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: 811-4997
Exact name of registrant as specified in charter:
Delaware Group Equity Funds V
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: November 30
Date of reporting period: November 30, 2007
1
Item 1. Reports to Stockholders
| | ||
| Annual Report | Delaware | |
Small Cap Value Fund | ||
November 30, 2007 | ||
Value equity mutual fund | ||
 |  | |
Table of contents
| > Portfolio management review | 1 | |
| > Performance summary | 4 | |
| > Disclosure of Fund expenses | 6 | |
| > Sector allocation and top 10 holdings | 7 | |
| > Statement of net assets | 8 | |
| > Statement of operations | 10 | |
| > Statements of changes in net assets | 11 | |
| > Financial highlights | 12 | |
| > Notes to financial statements | 17 | |
| > Report of independent registered public accounting firm | 22 | |
| > Other Fund information | 23 | |
| > Board of trustees/directors and officers addendum | 24 | |
| > About the organization | 26 |
Funds are not FDIC insured and are not guaranteed. It is possible to lose the principal amount invested.
Mutual fund advisory services provided by Delaware Management Company, a series of Delaware Management
Business Trust, which is a registered investment advisor.
© 2008 Delaware Distributors, L.P.
Portfolio management review
Delaware Small Cap Value Fund
Dec. 11, 2007
The managers of Delaware Small Cap Value Fund provided the answers to the questions below as a review of the Fund’s activities for the fiscal year that ended Nov. 30, 2007.
Please discuss the investment climate during the last 12 months.
The investment climate during the past year was a difficult one for small-capitalization equity investors. Despite slowing economic growth and increased market volatility, U.S. equity markets delivered modest gains during the first half of the fiscal period. Much of these gains were diminished, however, as concerns over problems in the subprime mortgage market began to surface in late July and early August 2007.
Subprime mortgage delinquencies and foreclosures climbed to extraordinary levels during the period, forcing a number of mortgage lenders to file for bankruptcy. As signs of mismanagement and poor mortgage underwriting practices began to surface, investors lost confidence in the underlying loans, which triggered a market selloff. Many financial institutions with subprime exposure suffered significant losses; the impact of these casualties led to a credit crunch, in which banks became reticent to lend to each other or to businesses or consumers. Central banks around the globe lowered interest rates during the latter half of the period in an attempt to inject liquidity back into the banking system and ease investor concerns.
Within U.S. markets, negative performance was most pronounced among consumer-related and interest rate-sensitive sectors. Stocks of homebuilders, banks, mortgage companies, and real estate companies fared the worst. On the other hand, the healthcare and technology sectors, which were largely unscathed by the troubled credit and housing markets, turned in relatively strong performances for the period. Commodities also continued to perform well, as growing global demand for oil and gold (demand was particularly notable in China) kept commodity prices high.
These macroeconomic conditions contributed to a flight to safety during the latter half of the period. Investors broadly migrated toward large-cap growth stocks, boosting their performance and effectively putting an end to a seven-year run in which small-cap stocks outpaced large caps.
How did the Fund perform relative to its benchmark index and peer group for the one-year period ended Nov. 30, 2007?
Class A shares of Delaware Small Cap Value Fund returned -6.90% at net asset value and -12.25% at their maximum offer price (both figures reflect all distributions reinvested). During the same 12-month period, the Fund’s benchmark, the Russell 2000 Value Index, lost 8.22%, and its peer group as measured by the Lipper Small Cap Value Funds Average, returned - -4.08% (source: Lipper). For the complete, annualized performance of Delaware Small Cap Value Fund, please see the table on page 4.
How did you manage the Fund over the past 12 months and what factors impacted performance?
We continued to extensively analyze companies within the small-capitalization universe in search of those with significant free cash flow. During the period, there were no fundamental changes made to our sector allocations. While the Fund turned in a positive performance during roughly the first half of the year, its gains were offset by significant market deterioration during the latter months of the period.
Despite a difficult year overall, the Fund performed slightly better than its benchmark index. We attribute its relative outperformance to successful stock selection. Specifically, we benefited from underweight positions versus the index in the market’s poorest performing sectors—REITs, financial services, and consumer cyclicals. In contrast, the Fund held overweight positions relative to the index in basic industries, healthcare, and technology, which were among the market’s strongest performing sectors.
The views expressed are current as of the date of this report and are subject to change.
(continues) 1
Portfolio management review
Delaware Small Cap Value Fund
A healthy amount of merger and acquisition (M&A) activity took place during the first half of the fiscal year, and the Fund realized gains from the sale of several acquired holdings. The Fund benefited, for example, when holding IPSCO, a company that manufactures pipes for oil drilling, was acquired by SSAB, a leading Swedish steel producer. Williams Scotsman, a primary producer of mobile trailer parks for construction sites, benefited from its merger with Ristretto Group. In the financial arena, Fund holdings Ohio Casualty, a property casualty insurer, and First Republic Bank, a private bank and wealth management company, were also acquisition targets. A pronounced slowdown in the pace of M&A activity began during the summer months, stemming from heightened uncertainty and tighter credit policies among lenders.
Which stocks detracted from Fund returns?
Stress in the credit markets, coupled with slower growth, led to broadly disappointing performance among REITs during the period. Performance within the Fund was no exception as the Fund was most challenged by exposure to the sectors that were heavily impacted by the increasingly troubled credit markets. For example, Brandywine Realty Trust, a suburban office properties manager, failed to meet the expectations we had set for its stock; Brandywine Realty is one of many REITs that generated disappointing returns during the fiscal year period. We maintained our position, though, based on our belief that the company offers attractive dividend yields and strong long-term fundamentals.
Shares of Spokane, Washington-based commercial bank Sterling Financial also detracted from Fund returns. Sterling Financial’s stock dropped amid concerns about its loan exposure in the wake of the subprime crisis. We maintained the Fund’s holding in Sterling, however, because we believed that Sterling’s valuation continued to look attractive. Fund holding Provident Bancshares also was negatively impacted by credit woes. Despite an unfavorable environment, however, we believe that the company should recover. We also maintained the Fund’s position in this stock.
Within the consumer cyclicals sector, housing stocks continued to crumble. Fund holdings in homebuilders Beazer Homes USA and WCI Communities failed to meet our expectations. We exited both securities during the summer of 2007.
Also among consumer holdings, book retailer Borders reported earnings below expectations. The company had repurchased stock during the period and sold overseas assets in order to effectively focus on its chain of retail stores in the United States. Despite disappointing sales, we have not sold our position because we believe that the company’s slowdown in sales is temporary and that Borders could be well-positioned for a recovery.
Which stocks contributed notably to Fund performance during the period?
Despite many disappointments, the Fund had several noteworthy holdings. FMC, a leading manufacturer of agricultural, specialty, and industrial chemicals, delivered strong returns. The company’s stock was boosted by a healthy global agricultural cycle as well as its successful execution of debt-reduction measures and balance sheet management. The Fund owned this security at the close of the fiscal year. In the technology sector, the portfolio also benefited from strong earnings in communications network provider Commscope. Commscope’s stock price exceeded our expectations, and we sold the stock at a profit following the company’s announcement that it planned to acquire Andrew Corp. We believed that such a deal did not offer long-term value.
Fund holdings within the healthcare sector also contributed positively to Fund performance. Our position in Service Corporation International, the nation’s largest provider of funeral, cremation, and cemetery services, generated strong returns. Late in the fiscal year, we reduced our position in this holding in an attempt to take profits. Pediatrix Medical Group was another notable performer in this sector. Pediatrix provides treatment for high-risk pregnancies, premature infants, and critically ill newborns and children.
2
How did you position the portfolio at period end?
During the last few months of the fiscal year, we began to trim our overweight position relative to the index in basic industries. Given expectations for further deterioration in the credit markets, we planned to continue to closely monitor our weightings in other economically sensitive sectors such as consumer discretionary and financials.
Despite a challenging year for small-cap stocks, we do not plan to alter our investment strategy and will continue to focus on small companies generating strong cash flows that we believe can deliver positive long-term value through stock repurchase, dividend growth, and debt reduction.
3
Performance summary
Delaware Small Cap Value Fund
The performance data quoted represent past performance; past performance does not guarantee future results. Investment return and principal value will fluctuate so your shares, when redeemed, may be worth more or less than their original cost. Please obtain the performance data for the most recent month end by calling 800 523-1918 or visiting our Web site at www.delawareinvestments.com/performance. Current performance may be lower or higher than the performance data quoted.
You should consider the investment objectives, risks, charges, and expenses of the investment company carefully before investing. The Delaware Small Cap Value Fund prospectus contains this and other important information about the investment company. Please request a prospectus through your financial advisor or by calling 800 523-1918 or visiting our Web site at www.delawareinvestments.com. Read the prospectus carefully before you invest or send money.
| Fund performance | ||||
| Average annual total returns | ||||
| Through Nov. 30, 2007 | 1 year | 5 years | 10 years | Lifetime |
| Class A (Est. June 24, 1987) | ||||
| Excluding sales charge | -6.90% | +14.29% | +8.45% | +12.54% |
| Including sales charge | -12.25% | +12.95% | +7.81% | +12.22% |
| Class B (Est. Sept. 6, 1994) | ||||
| Excluding sales charge | -7.59% | +13.48% | +7.84% | +10.97% |
| Including sales charge | -10.97% | +13.20% | +7.84% | +10.97% |
| Class C (Est. Nov. 29, 1995) | ||||
| Excluding sales charge | -7.56% | +13.48% | +7.70% | +10.73% |
| Including sales charge | -8.41% | +13.48% | +7.70% | +10.73% |
Returns reflect the reinvestment of all distributions and any applicable sales charges as noted in the following paragraphs.
Performance for Class B and C shares, excluding sales charges, assumes either that contingent deferred sales charges did not apply or that the investment was not redeemed.
The Fund offers Class A, B, C, R, and Institutional Class shares. Class A shares are sold with a maximum front-end sales charge of up to 5.75%, and have an annual distribution and service fee of up to 0.30% of average daily net assets, but such a fee is currently subject to a contractual cap of 0.25% of average daily net assets through March 31, 2008.
Class B shares may be purchased through dividend reinvestment and certain permitted exchanges. As described in the prospectus, Class B shares have a contingent deferred sales charge that declines from 4.00% to zero depending on the period of time the shares are held. Class B shares will automatically convert to Class A shares on a quarterly basis approximately eight years after purchase. They are also subject to an annual distribution and service fee of up to 1.00% of average daily net assets. Ten-year and lifetime performance figures for Class B shares reflect conversion to Class A shares after eight years.
Effective at the close of business on May 31, 2007, no new or subsequent investments are allowed in Class B shares of the Delaware Investments® Family of Funds, except through a reinvestment of dividends or capital gains or permitted exchanges. Please see the prospectus for additional information.
Class C shares are sold with a contingent deferred sales charge of 1.00% if redeemed during the first 12 months. They are also subject to an annual distribution and service fee of 1.00% of average daily net assets.
Please see the fee table in the prospectus and your financial professional for a more complete explanation of sales charges.
The Fund’s net expense ratios for Class A, B, C, and R shares are 1.38%, 2.13%, 2.13%, and 1.63%, respectively, as disclosed in the most recent prospectus. Without the fee waiver, total operating expenses for Class A, B, C, and R shares would have been 1.43%, 2.13%, 2.13%, and 1.73%, respectively. The total annual fund operating expenses for Institutional Class shares are 1.13%.
The average annual total returns for the 1-year and lifetime (since June 2, 2003) periods ended Nov. 30, 2007, for Delaware Small Cap Value Fund Class R shares were -7.11% and 13.19%, respectively.
Class R shares were first made available June 2, 2003, and are available only for certain retirement plan products. They are sold without a sales charge and have an annual distribution and service fee of up to 0.60% of average daily net assets, but such fee is currently subject to a contractual cap of 0.50% of average daily net assets through March 31, 2008.
The average annual total returns for the 1-year, 5-year, 10-year, and lifetime (since June 24, 1987) periods ended Nov. 30, 2007, for Delaware Small Cap Value Fund Institutional Class shares were - -6.65%, 14.62%, 8.78%, and 12.79%, respectively.
4
Institutional Class shares were first made available Nov. 9, 1992, and are available without sales or asset-based distribution charges only to certain eligible institutional accounts. Institutional Class performance prior to Nov. 9, 1992 is based on Class A performance and was adjusted to eliminate the sales charges, but not the asset-based distribution charge of Class A shares.
The performance table on the previous page and the graph below do not reflect the deduction of taxes the shareholder would pay on Fund distributions or redemptions of Fund shares.
Funds that invest in small and/or medium-sized company stocks typically involve greater risk, particularly in the short term, than those investing in larger, more established companies.
| Fund basics |
| As of Nov. 30, 2007 |
| Fund objective |
| The Fund seeks capital appreciation. |
| Total Fund net assets |
| $589 million |
| Number of holdings |
| 104 |
| Fund start date | ||
| June 24, 1987 | ||
| Nasdaq symbols | CUSIPs | |
| Class A | DEVLX | 246097109 |
| Class B | DEVBX | 246097307 |
| Class C | DEVCX | 246097406 |
| Class R | DVLRX | 246097505 |
| Institutional Class | DEVIX | 246097208 |
Performance of a $10,000 Investment
Nov. 30, 1997, through Nov. 30, 2007
| Starting value (Nov. 30, 1997) | Ending value (Nov. 30, 2007) | ||
| Russell 2000 Value Index | $10,000 | $24,819 | |
| Delaware Small Cap Value Fund — Class A Shares | $9,425 | $21,213 |
The chart assumes $10,000 invested in the Fund on Nov. 30, 1997, and includes the effect of a 5.75% front-end sales charge and the reinvestment of all distributions.
Performance of other Fund classes will vary due to different charges and expenses.
The chart also assumes $10,000 invested in the Russell 2000 Value Index as of Nov. 30, 1997. The Russell 2000 Value Index measures the performance of those Russell 2000 companies with lower price-to-book ratios and lower forecasted growth values. The Russell 2000 Index tracks the stocks of 2,000 small U.S. companies. An index is unmanaged and does not reflect the costs of operating a mutual fund, such as the costs of buying, selling, and holding securities. You cannot invest directly in an index.
Past performance is not a guarantee of future results.
The prospectus sets forth details about charges, expenses, investment objectives, and operating policies of the investment company.
5
Disclosure of Fund expenses
For the period June 1, 2007 to November 30, 2007
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 period June 1, 2007 to November 30, 2007.
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 for Class A and Class R. The expenses shown in the table assume reinvestment of all dividends and distributions.
Delaware Small Cap Value Fund
Expense Analysis of an Investment of $1,000
| Expenses | |||||||
| Beginning | Ending | Paid During | |||||
| Account | Account | Annualized | Period | ||||
| Value | Value | Expense | 6/1/07 to | ||||
| 6/1/07 | 11/30/07 | Ratios | 11/30/07* | ||||
| Actual Fund Return | |||||||
| Class A | $1,000.00 | $847.00 | 1.38% | $ 6.39 | |||
| Class B | 1,000.00 | 843.90 | 2.13% | 9.85 | |||
| Class C | 1,000.00 | 844.00 | 2.13% | 9.85 | |||
| Class R | 1,000.00 | 846.10 | 1.63% | 7.54 | |||
| Institutional Class | 1,000.00 | 848.10 | 1.13% | 5.24 | |||
| With Hypothetical 5% Return (5% return before expenses) | |||||||
| Class A | $1,000.00 | $1,018.15 | 1.38% | $ 6.98 | |||
| Class B | 1,000.00 | 1,014.39 | 2.13% | 10.76 | |||
| Class C | 1,000.00 | 1,014.39 | 2.13% | 10.76 | |||
| Class R | 1,000.00 | 1,016.90 | 1.63% | 8.24 | |||
| Institutional Class | 1,000.00 | 1,019.40 | 1.13% | 5.72 | |||
| * | “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). |
6
Sector allocation and top 10 holdings
Delaware Small Cap Value Fund
As of November 30, 2007
Sector designations may be different than the sector designations presented in other Fund materials.
| Percentage | ||
| Sector | of Net Assets | |
| Common Stock | 99.40% | |
| Basic Industry | 11.47% | |
| Business Services | 2.81% | |
| Capital Spending | 8.72% | |
| Consumer Cyclical | 0.88% | |
| Consumer Services | 12.25% | |
| Consumer Staples | 2.59% | |
| Energy | 7.36% | |
| Financial Services | 20.08% | |
| Health Care | 7.22% | |
| Real Estate | 4.03% | |
| Technology | 14.09% | |
| Transportation | 4.40% | |
| Utilities | 3.50% | |
| Securities Lending Collateral | 25.34% | |
| Total Value of Securities | 124.74% | |
| Obligation to Return Securities Lending Collateral | (25.34% | ) |
| Receivables and Other Assets Net of Liabilities | 0.60% | |
| Total Net Assets | 100.00% | |
| Holdings are for informational purposes only and are subject to change at any time. They are not a recommendation to buy, sell, or hold any security. | ||
| Percentage | ||
| Top 10 Holdings | of Net Assets | |
| Whiting Petroleum | 2.04% | |
| Kirby | 1.80% | |
| Bank of Hawaii | 1.75% | |
| Brink’s | 1.72% | |
| FMC | 1.65% | |
| Crown Holdings | 1.65% | |
| Quanex | 1.57% | |
| Platinum Underwriters Holdings | 1.57% | |
| Newfield Exploration | 1.55% | |
| Albemarle | 1.54% | |
7
Statement of net assets
Delaware Small Cap Value Fund
November 30, 2007
| Number of | ||||
| Shares | Value | |||
| Common Stock – 99.40% | ||||
| Basic Industry – 11.47% | ||||
| *AbitibiBowater | 145,964 | $ | 3,278,351 | |
| *Albemarle | 204,800 | 9,039,872 | ||
| *Arch Coal | 113,300 | 4,289,538 | ||
| †Crown Holdings | 377,700 | 9,691,782 | ||
| Cytec Industries | 115,200 | 7,066,368 | ||
| FMC | 177,200 | 9,696,385 | ||
| *†Griffon | 116,560 | 1,505,955 | ||
| Hercules | 174,900 | 3,394,809 | ||
| *Quanex | 184,700 | 9,242,388 | ||
| *Texas Industries | 75,000 | 5,203,500 | ||
| †Trimas | 71,500 | 793,650 | ||
| *Valspar | 191,200 | 4,309,648 | ||
| 67,512,246 | ||||
| Business Services – 2.81% | ||||
| Brink’s | 158,700 | 10,153,626 | ||
| *†United Stationers | 125,759 | 6,370,951 | ||
| 16,524,577 | ||||
| Capital Spending – 8.72% | ||||
| *Actuant Class A | 272,300 | 8,623,741 | ||
| †Casella Waste Systems | 151,000 | 2,260,470 | ||
| †Gardner Denver | 181,100 | 5,996,221 | ||
| *Harsco | 130,300 | 7,827,121 | ||
| *Insteel Industries | 182,600 | 2,076,162 | ||
| *Mueller Industries | 138,200 | 4,177,786 | ||
| *Mueller Water Products Class B | 167,888 | 1,680,559 | ||
| Timken | 168,100 | 5,360,709 | ||
| *Wabtec | 223,600 | 7,588,984 | ||
| *Walter Industries | 164,900 | 5,720,381 | ||
| 51,312,134 | ||||
| Consumer Cyclical – 0.88% | ||||
| *MDC Holdings | 146,800 | 5,195,252 | ||
| 5,195,252 | ||||
| Consumer Services – 12.25% | ||||
| *Belo Class A | 203,700 | 3,373,272 | ||
| *Borders Group | 311,600 | 3,898,116 | ||
| *Cato Class A | 338,000 | 5,090,280 | ||
| *†CEC Entertainment | 171,100 | 4,876,350 | ||
| *†Dollar Tree Stores | 209,200 | 5,995,672 | ||
| *Men’s Wearhouse | 150,500 | 5,195,260 | ||
| *Meredith | 124,200 | 6,837,210 | ||
| *PETsMART | 166,500 | 4,741,920 | ||
| *Ross Stores | 232,800 | 6,141,264 | ||
| *Ruby Tuesday | 219,500 | 2,877,645 | ||
| *Stage Stores | 298,850 | 5,056,542 | ||
| *Thor Industries | 109,300 | 3,852,825 | ||
| *†Warnaco Group | 103,100 | 3,804,390 | ||
| *Wolverine World Wide | 219,350 | 5,433,300 | ||
| *†Zale | 277,100 | 4,957,319 | ||
| 72,131,365 | ||||
| Consumer Staples – 2.59% | ||||
| American Greetings Class A | 205,900 | 4,789,234 | ||
| *†Constellation Brands Class A | 238,800 | 5,623,740 | ||
| Del Monte Foods | 547,800 | 4,820,640 | ||
| 15,233,614 | ||||
| Energy – 7.36% | ||||
| *†Grey Wolf | 652,600 | 3,315,208 | ||
| *†Hercules Offshore | 215,176 | 5,381,552 | ||
| *†Newfield Exploration | 182,800 | 9,112,580 | ||
| Southwest Gas | 197,800 | 5,720,376 | ||
| *†W-H Energy Services | 154,200 | 7,787,100 | ||
| †Whiting Petroleum | 228,300 | 12,035,976 | ||
| 43,352,792 | ||||
| Financial Services – 20.08% | ||||
| *Bank of Hawaii | 197,700 | 10,294,238 | ||
| *BankUnited Financial Class A | 261,800 | 2,089,164 | ||
| Berkley (W.R.) | 271,600 | 8,305,528 | ||
| *Boston Private Financial Holdings | 292,600 | 8,058,204 | ||
| *Colonial BancGroup | 437,900 | 6,971,368 | ||
| *East West Bancorp | 183,500 | 4,945,325 | ||
| *First Midwest Bancorp | 152,900 | 4,999,830 | ||
| *Hancock Holding | 122,400 | 4,799,304 | ||
| *Harleysville Group | 166,800 | 5,838,000 | ||
| *Independent Bank | 113,400 | 3,281,796 | ||
| Infinity Property & Casualty | 141,800 | 5,542,962 | ||
| *NBT Bancorp | 142,100 | 3,542,553 | ||
| Platinum Underwriters Holdings | 254,000 | 9,225,280 | ||
| Protective Life | 164,900 | 6,823,562 | ||
| *Provident Bankshares | 223,300 | 5,236,385 | ||
| *Selective Insurance Group | 367,700 | 8,674,043 | ||
| StanCorp Financial Group | 164,000 | 8,542,760 | ||
| *Sterling Bancshares | 461,500 | 5,694,910 | ||
| *Sterling Financial | 299,368 | 5,367,668 | ||
| 118,232,880 | ||||
| Health Care – 7.22% | ||||
| *†AMERIGROUP | 184,600 | 6,344,702 | ||
| *Owens & Minor | 218,600 | 8,584,422 | ||
| *†Pediatrix Medical Group | 107,700 | 6,963,882 | ||
| *Service Corp International | 580,700 | 7,711,696 | ||
| *STERIS | 261,200 | 7,303,152 | ||
| *Universal Health Services Class B | 110,400 | 5,624,880 | ||
| 42,532,734 | ||||
| Real Estate – 4.03% | ||||
| *Ashford Hospitality Trust | 367,600 | 2,845,224 | ||
| *Brandywine Realty Trust | 292,937 | 6,005,209 | ||
| *Education Realty Trust | 203,400 | 2,438,766 | ||
| *Highwoods Properties | 168,900 | 5,359,197 | ||
| *Washington Real Estate | ||||
| Investment Trust | 220,100 | 7,052,004 | ||
| 23,700,400 | ||||
8
| Number of | ||||||
| Shares | Value | |||||
| Common Stock (continued) | ||||||
| Technology – 14.09% | ||||||
| †Bell Microproducts | 346,300 | $ | 1,939,280 | |||
| *†Brocade Communications Systems | 507,100 | 3,696,759 | ||||
| *†Checkpoint Systems | 253,100 | 6,013,656 | ||||
| †Cirrus Logic | 703,700 | 4,011,090 | ||||
| †Compuware | 878,800 | 7,258,888 | ||||
| *†Emulex | 373,200 | 6,251,100 | ||||
| *†Entegris | 431,000 | 3,732,460 | ||||
| *†Insight Enterprises | 225,300 | 4,463,193 | ||||
| *†Parametric Technology | 471,700 | 7,877,389 | ||||
| *†Premiere Global Services | 325,150 | 4,480,567 | ||||
| *QAD | 237,400 | 2,020,274 | ||||
| *†Sybase | 237,200 | 6,081,808 | ||||
| *†Sykes Enterprises | 358,200 | 6,612,372 | ||||
| *†Syniverse Holdings | 250,700 | 3,915,934 | ||||
| †Synopsys | 303,200 | 7,461,752 | ||||
| *†Vishay Intertechnology | 569,500 | 7,113,055 | ||||
| 82,929,577 | ||||||
| Transportation – 4.40% | ||||||
| *Alexander & Baldwin | 173,400 | 8,909,292 | ||||
| *†Kirby | 220,200 | 10,585,014 | ||||
| *†Saia | 103,600 | 1,350,944 | ||||
| *SkyWest | 193,000 | 5,077,830 | ||||
| 25,923,080 | ||||||
| Utilities – 3.50% | ||||||
| *Black Hills | 86,500 | 3,603,590 | ||||
| *†El Paso Electric | 269,500 | 6,928,845 | ||||
| *FairPoint Communications | 158,600 | 2,366,312 | ||||
| *Otter Tail | 124,800 | 4,182,048 | ||||
| *PNM Resources | 157,800 | 3,500,004 | ||||
| 20,580,799 | ||||||
| Total Common Stock | ||||||
| (cost $486,718,178) | 585,161,450 | |||||
| Total Value of Securities Before | ||||||
| Securities Lending Collateral – 99.40% | ||||||
| (cost $486,718,178) | 585,161,450 | |||||
| Securities Lending Collateral** – 25.34% | ||||||
| Investment Companies | ||||||
| Mellon GSL DBT II Collateral Fund | 149,183,031 | 149,183,031 | ||||
| Total Securities Lending Collateral | ||||||
| (cost $149,183,031) | 149,183,031 | |||||
| Total Value of Securities – 124.74% | ||||||
| (cost $635,901,209) | 734,344,481 | © | ||||
| Obligation to Return Securities | ||||||
| Lending Collateral** – (25.34%) | (149,183,031 | ) | ||||
| Receivables and Other Assets | ||||||
| Net of Liabilities – 0.60% | 3,513,985 | |||||
| Net Assets Applicable to 16,740,605 | ||||||
| Shares Outstanding – 100.00% | $ | 588,675,435 | ||||
| Net Asset Value – Delaware Small Cap Value Fund | ||||||
| Class A ($389,129,378 / 10,808,303 Shares) | $36.00 | |||||
| Net Asset Value – Delaware Small Cap Value Fund | ||||||
| Class B ($54,683,621 / 1,664,043 Shares) | $32.86 | |||||
| Net Asset Value – Delaware Small Cap Value Fund | ||||||
| Class C ($97,428,467 / 2,966,237 Shares) | $32.85 | |||||
| Net Asset Value – Delaware Small Cap Value Fund | ||||||
| Class R ($21,125,781 / 594,659 Shares) | $35.53 | |||||
| Net Asset Value – Delaware Small Cap Value Fund | ||||||
| Institutional Class ($26,308,188 / 707,363 Shares) | $37.19 | |||||
| Components of Net Assets at November 30, 2007: | ||||||
| Shares of beneficial interest | ||||||
| (unlimited authorization – no par) | $ | 435,118,877 | ||||
| Accumulated net realized gain on investments | 55,113,286 | |||||
| Net unrealized appreciation of investments | 98,443,272 | |||||
| Total net assets | $ | 588,675,435 | ||||
| † | Non-income producing security for the year ended November 30, 2007. |
| * | Fully or partially on loan. |
| ** | See Note 8 in “Notes to Financial Statements.” |
| © | Includes $143,002,279 of securities loaned. |
| Net Asset Value and Offering Price Per Share – | |
| Delaware Small Cap Value Fund | |
| Net asset value Class A (A) | $36.00 |
| Sales charge (5.75% of offering price) (B) | 2.20 |
| Offering price | $38.20 |
| (A) | Net asset value per share, as illustrated, is the amount which would be paid upon redemption or repurchase of shares. | |
| (B) | See the current prospectus for purchases of $50,000 or more. | |
See accompanying notes
9
Statement of operations
Delaware Small Cap Value Fund
Year Ended November 30, 2007
| Investment Income: | |||||||
| Dividends | $ | 8,396,670 | |||||
| Interest | 455,750 | ||||||
| Securities lending income | 365,028 | ||||||
| Foreign tax withheld | (4,589 | ) | $ | 9,212,859 | |||
| Expenses: | |||||||
| Management fees | 5,409,180 | ||||||
| Distribution expenses – Class A | 1,417,396 | ||||||
| Distribution expenses – Class B | 768,385 | ||||||
| Distribution expenses – Class C | 1,290,825 | ||||||
| Distribution expenses – Class R | 145,011 | ||||||
| Dividend disbursing and transfer agent fees and expenses | 2,081,480 | ||||||
| Accounting and administration expenses | 294,779 | ||||||
| Reports and statements to shareholders | 171,055 | ||||||
| Legal and professional fees | 90,754 | ||||||
| Registration fees | 87,192 | ||||||
| Audit and tax fees | 48,478 | ||||||
| Trustees’ fees and benefits | 35,673 | ||||||
| Insurance fees | 15,787 | ||||||
| Consulting fees | 12,710 | ||||||
| Custodian fees | 11,912 | ||||||
| Taxes (other than taxes on income) | 6,694 | ||||||
| Dues and services | 5,755 | ||||||
| Trustees’ expenses | 4,274 | ||||||
| Pricing fees | 2,944 | 11,900,284 | |||||
| Less waiver of distribution expenses – Class A | (236,233 | ) | |||||
| Less waiver of distribution expenses – Class R | (24,168 | ) | |||||
| Less expenses paid indirectly | (5,107 | ) | |||||
| Total expenses | 11,634,776 | ||||||
| Net Investment Loss | (2,421,917 | ) | |||||
| Net Realized and Unrealized Gain (Loss) on Investments and Foreign Currencies: | |||||||
| Net realized gain on: | |||||||
| Investments | 56,029,476 | ||||||
| Foreign currencies | 45 | ||||||
| Net realized gain | 56,029,521 | ||||||
| Net change in unrealized appreciation/depreciation of investments | (97,258,265 | ) | |||||
| Net Realized and Unrealized Loss on Investments | (41,228,744 | ) | |||||
| Net Decrease in Net Assets Resulting from Operations | $ | (43,650,661 | ) | ||||
See accompanying notes
10
Statements of changes in net assets
Delaware Small Cap Value Fund
| Year Ended | |||||||
| 11/30/07 | 11/30/06 | ||||||
| Increase (Decrease) in Net Assets from Operations: | |||||||
| Net investment loss | $ | (2,421,917 | ) | $ | (2,607,853 | ) | |
| Net realized gain on investments and foreign currencies | 56,029,521 | 65,387,672 | |||||
| Net change in unrealized appreciation/depreciation of investments | (97,258,265 | ) | 48,589,690 | ||||
| Net increase (decrease) in net assets resulting from operations | (43,650,661 | ) | 111,369,509 | ||||
| Dividends and Distributions to Shareholders from: | |||||||
| Net realized gain on investments: | |||||||
| Class A | (38,697,231 | ) | (32,439,821 | ) | |||
| Class B | (7,487,846 | ) | (8,943,393 | ) | |||
| Class C | (12,118,767 | ) | (10,293,335 | ) | |||
| Class R | (1,670,691 | ) | (867,999 | ) | |||
| Institutional Class | (2,825,209 | ) | (2,440,490 | ) | |||
| (62,799,744 | ) | (54,985,038 | ) | ||||
| Capital Share Transactions: | |||||||
| Proceeds from shares sold: | |||||||
| Class A | 58,097,755 | 125,942,610 | |||||
| Class B | 1,197,141 | 6,039,544 | |||||
| Class C | 6,957,838 | 32,923,286 | |||||
| Class R | 15,645,466 | 12,295,960 | |||||
| Institutional Class | 7,208,827 | 13,937,387 | |||||
| Net asset value of shares issued upon reinvestment of dividends and distributions: | |||||||
| Class A | 36,524,727 | 30,500,487 | |||||
| Class B | 6,972,418 | 8,309,204 | |||||
| Class C | 11,396,318 | 9,675,322 | |||||
| Class R | 1,670,616 | 865,472 | |||||
| Institutional Class | 2,798,205 | 2,425,287 | |||||
| 148,469,311 | 242,914,559 | ||||||
| Cost of shares repurchased: | |||||||
| Class A | (131,609,980 | ) | (109,663,657 | ) | |||
| Class B | (36,484,190 | ) | (36,107,010 | ) | |||
| Class C | (46,345,644 | ) | (26,385,778 | ) | |||
| Class R | (13,383,734 | ) | (4,587,529 | ) | |||
| Institutional Class | (16,190,231 | ) | (13,595,454 | ) | |||
| (244,013,779 | ) | (190,339,428 | ) | ||||
| Increase (decrease) in net assets derived from capital share transactions | (95,544,468 | ) | 52,575,131 | ||||
