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: | 811-04413 |
Exact name of registrant as specified in charter: | Delaware Group® Equity Funds IV |
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: | March 31 |
Date of reporting period: | September 30, 2017 |
Item 1. Reports to Stockholders
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Alternative / specialty mutual fund
Delaware Healthcare Fund
September 30, 2017
Carefully consider the Fund’s investment objectives, risk factors, charges, and expenses before investing. This and other information can be found in the Fund’s prospectus and its summary prospectus, which may be obtained by visiting delawarefunds.com/literature or calling 800 523-1918. Investors should read the prospectus and the summary prospectus carefully before investing.
You can obtain shareholder reports and prospectuses online instead of in the mail.
Visit delawarefunds.com/edelivery.
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Experience Delaware FundsSM by Macquarie
Macquarie Investment Management (MIM) is a global asset manager with offices throughout the United States, Europe, Asia, and Australia. We are active managers who prioritize autonomy and accountability at the investment team level in pursuit of opportunities that matter for our clients. Delaware Funds is one of the longest-standing mutual fund families, with more than 75 years in existence.
If you are interested in learning more about creating an investment plan, contact your financial advisor.
You can learn more about Delaware Funds or obtain a prospectus for Delaware Healthcare Fund at delawarefunds.com/literature.
Manage your account online
● | Check your account balance and transactions |
● | View statements and tax forms |
● | Make purchases and redemptions |
Visit delawarefunds.com/account-access.
MIM is the marketing name for the registered investment advisers including Macquarie Investment Management Business Trust (MIMBT) (formerly, Delaware Management Business Trust), Macquarie Funds Management Hong Kong Limited, Macquarie Investment Management Austria Kapitalanlage AG, Macquarie Investment Management Global Limited, Macquarie Bank International Limited, Macquarie Investment Management Europe Limited, Macquarie Investment Management Limited, and Macquarie Capital Investment Management, Inc.
The Fund is distributed by Delaware Distributors, L.P., an affiliate of MIMBT and Macquarie Group Limited. MIM, a member of Macquarie Group, refers to the companies comprising the asset management division of Macquarie Group Limited and its subsidiaries and affiliates worldwide.
Other than Macquarie Bank Limited (MBL), none of the entities noted are authorized deposit-taking institutions for the purposes of the Banking Act 1959 (Commonwealth of Australia). The obligations of these entities do not represent deposits or other liabilities of MBL. MBL does not guarantee or otherwise provide assurance in respect of the obligations of these entities, unless noted otherwise. The Fund is governed by US laws and regulations.
1 | ||||||
Security type / sector allocation and top 10 equity holdings | 3 | |||||
4 | ||||||
8 | ||||||
10 | ||||||
12 | ||||||
14 | ||||||
22 | ||||||
34 | ||||||
37 |
Unless otherwise noted, views expressed herein are current as of Sept. 30, 2017, and subject to change for events occurring after such date.
The Fund is not FDIC insured and is not guaranteed. It is possible to lose the principal amount invested.
Advisory services provided by Delaware Management Company, a series of MIMBT, a US registered investment advisor.
All third-party marks cited are the property of their respective owners.
© 2017 Macquarie Management Holdings, Inc. (formerly, Delaware Management Holdings, Inc.)
Table of Contents
For the six-month period from April 1, 2017 to September 30, 2017 (Unaudited)
As a shareholder of the Fund, you incur two types of costs: (1) transaction costs, including sales charges (loads) on purchase payments, reinvested dividends, or other distributions; redemption fees; and exchange fees; and (2) ongoing costs, including management fees; distribution and/or service (12b-1) fees; and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund 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 six-month period from April 1, 2017 to Sept. 30, 2017.
Actual expenses
The first section of the table shown, “Actual Fund 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 this 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 Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s 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 Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as sales charges (loads), redemption fees, or exchange fees. 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. In addition, if these transactional costs were included, your costs would have been higher. The expenses shown in the table assume reinvestment of all dividends and distributions.
1
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Disclosure of Fund expenses | ||
For the six-month period from April 1, 2017 to September 30, 2017 (Unaudited) |
Delaware Healthcare Fund
Expense analysis of an investment of $1,000
Beginning
| Ending
| Expenses
| ||||||||||||||
Account Value
| Account Value
| Annualized
| Paid During Period
| |||||||||||||
4/1/17 | 9/30/17 | Expense Ratio | 4/1/17 to 9/30/17* | |||||||||||||
Actual Fund return† | ||||||||||||||||
Class A | $1,000.00 | $1,187.60 | 1.32% | $7.24 | ||||||||||||
Class C | 1,000.00 | 1,183.00 | 2.07% | 11.33 | ||||||||||||
Class R | 1,000.00 | 1,186.00 | 1.57% | 8.60 | ||||||||||||
Institutional Class | 1,000.00 | 1,188.90 | 1.07% | 5.87 | ||||||||||||
Hypothetical 5% Return (5% return before expenses) |
| |||||||||||||||
Class A | $1,000.00 | $1,018.45 | 1.32% | $6.68 | ||||||||||||
Class C | 1,000.00 | 1,014.69 | 2.07% | 10.45 | ||||||||||||
Class R | 1,000.00 | 1,017.20 | 1.57% | 7.94 | ||||||||||||
Institutional Class | 1,000.00 | 1,019.70 | 1.07% | 5.42 |
* | “Expenses Paid During Period” are equal to the Fund’s annualized expense ratio, multiplied by the average account value over the period, multiplied by 183/365 (to reflect the one-half year period). |
† Because actual returns reflect only the most recent six-month period, the returns shown may differ significantly from fiscal year returns.
2
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Security type / sector allocation and top 10 equity holdings | ||
Delaware Healthcare Fund | As of September 30, 2017 (Unaudited) |
Sector designations may be different than the sector designations presented in other Fund materials. The sector designations may represent the investment manager’s internal sector classifications.
Security type / sector
| Percentage of net assets | |
Common Stock² | 99.72% | |
Biotechnology | 21.95% | |
Blue Chip Medical Products | 48.74% | |
Healthcare Services | 7.98% | |
Other | 7.64% | |
Small- / Mid-Cap Medical Products | 13.41% | |
Rights | 0.01% | |
Short-Term Investments | 0.19% | |
Total Value of Securities | 99.92% | |
Receivables and Other Assets Net of Liabilities | 0.08% | |
Total Net Assets | 100.00% | |
² Narrow industries are utilized for compliance purposes for diversification whereas broad sectors are used for financial reporting.
Holdings are for informational purposes only and are subject to change at any time. They are not a recommendation to buy, sell, or hold
| ||
Top 10 equity holdings | Percentage of net assets | |
MorphoSys | 8.09% | |
Chugai Pharmaceutical | 6.01% | |
Amgen | 4.86% | |
Eli Lilly & Co | 4.75% | |
Sanofi ADR | 4.44% | |
Pfizer | 3.70% | |
Sohu.com | 3.68% | |
Boston Scientific | 3.52% | |
Sanofi | 3.48% | |
Gilead Sciences
| 3.09% |
3
Table of Contents
Delaware Healthcare Fund | September 30, 2017 (Unaudited) |
Number of shares | Value (US $) | |||||||
Common Stock – 99.72%² | ||||||||
Biotechnology – 21.95% | ||||||||
Active Biotech † | 9,691 | $ | 7,912 | |||||
Alder Biopharmaceuticals † | 75,000 | 918,750 | ||||||
Alexion Pharmaceuticals † | 40,000 | 5,611,600 | ||||||
Aralez Pharmaceuticals † | 69,667 | 159,538 | ||||||
Arena Pharmaceuticals † | 200,000 | 5,100,000 | ||||||
Array BioPharma † | 330,000 | 4,059,000 | ||||||
Bioverativ † | 6,500 | 370,955 | ||||||
Coherus Biosciences † | 290,000 | 3,871,500 | ||||||
Epizyme † | 41,100 | 782,955 | ||||||
Foundation Medicine † | 80,000 | 3,216,000 | ||||||
Genomic Health † | 38,000 | 1,219,420 | ||||||
ImmunoGen † | 850,000 | 6,502,500 | ||||||
Intercept Pharmaceuticals † | 5,000 | 290,200 | ||||||
Ligand Pharmaceuticals Class B † | 65,000 | 8,849,750 | ||||||
Loxo Oncology † | 51,000 | 4,698,120 | ||||||
MacroGenics † | 50,000 | 924,000 | ||||||
Mirati Therapeutics † | 80,000 | 936,000 | ||||||
Momenta Pharmaceuticals † | 90,000 | 1,665,000 | ||||||
Myriad Genetics † | 135,000 | 4,884,300 | ||||||
Neurocrine Biosciences † | 140,000 | 8,579,200 | ||||||
Regeneron Pharmaceuticals † | 20,000 | 8,942,400 | ||||||
Regulus Therapeutics † | 20,000 | 25,000 | ||||||
Rigel Pharmaceuticals † | 734,088 | 1,864,584 | ||||||
Sarepta Therapeutics † | 33,000 | 1,496,880 | ||||||
Seattle Genetics † | 95,000 | 5,168,950 | ||||||
uniQure † | 70,000 | 672,000 | ||||||
Vanda Pharmaceuticals † | 130,000 | 2,327,000 | ||||||
Vascular Biogenics † | 330,000 | 2,013,000 | ||||||
Vertex Pharmaceuticals † | 25,000 | 3,801,000 | ||||||
Xencor † | 55,000 | 1,260,600 | ||||||
XOMA † | 40,000 | 786,000 | ||||||
|
| |||||||
91,004,114 | ||||||||
|
| |||||||
Blue Chip Medical Products – 48.74% | ||||||||
AbbVie | 130,000 | 11,551,800 | ||||||
Amgen | 108,000 | 20,136,600 | ||||||
AstraZeneca | 110,000 | 7,315,162 | ||||||
AstraZeneca ADR | 105,000 | 3,557,400 | ||||||
Biogen † | 2,000 | 626,240 | ||||||
Boston Scientific † | 500,000 | 14,585,000 | ||||||
Bristol-Myers Squibb | 120,000 | 7,648,800 | ||||||
Chugai Pharmaceutical | 600,000 | 24,933,684 | ||||||
Eli Lilly & Co. | 230,000 | 19,674,200 |
4
Table of Contents
Number of shares | Value (US $) | |||||||
Common Stock² (continued) | ||||||||
Blue Chip Medical Products (continued) | ||||||||
Gilead Sciences | 158,000 | $ | 12,801,160 | |||||
GlaxoSmithKline ADR | 240,000 | 9,744,000 | ||||||
Pfizer | 430,000 | 15,351,000 | ||||||
Roche Holding | 38,000 | 9,713,565 | ||||||
Sanofi | 145,000 | 14,434,268 | ||||||
Sanofi ADR | 370,000 | 18,422,300 | ||||||
Stryker | 20,000 | 2,840,400 | ||||||
UCB | 60,000 | 4,276,093 | ||||||
Zimmer Biomet Holdings | 38,000 | 4,449,420 | ||||||
|
| |||||||
202,061,092 | ||||||||
|
| |||||||
Healthcare Services – 7.98% | ||||||||
Aetna | 43,000 | 6,837,430 | ||||||
Anthem | 38,000 | 7,215,440 | ||||||
DaVita † | 80,000 | 4,751,200 | ||||||
Quest Diagnostics | 48,000 | 4,494,720 | ||||||
UnitedHealth Group | 50,000 | 9,792,500 | ||||||
|
| |||||||
33,091,290 | ||||||||
|
| |||||||
Other – 7.64% | ||||||||
Cia de Minas Buenaventura ADR | 115,300 | 1,474,687 | ||||||
Dean Foods | 100,000 | 1,088,000 | ||||||
Dyax =† | 400,000 | 444,000 | ||||||
Fannie Mae † | 900,000 | 2,686,500 | ||||||
Federal Home Loan Mortgage † | 900,000 | 2,592,000 | ||||||
Kinross Gold † | 300,000 | 1,272,000 | ||||||
SINA† | 60,000 | 6,879,000 | ||||||
Sohu.com† | 280,000 | 15,246,000 | ||||||
|
| |||||||
31,682,187 | ||||||||
|
| |||||||
Small- / Mid-Cap Medical Products – 13.41% | ||||||||
Durect † | 47,425 | 83,942 | ||||||
Halozyme Therapeutics † | 500,000 | 8,685,000 | ||||||
MorphoSys † | 397,093 | 33,545,799 | ||||||
Mylan † | 153,000 | 4,799,610 | ||||||
Perrigo | 100,000 | 8,465,000 | ||||||
|
| |||||||
55,579,351 | ||||||||
|
| |||||||
Total Common Stock (cost $280,763,005) | 413,418,034 | |||||||
|
|
5
Table of Contents
Schedule of investments
Delaware Healthcare Fund
Number of shares | Value (US $) | |||||||
Rights – 0.01% | ||||||||
Ambit Bioscience =† | 76,500 | $ | 45,900 | |||||
|
| |||||||
Total Rights (cost $0) | 45,900 | |||||||
|
| |||||||
Principal Amount | ||||||||
Short-Term Investments – 0.19% | ||||||||
Discount Note – 0.00%≠ | ||||||||
Federal Home Loan Bank 0.353% 10/2/17 | 20,379 | 20,378 | ||||||
|
| |||||||
20,378 | ||||||||
|
| |||||||
Repurchase Agreements – 0.19% | ||||||||
Bank of America Merrill Lynch | 135,859 | 135,859 | ||||||
Bank of Montreal | 339,647 | 339,647 | ||||||
BNP Paribas | 297,117 | 297,117 | ||||||
|
| |||||||
772,623 | ||||||||
|
| |||||||
Total Short-Term Investments (cost $793,001) | 793,001 | |||||||
|
| |||||||
Total Value of Securities – 99.92% | $ | 414,256,935 | ||||||
|
|
² | Narrow industries are utilized for compliance purposes for diversification whereas broad sectors are used for financial reporting. |
= | The value of this security was determined using significant unobservable inputs and is reported as a Level 3 security in the disclosure table located in Note 3 in “Notes to financial statements.” |
≠ | The rate shown is the effective yield at the time of purchase. |
† | Non-income producing security. |
ADR – American Depositary Receipt
See accompanying notes, which are an integral part of the financial statements.
6
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Table of Contents
Statement of assets and liabilities
Delaware Healthcare Fund | September 30, 2017 (Unaudited) |
Assets: | ||||
Investments, at value1 | $ | 413,463,934 | ||
Short-term investments, at value2 | 793,001 | |||
Cash | 1,117 | |||
Receivable for fund shares sold | 716,116 | |||
Receivable for securities sold | 382,608 | |||
Foreign tax reclaims receivable | 290,294 | |||
Dividends and interest receivable | 136,796 | |||
|
| |||
Total assets | 415,783,866 | |||
|
| |||
Liabilities: | ||||
Payable for fund shares redeemed | 607,881 | |||
Investment management fees payable to affiliates | 282,980 | |||
Other accrued expenses | 200,388 | |||
Distribution payable | 89,191 | |||
Trustees’ fees and expenses payable | 954 | |||
Audit and tax fees payable | 17,809 | |||
Dividend disbursing and transfer agent fees and expenses payable to affiliates | 6,555 | |||
Accounting and administration expenses payable to affiliates | 1,595 | |||
Legal fees payable to affiliates | 713 | |||
Reports and statements to shareholders expenses payable to affiliates | 198 | |||
|
| |||
Total liabilities | 1,208,264 | |||
|
| |||
Total Net Assets | $ | 414,575,602 | ||
|
| |||
Net Assets Consist of: | ||||
Paid-in capital | $ | 278,942,572 | ||
Undistributed net investment income | 7,812,542 | |||
Accumulated net realized loss on investments | (4,885,106 | ) | ||
Net unrealized appreciation of investments | 132,700,929 | |||
Net unrealized appreciation of foreign currencies | 4,665 | |||
|
| |||
Total Net Assets | $ | 414,575,602 | ||
|
|
8
Table of Contents
Net Asset Value | ||||
Class A: | ||||
Net assets | $ | 176,206,794 | ||
Shares of beneficial interest outstanding, unlimited authorization, no par | 7,733,715 | |||
Net asset value per share | $ | 22.78 | ||
Sales charge | 5.75 | % | ||
Offering price per share, equal to net asset value per share / (1 – sales charge) | $ | 24.17 | ||
Class C: | ||||
Net assets | $ | 64,188,842 | ||
Shares of beneficial interest outstanding, unlimited authorization, no par | 2,955,695 | |||
Net asset value per share | $ | 21.72 | ||
Class R: | ||||
Net assets | $ | 5,413,892 | ||
Shares of beneficial interest outstanding, unlimited authorization, no par | 240,547 | |||
Net asset value per share | $ | 22.51 | ||
Institutional Class: | ||||
Net assets | $ | 168,766,074 | ||
Shares of beneficial interest outstanding, unlimited authorization, no par | 7,365,807 | |||
Net asset value per share | $ | 22.91 | ||
| ||||
1Investments, at cost | $ | 280,763,005 | ||
2Short-term investments, at cost | 793,001 |
See accompanying notes, which are an integral part of the financial statements.
9
Table of Contents
Delaware Healthcare Fund | Six months ended September 30, 2017 (Unaudited) |
Investment Income: | ||||
Dividends | $ | 3,884,890 | ||
Interest | 3,012 | |||
Foreign tax withheld | (190,180 | ) | ||
|
| |||
3,697,722 | ||||
|
| |||
Expenses: | ||||
Management fees | 1,602,291 | |||
Distribution expenses — Class A | 199,249 | |||
Distribution expenses — Class C | 302,708 | |||
Distribution expenses — Class R | 12,553 | |||
Dividend disbursing and transfer agent fees and expenses | 202,354 | |||
Custodian fees | 60,642 | |||
Accounting and administration expenses | 52,766 | |||
Registration fees | 25,498 | |||
Reports and statements to shareholders expenses | 19,896 | |||
Legal fees | 18,893 | |||
Audit and tax fees | 18,224 | |||
Trustees’ fees and expenses | 8,146 | |||
Other | 10,604 | |||
|
| |||
2,533,824 | ||||
Less expenses paid indirectly | (431 | ) | ||
|
| |||
Total operating expenses | 2,533,393 | |||
|
| |||
Net Investment Income | 1,164,329 | |||
|
|
10
Table of Contents
Net Realized and Unrealized Gain (Loss): | ||||
Net realized gain (loss) on: | ||||
Investments | $ | 2,254,428 | ||
Foreign currencies | 45,256 | |||
Foreign currency exchange contracts | (36,848 | ) | ||
|
| |||
Net realized gain | 2,262,836 | |||
|
| |||
Net change in unrealized appreciation (depreciation) of: | ||||
Investments | 61,734,593 | |||
Foreign currencies | 26,813 | |||
|
| |||
Net change in unrealized appreciation (depreciation) | 61,761,406 | |||
|
| |||
Net Realized and Unrealized Gain | 64,024,242 | |||
|
| |||
Net Increase in Net Assets Resulting from Operations | $ | 65,188,571 | ||
|
|
See accompanying notes, which are an integral part of the financial statements.
11
Table of Contents
Statements of changes in net assets
Delaware Healthcare Fund
Six months 9/30/17 | Year ended 3/31/17 | |||||||
Increase in Net Assets from Operations: | ||||||||
Net investment income | $ | 1,164,329 | $ | 3,272,406 | ||||
Net realized gain | 2,262,836 | 4,124,089 | ||||||
Net change in unrealized appreciation (depreciation) | 61,761,406 | 36,606,943 | ||||||
|
|
|
| |||||
Net increase in net assets resulting from operations | 65,188,571 | 44,003,438 | ||||||
|
|
|
| |||||
Dividends and Distributions to Shareholders from: | ||||||||
Net investment income: | ||||||||
Class A | — | (1,657,791 | ) | |||||
Class C | — | (143,682 | ) | |||||
Class R | — | (35,340 | ) | |||||
Institutional Class | — | (1,458,416 | ) | |||||
Net realized gain: | ||||||||
Class A | — | (11,453,829 | ) | |||||
Class C | — | (4,159,937 | ) | |||||
Class R | — | (330,563 | ) | |||||
Institutional Class | — | (7,952,617 | ) | |||||
|
|
|
| |||||
— | (27,192,175 | ) | ||||||
|
|
|
| |||||
Capital Share Transactions: | ||||||||
Proceeds from shares sold: | ||||||||
Class A | 13,842,952 | 42,032,234 | ||||||
Class C | 3,258,957 | 6,361,191 | ||||||
Class R | 449,956 | 2,208,625 | ||||||
Institutional Class | 22,007,390 | 65,171,457 | ||||||
Net asset value of shares issued upon reinvestment of dividends and distributions: | ||||||||
Class A | — | 12,440,137 | ||||||
Class C | — | 4,185,575 | ||||||
Class R | — | 365,901 | ||||||
Institutional Class | — | 7,777,942 | ||||||
|
|
|
| |||||
39,559,255 | 140,543,062 | |||||||
|
|
|
|
12
Table of Contents
Six months 9/30/17 | Year ended 3/31/17 | |||||||
Capital Share Transactions (continued): | ||||||||
Cost of shares redeemed: | ||||||||
Class A | $ | (19,987,084 | ) | $ | (105,286,277 | ) | ||
Class C | (7,072,774 | ) | (29,139,856 | ) | ||||
Class R | (1,056,304 | ) | (3,498,854 | ) | ||||
Institutional Class | (17,347,118 | ) | (97,469,421 | ) | ||||
|
|
|
| |||||
(45,463,280 | ) | (235,394,408 | ) | |||||
|
|
|
| |||||
Decrease in net assets derived from capital share transactions | (5,904,025 | ) | (94,851,346 | ) | ||||
|
|
|
| |||||
Net Increase (Decrease) in Net Assets | 59,284,546 | (78,040,083 | ) | |||||
Net Assets: | ||||||||
Beginning of period | 355,291,056 | 433,331,139 | ||||||
|
|
|
| |||||
End of period | $ | 414,575,602 | $ | 355,291,056 | ||||
|
|
|
| |||||
Undistributed net investment income | $ | 7,812,542 | $ | 6,648,213 | ||||
|
|
|
|
See accompanying notes, which are an integral part of the financial statements.
13
Table of Contents
Delaware Healthcare Fund Class A
Selected data for each share of the Fund outstanding throughout each period were as follows:
Net asset value, beginning of period |
Income (loss) from investment operations: |
Net investment income (loss)3 |
Net realized and unrealized gain (loss) |
Total from investment operations |
Less dividends and distributions from: |
Net investment income |
Net realized gain |
Total dividends and distributions |
Net asset value, end of period |
Total return6 |
Ratios and supplemental data: |
Net assets, end of period (000 omitted) |
Ratio of expenses to average net assets |
Ratio of expenses to average net assets prior to fees waived7 |
Ratio of net investment income (loss) to average net assets |
Ratio of net investment income (loss) to average net assets prior to fees waived7 |
Portfolio turnover
|
1 | Ratios have been annualized and total return and portfolio turnover have not been annualized. |
2 | During the period ended March 31, 2015, the Fund changed its fiscal year end from September to March. Ratios have been annualized and total return and portfolio turnover have not been annualized. |
3 | The average shares outstanding method has been applied for per share information. |
4 | Amount is less than $0.005 per share. |
5 | For the year ended Sept. 30, 2012, net investment income distributions of $7,528 were made by the Fund’s Class A shares, which calculated to a de minimis amount of $(0.002) per share. |
6 | Total investment return is based on the change in net asset value of a share during the period and assumes reinvestment of dividends and distributions at net asset value and does not reflect the impact of a sales charge. Total investment return during some of the periods shown reflects waivers by the manager and/or distributor. Performance would have been lower had the waivers not been in effect. |
7 | Expenses paid indirectly were not material, as reflected on the “Statement of operations,” and had no impact on the ratios disclosed. |
See accompanying notes, which are an integral part of the financial statements.
14
Table of Contents
Six months ended | 10/1/14 | ||||||||||||||||||||||||||||||||||||||
9/30/171 | Year ended | to | Year ended | ||||||||||||||||||||||||||||||||||||
(Unaudited) | 3/31/17 | 3/31/16 | 3/31/152 | 9/30/14 | 9/30/13 | 9/30/12 | |||||||||||||||||||||||||||||||||
$ |
19.19 |
|
$ |
18.46 |
|
$ |
20.36 |
|
$ |
20.61 |
|
$ |
17.19 |
|
$ |
11.94 |
|
$ |
10.35 |
| |||||||||||||||||||
0.07 | 0.16 | 0.05 | 0.01 | — | 4 | (0.01) | 0.06 | ||||||||||||||||||||||||||||||||
3.52 | 1.97 | (0.44) | 1.82 | 3.84 | 5.30 | 2.29 | |||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||
3.59 | 2.13 | (0.39) | 1.83 | 3.84 | 5.29 | 2.35 | |||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||
— | (0.18) | (0.17) | (0.01) | — | (0.04) | — | 5 | ||||||||||||||||||||||||||||||||
— | (1.22) | (1.34) | (2.07) | (0.42) | — | (0.76) | |||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||
— | (1.40) | (1.51) | (2.08) | (0.42) | (0.04) | (0.76) | |||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||
$ | 22.78 | $ | 19.19 | $ | 18.46 | $ | 20.36 | $ | 20.61 | $ | 17.19 | $ | 11.94 | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||
18.76% | 12.30% | (2.45%) | 9.31% | 22.68% | 44.50% | 23.96% | |||||||||||||||||||||||||||||||||
$ | 176,207 | $ | 154,687 | $ | 197,138 | $ | 218,427 | $ | 185,734 | $ | 165,780 | $ | 41,425 | ||||||||||||||||||||||||||
1.32% | 1.38% | 1.37% | 1.36% | 1.35% | 1.38% | 1.55% | |||||||||||||||||||||||||||||||||
1.32% | 1.38% | 1.37% | 1.36% | 1.35% | 1.43% | 1.63% | |||||||||||||||||||||||||||||||||
0.64% | 0.84% | 0.25% | 0.06% | 0.01% | (0.05%) | 0.52% | |||||||||||||||||||||||||||||||||
0.64% | 0.84% | 0.25% | 0.06% | 0.01% | (0.10%) | 0.44% | |||||||||||||||||||||||||||||||||
12% |
| 29%
|
| 46% | 19% | 60% | 29% | 88% |
15
Table of Contents
Financial highlights
Delaware Healthcare Fund Class C
Selected data for each share of the Fund outstanding throughout each period were as follows:
|
Net asset value, beginning of period |
Income (loss) from investment operations: |
Net investment income (loss)3 |
Net realized and unrealized gain (loss) |
Total from investment operations |
Less dividends and distributions from: |
Net investment income |
Net realized gain |
Total dividends and distributions |
Net asset value, end of period |
Total return4 |
Ratios and supplemental data: |
Net assets, end of period (000 omitted) |
Ratio of expenses to average net assets |
Ratio of expenses to average net assets prior to fees waived5 |
Ratio of net investment income (loss) to average net assets |
Ratio of net investment income (loss) to average net assets prior to fees waived5 |
Portfolio turnover
|
|
1 | Ratios have been annualized and total return and portfolio turnover have not been annualized. |
2 | During the period ended March 31, 2015, the Fund changed its fiscal year end from September to March. Ratios have been annualized and total return and portfolio turnover have not been annualized. |
3 | The average shares outstanding method has been applied for per share information. |
4 | Total investment return is based on the change in net asset value of a share during the period and assumes reinvestment of dividends and distributions at net asset value and does not reflect the impact of a sales charge. Total investment return during some of the periods shown reflects a waiver by the manager. Performance would have been lower had the waiver not been in effect. |
5 | Expenses paid indirectly were not material, as reflected on the “Statement of operations,” and had no impact on the ratios disclosed. |
See accompanying notes, which are an integral part of the financial statements.
