920)
Foreign currencies ....................................... (1,468,686)
--------------
Net realized loss .......................................... (2,817,864)
--------------
Net change in unrealized appreciation/depreciation
of investments and foreign currencies ..................... (3,080,673)
--------------
NET REALIZED AND UNREALIZED LOSS ON
INVESTMENTS AND FOREIGN CURRENCIES ........................ (5,898,537)
--------------
NET DECREASE IN NET ASSETS RESULTING
FROM OPERATIONS ........................................... $ (642,628)
==============
See accompanying notes
Diversified Income-16
DELAWARE VIP TRUST-
DELAWARE VIP DIVERSIFIED INCOME SERIES
STATEMENTS OF CHANGES IN NET ASSETS
YEAR ENDED
-------------------------------
12/31/05 12/31/04
-------------- --------------
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS:
Net investment income ...................................... $ 5,255,909 $ 615,864
Net realized gain (loss) on investments
and foreign currencies .................................... (2,817,864) 604,345
Net change in unrealized appreciation/
depreciation of investments and
foreign currencies ........................................ (3,080,673) 1,365,865
-------------- --------------
Net increase (decrease) in net assets
resulting from operations ................................. (642,628) 2,586,074
-------------- --------------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income:
Standard Class ........................................... (257,955) (54,824)
Service Class ............................................ (535,544) -
Net realized gain on investments:
Standard Class ........................................... (125,069) -
Service Class ............................................ (338,239) -
-------------- --------------
(1,256,807) (54,824)
-------------- --------------
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares sold:
Standard Class ........................................... 85,247,705 15,134,395
Service Class ............................................ 99,383,381 47,885,578
Net asset value of shares issued upon
reinvestment of dividends and distributions:
Standard Class ........................................... 383,024 54,824
Service Class ............................................ 873,783 -
-------------- --------------
185,887,893 63,074,797
-------------- --------------
Cost of shares repurchased:
Standard Class ........................................... (9,080,224) (3,175,375)
Service Class ............................................ (15,414,593) (2,347,382)
-------------- --------------
(24,494,817) (5,522,757)
-------------- --------------
Increase in net assets derived from
capital share transactions ................................ 161,393,076 57,552,040
-------------- --------------
NET INCREASE IN NET ASSETS ................................. 159,493,641 60,083,290
NET ASSETS:
Beginning of year .......................................... 62,187,160 2,103,870
-------------- --------------
End of year (including undistributed
net investment income of $3,793,628 and
$781,146, respectively) ................................... $ 221,680,801 $ 62,187,160
============== ==============
See accompanying notes
Diversified Income-17
DELAWARE VIP TRUST-DELAWARE VIP DIVERSIFIED INCOME SERIES
FINANCIAL HIGHLIGHTS
Selected data for each share of the Series outstanding throughout each period
were as follows:
DELAWARE VIP DIVERSIFIED INCOME
SERIES STANDARD CLASS
------------------------------------------------
YEAR
ENDED 5/16/03(1)
------------------------------- TO
12/31/05 12/31/04 12/31/03
-------------- -------------- --------------
Net asset value, beginning of period ....................... $ 9.450 $ 8.940 $ 8.500
INCOME (LOSS) FROM INVESTMENT OPERATIONS:
Net investment income(2) ................................... 0.373 0.348 0.240
Net realized and unrealized gain (loss) on investments and
foreign currencies ........................................ (0.416) 0.395 0.200
-------------- -------------- --------------
Total from investment operations ........................... (0.043) 0.743 0.440
-------------- -------------- --------------
LESS DIVIDENDS AND DISTRIBUTIONS FROM:
Net investment income ...................................... (0.099) (0.233) -
Net realized gain on investments ........................... (0.048) - -
-------------- -------------- --------------
Total dividends and distributions .......................... (0.147) (0.233) -
-------------- -------------- --------------
Net asset value, end of period ............................. $ 9.260 $ 9.450 $ 8.940
============== ============== ==============
Total return(3) ............................................ (0.45%) 8.47% 5.18%
RATIOS AND SUPPLEMENTAL DATA:
Net assets, end of period (000 omitted) .................... $ 90,811 $ 14,770 $ 2,104
Ratio of expenses to average net assets .................... 0.79% 0.80% 0.80%
Ratio of expenses to average net assets prior to expense
limitation and expenses paid indirectly ................... 0.86% 0.98% 1.59%
Ratio of net investment income to average net assets ....... 4.02% 3.82% 4.43%
Ratio of net investment income to average net assets prior
to expense limitation and expenses paid indirectly ........ 3.95% 3.64% 3.64%
Portfolio turnover ......................................... 400% 493% 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 waivers 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-18
DELAWARE VIP DIVERSIFIED INCOME SERIES
FINANCIAL HIGHLIGHTS (CONTINUED)
Selected data for each share of the Series outstanding throughout each period
were as follows:
DELAWARE VIP DIVERSIFIED INCOME
SERIES STANDARD CLASS
------------------------------------------------
YEAR
ENDED 5/16/03(1)
------------------------------- TO
12/31/05 12/31/04 12/31/03
-------------- -------------- --------------
Net asset value, beginning of period ....................... $ 9.410 $ 8.930 $ 8.500
INCOME (LOSS) FROM INVESTMENT OPERATIONS:
Net investment income(2) ................................... 0.350 0.326 0.216
Net realized and unrealized gain (loss) on investments and
foreign currencies ........................................ (0.406) 0.373 0.214
-------------- -------------- --------------
Total from investment operations ........................... (0.056) 0.699 0.430
-------------- -------------- --------------
LESS DIVIDENDS AND DISTRIBUTIONS FROM:
Net investment income ...................................... (0.076) (0.219) -
Net realized gain on investments ........................... (0.048) - -
-------------- -------------- --------------
Total dividends and distributions .......................... (0.124) (0.219) -
-------------- -------------- --------------
Net asset value, end of period ............................. $ 9.230 $ 9.410 $ 8.930
============== ============== ==============
Total return(3) ............................................ (0.59%) 7.85% 5.06%
RATIOS AND SUPPLEMENTAL DATA:
Net assets, end of period (000 omitted) .................... $ 130,870 $ 47,417 $ -
Ratio of expenses to average net assets .................... 1.04% 1.05% 1.05%
Ratio of expenses to average net assets prior to expense
limitation and expenses paid indirectly ................... 1.16% 1.28% 1.89%
Ratio of net investment income to average net assets ....... 3.77% 3.57% 4.18%
Ratio of net investment income to average net assets prior
to expense limitation and expenses paid indirectly ........ 3.65% 3.34% 3.34%
Portfolio turnover ......................................... 400% 493% 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 waivers 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-19
DELAWARE VIP TRUST-DELAWARE VIP DIVERSIFIED INCOME SERIES
NOTES TO FINANCIAL STATEMENTS
December 31, 2005
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 REIT Series,
Delaware VIP Select Growth Series, Delaware VIP Small Cap Value Series, Delaware
VIP Trend Series, Delaware VIP U.S. Growth Series and Delaware VIP Value Series.
These financial statements and the related notes pertain to Delaware VIP
Diversified Income Series (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 U.S. generally accepted
accounting principles and are consistently followed by the Series.
Security Valuation--Equity securities, except those traded on the Nasdaq Stock
Market, Inc. (Nasdaq), are valued at the last quoted sales price as of the time
of the regular close of the New York Stock Exchange (NYSE) on the valuation
date. Securities traded on the Nasdaq are valued in accordance with the Nasdaq
Official Closing Price, which may not be the last sales price. If on a
particular day an equity security does not trade, then the mean between the bid
and asked prices will be used. Securities listed on a foreign exchange are
valued at the last quoted sales price before the Series is valued. U.S.
government and agency securities are valued at the mean between the bid and
asked prices. Other long-term debt securities are valued by an independent
pricing service and such prices are believed to reflect the fair value of such
securities. Short-term debt securities having less than 60 days to maturity are
valued at amortized cost, which approximates market value. 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 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 pursuant to an
exemptive order issued by the Securities and Exchange Commission. The aggregate
daily balance of the pooled cash account is invested in repurchase agreements
secured by obligations of the U.S. government. The respective collateral is held
by the Series' custodian bank until the maturity of the respective repurchase
agreements. Each repurchase agreement is 102% collateralized. However, in the
event of default or bankruptcy by the counterparty to the agreement, realization
of the collateral may be subject to legal proceedings.
Foreign Currency Transactions--Transactions denominated in foreign currencies
are recorded at the prevailing exchange rates on the valuation date. The value
of all assets and liabilities denominated in foreign currencies are translated
into U.S. dollars at the exchange rate of such currencies against the U.S.
dollar daily. Transaction gains or losses resulting from changes in exchange
rates during the reporting period or upon settlement of the foreign currency
transaction are reported in operations for the current period. The Series
isolates that portion of realized gains and losses on investments in debt
securities, which are due to changes in the foreign exchange rates from that
which are due to changes in market prices of debt securities. The Series reports
certain foreign currency related transactions as components of realized gains
(losses) for financial reporting purposes, where such components are treated as
ordinary income (loss) for federal income tax purposes.
Use of Estimates--The preparation of financial statements in conformity with
U.S. generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from those estimates.
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.
Management fees and some other expenses are paid monthly. Security transactions
are recorded on the date the securities are purchased or sold (trade date) for
financial reporting purposes. Costs used in calculating realized gains and
losses on the sale of investment securities are those of the specific securities
sold. Dividend income is recorded on the ex-dividend date and interest income is
recorded on the accrual basis. Withholding taxes have been provided for in
accordance with the Series' understanding of the applicable country's tax rules
and rates. Discounts and premiums on non-convertible bonds are amortized to
interest income over the lives of the respective securities. Realized gains
(losses) on paydowns of mortgage- and asset-backed securities are classified as
interest income.
The Series declares and pays dividends from net investment income and
distributions from net realized gain on investments, if any, following the close
of the fiscal year.
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.
Diversified Income-20
DELAWARE VIP DIVERSIFIED INCOME 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 June 30, 2006.
Delaware Service Company, Inc. (DSC), an affiliate of DMC, provides accounting,
administration, dividend disbursing and transfer agent services. Effective May
19, 2005, the Series pays DSC a monthly fee computed at the annual rate of 0.04%
of the Series' average daily net assets for accounting and administrative
services. Prior to May 19, 2005, the Series paid 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 distribution and service fee not to exceed 0.30% of the average daily net
assets of the Service Class shares. DDLP has contracted to waive distribution
and service fees through June 30, 2006 in order to prevent distribution and
service fees of the Service Class shares from exceeding 0.25% of average daily
net assets. Standard Class shares pay no distribution and service expenses.
At December 31, 2005, the Series had receivables due from or liabilities payable
to affiliates as follows:
DIVIDEND DISBURSING,
INVESTMENT TRANSFER AGENT,
MANAGEMENT ACCOUNTING AND ADMINISTRATION DISTRIBUTION OTHER EXPENSES
FEE PAYABLE TO FEES AND OTHER EXPENSES FEES PAYABLE PAYABLE TO DMC
DMC PAYABLE TO DSC TO DDLP AND AFFILIATES*
- -------------------- ----------------------------- ------------ ---------------
$ 66,184 $ 10,794 $ 52,192 $ 25,893
*DMC, as part of its administrative services, pays operating expenses on behalf
of the Series and is reimbursed on a periodic basis. Such expenses include items
such as printing of shareholder reports, fees for audit, legal and tax services,
custodian fees and trustees' fees.
As provided in the investment management agreement the Series bears the cost of
certain legal services expenses, including internal legal services provided to
the Series by DMC employees. For the year ended December 31, 2005, the Series
was charged $5,877 for internal legal services provided by DMC.
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, 2005, the Series made purchases and sales of
investment securities other than short-term investments as follows:
Purchases other than U.S. government securities $ 487,085,260
Purchases of U.S. government securities 193,449,758
Sales other than U.S. government securities 345,988,668
Sales of U.S. government securities 173,208,511
At December 31, 2005, the cost of investments for federal income tax purposes
and unrealized appreciation (depreciation) for the Series were as follows:
AGGREGATE AGGREGATE
COST OF UNREALIZED UNREALIZED NET UNREALIZED
INVESTMENTS APPRECIATION DEPRECIATION DEPRECIATION
------------- ------------ ------------ --------------
$ 230,717,206 $ 1,239,811 $ (3,471,858) $ (2,232,047)
4. DIVIDEND AND DISTRIBUTION INFORMATION
Income and long-term capital gain distributions are determined in accordance
with federal income tax regulations, which may differ from U.S. generally
accepted accounting principles. Additionally, gains (losses) on foreign currency
transactions and net short-term gains on sales of investment securities are
treated as ordinary income for federal income tax purposes. The tax character of
dividends and distributions paid during the years ended December 31, 2005 and
2004 was as follows:
YEAR YEAR
ENDED ENDED
12/31/05 12/31/04
----------- -----------
Ordinary income .............. $ 1,201,382 $ 54,824
Long-term capital gain ....... 55,425 -
----------- -----------
$ 1,256,807 $ 54,824
=========== ===========
Diversified Income-21
DELAWARE VIP DIVERSIFIED INCOME SERIES
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
4. DIVIDEND AND DISTRIBUTION INFORMATION (CONTINUED)
As of December 31, 2005, the components of net assets on a tax basis were as
follows:
Shares of beneficial interest $ 220,945,134
Undistributed ordinary income 4,806,629
Post-October losses (275,405)
Post-October currency losses (848,068)
Capital loss carryforwards (682,113)
Unrealized depreciation of investments and
foreign currencies (2,265,376)
-------------
Net assets $221,680,801
=============
The differences between book basis and tax basis components of net assets are
primarily attributable to tax deferral of losses on wash sales, mark-to-market
of futures contracts, straddle deferrals, mark-to-market of foreign currency
contracts and tax treatment of contingent payment debt instuments.
Post-October losses and Post-October currency losses represent losses realized
on investment and foreign currency transactions from November 1, 2005 through
December 31, 2005 that, in accordance with federal income tax regulations, the
Series has elected to defer and treat as having arisen in the following fiscal
year.
For financial reporting purposes, capital accounts are adjusted to reflect the
tax character of permanent book/tax differences. Reclassifications are primarily
due to tax treatment of paydowns of mortgage- and asset-backed securities, gain
(loss) on foreign currency transactions and contingent payment debt instruments.
Results of operations and net assets were not affected by these
reclassifications. For the year ended December 31, 2005, the Series recorded the
following reclassifications.
UNDISTRIBUTED ACCUMULATED
NET NET REALIZED
INVESTMENT INCOME GAIN (LOSS)
----------------- ------------
$ (1,449,928) $ 1,449,928
For federal income tax purposes, capital loss carryforwards may be carried
forward and applied against future capital gains. Capital loss carryforwards
remaining at December 31, 2005 will expire as follows: $682,113 expires in 2013.
5. CAPITAL SHARES
Transactions in capital shares were as follows:
YEAR YEAR
ENDED ENDED
12/31/05 12/31/04
------------ ------------
Shares sold:
Standard Class ............................... 9,175,989 1,662,559
Service Class ................................ 10,713,809 5,296,057
Shares issued upon reinvestment of dividends
and distributions:
Standard Class ............................... 41,588 6,153
Service Class ................................ 95,080 -
------------ ------------
20,026,466 6,964,769
------------ ------------
Shares repurchased:
Standard Class ............................... (978,146) (340,968)
Service Class ................................ (1,663,091) (258,046)
------------ ------------
(2,641,237) (599,014)
------------ ------------
Net increase .................................... 17,385,229 6,365,755
============ ============
6. LINE OF CREDIT
The Series, along with certain other funds in the Delaware Investments Family of
Funds (the "Participants"), participates in a $225,000,000 revolving line of
credit facility to be used for temporary or emergency purposes as an additional
source of liquidity to fund redemptions of investor shares. The Participants are
charged an annual commitment fee, which is allocated across the Participants on
the basis of each 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, 2005, or at any time during
the year.
Diversified Income-22
DELAWARE VIP DIVERSIFIED INCOME SERIES
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
7. FOREIGN CURRENCY 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.
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.
9. SWAP AGREEMENTS
During the year ended December 31, 2005, 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 swap agreements were outstanding at December 31, 2005.
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 a portion of its assets in high yield fixed income
securities, which carry ratings of BB or lower by Standard & Poor's Ratings
Group and/or Ba or lower by Moody's Investors Service, Inc. Investments in these
higher yielding securities are generally accompanied by a greater degree of
credit risk than higher rated securities. Additionally, lower rated securities
may be more susceptible to adverse economic and competitive industry conditions
than investment grade securities.
The Series may invest up to 15% of its total assets in illiquid securities,
which may include securities with contractual restrictions on resale, securities
exempt from registration under Rule 144A of the Securities Act of 1933, as
amended, and other securities which may not be readily marketable. The relative
illiquidity of these securities may impair the Series from disposing of them in
a timely manner and at a fair price when it is necessary or desirable to do so.
While maintaining oversight, the Board of Trustees has delegated to DMC the
day-to-day functions of determining whether individual securities are liquid for
purposes of the Series' limitation on investments in illiquid assets. At
December 31, 2005, no securities have been determined to be illiquid under the
Series' Liquidity Procedures.
Diversified Income-23
DELAWARE VIP DIVERSIFIED INCOME SERIES
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
11. CONTRACTUAL OBLIGATIONS
The Series enters into contracts in the normal course of business that contain a
variety of indemnifications. The Series' maximum exposure under these
arrangements is unknown. However, the Series has not had prior claims or losses
pursuant to these contracts. Management has reviewed the Series' existing
contracts and expects the risk of loss to be remote.
12. TAX INFORMATION (UNAUDITED)
For the fiscal year ended December 31, 2005, the Series designates distributions
paid during the year as follows:
(A) (B)
LONG-TERM ORDINARY
CAPITAL GAINS INCOME TOTAL
DISTRIBUTIONS DISTRIBUTIONS DISTRIBUTION
(TAX BASIS) (TAX BASIS) (TAX BASIS)
------------- ------------- ------------
4% 96% 100%
- ----------
(A) and (B) are based on a percentage of the Series' total distributions.
Diversified Income-24
DELAWARE VIP TRUST-DELAWARE VIP DIVERSIFIED INCOME SERIES
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
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 the statement of
assets and liabilities of the Delaware VIP Diversified Income Series (one of the
series constituting Delaware VIP Trust) (the "Series") as of December 31, 2005,
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 two years then ended and the period May
16, 2003 (commencement of operations) to 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 audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (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. We were
not engaged to perform an audit of the Series' internal control over financial
reporting. Our audits included consideration of internal control over financial
reporting as a basis for designing audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion on the
effectiveness of the Series' internal control over financial reporting.
Accordingly, we express no such opinion. An audit also includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements and financial highlights, assessing the accounting principles used
and significant estimates made by management, and evaluating the overall
financial statement presentation. Our procedures included confirmation of
securities owned as of December 31, 2005, by correspondence with the custodian
and brokers or by other appropriate auditing procedures where replies from
brokers were not received. 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 the
Delaware VIP Diversified Income Series of Delaware VIP Trust at December 31,
2005, 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 two years then ended and the period May 16, 2003
(commencement of operations) to December 31, 2003, in conformity with U.S.
generally accepted accounting principles.
/s/ Ernst & Young LLP
Philadelphia, Pennsylvania
February 10, 2006
The Series files its complete schedule of portfolio holdings with the Securities
and Exchange Commission for the first and third quarters of each fiscal year on
Form N-Q. The Series' Forms N-Q, as well as a description of the policies and
procedures that the Series uses to determine how to vote proxies (if any)
relating to portfolio securities is available without charge (i) upon request,
by calling 800-523-1918; (ii) on the Series' website at
http://www.delawareinvestments.com; and (iii) on the Commission's website at
http://www.sec.gov. The Series' Forms N-Q may be reviewed and copied at the
Commission's Public Reference Room in Washington, DC; information on the
operation of the Public Reference Room may be obtained by calling
1-800-SEC-0330. Information (if any) regarding how the Series voted proxies
relating to portfolio securities during the most recently disclosed 12-month
period ended June 30 is available without charge (i) through the Series' website
at http://www.delawareinvestments.com; and (ii) on the Commission's website at
http://www.sec.gov.
Diversified Income-25
DELAWARE INVESTMENTS(R) FAMILY OF FUNDS
BOARD OF TRUSTEES/DIRECTORS AND OFFICERS ADDENDUM
A mutual fund is governed by a Board of Trustees/Directors ("Trustees"), which
has oversight responsibility for the management of a fund's business affairs.
Trustees establish procedures and oversee and review the performance of the
investment manager, the distributor and others who perform services for the
fund. The independent fund trustees, in particular, are advocates for
shareholder interests. Each trustee has served in that capacity since he or she
was elected to or appointed to the Board of Trustees, and will continue to serve
until his or her retirement or the election of a new trustee in his or her
place. The following is a list of the Trustees and Officers with certain
background and related information.
NUMBER OF OTHER
PRINCIPAL PORTFOLIOS IN FUND DIRECTORSHIPS
NAME, POSITION(S) LENGTH OCCUPATION(S) COMPLEX OVERSEEN HELD BY
ADDRESS HELD WITH OF TIME DURING BY TRUSTEE TRUSTEE
AND BIRTHDATE FUND(S) SERVED PAST 5 YEARS OR OFFICER OR OFFICER
- ------------------------ ------------------- -------------- ---------------------------- ------------------ ------------------
INTERESTED TRUSTEES
JUDE T. DRISCOLL(2) Chairman, 5 Years - Since August 2000, 87 None
2005 Market Street President, Executive Mr. Driscoll has served in
Philadelphia, PA Chief Executive Officer various executive capacities
19103 Officer and 2 Years - at different times at
Trustee Trustee Delaware Investments(1)
March 10, 1963
INDEPENDENT TRUSTEES
THOMAS L. BENNETT Trustee Since Private Investor - 87 None
2005 Market Street March 23, 2005 (March 2004 - Present)
Philadelphia, PA
19103 Investment Manager -
Morgan Stanley & Co.
October 4, 1947 (January 1984 - March 2004)
JOHN A. FRY Trustee 4 Years President - 87 Director -
2005 Market Street Franklin & Marshall College Community Health
Philadelphia, PA (June 2002 - Present) Systems
19103
Executive Vice President -
May 28, 1960 University of Pennsylvania
(April 1995 - June 2002)
ANTHONY D. KNERR Trustee 12 Years Founder/Managing Director - 87 None
2005 Market Street Anthony Knerr & Associates
Philadelphia, PA (Strategic Consulting)
19103 (1990 - Present)
December 7, 1938
LUCINDA S. LANDRETH Trustee Since Chief Investment Officer - 87 None
2005 Market Street March 23, 2005 Assurant, Inc.
Philadelphia, PA (Insurance)
19103 (2002 - 2004)
June 24, 1947
ANN R. LEVEN Trustee 16 Years Treasurer/Chief Fiscal 87 Director and
2005 Market Street Officer - National Gallery Audit Committee
Philadelphia, PA of Art (1994 - 1999) Chairperson - Andy
19103 Warhol Foundation
November 1, 1940 Director and Audit
Committee Member -
Systemax Inc.
Diversified Income-26
NUMBER OF OTHER
PRINCIPAL PORTFOLIOS IN FUND DIRECTORSHIPS
NAME, POSITION(S) LENGTH OCCUPATION(S) COMPLEX OVERSEEN HELD BY
ADDRESS HELD WITH OF TIME DURING BY TRUSTEE TRUSTEE
AND BIRTHDATE FUND(S) SERVED PAST 5 YEARS OR OFFICER OR OFFICER
- ------------------------ ------------------- -------------- ---------------------------- ------------------ ------------------
INDEPENDENT TRUSTEES
THOMAS F. MADISON Trustee 11 Years President/Chief 87 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 and Audit
Committee Member -
Digital River Inc.
Director and Audit
Committee Member -
Rimage Corporation
Director - Valmont
Industries, Inc.
JANET L. YEOMANS Trustee 6 Years Vice President 87 None
2005 Market Street (January 2003 - Present)
Philadelphia, PA and Treasurer
19103 (January 2006 - Present)
3M Corporation
July 31, 1948 Ms. Yeomans has held
various management positions
at 3M Corporation
since 1983.
J. RICHARD ZECHER Trustee Since Founder - 87 Director and Audit
2005 Market Street March 23, 2005 Investor Analytics Committee Member -
Philadelphia, PA (Risk Management) Investor Analytics
19103 (May 1999 - Present)
Director and Audit
July 3, 1940 Committee Member -
Oxigene, Inc.
OFFICERS
MICHAEL P. BISHOF Senior Chief Mr. Bishof has served in 87 None(3)
2005 Market Street Vice President and Financial various executive capacities
Philadelphia, PA Chief Financial since Officer at different times at
19103 Officer February 17, Delaware Investments.
2005
August 18, 1962
DAVID F. CONNOR Vice President, Vice President Mr. Connor has served as 87 None(3)
2005 Market Street Deputy General since Vice President and Deputy
Philadelphia, PA Counsel and September 21, General Counsel of Delaware
19103 Secretary 2000 and Investments since 2000.
Secretary
since
October 25,
2005
December 2, 1963
DAVID P. O'CONNOR Senior Vice Senior Vice Mr. O'Connor has served in 87 None(3)
2005 Market Street President, President, various executive and legal
Philadelphia, PA General Counsel General capacities at different
19103 and Chief Counsel and times at Delaware
Legal Officer Chief Legal Investments.
Officer since
October 25,
2005
February 21, 1966
JOHN J. O'CONNOR Senior Vice Treasurer Mr. O'Connor has served in 87 None(3)
2005 Market Street President and since various executive capacities
Philadelphia, PA Treasurer February 17, at different times at
19103 2005 Delaware Investments.
June 16, 1957
- ----------
(1) Delaware Investments is the marketing name for Delaware Management
Holdings, Inc. and its subsidiaries, including the Fund's(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(s') manager and distributor.
(3) Mr. Bishof, Mr. Connor, Mr. David P. O'Connor and Mr. John J. O'Connor
serve in similar capacities for the six portfolios of the Optimum Fund
Trust, which have the same investment advisor, principal underwriter, and
transfer agent as the registrant. Mr. John J. O'Connor also serves in a
similar capacity for Lincoln Variable Insurance Products Trust, which has
the same investment advisor as the registrant.
The Statement of Additional Information for the Fund(s) includes additional
information about the Trustees and Officers and is available, without charge,
upon request by calling 800 523-1918.
Diversified Income-27
DELAWARE VIP TRUST - DELAWARE VIP EMERGING MARKETS SERIES
Delaware VIP Emerging Markets Series Standard Class shares returned
+27.49%, and its Service Class shares returned +27.11% (both reflect all
distributions reinvested) for the fiscal year ended December 31, 2005. The
Series lagged the +34.54% gain of its benchmark, the Morgan Stanley Capital
International Emerging Markets Free Index (MSCI EMF). (source: Lipper Inc.) As
they have for the past several years, emerging markets overshadowed virtually
all developed market indices. These markets continue to attract the attention of
investors seeking alternative investment ideas; massive amounts of new cash
continued to flow into this asset class over the period.
The Series' positions in many of the fringe emerging markets showed the
strongest performance. Egypt, in particular, has been a spectacularly strong
market over the 12-month period because of the stepped-up pace of economic
reforms in the country and an influx of petrodollars from Gulf states awash in
cash from higher oil prices. Poor stock selection in China detracted from
Series' performance, primarily because of the lack of exposure to the oil
sector. Our defensive posture in Russia, which has detracted from performance,
has been primarily the result of the potential unsustainability of high oil
prices, along with the corporate governance risks posed by investing in some of
the leading Russian names.
PERFORMANCE OF A $10,000 INVESTMENT:
Delaware VIP
Emerging Markets Series MSCI Emerging
(Standard Class Shares) Markets Free Index
----------------------- ------------------
May 1, '97 $ 10,000 $ 10,000
May 31, '97 $ 10,300 $ 10,000
Dec 31, '97 $ 8,880 $ 7,910
Dec 31, '98 $ 5,996 $ 5,906
Dec 31, '99 $ 8,890 $ 9,828
Dec 31, '00 $ 6,792 $ 6,819
Dec 31, '01 $ 7,151 $ 6,658
Dec 31, '02 $ 7,521 $ 6,258
Dec 31, '03 $ 12,826 $ 9,780
Dec 31, '04 $ 17,119 $ 12,318
Dec 31, '05 $ 21,824 $ 16,573
DELAWARE VIP EMERGING MARKETS SERIES
AVERAGE ANNUAL TOTAL RETURNS
STANDARD CLASS SERVICE CLASS
SHARES* SHARES**
-------------- --------------
LIFETIME +9.42% +18.86%
FIVE YEAR +26.30% +26.05%
ONE YEAR +27.49% +27.11%
FOR THE PERIODS ENDED DECEMBER 31, 2005
* 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, 2005. All distributions were reinvested. The chart also
shows a $10,000 investment in the MSCI Emerging Markets 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 MSCI Emerging Markets Index is an 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. 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. Foreign investments are
subject to risks not ordinarily associated with domestic investments (i.e.
currency, economic, and political risks, and different accounting systems).
Investing in emerging markets can be riskier than investing in well-established
foreign markets.
Emerging Markets-1
DELAWARE VIP TRUST-DELAWARE VIP EMERGING MARKETS SERIES
DISCLOSURE OF SERIES EXPENSES
For the Period July 1, 2005 to December 31, 2005
As a shareholder of the Series, you incur ongoing costs, including management
fees; distribution and/or service (12b-1) fees; and other Series expenses. This
Example is intended to help you understand your ongoing costs (in dollars) of
investing in the Series and to compare these costs with the ongoing costs of
investing in other mutual funds.
The Example is based on an investment of $1,000 invested at the beginning of the
period and held for the entire period from July 1, 2005 to December 31, 2005.
ACTUAL EXPENSES
The first section of the table shown, "Actual Series Return,"
provides information about actual account values and actual expenses. You may
use the information in this section of the table, together with the amount you
invested, to estimate the expenses that you paid over the period. Simply divide
your account value by $1,000 (for example, an $8,600 account value divided by
$1,000 = 8.6), then multiply the result by the number in the first section under
the heading entitled "Expenses Paid During Period" to estimate the expenses you
paid on your account during the period.
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The second section of the table shown, "Hypothetical 5% Return," provides
information about hypothetical account values and hypothetical expenses based on
the Series' actual expense ratio and an assumed rate of return of 5% per year
before expenses, which is not the Series' actual return. The hypothetical
account values and expenses may not be used to estimate the actual ending
account balance or expenses you paid for the period. You may use this
information to compare the ongoing costs of investing in the Series and other
funds. To do so, compare the 5% hypothetical example with the 5% hypothetical
examples that appear in the shareholder reports of other funds.
Please note that the expenses shown in the table are meant to highlight your
ongoing costs only. As a shareholder of the Series, you do not incur any
transaction costs, such as sales charges (loads), redemption fees or exchange
fees, but shareholders of other funds may incur such costs. Also, the fees
related to the variable annuity investment or the deferred sales charge that
could apply have not been included. Therefore, the second section of the table
is useful in comparing ongoing costs only, and will not help you determine the
relative total costs of owning different funds. The Series' actual expenses
shown in the table reflect fee waivers in effect. The expenses shown in the
table assume reinvestment of all dividends and distributions.
EXPENSE ANALYSIS OF AN INVESTMENT OF $1,000
EXPENSES
BEGINNING ENDING PAID DURING
ACCOUNT ACCOUNT ANNUALIZED PERIOD
VALUE VALUE EXPENSE 7/1/05 TO
7/1/05 12/31/05 RATIOS 12/31/05*
------------- ------------- ------------- -------------
ACTUAL SERIES RETURN
Standard Class $ 1,000.00 $ 1,197.40 1.48% $ 8.20
Service Class 1,000.00 1,195.50 1.73% 9.57
HYPOTHETICAL 5% RETURN
(5% RETURN BEFORE EXPENSES)
Standard Class $ 1,000.00 $ 1,017.74 1.48% $ 7.53
Service Class 1,000.00 1,016.48 1.73% 8.79
*"Expenses Paid During Period" are equal to the Series' annualized expense
ratio, multiplied by the average account value over the period, multiplied by
184/365 (to reflect the one-half year period).
Emerging Markets-2
DELAWARE VIP TRUST-DELAWARE VIP EMERGING MARKETS SERIES
COUNTRY ALLOCATION
As of December 31, 2005
PERCENTAGE
COUNTRY OF NET ASSETS
- ----------------------------------------------- -------------
COMMON STOCK 85.83%
-------------
Brazil 7.79%
Chile 2.13%
China 6.02%
Czech Republic 1.00%
Egypt 1.00%
Hungary 1.64%
India 0.12%
Indonesia 1.04%
Israel 2.10%
Malaysia 9.37%
Mexico 6.26%
Morocco 0.66%
Panama 0.82%
Poland 2.35%
Republic of Korea 9.69%
Russia 3.04%
South Africa 12.09%
Taiwan 10.78%
Thailand 7.39%
Turkey 0.54%
-------------
PREFERRED STOCK 8.21%
-------------
Brazil 4.52%
Republic of Korea 3.69%
-------------
REPURCHASE AGREEMENTS 5.44%
-------------
TOTAL MARKET VALUE OF SECURITIES 99.48%
-------------
RECEIVABLES AND OTHER ASSETS NET OF LIABILITIES 0.52%
-------------
TOTAL NET ASSETS 100.00%
-------------
Emerging Markets-3
DELAWARE VIP TRUST-DELAWARE VIP EMERGING MARKETS SERIES
STATEMENT OF NET ASSETS
December 31, 2005
NUMBER OF MARKET
SHARES VALUE
------------- -------------
(U.S. $)
COMMON STOCK-85.83%^
BRAZIL-7.79%
AES Tiete .......................................... 42,200,000 $ 902,365
Companhia de Concessoes Rodoviarias ................ 74,500 2,357,696
Companhia Siderurgica Nacional ..................... 104,200 2,241,483
Companhia Vale do Rio Doce ADR ..................... 64,400 2,334,500
Petroleo Brasiliero ADR ............................ 64,400 4,145,427
Votorantim Celulose e Papel ADR .................... 284,900 3,501,421
-------------
15,482,892
-------------
CHILE-2.13%
AFP Provida ........................................ 100,893 198,137
AFP Provida ADR .................................... 5,229 148,504
Banco Santander ADR ................................ 70,300 3,135,380
+#Inversiones Aguas
Metropolitanas 144A ADR ............................ 44,500 747,386
-------------
4,229,407
-------------
CHINA-6.02%!
+Asia Aluminum Holdings ............................. 3,158,000 272,641
China Merchants Holdings
International ..................................... 398,000 863,806
China Telecom ...................................... 9,310,000 3,413,549
Fountain Set ....................................... 1,716,000 789,337
Guangshen Railway .................................. 3,020,000 913,157
Texwinca ........................................... 2,730,000 1,971,767
TPV Technology ..................................... 1,278,000 1,253,171
Zhejiang Expressway ................................ 4,030,000 2,489,095
-------------
11,966,523
-------------
CZECH REPUBLIC-1.00%
Komercni Banka ..................................... 9,618 1,343,700
Philip Morris ...................................... 881 654,128
-------------
1,997,828
-------------
EGYPT-1.00%
MobiNil-Egyptian Mobile Services ................... 56,297 1,991,229
-------------
1,991,229
-------------
HUNGARY-1.64%
Matav Magyar Tavkozlesi ............................ 418,013 1,870,438
OTP Bank ........................................... 42,857 1,400,188
-------------
3,270,626
-------------
INDIA-0.12%
Ranbaxy Laboratories GDR ........................... 30,962 247,386
-------------
247,386
-------------
INDONESIA-1.04%
Telekomunikasi Indonesia ........................... 3,468,000 2,068,806
-------------
2,068,806
-------------
ISRAEL-2.10%
Bank Hapoalim ...................................... 906,911 4,182,958
-------------
4,182,958
-------------
MALAYSIA-9.37%
Hong Leong Bank .................................... 2,033,200 2,743,569
Malaysia International
Shipping-Foreign .................................. 1,117,900 2,928,221
Maxis Communications ............................... 2,511,000 5,570,844
PLUS Expressways ................................... 3,433,500 2,779,868
Public Bank Berhad ................................. 714,000 1,237,386
Public Bank Berhad-Foreign ......................... 387,800 656,679
Tanjong ............................................ 710,400 2,725,440
-------------
18,642,007
-------------
NUMBER OF MARKET
SHARES VALUE
------------- -------------
(U.S. $)
COMMON STOCK (CONTINUED)
MEXICO-6.26%
Cemex de C.V ....................................... 69,372 $ 411,521
Cemex de C.V. ADR .................................. 40,506 2,403,221
Grupo Aeroportuario del Sureste
de C.V. ADR ....................................... 43,000 1,390,620
Grupo Continental .................................. 231,800 384,807
Grupo Televisa ADR ................................. 36,400 2,930,200
Kimberly-Clark de Mexico de C.V .................... 853,400 3,050,151
Telefonos de Mexico de C.V. ADR .................... 76,100 1,878,148
-------------
12,448,668
-------------
MOROCCO-0.66%
Maroc Telecom ...................................... 123,448 1,310,412
-------------
1,310,412
-------------
PANAMA-0.82%
Banco Latinoamericano Export ....................... 88,600 1,621,380
-------------
1,621,380
-------------
POLAND-2.35%
Bank Pekao ......................................... 58,315 3,139,604
Telekomunikacja Polska ............................. 212,101 1,529,432
-------------
4,669,036
-------------
REPUBLIC OF KOREA-9.69%
GS Engineering & Construction ...................... 40,030 2,102,640
Kookmin Bank ....................................... 30,590 2,313,143
Korea Electric Power ............................... 102,780 3,854,268
Korea Gas .......................................... 91,640 3,008,623
KT ................................................. 69,530 2,812,337
KT ADR ............................................. 80,927 1,743,977
KT&G ............................................... 43,270 1,934,217
Samsung Electronics ................................ 2,337 1,508,535
-------------
19,277,740
-------------
RUSSIA-3.04%
LUKOIL ADR ......................................... 24,364 1,449,658
Mobile Telesystems ADR ............................. 71,500 2,502,500
NovaTek OAO GDR .................................... 95,146 2,094,163
-------------
6,046,321
-------------
SOUTH AFRICA-12.09%
African Bank Investments ........................... 751,629 2,913,988
Alexander Forbes ................................... 914,643 2,098,478
Aspen Pharmacare ................................... 259,361 1,369,556
Impala Platinum .................................... 12,687 1,868,252
Nampak ............................................. 539,163 1,437,712
Remgro ............................................. 188,850 3,637,484
Sasol .............................................. 66,147 2,382,271
Standard Bank Group ................................ 293,987 3,528,306
Steinhoff International ............................ 1,230,343 3,650,324
Tiger Brands ....................................... 49,997 1,149,674
-------------
24,036,045
-------------
TAIWAN-10.78%
Asustek Computer ................................... 894,588 2,745,029
Chunghwa Telecom ................................... 2,287,000 3,972,673
Chunghwa Telecom ADR ............................... 91,306 1,675,465
Mega Financial Holding ............................. 5,010,000 3,253,019
Pihsiang Machinery Manufacturing ................... 150,954 231,307
President Chain Store .............................. 1,607,243 3,373,231
Synnex Technology International .................... 1,007,600 1,241,601
Taiwan Semiconductor Manufacturing ................. 2,593,000 4,940,588
-------------
21,432,913
-------------
Emerging Markets-4
DELAWARE VIP EMERGING MARKETS SERIES
STATEMENT OF NET ASSETS (CONTINUED)
NUMBER OF MARKET
SHARES VALUE
------------- -------------
(U.S. $)
COMMON STOCK (CONTINUED)
THAILAND-7.39%
Advanced Info Service .............................. 1,517,700 $ 3,921,419
Kasikornbank NVDR .................................. 1,184,100 2,023,163
Land & Houses NVDR ................................. 14,148,200 2,883,985
Siam Cement NVDR ................................... 660,400 3,931,131
Siam City Bank-Foreign Registered .................. 1,088,000 642,672
Siam City Bank NVDR ................................ 1,276,000 755,936
Thai Union Frozen Products ......................... 484,532 377,941
Thai Union Frozen Products NVDR .................... 227,768 169,120
-------------
14,705,367
-------------
TURKEY-0.54%
+Vestel Elektronik Sanayi ........................... 288,015 1,065,677
-------------
1,065,677
-------------
TOTAL COMMON STOCK
(COST $147,981,500) ............................... 170,693,221
-------------
PREFERRED STOCK-8.21%^
BRAZIL-4.52%
AES Tiete .......................................... 27,600,000 600,795
Caemi Mineracao e Metalurgia ....................... 2,033,000 2,964,774
Investimentos Itau ................................. 1,288,000 4,076,123
Petroleo Brasiliero ................................ 26,292 418,392
Ultrapar Participacoes ............................. 67,270 934,985
-------------
8,995,069
-------------
REPUBLIC OF KOREA-3.69%
Hyundai Motor ...................................... 43,260 2,920,325
Samsung Electronics ................................ 9,183 4,417,984
-------------
7,338,309
-------------
TOTAL PREFERRED STOCK
(COST $10,265,466) ................................ 16,333,378
-------------
PRINCIPAL MARKET
AMOUNT VALUE
------------- -------------
(U.S. $)
REPURCHASE AGREEMENTS-5.44%
With BNP Paribas 3.30% 1/3/06
(dated 12/30/05, to be repurchased at $6,829,503,
collateralized by $140,000 U.S. Treasury Bills
due 1/26/06, market value $139,818, $96,000 U.S.
Treasury Bills due 2/23/06, market value $95,577,
$190,000 U.S. Treasury Bills due 5/4/06, market
value $187,035, $1,263,000 U.S. Treasury Bills
due 6/1/06, market value $1,241,528, $3,541,000
U.S. Treasury Bills due 6/29/06, market value
$3,467,735, $1,257,000 U.S. Treasury Notes 2.625%
due 5/15/08, market value $1,212,271, and
$630,000 U.S. Treasury Notes 3.125% due 5/15/07,
market value $622,403) ............................ $ 6,827,000 $ 6,827,000
With UBS Warburg 3.40% 1/3/06
(dated 12/30/05, to be repurchased at
$3,986,505, collateralized by $463,000
U.S. Treasury Notes 2.00% due 5/15/06,
market value $460,336, and $3,487,000
U.S. Treasury Notes 5.625% due 5/15/08,
market value $3,608,262) .......................... 3,985,000 3,985,000
-------------
TOTAL REPURCHASE AGREEMENTS
(COST $10,812,000) ................................ 10,812,000
-------------
TOTAL MARKET VALUE OF SECURITIES-99.48% (COST $169,058,966) ........... 197,838,599
RECEIVABLES AND OTHER ASSETS NET OF LIABILITIES-0.52% ................. 1,029,684
-------------
NET ASSETS APPLICABLE TO 10,937,026 SHARES OUTSTANDING-100.00% ........ $ 198,868,283
=============
NET ASSET VALUE-DELAWARE VIP EMERGING MARKETS SERIES STANDARD CLASS
($120,291,725 / 6,609,923 SHARES) .................................... $ 18.20
=============
NET ASSET VALUE-DELAWARE VIP EMERGING MARKETS SERIES SERVICE CLASS
($78,576,558 / 4,327,103 SHARES) ..................................... $ 18.16
=============
COMPONENTS OF NET ASSETS AT DECEMBER 31, 2005:
Shares of beneficial interest (unlimited authorization-no par) ........ $ 160,942,100
Undistributed net investment income ................................... 2,425,952
Accumulated net realized gain on investments .......................... 6,715,338
Net unrealized appreciation of investments and foreign currencies ..... 28,784,893
-------------
Total net assets ...................................................... $ 198,868,283
=============
- ----------
+ Non-income producing security for the year ended December 31, 2005.
# Security exempt from registration under Rule 144A of the Securities Act of
1933. At December 31, 2005, the aggregate amount of Rule 144A securities
equals $747,386, which represented 0.38% of the Series' net assets. See Note
8 in "Notes to Financial Statements."
^ Securities have been classified by country of origin. Classification by type
of business has been presented in Note 10 in "Notes to Financial Statements."
! Securities listed and traded on the Hong Kong Stock Exchange.
SUMMARY OF ABBREVIATIONS:
ADR - American Depositary Receipts
GDR - Global Depositary Receipts
NVDR - Non-Voting Depositary Receipts
See accompanying notes
Emerging Markets-5
DELAWARE VIP TRUST-
DELAWARE VIP EMERGING MARKETS SERIES
STATEMENT OF OPERATIONS
Year Ended December 31, 2005
INVESTMENT INCOME:
Dividends ............................................. $ 4,596,234
Interest .............................................. 183,195
Foreign tax withheld .................................. (365,936)
-------------
4,413,493
-------------
EXPENSES:
Management fees ....................................... 1,373,992
Custodian fees ........................................ 205,333
Distribution expenses - Service Class ................. 114,497
Accounting and administration expenses ................ 41,684
Reports and statements to shareholders ................ 31,082
Legal and professional fees ........................... 26,028
Dividend disbursing and transfer agent
fees and expenses .................................... 11,002
Registration fees ..................................... 10,738
Pricing fees .......................................... 7,096
Insurance fees ........................................ 6,399
Trustees' fees ........................................ 5,973
Taxes (other than taxes on income) .................... 588
Other ................................................. 5,489
-------------
1,839,901
Less expenses absorbed or waived ...................... (113,091)
Less waiver of distribution expenses - Service Class .. (19,083)
-------------
Total expenses ........................................ 1,707,727
-------------
NET INVESTMENT INCOME ................................. 2,705,766
-------------
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS AND FOREIGN CURRENCIES:
Net realized gain (loss) on:
Investments ........................................ 6,912,514
Foreign currencies ................................. (222,247)
-------------
Net realized gain ..................................... 6,690,267
Net change in unrealized appreciation/depreciation
of investments and foreign currencies ................ 19,673,561
-------------
NET REALIZED AND UNREALIZED GAIN ON
INVESTMENTS AND FOREIGN CURRENCIES ................... 26,363,828
-------------
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS ...................................... $ 29,069,594
=============
See accompanying notes
DELAWARE VIP TRUST-
DELAWARE VIP EMERGING MARKETS SERIES
STATEMENTS AT CHANGES IN NET ASSETS
YEAR ENDED
------------------------------
12/31/05 12/31/04
------------- -------------
INCREASE IN NET ASSETS
FROM OPERATIONS:
Net investment income .................... $ 2,705,766 $ 436,356
Net realized gain on investments
and foreign currencies .................. 6,690,267 2,606,094
Net change in unrealized appreciation/
depreciation of investments and
foreign currencies ...................... 19,673,561 5,229,304
------------- -------------
Net increase in net assets resulting
from operations ......................... 29,069,594 8,271,754
------------- -------------
DIVIDENDS AND DISTRIBUTIONS
TO SHAREHOLDERS FROM:
Net investment income:
Standard Class ........................ (185,268) (427,607)
Service Class ......................... (26,959) (3,733)
Net realized gain on investments:
Standard Class ........................ (653,887) -
Service Class ......................... (255,396) -
------------- -------------
(1,121,510) (431,340)
------------- -------------
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares sold:
Standard Class ........................ 79,478,798 21,381,967
Service Class ......................... 66,615,479 11,965,075
Netasset value of shares issued
upon reinvestment of dividends
and distributions:
Standard Class ........................ 839,155 427,607
Service Class ......................... 282,355 3,733
------------- -------------
147,215,787 33,778,382
------------- -------------
Cost of shares repurchased:
Standard Class ........................ (14,800,249) (5,457,583)
Service Class ......................... (10,506,016) (1,599,049)
------------- -------------
(25,306,265) (7,056,632)
------------- -------------
Increase in net assets derived from
capital share transactions .............. 121,909,522 26,721,750
------------- -------------
NET INCREASE IN NET ASSETS ............... 149,857,606 34,562,164
NET ASSETS:
Beginning of year ........................ 49,010,677 14,448,513
------------- -------------
End of year (including undistributed
net investment income of $2,425,952
and $154,660, respectively) ............. $ 198,868,283 $ 49,010,677
============= =============
See accompanying notes
Emerging Markets-6
DELAWARE VIP TRUST-DELAWARE VIP EMERGING MARKETS SERIES
FINANCIAL HIGHLIGHTS
Selected data for each share of the Series outstanding throughout each period
were as follows:
DELAWARE VIP EMERGING MARKETS SERIES STANDARD CLASS YEAR ENDED
-------------------------------------------------------------------
12/31/05 12/31/04 12/31/03 12/31/02 12/31/01
----------- ----------- ----------- ----------- -----------
Net asset value, beginning of period ...................... $ 14.500 $ 11.180 $ 6.770 $ 6.610 $ 6.310
INCOME FROM INVESTMENT OPERATIONS:
Net investment income(1) .................................. 0.412 0.263 0.210 0.215 0.199
Net realized and unrealized gain on investments
and foreign currencies ................................... 3.519 3.388 4.410 0.137 0.133
----------- ----------- ----------- ----------- -----------
Total from investment operations .......................... 3.931 3.651 4.620 0.352 0.332
----------- ----------- ----------- ----------- -----------
LESS DIVIDENDS AND DISTRIBUTIONS FROM:
Net investment income ..................................... (0.051) (0.331) (0.210) (0.192) (0.032)
Net realized gain on investments .......................... (0.180) - - - -
----------- ----------- ----------- ----------- -----------
Total dividends and distributions ......................... (0.231) (0.331) (0.210) (0.192) (0.032)
----------- ----------- ----------- ----------- -----------
Net asset value, end of period ............................ $ 18.200 $ 14.500 $ 11.180 $ 6.770 $ 6.610
=========== =========== =========== =========== ===========
Total return(2) ........................................... 27.49% 33.47% 70.54% 5.17% 5.28%
RATIOS AND SUPPLEMENTAL DATA:
Net assets, end of period (000 omitted) ................... $ 120,292 $ 36,966 $ 14,304 $ 12,651 $ 12,071
Ratio of expenses to average net assets ................... 1.47% 1.50% 1.49% 1.43% 1.45%
Ratio of expenses to average net assets prior to expense
limitation and expenses paid indirectly .................. 1.57% 1.63% 1.58% 1.46% 1.45%
Ratio of net investment income to average net assets ...... 2.55% 2.15% 2.64% 3.15% 3.04%
Ratio of net investment income to average net assets prior
to expense limitation and expenses paid indirectly ....... 2.45% 2.02% 2.55% 3.12% 3.04%
Portfolio turnover ........................................ 18% 34% 71% 39% 41%
- ----------
(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-7
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 YEAR ENDED
-------------------------------------------------------------------
12/31/05 12/31/04 12/31/03 12/31/02 12/31/01
----------- ----------- ----------- ----------- -----------
Net asset value, beginning of period ...................... $ 14.480 $ 11.170 $ 6.770 $ 6.610 $ 6.310
INCOME FROM INVESTMENT OPERATIONS:
Net investment income(1) .................................. 0.372 0.231 0.197 0.204 0.189
Net realized and unrealized gain on investments
and foreign currencies ................................... 3.507 3.397 4.402 0.138 0.135
----------- ----------- ----------- ----------- -----------
Total from investment operations .......................... 3.879 3.628 4.599 0.342 0.324
----------- ----------- ----------- ----------- -----------
LESS DIVIDENDS AND DISTRIBUTIONS FROM:
Net investment income ..................................... (0.019) (0.318) (0.199) (0.182) (0.024)
Net realized gain on investments .......................... (0.180) - - - -
----------- ----------- ----------- ----------- -----------
Total dividends and distributions ......................... (0.199) (0.318) (0.199) (0.182) (0.024)
----------- ----------- ----------- ----------- -----------
Net asset value, end of period ............................ $ 18.160 $ 14.480 $ 11.170 $ 6.770 $ 6.610
=========== =========== =========== =========== ===========
Total return(2) ........................................... 27.11% 33.26% 70.10% 5.03% 5.15%
RATIOS AND SUPPLEMENTAL DATA:
Net assets, end of period (000 omitted) ................... $ 78,576 $ 12,045 $ 144 $ 652 $ 570
Ratio of expenses to average net assets ................... 1.72% 1.75% 1.71% 1.58% 1.60%
Ratio of expenses to average net assets prior to expense
limitation and expenses paid indirectly .................. 1.87% 1.93% 1.83% 1.61% 1.60%
Ratio of net investment income to average net assets ...... 2.30% 1.90% 2.42% 3.00% 2.89%
Ratio of net investment income to average net assets prior
to expense limitation and expenses paid indirectly ....... 2.15% 1.72% 2.30% 2.97% 2.89%
Portfolio turnover ........................................ 18% 34% 71% 39% 41%
- ----------
(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 and distributor, as applicable.
Performance would have been lower had the expense limitation and waiver not
been in effect.
See accompanying notes
Emerging Markets-8
DELAWARE VIP TRUST-DELAWARE VIP EMERGING MARKETS SERIES
NOTES TO FINANCIAL STATEMENTS
December 31, 2005
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 REIT Series,
Delaware VIP Select Growth Series, Delaware VIP Small Cap Value Series, Delaware
VIP Trend Series, Delaware VIP U.S. Growth Series and Delaware VIP Value Series.
These financial statements and the related notes pertain to Delaware VIP
Emerging Markets Series (the "Series"). The Trust is an open-end investment
company. The Series is considered non-diversified under the Investment Company
Act of 1940, as amended, and offers Standard Class and Service Class shares. The
Standard Class shares do not carry a 12b-1 fee and the Service Class shares
carry a 12b-1 fee. The shares of the Series are sold only to separate accounts
of life insurance companies.
The investment objective of the Series is to seek long-term capital
appreciation.
1. SIGNIFICANT ACCOUNTING POLICIES
The following accounting policies are in accordance with U.S. generally accepted
accounting principles and are consistently followed by the Series.
Security Valuation--Equity securities, except those traded on the Nasdaq Stock
Market, Inc. (Nasdaq), are valued at the last quoted sales price as of the time
of the regular close of the New York Stock Exchange (NYSE) on the valuation
date. Securities traded on the Nasdaq are valued in accordance with the Nasdaq
Official Closing Price, which may not be the last sales price. If on a
particular day an equity security does not trade, then the mean between the bid
and asked prices will be used. Securities listed on a foreign exchange are
valued at the last quoted sales price before the Series is valued. Short-term
debt securities having less than 60 days to maturity are valued at amortized
cost, which approximates market value. 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 pursuant to an
exemptive order issued by the Securities and Exchange Commission. The aggregate
daily balance of the pooled cash account is invested in repurchase agreements
secured by obligations of the U.S. government. The respective collateral is held
by the Series' custodian bank until the maturity of the respective repurchase
agreements. Each repurchase agreement is 102% collateralized. However, in the
event of default or bankruptcy by the counterparty to the agreement, realization
of the collateral may be subject to legal proceedings.
Foreign Currency Transactions--Transactions denominated in foreign currencies
are recorded at the prevailing exchange rates on the valuation date. The value
of all assets and liabilities denominated in foreign currencies are translated
into U.S. dollars at the exchange rate of such currencies against the U.S.
dollar daily. Transaction gains or losses resulting from changes in exchange
rates during the reporting period or upon settlement of the foreign currency
transaction are reported in operations for the current period. The Series does
not isolate that portion of realized gains and losses on investments which are
due to changes in foreign exchange rates from that which are due to changes in
market prices. The Series reports certain foreign currency related transactions
as components of realized gains (losses) for financial reporting purposes, where
such components are treated as ordinary income (loss) for federal income tax
purposes.
Use of Estimates--The preparation of financial statements in conformity with
U.S. generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from those estimates.
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.
Management fees and some other expenses are paid monthly. Security transactions
are recorded on the date the securities are purchased or sold (trade date) for
financial reporting purposes. Costs used in calculating realized gains and
losses on the sale of investment securities are those of the specific securities
sold. Dividend income is recorded on the ex-dividend date and interest income is
recorded on the accrual basis. Foreign dividends are also recorded on the
ex-dividend date or as soon after the ex-dividend date that the Series is aware
of such dividends, net of all non-rebatable tax withholdings. Withholding taxes
on foreign dividends have been recorded in accordance with the Series'
understanding of the applicable country's tax rules and rates.
The Series declares and pays dividends from net investment income and
distributions from net realized gain on investments, if any, following the close
of the fiscal year.
Emerging Markets-9
DELAWARE VIP EMERGING MARKETS 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 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.
Mondrian Investment Partners Ltd. ("Mondrian") (the "Sub-Advisor") is
responsible for the day-to-day management of the Series' investment portfolio.
For these services, DMC, not the Series, pays the Sub-Advisor 0.20% of the
Series' average daily net assets.
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 1.50% of average daily net assets of the Series through June 30, 2006.
Delaware Service Company, Inc. (DSC), an affiliate of DMC, provides accounting,
administration, dividend disbursing and transfer agent services. Effective May
19, 2005, the Series pays DSC a monthly fee computed at the annual rate of 0.04%
of the Series' average daily net assets for accounting and administrative
services. Prior to May 19, 2005, the Series paid 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 distribution and service fee not to exceed 0.30% of the average daily net
assets of the Service Class shares. DDLP has contracted to waive distribution
and service fees through June 30, 2006 in order to prevent distribution and
service fees of the Service Class shares from exceeding 0.25% of average daily
net assets. Standard Class shares pay no distribution and service expenses.
At December 31, 2005, the Series had liabilities payable to affiliates as
follows:
DIVIDEND DISBURSING,
INVESTMENT TRANSFER AGENT, ACCOUNTING
MANAGEMENT AND ADMINISTRATION DISTRIBUTION OTHER EXPENSES
FEE PAYABLE TO FEES AND OTHER EXPENSES FEES PAYABLE PAYABLE TO DMC AND
DMC PAYABLE TO DSC TO DDLP AFFILIATES*
---------------- ------------------------------ -------------------- --------------------
$ 146,243 $ 9,432 $ 29,061 $ 26,644
*DMC as part of its administrative services, pays operating expenses on behalf
of the Series and is reimbursed on a periodic basis. Such expenses include items
such as printing of shareholder reports, fees for audit, legal and tax services,
custodian fees and trustees' fees.
As provided in the investment management agreement, the Series bears the cost of
certain legal services expenses, including internal legal services provided to
the Series by DMC employees. For the year ended December 31, 2005, the Series
was charged $7,731 for internal legal services provided by DMC.
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, 2005, the Series made purchases and sales of
investment securities other than short-term investments as follows:
Purchases ..... $ 133,374,001
Sales ......... 19,421,466
At December 31, 2005, 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
------------------ ------------------ ------------------ ------------------
$ 169,781,933 $ 30,834,700 $ (2,778,034) $ 28,056,666
Emerging Markets-10
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 U.S. generally
accepted accounting principles. Additionally, gains (losses) on foreign currency
transactions and net short-term gains on sales of investment securities are
treated as ordinary income for federal income tax purposes. The tax character of
dividends and distributions paid during the years ended December 31, 2005 and
2004 was as follows:
YEAR YEAR
ENDED ENDED
12/31/05 12/31/04
----------- -----------
Ordinary income .......... $ 427,583 $ 431,340
Long-term capital gain ... 693,927 -
----------- -----------
$ 1,121,510 $ 431,340
=========== ===========
As of December 31, 2005, the components of net assets on a tax basis were as
follows:
Shares of beneficial interest ............ $ 160,942,100
Undistributed ordinary income ............ 5,769,931
Undistributed long-term capital gains .... 4,124,302
Post-October currency losses ............. (29,976)
Unrealized appreciation of investments
and foreign currencies .................. 28,061,926
--------------
Net assets ............................... $ 198,868,283
==============
The differences between book basis and tax basis components of net assets are
primarily attributable to tax deferral of losses on wash sales and tax
recognition of unrealized gain on investments in passive foreign investment
companies.
Post-October currency losses represent losses realized on foreign currency
transactions from November 1, 2005 through December 31, 2005 that, in accordance
with federal income tax regulations, the Series has elected to defer and treat
as having arisen in the following fiscal year.
For financial reporting purposes, capital accounts are adjusted to reflect the
tax character of permanent book/tax differences. Reclassifications are primarily
due to tax treatment of gain (loss) on foreign currency transactions. Results of
operations and net assets were not affected by these reclassifications. For the
year ended December 31, 2005, the Series recorded the following
reclassifications.
UNDISTRIBUTED ACCUMULATED
NET INVESTMENT NET REALIZED
INCOME GAIN (LOSS)
-------------- ------------
$ (222,247) $ 222,247
5. CAPITAL SHARES
Transactions in capital shares were as follows:
YEAR YEAR
ENDED ENDED
12/31/05 12/31/04
------------ ------------
Shares sold:
Standard Class ................................. 4,946,468 1,694,727
Service Class .................................. 4,136,774 933,639
Shares issued upon reinvestment of dividends
and distributions:
Standard Class ................................. 56,969 37,609
Service Class .................................. 19,169 328
------------ ------------
9,159,380 2,666,303
------------ ------------
Shares repurchased:
Standard Class ................................. (942,342) (463,254)
Service Class .................................. (660,948) (114,768)
------------ ------------
(1,603,290) (578,022)
------------ ------------
Net increase ................................... 7,556,090 2,088,281
============ ============
Emerging Markets-11
DELAWARE VIP EMERGING MARKETS SERIES
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
6. LINE OF CREDIT
The Series, along with certain other funds in the Delaware Investments Family of
Funds (the "Participants"), participates in a $225,000,000 revolving line of
credit facility to be used for temporary or emergency purposes as an additional
source of liquidity to fund redemptions of investor shares. The Participants are
charged an annual commitment fee, which is allocated across the Participants on
the basis of each 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, 2005, or at any time during
the year.
7. FOREIGN CURRENCY 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 foreign currency exchange contracts were
outstanding at December 31, 2005.
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.
While maintaining oversight, the Board of Trustees has delegated to DMC the
day-to-day functions of determining whether individual Rule 144A securities are
liquid for purposes of the Series' limitation on investments in illiquid assets.
At December 31, 2005, no securities have been determined to be illiquid under
the Series' Liquidity Procedures.
9. CONTRACTUAL OBLIGATIONS
The Series enters into contracts in the normal course of business that contain a
variety of indemnifications. The Series' maximum exposure under these
arrangements is unknown. However, the Series has not had prior claims or losses
pursuant to these contracts. Management has reviewed the Series' existing
contracts and expects the risk of loss to be remote.
Emerging Markets-12
DELAWARE VIP EMERGING MARKETS SERIES
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
10. INDUSTRY ALLOCATION
As of December 31, 2005, the Series' investment in equity securities classified
by type of business were as follows:
PERCENTAGE OF
INDUSTRY NET ASSETS
- -------------------------------------------- -------------
Automobiles & Components ................... 1.47%
Banks ...................................... 17.31
Capital Goods .............................. 1.06
Consumer Durables & Apparel ................ 5.21
Consumer Services .......................... 1.37
Diversified Financials ..................... 5.34
Energy ..................................... 5.75
Food & Staples Retailing ................... 1.70
Food, Beverage & Tobacco ................... 2.35
Healthcare Equipment & Services ............ 0.12
Household & Personal Products .............. 1.53
Materials .................................. 10.74
Media ...................................... 1.47
Pharmaceuticals & Biotechnology ............ 0.81
Semiconductors & Semiconductor Equipment ... 5.46
Technology Hardware & Equipment ............ 2.64
Telecommunication Services ................. 18.23
Transportation ............................. 6.90
Utilities .................................. 4.58
-------------
94.04%
=============
11. TAX INFORMATION (UNAUDITED)
For the fiscal year ended December 31, 2005, the Series designates distributions
paid during the year as follows:
(A) (B)
LONG-TERM ORDINARY
CAPITAL GAINS INCOME TOTAL
DISTRIBUTIONS DISTRIBUTIONS DISTRIBUTION
(TAX BASIS) (TAX BASIS) (TAX BASIS)
------------- ------------- ------------
62% 38% 100%
- ----------
(A) and (B) are based on a percentage of the Series' total distributions.
The Delaware VIP Emerging Markets Series intends to pass through foreign tax
credits in the maximum amount of $223,939. The gross foreign source income
earned during fiscal year 2005 by the Delaware VIP Emerging Markets Series was
$4,599,006. Complete information will be computed and reported in conjunction
with your 2005 Form 1099-DIV.
Emerging Markets-13
DELAWARE VIP TRUST-
DELAWARE VIP EMERGING MARKETS SERIES
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
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 the Delaware VIP
Emerging Markets Series (one of the series constituting Delaware VIP Trust) (the
"Series") as of December 31, 2005, 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
five years in the period then ended. 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 the standards of the Public Company
Accounting Oversight Board (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. We were
not engaged to perform an audit of the Series' internal control over financial
reporting. Our audits included consideration of internal control over financial
reporting as a basis for designing audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion on the
effectiveness of the Series' internal control over financial reporting.
Accordingly, we express no such opinion. An audit also includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements and financial highlights, assessing the accounting principles used
and significant estimates made by management, and evaluating the overall
financial statement presentation. Our procedures included confirmation of
securities owned as of December 31, 2005, by correspondence with the custodian
and brokers. 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 the
Delaware VIP Emerging Markets Series of Delaware VIP Trust at December 31, 2005,
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 five years in the period then ended, in conformity
with U.S. generally accepted accounting principles.
ERNST & YOUNG LLP
Philadelphia, Pennsylvania
February 10, 2006
The Series files its complete schedule of portfolio holdings with the Securities
and Exchange Commission for the first and third quarters of each fiscal year on
Form N-Q. The Series' Forms N-Q, as well as a description of the policies and
procedures that the Series uses to determine how to vote proxies (if any)
relating to portfolio securities is available without charge (i) upon request,
by calling 800-523-1918; (ii) on the Series' website at
http://www.delawareinvestments.com; and (iii) on the Commission's website at
http://www.sec.gov. The Series' Forms N-Q may be reviewed and copied at the
Commission's Public Reference Room in Washington, DC; information on the
operation of the Public Reference Room may be obtained by calling
1-800-SEC-0330.