| Net Increase (Decrease) in Net Assets | (201,994,873 | ) | 108,959,602 | ||||
| Net Assets: | |||||||
| Beginning of year | 790,670,308 | 681,710,706 | |||||
| End of year (there was no undistributed net investment income at either year end) | $ | 588,675,435 | $ | 790,670,308 | |||
See accompanying notes
11
Financial highlights
Delaware Small Cap Value Fund Class A
Selected data for each share of the Fund outstanding throughout each period were as follows:
| Year Ended | |||||||||||||||
| 11/30/07 | 11/30/06 | 11/30/05 | 11/30/04 | 11/30/03 | |||||||||||
| Net asset value, beginning of period | $41.970 | $39.110 | $39.640 | $35.220 | $27.120 | ||||||||||
| Income (loss) from investment operations: | |||||||||||||||
| Net investment loss1 | (0.050 | ) | (0.047 | ) | (0.075 | ) | (0.105 | ) | (0.136 | ) | |||||
| Net realized and unrealized gain (loss) on investments | (2.647 | ) | 5.960 | 4.170 | 6.879 | 9.079 | |||||||||
| Total from investment operations | (2.697 | ) | 5.913 | 4.095 | 6.774 | 8.943 | |||||||||
| Less dividends and distributions: | |||||||||||||||
| From net realized gain on investments | (3.273 | ) | (3.053 | ) | (4.625 | ) | (2.354 | ) | (0.843 | ) | |||||
| Total dividends and distributions | (3.273 | ) | (3.053 | ) | (4.625 | ) | (2.354 | ) | (0.843 | ) | |||||
| Net asset value, end of period | $36.000 | $41.970 | $39.110 | $39.640 | $35.220 | ||||||||||
| Total return2 | (6.90% | ) | 16.26% | 11.42% | 20.52% | 34.17% | |||||||||
| Ratios and supplemental data: | |||||||||||||||
| Net assets, end of period (000 omitted) | $389,129 | $493,193 | $409,567 | $270,332 | $240,322 | ||||||||||
| Ratio of expenses to average net assets | 1.37% | 1.41% | 1.44% | 1.54% | 1.63% | ||||||||||
| Ratio of expenses to average net assets | |||||||||||||||
| prior to expense limitation and expense paid indirectly | 1.42% | 1.44% | 1.44% | 1.54% | 1.63% | ||||||||||
| Ratio of net investment loss to average net assets | (0.12% | ) | (0.12% | ) | (0.20% | ) | (0.30% | ) | (0.47% | ) | |||||
| Ratio of net investment loss to average net assets | |||||||||||||||
| prior to expense limitation and expense paid indirectly | (0.17% | ) | (0.15% | ) | (0.20% | ) | (0.30% | ) | (0.47% | ) | |||||
| Portfolio turnover | 23% | 36% | 33% | 35% | 42% | ||||||||||
| 1 The average shares outstanding method has been applied for per share information. |
| 2 Total investment return is based on the change in net asset value of a share during the period and assumes reinvestment of dividends and distributions at net asset value and does not reflect the impact of a sales charge. Total investment return reflects waivers and payment of fees by the distributor, as applicable. Performance would have been lower had the expense limitation not been in effect. |
See accompanying notes
12
Delaware Small Cap Value Fund Class B
Selected data for each share of the Fund outstanding throughout each period were as follows:
| Year Ended | ||||||||||||||||
| 11/30/07 | 11/30/06 | 11/30/05 | 11/30/04 | 11/30/03 | ||||||||||||
| Net asset value, beginning of period | $38.860 | $36.690 | $37.690 | $33.820 | $26.260 | |||||||||||
| Income (loss) from investment operations: | ||||||||||||||||
| Net investment loss1 | (0.314 | ) | (0.306 | ) | (0.311 | ) | (0.334 | ) | (0.327 | ) | ||||||
| Net realized and unrealized gain (loss) on investments | (2.413 | ) | 5.529 | 3.936 | 6.558 | 8.730 | ||||||||||
| Total from investment operations | (2.727 | ) | 5.223 | 3.625 | 6.224 | 8.403 | ||||||||||
| Less dividends and distributions from: | ||||||||||||||||
| Net realized gain on investments | (3.273 | ) | (3.053 | ) | (4.625 | ) | (2.354 | ) | (0.843 | ) | ||||||
| Total dividends and distributions | (3.273 | ) | (3.053 | ) | (4.625 | ) | (2.354 | ) | (0.843 | ) | ||||||
| Net asset value, end of period | $32.860 | $38.860 | $36.690 | $37.690 | $33.820 | |||||||||||
| Total return2 | (7.59% | ) | 15.38% | 10.68% | 19.69% | 33.21% | ||||||||||
| Ratios and supplemental data: | ||||||||||||||||
| Net assets, end of period (000 omitted) | $54,684 | $94,495 | $110,684 | $111,348 | $107,136 | |||||||||||
| Ratio of expenses to average net assets | 2.12% | 2.14% | 2.14% | 2.24% | 2.33% | |||||||||||
| Ratio of net investment loss to average net assets | (0.87% | ) | (0.85% | ) | (0.90% | ) | (1.00% | ) | (1.17% | ) | ||||||
| Portfolio turnover | 23% | 36% | 33% | 35% | 42% | |||||||||||
1 The average shares outstanding method has been applied for per share information. |
2 Total investment return is based on the change in net asset value of a share during the period and assumes reinvestment of dividends and distributions at net asset value and does not reflect the impact of a sales charge. |
See accompanying notes
(continues) 13
Financial highlights
Delaware Small Cap Value Fund Class C
Selected data for each share of the Fund outstanding throughout each period were as follows:
| Year Ended | ||||||||||||||||
| 11/30/07 | 11/30/06 | 11/30/05 | 11/30/04 | 11/30/03 | ||||||||||||
| Net asset value, beginning of period | $38.840 | $36.670 | $37.680 | $33.810 | $26.250 | |||||||||||
| Income (loss) from investment operations: | ||||||||||||||||
| Net investment loss1 | (0.314 | ) | (0.306 | ) | (0.313 | ) | (0.333 | ) | (0.326 | ) | ||||||
| Net realized and unrealized gain (loss) on investments | (2.403 | ) | 5.529 | 3.928 | 6.557 | 8.729 | ||||||||||
| Total from investment operations | (2.717 | ) | 5.223 | 3.615 | 6.224 | 8.403 | ||||||||||
| Less dividends and distributions from: | ||||||||||||||||
| Net realized gain on investments | (3.273 | ) | (3.053 | ) | (4.625 | ) | (2.354 | ) | (0.843 | ) | ||||||
| Total dividends and distributions | (3.273 | ) | (3.053 | ) | (4.625 | ) | (2.354 | ) | (0.843 | ) | ||||||
| Net asset value, end of period | $32.850 | $38.840 | $36.670 | $37.680 | $33.810 | |||||||||||
| Total return2 | (7.56% | ) | 15.39% | 10.65% | 19.69% | 33.22% | ||||||||||
| Ratios and supplemental data: | ||||||||||||||||
| Net assets, end of period (000 omitted) | $97,428 | $145,385 | $119,968 | $66,313 | $48,453 | |||||||||||
| Ratio of expenses to average net assets | 2.12% | 2.14% | 2.14% | 2.24% | 2.33% | |||||||||||
| Ratio of net investment loss to average net assets | (0.87% | ) | (0.85% | ) | (0.90% | ) | (1.00% | ) | (1.17% | ) | ||||||
| Portfolio turnover | 23% | 36% | 33% | 35% | 42% | |||||||||||
1 The average shares outstanding method has been applied for per share information. |
2 Total investment return is based on the change in net asset value of a share during the period and assumes reinvestment of dividends and distributions at net asset value and does not reflect the impact of a sales charge. |
See accompanying notes
14
Delaware Small Cap Value Fund Class R
Selected data for each share of the Fund outstanding throughout each period were as follows:
| 6/2/031 | ||||||||||||||||
| Year Ended | to | |||||||||||||||
| 11/30/07 | 11/30/06 | 11/30/05 | 11/30/04 | 11/30/03 | ||||||||||||
| Net asset value, beginning of period | $41.550 | $38.840 | $39.480 | $35.190 | $29.000 | |||||||||||
| Income (loss) from investment operations: | ||||||||||||||||
| Net investment loss2 | (0.146 | ) | (0.138 | ) | (0.169 | ) | (0.209 | ) | (0.160 | ) | ||||||
| Net realized and unrealized gain (loss) on investments | (2.601 | ) | 5.901 | 4.154 | 6.853 | 6.350 | ||||||||||
| Total from investment operations | (2.747 | ) | 5.763 | 3.985 | 6.644 | 6.190 | ||||||||||
| Less dividends and distributions from: | ||||||||||||||||
| Net realized gain on investments | (3.273 | ) | (3.053 | ) | (4.625 | ) | (2.354 | ) | — | |||||||
| Total dividends and distributions | (3.273 | ) | (3.053 | ) | (4.625 | ) | (2.354 | ) | — | |||||||
| Net asset value, end of period | $35.530 | $41.550 | $38.840 | $39.480 | $35.190 | |||||||||||
| Total return3 | (7.11% | ) | 15.97% | 11.15% | 20.15% | 21.35% | ||||||||||
| Ratios and supplemental data: | ||||||||||||||||
| Net assets, end of period (000 omitted) | $21,126 | $20,564 | $10,574 | $4,539 | $1,740 | |||||||||||
| Ratio of expenses to average net assets | 1.62% | 1.64% | 1.70% | 1.84% | 1.97% | |||||||||||
| Ratio of expenses to average net assets | ||||||||||||||||
| prior to expense limitation and expense paid indirectly | 1.72% | 1.74% | 1.74% | 1.84% | 1.97% | |||||||||||
| Ratio of net investment loss to average net assets | (0.37% | ) | (0.35% | ) | (0.46% | ) | (0.60% | ) | (0.97% | ) | ||||||
| Ratio of net investment loss to average net assets | ||||||||||||||||
| prior to expense limitation and expense paid indirectly | (0.47% | ) | (0.45% | ) | (0.50% | ) | (0.60% | ) | (0.97% | ) | ||||||
| Portfolio turnover | 23% | 36% | 33% | 35% | 42% | 4 | ||||||||||
1 Date of commencement of operations; ratios have been annualized and total return has not been annualized. |
2 The average shares outstanding method has been applied for per share information. |
3 Total investment return is based on the change in net asset value of a share during the period and assumes reinvestment of dividends and distributions at net asset value. Total investment return reflects waivers and payment of fees by the distributor, as applicable. Performance would have been lower had the expense limitation not been in effect. |
4 The portfolio turnover is representative of the Fund for the entire year. |
See accompanying notes
(continues) 15
Financial highlights
Delaware Small Cap Value Fund Institutional Class
Selected data for each share of the Fund outstanding throughout each period were as follows:
| Year Ended | ||||||||||||||||
| 11/30/07 | 11/30/06 | 11/30/05 | 11/30/04 | 11/30/03 | ||||||||||||
| Net asset value, beginning of period | $43.140 | $40.020 | $40.350 | $35.700 | $27.400 | |||||||||||
| Income (loss) from investment operations: | ||||||||||||||||
| Net investment income (loss)1 | 0.049 | 0.058 | 0.036 | — | (0.050 | ) | ||||||||||
| Net realized and unrealized gain (loss) on investments | (2.726 | ) | 6.115 | 4.259 | 7.004 | 9.193 | ||||||||||
| Total from investment operations | (2.677 | ) | 6.173 | 4.295 | 7.004 | 9.143 | ||||||||||
| Less dividends and distributions: | ||||||||||||||||
| From net realized gain on investments | (3.273 | ) | (3.053 | ) | (4.625 | ) | (2.354 | ) | (0.843 | ) | ||||||
| Total dividends and distributions | (3.273 | ) | (3.053 | ) | (4.625 | ) | (2.354 | ) | (0.843 | ) | ||||||
| Net asset value, end of period | $37.190 | $43.140 | $40.020 | $40.350 | $35.700 | |||||||||||
| Total return2 | (6.65% | ) | 16.56% | 11.77% | 20.88% | 34.57% | ||||||||||
| Ratios and supplemental data: | ||||||||||||||||
| Net assets, end of period (000 omitted) | $26,308 | $37,033 | $30,918 | $23,731 | $33,387 | |||||||||||
| Ratio of expenses to average net assets | 1.12% | 1.14% | 1.14% | 1.24% | 1.33% | |||||||||||
| Ratio of net investment income (loss) to average net assets | 0.13% | 0.15% | 0.10% | — | (0.17% | ) | ||||||||||
| Portfolio turnover | 23% | 36% | 33% | 35% | 42% | |||||||||||
1 The average shares outstanding method has been applied for per share information. |
2 Total investment return is based on the change in net asset value of a share during the period and assumes reinvestment of dividends and distributions at net asset value. |
See accompanying notes
16
Notes to financial statements
Delaware Small Cap Value Fund
November 30, 2007
Delaware Group Equity Funds V (Trust) is organized as a Delaware statutory trust and offers three series: Delaware Dividend Income Fund, Delaware Small-Cap Core Fund, and Delaware Small Cap Value Fund. These financial statements and the related notes pertain to Delaware Small Cap Value 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 B, Class C, Class R, and Institutional Class shares. Class A shares are sold with a front-end sales charge of up to 5.75%. Class A share purchases of $1,000,000 or more will incur a contingent deferred sales charge (CDSC) of up to 1% 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. Effective June 1, 2007, Class B shares may only be purchased through dividend reinvestment and certain permitted exchanges. Prior to June 1, 2007, Class B shares were sold with a CDSC that declined from 4% to zero depending upon the period of time the shares were held. Class B shares will automatically convert to Class A shares on a quarterly basis approximately eight years after purchase. Class C shares are sold with a CDSC of 1%, if redeemed during the first twelve 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 capital appreciation.
1. Significant Accounting Policies
The following accounting policies are in accordance with U.S. generally accepted accounting principles and are consistently followed by the Fund.
Security Valuation — Equity securities, except those traded on the Nasdaq Stock Market, Inc. (Nasdaq), are valued at the last quoted sales price as of the time of the regular close of the New York Stock Exchange (NYSE) on the valuation date. Securities traded on the Nasdaq are valued in accordance with the Nasdaq Official Closing Price, which may not be the last sales price. If on a particular day an equity security does not trade, then the mean between the bid and the asked prices will be used. Short-term debt securities having less than 60 days to maturity are valued at amortized cost, which approximates market value. Securities lending collateral, which is invested in a collective investment vehicle, is valued at unit value per share. Generally, other securities and assets for which market quotations are not readily available are valued at fair value as determined in good faith under the direction of the Fund’s Board of Trustees. In determining whether market quotations are readily available or fair valuation will be used, various factors will be taken into consideration, such as market closures, or with respect to foreign securities, aftermarket trading or significant events after local market trading (e.g., government actions or pronouncements, trading volume or volatility on markets, exchanges among dealers, or news events).
In September 2006, the Financial Accounting Standards Board (FASB) issued FASB Statement No. 157 “Fair Value Measurements” (Statement 157). Statement 157 establishes a framework for measuring fair value in generally accepted accounting principles, clarifies the definition of fair value within that framework, and expands disclosures about the use of fair value measurements. Statement 157 is intended to increase consistency and comparability among fair value estimates used in financial reporting. Statement 157 is effective for fiscal years beginning after November 15, 2007. Management does not expect the adoption of Statement 157 to have a material impact on the amounts reported in the financial statements.
Federal Income Taxes — 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. Accordingly, no provision for federal income taxes has been made in the financial statements.
On July 13, 2006, the FASB released FASB Interpretation No. 48 “Accounting for Uncertainty in Income Taxes” (FIN 48). FIN 48 provides guidance for how uncertain tax positions should be recognized, measured, presented and disclosed in the financial statements. FIN 48 requires the evaluation of tax positions taken or expected to be taken in the course of preparing the 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 would be recorded as a tax benefit or expense in the current year. Adoption of FIN 48 is required for fiscal years beginning after December 15, 2006 and is to be applied to all open tax years as of the effective date. Securities and Exchange Commission (SEC) guidance allows implementing FIN 48 in fund net asset value calculations as late as the fund’s last net asset value calculation in the first required financial statement reporting period. As a result, the Fund will incorporate FIN 48 in its semiannual report on May 31, 2008. Although the Fund’s tax positions are currently being evaluated, management does not expect the adoption of FIN 48 to have a material impact on the Fund’s financial statements.
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 invest in a pooled cash account along with other members of the Delaware Investments® Family of Funds pursuant to an exemptive order issued by the SEC. The aggregate daily balance of the pooled cash account is invested in repurchase agreements secured by obligations of the U.S. government. The respective collateral is held by the Fund’s custodian bank until the maturity of the respective repurchase agreements. Each repurchase agreement is at least 102% collateralized. However, in the event of default or bankruptcy by the counterparty to the agreement, realization of the collateral may be subject to legal proceedings. At November 30, 2007, the Fund held no investments in repurchase agreeements.
Use of Estimates — The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
(continues) 17
Notes to financial statements
Delaware Small Cap Value Fund
1. Significant Accounting Policies (continued)
Other — Expenses directly attributable to the Fund are charged directly to the Fund. Other expenses common to various funds within the Delaware Investments® Family of Funds are generally allocated amongst such funds on the basis of average net assets. Management fees and some other expenses are paid monthly. Security transactions are recorded on the date the securities are purchased or sold (trade date) for financial reporting purposes. Costs used in calculating realized gains and losses on the sale of investment securities are those of the specific securities sold. Dividend income is recorded on the ex-dividend date and interest income is recorded on the accrual basis. Distributions received from investments in Real Estate Investment Trusts (REITs) are recorded as dividend income on the ex-dividend date, subject to reclassification upon notice of the character of such distributions by the issuer. The financial statements reflect an estimate of the reclassification of the distribution character. The Fund declares and pays dividends from net investment income and distributions from net realized gains on investments, if any, annually.
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. Such commission rebates are included in realized gain on investments in the accompanying financial statements and totaled $502 for the year ended November 30, 2007. In general, best execution refers to many factors, including the price paid or received for a security, the commission charged, the promptness and reliability of execution, the confidentiality and placement accorded the order, and other factors affecting the overall benefit obtained by the Fund on the transaction.
The Fund receives earnings credits from its custodian when positive cash balances are maintained, which are used to offset custody fees. The expense paid under this arrangement is included in custodian fees on the Statement of operations with the corresponding expense offset shown as “expense paid indirectly.”
2. Investment Management, Administration Agreements and Other Transactions with Affiliates
In accordance with the terms of its investment management agreement, the Fund pays Delaware Management Company (DMC), a series of Delaware Management Business Trust and the investment manager, an annual fee which is calculated daily at the rate of 0.75% on the first $500 million of average daily net assets of the 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.
Effective October 1, 2007, Delaware Service Company, Inc. (DSC), an affiliate of DMC, provides fund accounting and financial administration oversight services to the Fund. For these services, the Fund pays DSC fees based on the aggregate daily net assets of the Delaware Investments® Family of Funds at the following annual rate: 0.0050% of the first $30 billion; 0.0045% of the next $10 billion; 0.0040% of the next $10 billion; and 0.0025% of aggregate average daily net assets in excess of $50 billion. The fees payable to DSC under the service agreement described above are allocated among all funds in the Delaware Investments® Family of Funds on a relative net asset value basis. Prior to October 1, 2007, DSC provided fund accounting and administrative services to the Fund and received a fee at an annual rate of 0.04% of average daily net assets. For the year ended November 30, 2007, the Fund was charged $ 257,737 for these services.
DSC also provides dividend disbursing and transfer agency services. The Fund pays DSC a monthly fee based on the number of shareholder accounts for dividend disbursing and transfer agent services.
Pursuant to a distribution agreement and distribution plan, the Fund pays DDLP, the distributor and an affiliate of DMC, an annual distribution and service fee not to exceed 0.30% of the average daily net assets of the Class A shares, 1.00% of the average daily net assets of the Class B and C shares and 0.60% of the average daily net assets of Class R shares. Institutional Class shares pay no distribution and service expenses. DDLP has contracted to waive distribution and service fees through March 31, 2008, in order to prevent distribution and service fees of Class A and Class R shares from exceeding 0.25% and 0.50%, respectively, of average daily net assets.
At November 30, 2007, the Fund had liabilities payable to affiliates as follows:
| Investment management fee payable to DMC | $ | 367,143 |
| Dividend disbursing, transfer agent fees | ||
| and other expenses payable to DSC | 173,425 | |
| Distribution fees payable to DDLP | 218,398 | |
| Other expenses payable to DMC and affiliates* | 15,631 | |
| *DMC, as part of its administrative services, pays operating expenses on behalf of the Fund and is reimbursed on a periodic basis. Such expenses include items such as printing of shareholder reports, fees for audit, legal, and tax services, registration fees and trustees’ fees. | ||
As provided in the investment management agreement, the Fund bears the cost of certain legal and tax services, including internal legal and tax services provided to the Fund by DMC and/or its affiliates employees. For the year ended November 30, 2007, the Fund was charged $37,257 for internal legal and tax services provided by DMC and/or its affiliates employees.
For the year ended November 30, 2007, DDLP earned $22,763 for commissions on sales of the Fund’s Class A shares. For the year ended November 30, 2007, DDLP received gross CDSC of $2,121, $110,332 and $8,364 on redemption of the Fund’s Class A, Class B, and Class C shares, respectively, and these commissions were entirely used to offset up-front commissions previously paid by DDLP to broker-dealers on sales of those shares.
Trustee’s fees and benefits include expenses accrued by the Fund for each Trustee’s retainer and per meeting fees. Certain officers of DMC, DSC and DDLP are officers and/or Trustees of the Trust. These officers and Trustees are paid no compensation by the Fund.
18
3. Investments
For the year ended November 30, 2007, the Fund made purchases of $165,462,095 and sales of $310,986,130 of investment securities other than short-term investments.
At November 30, 2007, the cost of investments for federal income tax purposes was $636,026,647. At November 30, 2007, net unrealized appreciation was $98,317,834 of which $140,899,013 related to unrealized appreciation of investments and $42,581,179 related to unrealized depreciation of investments.
4. Dividend and Distribution Information
Income and long-term capital gain distributions are determined in accordance with federal income tax regulations, which may differ from U.S. generally accepted accounting principles. Additionally, net short term gains on sales of investment securities are treated as ordinary income for federal income tax purposes. The tax character of dividends and distributions paid during the years ended November 30, 2007 and 2006 was as follows:
| Year Ended | |||||
| 11/30/07 | 11/30/06 | ||||
| Ordinary income | $ | 14,551,917 | $ | 5,424,775 | |
| Long-term capital gain | 48,247,827 | 49,560,263 | |||
| Total | $ | 62,799,744 | $ | 54,985,038 | |
5. Components of Net Assets on a Tax Basis
As of November 30, 2007, the components of net assets on a tax basis were as follows:
| Shares of beneficial interest | $ | 435,118,877 |
| Undistributed long-term capital gains | 55,238,724 | |
| Unrealized appreciation of investments | 98,317,834 | |
| Net assets | $ | 588,675,435 |
The differences between book basis and tax basis components of net assets are primarily attributable to tax deferral of losses on wash sales. The undistributed earnings for the Fund are estimated pending final notification of the tax character of distributions received from investments in REITs.
For financial reporting purposes, capital accounts are adjusted to reflect the tax character of permanent book/tax differences. Reclassifications are primarily due to tax treatment of net operating losses and dividends and distributions. Results of operations and net assets were not affected by these reclassifications. For the year ended November 30, 2007, the Fund recorded the following reclassifications.
| Accumulated net investment loss | $ | 2,421,917 | |
| Accumulated net realized gain | (801,206 | ) | |
| Paid-in capital | (1,620,711 | ) |
6. Capital Shares
Transactions in capital shares were as follows:
| Year Ended | |||||
| 11/30/07 | 11/30/06 | ||||
| Shares sold: | |||||
| Class A | 1,463,749 | 3,248,371 | |||
| Class B | 32,759 | 167,238 | |||
| Class C | 192,771 | 913,427 | |||
| Class R | 397,624 | 317,280 | |||
| Institutional Class | 177,796 | 352,145 | |||
| Shares issued upon reinvestment of | |||||
| dividends and distributions: | |||||
| Class A | 952,637 | 832,528 | |||
| Class B | 197,855 | 243,243 | |||
| Class C | 323,483 | 283,381 | |||
| Class R | 44,056 | 23,806 | |||
| Institutional Class | 70,822 | 64,569 | |||
| 3,853,552 | 6,445,988 | ||||
| Shares repurchased: | |||||
| Class A | (3,360,466 | ) | (2,799,853 | ) | |
| Class B | (998,258 | ) | (995,799 | ) | |
| Class C | (1,292,964 | ) | (725,220 | ) | |
| Class R | (341,947 | ) | (118,418 | ) | |
| Institutional Class | (399,673 | ) | (330,803 | ) | |
| (6,393,308 | ) | (4,970,093 | ) | ||
| Net increase (decrease) | (2,539,756 | ) | 1,475,895 | ||
For the years ended November 30, 2007 and 2006, 357,349 Class B shares were converted to 328,289 Class A shares valued at $13,268,291 and 413,129 Class B shares were converted to 384,420 Class A shares valued at $14,931,874, respectively. The respective amounts are included in Class B redemptions and Class A subscriptions in the table above and the Statements of changes in net assets.
7. Line of Credit
The Fund, along with certain other funds in the Delaware Investments® Family of Funds (Participants), participates in a $225,000,000 revolving line of credit facility to be used for temporary or emergency purposes as an additional source of liquidity to fund redemptions of investor shares. The Participants are charged an annual commitment fee, which is allocated across the Participants on the basis of each Participant’s allocation of the entire facility. The Participants may borrow up to a maximum of one third of their net assets under the agreement. The Fund had no amounts outstanding as of November 30, 2007, or at any time during the year then ended.
(continues) 19
Notes to financial statements
Delaware Small Cap Value Fund
8. Securities Lending
The Fund, along with other funds in the Delaware Investments® Family of Funds, may lend its securities pursuant to a security lending agreement (Lending Agreement) with Mellon Bank, N.A. (Mellon). With respect to each loan, if the aggregate market value of the collateral held on any business day is less than the aggregate market value of the securities which are the subject of such loan, the borrower will be notified to provide additional collateral not less than the applicable collateral requirements. Cash collateral received is invested in a collective investment vehicle (Collective Trust) established by Mellon for the purpose of investment on behalf of clients participating in its securities lending programs. The Collective Trust invests in fixed income securities with a weighted average maturity not to exceed 90 days, rated in one of the top two tiers by Standard & Poor’s Ratings Group or Moody’s Investors Service, Inc. or repurchase agreements collateralized by such securities. However, in the event of default or bankruptcy by the lending agent, realization and/or retention of the collateral may be subject to legal proceedings. In the event the borrower fails to return loaned securities and the collateral received is insufficient to cover the value of the loaned securities and provided such collateral shortfall is not the result of investment losses, the lending agent has agreed to pay the amount of the shortfall to the 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 change 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. The security lending agent and the borrower retain a portion of the earnings from the collateral investments. The Fund records security lending income net of such allocation.
At November 30, 2007, the market value of securities on loan was $143,002,279, for which cash collateral was received and invested in accordance with the Lending Agreement. Such investments are presented on the Statement of net assets under the caption “Securities Lending Collateral.”
9. Credit and Market Risk
The 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 more limited financial resources or a dependence on narrow product lines.
The Fund invests in REITs and is subject to some of 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 holdings during the year ended November 30, 2007. 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 of the Securities Act of 1933, as amended, and other securities which may not be readily marketable. The relative illiquidity of these securities may impair the 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 of Trustees 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 assets. As of November 30, 2007, there were no Rule 144A securities and no securities have been determined to be illiquid under the Fund’s Liquidity Procedures.
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. Termination of New Share Purchases of Class B Shares
As of the close of business on May 31, 2007, each fund in the Delaware Investments® Family of Funds no longer accepts new or subsequent investments in Class B shares of the funds, other than a reinvestment of dividends or capital gains or permitted exchanges. Existing shareholders of Class B shares may continue to hold their Class B shares, reinvest dividends into Class B shares, and exchange their Class B shares of one Delaware Investments® Fund (each a Fund) for Class B shares of another Fund, as permitted by existing exchange privileges. Existing Class B shareholders wishing to make subsequent purchases in a Fund’s shares will be permitted to invest in other classes of the Fund, subject to that class’ pricing structure and eligibility requirements, if any.
For Class B shares outstanding as of May 31, 2007 and Class B shares acquired upon reinvestment of dividends or capital gains, all Class B share attributes, including the CDSC schedules, conversion to Class A schedule, and distribution and service (12b-1) fees, will continue in their current form. However, as of the close of business on May 31, 2007, reinvestment of redeemed shares with respect to Class B shares (which, as described in the prospectus, permits you to reinvest within 12 months of selling your shares and have any CDSC you paid on such shares credited back to your account) has been discontinued. In addition, because the Fund’s or its distributor’s ability to assess certain sales charges and fees is dependent on the sale of new shares, the termination of new purchases of Class B shares could ultimately lead to the elimination and/or reduction of such sales charges and fees. The Fund may not be able to provide shareholders with advance notice of the reduction in these sales charges and fees. You will be notified via a Prospectus Supplement if there are any changes to any attributes, sales charges, or fees.