16 |
Table of Contents
Six months ended | 10/1/14 | ||||||||||||||||||||||||||||||||||||||||||||||||
9/30/171 | Year ended | to | Year ended | ||||||||||||||||||||||||||||||||||||||||||||||
(Unaudited) | 3/31/17 | 3/31/16 | 3/31/152 | 9/30/14 | 9/30/13 | 9/30/12 | |||||||||||||||||||||||||||||||||||||||||||
$ |
18.36 |
|
$ |
17.72 |
|
$ |
19.60 |
|
$ |
19.97 |
|
$ |
16.80 |
|
$ |
11.71 |
|
$ |
10.24 |
| |||||||||||||||||||||||||||||
(0.01 | ) | 0.02 | (0.10 | ) | (0.07 | ) | (0.14 | ) | (0.12 | ) | (0.03 | ) | |||||||||||||||||||||||||||||||||||||
3.37 | 1.88 | (0.42 | ) | 1.77 | 3.73 | 5.21 | 2.26 | ||||||||||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||||||||||||
3.36 | 1.90 | (0.52 | ) | 1.70 | 3.59 | 5.09 | 2.23 | ||||||||||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||||||||||||
— | (0.04 | ) | (0.02 | ) | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||
— | (1.22 | ) | (1.34 | ) | (2.07 | ) | (0.42 | ) | — | (0.76 | ) | ||||||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||||||||||||
— | (1.26 | ) | (1.36 | ) | (2.07 | ) | (0.42 | ) | — | (0.76 | ) | ||||||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||||||||||||
$ | 21.72 | $ | 18.36 | $ | 17.72 | $ | 19.60 | $ | 19.97 | $ | 16.80 | $ | 11.71 | ||||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||||||||||||
18.30% | 11.45% | (3.17% | ) | 8.92% | 21.77% | 43.47% | 22.96% | ||||||||||||||||||||||||||||||||||||||||||
$ | 64,189 | $ | 57,814 | $ | 73,715 | $ | 76,558 | $ | 62,398 | $ | 28,557 | $ | 5,446 | ||||||||||||||||||||||||||||||||||||
2.07% | 2.13% | 2.12% | 2.11% | 2.10% | 2.13% | 2.30% | |||||||||||||||||||||||||||||||||||||||||||
2.07% | 2.13% | 2.12% | 2.11% | 2.10% | 2.13% | 2.33% | |||||||||||||||||||||||||||||||||||||||||||
(0.11% | ) | 0.09% | (0.50% | ) | (0.69% | ) | (0.74% | ) | (0.80% | ) | (0.23% | ) | |||||||||||||||||||||||||||||||||||||
(0.11% | ) | 0.09% | (0.50% | ) | (0.69% | ) | (0.74% | ) | (0.80% | ) | (0.26% | ) | |||||||||||||||||||||||||||||||||||||
| 12%
|
|
| 29%
|
|
| 46%
|
|
| 19%
|
|
| 60%
|
|
| 29%
|
|
| 88%
|
|
17 |
Table of Contents
Financial highlights
Delaware Healthcare Fund Class R
Selected data for each share of the Fund outstanding throughout each period were as follows:
|
Net asset value, beginning of period |
Income (loss) from investment operations: |
Net investment income (loss)3 |
Net realized and unrealized gain (loss) |
Total from investment operations |
Less dividends and distributions from: |
Net investment income |
Net realized gain |
Total dividends and distributions |
Net asset value, end of period |
Total return5 |
Ratios and supplemental data: |
Net assets, end of period (000 omitted) |
Ratio of expenses to average net assets |
Ratio of expenses to average net assets prior to fees waived6 |
Ratio of net investment income (loss) to average net assets |
Ratio of net investment income (loss) to average net assets prior to fees waived6 |
Portfolio turnover
|
|
1 | Ratios have been annualized and total return and portfolio turnover have not been annualized. |
2 | During the period ended March 31, 2015, the Fund changed its fiscal year end from September to March. Ratios have been annualized and total return and portfolio turnover have not been annualized. |
3 | The average shares outstanding method has been applied for per share information. |
4 | Amount is less than $0.005 per share. |
5 | 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 during some of the periods shown reflects waivers by the manager and/or distributor. Performance would have been lower had the waivers not been in effect. |
6 | Expenses paid indirectly were not material, as reflected on the “Statement of operations,” and had no impact on the ratios disclosed. |
See accompanying notes, which are an integral part of the financial statements.
18 |
Table of Contents
Six months ended | 10/1/14 | ||||||||||||||||||||||||||||||||||||||||||||||||
9/30/171 | Year ended | to | Year ended | ||||||||||||||||||||||||||||||||||||||||||||||
(Unaudited) | 3/31/17 | 3/31/16 | 3/31/152 | 9/30/14 | 9/30/13 | 9/30/12 | |||||||||||||||||||||||||||||||||||||||||||
$ |
18.98 |
|
$ |
18.27 |
|
$ |
20.17 |
|
$ |
20.45 |
|
$ |
17.10 |
|
$ |
11.87 |
|
$ |
10.32 |
| |||||||||||||||||||||||||||||
0.04 | 0.11 | — | 4 | (0.02 | ) | (0.05 | ) | (0.04 | ) | 0.03 | |||||||||||||||||||||||||||||||||||||||
3.49 | 1.95 | (0.44 | ) | 1.81 | 3.82 | 5.28 | 2.28 | ||||||||||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||||||||||||
3.53 | 2.06 | (0.44 | ) | 1.79 | 3.77 | 5.24 | 2.31 | ||||||||||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||||||||||||
— | (0.13 | ) | (0.12 | ) | — | — | (0.01 | ) | — | ||||||||||||||||||||||||||||||||||||||||
— | (1.22 | ) | (1.34 | ) | (2.07 | ) | (0.42 | ) | — | (0.76 | ) | ||||||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||||||||||||
— | (1.35 | ) | (1.46 | ) | (2.07 | ) | (0.42 | ) | (0.01 | ) | (0.76 | ) | |||||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||||||||||||
$ | 22.51 | $ | 18.98 | $ | 18.27 | $ | 20.17 | $ | 20.45 | $ | 17.10 | $ | 11.87 | ||||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||||||||||||
18.60% | 12.03% | (2.71% | ) | 9.17% | 22.46% | 44.15% | 23.60% | ||||||||||||||||||||||||||||||||||||||||||
$ | 5,414 | $ | 5,169 | $ | 5,878 | $ | 5,713 | $ | 4,506 | $ | 2,360 | $ | 773 | ||||||||||||||||||||||||||||||||||||
1.57% | 1.63% | 1.62% | 1.61% | 1.60% | 1.63% | 1.80% | |||||||||||||||||||||||||||||||||||||||||||
1.57% | 1.63% | 1.62% | 1.61% | 1.60% | 1.73% | 1.93% | |||||||||||||||||||||||||||||||||||||||||||
0.39% | 0.59% | 0.00% | (0.19% | ) | (0.24% | ) | (0.30% | ) | 0.27% | ||||||||||||||||||||||||||||||||||||||||
0.39% | 0.59% | 0.00% | (0.19% | ) | (0.24% | ) | (0.40% | ) | 0.14% | ||||||||||||||||||||||||||||||||||||||||
| 12%
|
|
| 29%
|
|
| 46%
|
|
| 19%
|
|
| 60%
|
|
| 29%
|
|
| 88%
|
|
19 |
Table of Contents
Financial highlights
Delaware Healthcare Fund Institutional Class
Selected data for each share of the Fund outstanding throughout each period were as follows:
|
Net asset value, beginning of period |
Income (loss) from investment operations: |
Net investment income3 |
Net realized and unrealized gain (loss) |
Total from investment operations |
Less dividends and distributions from: |
Net investment income |
Net realized gain |
Total dividends and distributions |
Net asset value, end of period |
Total return4 |
Ratios and supplemental data: |
Net assets, end of period (000 omitted) |
Ratio of expenses to average net assets |
Ratio of expenses to average net assets prior to fees waived5 |
Ratio of net investment income to average net assets |
Ratio of net investment income to average net assets prior to fees waived5 |
Portfolio turnover
|
1 | Ratios have been annualized and total return and portfolio turnover have not been annualized. |
2 | During the period ended March 31, 2015, the Fund changed its fiscal year end from September to March. Ratios have been annualized and total return and portfolio turnover have not been annualized. |
3 | The average shares outstanding method has been applied for per share information. |
4 | Total investment return is based on the change in net asset value of a share during the period and assumes reinvestment of dividends and distributions at net asset value. Total investment return during some of the periods shown reflects a waiver by the manager. Performance would have been lower had the waiver not been in effect. |
5 | Expenses paid indirectly were not material, as reflected on the “Statement of operations,” and had no impact on the ratios disclosed. |
See accompanying notes, which are an integral part of the financial statements.
20
Table of Contents
Six months ended | 10/1/14 | ||||||||||||||||||||||||||||||||||||||||||||||||
9/30/171 | Year ended | to | Year ended | ||||||||||||||||||||||||||||||||||||||||||||||
(Unaudited) | 3/31/17 | 3/31/16 | 3/31/152 | 9/30/14 | 9/30/13 | 9/30/12 | |||||||||||||||||||||||||||||||||||||||||||
$ |
19.28 |
|
$ |
18.53 |
|
$ |
20.44 |
|
$ |
20.70 |
|
$ |
17.23 |
|
$ |
11.96 |
|
$ |
10.37 |
| |||||||||||||||||||||||||||||
0.09 | 0.21 | 0.10 | 0.03 | 0.05 | 0.03 | 0.09 | |||||||||||||||||||||||||||||||||||||||||||
3.54 | 1.98 | (0.45 | ) | 1.84 | 3.84 | 5.31 | 2.29 | ||||||||||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||||||||||||
3.63 | 2.19 | (0.35 | ) | 1.87 | 3.89 | 5.34 | 2.38 | ||||||||||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||||||||||||
— | (0.22 | ) | (0.22 | ) | (0.06 | ) | — | (0.07 | ) | (0.03 | ) | ||||||||||||||||||||||||||||||||||||||
— | (1.22 | ) | (1.34 | ) | (2.07 | ) | (0.42 | ) | — | (0.76 | ) | ||||||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||||||||||||
— | (1.44 | ) | (1.56 | ) | (2.13 | ) | (0.42 | ) | (0.07 | ) | (0.79 | ) | |||||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||||||||||||
$ | 22.91 | $ | 19.28 | $ | 18.53 | $ | 20.44 | $ | 20.70 | $ | 17.23 | $ | 11.96 | ||||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||||||||||||
18.89% | 12.53% | (2.20% | ) | 9.49% | 23.00% | 44.86% | 24.26% | ||||||||||||||||||||||||||||||||||||||||||
$ | 168,766 | $ | 137,621 | $ | 156,600 | $ | 179,357 | $ | 186,791 | $ | 85,535 | $ | 8,566 | ||||||||||||||||||||||||||||||||||||
1.07% | 1.13% | 1.12% | 1.11% | 1.10% | 1.13% | 1.30% | |||||||||||||||||||||||||||||||||||||||||||
1.07% | 1.13% | 1.12% | 1.11% | 1.10% | 1.13% | 1.33% | |||||||||||||||||||||||||||||||||||||||||||
0.89% | 1.09% | 0.50% | 0.31% | 0.26% | 0.20% | 0.77% | |||||||||||||||||||||||||||||||||||||||||||
0.89% | 1.09% | 0.50% | 0.31% | 0.26% | 0.20% | 0.74% | |||||||||||||||||||||||||||||||||||||||||||
| 12%
|
|
| 29%
|
|
| 46%
|
|
| 19%
|
|
| 60%
|
|
| 29%
|
|
| 88%
|
|
21
Table of Contents
Notes to financial statements | ||
Delaware Healthcare Fund | September 30, 2017 (Unaudited) |
Delaware Group® Equity Funds IV (Trust) is organized as a Delaware statutory trust and offers three series: Delaware Healthcare Fund, Delaware Smid Cap Growth Fund, and Delaware Small Cap Growth Fund. These financial statements and the related notes pertain to Delaware Healthcare Fund (Fund). The Trust is an open-end investment company. The Fund is considered non-diversified under the Investment Company Act of 1940, as amended, and offers Class A, Class C, Class R, and Institutional Class shares. Class A shares are sold with a maximum front-end sales charge of 5.75%. Class A share purchases of $1,000,000 or more will incur a contingent deferred sales charge (CDSC) instead of a front-end sales charge of 1.00% if redeemed during the first year, and 0.50% during the second year, provided that Delaware Distributors, L.P. (DDLP) paid a financial advisor a commission on the purchase of those shares. Class C shares are sold with a CDSC of 1.00%, if redeemed during the first 12 months. Class R and Institutional Class shares are not subject to a sales charge and are offered for sale exclusively to certain eligible investors.
The investment objective of the Fund is to seek maximum long-term capital growth through capital appreciation.
1. Significant Accounting Policies
The following accounting policies are in accordance with US generally accepted accounting principles (US GAAP) and are consistently followed by the Fund.
Security Valuation — Equity securities, except those traded on the Nasdaq Stock Market LLC (Nasdaq), are valued at the last quoted sales price as of the time of the regular close of the New York Stock Exchange on the valuation date. Equity 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, the mean between the bid and ask prices will be used, which approximates fair value. Equity securities listed on a foreign exchange are normally valued at the last quoted sales price on the valuation date. US government and agency securities are valued at the mean between the bid and ask prices, which approximates fair value. Foreign currency exchange contracts are valued at the mean between the bid and ask prices, which approximates fair value. Interpolated values are derived when the settlement date of the contract is an interim date for which quotations are not available. Generally, other securities and assets for which market quotations are not readily available are valued at fair value as determined in good faith under the direction of the Trust’s Board of Trustees (Board). In determining whether market quotations are readily available or fair valuation will be used, various factors will be taken into consideration, such as market closures or suspension of trading in a security. The Fund may use fair value pricing more frequently for securities traded primarily in non-US markets because, among other things, most foreign markets close well before the Fund values its securities, generally as of 4:00pm Eastern time. The earlier close of these foreign markets gives rise to the possibility that significant events, including broad market moves, government actions or pronouncements, aftermarket trading, or news events may have occurred in the interim. Whenever such a significant event occurs, the Fund may value foreign securities using fair value prices based on third-party vendor modeling tools (international fair value pricing). The foregoing valuation policies apply to restricted and unrestricted securities.
Federal and Foreign Income Taxes — No provision for federal income taxes has been made as the Fund intends to continue to qualify for federal income tax purposes as a regulated investment company
22 |
Table of Contents
under Subchapter M of the Internal Revenue Code of 1986, as amended, and make the requisite distributions to shareholders. The Fund evaluates tax positions taken or expected to be taken in the course of preparing the Fund’s tax returns to determine whether the tax positions are “more-likely-than-not” of being sustained by the applicable tax authority. Tax positions not deemed to meet the “more-likely-than-not” threshold are recorded as a tax benefit or expense in the current year. Management has analyzed the Fund’s tax positions taken or to be taken on the Fund’s federal income tax returns through the six months ended Sept. 30, 2017 and for all open tax years (years ended Sept. 30, 2013–March 31, 2017), and has concluded that no provision for federal income tax is required in the Fund’s financial statements. If applicable, the Fund recognizes interest accrued on unrecognized tax benefits in interest expense and penalties in other expenses on the “Statement of operations.” During the six months ended Sept. 30, 2017, the Fund did not incur any interest or tax penalties. In regard to foreign taxes only, the Fund has open tax years in certain foreign countries in which it invests that may date back to the inception of the Fund.
Class Accounting — Investment income, common expenses, and realized and unrealized gain (loss) on investments are allocated to the various classes of the Fund 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 Fund may purchase certain US government securities subject to the counterparty’s agreement to repurchase them at an agreed upon date and price. The counterparty will be required on a daily basis to maintain the value of the collateral subject to the agreement at not less than the repurchase price (including accrued interest). The agreements are conditioned upon the collateral being deposited under the Federal Reserve book-entry system with the Fund’s custodian or a third-party sub-custodian. In the event of default or bankruptcy by the other party to the agreement, retention of the collateral may be subject to legal proceedings. All open repurchase agreements as of the date of this report were entered into on Sept. 29, 2017 and will mature on the next business day.
Foreign Currency Transactions — Transactions denominated in foreign currencies are recorded at the prevailing exchange rates on the valuation date in accordance with the Fund’s prospectus. The value of all assets and liabilities denominated in foreign currencies is translated daily into US dollars at the exchange rate of such currencies against the US dollar. 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 Fund generally does not bifurcate that portion of realized gains and losses on investments which is due to changes in foreign exchange rates from that which is due to changes in market prices. These gains and losses are included on the “Statement of operations” under “Net realized and unrealized gain (loss) on investments.” The Fund reports certain foreign currency related transactions as components of realized gains (losses) for financial reporting purposes, whereas such components are treated as ordinary income (loss) for federal income tax purposes.
Use of Estimates — The Fund is an investment company, whose financial statements are prepared in conformity with US GAAP. Therefore, the Fund follows the accounting and reporting guidelines for investment companies. The preparation of financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the fair value of investments, the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the
23 |
Table of Contents
Notes to financial statements | ||
Delaware Healthcare Fund |
1. Significant Accounting Policies (continued)
financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates and the differences could be material.
Other — Expenses directly attributable to the Fund are charged directly to the Fund. Other expenses common to various funds within the Delaware FundsSM by Macquarie (Delaware Funds) are generally allocated among such funds on the basis of average net assets. Management fees and certain 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 Fund is aware of such dividends, net of all tax withholdings, a portion of which may be reclaimable. Withholding taxes and reclaims on foreign dividends have been recorded in accordance with the Fund’s understanding of the applicable country’s tax rules and rates. The Fund declares and pays dividends from net investment income and distributions from net realized gain on investments, if any, annually. The Fund may distribute more frequently, if necessary for tax purposes. Dividends and distributions, if any, are recorded on the ex-dividend date.
The Fund may receive earnings credits from its custodian when positive cash balances are maintained, which may be used to offset custody fees. There were no such earnings credits for the six months ended Sept. 30, 2017.
The Fund receives earnings credits from its transfer agent when positive cash balances are maintained, which may be used to offset transfer agent fees. If the amount earned is greater than $1, the expense paid under this arrangement is included on the “Statement of operations” under “Dividend disbursing and transfer agent fees and expenses” with the corresponding expense offset shown under “Less expense paid indirectly.” For the six months ended Sept. 30, 2017, the Fund earned $431 under this agreement.
2. Investment Management, Administration Agreements and Other Transactions with Affiliates
In accordance with the terms of its investment management agreement, the Fund pays Delaware Management Company (DMC), a series of Macquarie Investment Management Business Trust (formerly, Delaware Management Business Trust) and the investment manager, an annual fee which is calculated daily and paid monthly at the rate of 0.85% on the first $500 million of the average daily net assets of the Fund; 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.
Delaware Investments Fund Services Company (DIFSC), an affiliate of DMC, provides fund accounting and financial administration oversight services to the Fund. For these services, DIFSC’s fees were calculated daily and paid monthly based on the aggregate daily net assets of the Delaware Funds from April 1, 2017 through Aug. 31, 2017 at the following annual rate: 0.0050% of the first $30 billion; 0.0045% of the next $10 billion; 0.0040% of the next $10 billion; and 0.0025% of aggregate average daily net assets in excess of $50 billion. The fees payable to DIFSC under the service agreement described above were allocated among all funds in the Delaware Funds on a relative net asset value
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(NAV) basis. Effective Sept. 1, 2017, the Fund entered into an amendment to the DIFSC agreement. Under the amendment to the DIFSC agreement, DIFSC’s fees are calculated daily and paid monthly based on the aggregate daily net assets of the Delaware Funds at the following annual rate: 0.00475% of the first $35 billion; 0.0040% of the next $10 billion; and 0.0025% of aggregate average daily net assets in excess of $45 billion (Total Fee). Each Fund in the Delaware Funds pays a minimum of $4,000, which, in aggregate, is subtracted from the Total Fee. Each Fund in the Delaware Funds then pays its relative portion of the remainder of the Total Fee on a relative NAV basis. For the six months ended Sept. 30, 2017, the Fund was charged $8,768 for these services. This amount is included on the “Statement of operations” under “Accounting and administration expenses.”
DIFSC is also the transfer agent and dividend disbursing agent of the Fund. For these services, DIFSC’s fees are calculated daily and paid monthly based on the aggregate daily net assets of the retail funds within the Delaware Funds at the following annual rate: 0.025% of the first $20 billion; 0.020% of the next $5 billion; 0.015% of the next $5 billion; and 0.013% of average daily net assets in excess of $30 billion. The fees payable to DIFSC under the service agreement described above are allocated among all retail funds in the Delaware Funds on a relative NAV basis. This amount is included on the “Statement of operations” under “Dividend disbursing and transfer agent fees and expenses.” For the six months ended Sept. 30, 2017, the Fund was charged $37,368 for these services. Pursuant to a sub-transfer agency agreement between DIFSC and BNY Mellon Investment Servicing (US) Inc. (BNYMIS), BNYMIS provides certain sub-transfer agency services to the Fund. Sub-transfer agency fees are paid by the Fund and are also included on the “Statement of operations” under “Dividend disbursing and transfer agent fees and expenses.”
Pursuant to a distribution agreement and distribution plan, the Fund pays DDLP, the distributor and an affiliate of DMC, an annual distribution and service (12b-1) fee of 0.25% of the average daily net assets of the Class A shares, 1.00% of the average daily net assets of the Class C shares, and 0.50% of the average daily net assets of the Class R shares. The fees are calculated daily and paid monthly. Institutional Class shares pay no 12b-1 fees.
As provided in the investment management agreement, the Fund bears a portion of the cost of certain resources shared with DMC, including the cost of internal personnel of DMC and/or its affiliates that provide legal, tax, and regulatory reporting services to the Fund. For the six months ended Sept. 30, 2017, the Fund was charged $4,256 for internal legal, tax, and regulatory reporting services provided by DMC and/or its affiliates’ employees. This amount is included on the “Statement of operations” under “Legal fees.”
For the six months ended Sept. 30, 2017, DDLP earned $30,424 for commissions on sales of the Fund’s Class A shares. For the six months ended Sept. 30, 2017, DDLP received gross CDSC commissions of $500 and $2,151 on redemptions of the Fund’s Class A and Class C shares, respectively, and these commissions were entirely used to offset upfront commissions previously paid by DDLP to broker/dealers on sales of those shares.
Trustees’ fees include expenses accrued by the Fund for each Trustee’s retainer and meeting fees. Certain officers of DMC, DIFSC, and DDLP are officers and/or Trustees of the Trust. These officers and Trustees are paid no compensation by the Fund.
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Notes to financial statements | ||
Delaware Healthcare Fund |
3. Investments
For the six months ended Sept. 30, 2017, the Fund made purchases and sales of investment securities other than short-term investments as follows:
Purchases | $ | 45,341,469 | ||
Sales | 59,608,253 |
At Sept. 30, 2017, the cost of investments for federal income tax purposes has been estimated since final tax characteristics cannot be determined until fiscal year end. At Sept. 30, 2017, the cost and unrealized appreciation (depreciation) of investments for the Fund were as follows:
Cost of investments | $ | 281,556,006 | ||
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Aggregate unrealized appreciation of investments | $ | 142,778,708 | ||
Aggregate unrealized depreciation of investments | (10,077,779 | ) | ||
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Net unrealized appreciation of investments | $ | 132,700,929 | ||
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Under the Regulated Investment Company Modernization Act of 2010 (Act), net capital losses recognized for tax years beginning after Dec. 22, 2010 may be carried forward indefinitely, and their character is retained as short-term and/or long-term losses. Capital loss carryforwards available to offset future realized capital gains as of March 31, 2017 were as follows:
Loss carryforward character | ||||||||||
Short-term | Long-term | Total | ||||||||
$ | 2,720,768 | $ | 2,944,140 | $ | 5,664,908 |
US GAAP defines fair value as the price that the Fund would receive to sell an asset or pay to transfer a liability in an orderly transaction between market participants at the measurement date under current market conditions. A three-level hierarchy for fair value measurements has been established based upon the transparency of inputs to the valuation of an asset or liability. Inputs may be observable or unobservable and refer broadly to the assumptions that market participants would use in pricing the asset or liability. Observable inputs reflect the assumptions market participants would use in pricing the asset or liability based on market data obtained from sources independent of the reporting entity. Unobservable inputs reflect the reporting entity’s own assumptions about the assumptions that market participants would use in pricing the asset or liability based on the best information available under the circumstances. The Fund’s investment in its entirety is assigned a level based upon the observability of the inputs which are significant to the overall valuation. The three-level hierarchy of inputs is summarized below and on the next page.
Level 1 – | Inputs are quoted prices in active markets for identical investments. (Examples: equity securities, open-end investment companies, futures contracts, exchange-traded options contracts) | |
Level 2 – | Other observable inputs, including, but not limited to: quoted prices for similar assets or liabilities in markets that are active, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the assets or liabilities (such as interest rates, yield curves, volatilities, prepayment speeds, loss severities, credit risks, and default rates) or other market-corroborated inputs. (Examples: debt securities, |
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government securities, swap contracts, foreign currency exchange contracts, foreign securities utilizing international fair value pricing, broker-quoted securities, fair valued securities) | ||
Level 3 – | Significant unobservable inputs, including the Fund’s own assumptions used to determine the fair value of investments. (Examples: broker-quoted securities, fair valued securities) |
Level 3 investments are valued using significant unobservable inputs. The Fund may also use an income-based valuation approach in which the anticipated future cash flows of the investment are discounted to calculate fair value. Discounts may also be applied due to the nature or duration of any restrictions on the disposition of the investments. Valuations may also be based upon current market prices of securities that are comparable in coupon, rating, maturity, and industry. The derived value of a Level 3 investment may not represent the value which is received upon disposition and this could impact the results of operations.
The following table summarizes the valuation of the Fund’s investments by fair value hierarchy levels as of Sept. 30, 2017:
Securities | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
Assets: | ||||||||||||||||
Common Stock | ||||||||||||||||
Biotechnology | $ | 91,004,114 | $ | — | $ | — | $ | 91,004,114 | ||||||||
Blue Chip Medical Products | 141,388,320 | 60,672,772 | — | 202,061,092 | ||||||||||||
Healthcare Services | 33,091,290 | — | — | 33,091,290 | ||||||||||||
Other | 31,238,187 | — | 444,000 | 31,682,187 | ||||||||||||
Small- / Mid-Cap Medical Products | 22,033,552 | 33,545,799 | — | 55,579,351 | ||||||||||||
Rights | — | — | 45,900 | 45,900 | ||||||||||||
Short-Term Investments | — | 793,001 | — | 793,001 | ||||||||||||
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Total Value of Securities | $ | 318,755,463 | $ | 95,011,572 | $ | 489,900 | $ | 414,256,935 | ||||||||
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During the six months ended Sept. 30, 2017, there were no transfers between Level 1 investments, Level 2 investments, or Level 3 investments that had a significant impact to the Fund. This does not include transfers between Level 1 investments and Level 2 investments due to the Fund utilizing international fair value pricing during the period. In accordance with the fair valuation procedures described in Note 1, international fair value pricing of securities in the Fund occurs when market volatility exceeds an established rolling threshold. If the threshold is exceeded on a given date, then prices of international securities (those that traded on exchanges that close at a different time than the time that the Fund’s NAV is determined) are established using a separate pricing feed from a third-party vendor designed to establish a price for each such security as of the time that the Fund’s NAV is determined. Further, international fair value pricing uses other observable market-based inputs in place of the closing exchange price due to the events occurring after the close of the exchange or market on which the investment is principally traded, causing a change in classification between levels. The Fund’s policy is to recognize transfers between levels based on fair value at the beginning of the reporting period.