Information (if any) regarding how the Series voted proxies
relating to portfolio securities during the most recently disclosed 12-month
period ended June 30 is available without charge (i) through the Series' website
at http://www.delawareinvestments.com; and (ii) on the Commission's website at
http://www.sec.gov.
Emerging Markets-14
DELAWARE INVESTMENTS(R)FAMILY OF FUNDS
BOARD OF TRUSTEES/DIRECTORS AND OFFICERS ADDENDUM
A mutual fund is governed by a Board of Trustees/Directors ("Trustees"), which
has oversight responsibility for the management of a fund's business affairs.
Trustees establish procedures and oversee and review the performance of the
investment manager, the distributor and others who perform services for the
fund. The independent fund trustees, in particular, are advocates for
shareholder interests. Each trustee has served in that capacity since he or she
was elected to or appointed to the Board of Trustees, and will continue to serve
until his or her retirement or the election of a new trustee in his or her
place. The following is a list of the Trustees and Officers with certain
background and related information.
NUMBER OF OTHER
PRINCIPAL PORTFOLIOS IN FUND DIRECTORSHIPS
NAME, POSITION(S) LENGTH OCCUPATION(S) COMPLEX OVERSEEN HELD BY
ADDRESS HELD WITH OF TIME DURING BY TRUSTEE TRUSTEE
AND BIRTHDATE FUND(S) SERVED PAST 5 YEARS OR OFFICER OR OFFICER
- ------------------------ ------------------- -------------- ---------------------------- ------------------ ------------------
INTERESTED TRUSTEES
JUDE T. DRISCOLL(2) Chairman, 5 Years - Since August 2000, 87 None
2005 Market Street President, Executive Mr. Driscoll has served in
Philadelphia, PA Chief Executive Officer various executive capacities
19103 Officer and 2 Years - at different times at
Trustee Trustee Delaware Investments(1)
March 10, 1963
INDEPENDENT TRUSTEES
THOMAS L. BENNETT Trustee Since Private Investor - 87 None
2005 Market Street March 23, 2005 (March 2004 - Present)
Philadelphia, PA
19103 Investment Manager -
Morgan Stanley & Co.
October 4, 1947 (January 1984 - March 2004)
JOHN A. FRY Trustee 4 Years President - 87 Director -
2005 Market Street Franklin & Marshall College Community Health
Philadelphia, PA (June 2002 - Present) Systems
19103
Executive Vice President -
May 28, 1960 University of Pennsylvania
(April 1995 - June 2002)
ANTHONY D. KNERR Trustee 12 Years Founder/Managing Director - 87 None
2005 Market Street Anthony Knerr & Associates
Philadelphia, PA (Strategic Consulting)
19103 (1990 - Present)
December 7, 1938
LUCINDA S. LANDRETH Trustee Since Chief Investment Officer - 87 None
2005 Market Street March 23, 2005 Assurant, Inc.
Philadelphia, PA (Insurance)
19103 (2002 - 2004)
June 24, 1947
ANN R. LEVEN Trustee 16 Years Treasurer/Chief Fiscal 87 Director and
2005 Market Street Officer - National Gallery Audit Committee
Philadelphia, PA of Art (1994 - 1999) Chairperson - Andy
19103 Warhol Foundation
November 1, 1940 Director and Audit
Committee Member -
Systemax Inc.
Emerging Markets-15
NUMBER OF OTHER
PRINCIPAL PORTFOLIOS IN FUND DIRECTORSHIPS
NAME, POSITION(S) LENGTH OCCUPATION(S) COMPLEX OVERSEEN HELD BY
ADDRESS HELD WITH OF TIME DURING BY TRUSTEE TRUSTEE
AND BIRTHDATE FUND(S) SERVED PAST 5 YEARS OR OFFICER OR OFFICER
- ------------------------ ------------------- -------------- ---------------------------- ------------------ ------------------
INDEPENDENT TRUSTEES
THOMAS F. MADISON Trustee 11 Years President/Chief 87 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 and Audit
Committee Member -
Digital River Inc.
Director and Audit
Committee Member -
Rimage Corporation
Director - Valmont
Industries, Inc.
JANET L. YEOMANS Trustee 6 Years Vice President 87 None
2005 Market Street (January 2003 - Present)
Philadelphia, PA and Treasurer
19103 (January 2006 - Present)
3M Corporation
July 31, 1948 Ms. Yeomans has held
various management positions
at 3M Corporation
since 1983.
J. RICHARD ZECHER Trustee Since Founder - 87 Director and Audit
2005 Market Street March 23, 2005 Investor Analytics Committee Member -
Philadelphia, PA (Risk Management) Investor Analytics
19103 (May 1999 - Present)
Director and Audit
July 3, 1940 Committee Member -
Oxigene, Inc.
OFFICERS
MICHAEL P. BISHOF Senior Chief Mr. Bishof has served in 87 None(3)
2005 Market Street Vice President and Financial various executive capacities
Philadelphia, PA Chief Financial Officer since at different times at
19103 Officer February 17, Delaware Investments.
2005
August 18, 1962
DAVID F. CONNOR Vice President, Vice President Mr. Connor has served as 87 None(3)
2005 Market Street Deputy General since Vice President and Deputy
Philadelphia, PA Counsel and September 21, General Counsel of Delaware
19103 Secretary 2000 and Investments since 2000.
Secretary
since
October 25,
2005
December 2, 1963
DAVID P. O'CONNOR Senior Vice Senior Vice Mr. O'Connor has served in 87 None(3)
2005 Market Street President, President, various executive and legal
Philadelphia, PA General Counsel General capacities at different
19103 and Chief Counsel and times at Delaware
Legal Officer Chief Legal Investments.
Officer since
October 25,
2005
February 21, 1966
JOHN J. O'CONNOR Senior Vice Treasurer Mr. O'Connor has served in 87 None(3)
2005 Market Street President and since various executive capacities
Philadelphia, PA Treasurer February 17, at different times at
19103 2005 Delaware Investments.
June 16, 1957
- ----------
(1) Delaware Investments is the marketing name for Delaware Management
Holdings, Inc. and its subsidiaries, including the Fund's(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(s') manager and distributor.
(3) Mr. Bishof, Mr. Connor, Mr. David P. O'Connor and Mr. John J. O'Connor
serve in similar capacities for the six portfolios of the Optimum Fund
Trust, which have the same investment advisor, principal underwriter, and
transfer agent as the registrant. Mr. John J. O'Connor also serves in a
similar capacity for Lincoln Variable Insurance Products Trust, which has
the same investment advisor as the registrant.
The Statement of Additional Information for the Fund(s) includes additional
information about the Trustees and Officers and is available, without charge,
upon request by calling 800 523-1918.
Emerging Markets-16
DELAWARE VIP TRUST - DELAWARE VIP GLOBAL BOND SERIES
For the fiscal year ended December 31, 2005, Delaware VIP Global Bond
Series Standard Class shares returned -8.65% and its Service Class shares
returned -8.86% (both figures reflect all distributions reinvested) for the
fiscal year ended December 31, 2005. The Citigroup World Government Bond Index -
the Series' benchmark - fell by 6.88% for the year. (source: Lipper, Inc.)
We are committed to a globally well-diversified portfolio, and based
country weightings on our assessment of the relative prospective real yield
(PRY) in each market; that is, the nominal redemption yield adjusted for our
forecast of annual consumer price inflation over the next two years.
For some time now, our belief that there is a possibility of a sharp
further decline in the U.S. dollar has helped shape our strategy. We currently
believe that inflation prospects in the euro zone are benign and that European
government bonds offer good value. During the second half of the fiscal year, a
strategy within the portfolio was to overweight the euro zone when compared to
the benchmark index. We also chose to eliminate an overweight in the U.K. that
existed earlier in 2005. We believe that Japanese reflation is likely to boost
the yen in 2006. Japan is currently in its longest phase of economic expansion
since the bubble burst in 1990, and corporate profits are close to a record
high. As a result of these beliefs, our investment strategy in relation to the
Citigroup World Government Bond Index at year-end, from a top-down perspective,
was as follows:
o underweight the U.S.
o overweight the euro zone
o overweight Sweden
o overweight Japan
o underweight the U.K.
o underweight Canada
Performance of a $10,000 Investment
Delaware VIP Global
Bond Series Citigroup World Government
(Standard Class Shares) Bond Index
----------------------- --------------------------
5/2/1996 $ 10,000 -
5/31/1996 $ 10,000 $ 10,000
12/31/1996 $ 11,179 $ 10,600
12/31/1997 $ 11,278 $ 10,624
12/31/1997 $ 12,160 $ 12,251
12/31/1999 $ 11,722 $ 11,728
12/31/2000 $ 11,823 $ 11,914
12/31/2001 $ 11,766 $ 11,796
12/31/2002 $ 14,718 $ 14,095
12/31/2003 $ 17,715 $ 16,197
12/31/2004 $ 20,019 $ 17,874
12/31/2005 $ 18,286 $ 16,644
DELAWARE VIP GLOBAL BOND SERIES
AVERAGE ANNUAL TOTAL RETURNS
STANDARD CLASS SERVICE CLASS
SHARES* SHARES**
-------------- -------------
LIFETIME +6.44% +8.91%
FIVE YEAR +9.11% +8.89%
ONE YEAR -8.65% -8.86%
For the periods ended December 31, 2005
* 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, 2005. 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
measures the performance of the broad, global market for government 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 was in effect for
Delaware VIP Global Bond 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. Investments in foreign
bonds have special risks, which include currency fluctuations, economic and
political change, and different accounting standards.
Global Bond-1
DELAWARE VIP TRUST-DELAWARE VIP GLOBAL BOND SERIES
DISCLOSURE OF SERIES EXPENSES
For the Period July 1, 2005 to December 31, 2005
As a shareholder of the Series, you incur ongoing costs, including management
fees; distribution and/or service (12b-1) fees; and other Series expenses. This
Example is intended to help you understand your ongoing costs (in dollars) of
investing in the Series and to compare these costs with the ongoing costs of
investing in other mutual funds.
The Example is based on an investment of $1,000 invested at the beginning of the
period and held for the entire period from July 1, 2005 to December 31, 2005.
ACTUAL EXPENSES
The first section of the table shown, "Actual Series Return," provides
information about actual account values and actual expenses. You may use the
information in this section of the table, together with the amount you invested,
to estimate the expenses that you paid over the period. Simply divide your
account value by $1,000 (for example, an $8,600 account value divided by $1,000
= 8.6), then multiply the result by the number in the first section under the
heading entitled "Expenses Paid During Period" to estimate the expenses you paid
on your account during the period.
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The second section of the table shown, "Hypothetical 5% Return," provides
information about hypothetical account values and hypothetical expenses based on
the Series' actual expense ratio and an assumed rate of return of 5% per year
before expenses, which is not the Series' actual return. The hypothetical
account values and expenses may not be used to estimate the actual ending
account balance or expenses you paid for the period. You may use this
information to compare the ongoing costs of investing in the Series and other
funds. To do so, compare the 5% hypothetical example with the 5% hypothetical
examples that appear in the shareholder reports of other funds.
Please note that the expenses shown in the table are meant to highlight your
ongoing costs only. As a shareholder of the Series, you do not incur any
transaction costs, such as sales charges (loads), redemption fees or exchange
fees, but shareholders of other funds may incur such costs. Also, the fees
related to the variable annuity investment or the deferred sales charge that
could apply have not been included. Therefore, the second section of the table
is useful in comparing ongoing costs only, and will not help you determine the
relative total costs of owning different funds. The Series' actual expenses
shown in the table reflect fee waivers in effect. The expenses shown in the
table assume reinvestment of all dividends and distributions.
EXPENSE ANALYSIS OF AN INVESTMENT OF $1,000
EXPENSES
BEGINNING ENDING PAID DURING
ACCOUNT ACCOUNT ANNUALIZED PERIOD
VALUE VALUE EXPENSE 7/1/05 TO
7/1/05 12/31/05 RATIOS 12/31/05*
------------ ------------ ------------ ------------
ACTUAL SERIES RETURN
Standard Class $ 1,000.00 $ 966.30 0.99% $ 4.91
Service Class 1,000.00 965.40 1.24% 6.14
HYPOTHETICAL 5% RETURN
(5% RETURN BEFORE EXPENSES)
Standard Class $ 1,000.00 $ 1,020.21 0.99% $ 5.04
Service Class 1,000.00 1,018.95 1.24% 6.31
* "Expenses Paid During Period" are equal to the Series' annualized expense
ratio, multiplied by the average account value over the period, multiplied by
184/365 (to reflect the one-half year period).
Global Bond-2
DELAWARE VIP TRUST-DELAWARE VIP GLOBAL BOND SERIES
COUNTRY ALLOCATION
As of December 31, 2005
Sector designations may be different than the sector designations presented in
other Series materials.
PERCENTAGE
COUNTRY OF NET ASSETS
- ------------------------------------------------ -------------
CORPORATE BONDS 2.21%
-------------
Banking & Finance 2.21%
-------------
FOREIGN AGENCIES 10.40%
-------------
Austria 4.61%
Germany 5.79%
-------------
FOREIGN MUNICIPAL BONDS 0.67%
-------------
Canada 0.67%
-------------
REGIONAL AGENCY 2.17%
-------------
Australia 2.17%
-------------
REGIONAL AUTHORITY 10.42%
-------------
Canada 10.42%
-------------
SOVEREIGN AGENCIES 10.79%
-------------
Canada 1.91%
Japan 0.51%
United States 8.37%
-------------
SOVEREIGN DEBT 44.43%
-------------
Austria 3.96%
France 2.44%
Germany 8.19%
Netherlands 3.64%
Norway 1.32%
Poland 4.72%
Portugal 1.45%
Spain 2.37%
Sweden 8.82%
United Kingdom 7.52%
-------------
SUPRANATIONAL BANKS 8.69%
-------------
U.S. TREASURY OBLIGATIONS 8.69%
-------------
CURRENCY OPTIONS PURCHASED 0.28%
-------------
TOTAL MARKET VALUE OF SECURITIES 98.75%
-------------
RECEIVABLES AND OTHER ASSETS NET OF LIABILITIES 1.25%
-------------
TOTAL NET ASSETS 100.00%
-------------
Global Bond-3
DELAWARE VIP TRUST-DELAWARE VIP GLOBAL BOND SERIES
STATEMENT OF NET ASSETS
December 31, 2005
MARKET
PRINCIPAL VALUE
AMOUNT* (U.S. $)
------------ ------------
CORPORATE BONDS-2.21%
BANKING & Finance-2.21%
Deustche Bank 8.00% 9/29/06 .........ISK 12,900,000 $ 202,780
SLM 6.50% 6/15/10 ...................NZD 1,725,000 1,166,602
------------
TOTAL CORPORATE BONDS
(COST $1,376,919) ................. 1,369,382
------------
FOREIGN AGENCIES-10.40%
AUSTRIA-4.61%
Oesterreichesche Kontrollbank
1.80% 3/22/10 .....................JPY 322,000,000 2,859,847
------------
2,859,847
------------
GERMANY-5.79%
KFW International Finance
1.75% 3/23/10 .....................JPY 254,000,000 2,251,451
Rentenbank 1.375% 4/25/13 ...........JPY 156,000,000 1,338,436
------------
3,589,887
------------
TOTAL FOREIGN AGENCIES
(COST $6,993,255) ................. 6,449,734
------------
FOREIGN MUNICIPAL BONDS-0.67%
CANADA-0.67%
Vancouver City 3.85% 10/6/12 ........CAD 495,000 415,737
------------
TOTAL FOREIGN MUNICIPAL BONDS
(COST $422,638) ................... 415,737
------------
REGIONAL AGENCY-2.17%
AUSTRALIA-2.17%
Queensland Treasury
6.00% 8/14/13 .....................AUD 763,000 582,340
6.00% 10/14/15 ....................AUD 992,000 763,184
------------
TOTAL REGIONAL AGENCY
(COST $1,379,188) ................. 1,345,524
------------
REGIONAL AUTHORITY-10.42%
CANADA-10.42%
Ontario Province
1.875% 1/25/10 ....................JPY 324,000,000 2,884,888
4.50% 3/8/15 ......................CAD 1,362,000 1,193,212
Quebec Province
5.00% 12/1/15 .....................CAD 1,974,000 1,776,490
6.75% 11/9/15 .....................NZD 880,000 607,502
------------
TOTAL REGIONAL AUTHORITY
(COST $6,678,598) ................. 6,462,092
------------
MARKET
PRINCIPAL VALUE
AMOUNT* (U.S. $)
------------ ------------
SOVEREIGN AGENCIES-10.79%
CANADA-1.91%
Canada Housing Trust No 1
3.75% 3/15/10 .....................CAD 1,395,000 $ 1,186,521
------------
1,186,521
------------
JAPAN-0.51%
Development Bank of Japan
1.70% 9/20/22 .....................JPY 38,000,000 317,155
------------
317,155
------------
UNITED STATES-8.37%
FANNIE MAE
6.00% 5/15/11 .....................USD 500,000 529,425
6.375% 8/15/07 ....................AUD 1,407,000 1,042,683
Freddie Mac 5.75% 3/15/09 ...........USD 3,510,000 3,616,216
------------
5,188,324
------------
TOTAL SOVEREIGN AGENCIES
(COST $6,821,546) ................. 6,692,000
------------
SOVEREIGN DEBT-44.43%
AUSTRIA-3.96%
Republic of Austria
5.25% 1/4/11 ......................EUR 748,000 973,933
9.00% 9/15/06 .....................ISK 93,500,000 1,482,881
------------
2,456,814
------------
FRANCE-2.44%
France Government O.A.T .............
3.50% 4/25/15 .....................EUR 1,257,000 1,512,165
------------
1,512,165
------------
GERMANY-8.19%
Deutschland Republic
4.50% 1/4/13 ......................EUR 1,397,000 1,788,317
4.75% 7/4/08 ......................EUR 1,648,000 2,036,806
6.25% 1/4/24 ......................EUR 777,000 1,252,734
------------
5,077,857
------------
NETHERLANDS-3.64%
Netherlands Government
5.75% 2/15/07 .....................EUR 1,845,000 2,256,426
------------
2,256,426
------------
NORWAY-1.32%
Norwegian Government
5.00% 5/15/15 .....................NOK 5,000,000 819,381
------------
819,381
------------
POLAND-4.72%
Poland Government
^4.292% 4/12/07 ....................PLN 1,961,000 571,058
5.75% 9/23/22 .....................PLN 1,816,000 594,525
6.00% 5/24/09 .....................PLN 3,701,000 1,180,425
6.25% 10/24/15 ....................PLN 1,736,000 582,156
------------
2,928,164
------------
PORTUGAL-1.45%
Portuguese Government
3.20% 4/15/11 .....................EUR 756,000 896,659
------------
896,659
------------
Global Bond-4
DELAWARE VIP GLOBAL BOND SERIES
STATEMENT OF NET ASSETS (CONTINUED)
MARKET
PRINCIPAL VALUE
AMOUNT* (U.S. $)
------------ ------------
SOVEREIGN DEBT (CONTINUED)
SPAIN-2.37%
Spanish Government 5.50% 7/30/17 ....EUR 1,033,000 $ 1,470,549
------------
1,470,549
------------
SWEDEN-8.82%
Sweden Government
4.00% 12/1/09 .....................SEK 7,920,000 1,031,668
5.00% 12/1/20 .....................SEK 17,410,000 2,610,974
8.00% 8/15/07 .....................SEK 13,390,000 1,828,322
------------
5,470,964
------------
UNITED KINGDOM-7.52%
U.K. Treasury
4.75% 6/7/10 ......................GBP 1,156,000 2,036,238
4.75% 9/7/15 ......................GBP 772,250 1,397,444
8.00% 6/7/21 ......................GBP 495,500 1,230,085
------------
4,663,767
------------
TOTAL SOVEREIGN DEBT
(COST $28,007,974) ................... 27,552,746
------------
SUPRANATIONAL BANKS-8.69%
Asia Development Bank 0.50% 10/9/12 .AUD 966,000 508,818
European Investment Bank
1.40% 6/20/17 .....................JPY 29,400,000 246,086
4.00% 10/15/37 ....................EUR 715,000 886,063
4.375% 7/8/15 .....................GBP 524,000 904,806
5.375% 6/7/21 .....................GBP 458,000 879,220
Inter-American Development Bank
1.90% 7/8/09 ......................JPY 221,000,000 1,962,494
------------
TOTAL SUPRANATIONAL BANKS
(COST $5,655,877) .................... 5,387,487
------------
MARKET
PRINCIPAL VALUE
AMOUNT* (U.S. $)
------------ ------------
U.S. TREASURY OBLIGATIONS-8.69%
U.S. Treasury Notes
3.625% 5/15/13 ....................USD 1,200,000 $ 1,144,922
4.125% 8/15/10 ....................USD 2,000,000 1,980,938
^U.S. Treasury Strip 4.282% 11/15/13USD 3,200,000 2,259,764
------------
TOTAL U.S. TREASURY OBLIGATIONS
(COST $5,371,696) .................... 5,385,624
------------
CURRENCY OPTIONS PURCHASED-0.28%
Put EUR 18,497,920, Call USD
21,785,000, expiration date 1/13/06... 169,378
Call JPY 2,338,675,200, PutUSD
19,296,000, expiration date 1/13/06... 5,326
------------
TOTAL CURRENCY OPTIONS PURCHASED
(COST $160,169) ...................... 174,704
------------
Global Bond-5
DELAWARE VIP GLOBAL BOND SERIES
STATEMENT OF NET ASSETS (CONTINUED)
TOTAL MARKET VALUE OF SECURITIES-98.75% (COST $62,867,860) ...... $ 61,235,030
RECEIVABLES AND OTHER ASSETS NET OF LIABILITIES-1.25% ........... 776,091
------------
NET ASSETS APPLICABLE TO 6,003,829 SHARES OUTSTANDING-100.00% ... $ 62,011,121
============
NET ASSET VALUE-DELAWARE VIP GLOBAL BOND SERIES STANDARD CLASS
$62,003,007 / 6,003,042 SHARES) ................................. $ 10.33
============
NET ASSET VALUE-DELAWARE VIP GLOBAL BOND SERIES SERVICE CLASS
($8,114 / 787 SHARES) ........................................... $ 10.31
============
COMPONENTS OF NET ASSETS AT DECEMBER 31, 2005:
Shares of beneficial interest (unlimited authorization-no par) .. $ 61,493,366
Undistributed net investment income ............................. 949,981
Accumulated net realized gain on investments .................... 1,085,161
Net unrealized depreciation of investments and foreign
currencies ..................................................... (1,517,387)
------------
Total net assets ................................................ $ 62,011,121
============
- ----------
* Principal amount is stated in the currency in which each bond is denominated.
AUD - Australian Dollar
CAD - Canadian Dollar
EUR - European Monetary Unit
GBP - British Pound Sterling
ISK - Iceland Krona
JPY - Japanese Yen
NOK - Norwegian Krone
NZD - New Zealand Dollar
PLN - Polish Zloty
SEK - Swedish Krona
USD - U.S. Dollar
^Zero coupon security. The interest rate shown is the yield at the time of
purchase.
The following foreign currency exchange contracts were outstanding at
December 31, 2005:
FOREIGN CURRENCY EXCHANGE CONTRACTS(1)
UNREALIZED
APPRECIATION
CONTRACTS TO RECEIVE (DELIVER) IN EXCHANGE FOR SETTLEMENT DATE (DEPRECIATION)
--------------------------------------- ------------------ --------------- --------------
(3,296,000) Australian Dollars JPY 292,309,056 1/13/06 $ 66,699
(1,470,000) British Pounds EUR 2,163,260 1/13/06 33,422
1,299,341 European Monetary Units US$ (1,556,000) 1/13/06 (16,653)
185,542,108 Japanese Yen US$ (1,556,000) 1/13/06 20,329
(2,625,000) New Zealand Dollars AUD 2,472,892 1/13/06 22,690
9,518,304 Norwegian Krone GBP (815,000) 1/13/06 9,055
(5,117,000) Polish Zloty EUR 1,330,404 1/13/06 799
--------------
$ 136,341
==============
(1) See Note 7 in "Notes to Financial Statements."
See accompanying notes
Global Bond-6
DELAWARE VIP TRUST-
DELAWARE VIP GLOBAL BOND SERIES
STATEMENT OF OPERATIONS
Year Ended December 31, 2005
INVESTMENT INCOME:
Interest ....................................................... $ 2,178,229
------------
EXPENSES:
Management fees ................................................ 560,447
Reports and statements to shareholders ......................... 119,625
Custodian fees ................................................. 53,531
Accounting and administration expenses ......................... 27,283
Legal and professional fees .................................... 20,613
Dividend disbursing and transfer agent fees and expenses ....... 7,507
Insurance fees ................................................. 6,622
Trustees' fees ................................................. 3,919
Pricing fees ................................................... 3,607
Taxes (other than taxes on income) ............................. 2,245
Registration fees .............................................. 96
Distribution expenses - Service Class .......................... 25
Other .......................................................... 7,306
------------
812,826
Less expenses absorbed or waived ............................... (85,609)
Less waiver of distribution expenses - Service Class ........... (4)
------------
Total expenses ................................................. 727,213
------------
NET INVESTMENT INCOME .......................................... 1,451,016
------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS AND FOREIGN CURRENCIES:
Net realized gain (loss) on:
Investments .................................................. 1,783,065
Foreign currencies ........................................... (844,206)
------------
Net realized gain .............................................. 938,859
Net change in unrealized appreciation/depreciation
of investments and foreign currencies ........................ (9,350,986)
------------
NET REALIZED AND UNREALIZED LOSS ON
INVESTMENTS AND FOREIGN CURRENCIES ........................... (8,412,127)
------------
NET DECREASE IN NET ASSETS RESULTING
FROM OPERATIONS .............................................. $ (6,961,111)
============
See accompanying notes
DELAWARE VIP TRUST-
DELAWARE VIP GLOBAL BOND SERIES
STATEMENTS OF CHANGES IN NET ASSETS
YEAR ENDED
----------------------------
12/31/05 12/31/04
------------ ------------
INCREASE (DECREASE) IN NET
ASSETS FROM OPERATIONS:
Net investment income .......................... $ 1,451,016 $ 2,247,095
Net realized gain on investments
and foreign currencies ....................... 938,859 11,674,662
Net change in unrealized appreciation/
depreciation on investments and
foreign currencies ........................... (9,350,986) (4,085,542)
------------ ------------
Net increase (decrease) in net assets
resulting from operations .................... (6,961,111) 9,836,215
------------ ------------
DIVIDENDS AND DISTRIBUTIONS TO
SHAREHOLDERS FROM:
Net investment income:
Standard Class ............................... (12,177,352) (12,011,670)
Service Class ................................ (1,263) (944)
Net realized gain on investments:
Standard Class ............................... (1,441,808) (1,888,359)
Service Class ................................ (152) (151)
------------ ------------
(13,620,575) (13,901,124)
------------ ------------
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares sold:
Standard Class ............................... 3,701,855 3,472,141
Net asset value of shares issued upon
reinvestment of dividends and distributions:
Standard Class ............................... 13,619,160 13,900,029
Service Class ................................ 1,415 1,095
------------ ------------
17,322,430 17,373,265
------------ ------------
Cost of shares repurchased:
Standard Class ............................... (21,110,123) (32,398,573)
------------ ------------
Decrease in net assets derived from
capital share transactions ................... (3,787,693) (15,025,308)
------------ ------------
NET DECREASE IN NET ASSETS ..................... (24,369,379) (19,090,217)
NET ASSETS:
Beginning of year .............................. 86,380,500 105,470,717
------------ ------------
End of year (including undistributed
net investment income of $949,981
and $12,038,201, respectively) ............... $ 62,011,121 $ 86,380,500
============ ============
See accompanying notes
Global Bond-7
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
------------------------------------------------------------------
12/31/05 12/31/04 12/31/03 12/31/02 12/31/01
---------- ---------- ---------- ---------- ----------
Net asset value, beginning of period ....................... $ 13.560 $ 13.940 $ 11.770 $ 9.470 $ 9.730
INCOME (LOSS) FROM INVESTMENT OPERATIONS:
Net investment income(1) ................................... 0.217 0.316 0.356 0.404 0.411
Net realized and unrealized gain (loss) on investments
and foreign currencies ................................... (1.265) 1.262 2.005 1.957 (0.464)
---------- ---------- ---------- ---------- ----------
Total from investment operations ........................... (1.048) 1.578 2.361 2.361 (0.053)
---------- ---------- ---------- ---------- ----------
LESS DIVIDENDS AND DISTRIBUTIONS FROM:
Net investment income ...................................... (1.951) (1.692) (0.191) (0.061) (0.207)
Net realized gain on investments ........................... (0.231) (0.266) - - -
---------- ---------- ---------- ---------- ----------
Total dividends and distributions .......................... (2.182) (1.958) (0.191) (0.061) (0.207)
---------- ---------- ---------- ---------- ----------
Net asset value, end of period ............................. $ 10.330 $ 13.560 $ 13.940 $ 11.770 $ 9.470
========== ========== ========== ========== ==========
Total return(2) ............................................ (8.65)% 13.00% 20.36% 25.09% (0.48)%
RATIOS AND SUPPLEMENTAL DATA:
Net assets, end of period (000 omitted) .................... $ 62,003 $ 86,372 $ 105,463 $ 91,945 $ 17,012
Ratio of expenses to average net assets .................... 0.97% 0.93% 0.87% 0.81% 0.85%
Ratio of expenses to average net assets prior to expense
limitation and expenses paid indirectly .................. 1.09% 0.93% 0.91% 0.81% 1.11%
Ratio of net investment income to average net assets ....... 1.94% 2.52% 2.81% 3.76% 4.34%
Ratio of net investment income to average net assets prior
to expense limitation and expenses paid indirectly ....... 1.82% 2.52% 2.77% 3.76% 4.08%
Portfolio turnover ......................................... 188% 117% 111% 49% 51%
- ----------
(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
Global Bond-8
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
YEAR ENDED
------------------------------------------------------------------
12/31/05 12/31/04 12/31/03 12/31/02 12/31/01
---------- ---------- ---------- ---------- ----------
Net asset value, beginning of period ....................... $ 13.530 $ 13.920 $ 11.770 $ 9.460 $ 9.730
INCOME (LOSS) FROM INVESTMENT OPERATIONS:
Net investment income(1) ................................... 0.189 0.285 0.328 0.389 0.397
Net realized and unrealized gain (loss) on investments
and foreign currencies ................................... (1.259) 1.255 1.998 1.968 (0.470)
---------- ---------- ---------- ---------- ----------
Total from investment operations ........................... (1.070) 1.540 2.326 2.357 (0.073)
---------- ---------- ---------- ---------- ----------
LESS DIVIDENDS AND DISTRIBUTIONS FROM:
Net investment income ...................................... (1.919) (1.664) (0.176) (0.047) (0.197)
Net realized gain on investments ........................... (0.231) (0.266) - - -
---------- ---------- ---------- ---------- ----------
Total dividends and distributions .......................... (2.150) (1.930) (0.176) (0.047) (0.197)
---------- ---------- ---------- ---------- ----------
Net asset value, end of period ............................. $ 10.310 $ 13.530 $ 13.920 $ 11.770 $ 9.460
========== ========== ========== ========== ==========
Total return(2) ............................................ (8.86)% 12.69% 20.04% 25.04% (0.70)%
RATIOS AND SUPPLEMENTAL DATA:
Net assets, end of period (000 omitted) .................... $ 8 $ 9 $ 8 $ 7 $ 5
Ratio of expenses to average net assets .................... 1.22% 1.18% 1.09% 0.96% 1.00%
Ratio of expenses to average net assets prior to expense
limitation and expenses paid indirectly .................. 1.39% 1.23% 1.16% 0.96% 1.26%
Ratio of net investment income to average net assets ....... 1.69% 2.27% 2.59% 3.61% 4.19%
Ratio of net investment income to average net assets prior
to expense limitation and expenses paid indirectly ....... 1.52% 2.22% 2.52% 3.61% 3.93%
Portfolio turnover ......................................... 188% 117% 111% 49% 51%
- ----------
(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 and distributor, as applicable. Performance would have
been lower had the expense limitation not been in effect.
See accompanying notes
Global Bond-9
DELAWARE VIP TRUST-DELAWARE VIP GLOBAL BOND SERIES
NOTES TO FINANCIAL STATEMENTS
December 31, 2005
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 REIT Series,
Delaware VIP Select Growth Series, Delaware VIP Small Cap Value Series, Delaware
VIP Trend Series, Delaware VIP U.S. Growth Series and Delaware VIP Value Series.
These financial statements and the related notes pertain to Delaware VIP 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 U.S. generally accepted
accounting principles 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 pursuant to an
exemptive order issued by the Securities and Exchange Commission. The aggregate
daily balance of the pooled cash account is invested in repurchase agreements
secured by obligations of the U.S. government. The respective collateral is held
by the Series' custodian bank until the maturity of the respective repurchase
agreements. Each repurchase agreement is 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
U.S. generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from those estimates.
Other--Expenses common to all funds within the Delaware Investments Family of
Funds are allocated amongst the funds on the basis of average net assets.
Management fees and some other expenses are paid monthly. Security transactions
are recorded on the date the securities are purchased or sold (trade date) for
financial reporting purposes. Costs used in calculating realized gains and
losses on the sale of investment securities are those of the specific securities
sold. Interest income is recorded on the accrual basis. 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.
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), 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-10
DELAWARE VIP GLOBAL BOND 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 1.00% of average daily net assets of the Series through June 30, 2006.
Delaware Service Company, Inc. (DSC), an affiliate of DMC, provides accounting,
administration, dividend disbursing and transfer agent services. Effective May
19, 2005, the Series pays DSC a monthly fee computed at the annual rate of 0.04%
of the Series' average daily net assets for accounting and administrative
services. Prior to May 19, 2005, the Series paid 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 distribution and service fee not to exceed 0.30% of the average daily net
assets of the Service Class shares. DDLP has contracted to waive distribution
and service fees through June 30, 2006 in order to prevent distribution and
service fees of the Service Class shares from exceeding 0.25% of average daily
net assets. Standard Class shares pay no distribution and service expenses.
At December 31, 2005, the Series had liabilities payable to affiliates as
follows:
DIVIDEND DISBURSING, OTHER
INVESTMENT TRANSFER AGENT, EXPENSES
MANAGEMENT ACCOUNTING AND ADMINISTRATION DISTRIBUTION PAYABLE
FEE PAYABLE FEES AND OTHER EXPENSES FEE PAYABLE TO DMC AND
TO DMC PAYABLE TO DSC TO DDLP AFFILIATES*
------------ ----------------------------- ------------ ------------
$ 49,564 $ 3,300 $ 4 $ 18,395
* DMC, as part of its administrative services, pays operating expenses on behalf
of the Series and is reimbursed on a periodic basis. Such expenses include items
such as printing of shareholder reports, fees for audit, legal and tax services,
custodian fees and trustees' fees.
As provided in the investment management agreement, the Series bears the cost of
certain legal services expenses, including internal legal services provided to
the Series by DMC employees. For the year ended December 31, 2005, the Series
was charged $4,562 for internal legal services provided by DMC.
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, 2005, the Series made purchases and sales of
investment securities other than short-term investments as follows:
Purchases other than U.S. government securities .. $ 129,533,896
Purchases of U.S. government securities .......... 8,237,429
Sales other than U.S. government securities ...... 150,438,116
Sales of U.S. government securities .............. 4,337,684
At December 31, 2005, 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 DEPRECIATION
-------------- -------------- -------------- --------------
$ 63,466,027 $ 182,297 $ (2,413,294) $ (2,230,997)
4. DIVIDEND AND DISTRIBUTION INFORMATION
Income and long-term capital gain distributions are determined in accordance
with federal income tax regulations, which may differ from U.S. generally
accepted accounting principles. Additionally, gains (losses) on foreign currency
transactions and net short-term gains on sales of investment securities are
treated as ordinary income for federal income tax purposes. The tax character of
dividends and distributions paid during the years ended December 31, 2005 and
2004 was as follows:
YEAR YEAR
ENDED ENDED
12/31/05 12/31/04
------------ ------------
Ordinary income .............. $ 12,733,806 $ 13,084,663
Long-term capital gains ...... 886,769 816,461
------------ ------------
Total distribution ........... $ 13,620,575 $ 13,901,124
============ ============
Global Bond-11
DELAWARE VIP GLOBAL BOND SERIES
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
4. DIVIDEND AND DISTRIBUTION INFORMATION (CONTINUED)
As of December 31, 2005, the components of net assets on a tax basis were as
follows:
Shares of beneficial interest .......... $ 61,493,366
Undistributed ordinary income .......... 3,252,346
Undistributed long-term capital gain ... 344,802
Post-October losses .................... (113,418)
Post-October currency losses ........... (706,335)
Unrealized depreciation of investments
and foreign currencies ............... (2,259,640)
------------
Net assets ............................. $ 62,011,121
============
The differences between book basis and tax basis components of net assets are
primarily attributable to tax deferral of losses on wash sales, mark-to-market
on options contracts, mark-to-market of forward foreign currency contracts,
currency straddles and tax treatment of market discount and premium on debt
instruments.
Post-October losses and Post-October currency losses represent losses realized
on investment and foreign currency transactions from November 1, 2005 through
December 31, 2005 that, in accordance with federal income tax regulations, the
Series has elected to defer and treat as having arisen in the following fiscal
year.
For financial reporting purposes, capital accounts are adjusted to reflect the
tax character of permanent book/tax differences. Reclassifications are primarily
due to tax treatment of gain (loss) on foreign currency transactions and market
discount and premium on certain debt instruments. Results of operations and net
assets were not affected by these reclassifications. For the year ended December
31, 2005, the Series recorded the following reclassifications.
UNDISTRIBUTED ACCUMULATED
NET NET REALIZED
INVESTMENT INCOME GAIN (LOSS)
----------------- ------------
$ (360,621) $ 360,621
5. CAPITAL SHARES
Transactions in capital shares were as follows:
YEAR YEAR
ENDED ENDED
12/31/05 12/31/04
------------ ------------
Shares sold:
Standard Class ............................ 317,642 273,772
Shares issued upon reinvestment of dividends
and distributions:
Standard Class ............................ 1,242,624 1,147,814
Service Class ............................. 129 91
------------ ------------
1,560,395 1,421,677
------------ ------------
Shares repurchased:
Standard Class ............................ (1,928,903) (2,615,523)
------------ ------------
Net decrease ................................ (368,508) (1,193,846)
============ ============
6. LINE OF CREDIT
The Series, along with certain other funds in the Delaware Investments Family of
Funds (the "Participants"), participates in a $225,000,000 revolving line of
credit facility to be used for temporary or emergency purposes as an additional
source of liquidity to fund redemptions of investor shares. The Participants are
charged an annual commitment fee, which is allocated across the Participants on
the basis of each 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, 2005, or at any time during
the year.
Global Bond-12
DELAWARE VIP GLOBAL BOND SERIES
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
7. FOREIGN CURRENCY 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.
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.
While maintaining oversight, the Board of Trustees has delegated to DMC the
day-to-day functions of determining whether individual securities are liquid for
purposes of the Series' limitation on investments in illiquid assets. At
December 31, 2005, no securities have been determined to be illiquid under the
Series' Liquidity Procedures.
9. CONTRACTUAL OBLIGATIONS
The Series enters into contracts in the normal course of business that contain a
variety of indemnifications. The Series' maximum exposure under these
arrangements is unknown. However, the Series has not had prior claims or losses
pursuant to these contracts. Management has reviewed the Series' existing
contracts and expects the risk of loss to be remote.
10. TAX INFORMATION (UNAUDITED)
For the fiscal year ended December 31, 2005, 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)
------------- ------------- -------------
7% 93% 100%
- ----------
(A) and (B) are based on a percentage of the Series' total distributions.
Global Bond-13
DELAWARE VIP TRUST-DELAWARE VIP GLOBAL BOND SERIES
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
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 the Delaware VIP
Global Bond Series (one of the series constituting Delaware VIP Trust) (the
"Series") as of December 31, 2005, 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
five years in the period then ended. 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 the standards of the Public Company
Accounting Oversight Board (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. We were
not engaged to perform an audit of the Series' internal control over financial
reporting. Our audits included consideration of internal control over financial
reporting as a basis for designing audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion on the
effectiveness of the Series' internal control over financial reporting.
Accordingly, we express no such opinion. An audit also includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements and financial highlights, assessing the accounting principles used
and significant estimates made by management, and evaluating the overall
financial statement presentation. Our procedures included confirmation of
securities owned as of December 31, 2005, by correspondence with the custodian
and brokers. 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 the
Delaware VIP Global Bond Series of Delaware VIP Trust at December 31, 2005, 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 five years in the period then ended, in conformity with U.S.
generally accepted accounting principles.
/s/ Ernst & Young LLP
Philadelphia, Pennsylvania
February 10, 2006
The Series files its complete schedule of portfolio holdings with the Securities
and Exchange Commission for the first and third quarters of each fiscal year on
Form N-Q. The Series' Forms N-Q, as well as a description of the policies and
procedures that the Series uses to determine how to vote proxies (if any)
relating to portfolio securities is available without charge (i) upon request,
by calling 800-523-1918; (ii) on the Series' website at
http://www.delawareinvestments.com; and (iii) on the Commission's website at
http://www.sec.gov. The Series' Forms N-Q may be reviewed and copied at the
Commission's Public Reference Room in Washington, DC; information on the
operation of the Public Reference Room may be obtained by calling
1-800-SEC-0330.
Information (if any) regarding how the Series voted proxies relating to
portfolio securities during the most recently disclosed 12-month period ended
June 30 is available without charge (i) through the Series' website at
http://www.delawareinvestments.com; and (ii) on the Commission's website at
http://www.sec.gov.
Global Bond-14
DELAWARE INVESTMENTS(R)FAMILY OF FUNDS
BOARD OF TRUSTEES/DIRECTORS AND OFFICERS ADDENDUM
A mutual fund is governed by a Board of Trustees/Directors ("Trustees"), which
has oversight responsibility for the management of a fund's business affairs.
Trustees establish procedures and oversee and review the performance of the
investment manager, the distributor and others who perform services for the
fund. The independent fund trustees, in particular, are advocates for
shareholder interests. Each trustee has served in that capacity since he or she
was elected to or appointed to the Board of Trustees, and will continue to serve
until his or her retirement or the election of a new trustee in his or her
place. The following is a list of the Trustees and Officers with certain
background and related information.
NUMBER OF OTHER
PRINCIPAL PORTFOLIOS IN FUND DIRECTORSHIPS
NAME, POSITION(S) LENGTH OCCUPATION(S) COMPLEX OVERSEEN HELD BY
ADDRESS HELD WITH OF TIME DURING BY TRUSTEE TRUSTEE
AND BIRTHDATE FUND(S) SERVED PAST 5 YEARS OR OFFICER OR OFFICER
- ------------------------ ------------------- -------------- ---------------------------- ------------------ ------------------
INTERESTED TRUSTEES
JUDE T. DRISCOLL(2) Chairman, 5 Years - Since August 2000, 87 None
2005 Market Street President, Executive Mr. Driscoll has served in
Philadelphia, PA Chief Executive Officer various executive capacities
19103 Officer and 2 Years - at different times at
Trustee Trustee Delaware Investments(1)
March 10, 1963
INDEPENDENT TRUSTEES
THOMAS L. BENNETT Trustee Since Private Investor - 87 None
2005 Market Street March 23, 2005 (March 2004 - Present)
Philadelphia, PA
19103 Investment Manager -
Morgan Stanley & Co.
October 4, 1947 (January 1984 - March 2004)
JOHN A. FRY Trustee 4 Years President - 87 Director -
2005 Market Street Franklin & Marshall College Community Health
Philadelphia, PA (June 2002 - Present) Systems
19103
Executive Vice President -
May 28, 1960 University of Pennsylvania
(April 1995 - June 2002)
ANTHONY D. KNERR Trustee 12 Years Founder/Managing Director - 87 None
2005 Market Street Anthony Knerr & Associates
Philadelphia, PA (Strategic Consulting)
19103 (1990 - Present)
December 7, 1938
LUCINDA S. LANDRETH Trustee Since Chief Investment Officer - 87 None
2005 Market Street March 23, 2005 Assurant, Inc.
Philadelphia, PA (Insurance)
19103 (2002 - 2004)
June 24, 1947
ANN R. LEVEN Trustee 16 Years Treasurer/Chief Fiscal 87 Director and
2005 Market Street Officer - National Gallery Audit Committee
Philadelphia, PA of Art (1994 - 1999) Chairperson - Andy
19103 Warhol Foundation
November 1, 1940 Director and Audit
Committee Member -
Systemax Inc.
Global Bond-15
NUMBER OF OTHER
PRINCIPAL PORTFOLIOS IN FUND DIRECTORSHIPS
NAME, POSITION(S) LENGTH OCCUPATION(S) COMPLEX OVERSEEN HELD BY
ADDRESS HELD WITH OF TIME DURING BY TRUSTEE TRUSTEE
AND BIRTHDATE FUND(S) SERVED PAST 5 YEARS OR OFFICER OR OFFICER
- ------------------------ ------------------- -------------- ---------------------------- ------------------ ------------------
INDEPENDENT TRUSTEES
THOMAS F. MADISON Trustee 11 Years President/Chief 87 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 and Audit
Committee Member -
Digital River Inc.
Director and Audit
Committee Member -
Rimage Corporation
Director - Valmont
Industries, Inc.
JANET L. YEOMANS Trustee 6 Years Vice President 87 None
2005 Market Street (January 2003 - Present)
Philadelphia, PA and Treasurer
19103 (January 2006 - Present)
3M Corporation
July 31, 1948 Ms. Yeomans has held
various management positions
at 3M Corporation
since 1983.
J. RICHARD ZECHER Trustee Since Founder - 87 Director and Audit
2005 Market Street March 23, 2005 Investor Analytics Committee Member -
Philadelphia, PA (Risk Management) Investor Analytics
19103 (May 1999 - Present)
Director and Audit
July 3, 1940 Committee Member -
Oxigene, Inc.
- ------------------------------------------------------------------------------------------------------------------------------------
OFFICERS
MICHAEL P. BISHOF Senior Chief Mr. Bishof has served in 87 None(3)
2005 Market Street Vice President and Financial various executive capacities
Philadelphia, PA Chief Financial since Officer at different times at
19103 Officer February 17, Delaware Investments.
2005
August 18, 1962
DAVID F. CONNOR Vice President, Vice President Mr. Connor has served as 87 None(3)
2005 Market Street Deputy General since Vice President and Deputy
Philadelphia, PA Counsel and September 21, General Counsel of Delaware
19103 Secretary 2000 and Investments since 2000.
Secretary
since
October 25,
2005
December 2, 1963
DAVID P. O'CONNOR Senior Vice Senior Vice Mr. O'Connor has served in 87 None(3)
2005 Market Street President, President, various executive and legal
Philadelphia, PA General Counsel General capacities at different
19103 and Chief Counsel and times at Delaware
Legal Officer Chief Legal Investments.
Officer since
October 25,
2005
February 21, 1966
JOHN J. O'CONNOR Senior Vice Treasurer Mr. O'Connor has served in 87 None(3)
2005 Market Street President and since various executive capacities
Philadelphia, PA Treasurer February 17, at different times at
19103 2005 Delaware Investments.
June 16, 1957
- ----------
(1) Delaware Investments is the marketing name for Delaware Management Holdings,
Inc. and its subsidiaries, including the Fund's(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(s') manager and distributor.
(3) Mr. Bishof, Mr. Connor, Mr. David P. O'Connor and Mr. John J. O'Connor serve
in similar capacities for the six portfolios of the Optimum Fund Trust,
which have the same investment advisor, principal underwriter, and transfer
agent as the registrant. Mr. John J. O'Connor also serves in a similar
capacity for Lincoln Variable Insurance Products Trust, which has the same
investment advisor as the registrant.
The Statement of Additional Information for the Fund(s) includes additional
information about the Trustees and Officers and is available, without charge,
upon request by calling 800 523-1918.
Global Bond-16
DELAWARE VIP TRUST - DELAWARE VIP GROWTH OPPORTUNITIES SERIES
For the 12-month period ended December 31, 2005, Delaware VIP Growth
Opportunities Series returned 11.40% for Standard Class shares and 11.20% for
Service Class shares (both figures reflect all distributions reinvested). During
the same 12-month period, the Russell Midcap Growth Index - which is the Series'
benchmark - gained 12.10%.
Mid-cap stocks outpaced their small- and large-cap counterparts during
2005. (source: Lipper, Inc.) Early in the fiscal year, sector selection played a
role in determining performance relative to the benchmark. Energy was
particularly strong throughout much of the year, and we made a decision to
approach this sector of the market cautiously. Rather than pursue some of these
richly valued stocks, our strategy was to retain a lesser weighting overall in
energy than our benchmark, seeking to take advantage of the few periods of
weakness in the sector. As such, we believe that we were able at times to buy
attractively priced shares of select energy-related companies that dominate
niche markets - companies where fundamentals are more likely to remain favorable
going forward. Generally speaking, we believe that a secular, demand-driven
shift in the energy sector is creating opportunities for some companies to
sustain growth independent of short-term oil-price volatility.
Late in the fiscal year, consumer-related stocks rebounded strongly and the
energy sector declined somewhat from its lofty post-Hurricane Katrina level as
oil prices fell. Our general strategy with regard to consumer stocks was to
retain only high-quality consumer names that we think should still be able to
generate solid results, and would be the beneficiaries of a return to a more
neutral sentiment.
Changes in portfolio positioning throughout the past year have reduced the
portfolio's sensitivity to the performance of any particular sector, while we
continue to focus on stock selection-finding and holding individual companies
that have delivered and will be able to continue to deliver strong sales and
profit growth.
Performance of a $10,000 Investment
12/31/95 $ 10,000 $ 10,000
12/31/96 $ 11,748 $ 11,446
12/31/97 $ 14,396 $ 13,151
12/31/97 $ 16,967 $ 15,625
12/31/99 $ 25,670 $ 25,460
12/31/00 $ 22,653 $ 23,290
12/31/01 $ 18,089 $ 19,614
12/31/02 $ 13,131 $ 14,723
12/31/03 $ 18,739 $ 20,767
12/31/04 $ 21,639 $ 23,358
12/31/05 $ 24,258 $ 26,021
DELAWARE VIP GROWTH OPPORTUNITIES
SERIES AVERAGE ANNUAL TOTAL RETURNS
Standard Class Service Class
Shares* Shares**
-------------- --------------
Lifetime +10.20% -0.97%
10 Year +10.04% --
Five Year +2.24% +2.03%
One Year +11.40% +11.20%
For the periods ended December 31, 2005
* 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, 1995 through December 31, 2005. All distributions were
reinvested. Returns plotted on the chart were as of the last day of each month
shown. The Russell Mid Cap Growth Index measures the performance of U.S. mid-cap
growth stocks. 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 the Delaware VIP Growth Opportunities 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. Series that invest in small and/or medium-sized companies typically
involve greater risk, particularly in the short term, than those investing in
larger, more established companies.
Growth Opportunities - 1
DELAWARE VIP TRUST-DELAWARE VIP GROWTH OPPORTUNITIES SERIES
DISCLOSURE OF SERIES EXPENSES
For the Period July 1, 2005 to December 31, 2005
As a shareholder of the Series, you incur ongoing costs, including management
fees; distribution and/or service (12b-1) fees; and other Series expenses. This
Example is intended to help you understand your ongoing costs (in dollars) of
investing in the Series and to compare these costs with the ongoing costs of
investing in other mutual funds.
The Example is based on an investment of $1,000 invested at the beginning of the
period and held for the entire period from July 1, 2005 to December 31, 2005.
ACTUAL EXPENSES
The first section of the table shown, "Actual Series Return,"
provides information about actual account values and actual expenses. You may
use the information in this section of the table, together with the amount you
invested, to estimate the expenses that you paid over the period. Simply divide
your account value by $1,000 (for example, an $8,600 account value divided by
$1,000 = 8.6), then multiply the result by the number in the first section under
the heading entitled "Expenses Paid During Period" to estimate the expenses you
paid on your account during the period.
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The second section of the table shown, "Hypothetical 5% Return," provides
information about hypothetical account values and hypothetical expenses based on
the Series' actual expense ratio and an assumed rate of return of 5% per year
before expenses, which is not the Series' actual return. The hypothetical
account values and expenses may not be used to estimate the actual ending
account balance or expenses you paid for the period. You may use this
information to compare the ongoing costs of investing in the Series and other
funds. To do so, compare this 5% hypothetical example with the 5% hypothetical
examples that appear in the shareholder reports of other funds.
Please note that the expenses shown in the table are meant to highlight your
ongoing costs only. As a shareholder of the Series, you do not incur any
transaction costs, such as sales charges (loads), redemption fees or exchange
fees, but shareholders of other funds may incur such costs. Also, the fees
related to the variable annuity investment or the deferred sales charge that
could apply have not been included. Therefore, the second section of the table
is useful in comparing ongoing costs only, and will not help you determine the
relative total costs of owning different funds. The Series' actual expenses
shown in the table reflect fee waivers in effect for Service Class shares. The
expenses shown in the table assume reinvestment of all dividends and
distributions.
EXPENSE ANALYSIS OF AN INVESTMENT OF $1,000
EXPENSES
BEGINNING ENDING PAID DURING
ACCOUNT ACCOUNT ANNUALIZED PERIOD
VALUE VALUE EXPENSE 7/1/05 TO
7/1/05 12/31/05 Ratios 12/31/05*
------------ ------------ ------------ ------------
ACTUAL SERIES RETURN
Standard Class $ 1,000.00 $ 1,111.30 0.90% $ 4.79
Service Class 1,000.00 1,109.80 1.15% 6.12
HYPOTHETICAL 5% RETURN (5% RETURN BEFORE EXPENSES)
Standard Class $ 1,000.00 $ 1,020.67 0.90% $ 4.58
Service Class 1,000.00 1,019.41 1.15% 5.85
------------ ------------ ------------ ------------
* "Expenses Paid During Period" are equal to the Series' annualized expense
ratio, multiplied by the average account value over the period, multiplied
by 184/365 (to reflect the one-half year period).
Growth Opportunities - 2
DELAWARE VIP TRUST-DELAWARE VIP GROWTH OPPORTUNITIES SERIES
SECTOR ALLOCATION
As of December 31, 2005
Sector designations may be different than the sector designations presented in
other Series materials.
PERCENTAGE
SECTOR OF NET ASSETS
- -------------------------------------------------- -------------
COMMON STOCK 98.97%
-------------
Basic Industry/Capital Goods 8.26%
Business Services 7.60%
Consumer Durables 5.38%
Consumer Non-Durables 13.14%
Consumer Services 11.11%
Energy 5.45%
Financials 9.70%
Health Care 17.40%
Technology 20.93%
-------------
REPURCHASE AGREEMENTS 1.07%
-------------
SECURITIES LENDING COLLATERAL 8.62%
-------------
TOTAL MARKET VALUE OF SECURITIES 108.66%
-------------
OBLIGATION TO RETURN SECURITIES LENDING COLLATERAL (8.62)%
-------------
LIABILITIES NET OF RECEIVABLES AND OTHER ASSETS (0.04)%
-------------
TOTAL NET ASSETS 100.00%
-------------
Growth Opportunities - 3
DELAWARE VIP TRUST-DELAWARE VIP GROWTH OPPORTUNITIES SERIES
STATEMENT OF NET ASSETS
December 31, 2005
NUMBER MARKET
OF SHARES VALUE
------------- -----------
COMMON STOCK-98.97%
BASIC INDUSTRY/CAPITAL GOODS-8.26%
Allegheny Technologies ............................ 27,900 $ 1,006,632
Graco ............................................. 27,200 992,256
Joy Global ........................................ 27,000 1,080,000
+Mettler-Toledo International ...................... 23,200 1,280,640
Rowan ............................................. 16,900 602,316
-----------
4,961,844
-----------
BUSINESS SERVICES-7.60%
+Dun & Bradstreet .................................. 13,700 917,352
Expeditors International Washington ............... 21,700 1,464,967
+Fisher Scientific International ................... 19,300 1,193,898
Robert Half International ......................... 26,100 988,929
-----------
4,565,146
-----------
CONSUMER DURABLES-5.38%
+Activision ........................................ 51,000 700,740
Centex ............................................ 22,300 1,594,227
KB HOME ........................................... 12,900 937,314
-----------
3,232,281
-----------
CONSUMER NON-DURABLES-13.14%
*+Chico's FAS ....................................... 24,100 1,058,713
Michaels Stores ................................... 8,700 307,719
Nordstrom ......................................... 46,400 1,735,360
Staples ........................................... 65,000 1,476,150
+Starbucks ......................................... 26,700 801,267
Tiffany & Company ................................. 15,400 589,666
+Urban Outfitters .................................. 63,300 1,602,123
+Williams-Sonoma ................................... 7,400 319,310
-----------
7,890,308
-----------
CONSUMER SERVICES-11.11%
+Cheesecake Factory ................................ 18,600 695,454
+Getty Images ...................................... 2,800 249,956
Marriott International Class A .................... 26,300 1,761,311
Royal Caribbean Cruises ........................... 23,200 1,045,392
Starwood Hotels & Resorts Worldwide ............... 29,700 1,896,642
+West .............................................. 24,200 1,020,030
-----------
6,668,785
-----------
ENERGY-5.45%
*Chesapeake Energy ................................. 24,800 786,904
+National Oilwell Varco ............................ 19,800 1,241,460
Smith International ............................... 33,600 1,246,896
-----------
3,275,260
-----------
FINANCIALS-9.70%
*+Affiliated Managers Group ......................... 15,000 1,203,750
Lehman Brothers Holdings .......................... 10,000 1,281,700
Nuveen Investments ................................ 19,500 831,090
PartnerRe ......................................... 13,900 912,813
UnumProvident ..................................... 49,600 1,128,400
Zions Bancorp ..................................... 6,200 468,472
-----------
5,826,225
-----------
HEALTH CARE-17.40%
+Amylin Pharmaceuticals ............................ 12,500 499,000
+Barr Pharmaceuticals .............................. 13,100 815,999
+Caremark Rx ....................................... 18,300 947,757
+Cytyc ............................................. 38,000 1,072,740
Dade Behring Holdings ............................. 16,600 678,774
+Invitrogen ........................................ 19,300 1,286,152
+Kinetic Concepts .................................. 16,800 667,968
+Medco Health Solutions ............................ 16,000 892,800
Growth Opportunities - 4
NUMBER MARKET
OF SHARES VALUE
------------- -----------
COMMON STOCK (CONTINUED)
HEALTH CARE (CONTINUED)
*+MGI Pharma ........................................ 54,600 $ 936,936
*+Neurocrine Biosciences ............................ 20,300 1,273,419
+Protein Design Labs ............................... 24,300 690,606
Shire Pharmaceuticals ADR ......................... 17,700 686,583
-----------
10,448,734
-----------
TECHNOLOGY-20.93%
*+ADC Telecommunications ............................ 25,800 576,372
+Amdocs ............................................ 38,400 1,056,000
+Broadcom Class A .................................. 19,500 919,425
+F5 Networks ....................................... 13,700 783,503
Intersil .......................................... 31,400 781,232
+Juniper Networks .................................. 63,900 1,424,970
Linear Technology ................................. 25,000 901,750
+Marvell Technology Group .......................... 13,100 734,779
+Mercury Interactive ............................... 6,900 191,751
Microchip Technology .............................. 29,100 935,565
+NAVTEQ ............................................ 6,600 289,542
+Network Appliance ................................. 32,100 866,700
+NII Holdings Class B .............................. 19,600 856,128
*+salesforce.com ................................... 22,100 708,305
Satyam Computer Services ADR ...................... 24,900 911,091
+Tellabs ........................................... 57,600 627,840
-----------
12,564,953
-----------
TOTAL COMMON STOCK
(COST $45,405,818) ............................. 59,433,536
-----------
PRINCIPAL
AMOUNT
------------
REPURCHASE AGREEMENTS-1.07%
With BNP Paribas 3.30% 1/3/06
(dated 12/30/05, to be repurchased at
$404,148, collateralized by $8,000
U.S. Treasury Bills due 1/26/06,
market value $8,276, $6,000
U.S. Treasury Bills due 2/23/06,
market value $5,658, $11,000
U.S. Treasury Bills due 5/4/06,
market value $11,071, $75,000
U.S. Treasury Bills due 6/1/06,
market value $73,490, $210,000
U.S. Treasury Bills due 6/29/06,
market value $205,267, $74,000
U.S. Treasury Notes 2.625% due
5/15/08, market value $71,759 and
$37,000 U.S. Treasury Notes 3.125%
due 5/15/07, market value $36,842) ............ $ 404,000 404,000
With UBS Warburg 3.40% 1/3/06
(dated 12/30/05, to be repurchased at
$236,089, collateralized by $27,000
U.S. Treasury Notes 2.00% due
5/15/06, market value $27,249 and
$206,000 U.S. Treasury Notes
5.625% due 5/15/08, market
value $213,586) ............................... 236,000 236,000
-------
TOTAL REPURCHASE AGREEMENTS
(COST $640,000) ............................... 640,000
-------
Growth Opportunities - 5
DELAWARE VIP GROWTH OPPORTUNITIES SERIES
STATEMENT OF NET ASSETS (CONTINUED)
PRINCIPAL MARKET
AMOUNT VALUE
------------ ------------
TOTAL MARKET VALUE OF SECURITIES BEFORE
SECURITIES LENDING COLLATERAL-100.04%
(COST $46,045,818) ............................ $ 60,073,536
------------
SECURITIES LENDING COLLATERAL**-8.62%
SHORT-TERM INVESTMENTS
FIXED RATE NOTES-2.04%
Citigroup Global Markets
4.29% 1/3/06 .................................. $ 1,069,076 1,069,076
Wilmington Trust Company
4.05% 1/5/06 .................................. 156,703 156,703
------------
1,225,779
------------
oVARIABLE RATE NOTES-6.58%
Abbey National 4.14% 1/13/06 ..................... 115,960 115,975
ANZ National 4.31% 1/30/07 ....................... 31,341 31,340
Australia New Zealand
4.35% 1/30/07 ................................. 156,703 156,702
Bank of New York 4.33% 4/4/06 .................... 125,362 125,362
Bank of the West 4.27% 3/2/06 .................... 156,703 156,703
Bayerische Landesbank
4.40% 8/25/06 ................................. 156,703 156,703
Bear Stearns
4.14% 1/17/06 ................................. 31,341 31,346
4.39% 6/30/06 ................................. 188,043 188,043
Beta Finance 4.33% 4/18/06 ....................... 156,703 156,695
Canadian Imperial Bank
4.35% 1/30/07 ................................. 78,351 78,351
CDC Financial Products
4.35% 1/30/06 ................................. 203,713 203,713
PRINCIPAL MARKET
AMOUNT VALUE
------------ ------------
SECURITIES LENDING COLLATERAL (CONTINUED)
SHORT-TERM INVESTMENTS (CONTINUED)
oVARIABLE RATE NOTES (CONTINUED)
Citigroup Global Markets
4.32% 1/6/06 ................................... $ 203,713 $ 203,713
Commonwealth Bank Australia
4.35% 1/30/07 .................................. 156,703 156,703
Credit Suisse First Boston New York
4.35% 4/18/06 .................................. 169,239 169,239
Goldman Sachs 4.39% 1/2/07 ........................ 203,713 203,713
Manufacturers & Traders
4.36% 9/26/06 .................................. 156,703 156,674
Marshall & Ilsley Bank
4.35% 1/30/07 .................................. 172,373 172,373
Merrill Lynch Mortgage Capital
4.35% 1/12/06 .................................. 203,713 203,713
Morgan Stanley 4.43% 1/2/07 ....................... 194,311 194,311
National City Bank
4.31% 1/23/06 .................................. 178,641 178,644
Nordea Bank Norge ASA
4.34% 1/30/07 .................................. 156,703 156,703
Procter & Gamble
4.46% 1/30/07 .................................. 156,703 156,703
Royal Bank of Scotland
4.34% 1/30/07 .................................. 156,703 156,703
Sigma Finance 4.33% 3/16/06 ....................... 47,011 47,012
Societe Generale New York
4.26% 1/30/07 .................................. 78,351 78,351
Toyota Motor Credit
4.30% 6/23/06 .................................. 156,703 156,710
Wells Fargo 4.36% 1/30/07 ......................... 156,703 156,703
------------
3,948,901
------------
TOTAL SECURITIES LENDING COLLATERAL
(COST $5,174,680) .............................. 5,174,680
------------
TOTAL MARKET VALUE OF SECURITIES-108.66% (COST $51,220,498) ..... 65,248,216~
OBLIGATION TO RETURN SECURITIES LENDING COLLATERAL**-(8.62)% .... (5,174,680)
LIABILITIES NET OF RECEIVABLES AND OTHER ASSETS-(0.04)% ......... (25,082)
---------------
NET ASSETS APPLICABLE TO 3,386,258 SHARES OUTSTANDING-100.00% ... $ 60,048,454
===============
NET ASSET VALUE-DELAWARE VIP GROWTH OPPORTUNITIES
SERIES STANDARD CLASS ($46,000,661 / 2,587,099 SHARES) ......... $ 17.78
===============
NET ASSET VALUE-DELAWARE VIP GROWTH OPPORTUNITIES
SERIES SERVICE CLASS ($14,047,793 / 799,159 SHARES) ............ $ 17.58
===============
COMPONENTS OF NET ASSETS AT DECEMBER 31, 2005:
Shares of beneficial interest (unlimited authorization-no par) .. $ 57,506,222
Accumulated net realized loss on investments .................... (11,485,486)
Net unrealized appreciation of investments ...................... 14,027,718
---------------
Total net assets ................................................ $ 60,048,454
===============
- ----------
+ Non-income producing security for the year ended December 31, 2005.
o Variable rate securities. The interest rate shown is the rate as of
December 31, 2005.