20
12. Change in Custodian
On August 2, 2007, Mellon Bank, One Mellon Center, Pittsburgh, PA 15258, became the Fund’s custodian. Prior to August 2, 2007, JPMorgan Chase served as the Fund’s custodian.
13. Tax Information (Unaudited)
The information set forth below is for the Fund’s fiscal year as required by federal laws. Shareholders, however, must report distributions on a calendar year basis for income tax purposes, which may include distributions for portions of two fiscal years of a fund. Accordingly, the information needed by shareholders for income tax purposes will be sent to them in January of each year. Please consult your tax advisor for proper treatment of this information.
For the fiscal year ended November 30, 2007, the Fund designates distributions paid during the year as follows:
| (A) | (B) | |||||
| Long-Term | Ordinary | |||||
| Capital Gain | Income | Total | (C) | |||
| Distributions | Distributions* | Distributions | Qualifying | |||
| (Tax Basis) | (Tax Basis) | (Tax Basis) | Dividends(1) | |||
| 77% | 23% | 100% | 7% |
(A) and (B) are based on a percentage of the Fund’s total distributions. |
(C) is based on a percentage of ordinary income of the Fund. |
(1) Qualifying dividends represent dividends which qualify for the corporate dividends received deduction. |
* For the fiscal year ended November 30, 2007, certain dividends paid by the Fund may be subject to a maximum tax rate of 15%, as provided for by the Jobs and Growth Tax Relief Reconciliation Act of 2003. The Fund intends to designate up to a maximum amount of $5,453,382 to be taxed at a maximum rate of 15%. Complete information will be computed and reported in conjunction with your 2007 Form 1099-DIV. |
21
Report of independent
registered public accounting firm
To the Shareholders and Board of Trustees
Delaware Group Equity Funds V – Delaware Small Cap Value Fund
We have audited the accompanying statement of net assets of Delaware Small Cap Value Fund (one of the series constituting Delaware Group Equity Funds V) (the “Fund”) as of November 30, 2007, and the related statement of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended, and the financial highlights for each of the periods indicated therein. These financial statements and financial highlights are the responsibility of the Fund’s management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. We were not engaged to perform an audit of the Fund’s internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Fund’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements and financial highlights, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our procedures included confirmation of securities owned as of November 30, 2007, by correspondence with the custodian and brokers or by other appropriate auditing procedures where replies from brokers were not received. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of the Delaware Small Cap Value Fund of Delaware Group Equity Funds V at November 30, 2007, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended, and its financial highlights for each of the periods indicated therein, in conformity with U.S. generally accepted accounting principles.
Philadelphia, Pennsylvania
January 22, 2008
22
Other Fund information (unaudited)
Delaware Small Cap Value Fund
Fund management
Christopher S. Beck, CFA
Senior Vice President, Senior Portfolio Manager
Christopher S. Beck leads the firm’s Small/Mid-Cap Value team. Prior to joining Delaware Investments in 1997, he served as a vice president at Pitcairn Trust from 1995 to 1997, where he managed small-capitalization stocks and analyzed equity sectors. Before that he was chief investment officer of the University of Delaware from 1992 to 1995 and held management positions during his seven years at Cypress Capital Management and four years at Wilmington Trust. Beck earned a bachelor’s degree at the University of Delaware and an MBA from Lehigh University, and he is a member of The CFA Society of Philadelphia.
Michael E. Hughes, CFA
Vice President, Senior Equity Analyst
Michael E. Hughes is responsible for the analysis, purchase, and sale recommendations of consumer staples, healthcare, and technology securities for the firm’s Small-Cap Value and Mid-Cap Value portfolios. Prior to joining Delaware Investments in 2002, Hughes was a vice president of equity research at Raymond James & Associates and a limited partner of equity research at J.C. Bradford. He received a bachelor’s degree in finance from Siena College and an MBA from Vanderbilt University.
Kent P. Madden, CFA
Equity Analyst
Kent P. Madden is responsible for equity research of consumer services, consumer cyclicals, transportation, and business services stocks for the firm’s Small-Cap Value and Mid-Cap Value portfolios. Prior to joining Delaware Investments in 2004, he was an equity analyst at Gartmore Global Investments, where he specialized in technology and telecommunications. He has also worked as an equity analyst for Federated Investors, where he gained experience covering small-capitalization consumer stocks, and Lehman Brothers as a corporate finance analyst. Madden holds a bachelor’s degree in economics from DePauw University and an MBA from the University of Chicago.
Kelley A. McKee, CFA
Equity Analyst
Kelley A. McKee joined Delaware Investments in July 2005 as an equity analyst for the firm’s Small-Cap Value and Mid-Cap Value portfolios, where she assists the portfolio manager with financial modeling and coverage of various sectors. For the three years prior, she participated in Lincoln Financial Group’s rotational Professional Development Program. McKee earned a bachelor’s degree in finance from Georgetown University.
23
Board of trustees/directors
and officers addendum
Delaware Investments® Family of Funds
A mutual fund is governed by a Board of Trustees/Directors (“Trustees”), which has oversight responsibility for the management of a fund’s business affairs. Trustees establish procedures and oversee and review the performance of the investment manager, the distributor, and others who perform services for the fund. The independent fund trustees, in particular, are advocates for shareholder interests. Each trustee has served in that capacity since he or she was elected to or appointed to the Board of Trustees, and will continue to serve until his or her retirement or the election of a new trustee in his or her place. The following is a list of the Trustees and Officers with certain background and related information.
| Number of | |||||
| Portfolios in Fund | Other | ||||
| Name, | Complex Overseen | Directorships | |||
| Address, | Position(s) | Length of | Principal Occupation(s) | by Trustee | Held by |
| and Birth Date | Held with Fund(s) | Time Served | During Past 5 Years | or Officer | Trustee or Officer |
| Interested Trustees | |||||
| Patrick P. Coyne1 | Chairman, | Chairman and Trustee | Patrick P. Coyne has served in | 84 | Director — |
| 2005 Market Street | President, | since August 16, 2006 | various executive capacities | Kaydon Corp. | |
| Philadelphia, PA | Chief Executive | at different times at | |||
| 19103 | Officer, and | President and | Delaware Investments.2 | ||
| Trustee | Chief Executive Officer | ||||
| April 14, 1963 | since August 1, 2006 | ||||
| Independent Trustees | |||||
| Thomas L. Bennett | Trustee | Since | Private Investor — | 84 | Director — |
| 2005 Market Street | March 2005 | (March 2004–Present) | Bryn Mawr | ||
| Philadelphia, PA | Bank Corp. (BMTC) | ||||
| 19103 | Investment Manager — | (April 2007–Present) | |||
| Morgan Stanley & Co. | |||||
| October 4, 1947 | (January 1984–March 2004) | ||||
| John A. Fry | Trustee | Since | President — | 84 | Director — |
| 2005 Market Street | January 2001 | Franklin & Marshall College | Community Health | ||
| Philadelphia, PA | (June 2002–Present) | Systems | |||
| 19103 | |||||
| Executive Vice President — | Director — | ||||
| May 28, 1960 | University of Pennsylvania | Allied Barton | |||
| (April 1995–June 2002) | Security Holdings | ||||
| Anthony D. Knerr | Trustee | Since | Founder and Managing Director — | 84 | None |
| 2005 Market Street | April 1990 | Anthony Knerr & Associates | |||
| Philadelphia, PA | (Strategic Consulting) | ||||
| 19103 | (1990–Present) | ||||
| December 7, 1938 | |||||
| Lucinda S. Landreth | Trustee | Since | Chief Investment Officer — | 84 | None |
| 2005 Market Street | March 2005 | Assurant, Inc. | |||
| Philadelphia, PA | (Insurance) | ||||
| 19103 | (2002–2004) | ||||
| June 24, 1947 | |||||
| Ann R. Leven | Trustee | Since | Consultant — | 84 | Director and |
| 2005 Market Street | October 1989 | ARL Associates | Audit Committee | ||
| Philadelphia, PA | (Financial Planning) | Chairperson — Andy | |||
| 19103 | (1983–Present) | Warhol Foundation | |||
| November 1, 1940 | Director and Audit | ||||
| Committee Chair — | |||||
| Systemax, Inc. | |||||
24
| Number of | |||||
| Portfolios in Fund | Other | ||||
| Name, | Complex Overseen | Directorships | |||
| Address, | Position(s) | Length of | Principal Occupation(s) | by Trustee | Held by |
| and Birth Date | Held with Fund(s) | Time Served | During Past 5 Years | or Officer | Trustee or Officer |
| Independent Trustees (continued) | |||||
| Thomas F. Madison | Trustee | Since | President and Chief | 84 | Director — |
| 2005 Market Street | May 19973 | Executive Officer — | CenterPoint Energy | ||
| Philadelphia, PA | MLM Partners, Inc. | ||||
| 19103 | (Small Business Investing | Director and Audit | |||
| and Consulting) | Committee Chair — | ||||
| February 25, 1936 | (January 1993–Present) | Digital River, Inc. | |||
| Director and Audit | |||||
| Committee Member — | |||||
| Rimage | |||||
| Corporation | |||||
| Director — Valmont | |||||
| Industries, Inc. | |||||
| Janet L. Yeomans | Trustee | Since | Treasurer | 84 | None |
| 2005 Market Street | April 1999 | (January 2006–Present) | |||
| Philadelphia, PA | Vice President — Mergers & Acquisitions | ||||
| 19103 | (January 2003–January 2006), and | ||||
| Vice President | |||||
| July 31, 1948 | (July 1995–January 2003) | ||||
| 3M Corporation | |||||
| Ms. Yeomans has held | |||||
| various management positions | |||||
| at 3M Corporation since 1983. | |||||
| J. Richard Zecher | Trustee | Since | Founder — | 84 | Director and Audit |
| 2005 Market Street | March 2005 | Investor Analytics | Committee Member — | ||
| Philadelphia, PA | (Risk Management) | Investor Analytics | |||
| 19103 | (May 1999–Present) | ||||
| Director and Audit | |||||
| July 3, 1940 | Founder — | Committee Member — | |||
| Sutton Asset Management | Oxigene, Inc. | ||||
| (Hedge Fund) | |||||
| (September 1996–Present) | |||||
| Officers | |||||
| David F. Connor | Vice President, | Vice President since | David F. Connor has served as | 84 | None4 |
| 2005 Market Street | Deputy General | September 2000 | Vice President and Deputy | ||
| Philadelphia, PA | Counsel, and Secretary | and Secretary | General Counsel of | ||
| 19103 | since | Delaware Investments | |||
| October 2005 | since 2000. | ||||
| December 2, 1963 | |||||
| Daniel V. Geatens | Vice President | Treasurer | Daniel V. Geatens has served | 84 | None4 |
| 2005 Market Street | and Treasurer | since | in various capacities at | ||
| Philadelphia, PA | October 25, 2007 | different times at | |||
| 19103 | Delaware Investments. | ||||
| October 26, 1972 | |||||
| David P. O’Connor | Senior Vice | Senior Vice President, | David P. O’Connor has served in | 84 | None4 |
| 2005 Market Street | President, | General Counsel, and | various executive and legal | ||
| Philadelphia, PA | General Counsel, | Chief Legal Officer | capacities at different times | ||
| 19103 | and Chief | since | at Delaware Investments. | ||
| Legal Officer | October 2005 | ||||
| February 21, 1966 | |||||
| Richard Salus | Senior | Chief Financial | Richard Salus has served in | 84 | None4 |
| 2005 Market Street | Vice President | Officer since | various executive capacities | ||
| Philadelphia, PA | and | November 2006 | at different times at | ||
| 19103 | Chief Financial | Delaware Investments. | |||
| Officer | |||||
| October 4, 1963 | |||||
The Statement of Additional Information for the Fund(s) includes additional information about the Trustees and Officers and is available, without charge, upon request by calling 800 523-1918.
25
About the organization
This annual report is for the information of Delaware Small Cap Value Fund shareholders, but it may be used with prospective investors when preceded or accompanied by a current prospectus for Delaware Small Cap Value Fund and the Delaware Investments® Performance Update for the most recently completed calendar quarter. The prospectus sets forth details about charges, expenses, investment objectives, and operating policies of the investment company. You should read the prospectus carefully before you invest. The figures in this report represent past results that are not a guarantee of future results. The return and principal value of an investment in the investment company will fluctuate so that shares, when redeemed, may be worth more or less than their original cost.
| Board of trustees Patrick P. Coyne Thomas L. Bennett John A. Fry Anthony D. Knerr Lucinda S. Landreth Ann R. Leven Thomas F. Madison Janet L. Yeomans J. Richard Zecher | Affiliated officers David F. Connor Daniel V. Geatens David P. O’Connor Richard Salus | Contact information Investment manager National distributor Shareholder servicing, dividend For shareholders For securities dealers and financial Web site |
Delaware Investments is the marketing name of Delaware Management Holdings, Inc. and its subsidiaries.
The Fund files its complete schedule of portfolio holdings with the Securities and Exchange Commission for the first and third quarters of each fiscal year on Form N-Q. The 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 Commission’s Web site at http://www.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 Fund’s Schedule of Investments are available without charge on the Fund’s Web site at http://www.delawareinvestments.com. The Fund’s Forms N-Q may be reviewed and copied at the Commission’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 Web site at http://www.delawareinvestments.com; and (ii) on the Commission’s Web site at http://www.sec.gov.
26
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| Printed in the USA |
| AR-021 [11/07] CGI 1/08 | MF-07-12-019 PO12523 |
| | ||
| Annual Report | Delaware | |
| Small Cap Core Fund | ||
| November 30, 2007 | ||
Core equity mutual fund
 |  |
Table of contents
| > Portfolio management review | 1 | ||
| > Performance summary | 4 | ||
| > Disclosure of Fund expenses | 6 | ||
| > Sector allocation and top 10 holdings | 7 | ||
| > Statement of net assets | 8 | ||
| > Statement of operations | 11 | ||
| > Statements of changes in net assets | 12 | ||
| > Financial highlights | 13 | ||
| > Notes to financial statements | 17 | ||
| > Report of independent registered public accounting firm | 21 | ||
| > Other Fund information | 22 | ||
| > Board of trustees/directors and officers addendum | 23 | ||
| > About the organization | 25 |
Funds are not FDIC insured and are not guaranteed. It is possible to lose the principal amount invested.
Mutual fund advisory services provided by Delaware Management Company, a series of Delaware Management
Business Trust, which is a registered investment advisor.
© 2008 Delaware Distributors, L.P.
Portfolio management review
Delaware Small Cap Core Fund
Dec. 11, 2007
The managers of Delaware Small Cap Core Fund provided the answers to the questions below as a review of the Fund’s activities for the fiscal year that ended Nov. 30, 2007.
How did the Fund perform over the last year?
Class A shares of Delaware Small Cap Core Fund returned -3.62% at net asset value and -9.13% at the maximum offer price (both figures represent all dividends reinvested). The Fund’s benchmark, the Russell 2000 Index, returned -1.17%, while the Fund’s peer group, the Lipper Small-Cap Core Funds Average, returned -0.11% (source: Lipper). Please see page 4 for a complete performance summary and disclosure.
Please discuss the investment environment during the period.
After several years of strong performance, small-capitalization stocks endured a challenging year. Early in the Fund’s fiscal period, the macroeconomic environment was marked by a weak dollar, higher energy prices, and rising import costs — all historically negative factors for small-cap stocks.
Equity markets experienced a brief but sharp correction in late February and early March, as investors around the globe came to terms with weaker-than-expected economic data in the United States and increasing signs of trouble in the subprime mortgage market. Subprime mortgages are loans made to low income borrowers with blemished credit histories. Mortgage defaults spiked during the year as many adjustable-rate home loans were increased from their initially low interest rate. Problems in the subprime market had negative repercussions for the economy and for virtually all equity markets, regardless of market capitalization.
During the summer months, investors, already nervous about rising energy prices and other pressures on consumer spending, began to focus more intently on the difficult conditions for homeowners and homebuilders. In mid-July, for example, the markets were rattled as the number of financial institutions with mortgage-debt write-offs escalated. Growing unease from the resulting credit squeeze and real estate slump fueled market-wide selloffs, particularly within the financial sector. But the fallout from the subprime crisis spread globally, notably impacting the consumer sectors, among other areas.
Within this environment, market fundamentals shifted in favor of large-cap stocks and away from their small-cap counterparts. The relative resurgence in large-cap stocks reflected investors’ growing concern about the U.S. economy and their appetite for global revenue diversification.
What factors influenced Fund performance?
Throughout the year, we sought to identify companies with strong balance sheets and healthy cash flow. We held an overweight position versus the Russell 2000 Index in technology over the fiscal year as this sector continued to boast strong growth rates driven by favorable product cycles and international exposure. We also held a significant position in healthcare, which continues to benefit from positive secular trends, such as aging populations.
As the year progressed, we anticipated that the economy would continue to slow and remained cautiously optimistic through the end of the period. The Fund’s underweight position in consumer discretionary stocks compared to the benchmark reflected our view that discretionary spending would face headwinds as rising energy prices, falling home values, and increased economic uncertainty weighed on consumer sentiment.
Can you discuss your investment process? How do you go about finding what you believe are the best available small-cap stocks?
We employ a rigorous approach and dynamic process to identify promising opportunities in the market. We begin with a quantitative screen that ranks the entire universe of small-cap stocks (or those in the Russell 2000 Index) on a sector level and at the universe level. These rankings, which are used to determine the relative attractiveness of a stock versus the Russell 2000, are assigned based on a variety of factors: valuation (using both traditional financial ratio analysis and present value calculations),
The views expressed are current as of the date of this report and are subject to change.
(continues) 1
Portfolio management review
Delaware Small Cap Core Fund
expectations (based on earnings revisions and price momentum), and quality (such as cash flow analysis and share repurchases).
The rankings generated by the quantitative model are used to narrow down the investment universe to a manageable range of names on which we perform fundamental research. When performing fundamental analysis, we fully evaluate a company’s financial statements and products, and identify catalysts that we believe should move the stock higher (i.e. pricing power, industry position, technological advantage, etc.). We are able to add the most value through this step in the investment process due to the forward-looking nature of the analysis.
While the first two steps focus on idea generation, the third step in the investment process involves the construction of the portfolio. We aim to ensure that stock selection is the key driver behind Fund performance while minimizing the impact of any unintended risks within the portfolio.
The last step of the process involves our sell discipline. We will reduce or sell a stock if the company grows beyond the market cap limit of the Russell 2000 Index or if it experiences a breakdown in the quantitative model. Additionally, we will reduce or sell a stock if the fundamental thesis or catalyst no longer exists, or if the stock achieves the fundamental target we determine for its price.
Which holdings failed to meet your expectations?
Repercussions from the subprime mortgage crisis affected companies throughout the financials sector. Within the Fund, private mortgage insurance provider Triad Guaranty detracted from returns. Triad was affected by investor concern that claims payouts would increase in the wake of rising mortgage defaults. Despite our belief that the company could survive the downturn in the mortgage market, we exited our position completely as we became concerned that negative market sentiment would continue to push the stock lower.
Our position in BankUnited Financial Corporation also decreased Fund returns. The Florida-based bank suffered from deteriorating credit quality and exposure to Florida’s weakening real estate market. Despite these circumstances, we remain optimistic about BankUnited’s future business prospects and believe that the market has unfairly penalized this company. We continued to hold a position in this stock at the end of the period.
The Fund’s holding in Wet Seal, a women’s discount clothing chain, fell on concerns that weakness in the lower income demographic would hamper sales. We completely sold out of our position as we saw no upside catalysts to the stock over the near term.
Which holdings strengthened the portfolio during the 12-month period?
In the business services sector, FTI Consulting, a firm that specializes in legal, financial, and reputation issues, posted strong gains. The company has consistently exceeded earnings expectations, driven by strong contributions from its restructuring and bankruptcy business, an area we anticipate could benefit from continued economic weakness.
Technology company Synaptics was another notable performer. Synaptics provides interface solutions for mobile computers, communications and entertainment devices. Synaptics’ new touch-screen technology is being utilized by a growing number of mobile phone manufacturers, which we believe bodes well for the company’s future business prospects.
The stock of Armor Holdings, which provides security products and vehicle armor systems to the U.S. military and major aerospace and defense contractors, also delivered strong positive performance. The company benefited during the year from increased demand for its products due to the war in Iraq. We sold the Fund’s position in Armor Holdings, however, when the stock reached our set target price following its acceptance of a buyout offer from BEA Systems.
Within the healthcare sector, United Therapeutics contributed notably to Fund performance. United Therapeutics’ stock appreciated during the fiscal year when the company received FDA approval for Viveta, the inhaled formulation of the drug Remodulin, a treatment for pulmonary arterial hypertension. We owned the stock at period end because we believed that the company’s pipeline for new drug development appeared promising.
2
Performance summary
Delaware Small Cap Core Fund
The performance data quoted represent past performance; past performance does not guarantee future results. Investment return and principal value will fluctuate so your shares, when redeemed, may be worth more or less than their original cost. Please obtain the performance data for the most recent month end by calling 800 523-1918 or visiting our Web site at www.delawareinvestments.com/performance. Current performance may be lower or higher than the performance data quoted.
You should consider the investment objectives, risks, charges, and expenses of the investment company carefully before investing. The Delaware Small Cap Core Fund prospectus contains this and other important information about the investment company. Please request a prospectus through your financial advisor or by calling 800 523-1918 or visiting our Web site at www.delawareinvestments.com. Read the prospectus carefully before you invest or send money.
| Fund performance | |||||
| Average annual total returns | |||||
| Through Nov. 30, 2007 | 1 year | 5 years | Lifetime | ||
| Class A (Est. Dec. 29, 1998) | |||||
| Excluding sales charge | -3.62% | +14.90% | +12.78% | ||
| Including sales charge | -9.13% | +13.54% | +12.03% | ||
| Class C (Est. Aug. 1, 2005) | |||||
| Excluding sales charge | -4.37% | N/A | +3.64% | ||
| Including sales charge | -5.30% | N/A | +3.64% | ||
Returns reflect the reinvestment of all distributions and any applicable sales charges as noted in the following paragraphs.
Performance for Class C shares, excluding sales charges, assumes either that contingent deferred sales charges did not apply or that the investment was not redeemed.
An expense limitation was in effect for all classes during the periods shown in the Fund performance chart above and in the Performance of a $10,000 Investment chart on the next page. Performance would have been lower had the expense limitation not been in effect.
The Fund offers Class A, C, R, and Institutional Class shares. Class A shares are sold with a maximum front-end sales charge of up to 5.75%, and have an annual distribution and service fee of up to 0.30% of average daily net assets, but such a fee is currently subject to a contractual cap of 0.25% of average daily net assets through March 31, 2008.
Class C shares are sold with a contingent deferred sales charge of 1.00% if redeemed during the first 12 months. They are also subject to an annual distribution and service fee of 1.00% of average daily net assets.
Please see the fee table in the prospectus and your financial professional for a more complete explanation of sales charges.
Management has contracted to reimburse expenses and/or waive its management fees from April 1, 2007, through March 31, 2008, as disclosed in the most recent prospectus.
The Fund’s net expense ratios for Class A, C, R, and Institutional Class shares are 1.30%, 2.05%, 1.55%, and 1.05%, respectively, as disclosed in the most recent prospectus. Without the fee waiver, total operating expenses for Class A, C, R, and Institutional Class shares would have been 1.72%, 2.42%, 2.02%, and 1.42%, respectively.
The average annual total returns for the 1-year and lifetime (since Aug. 1, 2005) periods ended Nov. 30, 2007, for Delaware Small Cap Core Fund Class R shares were -3.86% and 4.19%, respectively.
Class R shares were first made available Aug. 1, 2005, and are available only for certain retirement plan products. They are sold without a sales charge and have an annual distribution and service fee of up to 0.60% of average daily net assets, but such fee is currently subject to a contractual cap of 0.50% of average daily net assets through March 31, 2008.
The average annual total returns for the 1-year, 5-year, and lifetime (since Dec. 29, 1998) periods ended Nov. 30, 2007, for Delaware Small Cap Core Fund Institutional Class shares were -3.38%, 15.03%, and 12.85%, respectively.
Institutional Class shares were first made available Dec. 29, 1998, and are available without sales or asset-based distribution charges only to certain eligible institutional accounts.
The performance table above and the graph on the next page do not reflect the deduction of taxes the shareholder would pay on Fund distributions or redemptions of Fund shares.
Funds that invest in small and/or medium-sized company stocks typically involve greater risk, particularly in the short term, than those investing in larger, more established companies.
4
| Fund basics |
| As of Nov. 30, 2007 |
| Fund objective |
| The Fund seeks long-term capital appreciation. |
| Total Fund net assets |
| $94.8 million |
| Number of holdings |
| 160 |
| Fund start date | ||
| Dec. 29, 1998 | ||
| Nasdaq symbols | CUSIPs | |
| Class A | DCCAX | 24610B883 |
| Class C | DCCCX | 24610B867 |
| Class R | DCCRX | 24610B834 |
| Institutional Class | DCCIX | 24610B859 |
Performance of a $10,000 Investment
Dec. 29, 1998 (Fund’s inception), through Nov. 30, 2007
| Starting value (Dec. 29, 1998) | Ending value (Nov. 30, 2007) | ||
| Delaware Small Cap Core Fund — Class A Shares | $9,425 | $27,566 | |
| Russell 2000 Index | $10,000 | $21,052 |
The chart assumes $10,000 invested in the Fund on Dec. 29, 1998, and includes the effect of a 5.75% front-end sales charge and the reinvestment of all distributions.
Performance of other Fund classes will vary due to different charges and expenses.
The chart also assumes $10,000 invested in the Russell 2000 Index as of Dec. 29, 1998. The Russell 2000 Index measures the performance of the 2,000 smallest companies in the Russell 3000 Index. An index is unmanaged and does not reflect the costs of operating a mutual fund, such as the costs of buying, selling, and holding securities. You cannot invest directly in an index.
Past performance is not a guarantee of future results.
The prospectus sets forth details about charges, expenses, investment objectives, and operating policies of the investment company.
5
Disclosure of Fund expenses
For the period June 1, 2007 to November 30, 2007
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 period June 1, 2007 to November 30, 2007.
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 actual expenses shown in the table reflect fee waivers in effect. The expenses shown in the table assume reinvestment of all dividends and distributions.
Delaware Small Cap Core Fund
Expense Analysis of an Investment of $1,000
| Expenses | |||||||||||
| Beginning | Ending | Paid During | |||||||||
| Account | Account | Annualized | Period | ||||||||
| Value | Value | Expense | 6/1/07 to | ||||||||
| 6/1/07 | 11/30/07 | Ratio | 11/30/07* | ||||||||
| Actual Fund Return | |||||||||||
| Class A | $1,000.00 | $885.60 | 1.31% | $6.19 | |||||||
| Class C | 1,000.00 | 882.50 | 2.06% | 9.72 | |||||||
| Class R | 1,000.00 | 884.40 | 1.56% | 7.37 | |||||||
| Institutional Class | 1,000.00 | 886.50 | 1.06% | 5.01 | |||||||
| With hypothetical 5% return (5% return before expenses) | |||||||||||
| Class A | $1,000.00 | $ | 1,018.50 | 1.31% | $ | 6.63 | |||||
| Class C | 1,000.00 | 1,014.74 | 2.06% | 10.40 | |||||||
| Class R | 1,000.00 | 1,017.25 | 1.56% | 7.89 | |||||||
| Institutional Class | 1,000.00 | 1,019.75 | 1.06% | 5.37 | |||||||
| * | “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). |
6
Sector allocation and top 10 holdings
Delaware Small Cap Core Fund
As of November 30, 2007
Sector designations may be different than the sector designations presented in other Fund materials.