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Notes to financial statements | ||
Delaware Healthcare Fund |
3. Investments (continued)
A reconciliation of Level 3 investments is presented when the Fund has a significant amount of Level 3 investments at the beginning, interim, or end of the period in relation to net assets. Management has determined not to provide a reconciliation of Level 3 investments as they are not considered significant to the Fund’s net assets at the beginning, interim, or end of the period. Management has determined not to provide additional disclosure on level 3 inputs since the Level 3 investments are not considered significant to the Fund’s net assets at the end of the six months.
4. Capital Shares
Transactions in capital shares were as follows:
Six months | Year | |||||||||
ended | ended | |||||||||
9/30/17
| 3/31/17
| |||||||||
Shares sold: | ||||||||||
Class A | 659,563 | 2,199,283 | ||||||||
Class C | 166,010 | 349,840 | ||||||||
Class R | 22,014 | 117,210 | ||||||||
Institutional Class | 1,069,127 | 3,416,806 | ||||||||
Shares issued upon reinvestment of dividends and distributions: | ||||||||||
Class A | — | 711,678 | ||||||||
Class C | — | 249,736 | ||||||||
Class R | — | 21,150 | ||||||||
Institutional Class | — | 443,440 | ||||||||
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1,916,714 | 7,509,143 | |||||||||
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Shares redeemed: | ||||||||||
Class A | (984,925 | ) | (5,531,937 | ) | ||||||
Class C | (358,543 | ) | (1,611,866 | ) | ||||||
Class R | (53,756 | ) | (187,807 | ) | ||||||
Institutional Class | (842,102 | ) | (5,170,818 | ) | ||||||
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(2,239,326 | ) | (12,502,428 | ) | |||||||
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Net decrease | (322,612 | ) | (4,993,285 | ) | ||||||
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Certain shareholders may exchange shares of one class for shares of another class in the same Fund. For the six months ended Sept. 30, 2017, and year ended March 31, 2017, the Fund had the
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following exchange transactions. These exchange transactions are included as subscriptions and redemptions in the table above and the “Statements of changes in net assets.”
Exchange Redemptions | Exchange Subscriptions | |||||||||||||||||||
Institutional | ||||||||||||||||||||
Class A | Class C | Class A | Class | |||||||||||||||||
Shares | Shares | Shares | Shares | Value | ||||||||||||||||
Six months ended 9/30/17 | 27,151 | 2,858 | 1,104 | 28,636 | $ | 604,994 | ||||||||||||||
Year ended 3/31/17 | 1,229,949 | 9,919 | — | 1,234,733 | 23,318,652 |
5. Line of Credit
The Fund, along with certain other funds in the Delaware Funds (Participants), was a participant in a $155,000,000 revolving line of credit intended to be used for temporary or emergency purposes as an additional source of liquidity to fund redemptions of investor shares. Under the agreement, the Participants were charged an annual commitment fee of 0.15%, which was allocated across the Participants on the basis of relative net assets of each Participant’s allocation of the entire facility. The Participants were permitted to borrow up to a maximum of one-third of their net assets under the agreement. Each Participant was individually, and not jointly, liable for its particular advances, if any, under the line of credit. The line of credit available under the agreement expired on Nov. 6, 2017.
The Fund had no amounts outstanding as of Sept. 30, 2017, or at any time during the period then ended.
6. Derivatives
US GAAP requires disclosures that enable investors to understand: (1) how and why an entity uses derivatives; (2) how they are accounted for; and (3) how they affect an entity’s results of operations and financial position.
Foreign Currency Exchange Contracts — The Fund may enter into foreign currency exchange contracts as a way of managing foreign exchange rate risk. The Fund may enter into these contracts to fix the US 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 Fund may also use these contracts to hedge the US dollar value of securities it already owns that are denominated in foreign currencies. In addition, the Fund may enter into these contracts to facilitate or expedite the settlement of portfolio transactions. The change in value is recorded as an unrealized gain or loss. When the contract is closed, a realized gain or loss is recorded equal to the difference between the value of the contract at the time it was opened and the value at the time it was closed.
The use of foreign currency exchange contracts does not eliminate fluctuations in the underlying prices of the securities, but does establish a rate of exchange that can be achieved in the future. Although foreign currency exchange contracts limit the risk of loss due to an unfavorable change in the value of the hedged currency, they also limit any potential gain that might result should the value of the currency change favorably. In addition, the Fund could be exposed to risks if the counterparties to the contracts are unable to meet the terms of their contracts. The Fund’s maximum risk of loss from counterparty
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Notes to financial statements | ||
Delaware Healthcare Fund |
6. Derivatives (continued)
credit risk is the value of its currency exchanged with the counterparty. The risk is generally mitigated by having a netting arrangement between the Fund and the counterparty and by the posting of collateral by the counterparty to the Fund to cover the Fund’s exposure to the counterparty.
During the six months ended Sept. 30, 2017, the Fund used foreign currency exchange contracts to facilitate or expedite the settlement of portfolio transactions.
During the six months ended Sept. 30, 2017, the Fund experienced net realized gains or losses attributable to foreign currency holdings, which are disclosed as “Net realized gain (loss) on foreign currency exchange contracts” on the “Statement of operations.”
Derivatives Generally. The table below summarizes the average balance of derivative holdings by the Fund during the six months ended Sept. 30, 2017.
Long Derivative | Short Derivative | |||||||||||||||
Volume | Volume | |||||||||||||||
Foreign currency exchange contracts | USD | 77,292 | USD | 42,698 |
7. Offsetting
The Fund entered into an International Swaps and Derivatives Association, Inc. Master Agreement (ISDA Master Agreement) or a similar agreement with certain of its derivative contract counterparties in order to better define its contractual rights and to secure rights that will help the Fund mitigate its counterparty risk. An ISDA Master Agreement is a bilateral agreement between the Fund and a counterparty that governs over-the-counter (OTC) derivatives and foreign exchange contracts and typically contains, among other things, collateral posting items and netting provisions in the event of a default and/or termination event. Under an ISDA Master Agreement, the Fund may, under certain circumstances, offset with the counterparty certain derivative financial instruments’ payables and/or receivables with collateral held and/or posted and create one single net payment. The provisions of the ISDA Master Agreement typically permit a single net payment in the event of default (close-out), including the bankruptcy or insolvency of the counterparty. However, bankruptcy or insolvency laws of a particular jurisdiction may impose restrictions on or prohibitions against the right of offset in bankruptcy, insolvency, or other events.
For financial reporting purposes, the Fund does not offset derivative assets and derivative liabilities that are subject to netting arrangements on the “Statement of assets and liabilities.”
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At Sept. 30, 2017, the Fund had the following assets and liabilities subject to offsetting provisions:
Master Repurchase Agreements
Counterparty | Repurchase Agreements | Fair Value of Non-Cash Collateral Received(a) | Cash Collateral Received | Net Collateral Received | Net Exposure(b) | ||||||||||||||||||||
Bank of America Merrill Lynch | $ | 135,859 | $ | (135,859) | $ | — | $ | (135,859) | $ | — | |||||||||||||||
Bank of Montreal | 339,647 | (339,647) | — | (339,647) | — | ||||||||||||||||||||
BNP Paribas | 297,117 | (297,117) | — | (297,117) | — | ||||||||||||||||||||
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Total | $ | 772,623 | $ | (772,623) | $ | — | $ | (772,623) | $ | — | |||||||||||||||
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(a)The value of the related collateral received exceeded the value of the repurchase agreements as of Sept. 30, 2017.
(b)Net exposure represents the receivable (payable) that would be due from (to) the counterparty in the event of default.
8. Securities Lending
The Fund, along with other funds in the Delaware Funds, may lend its securities pursuant to a security lending agreement (Lending Agreement) with The Bank of New York Mellon (BNY Mellon). At the time a security is loaned, the borrower must post collateral equal to the required percentage of the market value of the loaned security, including any accrued interest. The required percentage is: (1) 102% with respect to US securities and foreign securities that are denominated and payable in US dollars; and (2) 105% with respect to foreign securities. With respect to each loan, if on any business day the aggregate market value of securities collateral plus cash collateral held 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 by the end of the following business day, which, together with the collateral already held, will be not less than the applicable initial collateral requirements for such security loan. If the aggregate market value of securities collateral and cash collateral held with respect to a security loan exceeds the applicable initial collateral requirement, upon request of the borrower, BNY Mellon must return enough collateral to the borrower by the end of the following business day to reduce the value of the remaining collateral to the applicable initial collateral requirement for such security loan. As a result of the foregoing, the value of the collateral held with respect to a loaned security on any particular day may be more or less than the value of the security on loan.
Cash collateral received by each fund of the Trust is generally invested in a series of individual separate accounts, each corresponding to a fund. The investment guidelines permit each separate account to hold certain securities that would be considered eligible securities for a money market fund. Cash collateral received is generally invested in government securities; certain obligations issued by government sponsored enterprises; repurchase agreements collateralized by US Treasury securities; obligations issued by the central government of any Organization for Economic Cooperation and Development (OECD) country or its agencies, instrumentalities or establishments; obligations of supranational organizations, commercial paper, notes, bonds and other debt obligations; certificates of deposit, time deposits, and other bank obligations; and asset-backed securities. A Fund can also accept US government securities and letters of credit (non-cash collateral) in connection with securities loans.
In the event of default or bankruptcy by the lending agent, realization and/or retention of the collateral may be subject to legal proceedings. In the event the borrower fails to return loaned securities and the collateral received is insufficient to cover the value of the loaned securities and provided such collateral
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Notes to financial statements | ||
Delaware Healthcare Fund |
8. Securities Lending (continued)
shortfall is not the result of investment losses, the lending agent has agreed to pay the amount of the shortfall to the Fund or, at the discretion of the lending agent, replace the loaned securities. The Fund continues to record dividends or interest, as applicable, on the securities loaned and is subject to changes in value of the securities loaned that may occur during the term of the loan. The Fund has the right under the Lending Agreement to recover the securities from the borrower on demand. With respect to security loans collateralized by non-cash collateral, the Fund receives loan premiums paid by the borrower. With respect to security loans collateralized by cash collateral, the earnings from the collateral investments are shared among the Fund, the security lending agent, and the borrower. The Fund records security lending income net of allocations to the security lending agent and the borrower.
The Fund may incur investment losses as a result of investing securities lending collateral. This could occur if an investment in the collateral investment account defaulted or became impaired. Under those circumstances, the value of a Fund’s cash collateral account may be less than the amount the Fund would be required to return to the borrowers of the securities and the Fund would be required to make up for this shortfall.
During the six months ended Sept. 30, 2017, the Fund had no securities out on loan.
9. Credit and Market Risk
The Fund invests a significant portion of its assets in small companies and may be subject to certain risks associated with ownership of securities of such companies. Investments in small-sized companies may be more volatile than investments in larger companies for a number of reasons, which include limited financial resources or a dependence on narrow product lines.
Some countries in which the Fund 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 Fund 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 is held by a smaller number of investors. This may limit the number of shares available for acquisition or disposition by the Fund.
The Fund is a nondiversified fund that concentrates its investments in the healthcare industry and is subject to the risks associated with that industry. The value of the Fund’s shares will be affected by factors particular to the healthcare and related sectors (such as government regulation) and may fluctuate more widely than that of a fund that invests in a broad range of industries.
The Fund may invest up to 15% of its net assets in illiquid securities, which may include securities with contractual restrictions on resale, securities exempt from registration under Rule 144A promulgated under 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 Fund from disposing of them in a timely manner
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and at a fair price when it is necessary or desirable to do so. While maintaining oversight, the Fund’s Board has delegated to DMC, the day-to-day functions of determining whether individual securities are liquid for purposes of the Fund’s limitation on investments in illiquid securities. Securities eligible for resale pursuant to Rule 144A, which are determined to be liquid, are not subject to the Fund’s 15% limit on investments in illiquid securities. As of Sept. 30, 2017, there were no Rule 144A securities held by the Fund.
10. Contractual Obligations
The Fund enters into contracts in the normal course of business that contain a variety of indemnifications. The Fund’s maximum exposure under these arrangements is unknown. However, the Fund has not had prior claims or losses pursuant to these contracts. Management has reviewed the Fund’s existing contracts and expects the risk of loss to be remote.
11. Recent Accounting Pronouncements
In October 2016, the Securities and Exchange Commission released its Final Rule on Investment Company Reporting Modernization (Rule). The Rule contains amendments to Regulation S-X which impact financial statement presentation, particularly the presentation of derivative investments. The financial statements presented are in compliance with the most recent Regulation S-X amendments.
12. Subsequent Events
On Nov. 6, 2017, the Fund, along with the other Participants, entered into an amendment to the agreement for a $155,000,000 revolving line of credit to be used as described in Note 5 and to be operated in substantially the same manner as the agreement described in Note 5. Under the amendment to the agreement, the Participants are charged an annual commitment fee of 0.15%, which is allocated across the Participants on the basis of each Participant’s allocation of the entire facility. The line of credit available under the agreement expires on Nov. 5, 2018.
Management has determined that no other material events or transactions occurred subsequent to Sept. 30, 2017, that would require recognition or disclosure in the Fund’s financial statements.
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Other Fund information (Unaudited)
Delaware Healthcare Fund
Board consideration of Delaware Healthcare Fund investment advisory agreement
At a meeting held on Aug. 16-17, 2017 (the “Annual Meeting”), the Board of Trustees (the “Board”), including a majority of disinterested or independent Trustees, approved the renewal of the Investment Advisory Agreement for Delaware Healthcare Fund (the “Fund”). In making its decision, the Board considered information furnished at regular quarterly Board meetings, including reports detailing Fund performance, investment strategies, and expenses, as well as information prepared specifically in connection with the renewal of the investment advisory and sub-advisory contracts. Information furnished specifically in connection with the renewal of the Investment Management Agreement with Delaware Management Company (“DMC”), a series of Macquarie Investment Management Business Trust (formerly, Delaware Management Business Trust), included materials provided by DMC and its affiliates concerning, among other things, the nature, extent, and quality of services provided to the Fund; the costs of such services to the Fund; economies of scale; and the investment manager’s financial condition and profitability. In addition, in connection with the Annual Meeting, reports were provided to the Trustees in May 2017 and included reports provided by Broadridge Financial Solutions (formerly Lipper) (“Broadridge” or “Lipper”). The Broadridge reports compared the Fund’s investment performance and expenses with those of other comparable mutual funds. The Independent Trustees reviewed and discussed the Broadridge reports with independent legal counsel to the Independent Trustees. In addition to the information noted above, the Board also requested and received information regarding DMC’s policy with respect to advisory fee levels and its breakpoint philosophy; the structure of portfolio manager compensation; comparative client fee information; and any constraints or limitations on the availability of securities for certain investment styles, which had in the past year inhibited, or which were likely in the future to inhibit, the investment manager’s ability to invest fully in accordance with Fund policies.
In considering information relating to the approval of the Fund’s advisory agreement, the Independent Trustees received assistance and advice from and met separately with independent legal counsel to the Independent Trustees and also from an experienced and knowledgeable fund consultant, JDL Consultants, LLC (“JDL”). Although the Board gave attention to all information furnished, the following discussion identifies, under separate headings, the primary factors taken into account by the Board during its contract renewal considerations.
Nature, extent, and quality of service. The Board considered the services provided by DMC to the Fund and its shareholders. In reviewing the nature, extent, and quality of services, the Board considered reports furnished to it throughout the year, which covered matters such as the relative performance of the Fund; compliance of portfolio managers with the investment policies, strategies, and restrictions for the Fund; compliance by DMC and Delaware Distributors, L.P. (together, “Management”) personnel with the Code of Ethics adopted throughout the Delaware FundsSM by Macquarie (“Delaware Funds”) complex; and adherence to fair value pricing procedures as established by the Board. The Board was pleased with the current staffing of the Fund’s investment advisor and the emphasis placed on research in the investment process. The Board recognized DMC’s receipt of certain industry distinctions during the past several years. The Board gave favorable consideration to DMC’s efforts to control expenditures while maintaining service levels committed to Fund matters. The Board also noted the benefits provided to Fund shareholders through each shareholder’s ability to exchange an investment in one Delaware Fund for the same class of shares in another Delaware Fund without a sales charge, to reinvest Fund
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dividends into additional shares of the Fund or into additional shares of other Delaware Funds, and the privilege to combine holdings in other Delaware Funds to obtain a reduced sales charge. The Board was satisfied with the nature, extent, and quality of the overall services provided by DMC.
Investment performance. The Board placed significant emphasis on the investment performance of the Fund in view of the importance of investment performance to shareholders. Although the Board considered performance reports and discussions with portfolio managers at Investment Committee meetings throughout the year, the Board gave particular weight to the Broadridge reports furnished for the Annual Meeting. The Broadridge reports prepared for the Fund showed the investment performance of its Class A shares in comparison to a group of similar funds as selected by Broadridge (the “Performance Universe”). A fund with the best performance ranked first, and a fund with the poorest performance ranked last. The highest/best performing 25% of funds in the Performance Universe make up the first quartile; the next 25%, the second quartile; the next 25%, the third quartile; and the poorest/worst performing 25% of funds in the Performance Universe make up the fourth quartile. Comparative annualized performance for the Fund was shown for the past 1-, 3-, 5-, and 10-year periods, to the extent applicable, ended Jan. 31, 2017. The Board’s objective is that the Fund’s performance for the 1-, 3-, and 5-year periods be at or above the median of its Performance Universe.
The Performance Universe for the Fund consisted of the Fund and all retail and institutional health/biotechnology funds as selected by Broadridge. The Broadridge report comparison showed that the Fund’s total return for the 1- and 5-year periods was in the third quartile of its Performance Universe. The report further showed that the Fund’s total return for the 3-year period was in the second quartile of its Performance Universe. The Board was satisfied with performance.
Comparative expenses. The Board considered expense data for the Delaware Funds. Management provided the Board with information on pricing levels and fee structures for the Fund as of its most recently completed fiscal year. The Board also focused on the comparative analysis of effective management fees and total expense ratios of the Fund versus effective management fees and total expense ratios of a group of similar funds as selected by Broadridge (the “Expense Group”). In reviewing comparative costs, the Fund’s contractual management fee and the actual management fee incurred by the Fund were compared with the contractual management fees (assuming all funds in the Expense Group were similar in size to the Fund) and actual management fees (as reported by each fund) within the Expense Group, taking into account any applicable breakpoints and fee waivers. The Fund’s total expenses were also compared with those of its Expense Group. The Broadridge total expenses, for comparative consistency, were shown by Broadridge for Class A shares and comparative total expenses including 12b-1 and non-12b-1 service fees. The Board’s objective is to limit the Fund’s total expense ratio to be competitive with that of the Expense Group.
The expense comparisons for the Fund showed that its actual management fee and total expenses were in the quartile with the second highest expenses of its Expense Group. The Board noted that the Fund’s total expenses were not in line with the Board’s objective. In evaluating total expenses, the Board considered various initiatives implemented by Management, such as the negotiation of lower fees for fund accounting, fund accounting oversight, and custody services, which had created an opportunity for a further reduction in expenses. The Board was satisfied with Management’s efforts to improve the Fund’s total expense ratio and to bring it in line with the Board’s objective.
35 |
Table of Contents
Other Fund information (Unaudited) | ||
Delaware Healthcare Fund |
Board consideration of Delaware Healthcare Fund investment advisory agreement (continued)
Management profitability. The Board considered the level of profits realized by DMC in connection with the operation of the Fund. In this respect, the Board reviewed the Investment Management Profitability Analysis that addressed the overall profitability of DMC’s business in providing management and other services to each of the individual funds and the Delaware Funds as a whole. Specific attention was given to the methodology used by DMC in allocating costs for the purpose of determining profitability. Management stated that the level of profits of DMC, to a certain extent, reflects recent operational cost savings and efficiencies initiated by DMC. The Board considered DMC’s efforts to improve services provided to fund shareholders and to meet additional regulatory and compliance requirements resulting from recent industry-wide Securities and Exchange Commission initiatives. The Board also considered the extent to which DMC might derive ancillary benefits from fund operations, including the potential for procuring additional business as a result of the prestige and visibility associated with its role as service provider to the Delaware Funds and the benefits from allocation of fund brokerage to improve trading efficiencies. Finally, the Board also reviewed a report prepared by JDL regarding DMC profitability in the context of sub-advised funds and met with JDL personnel to discuss DMC’s profitability in such context. The Board found that the management fees were reasonable in light of the services rendered and the level of profitability of DMC.
Economies of scale. The Trustees considered whether economies of scale are realized by DMC as the Fund’s assets increase and the extent to which any economies of scale are reflected in the level of management fees charged. The Trustees reviewed the standardized advisory fee pricing and structure, approved by the Board and shareholders, which includes breakpoints, and which applies to most funds in the Delaware Funds complex. Breakpoints in the advisory fee occur when the advisory fee rate is reduced on assets in excess of specified levels. Breakpoints result in a lower advisory fee than would otherwise be the case in the absence of breakpoints, when the asset levels specified in the breakpoints are exceeded. The Board noted that, due to the unique nature of investing in the healthcare industry, the fee under the Fund’s management contract did not fall within the standardized fee pricing structure. Although, as of Feb. 28, 2017, the Fund has not reached a size at which it can take advantage of any breakpoints in the applicable fee schedule, the Board recognized that the fee was structured so that if the Fund grows, economies of scale may be shared.
36 |
Table of Contents
Board of trustees | ||||||
Shawn K. Lytle President and Chief Executive Officer Delaware FundsSM by Macquarie Philadelphia, PA
Thomas L. Bennett Chairman of the Board Delaware Funds by Macquarie Private Investor Rosemont, PA | Ann D. Borowiec Former Chief Executive Officer Private Wealth Management J.P. Morgan Chase & Co. New York, NY
Joseph W. Chow Former Executive Vice President State Street Corporation Boston, MA | John A. Fry President Drexel University Philadelphia, PA
Lucinda S. Landreth Former Chief Investment Officer Assurant, Inc. New York, NY | Frances A. Sevilla-Sacasa Former Chief Executive Officer Banco Itaú International Miami, FL
Thomas K. Whitford Former Vice Chairman PNC Financial Services Group Pittsburgh, PA
Janet L. Yeomans Former Vice President and Treasurer 3M Company St. Paul, MN | |||
Affiliated officers | ||||||
David F. Connor Senior Vice President, General Counsel, and Secretary Delaware Funds by Macquarie Philadelphia, PA | Daniel V. Geatens Vice President and Treasurer Delaware Funds by Macquarie Philadelphia, PA | Richard Salus Senior Vice President and Chief Financial Officer Delaware Funds by Macquarie Philadelphia, PA |
This semiannual report is for the information of Delaware Healthcare Fund shareholders, but it may be used with prospective investors when preceded or accompanied by the Delaware Fund fact sheet for the most recently completed calendar quarter. These documents are available at delawarefunds.com/literature.
The Fund files its complete schedule of portfolio holdings with the Securities and Exchange Commission (SEC) for the first and third quarters of each fiscal year on Form N-Q. The Fund’s Forms N-Q, as well as a description of the policies and procedures that the Fund uses to determine how to vote proxies (if any) relating to portfolio securities are available without charge (i) upon request, by calling 800 523-1918; and (ii) on the SEC’s website at sec.gov. In addition, a description of the policies and procedures that the Fund uses to determine how to vote proxies (if any) relating to portfolio securities and the Schedule of Investments included in the Fund’s most recent Form N-Q are available without charge on the Fund’s website at delawarefunds.com/literature. The Fund’s Forms N-Q may be reviewed and copied at the SEC’s Public Reference Room in Washington, D.C.; information on the operation of the Public Reference Room may be obtained by calling 800 SEC-0330.
Information (if any) regarding how the Fund voted proxies relating to portfolio securities during the most recently disclosed 12-month period ended June 30 is available without charge (i) through the Fund’s website at delawarefunds.com/proxy; and (ii) on the SEC’s website at sec.gov.
37
US equity mutual fund
Delaware Small Cap Growth Fund
September 30, 2017
Carefully consider the Fund’s investment objectives, risk factors, charges, and expenses before investing. This and other information can be found in the Fund’s prospectus and their summary prospectuses, which may be obtained by visiting delawarefunds.com/literature or calling 800 523-1918. Investors should read the prospectus and the summary prospectus
carefully before investing.
You can obtain shareholder reports and prospectuses online instead of in the mail.
Visit delawarefunds.com/edelivery.
Experience Delaware FundsSM by Macquarie
Macquarie Investment Management (MIM) is a global asset manager with offices throughout the United States, Europe, Asia, and Australia. We are active managers who prioritize autonomy and accountability at the investment team level in pursuit of opportunities that matter for our clients. Delaware Funds is one of the longest-standing mutual fund families, with more than 75 years in existence.
If you are interested in learning more about creating an investment plan, contact your financial advisor.
You can learn more about Delaware Funds or obtain a prospectus for Delaware Small Cap Growth Fund at delawarefunds.com/literature.
Manage your account online
● | Check your account balance and transactions |
● | View statements and tax forms |
● | Make purchases and redemptions |
Visit delawarefunds.com/account-access.
MIM is the marketing name for the registered investment advisers including Macquarie Investment Management Business Trust (MIMBT) (formerly, Delaware Management Business Trust), Macquarie Funds Management Hong Kong Limited, Macquarie Investment Management Austria Kapitalanlage AG, Macquarie Investment Management Global Limited, Macquarie Bank International Limited, Macquarie Investment Management Europe Limited, Macquarie Investment Management Limited, and Macquarie Capital Investment Management, Inc.
The Fund is distributed by Delaware Distributors, L.P., an affiliate of MIMBT and Macquarie Group Limited. MIM, a member of Macquarie Group, refers to the companies comprising the asset management division of Macquarie Group Limited and its subsidiaries and affiliates worldwide.
Other than Macquarie Bank Limited (MBL), none of the entities noted are authorized deposit-taking institutions for the purposes of the Banking Act 1959 (Commonwealth of Australia). The obligations of these entities do not represent deposits or other liabilities of MBL. MBL does not guarantee or otherwise provide assurance in respect of the obligations of these entities, unless noted otherwise. The Fund is governed by US laws and regulations.
1 | ||||
3 | ||||
5 | ||||
8 | ||||
10 | ||||
12 | ||||
14 | ||||
18 | ||||
27 | ||||
30 |
Unless otherwise noted, views expressed herein are current as of Sept. 30, 2017, and subject to change for events occurring after such date.
The Fund is not FDIC insured and is not guaranteed. It is possible to lose the principal amount invested.
Advisory services provided by Delaware Management Company, a series of MIMBT, a US registered investment advisor.
All third-party marks cited are the property of their respective owners.
© 2017 Macquarie Management Holdings, Inc. (formerly, Delaware Management Holdings, Inc.)
For the six-month period from April 1, 2017 to September 30, 2017 (Unaudited)
As a shareholder of the Fund, you incur two types of costs: (1) transaction costs, including sales charges (loads) on purchase payments, reinvested dividends, or other distributions; redemption fees; and exchange fees; and (2) ongoing costs, including management fees; distribution and/or service (12b-1) fees; and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund 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 six-month period from April 1, 2017 to Sept. 30, 2017.
Actual expenses
The first section of the table shown, “Actual Fund 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 this 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 Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s 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 Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as sales charges (loads), redemption fees, or exchange fees. 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. In addition, if these transactional costs were included, your costs would have been higher. The Fund’s expenses shown in the table reflect fee waivers in effect. The expenses shown in the table assume reinvestment of all dividends and distributions.