* Fully or partially on loan.
**See Note 7 in "Notes to Financial Statements."
~ Includes $5,032,021 of securities loaned.
ADR - American Depositary Receipts
See accompanying notes
Growth Opportunities - 6
DELAWARE VIP TRUST-
DELAWARE VIP GROWTH OPPORTUNITIES SERIES
STATEMENT OF OPERATIONS
Year Ended December 31, 2005
INVESTMENT INCOME:
Dividends .................................................. $ 282,831
Interest ................................................... 54,152
Securities lending income .................................. 18,700
------------
355,683
------------
EXPENSES:
Management fees ............................................ 479,592
Distribution expenses - Service Class ...................... 41,806
Reports and statements to shareholders ..................... 27,854
Accounting and administration expenses ..................... 23,481
Legal and professional fees ................................ 18,631
Dividend disbursing and transfer agent
fees and expenses ....................................... 6,407
Custodian fees ............................................. 5,658
Insurance fees ............................................. 4,679
Trustees' fees ............................................. 3,610
Taxes (other than taxes on income) ......................... 3,072
Pricing fees ............................................... 452
Registration fees .......................................... 97
Other ...................................................... 4,377
------------
619,716
Less waiver of distribution expenses - Service Class ....... (6,951)
------------
Less expenses paid indirectly .............................. (329)
------------
Total expenses ............................................. 612,436
------------
NET INVESTMENT LOSS ........................................ (256,753)
------------
NET REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENTS:
Net realized gain on investments ........................... 7,465,944
Net change in unrealized
appreciation/depreciation of investments ................ (732,587)
------------
NET REALIZED AND UNREALIZED GAIN ON
INVESTMENTS ............................................. 6,733,357
------------
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS ......................................... $ 6,476,604
============
See accompanying notes
DELAWARE VIP TRUST-
DELAWARE VIP GROWTH OPPORTUNITIES SERIES
STATEMENTS OF CHANGES IN NET ASSETS
YEAR ENDED
------------------------------
12/31/05 12/31/04
------------- -------------
INCREASE (DECREASE) IN NET ASSETS
FROM OPERATIONS:
Net investment loss ......................... $ (256,753) $ (194,589)
Net realized gain on investments ............ 7,465,944 12,910,575
Net change in unrealized
appreciation/depreciation of investments . (732,587) (4,548,303)
------------- -------------
Net increase in net assets resulting
from operations .......................... 6,476,604 8,167,683
------------- -------------
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares sold:
Standard Class ........................... 1,424,558 292,375
Service Class ............................ 1,280,534 957,177
------------- -------------
2,705,092 1,249,552
------------- -------------
Cost of shares repurchased:
Standard Class ........................... (17,343,946) (15,251,742)
Service Class ............................ (3,746,289) (4,482,881)
------------- -------------
(21,090,235) (19,734,623)
------------- -------------
Decrease in net assets derived from
capital share transactions ............... (18,385,143) (18,485,071)
------------- -------------
NET DECREASE IN NET ASSETS .................. (11,908,539) (10,317,388)
NET ASSETS:
Beginning of year ........................... 71,956,993 82,274,381
------------- -------------
End of year (there was no undistributed
net investment income at either
year end) ................................ $ 60,048,454 $ 71,956,993
============= =============
See accompanying notes
Growth Opportunities - 7
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
---------------------------------------------------------------------
12/31/05 12/31/04 12/31/03 12/31/02 12/31/01
---------- ---------- ---------- ---------- ---------
Net asset value, beginning of period ..................... $ 15.960 $ 14.190 $ 10.060 $ 15.010 $ 23.990
INCOME (LOSS) FROM INVESTMENT OPERATIONS:
Net investment loss(1) ................................... (0.056) (0.031) (0.032) (0.025) (0.010)
Net realized and unrealized gain (loss) on investments ... 1.876 1.801 4.162 (3.351) (4.209)
---------- ---------- ---------- ---------- ---------
Total from investment operations ......................... 1.820 1.770 4.130 (3.376) (4.219)
---------- ---------- ---------- ---------- ---------
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 ........................... $ 17.780 $ 15.960 $ 14.190 $ 10.060 $ 15.010
========== ========== ========== ========== =========
Total return(2) .......................................... 11.40% 12.47% 41.05% (24.94)% (15.78)%
RATIOS AND SUPPLEMENTAL DATA:
Net assets, end of period (000 omitted) .................. $ 46,000 $ 56,875 $ 65,368 $ 60,964 $ 117,527
Ratio of expenses to average net assets .................. 0.90% 0.84% 0.85% 0.87% 0.85%
Ratio of expenses to average net assets prior to expense
limitation and expenses paid indirectly ............... 0.90% 0.84% 0.85% 0.87% 0.87%
Ratio of net investment loss to average net assets ....... (0.35)% (0.21)% (0.27)% (0.21)% (0.06)%
Ratio of net investment loss to average net assets prior
to expense limitation and expenses paid indirectly .... (0.35)% (0.21)% (0.27)% (0.21)% (0.08)%
Portfolio turnover ....................................... 75% 94% 94% 88% 117%
- ----------
(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
Growth Opportunities - 8
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 STANDARD CLASS
YEAR ENDED
---------------------------------------------------------------------
12/31/05 12/31/04 12/31/03 12/31/02 12/31/01
---------- ---------- ---------- ---------- ---------
Net asset value, beginning of period ..................... $ 15.810 $ 14.100 $ 10.010 $ 14.970 $ 23.980
INCOME (LOSS) FROM INVESTMENT OPERATIONS:
Net investment loss(1) ................................... (0.096) (0.066) (0.058) (0.043) (0.033)
Net realized and unrealized gain (loss) on investments ... 1.866 1.776 4.148 (3.343) (4.216)
---------- ---------- ---------- ---------- ---------
Total from investment operations ......................... 1.770 1.710 4.090 (3.386) (4.249)
---------- ---------- ---------- ---------- ---------
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 ........................... $ 17.580 $ 15.810 $ 14.100 $ 10.010 $ 14.970
========== ========== ========== ========== =========
Total return(2) .......................................... 11.20% 12.13% 40.86% (25.09)% (15.94)%
RATIOS AND SUPPLEMENTAL DATA:
Net assets, end of period (000 omitted) .................. $ 14,048 $ 15,082 $ 16,906 $ 15,275 $ 27,893
Ratio of expenses to average net assets .................. 1.15% 1.09% 1.07% 1.02% 1.00%
Ratio of expenses to average net assets prior to expense
limitation and expenses paid indirectly ............... 1.20% 1.14% 1.10% 1.02% 1.02%
Ratio of net investment loss to average net assets ....... (0.60)% (0.46)% (0.49)% (0.36)% (0.21)%
Ratio of net investment loss to average net assets prior
to expense limitation and expenses paid indirectly .... (0.65)% (0.51)% (0.52)% (0.36)% (0.23)%
Portfolio turnover ....................................... 75% 94% 94% 88% 117%
- ----------
(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 and distributor, as applicable.
Performance would have been lower had the expense limitation and waiver not
been in effect.
See accompanying notes
Growth Opportunities - 9
DELAWARE VIP TRUST-DELAWARE VIP GROWTH OPPORTUNITIES SERIES
NOTES TO FINANCIAL STATEMENTS
December 31, 2005
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 REIT Series,
Delaware VIP Select Growth Series, Delaware VIP Small Cap Value Series, Delaware
VIP Trend Series, Delaware VIP U.S. Growth Series and Delaware VIP Value Series.
These financial statements and the related notes pertain to Delaware VIP Growth
Opportunities Series (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 U.S. generally accepted
accounting principles and are consistently followed by the Series.
Security Valuation--Equity securities, except those traded on the Nasdaq Stock
Market, Inc. (Nasdaq), are valued at the last quoted sales price as of the time
of the regular close of the New York Stock Exchange (NYSE) on the valuation
date. Securities traded on the Nasdaq are valued in accordance with the Nasdaq
Official Closing Price, which may not be the last sales price. If on a
particular day an equity security does not trade, then the mean between the bid
and asked prices will be used. Short-term debt securities having less than 60
days to maturity are valued at amortized cost, which approximates market value.
Securities lending collateral is valued at amortized cost, which approximates
market value. Other securities and assets for which market quotations are not
readily available are valued at fair value as determined in good faith under the
direction of the Series' Board of Trustees. In determining whether market
quotations are readily available or fair valuation will be used, various factors
will be taken into consideration, such as market closures, 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 pursuant to an
exemptive order issued by the Securities and Exchange Commission. The aggregate
daily balance of the pooled cash account is invested in repurchase agreements
secured by obligations of the U.S. government. The respective collateral is held
by the Series' custodian bank until the maturity of the respective repurchase
agreements. Each repurchase agreement is 102% collateralized. However, in the
event of default or bankruptcy by the counterparty to the agreement, realization
of the collateral may be subject to legal proceedings.
Use of Estimates--The preparation of financial statements in conformity with
U.S. generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from those estimates.
Other--Expenses common to all funds within the Delaware Investments Family of
Funds are allocated amongst the funds on the basis of average net assets.
Management fees and some other expenses are paid monthly. Security transactions
are recorded on the date the securities are purchased or sold (trade date) for
financial reporting purposes. Costs used in calculating realized gains and
losses on the sale of investment securities are those of the specific securities
sold. Dividend income is recorded on the ex-dividend date and interest income is
recorded on the accrual basis.
The Series declares and pays dividends from net investment income and
distributions from net realized gain on investments, if any, following the close
of the fiscal year.
Subject to seeking best execution, the Series may direct certain security trades
to brokers who have agreed to rebate a portion of the related brokerage
commission to the Series in cash. Such commission rebates are included in
realized gain on investments in the accompanying financial statements and
totaled $5,327 for the year ended December 31, 2005. In general, best execution
refers to many factors, including the price paid or received for a security, the
commission charged, the promptness and reliability of execution, the
confidentiality and placement accorded the order, and other factors affecting
the overall benefit obtained by the Series on the transaction.
The Series may receive earnings credits from its custodian when positive cash
balances are maintained, which are used to offset custody fees. The expense paid
under the above arrangement is included in custodian fees on the Statement of
Operations with the corresponding expense offset shown as "expense paid
indirectly.
2. INVESTMENT MANAGEMENT, ADMINISTRATION AGREEMENTS AND OTHER TRANSACTIONS
WITH AFFILIATES
In accordance with the terms of its investment management agreement, the Series
pays Delaware Management Company (DMC), a series of Delaware Management Business
Trust and the investment manager, an annual fee which is calculated daily at the
rate of 0.75% on the first $500 million of average daily net assets of the
Series, 0.70% on the next $500 million, 0.65% on the next $1.5 billion, and
0.60% on average daily net assets in excess of $2.5 billion.
DMC has contractually agreed to waive that portion, if any, of its management
fee and reimburse the Series to the extent necessary to ensure that annual
operating expenses, exclusive of taxes, interest, brokerage commissions,
distribution fees, certain insurance costs and extraordinary expenses, do not
exceed 0.90% of average daily net assets of the Series through June 30, 2006. No
reimbursement was due for the year ended December 31, 2005.
Delaware Service Company, Inc. (DSC), an affiliate of DMC, provides accounting,
administration, dividend disbursing and transfer agent services. Effective May
19, 2005, the Series pays DSC a monthly fee computed at the annual rate of 0.04%
of the Series' average daily net assets for accounting and administrative
services. Prior to May 19, 2005, the Series paid 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.
Growth Opportunities - 10
DELAWARE VIP GROWTH OPPORTUNITIES 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 distribution and service fee not to exceed 0.30% of the average daily net
assets of the Service Class shares. DDLP has contracted to waive distribution
and service fees through June 30, 2006 in order to prevent distribution and
service fees of the Service Class shares from exceeding 0.25% of average daily
net assets. Standard Class shares pay no distribution and service expenses.
At December 31, 2005, the Series had liabilities payable to affiliates as
follows:
DIVIDEND DISBURSING, OTHER
INVESTMENT TRANSFER AGENT, EXPENSES
MANAGEMENT ACCOUNTING AND ADMINISTRATION DISTRIBUTION PAYABLE
FEE PAYABLE FEES AND OTHER EXPENSES FEE PAYABLE TO DMC AND
TO DMC PAYABLE TO DSC TO DDLP AFFILIATES*
------------ ----------------------------- ------------ ------------
$ 39,509 $ 3,230 $ 5,905 $ 28,716
*DMC, as part of its administrative services, pays operating expenses on behalf
of the Series and is reimbursed on a periodic basis. Such expenses include items
such as printing of shareholder reports, fees for audit, legal and tax services,
custodian fees and trustees' fees.
As provided in the investment management agreement, the Series bears the cost of
certain legal services expenses, including internal legal services provided to
the Series by DMC employees. For the year ended December 31, 2005, the Series
was charged $3,965 for internal legal services provided by DMC.
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, 2005, the Series made purchases and sales of
investment securities other than short-term investments as follows:
Purchases .................... $ 46,815,977
Sales ........................ 63,025,360
At December 31, 2005, 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 DEPRECIATION
-------------- -------------- -------------- --------------
$ 51,688,586 $ 14,296,600 $ (736,970) $ 13,559,630
4. DIVIDEND AND DISTRIBUTION INFORMATION
Income and long-term capital gain distributions are determined in accordance
with federal income tax regulations, which may differ from U.S. generally
accepted accounting principles. Additionally, net short-term gains on sales of
investment securities are treated as ordinary income for federal income tax
purposes. There were no dividends and distributions paid during the years ended
December 31, 2005 and 2004.
As of December 31, 2005, the components of net assets on a tax basis were as
follows:
Shares of beneficial interest .................... $ 57,506,222
Capital loss carryforwards ....................... (11,017,398)
Unrealized appreciation of investments ........... 13,559,630
------------
Net assets ....................................... $ 60,048,454
============
The differences between book basis and tax basis components of net assets are
primarily attributable to tax deferral of losses on wash sales.
For financial reporting purposes, capital accounts are adjusted to reflect the
tax character of permanent book/tax differences. Reclassifications are primarily
due to tax treatment of net operating losses. Results of operations and net
assets were not affected by these reclassifications. For the year ended December
31, 2005, the Series recorded the following reclassifications.
ACCUMULATED
NET PAID-IN
INVESTMENT LOSS CAPITAL
--------------- ---------------
$ 256,753 $ (256,753)
For federal income tax purposes, capital loss carryforwards may be carried
forward and applied against future capital gains. $7,164,402 was utilized in
2005. Capital loss carryforwards remaining at December 31, 2005 will expire as
follows: $11,017,398 expires in 2010.
Growth Opportunities - 11
DELAWARE VIP GROWTH OPPORTUNITIES SERIES
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
5. CAPITAL SHARES
Transactions in capital shares were as follows:
YEAR YEAR
ENDED ENDED
12/31/05 12/31/04
------------ ------------
Shares sold:
Standard Class ............. 86,824 20,762
Service Class .............. 78,177 69,498
------------ ------------
165,001 90,260
------------ ------------
Shares repurchased:
Standard Class ............. (1,064,136) (1,063,239)
Service Class .............. (232,719) (314,943)
------------ ------------
(1,296,855) (1,378,182)
------------ ------------
Net decrease .................. (1,131,854) (1,287,922)
============ ============
6. LINE OF CREDIT
The Series, along with certain other funds in the Delaware Investments Family of
Funds (the "Participants"), participates in a $225,000,000 revolving line of
credit facility to be used for temporary or emergency purposes as an additional
source of liquidity to fund redemptions of investor shares. The Participants are
charged an annual commitment fee, which is allocated across the Participants on
the basis of each 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, 2005, 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 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, 2005, the market
value of securities on loan was $5,032,021, 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.
The Series may invest up to 10% of its total assets in illiquid securities,
which may include securities with contractual restrictions on resale, securities
exempt from registration under Rule 144A of the Securities Act of 1933, as
amended, and other securities which may not be readily marketable. The relative
illiquidity of these securities may impair the Series from disposing of them in
a timely manner and at a fair price when it is necessary or desirable to do so.
While maintaining oversight, the Board of Trustees has delegated to DMC the
day-to-day functions of determining whether individual securities are liquid for
purposes of the Series' limitation on investments in illiquid assets. At
December 31, 2005, no securities have been determined to be illiquid under the
Series' Liquidity Procedures.
9. CONTRACTUAL OBLIGATIONS
The Series enters into contracts in the normal course of business that contain a
variety of indemnifications. The Series' maximum exposure under these
arrangements is unknown. However, the Series has not had prior claims or losses
pursuant to these contracts. Management has reviewed the Series' existing
contracts and expects the risk of loss to be remote.
Growth Opportunities - 12
DELAWARE VIP TRUST-DELAWARE VIP GROWTH OPPORTUNITIES SERIES
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
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 the Delaware VIP
Growth Opportunities Series (one of the series constituting Delaware VIP Trust)
(the "Series") as of December 31, 2005, 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
five years in the period then ended. 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 the standards of the Public Company
Accounting Oversight Board (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. We were
not engaged to perform an audit of the Series' internal control over financial
reporting. Our audits included consideration of internal control over financial
reporting as a basis for designing audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion on the
effectiveness of the Series' internal control over financial reporting.
Accordingly, we express no such opinion. An audit also includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements and financial highlights, assessing the accounting principles used
and significant estimates made by management, and evaluating the overall
financial statement presentation. Our procedures included confirmation of
securities owned as of December 31, 2005, by correspondence with the custodian
and brokers or by other appropriate auditing procedures where replies from
brokers were not received. 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 the
Delaware VIP Growth Opportunities Series of Delaware VIP Trust at December 31,
2005, 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 five years in the period then ended, in conformity
with U.S. generally accepted accounting principles.
/s/ Ernst & Young LLP
Philadelphia, Pennsylvania
February 10, 2006
The Series files its complete schedule of portfolio holdings with the Securities
and Exchange Commission for the first and third quarters of each fiscal year on
Form N-Q. The Series' Forms N-Q, as well as a description of the policies and
procedures that the Series uses to determine how to vote proxies (if any)
relating to portfolio securities is available without charge (i) upon request,
by calling 800-523-1918; (ii) on the Series' website at
http://www.delawareinvestments.com; and (iii) on the Commission's website at
http://www.sec.gov. The Series' Forms N-Q may be reviewed and copied at the
Commission's Public Reference Room in Washington, DC; information on the
operation of the Public Reference Room may be obtained by calling
1-800-SEC-0330.
Information (if any) regarding how the Series voted proxies relating to
portfolio securities during the most recently disclosed 12-month period ended
June 30 is available without charge (i) through the Series' website at
http://www.delawareinvestments.com; and (ii) on the Commission's website at
http://www.sec.gov.
Growth Opportunities - 13
DELAWARE INVESTMENTS(R)FAMILY OF FUNDS
BOARD OF TRUSTEES/DIRECTORS AND OFFICERS ADDENDUM
A mutual fund is governed by a Board of Trustees/Directors ("Trustees"), which
has oversight responsibility for the management of a fund's business affairs.
Trustees establish procedures and oversee and review the performance of the
investment manager, the distributor and others who perform services for the
fund. The independent fund trustees, in particular, are advocates for
shareholder interests. Each trustee has served in that capacity since he or she
was elected to or appointed to the Board of Trustees, and will continue to serve
until his or her retirement or the election of a new trustee in his or her
place. The following is a list of the Trustees and Officers with certain
background and related information.
NUMBER OF OTHER
PRINCIPAL PORTFOLIOS IN FUND DIRECTORSHIPS
NAME, POSITION(S) LENGTH OCCUPATION(S) COMPLEX OVERSEEN HELD BY
ADDRESS HELD WITH OF TIME DURING BY TRUSTEE TRUSTEE
AND BIRTHDATE FUND(S) SERVED PAST 5 YEARS OR OFFICER OR OFFICER
- ------------------------ ------------------- -------------- ---------------------------- ------------------ ------------------
INTERESTED TRUSTEES
JUDE T. DRISCOLL(2) Chairman, 5 Years - Since August 2000, 87 None
2005 Market Street President, Executive Mr. Driscoll has served in
Philadelphia, PA Chief Executive Officer various executive capacities
19103 Officer and 2 Years - at different times at
Trustee Trustee Delaware Investments(1)
March 10, 1963
INDEPENDENT TRUSTEES
THOMAS L. BENNETT Trustee Since Private Investor - 87 None
2005 Market Street March 23, 2005 (March 2004 - Present)
Philadelphia, PA
19103 Investment Manager -
Morgan Stanley & Co.
October 4, 1947 (January 1984 - March 2004)
JOHN A. FRY Trustee 4 Years President - 87 Director -
2005 Market Street Franklin & Marshall College Community Health
Philadelphia, PA (June 2002 - Present) Systems
19103
Executive Vice President -
May 28, 1960 University of Pennsylvania
(April 1995 - June 2002)
ANTHONY D. KNERR Trustee 12 Years Founder/Managing Director - 87 None
2005 Market Street Anthony Knerr & Associates
Philadelphia, PA (Strategic Consulting)
19103 (1990 - Present)
December 7, 1938
LUCINDA S. LANDRETH Trustee Since Chief Investment Officer - 87 None
2005 Market Street March 23, 2005 Assurant, Inc.
Philadelphia, PA (Insurance)
19103 (2002 - 2004)
June 24, 1947
ANN R. LEVEN Trustee 16 Years Treasurer/Chief Fiscal 87 Director and
2005 Market Street Officer - National Gallery Audit Committee
Philadelphia, PA of Art (1994 - 1999) Chairperson - Andy
19103 Warhol Foundation
November 1, 1940 Director and Audit
Committee Member -
Systemax Inc.
Growth Opportunities - 14
NUMBER OF OTHER
PRINCIPAL PORTFOLIOS IN FUND DIRECTORSHIPS
NAME, POSITION(S) LENGTH OCCUPATION(S) COMPLEX OVERSEEN HELD BY
ADDRESS HELD WITH OF TIME DURING BY TRUSTEE TRUSTEE
AND BIRTHDATE FUND(S) SERVED PAST 5 YEARS OR OFFICER OR OFFICER
- ------------------------ ------------------- -------------- ---------------------------- ------------------ ------------------
INDEPENDENT TRUSTEES
THOMAS F. MADISON Trustee 11 Years President/Chief 87 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 and Audit
Committee Member -
Digital River Inc.
Director and Audit
Committee Member -
Rimage Corporation
Director - Valmont
Industries, Inc.
JANET L. YEOMANS Trustee 6 Years Vice President 87 None
2005 Market Street (January 2003 - Present)
Philadelphia, PA and Treasurer
19103 (January 2006 - Present)
3M Corporation
July 31, 1948 Ms. Yeomans has held
various management positions
at 3M Corporation
since 1983.
J. RICHARD ZECHER Trustee Since Founder - 87 Director and Audit
2005 Market Street March 23, 2005 Investor Analytics Committee Member -
Philadelphia, PA (Risk Management) Investor Analytics
19103 (May 1999 - Present)
Director and Audit
July 3, 1940 Committee Member -
Oxigene, Inc.
OFFICERS
MICHAEL P. BISHOF Senior Chief Mr. Bishof has served in 87 None(3)
2005 Market Street Vice President and Financial various executive capacities
Philadelphia, PA Chief Financial since Officer at different times at
19103 Officer February 17, Delaware Investments.
2005
August 18, 1962
DAVID F. CONNOR Vice President, Vice President Mr. Connor has served as 87 None(3)
2005 Market Street Deputy General since Vice President and Deputy
Philadelphia, PA Counsel and September 21, General Counsel of Delaware
19103 Secretary 2000 and Investments since 2000.
Secretary
since
October 25,
2005
December 2, 1963
DAVID P. O'CONNOR Senior Vice Senior Vice Mr. O'Connor has served in 87 None(3)
2005 Market Street President, President, various executive and legal
Philadelphia, PA General Counsel General capacities at different
19103 and Chief Counsel and times at Delaware
Legal Officer Chief Legal Investments.
Officer since
October 25,
2005
February 21, 1966
JOHN J. O'CONNOR Senior Vice Treasurer Mr. O'Connor has served in 87 None(3)
2005 Market Street President and since various executive capacities
Philadelphia, PA Treasurer February 17, at different times at
19103 2005 Delaware Investments.
June 16, 1957
- ----------
(1) Delaware Investments is the marketing name for Delaware Management
Holdings, Inc. and its subsidiaries, including the Fund's(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(s') manager and distributor.
(3) Mr. Bishof, Mr. Connor, Mr. David P. O'Connor and Mr. John J. O'Connor
serve in similar capacities for the six portfolios of the Optimum Fund
Trust, which have the same investment advisor, principal underwriter, and
transfer agent as the registrant. Mr. John J. O'Connor also serves in a
similar capacity for Lincoln Variable Insurance Products Trust, which has
the same investment advisor as the registrant.
The Statement of Additional Information for the Fund(s) includes additional
information about the Trustees and Officers and is available, without charge,
upon request by calling 800 523-1918.
Growth Opportunities-15
DELAWARE VIP TRUST - DELAWARE VIP HIGH YIELD SERIES
Continued strengthening of corporate balance sheets and limited
opportunities for above-average income elsewhere in the fixed-income markets
generally helped high-yield bonds during the year ended December 31, 2005.
Still, total returns for the asset class were modest. For the year ended
December 31, 2005, Delaware VIP High Yield Series returned +3.59% for Standard
Class shares and +3.34% for Service Class shares (both figures reflect all
distributions reinvested). During the same period, the Series' benchmark -- the
Bear Stearns High Yield Index -- gained +1.76% (source: Bloomberg).
We attribute our relative performance versus the benchmark index to our
focus on security selection, driven by an ongoing emphasis on stringent
fundamental research. In seeking to identify securities that may offer value, we
thoroughly investigate this higher-yielding, higher-risk market for corporate
bonds by using our substantial credit research capabilities. We then build the
portfolio one security at a time.
In managing the Series, we employ several strategies. We search for bonds
with superior return potential, but also attempt to avoid performance
detractors, such as bonds that might experience rapidly deteriorating
fundamentals. Early in 2005, several stories involving credit concerns about
individual companies did influence high-yield market activity in general. An
example was a bond issue of biotechnology company Elan -- a security that we did
not find appealing and thus did not hold in the portfolio. In the auto sector,
the outlooks for General Motors and Ford Motor Company bonds turned
progressively more bearish and affected trading throughout the high-yield
market. Again, we did not invest in these companies. Fortunately, the market
rebounded in the second and third quarters, but Series performance dragged for a
stretch at mid-year when Series performance was off against the transportation
and materials groups of the benchmark. Positive performers on a total return
basis included the bonds of Foster Wheeler and Geo Services, with the pair
reporting solid earnings. In contrast, Anchor Glass struggled, having announced
that it would not be able to make a pending interest payment, and was sold
during the period.
DELAWARE VIP HIGH YIELD SERIES
AVERAGE ANNUAL TOTAL RETURNS
FOR THE PERIODS ENDED DECEMBER 31, 2005
Performance of a $10,000 Investment
CITIGROUP BEAR STERNS
----------- -----------
Dec. 31,'95 $ 10,000 $ 10,000
Dec. 31,'96 $ 11,278 $ 11,246
Dec. 31,'97 $ 12,816 $ 12,780
Dec. 31,'98 $ 12,550 $ 13,046
Dec. 31,'99 $ 12,217 $ 13,345
Dec. 31,'00 $ 10,258 $ 12,436
Dec. 31,'01 $ 9,837 $ 13,110
Dec. 31,'02 $ 10,018 $ 12,979
Dec. 31,'03 $ 12,898 $ 16,733
Dec. 31,'04 $ 14,735 $ 18,561
Dec. 31,'05 $ 15,264 $ 18,887
STANDARD CLASS SERVICE CLASS
SHARES* SHARES**
-------------- -------------
LIFETIME +6.75% +5.03%
10 YEAR +4.32% --
FIVE YEAR +8.27% +8.05%
ONE YEAR +3.59% +3.34%
* 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 the Delaware VIP High Yield Series
Standard Class shares and the Bear Stearns High Yield Index for the 10-year
period from December 31, 1995 through December 31, 2005. All distributions were
reinvested. Returns plotted on the chart were as of the last day of each month
shown. The Bear Stearns High Yield Index measures fixed-income securities rated
BB+ or lower from Australia, Canada, the U.S., and the U.K. 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 the Delaware VIP
High Yield Series Service Class shares 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. High yielding
non-investment grade bonds involve higher risk than investment-grade bonds.
Adverse conditions may affect the issuer's ability to pay interest and principal
on these securities. The Series may be invested in foreign high-yield corporate
bonds, which have special risks that include currency fluctuations, economic and
political change, and different accounting standards.
High Yield - 1
DELAWARE VIP TRUST-DELAWARE VIP HIGH YIELD SERIES
DISCLOSURE OF SERIES EXPENSES
For the Period July 1, 2005 to December 31, 2005
As a shareholder of the Series, you incur ongoing costs, including management
fees; distribution and/or service (12b-1) fees; and other Series expenses. This
Example is intended to help you understand your ongoing costs (in dollars) of
investing in the Series and to compare these costs with the ongoing costs of
investing in other mutual funds.
The Example is based on an investment of $1,000 invested at the beginning of the
period and held for the entire period from July 1, 2005 to December 31, 2005.
ACTUAL EXPENSES
The first section of the table shown, "Actual Series Return," provides
information about actual account values and actual expenses. You may use the
information in this section of the table, together with the amount you invested,
to estimate the expenses that you paid over the period. Simply divide your
account value by $1,000 (for example, an $8,600 account value divided by $1,000
= 8.6), then multiply the result by the number in the first section under the
heading entitled "Expenses Paid During Period" to estimate the expenses you paid
on your account during the period.
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The second section of the table shown, "Hypothetical 5% Return," provides
information about hypothetical account values and hypothetical expenses based on
the Series' actual expense ratio and an assumed rate of return of 5% per year
before expenses, which is not the Series' actual return. The hypothetical
account values and expenses may not be used to estimate the actual ending
account balance or expenses you paid for the period. You may use this
information to compare the ongoing costs of investing in the Series and other
funds. To do so, compare the 5% hypothetical example with the 5% hypothetical
examples that appear in the shareholder reports of other funds.
Please note that the expenses shown in the table are meant to
highlight your ongoing costs only. As a shareholder of the Series, you do not
incur any transaction costs, such as sales charges (loads), redemption fees or
exchange fees, but shareholders of other funds may incur such costs. Also, the
fees related to the variable annuity investment or the deferred sales charge
that could apply have not been included. Therefore, the second section of the
table is useful in comparing ongoing costs only, and will not help you determine
the relative total costs of owning different funds. The Series' actual expenses
shown in the table reflect fee waivers in effect for Service Class shares. The
expenses shown in the table assume reinvestment of all dividends and
distributions.
EXPENSE ANALYSIS OF AN INVESTMENT OF $1,000
EXPENSES
BEGINNING ENDING PAID DURING
ACCOUNT ACCOUNT ANNUALIZED PERIOD
VALUE VALUE EXPENSE 7/1/05 TO
7/1/05 12/31/05 RATIOS 12/31/05*
----------- ----------- ----------- -----------
ACTUAL SERIES RETURN
Standard Class $ 1,000.00 $ 1,022.50 0.81% $ 4.13
Service Class 1,000.00 1,020.80 1.06% 5.40
HYPOTHETICAL 5% RETURN
(5% RETURN BEFORE EXPENSES)
Standard Class $ 1,000.00 $ 1,021.12 0.81% $ 4.13
Service Class 1,000.00 1,019.86 1.06% 5.40
* "Expenses Paid During Period" are equal to the Series' annualized expense
ratio, multiplied by the average account value over the period, multiplied by
184/365 (to reflect the one-half year period).
High Yield - 2
DELAWARE VIP TRUST-DELAWARE VIP HIGH YIELD SERIES
SECTOR ALLOCATION
As of December 31, 2005
Sector designations may be different than the sector designations presented in
other Series materials.
PERCENTAGE
SECTOR OF NET ASSETS
- ------------------------------------------------ -------------
COLLATERALIZED BOND OBLIGATIONS 0.14%
-------------
COMMERCIAL MORTGAGE-BACKED SECURITIES 0.59%
-------------
CORPORATE BONDS 87.71%
-------------
Banking 0.23%
Basic Industry 13.11%
Brokerage 2.22%
Capital Goods 5.67%
Consumer Cyclical 4.89%
Consumer Non-Cyclical 6.82%
Energy 3.83%
Finance and Investments 0.38%
Media 10.47%
Real Estate 2.19%
Services Cyclical 11.57%
Services Non-Cyclical 6.93%
Technology & Electronics 2.56%
Telecommunications 10.34%
Utilities 6.50%
-------------
CONVERTIBLE BONDS 0.58%
-------------
EMERGING MARKETS BONDS 2.26%
-------------
COMMON STOCK 0.68%
-------------
PREFERRED STOCK 0.25%
-------------
WARRANTS 0.00%
-------------
REPURCHASE AGREEMENTS 6.28%
-------------
TOTAL MARKET VALUE OF SECURITIES 98.49%
-------------
RECEIVABLES AND OTHER ASSETS NET OF LIABILITIES 1.51%
-------------
TOTAL NET ASSETS 100.00%
-------------
High Yield - 3
DELAWARE VIP TRUST-DELAWARE VIP HIGH YIELD SERIES
STATEMENT OF NET ASSETS
December 31, 2005
PRINCIPAL MARKET
AMOUNT VALUE
(U.S. $) (U.S. $)
------------ ------------
COLLATERALIZED BOND OBLIGATIONS-0.14%
*=#@Merrill Lynch CBO VII
Series 1997-C3A 144A
4.879% 3/23/08 .......................... $ 348,960 $ 80,261
=@South Street CBO Series 1999-1A A1
7.16% 7/1/11 ............................. 249,525 250,772
------------
TOTAL COLLATERALIZED BOND OBLIGATIONS
(COST $423,322) ......................... 331,033
------------
COMMERCIAL MORTGAGE-BACKED
SECURITIES-0.59%
#First Union National Bank Commercial
Mortgage Series 2001-C2 L 144A
6.46% 1/12/43 ........................... 1,375,000 1,368,348
------------
TOTAL COMMERCIAL MORTGAGE-BACKED
SECURITIES (COST $1,395,571) ............ 1,368,348
------------
CORPORATE BONDS-87.71%
BANKING-0.23%
Western Financial 9.625% 5/15/12 ......... 485,000 545,625
------------
545,625
------------
BASIC INDUSTRY-13.11%
Abitibi-Consolidated
6.95% 12/15/06 .......................... 95,000 96,188
6.95% 4/1/08 ............................ 373,000 374,865
AK Steel 7.875% 2/15/09 .................. 1,300,000 1,241,500
Bowater 9.50% 10/15/12 ................... 2,440,000 2,525,399
Donohue Forest Products
7.625% 5/15/07 .......................... 965,000 984,300
Georgia-Pacific
8.875% 5/15/31 .......................... 695,000 700,213
9.50% 12/1/11 ........................... 1,400,000 1,482,250
Gold Kist 10.25% 3/15/14 ................. 890,000 996,800
Huntsman International
10.125% 7/1/09 ........................... 430,000 446,125
#Huntsman International 144A
7.375% 1/1/15 ........................... 1,395,000 1,353,150
Lyondell Chemical 10.50% 6/1/13 .......... 190,000 216,838
#Nell AF Sarl 144A 8.375% 8/15/15 ......... 1,175,000 1,169,125
NewPage 10.00% 5/1/12 .................... 975,000 962,813
Norske Skog 8.625% 6/15/11 ............... 3,075,000 2,951,999
#Novelis 144A 7.50% 2/15/15 ............... 150,000 140,625
#Port Townsend Paper 144A
12.00% 4/15/11 .......................... 1,730,000 1,115,850
Potlatch 13.00% 12/1/09 .................. 1,210,000 1,450,947
Rhodia
8.875% 6/1/11 ........................... 1,585,000 1,632,550
10.25% 6/1/10 ........................... 830,000 913,000
Smurfit Capital Funding
7.50% 11/20/25 .......................... 2,520,000 2,230,200
++Solutia 6.72% 10/15/37 ................... 2,485,000 1,913,450
#Southern Peru 144A 7.50% 7/27/35 ......... 1,400,000 1,398,445
Stone Container 9.75% 2/1/11 ............. 1,510,000 1,532,650
Tembec Industries 8.625% 6/30/09 ......... 3,425,000 1,969,375
Witco 6.875% 2/1/26 ...................... 715,000 682,825
------------
30,481,482
------------
PRINCIPAL MARKET
AMOUNT VALUE
(U.S. $) (U.S. $)
------------ ------------
CORPORATE BONDS (CONTINUED)
BROKERAGE-2.22%
E Trade Financial 8.00% 6/15/11 .......... $ 2,265,000 $ 2,366,925
#E Trade Group 144A 8.00% 6/15/11 ......... 230,000 240,350
LaBranche & Company
9.50% 5/15/09 ........................... 890,000 943,400
11.00% 5/15/12 .......................... 1,445,000 1,611,175
------------
5,161,850
------------
CAPITAL GOODS-5.67%
Armor Holdings 8.25% 8/15/13 ............. 2,400,000 2,591,999
Graham Packaging 9.875% 10/15/14 ......... 1,800,000 1,764,000
Interface 10.375% 2/1/10 ................. 1,555,000 1,691,063
Interline Brands 11.50% 5/15/11 .......... 1,942,000 2,175,040
Intertape Polymer 8.50% 8/1/14 ........... 1,510,000 1,497,968
**Mueller Holdings 14.75% 4/15/14 .......... 2,060,000 1,560,450
#Panolam Industrial 144A
10.75% 10/1/13 .......................... 745,000 720,788
Trimas 9.875% 6/15/12 .................... 1,420,000 1,178,600
------------
13,179,908
------------
CONSUMER CYCLICAL-4.89%
Accuride 8.50% 2/1/15 .................... 1,300,000 1,287,000
General Motors Acceptance Corporation
6.875% 9/15/11 .......................... 550,000 502,142
8.00% 11/1/31 ........................... 910,000 873,981
Landry's Restaurant 7.50% 12/15/14 ....... 950,000 893,000
Metaldyne 10.00% 11/1/13 ................. 1,795,000 1,633,449
#Neiman Marcus 144A 9.00% 10/15/15 ........ 1,240,000 1,274,100
O'Charleys 9.00% 11/1/13 ................. 1,575,000 1,606,500
#Uno Restaurant 144A 10.00% 2/15/11 ....... 1,185,000 1,072,425
++Venture Holdings 12.00% 6/1/09 ........... 790,000 889
Visteon
7.00% 3/10/14 ........................... 300,000 233,250
8.25% 8/1/10 ............................ 840,000 718,200
Warnaco 8.875% 6/15/13 ................... 1,175,000 1,271,938
------------
11,366,874
------------
CONSUMER NON-CYCLICAL-6.82%
Biovail 7.875% 4/1/10 .................... 2,240,000 2,332,400
Constellation Brands 8.125% 1/15/12 ...... 555,000 579,975
Cott Beverages 8.00% 12/15/11 ............ 1,600,000 1,648,000
#Doane Pet Care 144A 10.625% 11/15/15 ..... 910,000 953,225
#Le-Natures 144A 10.00% 6/15/13 ........... 1,645,000 1,735,475
National Beef Packing 10.50% 8/1/11 ...... 1,300,000 1,352,000
Pilgrim's Pride 9.625% 9/15/11 ........... 1,665,000 1,781,550
Playtex Products 9.375% 6/1/11 ........... 1,540,000 1,620,850
True Temper Sports 8.375% 9/15/11 ........ 1,290,000 1,167,450
#Warner Chilcott 144A 8.75% 2/1/15 ........ 2,895,000 2,677,875
------------
15,848,800
------------
ENERGY-3.83%
Bluewater Finance 10.25% 2/15/12 ......... 985,000 1,063,800
#Compton Petroleum 144A
7.625% 12/1/13 .......................... 605,000 621,638
El Paso Natural Gas 7.625% 8/1/10 ........ 515,000 544,138
El Paso Production Holding
7.75% 6/1/13 ............................ 1,545,000 1,610,662
High Yield - 4
DELAWARE VIP HIGH YIELD SERIES
STATEMENT OF NET ASSETS (CONTINUED)
PRINCIPAL MARKET
AMOUNT VALUE
(U.S. $) (U.S. $)
------------ ------------
CORPORATE BONDS (CONTINUED)
ENERGY (CONTINUED)
#Hilcorp Energy 144A
7.75% 11/1/15 ........................... $ 475,000 $ 485,688
10.50% 9/1/10 ........................... 569,000 633,013
Inergy Finance 6.875% 12/15/14 ........... 810,000 741,150
*Secunda International 12.15% 9/1/12 ...... 1,075,000 1,134,124
Tennessee Gas Pipeline
8.375% 6/15/32 .......................... 600,000 683,762
#Verasun Energy 144A
9.875% 12/15/12 ......................... 565,000 576,300
Whiting Petroleum 7.25% 5/1/13 ........... 805,000 819,088
------------
8,913,363
------------
FINANCE & Investments-0.38%
FINOVA Group 7.50% 11/15/09 .............. 2,495,859 886,030
------------
886,030
------------
MEDIA-10.47%
#CCH I Notes 144A 11.00% 10/1/15 .......... 3,258,000 2,753,010
Cenveo 9.625% 3/15/12 .................... 770,000 835,450
Charter Communications Holdings
11.125% 1/15/11 ......................... 1,680,000 932,400
** 13.50% 1/15/11 .......................... 1,870,000 1,224,850
*#Cleveland Unlimited 144A
12.73% 12/15/10 ......................... 600,000 606,000
CSC Holdings 10.50% 5/15/16 .............. 2,400,000 2,556,000
Dex Media East 12.125% 11/15/12 .......... 925,000 1,086,875
Insight Midwest 10.50% 11/1/10 ........... 3,205,000 3,385,280
Lodgenet Entertainment
9.50% 6/15/13 ........................... 2,185,000 2,387,113
Mediacom Capital 9.50% 1/15/13 ........... 2,705,000 2,654,281
Sheridan Acquisition Group
10.25% 8/15/11 .......................... 710,000 733,963
#Sirius Satellite 144A 9.625% 8/1/13 ...... 1,745,000 1,727,550
Vertis 10.875% 6/15/09 ................... 785,000 777,150
Warner Music 7.375% 4/15/14 .............. 985,000 982,538
XM Satellite Radio 12.00% 6/15/10 ........ 1,504,000 1,695,760
------------
24,338,220
------------
REAL ESTATE-2.19%
American Real Estate Partners
8.125% 6/1/12 ........................... 1,640,000 1,709,700
BF Saul REIT 7.50% 3/1/14 ................ 1,750,000 1,789,375
Tanger Properties 9.125% 2/15/08 ......... 1,490,000 1,594,300
------------
5,093,375
------------
SERVICES CYCLICAL-11.57%
Adesa 7.625% 6/15/12 ..................... 1,360,000 1,360,000
Ameristar Casinos 10.75% 2/15/09 ......... 225,000 239,625
#CCM Merger 144A 8.00% 8/1/13 ............. 1,065,000 1,027,725
Corrections Corporation of America
7.50% 5/1/11 ............................ 1,195,000 1,242,800
Foster Wheeler 10.359% 9/15/11 ........... 282,000 317,250
#FTI Consulting 144A 7.625% 6/15/13 ....... 1,355,000 1,402,425
#Galaxy Entertainment 144A
9.875% 12/15/12 ......................... 1,175,000 1,198,500
DELAWARE VIP HIGH YIELD SERIES
STATEMENT OF NET ASSETS (CONTINUED)
PRINCIPAL MARKET
AMOUNT VALUE
(U.S. $) (U.S. $)
------------ ------------
CORPORATE BONDS (CONTINUED)
SERVICES CYCLICAL (CONTINUED)
Gaylord Entertainment
6.75% 11/15/14 .......................... $ 180,000 $ 177,300
8.00% 11/15/13 .......................... 685,000 720,963
**H-LINES Finance Holdings
11.00% 4/1/13 ........................... 2,143,000 1,784,048
#Hertz 144A
8.875% 1/1/14 ........................... 675,000 691,031
10.50% 1/1/16 ........................... 300,000 310,500
Horizon Lines 9.00% 11/1/12 .............. 500,000 528,750
Kansas City Southern Railway
9.50% 10/1/08 ........................... 1,450,000 1,576,875
#Knowledge Learning 144A
7.75% 2/1/15 ............................ 1,065,000 1,017,075
#Majestic Star 144A 9.75% 1/15/11 ......... 790,000 799,875
Mandalay Resort Group
10.25% 8/1/07 ........................... 775,000 830,219
MGM MIRAGE 9.75% 6/1/07 .................. 20,000 21,175
OMI 7.625% 12/1/13 ....................... 1,635,000 1,665,656
Penn National Gaming
8.875% 3/15/10 .......................... 3,205,000 3,381,274
Royal Caribbean Cruises
7.25% 3/15/18 ........................... 575,000 621,000
Seabulk International 9.50% 8/15/13 ...... 865,000 976,369
Stena 9.625% 12/1/12 ..................... 1,565,000 1,707,806
**Town Sports International
11.00% 2/1/14 ........................... 1,165,000 809,675
United AirLines 7.73% 7/1/10 ............. 399,694 397,795
Wheeling Island Gaming
10.125% 12/15/09 ........................ 2,000,000 2,107,500
------------
26,913,211
------------
SERVICES NON-CYCLICAL-6.93%
#Accellent 144A 10.50% 12/1/13 ............ 795,000 818,850
Aleris International 9.00% 11/15/14 ...... 1,140,000 1,179,900
Allied Waste North America
9.25% 9/1/12 ............................ 2,015,000 2,191,313
Casella Waste Systems 9.75% 2/1/13 ....... 2,125,000 2,247,188
Geo Subordinate 11.00% 5/15/12 ........... 1,455,000 1,433,175
Healthsouth 10.75% 10/1/08 ............... 2,405,000 2,417,024
NDCHealth 10.50% 12/1/12 ................. 1,665,000 1,910,588
US Oncology 10.75% 8/15/14 ............... 1,955,000 2,179,825
**Vanguard Health 11.25% 10/1/15 ........... 2,380,000 1,749,300
------------
16,127,163
------------
TECHNOLOGY & ELECTRONICS-2.56%
Magnachip Semiconductor
8.00% 12/15/14 .......................... 1,530,000 1,468,800
Sanmina-SCI 10.375% 1/15/10 .............. 1,440,000 1,598,400
#Sunguard Data Systems 144A
9.125% 8/15/13 .......................... 325,000 338,000
10.25% 8/15/15 .......................... 2,525,000 2,537,625
------------
5,942,825
------------
High Yield - 5
DELAWARE VIP HIGH YIELD SERIES
STATEMENT OF NET ASSETS (CONTINUED)
PRINCIPAL MARKET
AMOUNT VALUE
(U.S. $) (U.S. $)
------------ ------------
CORPORATE BONDS (CONTINUED)
TELECOMMUNICATIONS-10.34%
Alaska Communications Systems
9.875% 8/15/11 .......................... $ 1,223,000 $ 1,336,128
++Allegiance Telecom 11.75% 2/15/08 ........ 565,000 138,425
American Cellular 10.00% 8/1/11 .......... 775,000 844,750
American Tower 7.125% 10/15/12 ........... 1,145,000 1,185,075
#Centennial Communications 144A
10.00% 1/1/13 ........................... 795,000 806,925
Cincinnati Bell 8.375% 1/15/14 ........... 1,545,000 1,527,619
#Digicel Limited 144A 9.25% 9/1/12 ........ 1,170,000 1,208,025
**Inmarsat Finance 10.375% 11/15/12 ........ 2,420,000 2,029,774
iPCS 11.50% 5/1/12 ....................... 885,000 1,019,963
Iwo Escrow Company
* 7.90% 1/15/12 ........................... 265,000 276,263
** 10.75% 1/15/15 .......................... 225,000 163,688
MCI
6.908% 5/1/07 ............................ 690,000 696,900
7.688% 5/1/09 ............................ 1,460,000 1,511,100
PanAmSat 9.00% 8/15/14 ................... 655,000 689,388
Qwest 7.875% 9/1/11 ...................... 575,000 622,438
*#Qwest 144A 7.741% 6/15/13 ................ 1,100,000 1,192,125
Rural Cellular 9.875% 2/1/10 ............. 1,085,000 1,150,100
*#Rural Cellular 144A 10.041% 11/1/12 ...... 760,000 769,500
#Telcordia Technologies 144A 10.00%
3/15/13 ................................. 2,090,000 1,922,799
Triton Communications
9.375% 2/1/11 ........................... 1,300,000 955,500
*US LEC 12.716% 10/1/09 ................... 675,000 729,000
Valor Telecommunications Enterprises
7.75% 2/15/15 ........................... 1,670,000 1,753,499
#Wind Acquisition 144A
10.75% 12/1/15 .......................... 1,450,000 1,504,375
------------
24,033,359
------------
UTILITIES-6.50%
Avista 9.75% 6/1/08 ...................... 740,000 811,416
++Calpine
7.625% 4/15/06 .......................... 520,000 235,300
10.50% 5/15/06 .......................... 800,000 352,000
++#Calpine 144A 9.90% 7/15/07 ............... 1,177,692 962,763
CMS Energy 9.875% 10/15/07 ............... 1,165,000 1,252,375
#Dynegy Holdings 144A
10.125% 7/15/13 ......................... 2,345,000 2,661,574
Elwood Energy 8.159% 7/5/26 .............. 953,733 1,031,083
Midwest Generation
8.30% 7/2/09 ............................ 1,350,000 1,407,374
8.75% 5/1/34 ............................ 1,010,000 1,117,313
Mirant Americas Generation
8.30% 5/1/11 ............................ 1,085,000 1,377,950
#Mirant North America 144A
7.375% 12/31/13 ......................... 945,000 960,356
Orion Power Holdings 12.00% 5/1/10 ....... 1,105,000 1,254,175
PSEG Energy Holdings
7.75% 4/16/07 ........................... 515,000 535,600
PRINCIPAL MARKET
AMOUNT VALUE
(U.S. $) (U.S. $)
------------ ------------
CORPORATE BONDS (CONTINUED)
UTILITIES (CONTINUED)
Reliant Energy 9.50% 7/15/13 ............. $ 525,000 $ 528,938
#Tenaska Alabama Partners 144A
7.00% 6/30/21 ........................... 498,321 503,820
#Texas Genco 144A 6.875% 12/15/14 ......... 110,000 119,625
++=#USGen New England 144A
7.459% 1/2/15 ........................... 475,000 1,188
------------
15,112,850
------------
TOTAL CORPORATE BONDS
(COST $207,413,659) ..................... 203,944,935
------------
CONVERTIBLE BONDS-0.58%
#Charter Communications 144A
5.875% 11/16/09, exercise price
$2.42, expiration date 11/16/09 ......... 655,000 490,431
++Mirant 2.50% 6/15/21, exercise price
$67.95, expiration date 6/15/21 ......... 785,000 843,875
------------
TOTAL CONVERTIBLE BONDS
(COST $1,261,573) ....................... 1,334,306
------------
EMERGING MARKETS BONDS-2.26%
#Adaro Finance 144A 8.50% 12/8/10 ......... 740,000 749,250
Naftogaz Ukrainy 8.125% 9/30/09 .......... 1,500,000 1,560,750
Republic of El Salvador
7.65% 6/15/35 ........................... 1,700,000 1,755,250
Venezuela Government
9.375% 1/13/34 .......................... 1,000,000 1,187,500
------------
TOTAL EMERGING MARKETS BONDS
(COST $4,961,955) ....................... 5,252,750
------------
NUMBER OF
SHARES
------------
COMMON STOCK-0.68%
@+=Avado Brands144A ......................... 1,812 25,422
B&G Foods ................................ 20,500 297,660
+Foster Wheeler ........................... 27,215 1,000,964
+Petroleum Geo-Services ADR ............... 2,484 76,979
+XM Satellite Radio Holdings Class A ...... 6,750 184,140
------------
TOTAL COMMON STOCK
(COST $874,130) ......................... 1,585,165
------------
PREFERRED STOCK-0.25%
Alamosa Delaware 7.50% ................... 425 582,834
------------
TOTAL PREFERRED STOCKS
(COST $244,380) .......................... 582,834
------------
WARRANTS-0.00%
+#Solutia 144A, exercise price $7.59,
expiration date 7/15/09 ................. 850 0
------------
TOTAL WARRANTS
(COST $72,431) .......................... 0
------------
High Yield - 6
DELAWARE VIP HIGH YIELD SERIES
STATEMENT OF NET ASSETS (CONTINUED)
PRINCIPAL MARKET
AMOUNT VALUE
(U.S. $) (U.S. $)
------------ ------------
REPURCHASE AGREEMENTS-6.28%
With BNP Paribas 3.30% 1/03/06
(dated 12/30/05, to be repurchased
at $9,223,381, collateralized by
$189,000 U.S. Treasury Bills
due 1/26/06, market value $188,830,
$130,000 U.S. Treasury Bills
due 2/23/06, market value $129,080,
$256,000 U.S. Treasury Bills
due 5/4/06, market value $252,597,
$1,706,000 U.S. Treasury Bills
due 6/1/06, market value $1,676,729,
$4,783,000 U.S. Treasury Bills
due 6/29/06, market value $4,683,302,
$1,697,000 U.S. Treasury Notes 2.625%
due 5/15/08, market value $1,637,216 and
$851,000 U.S. Treasury Notes 3.125%
due 5/15/07, market value $840,578) ..... $ 9,220,000 $ 9,220,000
REPURCHASE AGREEMENTS (CONTINUED)
With UBS Warburg 3.40% 1/03/06
(dated 12/30/05, to be repurchased
at $5,384,033, collateralized by
$625,000 U.S. Treasury Notes
2.00% due 5/15/06, market value
$621,701 and $4,709,000
U.S. Treasury Notes 5.625%
due 5/15/08, market value $4,873,090) ... $ 5,382,000 $ 5,382,000
------------
TOTAL REPURCHASE AGREEMENTS
(COST $14,602,000) ...................... 14,602,000
------------
TOTAL MARKET VALUE OF SECURITIES-98.49%
(COST $231,249,021) .................................... 229,001,371
RECEIVABLES AND OTHER ASSETS NET OF
LIABILITIES-1.51% ...................................... 3,522,073
------------
NET ASSETS APPLICABLE TO 39,376,630 SHARES
OUTSTANDING-100.00% .................................... $232,523,444
============
NET ASSET VALUE-DELAWARE VIP HIGH YIELD SERIES
STANDARD CLASS ($70,139,507 / 11,859,553 SHARES) ....... $ 5.91
============
NET ASSET VALUE-DELAWARE VIP HIGH YIELD SERIES
SERVICE CLASS ($162,383,937 / 27,517,077 SHARES) ....... $ 5.90
============
COMPONENTS OF NET ASSETS AT DECEMBER 31, 2005:
Shares of beneficial interest (unlimited
authorization-no par) ................................... $263,073,211
Undistributed net investment income ..................... 16,105,414
Accumulated net realized loss on investments ............ (44,407,531)
Net unrealized depreciation of investments .............. (2,247,650)
------------
Total net assets ........................................ $232,523,444
============
- ----------
+ Non-income producing security for the year ended December 31, 2005.
** Step coupon bond. Indicates security that has a zero coupon that remains in
effect until a predetermined date at which time the stated interest rate
becomes effective.
* Variable rate securities. The interest rate shown is the rate as of
December 31, 2005.
# Security exempt from registration under Rule 144A of the Securities Act of
1933. At December 31, 2005, the aggregate amount of Rule 144A securities
equals $46,697,603, which represented 20.08% of the Series' net assets. See
Note 7 in "Notes to Financial Statements."
@ Illiquid security. At December 31, 2005, the aggregate amount of illiquid
securities equals $356,455, which represented 0.15% of the Series' net
assets. See Note 7 in "Notes to Financial Statements."
= Security is being fair valued in accordance with the Series' fair valuation
policy. At December 31, 2005, the aggregate amount of fair valued
securities equals $357,643, which represented 0.15% of the Series' net
assets. See Note 1 in "Notes to Financial Statements."
++ Non-income producing security. Security is currently in default.
SUMMARY OF ABBREVIATIONS:
ADR - American Depositary Receipt
CBO - Collateralized Bond Obligation
REIT - Real Estate Investment Trust
See accompanying notes
High Yield - 7
DELAWARE VIP TRUST-
DELAWARE VIP HIGH YIELD SERIES
STATEMENT OF OPERATIONS
December 31, 2005
INVESTMENT INCOME:
Interest .............................................. $ 17,169,061
Dividends ............................................. 24,063
------------
17,193,124
------------
EXPENSES:
Management fees ....................................... 1,368,682
Distribution expenses - Service Class ................. 438,200
Accounting and administration expenses ................ 77,868
Reports and statements to shareholders ................ 66,520
Legal and professional fees ........................... 37,840
Dividend disbursing and transfer agent fees
and expenses ....................................... 21,093
Insurance fees ........................................ 14,683
Custodian fees ........................................ 13,044
Trustees' fees ........................................ 11,070
Registration fees ..................................... 7,266
Pricing fees .......................................... 5,751
Taxes (other than taxes on income) .................... 1,643
Other ................................................. 9,056
------------
2,072,716
Less waiver of distribution expenses - Service Class .. (73,033)
------------
Total expenses ........................................ 1,999,683
------------
NET INVESTMENT INCOME ................................. 15,193,441
------------
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS:
Net realized gain on investments ...................... 1,807,494
Net change in unrealized appreciation/depreciation
of investments ....................................... (9,505,870)
------------
NET REALIZED AND UNREALIZED LOSS
ON INVESTMENTS ....................................... (7,698,376)
------------
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS ...................................... $ 7,495,065
============
See accompanying notes
DELAWARE VIP TRUST-
DELAWARE VIP HIGH YIELD SERIES
STATEMENTS OF CHANGES IN NET ASSETS
YEAR ENDED
--------------------------------
12/31/05 12/31/04
-------------- --------------
INCREASE (DECREASE) IN NET
ASSETS FROM OPERATIONS:
Net investment income ...................... $ 15,193,441 $ 12,130,678
Net realized gain on investments and
foreign currencies ........................ 1,807,494 7,797,749
Net change in unrealized
appreciation/depreciation of
investments and foreign currencies ........ (9,505,870) 2,193,094
-------------- --------------
Net increase in net assets resulting
from operations ........................... 7,495,065 22,121,521
-------------- --------------
DIVIDENDS AND DISTRIBUTIONS TO
SHAREHOLDERS FROM:
Net investment income:
Standard Class ........................... (4,250,072) (4,179,178)
Service Class ............................ (8,789,319) (4,714,327)
-------------- --------------
(13,039,391) (8,893,505)
-------------- --------------
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares sold:
Standard Class ........................... 33,815,940 17,668,533
Service Class ............................ 60,267,388 87,285,340
Net asset value of shares issued upon
reinvestment of dividends and
distributions:
Standard Class ........................... 4,250,072 4,179,178
Service Class ............................ 8,789,319 4,714,327
-------------- --------------
107,122,719 113,847,378
-------------- --------------
Cost of shares repurchased:
Standard Class ........................... (31,558,451) (31,912,493)
Service Class ............................ (33,897,320) (38,118,308)
-------------- --------------
(65,455,771) (70,030,801)
-------------- --------------
Increase in net assets derived
from capital share transactions ........... 41,666,948 43,816,577
-------------- --------------
NET INCREASE IN NET ASSETS ................. 36,122,622 57,044,593
NET ASSETS:
Beginning of year .......................... 196,400,822 139,356,229
-------------- --------------
End of year (including undistributed
net investment income of $16,105,414
and $13,016,988, respectively) ............ $ 232,523,444 $ 196,400,822
============== ==============
See accompanying notes
High Yield - 8
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
----------------------------------------------------------------------------
12/31/05 12/31/04 12/31/03 12/31/02 12/31/01
------------ ------------ ------------ ------------ ------------
Net asset value, beginning of period ............... $ 6.110 $ 5.690 $ 4.790 $ 5.220 $ 6.000
INCOME (LOSS) FROM INVESTMENT OPERATIONS:
Net investment income(1) ........................... 0.434 0.437 0.489 0.517 0.586
Net realized and unrealized gain (loss) on
investments and foreign currencies ................ (0.227) 0.332 0.804 (0.413) (0.821)
------------ ------------ ------------ ------------ ------------
Total from investment operations ................... 0.207 0.769 1.293 0.104 (0.235)
------------ ------------ ------------ ------------ ------------
LESS DIVIDENDS AND DISTRIBUTIONS FROM:
Net investment income .............................. (0.407) (0.349) (0.393) (0.534) (0.545)
------------ ------------ ------------ ------------ ------------
Total dividends and distributions .................. (0.407) (0.349) (0.393) (0.534) (0.545)
------------ ------------ ------------ ------------ ------------
Net asset value, end of period ..................... $ 5.910 $ 6.110 $ 5.690 $ 4.790 $ 5.220
============ ============ ============ ============ ============
Total return(2) .................................... 3.59% 14.25% 28.74% 1.84% (4.10)%
RATIOS AND SUPPLEMENTAL DATA:
Net assets, end of period (000 omitted) ............ $ 70,139 $ 65,418 $ 71,061 $ 48,089 $ 51,459
Ratio of expenses to average net assets ............ 0.78% 0.75% 0.77% 0.78% 0.79%
Ratio of net investment income to average net assets 7.39% 7.66% 9.33% 10.96% 10.82%
Portfolio turnover ................................. 162% 429% 716% 587% 557%
- ----------
(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.
See accompanying notes
High Yield - 9
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
YEAR ENDED
---------------------------------------------------------------------------
12/31/05 12/31/04 12/31/03 12/31/02 12/31/01
------------ ------------ ------------ ------------ ------------
Net asset value, beginning of period ............... $ 6.100 $ 5.680 $ 4.780 $ 5.220 $ 6.000
INCOME (LOSS) FROM INVESTMENT OPERATIONS:
Net investment income(1) ........................... 0.419 0.423 0.477 0.510 0.578
Net realized and unrealized gain (loss) on
investments and foreign currencies ................ (0.226) 0.334 0.809 (0.424) (0.818)
------------ ------------ ------------ ------------ ------------
Total from investment operations ................... 0.193 0.757 1.286 0.086 (0.240)
------------ ------------ ------------ ------------ ------------
LESS DIVIDENDS AND DISTRIBUTIONS FROM:
Net investment income .............................. (0.393) (0.337) (0.386) (0.526) (0.540)
------------ ------------ ------------ ------------ ------------
Total dividends and distributions .................. (0.393) (0.337) (0.386) (0.526) (0.540)
------------ ------------ ------------ ------------ ------------
Net asset value, end of period ..................... $ 5.900 $ 6.100 $ 5.680 $ 4.780 $ 5.220
============ ============ ============ ============ ============
Total return(2) .................................... 3.34% 14.02% 28.61% 1.65% (4.38)%
RATIOS AND SUPPLEMENTAL DATA:
Net assets, end of period (000 omitted) ............ $ 162,384 $ 130,983 $ 68,295 $ 13,529 $ 5,715
Ratio of expenses to average net assets ............ 1.03% 1.00% 0.99% 0.93% 0.94%
Ratio of expenses to average net assets prior to
expense limitation and expenses paid indirectly ... 1.08% 1.05% 1.02% 0.93% 0.94%
Ratio of net investment income to average net assets 7.14% 7.41% 9.11% 10.81% 10.67%
Ratio of net investment income to average net assets
prior to expense limitation and expenses
paid indirectly ................................... 7.09% 7.36% 9.08% 10.81% 10.67%
Portfolio turnover ................................. 162% 429% 716% 587% 557%
- ----------
(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 distributor, as applicable. Performance would
have been lower had the expense limitation not been in effect.
See accompanying notes
High Yield - 10
DELAWARE VIP TRUST-DELAWARE VIP HIGH YIELD SERIES
NOTES TO FINANCIAL STATEMENTS
December 31, 2005
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 REIT Series,
Delaware VIP Select Growth Series, Delaware VIP Small Cap Value Series, Delaware
VIP Trend Series, Delaware VIP U.S. Growth Series and Delaware VIP Value Series.
These financial statements and the related notes pertain to Delaware VIP High
Yield Series (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 U.S. generally accepted
accounting principles and are consistently followed by the Series.
Security Valuation--Equity securities, except those traded on the Nasdaq Stock
Market, Inc. (Nasdaq), are valued at the last quoted sales price as of the time
of the regular close of the New York Stock Exchange (NYSE) on the valuation
date. Securities traded on the Nasdaq are valued in accordance with the Nasdaq
Official Closing Price, which may not be the last sales price. If on a
particular day an equity security does not trade, then the mean between the bid
and asked prices will be used. Long-term debt securities are valued by an
independent pricing service and such prices are believed to reflect the fair
value of such securities. Short-term debt securities having less than 60 days to
maturity are valued at amortized cost, which approximates market value. Other
securities and assets for which market quotations are not readily available are
valued at fair value as determined in good faith under the direction of the
Series' Board of Trustees. In determining whether market quotations are readily
available or fair valuation will be used, various factors will be taken into
consideration, such as market closures, or with respect to foreign securities,
aftermarket trading or significant events after local market trading (e.g.,
government actions or pronouncements, trading volume or volatility on markets,
exchanges among dealers, or news events).