| Percentage | |||
| Sector | of Net Assets | ||
| Common Stock | 96.75% | ||
| Basic Materials | 5.87% | ||
| Business Services | 6.33% | ||
| Capital Goods | 7.54% | ||
| Communication Services | 0.62% | ||
| Consumer Discretionary | 6.15% | ||
| Consumer Services | 3.35% | ||
| Consumer Staples | 2.99% | ||
| Credit Cyclicals | 1.60% | ||
| Energy | 5.52% | ||
| Financials | 12.68% | ||
| Health Care | 14.83% | ||
| Media | 2.23% | ||
| Real Estate | 4.90% | ||
| Technology | 19.50% | ||
| Transportation | 1.03% | ||
| Utilities | 1.61% | ||
| Discount Note | 0.59% | ||
| Securities Lending Collateral | 24.14% | ||
| Total Value of Securities | 121.48% | ||
| Obligation to Return Securities Lending Collateral | (24.14% | ) | |
| Receivables and Other Assets Net of Liabilities | 2.66% | ||
| Total Net Assets | 100.00% | ||
| Holdings are for informational purposes only and are subject to change at any time. They are not a recommendation to buy, sell, or hold any security. | |||
| Percentage | |||
| Top 10 Holdings | of Net Assets | ||
| Rofin-Sinar Technologies | 1.04% | ||
| United Therapeutics | 1.01% | ||
| Terra Industries | 0.92% | ||
| Bio-Rad Laboratories Class A | 0.91% | ||
| Aspen Insurance Holdings | 0.89% | ||
| Casey’s General Stores | 0.88% | ||
| Waddell & Reed Financial Class A | 0.88% | ||
| Black Hills | 0.88% | ||
| RLI | 0.87% | ||
| Senior Housing Properties Trust | 0.87% | ||
7
Statement of net assets
Delaware Small Cap Core Fund
November 30, 2007
| Number of | |||
| Shares | Value | ||
| Common Stock – 96.75% | |||
| Basic Materials – 5.87% | |||
| *†Century Aluminum | 13,950 | $ 799,893 | |
| Ferro | 35,410 | 750,338 | |
| Hercules | 35,410 | 687,308 | |
| †PolyOne | 90,880 | 569,818 | |
| *†Rockwood Holdings | 19,040 | 641,267 | |
| †RTI International Metals | 10,370 | �� | 761,573 |
| *†Terra Industries | 23,100 | 872,717 | |
| Wausau Paper | 51,150 | 482,345 | |
| 5,565,259 | |||
| Business Services – 6.33% | |||
| Administaff | 16,600 | 542,488 | |
| *†AMN Healthcare Services | 33,870 | 571,726 | |
| *Arbitron | 12,590 | 501,712 | |
| *†FTI Consulting | 12,600 | 718,199 | |
| †Harris Interactive | 117,950 | 494,211 | |
| *Healthcare Services Group | 29,275 | 641,122 | |
| Heidrick & Struggles International | 11,700 | 424,359 | |
| *†Kforce | 37,700 | 409,045 | |
| McGrath RentCorp | 23,200 | 616,888 | |
| UniFirst | 12,760 | 476,841 | |
| †United Stationers | 12,000 | 607,920 | |
| 6,004,511 | |||
| Capital Goods – 7.54% | |||
| *AAON | 24,100 | 458,623 | |
| *Acuity Brands | 11,930 | 471,116 | |
| *Applied Industrial Technologies | 18,920 | 571,573 | |
| Barnes Group | 20,540 | 635,918 | |
| †Columbus McKinnon | 19,700 | 613,064 | |
| Crane | 13,790 | 619,723 | |
| *DRS Technologies | 13,620 | 806,440 | |
| *†Force Protection | 23,350 | 252,414 | |
| *†Kadant | 17,250 | 508,185 | |
| Lincoln Electric Holdings | 9,700 | 676,769 | |
| *†Rofin-Sinar Technologies | 10,850 | 987,784 | |
| *†URS | 9,570 | 550,179 | |
| 7,151,788 | |||
| Communication Services – 0.62% | |||
| Alaska Communications | |||
| Systems Group | 39,350 | 590,250 | |
| 590,250 | |||
| Consumer Discretionary – 6.15% | |||
| *†Aeropostale | 26,895 | 687,167 | |
| *†DSW Class A | 22,540 | 506,925 | |
| *†Fossil | 13,200 | 572,088 | |
| *†Jos A Bank Clothiers | 18,100 | 468,609 | |
| Phillips-Van Heusen | 8,530 | 361,843 | |
| *†Quiksilver | 51,090 | 541,554 | |
| Stage Stores | 41,470 | 701,672 | |
| *Tempur-Pedic International | 25,270 | 750,266 | |
| †True Religion Apparel | 30,800 | 536,536 | |
| †ULTA Salon Cosmetics & Fragrance | 6,950 | 178,893 | |
| †Warnaco Group Class A | 14,400 | 531,360 | |
| 5,836,913 | |||
| Consumer Services – 3.35% | |||
| †AFC Enterprises | 34,550 | 376,941 | |
| †Buffalo Wild Wings | 21,000 | 607,110 | |
| CKE Restaurants | 44,220 | 646,495 | |
| *IHOP | 7,690 | 390,191 | |
| †Papa John’s International | 27,150 | 639,383 | |
| *†Shuffle Master | 38,550 | 515,414 | |
| 3,175,534 | |||
| Consumer Staples – 2.99% | |||
| Alberto-Culver | 24,580 | 628,265 | |
| *Casey’s General Stores | 28,850 | 836,650 | |
| Longs Drug Stores | 13,190 | 698,015 | |
| *†NutriSystem | 11,300 | 284,195 | |
| *Seaboard | 260 | 392,340 | |
| 2,839,465 | |||
| Credit Cyclicals – 1.60% | |||
| Granite Construction | 18,190 | 746,154 | |
| †Tenneco | 25,950 | 767,860 | |
| 1,514,014 | |||
| Energy – 5.52% | |||
| †Bristow Group | 12,530 | 689,150 | |
| *†Hercules Offshore | 27,750 | 694,027 | |
| Penn Virginia | 16,430 | 683,817 | |
| †Petrohawk Energy | 42,620 | 694,705 | |
| †Petroquest Energy | 48,930 | 650,280 | |
| *†SandRidge Energy | 17,130 | 543,878 | |
| *St. Mary Land & Exploration | 15,780 | 620,154 | |
| †W-H Energy Services | 12,970 | 654,985 | |
| 5,230,996 | |||
| Financials – 12.68% | |||
| *ADVANTA | 32,100 | 321,321 | |
| Aspen Insurance Holdings | 29,410 | 847,007 | |
| Assured Guaranty | 27,600 | 622,932 | |
| Bancfirst | 14,900 | 696,724 | |
| BankUnited Financial Class A | 41,650 | 332,367 | |
| *Center Financial | 33,600 | 413,280 | |
| Citizens Republic Bancorp | 38,250 | 543,915 | |
| *City Bank | 22,650 | 471,120 | |
| City Holding | 18,250 | 656,635 | |
| Dime Community Bancshares | 46,400 | 629,648 | |
| FBL Financial Group Class A | 13,140 | 487,100 | |
| First Niagara Financial Group | 50,950 | 633,309 | |
| *†FirstFed Financial | 14,540 | 509,191 | |
| Max Capital Group | 23,950 | 678,025 | |
| *Provident Bankshares | 21,900 | 513,555 | |
| †RAM Holdings | 47,250 | 274,050 | |
| RLI | 13,840 | 825,279 | |
| *South Financial Group | 32,950 | 590,464 | |
| *Trustmark | 23,350 | 594,491 | |
| †United America Indemnity | 27,750 | 549,450 | |
| Waddell & Reed Financial Class A | 24,360 | 832,625 | |
| 12,022,488 |
8
| Number of | |||
| Shares | Value | ||
| Common Stock (continued) | |||
| Health Care – 14.83% | |||
| *†Align Technology | 37,050 | $ 625,775 | |
| *†Alkermes | 52,200 | 744,372 | |
| †Applera-Celera Group | 47,710 | 721,375 | |
| †Bio-Rad Laboratories Class A | 8,540 | 861,770 | |
| †Cardiome Pharma | 35,700 | 355,929 | |
| †Eurand | 37,500 | 556,875 | |
| *†Gen-Probe | 6,650 | 444,819 | |
| *†Geron | 59,200 | 383,024 | |
| *†Healthways | 12,850 | 750,054 | |
| †Medarex | 47,600 | 604,520 | |
| *Mentor | 19,400 | 729,246 | |
| *†MGI PHARMA | 17,700 | 612,597 | |
| †NightHawk Radiology Holdings | 23,850 | 504,189 | |
| *†Noven Pharmaceuticals | 28,050 | 444,032 | |
| *†Progenics Pharmaceuticals | 20,750 | 402,550 | |
| *†Psychiatric Solutions | 20,400 | 745,212 | |
| †Regeneron Pharmaceuticals | 22,950 | 499,851 | |
| †Res-Care | 26,850 | 611,643 | |
| *†Sciele Pharma | 23,550 | 525,636 | |
| †Sun Healthcare Group | 43,650 | 724,154 | |
| †Techne | 9,350 | 609,153 | |
| †United Therapeutics | 9,550 | 955,763 | |
| Vital Signs | 12,400 | 656,084 | |
| 14,068,623 | |||
| Media – 2.23% | |||
| Entercom Communications Class A | 20,490 | 333,782 | |
| infoUSA | 63,150 | 544,985 | |
| National CineMedia | 26,950 | 745,976 | |
| *†Scholastic | 13,800 | 486,312 | |
| 2,111,055 | |||
| Real Estate – 4.90% | |||
| *First Industrial Realty Trust | 16,430 | 600,024 | |
| *First Potomac Realty Trust | 17,840 | 336,462 | |
| *Home Properties | 13,190 | 596,056 | |
| *Maguire Properties | 15,950 | 403,216 | |
| Nationwide Health Properties | 21,730 | 679,714 | |
| *Pennsylvania Real Estate | |||
| Investment Trust | 16,600 | 573,198 | |
| Senior Housing Properties Trust | 37,250 | 822,853 | |
| *Sovran Self Storage | 14,540 | 635,543 | |
| 4,647,066 | |||
| Technology – 19.50% | |||
| *†Anixter International | 8,590 | 554,055 | |
| *†Aspen Technology | 31,050 | 526,608 | |
| *†Blackboard | 14,450 | 563,550 | |
| †Chordiant Software | 44,400 | 445,332 | |
| *†Cymer | 14,200 | 583,194 | |
| †DealerTrack Holdings | 10,750 | 457,305 | |
| *†Digital River | 13,400 | 518,178 | |
| *†Dionex | 8,100 | 684,207 | |
| *†Glu Mobile | 34,900 | 190,554 | |
| †Harris Stratex Networks Class A | 35,550 | 612,171 | |
| †j2 Global Communications | 27,200 | 661,504 | |
| *†Kulicke & Soffa Industries | 61,500 | 435,420 | |
| *†Lawson Software | 62,000 | 602,640 | |
| *†MIPS Technologies | 81,850 | 464,908 | |
| *†MTC Technologies | 21,600 | 353,160 | |
| *†Netgear | 19,600 | 664,244 | |
| *†OmniVision Technologies | 24,300 | 452,466 | |
| *†ON Semiconductor | 62,100 | 570,699 | |
| †Progress Software | 21,850 | 691,115 | |
| *Quality Systems | 12,050 | 356,560 | |
| *†SAVVIS | 20,750 | 664,830 | |
| *†Secure Computing | 53,650 | 486,606 | |
| *†SI International | 20,700 | 537,372 | |
| *†Smith Micro Software | 48,150 | 385,682 | |
| *†SPSS | 18,100 | 654,134 | |
| *†Synaptics | 12,650 | 702,580 | |
| †Synchronoss Technologies | 11,500 | 378,580 | |
| *†Tekelec | 46,650 | 573,795 | |
| †Tessera Technologies | 17,200 | 664,264 | |
| United Online | 37,750 | 567,760 | |
| †Universal Electronics | 20,000 | 738,999 | |
| †Viasat | 20,550 | 685,343 | |
| *†Virgin Mobile USA | 25,920 | 188,698 | |
| †Virtusa | 26,000 | 459,420 | |
| †Wind River Systems | 41,000 | 418,610 | |
| 18,494,543 | |||
| Transportation – 1.03% | |||
| †HUB Group | 22,400 | 584,192 | |
| Pacer International | 28,750 | 395,600 | |
| 979,792 | |||
| Utilities – 1.61% | |||
| Black Hills | 19,950 | 831,117 | |
| Otter Tail | 20,800 | 697,008 | |
| 1,528,125 | |||
| Total Common Stock | |||
| (cost $96,908,718) | 91,760,422 | ||
| Principal | |||
| Amount | |||
| ¹ Discount Note – 0.59% | |||
| Federal Home Loan Bank | |||
| 3.801% 12/3/07 | $561,177 | 561,059 | |
| Total Discount Note | |||
| (cost $561,059) | 561,059 | ||
| Total Value of Securities Before | |||
| Securities Lending Collateral – 97.34% | |||
| (cost $97,469,777) | 92,321,481 | ||
(continues) 9
Statement of net assets
Delaware Small Cap Core Fund
| Number of | |||||
| Shares | Value | ||||
| Securities Lending Collateral** – 24.14% | |||||
| Investment Companies | |||||
| Mellon GSL DBT II Collateral Fund | 22,899,153 | $22,899,153 | |||
| Total Securities Lending Collateral | |||||
| (cost $22,899,153) | 22,899,153 | ||||
| Total Value of Securities – 121.48% | |||||
| (cost $120,368,930) | 115,220,634 | © | |||
| Obligation to Return Securities | |||||
| Lending Collateral** – (24.14%) | (22,899,153 | ) | |||
| Receivables and Other Assets | |||||
| Net of Liabilities – 2.66% | 2,522,385 | ||||
| Net Assets Applicable to 7,827,698 | |||||
| Shares Outstanding – 100.00% | $94,843,866 | ||||
| Net Asset Value – Delaware Small Cap Core Fund | |||||
| Class A ($41,870,482 / 3,446,944 Shares) | $12.15 | ||||
| Net Asset Value – Delaware Small Cap Core Fund | |||||
| Class C ($18,696,681 / 1,566,117 Shares) | $11.94 | ||||
| Net Asset Value – Delaware Small Cap Core Fund | |||||
| Class R ($3,100,416 / 256,507 Shares) | $12.09 | ||||
| Net Asset Value – Delaware Small Cap Core Fund | |||||
| Institutional Class ($31,176,287 / 2,558,130 Shares) | $12.19 | ||||
| Components of Net Assets at November 30, 2007: | |||||
| Shares of beneficial interest | |||||
| (unlimited authorization – no par) | $96,432,543 | ||||
| Accumulated net realized gain on investments | 3,559,619 | ||||
| Net unrealized depreciation of investments | (5,148,296 | ) | |||
| Total net assets | $94,843,866 | ||||
| † | Non-income producing security for the year ended November 30, 2007. |
| ¹ | The rate shown is the effective yield at the time of purchase. |
| * | Fully or partially on loan. |
| ** | See Note 8 in “Notes to financial statements.” |
| © | Includes $22,036,609 of securities loaned. |
| Net Asset Value and Offering Price Per Share – | |
| Delaware Small Cap Core Fund | |
| Net asset value Class A (A) | $12.15 |
| Sales charge (5.75% of offering price) (B) | 0.74 |
| Offering price | $12.89 |
| (A) | Net asset value per share, as illustrated, is the amount which would be paid upon redemption or repurchase of shares. | |
| (B) | See the current prospectus for purchase of $50,000 or more. |
See accompanying notes
10
Statement of operations
Delaware Small Cap Core Fund
Year Ended November 30, 2007
| Investment Income: | |||||
| Dividends | $867,796 | ||||
| Interest | 100,139 | ||||
| Securities Lending Income | 54,394 | $ 1,022,329 | |||
| Expenses: | |||||
| Management fees | 632,235 | ||||
| Distribution expenses – Class A | 114,161 | ||||
| Distribution expenses – Class C | 171,747 | ||||
| Distribution expenses – Class R | 9,578 | ||||
| Dividend disbursing and transfer agent fees and expenses | 192,923 | ||||
| Registration fees | 49,523 | ||||
| Accounting and administration expenses | 33,714 | ||||
| Reports and statements to shareholders | 29,975 | ||||
| Audit and tax | 15,928 | ||||
| Legal fees | 10,002 | ||||
| Custodian fees | 6,530 | ||||
| Trustees’ fees and benefits | 3,766 | ||||
| Dues and services | 2,810 | ||||
| Insurance fees | 2,703 | ||||
| Pricing fees | 2,608 | ||||
| Consulting fees | 1,224 | ||||
| Trustees’ expenses | 487 | ||||
| Taxes (other than taxes on income) | 134 | 1,280,048 | |||
| Less expenses absorbed or waived | (107,324 | ) | |||
| Less waived distribution expenses – Class A | (19,027 | ) | |||
| Less waived distribution expenses – Class R | (1,592 | ) | |||
| Less expense paid indirectly | (1,953 | ) | |||
| Total operating expenses | 1,150,152 | ||||
| Net Investment Loss | (127,823 | ) | |||
| Net Realized and Unrealized Gain (Loss) on Investments: | |||||
| Net realized gain on investments | 3,714,671 | ||||
| Net change in unrealized appreciation/depreciation of investments | (8,787,702 | ) | |||
| Net Realized and Unrealized Loss on Investments | (5,073,031 | ) | |||
| Net Decrease in Net Assets Resulting from Operations | $(5,200,854 | ) | |||
See accompanying notes
11
Statements of changes in net assets
Delaware Small Cap Core Fund
| Year Ended | ||||||
| 11/30/07 | 11/30/06 | |||||
| Increase (Decrease) in Net Assets from Operations: | ||||||
| Net investment loss | $ (127,823 | ) | $ (46,670 | ) | ||
| Net realized gain on investments | 3,714,671 | 1,809,516 | ||||
| Net change in unrealized appreciation/depreciation of investments | (8,787,702 | ) | 2,920,035 | |||
| Net increase (decrease) in net assets resulting from operations | (5,200,854 | ) | 4,682,881 | |||
| Dividends and Distributions to Shareholders from: | ||||||
| Net investment income: | ||||||
| Institutional Class | — | (17,577 | ) | |||
| Net realized gain on investments: | ||||||
| Class A | (868,326 | ) | (87,278 | ) | ||
| Class C | (403,007 | ) | (26,712 | ) | ||
| Class R | (7,399 | ) | — | |||
| Institutional Class | (501,650 | ) | (134,760 | ) | ||
| (1,780,382 | ) | (266,327 | ) | |||
| Capital Share Transactions: | ||||||
| Proceeds from shares sold: | ||||||
| Class A | 30,154,046 | 21,560,413 | ||||
| Class C | 11,425,330 | 10,578,306 | ||||
| Class R | 3,777,371 | 258,219 | ||||
| Institutional Class | 24,312,531 | 7,820,895 | ||||
| Net asset value of shares issued upon reinvestment of dividends and distributions: | ||||||
| Class A | 774,260 | 70,540 | ||||
| Class C | 374,810 | 24,266 | ||||
| Class R | 7,399 | — | ||||
| Institutional Class | 501,495 | 152,337 | ||||
| 71,327,242 | 40,464,976 | |||||
| Cost of shares repurchased: | ||||||
| Class A | (11,280,461 | ) | (2,172,311 | ) | ||
| Class C | (3,460,754 | ) | (472,381 | ) | ||
| Class R | (693,644 | ) | (51,844 | ) | ||
| Institutional Class | (6,761,739 | ) | (864,699 | ) | ||
| (22,196,598 | ) | (3,561,235 | ) | |||
| Increase in net assets derived from capital share transactions | 49,130,644 | 36,903,741 | ||||
| Net Increase in Net Assets | 42,149,408 | 41,320,295 | ||||
| Net Assets: | ||||||
| Beginning of year | 52,694,458 | 11,374,163 | ||||
| End of year (there was no undistributed net investment income at either year end) | $ 94,843,866 | $52,694,458 | ||||
See accompanying notes
12
Financial highlights
Delaware Small Cap Core Fund Class A
Selected data for each share of the Fund outstanding throughout each period were as follows:
| Year Ended | |||||||||||||||
| 11/30/07 | 11/30/06 | 11/30/05 | 11/30/04 | 11/30/03 | |||||||||||
| Net asset value, beginning of period | $13.030 | $11.380 | $14.600 | $13.080 | $10.290 | ||||||||||
| Income (loss) from investment operations: | |||||||||||||||
| Net investment income (loss)1 | (0.010 | ) | (0.015 | ) | 0.022 | 0.026 | 0.036 | ||||||||
| Net realized and unrealized gain (loss) on investments | (0.450 | ) | 1.895 | 1.035 | 2.481 | 3.350 | |||||||||
| Total from investment operations | (0.460 | ) | 1.880 | 1.057 | 2.507 | 3.386 | |||||||||
| Less dividends and distributions from: | |||||||||||||||
| Net investment income | — | — | (0.025 | ) | (0.044 | ) | (0.075 | ) | |||||||
| Net realized gain on investments | (0.420 | ) | (0.230 | ) | (4.252 | ) | (0.943 | ) | (0.521 | ) | |||||
| Total dividends and distributions | (0.420 | ) | (0.230 | ) | (4.277 | ) | (0.987 | ) | (0.596 | ) | |||||
| Net asset value, end of period | $12.150 | $13.030 | $11.380 | $14.600 | $13.080 | ||||||||||
| Total return2 | (3.62% | ) | 16.83% | 9.04% | 20.62% | 35.19% | |||||||||
| Ratios and supplemental data: | |||||||||||||||
| Net assets, end of period (000 omitted) | $41,871 | $25,220 | $3,863 | $20 | $13 | ||||||||||
| Ratio of expenses to average net assets | 1.29% | 1.26% | 1.02% | 0.75% | 0.75% | ||||||||||
| Ratio of expenses to average net assets | |||||||||||||||
| prior to expense limitation and expense paid indirectly | 1.47% | 1.73% | 2.53% | 1.30% | 1.34% | ||||||||||
| Ratio of net investment income (loss) to average net assets | (0.07% | ) | (0.13% | ) | 0.20% | 0.20% | 0.33% | ||||||||
| Ratio of net investment loss to average net assets | |||||||||||||||
| prior to expense limitation and expense paid indirectly | (0.25% | ) | (0.60% | ) | (1.31% | ) | (0.35% | ) | (0.26% | ) | |||||
| Portfolio turnover | 104% | 121% | 104% | 136% | 44% | ||||||||||
See accompanying notes
(continues) 13
Financial highlights
Delaware Small Cap Core Fund Class C
Selected data for each share of the Fund outstanding throughout each period were as follows:
| 8/1/051 | ||||||||||||
| Year Ended | to | |||||||||||
| 11/30/07 | 11/30/06 | 11/30/05 | ||||||||||
| Net asset value, beginning of period | $12.910 | $11.360 | $11.590 | |||||||||
| Income (loss) from investment operations: | ||||||||||||
| Net investment loss2 | (0.105 | ) | (0.106 | ) | (0.021 | ) | ||||||
| Net realized and unrealized gain (loss) on investments | (0.445 | ) | 1.886 | (0.209 | ) | |||||||
| Total from investment operations | (0.550 | ) | 1.780 | (0.230 | ) | |||||||
| Less dividends and distributions from: | ||||||||||||
| Net realized gain on investments | (0.420 | ) | (0.230 | ) | — | |||||||
| Total dividends and distributions | (0.420 | ) | (0.230 | ) | — | |||||||
| Net asset value, end of period | $11.940 | $12.910 | $11.360 | |||||||||
| Total return3 | (4.37% | ) | 15.97% | (1.98% | ) | |||||||
| Ratios and supplemental data: | ||||||||||||
| Net assets, end of period (000 omitted) | $18,697 | $11,777 | $866 | |||||||||
| Ratio of expenses to average net assets | 2.04% | 2.01% | 2.00% | |||||||||
| Ratio of expenses to average net assets | ||||||||||||
| prior to expense limitation and expense paid indirectly | 2.17% | 2.43% | 5.14% | |||||||||
| Ratio of net investment loss to average net assets | (0.82% | ) | (0.88% | ) | (0.56% | ) | ||||||
| Ratio of net investment loss to average net assets | ||||||||||||
| prior to expense limitation and expense paid indirectly | (0.95% | ) | (1.30% | ) | (3.71% | ) | ||||||
| Portfolio turnover | 104% | 121% | 104% | 4 | ||||||||
| 1Date of commencement of operations; ratios have been annualized and total return has not been annualized. | |
| 2The average shares outstanding method has been applied for per share information. | |
| 3Total investment return is based on the change in net asset value of a share during the period and assumes reinvestment of dividends and distributions at net asset value and does not reflect the impact of a sales charge. Total investment return reflects a waiver and payment of fees by the manager. Performance would have been lower had the expense limitation not been in effect. | |
| 4The portfolio turnover is representative of the Fund for the entire year. |
See accompanying notes
14
Delaware Small Cap Core Fund Class R
Selected data for each share of the Fund outstanding throughout each period were as follows:
| Year Ended | |||||||||
| 11/30/07 | 11/30/061 | ||||||||
| Net asset value, beginning of period | $ | 13.000 | $ | 11.360 | |||||
| Income (loss) from investment operations: | |||||||||
| Net investment loss2 | (0.042 | ) | (0.047 | ) | |||||
| Net realized and unrealized gain (loss) on investments | (0.448 | ) | 1.917 | ||||||
| Total from investment operations | (0.490 | ) | 1.870 | ||||||
| Less dividends and distributions from: | |||||||||
| Net realized gain on investments | (0.420 | ) | (0.230 | ) | |||||
| Total dividends and distributions | (0.420 | ) | (0.230 | ) | |||||
| Net asset value, end of period | $ | 12.090 | $ | 13.000 | |||||
| Total return3 | (3.86% | ) | 16.78% | ||||||
| Ratios and supplemental data: | |||||||||
| Net assets, end of period (000 omitted) | $3,100 | $215 | |||||||
| Ratio of expenses to average net assets | 1.54% | 1.51% | |||||||
| Ratio of expenses to average net assets | |||||||||
| prior to expense limitation and expense paid indirectly | 1.77% | 2.03% | |||||||
| Ratio of net investment loss to average net assets | (0.32% | ) | (0.38% | ) | |||||
| Ratio of net investment loss to average net assets | |||||||||
| prior to expense limitation and expense paid indirectly | (0.55% | ) | (0.90% | ) | |||||
| Portfolio turnover | 104% | 121% | |||||||
| 1As of November 30, 2005, the Delaware Small Cap Core fund Class R had one share outstanding, representing the initial seed purchase. Shareholder data for this class prior to December 1, 2005 is not disclosed because management does not believe it to be meaningful. | |
| 2The average shares outstanding method has been applied for per share information. | |
| 3Total investment return is based on the change in net asset value of a share during the period and assumes reinvestment of dividends and distributions at net asset value. Total investment return reflects waivers and payment of fees by the manager and distributor. Performance would have been lower had the expense limitation not been in effect. |
See accompanying notes
(continues) 15
Financial highlights
Delaware Small Cap Core Fund Institutional Class
Selected data for each share of the Fund outstanding throughout each period were as follows:
| Year Ended | |||||||||||||||
| 11/30/07 | 11/30/06 | 11/30/05 | 11/30/04 | 11/30/03 | |||||||||||
| Net asset value, beginning of period | $13.040 | $11.390 | $14.600 | $13.080 | $10.290 | ||||||||||
| Income (loss) from investment operations: | |||||||||||||||
| Net investment income1 | 0.023 | 0.015 | 0.031 | 0.026 | 0.036 | ||||||||||
| Net realized and unrealized gain (loss) on investments | (0.453 | ) | 1.895 | 1.036 | 2.481 | 3.350 | |||||||||
| Total from investment operations | (0.430 | ) | 1.910 | 1.067 | 2.507 | 3.386 | |||||||||
| Less dividends and distributions from: | |||||||||||||||
| Net investment income | — | (0.030 | ) | (0.025 | ) | (0.044 | ) | (0.075 | ) | ||||||
| Net realized gain on investments | (0.420 | ) | (0.230 | ) | (4.252 | ) | (0.943 | ) | (0.521 | ) | |||||
| Total dividends and distributions | (0.420 | ) | (0.260 | ) | (4.277 | ) | (0.987 | ) | (0.596 | ) | |||||
| Net asset value, end of period | $12.190 | $13.040 | $11.390 | $14.600 | $13.080 | ||||||||||
| Total return2 | (3.38% | ) | 17.13% | 9.14% | 20.62% | 35.19% | |||||||||
| Ratios and supplemental data: | |||||||||||||||
| Net assets, end of period (000 omitted) | $31,176 | $15,482 | $6,645 | $4,765 | $3,948 | ||||||||||
| Ratio of expenses to average net assets | 1.04% | 1.01% | 0.94% | 0.75% | 0.75% | ||||||||||
| Ratio of expenses to average net assets | |||||||||||||||
| prior to expense limitation and expense paid indirectly | 1.17% | 1.43% | 2.23% | 1.00% | 1.04% | ||||||||||
| Ratio of net investment income to average net assets | 0.18% | 0.12% | 0.28% | 0.20% | 0.33% | ||||||||||
| Ratio of net investment income (loss) to average net assets | |||||||||||||||
| prior to expense limitation and expense paid indirectly | 0.05% | (0.30% | ) | (1.01% | ) | (0.05% | ) | 0.04% | |||||||
| Portfolio turnover | 104% | 121% | 104% | 136% | 44% | ||||||||||
| 1The average shares outstanding method has been applied for per share information. | |
| 2Total investment return is based on the change in net asset value of a share during the period and assumes reinvestment of dividends and distributions at net asset value. Total investment return reflects waivers and payment of fees by the manager. Performance would have been lower had the expense limitation not been in effect. |
See accompanying notes
16
Notes to financial statements
Delaware Small Cap Core Fund
November 30, 2007
Delaware Group Equity Funds V (Trust) is organized as a Delaware statutory trust and offers three series: Delaware Dividend Income Fund, Delaware Small Cap Core Fund and Delaware Small Cap Value Fund. These financial statements and the related notes pertain to Delaware Small Cap Core 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 and Institutional Class shares. Class A shares are sold with a front-end sales charge of up to 5.75%. Class A share purchases of $1,000,000 or more will incur a contingent deferred sales charge (CDSC) of 1% 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%, 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 U.S. generally accepted accounting principles and are consistently followed by the Fund.
Security Valuation — Equity securities, except those traded on the Nasdaq Stock Market, Inc. (Nasdaq), are valued at the last quoted sales price as of the time of the regular close of the New York Stock Exchange (NYSE) on the valuation date. Securities traded on the Nasdaq are valued in accordance with the Nasdaq Official Closing Price, which may not be the last sales price. If on a particular day an equity security does not trade, then the mean between the bid and asked prices will be used. Short-term debt securities having less than 60 days to maturity are valued at amortized cost, which approximates market value. Securities lending collateral, which is invested in a collective investment vehicle, is valued at unit value per share. Generally, other securities and assets for which market quotations are not readily available are valued at fair value as determined in good faith under the direction of the Fund’s Board of Trustees. In determining whether market quotations are readily available or fair valuation will be used, various factors will be taken into consideration, such as market closures, or with respect to foreign securities, aftermarket trading or significant events after local market trading (e.g., government actions or pronouncements, trading volume or volatility on markets, exchanges among dealers, or news events).
In September 2006, the Financial Accounting Standards Board (FASB) issued FASB Statement No. 157 “Fair Value Measurements” (Statement 157). Statement 157 establishes a framework for measuring fair value in generally accepted accounting principles, clarifies the definition of fair value within that framework, and expands disclosures about the use of fair value measurements. Statement 157 is intended to increase consistency and comparability among fair value estimates used in financial reporting. Statement 157 is effective for fiscal years beginning after November 15, 2007. Management does not expect the adoption of Statement 157 to have a material impact on the amounts reported in the financial statements.
Federal Income Taxes — 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. Accordingly, no provision for federal income taxes has been made in the financial statements.
On July 13, 2006, the FASB released FASB Interpretation No. 48 “Accounting for Uncertainty in Income Taxes” (FIN 48). FIN 48 provides guidance for how uncertain tax positions should be recognized, measured, presented and disclosed in the financial statements. FIN 48 requires the evaluation of tax positions taken or expected to be taken in the course of preparing the 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 would be recorded as a tax benefit or expense in the current year. Adoption of FIN 48 is required for fiscal years beginning after December 15, 2006 and is to be applied to all open tax years as of the effective date. Securities and Exchange Commission (SEC) guidance allows implementing FIN 48 in fund net asset value calculations as late as the fund’s last net asset value calculation in the first required financial statement reporting period. As a result, the Fund will incorporate FIN 48 in its semiannual report on May 31, 2008. Although the Fund’s tax positions are currently being evaluated, management does not expect the adoption of FIN 48 to have a material impact on the Fund’s financial statements.
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 invest in a pooled cash account along with members of the Delaware Investments® Family of Funds pursuant to an exemptive order issued by the SEC. The aggregate daily balance of the pooled cash account is invested in repurchase agreements secured by obligations of the U.S. government. The respective collateral is held by the Fund’s custodian bank until the maturity of the respective repurchase agreements. Each repurchase agreement is at least 102% collateralized. However, in the event of default or bankruptcy by the counterparty to the agreement, realization of the collateral may be subject to legal proceedings. At November 30, 2007, the Fund held no investments in repurchase agreements.
Use of Estimates — The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Other — Expenses directly attributable to the Fund are charged directly to the Fund. Other expenses common to various funds within the Delaware Investments® Family of Funds are generally allocated amongst such funds on the basis of average net assets. Management fees and some other expenses are paid monthly. Security transactions are recorded on the date the securities are purchased or sold (trade date) for financial
(continues) 17
Notes to financial statements
Delaware Small Cap Core Fund
1. Significant Accounting Policies (continued)
reporting purposes. Costs used in calculating realized gains and losses on the sale of investment securities are those of the specific securities sold. Dividend income is recorded on the ex-dividend date and interest income is recorded on the accrual basis. Distributions received from investments in Real Estate Investment Trusts (REITs) are recorded as dividend income on ex-dividend date, subject to reclassification upon notice of the character of such distributions by the issuer. The financial statements reflect an estimate of the reclassification of the distribution character. The Fund declares and pays dividends from net investment income and distributions from net realized gains on investments, if any, annually.
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. Such commission rebates are included in realized gain on investments in the accompanying financial statements and totaled $549 for the year ended November 30, 2007. In general, best execution refers to many factors, including the price paid or received for a security, the commission charged, the promptness and reliability of execution, the confidentiality and placement accorded the order, and other factors affecting the overall benefit obtained by the Fund on the transaction.
The Fund receives earnings credits from its custodian when positive cash balances are maintained, which are used to offset custody fees. The expense paid under this arrangement is included in custodian fees on the Statement of operations with the corresponding expense offset shown as “expense paid indirectly.”