1
Disclosure of Fund expenses
For the six-month period from April 1, 2017 to September 30, 2017 (Unaudited)
Delaware Small Cap Growth Fund
Expense analysis of an investment of $1,000
Beginning
Account Value
4/1/17 | Ending
Account Value
9/30/17 | Annualized
Expense Ratio | Expenses
Paid During Period
4/1/17 to 9/30/17* | |||||||
Actual Fund return† | ||||||||||
Class A | $1,000.00 | $1,083.50 | 1.30% | $6.79 | ||||||
Class C | 1,000.00 | 1,078.50 | 2.05% | 10.68 | ||||||
Class R | 1,000.00 | 1,080.40 | 1.55% | 8.08 | ||||||
Institutional Class | 1,000.00 | 1,084.40 | 1.05% | 5.49 | ||||||
Hypothetical 5% return (5% return before expenses) | ||||||||||
Class A | $1,000.00 | $1,018.55 | 1.30% | $6.58 | ||||||
Class C | 1,000.00 | 1,014.79 | 2.05% | 10.35 | ||||||
Class R | 1,000.00 | 1,017.30 | 1.55% | 7.84 | ||||||
Institutional Class | 1,000.00 | 1,019.80 | 1.05% | 5.32 |
* | “Expenses Paid During Period” are equal to the Fund’s annualized expense ratio, multiplied by the average account value over the period, multiplied by 183/365 (to reflect the one-half year period). |
† | Because actual returns reflect only the most recent six-month period, the returns shown may differ significantly from fiscal year returns. |
2
Security type / sector allocation and top 10 equity holdings | ||
Delaware Small Cap Growth Fund | As of September 30, 2017 (Unaudited) |
Sector designations may be different than the sector designations presented in other fund materials. The sector designations may represent the investment manager’s internal sector classifications.
Security type / sector | Percentage of net assets | ||||
Common Stock² | 100.06 | % | |||
Consumer Discretionary | 19.65 | % | |||
Consumer Staples | 1.93 | % | |||
Financials | 5.37 | % | |||
Healthcare | 23.60 | % | |||
Industrials | 11.24 | % | |||
Information Technology | 33.70 | % | |||
Materials | 2.21 | % | |||
Real Estate | 2.36 | % | |||
Short-Term Investments | 0.16 | % | |||
Total Value of Securities | 100.22 | % | |||
Liabilities Net of Receivables and Other Assets | (0.22 | %) | |||
Total Net Assets | 100.00 | % |
² | Narrow industries are utilized for compliance purposes for diversification whereas broad sectors are used for financial reporting. |
*To monitor compliance with the Fund’s concentration guidelines as described in the Fund’s Prospectus and Statement of Additional Information, the Information Technology sector (as disclosed herein for financial reporting purposes) is subdivided into a variety of “industries” (in accordance with the requirements of the Investment Company Act of 1940). The Information Technology sector consisted of Electric Equipment, Instruments, and Components; Internet Software and Services; IT Services; Semiconductors and Semiconductor Equipment; and Software. As of Sept. 30, 2017, such amounts, as percentage of total net assets, were 6.74%; 11.94%; 4.64%; 1.84%; and 8.54%, respectively. The percentage in any such single industry will comply with the Fund’s concentration policy even if the percentages in the Information Technology sector for financial reporting purposes may exceed 25%.
3
Security type / sector allocation and top 10 equity holdings
Delaware Small Cap Growth Fund
Holdings are for informational purposes only and are subject to change at any time. They are not a recommendation to buy, sell, or hold any security.
Top 10 equity holdings | Percentage of net assets | ||||
LendingTree | 5.37% | ||||
Weight Watchers International | 4.62% | ||||
LGI Homes | 4.50% | ||||
Five Below | 4.48% | ||||
Exelixis | 4.43% | ||||
Take-Two Interactive Software | 4.40% | ||||
Collegium Pharmaceutical | 4.06% | ||||
Patrick Industries | 4.00% | ||||
Pacira Pharmaceuticals | 3.96% | ||||
Trade Desk Class A | 3.84% | ||||
4
Schedule of investments | ||
Delaware Small Cap Growth Fund | September 30, 2017 (Unaudited) |
Number of shares | Value (US $) | |||||||
| ||||||||
Common Stock – 100.06%² | ||||||||
| ||||||||
Consumer Discretionary – 19.65% | ||||||||
Five Below † | 5,240 | $ | 287,571 | |||||
LGI Homes † | 5,950 | 288,991 | ||||||
MarineMax † | 9,505 | 157,308 | ||||||
MKS Instruments | 950 | 89,727 | ||||||
Shake Shack Class A † | 4,230 | 140,563 | ||||||
Weight Watchers International † | 6,815 | 296,793 | ||||||
|
| |||||||
1,260,953 | ||||||||
|
| |||||||
Consumer Staples – 1.93% | ||||||||
Amplify Snack Brands † | 15,965 | 113,192 | ||||||
elf Beauty † | 475 | 10,711 | ||||||
|
| |||||||
123,903 | ||||||||
|
| |||||||
Financials – 5.37% | ||||||||
LendingTree † | 1,410 | 344,675 | ||||||
344,675 | ||||||||
Healthcare – 23.60% | ||||||||
ABIOMED † | 245 | 41,307 | ||||||
AMN Healthcare Services † | 3,535 | 161,549 | ||||||
BioTelemetry † | 4,855 | 160,215 | ||||||
Collegium Pharmaceutical † | 24,865 | 260,834 | ||||||
Exelixis † | 11,725 | 284,097 | ||||||
MiMedx Group † | 9,130 | 108,464 | ||||||
Neurocrine Biosciences † | 3,990 | 244,507 | ||||||
Pacira Pharmaceuticals † | 6,760 | 253,838 | ||||||
|
| |||||||
1,514,811 | ||||||||
Industrials – 11.24% | ||||||||
American Woodmark † | 1,470 | 141,487 | ||||||
Oshkosh | 2,430 | 200,572 | ||||||
Patrick Industries † | 3,055 | 256,926 | ||||||
Trex † | 1,355 | 122,045 | ||||||
|
| |||||||
721,030 | ||||||||
|
| |||||||
Information Technology – 33.70% | ||||||||
Alarm.Com Holdings † | 2,510 | 113,402 | ||||||
EPAM Systems † | 2,090 | 183,774 | ||||||
Euronet Worldwide † | 2,215 | 209,960 | ||||||
Itron † | 1,525 | 118,111 | ||||||
Littelfuse | 1,195 | 234,077 | ||||||
LogMeIn | 1,460 | 160,673 | ||||||
Match Group † | 5,310 | 123,139 | ||||||
Proofpoint † | 2,000 | 174,440 | ||||||
RingCentral Class A † | 4,455 | 185,996 | ||||||
Take-Two Interactive Software † | 2,760 | 282,155 | ||||||
Topbuild † | 2,000 | 130,340 |
5
Schedule of investments
Delaware Small Cap Growth Fund
Number of shares | Value (US $) | |||||||
| ||||||||
Common Stock² (continued) | ||||||||
| ||||||||
Information Technology (continued) | ||||||||
Trade Desk Class A † | 4,005 | $ | 246,348 | |||||
|
| |||||||
2,162,415 | ||||||||
|
| |||||||
Materials – 2.21% | ||||||||
US Concrete † | 1,860 | 141,918 | ||||||
|
| |||||||
141,918 | ||||||||
|
| |||||||
Real Estate – 2.36% | ||||||||
QTS Realty Trust Class A | 2,895 | 151,582 | ||||||
|
| |||||||
151,582 | ||||||||
|
| |||||||
Total Common Stock (cost $5,734,928) | 6,421,287 | |||||||
|
| |||||||
Principal amount° | ||||||||
| ||||||||
Short-Term Investments – 0.16% | ||||||||
| ||||||||
Discount Note – 0.01%≠ | ||||||||
Federal Home Loan Bank 0.00% 10/2/17 | 257 | 257 | ||||||
|
| |||||||
257 | ||||||||
|
| |||||||
Repurchase Agreements – 0.15% | ||||||||
Bank of America Merrill Lynch | 1,713 | 1,713 | ||||||
Bank of Montreal | 4,283 | 4,283 | ||||||
BNP Paribas | 3,747 | 3,747 | ||||||
|
| |||||||
9,743 | ||||||||
|
| |||||||
Total Short-Term Investments (cost $10,000) | 10,000 | |||||||
|
| |||||||
Total Value of Securities – 100.22% | $ | 6,431,287 | ||||||
|
|
6
² | Narrow industries are utilized for compliance purposes for diversification whereas broad sectors are used for financial reporting. |
≠ | The rate shown is the effective yield at the time of purchase. |
° | Principal amount shown is stated in US dollars unless noted that the security is denominated in another currency. |
† | Non-income producing security. |
See accompanying notes, which are an integral part of financial statements.
7
Statement of assets and liabilities | ||
Delaware Small Cap Growth Fund | September 30, 2017 (Unaudited) |
Assets: | ||||
Investments, at value1 | $ | 6,421,287 | ||
Short-term investments, at value2 | 10,000 | |||
Receivable for securities sold | 101,572 | |||
Receivable from investment manager | 11,552 | |||
Dividends and interest receivable | 1,130 | |||
Receivable for fund shares sold | 10 | |||
|
| |||
Total assets | 6,545,551 | |||
|
| |||
Liabilities: | ||||
Cash overdraft | 1,728 | |||
Payable for securities purchased | 107,956 | |||
Audit and tax fees payable | 15,114 | |||
Other accrued expenses payable | 2,890 | |||
Accounting and administration expenses payable to affiliates | 348 | |||
Dividend disbursing and transfer agent fees and expenses payable to affiliates | 102 | |||
Distribution fees payable to affiliates | 89 | |||
Trustees’ fees and expenses payable to affiliates | 15 | |||
Legal fees payable to affiliates | 9 | |||
Reports and statements to shareholders expenses payable to affiliates | 3 | |||
|
| |||
Total liabilities | 128,254 | |||
|
| |||
Total Net Assets | $ | 6,417,297 | ||
|
| |||
Net Assets Consist of: | ||||
Paid-in capital | $ | 5,483,644 | ||
Accumulated net investment loss | (28,129 | ) | ||
Accumulated net realized gain on investments | 275,423 | |||
Net unrealized appreciation of investments | 686,359 | |||
|
| |||
Total Net Assets | $ | 6,417,297 | ||
|
|
8
Net Asset Value | ||||
Class A: | ||||
Net assets | $ | 280,710 | ||
Shares of beneficial interest outstanding, unlimited authorization, no par | 28,105 | |||
Net asset value per share | $ | 9.99 | ||
Sales charge | 5.75 | % | ||
Offering price per share, equal to net asset value per share / (1 – sales charge) | $ | 10.60 | ||
Class C: | ||||
Net assets | $ | 37,162 | ||
Shares of beneficial interest outstanding, unlimited authorization, no par | 3,756 | |||
Net asset value per share | $ | 9.89 | ||
Class R: | ||||
Net assets | $ | 6,080 | ||
Shares of beneficial interest outstanding, unlimited authorization, no par | 611 | |||
Net asset value per share | $ | 9.95 | ||
Institutional Class: | ||||
Net assets | $ | 6,093,345 | ||
Shares of beneficial interest outstanding, unlimited authorization, no par | 608,204 | |||
Net asset value per share | $ | 10.02 | ||
| ||||
1Investments, at cost | $ | 5,734,928 | ||
2Short-term investments, at cost | 10,000 |
See accompanying notes, which are an integral part of the financial statements.
9
Statement of operations | ||
Delaware Small Cap Growth Fund | Six months ended September 30, 2017 (Unaudited) |
Investment Income: | ||||
Dividends | $ | 4,307 | ||
Interest | 123 | |||
|
| |||
4,430 | ||||
|
| |||
Expenses: | ||||
Registration fees | 41,003 | |||
Management fees | 22,922 | |||
Audit and tax fees | 15,151 | |||
Accounting and administration expenses | 7,377 | |||
Legal fees | 5,577 | |||
Reports and statements to shareholders expenses | 4,365 | |||
Custodian fees | 1,422 | |||
Dividend disbursing and transfer agent fees and expenses | 1,144 | |||
Distribution expenses — Class A | 292 | |||
Distribution expenses — Class C | 193 | |||
Distribution expenses — Class R | 15 | |||
Trustees’ fees and expenses | 133 | |||
Other | 4,611 | |||
|
| |||
104,205 | ||||
Less expenses waived | (71,644 | ) | ||
Less expenses paid indirectly | (2 | ) | ||
|
| |||
Total operating expenses | 32,559 | |||
|
| |||
Net Investment Loss | (28,129 | ) | ||
|
| |||
Net Realized and Unrealized Gain: | ||||
Net realized gain on investments | 30,229 | |||
Net change in unrealized appreciation (depreciation) of investments | 493,651 | |||
|
| |||
Net Realized and Unrealized Gain | 523,880 | |||
|
| |||
Net Increase in Net Assets Resulting from Operations | $ | 495,751 | ||
|
|
See accompanying notes, which are an integral part of the financial statements.
10
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Statements of changes in net assets
Delaware Small Cap Growth Fund
Six months ended 9/30/17 (Unaudited) | 6/30/16* to 3/31/17 | |||||||
Increase (Decrease) in Net Assets from Operations: | ||||||||
Net investment loss | $ | (28,129 | ) | $ | (22,255 | ) | ||
Net realized gain | 30,229 | 475,426 | ||||||
Net change in unrealized appreciation (depreciation) | 493,651 | 192,708 | ||||||
|
|
|
| |||||
Net increase in net assets resulting from operations | 495,751 | 645,879 | ||||||
|
|
|
| |||||
Dividends and Distributions to Shareholders from: | ||||||||
Net realized gain: | ||||||||
Class A | — | (2,595 | ) | |||||
Class C | — | (504 | ) | |||||
Class R | — | (206 | ) | |||||
Institutional Class | — | (204,679 | ) | |||||
|
|
|
| |||||
— | (207,984 | ) | ||||||
|
|
|
| |||||
Capital Share Transactions: | ||||||||
Proceeds from shares sold: | ||||||||
Class A | 101,905 | 183,733 | ||||||
Class C | 10,362 | 30,231 | ||||||
Class R | — | 5,027 | ||||||
Institutional Class | 604 | 5,008,824 | ||||||
Net asset value of shares issued upon reinvestment of dividends and distributions: | ||||||||
Class A | — | 2,563 | ||||||
Class C | — | 473 | ||||||
Class R | — | 175 | ||||||
Institutional Class | — | 173,977 | ||||||
|
|
|
| |||||
112,871 | 5,405,003 | |||||||
|
|
|
|
12
Six months ended 9/30/17 (Unaudited) | 6/30/16* to 3/31/17 | |||||||
Capital Share Transactions(continued): | ||||||||
Cost of shares redeemed: | ||||||||
Class A | $ | (24,334 | ) | $ | (467 | ) | ||
Class C | (7,000 | ) | — | |||||
Institutional Class | (2,422 | ) | — | |||||
|
|
|
| |||||
(33,756 | ) | (467 | ) | |||||
|
|
|
| |||||
Increase in net assets derived from capital share transactions | 79,115 | 5,404,536 | ||||||
|
|
|
| |||||
Net Increase in Net Assets | 574,866 | 5,842,431 | ||||||
|
|
|
| |||||
Net Assets: | ||||||||
Beginning of period | 5,842,431 | — | ||||||
|
|
|
| |||||
End of period | $ | 6,417,297 | $ | 5,842,431 | ||||
|
|
|
| |||||
Accumulated net investments loss | $ | (28,129 | ) | $ | — | |||
|
|
|
|
*Date of commencement of operations.
See accompanying notes, which are an integral part of the financial statements.
13
Delaware Small Cap Growth Fund Class A
Selected data for each share of the Fund outstanding throughout each period were as follows:
Six months ended | 6/30/162 to 3/31/17 | |||||||||
Net asset value, beginning of period | $ | 9.22 | $ | 8.50 | ||||||
Income (loss) from investment operations: | ||||||||||
Net investment loss3 | (0.06 | ) | (0.05 | ) | ||||||
Net realized and unrealized gain | 0.83 | 1.12 | ||||||||
|
|
|
| |||||||
Total from investment operations | 0.77 | 1.07 | ||||||||
|
|
|
| |||||||
Less dividends and distributions from: | ||||||||||
Net realized gain | — | (0.35 | ) | |||||||
|
|
|
| |||||||
Total dividends and distributions | — | (0.35 | ) | |||||||
|
|
|
| |||||||
Net asset value, end of period | $ | 9.99 | $ | 9.22 | ||||||
|
|
|
| |||||||
Total return4 | 8.35% | 12.69% | ||||||||
Ratios and supplemental data: | ||||||||||
Net assets, end of period (000 omitted) | $ | 281 | $ | 184 | ||||||
Ratio of expenses to average net assets | 1.30% | 1.30% | ||||||||
Ratio of expenses to average net assets prior to fees waived5 | 3.64% | 4.87% | ||||||||
Ratio of net investment loss to average net assets | (1.15% | ) | (0.77% | ) | ||||||
Ratio of net investment loss to average net assets prior to fees waived5 | (3.49% | ) | (4.34% | ) | ||||||
Portfolio turnover | 88% | 145% |
1 | Ratios have been annualized and total return and portfolio turnover have not been annualized. |
2 | Date of commencement of operations; ratios have been annualized and total return and portfolio turnover have not been annualized. |
3 | The average shares outstanding method has been applied for per share information. |
4 | Total investment return is based on the change in net asset value of a share during the period and assumes reinvestment of dividends and distributions at net asset value and does not reflect the impact of a sales charge. Total investment return during all of the periods shown reflects a waiver by the manager. Performance would have been lower had the waiver not been in effect. |
5 | Expenses paid indirectly were not material, as reflected on the “Statement of operations,” and had no impact on the ratios disclosed. |
See accompanying notes, which are an integral part of the financial statements.
14
Financial highlights
Delaware Small Cap Growth Fund Class C
Selected data for each share of the Fund outstanding throughout each period were as follows:
Six months ended 9/30/171 (Unaudited) | 6/30/162 to 3/31/17 | |||||||||
Net asset value, beginning of period | $ | 9.17 | $ | 8.50 | ||||||
Income (loss) from investment operations: | ||||||||||
Net investment loss3 | (0.09 | ) | (0.11 | ) | ||||||
Net realized and unrealized gain | 0.81 | 1.13 | ||||||||
|
|
|
| |||||||
Total from investment operations | 0.72 | 1.02 | ||||||||
|
|
|
| |||||||
Less dividends and distributions from: | ||||||||||
Net realized gain | — | (0.35 | ) | |||||||
|
|
|
| |||||||
Total dividends and distributions | — | (0.35 | ) | |||||||
|
|
|
| |||||||
Net asset value, end of period | $ | 9.89 | $ | 9.17 | ||||||
|
|
|
| |||||||
Total return4 | 7.85% | 12.09% | ||||||||
Ratios and supplemental data: | ||||||||||
Net assets, end of period (000 omitted) | $ | 37 | $ | 31 | ||||||
Ratio of expenses to average net assets | 2.05% | 2.05% | ||||||||
Ratio of expenses to average net assets prior to fees waived5 | 4.39% | 5.62% | ||||||||
Ratio of net investment loss to average net assets | (1.90% | ) | (1.52% | ) | ||||||
Ratio of net investment loss to average net assets prior to fees waived5 | (4.24% | ) | (5.09% | ) | ||||||
Portfolio turnover | 88% | 145% |
1 | Ratios have been annualized and total return and portfolio turnover have not been annualized. |
2 | Date of commencement of operations; ratios have been annualized and total return and portfolio turnover have not been annualized. |
3 | The average shares outstanding method has been applied for per share information. |
4 | Total investment return is based on the change in net asset value of a share during the period and assumes reinvestment of dividends and distributions at net asset value and does not reflect the impact of a sales charge. Total investment return during all of the periods shown reflects a waiver by the manager. Performance would have been lower had the waiver not been in effect. |
5 | Expenses paid indirectly were not material, as reflected on the “Statement of operations,” and had no impact on the ratios disclosed. |
See accompanying notes, which are an integral part of the financial statements.
15
Financial highlights
Delaware Small Cap Growth Fund Class R
Selected data for each share of the Fund outstanding throughout each period were as follows:
Six months ended | 6/30/162 to 3/31/17 | |||||||||
Net asset value, beginning of period | $ | 9.20 | $ | 8.50 | ||||||
Income (loss) from investment operations: | ||||||||||
Net investment loss3 | (0.07 | ) | (0.07 | ) | ||||||
Net realized and unrealized gain | 0.82 | 1.12 | ||||||||
|
|
|
| |||||||
Total from investment operations | 0.75 | 1.05 | ||||||||
|
|
|
| |||||||
Less dividends and distributions from: | ||||||||||
Net realized gain | — | (0.35 | ) | |||||||
|
|
|
| |||||||
Total dividends and distributions | — | (0.35 | ) | |||||||
|
|
|
| |||||||
Net asset value, end of period | $ | 9.95 | $ | 9.20 | ||||||
|
|
|
| |||||||
Total return4 | 8.04% | 12.57% | ||||||||
Ratios and supplemental data: | ||||||||||
Net assets, end of period (000 omitted) | $ | 6 | $ | 6 | ||||||
Ratio of expenses to average net assets | 1.55% | 1.55% | ||||||||
Ratio of expenses to average net assets prior to fees waived5 | 3.89% | 5.12% | ||||||||
Ratio of net investment loss to average net assets | (1.40% | ) | (1.02% | ) | ||||||
Ratio of net investment loss to average net assets prior to fees waived5 | (3.74% | ) | (4.59% | ) | ||||||
Portfolio turnover | 88% | 145% |
1 | Ratios have been annualized and total return and portfolio turnover have not been annualized. |
2 | Date of commencement of operations; ratios have been annualized and total return and portfolio turnover have not been annualized. |
3 | The average shares outstanding method has been applied for per share information. |
4 | Total investment return is based on the change in net asset value of a share during the period and assumes reinvestment of dividends and distributions at net asset value. Total investment return during all of the periods shown reflects a waiver by the manager. Performance would have been lower had the waiver not been in effect. |
5 | Expenses paid indirectly were not material, as reflected on the “Statement of operations,” and had no impact on the ratios disclosed. |
See accompanying notes, which are an integral part of the financial statements.
16
Financial highlights
Delaware Small Cap Growth Fund Institutional Class
Selected data for each share of the Fund outstanding throughout each period were as follows:
Six months ended 9/30/171 (Unaudited) | 6/30/162 to 3/31/17 | |||||||||
Net asset value, beginning of period | $ | 9.24 | $ | 8.50 | ||||||
Income (loss) from investment operations: | ||||||||||
Net investment loss3 | (0.04 | ) | (0.04 | ) | ||||||
Net realized and unrealized gain | 0.82 | 1.13 | ||||||||
|
|
|
| |||||||
Total from investment operations | 0.78 | 1.09 | ||||||||
|
|
|
| |||||||
Less dividends and distributions from: | ||||||||||
Net realized gain | — | (0.35 | ) | |||||||
|
|
|
| |||||||
Total dividends and distributions | — | (0.35 | ) | |||||||
|
|
|
| |||||||
Net asset value, end of period | $ | 10.02 | $ | 9.24 | ||||||
|
|
|
| |||||||
Total return4 | 8.44% | 12.93% | ||||||||
Ratios and supplemental data: | ||||||||||
Net assets, end of period (000 omitted) | $ | 6,093 | $ | 5,621 | ||||||
Ratio of expenses to average net assets | 1.05% | 1.05% | ||||||||
Ratio of expenses to average net assets prior to fees waived5 | 3.39% | 4.62% | ||||||||
Ratio of net investment loss to average net assets | (0.90% | ) | (0.52% | ) | ||||||
Ratio of net investment loss to average net assets prior to fees waived5 | (3.24% | ) | (4.09% | ) | ||||||
Portfolio turnover | 88% | 145% |
1 | Ratios have been annualized and total return and portfolio turnover have not been annualized. |
2 | Date of commencement of operations; ratios have been annualized and total return and portfolio turnover have not been annualized. |
3 | The average shares outstanding method has been applied for per share information. |
4 | Total investment return is based on the change in net asset value of a share during the period and assumes reinvestment of dividends and distributions at net asset value. Total investment return during all of the periods shown reflects a waiver by the manager. Performance would have been lower had the waiver not been in effect. |
5 | Expenses paid indirectly were not material, as reflected on the “Statement of operations,” and had no impact on the ratios disclosed. |
See accompanying notes, which are an integral part of the financial statements.
17
Notes to financial statements | ||
Delaware Small Cap Growth Fund | September 30, 2017 (Unaudited) |
Delaware Group® Equity Funds IV (Trust) is organized as a Delaware statutory trust and offers three series: Delaware Healthcare Fund, Delaware Small Cap Growth Fund, and Delaware Smid Cap Growth Fund. These financial statements and the related notes pertain to Delaware Small Cap Growth Fund (Fund). The Trust is an open-end investment company. The Fund is considered diversified under the Investment Company Act of 1940 as amended, (1940 Act), and offers Class A, Class C, Class R, and Institutional Class shares. Class A shares are sold with a maximum front-end sales charge of 5.75%. Class A share purchases of $1,000,000 or more will incur a contingent deferred sales charge (CDSC) instead of a front-end sales charge of 1.00% if redeemed during the first year, and 0.50% during the second year, provided that Delaware Distributors, L.P. (DDLP) paid a financial advisor a commission on the purchase of those shares. Class C shares are sold with a CDSC of 1.00%, if redeemed during the first 12 months. Class R and Institutional Class shares are not subject to a sales charge and are offered for sale exclusively to certain eligible investors.
The investment objective of the Fund is to seek long-term capital appreciation.
1. Significant Accounting Policies
The following accounting policies are in accordance with US generally accepted accounting principles (US GAAP) and are consistently followed by the Fund.
Security Valuation — Equity securities, except those traded on the Nasdaq Stock Market LLC (Nasdaq), are valued at the last quoted sales price as of the time of the regular close of the New York Stock Exchange on the valuation date. Equity 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, the mean between the bid and ask prices will be used, which approximates fair value. US government and agency securities are valued at the mean between the bid and ask prices, which approximates fair value. Generally, other securities and assets for which market quotations are not readily available are valued at fair value as determined in good faith under the direction of the Trust’s Board of Trustees (Board). In determining whether market quotations are readily available or fair valuation will be used, various factors will be taken into consideration, such as market closures or suspension of trading in a security. The foregoing valuation policies apply to restricted and unrestricted securities.
Federal Income Taxes — No provision for federal income taxes has been made as the Fund intends to continue to qualify for federal income tax purposes as a regulated investment company under Subchapter M of the Internal Revenue Code of 1986, as amended, and make the requisite distributions to shareholders. The Fund evaluates tax positions taken or expected to be taken in the course of preparing the Fund’s tax returns to determine whether the tax positions are “more-likely-than-not” of being sustained by the applicable tax authority. Tax positions not deemed to meet the “more-likely-than-not” threshold are recorded as a tax benefit or expense in the current year. Management has analyzed the Fund’s tax positions taken or to be taken on the Fund’s federal income tax returns through the six months ended Sept. 30, 2017 and for the open tax year ended March 31, 2017, and has concluded that no provision for federal income tax is required in the Fund’s financial statements. In regard to foreign taxes only, the Fund has open tax years in certain foreign countries in which it invests in that may date back to the inception of the Fund. If applicable, the Fund recognizes interest accrued on unrecognized
18
tax benefits in interest expense and penalties in other expenses on the “Statement of operations.” During the six months ended Sept. 30, 2017, the Fund did not incur any interest or tax penalties.