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 pursuant to an
exemptive order issued by the Securities and Exchange Commission. The aggregate
daily balance of the pooled cash account is invested in repurchase agreements
secured by obligations of the U.S. government. The respective collateral is held
by the Series' custodian bank until the maturity of the respective repurchase
agreements. Each repurchase agreement is 102% collateralized. However, in the
event of default or bankruptcy by the counterparty to the agreement, realization
of the collateral may be subject to legal proceedings.
Use of Estimates--The preparation of financial statements in conformity with
U.S. generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from those estimates.
Other--Expenses common to all funds within the Delaware Investments Family of
Funds are allocated amongst the funds on the basis of average net assets.
Management fees and some other expenses are paid monthly. Security transactions
are recorded on the date the securities are purchased or sold (trade date) for
financial reporting purposes. Costs used in calculating realized gains and
losses on the sale of investment securities are those of the specific securities
sold. Dividend income is recorded on the ex-dividend date and interest income is
recorded on the accrual basis. Discounts and premiums on non-convertible bonds
are amortized to interest income over the lives of the respective securities.
Realized gains (losses) on paydowns of mortgage- and asset-backed securities are
classified as interest income.
The Series declares and pays dividends from net investment income and
distributions from net realized gain on investments, if any, following the close
of the fiscal year.
The Series receives earnings credits from its custodian when positive cash
balances are maintained, which are used to offset custody fees. There were no
earnings credits for the year ended December 31, 2005.
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 June 30, 2006. No
reimbursement was due for the year ended December 31, 2005.
High Yield - 11
DELAWARE VIP HIGH YIELD 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. Effective May
19, 2005, the Series pays DSC a monthly fee computed at the annual rate of 0.04%
of the Series' average daily net assets for accounting and administrative
services. Prior to May 19, 2005, the Series paid 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 distribution and service fee not to exceed 0.30% of the average daily net
assets of the Service Class shares. DDLP has contracted to waive distribution
and service fees through June 30, 2006 in order to prevent distribution and
service fees of the Service Class shares from exceeding 0.25% of average daily
net assets. Standard Class shares pay no distribution and service expenses.
At December 31, 2005, the Series had liabilities payable to affiliates as
follows:
DIVIDEND DISBURSING,
INVESTMENT TRANSFER AGENT,
MANAGEMENT ACCOUNTING AND ADMINISTRATION DISTRIBUTION OTHER EXPENSES
FEE PAYABLE TO FEES AND OTHER EXPENSES FEES PAYABLE PAYABLE TO DMC
DMC PAYABLE TO DSC TO DDLP AND AFFILIATES*
-------------------- ----------------------------- ------------ ---------------
$ 126,429 $ 11,755 $ 65,835 $ 31,776
*DMC, as part of its administrative services, pays operating expenses on behalf
of the Series and is reimbursed on a periodic basis. Such expenses include items
such as printing of shareholder reports, fees for audit, legal and tax services,
custodian fees and trustees' fees.
As provided in the investment management agreement, the Series bears the cost of
certain legal services expenses, including internal legal services provided to
the Series by DMC employees. For the year ended December 31, 2005, the Series
was charged $13,346 for internal legal services provided by DMC.
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, 2005, the Series made purchases and sales of
investment securities other than short-term investments as follows:
Purchases................................. $ 361,822,962
Sales..................................... 321,297,637
At December 31, 2005, 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 DEPRECIATION
-------------- -------------- -------------- --------------
$ 232,208,432 $ 4,545,366 $ (7,752,427) $ (3,207,061)
4. DIVIDEND AND DISTRIBUTION INFORMATION
Income and long-term capital gain distributions are determined in accordance
with federal income tax regulations, which may differ from U.S. generally
accepted accounting principles. Additionally, gains (losses) on foreign currency
transactions and net short-term gains on sales of investment securities are
treated as ordinary income for federal income tax purposes. The tax character of
dividends and distributions paid during the years ended December 31, 2005 and
2004 was as follows:
YEAR YEAR
ENDED ENDED
12/31/05 12/31/04
------------ ------------
Ordinary income ............................. $ 13,039,391 $ 8,893,505
High Yield - 12
DELAWARE VIP HIGH YIELD SERIES
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
4. DIVIDEND AND DISTRIBUTION INFORMATION (CONTINUED)
As of December 31, 2005, the components of net assets on a tax basis were as
follows:
Shares of beneficial interest ............ $ 263,073,211
Undistributed ordinary income ............ 16,105,414
Capital loss carryforwards ............... (43,448,120)
Unrealized depreciation of investments ... (3,207,061)
--------------
Net assets ............................... $ 232,523,444
==============
The differences between book basis and tax basis components of net assets are
primarily attributable to tax deferral of losses on wash sales and tax treatment
of market discount and premium on debt instruments.
For financial reporting purposes, capital accounts are adjusted to reflect the
tax character of permanent book/tax differences. Reclassifications are primarily
due to tax treatment of paydown gain (loss) on mortgage- and asset-backed
securities, and market discount and premium on certain debt instruments. Results
of operations and net assets were not affected by these reclassifications. For
the year ended December 31, 2005, the Series recorded the following
reclassifications.
UNDISTRIBUTED ACCUMULATED
NET NET REALIZED
INVESTMENT INCOME GAIN (LOSS)
----------------- ------------
$ 934,376 $ (934,376)
For federal income tax purposes, capital loss carryforwards may be carried
forward and applied against future capital gains. $1,407,468 was utilized in
2005. Capital loss carryforwards remaining at December 31, 2005 will expire as
follows: $20,796,195 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
12/31/05 12/31/04
------------ ------------
Shares sold:
Standard Class ......................... 5,762,942 3,097,708
Service Class .......................... 10,268,782 15,311,037
Shares issued upon reinvestment
of dividends and distributions:
Standard Class ....................... 740,431 765,417
Service Class ........................ 1,531,240 863,430
------------ ------------
18,303,395 20,037,592
------------ ------------
Shares repurchased:
Standard Class ........................ (5,350,215) (5,642,248)
Service Class ......................... (5,761,025) (6,714,717)
------------ ------------
(11,111,240) (12,356,965)
------------ ------------
Net increase ........................... 7,192,155 7,680,627
============ ============
6. LINE OF CREDIT
The Series, along with certain other funds in the Delaware Investments Family of
Funds (the "Participants"), participates in a $225,000,000 revolving line of
credit facility to be used for temporary or emergency purposes as an additional
source of liquidity to fund redemptions of investor shares. The Participants are
charged an annual commitment fee, which is allocated across the Participants on
the basis of each 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, 2005, or at any time during
the year.
7. CREDIT AND MARKET RISK
The Series invests a portion of its assets in high yield fixed income
securities, which carry ratings of BB or lower by Standard & Poor's Ratings
Group and/or Ba or lower by Moody's Investors Service, Inc. Investments in these
higher yielding securities are generally accompanied by a greater degree of
credit risk than higher rated securities. Additionally, lower rated securities
may be more susceptible to adverse economic and competitive industry conditions
than investment grade securities.
High Yield - 13
DELAWARE VIP HIGH YIELD SERIES
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
7. CREDIT AND MARKET RISK (CONTINUED)
The Series may invest up to 15% of its total assets in illiquid securities,
which may include securities with contractual restrictions on resale, securities
exempt from registration under Rule 144A of the Securities Act of 1933, as
amended, and other securities which may not be readily marketable. The relative
illiquidity of these securities may impair the Series from disposing of them in
a timely manner and at a fair price when it is necessary or desirable to do so.
While maintaining oversight, the Board of Trustees has delegated to DMC the
day-to-day functions of determining whether individual securities are liquid for
purposes of the Series' limitation on investments in illiquid assets. Illiquid
securities have been denoted on the Statement of Net Assets.
8. CONTRACTUAL OBLIGATIONS
The Series enters into contracts in the normal course of business that contain a
variety of indemnifications. The Series' maximum exposure under these
arrangements is unknown. However, the Series has not had prior claims or losses
pursuant to these contracts. Management has reviewed the Series' existing
contracts and expects the risk of loss to be remote.
9. TAX INFORMATION (UNAUDITED)
For the fiscal year ended December 31, 2005, the Series designates distributions
paid during the year as follows:
(A) (B)
LONG-TERM ORDINARY
CAPITAL GAINS INCOME TOTAL
DISTRIBUTIONS DISTRIBUTIONS DISTRIBUTION
(TAX BASIS) (TAX BASIS) (TAX BASIS)
------------- ------------- ------------
- 100% 100%
- ----------
(A) and (B) are based on a percentage of the Series' total distributions.
High Yield - 14
DELAWARE VIP TRUST-DELAWARE VIP HIGH YIELD SERIES
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
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 the Delaware VIP
High Yield Series (one of the series constituting Delaware VIP Trust) (the
"Series") as of December 31, 2005, 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
five years in the period then ended. 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 the standards of the Public Company
Accounting Oversight Board (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. We were
not engaged to perform an audit of the Series' internal control over financial
reporting. Our audits included consideration of internal control over financial
reporting as a basis for designing audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion on the
effectiveness of the Series' internal control over financial reporting.
Accordingly, we express no such opinion. An audit also includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements and financial highlights, assessing the accounting principles used
and significant estimates made by management, and evaluating the overall
financial statement presentation. Our procedures included confirmation of
securities owned as of December 31, 2005, by correspondence with the custodian
and brokers or by other appropriate auditing procedures where replies from
brokers were not received. 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 the
Delaware VIP High Yield Series of Delaware VIP Trust at December 31, 2005, 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 five years in the period then ended, in conformity with U.S.
generally accepted accounting principles.
/s/ Ernst & Young LLP
Philadelphia, Pennsylvania
February 10, 2006
The Series files its complete schedule of portfolio holdings with the Securities
and Exchange Commission for the first and third quarters of each fiscal year on
Form N-Q. The Series' Forms N-Q, as well as a description of the policies and
procedures that the Series uses to determine how to vote proxies (if any)
relating to portfolio securities is available without charge (i) upon request,
by calling 800-523-1918; (ii) on the Series' website at
http://www.delawareinvestments.com; and (iii) on the Commission's website at
http://www.sec.gov. The Series' Forms N-Q may be reviewed and copied at the
Commission's Public Reference Room in Washington, DC; information on the
operation of the Public Reference Room may be obtained by calling
1-800-SEC-0330.
Information (if any) regarding how the Series voted proxies relating to
portfolio securities during the most recently disclosed 12-month period ended
June 30 is available without charge (i) through the Series' website at
http://www.delawareinvestments.com; and (ii) on the Commission's website at
http://www.sec.gov.
High Yield - 15
DELAWARE INVESTMENTS(R)FAMILY OF FUNDS
BOARD OF TRUSTEES/DIRECTORS AND OFFICERS ADDENDUM
A mutual fund is governed by a Board of Trustees/Directors ("Trustees"), which
has oversight responsibility for the management of a fund's business affairs.
Trustees establish procedures and oversee and review the performance of the
investment manager, the distributor and others who perform services for the
fund. The independent fund trustees, in particular, are advocates for
shareholder interests. Each trustee has served in that capacity since he or she
was elected to or appointed to the Board of Trustees, and will continue to serve
until his or her retirement or the election of a new trustee in his or her
place. The following is a list of the Trustees 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 TRUSTEE
AND BIRTHDATE FUND(S) SERVED PAST 5 YEARS OR OFFICER OR OFFICER
- ------------------------ ------------------- -------------- ---------------------------- ------------------ ------------------
INTERESTED TRUSTEES
JUDE T. DRISCOLL(2) Chairman, 5 Years - Since August 2000, 87 None
2005 Market Street President, Executive Mr. Driscoll has served in
Philadelphia, PA Chief Executive Officer various executive capacities
19103 Officer and at different times at
Trustee 2 Years - Delaware Investments(1)
March 10, 1963 Trustee
INDEPENDENT TRUSTEES
THOMAS L. BENNETT Trustee Since Private Investor - 87 None
2005 Market Street March 23, 2005 (March 2004 - Present)
Philadelphia, PA
19103 Investment Manager -
Morgan Stanley & Co.
October 4, 1947 (January 1984 - March 2004)
JOHN A. FRY Trustee 4 Years President - 87 Director -
2005 Market Street Franklin & Marshall College Community Health
Philadelphia, PA (June 2002 - Present) Systems
19103
Executive Vice President -
May 28, 1960 University of Pennsylvania
(April 1995 - June 2002)
ANTHONY D. KNERR Trustee 12 Years Founder/Managing Director - 87 None
2005 Market Street Anthony Knerr & Associates
Philadelphia, PA (Strategic Consulting)
19103 (1990 - Present)
December 7, 1938
LUCINDA S. LANDRETH Trustee Since Chief Investment Officer - 87 None
2005 Market Street March 23, 2005 Assurant, Inc.
Philadelphia, PA (Insurance)
19103 (2002 - 2004)
June 24, 1947
ANN R. LEVEN Trustee 16 Years Treasurer/Chief Fiscal 87 Director and
2005 Market Street Officer - National Gallery Audit Committee
Philadelphia, PA of Art (1994 - 1999) Chairperson - Andy
19103 Warhol Foundation
November 1, 1940 Director and Audit
Committee Member -
Systemax Inc.
High Yield - 16
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 TRUSTEE
AND BIRTHDATE FUND(S) SERVED PAST 5 YEARS OR OFFICER OR OFFICER
- ------------------------ ------------------- -------------- ---------------------------- ------------------ ------------------
INDEPENDENT TRUSTEES
THOMAS F. MADISON Trustee 11 Years President/Chief 87 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 and Audit
Committee Member -
Digital River Inc.
Director and Audit
Committee Member -
Rimage Corporation
Director - Valmont
Industries, Inc.
JANET L. YEOMANS Trustee 6 Years Vice President 87 None
2005 Market Street (January 2003 - Present)
Philadelphia, PA and Treasurer
19103 (January 2006 - Present)
3M Corporation
July 31, 1948 Ms. Yeomans has held
various management positions
at 3M Corporation
since 1983.
J. RICHARD ZECHER Trustee Since Founder - 87 Director and Audit
2005 Market Street March 23, 2005 Investor Analytics Committee Member -
Philadelphia, PA (Risk Management) Investor Analytics
19103 (May 1999 - Present)
Director and Audit
July 3, 1940 Committee Member -
Oxigene, Inc.
OFFICERS
MICHAEL P. BISHOF Senior Chief Mr. Bishof has served in 87 None(3)
2005 Market Street Vice President and Financial various executive capacities
Philadelphia, PA Chief Financial since Officer at different times at
19103 Officer February 17, Delaware Investments.
2005
August 18, 1962
DAVID F. CONNOR Vice President, Vice President Mr. Connor has served as 87 None(3)
2005 Market Street Deputy General since Vice President and Deputy
Philadelphia, PA Counsel and September 21, General Counsel of Delaware
19103 Secretary 2000 and Investments since 2000.
Secretary
since
October 25,
2005
December 2, 1963
DAVID P. O'CONNOR Senior Vice Senior Vice Mr. O'Connor has served in 87 None(3)
2005 Market Street President, President, various executive and legal
Philadelphia, PA General Counsel General capacities at different
19103 and Chief Counsel and times at Delaware
Legal Officer Chief Legal Investments.
Officer since
October 25,
2005
February 21, 1966
JOHN J. O'CONNOR Senior Vice Treasurer Mr. O'Connor has served in 87 None(3)
2005 Market Street President and since various executive capacities
Philadelphia, PA Treasurer February 17, at different times at
19103 2005 Delaware Investments.
June 16, 1957
- ----------
(1) Delaware Investments is the marketing name for Delaware Management
Holdings, Inc. and its subsidiaries, including the Fund's(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(s') manager and distributor.
(3) Mr. Bishof, Mr. Connor, Mr. David P. O'Connor and Mr. John J. O'Connor
serve in similar capacities for the six portfolios of the Optimum Fund
Trust, which have the same investment advisor, principal underwriter, and
transfer agent as the registrant. Mr. John J. O'Connor also serves in a
similar capacity for Lincoln Variable Insurance Products Trust, which has
the same investment advisor as the registrant.
The Statement of Additional Information for the Fund(s) includes additional
information about the Trustees and Officers and is available, without charge,
upon request by calling 800 523-1918.
High Yield - 17
DELAWARE VIP TRUST - DELAWARE VIP INTERNATIONAL VALUE EQUITY SERIES
Delaware VIP International Value Equity Series Standard Class shares
returned +12.87%, and its Service Class shares returned +12.65% (both figures
reflect all distributions reinvested) for the fiscal year ended December 31,
2005. The Series benchmark, the MSCI EAFE Index, also rose sharply, gaining
+14.02% for the same period. Across the globe, increased demand and rising
prices of energy and other commodities, rising interest rates, and election
surprises were dominant themes for investors in the international equities
markets over the last year.
Stock selection and currency effect were both positive but market selection
was not helpful. Stock selection was positive in Europe, especially in the UK
and Italy. Currency effect was positive, helped by the Series' defensive hedge
against the overvalued sterling, which fell 10.6% against the dollar in 2005.
Also helpful was the underweight position in the yen, which fell by 13.2%.
Regarding geographical allocation, the underweight position in the outperforming
markets of Japan and Switzerland were not beneficial. Japan has benefited from
the strength of the global economy, especially activity levels in the U.S. and
China, which is supporting demand for Japanese products.
Increasingly, there are strong signs of a more stable growth pattern
developing in the domestic economy. Mondrian Investment Partners Limited
(Mondrian) the Series' subadvisor, interviews management teams to support
statistical indicators that show companies finally beginning to undertake
increased capital investment after 15 years of focus on asset reduction.
Over the past 15 years, Mondrian has monitored two key indicators: credit
growth and inflation. These indicators need to show stability before Mondrian
would be confident that the economy has normalized. With companies now actively
considering investment and expansion of assets, credit growth has recently
turned positive. Inflation has not yet turned positive, but the subadvisor
models and most economic commentators expect that deflation will end sometime
next year.
Even taking into account all these positive and encouraging signs, the
Japanese market is more expensive than most other major world markets. With
companies increasing focus on capital investment and growth, investors must be
wary of being second class stakeholders. The risk that all cash generated by
operations could be re-invested at uncertain rates of return is significant, and
this would potentially leave little cash left to return to shareholders.
Fortunately, Mondrian also believes that overall the Japanese stock market is
inefficient, and that opportunities exist for stock-pickers with a disciplined
long-term investment horizon. It is the subadvisor's strategy to focus on
companies with strong cash positions, positive cash generation even after
re-investment, and a willingness to compensate shareholders through dividends
and share buybacks.
Delaware VIP
International Value Equity
Series - (Standard MSCI EAFE
Class Shares) Index
-------------------------- ---------
Dec. 31, '95 $ 10,000 $ 10,000
Dec. 31, '96 $ 10,636 $ 12,003
Dec. 31, '97 $ 10,855 $ 12,795
Dec. 31, '98 $ 13,062 $ 14,116
Dec. 31, '99 $ 16,628 $ 16,341
Dec. 31, '00 $ 14,307 $ 16,428
Dec. 31, '01 $ 11,272 $ 14,320
Dec. 31, '02 $ 9,507 $ 12,830
Dec. 31, '03 $ 13,231 $ 18,403
Dec. 31, '04 $ 15,970 $ 22,412
Dec. 31, '05 $ 18,209 $ 25,298
DELAWARE VIP INTERNATIONAL
VALUE EQUITY SERIES
AVERAGE ANNUAL TOTAL RETURNS
STANDARD CLASS SERVICE CLASS
SHARES* SHARES**
-------------- -------------
LIFETIME +9.83% +9.01%
10 YEAR +9.73% --
FIVE YEAR +9.02% +8.82%
ONE YEAR +12.87% +12.65%
FOR THE PERIODS ENDED DECEMBER 31, 2005
* 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 for the 10-year period from December 31, 1995
through December 31, 2005. All distributions were reinvested. 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.
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
DISCLOSURE OF SERIES EXPENSES
For the Period July 1, 2005 to December 31, 2005
As a shareholder of the Series, you incur ongoing costs, including management
fees; distribution and/or service (12b-1) fees; and other Series expenses. This
Example is intended to help you understand your ongoing costs (in dollars) of
investing in the Series and to compare these costs with the ongoing costs of
investing in other mutual funds.
The Example is based on an investment of $1,000 invested at the beginning of the
period and held for the entire period from July 1, 2005 to December 31, 2005.
ACTUAL EXPENSES
The first section of the table shown, "Actual Series Return," provides
information about actual account values and actual expenses. You may use the
information in this section of the table, together with the amount you invested,
to estimate the expenses that you paid over the period. Simply divide your
account value by $1,000 (for example, an $8,600 account value divided by $1,000
= 8.6), then multiply the result by the number in the first section under the
heading entitled "Expenses Paid During Period" to estimate the expenses you paid
on your account during the period.
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The second section of the table shown, "Hypothetical 5% Return," provides
information about hypothetical account values and hypothetical expenses based on
the Series' actual expense ratio and an assumed rate of return of 5% per year
before expenses, which is not the Series' actual return. The hypothetical
account values and expenses may not be used to estimate the actual ending
account balance or expenses you paid for the period. You may use this
information to compare the ongoing costs of investing in the Series and other
funds. To do so, compare the 5% hypothetical example with the 5% hypothetical
examples that appear in the shareholder reports of other funds.
Please note that the expenses shown in the table are meant to highlight your
ongoing costs only. As a shareholder of the Series, you do not incur any
transaction costs, such as sales charges (loads), redemption fees or exchange
fees, but shareholders of other funds may incur such costs. Also, the fees
related to the variable annuity investment or the deferred sales charge that
could apply have not been included. Therefore, the second section of the table
is useful in comparing ongoing costs only, and will not help you determine the
relative total costs of owning different funds. The Series' actual expenses
shown in the table reflect fee waivers in effect. The expenses shown in the
table assume reinvestment of all dividends and distributions.
EXPENSE ANALYSIS OF AN INVESTMENT OF $1,000
EXPENSES
BEGINNING ENDING PAID DURING
ACCOUNT ACCOUNT ANNUALIZED PERIOD
VALUE VALUE EXPENSE 7/1/05 TO
7/1/05 12/31/05 RATIOS 12/31/05*
---------- ---------- ---------- -----------
ACTUAL SERIES RETURN
Standard Class $ 1,000.00 $ 1,119.20 1.00% $ 5.34
Service Class 1,000.00 1,117.50 1.25% 6.67
---------- ---------- ---------- -----------
HYPOTHETICAL 5% RETURN
(5% RETURN BEFORE EXPENSES)
Standard Class $ 1,000.00 $ 1,020.16 1.00% $ 5.09
Service Class 1,000.00 1,018.90 1.25% 6.36
---------- ---------- ---------- -----------
*" Expenses Paid During Period" are equal to the Series' annualized expense
ratio, multiplied by the average account value over the period, multiplied by
184/365 (to reflect the one-half year period).
International Value Equity-2
DELAWARE VIP TRUST-DELAWARE INTERNATIONAL VALUE EQUITY SERIES
COUNTRY ALLOCATION
As of December 31, 2005
PERCENTAGE
COUNTRY OF NET ASSETS
- -------------------------------------------------- ---------------
COMMON STOCK 98.95%
---------------
Australia 10.63%
Belgium 2.05%
Finland 1.60%
France 7.67%
Germany 5.87%
Hong Kong 2.82%
Italy 5.66%
Japan 15.75%
Netherlands 5.07%
New Zealand 1.68%
Republic of Korea 0.98%
Singapore 2.15%
South Africa 1.03%
Spain 7.98%
Taiwan 0.53%
United Kingdom 27.48%
---------------
REPURCHASE AGREEMENTS 0.09%
---------------
SECURITIES LENDING COLLATERAL 6.84%
---------------
TOTAL MARKET VALUE OF SECURITIES 105.88%
---------------
OBLIGATION TO RETURN SECURITIES LENDING COLLATERAL (6.84)%
---------------
RECEIVABLES AND OTHER ASSETS NET OF LIABILITIES 0.96%
---------------
TOTAL NET ASSETS 100.00%
International Value Equity-3
DELAWARE VIP TRUST-DELAWARE VIP INTERNATIONAL VALUE EQUITY SERIES
STATEMENT OF NET ASSETS
December 31, 2005
NUMBER OF MARKET
SHARES VALUE
------------ ------------
(U.S. $)
COMMON STOCK-98.95%~
AUSTRALIA-10.63%
*Amcor ................................. 360,501 $ 1,975,408
*Coles Myer ............................ 319,703 2,394,430
Foster's Group ........................ 985,378 4,033,358
National Australia Bank ............... 189,587 4,505,918
Telstra ............................... 1,047,298 3,019,205
Wesfarmers ............................ 45,199 1,225,767
------------
17,154,086
------------
BELGIUM-2.05%
Fortis ................................ 103,906 3,307,715
------------
3,307,715
------------
FINLAND-1.60%
UPM-Kymmene ........................... 131,876 2,585,370
------------
2,585,370
------------
FRANCE-7.67%
Compagnie de Saint-Gobain ............. 49,821 2,963,775
Societe Generale ...................... 30,981 3,810,725
Suez .................................. 17,112 532,381
+Suez Strip ............................ 17,112 203
Total ................................. 20,201 5,074,753
------------
12,381,837
------------
GERMANY-5.87%
Bayer ................................. 90,492 3,774,153
RWE ................................... 77,085 5,692,617
------------
9,466,770
------------
HONG KONG-2.82%
Hong Kong Electric Holdings ........... 503,500 2,493,651
Wharf Holdings ........................ 583,285 2,061,277
------------
4,554,928
------------
ITALY-5.66%
Banca Intesa .......................... 1,046,841 5,545,879
UniCredito Italiano ................... 522,610 3,588,413
------------
9,134,292
------------
JAPAN-15.75%
*Canon ................................. 74,700 4,371,754
Hitachi ............................... 283,000 1,908,269
Kao ................................... 3,000 80,407
KDDI .................................. 590 3,402,882
Matsushita Electric Industrial ........ 59,000 1,138,464
Millea Holdings ....................... 113 1,945,631
Nintendo .............................. 5,100 616,412
Takeda Pharmaceutical ................. 88,300 4,778,233
Toyota Motor .......................... 110,700 5,746,257
West Japan Railway .................... 341 1,423,002
------------
25,411,311
------------
NETHERLANDS-5.07%
ING Groep ............................. 139,364 4,834,092
Reed Elsevier ......................... 239,442 3,344,868
------------
8,178,960
------------
NEW ZEALAND-1.68%
*Telecom Corporation of New Zealand .... 660,025 2,708,894
------------
2,708,894
------------
REPUBLIC OF KOREA-0.98%
POSCO ADR ............................. 31,871 1,577,933
------------
1,577,933
------------
NUMBER OF MARKET
SHARES VALUE
------------ ------------
(U.S. $)
COMMON STOCK (CONTINUED)
SINGAPORE-2.15%
Jardine Matheson Holdings ............. 81,022 $ 1,393,578
Oversea-Chinese Banking ............... 516,000 2,079,832
------------
3,473,410
------------
SOUTH AFRICA-1.03%
Sasol ................................. 46,109 1,660,607
------------
1,660,607
------------
SPAIN-7.98%
Banco Santander Central
Hispanoamericano ..................... 226,387 2,988,292
*Iberdrola ............................. 151,248 4,134,379
Telefonica ............................ 381,795 5,744,767
------------
12,867,438
------------
TAIWAN-0.53%
Chunghwa Telecom ADR .................. 46,400 851,440
------------
851,440
------------
UNITED KINGDOM-27.48%
Aviva ................................. 154,302 1,871,936
BG Group .............................. 464,132 4,588,407
BOC Group ............................. 101,001 2,080,416
Boots Group ........................... 249,402 2,598,630
BP .................................... 320,792 3,419,757
Brambles Industries ................... 302,904 2,177,468
Compass Group ......................... 109,390 415,536
GKN ................................... 353,599 1,752,403
GlaxoSmithKline ....................... 208,964 5,282,308
HBOS .................................. 304,846 5,206,447
Lloyds TSB Group ...................... 428,662 3,601,535
Rio Tinto ............................. 77,025 3,516,409
Royal Dutch Shell Class A ............. 137,449 4,194,896
Unilever .............................. 365,997 3,630,841
------------
44,336,989
------------
TOTAL COMMON STOCK
(COST $106,239,703) .................. 159,651,980
------------
PRINCIPAL
AMOUNT
------------
REPURCHASE AGREEMENTS-0.09%
With BNP Paribas 3.30% 1/3/06 (dated
12/30/05, to be repurchased at
$93,484, collateralized by $1,920
U.S. Treasury Bills due 1/26/06,
market value $1,914, $1,320 U.S.
Treasury Bills due 2/23/06, market
value $1,308, $2,600 U.S. Treasury
Bills due 5/4/06, market value
$2,560, $17,290 U.S. Treasury Bills
due 6/1/06, market value $16,995,
$48,470 U.S. Treasury Bills due
6/29/06, market value $47,468,
$17,210 U.S. Treasury Notes 2.625%
due 5/15/08, market value $16,594
and $8,630 U.S. Treasury Notes
3.125% due 5/15/07, market value
$8,520) ............................... $ 93,450 93,450
International Value Equity-4
DELAWARE VIP INTERNATIONAL VALUE EQUITY SERIES
STATEMENT OF NET ASSETS (CONTINUED)
PRINCIPAL MARKET
AMOUNT VALUE
------------ ------------
(U.S. $)
REPURCHASE AGREEMENTS (CONTINUED)
With UBS Warburg 3.40% 1/3/06 (dated
12/30/05, to be repurchased at
$54,571, collateralized by $6,340
U.S. Treasury Notes 2.00% due
5/15/06, market value $6,301 and
$47,730 U.S. Treasury Notes 5.625%
due 5/15/08, market value $49,392) ... $ 54,550 $ 54,550
------------
TOTAL REPURCHASE AGREEMENTS
(COST $148,000) ..................... 148,000
------------
TOTAL MARKET VALUE OF SECURITIES BEFORE
SECURITIES LENDING COLLATERAL-99.04%
(COST $106,387,703) .................. 159,799,980
------------
SECURITIES LENDING COLLATERAL**-6.84%
SHORT-TERM INVESTMENTS
FIXED RATE NOTES-1.62%
Citigroup Global Markets
4.29% 1/3/06 ......................... 2,279,521 2,279,521
Wilmington Trust Company
4.05% 1/5/06 ......................... 334,127 334,127
------------
2,613,648
------------
@VARIABLE RATE NOTES-5.22%
Abbey National 4.14% 1/13/06 .......... 247,254 247,287
ANZ National 4.31% 1/30/07 ............ 66,825 66,825
Australia New Zealand 4.35% 1/30/07 ... 334,127 334,127
Bank of New York 4.33% 4/4/06 ......... 267,301 267,301
Bank of the West
4.27% 3/2/06 ......................... 334,127 334,127
Bayerische Landesbank
4.40% 8/25/06 ........................ 334,127 334,127
Bear Stearns
4.14% 1/17/06 ........................ 66,825 66,837
4.39% 6/30/06 ........................ 400,952 400,952
Beta Finance 4.33% 4/18/06 ............ 334,127 334,110
PRINCIPAL MARKET
AMOUNT VALUE
------------ ------------
(U.S. $)
SECURITIES LENDING COLLATERAL** (CONTINUED)
SHORT-TERM INVESTMENTS (CONTINUED)
@VARIABLE RATE NOTES (CONTINUED)
Canadian Imperial Bank
4.35% 1/30/07 ........................ $ 167,063 $ 167,063
CDC Financial Products
4.35% 1/30/06 ........................ 434,364 434,364
Citigroup Global Markets
4.32% 1/6/06 ......................... 434,364 434,364
Commonwealth Bank Australia
4.35% 1/30/07 ........................ 334,127 334,127
Credit Suisse First Boston New York
4.35% 4/18/06 ........................ 360,856 360,856
Goldman Sachs 4.39% 1/2/07 ............ 434,364 434,364
Manufacturers & Traders
4.36% 9/26/06 ........................ 334,127 334,065
Marshall & Ilsley Bank
4.35% 1/30/07 ........................ 367,539 367,539
Merrill Lynch Mortgage Capital
4.35% 1/12/06 ........................ 434,364 434,364
Morgan Stanley 4.43% 1/2/07 ........... 414,317 414,317
National City Bank
4.31% 1/23/06 ........................ 380,904 380,911
Nordea Bank Norge ASA
4.34% 1/30/07 ........................ 334,127 334,127
Procter & Gamble
4.46% 1/30/07 ........................ 334,127 334,127
Royal Bank of Scotland
4.34% 1/30/07 ........................ 334,127 334,127
Sigma Finance
4.33% 3/16/06 ........................ 100,238 100,241
Societe Generale NY
4.26% 1/30/07 ........................ 167,063 167,063
Toyota Motor Credit
4.30% 6/23/06 ........................ 334,127 334,143
Wells Fargo 4.36% 1/30/07 ............. 334,127 334,127
------------
8,419,982
------------
TOTAL SECURITIES LENDING COLLATERAL
(COST $11,033,630) ................... 11,033,630
------------
International Value Equity-5
DELAWARE VIP INTERNATIONAL VALUE EQUITY SERIES
STATEMENT OF NET ASSETS (CONTINUED)
TOTAL MARKET VALUE OF SECURITIES-105.88% (COST $117,421,333) ....................................... $ 170,833,610~
OBLIGATION TO RETURN SECURITIES LENDING COLLATERAL**-(6.84)% ....................................... (11,033,630)
RECEIVABLES AND OTHER ASSETS NET OF LIABILITIES-0.96% .............................................. 1,554,911
-------------
NET ASSETS APPLICABLE TO 7,916,584 SHARES OUTSTANDING-100.00% ...................................... $ 161,354,891
=============
NET ASSET VALUE-DELAWARE VIP INTERNATIONAL VALUE EQUITY SERIES STANDARD CLASS
($161,293,377 / 7,913,561 SHARES) ................................................................. $ 20.38
=============
NET ASSET VALUE-DELAWARE VIP INTERNATIONAL VALUE EQUITY SERIES SERVICE CLASS
($61,514 / 3,023 SHARES) .......................................................................... $ 20.35
=============
COMPONENTS OF NET ASSETS AT DECEMBER 31, 2005:
Shares of beneficial interest (unlimited authorization - no par) ................................... $ 95,139,162
Undistributed net investment income ................................................................ 4,331,147
Accumulated net realized gain on investments ....................................................... 8,122,104
Net unrealized appreciation of investments and foreign currencies .................................. 53,762,478
-------------
Total net assets ................................................................................... $ 161,354,891
=============
- ----------
+ Non-income producing security for the year ended December 31, 2005.
@ Variable rate securities. The interest rate shown is the rate as of December
31, 2005.
* Fully or partially on loan.
** See Note 8 in "Notes to Financial Statements."
~ Includes $10,434,350 of securities loaned.
^ Securities have been classified by country of origin. Classification by type
of business has been presented in Note 11 in "Notes to Financial
Statements."
SUMMARY OF ABBREVIATIONS:
ADR - American Depositary Receipts
The following foreign currency exchange contracts were outstanding at
December 31, 2005:
FOREIGN CURRENCY EXCHANGE CONTRACTS(1)
UNREALIZED
IN EXCHANGE SETTLEMENT APPRECIATION
CONTRACTS TO DELIVER FOR DATE (DEPRECIATION)
------------------------------- ------------- ---------- --------------
(5,302,500) British Pounds US$ 9,476,734 1/31/06 $ 353,477
(595,650) European Monetary
Units US$ 704,833 1/03/06 (413)
--------------
$ 353,064
==============
(1) See Note 7 in "Notes to Financial Statements."
See accompanying notes
International Value Equity-6
DELAWARI VIP TRUST-
DELAWARE VIP INTERNATIONAL VALUE EQUITY SERIES
STATEMENT OF OPERATIONS
Year Ended December 31, 2005
INVESTMENT INCOME:
Dividends .............................................. $ 6,076,281
Interest ............................................... 29,170
Securities lending income .............................. 110,682
Foreign tax withheld ................................... (433,263)
------------
5,782,870
------------
EXPENSES:
Management fees ........................................ 1,355,005
Custodian fees ......................................... 76,744
Accounting and administration expenses ................. 58,639
Reports and statements to shareholders ................. 38,709
Legal and professional fees ............................ 31,649
Dividend disbursing and transfer agent fees and expenses 15,968
Insurance fees ......................................... 11,756
Trustees' fees ......................................... 8,398
Pricing fees ........................................... 6,593
Taxes (other than taxes on income) ..................... 4,200
Distribution expenses - Service Class .................. 202
Registration fees ...................................... 97
Other .................................................. 9,133
------------
1,617,093
Less expenses absorbed or waived ....................... (29,446)
Less waiver of distribution expenses - Service Class ... (34)
------------
Total expenses ......................................... 1,587,613
------------
NET INVESTMENT INCOME .................................. 4,195,257
------------
NET REALIZED AND UNREALIZED GAIN ON
INVESTMENTS AND FOREIGN CURRENCIES:
Net Realized Gain On:
Investments ........................................... 9,449,585
Foreign currencies .................................... 154,955
------------
Net realized gain ...................................... 9,604,540
Net change in unrealized appreciation/depreciation
of investments and foreign currencies ................. 5,525,580
------------
NET REALIZED AND UNREALIZED GAIN ON
INVESTMENTS AND FOREIGN CURRENCIES .................... 15,130,120
------------
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS ....................................... $ 19,325,377
============
See accompanying notes
DELAWARI VIP TRUST-
DELAWARE VIP INTERNATIONAL VALUE EQUITY SERIES
STATEMENT OF OPERATIONS
Year Ended December 31, 2005
YEAR ENDED
12/31/05 12/31/04
------------- --------------
INCREASE IN NET ASSETS
FROM OPERATIONS:
Net investment income .................. $ 4,195,257 $ 3,826,431
Net realized gain on investments
and foreign currencies ................ 9,604,540 9,275,183
Net change in unrealized appreciation/
depreciation of investments and
foreign currencies .................... 5,525,580 17,555,991
------------- --------------
Net increase in net assets resulting
from operations ....................... 19,325,377 30,657,605
------------- --------------
DIVIDENDS AND DISTRIBUTIONS
TO SHAREHOLDERS FROM:
Net investment income:
Standard Class ...................... (2,493,989) (4,298,294)
Service Class ....................... (928) (2,810)
Net realized gain on investments:
Standard Class ...................... (1,825,497) -
Service Class ....................... (788) -
------------- --------------
(4,321,202) (4,301,104)
------------- --------------
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares sold:
Standard Class ...................... 4,337,148 4,733,251
Service Class ....................... 3,501 15,038
Netasset value of shares issued upon
reinvestment of dividends and
distributions:
Standard Class ...................... 4,319,486 4,298,294
Service Class ....................... 1,716 2,810
------------- --------------
8,661,851 9,049,393
------------- --------------
Cost of shares repurchased:
Standard Class ...................... (26,906,001) (38,637,145)
Service Class ....................... (44,213) (51,400)
------------- --------------
(26,950,214) (38,688,545)
------------- --------------
Decrease in net assets derived from
capital share transactions .......... (18,288,363) (29,639,152)
------------- --------------
NET DECREASE IN NET ASSETS ............. (3,284,188) (3,282,651)
NET ASSETS:
Beginning of year ...................... 164,639,079 167,921,730
------------- --------------
End of year (including undistributed
net investment income of $4,331,147 and
$2,475,852, respectively) ............. $ 161,354,891 $ 164,639,079
============= ==============
See accompanying notes
International Value Equity-7
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
--------------------------------------------------------------------------------
12/31/05 12/31/04 12/31/03 12/31/02 12/31/01
------------ ------------ ------------ ------------ ------------
Net asset value, beginning of period ........ $ 18.550 $ 15.660 $ 11.550 $ 13.900 $ 17.940
INCOME (LOSS) FROM INVESTMENT OPERATIONS:
Net investment income(1) .................... 0.496 0.396 0.373 0.254 0.277
Net realized and unrealized gain (loss)
on investments and foreign currencies ...... 1.838 2.920 4.355 (1.556) (2.578)
------------ ------------ ------------ ------------ ------------
Total from investment operations ............ 2.334 3.316 4.728 (1.302) (2.301)
------------ ------------ ------------ ------------ ------------
LESS DIVIDENDS AND DISTRIBUTIONS FROM:
Net investment income ....................... (0.291) (0.426) (0.314) (0.284) (0.435)
Net realized gain on investments ............ (0.213) - (0.304) (0.764) (1.304)
------------ ------------ ------------ ------------ ------------
Total dividends and distributions ........... (0.504) (0.426) (0.618) (1.048) (1.739)
============ ============ ============ ============ ============
Net asset value, end of period .............. $ 20.380 $ 18.550 $ 15.660 $ 11.550 $ 13.900
============ ============ ============ ============ ============
Total return(2) ............................. 12.87% 21.79% 43.44% (10.40)% (12.83)%
RATIOS AND SUPPLEMENTAL DATA:
Net assets, end of period (000 omitted) ..... $ 161,293 $ 164,544 $ 167,813 $ 142,065 $ 191,481
Ratio of expenses to average net assets ..... 1.00% 0.99% 0.98% 0.98% 0.95%
Ratio of expenses to average net assets
prior to expense limitation and expenses
paid indirectly ............................ 1.02% 0.99% 0.99% 1.02% 1.01%
Ratio of net investment income to average
net assets ................................. 2.63% 2.46% 2.96% 1.99% 1.84%
Ratio of net investment income to average
net assets prior to expense limitation
and expenses paid indirectly ............... 2.61% 2.46% 2.95% 1.95% 1.78%
Portfolio turnover .......................... 8% 10% 11% 13% 11%
- ----------
(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
International Value Equity-8
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
YEAR ENDED
--------------------------------------------------------------------------------
12/31/05 12/31/04 12/31/03 12/31/02 12/31/01
------------ ------------ ------------ ------------ ------------
Net asset value, beginning of period ........ $ 18.520 $ 15.650 $ 11.550 $ 13.900 $ 17.930
INCOME (LOSS) FROM INVESTMENT OPERATIONS:
Net investment income(1) .................... 0.449 0.356 0.345 0.236 0.255
Net realized and unrealized gain (loss)
on investments and foreign currencies ...... 1.845 2.911 4.355 (1.559) (2.561)
------------ ------------ ------------ ------------ ------------
Total from investment operations ............ 2.294 3.267 4.700 (1.323) (2.306)
------------ ------------ ------------ ------------ ------------
LESS DIVIDENDS AND DISTRIBUTIONS FROM:
Net investment income ....................... (0.251) (0.397) (0.296) (0.263) (0.420)
Net realized gain on investments ............ (0.213) - (0.304) (0.764) (1.304)
------------ ------------ ------------ ------------ ------------
Total dividends and distributions ........... (0.464) (0.397) (0.600) (1.027) (1.724)
------------ ------------ ------------ ------------ ------------
Net asset value, end of period .............. $ 20.350 $ 18.520 $ 15.650 $ 11.550 $ 13.900
============ ============ ============ ============ ============
Total return(2) ............................. 12.65% 21.44% 43.11% (10.54)% (12.88)%
RATIOS AND SUPPLEMENTAL DATA:
Net assets, end of period (000 omitted) ..... $ 62 $ 95 $ 109 $ 54 $ 11
Ratio of expenses to average net assets ..... 1.25% 1.24% 1.20% 1.13% 1.10%
Ratio of expenses to average net assets
prior to expense limitation and expenses
paid indirectly ............................ 1.32% 1.29% 1.24% 1.17% 1.16%
Ratio of net investment income to average
net assets ................................. 2.38% 2.21% 2.74% 1.84% 1.69%
Ratio of net investment income to average
net assets prior to expense limitation and
expenses paid indirectly ................... 2.31% 2.16% 2.70% 1.80% 1.63%
Portfolio turnover .......................... 8% 10% 11% 13% 11%
(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 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-9
DELAWARE VIP TRUST-DELAWARE VIP INTERNATIONAL VALUE EQUITY SERIES
NOTES TO FINANCIAL STATEMENTS
December 31, 2005
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 REIT Series,
Delaware VIP Select Growth Series, Delaware VIP Small Cap Value Series, Delaware
VIP Trend Series, Delaware VIP U.S. Growth Series and Delaware VIP Value Series.
These financial statements and the related notes pertain to Delaware VIP
International Value Equity Series (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 U.S. generally accepted
accounting principles and are consistently followed by the Series.
Security Valuation--Equity securities, except those traded on the Nasdaq Stock
Market, Inc. (Nasdaq), are valued at the last quoted sales price as of the time
of the regular close of the New York Stock Exchange (NYSE) on the valuation
date. Securities traded on the Nasdaq are valued in accordance with the Nasdaq
Official Closing Price, which may not be the last sales price. If on a
particular day an equity security does not trade, then the mean between the bid
and asked prices will be used. Securities listed on a foreign exchange are
valued at the last quoted sales price before the Series is valued. Short-term
debt securities having less than 60 days to maturity are valued at amortized
cost, which approximates market value. Securities lending collateral is valued
at amortized cost, which approximates 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 pursuant to an
exemptive order issued by the Securities and Exchange Commission. The aggregate
daily balance of the pooled cash account is invested in repurchase agreements
secured by obligations of the U.S. government. The respective collateral is held
by the Series' custodian bank until the maturity of the respective repurchase
agreements. Each repurchase agreement is 102% collateralized. However, in the
event of default or bankruptcy by the counterparty to the agreement, realization
of the collateral may be subject to legal proceedings.
Foreign Currency Transactions--Transactions denominated in foreign currencies
are recorded at the prevailing exchange rates on the valuation date. The value
of all assets and liabilities denominated in foreign currencies are translated
into U.S. dollars at the exchange rate of such currencies against the U.S.
dollar daily. Transaction gains or losses resulting from changes in exchange
rates during the reporting period or upon settlement of the foreign currency
transaction are reported in operations for the current period. The Series does
not isolate that portion of realized gains and losses on investments which are
due to changes in foreign exchange rates from that which are due to changes in
market prices. The Series reports certain foreign currency related transactions
as components of realized gains (losses) for financial reporting purposes, where
such components are treated as ordinary income (loss) for federal income tax
purposes.
Use of Estimates--The preparation of financial statements in conformity with
U.S. generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from those estimates.
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.
Management fees and some other expenses are paid monthly. Security transactions
are recorded on the date the securities are purchased or sold (trade date) for
financial reporting purposes. Costs used in calculating realized gains and
losses on the sale of investment securities are those of the specific securities
sold. Dividend income is recorded on the ex-dividend date and interest income is
recorded on the accrual basis. Taxable non-cash dividends are recorded as
dividend income. Foreign dividends are also recorded on the ex-dividend date or
as soon after the ex-dividend date that the Series is aware of such dividends,
net of all non-rebatable tax withholdings. Withholding taxes on foreign
dividends have been recorded in accordance with the Series' understanding of the
applicable country's tax rules and rates.
The Series declares and pays dividends from net investment income and
distributions from net realized gain on investments, if any, following the close
of the fiscal year.
2. INVESTMENT MANAGEMENT, ADMINISTRATION AGREEMENTS AND OTHER TRANSACTIONS WITH
AFFILIATES
In accordance with the terms of its investment management agreement, the Series
pays Delaware Management Company (DMC), a series of Delaware Management Business
Trust and the investment manager, an annual fee which is calculated daily at the
rate of 0.85% on the first $500 million of average daily net assets of the
Series, 0.80% on the next $500 million, 0.75% on the next $1.5 billion, and
0.70% on average daily net assets in excess of $2.5 billion.
International Value Equity-10
DELAWARE VIP INTERNATIONAL VALUE EQUITY SERIES
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. INVESTMENT MANAGEMENT, ADMINISTRATION AGREEMENTS AND OTHER TRANSACTIONS WITH
AFFILIATES (CONTINUED)
Mondrian Investment Partners Ltd. ("Mondrian") (the "Sub-Advisor") is
responsible for the day-to-day management of the Series' investment portfolio.
For these services, DMC, not the Series, pays the Sub-Advisor 0.20% of the
Series' average daily net assets.
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 1.00% of average daily net assets of the Series through June 30, 2006.
Delaware Service Company, Inc. (DSC), an affiliate of DMC, provides accounting,
administration, dividend disbursing and transfer agent services. Effective
May 19, 2005, the Series pays DSC a monthly fee computed at the annual rate of
0.04% of the Series' average daily net assets for accounting and administrative
services. Prior to May 19, 2005, the Series paid 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 distribution and service fee not to exceed 0.30% of the average daily net
assets of the Service Class shares. DDLP has contracted to waive distribution
and service fees through June 30, 2006 in order to prevent distribution and
service fees of the Service Class shares from exceeding 0.25% of average daily
net assets. Standard Class shares pay no distribution and service expenses.
At December 31, 2005, the Series had liabilities payable to affiliates as
follows:
DIVIDEND DISBURSING, OTHER
INVESTMENT TRANSFER AGENT, EXPENSES
MANAGEMENT ACCOUNTING AND ADMINISTRATION DISTRIBUTION PAYABLE
FEE PAYABLE TO FEES AND OTHER EXPENSES FEES PAYABLE TO
DMC PAYABLE TO DSC TO DDLP AFFILIATES*
--------------- ------------------------------ -------------- -----------
$ 115,969 $ 8,337 $ 26 $ 34,893
*DMC, as part of its administrative services, pays operating expenses on behalf
of the Series and is reimbursed on a periodic basis. Such expenses include items
such as printing of shareholder reports, fees for audit, legal and tax services,
custodian fees and trustees' fees.
As provided in the investment management agreement, the Series bears the cost of
certain legal services expenses, including internal legal services provided to
the Series by DMC employees. For the year ended December 31, 2005, the Series
was charged $9,953 for internal legal services provided by DMC.
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, 2005, the Series made purchases and sales of
investment securities other than short-term investments as follows:
Purchases ............ $ 12,983,193
Sales ................ 31,427,492
At December 31, 2005, 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
------------- ------------ ------------ --------------
$ 118,566,607 $ 53,099,346 $ (832,343) $ 52,267,003
International Value Equity-11
DELAWARE VIP INTERNATIONAL VALUE EQUITY SERIES
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
4. DIVIDEND AND DISTRIBUTION INFORMATION
Income and long-term capital gain distributions are determined in accordance
with federal income tax regulations, which may differ from U.S. generally
accepted accounting principles. Additionally, gains (losses) on foreign currency
transactions and net short-term gains on sales of investment securities are
treated as ordinary income for federal income tax purposes. The tax character of
dividends and distributions paid during the years ended December 31, 2005 and
2004 was as follows:
YEAR YEAR
ENDED ENDED
12/31/05 12/31/04
----------- -----------
Ordinary income $ 2,563,510 $ 4,301,104
Long-term capital gain 1,757,692 -
----------- -----------
Total $ 4,321,202 $ 4,301,104
=========== ===========
As of December 31, 2005, the components of net assets on a tax basis were as
follows:
Shares of beneficial interest $ 95,139,162
Undistributed ordinary income 4,769,328
Undistributed long-term capital gain 9,182,261
Unrealized appreciation of investments
and foreign currencies 52,264,140
-------------
Net assets $ 161,354,891
=============
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 financial reporting purposes, capital accounts are adjusted to reflect the
tax character of permanent book/tax differences. Reclassifications are primarily
due to tax treatment of gain (loss) on foreign currency transactions. Results of
operations and net assets were not affected by these reclassifications. For the
year ended December 31, 2005, the Series recorded the following
reclassifications.
UNDISTRIBUTED ACCUMULATED
NET NET REALIZED
INVESTMENT INCOME GAIN (LOSS)
----------------- ------------
$ 154,955 $ (154,955)
5. CAPITAL SHARES
Transactions in capital shares were as follows:
YEAR YEAR
ENDED ENDED
12/31/05 12/31/04
---------- ----------
Shares sold:
Standard Class 233,387 295,287
Service Class 191 942
Shares issued upon reinvestment of
dividends and distributions:
Standard Class 234,882 283,903
Service Class 93 186
---------- ----------
468,553 580,318
---------- ----------
Shares repurchased:
Standard Class (1,425,475) (2,425,338)
Service Class (2,381) (2,991)
---------- ----------
(1,427,856) (2,428,329)
---------- ----------
Net decrease (959,303) (1,848,011)
========== ==========
International Value Equity-12
DELAWARE VIP INTERNATIONAL VALUE EQUITY SERIES
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
6. LINE OF CREDIT
The Series, along with certain other funds in the Delaware Investments Family of
Funds (the "Participants"), participates in a $225,000,000 revolving line of
credit facility to be used for temporary or emergency purposes as an additional
source of liquidity to fund redemptions of investor shares. The Participants are
charged an annual commitment fee, which is allocated across the Participants on
the basis of each 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, 2005, or at any time during
the year.
7. FOREIGN CURRENCY 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.
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 Ratings Group or Moody's
Investors Service, Inc. or repurchase agreements collateralized by such
securities. However, in the event of default or bankruptcy by the lending agent,
realization and/or retention of the collateral may be subject to legal
proceedings. In the event the borrower fails to return loaned securities and the
collateral received is insufficient to cover the value of the loaned securities
and provided such collateral shortfall is not the result of investment losses,
the lending agent has agreed to pay the amount of the shortfall to the Series,
or at the discretion of the lending agent, replace the loaned securities. The
Series continues to record dividends on the securities loaned and is subject to
change in value of the securities loaned that may occur during the term of the
loan. The Series has the right under the Lending Agreement to recover the
securities from the borrower on demand. The security lending agent and the
borrower retain a portion of the earnings from the collateral investments. The
Series records security lending income net of such allocation.
At December 31, 2005, the market value of securities on loan was $10,434,350,
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.
The Series may invest up to 10% of its total assets in illiquid securities,
which may include securities with contractual restrictions on resale, securities
exempt from registration under Rule 144A of the Securities Act of 1933, as
amended, and other securities which may not be readily marketable. The relative
illiquidity of these securities may impair the Series from disposing of them in
a timely manner and at a fair price when it is necessary or desirable to do so.
While maintaining oversight, the Board of Trustees has delegated to DMC the
day-to-day functions of determining whether individual securities are liquid for
purposes of the Series' limitation on investments in illiquid assets. At
December 31, 2005, no securities have been determined to be illiquid under the
Series' Liquidity Procedures.
10. CONTRACTUAL OBLIGATIONS
The Series enters into contracts in the normal course of business that contain a
variety of indemnifications. The Series' maximum exposure under these
arrangements is unknown. However, the Series has not had prior claims or losses
pursuant to these contracts. Management has reviewed the Series' existing
contracts and expects the risk of loss to be remote.
International Value Equity-13
DELAWARE VIP INTERNATIONAL VALUE EQUITY SERIES
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
11. INDUSTRY ALLOCATION
As of December 31, 2005, the Series' investment in equity securities classified
by type of business were as follows:
INDUSTRY PERCENTAGE OF NET ASSETS
- -------------------------------- ------------------------
Automobiles & Components 4.65%
Banks 19.41
Capital Goods 2.60
Commercial Services & Supplies 1.35
Consumer Durables & Apparel 0.71
Consumer Services 0.26
Diversified Financials 5.91
Energy 11.74
Food & Staples Retailing 3.09
Food, Beverage & Tobacco 4.75
Household & Personal Products 0.05
Insurance 2.37
Materials 9.61
Media 2.07
Pharmaceuticals & Biotechnology 6.23
Real Estate 1.28
Technology 4.27
Telecommunications 9.75
Transportation 0.88
Utilities 7.97
--------
Total 98.95%
--------
12. TAX INFORMATION (UNAUDITED)
For the fiscal year ended December 31, 2005, the Series designates distributions
paid during the year as follows:
(A) (B)
LONG-TERM ORDINARY
CAPITAL GAINS INCOME TOTAL
DISTRIBUTIONS DISTRIBUTIONS DISTRIBUTION
(TAX BASIS) (TAX BASIS) (TAX BASIS)
------------- ------------- ------------
41% 59% 100%
- ----------
(A) and (B) are based on a percentage of the Series' total distributions.
The Delaware VIP International Value Equity Series intends to pass through
foreign tax credits in the maximum amount of $298,036. The gross foreign source
income earned during fiscal year 2005 by the Delaware VIP International Value
Equity Series was $6,076,438. Complete information was computed and reported in
conjunction with your 2005 Form 1099-DIV.
DELAWARE VIP TRUST-DELAWARE VIP INTERNATIONAL VALUE EQUITY SERIES
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
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 the Delaware VIP
International Value Equity Series (one of the series constituting Delaware VIP
Trust) (the "Series") as of December 31, 2005, 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 five years in the period then ended. 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 the standards of the Public Company
Accounting Oversight Board (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. We were
not engaged to perform an audit of the Series' internal control over financial
reporting. Our audits included consideration of internal control over financial
reporting as a basis for designing audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion on the
effectiveness of the Series' internal control over financial reporting.
Accordingly, we express no such opinion. An audit also includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements and financial highlights, assessing the accounting principles used
and significant estimates made by management, and evaluating the overall
financial statement presentation. Our procedures included confirmation of
securities owned as of December 31, 2005, by correspondence with the custodian
and brokers or by other appropriate auditing procedures where replies from
brokers were not received. 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 the
Delaware VIP International Value Equity Series of Delaware VIP Trust at December
31, 2005, 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 five years in the period then ended, in
conformity with U.S. generally accepted accounting principles.
/s/ ERNST & YOUNG LLP
Philadelphia, Pennsylvania
February 10, 2006
The Series files its complete schedule of portfolio holdings with the Securities
and Exchange Commission for the first and third quarters of each fiscal year on
Form N-Q. The Series' Forms N-Q, as well as a description of the policies and
procedures that the Series uses to determine how to vote proxies (if any)
relating to portfolio securities is available without charge (i) upon request,
by calling 800-523-1918; (ii) on the Series' website at
http://www.delawareinvestments.com; and (iii) on the Commission's website at
http://www.sec.gov. The Series' Forms N-Q may be reviewed and copied at the
Commission's Public Reference Room in Washington, DC; information on the
operation of the Public Reference Room may be obtained by calling
1-800-SEC-0330.
Information (if any) regarding how the Series voted proxies relating to
portfolio securities during the most recently disclosed 12-month period ended
June 30 is available without charge (i) through the Series' website at
http://www.delawareinvestments.com; and (ii) on the Commission's website at
http://www.sec.gov.
International Value Equity-14
DELAWARE INVESTMENTS(R) FAMILY OF FUNDS
BOARD OF TRUSTEES/DIRECTORS AND OFFICERS ADDENDUM
A mutual fund is governed by a Board of Trustees/Directors ("Trustees"), which
has oversight responsibility for the management of a fund's business affairs.
Trustees establish procedures and oversee and review the performance of the
investment manager, the distributor and others who perform services for the
fund. The independent fund trustees, in particular, are advocates for
shareholder interests. Each trustee has served in that capacity since he or she
was elected to or appointed to the Board of Trustees, and will continue to serve
until his or her retirement or the election of a new trustee in his or her
place. The following is a list of the Trustees 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 TRUSTEE
AND BIRTHDATE FUND(S) SERVED PAST 5 YEARS OR OFFICER OR OFFICER
- ------------------- ---------------- -------------------- ---------------------------- ------------------ ----------------
INTERESTED TRUSTEES
JUDE T. DRISCOLL(2) Chairman, 5 Years - Since August 2000, 87 None
2005 Market Street President, Executive Officer Mr. Driscoll has served in
Philadelphia, PA Chief Executive various executive capacities
19103 Officer and 2 Years - at different times at
Trustee Trustee Delaware Investments(1)
March 10, 1963
INDEPENDENT TRUSTEES
THOMAS L. BENNETT Trustee Since Private Investor - 87 None
2005 Market Street March 23, 2005 (March 2004 - Present)
Philadelphia, PA
19103
Investment Manager -
Morgan Stanley & Co.
October 4, 1947 (January 1984 - March 2004)
JOHN A. FRY Trustee 4 Years President - 87 Director -
2005 Market Street Franklin & Marshall College Community Health
Philadelphia, PA (June 2002 - Present) Systems
19103
Executive Vice President -
May 28, 1960 University of Pennsylvania
(April 1995 - June 2002)
ANTHONY D. KNERR Trustee 12 Years Founder/Managing Director - 87 None
2005 Market Street Anthony Knerr & Associates
Philadelphia, PA (Strategic Consulting)
19103 (1990 - Present)
December 7, 1938
LUCINDA S. LANDRETH Trustee Since Chief Investment Officer - 87 None
2005 Market Street March 23, 2005 Assurant, Inc.
Philadelphia, PA (Insurance)
19103 (2002 - 2004)
June 24, 1947
ANN R. LEVEN Trustee 16 Years Treasurer/Chief Fiscal Officer - 87 Director and
2005 Market Street National Gallery of Art Audit Committee
Philadelphia, PA (1994 - 1999) Chairperson - Andy
19103 Warhol Foundation
November 1, 1940 Director and Audit
Committee Member -
Systemax Inc.
International Value Equity-15
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 TRUSTEE
AND BIRTHDATE FUND(S) SERVED PAST 5 YEARS OR OFFICER OR OFFICER
- -------------------- ---------------- -------------------- ---------------------------- ------------------ -----------------
INDEPENDENT TRUSTEES
THOMAS F. MADISON Trustee 11 Years President/Chief 87 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 and Audit
Committee Member -
Digital River Inc.
Director and Audit
Committee Member -
Rimage
Corporation
Director - Valmont
Industries, Inc.
JANET L. YEOMANS Trustee 6 Years Vice President 87 None
2005 Market Street (January 2003 - Present)
Philadelphia, PA and Treasurer
19103 (January 2006 - Present)
3M Corporation
July 31, 1948
Ms. Yeomans has held
various management positions
at 3M Corporation since
1983.
J. RICHARD ZECHER Trustee Since Founder - 87 Director and Audit
2005 Market Street March 23, 2005 Investor Analytics Committee Member -
Philadelphia, PA (Risk Management) Investor Analytics
19103 (May 1999 - Present)
Director and Audit
July 3, 1940 Committee Member -
Oxigene, Inc.
OFFICERS
MICHAEL P. BISHOF Senior Chief Financial Mr. Bishof has served in 87 None(3)
2005 Market Street Vice President Officer since various executive capacities
Philadelphia, PA and February 17, 2005 at different times at
19103 Chief Financial Delaware Investments.
Officer
August 18, 1962
DAVID F. CONNOR Vice President, Vice President since Mr. Connor has served as 87 None(3)
2005 Market Street Deputy General September 21, 2000 Vice President and Deputy
Philadelphia, PA Counsel and Secretary General Counsel of Delaware
19103 and Secretary since Investments since 2000.
October 25, 2005
December 2, 1963
DAVID P. O'CONNOR Senior Vice Senior Vice President, Mr. O'Connor has served in 87 None(3)
2005 Market Street President, General Counsel and various executive and legal
Philadelphia, PA General Counsel Chief Legal Officer capacities at different
19103 and Chief since times
Legal Officer October 25, 2005 at Delaware Investments.
February 21, 1966
JOHN J. O'CONNOR Senior Vice President Treasurer Mr. O'Connor has served in 87 None(3)
2005 Market Street and Treasurer since various executive capacities
Philadelphia, PA February 17, 2005 at different times at
19103 Delaware Investments.
June 16, 1957
(1) Delaware Investments is the marketing name for Delaware Management
Holdings, Inc. and its subsidiaries, including the Fund's(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(s') manager and distributor.
(3) Mr. Bishof, Mr. Connor, Mr. David P. O'Connor and Mr. John J. O'Connor
serve in similar capacities for the six portfolios of the Optimum Fund
Trust, which have the same investment advisor, principal underwriter, and
transfer agent as the registrant. Mr. John J. O'Connor also serves in a
similar capacity for Lincoln Variable Insurance Products Trust, which has
the same investment advisor as the registrant.
The Statement of Additional Information for the Fund(s) includes additional
information about the Trustees and Officers and is available, without charge,
upon request by calling 800 523-1918.
International Value Equity-16
DELAWARE VIP TRUST-DELAWARE VIP REIT SERIES
For the year ended December 31, 2005, Delaware VIP REIT Series returned
+7.17% for Standard Class shares and +6.86% for Service Class shares (both
figures reflect all distributions reinvested). During the same period, its
benchmark - the NAREIT Equity REIT Index - gained +12.16%. (source: NAREIT,
Inc.)
Great Wolf Resorts was a noteworthy detractor that resulted in the
underperformance for the Series in 2005 compared to its benchmark. The stock of
this entertainment resort company was negatively influenced by a variety of
factors, including waning confidence in senior management. We continue to own
the stock, as we are hopeful that a buyout could be imminent that would lead to
brighter long-term prospects.
Over the course of the fiscal year, REIT valuations rose substantially,
fueled by increased demand among private and institutional investors. However, a
recent rise in equity issued by REITs, and increased merger and acquisition
activity, suggests that the REIT market may have peaked after several years of
substantial gains for the asset class as a whole. Despite the strong annual
performance for the asset class, REITs struggled early in the Series' fiscal
year, with the benchmark falling 7% during the first three months of 2005.
During that turbulent period, the Series performance fared no worse than the
benchmark, but still showed a decline. The market and the Series bounced back as
the year progressed, with investors refocusing on strong market fundamentals.
Exposure to the retailing sector aided Series performance for the year, while
our housing-related REITs impeded return.
Our chief aim remained the acquisition of high-quality securities for the
long term. In the short run, however, this approach does not always generate the
greatest return, especially when the market is volatile quarter to quarter and
investor preferences shift among REIT sub-sectors. Over time, however, we will
continue to focus on quality companies, and our capacity to uncover value in the
market.