2. Investment Management, Administration Agreements and Other Transactions with Affiliates
In accordance with the terms of its investment management agreement, the Fund pays Delaware Management Company (DMC), a series of Delaware Management Business Trust and the investment manager, an annual fee which is calculated daily at the rate of 0.75% on the first $500 million of average daily net assets of the 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.
Effective April 1, 2007, DMC has contractually agreed to waive that portion, if any, of its management fee and reimburse the Fund to the extent necessary to ensure that total annual operating expenses, exclusive of taxes, interest, brokerage fees, 12b-1 plan expenses, certain insurance costs and non-routine expenses or costs including, but not limited to, those relating to reorganizations, litigation, conducting shareholder meetings, and liquidations, do not exceed 1.05% of average daily net assets of the Fund through March 31, 2008. Prior to April 1, 2007, annual operating expenses were limited to 1.00% of average daily net assets of the Fund.
Effective October 1, 2007, Delaware Service Company, Inc. (DSC), an affiliate of DMC, provides fund accounting and financial administration oversight services to the Fund. For these services, the Fund pays DSC fees based on the aggregate daily net assets of the Delaware Investments® Family of Funds at the following annual rate: 0.0050% of the first $30 billion; 0.0045% of the next $10 billion; 0.0040% of the next $10 billion; and 0.0025% of aggregate average daily net assets in excess of $50 billion. The fees payable to DSC under the service agreement described above are allocated among all funds in the Delaware Investments® Family of Funds on a relative net asset value basis. Prior to October 1, 2007, DSC provided fund accounting and administrative services to the Fund and received a fee at an annual rate of 0.04% of average daily net assets. For the year ended November 30, 2007, the Fund was charged $27,911 for these services.
DSC also provides dividend disbursing and transfer agency services. The Fund pays DSC a monthly fee based on the number of shareholder accounts for dividend disbursing and transfer agent services.
Pursuant to a distribution agreement and distribution plan, the Fund pays DDLP, the distributor and an affiliate of DMC, an annual distribution and service fee not to exceed 0.30% of the average daily net assets of the Class A shares, 1.00% of the average daily net assets of the Class C shares and 0.60% of the average daily net assets of Class R shares. Institutional Class shares pay no distribution and service expenses. DDLP has contracted to waive distribution and service fees through March 31, 2008 in order to prevent distribution and service fees of Class A and Class R shares from exceeding 0.25% and 0.50%, respectively, of average daily net assets.
At November 30, 2007, the Fund had liabilities payable to affiliates as follows:
| Investment management fee payable to DMC | $ | 43,206 |
| Dividend disbursing, transfer agent fees | ||
| and other expenses payable to DSC | 21,410 | |
| Distribution fees payable to DDLP | 25,365 | |
| Other expenses payable to DMC and affiliates* | 7,454 |
| * | DMC, as part of its administrative services, pays operating expenses on behalf of the Fund and is reimbursed on a periodic basis. Such expenses include items such as printing of shareholder reports, fees for audit, legal and tax services, registration fees and trustees’ fees. |
As provided in the investment management agreement, the Fund bears the cost of certain legal and tax services, including internal legal and tax services provided to the Fund by DMC and/or its affiliates’ employees. For the year ended November 30, 2007, the Fund was charged $4,491 for internal legal and tax services provided by DMC and/or its affiliates’ employees.
For the year ended November 30, 2007, DDLP earned $37,462 for commissions on sales of the Fund’s Class A shares. For the year ended November 30, 2007, DDLP received gross CDSC commissions of $51 and $2,402 on redemption of the Fund’s Class A and Class C shares, respectively, and these commissions were entirely used to offset up-front commissions previously paid by DDLP to broker-dealers on sales of those shares.
Trustees’ fees and benefits include expenses accrued by the Fund for each Trustee’s retainer and per meeting fees. Certain officers of DMC, DSC and DDLP are officers and/or Trustees of the Trust. These officers and Trustees are paid no compensation by the Fund.
18
3. Investments
For the year ended November 30, 2007, the Fund made purchases of $131,152,226 and sales of $84,714,729 of investment securities other than short-term investments.
At November 30, 2007, the cost of investments for federal income tax purposes was $120,529,841. At November 30, 2007, net unrealized depreciation was $5,309,207, of which $6,256,155 related to unrealized appreciation of investments and $11,565,362 related to unrealized depreciation of investments.
4. Dividends and Distribution Information
Income and long-term capital gain distributions are determined in accordance with federal income tax regulations, which may differ from U.S. generally accepted accounting principles. Additionally, net short-term gains on sales of investment securities are treated as ordinary income for federal income tax purposes. The tax character of dividends and distributions paid during the years ended November 30, 2007 and 2006 was as follows:
| Year Ended | |||||
| 11/30/07 | 11/30/06 | ||||
| Ordinary income | $ | 1,022,198 | $ | 204,444 | |
| Long-term capital gain | 758,184 | 61,883 | |||
| Total | $ | 1,780,382 | $ | 266,327 | |
5. Components of Net Assets on a Tax Basis
As of November 30, 2007, the components of net assets on a tax basis were as follows:
| Shares of beneficial interest | $ | 96,432,543 | |
| Undistributed ordinary income | 1,031,356 | ||
| Undistributed long-term capital gains | 2,689,174 | ||
| Unrealized depreciation of investments | (5,309,207 | ) | |
| Net assets | $ | 94,843,866 |
The difference between book basis and tax basis components of net assets are primarily attributable to tax deferral of losses on wash sales.
The undistributed earnings for the Fund are estimated pending final notification of the tax character of distributions received from REITs.
For financial reporting purposes, capital accounts are adjusted to reflect the tax character of permanent book/tax differences. Reclassifications are primarily due to tax treatment of net operating losses. Results of operations and net assets were not affected by these reclassifications. For the year ended November 30, 2007, the Fund recorded the following reclassifications.
| Accumulated net investment loss | $ | 127,823 | |
| Accumulated net realized gain (loss) | (127,823 | ) |
6. Capital Shares
Transactions in capital shares were as follows:
| Year Ended | |||||
| 11/30/07 | 11/30/06 | ||||
| Shares sold: | |||||
| Class A | 2,325,110 | 1,767,689 | |||
| Class C | 897,859 | 872,680 | |||
| Class R | 294,043 | 20,770 | |||
| Institutional Class | 1,857,057 | 658,523 | |||
| Shares issued upon reinvestment of | |||||
| dividends and distributions: | |||||
| Class A | 62,038 | 6,253 | |||
| Class C | 30,325 | 2,157 | |||
| Class R | 594 | — | |||
| Institutional Class | 40,120 | 13,517 | |||
| 5,507,146 | 3,341,589 | ||||
| Shares repurchased: | |||||
| Class A | (875,119 | ) | (178,469 | ) | |
| Class C | (274,351 | ) | (38,810 | ) | |
| Class R | (54,664 | ) | (4,237 | ) | |
| Institutional Class | (525,920 | ) | (68,557 | ) | |
| (1,730,054 | ) | (290,073 | ) | ||
| Net increase | 3,777,092 | 3,051,516 | |||
7. Line of Credit
The Fund, along with certain other funds in the Delaware Investments® Family of Funds (Participants), participates in a $225,000,000 revolving line of credit facility to be used for temporary or emergency purposes as an additional source of liquidity to fund redemptions of investor shares. The Participants are charged an annual commitment fee, which is allocated across the Participants on the basis of each Participant’s allocation of the entire facility. The Participants may borrow up to a maximum of one third of their net assets under the agreement. The Fund had no amounts outstanding as of November 30, 2007, or at any time during the year then ended.
8. Securities Lending
The Fund, along with other funds in the Delaware Investments® Family of Funds, may lend its securities pursuant to a security lending agreement (Lending Agreement) with Mellon Bank, N.A. (Mellon). With respect to each loan, if the aggregate market value of the collateral held on any business day is less than the aggregate market value of the securities which are the subject of such loan, the borrower will be notified to provide additional collateral not less than the applicable collateral requirements. Cash collateral received is invested in a collective investment vehicle (Collective Trust) established by Mellon for the purpose of investment on behalf of clients participating in its securities lending programs. The Collective Trust invests in fixed income securities
(continues) 19
Notes to financial statements
Delaware Small Cap Core Fund
8. Securities Lending (continued)
with a weighted average maturity not to exceed 90 days, rated in one of the top two tiers by Standard & Poor’s Ratings Group or Moody’s Investors Service, Inc. or repurchase agreements collateralized by such securities. However, in the event of default or bankruptcy by the lending agent, realization and/or retention of the collateral may be subject to legal proceedings. In the event the borrower fails to return loaned securities and the collateral received is insufficient to cover the value of the loaned securities and provided such collateral shortfall is not the result of investment losses, the lending agent has agreed to pay the amount of the shortfall to the 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 change 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. The security lending agent and the borrower retain a portion of the earnings from the collateral investments. The Fund records security lending income net of such allocation.
At November 30, 2007, the market value of securities on loan was $22,036,609, for which cash collateral was received and invested in accordance with the Lending Agreement. Such investments are presented on the Statement of net assets under the caption “Securities Lending Collateral.”
9. Credit and Market Risk
The 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 invests in REITs and is subject to some of 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 year ended November 30, 2007. 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 of the Securities Act of 1933, as amended, and other securities which may not be readily marketable. The relative illiquidity of these securities may impair the 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 of Trustees 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 assets. As of November 30, 2007, there were no Rule 144A securities and no securities have been determined to be illiquid under the Fund’s Liquidity Procedures.
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. Change in Custodian
On August 2, 2007, Mellon Bank, One Mellon Center, Pittsburgh, PA 15258, became the Fund’s custodian. Prior to August 2, 2007, JPMorgan Chase served as the Fund’s custodian.
12. Tax Information (Unaudited)
The information set forth below is for the Fund’s fiscal year as required by federal laws. Shareholders, however, must report distributions on a calendar year basis for income tax purposes, which may include distributions for portions of two fiscal years of a fund. Accordingly, the information needed by shareholders for income tax purposes will be sent to them in January of each year. Please consult your tax advisor for proper treatment of this information.
For the fiscal year ended November 30, 2007, the Fund designates dividends and distributions paid during the year as follows:
| (A) | (B) | |||||
| Long-Term | Ordinary | |||||
| Capital Gain | Income | Total | (C) | |||
| Distributions | Distributions* | Distributions | Qualifying | |||
| (Tax Basis) | (Tax Basis) | (Tax Basis) | Dividends1 | |||
| 43% | 57% | 100% | 96% |
(A) and (B) are based on a percentage of the Fund’s total distributions.
(C) is based on percentage of ordinary income distributions.
1Qualifying dividends represent dividends which qualify for the corporate dividends received reduction.
| * | For the fiscal year ended November 30, 2007, certain dividends paid by the Fund may be subject to a maximum tax rate of 15%, as provided for by the Jobs and Growth tax Relief Reconciliation Act of 2003. The Fund intends to designate up to a maximum amount of $552,349 to be taxed at a maximum rate of 15%. Complete information will be computed and reported in conjunction with your 2007 Form 1099-DIV. |
20
Report of independent
registered public accounting firm
To the Shareholders and Board of Trustees
Delaware Group Equity Funds V – Delaware Small Cap Core Fund
We have audited the accompanying statement of net assets of Delaware Small Cap Core Fund (one of the series constituting Delaware Group Equity Funds V) (the “Fund”) as of November 30, 2007, and the related statement of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended, and the financial highlights for each of the periods indicated therein. These financial statements and financial highlights are the responsibility of the Fund’s management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. We were not engaged to perform an audit of the Fund’s internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Fund’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements and financial highlights, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our procedures included confirmation of securities owned as of November 30, 2007, by correspondence with the custodian and brokers or by other appropriate auditing procedures where replies from brokers were not received. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of the Delaware Small Cap Core Fund of Delaware Group Equity Funds V at November 30, 2007, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended, and its financial highlights for each of the periods indicated therein, in conformity with U.S. generally accepted accounting principles.
Philadelphia, Pennsylvania
January 22, 2008
21
Other Fund information (unaudited)
Delaware Small Cap Core Fund
Fund management
Francis X. Morris
Senior Vice President,
Chief Investment Officer — Core Equity
Francis X. Morris joined Delaware Investments in 1997 and is currently the chief investment officer for Core Equity investments. Prior to joining the firm, Morris served as vice president and director of equity research at PNC Asset Management. He received a bachelor’s degree from Providence College and holds an MBA from Widener University. Morris is a past president of The CFA Society of Philadelphia and is a member of the CFA Institute. In addition, he is a former officer of the National Association of Petroleum Investment Analysts.
Christopher S. Adams, CFA
Vice President, Portfolio Manager, Senior Equity Analyst
Christopher S. Adams is a portfolio manager on the firm’s Core Equity team. He also performs analysis and research to support the portfolio management function. From 1995 to 1998, he served as the firm’s vice president, strategic planning. Prior to joining Delaware Investments in 1995, Adams had approximately 10 years of experience in the financial services industry in the U.S. and U.K., including positions with Coopers & Lybrand, The Sumitomo Bank, Bank of America, and Lloyds Bank. Adams holds both bachelor’s and master’s degrees in history and economics from Oxford University, England, and received an MBA with dual concentrations in finance and insurance/risk management from The Wharton School of the University of Pennsylvania. He is a director and past president of The CFA Society of Philadelphia.
Donald G. Padilla, CFA
Vice President, Portfolio Manager, Senior Equity Analyst
Donald G. Padilla joined Delaware Investments in 1994 and is a portfolio manager on the firm’s Core Equity team. He also performs analysis and research to support the portfolio management function. Padilla joined Delaware Investments as an assistant controller in the firm’s treasury function, responsible for managing corporate cash investments, developing financial models, and overseeing the financial operations of the Lincoln Life 401(k) annuities segment. Prior to joining Delaware Investments, he held various positions at The Vanguard Group. Padilla holds a bachelor’s degree in accounting from Lehigh University, and he is a member of The CFA Society of Philadelphia.
Michael S. Morris, CFA
Vice President, Portfolio Manager, Senior Equity Analyst
Michael S. Morris, who joined Delaware Investments in 1999, is a portfolio manager on the firm’s Core Equity team. He also performs analysis and research to support the portfolio management function. Prior to joining the firm, he worked as a senior equity analyst at Newbold’s Asset Management, covering financial stocks. Morris began his investment career in 1993 at Ohio Casualty. He earned his bachelor’s degree in finance from Indiana University and an MBA with a concentration in finance from The Wharton School of the University of Pennsylvania. He is a member of the Bank and Financial Analysts Association.
22
Board of trustees/directors
and officers addendum
Delaware Investments® Family of Funds
A mutual fund is governed by a Board of Trustees/Directors (“Trustees”), which has oversight responsibility for the management of a fund’s business affairs. Trustees establish procedures and oversee and review the performance of the investment manager, the distributor, and others who perform services for the fund. The independent fund trustees, in particular, are advocates for shareholder interests. Each trustee has served in that capacity since he or she was elected to or appointed to the Board of Trustees, and will continue to serve until his or her retirement or the election of a new trustee in his or her place. The following is a list of the Trustees and Officers with certain background and related information.
| Number of | |||||
| Portfolios in Fund | Other | ||||
| Name, | Complex Overseen | Directorships | |||
| Address, | Position(s) | Length of | Principal Occupation(s) | by Trustee | Held by |
| and Birth Date | Held with Fund(s) | Time Served | During Past 5 Years | or Officer | Trustee or Officer |
| Interested Trustees | |||||
| Patrick P. Coyne1 | Chairman, | Chairman and Trustee | Patrick P. Coyne has served in | 84 | Director — |
| 2005 Market Street | President, | since August 16, 2006 | various executive capacities | Kaydon Corp. | |
| Philadelphia, PA | Chief Executive | at different times at | |||
| 19103 | Officer, and | President and | Delaware Investments.2 | ||
| Trustee | Chief Executive Officer | ||||
| April 14, 1963 | since August 1, 2006 | ||||
| Independent Trustees | |||||
| Thomas L. Bennett | Trustee | Since | Private Investor — | 84 | Director — |
| 2005 Market Street | March 2005 | (March 2004–Present) | Bryn Mawr | ||
| Philadelphia, PA | Bank Corp. (BMTC) | ||||
| 19103 | Investment Manager — | (April 2007–Present) | |||
| Morgan Stanley & Co. | |||||
| October 4, 1947 | (January 1984–March 2004) | ||||
| John A. Fry | Trustee | Since | President — | 84 | Director — |
| 2005 Market Street | January 2001 | Franklin & Marshall College | Community Health | ||
| Philadelphia, PA | (June 2002–Present) | Systems | |||
| 19103 | |||||
| Executive Vice President — | Director — | ||||
| May 28, 1960 | University of Pennsylvania | Allied Barton | |||
| (April 1995–June 2002) | Security Holdings | ||||
| Anthony D. Knerr | Trustee | Since | Founder and Managing Director — | 84 | None |
| 2005 Market Street | April 1990 | Anthony Knerr & Associates | |||
| Philadelphia, PA | (Strategic Consulting) | ||||
| 19103 | (1990–Present) | ||||
| December 7, 1938 | |||||
| Lucinda S. Landreth | Trustee | Since | Chief Investment Officer — | 84 | None |
| 2005 Market Street | March 2005 | Assurant, Inc. | |||
| Philadelphia, PA | (Insurance) | ||||
| 19103 | (2002–2004) | ||||
| June 24, 1947 | |||||
| Ann R. Leven | Trustee | Since | Consultant — | 84 | Director and |
| 2005 Market Street | October 1989 | ARL Associates | Audit Committee | ||
| Philadelphia, PA | (Financial Planning) | Chairperson — Andy | |||
| 19103 | (1983–Present) | Warhol Foundation | |||
| November 1, 1940 | Director and Audit | ||||
| Committee Chair — | |||||
| Systemax, Inc. | |||||
(continues) 23
| Number of | |||||
| Portfolios in Fund | Other | ||||
| Name, | Complex Overseen | Directorships | |||
| Address, | Position(s) | Length of | Principal Occupation(s) | by Trustee | Held by |
| and Birth Date | Held with Fund(s) | Time Served | During Past 5 Years | or Officer | Trustee or Officer |
| Independent Trustees (continued) | |||||
| Thomas F. Madison | Trustee | Since | President and Chief | 84 | Director — |
| 2005 Market Street | May 19973 | Executive Officer — | CenterPoint Energy | ||
| Philadelphia, PA | MLM Partners, Inc. | ||||
| 19103 | (Small Business Investing | Director and Audit | |||
| and Consulting) | Committee Chair — | ||||
| February 25, 1936 | (January 1993–Present) | Digital River, Inc. | |||
| Director and Audit | |||||
| Committee Member — | |||||
| Rimage | |||||
| Corporation | |||||
| Director — Valmont | |||||
| Industries, Inc. | |||||
| Janet L. Yeomans | Trustee | Since | Treasurer | 84 | None |
| 2005 Market Street | April 1999 | (January 2006–Present) | |||
| Philadelphia, PA | Vice President — Mergers & Acquisitions | ||||
| 19103 | (January 2003–January 2006), and | ||||
| Vice President | |||||
| July 31, 1948 | (July 1995–January 2003) | ||||
| 3M Corporation | |||||
| Ms. Yeomans has held | |||||
| various management positions | |||||
| at 3M Corporation since 1983. | |||||
| J. Richard Zecher | Trustee | Since | Founder — | 84 | Director and Audit |
| 2005 Market Street | March 2005 | Investor Analytics | Committee Member — | ||
| Philadelphia, PA | (Risk Management) | Investor Analytics | |||
| 19103 | (May 1999–Present) | ||||
| Director and Audit | |||||
| July 3, 1940 | Founder — | Committee Member — | |||
| Sutton Asset Management | Oxigene, Inc. | ||||
| (Hedge Fund) | |||||
| (September 1996–Present) | |||||
| Officers | |||||
| David F. Connor | Vice President, | Vice President since | David F. Connor has served as | 84 | None4 |
| 2005 Market Street | Deputy General | September 2000 | Vice President and Deputy | ||
| Philadelphia, PA | Counsel, and Secretary | and Secretary | General Counsel of | ||
| 19103 | since | Delaware Investments | |||
| October 2005 | since 2000. | ||||
| December 2, 1963 | |||||
| Daniel V. Geatens | Vice President | Treasurer | Daniel V. Geatens has served | 84 | None4 |
| 2005 Market Street | and Treasurer | since | in various capacities at | ||
| Philadelphia, PA | October 25, 2007 | different times at | |||
| 19103 | Delaware Investments. | ||||
| October 26, 1972 | |||||
| David P. O’Connor | Senior Vice | Senior Vice President, | David P. O’Connor has served in | 84 | None4 |
| 2005 Market Street | President, | General Counsel, and | various executive and legal | ||
| Philadelphia, PA | General Counsel, | Chief Legal Officer | capacities at different times | ||
| 19103 | and Chief | since | at Delaware Investments. | ||
| Legal Officer | October 2005 | ||||
| February 21, 1966 | |||||
| Richard Salus | Senior | Chief Financial | Richard Salus has served in | 84 | None4 |
| 2005 Market Street | Vice President | Officer since | various executive capacities | ||
| Philadelphia, PA | and | November 2006 | at different times at | ||
| 19103 | Chief Financial | Delaware Investments. | |||
| Officer | |||||
| October 4, 1963 | |||||
The Statement of Additional Information for the Fund(s) includes additional information about the Trustees and Officers and is available, without charge, upon request by calling 800 523-1918.
24
About the organization
This annual report is for the information of Delaware Small Cap Core Fund shareholders, but it may be used with prospective investors when preceded or accompanied by a current prospectus for Delaware Small Cap Core Fund and the Delaware Investments® Performance Update for the most recently completed calendar quarter. The prospectus sets forth details about charges, expenses, investment objectives, and operating policies of the investment company. You should read the prospectus carefully before you invest. The figures in this report represent past results that are not a guarantee of future results. The return and principal value of an investment in the investment company will fluctuate so that shares, when redeemed, may be worth more or less than their original cost.
| Board of trustees Patrick P. Coyne Thomas L. Bennett John A. Fry Anthony D. Knerr Lucinda S. Landreth Ann R. Leven Thomas F. Madison Janet L. Yeomans J. Richard Zecher | Affiliated officers David F. Connor Daniel V. Geatens David P. O’Connor Richard Salus | Contact information Investment manager National distributor Shareholder servicing, dividend For shareholders For securities dealers and financial Web site |
Delaware Investments is the marketing name of Delaware Management Holdings, Inc. and its subsidiaries.
The Fund files its complete schedule of portfolio holdings with the Securities and Exchange Commission for the first and third quarters of each fiscal year on Form N-Q. The 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 Commission’s Web site at http://www.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 Fund’s Schedule of Investments are available without charge on the Fund’s Web site at http://www.delawareinvestments.com. The Fund’s Forms N-Q may be reviewed and copied at the Commission’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 Web site at http://www.delawareinvestments.com; and (ii) on the Commission’s Web site at http://www.sec.gov.
25
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Register for Account Access today! Please visit us at www.delawareinvestments.com, select Individual Investors, and click Account Access.
Please call our Shareholder Service Center at 800 523-1918 Monday through Friday from 8:00 a.m. to 7:00 p.m., Eastern time, for assistance with any questions.
 |  |
| Printed in the USA |
| AR-480 [11/07] CGI 1/08 | MF-07-12-021 PO12525 |
| | ||
| Annual Report | Delaware | |
| Dividend Income Fund | ||
| November 30, 2007 | ||
Value equity mutual fund | ||
 |
|
Table of contents
| > Portfolio management review | 1 | |
| > Performance summary | 4 | |
| > Disclosure of Fund expenses | 6 | |
| > Sector allocation and top 10 holdings | 7 | |
| > Statement of net assets | 9 | |
| > Statement of operations | 19 | |
| > Statements of changes in net assets | 20 | |
| > Financial highlights | 21 | |
| > Notes to financial statements | 26 | |
| > Report of independent registered public accounting firm | 31 | |
| > Other Fund information | 32 | |
| > Board of trustees/directors and officers addendum | 34 | |
| > About the organization | 36 |
Funds are not FDIC insured and are not guaranteed. It is possible to lose the principal amount invested.
Mutual fund advisory services provided by Delaware Management Company, a series of Delaware Management
Business Trust, which is a registered investment advisor.
© 2008 Delaware Distributors, L.P.
Portfolio management review
Delaware Dividend Income Fund
Dec. 11, 2007
The managers of Delaware Dividend Income Fund provided the answers to the questions below as a review of the Fund’s activities for the fiscal year that ended Nov. 30, 2007.
How would you describe the investment environment during the year ended Nov. 30, 2007?
Stocks turned in only moderate gains during the past fiscal year — in the face of a slowing economy, declining corporate earnings growth, and a weaker housing market. Equity markets rose steadily early in the period. The sanguine conditions were interrupted, however, by a brief but sharp correction in late February and early March as investors around the globe came to terms with weaker-than-expected economic data in the U.S.
Stocks recovered throughout the spring, but conditions deteriorated during the summer months as investors, already concerned about rising energy prices and other pressures on consumer spending, began to focus more intently on the difficult conditions for homeowners and homebuilders. Falling home prices and rising interest rates triggered an increase in mortgage defaults and substantial losses for banks and home lenders. Financial institutions that had invested in securities backed by the riskiest loans faced some of the steepest losses. Lenders responded by dramatically tightening their borrowing requirements.
In this environment, nervous investors fled the stock market between mid-July and mid-August, while the bond market also went through a period of severe stagnation over several weeks in the summer.
Equity markets staged a temporary recovery in September after the Federal Reserve cut interest rates several times. The Fed’s interest rate cuts weren’t enough to satisfy investor anxiety, however. Markets fell sharply again during the fiscal period’s final month, overcome by losses associated with subprime mortgages, as well as potentially meager consumer spending.
After several years of strong performance, REITs underperformed other stocks for the period. The FTSE NAREIT Equity REITs Index (which tracks the performance of U.S. REITs) returned -12.62% for the year ended Nov. 30, 2007.
Noninvestment grade, high yield bonds managed a positive performance of 2.69% for the same one-year period, despite the severe market conditions in August and a focus by investors on higher-quality investments as the year progressed (source: Lehman).
How did the Fund perform during the 12 months ending Nov. 30, 2007?
For its fiscal year ended Nov. 30, 2007, Delaware Dividend Income Fund returned -0.72% at net asset value and -6.44% at its maximum offer price (both figures are for Class A shares and reflect all distributions reinvested). For the complete, annualized performance of Delaware Dividend Income Fund, please see the table on page 4. By comparison, the Fund’s all-equity benchmark — the S&P 500 Index — advanced 7.72% for the same period. The Fund’s peer group, as measured by the Lipper Mixed Asset Target Allocation Moderate Funds Average, advanced 7.50% over that period.
What factors influenced the Fund’s fiscal year performance?
In the equity portion of the Fund, an underweight allocation (relative to the index) in the energy sector had a negative impact on performance as rising commodity prices propelled energy sector shares during the period. Likewise, an underweight position versus the S&P 500 Index (which we use as our benchmark index for equity sector weightings) in the cyclically oriented industrials sector detracted from Fund returns. Disappointing stock selection in the consumer discretionary sector also hurt Fund returns relative to the performance benchmark.
Our decision to underweight companies within the financial sector helped the Fund’s performance, because financial companies as a whole were negatively affected by the subprime mortgage crisis. Yet, several of our individual financial services holdings still hurt performance.
The views expressed are current as of the date of this report and are subject to change.
(continues) 1
Portfolio management review
Delaware Dividend Income Fund
We generally sought to reduce risk within the Fund. We believed a more defensive posture was best in light of slowing economic and corporate earnings growth.
In general, we favored stocks with higher dividend yields, lower valuations, and potential for more predictable earnings over time.
We were overweight versus the S&P 500 Index in healthcare,telecommunication services and, for part of the period, consumer staples stocks because we believe company earnings within these sectors have tended to be relatively stable when the economy has experienced a slowdown. We were underweight in cyclical (economically sensitive) sectors such as energy and industrials. Finally, we continued to focus on undervalued companies with stronger balance sheets, whose increased financial flexibility can be valuable to investors during difficult economic times.
As part of its strategy aimed at generating income from multiple asset types, Delaware Dividend Income Fund holds a significant allocation to equity REITs, an asset class that struggled this year, detracting from Fund performance compared to the S&P 500 Index.
REITs were relatively stable at the outset, but their stock prices fell sharply through most of 2007. During the five years leading up to this slowdown, domestic REITs enjoyed strong annual compound returns relative to other major domestic stock indices. REIT returns in these prior periods were fueled by historically low interest rates and massive injections of liquidity engineered by the Federal Reserve as it sought to stimulate the economy. The actions created a boom in residential real estate markets. In REIT markets, this led to a major inflow of capital, fueling acquisitions and privatizations and pushing valuations ever higher. By February 2007, the REIT market had peaked, with valuations hitting all-time highs.
The downturn that followed was spurred by surging default rates on subprime mortgages. These defaults were accompanied by softening home sales, failing mortgage companies, and dramatic write-downs by major investment and money-center banks. The result was a tightening of credit standards and a drying up of the liquidity that had fueled acquisition and buyout activity earlier in the period.
Going forward, we have overweighted the regional mall, offices, lodging, and mixed-use sectors when comparing the allocation of our REIT investments to the FTSE NAREIT Equity REIT Index. Similarly, we’re underweighting the healthcare sector — where we believe valuations have peaked — as well as specialty, freestanding, and apartment REITs. We’re keeping a neutral weight in industrial REITs.
With regard to the Fund’s fixed income investments, the higher credit quality sectors (e.g., BB-rated bonds in particular) outperformed lower credit quality sectors (CCC-rated bonds) during the fiscal period. The high yield sectors that contributed to performance were integrated energy, health insurance, and life insurance. The worst-performing areas of the market were home builders, brokerage, and financials. We believe the subprime crisis contributed to a deterioration in liquidity in the high yield market and a negative trend in technicals. This caused an almost complete cessation of new-deal issuance in July and a pronounced deterioration in secondary market trading. This situation was exacerbated by the $350 billion backlog of leverage buyout (LBO) financing that has yet to be issued. Furthermore, issuance of collateralized loan obligations all but dried up, making it more difficult to issue the bank-loan portion of the LBO calendar. During September, liquidity improved and there was a resurgence in the new-issue market, as some seasoned issuers brought to market bond deals that were well received.
We generally favored B-rated credits over higher-quality credits, given the additional yield compensation for the risk accepted. The utility, energy, and capital goods sectors were the strongest relative contributors to performance.
Could you name specific equity securities that influenced performance?
Our equity investment in Washington Mutual, whose business is heavily tied to mortgage lending, detracted from performance. The stock of midwest-based bank Huntington Bancshares was another disappointment.
2
We believe the combination of challenging interest rate conditions in recent years, along with its exposure to the slower mid-west economy and troubled U.S. auto industry conspired to hurt Huntington’s stock price. We continued to hold both stocks at the end of the fiscal year.
The Fund’s healthcare investments, such as Baxter International, contributed to performance. Baxter International performed well thanks to growing sales and earnings.
Could you provide examples of REITs that influenced performance?