Class Accounting — Investment income, common expenses, and realized and unrealized gain (loss) on investments are allocated to the various classes of the Fund 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 Fund may purchase certain US government securities subject to the counterparty’s agreement to repurchase them at an agreed upon date and price. The counterparty will be required on a daily basis to maintain the value of the collateral subject to the agreement at not less than the repurchase price (including accrued interest). The agreements are conditioned upon the collateral being deposited under the Federal Reserve book-entry system with the Fund’s custodian or a third-party sub-custodian. In the event of default or bankruptcy by the other party to the agreement, retention of the collateral may be subject to legal proceedings. All open repurchase agreements as of the date of this report were entered into on Sept. 29, 2017 and matured on the next business day.
Use of Estimates — The Fund is an investment company, whose financial statements are prepared in conformity with US GAAP. Therefore, the Fund follows the accounting and reporting guidelines for investment companies. The preparation of financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the fair value of investments, the reported amounts of assets and liabilities and disclosure of contingent 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 and the differences could be material.
Other — Expenses directly attributable to the Fund are charged directly to the Fund. Other expenses common to various funds within the Delaware FundsSM by Macquarie (Delaware Funds) are generally allocated among such funds on the basis of average net assets. Management fees and certain 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 debt securities are amortized to interest income, respectively over the lives of the respective securities using the effective interest method. Distributions received from investments in real estate investment trusts (REITs) are recorded as dividend income on the ex-dividend date, subject to reclassification upon notice of the character of such distributions by the issuer. The Fund declares and pays dividends from net investment income and distributions from net realized gain on investments, if any, annually. The Fund may distribute more frequently, if necessary for tax purposes. Dividends and distributions, if any, are recorded on the ex-dividend date.
The Fund may receive earnings credits from its custodian when positive cash balances are maintained, which may be used to offset custody fees. There were no such earnings credits for the six months ended Sept. 30, 2017.
The Fund receives earnings credits from its transfer agent when positive cash balances are maintained, which may be used to offset transfer agent fees. If the amount earned is greater than $1, the expense paid under this arrangement is included on the “Statement of operations” under “Dividend disbursing
19
Notes to financial statements | ||
Delaware Small Cap Growth Fund |
1. Significant Accounting Policies (continued)
and transfer agent fees and expenses” with the corresponding expense offset shown under “Less expenses paid indirectly.” For the six months ended Sept. 30, 2017, the Fund earned $2 under this agreement.
2. Investment Management, Administration Agreements, and Other Transactions with Affiliates
In accordance with the terms of its investment management agreement, the Fund pays Delaware Management Company (DMC), a series of Macquarie Investment Management Business Trust (formerly, Delaware Management Business Trust) and the investment manager, an annual fee which is calculated daily and paid monthly at the rate of 0.75% on the first $500 million of average daily net assets of the Fund; 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 all or a portion of its investment advisory fees and/or pay/reimburse expenses (excluding any distribution and service (12b-1) fees, acquired fund fees and expenses, taxes, interest, short sale, dividend and interest expenses, brokerage fees, certain insurance costs, and nonroutine expenses or costs, including, but not limited to, those relating to reorganizations, litigation, conducting shareholder meetings, and liquidations) in order to prevent total annual fund operating expenses from exceeding 1.05% of the Fund’s average daily net assets from April 1, 2017 through Sept. 30, 2017.* These waivers and reimbursements may only be terminated by agreement of DMC and the Fund.
Delaware Investments Fund Services Company (DIFSC), an affiliate of DMC, provides fund accounting and financial administration oversight services to the Fund. For these services, DIFSC’s fees were calculated daily and paid monthly based on the aggregate daily net assets of the Delaware Funds from April 1, 2017 through Aug. 31, 2017 at the following annual rate: 0.0050% of the first $30 billion; 0.0045% of the next $10 billion; 0.0040% of the next $10 billion; and 0.0025% of aggregate average daily net assets in excess of $50 billion. The fees payable to DIFSC under the service agreement described above were allocated among all funds in the Delaware Funds on a relative net asset value (NAV) basis. Effective Sept. 1, 2017, the Fund entered into an amendment to the DIFSC agreement. Under the amendment to the DIFSC agreement, DIFSC’s fees are calculated daily and paid monthly based on the aggregate daily net assets of the Delaware Funds at the following annual rate: 0.00475% of the first $35 billion; 0.0040% of the next $10 billion; and 0.0025% of aggregate average daily net assets in excess of $45 billion (Total Fee). Each Fund in the Delaware Funds pays a minimum of $4,000, which, in aggregate, is subtracted from the Total Fee. Each Fund in the Delaware Funds then pays its relative portion of the remainder of the Total Fee on a relative NAV basis. For the six months ended Sept. 30, 2017, the Fund was charged $466 for these services. This amount is included on the “Statement of operations” under “Accounting and administration expenses.”
DIFSC is also the transfer agent and dividend disbursing agent of the Fund. For these services, DIFSC’s fees are calculated daily and paid monthly based on the aggregate daily net assets of the retail funds within the Delaware Funds at the following annual rate: 0.025% of the first $20 billion; 0.020% of the next $5 billion; 0.015% of the next $5 billion; and 0.013% on average daily net assets in excess of $30 billion. The fees payable to DIFSC under the service agreement described above are allocated among all retail funds in the Delaware Funds on a relative NAV basis. For the six months ended Sept. 30, 2017, the Fund
20
was charged $606 for these services. This amount is included on the “Statement of operations” under “Dividend disbursing and transfer agent fees and expenses.” Pursuant to a sub-transfer agency agreement between DIFSC and BNY Mellon Investment Servicing (US) Inc. (BNYMIS), BNYMIS provides certain sub-transfer agency services to the Fund. Sub-transfer agency fees are paid by the Fund and are also included on the “Statement of operations” under “Dividend disbursing and transfer agent fees and expenses.”
Pursuant to a distribution agreement and distribution plan, the Fund pays DDLP, the distributor and an affiliate of DMC, an annual 12b-1 fee of 0.25% of the average daily net assets of the Class A shares, 1.00% of the average daily net assets of the Class C shares, and 0.50% of the average daily net assets of Class R shares. The fees are calculated daily and paid monthly. Institutional Class shares pay no 12b-1 fees.
As provided in the investment management agreement, the Fund bears a portion of the cost of certain resources shared with DMC, including the cost of internal personnel of DMC and/or its affiliates that provide legal, tax, and regulatory reporting services to the Fund. For the six months ended Sept. 30, 2017, the Fund was charged $60 for internal legal, tax, and regulatory reporting services provided by DMC and/or its affiliates’ employees. This amount is included on the “Statement of operations” under “Legal fees.”
For the six months ended Sept. 30, 2017, DDLP earned $381 for commissions on sales of the Fund’s Class A shares.
Trustees’ fees include expenses accrued by the Fund for each Trustee’s retainer and meeting fees. Certain officers of DMC, DIFSC, and DDLP are officers and/or Trustees of the Trust. These officers and Trustees are paid no compensation by the Fund.
* The aggregate contractual waiver period covering this report is from June 30, 2016 through July 30, 2018.
3. Investments
For the six months ended Sept. 30, 2017, the Fund made purchases and sales of investment securities other than short-term investments as follows:
Purchases | $ | 5,410,905 | ||
Sales | 5,334,073 |
At Sept. 30, 2017, the cost of investments for federal income tax purposes has been estimated since final tax characteristics cannot be determined until fiscal year end. At Sept. 30, 2017, the cost and unrealized appreciation (depreciation) of investments for federal income tax purposes for the Fund were as follows:
Cost of investments | $ | 5,744,928 | ||
|
| |||
Aggregate unrealized appreciation of investments | $ | 808,414 | ||
Aggregate unrealized depreciation of investments | (122,055 | ) | ||
|
| |||
Net unrealized appreciation of investments | $ | 686,359 | ||
|
|
US GAAP defines fair value as the price that the Fund would receive to sell an asset or pay to transfer a liability in an orderly transaction between market participants at the measurement date under current
21
Notes to financial statements | ||
Delaware Small Cap Growth Fund |
3. Investments (continued)
market conditions. A three-level hierarchy for fair value measurements has been established based upon the transparency of inputs to the valuation of an asset or liability. Inputs may be observable or unobservable and refer broadly to the assumptions that market participants would use in pricing the asset or liability. Observable inputs reflect the assumptions market participants would use in pricing the asset or liability based on market data obtained from sources independent of the reporting entity. Unobservable inputs reflect the reporting entity’s own assumptions about the assumptions that market participants would use in pricing the asset or liability based on the best information available under the circumstances. The Fund’s investment in its entirety is assigned a level based upon the observability of the inputs which are significant to the overall valuation. The three-level hierarchy of inputs is summarized below.
Level 1 – | Inputs are quoted prices in active markets for identical investments. (Examples: equity securities, open-end investment companies, futures contracts, exchange-traded options contracts) | |
Level 2 – | Other observable inputs, including, but not limited to: quoted prices for similar assets or liabilities in markets that are active, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the assets or liabilities (such as interest rates, yield curves, volatilities, prepayment speeds, loss severities, credit risks, and default rates), or other market-corroborated inputs. (Examples: debt securities, government securities, swap contracts, foreign currency exchange contracts, foreign securities utilizing international fair value pricing, broker-quoted securities, fair valued securities) | |
Level 3 – | Significant unobservable inputs, including the Fund’s own assumptions used to determine the fair value of investments. (Examples: broker-quoted securities, fair valued securities) |
Level 3 investments are valued using significant unobservable inputs. The Fund may also use an income-based valuation approach in which the anticipated future cash flows of the investment are discounted to calculate fair value. Discounts may also be applied due to the nature or duration of any restrictions on the disposition of the investments. Valuations may also be based upon current market prices of securities that are comparable in coupon, rating, maturity, and industry. The derived value of a Level 3 investment may not represent the value which is received upon disposition and this could impact the results of operations.
The following table summarizes the valuation of the Fund’s investments by fair value hierarchy levels as of Sept. 30, 2017:
Securities | Level 1 | Level 2 | Total | |||||||||
Assets: | ||||||||||||
Common Stock | $ | 6,421,287 | $ | — | $ | 6,421,287 | ||||||
Short-Term Investments | — | 10,000 | 10,000 | |||||||||
|
|
|
|
|
| |||||||
Total Value of Securities | $ | 6,421,287 | $ | 10,000 | $ | 6,431,287 | ||||||
|
|
|
|
|
|
22
During the six months ended Sept. 30, 2017, there were no transfers between Level 1 investments, Level 2 investments, or Level 3 investments that had a significant impact to the Fund. The Fund’s policy is to recognize transfers between levels based on fair value at the beginning of the reporting period.
A reconciliation of Level 3 investments is presented when the Fund has a significant amount of Level 3 investments at the beginning, interim, or end of the period in relation to net assets. During the six months ended Sept. 30, 2017, there were no Level 3 investments.
4. Capital Shares
Transactions in capital shares were as follows:
Six months ended 9/30/17 | 6/30/16* 3/31/17 | |||||||||
Shares sold: | ||||||||||
Class A | 10,675 | 19,765 | ||||||||
Class C | 1,130 | 3,295 | ||||||||
Class R | — | 591 | ||||||||
Institutional Class | 63 | 589,013 | ||||||||
Shares issued upon reinvestment of dividends and distributions: | ||||||||||
Class A | — | 286 | ||||||||
Class C | — | 53 | ||||||||
Class R | — | 20 | ||||||||
Institutional Class | — | 19,374 | ||||||||
|
|
|
| |||||||
11,868 | 632,397 | |||||||||
|
|
|
| |||||||
Shares redeemed: | ||||||||||
Class A | (2,570 | ) | (51 | ) | ||||||
Class C | (722 | ) | — | |||||||
Institutional Class | (246 | ) | — | |||||||
|
|
|
| |||||||
(3,538 | ) | (51 | ) | |||||||
|
|
|
| |||||||
Net increase | 8,330 | 632,346 | ||||||||
|
|
|
|
* Date of commencement of operations.
5. Line of Credit
The Fund, along with certain other funds in the Delaware Funds (Participants), was a participant in a $155,000,000 revolving line of credit to be used for temporary or emergency purposes as an additional source of liquidity to fund redemptions of investor shares. Under the agreement, the Participants were charged an annual commitment fee of 0.15%, which was allocated across the Participants on the basis of relative net assets of each Participant’s allocation of the entire facility. The Participants were permitted to borrow up to a maximum of one-third of their net assets under the agreement. Each Participant was
23
Notes to financial statements | ||
Delaware Small Cap Growth Fund |
5. Line of Credit (continued)
individually, and not jointly, liable for its particular advances, if any, under the line of credit. The line of credit available under the agreement expired on Nov. 6, 2017.
The Fund had no amounts outstanding as of Sept. 30, 2017, or at any time during the period then ended.
6. Offsetting
The Fund entered into an International Swaps and Derivatives Association, Inc. Master Agreement (ISDA Master Agreement) or a similar agreement with certain of its derivative contract counterparties in order to better define its contractual rights and to secure rights that will help the Fund mitigate its counterparty risk. An ISDA Master Agreement is a bilateral agreement between the Fund and a counterparty that governs over-the-counter (OTC) derivatives and foreign exchange contracts and typically contains, among other things, collateral posting items and netting provisions in the event of a default and/or termination event. Under an ISDA Master Agreement, the Fund may, under certain circumstances, offset with the counterparty certain derivative financial instruments’ payables and/or receivables with collateral held and/or posted and create one single net payment. The provisions of the ISDA Master Agreement typically permit a single net payment in the event of default (close-out), including the bankruptcy or insolvency of the counterparty. However, bankruptcy or insolvency laws of a particular jurisdiction may impose restrictions on or prohibitions against the right of offset in bankruptcy, insolvency, or other events.
For financial reporting purposes, the Fund does not offset derivative assets and derivative liabilities that are subject to netting arrangements on the “Statement of assets and liabilities.”
At Sept. 30, 2017, the Fund had the following assets and liabilities subject to offsetting provisions:
Master Repurchase Agreements
Counterparty | Repurchase Agreements | Fair Value of Non-Cash Collateral Received(a) | Cash Collateral Received | Net Collateral Received | Net Exposure(b) | ||||||||||||||||||||
Bank of America Merrill Lynch | $1,713 | $ | (1,713 | ) | $ | — | $ | (1,713 | ) | $ | — | ||||||||||||||
Bank of Montreal | 4,283 | (4,283 | ) | — | (4,283 | ) | — | ||||||||||||||||||
BNP Paribas | 3,747 | (3,747 | ) | — | (3,747 | ) | — | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Total | $9,743 | $ | (9,743 | ) | $ | — | $ | (9,743 | ) | $ | — | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
(a)The value of the related collateral received exceeded the value of the repurchase agreements as of Sept. 30, 2017.
(b)Net exposure represents the receivable (payable) that would be due from (to) the counterparty in the event of default
7. Securities Lending
The Fund, along with other funds in the Delaware Funds, may lend its securities pursuant to a security lending agreement (Lending Agreement) with The Bank of New York Mellon (BNY Mellon). At the time a security is loaned, the borrower must post collateral equal to the required percentage of the market value of the loaned security, including any accrued interest. The required percentage is: (1) 102% with respect to US securities and foreign securities that are denominated and payable in US dollars; and (2) 105%
24
with respect to foreign securities. With respect to each loan, if on any business day the aggregate market value of securities collateral plus cash collateral held is less than the aggregate market value of the securities that are the subject of such loan, the borrower will be notified to provide additional collateral by the end of the following business day which, together with the collateral already held, will be not less than the applicable initial collateral requirements for such security loan. If the aggregate market value of securities collateral and cash collateral held with respect to a security loan exceeds the applicable initial collateral requirement, upon request of the borrower, BNY Mellon must return enough collateral to the borrower by the end of the following business day to reduce the value of the remaining collateral to the applicable initial collateral requirement for such security loan. As a result of the foregoing, the value of the collateral held with respect to a loaned security on any particular day may be more or less than the value of the security on loan.
Cash collateral received by each Fund of the Trust is generally invested in a series of individual separate accounts, each corresponding to a Fund. The investment guidelines permit each separate account to hold certain securities that would be considered eligible securities for a money market fund. Cash collateral received is generally invested in government securities; certain obligations issued by government sponsored enterprises; repurchase agreements collateralized by US Treasury securities; obligations issued by the central government of any Organization for Economic Cooperation and Development (OECD) country or its agencies, instrumentalities, or establishments; obligations of supranational organizations, commercial paper, notes, bonds and other debt obligations; certificates of deposit, time deposits, and other bank obligations; and asset-backed securities. A Fund can also accept US government securities and letters of credit (non-cash collateral) in connection with securities loans.
In the event of default or bankruptcy by the lending agent, realization and/or retention of the collateral may be subject to legal proceedings. In the event the borrower fails to return loaned securities and the collateral received is insufficient to cover the value of the loaned securities and provided such collateral shortfall is not the result of investment losses, the lending agent has agreed to pay the amount of the shortfall to the Fund or, at the discretion of the lending agent, replace the loaned securities. The Fund continues to record dividends or interest, as applicable, on the securities loaned and is subject to changes in value of the securities loaned that may occur during the term of the loan. The Fund has the right under the Lending Agreement to recover the securities from the borrower on demand. With respect to security loans collateralized by non-cash collateral, the Fund receives loan premiums paid by the borrower. With respect to security loans collateralized by cash collateral, the earnings from the collateral investments are shared among the Fund, the security lending agent, and the borrower. The Fund records security lending income net of allocations to the security lending agent and the borrower.
The Fund may incur investment losses as a result of investing securities lending collateral. This could occur if an investment in the collateral investment account defaulted or became impaired. Under those circumstances, the value of the Fund’s cash collateral account may be less than the amount the Fund would be required to return to the borrowers of the securities and the Fund would be required to make up for this shortfall.
During the six months ended Sept. 30, 2017, the Fund had no securities out on loan.
25
Notes to financial statements | ||
Delaware Small Cap Growth Fund |
8. Credit and Market Risk
The Fund invested in growth stocks (such as those in the technology sector), which reflect projections of future earnings and revenue. These prices may rise or fall dramatically depending on whether those projections are met. These companies’ stock prices may be more volatile, particularly over the short-term.
The Fund invests a significant portion of its assets in small companies and may be subject to certain risks associated with ownership of securities of such companies. Investments in small sized companies may be more volatile than investments in larger companies for a number of reasons, which include limited financial resources or a dependence on narrow product lines.
The Fund may invest up to 15% of its net assets in illiquid securities, which may include securities with contractual restrictions on resale, securities exempt from registration under Rule 144A promulgated under 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 Fund 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 has delegated to DMC, the day-to-day functions of determining whether individual securities are liquid for purposes of the Fund’s limitation on investments in illiquid securities. Securities eligible for resale pursuant to Rule 144A, which are determined to be liquid, are not subject to the Fund’s 15% limit on investments in illiquid securities. As of Sept. 30, 2017, there were no Rule 144A securities held by the Fund.
9. Contractual Obligations
The Fund enters into contracts in the normal course of business that contain a variety of indemnifications. The Fund’s maximum exposure under these arrangements is unknown. However, the Fund has not had prior claims or losses pursuant to these contracts. Management has reviewed the Fund’s existing contracts and expects the risk of loss to be remote.
10. Recent Accounting Pronouncements
In October 2016, the Securities and Exchange Commission released its Final Rule on Investment Company Reporting Modernization (Rule). The Rule contains amendments to Regulation S-X which impact financial statement presentation, particularly the presentation of derivative investments. The financial statements presented are in compliance with the most recent Regulation S-X amendments.
11. Subsequent Events
On Nov. 6, 2017, the Fund, along with the other Participants, entered into an amendment to the agreement for a $155,000,000 revolving line of credit to be used as described in Note 5 and to be operated in substantially the same manner as the agreement described in Note 5. Under the amendment to the agreement, the Participants are charged an annual commitment fee of 0.15%, which is allocated across the Participants on the basis of each Participant’s allocation of the entire facility. The line of credit available under the agreement expires on Nov. 5, 2018.
Management has determined that no other material events or transactions occurred subsequent to Sept. 30, 2017, that would require recognition or disclosure in the Fund’s financial statements.
26
Delaware Small Cap Growth Fund
Board consideration of Delaware Small Cap Growth Fund investment advisory agreement
At a meeting held on Aug. 16-17, 2017 (the “Annual Meeting”), the Board of Trustees (the “Board”), including a majority of disinterested or independent Trustees, approved the renewal of the Investment Advisory Agreement for Delaware Small Cap Growth Fund (the “Fund”). In making its decision, the Board considered information furnished at regular quarterly Board meetings, including reports detailing Fund performance, investment strategies, and expenses, as well as information prepared specifically in connection with the renewal of the investment advisory and sub-advisory contracts. Information furnished specifically in connection with the renewal of the Investment Management Agreement with Delaware Management Company (“DMC”), a series of Macquarie Investment Management Business Trust (formerly, Delaware Management Business Trust), included materials provided by DMC and its affiliates concerning, among other things, the nature, extent, and quality of services provided to the Fund; the costs of such services to the Fund; economies of scale; and the investment manager’s financial condition and profitability. In addition, in connection with the Annual Meeting, reports were provided to the Trustees in May 2017 and included reports provided by Broadridge Financial Solutions (formerly Lipper) (“Broadridge” or “Lipper”). The Broadridge reports compared the Fund’s investment performance and expenses with those of other comparable mutual funds. The Independent Trustees reviewed and discussed the Broadridge reports with independent legal counsel to the Independent Trustees. In addition to the information noted above, the Board also requested and received information regarding DMC’s policy with respect to advisory fee levels and its breakpoint philosophy; the structure of portfolio manager compensation; comparative client fee information; and any constraints or limitations on the availability of securities for certain investment styles, which had in the past year inhibited, or which were likely in the future to inhibit, the investment manager’s ability to invest fully in accordance with Fund policies.
In considering information relating to the approval of the Fund’s advisory agreement, the Independent Trustees received assistance and advice from and met separately with independent legal counsel to the Independent Trustees and also from an experienced and knowledgeable fund consultant, JDL Consultants, LLC (“JDL”). Although the Board gave attention to all information furnished, the following discussion identifies, under separate headings, the primary factors taken into account by the Board during its contract renewal considerations.
Nature, extent, and quality of service. The Board considered the services provided by DMC to the Fund and its shareholders. In reviewing the nature, extent, and quality of services, the Board considered reports furnished to it throughout the year, which covered matters such as the relative performance of the Fund; compliance of portfolio managers with the investment policies, strategies, and restrictions for the Fund; compliance by DMC and Delaware Distributors, L.P. (together, “Management”) personnel with the Code of Ethics adopted throughout the Delaware FundsSM by Macquarie (“Delaware Funds”) complex; and adherence to fair value pricing procedures as established by the Board. The Board was pleased with the current staffing of the Fund’s investment advisor and the emphasis placed on research in the investment process. The Board recognized DMC’s receipt of certain industry distinctions during the past several years. The Board gave favorable consideration to DMC’s efforts to control expenditures while maintaining service levels committed to Fund matters. The Board also noted the benefits provided to Fund shareholders through each shareholder’s ability to exchange an investment in one Delaware Fund for the same class of shares in another Delaware Fund without a sales charge, to reinvest Fund
27
Other Fund information
Delaware Small Cap Growth Fund
Board consideration of Delaware Small Cap Growth Fund investment advisory agreement (continued)
dividends into additional shares of the Fund or into additional shares of other Delaware Funds, and the privilege to combine holdings in other Delaware Funds to obtain a reduced sales charge. The Board was satisfied with the nature, extent, and quality of the overall services provided by DMC.
Investment performance. The Board placed significant emphasis on the investment performance of the Fund in view of the importance of investment performance to shareholders. Although the Board considered performance reports and discussions with portfolio managers at Investment Committee meetings throughout the year, the Board gave particular weight to the Broadridge reports furnished for the Annual Meeting. The Broadridge reports prepared for the Fund showed the investment performance of its Class A shares in comparison to a group of similar funds as selected by Broadridge (the “Performance Universe”). A fund with the best performance ranked first, and a fund with the poorest performance ranked last. The highest/best performing 25% of funds in the Performance Universe make up the first quartile; the next 25%, the second quartile; the next 25%, the third quartile; and the poorest/worst performing 25% of funds in the Performance Universe make up the fourth quartile. Comparative annualized performance for the Fund was shown for the past 1-, 3-, 5-, and 10-year periods, to the extent applicable, ended Jan. 31, 2017. The Board’s objective is that the Fund’s performance for the 1-, 3-, and 5-year periods be at or above the median of its Performance Universe.
The Performance Universe for the Fund consisted of the Fund and all retail and institutional small-cap growth funds as selected by Broadridge. The Broadridge report comparison showed that the Fund’s total return for the period since inception was in the third quartile of its Performance Universe. In evaluating the Fund’s performance, the Board considered the Fund’s short existence. The Board also considered the performance attribution included in the Meeting materials, as well as the numerous investment and performance reports delivered by Management personnel to the Board’s Investments Committee. The Board was satisfied that Management was taking action to meet the Board’s performance objective.
Comparative expenses. The Board considered expense data for the Delaware Funds. Management provided the Board with information on pricing levels and fee structures for the Fund as of its most recently completed fiscal year. The Board also focused on the comparative analysis of effective management fees and total expense ratios of the Fund versus effective management fees and total expense ratios of a group of similar funds as selected by Broadridge (the “Expense Group”). In reviewing comparative costs, the Fund’s contractual management fee and the actual management fee incurred by the Fund were compared with the contractual management fees (assuming all funds in the Expense Group were similar in size to the Fund) and actual management fees (as reported by each fund) within the Expense Group, taking into account any applicable breakpoints and fee waivers. The Fund’s total expenses were also compared with those of its Expense Group. The Broadridge total expenses, for comparative consistency, were shown by Broadridge for Class A shares and comparative total expenses including 12b-1 and non-12b-1 service fees. The Board’s objective is to limit the Fund’s total expense ratio to be competitive with that of the Expense Group.
The expense comparisons for the Fund showed that its contractual management fee was in the quartile with the lowest expenses of its expense Group and its total expenses were in the quartile with the
28
second lowest expenses of its Expense Group. The Board was satisfied with the management fee and total expenses of the Fund in comparison to those of its Expense Group as shown in the Broadridge report.
Management profitability. The Board considered the level of profits realized by DMC in connection with the operation of the Fund. In this respect, the Board reviewed the Investment Management Profitability Analysis that addressed the overall profitability of DMC’s business in providing management and other services to each of the individual funds and the Delaware Funds as a whole. Specific attention was given to the methodology used by DMC in allocating costs for the purpose of determining profitability. Management stated that the level of profits of DMC, to a certain extent, reflects recent operational cost savings and efficiencies initiated by DMC. The Board considered DMC’s efforts to improve services provided to fund shareholders and to meet additional regulatory and compliance requirements resulting from recent industry-wide Securities and Exchange Commission initiatives. The Board also considered the extent to which DMC might derive ancillary benefits from fund operations, including the potential for procuring additional business as a result of the prestige and visibility associated with its role as service provider to the Delaware Funds and the benefits from allocation of fund brokerage to improve trading efficiencies. Finally, the Board also reviewed a report prepared by JDL regarding DMC profitability in the context of sub-advised funds and met with JDL personnel to discuss DMC’s profitability in such context. The Board found that the management fees were reasonable in light of the services rendered and the level of profitability of DMC.