PERFORMANCE OF A $10,000 INVESTMENT:
May 1, '98 $ 10,000
May 31, '98 $ 10,000 $ 13,471
Dec 31, '98 $ 8,628 $ 9,100
Dec 31, '99 $ 8,229 $ 8,862
Dec 31, '00 $ 10,399 $ 11,639
Dec 31, '01 $ 11,848 $ 12,662
Dec 31, '02 $ 12,301 $ 13,235
Dec 31, '03 $ 16,868 $ 17,738
Dec 31, '04 $ 22,195 $ 23,303
Dec 31, '05 $ 24,894 $ 24,974
DELAWARE VIP REIT SERIES
AVERAGE ANNUAL TOTAL RETURNS
--------------------------------
STANDARD CLASS SERVICE CLASS
SHARES* SHARES**
-------------- --------------
LIFETIME +12.67% +17.96%
FIVE YEAR +16.50% +16.27%
ONE YEAR +7.17% +6.86%
For the periods ended December 31, 2005
* 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, 2005. All distributions were reinvested. 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. 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 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. 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. Series that invest a significant portion of their assets in
one industry or in related industries may involve greater risks than more
diversified series, including greater potential for volatility.
REIT-1
DELAWARE VIP TRUST-DELAWARE VIP REIT SERIES
DISCLOSURE OF SERIES EXPENSES
For the Period July 1, 2005 to December 31, 2005
As a shareholder of the Series, you incur ongoing costs, including management
fees; distribution and/or service (12b-1) fees; and other Series expenses. This
Example is intended to help you understand your ongoing costs (in dollars) of
investing in the Series and to compare these costs with the ongoing costs of
investing in other mutual funds.
The Example is based on an investment of $1,000 invested at the beginning of the
period and held for the entire period from July 1, 2005 to December 31, 2005.
ACTUAL EXPENSES
The first section of the table shown, "Actual Series Return,"
provides information about actual account values and actual expenses. You may
use the information in this section of the table, together with the amount you
invested, to estimate the expenses that you paid over the period. Simply divide
your account value by $1,000 (for example, an $8,600 account value divided by
$1,000 = 8.6), then multiply the result by the number in the first section under
the heading entitled "Expenses Paid During Period" to estimate the expenses you
paid on your account during the period.
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The second section of the table shown, "Hypothetical 5% Return," provides
information about hypothetical account values and hypothetical expenses based on
the Series' actual expense ratio and an assumed rate of return of 5% per year
before expenses, which is not the Series' actual return. The hypothetical
account values and expenses may not be used to estimate the actual ending
account balance or expenses you paid for the period. You may use this
information to compare the ongoing costs of investing in the Series and other
funds. To do so, compare the 5% hypothetical example with the 5% hypothetical
examples that appear in the shareholder reports of other funds.
Please note that the expenses shown in the table are meant to highlight your
ongoing costs only. As a shareholder of the Series, you do not incur any
transaction costs, such as sales charges (loads), redemption fees or exchange
fees, but shareholders of other funds may incur such costs. Also, the fees
related to the variable annuity investment or the deferred sales charge that
could apply have not been included. Therefore, the second section of the table
is useful in comparing ongoing costs only, and will not help you determine the
relative total costs of owning different funds. The Series' actual expenses
shown in the table reflect fee waivers in effect for Service Class shares. The
expenses shown in the table assume reinvestment of all dividends and
distributions.
EXPENSE ANALYSIS OF AN INVESTMENT OF $1,000
EXPENSES
BEGINNING ENDING PAID DURING
ACCOUNT ACCOUNT ANNUALIZED PERIOD
VALUE VALUE EXPENSE 7/1/05 TO
7/1/05 12/31/05 RATIOS 12/31/05*
------------- ------------- ------------- -------------
ACTUAL SERIES RETURN
Standard Class $ 1,000.00 $ 1,024.60 0.87% $ 4.44
Service Class 1,000.00 1,023.50 1.12% 5.71
HYPOTHETICAL 5% RETURN
(5% RETURN BEFORE EXPENSES)
Standard Class $ 1,000.00 $ 1,020.82 0.87% $ 4.43
Service Class 1,000.00 1,019.56 1.12% 5.70
*"Expenses Paid During Period" are equal to the Series' annualized expense
ratio, multiplied by the average account value over the period, multiplied by
184/365 (to reflect the one-half year period).
REIT-2
DELAWARE VIP TRUST-DELAWARE VIP REIT SERIES
SECTOR ALLOCATION
As of December 31, 2005
Sector designations may be different than the sector designations presented in
other Series materials.
PERCENTAGE
SECTOR OF NET ASSETS
- ------------------------------------------------ -------------
COMMON STOCK 98.54%
-------------
Diversified REITs 4.86%
Healthcare REITs 3.59%
Hotel REITs 5.68%
Industrial REITs 10.66%
Mall REITs 16.51%
Manufactured Housing REITs 1.44%
Mortgage REITs 3.31%
Multifamily REITs 13.98%
Office REITs 22.34%
Real Estate Operating Companies 2.68%
Self-Storage REITs 2.18%
Shopping Center REITs 11.31%
-------------
REPURCHASE AGREEMENTS 0.84%
-------------
TOTAL MARKET VALUE OF SECURITIES 99.38%
-------------
RECEIVABLES AND OTHER ASSETS NET OF LIABILITIES 0.62%
-------------
TOTAL NET ASSETS 100.00%
-------------
REIT-3
DELAWARE VIP TRUST-DELAWARE VIP REIT SERIES
STATEMENT OF NET ASSETS
December 31, 2005
NUMBER MARKET
OF SHARES VALUE
------------- -------------
COMMON STOCK-98.54%
DIVERSIFIED REITS-4.86%
Vornado Realty Trust ............................ 488,901 $ 40,808,566
-------------
40,808,566
HEALTHCARE REITS-3.59%
Medical Properties Trust ........................ 921,835 9,015,546
Ventas .......................................... 659,700 21,123,594
-------------
30,139,140
-------------
HOTEL REITS-5.68%
Hersha Hospitality Trust ........................ 956,190 8,615,272
Host Marriott ................................... 559,781 10,607,850
LaSalle Hotel Properties ........................ 524,585 19,262,761
Strategic Hotel Capital ......................... 449,100 9,242,478
-------------
47,728,361
-------------
INDUSTRIAL REITS-10.66%
AMB Property .................................... 496,555 24,415,609
Centerpoint Properties Trust .................... 170,100 8,416,548
First Potomac Realty Trust ...................... 241,647 6,427,810
ProLogis ........................................ 1,074,893 50,219,002
-------------
89,478,969
-------------
MALL REITS-16.51%
CBL & Associates Properties ..................... 553,469 21,867,560
General Growth Properties ....................... 917,946 43,134,283
Mills ........................................... 344,626 14,453,614
Simon Property Group ............................ 772,299 59,181,273
-------------
138,636,730
-------------
MANUFACTURED HOUSING REITS-1.44%
Equity Lifestyle Properties ..................... 271,300 12,072,850
-------------
12,072,850
-------------
MORTGAGE REITS-3.31%
KKR Financial ................................... 119,300 2,862,007
#KKR Financial ................................... 447,978 10,746,992
MortgageIT Holdings ............................. 548,100 7,487,046
#Peoples Choice .................................. 1,213,083 6,671,957
-------------
27,768,002
-------------
MULTIFAMILY REITS-13.98%
AvalonBay Communities ........................... 414,774 37,018,579
Camden Property Trust ........................... 326,774 18,926,750
=+#Education Realty Trust PIPE ..................... 130,800 1,609,636
Essex Property Trust ............................ 294,708 27,172,078
Post Properties ................................. 160,500 6,411,975
United Dominion Realty Trust .................... 1,122,036 26,300,524
-------------
117,439,542
-------------
OFFICE REITS-22.34%
Alexandria Real Estate Equities ................. 281,996 22,700,678
American Financial Realty Trust ................. 1,128,021 13,536,252
Biomed Realty Trust ............................. 347,600 8,481,440
Brandywine Realty Trust ......................... 1,068,327 29,817,006
CarrAmerica Realty .............................. 386,487 13,384,045
Equity Office Properties Trust .................. 1,449,320 43,957,875
Reckson Associates Realty ....................... 792,697 28,521,238
SL Green Realty ................................. 356,037 27,197,666
-------------
187,596,200
-------------
NUMBER MARKET
OF SHARES VALUE
------------- -------------
COMMON STOCK (CONTINUED)
REAL ESTATE OPERATING COMPANIES-2.68%
+Great Wolf Resorts ............................. 569,228 $ 5,868,741
Starwood Hotels & Resorts
Worldwide ...................................... 261,250 16,683,425
-------------
22,552,166
-------------
SELF-STORAGE REITS-2.18%
U-Store-It Trust ................................ 868,700 18,286,135
-------------
18,286,135
-------------
SHOPPING CENTER REITS-11.31%
Developers Diversified Realty ................... 422,378 19,860,214
Federal Realty Investment Trust ................. 446,689 27,091,688
Kite Realty Group Trust ......................... 1,205,496 18,649,023
Ramco-Gershenson Properties ..................... 379,017 10,100,803
Regency Centers ................................. 327,239 19,290,739
94,992,467
-------------
TOTAL COMMON STOCK
(COST $685,715,578) ............................. 827,499,128
-------------
PRINCIPAL
AMOUNT
-------------
REPURCHASE AGREEMENTS-0.84%
With BNP Paribas 3.30% 1/03/06
(dated 12/30/05, to be repurchased at
$4,468,638, collateralized by $92,000
U.S. Treasury Bills due 1/26/06,
market value $91,492, $63,000
U.S. Treasury Bills due 2/23/06,
market value $62,542, $124,000
U.S. Treasury Bills due 5/4/06,
market value $122,389,
$827,000 U.S. Treasury Bills
due 6/1/06, market value $812,413,
$2,317,000 U.S. Treasury Bills
due 6/29/06, market value $2,269,166,
$822,000 U.S. Treasury Notes 2.625%
due 5/15/08, market value $793,268, and
$412,000 U.S. Treasury Notes 3.125%
due 5/15/07, market value $407,279) ............ $ 4,467,000 4,467,000
With UBS Warburg 3.40% 1/03/06
(dated 12/30/05, to be repurchased at
$2,608,985, collateralized by $303,000
U.S. Treasury Notes 2.00% due
5/15/06, market value $301,228, and
$2,282,000 U.S. Treasury Notes
5.625% due 5/15/08, market
value $2,361,123) .............................. 2,608,000 2,608,000
-------------
TOTAL REPURCHASE AGREEMENTS
(COST $7,075,000) .............................. 7,075,000
-------------
REIT-4
DELAWARE VIP REIT SERIES
STATEMENT OF NET ASSETS (CONTINUED)
TOTAL MARKET VALUE OF SECURITIES-99.38%
(COST $692,790,578) ............................................... $ 834,574,128
RECEIVABLES AND OTHER ASSETS NET OF LIABILITIES-0.62% .............. 5,197,666
-------------
NET ASSETS APPLICABLE TO 44,758,507 SHARES OUTSTANDING-100.00% ..... $ 839,771,794
=============
NET ASSET VALUE-DELAWARE VIP REIT SERIES STANDARD
CLASS ($637,888,748 / 33,985,528 SHARES) .......................... $ 18.77
=============
NET ASSET VALUE-DELAWARE VIP REIT SERIES SERVICE
CLASS ($201,883,046 / 10,772,979 SHARES) .......................... $ 18.74
=============
COMPONENTS OF NET ASSETS AT DECEMBER 31, 2005:
Shares of beneficial interest (unlimited authorization - no par) ... $ 618,448,943
Undistributed net investment income ................................ 31,025,294
Accumulated net realized gain on investments ....................... 48,514,007
Net unrealized appreciation of investments ......................... 141,783,550
-------------
Total net assets ................................................... $ 839,771,794
=============
- ----------
+ Non-income producing security for the year ended December 31, 2005.
# 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, 2005, the aggregate amount
of restricted securities equals $19,028,585 or 2.27% of the Series' net
assets. See Note 7 in "Notes to Financial Statements."
= The security is being fair valued in accordance with the Series' fair
valuation policy. At December 31, 2005, the aggregate amount of fair valued
securities equals $1,609,636, which represented 0.19% of the Series' net
assets. See Note 1 in "Notes to Financial Statements."
SUMMARY OF ABBREVIATIONS:
PIPE-Private Investment Public Equity
REIT-Real Estate Investment Trust
See accompanying notes
REIT-5
DELAWARE VIP TRUST-
DELAWARE VIP REIT SERIES
STATEMENT OF OPERATIONS
Year Ended December 31, 2005
INVESTMENT INCOME:
Dividends .......................................................... $ 29,330,370
Interest ........................................................... 1,026,482
-------------
30,356,852
-------------
EXPENSES:
Management fees .................................................... 5,933,692
Distribution expenses - Service Class .............................. 535,521
Accounting and administration expenses ............................. 302,079
Reports and statements to shareholders ............................. 287,476
Legal and professional fees ........................................ 122,965
Dividend disbursing and transfer agent
fees and expenses ............................................... 81,326
Insurance fees ..................................................... 61,154
Trustees' fees ..................................................... 42,625
Custodian fees ..................................................... 32,114
Registration fees .................................................. 22,049
Taxes (other than taxes on income) ................................. 19,914
Pricing fees ....................................................... 269
Other .............................................................. 22,367
-------------
7,463,551
Less waiver of distribution expenses - Service Class ............... (89,253)
Less expense paid indirectly ....................................... (11,695)
-------------
Total expenses ..................................................... 7,362,603
-------------
NET INVESTMENT INCOME .............................................. 22,994,249
-------------
NET REALIZED AND UNREALIZED GAIN
ON INVESTMENTS:
Net realized gain on investments ................................... 52,767,407
Net change in unrealized appreciation/
depreciation of investments ..................................... (21,990,619)
-------------
NET REALIZED AND UNREALIZED GAIN
ON INVESTMENTS .................................................. 30,776,788
-------------
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS ................................................. $ 53,771,037
-------------
See accompanying notes
DELAWARE VIP TRUST-
DELAWARE VIP REIT SERIES
STATEMENTS OF CHANGES IN NET ASSETS
Year Ended
------------------------------
12/31/05 12/31/04
------------- -------------
INCREASE (DECREASE) IN NET ASSETS
FROM OPERATIONS:
Net investment income .............................. $ 22,994,249 $ 17,110,912
Net realized gain on investments ................... 52,767,407 44,994,451
Net change in unrealized appreciation /
depreciation of investments ....................... (21,990,619) 97,361,571
------------- -------------
Net increase in net assets resulting
from operations ................................... 53,771,037 159,466,934
------------- -------------
DIVIDENDS AND DISTRIBUTIONS TO
SHAREHOLDERS FROM:
Net investment income:
Standard Class .................................... (11,911,298) (9,178,775)
Service Class ..................................... (2,802,570) (1,638,189)
Net realized gain on investments:
Standard Class .................................... (36,097,851) (9,510,538)
Service Class ..................................... (9,584,965) (1,866,017)
------------- -------------
(60,396,684) (22,193,519)
------------- -------------
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares sold:
Standard Class .................................... 111,459,280 216,420,373
Service Class ..................................... 63,929,983 78,318,991
Netasset value of shares issued upon reinvestment
of dividends and distributions:
Standard Class .................................... 48,009,149 18,689,313
Service Class ..................................... 12,387,535 3,504,206
------------- -------------
235,785,947 316,932,883
------------- -------------
Cost of shares repurchased:
Standard Class .................................... (139,035,302) (79,793,408)
Service Class ..................................... (35,552,569) (17,447,718)
(174,587,871) (97,241,126)
Increase in net assets derived from capital
share transactions ................................ 61,198,076 219,691,757
NET INCREASE IN NET ASSETS ......................... 54,572,429 356,965,172
NET ASSETS:
Beginning of year .................................. 785,199,365 428,234,193
------------- -------------
End of year (including undistributed
net investment income of $31,025,294
and $22,761,399, respectively) .................... $ 839,771,794 $ 785,199,365
============= =============
See accompanying notes
REIT-6
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
--------------------------------------------------------------
12/31/05 12/31/04 12/31/03 12/31/02 12/31/01
---------- ---------- ---------- ---------- ----------
Net asset value, beginning of period ....................... $ 19.080 $ 15.140 $ 11.730 $ 11.700 $ 11.020
INCOME FROM INVESTMENT OPERATIONS:
Net investment income(1) ................................... 0.523 0.504 0.586 0.534 0.571
Net realized and unrealized gain on investments ............ 0.618 4.112 3.271 0.010 0.361
---------- ---------- ---------- ---------- ----------
Total from investment operations ........................... 1.141 4.616 3.857 0.544 0.932
---------- ---------- ---------- ---------- ----------
LESS DIVIDENDS AND DISTRIBUTIONS FROM:
Net investment income ...................................... (0.360) (0.332) (0.342) (0.317) (0.209)
Net realized gain on investments ........................... (1.091) (0.344) (0.105) (0.197) (0.043)
---------- ---------- ---------- ---------- ----------
Total dividends and distributions .......................... (1.451) (0.676) (0.447) (0.514) (0.252)
---------- ---------- ---------- ---------- ----------
Net asset value, end of period ............................. $ 18.770 $ 19.080 $ 15.140 $ 11.730 $ 11.700
========== ========== ========== ========== ==========
Total return(2) ............................................ 7.17% 31.38% 34.02% 4.52% 8.79%
RATIOS AND SUPPLEMENTAL DATA:
Net assets, end of period (000 omitted) .................... $ 637,889 $ 624,223 $ 359,958 $ 225,826 $ 99,787
Ratio of expenses to average net assets .................... 0.85% 0.84% 0.86% 0.84% 0.85%
Ratio of expenses to average net assets prior to expense
limitation and expenses paid indirectly ................... 0.85% 0.84% 0.86% 0.84% 0.89%
Ratio of net investment income to average net assets ....... 2.89% 3.11% 4.51% 4.52% 5.16%
Ratio of net investment income to average net assets prior
to expense limitation and expenses paid indirectly ........ 2.89% 3.11% 4.51% 4.52% 5.12%
Portfolio turnover ......................................... 42% 38% 37% 53% 56%
- ----------
(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
REIT-7
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 YEAR ENDED
--------------------------------------------------------------
12/31/05 12/31/04 12/31/03 12/31/02 12/31/01
---------- ---------- ---------- ---------- ----------
Net asset value, beginning of period ....................... $ 19.050 $ 15.130 $ 11.720 $ 11.700 $ 11.020
INCOME FROM INVESTMENT OPERATIONS:
Net investment income(1) ................................... 0.478 0.464 0.556 0.517 0.555
Net realized and unrealized gain on investments ............ 0.622 4.102 3.283 - 0.366
---------- ---------- ---------- ---------- ----------
Total from investment operations ........................... 1.100 4.566 3.839 0.517 0.921
---------- ---------- ---------- ---------- ----------
LESS DIVIDENDS AND DISTRIBUTIONS FROM:
Net investment income ...................................... (0.319) (0.302) (0.324) (0.300) (0.198)
Net realized gain on investments ........................... (1.091) (0.344) (0.105) (0.197) (0.043)
---------- ---------- ---------- ---------- ----------
Total dividends and distributions .......................... (1.410) (0.646) (0.429) (0.497) (0.241)
---------- ---------- ---------- ---------- ----------
Net asset value, end of period ............................. $ 18.740 $ 19.050 $ 15.130 $ 11.720 $ 11.700
========== ========== ========== ========== ==========
Total return(2) ............................................ 6.86% 31.09% 33.73% 4.38% 8.67%
RATIOS AND SUPPLEMENTAL DATA:
Net assets, end of period (000 omitted) .................... $ 201,883 $ 160,976 $ 68,276 $ 28,152 $ 8,619
Ratio of expenses to average net assets .................... 1.10% 1.09% 1.08% 0.99% 1.00%
Ratio of expenses to average net assets prior to expense
limitation and expenses paid indirectly ................... 1.15% 1.14% 1.11% 0.99% 1.04%
Ratio of net investment income to average net assets ....... 2.64% 2.86% 4.29% 4.37% 5.01%
Ratio of net investment income to average net assets prior
to expense limitation and expenses paid indirectly ........ 2.59% 2.81% 4.26% 4.37% 4.97%
Portfolio turnover ......................................... 42% 38% 37% 53% 56%
- ----------
(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 and distributor, as applicable.
Performance would have been lower had the expense limitation and waiver not
been in effect.
See accompanying notes
REIT-8
DELAWARE VIP TRUST-DELAWARE VIP REIT SERIES
NOTES TO FINANCIAL STATEMENTS
December 31, 2005
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 REIT Series,
Delaware VIP Select Growth Series, Delaware VIP Small Cap Value Series, Delaware
VIP Trend Series, Delaware VIP U.S. Growth Series and Delaware VIP Value Series.
These financial statements and the related notes pertain to Delaware VIP REIT
Series (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 U.S. generally accepted
accounting principles and are consistently followed by the Series.
Security Valuation--Equity securities, except those traded on the Nasdaq Stock
Market, Inc. (Nasdaq), are valued at the last quoted sales price as of the time
of the regular close of the New York Stock Exchange (NYSE) on the valuation
date. Securities traded on the Nasdaq are valued in accordance with the Nasdaq
Official Closing Price, which may not be the last sales price. If on a
particular day an equity security does not trade, then the mean between the bid
and asked prices will be used. Short-term debt securities having less than 60
days to maturity are valued at amortized cost, which approximates market value.
Other securities and assets for which market quotations are not readily
available are valued at fair value as determined in good faith under the
direction of the Series' Board of Trustees. In determining whether market
quotations are readily available or fair valuation will be used, various factors
will be taken into consideration, such as market closures, or with respect to
foreign securities, aftermarket trading, or significant events after local
market trading (e.g., government actions or pronouncements, trading volume or
volatility on markets, exchanges among dealers, or news events).
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 pursuant to an
exemptive order issued by the Securities and Exchange Commission. The aggregate
daily balance of the pooled cash account is invested in repurchase agreements
secured by obligations of the U.S. government. The respective collateral is held
by the Series' custodian bank until the maturity of the respective repurchase
agreements. Each repurchase agreement is 102% collateralized. However, in the
event of default or bankruptcy by the counterparty to the agreement, realization
of the collateral may be subject to legal proceedings.
Use of Estimates--The preparation of financial statements in conformity with
U.S. generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from those estimates.
Other--Expenses common to all funds within the Delaware Investments Family of
Funds are allocated amongst the funds on the basis of average net assets.
Management fees and some other expenses are paid monthly. Security transactions
are recorded on the date the securities are purchased or sold (trade date) for
financial reporting purposes. Costs used in calculating realized gains and
losses on the sale of investment securities are those of the specific securities
sold. Dividend income is recorded on the ex-dividend date and interest income is
recorded on the accrual basis. Distributions received from investments in Real
Estate Investment Trusts are recorded as dividend income on ex-dividend date,
subject to reclassification upon notice of the character of such distributions
by the issuer.
The Series declares and pays dividends from net investment income and
distributions from net realized gain on investments, if any, following the close
of the fiscal year.
Subject to seeking best execution, the Series may direct certain security trades
to brokers who have agreed to rebate a portion of the related brokerage
commission to the Series in cash. Such commission rebates are included in
realized gain on investments in the accompanying financial statements and
totaled $68,664 for the year ended December 31, 2005. In general, best execution
refers to many factors, including the price paid or received for a security, the
commission charged, the promptness and reliability of execution, the
confidentiality and placement accorded the order, and other factors affecting
the overall benefit obtained by the Series on the transaction.
The Series receives earnings credits from its custodian when positive cash
balances are maintained, which are used to offset custody fees. The expense paid
under the above arrangement is included in custodian fees on the Statement of
Operations with the corresponding expense offset shown as "expense paid
indirectly."
2. INVESTMENT MANAGEMENT, ADMINISTRATION AGREEMENTS AND OTHER TRANSACTIONS WITH
AFFILIATES
In accordance with the terms of its investment management agreement, the Series
pays Delaware Management Company (DMC), a series of Delaware Management Business
Trust and the investment manager, an annual fee which is calculated daily at the
rate of 0.75% on the first $500 million of average daily net assets of the
Series, 0.70% on the next $500 million, 0.65% on the next $1.5 billion, and
0.60% on average daily net assets in excess of $2.5 billion.
REIT-9
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 June 30, 2006. No
reimbursement was due for the year ended December 31, 2005.
Delaware Service Company, Inc. (DSC), an affiliate of DMC, provides accounting,
administration, dividend disbursing and transfer agent services. Effective May
19, 2005, the Series pays DSC a monthly fee computed at the annual rate of 0.04%
of the Series' average daily net assets for accounting and administrative
services. Prior to May 19, 2005, the Series paid 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 distribution and service fee not to exceed 0.30% of the average daily net
assets of the Service Class shares. DDLP has contracted to waive distribution
and service fees through June 30, 2006 in order to prevent distribution and
service fees of the Service Class shares from exceeding 0.25% of average daily
net assets. Standard Class shares pay no distribution and service expenses.
At December 31, 2005, the Series had liabilities payable to affiliates as
follows:
DIVIDEND DISBURSING,
INVESTMENT TRANSFER AGENT, ACCOUNTING
MANAGEMENT AND ADMINISTRATION DISTRIBUTION OTHER EXPENSES
FEE PAYABLE TO FEES AND OTHER EXPENSES FEES PAYABLE PAYABLE TO DMC AND
DMC PAYABLE TO DSC TO DDLP AFFILIATES*
---------------- ------------------------------ -------------------- --------------------
$ 523,568 $ 43,902 $ 82,758 $ 76,751
*DMC, as part of its administrative services, pays operating expenses on behalf
of the Series and is reimbursed on a periodic basis. Such expenses include items
such as printing of shareholder reports, fees for audit, legal and tax services,
custodian fees and trustees' fees.
As provided in the investment management agreement, the Series bears the cost of
certain legal services expenses, including internal legal services provided to
the Series by DMC employees. For the year ended December 31, 2005, the Series
was charged $51,399 for internal legal services provided by DMC.
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, 2005, the Series made purchases and sales of
investment securities other than short-term investments as follows:
Purchases ..... $ 395,118,129
Sales ......... 326,852,066
At December 31, 2005, 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
------------------ ------------------ ------------------ ------------------
$ 692,903,328 $ 160,420,612 $ (18,749,812) $ 141,670,800
4. DIVIDEND AND DISTRIBUTION INFORMATION
Income and long-term capital gain distributions are determined in accordance
with federal income tax regulations, which may differ from U.S. generally
accepted accounting principles. Additionally, net short-term gains on sales of
investment securities are treated as ordinary income for federal income tax
purposes. The tax character of dividends and distributions paid during the years
ended December 31, 2005 and 2004 was as follows:
YEAR YEAR
ENDED ENDED
12/31/05 12/31/04
------------ ------------
Ordinary income .............. $ 21,957,797 $ 12,106,748
Long-term capital gain ....... 38,438,887 10,086,771
------------ ------------
Total ........................ $ 60,396,684 $ 22,193,519
============ ============
REIT-10
DELAWARE VIP REIT SERIES
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
4. DIVIDEND AND DISTRIBUTION INFORMATION (CONTINUED)
As of December 31, 2005, the components of net assets on a tax basis were as
follows:
Shares of beneficial interest ............ $ 618,448,943
Undistributed ordinary income ............ 31,025,294
Undistributed long-term capital gain ..... 48,626,757
Unrealized appreciation of investments ... 141,670,800
--------------
Net assets ............................... $ 839,771,794
==============
The differences between book basis and tax basis components of net assets are
primarily attributable to tax deferral of losses on wash sales.
The undistributed earnings for the Series may be subject to reclassification
upon notice of the tax character of distributions received from investments in
Real Estate Investment Trusts.
For financial reporting purposes, capital accounts are adjusted to reflect the
tax character of permanent book/tax differences. Reclassifications are primarily
due to tax treatment of dividends and distributions. Results of operations and
net assets were not affected by these reclassifications. For the year ended
December 31, 2005, the Series recorded the following reclassifications.
UNDISTRIBUTED NET ACCUMULATED NET
INVESTMENT INCOME REALIZED GAIN (LOSS)
----------------- --------------------
$ (16,486) $ 16,486
5. CAPITAL SHARES
Transactions in capital shares were as follows:
YEAR YEAR
ENDED ENDED
12/31/05 12/31/04
------------- -------------
Shares sold:
Standard Class .................... 6,092,744 13,126,531
Service Class ..................... 3,532,245 4,816,415
Shares issued upon reinvestment of
dividends and distributions:
Standard Class .................... 2,958,050 1,174,689
Service Class ..................... 762,779 220,114
------------- -------------
13,345,818 19,337,749
------------- -------------
Shares repurchased:
Standard Class .................... (7,785,003) (5,350,040)
Service Class ..................... (1,972,201) (1,098,488)
------------- -------------
(9,757,204) (6,448,528)
------------- -------------
Net increase ......................... 3,588,614 12,889,221
============= =============
6. LINE OF CREDIT
The Series, along with certain other funds in the Delaware Investments Family of
Funds (the "Participants"), participates in a $225,000,000 revolving line of
credit facility to be used for temporary or emergency purposes as an additional
source of liquidity to fund redemptions of investor shares. The Participants are
charged an annual commitment fee, which is allocated across the Participants on
the basis of each 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, 2005, 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.
The Series may invest up to 15% of its total assets in illiquid securities,
which may include securities with contractual restrictions on resale, securities
exempt from registration under Rule 144A of the Securities Act of 1933, as
amended, and other securities which may not be readily marketable. The relative
illiquidity of these securities may impair the Series from disposing of them in
a timely manner and at a fair price when it is necessary or desirable to do so.
While maintaining oversight, the Board of Trustees has delegated to DMC the
day-to-day functions of determining whether individual securities are liquid for
purposes of the Series' limitation on investments in illiquid assets. At
December 31, 2005, no securities have been determined to be illiquid under the
Series' Liquidity Procedures.
REIT-11
DELAWARE VIP REIT SERIES
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
8. CONTRACTUAL OBLIGATIONS
The Series enters into contracts in the normal course of business that contain a
variety of indemnifications. The Series' maximum exposure under these
arrangements is unknown. However, the Series has not had prior claims or losses
pursuant to these contracts. Management has reviewed the Series' existing
contracts and expects the risk of loss to be remote.
9. TAX INFORMATION (UNAUDITED)
For the fiscal year ended December 31, 2005, 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)
------------- ------------- -------------
64% 36% 100%
- ----------
(A) and (B) are based on a percentage of the Series' total distributions.
REIT-12
DELAWARE VIP TRUST-DELAWARE VIP REIT SERIES
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and Board of Trustees
Delaware VIP Trust-Delaware VIP REIT Series
We have audited the accompanying statement of net assets of the Delaware VIP
REIT Series (one of the series constituting Delaware VIP Trust) (the "Series")
as of December 31, 2005, 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 five years
in the period then ended. 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 the standards of the Public Company
Accounting Oversight Board (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. We were
not engaged to perform an audit of the Series' internal control over financial
reporting. Our audits included consideration of internal control over financial
reporting as a basis for designing audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion on the
effectiveness of the Series' internal control over financial reporting.
Accordingly, we express no such opinion. An audit also includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements and financial highlights, assessing the accounting principles used
and significant estimates made by management, and evaluating the overall
financial statement presentation. Our procedures included confirmation of
securities owned as of December 31, 2005, by correspondence with the custodian
and brokers. 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 the
Delaware VIP REIT Series of Delaware VIP Trust at December 31, 2005, 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 five years in the period then ended, in conformity with U.S.
generally accepted accounting principles.
/s/ ERNST & YOUNG LLP
Philadelphia, Pennsylvania
February 10, 2006
The Series files its complete schedule of portfolio holdings with the Securities
and Exchange Commission for the first and third quarters of each fiscal year on
Form N-Q. The Series' Forms N-Q, as well as a description of the policies and
procedures that the Series uses to determine how to vote proxies (if any)
relating to portfolio securities is available without charge (i) upon request,
by calling 800-523-1918; (ii) on the Series' website at
http://www.delawareinvestments.com; and (iii) on the Commission's website at
http://www.sec.gov. The Series' Forms N-Q may be reviewed and copied at the
Commission's Public Reference Room in Washington, DC; information on the
operation of the Public Reference Room may be obtained by calling
1-800-SEC-0330. Information (if any) regarding how the Series voted proxies
relating to portfolio securities during the most recently disclosed 12-month
period ended June 30 is available without charge (i) through the Series' website
at http://www.delawareinvestments.com; and (ii) on the Commission's website at
http://www.sec.gov.
REIT-13
DELAWARE INVESTMENTS(R) FAMILY OF FUNDS
BOARD OF TRUSTEES/DIRECTORS AND OFFICERS ADDENDUM
A mutual fund is governed by a Board of Trustees/Directors ("Trustees"), which
has oversight responsibility for the management of a fund's business affairs.
Trustees establish procedures and oversee and review the performance of the
investment manager, the distributor and others who perform services for the
fund. The independent fund trustees, in particular, are advocates for
shareholder interests. Each trustee has served in that capacity since he or she
was elected to or appointed to the Board of Trustees, and will continue to serve
until his or her retirement or the election of a new trustee in his or her
place. The following is a list of the Trustees and Officers with certain
background and related information.
NUMBER OF OTHER
PRINCIPAL PORTFOLIOS IN FUND DIRECTORSHIPS
NAME, POSITION(S) LENGTH OCCUPATION(S) COMPLEX OVERSEEN HELD BY
ADDRESS HELD WITH OF TIME DURING BY TRUSTEE TRUSTEE
AND BIRTHDATE FUND(S) SERVED PAST 5 YEARS OR OFFICER OR OFFICER
- ------------------------ ------------------- -------------- ---------------------------- ------------------ ------------------
INTERESTED TRUSTEES
JUDE T. DRISCOLL(2) Chairman, 5 Years - Since August 2000, 87 None
2005 Market Street President, Executive Mr. Driscoll has served in
Philadelphia, PA Chief Executive Officer various executive capacities
19103 Officer and 2 Years - at different times at
Trustee Trustee Delaware Investments(1)
March 10, 1963
INDEPENDENT TRUSTEES
THOMAS L. BENNETT Trustee Since Private Investor - 87 None
2005 Market Street March 23, 2005 (March 2004 - Present)
Philadelphia, PA
19103 Investment Manager -
Morgan Stanley & Co.
October 4, 1947 (January 1984 - March 2004)
JOHN A. FRY Trustee 4 Years President - 87 Director -
2005 Market Street Franklin & Marshall College Community Health
Philadelphia, PA (June 2002 - Present) Systems
19103
Executive Vice President -
May 28, 1960 University of Pennsylvania
(April 1995 - June 2002)
ANTHONY D. KNERR Trustee 12 Years Founder/Managing Director - 87 None
2005 Market Street Anthony Knerr & Associates
Philadelphia, PA (Strategic Consulting)
19103 (1990 - Present)
December 7, 1938
LUCINDA S. LANDRETH Trustee Since Chief Investment Officer - 87 None
2005 Market Street March 23, 2005 Assurant, Inc.
Philadelphia, PA (Insurance)
19103 (2002 - 2004)
June 24, 1947
ANN R. LEVEN Trustee 16 Years Treasurer/Chief Fiscal 87 Director and
2005 Market Street Officer - National Gallery Audit Committee
Philadelphia, PA of Art (1994 - 1999) Chairperson - Andy
19103 Warhol Foundation
November 1, 1940 Director and Audit
Committee Member -
Systemax Inc.
REIT-14
NUMBER OF OTHER
PRINCIPAL PORTFOLIOS IN FUND DIRECTORSHIPS
NAME, POSITION(S) LENGTH OCCUPATION(S) COMPLEX OVERSEEN HELD BY
ADDRESS HELD WITH OF TIME DURING BY TRUSTEE TRUSTEE
AND BIRTHDATE FUND(S) SERVED PAST 5 YEARS OR OFFICER OR OFFICER
- ------------------------ ------------------- -------------- ---------------------------- ------------------ ------------------
INDEPENDENT TRUSTEES
THOMAS F. MADISON Trustee 11 Years President/Chief 87 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 and Audit
Committee Member -
Digital River Inc.
Director and Audit
Committee Member -
Rimage Corporation
Director - Valmont
Industries, Inc.
JANET L. YEOMANS Trustee 6 Years Vice President 87 None
2005 Market Street (January 2003 - Present)
Philadelphia, PA and Treasurer
19103 (January 2006 - Present)
3M Corporation
July 31, 1948 Ms. Yeomans has held
various management positions
at 3M Corporation
since 1983.
J. RICHARD ZECHER Trustee Since Founder - 87 Director and Audit
2005 Market Street March 23, 2005 Investor Analytics Committee Member -
Philadelphia, PA (Risk Management) Investor Analytics
19103 (May 1999 - Present)
Director and Audit
July 3, 1940 Committee Member -
Oxigene, Inc.
OFFICERS
MICHAEL P. BISHOF Senior Chief Mr. Bishof has served in 87 None(3)
2005 Market Street Vice President and Financial various executive capacities
Philadelphia, PA Chief Financial Officer since at different times at
19103 Officer February 17, Delaware Investments.
2005
August 18, 1962
DAVID F. CONNOR Vice President, Vice President Mr. Connor has served as 87 None(3)
2005 Market Street Deputy General since Vice President and Deputy
Philadelphia, PA Counsel and September 21, General Counsel of Delaware
19103 Secretary 2000 and Investments since 2000.
Secretary
since
October 25,
2005
December 2, 1963
DAVID P. O'CONNOR Senior Vice Senior Vice Mr. O'Connor has served in 87 None(3)
2005 Market Street President, President, various executive and legal
Philadelphia, PA General Counsel General capacities at different
19103 and Chief Counsel and times at Delaware
Legal Officer Chief Legal Investments.
Officer since
October 25,
2005
February 21, 1966
JOHN J. O'CONNOR Senior Vice Treasurer Mr. O'Connor has served in 87 None(3)
2005 Market Street President and since various executive capacities
Philadelphia, PA Treasurer February 17, at different times at
19103 2005 Delaware Investments.
June 16, 1957
(1) Delaware Investments is the marketing name for Delaware Management
Holdings, Inc. and its subsidiaries, including the Fund's(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(s') manager and distributor.
(3) Mr. Bishof, Mr. Connor, Mr. David P. O'Connor and Mr. John J. O'Connor
serve in similar capacities for the six portfolios of the Optimum Fund
Trust, which have the same investment advisor, principal underwriter, and
transfer agent as the registrant. Mr. John J. O'Connor also serves in a
similar capacity for Lincoln Variable Insurance Products Trust, which has
the same investment advisor as the registrant.
The Statement of Additional Information for the Fund(s) includes additional
information about the Trustees and Officers and is available, without charge,
upon request by calling 800 523-1918.
REIT-15
DELAWARE VIP TRUST - DELAWARE VIP SELECT GROWTH SERIES
Delaware VIP Select Growth Series, for the 12-month period ended
December 31, 2005, returned 16.78% for Standard Class shares and 16.57% for
Service Class shares (both figures reflect all distributions reinvested). The
Russell 3000 Growth Index - the benchmark for the Delaware VIP Select Growth
Series - grew 5.17% during the same 12-month period.
During the second quarter, management responsibilities for the portfolio
were transitioned to Jeffrey S. Van Harte, Christopher J. Bonavico,
Kenneth F. Broad, Greg Heywood, Partick G. Fortier, and Daniel J. Prislin. The
portfolio underwent a major repositioning during the second quarter to reflect
the team's particular investment philosophy. The team takes a focused approach
to portfolio construction, generally holding between 35 and 50 companies. The
team strives to maximize return potential based on each unit of risk taken on,
balancing each company's expected return against an assessment of its
fundamental and valuation risk. During the portion of the fiscal year that it
managed the Series, the team emphasized intrinsic business value and the cash
economics of investment candidates when selecting holdings for the portfolio. It
also sought to identify companies with strong barriers to entry and sustainable
competitive advantages within an industry.
At year end, the Series held 41 equity securities. Major positions included
Internet-based movie subscription service NetFlix, memory card maker SanDisk,
Jackson Hewitt Tax Service, and UnitedHealth Group. SanDisk in particular was a
strong performer after the management transition, as investors began to realize
the potential of the company's markets and that it is more than a commodity chip
maker.
PERFORMANCE OF A $10,000 INVESTMENT:
5/31/1999 $ 10,000
5/31/1999 $ 10,000 $ 11,446 $ 10,000
12/31/1999 $ 12,929 $ 14,290 $ 11,367
12/31/2000 $ 10,030 $ 11,081 $ 10,333
12/31/2001 $ 8,061 $ 8,445 $ 9,105
12/31/2002 $ 5,802 $ 5,698 $ 7,094
12/31/2003 $ 7,599 $ 7,947 $ 9,128
12/31/2004 $ 8,125 $ 8,608 $ 10,120
12/31/2005 $ 8,545 $ 10,053 $ 10,617
DELAWARE VIP SELECT GROWTH SERIES
AVERAGE ANNUAL TOTAL RETURNS
For the periods ended December 31, 2005
STANDARD CLASS SERVICE CLASS
SHARES* SHARES**
-------------- --------------
LIFETIME +0.08% -5.10%
FIVE YEAR -1.93% -2.11%
ONE YEAR +16.78% +16.57%
* 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, 2005. All distributions were reinvested. The chart also
shows a $10,000 investment in the Russell 3000 Growth Index at 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 Russell 3000 Growth 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. 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. Series that
invest in small and/or medium-sized companies typically involve greater risk,
particularly in the short term, than those investing in larger, more established
companies.
Select Growth-1
DELAWARE VIP TRUST-DELAWARE VIP SELECT GROWTH SERIES
DISCLOSURE OF SERIES EXPENSES
For the Period July 1, 2005 to December 31, 2005
As a shareholder of the Series, you incur ongoing costs, including management
fees; distribution and/or service (12b-1) fees; and other Series expenses. This
Example is intended to help you understand your ongoing costs (in dollars) of
investing in the Series and to compare these costs with the ongoing costs of
investing in other mutual funds.
The Example is based on an investment of $1,000 invested at the beginning of the
period and held for the entire period from July 1, 2005 to December 31, 2005.
ACTUAL EXPENSES
The first section of the table shown, "Actual Series Return," provides
information about actual account values and actual expenses. You may use the
information in this section of the table, together with the amount you invested,
to estimate the expenses that you paid over the period. Simply divide your
account value by $1,000 (for example, an $8,600 account value divided by $1,000
= 8.6), then multiply the result by the number in the first section under the
heading entitled "Expenses Paid During Period" to estimate the expenses you paid
on your account during the period.
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The second section of the table shown, "Hypothetical 5% Return," provides
information about hypothetical account values and hypothetical expenses based on
the Series' actual expense ratio and an assumed rate of return of 5% per year
before expenses, which is not the Series' actual return. The hypothetical
account values and expenses may not be used to estimate the actual ending
account balance or expenses you paid for the period. You may use this
information to compare the ongoing costs of investing in the Series and other
funds. To do so, compare the 5% hypothetical example with the 5% hypothetical
examples that appear in the shareholder reports of other funds.
Please note that the expenses shown in the table are meant to highlight your
ongoing costs only. As a shareholder of the Series, you do not incur any
transaction costs, such as sales charges (loads), redemption fees or exchange
fees, but shareholders of other funds may incur such costs. Also, the fees
related to the variable annuity investment or the deferred sales charge that
could apply have not been included. Therefore, the second section of the table
is useful in comparing ongoing costs only, and will not help you determine the
relative total costs of owning different funds. The Series' actual expenses
shown in the table reflect fee waivers in effect. The expenses shown in the
table assume reinvestment of all dividends and distributions.
EXPENSE ANALYSIS OF AN INVESTMENT OF $1,000
EXPENSES
BEGINNING ENDING PAID DURING
ACCOUNT ACCOUNT ANNUALIZED PERIOD
VALUE VALUE EXPENSE 7/1/05 TO
7/1/05 12/31/05 RATIOS 12/31/05*
------------- ------------- ------------- -------------
ACTUAL SERIES RETURN
Standard Class $ 1,000.00 $ 1,191.80 0.91% $ 5.03
Service Class 1,000.00 1,191.20 1.16% 6.41
HYPOTHETICAL 5% RETURN (5% RETURN BEFORE EXPENSES)
Standard Class $ 1,000.00 $ 1,020.62 0.91% $ 4.63
Service Class 1,000.00 1,019.36 1.16% 5.90
*"Expenses paid During Period" are equal to the Series' annualized expense
ratio, multiplied by the average account value over the period, multiplied by
184/365 (to reflect the one-half year period).
Select Growth-2
DELAWARE VIP TRUST-DELAWARE VIP SELECT GROWTH SERIES
SECTOR ALLOCATION
As of December 31, 2005
Sector designations may be different than the sector designations presented in
other Series materials.
PERCENTAGE
SECTOR OF NET ASSETS
- ----------------------------------------------- -------------
COMMON STOCK 100.02%
-------------
Basic Industry/Capital Goods 2.33%
Business Services 5.26%
Consumer Non-Durables 17.33%
Consumer Services 33.23%#
Energy 0.56%
Financials 4.59%
Health Care 15.56%
Technology 21.16%
-------------
REPURCHASE AGREEMENTS 0.11%
-------------
TOTAL MARKET VALUE OF SECURITIES 100.13%
-------------
LIABILITIES NET OF RECEIVABLES AND OTHER ASSETS (0.13)%
-------------
TOTAL NET ASSETS 100.00%
-------------
# Narrow industries are utilized for compliance purposes for diversification
whereas broad sectors are used for financial reporting.
Select Growth-3
DELAWARE VIP TRUST-DELAWARE VIP SELECT GROWTH SERIES
STATEMENT OF NET ASSETS
December 31, 2005
NUMBER OF MARKET
SHARES VALUE
------------ ------------
COMMON STOCK-100.02%
BASIC INDUSTRY/CAPITAL GOODS-2.33%
Graco ...................................... 8,000 $ 291,840
Newmont Mining ............................. 1,400 74,760
Praxair .................................... 3,500 185,360
------------
551,960
------------
BUSINESS SERVICES-5.26%
Expeditors International Washington ........ 8,900 600,839
First Data ................................. 7,400 318,274
Paychex .................................... 8,600 327,832
------------
1,246,945
------------
CONSUMER NON-DURABLES-17.33%
Best Buy ................................... 1,950 84,786
+Blue Nile .................................. 28,500 1,148,835
+NetFlix .................................... 74,400 2,013,264
Staples .................................... 9,500 215,745
Tuesday Morning ............................ 17,000 355,640
Walgreen ................................... 6,500 287,690
------------
4,105,960
------------
CONSUMER SERVICES-33.23%#
+Apollo Group Class A ....................... 5,800 350,668
+eBay ....................................... 11,700 506,025
GTECH Holdings ............................. 28,500 904,590
IHOP ....................................... 15,700 736,487
International Game Technology .............. 26,600 818,748
Jackson Hewitt Tax Service ................. 34,400 953,224
+Liberty Global Class A ..................... 10,600 238,500
+Liberty Global Class C ..................... 17,500 371,000
+MGM MIRAGE ................................. 9,000 330,030
ServiceMaster .............................. 34,500 412,275
Strayer Education .......................... 9,450 885,465
+Weight Watchers International .............. 15,900 785,937
+XM Satellite Radio Holdings Class A ........ 21,200 578,336
------------
7,871,285
------------
ENERGY-0.56%
EOG Resources .............................. 1,800 132,066
------------
132,066
------------
FINANCIALS-4.59%
Chicago Mercantile Exchange ................ 1,410 518,161
+NETeller ................................... 16,500 209,116
Plum Creek Timber .......................... 10,000 360,500
------------
1,087,777
------------
HEALTH CARE-15.56%
Allergan ................................... 10,500 1,133,580
+Genentech .................................. 7,000 647,500
+Myogen ..................................... 5,600 168,896
UnitedHealth Group ......................... 14,050 873,067
+Zimmer Holdings ............................ 12,800 863,232
------------
3,686,275
------------
NUMBER OF MARKET
SHARES VALUE
------------ ------------
COMMON STOCK (CONTINUED)
TECHNOLOGY-21.16%
+Intuit ..................................... 13,700 $ 730,210
Microsoft .................................. 5,800 151,670
+NAVTEQ ..................................... 18,000 789,660
QUALCOMM ................................... 27,600 1,189,008
+SanDisk .................................... 25,700 1,614,474
Sprint ..................................... 19,773 461,897
+Yahoo ...................................... 1,900 74,442
------------
5,011,361
------------
TOTAL COMMON STOCK
(COST $19,032,586) ........................ 23,693,629
------------
PRINCIPAL
AMOUNT
------------
REPURCHASE AGREEMENTS-0.11%
With BNP Paribas 3.30% 1/03/06
(dated 12/30/05, to be repurchased at
$15,796, collateralized by $320 U.S.
Treasury Bills due 1/26/06, market value
$323, $220 U.S. Treasury Bills due 2/23/06,
market value $221, $440 U.S. Treasury Bills
due 5/4/06, market value $432, $2,920 U.S.
Treasury Bills due 6/1/06, market value
$2,871, $8,190 U.S. Treasury Bills due
6/29/06, market value $8,018, $2,910 U.S.
Treasury Notes 2.625% due 5/15/08, market
value $2,803, and $1,460 U.S. Treasury
Notes 3.125% due 5/15/07, market
value $1,439) ............................. $ 15,790 15,790
With UBS Warburg 3.40% 1/03/06
(dated 12/30/05, to be repurchased at
$9,213, collateralized by $1,070 U.S.
Treasury Notes 2.00% due 5/15/06, market
value $1,064, and $8,060 U.S. Treasury
Notes 5.625% due 5/15/08, market
value $8,343) ............................. 9,210 9,210
------------
TOTAL REPURCHASE AGREEMENTS
(COST $25,000) ............................ 25,000
------------
Select Growth-4
DELAWARE VIP SELECT GROWTH SERIES
STATEMENT OF NET ASSETS (CONTINUED)
TOTAL MARKET VALUE OF SECURITIES-100.13% (COST $19,057,586) .. $ 23,718,629
LIABILITIES NET OF RECEIVABLES AND OTHER ASSETS-(0.13%) ...... (30,275
------------
NET ASSETS APPLICABLE TO 2,402,172 SHARES
OUTSTANDING-100.00% ......................................... $ 23,688,354
============
NET ASSET VALUE-DELAWARE VIP SELECT GROWTH SERIES STANDARD
CLASS ($18,612,540 / 1,882,962 SHARES) ...................... $ 9.88
============
NET ASSET VALUE-DELAWARE VIP SELECT GROWTH SERIES
SERVICE CLASS ($5,075,814 / 519,210 shares) ................. $ 9.78
============
COMPONENTS OF NET ASSETS AT DECEMBER 31, 2005:
Shares of beneficial interest (unlimited
authorization-no par) ....................................... $ 69,309,282
Accumulated net realized loss on investments ................. (50,281,971)
Net unrealized appreciation of investments ................... 4,661,043
------------
Total net assets ............................................. $ 23,688,354
============
- ----------
+ Non-income producing security for the year ended December 31, 2005.
# Narrow industries are utilized for compliance purposes for diversification
whereas broad sectors are used for financial reporting.
See accompanying notes
Select Growth-5
DELAWARE VIP TRUST-DELAWARE VIP SELECT GROWTH SERIES
STATEMENT OF OPERATIONS
Year Ended December 31, 2005
INVESTMENT INCOME:
Dividends ............................................ $ 133,678
Interest ............................................. 14,966
------------
148,644
------------
EXPENSES:
Management fees ...................................... 173,070
Reports and statements to shareholders ............... 15,966
Distribution expenses - Service Class ................ 14,282
Legal and professional fees .......................... 13,004
Accounting and administration expenses ............... 8,496
Custodian fees ....................................... 4,591
Dividend disbursing and transfer agent fees
and expenses ........................................ 2,308
Insurance fees ....................................... 1,837
Trustees' fees ....................................... 1,225
Taxes (other than taxes on income) ................... 1,084
Pricing fees ......................................... 395
Other ................................................ 2,492
------------
238,750
Less expenses absorbed or waived ..................... (16,743)
Less waiver of distribution
expenses - Service Class ............................ (2,380)
Less expense paid indirectly ......................... (315)
------------
Total expenses ....................................... 219,312
------------
NET INVESTMENT LOSS .................................. (70,668)
------------
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS AND FOREIGN CURRENCIES:
Net realized gain on:
Investments ....................................... 3,605,636
Foreign currencies ................................ 91
------------
Net realized gain .................................... 3,605,727
Net change in unrealized appreciation/depreciation
of investments and foreign currencies ............... (97,657)
------------
NET REALIZED AND UNREALIZED
GAIN ON INVESTMENTS AND
FOREIGN CURRENCIES .................................. 3,508,070
------------
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS ..................................... $ 3,437,402
============
See accompanying notes
DELAWARE VIP TRUST-DELAWARE VIP SELECT GROWTH SERIES
STATEMENTS OF CHANGES IN NET ASSETS
YEAR ENDED
---------------------------
12/31/05 12/31/04
------------ ------------
INCREASE (DECREASE) IN NET
ASSETS FROM OPERATIONS:
Net investment loss ........................ $ (70,668) $ (49,087)
Net realized gain on investments
and foreign currencies .................... 3,605,727 2,601,343
Net change in unrealized appreciation/
depreciation of investments and
foreign currencies ........................ (97,657) (540,650)
------------ ------------
Net increase in net assets resulting
from operations ........................... 3,437,402 2,011,606
------------ ------------
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares sold:
Standard Class .......................... 271,657 527,007
Service Class ........................... 245,554 49,437
------------ ------------
517,211 576,444
------------ ------------
Cost of shares repurchased:
Standard Class .......................... (4,882,598) (4,747,570)
Service Class ........................... (1,024,469) (957,768)
------------ ------------
(5,907,067) (5,705,338)
------------ ------------
Decrease in net assets derived from
capital share transactions ................ (5,389,856) (5,128,894)
NET DECREASE IN NET ASSETS ................. (1,952,454) (3,117,288)
NET ASSETS:
Beginning of year .......................... 25,640,808 28,758,096
------------ ------------
End of year (there was no undistributed
net investment income at either
year end) ................................. $ 23,688,354 $ 25,640,808
============ ============
See accompanying notes
Select Growth-6
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 YEAR ENDED
--------------------------------------------------------------
12/31/05 12/31/04 12/31/03 12/31/02 12/31/01
---------- ---------- ---------- ---------- ----------
Net asset value, beginning of period ...................... $ 8.460 $ 7.810 $ 5.600 $ 8.300 $ 10.890
INCOME (LOSS) FROM INVESTMENT OPERATIONS:
Net investment loss(1) .................................... (0.022) (0.011) (0.016) (0.024) (0.019)
Net realized and unrealized gain (loss) on investments
and foreign currencies ................................... 1.442 0.661 2.226 (2.676) (2.571)
---------- ---------- ---------- ---------- ----------
Total from investment operations .......................... 1.420 0.650 2.210 (2.700) (2.590)
---------- ---------- ---------- ---------- ----------
Net asset value, end of period ............................ $ 9.880 $ 8.460 $ 7.810 $ 5.600 $ 8.300
========== ========== ========== ========== ==========
Total return(2) ........................................... 16.78% 8.32% 39.46% (32.53)% (23.78)%
RATIOS AND SUPPLEMENTAL DATA:
Net assets, end of period (000 omitted) ................... $ 18,612 $ 20,493 $ 23,089 $ 27,056 $ 55,104
Ratio of expenses to average net assets ................... 0.90% 0.83% 0.83% 0.86% 0.85%
Ratio of expenses to average net assets prior to expense
limitation and expenses paid indirectly .................. 0.97% 0.83% 0.83% 0.86% 0.88%
Ratio of net investment loss to average net assets ........ (0.26)% (0.14)% (0.24)% (0.35)% (0.22)%
Ratio of net investment loss to average net assets prior
to expense limitation and expenses paid indirectly ....... (0.33)% (0.14)% (0.24)% (0.35)% (0.25)%
Portfolio turnover ........................................ 133% 86% 72% 106% 135%
- ----------
(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
Select Growth-7
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 YEAR ENDED
--------------------------------------------------------------
12/31/05 12/31/04 12/31/03 12/31/02 12/31/01
---------- ---------- ---------- ---------- ----------
Net asset value, beginning of period ...................... $ 8.390 $ 7.760 $ 5.580 $ 8.280 $ 10.880
INCOME (LOSS) FROM INVESTMENT OPERATIONS:
Net investment loss(1) .................................... (0.043) (0.030) (0.030) (0.034) (0.032)
Net realized and unrealized gain (loss) on investments
and foreign currencies ................................... 1.433 0.660 2.210 (2.666) (2.568)
---------- ---------- ---------- ---------- ----------
Total from investment operations .......................... 1.390 0.630 2.180 (2.700) (2.600)
---------- ---------- ---------- ---------- ----------
Net asset value, end of period ............................ $ 9.780 $ 8.390 $ 7.760 $ 5.580 $ 8.280
========== ========== ========== ========== ==========
Total return(2) ........................................... 16.57% 8.12% 39.07% (32.61)% (23.90)%
RATIOS AND SUPPLEMENTAL DATA:
Net assets, end of period (000 omitted) ................... $ 5,076 $ 5,148 $ 5,670 $ 7,018 $ 14,498
Ratio of expenses to average net assets ................... 1.15% 1.08% 1.05% 1.01% 1.00%
Ratio of expenses to average net assets prior to expense
limitation and expenses paid indirectly .................. 1.27% 1.13% 1.08% 1.01% 1.03%
Ratio of net investment loss to average net assets ........ (0.51)% (0.39)% (0.46)% (0.50)% (0.37)%
Ratio of net investment loss to average net assets prior
to expense limitation and expenses paid indirectly ....... (0.63)% (0.44)% (0.49)% (0.50)% (0.40)%
Portfolio turnover ........................................ 133% 86% 72% 106% 135%
- ----------
(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 and distributor, as applicable.
Performance would have been lower had the expense limitation not been in
effect.
See accompanying notes
Select Growth-8
DELAWARE VIP TRUST-DELAWARE VIP SELECT GROWTH SERIES
NOTES TO FINANCIAL STATEMENTS
December 31, 2005
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 REIT Series,
Delaware VIP Select Growth Series, Delaware VIP Small Cap Value Series, Delaware
VIP Trend Series, Delaware VIP U.S. Growth Series and Delaware VIP Value Series.
These financial statements and the related notes pertain to Delaware VIP Select
Growth Series (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 U.S. generally accepted
accounting principles and are consistently followed by the Series.
Security Valuation--Equity securities, except those traded on the Nasdaq Stock
Market, Inc. (Nasdaq), are valued at the last quoted sales price as of the time
of the regular close of the New York Stock Exchange (NYSE) on the valuation
date. Securities traded on the Nasdaq are valued in accordance with the Nasdaq
Official Closing Price, which may not be the last sales price. If on a
particular day an equity security does not trade, then the mean between the bid
and asked prices will be used. Short-term debt securities having less than 60
days to maturity are valued at amortized cost, which approximates market value.
Other securities and assets for which market quotations are not readily
available are valued at fair value as determined in good faith under the
direction of the Series' Board of Trustees. In determining whether market
quotations are readily available or fair valuation will be used, various factors
will be taken into consideration, such as market closures, or with respect to
foreign securities, aftermarket trading, or significant events after local
market trading (e.g., government actions or pronouncements, trading volume or
volatility on markets, exchanges among dealers, or news events).
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 pursuant to an
exemptive order issued by the Securities and Exchange Commission. The aggregate
daily balance of the pooled cash account is invested in repurchase agreements
secured by obligations of the U.S. government. The respective collateral is held
by the Series' custodian bank until the maturity of the respective repurchase
agreements. Each repurchase agreement is 102% collateralized. However, in the
event of default or bankruptcy by the counterparty to the agreement, realization
of the collateral may be subject to legal proceedings.
Use of Estimates--The preparation of financial statements in conformity with
U.S. generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from those estimates.
Other--Expenses common to all funds within the Delaware Investments Family of
Funds are allocated amongst the funds on the basis of average net assets.
Management fees and some other expenses are paid monthly. Security transactions
are recorded on the date the securities are purchased or sold (trade date) for
financial reporting purposes. Costs used in calculating realized gains and
losses on the sale of investment securities are those of the specific securities
sold. Dividend income is recorded on the ex-dividend date and interest income is
recorded on the accrual basis.
The Series declares and pays dividends from net investment income and
distributions from net realized gain on investments, if any, following the close
of the fiscal year.
Subject to seeking best execution, the Series may direct certain security trades
to brokers who have agreed to rebate a portion of the related brokerage
commission to the Series in cash. Such commission rebates are included in
realized gain on investments in the accompanying financial statements and
totaled $919 for the year ended December 31, 2005. In general, best execution
refers to many factors, including the price paid or received for a security, the
commission charged, the promptness and reliability of execution, the
confidentiality and placement accorded the order, and other factors affecting
the overall benefit obtained by the Series on the transaction.
The Series may receive earnings credits from its custodian when positive cash
balances are maintained, which are used to offset custody fees. The expense paid
under the above arrangement is included in custodian fees on the Statement of
Operations with the corresponding expense offset shown as "expense paid
indirectly."
2. INVESTMENT MANAGEMENT, ADMINISTRATION AGREEMENTS AND OTHER
TRANSACTIONS WITH AFFILIATES
In accordance with the terms of its investment management agreement, the Series
pays Delaware Management Company (DMC), a series of Delaware Management Business
Trust and the investment manager, an annual fee which is calculated daily at the
rate of 0.75% on the first $500 million of average daily net assets of the
Series, 0.70% on the next $500 million, 0.65% on the next $1.5 billion, and
0.60% on average daily net assets in excess of $2.5 billion.
DMC has contractually agreed to waive that portion, if any, of its
management fee and reimburse the Series to the extent necessary to ensure that
annual operating expenses, exclusive of taxes, interest, brokerage commissions,
distribution fees, certain insurance costs and extraordinary expenses, do not
exceed 0.90% of average daily net assets of the Series through June 30, 2006.
Select Growth-9
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. Effective
May 19, 2005, the Series pays DSC a monthly fee computed at the annual rate of
0.04% of the Series' average daily net assets for accounting and administrative
services. Prior to May 19, 2005, the Series paid 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 distribution and service fee not to exceed 0.30% of the average daily net
assets of the Service Class shares. DDLP has contracted to waive distribution
and service fees through June 30, 2006 in order to prevent distribution and
service fees of the Service Class shares from exceeding 0.25% of average daily
net assets. Standard Class shares pay no distribution and service expenses.
At December 31, 2005, the Series had liabilities payable to affiliates as
follows:
DIVIDEND DISBURSING,
INVESTMENT TRANSFER AGENT, ACCOUNTING
MANAGEMENT AND ADMINISTRATION DISTRIBUTION OTHER EXPENSES
FEE PAYABLE TO FEES AND OTHER EXPENSES FEES PAYABLE PAYABLE TO DMC AND
DMC PAYABLE TO DSC TO DDLP AFFILIATES*
---------------- ------------------------------ -------------------- --------------------
$ 9,556 $ 1,254 $ 2,149 $ 18,494
*DMC, as part of its administrative services, pays operating expenses on behalf
of the Series and is reimbursed on a periodic basis. Such expenses include items
such as printing of shareholder reports, fees for audit, legal and tax services,
custodian fees and trustees' fees.
As provided in the investment management agreement, the Series bears the cost of
certain legal services expenses, including internal legal services provided to
the Series by DMC employees. For the year ended December 31, 2005, the Series
was charged $1,444 for internal legal services provided by DMC.
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, 2005, the Series made purchases and sales of
investment securities other than short-term investments as follows:
Purchases ..... $ 29,994,589
Sales ......... $ 34,364,440
At December 31, 2005, 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
------------------ ------------------ ------------------ ------------------
$ 19,082,048 $ 4,917,896 $ (281,315) $ 4,636,581
4. DIVIDEND AND DISTRIBUTION INFORMATION
Income and long-term capital gain distributions are determined in accordance
with federal income tax regulations, which may differ from U.S. generally
accepted accounting principles. Additionally, gains (losses) on foreign currency
transactions and net short-term gains on sales of investment securities are
treated as ordinary income for federal income tax purposes. There were no
dividends and distributions paid during the years ended December 31, 2005 and
2004.
As of December 31, 2005, the components of net assets on a tax basis were as
follows:
Shares of beneficial interest .......... $ 69,309,282
Capital loss carryforwards ............. (50,257,509)
Unrealized appreciation of investments . 4,636,581
-------------
Net assets ............................. $ 23,688,354
=============
The differences between book basis and tax basis components of net assets are
primarily attributable to tax deferral of losses on wash sales.
Select Growth-10
DELAWARE VIP SELECT GROWTH SERIES
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
4. DIVIDEND AND DISTRIBUTION INFORMATION (CONTINUED)
For financial reporting purposes, capital accounts are adjusted to reflect the
tax character of permanent book/tax differences. Reclassifications are primarily
due to tax treatment of net operating losses and gain (loss) on foreign currency
transactions. Results of operations and net assets were not affected by these
reclassifications. For the year ended December 31, 2005, the Series recorded the
following reclassifications.
ACCUMULATED ACCUMULATED
NET NET REALIZED GAIN PAID-IN
INVESTMENT LOSS (LOSS) ON INVESTMENTS CAPITAL
--------------- --------------------- ---------
$ 70,668 $ (91) $ (70,577)
For federal income tax purposes, capital loss carryforwards may be carried
forward and applied against future capital gains. $3,104,877 was utilized in
2005. Capital loss carryforwards remaining at December 31, 2005 will expire as
follows: $5,202,631 expires in 2008, $30,958,389 expires in 2009, $10,812,739
expires in 2010 and $3,283,750 expires in 2011.