Office REITs, such as Alexandria Real Estate Equities, and industrial REITs, such as ProLogis, helped us post positive results in a sector that experienced a setback during the period.
Our weakest performers on the year included Apartment Investment and Management Company, Starwood Hotels and Resorts, Brandywine Realty Trust, Mack-Cali Realty, and Duke Realty, each of which we continued to hold at the end of the fiscal year. Our stock picks detracted in the specialty and diversified sectors.
3
Performance summary
Delaware Dividend Income Fund
The performance data quoted represent past performance; past performance does not guarantee future results. Investment return and principal value will fluctuate so your shares, when redeemed, may be worth more or less than their original cost. Please obtain the performance data for the most recent month end by calling 800 523-1918 or visiting our Web site at www.delawareinvestments.com/performance. Current performance may be lower or higher than the performance data quoted.
You should consider the investment objectives, risks, charges, and expenses of the investment company carefully before investing. The Delaware Dividend Income Fund prospectus contains this and other important information about the investment company. Please request a prospectus through your financial advisor or by calling 800 523-1918 or visiting our Web site at www.delawareinvestments.com. Read the prospectus carefully before you invest or send money.
Effective July 31, 2007, portfolio management responsibilities for the Fund changed. Please see the prospectus, as supplemented, which contains important information regarding the investment management for the Fund.
| Fund performance | ||||||
| Average annual total returns | ||||||
| Through Nov. 30, 2007 | 1 year | 5 years | 10 years | Lifetime | ||
| Class A (Est. Dec. 2, 1996) | ||||||
| Excluding sales charge | -0.72% | +10.59% | +7.18% | +9.70% | ||
| Including sales charge | -6.44% | +9.29% | +6.55% | +9.11% | ||
| Class B (Est. Oct. 1, 2003) | ||||||
| Excluding sales charge | -1.38% | NA | NA | +8.01% | ||
| Including sales charge | -5.20% | NA | NA | +7.59% | ||
| Class C (Est. Oct. 1, 2003) | ||||||
| Excluding sales charge | -1.38% | NA | NA | +8.01% | ||
| Including sales charge | -2.33% | NA | NA | +8.01% | ||
Returns reflect the reinvestment of all distributions and any applicable sales charges as noted in the following paragraphs.
Performance for Class B and C shares, excluding sales charges, assumes either that contingent deferred sales charges did not apply or that the investment was not redeemed.
An expense limitation was in effect for all classes during the periods shown in the Fund performance chart above and in the Performance of a $10,000 Investment chart on the next page.
Performance would have been lower had the expense limitation not been in effect.
The Fund offers Class A, B, C, R, and Institutional Class shares. Class A shares are sold with a maximum front-end sales charge of up to 5.75%, and have an annual distribution and service fee of up to 0.30% of average daily net assets, but such a fee is currently subject to a contractual cap of 0.25% of average daily net assets through March 31, 2008.
Class B shares may be purchased through dividend reinvestment and certain permitted exchanges. As described in the prospectus, Class B shares have a contingent deferred sales charge that declines from 4.00% to zero depending on the period of time the shares are held. Class B shares will automatically convert to Class A shares on a quarterly basis approximately eight years after purchase. They are also subject to an annual distribution and service fee of up to 1.00% of average daily net assets.
Effective at the close of business on May 31, 2007, no new or subsequent investments are allowed in Class B shares of the Delaware Investments® Family of Funds, except through a reinvestment of dividends or capital gains or permitted exchanges. Please see the prospectus for additional information.
Class C shares are sold with a contingent deferred sales charge of 1.00% if redeemed during the first 12 months. They are also subject to an annual distribution and service fee of 1.00% of average daily net assets.
Please see the fee table in the prospectus and your financial professional for a more complete explanation of sales charges.
Management has contracted to reimburse expenses and/or waive its management fees from April 1, 2007, until such time as the waivers are discontinued, as described in the most recent prospectus.
The Fund’s net expense ratios for Class A, B, C, R, and Institutional Class shares are 1.00%, 1.75%, 1.75%, 1.25%, and 0.75%, respectively as disclosed in the most recent prospectus. Without the fee waivers, total operating expenses for Class A, B, C, R, and Institutional Class shares were designated as 1.22%, 1.92%, 1.92%, 1.52%, and 0.92%, respectively.
The average annual total returns for the 1-year, 3-year, and lifetime (since Oct. 1, 2003) periods ended Nov. 30, 2007, for Delaware Dividend Income Fund Class R shares were -0.88%, 6.95%, and 8.51%, respectively.
Class R shares were first made available Oct. 1, 2003, and are available only for certain retirement plan products. They are sold without a sales charge and have an annual distribution and service fee of up to 0.60% of average daily net assets, but such fee is currently subject to a contractual cap of 0.50% of average daily net assets from April 1, 2007 through March 31, 2008.
4
The average annual total returns for the 1-year, 5-year, 10-year and lifetime (since Dec. 2, 1996) periods ended Nov. 30, 2007, for Delaware Dividend Income Fund Institutional Class shares were -0.46%, 10.83%, 7.31%, and 9.81%, respectively.
Institutional Class shares were first made available Dec. 2, 1996, and are available without sales or asset-based distribution charges only to certain eligible institutional accounts.
The performance table on the previous page and the graph below do not reflect the deduction of taxes the shareholder would pay on Fund distributions or redemptions of Fund shares.
Funds that invest in REITs are subject to many of the risks associated with direct real estate ownership and, as such, may be adversely affected by declines in real-estate values and general and local economic conditions.
High yielding noninvestment grade bonds (“junk bonds”) involve higher risk than investment grade bonds. Adverse conditions may affect the issuer’s ability to pay interest and principal on these securities.
| Fund basics | ||
| As of Nov. 30, 2007 | ||
| Fund objective | ||
| The Fund seeks to provide high current income and an investment that has the potential for capital appreciation. | ||
| Total Fund net assets | ||
| $944 million | ||
| Number of holdings | ||
| 390 | ||
| Fund start date | ||
| Dec. 2, 1996 | ||
| Nasdaq symbols | CUSIPs | |
| Class A | DDIAX | 24610B107 |
| Class B | DDDBX | 24610B206 |
| Class C | DDICX | 24610B305 |
| Class R | DDDRX | 24610B842 |
| Institutional Class | DDIIX | 24610B404 |
Performance of a $10,000 Investment
Nov. 30, 1997 through Nov. 30, 2007
| Starting value (Nov. 30, 1997) | Ending value (Nov. 30, 2007) | |||
| Delaware Dividend Income Fund — Class A Shares | $9,425 | $18,856 | ||
| S&P 500 Index | $10,000 | $18,185 |
Chart assumes $10,000 invested in the Fund on Nov. 30, 1997 and includes the effect of a 5.75% front-end sales charge and the reinvestment of all distributions.
Performance of other Fund classes will vary due to different charges and expenses.
The chart also assumes $10,000 invested in the S&P 500 Index as of Nov. 30, 1997. The S&P 500 Index measures the performance of 500 widely held, mostly large-cap common stocks weighted by market value. An index is unmanaged and does not reflect the costs of operating a mutual fund, such as the costs of buying, selling, and holding securities. You cannot invest directly in an index.
The FTSE NAREIT Equity REIT Index is an all-inclusive index of publicly traded REITs.
Past performance is not a guarantee of future results.
The prospectus sets forth details about charges, expenses, investment objective, and operating policies of the investment company.
5
Disclosure of Fund expenses
For the period June 1, 2007 to November 30, 2007
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 period June 1, 2007 to November 30, 2007.
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.
Delaware Dividend Income Fund
Expense Analysis of an Investment of $1,000
| Expenses | ||||||||||||
| Beginning | Ending | Paid During | ||||||||||
| Account | Account | Annualized | Period | |||||||||
| Value | Value | Expense | 6/1/07 to | |||||||||
| 6/1/07 | 11/30/07 | Ratio | 11/30/07* | |||||||||
| Actual Fund Return | ||||||||||||
| Class A | $ | 1,000.00 | $ | 922.50 | 1.00 | % | $ | 4.82 | ||||
| Class B | 1,000.00 | 919.70 | 1.75 | % | 8.42 | |||||||
| Class C | 1,000.00 | 919.00 | 1.75 | % | 8.42 | |||||||
| Class R | 1,000.00 | 922.00 | 1.25 | % | 6.02 | |||||||
| Institutional Class | 1,000.00 | 923.70 | 0.75 | % | 3.62 | |||||||
| Hypothetical 5% Return (5% return before expenses) | ||||||||||||
| Class A | $ | 1,000.00 | $ | 1,020.05 | 1.00 | % | $ | 5.06 | ||||
| Class B | 1,000.00 | 1,016.29 | 1.75 | % | 8.85 | |||||||
| Class C | 1,000.00 | 1,016.29 | 1.75 | % | 8.85 | |||||||
| Class R | 1,000.00 | 1,018.80 | 1.25 | % | 6.33 | |||||||
| Institutional Class | 1,000.00 | 1,021.31 | 0.75 | % | 3.80 | |||||||
| * | “Expenses Paid During Period” are equal to the Fund’s annualized expense ratio, multiplied by the average account value over the period, multiplied by the 183/365 (to reflect the one-half year period). |
6
Sector allocation and top 10 holdings
Delaware Dividend Income Fund
As of November 30, 2007
Sector designations may be different than the sector designations presented in other Fund materials.
| Percentage | ||
| Sector | of Net Assets | |
| Common Stock | 56.89 | % |
| Consumer Discretionary | 3.77 | % |
| Consumer Staples | 5.56 | % |
| Diversified REITs | 1.64 | % |
| Energy | 2.73 | % |
| Financials | 9.97 | % |
| Health Care | 7.96 | % |
| Health Care REITs | 1.22 | % |
| Hotel REITs | 0.83 | % |
| Industrial REITs | 1.41 | % |
| Industrials | 3.39 | % |
| Information Technology | 5.23 | % |
| Mall REITs | 2.61 | % |
| Manufactured Housing REITs | 0.28 | % |
| Materials | 1.33 | % |
| Mortgage REITs | 0.14 | % |
| Multifamily REITs | 1.31 | % |
| Office REITs | 1.76 | % |
| Self-Storage REITs | 0.47 | % |
| Shopping Center REITs | 1.24 | % |
| Specialty REITs | 0.20 | % |
| Telecommunications | 2.53 | % |
| Transportation | 0.00 | % |
| Utilities | 1.31 | % |
| Convertible Preferred Stock | 3.63 | % |
| Automobiles & Automotive Parts | 0.19 | % |
| Banking, Finance & Insurance | 1.00 | % |
| Basic Materials | 0.54 | % |
| Cable, Media & Publishing | 0.15 | % |
| Energy | 0.44 | % |
| Health Care & Pharmaceuticals | 0.34 | % |
| Telecommunications | 0.36 | % |
| Utilities | 0.61 | % |
| Convertible Bonds | 12.06 | % |
| Aerospace & Defense | 0.56 | % |
| Banking, Finance & Insurance | 0.23 | % |
| Basic Industries | 0.09 | % |
| Cable, Media & Publishing | 0.54 | % |
| Computers & Technology | 2.95 | % |
| Electronics & Electrical Equipment | 0.73 | % |
| Energy | 1.23 | % |
| Health Care & Pharmaceuticals | 2.05 | % |
| Leisure, Lodging & Entertainment | 0.38 | % |
| Real Estate | 1.06 | % |
| Retail | 0.62 | % |
| Telecommunications | 1.02 | % |
| Transportation | 0.36 | % |
| Utilities | 0.24 | % |
| Corporate Bonds | 18.79 | % |
| Basic Industries | 1.87 | % |
| Brokerage | 0.30 | % |
| Capital Goods | 1.17 | % |
| Consumer Cyclical | 1.86 | % |
| Consumer Non-Cyclical | 0.94 | % |
| Energy | 2.78 | % |
| Finance & Investments | 0.27 | % |
| Media | 1.65 | % |
| Real Estate | 0.31 | % |
| Services Cyclical | 2.54 | % |
| Services Non-Cyclical | 1.23 | % |
| Technology & Electronics | 0.24 | % |
| Telecommunications | 2.60 | % |
| Utilities | 1.03 | % |
| Leveraged Non-Recourse Securities | 0.00 | % |
| Exchange Traded Fund | 0.09 | % |
| Preferred Stock | 0.36 | % |
| Leisure, Lodging & Entertainment | 0.04 | % |
| Real Estate | 0.32 | % |
| Residual Interest Trust Certificate | 0.05 | % |
| Warrant | 0.00 | % |
| Senior Secured Loans | 3.44 | % |
| Discount Note | 3.24 | % |
| Securities Lending Collateral | 12.57 | % |
| Total Value of Securities | 111.12 | % |
| Obligation to Return Securities Lending Collateral | (12.57 | %) |
| Receivables and Other Assets Net of Liabilities | 1.45 | % |
| Total Net Assets | 100.00 | % |
(continues) 7
Sector allocation and top 10 holdings
Delaware Dividend Income 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. | ||
| Percentage | ||
| Top 10 Holdings | of Net Assets | |
| Abbott Laboratories | 1.42% | |
| Chubb | 1.39% | |
| Hartford Financial Services Group | 1.39% | |
| Heinz (H.J.) | 1.39% | |
| Intel | 1.38% | |
| Safeway | 1.37% | |
| Baxter International | 1.36% | |
| Bristol-Myers Squibb | 1.36% | |
| Gap | 1.35% | |
| Simon Property Group | 1.34% | |
8
Statement of net assets
Delaware Dividend Income Fund
November 30, 2007
| Number of | ||||
| Shares | Value | |||
| Common Stock – 56.89% | ||||
| Consumer Discretionary – 3.77% | ||||
| Gap | 623,600 | $ | 12,721,440 | |
| *Limited Brands | 525,100 | 10,544,008 | ||
| Mattel | 508,100 | 10,151,838 | ||
| Starwood Hotels & Resorts | ||||
| Worldwide | 40,100 | 2,152,568 | ||
| †Time Warner Cable Class A | 12 | 314 | ||
| 35,570,168 | ||||
| Consumer Staples – 5.56% | ||||
| B&G Foods Class A | 193,400 | 2,067,446 | ||
| Heinz (H.J.) | 276,400 | 13,073,720 | ||
| *Kimberly-Clark | 169,200 | 11,811,852 | ||
| Kraft Foods Class A | 364,600 | 12,596,930 | ||
| *Safeway | 370,500 | 12,893,400 | ||
| 52,443,348 | ||||
| Diversified REITs – 1.64% | ||||
| *iStar Financial | 140,600 | 4,115,362 | ||
| *Liberty Property Trust | 58,900 | 1,844,159 | ||
| Vornado Realty Trust | 86,800 | 7,812,000 | ||
| *Washington Real Estate | ||||
| Investment Trust | 53,000 | 1,698,120 | ||
| 15,469,641 | ||||
| Energy – 2.73% | ||||
| Chesapeake Energy | 31,481 | 1,191,537 | ||
| Chevron | 142,300 | 12,489,671 | ||
| ConocoPhillips | 150,800 | 12,070,032 | ||
| 25,751,240 | ||||
| Financials – 9.97% | ||||
| Allstate | 246,500 | 12,601,080 | ||
| Chubb | 240,800 | 13,135,639 | ||
| *Discover Financial Services | 659,950 | 11,463,332 | ||
| Hartford Financial Services Group | 137,300 | 13,087,436 | ||
| Highland Distressed Opportunities | 94,100 | 890,186 | ||
| *Huntington Bancshares | 684,000 | 10,731,960 | ||
| Morgan Stanley | 210,100 | 11,076,472 | ||
| Wachovia | 281,500 | 12,104,500 | ||
| *Washington Mutual | 459,100 | 8,952,450 | ||
| 94,043,055 | ||||
| Health Care – 7.96% | ||||
| *Abbott Laboratories | 233,200 | 13,411,332 | ||
| Baxter International | 214,900 | 12,866,063 | ||
| Bristol-Myers Squibb | 432,700 | 12,820,901 | ||
| Johnson & Johnson | 170,800 | 11,569,992 | ||
| Pfizer | 513,800 | 12,207,888 | ||
| Wyeth | 247,700 | 12,162,070 | ||
| 75,038,246 | ||||
| Health Care REITs – 1.22% | ||||
| HCP | 83,500 | 2,793,075 | ||
| *Health Care REIT | 44,900 | 2,011,969 | ||
| *Nationwide Health Properties | 65,400 | 2,045,712 | ||
| Ventas | 106,800 | 4,656,480 | ||
| 11,507,236 | ||||
| Hotel REITs – 0.83% | ||||
| *Ashford Hospitality Trust | 150,500 | 1,164,870 | ||
| Hersha Hospitality Trust | 330,800 | 3,367,544 | ||
| *Host Hotels & Resorts | 169,200 | 3,246,948 | ||
| 7,779,362 | ||||
| Industrial REITs – 1.41% | ||||
| AMB Property | 68,500 | 4,189,460 | ||
| First Potomac Realty Trust | 63,500 | 1,197,610 | ||
| *ProLogis | 120,900 | 7,909,278 | ||
| 13,296,348 | ||||
| Industrials – 3.39% | ||||
| Donnelley (R.R.) & Sons | 303,600 | 11,129,976 | ||
| Genesis Lease ADR | 241,500 | 4,467,750 | ||
| Grupo Aeroportuario del | ||||
| Centro Norte ADR | 47,942 | 1,297,790 | ||
| Macquarie Infrastructure | 60,000 | 2,418,000 | ||
| =@†ÕPort Townsend | 1,110 | 692,640 | ||
| Waste Management | 349,400 | 11,991,408 | ||
| 31,997,564 | ||||
| Information Technology – 5.23% | ||||
| Intel | 499,400 | 13,024,352 | ||
| *International Business Machines | 115,600 | 12,158,808 | ||
| Motorola | 772,700 | 12,340,019 | ||
| Xerox | 701,500 | 11,841,320 | ||
| 49,364,499 | ||||
| Mall REITs – 2.61% | ||||
| General Growth Properties | 143,600 | 6,668,784 | ||
| *Macerich | 69,300 | 5,381,145 | ||
| Simon Property Group | 128,000 | 12,601,600 | ||
| 24,651,529 | ||||
| Manufactured Housing REITs – 0.28% | ||||
| Equity Lifestyle Properties | 40,600 | 1,883,434 | ||
| *Sun Communities | 31,900 | 780,912 | ||
| 2,664,346 | ||||
| Materials – 1.33% | ||||
| duPont (E.I.) deNemours | 271,300 | 12,520,495 | ||
| 12,520,495 | ||||
| Mortgage REITs – 0.14% | ||||
| †Chimera Investment | 86,000 | 1,333,860 | ||
| 1,333,860 | ||||
| Multifamily REITs – 1.31% | ||||
| *American Campus Communities | 55,600 | 1,437,816 | ||
| *Apartment Investment & | ||||
| Management | 34,600 | 1,376,042 | ||
| AvalonBay Communities | 19,500 | 1,939,080 | ||
| Camden Property Trust | 31,800 | 1,672,998 | ||
| Equity Residential | 137,700 | 5,123,817 | ||
| *UDR | 35,300 | 777,659 | ||
| 12,327,412 | ||||
| Office REITs – 1.76% | ||||
| *Alexandria Real Estate Equities | 38,700 | 3,801,501 | ||
| Brandywine Realty Trust | 87,856 | 1,801,048 | ||
| *Duke Realty | 80,900 | 2,126,861 | ||
(continues) 9
Statement of net assets
Delaware Dividend Income Fund
| Number of | ||||
| Shares | Value | |||
| Common Stock (continued) | ||||
| Office REITs (continued) | ||||
| Highwoods Properties | 59,300 | $ | 1,881,589 | |
| Mack-Cali Realty | 42,800 | 1,527,532 | ||
| *Parkway Properties | 43,300 | 1,713,381 | ||
| PS Business Parks | 22,300 | 1,203,085 | ||
| SL Green Realty | 24,400 | 2,535,160 | ||
| 16,590,157 | ||||
| Self-Storage REITs – 0.47% | ||||
| Public Storage | 57,300 | 4,431,582 | ||
| 4,431,582 | ||||
| Shopping Center REITs – 1.24% | ||||
| Cedar Shopping Centers | 127,400 | 1,490,580 | ||
| Developers Diversified Realty | 104,800 | 4,654,168 | ||
| *Equity One | 80,900 | 1,914,903 | ||
| *Federal Realty Investment Trust | 43,600 | 3,627,084 | ||
| 11,686,735 | ||||
| Specialty REITs – 0.20% | ||||
| *Entertainment Properties Trust | 35,200 | 1,875,808 | ||
| 1,875,808 | ||||
| Telecommunications – 2.53% | ||||
| AT&T | 308,200 | 11,776,322 | ||
| †Century Communications | 1,625,000 | 1,056 | ||
| *Verizon Communications | 279,700 | 12,085,837 | ||
| 23,863,215 | ||||
| Transportation – 0.00% | ||||
| *†Northwest Airlines | 918 | 16,689 | ||
| 16,689 | ||||
| Utilities – 1.31% | ||||
| *†Mirant | 448 | 17,288 | ||
| *Progress Energy | 253,200 | 12,361,224 | ||
| 12,378,512 | ||||
| Total Common Stock | ||||
| (cost $531,454,773) | 536,601,047 | |||
| Convertible Preferred Stock – 3.63% | ||||
| Automobiles & Automotive Parts – 0.19% | ||||
| General Motors 5.25% | ||||
| exercise price $64.90, | ||||
| expiration date 3/6/32 | 88,650 | 1,770,341 | ||
| 1,770,341 | ||||
| Banking, Finance & Insurance – 1.00% | ||||
| Aspen Insurance 5.625% | ||||
| exercise price $29.28, | ||||
| expiration date 12/31/49 | 37,800 | 2,116,800 | ||
| ·Citigroup Funding 4.853% | ||||
| exercise price $29.50, | ||||
| expiration date 9/27/08 | 155,000 | 4,040,849 | ||
| E Trade Group 6.125% | ||||
| exercise price $21.82, | ||||
| expiration date 11/18/08 | 75,500 | 604,000 | ||
| Sovereign Capital Trust IV | ||||
| 4.375% exercise price | ||||
| $29.16, expiration date | ||||
| 3/1/34 | 35,700 | 1,294,125 | ||
| XL Capital 7.00% | ||||
| exercise price $80.59, | ||||
| expiration date 2/15/09 | 64,400 | 1,379,448 | ||
| 9,435,222 | ||||
| Basic Materials – 0.54% | ||||
| Freeport-McMoRan | ||||
| Copper & Gold 6.75% | ||||
| exercise price $73.50, | ||||
| expiration date 5/1/10 | 16,200 | 2,365,200 | ||
| Huntsman 5.00% | ||||
| exercise price $27.90, | ||||
| expiration date 2/16/08 | 56,100 | 2,699,813 | ||
| 5,065,013 | ||||
| Cable, Media & Publishing – 0.15% | ||||
| #Interpublic Group144A 5.25% | ||||
| exercise price $13.66, | ||||
| expiration date 12/31/49 | 1,500 | 1,385,813 | ||
| 1,385,813 | ||||
| Energy – 0.44% | ||||
| Chesapeake Energy 4.50% | ||||
| exercise price $44.17, | ||||
| expiration date 12/31/49 | 17,075 | 1,797,144 | ||
| El Paso Energy | ||||
| Capital Trust I 4.75% | ||||
| exercise price $41.59, | ||||
| expiration date 3/31/28 | 39,900 | 1,572,060 | ||
| McMoRan Exploration 6.75% | ||||
| exercise price $12.40, | ||||
| expiration date 11/15/10 | 8,600 | 825,600 | ||
| 4,194,804 | ||||
| Health Care & Pharmaceuticals – 0.34% | ||||
| Schering-Plough 6.00% | ||||
| exercise price $33.69, | ||||
| expiration date 8/13/10 | 12,000 | 3,247,500 | ||
| 3,247,500 | ||||
| Telecommunications – 0.36% | ||||
| Lucent Technologies | ||||
| Capital Trust I 7.75% | ||||
| exercise price $24.80, | ||||
| expiration date 3/15/17 | 3,640 | 3,375,645 | ||
| 3,375,645 | ||||
| Utilities – 0.61% | ||||
| ·CenterPoint Energy 2.00% | ||||
| exercise price $40.88, | ||||
| expiration date 9/15/29 | 26,000 | 884,000 | ||
| Entergy 7.625% | ||||
| exercise price $87.46, | ||||
| expiration date 2/17/09 | 40,750 | 2,913,625 | ||
| NRG Energy 5.75% | ||||
| exercise price $30.23, | ||||
| expiration date 3/16/09 | 5,335 | 1,961,946 | ||
| 5,759,571 | ||||
| Total Convertible Preferred Stock | ||||
| (cost $36,770,862) | 34,233,909 | |||
10
| Principal | |||||
| Amount | Value | ||||
| Convertible Bonds – 12.06% | |||||
| Aerospace & Defense – 0.56% | |||||
| #AAR 144A 1.75% 2/1/26 | |||||
| exercise price $29.43, | |||||
| expiration date 2/1/26 | $ | 1,150,000 | $ | 1,482,063 | |
| *EDO 4.00% 11/15/25 | |||||
| exercise price $34.19, | |||||
| expiration date 11/15/25 | 1,175,000 | 1,960,781 | |||
| #L-3 Communications 144A | |||||
| 3.00% 8/1/35 | |||||
| exercise price $101.70, | |||||
| expiration date 8/1/35 | 1,500,000 | 1,869,375 | |||
| 5,312,219 | |||||
| Banking, Finance & Insurance – 0.23% | |||||
| ·U.S. Bancorp | |||||
| *3.838% 9/20/36 | |||||
| exercise price $38.28, | |||||
| expiration date 9/20/36 | 500,000 | 501,350 | |||
| #144A 3.838% 9/20/36 | |||||
| exercise price $38.28, | |||||
| expiration date 9/20/36 | 1,625,000 | 1,629,388 | |||
| 2,130,738 | |||||
| Basic Industries – 0.09% | |||||
| #Apex Silver Mines 144A | |||||
| 2.875% 3/15/24 | |||||
| exercise price $28.62, | |||||
| expiration date 3/15/24 | 1,000,000 | 826,250 | |||
| 826,250 | |||||
| Cable, Media & Publishing – 0.54% | |||||
| Liberty Media 3.25% 3/15/31 | |||||
| exercise price $53.86, | |||||
| expiration date 3/8/31 | 3,000,000 | 2,261,250 | |||
| #Playboy Enterprises 144A | |||||
| 3.00% 3/15/25 | |||||
| exercise price $17.02, | |||||
| expiration date 3/15/25 | 3,240,000 | 2,887,650 | |||
| 5,148,900 | |||||
| Computers & Technology – 2.95% | |||||
| Advanced Micro Devices | |||||
| *6.00% 5/1/15 | |||||
| exercise price $28.08, | |||||
| expiration date 5/1/15 | 2,430,000 | 1,940,963 | |||
| #144A 6.00% 5/1/15 | |||||
| exercise price $28.08, | |||||
| expiration date 5/1/15 | 3,385,000 | 2,703,769 | |||
| Electronic Data Systems | |||||
| 3.875% 7/15/23 | |||||
| exercise price $34.14, | |||||
| expiration date 7/15/23 | 3,200,000 | 3,204,000 | |||
| Euronet Worldwide | |||||
| 3.50% 10/15/25 | |||||
| exercise price $40.48, | |||||
| expiration date 10/15/25 | 3,445,000 | 3,742,130 | |||
| Fairchild Semiconductor | |||||
| 5.00% 11/1/08 | |||||
| exercise price $30.00, | |||||
| expiration date 11/1/08 | 1,950,000 | 1,940,250 | |||
| Hutchinson Technology | |||||
| 3.25% 1/15/26 | |||||
| exercise price $36.43, | |||||
| expiration date 1/15/26 | 1,540,000 | 1,499,575 | |||
| #Informatica 144A | |||||
| 3.00% 3/15/26 | |||||
| exercise price $20.00, | |||||
| expiration date 3/15/26 | 2,315,000 | 2,572,544 | |||
| Intel 2.95% 12/15/35 | |||||
| exercise price $31.53, | |||||
| expiration date 12/15/35 | 500,000 | 535,000 | |||
| #144A 2.95% 12/15/35 | |||||
| exercise price $31.53, | |||||
| expiration date 12/15/35 | 1,140,000 | 1,219,800 | |||
| *ON Semiconductor | |||||
| 2.625% 12/15/26 | |||||
| exercise price $10.50, | |||||
| expiration date 12/15/26 | 2,725,000 | 3,058,813 | |||
| *SanDisk 1.00% 5/15/13 | |||||
| exercise price $82.36, | |||||
| expiration date 5/15/13 | 3,870,000 | 3,279,824 | |||
| #Sybase 144A 1.75% 2/22/25 | |||||
| exercise price $25.22, | |||||
| expiration date 2/22/25 | 1,875,000 | 2,167,969 | |||
| 27,864,637 | |||||
| Electronics & Electrical Equipment – 0.73% | |||||
| *Fisher Scientific International | |||||
| 3.25% 3/1/24 | |||||
| exercise price $40.20, | |||||
| expiration date 3/1/24 | 1,500,000 | 2,332,500 | |||
| *Flextronics International | |||||
| 1.00% 8/1/10 | |||||
| exercise price $15.53, | |||||
| expiration date 8/1/10 | 3,450,000 | 3,519,000 | |||
| Vishay Intertechnology | |||||
| 3.625% 8/1/23 | |||||
| exercise price $21.28, | |||||
| expiration date 8/1/23 | 1,000,000 | 1,015,000 | |||
| 6,866,500 | |||||
| Energy – 1.23% | |||||
| Halliburton 3.125% 7/15/23 | |||||
| exercise price $18.76, | |||||
| expiration date 7/15/23 | 1,750,000 | 3,438,750 | |||
| *Peabody Energy 4.75% 12/15/41 | |||||
| exercise price $58.45, | |||||
| expiration date 12/15/41 | 2,365,000 | 2,843,913 | |||
| Pride International | |||||
| 3.25% 5/1/33 | |||||
| exercise price $25.70, | |||||
| expiration date 5/1/33 | 1,080,000 | 1,441,800 | |||
| Schlumberger 2.125% 6/1/23 | |||||
| exercise price $40.00, | |||||
| expiration date 6/1/23 | 1,645,000 | 3,857,524 | |||
| 11,581,987 | |||||
(continues) 11
Statement of net assets
Delaware Dividend Income Fund
| Principal | |||||
| Amount | Value | ||||
| Convertible Bonds (continued) | |||||
| Health Care & Pharmaceuticals – 2.05% | |||||
| Allergan 1.50% 4/1/26 | |||||
| exercise price $63.33, | |||||
| expiration date 4/1/26 | $ | 600,000 | $ | 728,250 | |
| #144A 1.50% 4/1/26 | |||||
| exercise price $63.33, | |||||
| expiration date 4/1/26 | 1,935,000 | 2,348,605 | |||
| Amgen | |||||
| *0.375% 2/1/13 | |||||
| exercise price $79.48, | |||||