Economies of scale. The Trustees considered whether economies of scale are realized by DMC as the Fund’s assets increase and the extent to which any economies of scale are reflected in the level of management fees charged. The Trustees reviewed the standardized advisory fee pricing and structure, approved by the Board and shareholders, which includes breakpoints, and which applies to most funds in the Delaware Funds complex. Breakpoints in the advisory fee occur when the advisory fee rate is reduced on assets in excess of specified levels. Breakpoints result in a lower advisory fee than would otherwise be the case in the absence of breakpoints, when the asset levels specified in the breakpoints are exceeded. The Board noted that the fee under the Fund’s management contract fell within the standardized fee pricing structure. Although, as of Feb. 28, 2017, the Fund has not reached a size at which it can take advantage of any breakpoints in the applicable fee schedule, the Board recognized that the fee was structured so that if the Fund grows, economies of scale may be shared.
29
Board of trustees
| ||||||||||
Shawn K. Lytle President and Chief Executive Officer Delaware FundsSM by Macquarie Philadelphia, PA
Thomas L. Bennett Chairman of the Board Delaware Funds by Macquarie Private Investor Rosemont, PA | Ann D. Borowiec Former Chief Executive Officer Private Wealth Management J.P. Morgan Chase & Co. New York, NY
Joseph W. Chow Former Executive Vice President State Street Corporation Boston, MA |
| John A. Fry President Drexel University Philadelphia, PA
Lucinda S. Landreth Former Chief Investment Officer Assurant, Inc. New York, NY |
|
| Frances A. Sevilla-Sacasa Former Chief Executive Officer Banco Itaú International Miami, FL
Thomas K. Whitford Former Vice Chairman PNC Financial Services Group Pittsburgh, PA
Janet L. Yeomans Former Vice President and Treasurer 3M Company St. Paul, MN |
| |||
Affiliated officers
| ||||||||||
David F. Connor Senior Vice President, General Counsel, and Secretary Delaware Funds by Macquarie Philadelphia, PA | Daniel V. Geatens Vice President and Treasurer Delaware Funds by Macquarie Philadelphia, PA | | Richard Salus Senior Vice President and Chief Financial Officer Delaware Funds by Macquarie Philadelphia, PA |
|
This semiannual report is for the information of Delaware Small Cap Growth Fund shareholders, but it may be used with prospective investors when preceded or accompanied by the Delaware Fund fact sheet for the most recently completed calendar quarter. These documents are available at delawarefunds.com/literature.
The Fund files its complete schedule of portfolio holdings with the Securities and Exchange Commission (SEC) for the first and third quarters of each fiscal year on Form N-Q. The Fund’s Forms N-Q, as well as a description of the policies and procedures that the Fund uses to determine how to vote proxies (if any) relating to portfolio securities are available without charge (i) upon request, by calling 800 523-1918; and (ii) on the SEC’s website at sec.gov. In addition, a description of the policies and procedures that the Fund uses to determine how to vote proxies (if any) relating to portfolio securities and the Schedules of Investments included in the Fund’s most recent Forms N-Q are available without charge on the Fund’s website at delawarefunds.com/literature. The Fund’s Forms N-Q may be reviewed and copied at the SEC’s Public Reference Room in Washington, D.C.; information on the operation of the Public Reference Room may be obtained by calling 800 SEC-0330.
Information (if any) regarding how the Fund voted proxies relating to portfolio securities during the most recently disclosed 12-month period ended June 30 is available without charge (i) through the Fund’s website at delawarefunds.com/proxy; and (ii) on the SEC’s website at sec.gov.
30
Table of Contents
US equity mutual fund
Delaware Smid Cap Growth Fund
September 30, 2017
Carefully consider the Fund’s investment objectives, risk factors, charges, and expenses before investing. This and other information can be found in the Fund’s prospectus and its summary prospectus, which may be obtained by visiting delawarefunds.com/literature or calling 800 523-1918. Investors should read the prospectus and the summary prospectus carefully before investing.
You can obtain shareholder reports and prospectuses online instead of in the mail.
Visit delawarefunds.com/edelivery.
Table of Contents
Experience Delaware FundsSM by Macquarie
Macquarie Investment Management (MIM) is a global asset manager with offices throughout the United States, Europe, Asia, and Australia. We are active managers who prioritize autonomy and accountability at the investment team level in pursuit of opportunities that matter for our clients. Delaware Funds is one of the longest-standing mutual fund families, with more than 75 years in existence.
If you are interested in learning more about creating an investment plan, contact your financial advisor.
You can learn more about Delaware Funds or obtain a prospectus for Delaware Smid Cap Growth Fund at delawarefunds.com/literature.
Manage your account online
● | Check your account balance and transactions |
● | View statements and tax forms |
● | Make purchases and redemptions |
Visit delawarefunds.com/account-access.
MIM is the marketing name for the registered investment advisers including Macquarie Investment Management Business Trust (MIMBT) (formerly, Delaware Management Business Trust), Macquarie Funds Management Hong Kong Limited, Macquarie Investment Management Austria Kapitalanlage AG, Macquarie Investment Management Global Limited, Macquarie Bank International Limited, Macquarie Investment Management Europe Limited, Macquarie Investment Management Limited, and Macquarie Capital Investment Management, Inc.
The Fund is distributed by Delaware Distributors, L.P., an affiliate of MIMBT and Macquarie Group Limited. MIM, a member of Macquarie Group, refers to the companies comprising the asset management division of Macquarie Group Limited and its subsidiaries and affiliates worldwide.
Other than Macquarie Bank Limited (MBL), none of the entities noted are authorized deposit-taking institutions for the purposes of the Banking Act 1959 (Commonwealth of Australia). The obligations of these entities do not represent deposits or other liabilities of MBL. MBL does not guarantee or otherwise provide assurance in respect of the obligations of these entities, unless noted otherwise. The Fund is governed by US laws and regulations.
Table of contents | ||||
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Unless otherwise noted, views expressed herein are current as of Sept. 30, 2017, and subject to change for events occurring after such date.
The Fund is not FDIC insured and is not guaranteed. It is possible to lose the principal amount invested.
Advisory services provided by Delaware Management Company, a series of MIMBT, a US registered investment advisor.
All third-party marks cited are the property of their respective owners.
© 2017 Macquarie Management Holdings, Inc. (formerly, Delaware Management Holdings, Inc.)
Table of Contents
For the six-month period from April 1, 2017 to September 30, 2017 (Unaudited)
As a shareholder of the Fund, you incur two types of costs: (1) transaction costs, including sales charges (loads) on purchase payments, reinvested dividends, or other distributions; redemption fees; and exchange fees; and (2) ongoing costs, including management fees; distribution and/or service (12b-1) fees; and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund 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 six-month period from April 1, 2017 to Sept. 30, 2017.
Actual expenses
The first section of the table shown, “Actual Fund 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 this 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 Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s 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 Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as sales charges (loads), redemption fees, or exchange fees. 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. In addition, if these transactional costs were included, your costs would have been higher. The expenses shown in the table assume reinvestment of all dividends and distributions.
1
Table of Contents
Disclosure of Fund expenses
For the six-month period from April 1, 2017 to September 30, 2017 (Unaudited)
Delaware Smid Cap Growth Fund
Expense analysis of an investment of $1,000
Beginning | Ending | Expenses | ||||||||||||||||||
Account Value | Account Value | Annualized | Paid During Period | |||||||||||||||||
4/1/17 | 9/30/17 | Expense Ratio | 4/1/17 to 9/30/17* | |||||||||||||||||
Actual Fund return† | ||||||||||||||||||||
Class A | $1,000.00 | $1,071.60 | 1.22 | % | $6.34 | |||||||||||||||
Class C | 1,000.00 | 1,068.20 | 1.97 | % | 10.21 | |||||||||||||||
Class R | 1,000.00 | 1,070.80 | 1.47 | % | 7.63 | |||||||||||||||
Institutional Class | 1,000.00 | 1,073.20 | 0.97 | % | 5.04 | |||||||||||||||
Class R6 | 1,000.00 | 1,073.60 | 0.86 | % | 4.47 | |||||||||||||||
Hypothetical 5% return (5% return before expenses) |
| |||||||||||||||||||
Class A | $1,000.00 | $1,018.95 | 1.22 | % | $6.17 | |||||||||||||||
Class C | 1,000.00 | 1,015.19 | 1.97 | % | 9.95 | |||||||||||||||
Class R | 1,000.00 | 1,017.70 | 1.47 | % | 7.44 | |||||||||||||||
Institutional Class | 1,000.00 | 1,020.21 | 0.97 | % | 4.91 | |||||||||||||||
Class R6 | 1,000.00 | 1,020.76 | 0.86 | % | 4.36 |
*“ | Expenses Paid During Period” are equal to the Fund’s annualized expense ratio, multiplied by the average account value over the period, multiplied by 183/365 (to reflect the one-half year period). |
† | Because actual returns reflect only the most recent six-month period, the returns shown may differ significantly from fiscal year returns. |
2
Table of Contents
Security type / sector allocation and top 10 equity holdings
Delaware Smid Cap Growth Fund | As of September 30, 2017 (Unaudited) |
Sector designations may be different than the sector designations presented in other Fund materials. The sector designations may represent the investment manager’s internal sector classifications.
Security type / sector | Percentage of net assets | |||
Common Stock² | 100.33% | |||
Consumer Discretionary | 24.36% | |||
Consumer Staples | 2.02% | |||
Financials | 1.74% | |||
Healthcare | 24.50% | |||
Industrials | 14.54% | |||
Materials | 2.10% | |||
Real Estate | 2.14% | |||
Technology | 28.93% | |||
Total Value of Securities | 100.33% | |||
Liabilities Net of Receivables and Other Assets | (0.33%) | |||
Total Net Assets | 100.00% |
² | Narrow industries are utilized for compliance purposes for diversification whereas broad sectors are used for financial reporting. |
To monitor compliance with the Fund’s concentration guidelines as described in the Fund’s prospectus and Statement of Additional Information, the Technology sector (as disclosed herein for financial reporting purposes) is subdivided into a variety of “industries” (in accordance with the requirements of the Investment Company Act of 1940). The Technology sector consisted of commercial services, computers, Internet, semiconductors, software, and telecommunications. As of Sept. 30, 2017 such amounts, as a percentage of total net assets, were 1.83%, 3.30%, 8.37%, 1.52%, 10.50% and 3.41%, respectively. The percentage in any such single industry will comply with the Fund’s concentration policy even if the percentage in the Technology sector for financial reporting purposes may exceed 25%.
3
Table of Contents
Security type / sector allocation and top 10 equity holdings
Delaware Smid Cap Growth Fund
Holdings are for informational purposes only and are subject to change at any time. They are not a recommendation to buy, sell, or hold any security.
Top 10 equity holdings | Percentage of net assets | |||
Take-Two Interactive Software | 5.18% | |||
Pacira Pharmaceuticals | 4.56% | |||
LGI Homes | 4.28% | |||
Weight Watchers International | 4.24% | |||
Splunk | 3.90% | |||
AMN Healthcare Services | 3.77% | |||
American Woodmark | 3.73% | |||
Trade Desk Class A | 3.62% | |||
Neurocrine Biosciences | 3.54% | |||
Align Technology | 3.53% |
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Table of Contents
Schedule of investments | ||
Delaware Smid Cap Growth Fund | September 30, 2017 (Unaudited) |
Number of shares | Value (US $) | |||||||
Common Stock – 100.33%² | ||||||||
Consumer Discretionary – 24.36% | ||||||||
Bright Horizons Family Solutions † | 248,425 | $ | 21,416,719 | |||||
Brunswick | 276,900 | 15,498,093 | ||||||
Burlington Stores † | 158,425 | 15,123,251 | ||||||
LGI Homes † | 780,750 | 37,921,027 | ||||||
MarineMax † | 1,158,825 | 19,178,554 | ||||||
Norwegian Cruise Line Holdings † | 497,675 | 26,899,334 | ||||||
Shake Shack Class A † | 609,150 | 20,242,055 | ||||||
Weight Watchers International † | 862,150 | 37,546,633 | ||||||
Wynn Resorts | 148,075 | 22,051,329 | ||||||
|
| |||||||
215,876,995 | ||||||||
|
| |||||||
Consumer Staples – 2.02% | ||||||||
Amplify Snack Brands † | 2,528,243 | 17,925,243 | ||||||
|
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17,925,243 | ||||||||
|
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Financials – 1.74% | ||||||||
LendingTree † | 63,225 | 15,455,351 | ||||||
|
| |||||||
15,455,351 | ||||||||
|
| |||||||
Healthcare – 24.50% | ||||||||
ABIOMED † | 119,793 | 20,197,100 | ||||||
Align Technology † | 167,800 | 31,256,106 | ||||||
AMN Healthcare Services † | 731,950 | 33,450,115 | ||||||
Collegium Pharmaceutical † | 1,298,074 | 13,616,796 | ||||||
Exelixis † | 1,084,900 | 26,287,127 | ||||||
MiMedx Group † | 1,723,575 | 20,476,071 | ||||||
Neurocrine Biosciences † | 512,200 | 31,387,616 | ||||||
Pacira Pharmaceuticals † | 1,076,775 | 40,432,901 | ||||||
|
| |||||||
217,103,832 | ||||||||
|
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Industrials – 14.54% | ||||||||
American Woodmark † | 343,500 | 33,061,875 | ||||||
Apogee Enterprises | 197,100 | 9,512,046 | ||||||
Fortune Brands Home & Security | 252,225 | 16,957,087 | ||||||
Lennox International | 28,625 | 5,123,016 | ||||||
Oshkosh | 271,950 | 22,446,753 | ||||||
Trex † | 327,175 | 29,468,652 | ||||||
United Rentals † | 88,275 | 12,247,273 | ||||||
|
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128,816,702 | ||||||||
|
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Materials – 2.10% | ||||||||
US Concrete † | 244,250 | 18,636,275 | ||||||
|
| |||||||
18,636,275 | ||||||||
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Real Estate – 2.14% | ||||||||
QTS Realty Trust Class A | 362,275 | 18,968,719 | ||||||
|
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18,968,719 | ||||||||
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5
Table of Contents
Schedule of investments
Delaware Smid Cap Growth Fund
Number of shares | Value (US $) | |||||||
Common Stock² (continued) | ||||||||
Technology – 28.93% | ||||||||
Arista Networks † | 159,277 | $ | 30,200,512 | |||||
Broadridge Financial Solutions | 147,300 | 11,904,786 | ||||||
EPAM Systems † | 332,950 | 29,276,293 | ||||||
Gartner † | 130,075 | 16,182,631 | ||||||
Match Group † | 330,600 | 7,666,614 | ||||||
MKS Instruments | 9,375 | 885,469 | ||||||
Monolithic Power Systems | 117,750 | 12,546,263 | ||||||
Paycom Software † | 8,603 | 644,881 | ||||||
Proofpoint † | 261,675 | 22,823,293 | ||||||
Splunk † | 520,650 | 34,586,779 | ||||||
Take-Two Interactive Software † | 449,025 | 45,903,826 | ||||||
Trade Desk Class A † | 522,200 | 32,120,522 | ||||||
Yelp † | 267,625 | 11,588,163 | ||||||
|
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256,330,032 | ||||||||
|
| |||||||
Total Common Stock (cost $740,148,042) | 889,113,149 | |||||||
|
| |||||||
Total Value of Securities – 100.33% | ||||||||
(cost $740,148,042) | $ | 889,113,149 | ||||||
|
|
² | Narrow industries are utilized for compliance purposes for diversification whereas broad sectors are used for financial reporting. |
† | Non-income producing security. |
See accompanying notes, which are an integral part of the financial statements.
6
Table of Contents
This page intentionally left blank.
Table of Contents
Statement of assets and liabilities | ||
Delaware Smid Cap Growth Fund | September 30, 2017 (Unaudited) |
Assets: | ||||
Investments, at value1 | $ | 889,113,149 | ||
Receivable for securities sold | 4,829,411 | |||
Foreign tax reclaims receivable | 472,481 | |||
Dividends and interest receivable | 233,200 | |||
Receivable for fund shares sold | 233,073 | |||
|
| |||
Total assets | 894,881,314 | |||
|
| |||
Liabilities: | ||||
Cash overdraft | 1,316,923 | |||
Payable for fund shares redeemed | 3,496,234 | |||
Payable for securities purchased | 2,647,955 | |||
Audit and tax fees payable | 17,889 | |||
Investment management fees payable to affiliates | 524,859 | |||
Other accrued expenses payable | 497,728 | |||
Distribution payable | 166,843 | |||
Dividend disbursing and transfer agent fees and expenses payable to affiliates | 14,186 | |||
Accounting and administration expenses payable to affiliates | 3,068 | |||
Trustees’ fees and expenses payable | 2,143 | |||
Legal fees payable to affiliates | 1,598 | |||
Reports and statements to shareholders expenses payable to affiliates | 424 | |||
|
| |||
Total liabilities | 8,689,850 | |||
|
| |||
Total Net Assets | $ | 886,191,464 | ||
|
| |||
Net Assets Consist of: | ||||
Paid-in capital | $ | 747,198,261 | ||
Accumulated net investment loss | (6,351,291 | ) | ||
Accumulated net realized loss on investments | (3,621,160 | ) | ||
Net unrealized appreciation of investments | 148,965,107 | |||
Net unrealized appreciation of foreign currencies | 547 | |||
|
| |||
Total Net Assets | $ | 886,191,464 | ||
|
|
8
Table of Contents
Net Asset Value | ||||
Class A: | ||||
Net assets | $ | 637,796,239 | ||
Shares of beneficial interest outstanding, unlimited authorization, no par | 33,829,876 | |||
Net asset value per share | $ | 18.85 | ||
Sales charge | 5.75 | % | ||
Offering price per share, equal to net asset value per share / (1 – sales charge) | $ | 20.00 | ||
Class C: | ||||
Net assets | $ | 40,343,341 | ||
Shares of beneficial interest outstanding, unlimited authorization, no par | 4,155,191 | |||
Net asset value per share | $ | 9.71 | ||
Class R: | ||||
Net assets | $ | 13,911,935 | ||
Shares of beneficial interest outstanding, unlimited authorization, no par | 799,698 | |||
Net asset value per share | $ | 17.40 | ||
Institutional Class: | ||||
Net assets | $ | 193,575,783 | ||
Shares of beneficial interest outstanding, unlimited authorization, no par | 7,674,165 | |||
Net asset value per share | $ | 25.22 | ||
Class R6: | ||||
Net assets | $ | 564,166 | ||
Shares of beneficial interest outstanding, unlimited authorization, no par | 22,360 | |||
Net asset value per share | $ | 25.23 | ||
| ||||
1Investments, at cost | $ | 740,148,042 |
See accompanying notes, which are an integral part of the financial statements.
9
Table of Contents
Statement of operations | ||
Delaware Smid Cap Growth Fund | Six months ended September 30, 2017 (Unaudited) |
Investment Income: | ||||
Dividends | $ | 1,181,510 | ||
Interest | 5,157 | |||
|
| |||
1,186,667 | ||||
|
| |||
Expenses: | ||||
Management fees | 3,298,950 | |||
Distribution expenses — Class A | 800,892 | |||
Distribution expenses — Class C | 215,831 | |||
Distribution expenses — Class R | 37,633 | |||
Dividend disbursing and transfer agent fees and expenses | 711,689 | |||
Accounting and administration expenses | 118,954 | |||
Reports and statements to shareholders expenses | 70,122 | |||
Legal fees | 61,944 | |||
Registration fees | 47,845 | |||
Custodian fees | 21,819 | |||
Trustees’ fees and expenses | 20,026 | |||
Audit and tax fees | 17,941 | |||
Other | 21,089 | |||
|
| |||
5,444,735 | ||||
Less expenses paid indirectly | (741 | ) | ||
|
| |||
Total operating expenses | 5,443,994 | |||
|
| |||
Net Investment Loss | (4,257,327 | ) | ||
|
|
10
Table of Contents
Net Realized and Unrealized Gain (Loss): | ||||
Net realized loss on investments | $ | (14,454,120 | ) | |
Net change in unrealized appreciation (depreciation) of: | ||||
Investments | 80,782,288 | |||
Foreign currencies | 15,707 | |||
|
| |||
Net change in unrealized appreciation (depreciation) | 80,797,995 | |||
|
| |||
Net Realized and Unrealized Gain | 66,343,875 | |||
|
| |||
Net Increase in Net Assets Resulting from Operations | $ | 62,086,548 | ||
|
|
See accompanying notes, which are an integral part of the financial statements.
11
Table of Contents
Statements of changes in net assets | ||
Delaware Smid Cap Growth Fund |
Six months | ||||||||
ended | ||||||||
9/30/2017 | Year ended | |||||||
(Unaudited) | 3/31/17 | |||||||
Increase (Decrease) in Net Assets from Operations: | ||||||||
Net investment loss | $ | (4,257,327 | ) | $ | (6,455,380 | ) | ||
Net realized gain (loss) | (14,454,120 | ) | 281,186,452 | |||||
Net change in unrealized appreciation (depreciation) | 80,797,995 | (264,381,720 | ) | |||||
|
|
|
| |||||
Net increase in net assets resulting from operations | 62,086,548 | 10,349,352 | ||||||
|
|
|
| |||||
Dividends and Distributions to Shareholders from: | ||||||||
Net investment income: | ||||||||
Institutional Class | — | (65,496 | ) | |||||
Class R6 | — | (2 | ) | |||||
Net realized gain: | ||||||||
Class A | — | (247,793,070 | ) | |||||
Class C | — | (29,094,420 | ) | |||||
Class R | — | (6,307,944 | ) | |||||
Institutional Class | — | (75,598,086 | ) | |||||
Class R6 | — | (560 | ) | |||||
|
|
|
| |||||
— | (358,859,578 | ) | ||||||
|
|
|
| |||||
Capital Share Transactions: | ||||||||
Proceeds from shares sold: | ||||||||
Class A | 13,286,350 | 34,261,987 | ||||||
Class C | 904,684 | 4,985,200 | ||||||
Class R | 1,510,055 | 5,448,678 | ||||||
Institutional Class | 23,992,699 | 116,337,047 | ||||||
Class R6 | 589,107 | 2,000 | ||||||
Net asset value of shares issued upon reinvestment of dividends and distributions: | ||||||||
Class A | — | 239,467,233 | ||||||
Class C | — | 28,027,489 | ||||||
Class R | — | 6,304,290 | ||||||
Institutional Class | — | 74,454,526 | ||||||
Class R6 | — | 562 | ||||||
|
|
|
| |||||
40,282,895 | 509,289,012 | |||||||
|
|
|
|
12
Table of Contents
Six months | ||||||||
ended | ||||||||
9/30/2017 | Year ended | |||||||
(Unaudited) | 3/31/17 | |||||||
Capital Share Transactions (continued): | ||||||||
Cost of shares redeemed: | ||||||||
Class A | $ | (73,467,556 | ) | $ | (165,873,224 | ) | ||
Class C | (12,482,412 | ) | (22,105,902 | ) | ||||
Class R | (5,309,251 | ) | (7,616,868 | ) | ||||
Institutional Class | (71,051,047 | ) | (325,905,673 | ) | ||||
Class R6 | (43,636 | ) | — | |||||
|
|
|
| |||||
(162,353,902 | ) | (521,501,667 | ) | |||||
|
|
|
| |||||
Decrease in net assets derived from capital share transactions | (122,071,007 | ) | (12,212,655 | ) | ||||
|
|
|
| |||||
Net Decrease in Net Assets | (59,984,459 | ) | (360,722,881 | ) | ||||
|
|
|
| |||||
Net Assets: | ||||||||
Beginning of period | 946,175,923 | 1,306,898,804 | ||||||
|
|
|
| |||||
End of period | $ | 886,191,464 | $ | 946,175,923 | ||||
|
|
|
| |||||
Accumulated (Distributions in excess of) net investment income (loss) | $ | (6,351,291 | ) | $ | (2,093,964 | ) | ||
|
|
|
|
See accompanying notes, which are an integral part of the financial statements.
13
Table of Contents
Delaware Smid Cap Growth Fund Class A
Selected data for each share of the Fund outstanding throughout each period were as follows:
Net asset value, beginning of period |
Income (loss) from investment operations: |
Net investment income (loss)3 |
Net realized and unrealized gain (loss) |
Total from investment operations |
Less dividends and distributions from: |
Net realized gain |
Total dividends and distributions |
Net asset value, end of period |
Total return4 |
Ratios and supplemental data: |
Net assets, end of period (000 omitted) |
Ratio of expenses to average net assets |
Ratio of expenses to average net assets prior to fees waived5 |
Ratio of net investment income (loss) to average net assets |
Ratio of net investment income (loss) to average net assets prior to fees waived5 |
Portfolio turnover |
1 | Ratios have been annualized and total return and portfolio turnover have not been annualized. |
2 | During the period ended March 31, 2015, the Fund changed its fiscal year end from September to March. Ratios have been annualized and total return and portfolio turnover have not been annualized. |
3 | The average shares outstanding method has been applied for per share information. |
4 | Total investment return is based on the change in net asset value of a share during the period and assumes reinvestment of dividends and distributions at net asset value and does not reflect the impact of a sales charge. Total investment return during some of the periods shown reflects waivers by the manager and/or distributor. Performance would have been lower had the waivers not been in effect. |
5 | Expenses paid indirectly were not material, as reflected on the “Statement of operations,” and had no impact on the ratios disclosed. |
See accompanying notes, which are an integral part of the financial statements.
14
Table of Contents
Six months ended | 10/1/14 | |||||||||||||||||||||||||||||
9/30/171 | Year ended | to | Year ended | |||||||||||||||||||||||||||
(Unaudited) | 3/31/17 | 3/31/16 | 3/31/152 | 9/30/14 | 9/30/13 | 9/30/12 | ||||||||||||||||||||||||
|
| |||||||||||||||||||||||||||||
$ | 17.59 | $ | 27.04 | $ | 29.41 | $ | 29.12 | $ | 28.96 | $ | 24.93 | $ | 21.18 | |||||||||||||||||
(0.09 | ) | (0.14 | ) | (0.01 | ) | 0.08 | (0.11 | ) | (0.06 | ) | (0.07 | ) | ||||||||||||||||||
1.35 | (0.08 | ) | 0.65 | 4.33 | 1.35 | 5.67 | 4.77 | |||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
1.26 | (0.22 | ) | 0.64 | 4.41 | 1.24 | 5.61 | 4.70 | |||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
— | (9.23 | ) | (3.01 | ) | (4.12 | ) | (1.08 | ) | (1.58 | ) | (0.95 | ) | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
— | (9.23 | ) | (3.01 | ) | (4.12 | ) | (1.08 | ) | (1.58 | ) | (0.95 | ) | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
$ | 18.85 | $ | 17.59 | $ | 27.04 | $ | 29.41 | $ | 29.12 | $ | 28.96 | $ | 24.93 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
7.16% | 1.13% | 2.26% | 16.02% | 4.19% | 24.34% | 22.54% | ||||||||||||||||||||||||
$ | 637,796 | $ | 653,453 | $ | 787,583 | $ | 838,620 | $ | 779,507 | $ | 956,010 | $ | 931,398 | |||||||||||||||||
1.22% | 1.21% | 1.20% | 1.22% | 1.19% | 1.19% | 1.22% | ||||||||||||||||||||||||
1.22% | 1.21% | 1.20% | 1.22% | 1.19% | 1.24% | 1.25% | ||||||||||||||||||||||||
(0.96% | ) | (0.60% | ) | (0.03% | ) | 0.53% | (0.36% | ) | (0.25% | ) | (0.29% | ) | ||||||||||||||||||
(0.96% | ) | (0.60% | ) | (0.03% | ) | 0.53% | (0.36% | ) | (0.30% | ) | (0.32% | ) | ||||||||||||||||||
48% | 159% | 24% | 8% | 26% | 14% | 20% |
15
Table of Contents
Financial highlights
Delaware Smid Cap Growth Fund Class C
Selected data for each share of the Fund outstanding throughout each period were as follows:
|
Net asset value, beginning of period |
Income (loss) from investment operations: |
Net investment loss3 |
Net realized and unrealized gain (loss) |
Total from investment operations |
Less dividends and distributions from: |
Net realized gain |
Total dividends and distributions |
Net asset value, end of period |
Total return4 |
Ratios and supplemental data: |
Net assets, end of period (000 omitted) |
Ratio of expenses to average net assets |
Ratio of expenses to average net assets prior to fees waived5 |
Ratio of net investment loss to average net assets |
Ratio of net investment loss to average net assets prior to fees waived5 |
Portfolio turnover |
1 | Ratios have been annualized and total return and portfolio turnover have not been annualized. |
2 | During the period ended March 31, 2015, the Fund changed its fiscal year end from September to March. Ratios have been annualized and total return and portfolio turnover have not been annualized. |
3 | The average shares outstanding method has been applied for per share information. |
4 | Total investment return is based on the change in net asset value of a share during the period and assumes reinvestment of dividends and distributions at net asset value and does not reflect the impact of a sales charge. Total investment return during some of the periods shown reflects waivers by the manager and/or distributor. Performance would have been lower had the waivers not been in effect. |
5 | Expenses paid indirectly were not material, as reflected on the “Statement of operations,” and had no impact on the ratios disclosed. |
See accompanying notes, which are an integral part of the financial statements.