5. CAPITAL SHARES
Transactions in capital shares were as follows:
YEAR YEAR
ENDED ENDED
12/31/05 12/31/04
------------ ------------
Shares sold:
Standard Class .... 30,108 66,268
Service Class ..... 25,633 6,236
------------ ------------
55,741 72,504
------------ ------------
Shares repurchased:
Standard Class .... (569,367) (601,945)
Service Class ..... (120,148) (123,232)
------------ ------------
(689,515) (725,177)
------------ ------------
Net decrease ......... (633,774) (652,673)
============ ============
6. LINE OF CREDIT
The Series, along with certain other funds in the Delaware Investments Family of
Funds (the "Participants"), participates in a $225,000,000 revolving line of
credit facility to be used for temporary or emergency purposes as an additional
source of liquidity to fund redemptions of investor shares. The Participants are
charged an annual commitment fee, which is allocated across the Participants on
the basis of each 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, 2005, 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.
The Series may invest up to 15% of its total assets in illiquid securities,
which may include securities with contractual restrictions on resale, securities
exempt from registration under Rule 144A of the Securities Act of 1933, as
amended, and other securities which may not be readily marketable. The relative
illiquidity of these securities may impair the Series from disposing of them in
a timely manner and at a fair price when it is necessary or desirable to do so.
While maintaining oversight, the Board of Trustees has delegated to DMC the
day-to-day functions of determining whether individual securities are liquid for
purposes of the Series' limitation on investments in illiquid assets. At
December 31, 2005, no securities have been determined to be illiquid under the
Series' Liquidity Procedures.
8. CONTRACTUAL OBLIGATIONS
The Series enters into contracts in the normal course of business that contain a
variety of indemnifications. The Series' maximum exposure under these
arrangements is unknown. However, the Series has not had prior claims or losses
pursuant to these contracts. Management has reviewed the Series' existing
contracts and expects the risk of loss to be remote.
Select Growth-11
DELAWARE VIP TRUST-DELAWARE VIP SELECT GROWTH SERIES
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
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 the Delaware VIP
Select Growth Series (one of the series constituting Delaware VIP Trust) (the
"Series") as of December 31, 2005, 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
five years in the period then ended. 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 the standards of the Public Company
Accounting Oversight Board (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. We were
not engaged to perform an audit of the Series' internal control over financial
reporting. Our audits included consideration of internal control over financial
reporting as a basis for designing audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion on the
effectiveness of the Series' internal control over financial reporting.
Accordingly, we express no such opinion. An audit also includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements and financial highlights, assessing the accounting principles used
and significant estimates made by management, and evaluating the overall
financial statement presentation. Our procedures included confirmation of
securities owned as of December 31, 2005, by correspondence with the custodian
and brokers. 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 the
Delaware VIP Select Growth Series of Delaware VIP Trust at December 31, 2005,
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 five years in the period then ended, in conformity
with U.S. generally accepted accounting principles.
/s/ Ernst & Young LLP
Philadelphia, Pennsylvania
February 10, 2006
The Series files its complete schedule of portfolio holdings with the Securities
and Exchange Commission for the first and third quarters of each fiscal year on
Form N-Q. The Series' Forms N-Q, as well as a description of the policies and
procedures that the Series uses to determine how to vote proxies (if any)
relating to portfolio securities is available without charge (i) upon request,
by calling 800-523-1918; (ii) on the Series' website at
http://www.delawareinvestments.com; and (iii) on the Commission's website at
http://www.sec.gov. The Series' Forms N-Q may be reviewed and copied at the
Commission's Public Reference Room in Washington, DC; information on the
operation of the Public Reference Room may be obtained by calling
1-800-SEC-0330. Information (if any) regarding how the Series voted proxies
relating to portfolio securities during the most recently disclosed 12-month
period ended June 30 is available without charge (i) through the Series' website
at http://www.delawareinvestments.com; and (ii) on the Commission's website at
http://www.sec.gov.
Select Growth-12
DELAWARE INVESTMENTS(R)FAMILY OF FUNDS
BOARD OF TRUSTEES/DIRECTORS AND OFFICERS ADDENDUM
A mutual fund is governed by a Board of Trustees/Directors ("Trustees"), which
has oversight responsibility for the management of a fund's business affairs.
Trustees establish procedures and oversee and review the performance of the
investment manager, the distributor and others who perform services for the
fund. The independent fund trustees, in particular, are advocates for
shareholder interests. Each trustee has served in that capacity since he or she
was elected to or appointed to the Board of Trustees, and will continue to serve
until his or her retirement or the election of a new trustee in his or her
place. The following is a list of the Trustees and Officers with certain
background and related information.
NUMBER OF OTHER
PRINCIPAL PORTFOLIOS IN FUND DIRECTORSHIPS
NAME, POSITION(S) LENGTH OCCUPATION(S) COMPLEX OVERSEEN HELD BY
ADDRESS HELD WITH OF TIME DURING BY TRUSTEE TRUSTEE
AND BIRTHDATE FUND(S) SERVED PAST 5 YEARS OR OFFICER OR OFFICER
- ------------------------ ------------------- -------------- ---------------------------- ------------------ ------------------
INTERESTED TRUSTEES
JUDE T. DRISCOLL(2) Chairman, 5 Years - Since August 2000, 87 None
2005 Market Street President, Executive Mr. Driscoll has served in
Philadelphia, PA Chief Executive Officer various executive capacities
19103 Officer and 2 Years - at different times at
Trustee Trustee Delaware Investments(1)
March 10, 1963
INDEPENDENT TRUSTEES
THOMAS L. BENNETT Trustee Since Private Investor - 87 None
2005 Market Street March 23, 2005 (March 2004 - Present)
Philadelphia, PA
19103 Investment Manager -
Morgan Stanley & Co.
October 4, 1947 (January 1984 - March 2004)
JOHN A. FRY Trustee 4 Years President - 87 Director -
2005 Market Street Franklin & Marshall College Community Health
Philadelphia, PA (June 2002 - Present) Systems
19103
Executive Vice President -
May 28, 1960 University of Pennsylvania
(April 1995 - June 2002)
ANTHONY D. KNERR Trustee 12 Years Founder/Managing Director - 87 None
2005 Market Street Anthony Knerr & Associates
Philadelphia, PA (Strategic Consulting)
19103 (1990 - Present)
December 7, 1938
LUCINDA S. LANDRETH Trustee Since Chief Investment Officer - 87 None
2005 Market Street March 23, 2005 Assurant, Inc.
Philadelphia, PA (Insurance)
19103 (2002 - 2004)
June 24, 1947
ANN R. LEVEN Trustee 16 Years Treasurer/Chief Fiscal 87 Director and
2005 Market Street Officer - National Gallery Audit Committee
Philadelphia, PA of Art (1994 - 1999) Chairperson - Andy
19103 Warhol Foundation
November 1, 1940 Director and Audit
Committee Member -
Systemax Inc.
Select Growth-13
NUMBER OF OTHER
PRINCIPAL PORTFOLIOS IN FUND DIRECTORSHIPS
NAME, POSITION(S) LENGTH OCCUPATION(S) COMPLEX OVERSEEN HELD BY
ADDRESS HELD WITH OF TIME DURING BY TRUSTEE TRUSTEE
AND BIRTHDATE FUND(S) SERVED PAST 5 YEARS OR OFFICER OR OFFICER
- ------------------------ ------------------- -------------- ---------------------------- ------------------ ------------------
INDEPENDENT TRUSTEES
THOMAS F. MADISON Trustee 11 Years President/Chief 87 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 and Audit
Committee Member -
Digital River Inc.
Director and Audit
Committee Member -
Rimage Corporation
Director - Valmont
Industries, Inc.
JANET L. YEOMANS Trustee 6 Years Vice President 87 None
2005 Market Street (January 2003 - Present)
Philadelphia, PA and Treasurer
19103 (January 2006 - Present)
3M Corporation
July 31, 1948 Ms. Yeomans has held
various management positions
at 3M Corporation
since 1983.
J. RICHARD ZECHER Trustee Since Founder - 87 Director and Audit
2005 Market Street March 23, 2005 Investor Analytics Committee Member -
Philadelphia, PA (Risk Management) Investor Analytics
19103 (May 1999 - Present)
Director and Audit
July 3, 1940 Committee Member -
Oxigene, Inc.
OFFICERS
MICHAEL P. BISHOF Senior Chief Mr. Bishof has served in 87 None(3)
2005 Market Street Vice President and Financial various executive capacities
Philadelphia, PA Chief Financial since Officer at different times at
19103 Officer February 17, Delaware Investments.
2005
August 18, 1962
DAVID F. CONNOR Vice President, Vice President Mr. Connor has served as 87 None(3)
2005 Market Street Deputy General since Vice President and Deputy
Philadelphia, PA Counsel and September 21, General Counsel of Delaware
19103 Secretary 2000 and Investments since 2000.
Secretary
since
October 25,
2005
December 2, 1963
DAVID P. O'CONNOR Senior Vice Senior Vice Mr. O'Connor has served in 87 None(3)
2005 Market Street President, President, various executive and legal
Philadelphia, PA General Counsel General capacities at different
19103 and Chief Counsel and times at Delaware
Legal Officer Chief Legal Investments.
Officer since
October 25,
2005
February 21, 1966
JOHN J. O'CONNOR Senior Vice Treasurer Mr. O'Connor has served in 87 None(3)
2005 Market Street President and since various executive capacities
Philadelphia, PA Treasurer February 17, at different times at
19103 2005 Delaware Investments.
June 16, 1957
(1) Delaware Investments is the marketing name for Delaware Management
Holdings, Inc. and its subsidiaries, including the Fund's(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(s') manager and distributor.
(3) Mr. Bishof, Mr. Connor, Mr. David P. O'Connor and Mr. John J. O'Connor
serve in similar capacities for the six portfolios of the Optimum Fund
Trust, which have the same investment advisor, principal underwriter, and
transfer agent as the registrant. Mr. John J. O'Connor also serves in a
similar capacity for Lincoln Variable Insurance Products Trust, which has
the same investment advisor as the registrant.
The Statement of Additional Information for the Fund(s) includes additional
information about the Trustees and Officers and is available, without charge,
upon request by calling 800 523-1918.
Select Growth-14
DELAWARE VIP TRUST - DELAWARE VIP SMALL CAP VALUE SERIES
For the 12-month period ended December 31, 2005, Delaware VIP Small Cap
Value Series returned 9.42% on Standard Class shares and 9.15% for Service Class
shares (both figures reflect all distributions reinvested), significantly
outperforming its benchmark, the Russell 2000 Value Index, which returned 4.71%.
In general, we maintain a long-term investment approach and focus on
securities that we believe can appreciate over an extended period of time,
regardless of interim market fluctuations. We do not try to predict overall
stock market movements and generally do not trade for short-term purposes.
After the first quarter of 2005, small-cap equities generally performed
well throughout the rest of the year. Energy prices were a big influence on
markets during the year in general, and we closely monitored energy prices and
their direct effects on some of our holdings. For instance, we elected to sell
our position in Continental Airlines during the year, which was a result of
increased expenses that the company incurred due to an enormous upsurge in fuel
costs. During the first half of the fiscal year, we also sold several
energy-related holdings given a general belief that the energy sector was
nearing the end of a run of strong performance.
Another key shift during the period was with regard to our approach to
cyclical stocks. For several years, our general approach has included holding
larger positions in economically-sensitive sectors than the benchmark index.
During the fiscal year, we moderated this positioning, as we saw that the
Federal Reserve remained committed to increasing interest rates, and we believed
the change was in order.
PERFORMANCE OF A $10,000 INVESTMENT:
Dec. 31, '95 $ 10,000 $ 10,000
Dec. 31, '96 $ 12,255 $ 12,137
Dec. 31, '97 $ 16,288 $ 15,994
Dec. 31, '98 $ 15,507 $ 14,963
Dec. 31, '99 $ 14,753 $ 14,740
Dec. 31, '00 $ 17,436 $ 18,105
Dec. 31, '01 $ 19,500 $ 20,643
Dec. 31, '02 $ 18,408 $ 18,283
Dec. 31, '03 $ 26,135 $ 26,699
Dec. 31, '04 $ 31,750 $ 32,640
Dec. 31, '05 $ 34,739 $ 34,177
DELAWARE VIP SMALL CAP VALUE SERIES
AVERAGE ANNUAL TOTAL RETURNS
-----------------------------------
STANDARD CLASS SERVICE CLASS
SHARES* SHARES**
-------------- -------------
LIFETIME +13.18% +16.20%
TEN YEAR +13.26% --
FIVE YEAR +14.78% +14.55%
ONE YEAR +9.42% +9.15%
FOR THE PERIODS ENDED DECEMBER 31, 2005
* 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 for the period from December 31, 1995 through December 31,
2005. All distributions were reinvested. The Russell 2000 Value Index is an
unmanaged 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. 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
Small Cap Value Series during the periods shown. Performance does not reflect
insurance fees related to a variable annuity, 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 in small and/or medium-sized companies typically
involve greater risk, particularly in the short term, than those investing in
larger, more established companies.
Small Cap Value-1
DELAWARE VIP TRUST-DELAWARE VIP SMALL CAP VALUE SERIES
DISCLOSURE OF SERIES EXPENSES
For the Period July 1, 2005 to December 31, 2005
As a shareholder of the Series, you incur ongoing costs, including management
fees; distribution and/or service (12b-1) fees; and other Series expenses. This
Example is intended to help you understand your ongoing costs (in dollars) of
investing in the Series and to compare these costs with the ongoing costs of
investing in other mutual funds.
The Example is based on an investment of $1,000 invested at the beginning of the
period and held for the entire period from July 1, 2005 to December 31, 2005.
ACTUAL EXPENSES
The first section of the table shown, "Actual Series Return," provides
information about actual account values and actual expenses. You may use the
information in this section of the table, together with the amount you invested,
to estimate the expenses that you paid over the period. Simply divide your
account value by $1,000 (for example, an $8,600 account value divided by $1,000
= 8.6), then multiply the result by the number in the first section under the
heading entitled "Expenses Paid During Period" to estimate the expenses you paid
on your account during the period.
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The second section of the table shown, "Hypothetical 5% Return," provides
information about hypothetical account values and hypothetical expenses based on
the Series' actual expense ratio and an assumed rate of return of 5% per year
before expenses, which is not the Series' actual return. The hypothetical
account values and expenses may not be used to estimate the actual ending
account balance or expenses you paid for the period. You may use this
information to compare the ongoing costs of investing in the Series and other
funds. To do so, compare the 5% hypothetical example with the 5% hypothetical
examples that appear in the shareholder reports of other funds.
Please note that the expenses shown in the table are meant to highlight your
ongoing costs only. As a shareholder of the Series, you do not incur any
transaction costs, such as sales charges (loads), redemption fees or exchange
fees, but shareholders of other funds may incur such costs. Also, the fees
related to the variable annuity investment or the deferred sales charge that
could apply have not been included. Therefore, the second section of the table
is useful in comparing ongoing costs only, and will not help you determine the
relative total costs of owning different funds. The Series' actual expenses
shown in the table reflect fee waivers in effect for Service Class shares. The
expenses shown in the table assume reinvestment of all dividends and
distributions.
Expense Analysis of an Investment of $1,000
EXPENSES
BEGINNING ENDING PAID DURING
ACCOUNT ACCOUNT ANNUALIZED PERIOD
VALUE VALUE EXPENSE 7/1/05 TO
7/1/05 12/31/05 RATIOS 12/31/05*
---------- ---------- ---------- -----------
ACTUAL SERIES RETURN
Standard Class $ 1,000.00 $ 1,062.40 0.87% $ 4.52
Service Class 1,000.00 1,061.10 1.12% 5.82
---------- ---------- ---------- -----------
HYPOTHETICAL 5% RETURN (5% RETURN BEFORE EXPENSES)
Standard Class $ 1,000.00 $ 1,020.82 0.87% $ 4.43
Service Class 1,000.00 1,019.56 1.12% 5.70
---------- ---------- ---------- -----------
* "Expenses Paid During Period" are equal to the Series' annualized expense
ratio, multiplied by the average account value over the period, multiplied by
184/365 (to reflect the one-half year period).
Small Cap Value-2
DELAWARE VIP TRUST-DELAWARE VIP SMALL CAP VALUE SERIES
SECTOR ALLOCATIONS
As of December 31, 2005
Sector designations may be different than the sector designations presented in
other Series materials.
PERCENTAGE
SECTOR OF NET ASSETS
- ------------------------------------------------------- -------------
COMMON STOCK 94.82%
-------------
Basic Industries/Capital Goods 11.26%
Business Services 2.17%
Capital Spending 6.79%
Consumer Cyclical 2.04%
Consumer Services 12.23%
Consumer Staples 3.27%
Energy 8.16%
Financial Services 16.75%
Health Care 7.07%
Real Estate 4.85%
Technology 13.46%
Transportation 3.78%
Utilities 2.99%
-------------
EXCHANGE TRADED FUNDS 0.93%
-------------
REPURCHASE AGREEMENTS 4.19%
-------------
SECURITIES LENDING COLLATERAL 21.26%
-------------
TOTAL MARKET VALUE OF SECURITIES 121.20%
-------------
OBLIGATION TO RETURN SECURITIES LENDING COLLATERAL (21.26)%
-------------
RECEIVABLES AND OTHER ASSETS NET OF LIABILITIES 0.06%
-------------
TOTAL NET ASSETS 100.00%
-------------
Small Cap Value-3
DELAWARE VIP TRUST-DELAWARE VIP SMALL CAP VALUE SERIES
STATEMENT OF NET ASSETS
December 31, 2005
NUMBER OF MARKET
SHARES VALUE
------------ -----------
COMMON STOCK-94.82%
BASIC INDUSTRIES/CAPITAL GOODS-11.26%
Albemarle ...................................... 164,200 $ 6,297,070
*+Alpha Natural Resources ........................ 318,800 6,124,148
Arch Coal ...................................... 128,700 10,231,650
+Chaparral Steel ................................ 121,500 3,675,375
Crane .......................................... 213,400 7,526,618
+Crown Holdings ................................. 496,400 9,694,692
*Federal Signal ................................. 122,600 1,840,226
*Fuller (H.B.) .................................. 235,300 7,546,071
+Griffon ........................................ 275,230 6,553,226
IPSCO .......................................... 80,300 6,663,294
*MacDermid ...................................... 281,200 7,845,480
+Pactiv ......................................... 212,000 4,664,000
*+PolyOne ........................................ 658,100 4,231,583
*Smith (A.O.) ................................... 102,850 3,610,035
Spartech ....................................... 270,700 5,941,865
*Texas Industries ............................... 121,500 6,055,560
*Westlake Chemical .............................. 197,400 5,687,094
-----------
104,187,987
-----------
BUSINESS SERVICES-2.17%
Brink's ........................................ 270,400 12,954,864
*+United Stationers .............................. 147,400 7,148,900
-----------
20,103,764
-----------
CAPITAL SPENDING-6.79%
*+Casella Waste Systems .......................... 482,400 6,169,896
*Gibraltar Industries ........................... 317,300 7,278,862
Harsco ......................................... 142,300 9,606,673
+Insituform Technologies Class A ................ 199,000 3,854,630
*Kaydon ......................................... 251,900 8,096,066
*Mueller Industries ............................. 196,800 5,396,256
*Wabtec ......................................... 429,900 11,564,310
Walter Industries .............................. 218,500 10,863,820
-----------
62,830,513
-----------
CONSUMER CYCLICAL-2.04%
Furniture Brands International ................. 195,700 4,369,981
KB HOME ........................................ 146,400 10,637,424
*+WCI Communities ................................ 142,300 3,820,755
-----------
18,828,160
-----------
CONSUMER SERVICES-12.23%
+AnnTaylor Stores ............................... 311,300 10,746,076
*Belo Class A ................................... 197,200 4,222,052
*Borders Group .................................. 300,900 6,520,503
*Cato Class A ................................... 433,200 9,292,140
CBRL Group ..................................... 201,100 7,068,665
*+CEC Entertainment .............................. 213,400 7,264,136
+Dollar Tree Stores ............................. 311,800 7,464,492
*K Swiss ........................................ 215,100 6,977,844
Kellwood ....................................... 231,200 5,521,056
*Kenneth Cole Productions Class A ............... 164,700 4,199,850
+Lenox Group .................................... 153,000 2,025,720
Meredith ....................................... 105,500 5,521,870
*+Sports Authority ............................... 222,218 6,917,646
*Stage Stores ................................... 170,250 5,070,045
*Thor Industries ................................ 255,000 10,217,850
Wolverine World Wide ........................... 325,350 7,307,361
*+Zale ........................................... 272,800 6,860,920
-----------
113,198,226
-----------
NUMBER OF MARKET
SHARES VALUE
------------ -----------
COMMON STOCK (CONTINUED)
CONSUMER STAPLES-3.27%
American Greetings Class A ..................... 365,100 $ 8,021,247
Bunge Limited .................................. 106,700 6,040,287
+Constellation Brands ........................... 310,800 8,152,284
+Del Monte Foods ................................ 772,700 8,059,261
-----------
30,273,079
-----------
ENERGY-8.16%
*+Energy Partners ................................ 375,400 8,179,966
+Grey Wolf ...................................... 1,174,000 9,075,020
+Newfield Exploration ........................... 168,000 8,411,760
*+Newpark Resources .............................. 962,200 7,341,586
Southwest Gas .................................. 249,000 6,573,600
Tesoro ......................................... 90,900 5,594,895
TODCO .......................................... 151,300 5,758,478
*+W-H Energy Services ............................ 373,500 12,355,380
*+Whiting Petroleum .............................. 305,900 12,236,000
-----------
75,526,685
-----------
FINANCIAL SERVICES-16.75%
*AmerUs Group ................................... 213,400 12,093,378
Bank of Hawaii ................................. 187,600 9,668,904
*Bankunited Financial Class A ................... 325,100 8,637,907
Berkley (W.R.) ................................. 313,462 14,927,061
*Boston Private Financial Holdings .............. 328,500 9,992,970
Colonial BancGroup ............................. 584,700 13,927,554
Compass Bancshares ............................. 96,300 4,650,327
*First Republic Bank ............................ 266,800 9,874,268
*Greater Bay Bancorp ............................ 348,700 8,933,694
*Harleysville Group ............................. 195,700 5,186,050
*Independent Bank ............................... 90,400 2,579,112
*Infinity Property & Casualty ................... 182,600 6,794,546
*MAF Bancorp .................................... 190,800 7,895,304
*NBT Bancorp .................................... 133,000 2,871,470
Platinum Underwriters Holdings ................. 235,100 7,304,557
*Provident Bankshares ........................... 296,500 10,012,805
*Republic Bancorp ............................... 459,596 5,469,192
*Sterling Financial ............................. 292,520 7,307,150
*+Triad Guaranty ................................. 156,000 6,862,440
-----------
154,988,689
-----------
HEALTH CARE-7.07%
*+Alderwoods Group ............................... 551,400 8,750,718
*Arrow International ............................ 143,200 4,151,368
*+Bio-Rad Laboratories Class A ................... 132,300 8,657,712
*Diagnostic Products ............................ 108,400 5,262,820
*Owens & Minor .................................. 284,600 7,835,038
+Par Pharmaceuticals ............................ 180,600 5,660,004
+Pediatrix Medical Group ........................ 107,100 9,485,847
*+PRA International .............................. 219,100 6,167,665
+RehabCare Group ................................ 177,900 3,593,580
Service Corp International ..................... 711,500 5,820,070
-----------
65,384,822
-----------
Small Cap Value-4
DELAWARE VIP SMALL CAP VALUE SERIES
STATEMENT OF NET ASSETS (CONTINUED)
NUMBER OF MARKET
SHARES VALUE
------------ -----------
COMMON STOCK (CONTINUED)
REAL ESTATE-4.85%
*Ashford Hospitality Trust ...................... 355,700 $ 3,731,293
Brandywine Realty Trust ........................ 184,200 5,141,022
Camden Property Trust .......................... 177,900 10,303,968
Education Realty Trust ......................... 242,100 3,120,669
*Highland Hospitality ........................... 526,100 5,813,405
Prentiss Properties Trust ...................... 195,700 7,961,076
Reckson Associates Realty ...................... 244,300 8,789,914
-----------
44,861,347
-----------
TECHNOLOGY-13.46%
*Acxiom ......................................... 357,900 8,231,700
+BEA Systems .................................... 1,013,200 9,524,080
*+Bell Microproducts ............................. 536,200 4,101,930
+Brocade Communications Systems ................. 2,262,200 9,207,154
*+Checkpoint Systems ............................. 338,000 8,331,700
*+CommScope ...................................... 370,500 7,458,165
+Datastream Systems ............................. 512,800 4,435,720
+Emulex ......................................... 348,100 6,888,899
+Entegris ....................................... 578,800 5,452,296
+Ingram Micro Class A ........................... 506,300 10,090,559
*+Insight Enterprises ............................ 320,200 6,279,122
+International Rectifier ........................ 160,100 5,107,190
+NETGEAR ........................................ 212,700 4,094,475
*+Plexus ......................................... 376,600 8,563,884
QAD ............................................ 335,600 2,563,984
Symbol Technologies ............................ 409,100 5,244,662
+Synnex ......................................... 268,200 4,052,502
+Synopsys ....................................... 394,700 7,917,682
*Technitrol ..................................... 409,100 6,995,610
-----------
124,541,314
-----------
NUMBER OF MARKET
SHARES VALUE
------------ -----------
COMMON STOCK (CONTINUED)
TRANSPORTATION-3.78%
Alexander & Baldwin ............................ 244,600 $13,267,104
+Kirby .......................................... 177,900 9,281,043
*+SCS Transportation ............................. 121,900 2,590,375
*SkyWest ........................................ 160,100 4,300,286
+Yellow Roadway ................................. 124,500 5,553,945
-----------
34,992,753
-----------
UTILITIES-2.99%
Black Hills .................................... 88,900 3,076,829
*+El Paso Electric ............................... 325,400 6,846,416
*FairPoint Communications ....................... 325,000 3,367,000
*Otter Tail ..................................... 231,200 6,700,176
PNM Resources .................................. 314,250 7,695,982
-----------
27,686,403
-----------
TOTAL COMMON STOCK
(cost $689,375,726) ............................ 877,403,742
-----------
EXCHANGE TRADED FUNDS-0.93%
*iShares Russell 2000 Value Index Fund 131,400 8,661,888
-----------
TOTAL EXCHANGE TRADED FUNDS
(COST $8,690,967) 8,661,888
-----------
PRINCIPAL
AMOUNT
------------
REPURCHASE AGREEMENTS-4.19%
With BNP Paribas 3.30% 1/03/06
(dated 12/30/05, to be repurchased at
$24,478,972, collateralized by
$502,000 U.S. Treasury Bills due 1/26/06,
market value $501,144, $344,000 U.S. Treasury
Bills due 2/23/06, market value $342,573,
$680,000 U.S. Treasury Bills due 5/4/06,
market value $670,381, $4,527,000 U.S.
Treasury Bills due 6/1/06, market value
$4,449,957, $12,693,000 U.S. Treasury Bills
due 6/29/06, market value $12,429,257,
$4,505,000 U.S. Treasury Notes 2.625% due
5/15/08, market value $4,345,092, $2,259,000
U.S. Treasury Notes 3.125% due 5/15/07,
market value $2,230,853) $ 24,470,000 24,470,000
Small Cap Value-5
DELAWARE VIP SMALL CAP VALUE SERIES
STATEMENT OF NET ASSETS (CONTINUED)
PRINCIPAL MARKET
AMOUNT VALUE
------------ -----------
REPURCHASE AGREEMENTS (CONTINUED)
With UBS Warburg 3.40% 1/03/06
(dated 12/30/05, to be repurchased at
$14,288,396, collateralized by $1,660,000
U.S. Treasury Notes 2.00% due 5/15/06,
market value $1,649,964,
$12,498,000 U.S. Treasury Notes 5.625%
due 5/15/08, market value $12,932,944) ...... $14,283,000$ 14,283,000
-----------
TOTAL REPURCHASE AGREEMENTS
(COST $38,753,000) ............................. $38,753,000
-----------
TOTAL MARKET VALUE OF SECURITIES BEFORE
SECURITIES LENDING COLLATERAL-99.94%
(COST $736,819,693) ............................ 924,818,630
-----------
SECURITIES LENDING COLLATERAL**-21.26%
SHORT-TERM INVESTMENTS
FIXED RATE NOTES-5.04%
Citigroup Global Markets 4.29% 1/3/06 .......... 40,648,050 40,648,050
Wilmington Trust Company
4.05% 1/5/06 ................................ 5,958,092 5,958,092
-----------
46,606,142
-----------
~VARIABLE RATE NOTES-16.22%
Abbey National 4.14% 1/13/06 ................... 4,408,988 4,409,580
ANZ National 4.31% 1/30/07 ..................... 1,191,618 1,191,618
Australia New Zealand 4.35% 1/30/07 ............ 5,958,092 5,958,092
Bank of New York 4.33% 4/4/06 .................. 4,766,474 4,766,474
Bank of the West 4.27% 3/2/06 .................. 5,958,092 5,958,092
Bayerische Landesbank 4.40% 8/25/06 ............ 5,958,092 5,958,092
Bear Stearns
4.14% 1/17/06 ............................... 1,191,618 1,191,822
4.39% 6/30/06 ............................... 7,149,710 7,149,710
PRINCIPAL MARKET
AMOUNT VALUE
------------ -----------
SECURITIES LENDING COLLATERAL (CONTINUED)
SHORT-TERM INVESTMENTS (CONTINUED)
~VARIABLE RATE NOTES (CONTINUED)
Beta Finance 4.33% 4/18/06 ..................... $ 5,958,092 $ 5,957,795
Canadian Imperial Bank 4.35% 1/30/07 ........... 2,979,046 2,979,046
CDC Financial Products 4.35% 1/30/06 ........... 7,745,519 7,745,519
Citigroup Global Markets 4.32% 1/6/06 .......... 7,745,519 7,745,519
Commonwealth Bank Australia
4.35% 1/30/07 ............................... 5,958,092 5,958,092
Credit Suisse First Boston New York
4.35% 4/18/06 ............................... 6,434,739 6,434,739
Goldman Sachs 4.39% 1/2/07 ..................... 7,745,519 7,745,519
Manufacturers & Traders 4.36% 9/26/06 .......... 5,958,092 5,957,005
Marshall & Ilsley Bank 4.35% 1/30/07 ........... 6,553,901 6,553,901
Merrill Lynch Mortgage Capital
4.35% 1/12/06 ............................... 7,745,519 7,745,519
Morgan Stanley 4.43% 1/2/07 .................... 7,388,034 7,388,034
National City Bank 4.31% 1/23/06 ............... 6,792,225 6,792,347
Nordea Bank Norge ASA 4.34% 1/30/07 ............ 5,958,092 5,958,092
Procter & Gamble 4.46% 1/30/07 ................. 5,958,092 5,958,092
Royal Bank of Scotland 4.34% 1/30/07 ........... 5,958,092 5,958,092
Sigma Finance 4.33% 3/16/06 .................... 1,787,428 1,787,488
Societe Generale New York
4.26% 1/30/07 .................................. 2,979,046 2,979,046
Toyota Motor Credit 4.30% 6/23/06 .............. 5,958,092 5,958,394
Wells Fargo 4.36% 1/30/07 ...................... 5,958,092 5,958,092
-----------
150,143,811
-----------
TOTAL SECURITIES LENDING COLLATERAL
(COST $196,749,953) ............................ 196,749,953
-----------
TOTAL MARKET VALUE OF SECURITIES-121.20%
(COST $933,569,646) ....................................... 1,121,568,583#
OBLIGATION TO RETURN SECURITIES LENDING
COLLATERAL**-(21.26%) ..................................... (196,749,953)
RECEIVABLES AND OTHER ASSETS NET OF LIABILITIES-0.06% ...... 537,392
-------------
NET ASSETS APPLICABLE TO 30,049,704 SHARES
OUTSTANDING-100.00% ....................................... $ 925,356,022
=============
NET ASSET VALUE-DELAWARE VIP SMALL CAP VALUE SERIES STANDARD
CLASS ($413,632,605 / 13,416,027 SHARES) .................. $ 30.83
-------------
NET ASSET VALUE-DELAWARE VIP SMALL CAP VALUE SERIES SERVICE
CLASS ($511,723,417 / 16,633,677 SHARES) .................. $ 30.76
-------------
COMPONENTS OF NET ASSETS AT DECEMBER 31, 2005:
Shares of beneficial interest (unlimited
authorization-no par) ..................................... $ 670,149,574
Undistributed net investment income ........................ 2,582,794
Accumulated net realized gain on investments ............... 64,624,763
Net unrealized appreciation of investments
and foreign currencies .................................... 187,998,891
-------------
Total net assets ........................................... $ 925,356,022
=============
- ----------
+Non-income producing security for the year ended December 31, 2005.
*Fully or partially on loan.
**See Note #7 in "Notes to Financial Statements."
~Variable rate securities. The interest rate shown is the rate as of December
31, 2005.
#Includes $191,445,085 of securities loaned.
See accompanying notes
Small Cap Value-6
DELAWARE VIP TRUST-
DELAWARE VIP SMALL CAP VALUE SERIES
STATEMENT OF OPERATIONS
Year Ended December 31, 2005
INVESTMENT INCOME:
Dividends .................................................. $ 8,893,646
Interest ................................................... 1,321,485
Securities lending income .................................. 220,663
Foreign tax withheld ....................................... (3,084)
------------
10,432,710
------------
EXPENSES:
Management fees ............................................ 6,040,727
Distribution expenses - Service Class ...................... 1,341,081
Accounting and administration expenses ..................... 306,522
Reports and statements to shareholders ..................... 281,139
Legal and professional fees ................................ 122,041
Dividend disbursing and transfer agent fees and expenses ... 82,847
Insurance fees ............................................. 63,850
Trustees' fees ............................................. 43,835
Custodian fees ............................................. 32,002
Registration fees .......................................... 18,609
Taxes (other than taxes on income) ......................... 18,146
Pricing fees ............................................... 827
Other ...................................................... 20,300
------------
8,371,926
------------
Less waiver of distribution expenses - Service Class ....... (223,514)
Less expense paid indirectly ............................... (2,809)
------------
Total expenses ............................................. 8,145,603
------------
NET INVESTMENT INCOME ...................................... 2,287,107
------------
NET REALIZED AND UNREALIZED GAIN ON
INVESTMENTS AND FOREIGN CURRENCIES:
Net realized gain on:
Investments ............................................... 65,405,164
Foreign currencies ........................................ 139
------------
Net realized gain .......................................... 65,405,303
Net change in unrealized appreciation/
depreciation of investments and foreign currencies ........ 7,533,798
------------
NET REALIZED AND UNREALIZED GAIN
ON INVESTMENTS ............................................ 72,939,101
------------
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS ........................................... $ 75,226,208
============
See accompanying notes
DELAWARE VIP TRUST-
DELAWARE VIP SMALL CAP VALUE SERIES
STATEMENTS OF CHANGES IN NET ASSETS
YEAR ENDED
----------------------------
12/31/05 12/31/04
------------ ------------
INCREASE IN NET ASSETS
FROM OPERATIONS:
Net investment income ........................ $ 2,287,107 $ 1,971,852
Net realized gain on investments ............. 65,405,303 57,913,277
Net change in unrealized appreciation/
depreciation of investments and
foreign currencies ........................ 7,533,798 63,181,985
------------ ------------
Net increase in net assets resulting
from operations ........................... 75,226,208 123,067,114
------------ ------------
DIVIDENDS AND DISTRIBUTIONS
TO SHAREHOLDERS FROM:
Net investment income:
Standard Class .............................. (1,473,097) (565,239)
Service Class ............................... (662,000) (53,872)
Net realized gain on investments:
Standard Class .............................. (27,988,835) (5,641,727)
Service Class ............................... (29,872,730) (5,699,617)
------------ ------------
(59,996,662) (11,960,455)
------------ ------------
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares sold:
Standard Class .............................. 137,932,285 71,444,461
Service Class ............................... 111,030,783 108,404,293
Net asset value of shares issued upon
reinvestment of dividends and distributions:
Standard Class .............................. 29,461,932 6,206,966
Service Class ............................... 30,534,730 5,753,489
------------ ------------
308,959,730 191,809,209
------------ ------------
Cost of shares repurchased:
Standard Class .............................. (98,348,749) (55,869,876)
Service Class ............................... (39,373,596) (22,826,047)
------------ ------------
(137,722,345) (78,695,923)
------------ ------------
Increase in net assets derived from
capital share transactions .................. 171,237,385 113,113,286
------------ ------------
NET INCREASE IN NET ASSETS ................... 186,466,931 224,219,945
NET ASSETS:
Beginning of year ............................ 738,889,091 514,669,146
------------ ------------
End of year (including undistributed
net investment income of $2,582,794
and $2,430,645, respectively) ............... $925,356,022 $738,889,091
============ ============
See accompanying notes
Small Cap Value-7
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
----------------------------------------------------------------------
12/31/05 12/31/04 12/31/03 12/31/02 12/31/01
---------- ---------- ---------- ---------- ----------
Net asset value, beginning of period .................. $ 30.450 $ 25.640 $ 18.140 $ 19.530 $ 17.650
INCOME (LOSS) FROM INVESTMENT OPERATIONS:
Net investment income(1) .............................. 0.121 0.122 0.068 0.101 0.162
Net realized and unrealized gain (loss) on investments 2.539 5.270 7.513 (1.149) 1.899
---------- ---------- ---------- ---------- ----------
Total from investment operations ...................... 2.660 5.392 7.581 (1.048) 2.061
---------- ---------- ---------- ---------- ----------
LESS DIVIDENDS AND DISTRIBUTIONS FROM:
Net investment income ................................. (0.114) (0.053) (0.081) (0.104) (0.181)
Net realized gain on investments ...................... (2.166) (0.529) - (0.238) -
---------- ---------- ---------- ---------- ----------
Total dividends and distributions ..................... (2.280) (0.582) (0.081) (0.342) (0.181)
---------- ---------- ---------- ---------- ----------
Net asset value, end of period ........................ $ 30.830 $ 30.450 $ 25.640 $ 18.140 $ 19.530
========== ========== ========== ========== ==========
Total return(2) ....................................... 9.42% 21.48% 41.98% (5.60%) 11.84%
RATIOS AND SUPPLEMENTAL DATA:
Net assets, end of period (000 omitted) ............... $ 413,633 $ 339,542 $ 265,739 $ 170,630 $ 152,827
Ratio of expenses to average net assets ............... 0.85% 0.83% 0.86% 0.85% 0.84%
Ratio of expenses to average net assets prior
to expense limitation and expenses paid indirectly ... 0.85% 0.83% 0.86% 0.85% 0.86%
Ratio of net investment income to average net assets .. 0.41% 0.46% 0.32% 0.52% 0.89%
Ratio of net investment income to average net
assets prior to expense limitation and expenses
paid indirectly ...................................... 0.41% 0.46% 0.32% 0.52% 0.87%
Portfolio turnover .................................... 32% 37% 41% 43% 73%
- ----------
(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
Small Cap Value-8
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
YEAR ENDED
----------------------------------------------------------------------
12/31/05 12/31/04 12/31/03 12/31/02 12/31/01
---------- ---------- ---------- ---------- ----------
Net asset value, beginning of period .................. $ 30.390 $ 25.610 $ 18.130 $ 19.520 $ 17.650
INCOME (LOSS) FROM INVESTMENT OPERATIONS:
Net investment income(1)............................... 0.048 0.056 0.020 0.072 0.135
Net realized and unrealized gain (loss) on investments 2.536 5.258 7.512 (1.147) 1.900
---------- ---------- ---------- ---------- ----------
Total from investment operations ...................... 2.584 5.314 7.532 (1.075) 2.035
---------- ---------- ---------- ---------- ----------
LESS DIVIDENDS AND DISTRIBUTIONS FROM:
Net investment income ................................. (0.048) (0.005) (0.052) (0.077) (0.165)
Net realized gain on investments ...................... (2.166) (0.529) - (0.238) -
---------- ---------- ---------- ---------- ----------
Total dividends and distributions ..................... (2.214) (0.534) (0.052) (0.315) (0.165)
---------- ---------- ---------- ---------- ----------
Net asset value, end of period ........................ $ 30.760 $ 30.390 $ 25.610 $ 18.130 $ 19.520
========== ========== ========== ========== ==========
Total return(2)........................................ 9.15% 21.16% 41.66% (5.72%) 11.68%
RATIOS AND SUPPLEMENTAL DATA:
Net assets, end of period (000 omitted) ............... $ 511,723 $ 399,347 $ 248,930 $ 124,241 $ 46,049
Ratio of expenses to average net assets ............... 1.10% 1.08% 1.08% 1.00% 0.99%
Ratio of expenses to average net assets prior
to expense limitation and expenses paid indirectly ... 1.15% 1.13% 1.11% 1.00% 1.01%
Ratio of net investment income to average net assets .. 0.16% 0.21% 0.10% 0.37% 0.74%
Ratio of net investment income to average net assets
prior to expense limitation and expenses
paid indirectly ...................................... 0.11% 0.16% 0.07% 0.37% 0.72%
Portfolio turnover .................................... 32% 37% 41% 43% 73%
- ----------
(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 and distributor, as applicable.
Performance would have been lower had the expense limitation not been in
effect.
See accompanying notes
Small Cap Value-9
DELAWARE VIP TRUST-DELAWARE VIP SMALL CAP VALUE SERIES
NOTES TO FINANCIAL STATEMENTS
December 31, 2005
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 REIT Series,
Delaware VIP Select Growth Series, Delaware VIP Small Cap Value Series, Delaware
VIP Trend Series, Delaware VIP U.S. Growth Series and Delaware VIP Value Series.
These financial statements and the related notes pertain to Delaware VIP Small
Cap Value Series (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 U.S. generally accepted
accounting principles and are consistently followed by the Series. Security
Valuation--Equity securities, except those traded on the Nasdaq Stock Market,
Inc. (Nasdaq) are valued at the last quoted sales price as of the time of the
regular close of the New York Stock Exchange (NYSE) on the valuation date.
Securities traded on the Nasdaq are valued in accordance with the Nasdaq
Official Closing Price, which may not be the last sales price. If on a
particular day an equity security does not trade, then the mean between the bid
and asked prices will be used. Short-term debt securities having less than 60
days to maturity are valued at amortized cost, which approximates market value.
Securities lending collateral is valued at amortized cost, which approximates
market value. Other securities and assets for which market quotations are not
readily available are valued at fair value as determined in good faith under the
direction of the Series' Board of Trustees. In determining whether market
quotations are readily available or fair valuation will be used, various factors
will be taken into consideration, such as market closures, or with respect to
foreign securities, aftermarket trading, or significant events after local
market trading (e.g., government actions or pronouncements, trading volume or
volatility on markets, exchanges among dealers, or news events).
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 pursuant to an
exemptive order issued by the Securities and Exchange Commission. The aggregate
daily balance of the pooled cash account is invested in repurchase agreements
secured by obligations of the U.S. government. The respective collateral is held
by the Series' custodian bank until the maturity of the respective repurchase
agreements. Each repurchase agreement is 102% collateralized. However, in the
event of default or bankruptcy by the counterparty to the agreement, realization
of the collateral may be subject to legal proceedings.
Use of Estimates--The preparation of financial statements in conformity with
U.S. generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from those estimates.
Other--Expenses common to all funds within the Delaware Investments Family of
Funds are allocated amongst the funds on the basis of average net assets.
Management fees and some other expenses are paid monthly. Security transactions
are recorded on the date the securities are purchased or sold (trade date) for
financial reporting purposes. Costs used in calculating realized gains and
losses on the sale of investment securities are those of the specific securities
sold. Dividend income is recorded on the ex-dividend date and interest income is
recorded on the accrual basis. Distributions received from investments in Real
Estate Investment Trusts are recorded as dividend income on ex-dividend date,
subject to reclassification upon notice of the character of such distribution by
the issuer.
The Series declares and pays dividends from net investment income and
distributions from net realized gain on investments, if any, following the close
of the fiscal year.
Subject to seeking best execution, the Series may direct certain security trades
to brokers who have agreed to rebate a portion of the related brokerage
commission to the Series in cash. Such commission rebates are included in
realized gain on investments in the accompanying financial statements and
totaled $48,570 for the year ended December 31, 2005. In general, best execution
refers to many factors, including the price paid or received for a security, the
commission charged, the promptness and reliability of execution, the
confidentiality and placement accorded the order, and other factors affecting
the overall benefit obtained by the Series on the transaction.
The Series receives earnings credits from its custodian when positive cash
balances are maintained, which are used to offset custody fees. The expense paid
under the above arrangement is included in custodian fees on the Statement of
Operations with the corresponding expense offset shown as "expense paid
indirectly."
2. INVESTMENT MANAGEMENT, ADMINISTRATION AGREEMENTS AND OTHER TRANSACTIONS WITH
AFFILIATES
In accordance with the terms of its investment management agreement, the Series
pays Delaware Management Company (DMC), a series of Delaware Management Business
Trust and the investment manager, an annual fee which is calculated daily at the
rate of 0.75% on the first $500 million of average daily net assets of the
Series, 0.70% on the next $500 million, 0.65% on the next $1.5 billion, and
0.60% on average daily net assets in excess of $2.5 billion.
DMC has contractually agreed to waive that portion, if any, of its management
fee and reimburse the Series to the extent necessary to ensure that annual
operating expenses, exclusive of taxes, interest, brokerage commissions,
distribution fees, certain insurance costs and extraordinary expenses, do not
exceed 0.95% of average daily net assets of the Series through June 30, 2006. No
reimbursement was due for the year ended December 31, 2005.
Small Cap Value-10
DELAWARE VIP SMALL CAP VALUE 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. Effective May
19, 2005, the Series pays DSC a monthly fee computed at the annual rate of 0.04%
of the Series' average daily net assets for accounting and administrative
services. Prior to May 19, 2005, the Series paid 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 distribution and service fee not to exceed 0.30% of the average daily net
assets of the Service Class shares. DDLP has contracted to waive distribution
and service fees through June 30, 2006 in order to prevent distribution and
service fees of the Service Class shares from exceeding 0.25% of average daily
net assets. Standard Class shares pay no distribution and service expenses.
At December 31, 2005, the Series had liabilities payable to affiliates as
follows:
DIVIDEND DISBURSING, OTHER
INVESTMENT TRANSFER AGENT, EXPENSES
MANAGEMENT ACCOUNTING AND ADMINISTRATION DISTRIBUTION PAYABLE
FEE PAYABLE FEES AND OTHER EXPENSES FEE PAYABLE TO DMC AND
TO DMC PAYABLE TO DSC TO DDLP AFFILIATES*
------------ ----------------------------- ------------ ------------
$ 575,822 $ 47,813 $ 210,994 $ 87,854
*DMC, as part of its administrative services, pays operating expenses on behalf
of the Series and is reimbursed on a periodic basis. Such expenses include items
such as printing of shareholder reports, fees for audit, legal and tax services,
custodian fees and trustees' fees.
As provided in the investment management agreement, the Series bears the cost of
certain legal services expenses, including internal legal services provided to
the Series by DMC employees. For the year ended December 31, 2005, the Series
was charged $53,192 for internal legal services provided by DMC.
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, 2005, the Series made purchases and sales of
investment securities other than short-term investments as follows:
Purchases ............................................... $ 364,927,964
Sales ................................................... $ 248,237,279
At December 31, 2005, 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 DEPRECIATION
-------------- -------------- -------------- --------------
$ 934,156,180 $209,340,780 $(21,928,377) $ 187,412,403
4. DIVIDEND AND DISTRIBUTION INFORMATION
Income and long-term capital gain distributions are determined in accordance
with federal income tax regulations, which may differ from U.S. generally
accepted accounting principles. Additionally, gains (losses) on foreign currency
transactions and net short-term gains on sales of investment securities are
treated as ordinary income for federal income tax purposes. The tax character of
dividends and distributions paid during the years ended December 31, 2005 and
2004 was as follows:
YEAR YEAR
ENDED ENDED
12/31/05 12/31/04
------------ -------------
Ordinary income .......... $ 19,979,753 $ 3,256,134
Long-term capital gain ... 40,016,909 8,704,321
------------ -------------
Total .................... $ 59,996,662 $ 11,960,455
============ =============
Small Cap Value-11
DELAWARE VIP SMALL CAP VALUE SERIES
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
4. DIVIDEND AND DISTRIBUTION INFORMATION (CONTINUED)
As of December 31, 2005, the components of net assets on a tax basis were as
follows:
Shares of beneficial interest .............................. $ 670,149,574
Undistributed ordinary income .............................. 22,046,806
Undistributed long-term capital gain ....................... 47,340,484
Post-October losses ........................................ (1,593,199)
Unrealized appreciation of investments
and foreign currencies .................................. 187,412,357
--------------
Net assets ................................................. $ 925,356,022
==============
The differences between book basis and tax basis components of net assets are
primarily attributable to tax deferral of losses on wash sales.
Post-October losses represent losses realized on investment transactions from
November 1, 2005 through December 31, 2005 that, in accordance with federal
income tax regulations, the Series has elected to defer and treat as having
arisen in the following fiscal year.
For financial reporting purposes, capital accounts are adjusted to reflect the
tax character of permanent book/tax differences. Reclassifications are primarily
due to tax treatment of gain (loss) on foreign currency transactions. Results of
operations and net assets were not affected by these reclassifications. For the
year ended December 31, 2005, the Series recorded the following
reclassifications.
UNDISTRIBUTED ACCUMULATED
NET NET REALIZED
INVESTMENT INCOME GAIN (LOSS)
----------------- ------------
$ 139 $ (139)
5. CAPITAL SHARES
Transactions in capital shares were as follows:
YEAR YEAR
ENDED ENDED
12/31/05 12/31/04
----------- -----------
Shares sold:
Standard Class ............................ 4,608,864 2,661,557
Service Class ............................. 3,758,275 4,063,587
Shares issued upon reinvestment of dividends
and distributions:
Standard Class ............................ 1,042,531 244,465
Service Class ............................. 1,080,493 226,605
----------- -----------
10,490,163 7,196,214
----------- -----------
Shares repurchased:
Standard Class ............................ (3,386,928) (2,118,190)
Service Class ............................. (1,345,123) (869,992)
----------- -----------
(4,732,051) (2,988,182)
----------- -----------
Net increase ............................... 5,758,112 4,208,032
=========== ===========
6. LINE OF CREDIT
The Series, along with certain other funds in the Delaware Investments Family of
Funds (the "Participants"), participates in a $225,000,000 revolving line of
credit facility to be used for temporary or emergency purposes as an additional
source of liquidity to fund redemptions of investor shares. The Participants are
charged an annual commitment fee, which is allocated across the Participants on
the basis of each 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, 2005 or at any time during
the year.
Small Cap Value-12
DELAWARE VIP SMALL CAP VALUE SERIES
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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 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, 2005, the market value of securities on loan was $191,445,085,
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.
The Series may invest up to 10% of its total assets in illiquid securities,
which may include securities with contractual restrictions on resale, securities
exempt from registration under Rule 144A of the Securities Act of 1933, as
amended, and other securities which may not be readily marketable. The relative
illiquidity of these securities may impair the Series from disposing of them in
a timely manner and at a fair price when it is necessary or desirable to do so.
While maintaining oversight, the Board of Trustees has delegated to DMC the
day-to-day functions of determining whether individual securities are liquid for
purposes of the Series' limitation on investments in illiquid assets. At
December 31, 2005, no securities have been determined to be illiquid under the
Series' Liquidity Procedures.
9. CONTRACTUAL OBLIGATIONS
The Series enters into contracts in the normal course of business that contain a
variety of indemnifications. The Series' maximum exposure under these
arrangements is unknown. However, the Series has not had prior claims or losses
pursuant to these contracts. Management has reviewed the Series' existing
contracts and expects the risk of loss to be remote.
10. TAX INFORMATION (UNAUDITED)
For the fiscal year ended December 31, 2005, the Series designates distributions
paid during the year as follows:
(A) (B)
LONG-TERM ORDINARY
CAPITAL GAINS INCOME TOTAL (C)
DISTRIBUTIONS DISTRIBUTIONS DISTRIBUTION QUALIFYING
(TAX BASIS) (TAX BASIS) (TAX BASIS) DIVIDENDS(1)
-------------- --------------- ------------- ------------
67% 33% 100% 45%
- ----------
(A) and (B) are based on a percentage of the Series' total distributions.
(C) is based on a percentage of the Series' ordinary income distributions.
(1) Qualifying dividends represent dividends which qualify for the corporate
dividends received deduction.
Small Cap Value-13
DELAWARE VIP TRUST-DELAWARE VIP SMALL CAP VALUE SERIES
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
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 the Delaware VIP
Small Cap Value Series (one of the series constituting Delaware VIP Trust) (the
"Series") as of December 31, 2005, 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
five years in the period then ended. 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 the standards of the Public Company
Accounting Oversight Board (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. We were
not engaged to perform an audit of the Series' internal control over financial
reporting. Our audits included consideration of internal control over financial
reporting as a basis for designing audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion on the
effectiveness of the Series' internal control over financial reporting.
Accordingly, we express no such opinion. An audit also includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements and financial highlights, assessing the accounting principles used
and significant estimates made by management, and evaluating the overall
financial statement presentation. Our procedures included confirmation of
securities owned as of December 31, 2005, by correspondence with the custodian
and brokers. 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 the
Delaware VIP Small Cap Value Series of Delaware VIP Trust at December 31, 2005,
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 five years in the period then ended, in conformity
with U.S. generally accepted accounting principles.
/s/ Ernst & Young LLP
Philadelphia, Pennsylvania
February 10, 2006
The Series files its complete schedule of portfolio holdings with the Securities
and Exchange Commission for the first and third quarters of each fiscal year on
Form N-Q. The Series' Forms N-Q, as well as a description of the policies and
procedures that the Series uses to determine how to vote proxies (if any)
relating to portfolio securities is available without charge (i) upon request,
by calling 800-523-1918; (ii) on the Series' website at
http://www.delawareinvestments.com; and (iii) on the Commission's website at
http://www.sec.gov. The Series' Forms N-Q may be reviewed and copied at the
Commission's Public Reference Room in Washington, DC; information on the
operation of the Public Reference Room may be obtained by calling
1-800-SEC-0330.
Information (if any) regarding how the Series voted proxies relating to
portfolio securities during the most recently disclosed 12-month period ended
June 30 is available without charge (i) through the Series' website at
http://www.delawareinvestments.com; and (ii) on the Commission's website at
http://www.sec.gov.
Small Cap Value-14
DELAWARE INVESTMENTS(R)FAMILY OF FUNDS
BOARD OF TRUSTEES/DIRECTORS AND OFFICERS ADDENDUM
A mutual fund is governed by a Board of Trustees/Directors ("Trustees"), which
has oversight responsibility for the management of a fund's business affairs.
Trustees establish procedures and oversee and review the performance of the
investment manager, the distributor and others who perform services for the
fund. The independent fund trustees, in particular, are advocates for
shareholder interests. Each trustee has served in that capacity since he or she
was elected to or appointed to the Board of Trustees, and will continue to serve
until his or her retirement or the election of a new trustee in his or her
place. The following is a list of the Trustees and Officers with certain
background and related information.
NUMBER OF OTHER
PRINCIPAL PORTFOLIOS IN FUND DIRECTORSHIPS
NAME, POSITION(S) LENGTH OCCUPATION(S) COMPLEX OVERSEEN HELD BY
ADDRESS HELD WITH OF TIME DURING BY TRUSTEE TRUSTEE
AND BIRTHDATE FUND(S) SERVED PAST 5 YEARS OR OFFICER OR OFFICER
- ------------------------ ------------------- -------------- ---------------------------- ------------------ ------------------
INTERESTED TRUSTEES
JUDE T. DRISCOLL(2) Chairman, 5 Years - Since August 2000, 87 None
2005 Market Street President, Executive Mr. Driscoll has served in
Philadelphia, PA Chief Executive Officer various executive capacities
19103 Officer and 2 Years - at different times at
Trustee Trustee Delaware Investments(1)
March 10, 1963
INDEPENDENT TRUSTEES
THOMAS L. BENNETT Trustee Since Private Investor - 87 None
2005 Market Street March 23, 2005 (March 2004 - Present)
Philadelphia, PA
19103 Investment Manager -
Morgan Stanley & Co.
October 4, 1947 (January 1984 - March 2004)
JOHN A. FRY Trustee 4 Years President - 87 Director -
2005 Market Street Franklin & Marshall College Community Health
Philadelphia, PA (June 2002 - Present) Systems
19103
Executive Vice President -
May 28, 1960 University of Pennsylvania
(April 1995 - June 2002)
ANTHONY D. KNERR Trustee 12 Years Founder/Managing Director - 87 None
2005 Market Street Anthony Knerr & Associates
Philadelphia, PA (Strategic Consulting)
19103 (1990 - Present)
December 7, 1938
LUCINDA S. LANDRETH Trustee Since Chief Investment Officer - 87 None
2005 Market Street March 23, 2005 Assurant, Inc.
Philadelphia, PA (Insurance)
19103 (2002 - 2004)
June 24, 1947
ANN R. LEVEN Trustee 16 Years Treasurer/Chief Fiscal 87 Director and
2005 Market Street Officer - National Gallery Audit Committee
Philadelphia, PA of Art (1994 - 1999) Chairperson - Andy
19103 Warhol Foundation
November 1, 1940 Director and Audit
Committee Member -
Systemax Inc.
Small Cap Value-15
NUMBER OF OTHER
PRINCIPAL PORTFOLIOS IN FUND DIRECTORSHIPS
NAME, POSITION(S) LENGTH OCCUPATION(S) COMPLEX OVERSEEN HELD BY
ADDRESS HELD WITH OF TIME DURING BY TRUSTEE TRUSTEE
AND BIRTHDATE FUND(S) SERVED PAST 5 YEARS OR OFFICER OR OFFICER
- ------------------------ ------------------- -------------- ---------------------------- ------------------ ------------------
INDEPENDENT TRUSTEES
THOMAS F. MADISON Trustee 11 Years President/Chief 87 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 and Audit
Committee Member -
Digital River Inc.
Director and Audit
Committee Member -
Rimage Corporation
Director - Valmont
Industries, Inc.
JANET L. YEOMANS Trustee 6 Years Vice President 87 None
2005 Market Street (January 2003 - Present)
Philadelphia, PA and Treasurer
19103 (January 2006 - Present)
3M Corporation
July 31, 1948 Ms. Yeomans has held
various management positions
at 3M Corporation
since 1983.
J. RICHARD ZECHER Trustee Since Founder - 87 Director and Audit
2005 Market Street March 23, 2005 Investor Analytics Committee Member -
Philadelphia, PA (Risk Management) Investor Analytics
19103 (May 1999 - Present)
Director and Audit
July 3, 1940 Committee Member -
Oxigene, Inc.
OFFICERS
MICHAEL P. BISHOF Senior Chief Mr. Bishof has served in 87 None(3)
2005 Market Street Vice President and Financial various executive capacities
Philadelphia, PA Chief Financial Officer since at different times at
19103 Officer February 17, Delaware Investments.
2005
August 18, 1962
DAVID F. CONNOR Vice President, Vice President Mr. Connor has served as 87 None(3)
2005 Market Street Deputy General since Vice President and Deputy
Philadelphia, PA Counsel and September 21, General Counsel of Delaware
19103 Secretary 2000 and Investments since 2000.
Secretary
since
October 25,
2005
December 2, 1963
DAVID P. O'CONNOR Senior Vice Senior Vice Mr. O'Connor has served in 87 None(3)
2005 Market Street President, President, various executive and legal
Philadelphia, PA General Counsel General capacities at different
19103 and Chief Counsel and times at Delaware
Legal Officer Chief Legal Investments.
Officer since
October 25,
2005
February 21, 1966
JOHN J. O'CONNOR Senior Vice Treasurer Mr. O'Connor has served in 87 None(3)
2005 Market Street President and since various executive capacities
Philadelphia, PA Treasurer February 17, at different times at
19103 2005 Delaware Investments.
June 16, 1957
- ----------
(1) Delaware Investments is the marketing name for Delaware Management
Holdings, Inc. and its subsidiaries, including the Fund's(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(s') manager and distributor.
(3) Mr. Bishof, Mr. Connor, Mr. David P. O'Connor and Mr. John J. O'Connor
serve in similar capacities for the six portfolios of the Optimum Fund
Trust, which have the same investment advisor, principal underwriter, and
transfer agent as the registrant. Mr. John J. O'Connor also serves in a
similar capacity for Lincoln Variable Insurance Products Trust, which has
the same investment advisor as the registrant.
The Statement of Additional Information for the Fund(s) includes additional
information about the Trustees and Officers and is available, without charge,
upon request by calling 800 523-1918.
Small Cap Value-16
DELAWARE VIP TRUST - DELAWARE VIP TREND SERIES
For the 12-month period ended December 31, 2005, Delaware VIP Trend Series
returned 5.86% on Standard Class shares and 5.61% for Service Class shares (both
figures reflect all distributions reinvested). During the same 12-month period,
the Russell 2000 Growth Index - which is the Series' benchmark - returned 4.15%.
Early in the fiscal year, sector selection played a role in determining
performance relative to the benchmark. Energy was particularly strong throughout
much of the year, and we made a decision not to chase this hot sector of the
market. As a result, the Series' performance compared to the Russell 2000 Growth
Index was impacted negatively by a generally light exposure to this
strong-performing energy sector.
Later in the year, markets saw a reversal in leadership, with
consumer-related stocks rebounding strongly and the energy sector declining from
its lofty post--Hurricane Katrina levels, as oil prices fell. Over the course of
the year, we decreased the Series' weighting in consumer-related stocks
dramatically, frequently re-allocating those assets to technology, where by
mid-year our allocation was back in line with the benchmark. Our general
strategy with regard to consumer stocks was to retain only high-quality consumer
names that we think should still be able to generate solid results, and would be
the beneficiaries of a return to a more neutral sentiment.
Changes in portfolio positioning throughout the past year have reduced the
portfolio's sensitivity to the performance of any particular sector, while we
continue to focus on stock selection-finding and holding individual companies
that have delivered and will be able to continue to deliver strong sales and
profit growth.
Performance of a $10,000 Investment:
Russell 2000 Trend
------------ -----
Dec 31 '95 $10,000 $10,000
Dec 31 '96 $11,099 $11,126
Dec 31 '97 $13,471 $12,566
Dec 31 '98 $15,631 $12,721
Dec 31 '99 $26,643 $18,203
Dec 31 '00 $24,809 $14,120
Dec 31 '01 $21,004 $12,816
Dec 31 '02 $16,817 $ 8,938
Dec 31 '03 $22,719 $13,277
Dec 31 '04 $25,583 $15,177
Dec 31 '05 $27,082 $15,806
DELAWARE VIP
TREND SERIES
AVERAGE ANNUAL TOTAL RETURNS
FOR THE PERIODS ENDED DECEMBER 31, 2005
STANDARD CLASS SERVICE CLASS
SHARES* SHARES**
-------------- -------------
LIFETIME +11.83% -1.60%
TEN YEAR +10.48% --
FIVE YEAR +1.77% +1.56%
ONE YEAR +5.86% +5.61%
* 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 the Delaware VIP Trend Series Standard
Class shares and the Russell 2000 Growth Index for the period from December 31,
1995 through December 31, 2005. All distributions were reinvested. The Russell
2000 Growth Index is an unmanaged 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. 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 the Delaware VIP Trend 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. Series that invest in small and/or medium-sized companies typically
involve greater risk, particularly in the short term, than those investing in
larger, more established companies.
Trend-1
DELAWARE VIP TRUST-DELAWARE VIP TREND SERIES
DISCLOSURE OF SERIES EXPENSES
For the Period July 1, 2005 to December 31, 2005
As a shareholder of the Series, you incur ongoing costs, including management
fees; distribution and/or service (12b-1) fees; and other Series expenses. This
Example is intended to help you understand your ongoing costs (in dollars) of
investing in the Series and to compare these costs with the ongoing costs of
investing in other mutual funds.
The Example is based on an investment of $1,000 invested at the beginning of the
period and held for the entire period from July 1, 2005 to December 31, 2005.
ACTUAL EXPENSES
The first section of the table shown, "Actual Series Return," provides
information about actual account values and actual expenses. You may use the
information in this section of the table, together with the amount you invested,
to estimate the expenses that you paid over the period. Simply divide your
account value by $1,000 (for example, an $8,600 account value divided by $1,000
= 8.6), then multiply the result by the number in the first section under the
heading entitled "Expenses Paid During Period" to estimate the expenses you paid
on your account during the period.
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The second section of the table shown, "Hypothetical 5% Return," provides
information about hypothetical account values and hypothetical expenses based on
the Series' actual expense ratio and an assumed rate of return of 5% per year
before expenses, which is not the Series' actual return. The hypothetical
account values and expenses may not be used to estimate the actual ending
account balance or expenses you paid for the period. You may use this
information to compare the ongoing costs of investing in the Series and other
funds. To do so, compare the 5% hypothetical example with the 5% hypothetical
examples that appear in the shareholder reports of other funds.