| expiration date 2/1/13 | 1,680,000 | 1,572,900 | |||
| #144A 0.375% 2/1/13 | |||||
| exercise price $79.48, | |||||
| expiration date 2/1/13 | 775,000 | 725,594 | |||
| ·Bristol-Myers Squibb | |||||
| 5.194% 9/15/23 | |||||
| exercise price $41.28, | |||||
| expiration date 9/15/23 | 1,600,000 | 1,593,600 | |||
| CV Therapeutics | |||||
| 3.25% 8/16/13 | |||||
| exercise price $27.00, | |||||
| expiration date 8/16/13 | 530,000 | 431,288 | |||
| Encysive Pharmaceuticals | |||||
| 2.50% 3/15/12 | |||||
| exercise price $13.95, | |||||
| expiration date 3/15/12 | 200,000 | 101,500 | |||
| #144A 2.50% 3/15/12 | |||||
| exercise price $13.95, | |||||
| expiration date 3/15/12 | 2,000,000 | 1,015,000 | |||
| LifePoint Hospitals | |||||
| 3.50% 5/15/14 | |||||
| exercise price $51.79, | |||||
| expiration date 5/14/14 | 850,000 | 777,750 | |||
| Lincare Holdings | |||||
| 3.00% 6/15/33 | |||||
| exercise price $53.33, | |||||
| expiration date 6/15/33 | 2,000,000 | 1,987,500 | |||
| Medtronic | |||||
| 1.50% 4/15/11 | |||||
| exercise price $56.08, | |||||
| expiration date 4/15/11 | 1,000,000 | 1,082,500 | |||
| 1.625% 4/15/13 | |||||
| exercise price $56.08, | |||||
| expiration date 4/15/13 | 2,000,000 | 2,172,500 | |||
| Teva Pharmaceutical Finance | |||||
| 0.25% 2/1/26 | |||||
| exercise price $47.06, | |||||
| expiration date 2/1/26 | 1,535,000 | 1,577,213 | |||
| *·Wyeth 4.886% 1/15/24 | |||||
| exercise price $60.09, | |||||
| expiration date 1/15/24 | 3,000,000 | 3,204,509 | |||
| 19,318,709 | |||||
| Leisure, Lodging & Entertainment – 0.38% | |||||
| #International Game Technology | |||||
| 144A 2.60% 12/15/36 | |||||
| exercise price $61.78, | |||||
| expiration date 12/15/36 | 3,490,000 | 3,555,438 | |||
| 3,555,438 | |||||
| Real Estate – 1.06% | |||||
| #General Growth Properties | |||||
| 144A 3.98% 4/15/27 | |||||
| exercise price $88.72, | |||||
| expiration date 4/15/27 | 3,590,000 | 3,100,862 | |||
| Health Care REIT | |||||
| 4.75% 12/1/26 | |||||
| exercise price $47.82, | |||||
| expiration date 12/1/26 | 2,150,000 | 2,281,688 | |||
| MeriStar Hospitality | |||||
| 9.50% 4/1/10 | |||||
| exercise price $10.18, | |||||
| expiration date 4/1/10 | 1,685,000 | 1,729,653 | |||
| *#Weingarten Realty Investors | |||||
| 144A 3.95% 8/1/26 | |||||
| exercise price $49.01, | |||||
| expiration date 8/1/26 | 3,000,000 | 2,887,500 | |||
| 9,999,703 | |||||
| Retail – 0.62% | |||||
| Pantry 3.00% 11/15/12 | |||||
| exercise price $50.10, | |||||
| expiration date 11/15/12 | 1,755,000 | 1,612,406 | |||
| #Saks 144A 2.00% 3/15/24 | |||||
| exercise price $11.97, | |||||
| expiration date 3/15/24 | 1,135,000 | 2,006,113 | |||
| Sonic Automotive 5.25% 5/7/09 | |||||
| exercise price $46.87, | |||||
| expiration date 5/7/09 | 1,000,000 | 985,000 | |||
| #United Auto Group 144A | |||||
| 3.50% 4/1/26 | |||||
| exercise price $23.69, | |||||
| expiration date 4/1/26 | 1,150,000 | 1,219,000 | |||
| 5,822,519 | |||||
| Telecommunications – 1.02% | |||||
| Amdocs 0.50% 3/15/24 | |||||
| exercise price $43.12, | |||||
| expiration date 3/15/24 | 2,000,000 | 2,040,000 | |||
| Level 3 Communications | |||||
| 3.50% 6/15/12 | |||||
| exercise price $5.46, | |||||
| expiration date 6/15/12 | 2,425,000 | 2,212,812 | |||
| *NII Holdings 3.125% 6/15/12 | |||||
| exercise price $118.32, | |||||
| expiration date 6/15/12 | 3,435,000 | 3,048,562 | |||
| #Nortel Networks 144A | |||||
| 1.75% 4/15/12 | |||||
| exercise price $32.00, | |||||
| expiration date 4/15/12 | 845,000 | 710,856 | |||
| 2.125% 4/15/14 | |||||
| exercise price $32.00, | |||||
| expiration date 4/15/14 | 845,000 | 688,675 | |||
| Qwest Communications | |||||
| International 3.50% 11/15/25 | |||||
| exercise price $5.90, | |||||
| expiration date 11/15/25 | 750,000 | 972,188 | |||
| 9,673,093 | |||||
12
| Principal | |||||
| Amount | Value | ||||
| Convertible Bonds (continued) | |||||
| Transportation – 0.36% | |||||
| *#ExpressJet Holdings 144A | |||||
| 4.25% 8/1/23 | |||||
| exercise price $18.20, | |||||
| expiration date 8/1/23 | $ | 750,000 | $ | 721,875 | |
| JetBlue Airways | |||||
| 3.50% 7/15/33 | |||||
| exercise price $28.33, | |||||
| expiration date 7/15/33 | 1,625,000 | 1,586,406 | |||
| 3.75% 3/15/35 | |||||
| exercise price $17.10, | |||||
| expration date 3/15/35 | 1,195,000 | 1,060,563 | |||
| 3,368,844 | |||||
| Utilities – 0.24% | |||||
| CenterPoint Energy | |||||
| 3.75% 5/15/23 | |||||
| exercise price $11.18, | |||||
| expiration date 5/15/23 | 400,000 | 640,500 | |||
| #144A 3.75% 5/15/23 | |||||
| exercise price $11.18, | |||||
| expiration date 5/15/23 | 1,030,000 | 1,649,288 | |||
| 2,289,788 | |||||
| Total Convertible Bonds | |||||
| (cost $110,104,278) | 113,759,325 | ||||
| Corporate Bonds – 18.79% | |||||
| Basic Industries – 1.87% | |||||
| *AK Steel 7.75% 6/15/12 | 915,000 | 917,288 | |||
| *#Algoma Acqusition 144A | |||||
| 9.875% 6/15/15 | 425,000 | 342,125 | |||
| Foundation Pennsylvania Coal | |||||
| 7.25% 8/1/14 | 1,445,000 | 1,398,037 | |||
| Freeport McMoRan Copper & | |||||
| Gold 8.25% 4/1/15 | 720,000 | 770,400 | |||
| Georgia-Pacific | |||||
| 7.70% 6/15/15 | 685,000 | 669,588 | |||
| 8.875% 5/15/31 | 1,365,000 | 1,330,874 | |||
| #GTL Trade Finance 144A | |||||
| 7.25% 10/20/17 | 470,000 | 481,822 | |||
| Hexion US Finance | |||||
| 9.75% 11/15/14 | 1,180,000 | 1,274,400 | |||
| *#Ineos Group Holdings 144A | |||||
| 8.50% 2/15/16 | 700,000 | 633,500 | |||
| Lyondell Chemical | |||||
| 8.00% 9/15/14 | 935,000 | 1,063,563 | |||
| 8.25% 9/15/16 | 310,000 | 365,025 | |||
| 10.50% 6/1/13 | 100,000 | 107,500 | |||
| #MacDermid 144A | |||||
| 9.50% 4/15/17 | 1,755,000 | 1,601,437 | |||
| #Momentive Performance | |||||
| Materials 144A | |||||
| 9.75% 12/1/14 | 950,000 | 885,875 | |||
| #Norske Skogindustrier 144A | |||||
| 7.125% 10/15/33 | 175,000 | 148,794 | |||
| ‡Port Townsend Paper | |||||
| 0.00% 8/15/12 | 532,800 | 532,800 | |||
| Potlatch 13.00% 12/1/09 | 1,075,000 | 1,226,502 | |||
| ·#Ryerson 144A | |||||
| 12.574% 11/1/14 | 675,000 | 653,063 | |||
| #Sappi Papier Holding 144A | |||||
| 6.75% 6/15/12 | 1,460,000 | 1,441,012 | |||
| #Steel Dynamics 144A | |||||
| 6.75% 4/1/15 | 500,000 | 480,000 | |||
| 7.375% 11/1/12 | 335,000 | 334,163 | |||
| Verso Paper Holdings | |||||
| 9.125% 8/1/14 | 630,000 | 629,213 | |||
| Witco 6.875% 2/1/26 | 460,000 | 372,600 | |||
| 17,659,581 | |||||
| Brokerage – 0.30% | |||||
| #HUB International Holdings | |||||
| 144A 10.25% 6/15/15 | 500,000 | 431,250 | |||
| LaBranche | |||||
| 9.50% 5/15/09 | 1,100,000 | 1,105,500 | |||
| 11.00% 5/15/12 | 1,310,000 | 1,300,175 | |||
| 2,836,925 | |||||
| Capital Goods – 1.17% | |||||
| *Berry Plastics Holding | |||||
| 8.875% 9/15/14 | 1,165,000 | 1,130,050 | |||
| CPG International I | |||||
| 10.50% 7/1/13 | 935,000 | 902,275 | |||
| *Graham Packaging | |||||
| 9.875% 10/15/14 | 775,000 | 714,938 | |||
| Graphic Packaging International | |||||
| 8.50% 8/15/11 | 910,000 | 900,900 | |||
| *Greenbrier 8.375% 5/15/15 | 210,000 | 201,075 | |||
| *#Hawker Beechcraft Acquisition | |||||
| 144A 9.75% 4/1/17 | 915,000 | 926,438 | |||
| Interface 10.375% 2/1/10 | 1,130,000 | 1,189,324 | |||
| Intertape Polymer | |||||
| 8.50% 8/1/14 | 825,000 | 756,938 | |||
| KB HOME 8.625% 12/15/08 | 615,000 | 604,238 | |||
| Koppers Industries | |||||
| 9.875% 10/15/13 | 585,000 | 617,175 | |||
| ·NXP Funding | |||||
| 7.993% 10/15/13 | 615,000 | 583,481 | |||
| *Smurfit-Stone Container | |||||
| Enterprises 8.00% 3/15/17 | 1,020,000 | 984,300 | |||
| Trimas 9.875% 6/15/12 | 1,526,000 | 1,510,739 | |||
| 11,021,871 | |||||
| Consumer Cyclical – 1.86% | |||||
| *#Allison Transmission 144A | |||||
| 11.00% 11/1/15 | 730,000 | 706,275 | |||
| #Cardtronics 144A | |||||
| 9.25% 8/15/13 | 625,000 | 603,125 | |||
| *Carrols 9.00% 1/15/13 | 675,000 | 626,063 | |||
| Ford Motor 7.45% 7/16/31 | 1,510,000 | 1,147,600 | |||
(continues) 13
Statement of net assets
Delaware Dividend Income Fund
| Principal | |||||
| Amount | Value | ||||
| Corporate Bonds (continued) | |||||
| Consumer Cyclical (continued) | |||||
| Ford Motor Credit | |||||
| 7.375% 10/28/09 | $ | 525,000 | $ | 497,283 | |
| *7.80% 6/1/12 | 2,500,000 | 2,230,087 | |||
| ·7.993% 1/13/12 | 450,000 | 392,440 | |||
| *General Motors | |||||
| 8.375% 7/15/33 | 2,100,000 | 1,753,500 | |||
| *Global Cash Access | |||||
| 8.75% 3/15/12 | 1,525,000 | 1,383,938 | |||
| GMAC | |||||
| *4.375% 12/10/07 | 385,000 | 384,670 | |||
| ·6.119% 5/15/09 | 1,235,000 | 1,157,580 | |||
| 6.875% 9/15/11 | 1,300,000 | 1,136,717 | |||
| 6.875% 8/28/12 | 1,150,000 | 978,603 | |||
| Lear 8.75% 12/1/16 | 2,645,000 | 2,446,624 | |||
| *Neiman Marcus Group PIK | |||||
| 9.00% 10/15/15 | 1,145,000 | 1,196,525 | |||
| *#Tenneco 144A | |||||
| 8.125% 11/15/15 | 395,000 | 395,988 | |||
| #USI Holdings 144A | |||||
| 9.75% 5/15/15 | 580,000 | 487,200 | |||
| 17,524,218 | |||||
| Consumer Non-Cyclical – 0.94% | |||||
| ACCO Brands | |||||
| 7.625% 8/15/15 | 565,000 | 508,500 | |||
| American Achievement | |||||
| 8.25% 4/1/12 | 310,000 | 303,800 | |||
| Chiquita Brands International | |||||
| 8.875% 12/1/15 | 1,290,000 | 1,193,250 | |||
| *Constellation Brands | |||||
| 8.125% 1/15/12 | 910,000 | 910,000 | |||
| Cott Beverages | |||||
| 8.00% 12/15/11 | 915,000 | 841,800 | |||
| Jarden 7.50% 5/1/17 | 1,261,000 | 1,141,205 | |||
| National Beef Packing | |||||
| 10.50% 8/1/11 | 895,000 | 870,388 | |||
| Pilgrim’s Pride 8.375% 5/1/17 | 2,350,000 | 2,314,749 | |||
| #Seminole Indian Tribe of | |||||
| Florida 144A | |||||
| 7.804% 10/1/20 | 775,000 | 807,845 | |||
| 8,891,537 | |||||
| Energy – 2.78% | |||||
| AmeriGas Partners | |||||
| 7.125% 5/20/16 | 1,015,000 | 979,475 | |||
| Chesapeake Energy | |||||
| *6.375% 6/15/15 | 100,000 | 96,500 | |||
| 6.625% 1/15/16 | 1,225,000 | 1,194,375 | |||
| Compton Petroleum Finance | |||||
| 7.625% 12/1/13 | 2,030,000 | 1,908,200 | |||
| Dynergy Holdings | |||||
| 7.75% 6/1/19 | 3,170,000 | 2,868,849 | |||
| El Paso | |||||
| 6.875% 6/15/14 | 1,145,000 | 1,154,083 | |||
| *7.00% 6/15/17 | 1,195,000 | 1,203,568 | |||
| #El Paso Performance-Linked | |||||
| Trust 144A 7.75% 7/15/11 | 525,000 | 552,421 | |||
| Energy Partners | |||||
| 9.75% 4/15/14 | 1,200,000 | 1,152,000 | |||
| Ferrellgas Finance Escrow | |||||
| 6.75% 5/1/14 | 520,000 | 507,000 | |||
| Geophysique-Veritas | |||||
| 7.50% 5/15/15 | 155,000 | 156,938 | |||
| 7.75% 5/15/17 | 670,000 | 676,700 | |||
| #Hilcorp Energy I 144A | |||||
| 7.75% 11/1/15 | 1,100,000 | 1,069,750 | |||
| 9.00% 6/1/16 | 455,000 | 466,375 | |||
| Inergy Finance | |||||
| 6.875% 12/15/14 | 350,000 | 339,500 | |||
| 8.25% 3/1/16 | 200,000 | 207,500 | |||
| KCS Energy 7.125% 4/1/12 | 465,000 | 449,888 | |||
| #Key Energy Services 144A | |||||
| 8.375% 12/1/14 | 720,000 | 725,400 | |||
| Kinder Morgan Finance | |||||
| 5.35% 1/5/11 | 75,000 | 72,731 | |||
| Mariner Energy | |||||
| 8.00% 5/15/17 | 1,175,000 | 1,116,250 | |||
| Massey Energy | |||||
| 6.625% 11/15/10 | 310,000 | 303,025 | |||
| 6.875% 12/15/13 | 1,015,000 | 964,250 | |||
| #OPTI Canada 144A | |||||
| 7.875% 12/15/14 | 485,000 | 475,300 | |||
| 8.25% 12/15/14 | 200,000 | 198,000 | |||
| PetroHawk Energy | |||||
| 9.125% 7/15/13 | 1,325,000 | 1,397,875 | |||
| Plains Exploration & | |||||
| Production 7.00% 3/15/17 | 705,000 | 673,275 | |||
| Regency Energy Partners | |||||
| 8.375% 12/15/13 | 844,000 | 886,200 | |||
| Seitel 9.75% 2/15/14 | 1,090,000 | 948,300 | |||
| #Stallion Oilfield Services 144A | |||||
| 9.75% 2/1/15 | 625,000 | 578,125 | |||
| Whiting Petroleum | |||||
| 7.25% 5/1/13 | 935,000 | 916,300 | |||
| Williams 7.50% 1/15/31 | 1,785,000 | 1,945,650 | |||
| 26,183,803 | |||||
| Finance & Investments – 0.27% | |||||
| Leucadia National | |||||
| 8.125% 9/15/15 | 1,300,000 | 1,299,999 | |||
| #Nuveen Investments 144A | |||||
| 10.50% 11/15/15 | 1,185,000 | 1,176,113 | |||
| Unum Group 5.859% 5/15/09 | 50,000 | 50,985 | |||
| 2,527,097 | |||||
| Media – 1.65% | |||||
| *CCH I Holdings | |||||
| 13.50% 1/15/14 | 195,000 | 150,150 | |||
| Charter Communication | |||||
| Holdings 13.50% 1/15/11 | 3,095,000 | 2,646,224 | |||
| *Dex Media West | |||||
| 9.875% 8/15/13 | 995,000 | 1,036,044 | |||
14
| Principal | |||||
| Amount | Value | ||||
| Corporate Bonds (continued) | |||||
| Media (continued) | |||||
| Idearc 8.00% 11/15/16 | $ | 2,420,000 | $ | 2,274,800 | |
| *Insight Communications | |||||
| 12.25% 2/15/11 | 550,000 | 575,438 | |||
| Insight Midwest Capital | |||||
| 9.75% 10/1/09 | 461,000 | 462,153 | |||
| Intelsat Bermuda | |||||
| 11.25% 6/15/16 | 1,145,000 | 1,190,800 | |||
| #Lamar Media 144A | |||||
| 6.625% 8/15/15 | 455,000 | 434,525 | |||
| #LBI Media 144A 8.50% 8/1/17 | 625,000 | 606,250 | |||
| Mediacom Capital | |||||
| 9.50% 1/15/13 | 820,000 | 766,700 | |||
| #Quebecor Media 144A | |||||
| 7.75% 3/15/16 | 1,220,000 | 1,143,750 | |||
| #Quebecor World 144A | |||||
| 9.75% 1/15/15 | 1,295,000 | 1,036,000 | |||
| RH Donnelley | |||||
| 8.875% 1/15/16 | 640,000 | 608,000 | |||
| #144A 8.875% 10/15/17 | 1,440,000 | 1,364,400 | |||
| Time Warner Telecom | |||||
| Holdings 9.25% 2/15/14 | 660,000 | 678,150 | |||
| *#Univision Communications PIK | |||||
| 144A 9.75% 3/15/15 | 590,000 | 551,650 | |||
| 15,525,034 | |||||
| Real Estate – 0.31% | |||||
| BF Saul REIT 7.50% 3/1/14 | 1,251,000 | 1,194,705 | |||
| Host Marriott 7.125% 11/1/13 | 1,170,000 | 1,178,775 | |||
| Rouse 7.20% 9/15/12 | 550,000 | 528,871 | |||
| 2,902,351 | |||||
| Services Cyclical – 2.54% | |||||
| Aramark Services | |||||
| 8.50% 2/1/15 | 1,710,000 | 1,724,963 | |||
| Corrections Corporation of | |||||
| America 7.50% 5/1/11 | 650,000 | 661,375 | |||
| FTI Consulting | |||||
| 7.625% 6/15/13 | 1,550,000 | 1,588,750 | |||
| #Galaxy Entertainment Finance | |||||
| 144A 9.875% 12/15/12 | 1,550,000 | 1,635,250 | |||
| Gaylord Entertainment | |||||
| 8.00% 11/15/13 | 1,275,000 | 1,275,000 | |||
| Harrah’s Operating | |||||
| 6.50% 6/1/16 | 883,000 | 672,089 | |||
| Hertz 8.875% 1/1/14 | 1,810,000 | 1,819,050 | |||
| Kansas City Southern de | |||||
| Mexico 9.375% 5/1/12 | 2,025,000 | 2,146,499 | |||
| Kansas City Southern Railway | |||||
| 9.50% 10/1/08 | 600,000 | 616,500 | |||
| Majestic Star Casino | |||||
| 9.50% 10/15/10 | 1,900,000 | 1,838,250 | |||
| Mandalay Resort Group | |||||
| 9.375% 2/15/10 | 1,070,000 | 1,110,125 | |||
| 9.50% 8/1/08 | 1,205,000 | 1,235,125 | |||
| #Mobile Services Group 144A | |||||
| 9.75% 8/1/14 | 600,000 | 549,000 | |||
| ‡Northwest Airlines | |||||
| 10.00% 2/1/09 | 265,000 | 11,594 | |||
| #Penhall International 144A | |||||
| 12.00% 8/1/14 | 565,000 | 522,625 | |||
| #Pokagon Gaming Authority | |||||
| 144A 10.375% 6/15/14 | 1,880,000 | 2,021,000 | |||
| Rental Services 9.50% 12/1/14 | 1,160,000 | 1,081,700 | |||
| Seabulk International | |||||
| 9.50% 8/15/13 | 469,000 | 498,899 | |||
| Station Casinos | |||||
| 6.625% 3/15/18 | 1,540,000 | 1,174,250 | |||
| Wheeling Island Gaming | |||||
| 10.125% 12/15/09 | 1,755,000 | 1,763,775 | |||
| 23,945,819 | |||||
| Services Non-Cyclical – 1.23% | |||||
| Allied Waste North America | |||||
| 7.375% 4/15/14 | 625,000 | 629,688 | |||
| 7.875% 4/15/13 | 1,170,000 | 1,208,025 | |||
| Casella Waste Systems | |||||
| 9.75% 2/1/13 | 2,010,000 | 2,060,250 | |||
| Community Health Systems | |||||
| 8.875% 7/15/15 | 1,740,000 | 1,766,100 | |||
| CRC Health 10.75% 2/1/16 | 2,350,000 | 2,479,249 | |||
| HCA PIK 9.625% 11/15/16 | 1,655,000 | 1,725,338 | |||
| Omnicare 6.875% 12/15/15 | 1,050,000 | 971,250 | |||
| #Universal Hospital Services PIK | |||||
| 144A 8.50% 6/1/15 | 800,000 | 804,000 | |||
| 11,643,900 | |||||
| Technology & Electronics – 0.24% | |||||
| Freescale Semiconductor | |||||
| 8.875% 12/15/14 | 1,295,000 | 1,189,781 | |||
| Sungard Data Systems | |||||
| 9.125% 8/15/13 | 845,000 | 864,013 | |||
| 10.25% 8/15/15 | 215,000 | 222,525 | |||
| 2,276,319 | |||||
| Telecommunications – 2.60% | |||||
| ‡Allegiance Telecom | |||||
| 11.75% 2/15/08 | 10,000 | 5,225 | |||
| American Tower | |||||
| 7.125% 10/15/12 | 1,150,000 | 1,173,000 | |||
| #144A 7.00% 10/15/17 | 1,135,000 | 1,160,538 | |||
| #Broadview Networks Holdings | |||||
| 144A 11.375% 9/1/12 | 860,000 | 905,325 | |||
| ·Centennial Communications | |||||
| 10.981% 1/1/13 | 1,110,000 | 1,140,525 | |||
| Citizens Communications | |||||
| 7.125% 3/15/19 | 1,795,000 | 1,723,199 | |||
| Cricket Communications | |||||
| 9.375% 11/1/14 | 1,335,000 | 1,248,225 | |||
| #Digicel 144A 9.25% 9/1/12 | 1,380,000 | 1,393,800 | |||
(continues) 15
Statement of net assets
Delaware Dividend Income Fund
| Principal | |||||
| Amount | Value | ||||
| Corporate Bonds (continued) | |||||
| Telecommunications (continued) | |||||
| ·#Hellas Telecommunications | |||||
| Luxembourg II 144A | |||||
| 10.993% 1/15/15 | $ | 870,000 | $ | 835,200 | |
| Hughes Network Systems | |||||
| 9.50% 4/15/14 | 1,685,000 | 1,706,062 | |||
| ¶Inmarsat Finance | |||||
| 10.375% 11/15/12 | 1,465,000 | 1,417,387 | |||
| Level 3 Financing | |||||
| 9.25% 11/1/14 | 1,270,000 | 1,146,175 | |||
| Lucent Technologies | |||||
| 6.45% 3/15/29 | 1,144,000 | 926,640 | |||
| MetroPCS Wireless | |||||
| 9.25% 11/1/14 | 1,745,000 | 1,662,112 | |||
| ·#Nortel Networks 144A | |||||
| 9.493% 7/15/11 | 1,375,000 | 1,344,063 | |||
| NTL Cable 9.125% 8/15/16 | 770,000 | 770,000 | |||
| #PAETEC Holding 144A | |||||
| 9.50% 7/15/15 | 540,000 | 538,650 | |||
| *Qwest 7.50% 10/1/14 | 1,020,000 | 1,037,850 | |||
| Qwest Capital Funding | |||||
| 7.25% 2/15/11 | 1,255,000 | 1,245,588 | |||
| Rural Cellular | |||||
| 9.875% 2/1/10 | 915,000 | 953,888 | |||
| ·10.661% 11/1/12 | 325,000 | 333,125 | |||
| Triton PCS 8.50% 6/1/13 | 630,000 | 659,925 | |||
| Windstream 8.125% 8/1/13 | 1,150,000 | 1,188,813 | |||
| 24,515,315 | |||||
| Utilities – 1.03% | |||||
| AES 7.75% 3/1/14 | 690,000 | 681,375 | |||
| #144A 8.00% 10/15/17 | 730,000 | 730,000 | |||
| ‡#Calpine 144A | |||||
| 8.496% 7/15/09 | 625,600 | 647,496 | |||
| Elwood Energy | |||||
| 8.159% 7/5/26 | 925,958 | 979,594 | |||
| Midwest Generation | |||||
| 8.30% 7/2/09 | 821,737 | 834,063 | |||
| Mirant Americas Generation | |||||
| 8.30% 5/1/11 | 1,460,000 | 1,463,650 | |||
| Mirant North America | |||||
| 7.375% 12/31/13 | 1,195,000 | 1,203,963 | |||
| NRG Energy 7.375% 2/1/16 | 2,180,000 | 2,141,850 | |||
| Orion Power Holdings | |||||
| 12.00% 5/1/10 | 956,000 | 1,046,820 | |||
| 9,728,811 | |||||
| Total Corporate Bonds | |||||
| (cost $182,967,502) | 177,182,581 | ||||
| Leveraged Non-Recourse Securities – 0.00% | |||||
| @#wJPMorgan Fixed Income Pass | |||||
| Through Trust 2007 144A | |||||
| 8.845% 1/15/87 | 1,300,000 | 0 | |||
| Number of | |||||
| Shares | |||||
| @#wMerrill Lynch Preferred Pass | |||||
| Through Trust 2007 144A | 40,000 | 400 | |||
| Total Leveraged Non-Recourse Securities | |||||
| (cost $2,164,837) | 400 | ||||
| Exchange Traded Fund – 0.09% | |||||
| *iShares Dow Jones U.S. Real | |||||
| Estate Index Fund | 12,300 | 861,861 | |||
| Total Exchange Traded Fund | |||||
| (cost $874,940) | 861,861 | ||||
| Preferred Stock – 0.36% | |||||
| Leisure, Lodging & Entertainment – 0.04% | |||||
| Red Lion Hotels Capital | |||||
| Trust 9.50% | 17,479 | 429,983 | |||
| 429,983 | |||||
| Real Estate – 0.32% | |||||
| Equity Inns Series B 8.75% | 21,700 | 402,806 | |||
| SL Green Realty 7.625% | 108,900 | 2,599,444 | |||
| 3,002,250 | |||||
| Total Preferred Stock | |||||
| (cost $3,741,803) | 3,432,233 | ||||
| Residual Interest Trust Certificate – 0.05% | |||||
| @#wFreddie Mac Auction Pass | |||||
| Through Trust 144A | 1,000,000 | 459,700 | |||
| Total Residual Interest Trust Certificate | |||||
| (cost $1,088,378) | 459,700 | ||||
| Warrant – 0.00% | |||||
| †#Solutia 144A, | |||||
| exercise price $7.59, | |||||
| expiration date 7/15/09 | 12 | 0 | |||
| Total Warrant | |||||
| (cost $1,021) | 0 | ||||
| Principal | |||||
| Amount | |||||
| « Senior Secured Loans – 3.44% | |||||
| AlixPartners 0.00% 10/12/13 | $ | 595,000 | 582,356 | ||
| ALLTEL 7.69% 12/21/14 | 630,000 | 601,650 | |||
| Aramark | |||||
| 7.08% 1/26/14 | 1,401,406 | 1,333,088 | |||
| 7.485% 1/26/14 | 98,594 | 93,911 | |||
| Bausch & Lomb 8.34% 4/11/15 | 780,000 | 776,929 | |||
| BNY ConvergEx Group | |||||
| 7.39% 9/29/13 | 1,050,000 | 1,022,438 | |||
| Building Materials | |||||
| 8.256% 2/22/14 | 1,350,397 | 1,155,156 | |||
| Coffeyville Resources | |||||
| Credit Linked | |||||
| 5.26% 12/28/10 | 122,133 | 117,858 | |||
| 8.365% 12/28/13 | 398,317 | 386,865 | |||
16
| Principal | |||||||
| Amount | Value | ||||||
| « Senior Secured Loans (continued) | |||||||
| Community Health Systems | |||||||
| 7.61% 7/2/14 | $ | 2,387,510 | $ | 2,293,287 | |||
| 7.61% 8/25/14 | 62,490 | 60,024 | |||||
| Dynegy Holdings | |||||||
| 7.28% 4/2/13 | 1,235,000 | 1,162,450 | |||||
| Energy Futures Holdings | |||||||
| 7.565% 10/10/14 | 2,730,000 | 2,676,259 | |||||
| 8.39% 10/10/14 | 2,155,000 | 2,113,258 | |||||
| Ford Motor 8.36% 11/29/13 | 768,190 | 717,470 | |||||
| Freescale Semiconductor | |||||||
| 7.37% 12/1/13 | 1,047,362 | 980,320 | |||||
| General Motors | |||||||
| 7.745% 11/17/13 | 496,250 | 469,810 | |||||
| Goodyear Tire & Rubber | |||||||
| 7.47% 4/30/14 | 550,000 | 517,000 | |||||
| HCA 7.12% 11/18/13 | 1,170,000 | 1,124,563 | |||||
| Idearc 7.35% 11/1/14 | 299,246 | 286,965 | |||||
| Jarden 7.67% 1/24/12 | 683,244 | 656,768 | |||||
| MacDermid 7.45% 4/12/14 | 511,003 | 500,783 | |||||
| Michaels Stores | |||||||
| 7.625% 10/11/13 | 1,267,720 | 1,167,494 | |||||
| NE Energy 7.87% 11/1/13 | 245,528 | 233,099 | |||||
| Selector Remedy | |||||||
| 8.36% 7/31/14 | 1,000,000 | 880,000 | |||||
| Spirit Finance 8.36% 5/23/13 | 550,000 | 488,584 | |||||
| Surgical Care Affiliates | |||||||
| 8.31% 12/29/14 | 498,750 | 458,850 | |||||
| Talecris Biotherapeutics 2nd Lien | |||||||
| 11.85% 12/6/14 | 780,000 | 776,100 | |||||
| Telesat Canada 9.00% 2/14/08 | 1,500,000 | 1,455,000 | |||||
| Time Warner Telecom Holdings | |||||||
| 7.62% 1/7/13 | 645,000 | 620,813 | |||||
| Travelport 8.13% 8/1/13 | 632,446 | 602,142 | |||||
| Tribune 8.698% 5/30/14 | 375,000 | 327,000 | |||||
| Univision Communications | |||||||
| 7.60% 9/15/14 | 1,350,000 | 1,244,410 | |||||
| US Airways Group | |||||||
| 8.05% 3/23/14 | 225,000 | 210,468 | |||||
| USI Holdings 8.11% 5/4/14 | 997,500 | 951,366 | |||||
| Venetian Macau | |||||||
| 7.10% 5/26/13 | 1,500,000 | 1,440,000 | |||||
| Windstream Term Loan B | |||||||
| 8.36% 7/17/13 | 1,995,000 | 1,955,928 | |||||
| Total Senior Secured Loans | |||||||
| (cost $33,676,158) | 32,440,462 | ||||||
| ¹Discount Note – 3.24% | |||||||
| Federal Home Loan Bank | |||||||
| 3.801% 12/3/07 | 30,571,648 | 30,565,194 | |||||
| Total Discount Note | |||||||
| (cost $30,565,194) | 30,565,194 | ||||||
| Total Value of Securities Before | |||||||
| ��Securities Lending Collateral – 98.55% | |||||||
| (cost $933,409,746) | 929,536,712 | ||||||
| Number of | |||||||
| Shares | |||||||
| Securities Lending Collateral** – 12.57% | |||||||
| Investment Companies | |||||||
| Mellon GSL DBT II | |||||||
| Collateral Fund | 118,532,455 | 118,532,455 | |||||
| Total Securities Lending Collateral | |||||||
| (cost $118,532,455) | 118,532,455 | ||||||
| Total Value of Securities – 111.12% | |||||||
| (cost $1,051,942,201) | 1,048,069,167 | © | |||||
| Obligation to Return Securities | |||||||
| Lending Collateral** – (12.57%) | (118,532,455 | ) | |||||
| Receivables and Other Assets | |||||||
| Net of Liabilities – 1.45% | 13,704,721 | ||||||
| Net Assets Applicable to 78,426,520 | |||||||
| Shares Outstanding – 100.00% | $ | 943,241,433 | |||||
| Net Asset Value – Delaware Dividend Income Fund | |||||||
| Class A ($450,619,791 / 37,460,221 Shares) | $12.03 | ||||||
| Net Asset Value – Delaware Dividend Income Fund | |||||||
| Class B ($78,234,993 / 6,507,355 Shares) | $12.02 | ||||||
| Net Asset Value – Delaware Dividend Income Fund | |||||||
| Class C ($402,782,001 / 33,494,247 Shares) | $12.03 | ||||||
| Net Asset Value – Delaware Dividend Income Fund | |||||||
| Class R ($6,220,247 / 517,343 Shares) | $12.02 | ||||||
| Net Asset Value – Delaware Dividend Income Fund | |||||||
| Institutional Class ($5,384,401 / 447,354 Shares) | $12.04 | ||||||
| Components of Net Assets at November 30, 2007: | |||||||
| Shares of beneficial interest | |||||||
| (unlimited authorization – no par) | $925,408,861 | ||||||
| Undistributed net investment income | 7,228,971 | ||||||
| Accumulated net realized gain on investments | 14,476,635 | ||||||
| Net unrealized depreciation of investments | (3,873,034 | ) | |||||
| Total net assets | $943,241,433 | ||||||
| † | Non-income producing security for the year ended November 30, 2007. |
| ‡ | Non-income producing security. Security is currently in default. |
| · | Variable rate security. The rate shown is the rate as of November 30, 2007. |
| ¹ | The rate shown is the effective yield at the time of purchase. |
| ¶ | Step coupon bond. Indicates security that has a zero coupon that remains in effect until a predetermined date at which time the stated interest rate becomes effective. |
| w | Pass Through Agreement. Security represents the contractual right to receive a proportionate amount of underlying payments due to the counterparty pursuant to various agreements related to the rescheduling of obligations and the exchange of certain notes. |
| Õ | Restricted Security. Investment in a security not registered under the Securities Act of 1933, as amended. This security has certain restrictions on resale which may limit its liquidity. At November 30, 2007, the aggregate amount of the restricted security equaled $692,640, which represented 0.07% of the Fund’s net assets. See Note 10 in “Notes to financial statements.” |
(continues) 17
Statement of net assets
Delaware Dividend Income Fund