16
Table of Contents
Six months ended | 10/1/14 | |||||||||||||||||||||||||||||
9/30/171 | Year ended | to | Year ended | |||||||||||||||||||||||||||
(Unaudited) | 3/31/17 | 3/31/16 | 3/31/152 | 9/30/14 | 9/30/13 | 9/30/12 | ||||||||||||||||||||||||
|
| |||||||||||||||||||||||||||||
$ | 9.09 | $ | 18.76 | $ | 21.46 | $ | 22.34 | $ | 22.62 | $ | 19.97 | $ | 17.25 | |||||||||||||||||
(0.08 | ) | (0.20 | ) | (0.16 | ) | (0.02 | ) | (0.25 | ) | (0.20 | ) | (0.20 | ) | |||||||||||||||||
0.70 | (0.24 | ) | 0.47 | 3.26 | 1.05 | 4.43 | 3.87 | |||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
0.62 | (0.44 | ) | 0.31 | 3.24 | 0.80 | 4.23 | 3.67 | |||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
— | (9.23 | ) | (3.01 | ) | (4.12 | ) | (1.08 | ) | (1.58 | ) | (0.95 | ) | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
— | (9.23 | ) | (3.01 | ) | (4.12 | ) | (1.08 | ) | (1.58 | ) | (0.95 | ) | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
$ | 9.71 | $ | 9.09 | $ | 18.76 | $ | 21.46 | $ | 22.34 | $ | 22.62 | $ | 19.97 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
6.82% | 0.30% | 1.53% | 15.60% | 3.39% | 23.42% | 21.68% | ||||||||||||||||||||||||
$ | 40,343 | $ | 49,266 | $ | 67,633 | $ | 79,901 | $ | 77,021 | $ | 88,886 | $ | 88,316 | |||||||||||||||||
1.97% | 1.96% | 1.95% | 1.97% | 1.94% | 1.94% | 1.95% | ||||||||||||||||||||||||
1.97% | 1.96% | 1.95% | 1.97% | 1.94% | 1.94% | 1.95% | ||||||||||||||||||||||||
(1.71% | ) | (1.35% | ) | (0.78% | ) | (0.22% | ) | (1.11% | ) | (1.00% | ) | (1.02% | ) | |||||||||||||||||
(1.71% | ) | (1.35% | ) | (0.78% | ) | (0.22% | ) | (1.11% | ) | (1.00% | ) | (1.02% | ) | |||||||||||||||||
48% | 159% | 24% | 8% | 26% | 14% | 20% |
17
Table of Contents
Financial highlights
Delaware Smid Cap Growth Fund Class R
Selected data for each share of the Fund outstanding throughout each period were as follows:
|
Net asset value, beginning of period |
Income (loss) from investment operations: |
Net investment income (loss)3 |
Net realized and unrealized gain (loss) |
Total from investment operations |
Less dividends and distributions from: |
Net realized gain |
Total dividends and distributions |
Net asset value, end of period |
Total return4 |
Ratios and supplemental data: |
Net assets, end of period (000 omitted) |
Ratio of expenses to average net assets |
Ratio of expenses to average net assets prior to fees waived5 |
Ratio of net investment income (loss) to average net assets |
Ratio of net investment income (loss) to average net assets prior to fees waived5 |
Portfolio turnover |
1 | Ratios have been annualized and total return and portfolio turnover have not been annualized. |
2 | During the period ended March 31, 2015, the Fund changed its fiscal year end from September to March. Ratios have been annualized and total return and portfolio turnover have not been annualized. |
3 | The average shares outstanding method has been applied for per share information. |
4 | Total investment return is based on the change in net asset value of a share during the period and assumes reinvestment of dividends and distributions at net asset value. Total investment return during some of the periods shown reflects a waiver by the manager and/or distributor. Performance would have been lower had the waiver not been in effect. |
5 | Expenses paid indirectly were not material, as reflected on the “Statement of operations,” and had no impact on the ratios disclosed. |
See accompanying notes, which are an integral part of the financial statements.
18
Table of Contents
Six months ended | 10/1/14 | |||||||||||||||||||||||||||||
9/30/171 | Year ended | to | Year ended | |||||||||||||||||||||||||||
(Unaudited) | 3/31/17 | 3/31/16 | 3/31/152 | 9/30/14 | 9/30/13 | 9/30/12 | ||||||||||||||||||||||||
|
| |||||||||||||||||||||||||||||
$ | 16.25 | $ | 25.77 | $ | 28.24 | $ | 28.15 | $ | 28.10 | $ | 24.29 | $ | 20.70 | |||||||||||||||||
(0.10 | ) | (0.19 | ) | (0.08 | ) | 0.04 | (0.18 | ) | (0.13 | ) | (0.12 | ) | ||||||||||||||||||
1.25 | (0.10 | ) | 0.62 | 4.17 | 1.31 | 5.52 | 4.66 | |||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
1.15 | (0.29 | ) | 0.54 | 4.21 | 1.13 | 5.39 | 4.54 | |||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
— | (9.23 | ) | (3.01 | ) | (4.12 | ) | (1.08 | ) | (1.58 | ) | (0.95 | ) | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
— | (9.23 | ) | (3.01 | ) | (4.12 | ) | (1.08 | ) | (1.58 | ) | (0.95 | ) | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
$ | 17.40 | $ | 16.25 | $ | 25.77 | $ | 28.24 | $ | 28.15 | $ | 28.10 | $ | 24.29 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
7.08% | 0.87% | 1.99% | 15.85% | 3.92% | 24.06% | 22.29% | ||||||||||||||||||||||||
$ | 13,912 | $ | 16,731 | $ | 18,768 | $ | 17,416 | $ | 16,936 | $ | 17,428 | $ | 11,764 | |||||||||||||||||
1.47% | 1.46% | 1.45% | 1.47% | 1.44% | 1.44% | 1.45% | ||||||||||||||||||||||||
1.47% | 1.46% | 1.45% | 1.47% | 1.44% | 1.54% | 1.55% | ||||||||||||||||||||||||
(1.21% | ) | (0.85% | ) | (0.28% | ) | 0.28% | (0.61% | ) | (0.50% | ) | (0.52% | ) | ||||||||||||||||||
(1.21% | ) | (0.85% | ) | (0.28% | ) | 0.28% | (0.61% | ) | (0.60% | ) | (0.62% | ) | ||||||||||||||||||
48% | 159% | 24% | 8% | 26% | 14% | 20% |
19
Table of Contents
Financial highlights
Delaware Smid Cap Growth Fund Institutional Class
Selected data for each share of the Fund outstanding throughout each period were as follows:
|
Net asset value, beginning of period |
Income (loss) from investment operations: |
Net investment income (loss)3 |
Net realized and unrealized gain |
Total from investment operations |
Less dividends and distributions from: |
Net investment income |
Net realized gain |
Total dividends and distributions |
Net asset value, end of period |
Total return5 |
Ratios and supplemental data: |
Net assets, end of period (000 omitted) |
Ratio of expenses to average net assets |
Ratio of expenses to average net assets prior to fees waived6 |
Ratio of net investment income (loss) to average net assets |
Ratio of net investment income (loss) to average net assets prior to fees waived6 |
Portfolio turnover |
1 | Ratios have been annualized and total return and portfolio turnover have not been annualized. |
2 | During the period ended March 31, 2015, the Fund changed its fiscal year end from September to March. Ratios have been annualized and total return and portfolio turnover have not been annualized. |
3 | The average shares outstanding method has been applied for per share information. |
4 | Amount is less than $0.005 per share. |
5 | 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. |
6 | Expenses paid indirectly were not material, as reflected on the “Statement of operations,” and had no impact on the ratios disclosed. |
See accompanying notes, which are an integral part of the financial statements.
20
Table of Contents
Six months ended | 10/1/14 | |||||||||||||||||||||||||||||
9/30/171 | Year ended | to | Year ended | |||||||||||||||||||||||||||
(Unaudited) | 3/31/17 | 3/31/16 | 3/31/152 | 9/30/14 | 9/30/13 | 9/30/12 | ||||||||||||||||||||||||
|
| |||||||||||||||||||||||||||||
$ | 23.50 | $ | 32.83 | $ | 34.98 | $ | 33.89 | $ | 33.46 | $ | 28.48 | $ | 24.01 | |||||||||||||||||
(0.09 | ) | (0.11 | ) | 0.08 | 0.13 | (0.04 | ) | — | 4 | (0.01 | ) | |||||||||||||||||||
1.81 | 0.02 | 0.78 | 5.08 | 1.55 | 6.56 | 5.43 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
1.72 | (0.09 | ) | 0.86 | 5.21 | 1.51 | 6.56 | 5.42 | |||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
— | (0.01 | ) | — | — | — | — | — | |||||||||||||||||||||||
— | (9.23 | ) | (3.01 | ) | (4.12 | ) | (1.08 | ) | (1.58 | ) | (0.95 | ) | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
— | (9.24 | ) | (3.01 | ) | (4.12 | ) | (1.08 | ) | (1.58 | ) | (0.95 | ) | ||||||||||||||||||
|
|
|
|
|
|
|
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|
|
|
|
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| |||||||||||||||||
$ | 25.22 |
| $ | 23.50 | $ | 32.83 | $ | 34.98 | $ | 33.89 | $ | 33.46 | $ | 28.48 | ||||||||||||||||
|
|
|
|
|
|
|
|
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|
|
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|
| |||||||||||||||||
7.32% | 1.33% | 2.54% | 16.13% | 4.44% | 24.66% | 22.90% | ||||||||||||||||||||||||
$ | 193,576 | $ | 226,724 | $ | 432,915 | $ | 364,740 | $ | 337,183 | $ | 224,829 | $ | 217,946 | |||||||||||||||||
0.97% | 0.96% | 0.95% | 0.97% | 0.94% | 0.94% | 0.95% | ||||||||||||||||||||||||
0.97% | 0.96% | 0.95% | 0.97% | 0.94% | 0.94% | 0.95% | ||||||||||||||||||||||||
(0.71% | ) | (0.35% | ) | 0.22% | 0.78% | (0.11% | ) | 0.00% | (0.02% | ) | ||||||||||||||||||||
(0.71% | ) | (0.35% | ) | 0.22% | 0.78% | (0.11% | ) | 0.00% | (0.02% | ) | ||||||||||||||||||||
48% | 159% | 24% | 8% | 26% | 14% | 20% |
21
Table of Contents
Financial highlights
Delaware Smid Cap Growth Fund Class R6
Selected data for each share of the Fund outstanding throughout each period were as follows:
Six months ended 9/30/171 (Unaudited) | 5/2/162 to 3/31/17 | |||||||||||
| ||||||||||||
Net asset value, beginning of period | $ | 23.50 | $ | 33.01 | ||||||||
Income (loss) from investment operations: | ||||||||||||
Net investment loss3 | (0.07 | ) | (0.05 | ) | ||||||||
Net realized and unrealized gain (loss) | 1.80 | (0.19 | ) | |||||||||
|
|
|
| |||||||||
Total from investment operations | 1.73 | (0.24 | ) | |||||||||
|
|
|
| |||||||||
Less dividends and distributions from: | ||||||||||||
Net investment income | — | (0.04 | ) | |||||||||
Net realized gain | — | (9.23 | ) | |||||||||
|
|
|
| |||||||||
Total dividends and distributions | — | (9.27 | ) | |||||||||
|
|
|
| |||||||||
Net asset value, end of period | $ | 25.23 | $ | 23.50 | ||||||||
|
|
|
| |||||||||
Total return4 | 7.36% | 0.88% | ||||||||||
Ratios and supplemental data: | ||||||||||||
Net assets, end of period (000 omitted) | $ | 564 | $ | 2 | ||||||||
Ratio of expenses to average net assets | 0.86% | 0.84% | ||||||||||
Ratio of expenses to average net assets prior to fees waived5 | 0.86% | 0.84% | ||||||||||
Ratio of net investment loss to average net assets | (0.60% | ) | (0.21% | ) | ||||||||
Ratio of net investment loss to average net assets prior to fees waived5 | (0.60% | ) | (0.21% | ) | ||||||||
Portfolio turnover | 48% | 159% | 6 | |||||||||
|
1 | Ratios have been annualized and total return and portfolio turnover have not been annualized. |
2 | Date of commencement of operations; ratios have been annualized and total return has not been annualized. |
3 | The average shares outstanding method has been applied for per share information. |
4 | Total investment return is based on the change in net asset value of a share during the period and assumes reinvestment of dividends and distributions at net asset value. |
5 | Expenses paid indirectly were not material, as reflected on the “Statement of operations,” and had no impact on the ratios disclosed. |
6 | Portfolio turnover is representative of the Fund for the entire year ended March 31, 2017. |
See accompanying notes, which are an integral part of the financial statements.
22
Table of Contents
Delaware Smid Cap Growth Fund | September 30, 2017 (Unaudited) |
Delaware Group® Equity Funds IV (Trust) is organized as a Delaware statutory trust and offers three series: Delaware Healthcare Fund, Delaware Smid Cap Growth Fund, and Delaware Small Cap Growth Fund. These financial statements and the related notes pertain to Delaware Smid Cap Growth Fund (Fund). The Trust is an open-end investment company. The Fund is considered diversified under the Investment Company Act of 1940, as amended, and offers Class A, Class C, Class R, Institutional Class, and Class R6 shares. Class A shares are sold with a maximum front-end sales charge of 5.75%. Class A share purchases of $1,000,000 or more will incur a contingent deferred sales charge (CDSC) instead of a front-end sales charge of 1.00% if redeemed during the first year, and 0.50% during the second year, provided that Delaware Distributors, L.P. (DDLP) paid a financial advisor a commission on the purchase of those shares. Class C shares are sold with a CDSC of 1.00%, if redeemed during the first 12 months. Class R, Institutional Class, and Class R6 shares are not subject to a sales charge and are offered for sale exclusively to certain eligible investors. In addition, Class R6 shares do not pay any service fees, sub-accounting fees, and/or sub-transfer agency fees.
The investment objective of the Fund is to seek long-term capital appreciation.
1. Significant Accounting Policies
The following accounting policies are in accordance with US generally accepted accounting principles (US GAAP) and are consistently followed by the Fund.
Security Valuation — Equity securities, except those traded on the Nasdaq Stock Market LLC (Nasdaq), are valued at the last quoted sales price as of the time of the regular close of the New York Stock Exchange on the valuation date. Equity 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, the mean between the bid and ask prices will be used, which approximates fair value. Equity securities listed on a foreign exchange are normally valued at the last quoted sales price on the valuation date. US government and agency securities are valued at the mean between the bid and ask prices, which approximates fair value. Foreign currency exchange contracts are valued at the mean between the bid and ask prices, which approximates fair value. Interpolated values are derived when the settlement date of the contract is an interim date for which quotations are not available. Generally, other securities and assets for which market quotations are not readily available are valued at fair value as determined in good faith under the direction of the Trust’s Board of Trustees (Board). In determining whether market quotations are readily available or fair valuation will be used, various factors will be taken into consideration, such as market closures or suspension of trading in a security. The Fund may use fair value pricing more frequently for securities traded primarily in non-US markets because, among other things, most foreign markets close well before the Fund values its securities, generally as of 4:00pm Eastern time. The earlier close of these foreign markets gives rise to the possibility that significant events, including broad market moves, government actions or pronouncements, aftermarket trading, or news events may have occurred in the interim. Whenever such a significant event occurs, the Fund may value foreign securities using fair value prices based on third-party vendor modeling tools (international fair value pricing). The foregoing valuation policies apply to restricted and unrestricted securities.
Federal and Foreign Income Taxes — No provision for federal income taxes has been made as the Fund intends to continue to qualify for federal income tax purposes as a regulated investment company
23
Table of Contents
Notes to financial statements
Delaware Smid Cap Growth Fund
1. Significant Accounting Policies (continued)
under Subchapter M of the Internal Revenue Code of 1986, as amended, and make the requisite distributions to shareholders. The Fund evaluates tax positions taken or expected to be taken in the course of preparing the Fund’s tax returns to determine whether the tax positions are “more-likely-than-not” of being sustained by the applicable tax authority. Tax positions not deemed to meet the “more-likely-than-not” threshold are recorded as a tax benefit or expense in the current year. Management has analyzed the Fund’s tax positions taken or to be taken on the Fund’s federal income tax returns through the six months ended Sept. 30, 2017 and for all open tax years (years ended Sept. 30, 2013–March 31, 2017), and has concluded that no provision for federal income tax is required in the Fund’s financial statements. If applicable, the Fund recognizes interest accrued on unrecognized tax benefits in interest expense and penalties in other expenses on the “Statement of operations.” During the six months ended Sept. 30, 2017, the Fund did not incur any interest or tax penalties. In regard to foreign taxes only, the Fund has open tax years in certain foreign countries in which it invests that may date back to the inception of the Fund.
Class Accounting — Investment income, common expenses, and realized and unrealized gain (loss) on investments are allocated to the various classes of the Fund on the basis of daily net assets of each class. Distribution expenses relating to a specific class are charged directly to that class. Class R6 shares will not be allocated any expenses related to service fees, sub-accounting fees, and/or sub-transfer agency fees paid to brokers, dealers, or other financial intermediaries.
Repurchase Agreements — The Fund may purchase certain US government securities subject to the counterparty’s agreement to repurchase them at an agreed upon date and price. The counterparty will be required on a daily basis to maintain the value of the collateral subject to the agreement at not less than the repurchase price (including accrued interest). The agreements are conditioned upon the collateral being deposited under the Federal Reserve book-entry system with the Fund’s custodian or a third-party sub-custodian. In the event of default or bankruptcy by the other party to the agreement, retention of the collateral may be subject to legal proceedings. At Sept. 30, 2017, the Fund held no investments in repurchase agreements.
Foreign Currency Transactions — Transactions denominated in foreign currencies are recorded at the prevailing exchange rates on the valuation date in accordance with the Fund’s prospectus. The value of all assets and liabilities denominated in foreign currencies is translated daily into US dollars at the exchange rate of such currencies against the US dollar. 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 Fund generally does not bifurcate that portion of realized gains and losses on investments which is due to changes in foreign exchange rates from that which is due to changes in market prices. These gains and losses are included on the “Statement of operations” under “Net realized and unrealized gain (loss) on investments.” The Fund reports certain foreign currency related transactions as components of realized gains (losses) for financial reporting purposes, whereas such components are treated as ordinary income (loss) for federal income tax purposes.
Use of Estimates — The Fund is an investment company, whose financial statements are prepared in conformity with US GAAP. Therefore, the Fund follows the accounting and reporting guidelines for
24
Table of Contents
investment companies. The preparation of financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the fair value of investments, the reported amounts of assets and liabilities and disclosure of contingent 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 and the differences could be material.
Other — Expenses directly attributable to the Fund are charged directly to the Fund. Other expenses common to various funds within the Delaware FundsSM by Macquarie (Delaware Funds) are generally allocated among such funds on the basis of average net assets. Management fees and certain 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. Distributions received from investments in real estate investment trusts (REITs) are recorded as dividend income on the ex-dividend date, subject to reclassification upon notice of the character of such distributions by the issuer. Foreign dividends are also recorded on the ex-dividend date or as soon after the ex-dividend date that the Fund is aware of such dividends, net of all tax withholdings, a portion of which may be reclaimable. Withholding taxes and reclaims on foreign dividends have been recorded in accordance with the Fund’s understanding of the applicable country’s tax rules and rates. The Fund declares and pays dividends from net investment income and distributions from net realized gain on investments, if any, annually. The Fund may distribute more frequently, if necessary for tax purposes. Dividends and distributions, if any, are recorded on the ex-dividend date.
Subject to seeking best execution, the Fund may direct certain security trades to brokers who have agreed to rebate a portion of the related brokerage commission to the Fund in cash. In general, best execution refers to many factors, including the price paid or received for a security, the commission charged, the promptness and reliability of execution, the confidentiality and placement accorded the order, and other factors affecting the overall benefit obtained by the Fund on the transaction. There were no commission rebates for the six months ended Sept. 30, 2017.
The Fund may receive earnings credits from its custodian when positive cash balances are maintained, which may be used to offset custody fees. There were no such earnings credits for the six months ended Sept. 30, 2017.
The Fund receives earnings credits from its transfer agent when positive cash balances are maintained, which may be used to offset transfer agent fees. If the amount earned is greater than $1, the expense paid under this arrangement is included on the “Statement of operations” under “Dividend disbursing and transfer agent fees and expenses” with the corresponding expense offset shown under “Less expense paid indirectly.” For the six months ended Sept. 30, 2017, the Fund earned $741 under this agreement.
2. Investment Management, Administration Agreements and Other Transactions with Affiliates
In accordance with the terms of its investment management agreement, the Fund pays Delaware Management Company (DMC), a series of Macquarie Investment Management Business Trust (formerly,
25
Table of Contents
Notes to financial statements
Delaware Smid Cap Growth Fund
2. Investment Management, Administration Agreements and Other Transactions with Affiliates (continued)
Delaware Management Business Trust) and the investment manager, an annual fee which is calculated daily and paid monthly at the rate of 0.75% on the first $500 million of the average daily net assets of the Fund; 0.70% on the next $500 million; 0.65% on the next $1.5 billion; and 0.60% on average daily net assets in excess of $2.5 billion.
Delaware Investments Fund Services Company (DIFSC), an affiliate of DMC, provides fund accounting and financial administration oversight services to the Fund. For these services, DIFSC’s fees were calculated daily and paid monthly based on the aggregate daily net assets of the Delaware Funds from April 1, 2017 through Aug. 31, 2017 at the following annual rate: 0.0050% of the first $30 billion; 0.0045% of the next $10 billion; 0.0040% of the next $10 billion; and 0.0025% of aggregate average daily net assets in excess of $50 billion. The fees payable to DIFSC under the service agreement described above were allocated among all funds in the Delaware Funds on a relative net asset value (NAV) basis. Effective Sept. 1, 2017, the Fund entered into an amendment to the DIFSC agreement. Under the amendment to the DIFSC agreement, DIFSC’s fees are calculated daily and paid monthly based on the aggregate daily net assets of the Delaware Funds at the following annual rate: 0.00475% of the first $35 billion; 0.0040% of the next $10 billion; and 0.0025% of aggregate average daily net assets in excess of $45 billion (Total Fee). Each Fund in the Delaware Funds pays a minimum of $4,000, which, in aggregate, is subtracted from the Total Fee. Each Fund in the Delaware Funds then pays its relative portion of the remainder of the Total Fee on a relative NAV basis. For the six months ended Sept. 30, 2017, the Fund was charged $20,693 for these services. This amount is included on the “Statement of operations” under “Accounting and administration expenses.”
DIFSC is also the transfer agent and dividend disbursing agent of the Fund. For these services, DIFSC’s fees are calculated daily and paid monthly based on the aggregate daily net assets of the retail funds within the Delaware Funds at the following annual rate: 0.025% of the first $20 billion; 0.020% of the next $5 billion; 0.015% of the next $5 billion; and 0.013% of average daily net assets in excess of $30 billion. The fees payable to DIFSC under the service agreement described above are allocated among all retail funds in the Delaware Funds on a relative NAV basis. This amount is included on the “Statement of operations” under “Dividend disbursing and transfer agent fees and expenses.” For the six months ended Sept. 30, 2017, the Fund was charged $89,895 for these services. Pursuant to a sub-transfer agency agreement between DIFSC and BNY Mellon Investment Servicing (US) Inc. (BNYMIS), BNYMIS provides certain sub-transfer agency services to the Fund. Sub-transfer agency fees are paid by the Fund and are also included on the “Statement of operations” under “Dividend disbursing and transfer agent fees and expenses.”
Pursuant to a distribution agreement and distribution plan, the Fund pays DDLP, the distributor and an affiliate of DMC, an annual distribution and service (12b-1) fees of 0.25% of the average daily net assets of the Class A shares, 1.00% of the average daily net assets of the Class C shares, and 0.50% of the average daily net assets of Class R shares. The Board has adopted a formula for calculating 12b-1 fees for the Fund’s Class A shares that went into effect on Oct. 11, 2010. The total 12b-1 fees to be paid by Class A shareholders of the Fund will be the sum of: (i) 0.10% of the average daily net assets representing shares that were acquired prior to June 1, 1992, and (ii) 0.25% of the average daily net assets representing shares that were acquired on or after June 1, 1992. All Class A shareholders
26
Table of Contents
currently bear 12b-1 fees at the same rate, the blended rate based on the formula described above. This method of calculating Class A 12b-1 fees may be discontinued at the sole discretion of the Board. The fees are calculated daily and paid monthly. Institutional Class and Class R6 shares pay no 12b-1 fees.
As provided in the investment management agreement, the Fund bears a portion of the cost of certain resources shared with DMC, including the cost of internal personnel of DMC and/or its affiliates that provide legal, tax, and regulatory reporting services to the Fund. For the six months ended Sept. 30, 2017, the Fund was charged $10,221 for internal legal, tax, and regulatory reporting services provided by DMC and/or its affiliates’ employees. This amount is included on the “Statement of operations” under “Legal fees.”
For the six months ended Sept. 30, 2017, DDLP earned $10,285 for commissions on sales of the Fund’s Class A shares. For the six months ended Sept. 30, 2017, DDLP received gross CDSC commissions of $36 and $1,011 on redemptions of the Fund’s Class A and Class C shares, respectively, and these commissions were entirely used to offset upfront commissions previously paid by DDLP to broker/dealers on sales of those shares.
Trustees’ fees include expenses accrued by the Fund for each Trustee’s retainer and meeting fees. Certain officers of DMC, DIFSC, and DDLP are officers and/or Trustees of the Trust. These officers and Trustees are paid no compensation by the Fund.
3. Investments
For the six months ended Sept. 30, 2017, the Fund made purchases and sales of investment securities other than short-term investments as follows:
Purchases | $ | 438,117,843 | ||
Sales | 557,004,579 |
At Sept. 30, 2017, the cost of investments for federal income tax purposes has been estimated since final tax characteristics cannot be determined until fiscal year end. At Sept. 30, 2017, the cost and unrealized appreciation (depreciation) of investments for the Fund were as follows:
Cost of investments | $ | 740,148,042 | ||
Aggregate unrealized appreciation of investments | $ | 178,027,351 | ||
Aggregate unrealized depreciation of investments | (29,062,244 | ) | ||
|
| |||
Net unrealized appreciation of investments | $ | 148,965,107 | ||
|
|
Qualified late year ordinary and capital losses (including currency and specified gain/loss items) represent losses realized from Jan. 1, 2017 through March 31, 2017, that in accordance with federal income tax regulations, the Fund has elected to defer and treat as having arisen in the following fiscal year. As of March 31, 2017, qualified late year loss deferrals amounted to $2,093,964.