Please note that the expenses shown in the table are meant to highlight your
ongoing costs only. As a shareholder of the Series, you do not incur any
transaction costs, such as sales charges (loads), redemption fees or exchange
fees, but shareholders of other funds may incur such costs. Also, the fees
related to the variable annuity investment or the deferred sales charge that
could apply have not been included. Therefore, the second section of the table
is useful in comparing ongoing costs only, and will not help you determine the
relative total costs of owning different funds. The Series' actual expenses
shown in the table reflect fee waivers in effect for Service Class shares. The
expenses shown in the table assume reinvestment of all dividends and
distributions.
EXPENSE ANALYSIS OF AN INVESTMENT OF $1,000
EXPENSES
BEGINNING ENDING PAID DURING
ACCOUNT ACCOUNT ANNUALIZED PERIOD
VALUE VALUE EXPENSE 7/1/05 TO
7/1/05 12/31/05 RATIOS 12/31/05*
----------- ----------- ----------- -----------
ACTUAL SERIES RETURN
Standard Class $ 1,000.00 $ 1,106.10 0.87% $ 4.62
Service Class 1,000.00 1,104.40 1.12% 5.94
----------- ----------- ----------- -----------
HYPOTHETICAL 5% RETURN (5% RETURN BEFORE EXPENSES)
Standard Class $ 1,000.00 $ 1,020.82 0.87% $ 4.43
Service Class 1,000.00 1,019.56 1.12% 5.70
----------- ----------- ----------- -----------
*"Expenses Paid During Period" are equal to the Series' annualized expense
ratio, multiplied by the average account value over the period, multiplied by
184/365 (to reflect the one-half year period).
Trend-2
DELAWARE VIP TRUST-DELAWARE VIP TREND SERIES
SECTOR ALLOCATION
As of December 31, 2005
Sector designations may be different than the sector designations presented in
other Series materials.
PERCENTAGE
SECTOR OF NET ASSETS
- ------------------------------------------------------ -------------
COMMON STOCK 97.48%
-------------
Basic Industry/Capital Goods 6.75%
Business Services 7.94%
Consumer Durables 1.49%
Consumer Non-Durables 8.36%
Consumer Services 11.81%
Energy 2.96%
Financials 9.40%
Health Care 19.62%
Technology 25.96%#
Transportation 3.19%
-------------
REPURCHASE AGREEMENTS 1.48%
-------------
SECURITIES LENDING COLLATERAL 21.91%
-------------
TOTAL MARKET VALUE OF SECURITIES 120.87%
-------------
OBLIGATION TO RETURN SECURITIES LENDING COLLATERAL (21.91)%
-------------
RECEIVABLES AND OTHER ASSETS NET OF LIABILITIES 1.04%
-------------
TOTAL NET ASSETS 100.00%
-------------
# Narrow industries are utilized for compliance purposes for diversification
whereas broad sectors are used for financial reporting.
Trend-3
DELAWARE VIP TRUST-DELAWARE VIP TREND SERIES
STATEMENT OF NET ASSETS
December 31, 2005
NUMBER OF MARKET
SHARES VALUE
------------ ------------
COMMON STOCK-97.48%
BASIC INDUSTRY/CAPITAL GOODS-6.75%
*AMCOL International ...................... 186,000 $ 3,816,720
*Bucyrus International Class A ............ 148,700 7,836,490
+Mettler-Toledo International ............. 171,900 9,488,880
MSC Industrial Direct Class A ............ 297,400 11,961,428
*+Paxar .................................... 273,000 5,358,990
------------
38,462,508
------------
BUSINESS SERVICES-7.94%
+Advisory Board ........................... 145,000 6,912,150
*+Bright Horizons Family Solutions .......... 216,100 8,006,505
+Fisher Scientific International .......... 153,800 9,514,068
+Monster Worldwide ........................ 264,900 10,813,218
*+Resources Connection ...................... 383,300 9,988,798
------------
45,234,739
------------
CONSUMER DURABLES-1.49%
*Winnebago Industries ..................... 255,400 8,499,712
------------
8,499,712
------------
CONSUMER NON-DURABLES-8.36%
+Carter's ................................. 247,000 14,535,950
+Coach .................................... 625,700 20,860,838
*+DSW Class A ............................... 183,400 4,808,748
*+Peet's Coffee & Tea ....................... 107,100 3,250,485
*+Tractor Supply ............................ 78,800 4,171,672
------------
47,627,693
------------
CONSUMER SERVICES-11.81%
+Cheesecake Factory ....................... 222,937 8,335,614
+Getty Images ............................. 83,800 7,480,826
*+Kerzner International ..................... 112,200 7,713,750
*+P.F. Chang's China Bistro ................. 111,400 5,528,782
+Sonic .................................... 356,343 10,512,119
*+Texas Roadhouse ........................... 376,800 5,859,240
+West ..................................... 280,300 11,814,645
*+Wynn Resorts .............................. 183,500 10,064,975
------------
67,309,951
------------
ENERGY-2.96%
*+Cal Dive International .................... 154,600 5,548,594
*Carbo Ceramics ........................... 62,050 3,507,066
*+Hydril .................................... 124,800 7,812,480
------------
16,868,140
------------
FINANCIALS-9.40%
Aspen Insurance Holdings ................. 153,300 3,628,611
City National ............................ 110,500 8,004,620
*Delphi Financial Group Class A ........... 117,500 5,406,175
Hanover Insurance Group .................. 139,600 5,831,092
*IPC Holdings ............................. 82,200 2,250,636
PartnerRe ................................ 125,400 8,235,018
*UCBH Holdings ............................ 92,200 1,648,536
Waddell & Reed Financial Class A ......... 329,900 6,918,003
Webster Financial ........................ 130,400 6,115,760
*Whitney Holding .......................... 201,300 5,547,828
------------
53,586,279
------------
NUMBER OF MARKET
SHARES VALUE
------------ ------------
COMMON STOCK (CONTINUED)
HEALTH CARE-19.62%
*+Align Technology .......................... 567,100 $ 3,669,137
+Amylin Pharmaceuticals ................... 156,600 6,251,472
+#Conceptus Restricted ...................... 298,400 3,765,808
+CV Therapeutics .......................... 161,300 3,988,949
+Cytyc .................................... 245,200 6,921,996
*+Digene .................................... 198,300 5,784,411
+Encysive Pharmaceuticals ................. 780,600 6,158,934
*+Exelixis .................................. 435,400 4,101,468
*+First Horizon Pharmaceutical .............. 355,000 6,123,750
*+MGI Pharma ................................ 504,200 8,652,072
*+Nektar Therapeutics ....................... 441,600 7,268,736
*+Neurocrine Biosciences .................... 139,400 8,744,562
*+Par Pharmaceuticals ....................... 161,200 5,052,008
*+Progenics Pharmaceuticals ................. 249,200 6,232,492
+Protein Design Labs ...................... 445,500 12,661,110
*+Telik ..................................... 455,400 7,737,246
*+United Therapeutics ....................... 126,200 8,722,944
------------
111,837,095
------------
TECHNOLOGY-25.96%~
*+Akamai Technologies ....................... 372,300 7,419,939
*+American Reprographics .................... 408,500 10,379,985
+Avocent .................................. 192,500 5,234,075
*+Cymer ..................................... 150,200 5,333,602
+F5 Networks .............................. 132,700 7,589,113
+Fairchild Semiconductor Class A .......... 172,800 2,922,048
*+FormFactor ............................... 42,500 1,038,275
*Henry (Jack) & Associates ................ 151,800 2,896,344
+Hutchinson Technology .................... 135,900 3,866,355
*+Informatica ............................... 754,400 9,052,800
+Mercury Interactive ...................... 52,400 1,456,196
*+Micromuse ................................. 459,900 4,548,411
*+Microsemi ................................. 309,000 8,546,940
+NAVTEQ ................................... 124,800 5,474,976
+Opsware .................................. 1,074,500 7,295,855
+Polycom .................................. 482,100 7,376,130
+RSA Security ............................. 7,400 83,102
*+SafeNet ................................... 100,500 3,238,110
*+salesforce.com ............................ 204,300 6,547,815
*+Semtech ................................... 364,800 6,661,248
*+Tekelec ................................... 564,700 7,849,330
+TIBCO Software ........................... 712,100 5,319,387
+Vishay Intertechnology ................... 484,300 6,663,968
*+Websense .................................. 210,700 13,830,348
*+Wind River Systems ........................ 493,500 7,288,995
------------
147,913,347
------------
TRANSPORTATION-3.19%
Hunt (J.B.) Transport .................... 328,800 7,444,032
UTi Worldwide ............................ 115,600 10,732,304
------------
18,176,336
------------
TOTAL COMMON STOCK
(COST $393,663,021) ...................... 555,515,800
============
Trend-4
DELAWARE VIP TREND SERIES
STATEMENT OF NET ASSETS (CONTINUED)
PRINCIPAL MARKET
AMOUNT VALUE
------------ ------------
REPURCHASE AGREEMENTS-1.48%
With BNP Paribas 3.30% 1/3/06
(dated 12/30/05, to be repurchased
at $5,323,951, collateralized by
$109,000 U.S. Treasury Bills
due 1/26/06, market value
$109,002, $75,000 U.S. Treasury
Bills due 2/23/06, market
value $74,512, $148,000 U.S. .............
Treasury Bills due 5/4/06, market
value $145,812, $985,000
U.S. Treasury Bills
due 6/1/06, market value
$967,891, $2,761,000 U.S. ................
Treasury Bills due 6/29/06,
market value $2,703,435,
$980,000 U.S. Treasury Notes
2.625% due 5/15/08, market
value $945,082 and $491,000
U.S. Treasury Notes 3.125%
due 5/15/07, market
value $485,223) .......................... $ 5,322,000 $ 5,322,000
With UBS Warburg 3.40% 1/3/06
(dated 12/30/05, to be repurchased
at $3,108,174, collateralized by
$361,000 U.S. Treasury Notes
2.00% due 5/15/06, market value
$358,877 and $2,718,000 U.S. .............
Treasury Notes 5.625% due 5/15/08,
market value $2,812,990) ................. 3,107,000 3,107,000
------------
TOTAL REPURCHASE AGREEMENTS
(COST $8,429,000) ........................ 8,429,000
------------
TOTAL MARKET VALUE OF SECURITIES BEFORE
SECURITIES LENDING COLLATERAL-98.96%
(COST $402,092,021) ...................... 563,944,800
------------
SECURITIES LENDING COLLATERAL**-21.91%
SHORT-TERM INVESTMENTS
FIXED RATE NOTES-5.19%
Citigroup Global Markets
4.29% 1/3/06 ............................. 25,800,423 25,800,423
Wilmington Trust Company
4.05% 1/5/06 ............................. 3,781,763 3,781,763
------------
29,582,186
------------
PRINCIPAL MARKET
AMOUNT VALUE
------------ ------------
SECURITIES LENDING COLLATERAL
(CONTINUED)
SHORT TERM INVESTMENT (CONTINUED)
>VARIABLE RATE NOTES-16.72%
Abbey National 4.14% 1/13/06 ............. $ 2,798,505 $ 2,798,880
ANZ National 4.31% 1/30/07 ............... 756,353 756,353
Australia New Zealand 4.35% 1/30/07 ...... 3,781,763 3,781,763
Bank of New York 4.33% 4/4/06 ............ 3,025,410 3,025,410
Bank of the West 4.27% 3/2/06 ............ 3,781,763 3,781,763
Bayerische Landesbank 4.40% 8/25/06 ...... 3,781,763 3,781,763
Bear Stearns
4.14% 1/17/06 .......................... 756,353 756,482
4.39% 6/30/06 .......................... 4,538,116 4,538,116
Beta Finance 4.33% 4/18/06 ............... 3,781,763 3,781,574
Canadian Imperial Bank
4.35% 1/30/07 .......................... 1,890,882 1,890,882
CDC Financial Products
4.35% 1/30/06 .......................... 4,916,292 4,916,292
Citigroup Global Markets
4.32% 1/6/06 ........................... 4,916,292 4,916,292
Commonwealth Bank Australia
4.35% 1/30/07 .......................... 3,781,763 3,781,763
Credit Suisse First Boston New York
4.35% 4/18/06 .......................... 4,084,304 4,084,304
Goldman Sachs 4.39% 1/2/07 ............... 4,916,292 4,916,292
Manufacturers & Traders
4.36% 9/26/06 .......................... 3,781,763 3,781,073
Marshall & Ilsley Bank
4.35% 1/30/07 .......................... 4,159,939 4,159,939
Merrill Lynch Mortgage Capital
4.35% 1/12/06 .......................... 4,916,292 4,916,292
Morgan Stanley 4.43% 1/2/07 .............. 4,689,386 4,689,386
National City Bank 4.31% 1/23/06 ......... 4,311,210 4,311,287
Nordea Bank Norge ASA
4.34% 1/30/07 .......................... 3,781,763 3,781,763
Proctor & Gamble
4.46% 1/30/07 .......................... 3,781,763 3,781,763
Royal Bank of Scotland
4.34% 1/30/07 .......................... 3,781,763 3,781,763
Sigma Finance 4.33% 3/16/06 .............. 1,134,529 1,134,567
Societe Generale New York
4.26% 1/30/07 ........................... 1,890,881 1,890,881
Toyota Motor Credit
4.30% 6/23/06 .......................... 3,781,763 3,781,952
Wells Fargo 4.36% 1/30/07 ................ 3,781,763 3,781,763
------------
95,300,358
------------
TOTAL SECURITIES LENDING
COLLATERAL (124,882,544) ................ 124,882,544
------------
Trend-5
DELAWARE VIP TREND SERIES
STATEMENT OF NET ASSETS (CONTINUED)
TOTAL MARKET VALUE OF SECURITIES-120.87% (COST $526,974,565) .................................. $ 688,827,344>>
OBLIGATION TO RETURN SECURITIES LENDING COLLATERAL**-(21.91%) ................................. (124,882,544)
RECEIVABLES AND OTHER ASSETS NET OF LIABILITIES-1.04% ......................................... 5,941,571
---------------
NET ASSETS APPLICABLE TO 17,559,055 SHARES OUTSTANDING-100.00% ................................ $ 569,886,371
===============
NET ASSET VALUE-DELAWARE VIP TREND SERIES STANDARD CLASS ($450,525,629 / 13,849,229 SHARES) ... $ 32.53
===============
NET ASSET VALUE-DELAWARE VIP TREND SERIES SERVICE CLASS ($119,360,742 / 3,709,826 SHARES) ..... $ 32.17
===============
COMPONENTS OF NET ASSETS AT DECEMBER 31, 2005:
Shares of beneficial interest (unlimited authorization-no par) ................................ $ 487,841,784
Accumulated net realized loss on investments .................................................. (79,808,192)
Net unrealized appreciation of investments .................................................... 161,852,779
---------------
Total net assets .............................................................................. $ 569,886,371
===============
- ----------
+Non-income producing security for the year ended December 31, 2005.
>Variable rate securities. The interest rate shown is the rate as of
December 31, 2005.
*Fully or partially on loan.
**See Note 7 in "Notes to Financial Statements."
>>Includes $121,310,268 of securities loaned.
#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, 2005, the aggregate amount of the
restricted security equals $3,765,808 or 0.66% of the Series' net assets. See
Note 8 in "Notes to Financial Statements."
~Narrow industries are utilized for compliance purposes for diversification
whereas broad sectors are used for financial reporting.
See accompanying notes
Trend-6
DELAWARE VIP TRUST-
DELAWARE VIP TREND SERIES
STATEMENT OF OPERATIONS
Year Ended December 31, 2005
INVESTMENT INCOME:
Dividends ................................................ $ 2,260,509
Interest ................................................. 358,778
Securities lending income ................................ 277,753
Foreign tax withheld ..................................... (984)
--------------
2,896,056
--------------
EXPENSES:
Management fees .......................................... 4,221,261
Distribution expenses-Service Class ...................... 332,544
Reports and statements to shareholders ................... 252,846
Accounting and administration expenses ................... 208,773
Legal and professional fees .............................. 85,902
Dividend disbursing and transfer agent fees
and expenses .......................................... 56,851
Insurance fees ........................................... 45,502
Trustees' fees ........................................... 29,966
Custodian fees ........................................... 22,298
Taxes (other than taxes on income) ....................... 13,769
Pricing fees ............................................. 560
Registration fees ........................................ 83
Other .................................................... 17,524
--------------
5,287,879
Less waiver of distribution expenses - Service Class ..... (55,424)
Less expense paid indirectly ............................. (819)
--------------
Total expenses ........................................... 5,231,636
--------------
NET INVESTMENT LOSS ...................................... (2,335,580)
--------------
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS AND FOREIGN CURRENCIES:
Net realized gain on:
Investments ........................................... 61,609,982
Foreign currencies .................................... 60
--------------
Net realized gain ........................................ 61,610,042
Net change in unrealized appreciation/
depreciation of investments and
foreign currencies .................................... (31,267,940)
--------------
NET REALIZED AND UNREALIZED GAIN ON
INVESTMENTS AND FOREIGN CURRENCIES ...................... 30,342,102
--------------
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS ......................................... $ 28,006,522
==============
See accompanying notes
DELAWARE VIP TRUST-
DELAWARE VIP TREND SERIES
STATEMENTS OF CHANGES IN NET ASSETS
YEAR ENDED
--------------------------------
12/31/05 12/31/04
-------------- --------------
INCREASE (DECREASE) IN NET
ASSETS FROM OPERATIONS:
Net investment loss ...................... $ (2,335,580) $ (2,478,518)
Net realized gain on investments and
foreign currencies .................... 61,610,042 37,083,317
Net change in unrealized appreciation/
depreciation of investments and
foreign currencies .................... (31,267,940) 35,452,594
-------------- --------------
Net increase in net assets resulting
from operations ....................... 28,006,522 70,057,393
-------------- --------------
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares sold:
Standard Class ........................ 9,925,534 24,635,945
Service Class ......................... 28,703,461 54,793,820
-------------- --------------
38,628,995 79,429,765
-------------- --------------
Cost of shares repurchased:
Standard Class ........................ (102,222,054) (78,371,317)
Service Class ......................... (25,751,185) (11,382,531)
-------------- --------------
(127,973,239) (89,753,848)
-------------- --------------
Decrease in net assets derived from
capital share transactions ............ (89,344,244) (10,324,083)
-------------- --------------
NET INCREASE (DECREASE)
IN NET ASSETS ......................... (61,337,722) 59,733,310
NET ASSETS:
Beginning of year ........................ 631,224,093 571,490,783
-------------- --------------
End of year (there was no undistributed
net investment income at either
year end) ............................. $ 569,886,371 $ 631,224,093
============== ==============
See accompanying notes
Trend-7
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
----------------------------------------------------------------------------
12/31/05 12/31/04 12/31/03 12/31/02 12/31/01
------------ ------------ ------------ ------------ ------------
Net asset value, beginning of period ..... $ 30.730 $ 27.290 $ 20.200 $ 25.230 $ 29.800
INCOME (LOSS) FROM INVESTMENT OPERATIONS:
Net investment loss(1) ................... (0.108) (0.108) (0.082) (0.085) (0.086)
Net realized and unrealized gain (loss) on
investments and foreign currencies ..... 1.908 3.548 7.172 (4.945) (4.484)
------------ ------------ ------------ ------------ ------------
Total from investment operations ......... 1.800 3.440 7.090 (5.030) (4.570)
------------ ------------ ------------ ------------ ------------
Net asset value, end of period ........... $ 32.530 $ 30.730 $ 27.290 $ 20.200 $ 25.230
============ ============ ============ ============ ============
Total return(2) .......................... 5.86% 12.60% 35.10% (19.94)% (15.34)%
RATIOS AND SUPPLEMENTAL DATA:
Net assets, end of period (000 omitted) .. $ 450,525 $ 521,392 $ 515,829 $ 415,098 $ 590,742
Ratio of expenses to average net assets .. 0.87% 0.84% 0.84% 0.84% 0.85%
Ratio of expenses to average net assets
prior to expense limitation and expenses
paid indirectly ........................ 0.87% 0.84% 0.84% 0.84% 0.90%
Ratio of net investment loss to average
net assets ............................. (0.36)% (0.38)% (0.36)% (0.38)% (0.35)%
Ratio of net investment loss to average
net assets prior to expense limitation
and expenses paid indirectly ........... (0.36)% (0.38)% (0.36)% (0.38)% (0.40)%
Portfolio turnover ....................... 63% 48% 50% 43% 51%
- ----------
(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
Trend-8
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
YEAR ENDED
----------------------------------------------------------------------------
12/31/05 12/31/04 12/31/03 12/31/02 12/31/01
------------ ------------ ------------ ------------ ------------
Net asset value, beginning of period ..... $ 30.460 $ 27.120 $ 20.120 $ 25.170 $ 29.770
INCOME (LOSS) FROM INVESTMENT OPERATIONS:
Net investment loss(1).................... (0.182) (0.178) (0.135) (0.117) (0.122)
Net realized and unrealized gain (loss) on
investments and foreign currencies ...... 1.892 3.518 7.135 (4.933) (4.478)
------------ ------------ ------------ ------------ ------------
Total from investment operations ......... 1.710 3.340 7.000 (5.050) (4.600)
------------ ------------ ------------ ------------ ------------
Net asset value, end of period ........... $ 32.170 $ 30.460 $ 27.120 $ 20.120 $ 25.170
============ ============ ============ ============ ============
Total return(2)........................... 5.61% 12.32% 34.79% (20.06)% (15.45)%
RATIOS AND SUPPLEMENTAL DATA:
Net assets, end of period (000 omitted) .. $ 119,361 $ 109,832 $ 55,662 $ 22,136 $ 13,950
Ratio of expenses to average net assets .. 1.12% 1.09% 1.06% 0.99% 1.00%
Ratio of expenses to average net assets
prior to expense limitation and expenses
paid indirectly ......................... 1.17% 1.14% 1.09% 0.99% 1.05%
Ratio of net investment loss to average
net assets .............................. (0.61)% (0.63)% (0.58)% (0.53)% (0.50)%
Ratio of net investment loss to average
net assets prior to expense limitation
and expenses paid indirectly ........... (0.66)% (0.68)% (0.61)% (0.53)% (0.55)%
Portfolio turnover ....................... 63% 48% 50% 43% 51%
- ----------
(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 and distributor, as applicable. Performance would have been
lower had the expense limitation not been in effect.
See accompanying notes
Trend-9
DELAWARE VIP TRUST-DELAWARE VIP TREND SERIES
NOTES TO FINANCIAL STATEMENTS
December 31, 2005
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 REIT Series,
Delaware VIP Select Growth Series, Delaware VIP Small Cap Value Series, Delaware
VIP Trend Series, Delaware VIP U.S. Growth Series and Delaware VIP Value Series.
These financial statements and the related notes pertain to Delaware VIP Trend
Series (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 U.S. generally accepted
accounting principles and are consistently followed by the Series.
Security Valuation--Equity securities, except those traded on the Nasdaq Stock
Market, Inc. (Nasdaq), are valued at the last quoted sales price as of the time
of the regular close of the New York Stock Exchange (NYSE) on the valuation
date. Securities traded on the Nasdaq are valued in accordance with the Nasdaq
Official Closing Price, which may not be the last sales price. If on a
particular day an equity security does not trade, then the mean between the bid
and asked prices will be used. Short-term debt securities having less than 60
days to maturity are valued at amortized cost, which approximates market value.
Securities lending collateral is valued at amortized cost, which approximates
market value. Other securities and assets for which market quotations are not
readily available are valued at fair value as determined in good faith under the
direction of the Series' Board of Trustees. In determining whether market
quotations are readily available or fair valuation will be used, various factors
will be taken into consideration, such as market closures, or with respect to
foreign securities, aftermarket trading, or significant events after local
market trading (e.g., government actions or pronouncements, trading volume or
volatility on markets, exchanges among dealers, or news events).
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 pursuant to an
exemptive order issued by the Securities and Exchange Commission. The aggregate
daily balance of the pooled cash account is invested in repurchase agreements
secured by obligations of the U.S. government. The respective collateral is held
by the Series' custodian bank until the maturity of the respective repurchase
agreements. Each repurchase agreement is 102% collateralized. However, in the
event of default or bankruptcy by the counterparty to the agreement, realization
of the collateral may be subject to legal proceedings.
Use of Estimates--The preparation of financial statements in conformity with
U.S. generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from those estimates.
Other--Expenses common to all funds within the Delaware Investments Family of
Funds are allocated amongst the funds on the basis of average net assets.
Management fees and some other expenses are paid monthly. Security transactions
are recorded on the date the securities are purchased or sold (trade date) for
financial reporting purposes. Costs used in calculating realized gains and
losses on the sale of investment securities are those of the specific securities
sold. Dividend income is recorded on the ex-dividend date and interest income is
recorded on the accrual basis.
The Series declares and pays dividends from net investment income and
distributions from net realized gain on investments, if any, following the close
of the fiscal year.
Subject to seeking best execution, the Series may direct certain security trades
to brokers who have agreed to rebate a portion of the related brokerage
commission to the Series in cash. Such commission rebates are included in
realized gain on investments in the accompanying financial statements and
totaled $62,435 for the year ended December 31, 2005. In general, best execution
refers to many factors, including the price paid or received for a security, the
commission charged, the promptness and reliability of execution, the
confidentiality and placement accorded the order, and other factors affecting
the overall benefit obtained by the Series on the transaction.
The Series receives earnings credits from its custodian when positive cash
balances are maintained, which are used to offset custody fees. The expense paid
under the above arrangement is included in custodian fees on the Statement of
Operations with the corresponding expense offset shown as "expense paid
indirectly."
2. INVESTMENT MANAGEMENT, ADMINISTRATION AGREEMENTS AND OTHER TRANSACTIONS WITH
AFFILIATES
In accordance with the terms of its investment management agreement, the Series
pays Delaware Management Company (DMC), a series of Delaware Management Business
Trust and the investment manager, an annual fee which is calculated daily at the
rate of 0.75% on the first $500 million of average daily net assets of the
Series, 0.70% on the next $500 million, 0.65% on the next $1.5 billion, and
0.60% on average daily net assets in excess of $2.5 billion.
DMC has contractually agreed to waive that portion, if any, of its management
fee and reimburse the Series to the extent necessary to ensure that annual
operating expenses, exclusive of taxes, interest, brokerage commissions,
distribution fees, certain insurance costs and extraordinary expenses, do not
exceed 0.95% of average daily net assets of the Series through June 30, 2006. No
reimbursement was due for the year ended December 31, 2005.
Delaware Service Company, Inc. (DSC), an affiliate of DMC, provides accounting,
administration, dividend disbursing and transfer agent services. Effective May
19, 2005, the Series pays DSC a monthly fee computed at the annual rate of 0.04%
of the Series' average daily net assets for accounting and administrative
services. Prior to May 19, 2005, the Series paid 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.
Trend-10
DELAWARE VIP TREND 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 distribution and service fee not to exceed 0.30% of the average daily net
assets of the Service Class shares. DDLP has contracted to waive distribution
and service fees through June 30, 2006 in order to prevent distribution and
service fees of the Service Class shares from exceeding 0.25% of average daily
net assets. Standard Class shares pay no distribution and service expenses.
At December 31, 2005, the Series had liabilities payable to affiliates as
follows:
DIVIDEND DISBURSING, OTHER
INVESTMENT TRANSFER AGENT, ACCOUNTING EXPENSES
MANAGEMENT AND ADMINISTRATION FEES DISTRIBUTION PAYABLE
FEE PAYABLE TO AND OTHER EXPENSES FEE PAYABLE TO DMC AND
DMC PAYABLE TO DSC TO DDLP AFFILIATES*
-------------- --------------------------- ------------ --------------
$ 364,890 $ 29,711 $ 49,629 $ 67,207
*DMC, as part of its administrative services, pays operating expenses on behalf
of the Series and is reimbursed on a periodic basis. Such expenses include items
such as printing of shareholder reports, fees for audit, legal and tax services,
custodian fees and trustees' fees.
As provided in the investment management agreement, the Series bears the cost of
certain legal services expenses, including internal legal services provided to
the Series by DMC employees. For the year ended December 31, 2005, the Series
was charged $35,303 for internal legal services provided by DMC.
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, 2005, the Series made purchases and sales of
investment securities other than short-term investments as follows:
Purchases................................... $ 352,623,545
Sales....................................... 441,118,981
At December 31, 2005, 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
------------- ------------- -------------- --------------
$ 530,193,300 $ 179,361,735 $ (20,727,691) $ 158,634,044
4. DIVIDEND AND DISTRIBUTION INFORMATION
Income and long-term capital gain distributions are determined in accordance
with federal income tax regulations, which may differ from U.S. generally
accepted accounting principles. Additionally, gains (losses) on foreign currency
transactions and net short-term gains on sales of investment securities are
treated as ordinary income for federal income tax purposes. There were no
dividends and distributions paid for the years ended December 31, 2005 and 2004.
As of December 31, 2005, the components of net assets on a tax basis were as
follows:
Shares of beneficial interest............... $ 487,841,784
Capital loss carryforwards.................. (76,589,457)
Unrealized appreciation of investments...... 158,634,044
--------------
Net assets.................................. $ 569,886,371
==============
The differences between book basis and tax basis components of net assets are
primarily attributable to tax deferral of losses on wash sales.
For financial reporting purposes, capital accounts are adjusted to reflect the
tax character of permanent book/tax differences. Reclassifications are primarily
due to tax treatment of net operating losses and gain (loss) on foreign currency
transactions. Results of operations and net assets were not affected by these
reclassifications. For the year ended December 31, 2005, the Series recorded the
following reclassifications.
ACCUMULATED
NET ACCUMULATED NET PAID-IN
INVESTMENT LOSS REALIZED GAIN (LOSS) CAPITAL
--------------- -------------------- ------------
$ 2,335,580 $ (60) $ (2,335,520)
Trend-11
DELAWARE VIP TREND 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. $59,531,772 was utilized in
2005. Capital loss carryforwards remaining at December 31, 2005 will expire as
follows: $41,125,717 expires in 2009, $35,292,270 expires in 2010 and $171,470
expires in 2011.
5. CAPITAL SHARES
Transactions in capital shares were as follows:
YEAR YEAR
ENDED ENDED
12/31/05 12/31/04
------------ ------------
Shares sold:
Standard Class ................. 333,284 856,439
Service Class .................. 978,144 1,960,299
------------ ------------
1,311,428 2,816,738
------------ ------------
Shares repurchased:
Standard Class ................. (3,453,560) (2,790,676)
Service Class .................. (873,580) (407,246)
------------ ------------
(4,327,140) (3,197,922)
------------ ------------
Net decrease ...................... (3,015,712) (381,184)
============ ============
6. LINE OF CREDIT
The Series, along with certain other funds in the Delaware Investments Family of
Funds (the "Participants"), participates in a $225,000,000 revolving line of
credit facility to be used for temporary or emergency purposes as an additional
source of liquidity to fund redemptions of investor shares. The Participants are
charged an annual commitment fee, which is allocated across the Participants on
the basis of each 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, 2005, 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 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, 2005, the market value of securities on loan was $121,310,268,
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.
The Series may invest up to 10% of its total assets in illiquid securities,
which may include securities with contractual restrictions on resale, securities
exempt from registration under Rule 144A of the Securities Act of 1933, as
amended, and other securities which may not be readily marketable. The relative
illiquidity of these securities may impair the Series from disposing of them in
a timely manner and at a fair price when it is necessary or desirable to do so.
While maintaining oversight, the Board of Trustees has delegated to DMC the
day-to-day functions of determining whether individual securities are liquid for
purposes of the Series' limitation on investments in illiquid assets. At
December 31, 2005, no securities have been determined to be illiquid under the
Series' Liquidity Procedures.
9. CONTRACTUAL OBLIGATIONS
The Series enters into contracts in the normal course of business that contain a
variety of indemnifications. The Series' maximum exposure under these
arrangements is unknown. However, the Series has not had prior claims or losses
pursuant to these contracts. Management has reviewed the Series' existing
contracts and expects the risk of loss to be remote.
Trend-12
DELAWARE VIP TRUST-DELAWARE VIP TREND SERIES
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and Board of Trustees
Delaware VIP Trust - Delaware VIP Trend Series
We have audited the accompanying statement of net assets of the Delaware VIP
Trend Series (one of the series constituting Delaware VIP Trust) (the "Series")
as of December 31, 2005, 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 five years
in the period then ended. 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 the standards of the Public Company
Accounting Oversight Board (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. We were
not engaged to perform an audit of the Series' internal control over financial
reporting. Our audits included consideration of internal control over financial
reporting as a basis for designing audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion on the
effectiveness of the Series' internal control over financial reporting.
Accordingly, we express no such opinion. An audit also includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements and financial highlights, assessing the accounting principles used
and significant estimates made by management, and evaluating the overall
financial statement presentation. Our procedures included confirmation of
securities owned as of December 31, 2005, by correspondence with the custodian
and brokers or by other appropriate auditing procedures where replies from
brokers were not received. 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 the
Delaware VIP Trend Series of Delaware VIP Trust at December 31, 2005, 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 five years in the period then ended, in conformity with U.S.
generally accepted accounting principles.
/s/ Ernst & Young LLP
Philadelphia, Pennsylvania
February 10, 2006
The Series files its complete schedule of portfolio holdings with the Securities
and Exchange Commission for the first and third quarters of each fiscal year on
Form N-Q. The Series' Forms N-Q, as well as a description of the policies and
procedures that the Series uses to determine how to vote proxies (if any)
relating to portfolio securities is available without charge (i) upon request,
by calling 800-523-1918; (ii) on the Series' website at
http://www.delawareinvestments.com; and (iii) on the Commission's website at
http://www.sec.gov. The Series' Forms N-Q may be reviewed and copied at the
Commission's Public Reference Room in Washington, DC; information on the
operation of the Public Reference Room may be obtained by calling
1-800-SEC-0330.
Information (if any) regarding how the Series voted proxies relating to
portfolio securities during the most recently disclosed 12-month period ended
June 30 is available without charge (i) through the Series' website at
http://www.delawareinvestments.com; and (ii) on the Commission's website at
http://www.sec.gov.
Trend-13
DELAWARE INVESTMENTS(R)FAMILY OF FUNDS
BOARD OF TRUSTEES/DIRECTORS AND OFFICERS ADDENDUM
A mutual fund is governed by a Board of Trustees/Directors ("Trustees"), which
has oversight responsibility for the management of a fund's business affairs.
Trustees establish procedures and oversee and review the performance of the
investment manager, the distributor and others who perform services for the
fund. The independent fund trustees, in particular, are advocates for
shareholder interests. Each trustee has served in that capacity since he or she
was elected to or appointed to the Board of Trustees, and will continue to serve
until his or her retirement or the election of a new trustee in his or her
place. The following is a list of the Trustees 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 TRUSTEE
AND BIRTHDATE FUND(S) SERVED PAST 5 YEARS OR OFFICER OR OFFICER
- ----------------------- ------------------ -------------------- ---------------------------- ------------------ --------------
INTERESTED TRUSTEES
JUDE T. DRISCOLL(2) Chairman, 5 Years - Since August 2000, 87 None
2005 Market Street President, Executive Officer Mr. Driscoll has served in
Philadelphia, PA Chief Executive various executive capacities
19103 Officer and 2 Years - at different times at
Trustee Trustee Delaware Investments(1)
March 10, 1963
INDEPENDENT TRUSTEES
THOMAS L. BENNETT Trustee Since Private Investor - 87 None
2005 Market Street March 23, 2005 (March 2004 - Present)
Philadelphia, PA
19103 Investment Manager -
Morgan Stanley & Co.
October 4, 1947 (January 1984 - March 2004)
JOHN A. FRY Trustee 4 Years President - 87 Director -
2005 Market Street Franklin & Marshall College Community
Philadelphia, PA (June 2002 - Present) Health Systems
19103
Executive Vice President -
May 28, 1960 University of Pennsylvania
(April 1995 - June 2002)
ANTHONY D. KNERR Trustee 12 Years Founder/Managing Director - 87 None
2005 Market Street Anthony Knerr & Associates
Philadelphia, PA (Strategic Consulting)
19103 (1990 - Present)
December 7, 1938
LUCINDA S. LANDRETH Trustee Since Chief Investment Officer - 87 None
2005 Market Street March 23, 2005 Assurant, Inc.
Philadelphia, PA (Insurance)
19103 (2002 - 2004)
June 24, 1947
ANN R. LEVEN Trustee 16 Years Treasurer/Chief Fiscal 87 Director and
2005 Market Street Officer - National Audit committee
Philadelphia, PA Gallery of Art Chairperson -
19103 (1994 - 1999) Andy Warhol
Foundation
November 1, 1940 Director and
Audit
Committee
Member -
Systemax Inc.
Trend-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 TRUSTEE
AND BIRTHDATE FUND(S) SERVED PAST 5 YEARS OR OFFICER OR OFFICER
- ----------------------- ------------------ -------------------- ---------------------------- ------------------ --------------
INDEPENDENT TRUSTEES (CONTINUED)
THOMAS F. MADISON Trustee 11 Years President/Chief 87 Director -
2005 Market Street Executive Officer Banner Health
Philadelphia, PA MLM Partners, Inc.
19103 (Small Business Investing Director -
and Consulting) CenterPoint
February 25, 1936 (January 1993 - Present) Energy
Director and
Audit
Committee
Member -
Digital River
Inc.
Director and
Audit
Committee
Member -
Rimage
Corporation
Director -
Valmont
Industries,
Inc.
JANET L. YEOMANS Trustee 6 Years Vice President 87 None
2005 Market Street (January 2003 - Present)
Philadelphia, PA and Treasurer
19103 (January 2006 - Present)
3M Corporation
July 31, 1948
Ms. Yeomans has held
various management positions
at 3M Corporation
since 1983.
J. RICHARD ZECHER Trustee Since Founder - 87 Director and
2005 Market Street March 23, 2005 Investor Analytics Audit
Philadelphia, PA (Risk Management) Committee
19103 (May 1999 - Present) Member -
Investor
Analytics
Director and
July 3, 1940 Audit
Committee
Member -
Oxigene, Inc.
OFFICERS
MICHAEL P. BISHOF Senior Chief Financial Mr. Bishof has served in 87 None(3)
2005 Market Street Vice President Officer since various executive capacities
Philadelphia, PA and February 17, 2005 at different times at
19103 Chief Financial Delaware Investments.
Officer
August 18, 1962
DAVID F. CONNOR Vice President, Vice President since Mr. Connor has served as 87 None(3)
2005 Market Street Deputy General September 21, 2000 Vice President and Deputy
Philadelphia, PA Counsel and and Secretary General Counsel of Delaware
19103 Secretary since Investments since 2000.
October 25, 2005
December 2, 1963
DAVID P. O'CONNOR Senior Vice Senior Vice President, Mr. O'Connor has served in 87 None(3)
2005 Market Street President, General Counsel and various executive and legal
Philadelphia, PA General Counsel Chief Legal Officer capacities at different time
19103 and Chief since at Delaware Investments.
Legal Officer October 25, 2005
February 21, 1966
JOHN J. O'CONNOR Senior Vice Treasurer Mr. O'Connor has served in 87 None(3)
2005 Market Street President and since various executive capacities
Philadelphia, PA Treasurer February 17, 2005 at different times at
19103 Delaware Investments.
June 16, 1957
(1)Delaware Investments is the marketing name for Delaware Management Holdings,
Inc. and its subsidiaries, including the Fund's(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(s') manager and distributor.
(3)Mr. Bishof, Mr. Connor, Mr. David P. O'Connor and Mr. John J. O'Connor serve
in similar capacities for the six portfolios of the Optimum Fund Trust, which
have the same investment advisor, principal underwriter, and transfer agent
as the registrant. Mr. John J. O'Connor also serves in a similar capacity for
Lincoln Variable Insurance Products Trust, which has the same investment
advisor as the registrant.
The Statement of Additional Information for the Fund(s) includes additional
information about the Trustees and Officers and is available, without charge,
upon request by calling 800 523-1918.
Trend-15
DELAWARE VIP TRUST - DELAWARE VIP U.S. GROWTH SERIES
For the 12-month period ended December 31, 2005, the Delaware VIP U.S.
Growth Series returned +14.65% for Standard Class shares and +14.41% for Service
Class shares (both figures reflect all distributions reinvested). The Series
trailed the performance of its benchmark, the Standard & Poor's 500 Index, which
gained +4.91%.
During the second quarter, management responsibilities for the portfolio
were transitioned to Jeffrey S. Van Harte, Christopher J. Bonavico, and Daniel
J. Prislin. The portfolio underwent a major repositioning during the first half
of the year. At that time, the portfolio was changed to reflect the new
managers' particular investment philosophy.
The number of securities expected to be held in the Series going forward is
a notable change. Management believes that superior returns can be realized by
holding a concentrated portfolio of companies with advantaged business models
and opportunities to generate consistent, long-term growth of intrinsic business
value. When restructuring the portfolio, a majority of the previous holdings
were sold and replaced with new names. The end result included a portfolio of
companies for which management holds the greatest level of conviction.
The companies bought for the Series were names with steady, consistent
business models and end markets, which the team expects to hold for five years
or more. Like other growth investors, the team invests with the expectation of
attractive revenue and earnings growth from stock picks; however, a company's
cash economics -- its returns on invested capital, its ability to generate free
cash flow, and its intrinsic business value -- are key to the evaluation
process.
At year end, the Series held 29 equity securities. Major new positions
included Qualcomm, memory card maker SanDisk, retailer Walgreen, and
UnitedHealth Group.
Performance of a $10,000 Investment:
Delaware VIP
U.S. Growth Series Russell 1000
(Standard Class Shares) S&P 500 Index Growth Index
----------------------- ------------- ------------
11/16/1999 $ 10,000
11/30/1999 $ 9,990 $ 10,000 $ 10,000
12/31/1999 $ 10,590 $ 10,588 $ 11,763
12/31/2000 $ 10,149 $ 9,624 $ 9,124
12/31/2001 $ 7,665 $ 8,481 $ 8,282
12/31/2002 $ 5,423 $ 6,608 $ 5,776
12/31/2003 $ 6,712 $ 8,502 $ 8,579
12/31/2004 $ 6,933 $ 9,807 $ 9,807
12/31/2005 $ 7,949 $ 9,889 $ 10,214
DELAWARE VIP U.S. GROWTH SERIES
AVERAGE ANNUAL TOTAL RETURNS
STANDARD CLASS SERVICE CLASS
SHARES* SHARES**
-------------- -------------
LIFETIME -3.68% -5.63%
FIVE YEAR -4.77% -4.96%
ONE YEAR +14.65% +14.41%
FOR THE PERIODS ENDED DECEMBER 31, 2005
* 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 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, 2005. All distributions were reinvested. The chart also
shows $10,000 investments in the Russell 1000 Growth Index and the S&P 500 Index
at that month's end, November 30, 1999. After November 30, 1999, returns plotted
on the chart were as of the last day of each month shown. The Russell 1000
Growth Index measures the performance of large-capitalization growth U.S.
companies. 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. 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. Series that invest in small and/or medium-sized companies typically
involve greater risk, particularly in the short term, than those investing in
larger, more established companies.
During the year, the Series' strategy and management changed. The new management
team will continue to retain the Series' focus by investing primarily in
investments of all market capitalizations that they believe have long-term
appreciation potential. Securities that they determine to no longer contribute
to meeting the Series' investment objective or to be inconsistent with the new
team's investment strategies will be sold. This could result in significant
turnover in the portfolio initially. The team will transition the Series'
benchmark from the S&P 500 to the Russell 1000 Growth Index, because they
believe that the Russell 1000 Growth Index is more appropriate to gauge the
Series' new strategy. For more complete information regarding these changes,
please obtain a copy of the Series' prospectus. These changes are significant
and may impact future performance, as well as create tax implications. A
prospectus, along with the supplement, may be obtained by calling 800 523-1918.
U.S. Growth-1
DELAWARE VIP TRUST-DELAWARE VIP U.S. GROWTH SERIES
DISCLOSURE OF SERIES EXPENSES
For the Period July 1, 2005 to December 31, 2005
As a shareholder of the Series, you incur ongoing costs, including management
fees; distribution and/or service (12b-1) fees; and other Series expenses. This
Example is intended to help you understand your ongoing costs (in dollars) of
investing in the Series and to compare these costs with the ongoing costs of
investing in other mutual funds.
The Example is based on an investment of $1,000 invested at the beginning of the
period and held for the entire period from July 1, 2005 to December 31, 2005.
ACTUAL EXPENSES
The first section of the table shown, "Actual Series Return," provides
information about actual account values and actual expenses. You may use the
information in this section of the table, together with the amount you invested,
to estimate the expenses that you paid over the period. Simply divide your
account value by $1,000 (for example, an $8,600 account value divided by $1,000
= 8.6), then multiply the result by the number in the first section under the
heading entitled "Expenses Paid During Period" to estimate the expenses you paid
on your account during the period.
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The second section of the table shown, "Hypothetical 5% Return," provides
information about hypothetical account values and hypothetical expenses based on
the Series' actual expense ratio and an assumed rate of return of 5% per year
before expenses, which is not the Series' actual return. The hypothetical
account values and expenses may not be used to estimate the actual ending
account balance or expenses you paid for the period. You may use this
information to compare the ongoing costs of investing in the Series and other
funds. To do so, compare the 5% hypothetical example with the 5% hypothetical
examples that appear in the shareholder reports of other funds.
Please note that the expenses shown in the table are meant to highlight your
ongoing costs only. As a shareholder of the Series, you do not incur any
transaction costs, such as sales charges (loads), redemption fees or exchange
fees, but shareholders of other funds may incur such costs. Also, the fees
related to the variable annuity investment or the deferred sales charge that
could apply have not been included. Therefore, the second section of the table
is useful in comparing ongoing costs only, and will not help you determine the
relative total costs of owning different funds. The Series' actual expenses
shown in the table reflect fee waivers in effect. The expenses shown in the
table assume reinvestment of all dividends and distributions.
EXPENSE ANALYSIS OF AN INVESTMENT OF $1,000
EXPENSES
BEGINNING ENDING PAID DURING
ACCOUNT ACCOUNT ANNUALIZED PERIOD
VALUE VALUE EXPENSE 7/1/05 TO
7/1/05 12/31/05 RATIOS 12/31/05*
----------- ----------- ----------- -----------
ACTUAL SERIES RETURN
Standard Class $ 1,000.00 $ 1,137.40 0.82% $ 4.42
Service Class 1,000.00 1,134.50 1.07% 5.76
HYPOTHETICAL 5% RETURN (5% RETURN BEFORE EXPENSES)
Standard Class $ 1,000.00 $ 1,021.07 0.82% $ 4.18
Service Class 1,000.00 1,019.81 1.07% 5.45
*"Expenses Paid During Period" are equal to the Series' annualized expense
ratio, multiplied by the average account value over the period, multiplied by
184/365 (to reflect the one-half year period).
U.S. Growth-2
DELAWARE VIP TRUST-DELAWARE VIP U.S. GROWTH SERIES
SECTOR ALLOCATION
As of December 31, 2005
Sector designations may be different than the sector designations presented in
other Series materials.
PERCENTAGE
SECTOR OF NET ASSETS
- ------------------------------------------------ -------------
COMMON STOCK 98.43%
-------------
Basic Industry/Capital Goods 3.50%
Business Services 16.96%
Consumer Non-Durables 14.51%
Consumer Services 20.71%
Financials 3.56%
Health Care 16.36%
Technology 22.83%
-------------
REPURCHASE AGREEMENTS 1.51%
-------------
TOTAL MARKET VALUE OF SECURITIES 99.94%
-------------
RECEIVABLES AND OTHER ASSETS NET OF LIABILITIES 0.06%
-------------
TOTAL NET ASSETS 100.00%
-------------
U.S. Growth-3
DELAWARE VIP TRUST - DELAWARE VIP U.S. GROWTH SERIES
STATEMENT OF NET ASSETS
December 31, 2005
NUMBER MARKET
OF SHARES VALUE
------------ ------------
COMMON STOCK-98.43%
BASIC INDUSTRY/CAPITAL GOODS-3.50%
Praxair ..................................... 58,000 $ 3,071,680
------------
3,071,680
------------
BUSINESS SERVICES-16.96%
Expeditors International Washington ......... 44,000 2,970,440
First Data .................................. 80,000 3,440,800
Moody's ..................................... 43,000 2,641,060
Paychex ..................................... 70,000 2,668,400
United Parcel Service Class B ............... 42,000 3,156,300
------------
14,877,000
------------
CONSUMER NON-DURABLES-14.51%
Procter & Gamble ............................ 55,000 3,183,400
Staples ..................................... 155,000 3,520,050
Wal-Mart Stores ............................. 55,000 2,574,000
Walgreen .................................... 78,000 3,452,280
------------
12,729,730
------------
CONSUMER SERVICES-20.71%
+Apollo Group Class A ........................ 46,000 2,781,160
+eBay ........................................ 78,000 3,373,500
International Game Technology ............... 100,000 3,078,000
+Liberty Global Class A ...................... 40,000 900,000
+Liberty Global Class C ...................... 52,000 1,102,400
+MGM MIRAGE .................................. 75,000 2,750,250
+Weight Watchers International ............... 25,000 1,235,750
+XM Satellite Radio Holdings Class A ......... 108,000 2,946,240
------------
18,167,300
------------
FINANCIALS-3.56%
Chicago Mercantile Exchange ................. 8,500 3,123,665
------------
3,123,665
------------
HEALTH CARE-16.36%
Allergan .................................... 32,000 3,454,720
+Genentech ................................... 48,000 4,440,000
UnitedHealth Group .......................... 55,000 3,417,700
+Zimmer Holdings ............................. 45,000 3,034,800
------------
14,347,220
------------
TECHNOLOGY-22.83%
+Intuit ...................................... 55,000 2,931,500
Microsoft ................................... 135,000 3,530,250
+NAVTEQ ...................................... 56,000 2,456,720
QUALCOMM .................................... 108,000 $ 4,652,640
+SanDisk ..................................... 60,000 3,769,200
Sprint ...................................... 115,000 2,686,400
------------
20,026,710
------------
TOTAL COMMON STOCK
(COST $75,541,509) ......................... 86,343,305
PRINCIPAL MARKET
AMOUNT VALUE
------------ ----------
REPURCHASE AGREEMENTS-1.51%
With BNP Paribas 3.30% 1/03/06
(dated 12/30/05, to be repurchased
at $835,306, collateralized by $17,000
U.S. Treasury Bills due 1/26/06,
market value $17,109, $12,000
U.S. Treasury Bills due 2/23/06,
market value $11,695, $23,000
U.S. Treasury Bills due 5/4/06,
market value $22,886, $155,000
U.S. Treasury Bills due 6/1/06,
market value $151,918, $433,000
U.S. Treasury Bills due 6/29/06,
market value $424,326, $154,000
U.S. Treasury Notes 2.625% due 5/15/08,
market value $148,338 and $77,000
U.S. Treasury Notes 3.125%
due 5/15/07, market value $76,160) ........ $ 835,000 835,000
With UBS Warburg 3.40% 1/03/06
(dated 12/30/05, to be repurchased
at $488,184, collateralized by $57,000
U.S. Treasury Notes 2.00% due 5/15/06,
market value $56,329 and $427,000
U.S. Treasury Notes 5.625% due 5/15/08,
market value $441,522) ................... 488,000 488,000
------------
TOTAL REPURCHASE AGREEMENTS
(COST $1,323,000) ......................... 1,323,000
------------
TOTAL MARKET VALUE OF SECURITIES-99.94% (COST $76,864,509) ................ 87,666,305
RECEIVABLES AND OTHER ASSETS NET OF LIABILITIES-0.06% ..................... 49,096
------------
NET ASSETS APPLICABLE TO 11,292,127 SHARES OUTSTANDING-100.00% ............ $ 87,715,401
============
NET ASSET VALUE-DELAWARE VIP U.S. GROWTH SERIES STANDARD CLASS
($45,653,665 / 5,871,478 SHARES) ......................................... $ 7.78
------------
NET ASSET VALUE-DELAWARE VIP U.S. GROWTH SERIES SERVICE CLASS
($42,061,736 / 5,420,649 SHARES) ......................................... $ 7.76
------------
COMPONENTS OF NET ASSETS AT DECEMBER 31, 2005:
Shares of beneficial interest (unlimited authorization-no par) ............ $ 87,052,157
Accumulated net realized loss on investments .............................. (10,138,552)
Net unrealized appreciation of investments ................................ 10,801,796
------------
Total net assets .......................................................... $ 87,715,401
============
- ----------
+Non-income producing security for the year ended December 31, 2005.
See accompanying notes
U.S. Growth-4
DELAWARE VIP TRUST-
DELAWARE VIP U.S. GROWTH SERIES
STATEMENT OF OPERATIONS
Year Ended December 31, 2005
INVESTMENT INCOME:
Dividends .................................................. $ 371,754
Interest ................................................... 62,222
Foreign tax withheld ....................................... (2,744)
------------
431,232
------------
EXPENSES:
Management fees ............................................ 378,593
Distribution expenses - Service Class ...................... 118,954
Reports and statements to shareholders ..................... 32,267
Accounting and administration expenses ..................... 21,866
Legal and professional fees ................................ 17,540
Dividend disbursing and transfer agent fees and expenses ... 5,832
Registration fees .......................................... 4,643
Custodian fees ............................................. 4,180
Insurance fees ............................................. 3,819
Trustees' fees ............................................. 3,165
Pricing fees ............................................... 213
Other ...................................................... 3,614
------------
594,686
Less expenses absorbed or waived ........................... (1,232)
Less waiver of distribution expenses - Service Class ....... (19,826)
Less expense paid indirectly ............................... (207)
------------
Total expenses ............................................. 573,421
------------
NET INVESTMENT LOSS ........................................ (142,189)
------------
NET REALIZED AND UNREALIZED GAIN
ON INVESTMENTS:
Net realized gain on investments ........................... 1,289,624
Net change in unrealized appreciation/
depreciation of investments ............................... 7,020,019
------------
NET REALIZED AND UNREALIZED GAIN
ON INVESTMENTS ............................................ 8,309,643
------------
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS ........................................... $ 8,167,454
============
See accompanying notes
DELAWARE VIP TRUST-
DELAWARE VIP U.S. GROWTH SERIES
STATEMENTS OF CHANGES IN NET ASSETS
YEAR ENDED
----------------------------
12/31/05 12/31/04
------------ ------------
INCREASE (DECREASE) IN NET ASSETS
FROM OPERATIONS:
Net investment income (loss) ................ $ (142,189) $ 206,336
Net realized gain (loss) on investments ..... 1,289,624 (510,478)
Net change in unrealized appreciation/
depreciation of investments ................ 7,020,019 2,428,142
------------ ------------
Net increase in net assets resulting
from operations ............................ 8,167,454 2,124,000
------------ ------------
DIVIDENDS AND DISTRIBUTIONS
TO SHAREHOLDERS FROM:
Net investment income:
Standard Class ............................ (58,346) (14,103)
Service Class ............................. (147,794) -
------------ ------------
(206,140) (14,103)
------------ ------------
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares sold:
Standard Class ............................ 36,446,938 846,473
Service Class ............................. 6,320,210 30,001,001
Netasset value of shares issued upon
reinvestment of dividends and distributions:
Standard Class ............................ 58,346 14,103
Service Class ............................. 147,794 -
------------ ------------
42,973,288 30,861,577
------------ ------------
Cost of shares repurchased:
Standard Class ............................ (3,859,090) (2,542,704)
Service Class ............................. (7,451,404) (3,917,215)
------------ ------------
(11,310,494) (6,459,919)
------------ ------------
Increase in net assets derived from
capital share transactions ................. 31,662,794 24,401,658
------------ ------------
NET INCREASE IN NET ASSETS .................. 39,624,108 26,511,555
NET ASSETS:
Beginning of year ........................... 48,091,293 21,579,738
------------ ------------
End of year (including undistributed
net investment income of $--
and $205,261, respectively) ................ $ 87,715,401 $ 48,091,293
============ ============
See accompanying notes
U.S. Growth-5
DELAWARE VIP TRUST-DELAWARE VIP U.S. GROWTH SERIES
FINANCIAL HIGHLIGHTS
Selected data for each share of the Series outstanding throughout each period
were as follows:
DELAWARE VIP U.S. GROWTH SERIES STANDARD CLASS
YEAR ENDED
---------------------------------------------------------
12/31/05 12/31/04 12/31/03 12/31/02 12/31/01
--------- --------- --------- --------- ---------
Net asset value, beginning of period ................................ $ 6.830 $ 6.620 $ 5.370 $ 7.600 $ 10.140
INCOME (LOSS) FROM INVESTMENT OPERATIONS:
Net investment income (loss)(1) ..................................... (0.005) 0.049 0.010 0.010 0.022
Net realized and unrealized gain (loss) on investments .............. 0.997 0.169 1.251 (2.215) (2.503)
--------- --------- --------- --------- ---------
Total from investment operations .................................... 0.992 0.218 1.261 (2.205) (2.481)
--------- --------- --------- --------- ---------
LESS DIVIDENDS AND DISTRIBUTIONS FROM:
Net investment income ............................................... (0.042) (0.008) (0.011) (0.025) (0.059)
--------- --------- --------- --------- ---------
Total dividends and distributions ................................... (0.042) (0.008) (0.011) (0.025) (0.059)
--------- --------- --------- --------- ---------
Net asset value, end of period ...................................... $ 7.780 $ 6.830 $ 6.620 $ 5.370 $ 7.600
========= ========= ========= ========= =========
Total return(2) ..................................................... 14.65% 3.30% 23.75% (29.24%) (24.47%)
RATIOS AND SUPPLEMENTAL DATA:
Net assets, end of period (000 omitted) ............................. $ 45,653 $ 10,438 $ 11,862 $ 9,595 $ 16,856
Ratio of expenses to average net assets ............................. 0.81% 0.76% 0.75% 0.75% 0.75%
Ratio of expenses to average net assets prior to expense
limitation and expenses paid indirectly ............................ 0.81% 0.76% 0.75% 0.75% 0.86%
Ratio of net investment income (loss) to average net assets ......... (0.07%) 0.77% 0.17% 0.15% 0.27%
Ratio of net investment income (loss) to average net assets prior
to expense limitation and expenses paid indirectly ................. (0.07%) 0.77% 0.17% 0.15% 0.16%
Portfolio turnover .................................................. 91% 167% 102% 101% 78%
- ----------
(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
U.S. Growth-6
DELAWARE VIP U.S. GROWTH SERIES
FINANCIAL HIGHLIGHTS (CONTINUED)
Selected data for each share of the Series outstanding throughout each period
were as follows:
DELAWARE VIP U.S. GROWTH SERIES SERVICE CLASS
YEAR ENDED
---------------------------------------------------------
12/31/05 12/31/04 12/31/03 12/31/02 12/31/01
--------- --------- --------- --------- ---------
Net asset value, beginning of period ................................. $ 6.810 $ 6.610 $ 5.360 $ 7.590 $ 10.130
INCOME (LOSS) FROM INVESTMENT OPERATIONS:
Net investment income (loss)(1) ...................................... (0.023) 0.033 (0.005) 0.001 0.011
Net realized and unrealized gain (loss) on investments ............... 0.999 0.167 1.257 (2.218) (2.503)
--------- --------- --------- --------- ---------
Total from investment operations ..................................... 0.976 0.200 1.252 (2.217) (2.492)
--------- --------- --------- --------- ---------
LESS DIVIDENDS AND DISTRIBUTIONS FROM:
Net investment income ................................................ (0.026) - (0.002) (0.013) (0.048)
--------- --------- --------- --------- ---------
Total dividends and distributions .................................... (0.026) - (0.002) (0.013) (0.048)
--------- --------- --------- --------- ---------
Net asset value, end of period ....................................... $ 7.760 $ 6.810 $ 6.610 $ 5.360 $ 7.590
========= ========= ========= ========= =========
Total return(2) ...................................................... 14.41% 3.03% 23.37% (29.26%) (24.61%)
RATIOS AND SUPPLEMENTAL DATA:
Net assets, end of period (000 omitted) .............................. $ 42,062 $ 37,653 $ 9,718 $ 666 $ 40
Ratio of expenses to average net assets .............................. 1.06% 1.01% 0.97% 0.90% 0.90%
Ratio of expenses to average net assets prior to expense
limitation and expenses paid indirectly ............................. 1.11% 1.06% 1.00% 0.90% 1.01%
Ratio of net investment income (loss) to average net assets .......... (0.32%) 0.52% (0.05%) 0.00% 0.12%
Ratio of net investment income (loss) to average net assets prior
to expense limitation and expenses paid indirectly .................. (0.37%) 0.47% (0.08%) 0.00% 0.01%
Portfolio turnover ................................................... 91% 167% 102% 101% 78%
- ----------
(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 and distributor, as applicable.
Performance would have been lower had the expense limitation not been in
effect.
See accompanying notes
U.S. Growth-7
DELAWARE VIP TRUST-DELAWARE VIP U.S. GROWTH SERIES
NOTES TO FINANCIAL STATEMENTS
December 31, 2005
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 REIT Series,
Delaware VIP Select Growth Series, Delaware VIP Small Cap Value Series, Delaware
VIP Trend Series, Delaware VIP U.S. Growth Series and Delaware VIP Value Series.
These financial statements and the related notes pertain to Delaware VIP U.S.
Growth Series (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 U.S. generally accepted
accounting principles and are consistently followed by the Series.
Security Valuation--Equity securities, except those traded on the Nasdaq Stock
Market, Inc. (Nasdaq), are valued at the last quoted sales price as of the time
of the regular close of the New York Stock Exchange (NYSE) on the valuation
date. Securities traded on the Nasdaq are valued in accordance with the Nasdaq
Official Closing Price, which may not be the last sales price. If on a
particular day an equity security does not trade, then the mean between the bid
and asked prices will be used. Short-term debt securities having less than 60
days to maturity are valued at amortized cost, which approximates market value.
Other securities and assets for which market quotations are not readily
available are valued at fair value as determined in good faith under the
direction of the Series' Board of Trustees. In determining whether market
quotations are readily available or fair valuation will be used, various factors
will be taken into consideration, such as market closures, or with respect to
foreign securities, aftermarket trading or significant events after local market
trading (e.g., government actions or pronouncements, trading volume or
volatility on markets, exchanges among dealers, or news events).
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 pursuant to an
exemptive order issued by the Securities and Exchange Commission. The aggregate
daily balance of the pooled cash account is invested in repurchase agreements
secured by obligations of the U.S. government. The respective collateral is held
by the Series' custodian bank until the maturity of the respective repurchase
agreements. Each repurchase agreement is 102% collateralized. However, in the
event of default or bankruptcy by the counterparty to the agreement, realization
of the collateral may be subject to legal proceedings.
Use of Estimates--The preparation of financial statements in conformity with
U.S. generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from those estimates.
Other--Expenses common to all funds within the Delaware Investments Family of
Funds are allocated amongst the funds on the basis of average net assets.
Management fees and some other expenses are paid monthly. Security transactions
are recorded on the date the securities are purchased or sold (trade date) for
financial reporting purposes. Costs used in calculating realized gains and
losses on the sale of investment securities are those of the specific securities
sold. Dividend income is recorded on the ex-dividend date and interest income is
recorded on the accrual basis.
The Series declares and pays dividends from net investment income and
distributions from net realized gain on investments, if any, following the close
of the fiscal year.
Subject to seeking best execution, the Series may direct certain security trades
to brokers who have agreed to rebate a portion of the related brokerage
commission to the Series in cash. Such commission rebates are included in
realized gain on investments in the accompanying financial statements and
totaled $6,146 for the year ended December 31, 2005. In general, best execution
refers to many factors, including the price paid or received for a security, the
commission charged, the promptness and reliability of execution, the
confidentiality and placement accorded the order, and other factors affecting
the overall benefit obtained by the Series on the transaction.
The Series receives earnings credits from its custodian when positive cash
balances are maintained, which are used to offset custody fees. The expense paid
under the above arrangement is included in custodian fees on the Statement of
Operations with the corresponding expense offset shown as "expense paid
indirectly."
2. INVESTMENT MANAGEMENT, ADMINISTRATION AGREEMENTS AND OTHER TRANSACTIONS
WITH AFFILIATES
In accordance with the terms of its investment management agreement, the Series
pays Delaware Management Company (DMC), a series of Delaware Management Business
Trust and the investment manager, an annual fee which is calculated daily at the
rate of 0.65% on the first $500 million of average daily net assets of the
Series, 0.60% on the next $500 million, 0.55% on the next $1.5 billion and 0.50%
on average daily net assets in excess of $2.5 billion.
DMC has contractually agreed to waive that portion, if any, of its management
fee and reimburse the Series to the extent necessary to ensure that annual
operating expenses, exclusive of taxes, interest, brokerage commissions,
distribution fees, certain insurance costs and extraordinary expenses, do not
exceed 0.80% of average daily net assets of the Series through June 30, 2006.
U.S. Growth-8
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. Effective
May 19, 2005, the Series pays DSC a monthly fee computed at the annual rate of
0.04% of the Series' average daily net assets for accounting and administrative
services. Prior to May 19, 2005, the Series paid 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 distribution and service fee not to exceed 0.30% of the average daily net
assets of the Service Class shares. DDLP has contracted to waive distribution
and service fees through June 30, 2006 in order to prevent distribution and
service fees of the Service Class shares from exceeding 0.25% of average daily
net assets. Standard Class shares pay no distribution and service expenses.
At December 31, 2005, the Series had liabilities payable to affiliates as
follows:
DIVIDEND DISBURSING, OTHER
INVESTMENT TRANSFER AGENT, EXPENSES
MANAGEMENT ACCOUNTING AND ADMINISTRATION DISTRIBUTION PAYABLE
FEE PAYABLE TO FEES AND OTHER EXPENSES FEES PAYABLE TO DMC
DMC PAYABLE TO DSC TO DDLP AND AFFILIATES*
- -------------- ----------------------------- ------------ ---------------
$ 47,835 $ 4,340 $ 17,963 $ 17,769
*DMC, as part of its administrative services, pays operating expenses on behalf
of the Series and is reimbursed on a periodic basis. Such expenses include items
such as printing of shareholder reports, fees for audit, legal and tax services,
custodian fees and trustees' fees.