US GAAP defines fair value as the price that the Fund would receive to sell an asset or pay to transfer a liability in an orderly transaction between market participants at the measurement date under current market conditions. A three-level hierarchy for fair value measurements has been established based upon the transparency of inputs to the valuation of an asset or liability. Inputs may be observable or unobservable and refer broadly to the assumptions that market participants would use in pricing the asset or liability. Observable inputs reflect the assumptions market participants would use in pricing the
27
Table of Contents
Notes to financial statements
Delaware Smid Cap Growth Fund
3. Investments (continued)
asset or liability based on market data obtained from sources independent of the reporting entity. Unobservable inputs reflect the reporting entity’s own assumptions about the assumptions that market participants would use in pricing the asset or liability based on the best information available under the circumstances. The Fund’s investment in its entirety is assigned a level based upon the observability of the inputs which are significant to the overall valuation. The three-level hierarchy of inputs is summarized below.
Level 1 – | Inputs are quoted prices in active markets for identical investments. (Examples: equity securities, open-end investment companies, futures contracts, exchange-traded options contracts) |
Level 2 – | Other observable inputs, including, but not limited to: quoted prices for similar assets or liabilities in markets that are active, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the assets or liabilities (such as interest rates, yield curves, volatilities, prepayment speeds, loss severities, credit risks, and default rates) or other market-corroborated inputs. (Examples: debt securities, government securities, swap contracts, foreign currency exchange contracts, foreign securities utilizing international fair value pricing, broker-quoted securities, fair valued securities) |
Level 3 – | Significant unobservable inputs, including the Fund’s own assumptions used to determine the fair value of investments. (Examples: broker-quoted securities, fair valued securities) |
Level 3 investments are valued using significant unobservable inputs. The Fund may also use an income-based valuation approach in which the anticipated future cash flows of the investment are discounted to calculate fair value. Discounts may also be applied due to the nature or duration of any restrictions on the disposition of the investments. Valuations may also be based upon current market prices of securities that are comparable in coupon, rating, maturity, and industry. The derived value of a Level 3 investment may not represent the value which is received upon disposition and this could impact the results of operations.
The following table summarizes the valuation of the Fund’s investments by fair value hierarchy levels as of Sept. 30, 2017:
Securities | Level 1 | |||
Assets: | ||||
Common Stock | $ | 889,113,149 |
During the six months ended Sept. 30, 2017, there were no transfers between Level 1 investments, Level 2 investments, or Level 3 investments that had a significant impact to the Fund. This does not include transfers between Level 1 investments and Level 2 investments due to the Fund utilizing international fair value pricing during the period. In accordance with the fair valuation procedures described in Note 1, international fair value pricing of securities in the Fund occurs when market volatility exceeds an established rolling threshold. If the threshold is exceeded on a given date, then prices of international securities (those that traded on exchanges that close at a different time than the time that the Fund’s NAV is determined) are established using a separate pricing feed from a third-party vendor
28
Table of Contents
designed to establish a price for each such security as of the time that the Fund’s NAV is determined. Further, international fair value pricing uses other observable market-based inputs in place of the closing exchange price due to the events occurring after the close of the exchange or market on which the investment is principally traded, causing a change in classification between levels. The Fund’s policy is to recognize transfers between levels based on fair value at the beginning of the reporting period.
A reconciliation of Level 3 investments is presented when the Fund has a significant amount of Level 3 investments at the beginning, interim, or end of the period in relation to net assets. During the six months ended Sept. 30, 2017, there were no Level 3 investments.
4. Capital Shares
Transactions in capital shares were as follows:
Six months | Year | |||||||
ended | ended | |||||||
9/30/17 | 3/31/17 | |||||||
Shares sold: | ||||||||
Class A | 747,893 | 1,537,467 | ||||||
Class C | 97,891 | 388,478 | ||||||
Class R | 91,103 | 252,667 | ||||||
Institutional Class | 994,748 | 4,034,439 | ||||||
Class R6 | 24,060 | 61 | ||||||
Shares issued upon reinvestment of dividends and distributions: | ||||||||
Class A | — | 14,382,418 | ||||||
Class C | — | 3,247,681 | ||||||
Class R | — | 409,369 | ||||||
Institutional Class | — | 3,347,776 | ||||||
Class R6 | — | 25 | ||||||
|
|
|
| |||||
1,955,695 | 27,600,381 | |||||||
|
|
|
| |||||
Shares redeemed: | ||||||||
Class A | (4,072,296 | ) | (7,892,305 | ) | ||||
Class C | (1,361,524 | ) | (1,823,380 | ) | ||||
Class R | (321,049 | ) | (360,589 | ) | ||||
Institutional Class | (2,967,364 | ) | (10,923,654 | ) | ||||
Class R6 | (1,786 | ) | — | |||||
|
|
|
| |||||
(8,724,019 | ) | (20,999,928 | ) | |||||
|
|
|
| |||||
Net increase (decrease) | (6,768,324 | ) | 6,600,453 | |||||
|
|
|
|
Certain shareholders may exchange shares of one class for shares of another class in the same Fund. For the six months ended Sept. 30, 2017 and year ended March 31, 2017, the Fund had the following exchange transactions. These exchange transactions are included as subscriptions and redemptions in the table above and the “Statements of changes in net assets.”
29
Table of Contents
Notes to financial statements
Delaware Smid Cap Growth Fund
4. Capital Shares (continued)
Exchange Redemptions | Exchange Subscriptions | |||||||||||||||||||||||
Class A Shares | Class C Shares | Class A Shares | Institutional Class Shares | Value | ||||||||||||||||||||
Six months ended | ||||||||||||||||||||||||
9/30/17 | 19,469 | 21,743 | 3,389 | 20,419 | $ | 549,257 | ||||||||||||||||||
Year ended | ||||||||||||||||||||||||
3/31/17 | 440,698 | 20,732 | — | 338,770 | 8,036,478 |
5. Line of Credit
The Fund, along with certain other funds in the Delaware Funds (Participants), was a participant in a $155,000,000 revolving line of credit intended to be used for temporary or emergency purposes as an additional source of liquidity to fund redemptions of investor shares. Under the agreement, the Participants were charged an annual commitment fee of 0.15%, which was allocated across the Participants on the basis of relative net assets of each Participant’s allocation of the entire facility. The Participants were permitted to borrow up to a maximum of one-third of their net assets under the agreement. Each Participant was individually, and not jointly, liable for its particular advances, if any, under the line of credit. The line of credit available under the agreement expired on Nov. 6, 2017.
The Fund had no amounts outstanding as of Sept. 30, 2017, or at any time during the period then ended.
6. Derivatives
US GAAP requires disclosures that enable investors to understand: (1) how and why an entity uses derivatives; (2) how they are accounted for; and (3) how they affect an entity’s results of operations and financial position.
Foreign Currency Exchange Contracts — The Fund may enter into foreign currency exchange contracts as a way of managing foreign exchange rate risk. The Fund may enter into these contracts to fix the US 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 Fund may also use these contracts to hedge the US dollar value of securities it already owns that are denominated in foreign currencies. In addition, the Fund may enter into these contracts to facilitate or expedite the settlement of portfolio transactions. The change in value is recorded as an unrealized gain or loss. When the contract is closed, a realized gain or loss is recorded equal to the difference between the value of the contract at the time it was opened and the value at the time it was closed.
The use of foreign currency exchange contracts does not eliminate fluctuations in the underlying prices of the securities, but does establish a rate of exchange that can be achieved in the future. Although foreign currency exchange contracts limit the risk of loss due to an unfavorable change in the value of the hedged currency, they also limit any potential gain that might result should the value of the currency change favorably. In addition, the Fund could be exposed to risks if the counterparties to the contracts are unable to meet the terms of their contracts. The Fund’s maximum risk of loss from counterparty credit risk is the value of its currency exchanged with the counterparty. The risk is generally mitigated by
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having a netting arrangement between the Fund and the counterparty and by the posting of collateral by the counterparty to the Fund to cover the Fund’s exposure to the counterparty.
During the six months ended Sept. 30, 2017, the Fund used foreign currency exchange contracts to facilitate or expedite the settlement of portfolio transactions.
During the six months ended Sept. 30, 2017, the Fund experienced net realized gains or losses attributable to foreign currency holdings, which are disclosed as “Net realized gain (loss) on foreign currency exchange contracts” on the “Statement of operations.”
7. Securities Lending
The Fund, along with other funds in the Delaware Funds, may lend its securities pursuant to a security lending agreement (Lending Agreement) with The Bank of New York Mellon (BNY Mellon). At the time a security is loaned, the borrower must post collateral equal to the required percentage of the market value of the loaned security, including any accrued interest. The required percentage is: (1) 102% with respect to US securities and foreign securities that are denominated and payable in US dollars; and (2) 105% with respect to foreign securities. With respect to each loan, if on any business day the aggregate market value of securities collateral plus cash collateral held 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 by the end of the following business day, which, together with the collateral already held, will be not less than the applicable initial collateral requirements for such security loan. If the aggregate market value of securities collateral and cash collateral held with respect to a security loan exceeds the applicable initial collateral requirement, upon request of the borrower, BNY Mellon must return enough collateral to the borrower by the end of the following business day to reduce the value of the remaining collateral to the applicable initial collateral requirement for such security loan. As a result of the foregoing, the value of the collateral held with respect to a loaned security on any particular day may be more or less than the value of the security on loan.
Cash collateral received by each fund of the Trust is generally invested in a series of individual separate accounts, each corresponding to a fund. The investment guidelines permit each separate account to hold certain securities that would be considered eligible securities for a money market fund. Cash collateral received is generally invested in government securities; certain obligations issued by government sponsored enterprises; repurchase agreements collateralized by US Treasury securities; obligations issued by the central government of any Organization for Economic Cooperation and Development (OECD) country or its agencies, instrumentalities or establishments; obligations of supranational organizations; commercial paper, notes, bonds and other debt obligations; certificates of deposit, time deposits, and other bank obligations; and asset-backed securities. A Fund can also accept US government securities and letters of credit (non-cash collateral) in connection with securities loans.
In the event of default or bankruptcy by the lending agent, realization and/or retention of the collateral may be subject to legal proceedings. In the event the borrower fails to return loaned securities and the collateral received is insufficient to cover the value of the loaned securities and provided such collateral shortfall is not the result of investment losses, the lending agent has agreed to pay the amount of the shortfall to the Fund or, at the discretion of the lending agent, replace the loaned securities. The Fund continues to record dividends or interest, as applicable, on the securities loaned and is subject to
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Notes to financial statements
Delaware Smid Cap Growth Fund
7. Securities Lending (continued)
changes in value of the securities loaned that may occur during the term of the loan. The Fund has the right under the Lending Agreement to recover the securities from the borrower on demand. With respect to security loans collateralized by non-cash collateral, the Fund receives loan premiums paid by the borrower. With respect to security loans collateralized by cash collateral, the earnings from the collateral investments are shared among the Fund, the security lending agent, and the borrower. The Fund records security lending income net of allocations to the security lending agent and the borrower.
The Fund may incur investment losses as a result of investing securities lending collateral. This could occur if an investment in the collateral investment account defaulted or became impaired. Under those circumstances, the value of a Fund’s cash collateral account may be less than the amount the Fund would be required to return to the borrowers of the securities and the Fund would be required to make up for this shortfall.
During the six months ended Sept. 30, 2017, the Fund had no securities out on loan.
8. Credit and Market Risk
The Fund invested in growth stocks (such as those in the technology sector), which reflect projections of future earnings and revenue. These prices may rise or fall dramatically depending on whether those projections are met. These companies’ stock prices may be more volatile, particularly over the short-term.
The Fund invests a significant portion of its assets in small- and mid-sized companies and may be subject to certain risks associated with ownership of securities of such companies. Investments in small-or mid-sized companies may be more volatile than investments in larger companies for a number of reasons, which include limited financial resources or a dependence on narrow product lines.
The Fund invests in REITs and is subject to the risks associated with that industry. If the Fund 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. There were no direct real estate holdings during the six months ended Sept. 30, 2017. The Fund’s REIT holdings are also affected by interest rate changes, particularly if the REITs it holds use floating rate debt to finance their ongoing operations.
The Fund may invest up to 15% of its net assets in illiquid securities, which may include securities with contractual restrictions on resale, securities exempt from registration under Rule 144A promulgated under 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 Fund 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 Fund’s Board has delegated to DMC, the day-to-day functions of determining whether individual securities are liquid for purposes of the Fund’s limitation on investments in illiquid securities. Securities eligible for resale pursuant to Rule 144A, which are determined to be liquid, are not subject to the Fund’s 15% limit on investments in illiquid securities. As of Sept. 30, 2017, there were no Rule 144A securities held by the Fund.
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9. Contractual Obligations
The Fund enters into contracts in the normal course of business that contain a variety of indemnifications. The Fund’s maximum exposure under these arrangements is unknown. However, the Fund has not had prior claims or losses pursuant to these contracts. Management has reviewed the Fund’s existing contracts and expects the risk of loss to be remote.
10. Recent Accounting Pronouncements
In October 2016, the Securities and Exchange Commission released its Final Rule on Investment Company Reporting Modernization (Rule). The Rule contains amendments to Regulation S-X which impact financial statement presentation, particularly the presentation of derivative investments. The financial statements presented are in compliance with the most recent Regulation S-X amendments.
11. Subsequent Events
On Nov. 6, 2017, the Fund, along with the other Participants, entered into an amendment to the agreement for a $155,000,000 revolving line of credit to be used as described in Note 5 and to be operated in substantially the same manner as the agreement described in Note 5. Under the amendment to the agreement, the Participants are charged an annual commitment fee of 0.15%, which is allocated across the Participants on the basis of each Participant’s allocation of the entire facility. The line of credit available under the agreement expires on Nov. 5, 2018.
Management has determined that no other material events or transactions occurred subsequent to Sept. 30, 2017, that would require recognition or disclosure in the Fund’s financial statements.
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Other Fund information (Unaudited)
Delaware Smid Cap Growth Fund
Board consideration of Delaware Smid Cap Growth Fund investment advisory agreement
At a meeting held on Aug. 16-17, 2017 (the “Annual Meeting”), the Board of Trustees (the “Board”), including a majority of disinterested or independent Trustees, approved the renewal of the Investment Advisory Agreement for Delaware Smid Cap Growth Fund (the “Fund”). In making its decision, the Board considered information furnished at regular quarterly Board meetings, including reports detailing Fund performance, investment strategies, and expenses, as well as information prepared specifically in connection with the renewal of the investment advisory and sub-advisory contracts. Information furnished specifically in connection with the renewal of the Investment Management Agreement with Delaware Management Company (“DMC”), a series of Macquarie Investment Management Business Trust (formerly, Delaware Management Business Trust), included materials provided by DMC and its affiliates concerning, among other things, the nature, extent, and quality of services provided to the Fund; the costs of such services to the Fund; economies of scale; and the investment manager’s financial condition and profitability. In addition, in connection with the Annual Meeting, reports were provided to the Trustees in May 2017 and included reports provided by Broadridge Financial Solutions (formerly Lipper) (“Broadridge” or “Lipper”). The Broadridge reports compared the Fund’s investment performance and expenses with those of other comparable mutual funds. The Independent Trustees reviewed and discussed the Broadridge reports with independent legal counsel to the Independent Trustees. In addition to the information noted above, the Board also requested and received information regarding DMC’s policy with respect to advisory fee levels and its breakpoint philosophy; the structure of portfolio manager compensation; comparative client fee information; and any constraints or limitations on the availability of securities for certain investment styles, which had in the past year inhibited, or which were likely in the future to inhibit, the investment manager’s ability to invest fully in accordance with Fund policies.
In considering information relating to the approval of the Fund’s advisory agreement, the Independent Trustees received assistance and advice from and met separately with independent legal counsel to the Independent Trustees and also from an experienced and knowledgeable fund consultant, JDL Consultants, LLC (“JDL”). Although the Board gave attention to all information furnished, the following discussion identifies, under separate headings, the primary factors taken into account by the Board during its contract renewal considerations.
Nature, extent, and quality of service. The Board considered the services provided by DMC to the Fund and its shareholders. In reviewing the nature, extent, and quality of services, the Board considered reports furnished to it throughout the year, which covered matters such as the relative performance of the Fund; compliance of portfolio managers with the investment policies, strategies, and restrictions for the Funds; compliance by DMC and Delaware Distributors, L.P. (together, “Management”) personnel with the Code of Ethics adopted throughout the Delaware FundsSM by Macquarie (“Delaware Funds”) complex; and adherence to fair value pricing procedures as established by the Board. The Board was pleased with the current staffing of the Fund’s investment advisor and the emphasis placed on research in the investment process. The Board recognized DMC’s receipt of certain industry distinctions during the past several years. The Board gave favorable consideration to DMC’s efforts to control expenditures while maintaining service levels committed to Fund matters. The Board also noted the benefits provided to Fund shareholders through each shareholder’s ability to exchange an investment in one Delaware Fund for the same class of shares in another Delaware Fund without a sales charge, to reinvest Fund
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dividends into additional shares of the Fund or into additional shares of other Delaware Funds, and the privilege to combine holdings in other Delaware Funds to obtain a reduced sales charge. The Board was satisfied with the nature, extent, and quality of the overall services provided by DMC.
Investment performance. The Board placed significant emphasis on the investment performance of the Fund in view of the importance of investment performance to shareholders. Although the Board considered performance reports and discussions with portfolio managers at Investment Committee meetings throughout the year, the Board gave particular weight to the Broadridge reports furnished for the Annual Meeting. The Broadridge reports prepared for the Fund showed the investment performance of its Class A shares in comparison to a group of similar funds as selected by Broadridge (the “Performance Universe”). A fund with the best performance ranked first, and a fund with the poorest performance ranked last. The highest/best performing 25% of funds in the Performance Universe make up the first quartile; the next 25%, the second quartile; the next 25%, the third quartile; and the poorest/worst performing 25% of funds in the Performance Universe make up the fourth quartile. Comparative annualized performance for the Fund was shown for the past 1-, 3-, 5-, and 10-year periods, to the extent applicable, ended Jan. 31, 2017. The Board’s objective is that the Fund’s performance for the 1-, 3-, and 5-year periods be at or above the median of its Performance Universe.
The Performance Universe for the Fund consisted of the Fund and all retail and institutional mid-cap growth funds as selected by Broadridge. The Broadridge comparison showed that the Fund’s total return for the 1-year period was in the fourth quartile of its Performance Universe. The report further showed that the Fund’s total return for the 3- and 5-year periods was in the second quartile and third quartile, respectively, of its Performance Universe. The Board noted that the Fund’s performance was not in line with the Board’s objective. In evaluating the Fund’s performance, the Board considered that a new investment team had assumed the day-to-day management of the Fund in June of 2016. At that time, the Fund’s strategies changed to reflect the new team’s investment approach. The Board also considered the numerous investment and performance reports delivered by Management personnel to the Board’s Investments Committee. The Board was satisfied that Management was taking action to improve Fund performance and meet the Board’s performance objective.
Comparative expenses. The Board considered expense data for the Delaware Funds. Management provided the Board with information on pricing levels and fee structures for the Fund as of its most recently completed fiscal year. The Board also focused on the comparative analysis of effective management fees and total expense ratios of the Fund versus effective management fees and total expense ratios of a group of similar funds as selected by Broadridge (the “Expense Group”). In reviewing comparative costs, the Fund’s contractual management fee and the actual management fee incurred by the Fund were compared with the contractual management fees (assuming all funds in the Expense Group were similar in size to the Fund) and actual management fees (as reported by each fund) within the Expense Group, taking into account any applicable breakpoints and fee waivers. The Fund’s total expenses were also compared with those of its Expense Group. The Broadridge total expenses, for comparative consistency, were shown by Broadridge for Class A shares and comparative total expenses including 12b-1 and non-12b-1 service fees. The Board’s objective is to limit the Fund’s total expense ratio to be competitive with that of the Expense Group.
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Other Fund information (Unaudited)
Delaware Smid Cap Growth Fund
Board consideration of Delaware Smid Cap Growth Fund investment advisory agreement (continued)
The expense comparisons for the Fund showed that its actual management fee and total expenses were in the quartile with the lowest expenses of its Expense Group. The Board was satisfied with the management fee and total expenses of the Fund in comparison to those of its Expense Group as shown in the Broadridge report.
Management profitability. The Board considered the level of profits realized by DMC in connection with the operation of the Fund. In this respect, the Board reviewed the Investment Management Profitability Analysis that addressed the overall profitability of DMC’s business in providing management and other services to each of the individual funds and the Delaware Funds as a whole. Specific attention was given to the methodology used by DMC followed in allocating costs for the purpose of determining profitability. Management stated that the level of profits of DMC, to a certain extent, reflects recent operational cost savings and efficiencies initiated by DMC. The Board considered DMC’s efforts to improve services provided to fund shareholders and to meet additional regulatory and compliance requirements resulting from recent industry-wide Securities and Exchange Commission initiatives. The Board also considered the extent to which DMC might derive ancillary benefits from fund operations, including the potential for procuring additional business as a result of the prestige and visibility associated with its role as service provider to the Delaware Funds and the benefits from allocation of fund brokerage to improve trading efficiencies. Finally, the Board also reviewed a report prepared by JDL regarding DMC profitability in the context of sub-advised funds and met with JDL personnel to discuss DMC’s profitability in such context. The Board found that the management fees were reasonable in light of the services rendered and the level of profitability of DMC.
Economies of scale. The Trustees considered whether economies of scale are realized by DMC as the Fund’s assets increase and the extent to which any economies of scale are reflected in the level of management fees charged. The Trustees reviewed the standardized advisory fee pricing and structure, approved by the Board and shareholders, which includes breakpoints, and which applies to most funds in the Delaware Funds complex. Breakpoints in the advisory fee occur when the advisory fee rate is reduced on assets in excess of specified levels. Breakpoints result in a lower advisory fee than would otherwise be the case in the absence of breakpoints, when the asset levels specified in the breakpoints are exceeded. The Board noted that the fee under the Fund’s management contract fell within the standardized fee pricing structure. The Board also noted that, as of Feb. 28, 2017, the Fund’s assets exceeded the first breakpoint level. The Board believed that, given the extent to which economies of scale might be realized by the advisor and its affiliates, the schedule of fees under the Investment Management Agreement provides a sharing of benefits with the Fund and its shareholders.
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Board of trustees
| ||||||
Shawn K. Lytle President and Chief Executive Officer Delaware FundsSM by Macquarie Philadelphia, PA
Thomas L. Bennett Chairman of the Board Delaware Funds by Macquarie Private Investor Rosemont, PA | Ann D. Borowiec Former Chief Executive Officer Private Wealth Management J.P. Morgan Chase & Co. New York, NY
Joseph W. Chow Former Executive Vice President State Street Corporation Boston, MA | John A. Fry President Drexel University Philadelphia, PA
Lucinda S. Landreth Former Chief Investment Officer Assurant, Inc. New York, NY | Frances A. Sevilla-Sacasa Former Chief Executive Officer Banco Itaú International Miami, FL
Thomas K. Whitford Former Vice Chairman PNC Financial Services Group Pittsburgh, PA
Janet L. Yeomans Former Vice President and Treasurer 3M Company St. Paul, MN | |||
Affiliated officers | ||||||
David F. Connor Senior Vice President, General Counsel, and Secretary Delaware Funds by Macquarie Philadelphia, PA | Daniel V. Geatens Vice President and Treasurer Delaware Funds by Macquarie Philadelphia, PA | Richard Salus Senior Vice President and Chief Financial Officer Delaware Funds by Macquarie Philadelphia, PA |
This semiannual report is for the information of Delaware Smid Cap Growth Fund shareholders, but it may be used with prospective investors when preceded or accompanied by the Delaware Fund fact sheet for the most recently completed calendar quarter. These documents are available at delawarefunds.com/literature.
The Fund files its complete schedule of portfolio holdings with the Securities and Exchange Commission (SEC) for the first and third quarters of each fiscal year on Form N-Q. The Fund’s Forms N-Q, as well as a description of the policies and procedures that the Fund uses to determine how to vote proxies (if any) relating to portfolio securities are available without charge (i) upon request, by calling 800 523-1918; and (ii) on the SEC’s website at sec.gov. In addition, a description of the policies and procedures that the Fund uses to determine how to vote proxies (if any) relating to portfolio securities and the Schedule of Investments included in the Fund’s most recent Form N-Q are available without charge on the Fund’s website at delawarefunds.com/literature. The Fund’s Forms N-Q may be reviewed and copied at the SEC’s Public Reference Room in Washington, D.C.; information on the operation of the Public Reference Room may be obtained by calling 800 SEC-0330.
Information (if any) regarding how the Fund voted proxies relating to portfolio securities during the most recently disclosed 12-month period ended June 30 is available without charge (i) through the Fund’s website at delawarefunds.com/proxy; and (ii) on the SEC’s website at sec.gov.
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Item 2. Code of Ethics
Not applicable.
Item 3. Audit Committee Financial Expert
Not applicable.
Item 4. Principal Accountant Fees and Services
Not applicable.
Item 5. Audit Committee of Listed Registrants
Not applicable.
Item 6. Investments
(a) Included as part of report to shareholders filed under Item 1 of this Form N-CSR.
(b) Divestment of securities in accordance with Section 13(c) of the Investment Company Act of 1940.
Not applicable.
Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End Management Investment Companies
Not applicable.
Item 8. Portfolio Managers of Closed-End Management Investment Companies
Not applicable.
Item 9. Purchases of Equity Securities by Closed-End Management Investment Companies and Affiliated Purchasers
Not applicable.
Item 10. Submission of Matters to a Vote of Security Holders
Not applicable.
Item 11. Controls and Procedures
The registrant’s principal executive officer and principal financial officer have evaluated the registrant’s disclosure controls and procedures within 90 days of the filing of this report and have concluded that they are effective in providing reasonable assurance that the information required to be disclosed by the registrant in its reports or statements filed under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission.
There were no significant changes in the registrant’s internal control over financial reporting that occurred during the second fiscal quarter of the period covered by the report to stockholders included herein (i.e., the registrant’s second fiscal quarter) that have materially affected, or are reasonably likely to materially affect, the registrant’s internal control over financial reporting.
Item 12. Exhibits
(a) (1) Code of Ethics
Not applicable.
(2) Certifications of Principal Executive Officer and Principal Financial Officer pursuant to Rule 30a-2 under the Investment Company Act of 1940 are attached hereto as Exhibit 99.CERT.
(3) Written solicitations to purchase securities pursuant to Rule 23c-1 under the Securities Exchange Act of 1934.
Not applicable.
(b) Certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 are furnished herewith as Exhibit 99.906CERT.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf, by the undersigned, thereunto duly authorized.
DELAWARE GROUP® EQUITY FUNDS IV
SHAWN K. LYTLE | |
By: | Shawn K. Lytle |
Title: | President and Chief Executive Officer |
Date: | December 5, 2017 |
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.
SHAWN K. LYTLE | |
By: | Shawn K. Lytle |
Title: | President and Chief Executive Officer |
Date: | December 5, 2017 |
RICHARD SALUS | |
By: | Richard Salus |
Title: | Chief Financial Officer |
Date: | December 5, 2017 |