As provided in the investment management agreement the Series bears the cost of
certain legal services expenses, including internal legal services provided to
the Series by DMC employees. For the year ended December 31, 2005, the Series
was charged $3,892 for internal legal services provided by DMC.
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, 2005, the Series made purchases and sales of
investment securities other than short-term investments as follows:
Purchases ......................... $ 84,275,767
Sales ............................. 51,767,656
At December 31, 2005, 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
------------- -------------- ------------- --------------
$ 76,864,891 $ 12,041,402 $ (1,239,988) $ 10,801,414
4. DIVIDEND AND DISTRIBUTION INFORMATION
Income and long-term capital gain distributions are determined in accordance
with federal income tax regulations, which may differ from U.S. generally
accepted accounting principles. Additionally, net short-term gains on sales of
investment securities are treated as ordinary income for federal income tax
purposes. The tax character of dividends and distributions paid during the years
ended December 31, 2005 and 2004 was as follows:
YEAR YEAR
ENDED ENDED
12/31/05 12/31/04
---------- ----------
Ordinary income ................... $ 206,140 $ 14,103
As of December 31, 2005, the components of net assets on a tax basis were as
follows:
Shares of beneficial interest ................ $ 87,052,157
Capital loss carryforwards ................... (10,138,170)
Unrealized appreciation of investments ....... 10,801,414
---------------
Net assets ................................... $ 87,715,401
===============
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-9
DELAWARE VIP U.S. GROWTH SERIES
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
4. DIVIDEND AND DISTRIBUTION INFORMATION (CONTINUED)
For financial reporting purposes, capital accounts are adjusted to reflect the
tax character of permanent book/tax differences. Reclassifications are primarily
due to tax treatment of net operating losses. Results of operations and net
assets were not affected by these reclassifications. For the year ended
December 31, 2005, the Series recorded the following reclassifications.
ACCUMULATED
NET PAID-IN
INVESTMENT LOSS CAPITAL
--------------- -----------
$ 143,068 $ (143,068)
For federal income tax purposes, capital loss carryforwards may be carried
forward and applied against future capital gains. $1,002,536 was utilized in
2005. Capital loss carryforwards remaining at December 31, 2005 will expire as
follows: $75,384 expires in 2008, $4,507,939 expires in 2009, $3,675,553 expires
in 2010, $1,428,622 expires in 2011 and $450,672 expires in 2012.
5. CAPITAL SHARES
Transactions in capital shares were as follows:
YEAR YEAR
ENDED ENDED
12/31/05 12/31/04
---------- ----------
Shares sold:
Standard Class .................. 4,883,834 127,770
Service Class ................... 922,111 4,668,432
Shares issued upon reinvestment of
dividends and distributions:
Standard Class .................. 9,018 2,186
Service Class ................... 22,878 -
---------- ----------
5,837,841 4,798,388
---------- ----------
Shares repurchased:
Standard Class .................. (550,181) (393,507)
Service Class ................... (1,050,132) (612,012)
---------- ----------
(1,600,313) (1,005,519)
---------- ----------
Net increase ...................... 4,237,528 3,792,869
========== ==========
6. LINE OF CREDIT
The Series, along with certain other funds in the Delaware Investments Family of
Funds (the "Participants"), participates in a $225,000,000 revolving line of
credit facility to be used for temporary or emergency purposes as an additional
source of liquidity to fund redemptions of investor shares. The Participants are
charged an annual commitment fee, which is allocated across the Participants on
the basis of each 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, 2005, or at any time during
the year.
7. CREDIT AND MARKET RISK
The Series may invest up to 15% of its total assets in illiquid securities,
which may include securities with contractual restrictions on resale, securities
exempt from registration under Rule 144A of the Securities Act of 1933, as
amended, and other securities which may not be readily marketable. The relative
illiquidity of these securities may impair the Series from disposing of them in
a timely manner and at a fair price when it is necessary or desirable to do so.
While maintaining oversight, the Board of Trustees has delegated to DMC the
day-to-day functions of determining whether individual securities are liquid for
purposes of the Series' limitation on investments in illiquid assets. At
December 31, 2005, no securities have been determined to be illiquid under the
Series' Liquidity Procedures.
8. CONTRACTUAL OBLIGATIONS
The Series enters into contracts in the normal course of business that contain a
variety of indemnifications. The Series' maximum exposure under these
arrangements is unknown. However, the Series has not had prior claims or losses
pursuant to these contracts. Management has reviewed the Series' existing
contracts and expects the risk of loss to be remote.
U.S. Growth-10
DELAWARE VIP U.S. GROWTH SERIES
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
9. TAX INFORMATION (UNAUDITED)
For the fiscal year ended December 31, 2005, 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% 99%
- ----------
(A) and (B) are based on a percentage of the Series' total distributions.
(C) is based on a percentage of the Series' ordinary income distributions.
(1) Qualifying dividends represent dividends which qualify for the corporate
dividends received deduction.
U.S. Growth-11
DELAWARE VIP TRUST-DELAWARE VIP U.S. GROWTH SERIES
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
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 the Delaware VIP
U.S. Growth Series (one of the series constituting Delaware VIP Trust) (the
"Series") as of December 31, 2005, 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
five years in the period then ended. 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 the standards of the Public Company
Accounting Oversight Board (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. We were
not engaged to perform an audit of the Series' internal control over financial
reporting. Our audits included consideration of internal control over financial
reporting as a basis for designing audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion on the
effectiveness of the Series' internal control over financial reporting.
Accordingly, we express no such opinion. An audit also includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements and financial highlights, assessing the accounting principles used
and significant estimates made by management, and evaluating the overall
financial statement presentation. Our procedures included confirmation of
securities owned as of December 31, 2005, by correspondence with the custodian
and brokers. 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 the
Delaware VIP U.S. Growth Series of Delaware VIP Trust at December 31, 2005, 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 five years in the period then ended, in conformity with U.S.
generally accepted accounting principles.
/s/ Ernst & Young LLP
Philadelphia, Pennsylvania
February 10, 2006
The Series files its complete schedule of portfolio holdings with the Securities
and Exchange Commission for the first and third quarters of each fiscal year on
Form N-Q. The Series' Forms N-Q, as well as a description of the policies and
procedures that the Series uses to determine how to vote proxies (if any)
relating to portfolio securities is available without charge (i) upon request,
by calling 800-523-1918; (ii) on the Series' website at
http://www.delawareinvestments.com; and (iii) on the Commission's website at
http://www.sec.gov. The Series' Forms N-Q may be reviewed and copied at the
Commission's Public Reference Room in Washington, DC; information on the
operation of the Public Reference Room may be obtained by calling
1-800-SEC-0330.
Information (if any) regarding how the Series voted proxies relating to
portfolio securities during the most recently disclosed 12-month period ended
June 30 is available without charge (i) through the Series' website at
http://www.delawareinvestments.com; and (ii) on the Commission's website at
http://www.sec.gov.
U.S. Growth-12
DELAWARE INVESTMENTS(R)FAMILY OF FUNDS
BOARD OF TRUSTEES/DIRECTORS AND OFFICERS ADDENDUM
A mutual fund is governed by a Board of Trustees/Directors ("Trustees"), which
has oversight responsibility for the management of a fund's business affairs.
Trustees establish procedures and oversee and review the performance of the
investment manager, the distributor and others who perform services for the
fund. The independent fund trustees, in particular, are advocates for
shareholder interests. Each trustee has served in that capacity since he or she
was elected to or appointed to the Board of Trustees, and will continue to serve
until his or her retirement or the election of a new trustee in his or her
place. The following is a list of the Trustees 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 TRUSTEE
AND BIRTHDATE FUND(S) SERVED PAST 5 YEARS OR OFFICER OR OFFICER
- --------------------- --------------- ----------------- -------------------------------- ------------------ ------------------
INTERESTED TRUSTEES
Jude T. Driscoll(2) Chairman, 5 Years - Since August 2000, 87 None
2005 Market Street President, Executive Officer Mr. Driscoll has served in
Philadelphia, PA Chief Executive various executive capacities
19103 Officer and 2 Years - at different times at
Trustee Trustee Delaware Investments(1)
March 10, 1963
- --------------------- --------------- ----------------- -------------------------------- ------------------ ------------------
INDEPENDENT TRUSTEES
Thomas L. Bennett Trustee Since Private Investor - 87 None
2005 Market Street March 23, 2005 (March 2004 - Present)
Philadelphia, PA
19103 Investment Manager -
Morgan Stanley & Co.
October 4, 1947 (January 1984 - March 2004)
John A. Fry Trustee 4 Years President - 87 Director -
2005 Market Street Franklin & Marshall College Community Health
Philadelphia, PA (June 2002 - Present) Systems
19103
Executive Vice President -
May 28, 1960 University of Pennsylvania
(April 1995 - June 2002)
Anthony D. Knerr Trustee 12 Years Founder/Managing Director - 87 None
2005 Market Street Anthony Knerr & Associates
Philadelphia, PA (Strategic Consulting)
19103 (1990 - Present)
December 7, 1938
Lucinda S. Landreth Trustee Since Chief Investment Officer - 87 None
2005 Market Street March 23, 2005 Assurant, Inc.
Philadelphia, PA (Insurance)
19103 (2002 - 2004)
June 24, 1947
Ann R. Leven Trustee 16 Years Treasurer/Chief Fiscal Officer - 87 Director and
2005 Market Street National Gallery of Art Audit Committee
Philadelphia, PA (1994 - 1999) Chairperson - Andy
19103 Warhol Foundation
November 1, 1940 Director and Audit
Committee Member -
Systemax Inc.
U.S. Growth-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 TRUSTEE
AND BIRTHDATE FUND(S) SERVED PAST 5 YEARS OR OFFICER OR OFFICER
- --------------------- --------------- ----------------- -------------------------------- ------------------ -----------------
INDEPENDENT TRUSTEES
Thomas F. Madison Trustee 11 Years President/Chief 87 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 and Audit
Committee Member -
Digital River Inc.
Director and Audit
Committee Member -
Rimage
Corporation
Director - Valmont
Industries, Inc.
Janet L. Yeomans Trustee 6 Years Vice President 87 None
2005 Market Street (January 2003 - Present)
Philadelphia, PA and Treasurer
19103 (January 2006 - Present)
3M Corporation
July 31, 1948
Ms. Yeomans has held
various management positions
at 3M Corporation since 1983.
J. Richard Zecher Trustee Since Founder - 87 Director and Audit
2005 Market Street March 23, 2005 Investor Analytics Committee Member -
Philadelphia, PA (Risk Management) Investor Analytics
19103 (May 1999 - Present)
Director and Audit
July 3, 1940 Committee Member -
Oxigene, Inc.
- --------------------- --------------- ----------------- -------------------------------- ------------------ ------------------
OFFICERS
Michael P. Bishof Senior Chief Financial Mr. Bishof has served in 87 None(3)
2005 Market Street Vice President Officer since various executive capacities
Philadelphia, PA and February 17, 2005 at different times at
19103 Chief Financial Delaware Investments.
Officer
August 18, 1962
David F. Connor Vice President, Vice President Mr. Connor has served as 87 None(3)
2005 Market Street Deputy General since Vice President and Deputy
Philadelphia, PA Counsel and September 21, General Counsel of Delaware
19103 Secretary 2000 and Investments since 2000.
Secretary since
October 25, 2005
December 2, 1963
David P. O'Connor Senior Vice Senior Vice Mr. O'Connor has served in 87 None(3)
2005 Market Street President, President, various executive and legal
Philadelphia, PA General Counsel General Counsel capacities at different times
19103 and Chief and Chief Legal at Delaware Investments.
Legal Officer Officer since
October 25, 2005
February 21, 1966
John J. O'Connor Senior Vice Treasurer Mr. O'Connor has served in 87 None(3)
2005 Market Street President and since various executive capacities
Philadelphia, PA Treasurer February 17, 2005 at different times at
19103 Delaware Investments.
June 16, 1957
- ----------
(1_ Delaware Investments is the marketing name for Delaware Management
Holdings, Inc. and its subsidiaries, including the Fund's(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(s') manager and distributor.
(3) Mr. Bishof, Mr. Connor, Mr. David P. O'Connor and Mr. John J. O'Connor
serve in similar capacities for the six portfolios of the Optimum Fund
Trust, which have the same investment advisor, principal underwriter, and
transfer agent as the registrant. Mr. John J. O'Connor also serves in a
similar capacity for Lincoln Variable Insurance Products Trust, which has
the same investment advisor as the registrant.
The Statement of Additional Information for the Fund(s) includes additional
information about the Trustees and Officers and is available, without charge,
upon request by calling 800 523-1918.
U.S. Growth-14
DELAWARE VIP TRUST-DELAWARE VIP VALUE SERIES
Among large-cap companies, value-oriented companies performed positively
during the past year, as the Russell 1000 Value Index gained +7.05%. By
comparison, Delaware VIP Value Series Standard Class shares returned +6.03% and
its Service Class shares returned +5.79% (both figures reflect all distributions
reinvested) for the fiscal year ended December 31, 2005.
The current management team for the Series is committed to a
research-driven, team-based investment approach in which stocks are selected by
consensus. We are bottom-up investors first and foremost, and as such emphasize
large-cap companies with attractive valuations, favorable earnings prospects,
and strong cash flows. The fundamental research we conduct includes developing
valuation cases, analyzing past financial statements, and contacting companies
directly. We use this information to develop price targets.
Concerns about the sustainability of the current bull market, which began
in the autumn of 2002, prompted us to position the portfolio more defensively
late in the period, due to concerns about rising interest rates. We emphasized
companies with more predictable earnings and less sensitivity to a potential
economic slowdown. The Series at year-end was positioned such that it had
heavier weightings than the benchmark in health care, consumer staples, and
telecommunications -- areas that we believe offer somewhat more predictable
earnings and are less economically cyclical should the market undergo a
slowdown.
PERFORMANCE OF A $10,000 INVESTMENT:
12/31/1992 $ 10,000 $ 10,000 $ 10,000
12/31/1993 $ 12,295 $ 12,072 $ 12,164
12/31/1994 $ 16,395 $ 15,815 $ 16,443
12/31/1995 $ 21,084 $ 17,609 $ 19,013
12/31/1996 $ 25,519 $ 17,084 $ 20,411
12/31/1997 $ 23,196 $ 19,020 $ 21,842
12/31/1998 $ 20,441 $ 18,280 $ 20,621
12/31/1999 $ 15,925 $ 14,866 $ 17,420
12/31/1900 $ 20,491 $ 19,072 $ 22,652
12/31/1901 $ 22,718 $ 21,920 $ 26,387
12/31/1902 $ 23,834 $ 23,241 $ 28,247
DELAWARE VIP VALUE SERIES
AVERAGE ANNUAL TOTAL RETURNS
------------------------------
STANDARD CLASS SERVICE CLASS
SHARES* SHARES**
-------------- -------------
LIFETIME +9.46% +6.38%
10 YEAR +8.80% --
FIVE YEAR +4.09% +3.89%
ONE YEAR +6.03% +5.79%
For the periods ended December 31, 2005
*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 Value Series Standard Class
shares, the S&P 500 Index, and the Russell 1000 Value Index for the 10-year
period from December 31, 1995 through December 31, 2005. All distributions were
reinvested. The Russell 1000 Value Index is a composite of mostly
large-capitalization U.S. companies. The S&P 500 Index measures the performance
of 500 of the largest 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. 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 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. During the year, the Series'
strategy and management changed. The new management team will continue to retain
the Series' focus by investing primarily in investments of large market
capitalization that they believe have long-term appreciation potential.
Securities that they determine to no longer contribute to meeting the Series'
investment objective or to be inconsistent with the new team's investment
strategies will be sold. This could result in significant turnover in the
portfolio initially. The team will transition the Series' benchmark from the S&P
500 to the Russell 1000 Value Index, because they believe that the Russell 1000
Value Index is more appropriate to gauge the Series' new strategy. For more
complete information regarding these changes, please obtain a copy of the
Series' prospectus. These changes are significant and may impact future
performance, as well as create tax implications. A prospectus, along with the
supplement, may be obtained by calling 800 523-1918.
Value Series-1
DELAWARE VIP TRUST-DELAWARE VIP VALUE SERIES
DISCLOSURE OF SERIES EXPENSES
FOR THE PERIOD JULY 1, 2005 TO DECEMBER 31, 2005
As a shareholder of the Series, you incur ongoing costs, including management
fees; distribution and/or service (12b-1) fees; and other Series expenses. This
Example is intended to help you understand your ongoing costs (in dollars) of
investing in the Series and to compare these costs with the ongoing costs of
investing in other mutual funds.
The Example is based on an investment of $1,000 invested at the beginning of the
period and held for the entire period from July 1, 2005 to December 31, 2005.
ACTUAL EXPENSES
The first section of the table shown, "Actual Series Return," provides
information about actual account values and actual expenses. You may use the
information in this section of the table, together with the amount you invested,
to estimate the expenses that you paid over the period. Simply divide your
account value by $1,000 (for example, an $8,600 account value divided by $1,000
= 8.6), then multiply the result by the number in the first section under the
heading entitled "Expenses Paid During Period" to estimate the expenses you paid
on your account during the period.
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The second section of the table shown, "Hypothetical 5% Return," provides
information about hypothetical account values and hypothetical expenses based on
the Series' actual expense ratio and an assumed rate of return of 5% per year
before expenses, which is not the Series' actual return. The hypothetical
account values and expenses may not be used to estimate the actual ending
account balance or expenses you paid for the period. You may use this
information to compare the ongoing costs of investing in the Series and other
funds. To do so, compare the 5% hypothetical example with the 5% hypothetical
examples that appear in the shareholder reports of other funds.
Please note that the expenses shown in the table are meant to highlight your
ongoing costs only. As a shareholder of the Series, you do not incur any
transaction costs, such as sales charges (loads), redemption fees or exchange
fees, but shareholders of other funds may incur such costs. Also, the fees
related to the variable annuity investment or the deferred sales charge that
could apply have not been included. Therefore, the second section of the table
is useful in comparing ongoing costs only, and will not help you determine the
relative total costs of owning different funds. The Series' actual expenses
shown in the table reflect fee waivers in effect. The expenses shown in the
table assume reinvestment of all dividends and distributions.
EXPENSE ANALYSIS OF AN INVESTMENT OF $1,000
EXPENSES
BEGINNING ENDING PAID DURING
ACCOUNT ACCOUNT ANNUALIZED PERIOD
VALUE VALUE EXPENSE 7/1/05 TO
7/1/05 12/31/05 RATIOS 12/31/05*
----------- ----------- ----------- -----------
ACTUAL SERIES RETURN
Standard Class $ 1,000.00 $ 1,041.70 0.78% $ 4.01
Service Class 1,000.00 1,040.70 1.03% 5.30
HYPOTHETICAL 5% RETURN (5% RETURN BEFORE EXPENSES)
Standard Class $ 1,000.00 $ 1,021.27 0.78% $ 3.97
Service Class 1,000.00 1,020.01 1.03% 5.24
*"Expenses Paid During Period" are equal to the Series' annualized expense
ratio, multiplied by the average account value over the period, multiplied by
184/365 (to reflect the one-half year period).
Value Series-2
DELAWARE VIP TRUST-DELAWARE VIP VALUE SERIES
SECTOR ALLOCATION
As of December 31, 2005
Sector designations may be different than the sector designations presented in
other Series materials.
PERCENTAGE
SECTOR OF NET ASSETS
- ------------------------------------------------------ -------------
COMMON STOCK 98.86%
-------------
Consumer Discretionary 8.89%
Consumer Staples 8.87%
Energy 8.75%
Financials 23.75%
Health Care 18.61%
Industrials 9.39%
Information Technology 8.77%
Materials 3.06%
Telecommunication Services 5.83%
Utilities 2.94%
-------------
REPURCHASE AGREEMENTS 1.06%
-------------
SECURITIES LENDING COLLATERAL 6.73%
-------------
TOTAL MARKET VALUE OF SECURITIES 106.65%
-------------
OBLIGATION TO RETURN SECURITIES LENDING COLLATERAL (6.73)%
-------------
RECEIVABLES AND OTHER ASSETS NET OF LIABILITIES 0.08%
-------------
TOTAL NET ASSETS 100.00%
-------------
Value Series-3
DELAWARE VIP TRUST-DELAWARE VIP VALUE SERIES
STATEMENT OF NET ASSETS
December 31, 2005
NUMBER OF MARKET
SHARES VALUE
------------ ------------
COMMON STOCK-98.86%
CONSUMER DISCRETIONARY-8.89%
Gap ...................................... 708,500 $ 12,497,940
*Limited Brands ........................... 574,300 12,835,605
*Mattel ................................... 788,600 12,475,652
------------
37,809,197
------------
CONSUMER STAPLES-8.87%
ConAgra Foods ............................ 617,300 12,518,844
Kimberly-Clark ........................... 212,000 12,645,800
*Safeway .................................. 530,100 12,542,166
------------
37,706,810
------------
ENERGY-8.75%
Chevron .................................. 221,500 12,574,555
*ConocoPhillips ........................... 222,100 12,921,778
Exxon Mobil .............................. 208,406 11,706,165
------------
37,202,498
------------
FINANCIALS-23.75%
Allstate ................................. 226,100 12,225,227
*Aon ...................................... 353,900 12,722,705
Chubb .................................... 129,900 12,684,735
Hartford Financial Services .............. 143,400 12,316,626
*Huntington Bancshares .................... 517,500 12,290,625
Morgan Stanley ........................... 223,500 12,681,390
Wachovia ................................. 242,600 12,823,836
Washington Mutual ........................ 304,700 13,254,450
------------
100,999,594
------------
HEALTH CARE-18.61%
Abbott Laboratories ...................... 327,500 12,913,325
Baxter International ..................... 319,000 12,010,350
Bristol-Myers Squibb ..................... 577,100 13,261,758
Merck .................................... 430,000 13,678,300
Pfizer ................................... 592,800 13,824,096
Wyeth .................................... 292,300 13,466,261
------------
79,154,090
------------
INDUSTRIALS-9.39%
Boeing ................................... 181,800 12,769,632
Union Pacific ............................ 177,300 14,274,423
Waste Management ......................... 423,900 12,865,365
------------
39,909,420
------------
INFORMATION TECHNOLOGY-8.77%
Hewlett-Packard .......................... 432,000 12,368,160
International Business Machines .......... 146,500 12,042,300
+Xerox .................................... 877,900 12,861,235
------------
37,271,695
------------
MATERIALS-3.06%
duPont (E.I.) deNemours .................. 306,300 13,017,750
------------
13,017,750
------------
TELECOMMUNICATION SERVICES-5.83%
AT&T ..................................... 498,124 12,199,057
Verizon Communications ................... 417,700 12,581,124
------------
24,780,181
------------
UTILITIES - 2.94%
*Progress Energy .......................... 285,000 12,517,200
------------
12,517,200
------------
TOTAL COMMON STOCK
(COST $382,543,645) ..................... 420,368,435
------------
NUMBER OF MARKET
SHARES VALUE
------------ ------------
REPURCHASE AGREEMENTS-1.06%
With BNP Paribas 3.30% 1/3/06
(dated 12/30/05, to be repurchased
at $2,837,040, collateralized by
$58,000 U.S. Treasury Bills due
1/26/06, market value $58,089,
$40,000 U.S. Treasury Bills due
2/23/06, market value $39,709,
$79,000 U.S. Treasury Bills due
5/4/06, market value $77,706,
$525,000 U.S. Treasury Bills due
6/1/06, market value $515,811,
$1,471,000 U.S. Treasury Bills due
6/29/06, market value $1,440,720,
$522,000 U.S. Treasury Notes 2.625%
due 5/15/08, market value $503,655,
and $262,000 U.S. Treasury Notes
3.125% due 5/15/07, market
value $258,586) ......................... $ 2,836,000 $ 2,836,000
With UBS Warburg 3.40% 1/3/06
(dated 12/30/05, to be repurchased
at $1,656,626, collateralized by
$192,000 U.S. Treasury Notes
2.00% due 5/15/06, market
value $191,253, and $1,449,000 U.S. .....
Treasury Notes 5.625% due 5/15/08,
market value $1,499,104) ................ 1,656,000 1,656,000
------------
TOTAL REPURCHASE AGREEMENTS
(COST $4,492,000) ....................... 4,492,000
------------
TOTAL MARKET VALUE OF SECURITIES
BEFORE SECURITIES LENDING
COLLATERAL-99.92%
(COST $387,035,645) ...................... 424,860,435
------------
SECURITIES LENDING COLLATERAL**-6.73%
SHORT-TERM INVESTMENTS
FIXED RATE NOTES-1.59%
Citigroup Global Markets
4.29% 1/3/06 ............................ 5,913,062 5,913,062
Wilmington Trust Company
4.05% 1/5/06 ............................ 866,722 866,722
------------
6,779,784
------------
>VARIABLE RATE NOTES-5.14%
Abbey National 4.14% 1/13/06 ............. 641,374 641,461
ANZ National 4.31% 1/30/07 ............... 173,344 173,344
Australia New Zealand 4.35% 1/30/07 ...... 866,722 866,722
Bank of New York 4.33% 4/4/06 ............ 693,378 693,378
Bank of the West 4.27% 3/2/06 ............ 866,722 866,722
Bayerische Landesbank 4.40% 8/25/06 ...... 866,722 866,722
Bear Stearns
4.14% 1/17/06 ........................... 173,344 173,374
4.39% 6/30/06 ........................... 1,040,067 1,040,067
Beta Finance 4.33% 4/18/06 ............... 866,722 866,679
Canadian Imperial Bank 4.35% 1/30/07 ..... 433,361 433,361
CDC Financial Products 4.35% 1/30/06 1,126,739 1,126,739
Citigroup Global Markets 4.32% 1/6/06 1,126,739 1,126,739
Value Series-4
DELAWARE VIP VALUE SERIES
STATEMENT OF NET ASSETS (CONTINUED)
PRINCIPAL MARKET
AMOUNT VALUE
------------ ------------
SECURITIES LENDING COLLATERAL** (CONTINUED)
Short-Term Investments (continued)
>VARIABLE RATE NOTES (CONTINUED)
Commonwealth Bank Australia
4.35% 1/30/07 ........................... $ 866,722 $ 866,722
Credit Suisse First Boston New York
4.35% 4/18/06 ........................... 936,060 936,060
Goldman Sachs 4.39% 1/2/07 ............... 1,126,739 1,126,739
Manufacturers & Traders 4.36% 9/26/06 .... 866,722 866,564
Marshall & Ilsley Bank 4.35% 1/30/07 ..... 953,394 953,394
Merrill Lynch Mortgage Capital
4.35% 1/12/06 ........................... 1,126,739 1,126,739
Morgan Stanley 4.43% 1/2/07 .............. $ 1,074,736 $ 1,074,736
National City Bank 4.31% 1/23/06 ......... 988,063 988,081
Nordea Bank Norge ASA 4.34% 1/30/07 ...... 866,722 866,722
Proctor & Gamble 4.46% 1/30/07 ........... 866,722 866,722
Royal Bank of Scotland 4.34% 1/30/07 ..... 866,722 866,722
Sigma Finance 4.33% 3/16/06 .............. 260,017 260,025
Societe Generale NY 4.26% 1/30/07 ........ 433,361 433,361
Toyota Motor Credit 4.30% 6/23/06 ........ 866,722 866,766
Wells Fargo 4.36% 1/30/07 ................ 866,722 866,722
------------
21,841,383
------------
TOTAL SECURITIES LENDING COLLATERAL
(COST $28,621,167) ...................... 28,621,167
------------
TOTAL MARKET VALUE OF SECURITIES-106.65% (COST $415,656,812) .................................. 453,481,602#
OBLIGATION TO RETURN SECURITIES LENDING COLLATERAL**-(6.73%) .................................. (28,621,167)
RECEIVABLES AND OTHER ASSETS NET OF LIABILITIES-0.08% ......................................... 360,948
---------------
NET ASSETS APPLICABLE TO 22,113,436 SHARES OUTSTANDING-100.00% ................................ $ 425,221,383
---------------
NET ASSET VALUE-DELAWARE VIP VALUE SERIES STANDARD CLASS ($349,442,820 / 18,167,167 SHARES) ... $ 19.23
---------------
NET ASSET VALUE -DELAWARE VIP VALUE SERIES SERVICE CLASS ($75,778,563 / 3,946,269 SHARES) ..... $ 19.20
---------------
COMPONENTS OF NET ASSETS AT DECEMBER 31, 2005:
Shares of beneficial interest (unlimited authorization-no par) ................................ $ 376,184,644
Undistributed net investment income ........................................................... 7,270,317
Accumulated net realized gain on investments .................................................. 3,941,632
Net unrealized appreciation of investments .................................................... 37,824,790
---------------
Total net assets .............................................................................. $ 425,221,383
===============
- ----------
*Fully or partially on loan.
**See Note 7 in "Notes to Financial Statements."
#Includes $27,954,485 of securities loaned.
+Non-income producing security for the year ended December 31, 2005.
>Variable rate securities. The interest rate shown is the rate as of December
31, 2005.
See accompanying notes
Value Series-5
DELAWARE VIP TRUST-
DELAWARE VIP VALUE SERIES
STATEMENT OF OPERATIONS
Year Ended December 31, 2005
INVESTMENT INCOME:
Dividends ................................................ $ 9,749,901
Interest ................................................. 358,326
Securities lending income ................................ 24,096
--------------
10,132,323
--------------
EXPENSES:
Management fees .......................................... 2,428,737
Reports and statements to shareholders ................... 163,980
Distribution expenses - Service Class .................... 155,674
Accounting and administration expenses ................... 138,182
Legal and professional fees .............................. 57,597
Dividend disbursing and transfer agent fees
and expenses .......................................... 37,366
Insurance fees ........................................... 25,442
Trustees' fees ........................................... 19,850
Taxes (other than taxes on income) ....................... 19,115
Custodian fees ........................................... 13,028
Registration fees ........................................ 5,414
Pricing fees ............................................. 227
Other .................................................... 10,474
--------------
3,075,086
Less management fees absorbed or waived .................. (186,664)
Less waiver of distribution expenses - Service Class ..... (25,946)
Less expenses paid indirectly ............................ (1,621)
--------------
Total expenses ........................................... 2,860,855
--------------
NET INVESTMENT INCOME .................................... 7,271,468
--------------
NET REALIZED AND UNREALIZED GAIN
(LOSS) ON INVESTMENTS:
Net realized gain on investments ......................... 15,751,969
Net change in unrealized appreciation/depreciation
of investments ........................................ (751,957)
--------------
NET REALIZED AND UNREALIZED GAIN
ON INVESTMENTS ........................................ 15,000,012
--------------
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS ....................................... $ 22,271,480
==============
See accompanying notes
DELAWARE VIP TRUST-
DELAWARE VIP VALUE SERIES
STATEMENTS OF CHANGES IN NET ASSETS
YEAR ENDED
--------------------------------
12/31/05 12/31/04
-------------- --------------
INCREASE (DECREASE) IN NET ASSETS
FROM OPERATIONS:
Net investment income ....................... $ 7,271,468 $ 5,900,127
Net realized gain on investments and
foreign currencies ....................... 15,751,969 49,666,633
Net change in unrealized appreciation/
depreciation of investments and
foreign currencies ....................... (751,957) (10,522,393)
-------------- --------------
Net increase in net assets resulting
from operations .......................... 22,271,480 45,044,367
-------------- --------------
DIVIDENDS AND DISTRIBUTIONS TO
SHAREHOLDERS FROM:
Net investment income:
Standard Class ........................... (5,331,963) (4,784,397)
Service Class ............................ (567,103) (252,025)
-------------- --------------
(5,899,066) (5,036,422)
-------------- --------------
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares sold:
Standard Class ........................... 67,835,208 18,923,520
Service Class ............................ 46,375,696 19,313,760
Net asset value of shares issued upon
reinvestment of dividends and distributions:
Standard Class ........................... 5,331,963 4,784,397
Service Class ............................ 567,103 252,025
-------------- --------------
120,109,970 43,273,702
-------------- --------------
Cost of shares repurchased:
Standard Class ........................... (48,165,366) (51,836,463)
Service Class ............................ (7,441,636) (4,102,303)
-------------- --------------
(55,607,002) (55,938,766)
-------------- --------------
Increase (decrease) in net assets derived
from capital share transactions .......... 64,502,968 (12,665,064)
-------------- --------------
NET INCREASE IN NET ASSETS .................. 80,875,382 27,342,881
NET ASSETS:
Beginning of year ........................... 344,346,001 317,003,120
-------------- --------------
End of year (including undistributed
net investment income of $7,270,317
and $5,897,915, respectively) ............ $ 425,221,383 $ 344,346,001
============== ==============
See accompanying notes
Value Series-6
DELAWARE VIP TRUST-DELAWARE VIP VALUE SERIES
FINANCIAL HIGHLIGHTS
Selected data for each share of the Series outstanding throughout each period
were as follows:
DELAWARE VIP VALUE SERIES STANDARD CLASS
YEAR ENDED
----------------------------------------------------------------------------
12/31/05 12/31/04 12/31/03 12/31/02 12/31/01
------------ ------------ ------------ ------------ ------------
Net asset value, beginning of period ..... $ 18.460 $ 16.330 $ 13.000 $ 16.210 $ 16.910
INCOME (LOSS) FROM INVESTMENT OPERATIONS:
Net investment income(1) ................. 0.369 0.313 0.265 0.235 0.217
Net realized and unrealized gain (loss)
on investments and foreign currencies ... 0.722 2.082 3.337 (3.215) (0.886)
------------ ------------ ------------ ------------ ------------
Total from investment operations ......... 1.091 2.395 3.602 (2.980) (0.669)
------------ ------------ ------------ ------------ ------------
LESS DIVIDENDS AND DISTRIBUTIONS FROM:
Net investment income .................... (0.321) (0.265) (0.272) (0.230) (0.031)
------------ ------------ ------------ ------------ ------------
Total dividends and distributions ........ (0.321) (0.265) (0.272) (0.230) (0.031)
------------ ------------ ------------ ------------ ------------
Net asset value, end of period ........... $ 19.230 $ 18.460 $ 16.330 $ 13.000 $ 16.210
============ ============ ============ ============ ============
Total return(2) .......................... 6.03% 14.93% 28.29% (18.68)% (3.89)%
RATIOS AND SUPPLEMENTAL DATA:
Net assets, end of period (000 omitted) .. $ 349,443 $ 310,704 $ 302,266 $ 240,752 $ 355,015
Ratio of expenses to average net assets .. 0.73% 0.70% 0.70% 0.70% 0.68%
Ratio of expenses to average net assets
prior to expense limitation and expenses
paid indirectly ......................... 0.78% 0.75% 0.75% 0.75% 0.73%
Ratio of net investment income to average
net assets .............................. 1.98% 1.87% 1.88% 1.61% 1.34%
Ratio of net investment income to average
net assets prior to expense limitation
and expenses paid indirectly ............ 1.93% 1.82% 1.83% 1.56% 1.29%
Portfolio turnover ....................... 23% 124% 79% 100% 102%
- ----------
(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
Value Series-7
DELAWARE VIP VALUE SERIES
FINANCIAL HIGHLIGHTS (CONTINUED)
Selected data for each share of the Series outstanding throughout each period
were as follows:
DELAWARE VIP VALUE SERIES SERVICE CLASS
YEAR ENDED
----------------------------------------------------------------------------
12/31/05 12/31/04 12/31/03 12/31/02 12/31/01
------------ ------------ ------------ ------------ ------------
Net asset value, beginning of period ..... $ 18.430 $ 16.320 $ 12.990 $ 16.200 $ 16.910
INCOME (LOSS) FROM INVESTMENT OPERATIONS:
Net investment income(1).................. 0.323 0.271 0.233 0.214 0.193
Net realized and unrealized gain (loss)
on investments and foreign currencies ... 0.726 2.072 3.348 (3.218) (0.886)
------------ ------------ ------------ ------------ ------------
Total from investment operations ......... 1.049 2.343 3.581 (3.004) (0.693)
------------ ------------ ------------ ------------ ------------
LESS DIVIDENDS AND DISTRIBUTIONS FROM:
Net investment income .................... (0.279) (0.233) (0.251) (0.206) (0.017)
------------ ------------ ------------ ------------ ------------
Total dividends and distributions ........ (0.279) (0.233) (0.251) (0.206) (0.017)
------------ ------------ ------------ ------------ ------------
Net asset value, end of period ........... $ 19.200 $ 18.430 $ 16.320 $ 12.990 $ 16.200
============ ============ ============ ============ ============
Total return(2) .......................... 5.79% 14.59% 28.10% (18.81)% (4.03)%
RATIOS AND SUPPLEMENTAL DATA:
Net assets, end of period (000 omitted) .. $ 75,778 $ 33,642 $ 14,737 $ 5,463 $ 2,902
Ratio of expenses to average net assets .. 0.98% 0.95% 0.92% 0.85% 0.83%
Ratio of expenses to average net assets
prior to expense limitation and expenses
paid indirectly ......................... 1.08% 1.05% 1.00% 0.90% 0.88%
Ratio of net investment income to average
net assets .............................. 1.73% 1.62% 1.66% 1.46% 1.19%
Ratio of net investment income to average
net assets prior to expense limitation
and expenses paid indirectly ............ 1.63% 1.52% 1.58% 1.41% 1.14%
Portfolio turnover ....................... 23% 124% 79% 100% 102%
- ----------
(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 and distributor, as applicable. Performance would have been
lower had the expense limitation not been in effect.
See accompanying notes
Value Series-8
DELAWARE VIP TRUST-DELAWARE VIP VALUE SERIES
NOTES TO FINANCIAL STATEMENTS
December 31, 2005
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 REIT Series,
Delaware VIP Select Growth Series, Delaware VIP Small Cap Value Series, Delaware
VIP Trend Series, Delaware VIP U.S. Growth Series and Delaware VIP Value Series.
These financial statements and the related notes pertain to Delaware VIP Value
Series (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 U.S. generally accepted
accounting principles and are consistently followed by the Series.
Security Valuation--Equity securities, except those traded on the Nasdaq Stock
Market, Inc. (Nasdaq), are valued at the last quoted sales price as of the time
of the regular close of the New York Stock Exchange (NYSE) on the valuation
date. Securities traded on the Nasdaq are valued in accordance with the Nasdaq
Official Closing Price, which may not be the last sales price. If on a
particular day an equity security does not trade, then the mean between the bid
and asked prices will be used. Short-term debt securities having less than 60
days to maturity are valued at amortized cost, which approximates market value.
Securities lending collateral is valued at amortized cost, which approximates
market value. Other securities and assets for which market quotations are not
readily available are valued at fair value as determined in good faith under the
direction of the Series' Board of Trustees. In determining whether market
quotations are readily available or fair valuation will be used, various factors
will be taken into consideration, such as market closures, or with respect to
foreign securities, aftermarket trading, or significant events after local
market trading (e.g., government actions or pronouncements, trading volume or
volatility on markets, exchanges among dealers, or news events).
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 pursuant to an
exemptive order issued by the Securities and Exchange Commission. The aggregate
daily balance of the pooled cash account is invested in repurchase agreements
secured by obligations of the U.S. government. The respective collateral is held
by the Series' custodian bank until the maturity of the respective repurchase
agreements. Each repurchase agreement is 102% collateralized. However, in the
event of default or bankruptcy by the counterparty to the agreement, realization
of the collateral may be subject to legal proceedings. Use of Estimates--The
preparation of financial statements in conformity with U.S. generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
Other--Expenses common to all funds within the Delaware Investments Family of
Funds are allocated amongst the funds on the basis of average net assets.
Management fees and some other expenses are paid monthly. Security transactions
are recorded on the date the securities are purchased or sold (trade date) for
financial reporting purposes. Costs used in calculating realized gains and
losses on the sale of investment securities are those of the specific securities
sold. Dividend income is recorded on the ex-dividend date and interest income is
recorded on the accrual basis.
The Series declares and pays dividends from net investment income and
distributions from net realized gain on investments, if any, following the close
of the fiscal year.
Subject to seeking best execution, the Series may direct certain security trades
to brokers who have agreed to rebate a portion of the related brokerage
commission to the Series in cash. Such commission rebates are included in
realized gain on investments in the accompanying financial statements and
totaled $9,874 for the year ended December 31, 2005. In general, best execution
refers to many factors, including the price paid or received for a security, the
commission charged, the promptness and reliability of execution, the
confidentiality and placement accorded the order, and other factors affecting
the overall benefit obtained by the Series on the transaction.
The Series receives earnings credits from its custodian when positive cash
balances are maintained, which are used to offset custody fees. The expense paid
under the above arrangement is included in custodian fees on the Statement of
Operations with the corresponding expense offset shown as "expense paid
indirectly."
2. INVESTMENT MANAGEMENT, ADMINISTRATION AGREEMENTS AND OTHER TRANSACTIONS WITH
AFFILIATES
In accordance with the terms of its investment management agreement, the Series
pays Delaware Management Company (DMC), a series of Delaware Management Business
Trust and the investment manager, an annual fee which is calculated daily at the
rate of 0.65% on the first $500 million of average daily net assets of the
Series, 0.60% on the next $500 million, 0.55% on the next $1.5 billion, and
0.50% on average daily net assets in excess of $2.5 billion. DMC has elected to
limit the management fee to 0.60%, indefinitely.
Value Series-9
DELAWARE VIP VALUE SERIES
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. INVESTMENT MANAGEMENT, ADMINISTRATION AGREEMENTS AND OTHER TRANSACTIONS WITH
AFFILIATES (CONTINUED)
DMC has also contractually agreed to waive that portion, if any, of its
management fee and reimburse the Series to the extent necessary to ensure that
annual operating expenses, exclusive of taxes, interest, brokerage commissions,
distribution fees, certain insurance costs and extraordinary expenses, do not
exceed 0.80% of average daily net assets of the Series through June 30, 2006. No
reimbursement was due for the year ended December 31, 2005 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. Effective May
19, 2005, the Series pays DSC a monthly fee computed at the annual rate of 0.04%
of the Series' average daily net assets for accounting and administrative
services. Prior to May 19, 2005, the Series paid 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 distribution and service fee not to exceed 0.30% of the average daily net
assets of the Service Class shares. DDLP has contracted to waive distribution
and service fees through June 30, 2006 in order to prevent distribution and
service fees of the Service Class shares from exceeding 0.25% of average daily
net assets. Standard Class shares pay no distribution and service expenses.
At December 31, 2005, the Series had liabilities payable to affiliates as
follows:
DIVIDEND DISBURSING, OTHER
INVESTMENT TRANSFER AGENT, ACCOUNTING EXPENSES
MANAGEMENT AND ADMINISTRATION FEES DISTRIBUTION PAYABLE
FEE PAYABLE TO AND OTHER EXPENSES FEE PAYABLE TO DMC AND
DMC PAYABLE TO DSC TO DDLP AFFILIATES*
-------------- --------------------------- ------------ --------------
$ 215,346 $ 21,770 $ 30,347 $ 70,589
*DMC, as part of its administrative services, pays operating expenses on behalf
of the Series and is reimbursed on a periodic basis. Such expenses include items
such as printing of shareholder reports, fees for audit, legal and tax services,
custodian fees and trustees' fees.
As provided in the investment management agreement, the Series bears the cost of
certain legal services expenses, including internal legal services provided to
the Series by DMC employees. For the year ended December 31, 2005, the Series
was charged $23,912 for internal legal services provided by DMC.
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, 2005, the Series made purchases and sales of
investment securities other than short-term investments as follows:
Purchases .......... $ 150,389,105
Sales .............. $ 83,646,845
At December 31, 2005, the cost of investments and unrealized appreciation
(depreciation) for federal income tax purposes for the Series were as follows:
AGGREGATE GGREGATE
COST OF UNREALIZED UNREALIZED NET UNREALIZED
INVESTMENTS APPRECIATION DEPRECIATION APPRECIATION
------------- ------------- ------------- --------------
$ 417,288,111 $ 49,504,024 $ (13,310,533) $ 36,193,491
4. DIVIDEND AND DISTRIBUTION INFORMATION
Income and long-term capital gain distributions are determined in accordance
with federal income tax regulations, which may differ from U.S. generally
accepted accounting principles. Additionally, gains (losses) on foreign currency
transactions and net short-term gains on sales of investment securities are
treated as ordinary income for federal income tax purposes. The tax character of
dividends and distributions paid during the years ended December 31, 2005 and
2004 was as follows:
YEAR YEAR
ENDED ENDED
12/31/05 12/31/04
------------ ------------
Ordinary income ................... $ 5,899,066 $ 5,036,422
Value Series-10
DELAWARE VIP VALUE SERIES
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
4. DIVIDEND AND DISTRIBUTION INFORMATION (CONTINUED)
As of December 31, 2005, the components of net assets on a tax basis were as
follows:
Shares of beneficial interest .................. $ 376,184,644
Undistributed ordinary income .................. 7,793,148
Undistributed long-term capital gain ........... 9,346,170
*Capital loss carryforwards ..................... (4,296,070)
Unrealized appreciation of investments ......... 36,193,491
---------------
Net assets ..................................... $ 425,221,383
===============
The differences between book basis and tax basis components of net assets are
primarily attributable to tax deferral of losses on wash sales.
For financial reporting purposes, capital accounts are adjusted to reflect the
tax character of permanent book/tax differences. Reclassifications are due to
limitations on capital loss carryforwards relating to the merger with Delaware
VIP Devon Series in 2003. Results of operations and net assets were not affected
by these reclassifications. For the year ended December 31, 2005, the Series
recorded the following permanent reclassifications:
ACCUMULATED NET PAID-IN
REALIZED GAIN (LOSS) CAPITAL
-------------------- ------------
$ 9,566,696 $ (9,566,696)
For federal income tax purposes, capital loss carryforwards may be carried
forward and applied against future capital gains. $5,803,605 was utilized in
2005. Capital loss carryforwards remaining at December 31, 2005 will expire as
follows: $2,816,084 expires in 2009 and $1,479,986 expires in 2010.
*The amount of this loss which can be utilized in subsequent years is subject to
an annual limitation in accordance with the Internal Revenue Code due to the
fund merger with Delaware VIP Devon Series in 2003.
5. CAPITAL SHARES
Transactions in capital shares were as follows:
YEAR YEAR
ENDED ENDED
12/31/05 12/31/04
------------ ------------
Shares sold:
Standard Class 3,617,312 1,127,312
Service Class 2,487,125 1,151,638
Shares issued upon reinvestment of dividends
and distributions:
Standard Class 296,056 301,474
Service Class 31,488 15,871
------------ ------------
6,431,981 2,596,295
------------ ------------
Shares repurchased:
Standard Class (2,581,332) (3,099,616)
Service Class (397,840) (245,153)
------------ ------------
(2,979,172) (3,344,769)
------------ ------------
Net increase (decrease) 3,452,809 (748,474)
============ ============
Value Series-11
DELAWARE VIP VALUE SERIES
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
6. LINE OF CREDIT
The Series, along with certain other funds in the Delaware Investments Family of
Funds (the "Participants"), participates in a $225,000,000 revolving line of
credit facility to be used for temporary or emergency purposes as an additional
source of liquidity to fund redemptions of investor shares. The Participants are
charged an annual commitment fee, which is allocated across the Participants on
the basis of each 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, 2005, 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 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, 2005, the market value of securities on loan was $27,954,485,
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 may invest up to 10% of its total assets in illiquid securities,
which may include securities with contractual restrictions on resale, securities
exempt from registration under Rule 144A of the Securities Act of 1933, as
amended, and other securities which may not be readily marketable. The relative
illiquidity of these securities may impair the Series from disposing of them in
a timely manner and at a fair price when it is necessary or desirable to do so.
While maintaining oversight, the Board of Trustees has delegated to DMC the
day-to-day functions of determining whether individual securities are liquid for
purposes of the Series' limitation on investments in illiquid assets. At
December 31, 2005, no securities have been determined to be illiquid under the
Series' Liquidity Procedures.
9. CONTRACTUAL OBLIGATIONS
The Series enters into contracts in the normal course of business that contain a
variety of indemnifications. The Series' maximum exposure under these
arrangements is unknown. However, the Series has not had prior claims or losses
pursuant to these contracts. Management has reviewed the Series' existing
contracts and expects the risk of loss to be remote.
10. TAX INFORMATION (UNAUDITED)
For the fiscal year ended December 31, 2005, the Series designates distributions
paid during the year as follows:
(A) (B)
Long-Term Ordinary
Capital Gains Income Total (C)
Distributions Distributions Distribution 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 the Series' ordinary income distributions.
(1) Qualifying dividends represent dividends which qualify for the corporate
dividends received deduction.
Value Series-12
DELAWARE VIP TRUST-DELAWARE VIP VALUE SERIES
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and Board of Trustees
Delaware VIP Trust-Delaware VIP Value Series
We have audited the accompanying statement of net assets of the Delaware VIP
Value Series (one of the series constituting Delaware VIP Trust) (the "Series")
as of December 31, 2005, 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 five years
in the period then ended. 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 the standards of the Public Company
Accounting Oversight Board (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. We were
not engaged to perform an audit of the Series' internal control over financial
reporting. Our audits included consideration of internal control over financial
reporting as a basis for designing audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion on the
effectiveness of the Series' internal control over financial reporting.
Accordingly, we express no such opinion. An audit also includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements and financial highlights, assessing the accounting principles used
and significant estimates made by management, and evaluating the overall
financial statement presentation. Our procedures included confirmation of
securities owned as of December 31, 2005, by correspondence with the custodian
and brokers. 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 the
Delaware VIP Value Series of Delaware VIP Trust at December 31, 2005, 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 five years in the period the ended, in conformity with U.S.
generally accepted accounting principles.
/s/ Ernst & Young LLP
Philadelphia, Pennsylvania
February 10, 2006
The Series files its complete schedule of portfolio holdings with the Securities
and Exchange Commission for the first and third quarters of each fiscal year on
Form N-Q. The Series' Forms N-Q, as well as a description of the policies and
procedures that the Series uses to determine how to vote proxies (if any)
relating to portfolio securities is available without charge (i) upon request,
by calling 800-523-1918; (ii) on the Series' website at
http://www.delawareinvestments.com; and (iii) on the Commission's website at
http://www.sec.gov. The Series' Forms N-Q may be reviewed and copied at the
Commission's Public Reference Room in Washington, DC; information on the
operation of the Public Reference Room may be obtained by calling
1-800-SEC-0330.
Information (if any) regarding how the Series voted proxies relating to
portfolio securities during the most recently disclosed 12-month period ended
June 30 is available without charge (i) through the Series' website at
http://www.delawareinvestments.com; and (ii) on the Commission's website at
http://www.sec.gov.
Value Series-13
DELAWARE INVESTMENTS(R)FAMILY OF FUNDS
BOARD OF TRUSTEES/DIRECTORS AND OFFICERS ADDENDUM
A mutual fund is governed by a Board of Trustees/Directors ("Trustees"), which
has oversight responsibility for the management of a fund's business affairs.
Trustees establish procedures and oversee and review the performance of the
investment manager, the distributor and others who perform services for the
fund. The independent fund trustees, in particular, are advocates for
shareholder interests. Each trustee has served in that capacity since he or she
was elected to or appointed to the Board of Trustees, and will continue to serve
until his or her retirement or the election of a new trustee in his or her
place. The following is a list of the Trustees 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 TRUSTEE
AND BIRTHDATE FUND(S) SERVED PAST 5 YEARS OR OFFICER OR OFFICER
- ----------------------- ------------------ -------------------- ---------------------------- ------------------ --------------
INTERESTED TRUSTEES
JUDE T. DRISCOLL(2) Chairman, 5 Years - Since August 2000, 87 None
2005 Market Street President, Executive Officer Mr. Driscoll has served in
Philadelphia, PA Chief Executive various executive capacities
19103 Officer and 2 Years - at different times at
Trustee Trustee Delaware Investments(1)
March 10, 1963
INDEPENDENT TRUSTEES
THOMAS L. BENNETT Trustee Since Private Investor - 87 None
2005 Market Street March 23, 2005 (March 2004 - Present)
Philadelphia, PA
19103 Investment Manager -
Morgan Stanley & Co.
October 4, 1947 (January 1984 - March 2004)
JOHN A. FRY Trustee 4 Years President - 87 Director -
2005 Market Street Franklin & Marshall College Community
Philadelphia, PA (June 2002 - Present) Health Systems
19103
Executive Vice President -
May 28, 1960 University of Pennsylvania
(April 1995 - June 2002)
ANTHONY D. KNERR Trustee 12 Years Founder/Managing Director - 87 None
2005 Market Street Anthony Knerr & Associates
Philadelphia, PA (Strategic Consulting)
19103 (1990 - Present)
December 7, 1938
LUCINDA S. LANDRETH Trustee Since Chief Investment Officer - 87 None
2005 Market Street March 23, 2005 Assurant, Inc.
Philadelphia, PA (Insurance)
19103 (2002 - 2004)
June 24, 1947
ANN R. LEVEN Trustee 16 Years Treasurer/Chief Fiscal 87 Director and
2005 Market Street Officer - National Audit committee
Philadelphia, PA Gallery of Art Chairperson -
19103 (1994 - 1999) Andy Warhol
Foundation
November 1, 1940 Director and
Audit
Committee
Member -
Systemax Inc.
Value Series-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 TRUSTEE
AND BIRTHDATE FUND(S) SERVED PAST 5 YEARS OR OFFICER OR OFFICER
- ----------------------- ------------------ -------------------- ---------------------------- ------------------ --------------
INDEPENDENT TRUSTEES
(CONTINUED)
THOMAS F. MADISON Trustee 11 Years President/Chief 87 Director -
2005 Market Street Executive Officer Banner Health
Philadelphia, PA MLM Partners, Inc.
19103 (Small Business Investing Director -
and Consulting) CenterPoint
February 25, 1936 (January 1993 - Present) Energy
Director and
Audit
Committee
Member -
Digital River
Inc.
Director and
Audit
Committee
Member -
Rimage
Corporation
Director -
Valmont
Industries,
Inc.
JANET L. YEOMANS Trustee 6 Years Vice President 87 None
2005 Market Street (January 2003 - Present)
Philadelphia, PA and Treasurer
19103 (January 2006 - Present)
3M Corporation
July 31, 1948
Ms. Yeomans has held
various management positions
at 3M Corporation
since 1983.
J. RICHARD ZECHER Trustee Since Founder - 87 Director and
2005 Market Street March 23, 2005 Investor Analytics Audit
Philadelphia, PA (Risk Management) Committee
19103 (May 1999 - Present) Member -
Investor
Analytics
Director and
July 3, 1940 Audit
Committee
Member -
Oxigene, Inc.
OFFICERS
MICHAEL P. BISHOF Senior Chief Financial Mr. Bishof has served in 87 None(3)
2005 Market Street Vice President Officer since various executive capacities
Philadelphia, PA and February 17, 2005 at different times at
19103 Chief Financial Delaware Investments.
Officer
August 18, 1962
DAVID F. CONNOR Vice President, Vice President since Mr. Connor has served as 87 None(3)
2005 Market Street Deputy General September 21, 2000 Vice President and Deputy
Philadelphia, PA Counsel and and Secretary General Counsel of Delaware
19103 Secretary since Investments since 2000.
October 25, 2005
December 2, 1963
DAVID P. O'CONNOR Senior Vice Senior Vice President, Mr. O'Connor has served in 87 None(3)
2005 Market Street President, General Counsel and various executive and legal
Philadelphia, PA General Counsel Chief Legal Officer capacities at different time
19103 and Chief since at Delaware Investments.
Legal Officer October 25, 2005
February 21, 1966
JOHN J. O'CONNOR Senior Vice Treasurer Mr. O'Connor has served in 87 None(3)
2005 Market Street President and since various executive capacities
Philadelphia, PA Treasurer February 17, 2005 at different times at
19103 Delaware Investments.
June 16, 1957
(1)Delaware Investments is the marketing name for Delaware Management Holdings,
Inc. and its subsidiaries, including the Fund's(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(s') manager and distributor.
(3)Mr. Bishof, Mr. Connor, Mr. David P. O'Connor and Mr. John J. O'Connor serve
in similar capacities for the six portfolios of the Optimum Fund Trust, which
have the same investment advisor, principal underwriter, and transfer agent
as the registrant. Mr. John J. O'Connor also serves in a similar capacity for
Lincoln Variable Insurance Products Trust, which has the same investment
advisor as the registrant.
The Statement of Additional Information for the Fund(s) includes additional
information about the Trustees and Officers and is available, without charge,
upon request by calling 800 523-1918.
Value Series-15
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:
Thomas L. Bennett (1)
Thomas F. Madison
Janet L. Yeomans (1)
J. Richard Zecher
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 $252,200
for the fiscal year ended December 31, 2005.
- -----------------------
(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 Mr.
Bennett qualifies as an audit committee financial expert by virtue of his
education, Chartered Financial Analyst designation, and his experience as a
credit analyst, portfolio manager and the manager of other credit analysts and
portfolio managers. 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.
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 $199,950
for the fiscal year ended December 31, 2004.
(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, 2005.
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 and other service providers under common
control with the adviser and that relate directly to the operations or financial
reporting of the registrant were $33,875 for the registrant's fiscal year ended
December 31, 2005. 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: issuance of reports concerning
transfer agent's system of internal accounting control pursuant to Rule 17Ad-13
of the Securities Exchange Act; and issuance of agreed upon procedures reports
to the registrant's Board in connection with the annual transfer agent and fund
accounting service agent contract renewals and the pass-through of internal
legal cost relating to the operations of the registrant.
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, 2004.
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 and other service providers under common
control with the adviser and that relate directly to the operations or financial
reporting of the registrant were $38,875 for the registrant's fiscal year ended
December 31, 2004. 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: issuance of reports concerning
transfer agent's system of internal accounting control pursuant to Rule 17Ad-13
of the Securities Exchange Act; and issuance of agreed upon procedures reports
to the registrant's Board in connection with the annual transfer agent and fund
accounting service agent contract renewals and the pass-through of internal
legal cost relating to the operations of the registrant.
(c) Tax fees.
The aggregate fees billed by the registrant's independent auditors for
tax-related services provided to the registrant were $47,900 for the fiscal year
ended December 31, 2005. 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 tax-related services were as follows: review of
income tax returns.
The aggregate fees billed by the registrant's independent auditors for
tax-related services provided to the registrant's investment adviser and other
service providers under common control with the adviser and that relate directly
to the operations or financial reporting of the registrant were $0 for the
registrant's fiscal year ended December 31, 2005.
The aggregate fees billed by the registrant's independent auditors for
tax-related services provided to the registrant were $22,500 for the fiscal year
ended December 31, 2004. 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 tax-related services were as follows: review of
income tax returns.
The aggregate fees billed by the registrant's independent auditors for
tax-related services provided to the registrant's adviser and other service
providers under common control with the adviser and that relate directly to the
operations or financial reporting of the registrant were $0 for the registrant's
fiscal year ended December 31, 2004.
(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, 2005.
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 and other service providers under common
control with the adviser and that relate directly to the operations or financial
reporting of the registrant were $0 for the registrant's fiscal year ended
December 31, 2005.
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, 2004.
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 and other service providers under common
control with the adviser and that relate directly to the operations or financial
reporting of the registrant were $0 for the registrant's fiscal year ended
December 31, 2004.
(e) The registrant's Audit Committee has established pre-approval
policies and procedures as permitted by Rule 2-01(c)(7)(i)(B) of Regulation S-X
(the "Pre-Approval Policy") with respect to services provided by the
registrant's independent auditors. Pursuant to the Pre-Approval Policy, the
Audit Committee has pre-approved the services set forth in the table below with
respect to the registrant up to the specified fee limits. Certain fee limits are
based on aggregate fees to the registrant and other registrants within the
Delaware Investments Family of Funds.
- ---------------------------------------------------------------------------------- -----------------------------------
SERVICE RANGE OF FEES
- ---------------------------------------------------------------------------------- -----------------------------------
AUDIT SERVICES
- ---------------------------------------------------------------------------------- -----------------------------------
Statutory audits or financial audits for new Funds up to $25,000 per Fund
- ---------------------------------------------------------------------------------- -----------------------------------
Services associated with SEC registration statements (e.g., Form N-1A, Form
N-14, etc.), periodic reports and other documents filed with the SEC or other
documents issued in connection with securities offerings (e.g., comfort letters up to $10,000 per Fund
for closed-end Fund offerings, consents), and assistance in responding to SEC
comment letters
- ---------------------------------------------------------------------------------- -----------------------------------
Consultations by Fund management as to the accounting or disclosure treatment of
transactions or events and/or the actual or potential impact of final or
proposed rules, standards or interpretations by the SEC, FASB, or other up to $25,000 in the aggregate
regulatory or standard-setting bodies (Note: Under SEC rules, some consultations
may be considered "audit-related services" rather than "audit services")
- ---------------------------------------------------------------------------------- -----------------------------------
AUDIT-RELATED SERVICES
- ---------------------------------------------------------------------------------- -----------------------------------
Consultations by Fund management as to the accounting or disclosure treatment of
transactions or events and /or the actual or potential impact of final or
proposed rules, standards or interpretations by the SEC, FASB, or other up to $25,000 in the aggregate
regulatory or standard-setting bodies (Note: Under SEC rules, some consultations
may be considered "audit services" rather than "audit-related services")
- ---------------------------------------------------------------------------------- -----------------------------------
TAX SERVICES
- ---------------------------------------------------------------------------------- -----------------------------------
U.S. federal, state and local and international tax planning and advice (e.g.,
consulting on statutory, regulatory or administrative developments, evaluation up to $25,000 in the aggregate
of Funds' tax compliance function, etc.)
- ---------------------------------------------------------------------------------- -----------------------------------
U.S. federal, state and local tax compliance (e.g., excise distribution reviews, up to $5,000 per Fund
etc.)
- ---------------------------------------------------------------------------------- -----------------------------------
Review of federal, state, local and international income, franchise and other up to $5,000 per Fund
tax returns
- ---------------------------------------------------------------------------------- -----------------------------------
Under the Pre-Approval Policy, the Audit Committee has also
pre-approved the services set forth in the table below with respect to the
registrant's investment adviser and other entities controlling, controlled by or
under common control with the investment adviser that provide ongoing services
to the registrant (the "Control Affiliates") up to the specified fee limit. This
fee limit is based on aggregate fees to the investment adviser and its Control
Affiliates.
- ---------------------------------------------------------------------------------- -----------------------------------
SERVICE RANGE OF FEES
- ---------------------------------------------------------------------------------- -----------------------------------
NON-AUDIT SERVICES
- ---------------------------------------------------------------------------------- -----------------------------------
Services associated with periodic reports and other documents filed with the SEC up to $10,000 in the aggregate
and assistance in responding to SEC comment letters
- ---------------------------------------------------------------------------------- -----------------------------------
The Pre-Approval Policy requires the registrant's independent auditors
to report to the Audit Committee at each of its regular meetings regarding all
services initiated since the last such report was rendered, including those
services authorized by the Pre-Approval Policy.
(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
and other service providers under common control with the adviser were $243,135
and $371,334 for the registrant's fiscal years ended December 31, 2005 and
December 31, 2004, 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 and other service
providers under common control with the adviser 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. Schedule of Investments
Included as part of report to shareholders filed under Item 1 of this
Form N-CSR.
Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End
Management Investment Companies
Not applicable.
Item 8. Portfolio Managers of Closed-End Management Investment Companies
Not applicable.
Item 9. Purchases of Equity Securities by Closed-End Management Investment
Company and Affiliated Purchasers
Not applicable.
Item 10. Submission of Matters to a Vote of Security Holders
Not applicable.
Item 11. Controls and Procedures
The registrant's principal executive officer and principal financial
officer have evaluated the registrant's disclosure controls and procedures
within 90 days of the filing of this report and have concluded that they are
effective in providing reasonable assurance that the information required to be
disclosed by the registrant in its reports or statements filed under the
Securities Exchange Act of 1934 is recorded, processed, summarized and reported
within the time periods specified in the rules and forms of the Securities and
Exchange Commission.
There were no significant changes in the registrant's internal control
over financial reporting that occurred during the second fiscal quarter of the
period covered by the report to stockholders included herein (i.e., the
registrant's fourth fiscal quarter) that have materially affected, or are
reasonably likely to materially affect, the registrant's internal control over
financial reporting.
Item 12. Exhibits
(a) (1) Code of Ethics
Not applicable.
(2) Certifications of Principal Executive Officer and Principal Financial
Officer pursuant to Rule 30a-2 under the Investment Company Act of 1940 are
attached hereto as Exhibit 99.CERT.
(3) Written solicitations to purchase securities pursuant to Rule 23c-1
under the Securities Exchange Act of 1934.
Not applicable.
(b) Certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
are furnished herewith as Exhibit 99.906CERT.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and
the Investment Company Act of 1940, the registrant has duly caused this report
to be signed on its behalf, by the undersigned, thereunto duly authorized.
NAME OF REGISTRANT: Delaware VIP Trust
JUDE T. DRISCOLL
- ----------------------------------
By: Jude T. Driscoll
Title: Chief Executive Officer
Date: March 6, 2006
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: Chief Executive Officer
Date: March 6, 2006
MICHAEL P. BISHOF
- ----------------------------------
By: Michael P. Bishof
Title: Chief Financial Officer
Date: March 6, 2006