# | Security exempt from registration under Rule 144A of the Securities Act of 1933, as amended. At November 30, 2007, the aggregate amount of Rule 144A securities equaled $74,658,445, which represented 7.92% of the Fund’s net assets. See Note 10 in “Notes to financial statements.” |
« | Senior Secured Loans generally pay interest at rates which are periodically redetermined by reference to a base lending rate plus a premium. These base lending rates are generally: (i) the prime rate offered by one or more United States banks, (ii) the lending rate offered by one or more European banks such as the London Inter-Bank Offered Rate (LIBOR), and (iii) the certificate of deposit rate. Senior Secured Loans may be subject to restrictions on resale. |
@ | Illiquid security. At November 30, 2007, the aggregate amount of illiquid securities equaled $1,152,740, which represented 0.12% of the Fund’s net assets. See Note 10 in “Notes to financial statements.” |
= | Security is being fair valued in accordance with the Fund’s fair valuation policy. At November 30, 2007, the aggregate amount of fair valued securities equaled $692,640, which represented 0.07% of the Fund’s net assets. See Note 1 in “Notes to financial statements.” |
* | Fully or partially on loan. |
** | See Note 9 in “Notes to financial statements.” |
| © | Includes $115,005,495 of securities loaned. |
Summary of Abbreviations:
ADR — American Depositary Receipts
PIK — Pay-in-kind
REIT — Real Estate Investment Trust
| Net Asset Value and Offering Price Per Share – | |
| Delaware Dividend Income Fund | |
| Net asset value Class A (A) | $12.03 |
| Sales charge (5.75% of offering price) (B) | 0.73 |
| Offering price | $12.76 |
(A) | Net asset value per share, as illustrated, is the amount which would be paid upon redemption or repurchase of shares. |
(B) | See the current prospectus for purchases of $50,000 or more. |
See accompanying notes
18
Statement of operations
Delaware Dividend Income Fund
Year Ended November 30, 2007
| Investment Income: | ||||||
| Dividends | $ | 19,973,289 | ||||
| Interest | 24,450,165 | |||||
| Security lending | 216,536 | $ | 44,639,990 | |||
| Expenses: | ||||||
| Management fees | 6,066,049 | |||||
| Distribution expenses – Class A | 1,469,460 | |||||
| Distribution expenses – Class B | 858,147 | |||||
| Distribution expenses – Class C | 3,883,005 | |||||
| Distribution expenses – Class R | 37,148 | |||||
| Dividend disbursing and transfer agent fees and expenses | 1,429,843 | |||||
| Accounting and administration expenses | 388,508 | |||||
| Reports and statements to shareholders | 167,932 | |||||
| Legal fees | 120,676 | |||||
| Audit and taxes | 69,605 | |||||
| Registration fees | 59,645 | |||||
| Trustees’ fees and benefits | 45,817 | |||||
| Insurance fees | 25,986 | |||||
| Custodian fees | 16,099 | |||||
| Consulting fees | 15,612 | |||||
| Pricing fees | 11,520 | |||||
| Trustees’ expenses | 5,029 | |||||
| Dues and services | 4,469 | |||||
| Taxes (other than taxes on income) | 3,734 | 14,678,284 | ||||
| Less expenses absorbed or waived | (1,128,053 | ) | ||||
| Less waived distribution expenses – Class A | (243,619 | ) | ||||
| Less waived distribution expenses – Class R | (6,156 | ) | ||||
| Less expense paid indirectly | (9,350 | ) | ||||
| Total operating expenses | 13,291,106 | |||||
| Net Investment Income | 31,348,884 | |||||
| Net Realized and Unrealized Gain (Loss) on Investments: | ||||||
| Net realized gain (loss) on: | ||||||
| Investments | 30,838,554 | |||||
| Swap contracts | (50,053 | ) | ||||
| Net realized gain | 30,788,501 | |||||
| Net change in unrealized appreciation/depreciation of investments | (83,487,127 | ) | ||||
| Net Realized and Unrealized Loss on Investments | (52,698,626 | ) | ||||
| Net Decrease in Net Assets Resulting from Operations | $ | (21,349,742 | ) | |||
See accompanying notes
19
Statements of changes in net assets
Delaware Dividend Income Fund
| Year Ended | |||||||
| 11/30/07 | 11/30/06 | ||||||
| Increase (Decrease) in Net Assets from Operations: | |||||||
| Net investment income | $ | 31,348,884 | $ | 19,552,268 | |||
| Net realized gain on investments | 30,788,501 | 7,715,241 | |||||
| Net change in unrealized appreciation/depreciation of investments | (83,487,127 | ) | 74,465,702 | ||||
| Net increase (decrease) in net assets resulting from operations | (21,349,742 | ) | 101,733,211 | ||||
| Dividends and Distributions to shareholders from: | |||||||
| Net investment income: | |||||||
| Class A | (16,059,869 | ) | (12,346,220 | ) | |||
| Class B | (2,196,802 | ) | (2,012,242 | ) | |||
| Class C | (9,685,778 | ) | (6,099,994 | ) | |||
| Class R | (195,835 | ) | (102,054 | ) | |||
| Institutional Class | (167,153 | ) | (51,228 | ) | |||
| Net realized gain on investments: | |||||||
| Class A | (1,953,956 | ) | (1,682,444 | ) | |||
| Class B | (378,723 | ) | (342,772 | ) | |||
| Class C | (1,353,820 | ) | (981,242 | ) | |||
| Class R | (26,721 | ) | (8,517 | ) | |||
| Institutional Class | (13,824 | ) | (5,576 | ) | |||
| (32,032,481 | ) | (23,632,289 | ) | ||||
| Capital Share Transactions: | |||||||
| Proceeds from shares sold: | |||||||
| Class A | 251,940,325 | 133,284,524 | |||||
| Class B | 19,193,290 | 21,478,794 | |||||
| Class C | 217,432,584 | 105,550,977 | |||||
| Class R | 7,282,256 | 2,559,798 | |||||
| Institutional Class | 6,330,417 | 1,573,726 | |||||
| Net asset value of shares issued upon reinvestment of dividends and distributions: | |||||||
| Class A | 13,895,633 | 10,288,514 | |||||
| Class B | 2,123,967 | 1,934,390 | |||||
| Class C | 9,394,214 | 5,828,929 | |||||
| Class R | 222,556 | 110,569 | |||||
| Institutional Class | 148,975 | 52,127 | |||||
| 527,964,217 | 282,662,348 | ||||||
| Cost of shares repurchased: | |||||||
| Class A | (188,208,309 | ) | (72,655,974 | ) | |||
| Class B | (16,879,537 | ) | (11,934,293 | ) | |||
| Class C | (69,641,978 | ) | (34,751,604 | ) | |||
| Class R | (5,325,318 | ) | (307,016 | ) | |||
| Institutional Class | (3,371,741 | ) | (123,737 | ) | |||
| (283,426,883 | ) | (119,772,624 | ) | ||||
| Increase in net assets derived from capital share transactions | 244,537,334 | 162,889,724 | |||||
| Net Increase in Net Assets | 191,155,111 | 240,990,646 | |||||
| Net Assets: | |||||||
| Beginning of year | 752,086,322 | 511,095,676 | |||||
| End of year (including undistributed net investment | |||||||
| income of $7,228,971 and $3,893,574, respectively) | $ | 943,241,433 | $ | 752,086,322 | |||
See accompanying notes
20
Financial highlights
Delaware Dividend Income Fund Class A
Selected data for each share of the Fund outstanding throughout each period were as follows:
| Year Ended | ||||||||||||||
| 11/30/07 | 11/30/06 | 11/30/05 | 11/30/04 | 11/30/03 | ||||||||||
| Net asset value, beginning of period | $12.590 | $11.140 | $11.050 | $10.210 | $ 9.030 | |||||||||
| Income (loss) from investment operations: | ||||||||||||||
| Net investment income1 | 0.456 | 0.422 | 0.450 | 0.345 | 0.450 | |||||||||
| Net realized and unrealized gain (loss) on investments | (0.529 | ) | 1.551 | 0.081 | 0.891 | 1.213 | ||||||||
| Total from investment operations | (0.073 | ) | 1.973 | 0.531 | 1.236 | 1.663 | ||||||||
| Less dividends and distributions from: | ||||||||||||||
| Net investment income | (0.426 | ) | (0.457 | ) | (0.360 | ) | (0.362 | ) | (0.483 | ) | ||||
| Net realized gain on investments | (0.061 | ) | (0.066 | ) | (0.081 | ) | (0.034 | ) | — | |||||
| Total dividends and distributions | (0.487 | ) | (0.523 | ) | (0.441 | ) | (0.396 | ) | (0.483 | ) | ||||
| Net asset value, end of period | $12.030 | $12.590 | $11.140 | $11.050 | $10.210 | |||||||||
| Total return2 | (0.72% | ) | 18.34% | 4.89% | 12.38% | 19.45% | ||||||||
| Ratios and supplemental data: | ||||||||||||||
| Net assets, end of period (000 omitted) | $450,620 | $398,124 | $285,159 | $105,253 | $5,821 | |||||||||
| Ratio of expenses to average net assets | 1.00% | 1.01% | 1.00% | 1.00% | 0.79% | |||||||||
| Ratio of expenses to average net assets | ||||||||||||||
| prior to expense limitation and expense paid indirectly | 1.17% | 1.23% | 1.27% | 1.32% | 2.05% | |||||||||
| Ratio of net investment income to average net assets | 3.60% | 3.64% | 4.05% | 3.26% | 4.69% | |||||||||
| Ratio of net investment income to average net assets | ||||||||||||||
| prior to expense limitation and expense paid indirectly | 3.43% | 3.42% | 3.78% | 2.94% | 3.43% | |||||||||
| Portfolio turnover | 52% | 51% | 85% | 95% | 212% | |||||||||
1 The average shares outstanding method has been applied for per share information. |
2 Total investment return is based on the change in net asset value of a share during the period and assumes reinvestment of dividends and distributions at net asset value and does not reflect the impact of a sales charge. Total investment return reflects waivers and payment of fees by the manager and distributor. Performance would have been lower had the expense limitation not been in effect. |
See accompanying notes
(continues) 21
Financial highlights
Delaware Dividend Income Fund Class B
Selected data for each share of the Fund outstanding throughout each period were as follows:
| 10/1/03 | 1 | |||||||||||||
| Year Ended | to | |||||||||||||
| 11/30/07 | 11/30/06 | 11/30/05 | 11/30/04 | 11/30/03 | ||||||||||
| Net asset value, beginning of period | $12.580 | $11.130 | $11.040 | $10.200 | $ 9.950 | |||||||||
| Income (loss) from investment operations: | ||||||||||||||
| Net investment income2 | 0.360 | 0.335 | 0.367 | 0.267 | 0.051 | |||||||||
| Net realized and unrealized gain (loss) on investments | (0.528 | ) | 1.552 | 0.079 | 0.889 | 0.199 | ||||||||
| Total from investment operations | (0.168 | ) | 1.887 | 0.446 | 1.156 | 0.250 | ||||||||
| Less dividends and distributions from: | ||||||||||||||
| Net investment income | (0.331 | ) | (0.371 | ) | (0.275 | ) | (0.282 | ) | — | |||||
| Net realized gain on investments | (0.061 | ) | (0.066 | ) | (0.081 | ) | (0.034 | ) | — | |||||
| Total dividends and distributions | (0.392 | ) | (0.437 | ) | (0.356 | ) | (0.316 | ) | — | |||||
| Net asset value, end of period | $12.020 | $12.580 | $11.130 | $11.040 | $10.200 | |||||||||
| Total return3 | (1.38% | ) | 17.46% | 4.09% | 11.54% | 2.51% | ||||||||
| Ratios and supplemental data: | ||||||||||||||
| Net assets, end of period (000 omitted) | $78,235 | $77,757 | $57,904 | $32,165 | $2,125 | |||||||||
| Ratio of expenses to average net assets | 1.75% | 1.76% | 1.75% | 1.75% | 1.75% | |||||||||
| Ratio of expenses to average net assets | ||||||||||||||
| prior to expense limitation and expense paid indirectly | 1.87% | 1.93% | 1.97% | 2.02% | 4.10% | |||||||||
| Ratio of net investment income to average net assets | 2.85% | 2.89% | 3.30% | 2.51% | 3.65% | |||||||||
| Ratio of net investment income to average net assets | ||||||||||||||
| prior to expense limitation and expense paid indirectly | 2.73% | 2.72% | 3.08% | 2.25% | 1.30% | |||||||||
| Portfolio turnover | 52% | 51% | 85% | 95% | 212% | 4 | ||||||||
1 Date of commencement of operations; ratios have been annualized and total return has not been annualized. |
2 The average shares outstanding method has been applied for per share information. |
3 Total investment return is based on the change in net asset value of a share during the period and assumes reinvestment of dividends and distributions at net asset value and does not reflect the impact of a sales charge. Total investment return reflects waivers and payment of fees by the manager. Performance would have been lower had the expense limitation not been in effect. |
4 Portfolio turnover is representative of the Fund for the entire year. |
See accompanying notes
22
Delaware Dividend Income Fund Class C
Selected data for each share of the Fund outstanding throughout each period were as follows:
| 10/1/03 | 1 | |||||||||||||
| Year Ended | to | |||||||||||||
| 11/30/07 | 11/30/06 | 11/30/05 | 11/30/04 | 11/30/03 | ||||||||||
| Net asset value, beginning of period | $12.580 | $11.130 | $11.040 | $10.200 | $ 9.950 | |||||||||
| Income (loss) from investment operations: | ||||||||||||||
| Net investment income2 | 0.360 | 0.335 | 0.367 | 0.267 | 0.051 | |||||||||
| Net realized and unrealized gain (loss) on investments | (0.518 | ) | 1.552 | 0.079 | 0.889 | 0.199 | ||||||||
| Total from investment operations | (0.158 | ) | 1.887 | 0.446 | 1.156 | 0.250 | ||||||||
| Less dividends and distributions from: | ||||||||||||||
| Net investment income | (0.331 | ) | (0.371 | ) | (0.275 | ) | (0.282 | ) | — | |||||
| Net realized gain on investments | (0.061 | ) | (0.066 | ) | (0.081 | ) | (0.034 | ) | — | |||||
| Total dividends and distributions | (0.392 | ) | (0.437 | ) | (0.356 | ) | (0.316 | ) | — | |||||
| Net asset value, end of period | $12.030 | $12.580 | $11.130 | $11.040 | $10.200 | |||||||||
| Total return3 | (1.38% | ) | 17.46% | 4.09% | 11.53% | 2.51% | ||||||||
| Ratios and supplemental data: | ||||||||||||||
| Net assets, end of period (000 omitted) | $402,782 | $269,274 | $165,663 | $82,083 | $4,341 | |||||||||
| Ratio of expenses to average net assets | 1.75% | 1.76% | 1.75% | 1.75% | 1.75% | |||||||||
| Ratio of expenses to average net assets | ||||||||||||||
| prior to expense limitation and expense paid indirectly | 1.87% | 1.93% | 1.97% | 2.02% | 4.10% | |||||||||
| Ratio of net investment income to average net assets | 2.85% | 2.89% | 3.30% | 2.52% | 3.65% | |||||||||
| Ratio of net investment income to average net assets | ||||||||||||||
| prior to expense limitation and expense paid indirectly | 2.73% | 2.72% | 3.08% | 2.25% | 1.30% | |||||||||
| Portfolio turnover | 52% | 51% | 85% | 95% | 212% | 4 | ||||||||
1 Date of commencement of operations; ratios have been annualized and total return has not been annualized. |
2 The average shares outstanding method has been applied for per share information. |
3 Total investment return is based on the change in net asset value of a share during the period and assumes reinvestment of dividends and distributions at net asset value and does not reflect the impact of a sales charge. Total investment return reflects waivers and payment of fees by the manager. Performance would have been lower had the expense limitation not been in effect. |
4 Portfolio turnover is representative of the Fund for the entire year. |
See accompanying notes
(continues) 23
Financial highlights
Delaware Dividend Income Fund Class R
Selected data for each share of the Fund outstanding throughout each period were as follows:
| 10/1/03 | 1 | |||||||||||||
| Year Ended | to | |||||||||||||
| 11/30/07 | 11/30/06 | 11/30/05 | 11/30/04 | 11/30/03 | ||||||||||
| Net asset value, beginning of period | $12.580 | $11.130 | $11.040 | $10.220 | $ 9.950 | |||||||||
| Income (loss) from investment operations: | ||||||||||||||
| Net investment income2 | 0.424 | 0.394 | 0.416 | 0.308 | 0.056 | |||||||||
| Net realized and unrealized gain (loss) on investments | (0.528 | ) | 1.551 | 0.078 | 0.879 | 0.214 | ||||||||
| Total from investment operations | (0.104 | ) | 1.945 | 0.494 | 1.187 | 0.270 | ||||||||
| Less dividends and distributions from: | ||||||||||||||
| Net investment income | (0.395 | ) | (0.429 | ) | (0.323 | ) | (0.333 | ) | — | |||||
| Net realized gain on investments | (0.061 | ) | (0.066 | ) | (0.081 | ) | (0.034 | ) | — | |||||
| Total dividends and distributions | (0.456 | ) | (0.495 | ) | (0.404 | ) | (0.367 | ) | — | |||||
| Net asset value, end of period | $12.020 | $12.580 | $11.130 | $11.040 | $10.220 | |||||||||
| Total return3 | (0.88% | ) | 18.06% | 4.55% | 11.86% | 2.71% | ||||||||
| Ratios and supplemental data: | ||||||||||||||
| Net assets, end of period (000 omitted) | $6,220 | $4,275 | $1,429 | $373 | $3 | |||||||||
| Ratio of expenses to average net assets | 1.25% | 1.26% | 1.30% | 1.35% | 1.35% | |||||||||
| Ratio of expenses to average net assets | ||||||||||||||
| prior to expense limitation and expense paid indirectly | 1.47% | 1.53% | 1.57% | 1.62% | 3.70% | |||||||||
| Ratio of net investment income to average net assets | 3.35% | 3.39% | 3.75% | 2.89% | 4.05% | |||||||||
| Ratio of net investment income to average net assets | ||||||||||||||
| prior to expense limitation and expense paid indirectly | 3.13% | 3.12% | 3.48% | 2.62% | 1.70% | |||||||||
| Portfolio turnover | 52% | 51% | 85% | 95% | 212% | 4 | ||||||||
1 Date of commencement of operations; ratios have been annualized and total return has not been annualized. |
2 The average shares outstanding method has been applied for per share information. |
3 Total investment return is based on the change in net asset value of a share during the period and assumes reinvestment of dividends and distributions at net asset value. Total investment return reflects waivers and payment of fees by the manager and distributor. Performance would have been lower had the expense limitation not been in effect. |
4 Portfolio turnover is representative of the Fund for the entire year. |
See accompanying notes
24
Delaware Dividend Income Fund Institutional Class
Selected data for each share of the Fund outstanding throughout each period were as follows:
| Year Ended | ||||||||||||||
| 11/30/07 | 11/30/06 | 11/30/05 | 11/30/04 | 11/30/03 | ||||||||||
| Net asset value, beginning of period | $12.600 | $11.140 | $11.050 | $10.220 | $ 9.030 | |||||||||
| Income (loss) from investment operations: | ||||||||||||||
| Net investment income1 | 0.488 | 0.452 | 0.477 | 0.371 | 0.453 | |||||||||
| Net realized and unrealized gain (loss) on investments | (0.528 | ) | 1.559 | 0.082 | 0.882 | 1.220 | ||||||||
| Total from investment operations | (0.040 | ) | 2.011 | 0.559 | 1.253 | 1.673 | ||||||||
| Less dividends and distributions from: | ||||||||||||||
| Net investment income | (0.459 | ) | (0.485 | ) | (0.388 | ) | (0.389 | ) | (0.483 | ) | ||||
| Net realized gain on investments | (0.061 | ) | (0.066 | ) | (0.081 | ) | (0.034 | ) | — | |||||
| Total dividends and distributions | (0.520 | ) | (0.551 | ) | (0.469 | ) | (0.423 | ) | (0.483 | ) | ||||
| Net asset value, end of period | $12.040 | $12.600 | $11.140 | $11.050 | $10.220 | |||||||||
| Total return2 | (0.46% | ) | 18.72% | 5.16% | 12.55% | 19.56% | ||||||||
| Ratios and supplemental data: | ||||||||||||||
| Net assets, end of period (000 omitted) | $5,384 | $2,656 | $941 | $102 | $3,879 | |||||||||
| Ratio of expenses to average net assets | 0.75% | 0.76% | 0.75% | 0.75% | 0.75% | |||||||||
| Ratio of expenses to average net assets | ||||||||||||||
| prior to expense limitation and expense paid indirectly | 0.87% | 0.93% | 0.97% | 1.02% | 1.75% | |||||||||
| Ratio of net investment income to average net assets | 3.85% | 3.89% | 4.30% | 3.49% | 4.73% | |||||||||
| Ratio of net investment income to average net assets | ||||||||||||||
| prior to expense limitation and expense paid indirectly | 3.73% | 3.72% | 4.08% | 3.22% | 3.73% | |||||||||
| Portfolio turnover | 52% | 51% | 85% | 95% | 212% | |||||||||
1 The average shares outstanding method has been applied for per share information. |
2 Total investment return is based on the change in net asset value of a share during the period and assumes reinvestment of dividends and distributions at net asset value. Total investment return reflects waivers and payment of fees by the manager. Performance would have been lower had the expense limitation not been in effect. |
See accompanying notes
25
Notes to financial statements
Delaware Dividend Income Fund
November 30, 2007
Delaware Group Equity Funds V (Trust) is organized as a Delaware statutory trust and offers three series: Delaware Dividend Income Fund, Delaware Small Cap Core Fund and Delaware Small Cap Value Fund. These financial statements and the related notes pertain to Delaware Dividend Income 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 B, Class C, Class R and Institutional Class shares. Class A shares are sold with a front-end sales charge of up to 5.75%. Class A share purchases of $1,000,000 or more will incur a contingent deferred sales charge (CDSC) of 1% 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. Effective June 1, 2007, Class B shares may only be purchased through dividend reinvestment and certain permitted exchanges. Prior to June 1, 2007, Class B shares were sold with a CDSC that declined from 4% to zero depending upon the period of time the shares were held. Class B shares will automatically convert to Class A shares on a quarterly basis approximately eight years after purchase. Class C shares are sold with a CDSC of 1%, 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 to provide high current income and an investment that has the potential for capital appreciation.
1. Significant Accounting Policies
The following accounting policies are in accordance with U.S. generally accepted accounting principles and are consistently followed by the Fund.
Security Valuation — Equity securities, except those traded on the Nasdaq Stock Market, Inc. (Nasdaq), are valued at the last quoted sales price as of the time of the regular close of the New York Stock Exchange (NYSE) on the valuation date. Securities traded on the Nasdaq are valued in accordance with the Nasdaq Official Closing Price, which may not be the last sales price. If on a particular day an equity security does not trade, then the mean between the bid and asked prices will be used. Long-term debt securities, credit default swap contracts and interest rate swap contracts are valued by an independent pricing service or broker and such prices are believed to reflect the fair value of such securities. Short-term debt securities having less than 60 days to maturity are valued at amortized cost, which approximates market value. Securities lending collateral, which is invested in a collective investment vehicle, is valued at unit value per share. Generally, total return swap contracts, spread swap contracts and other securities and assets for which market quotations are not readily available are valued at fair value as determined in good faith under the direction of the Fund’s Board of Trustees. In determining whether market quotations are readily available or fair valuation will be used, various factors will be taken into consideration, such as market closures, or with respect to foreign securities, aftermarket trading or significant events after local market trading (e.g., government actions or pronouncements, trading volume or volatility on markets, exchanges among dealers, or news events).
In September 2006, the Financial Accounting Standards Board (FASB) issued FASB Statement No. 157 “Fair Value Measurements” (Statement 157). Statement 157 establishes a framework for measuring fair value in generally accepted accounting principles, clarifies the definition of fair value within that framework, and expands disclosures about the use of fair value measurements. Statement 157 is intended to increase consistency and comparability among fair value estimates used in financial reporting. Statement 157 is effective for fiscal years beginning after November 15, 2007. Management does not expect the adoption of Statement 157 to have a material impact on the amounts reported in the financial statements.
Federal Income Taxes — 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. Accordingly, no provision for federal income taxes has been made in the financial statements.
On July 13 2006, the FASB released FASB Interpretation No. 48 “Accounting for Uncertainty in Income Taxes” (FIN 48). FIN 48 provides guidance for how uncertain tax positions should be recognized, measured, presented, and disclosed in the financial statements. FIN 48 requires the evaluation of tax positions taken or expected to be taken in the course of preparing the 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 would be recorded as a tax benefit or expense in the current year. Adoption of FIN 48 is required for fiscal years beginning after December 15, 2006 and is to be applied to all open tax years as of the effective date. Securities and Exchange Commission (SEC) guidance allows implementing FIN 48 in fund net asset value calculations as late as the fund’s last net asset value calculation in the first required financial statement reporting period. As a result, the Fund will incorporate FIN 48 in its semiannual report on May 31, 2008. Although the Fund’s tax positions are currently being evaluated, management does not expect the adoption of FIN 48 to have a material impact on the Fund’s financial statements.
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 invest in a pooled cash account along with other members of the Delaware Investments® Family of Funds pursuant to an exemptive order issued by the SEC. The aggregate daily balance of the pooled cash account is invested in repurchase agreements secured by obligations of the U.S. government. The respective collateral is held by the Fund’s custodian bank until the maturity of the respective repurchase agreements. Each repurchase agreement is at least 102% collateralized. However, in the event of default or bankruptcy by the counterparty to the agreement, realization of the collateral may be subject to legal proceedings. At November 30, 2007, the Fund held no investments in repurchase agreements.
Use of Estimates — The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
26
1. Significant Accounting Policies (continued)
Other — Expenses directly attributable to the Fund are charged directly to the Fund. Other expenses common to various funds within the Delaware Investments® Family of Funds are generally allocated amongst such funds on the basis of average net assets. Management fees and some other expenses are paid monthly. Security transactions are recorded on the date the securities are purchased or sold (trade date) for financial reporting purposes. Costs used in calculating realized gains and losses on the sale of investment securities are those of the specific securities sold. Dividend income is recorded on the ex-dividend date and interest income is recorded on the accrual basis. Discounts and premiums on non-convertible bonds are amortized to interest income over the lives of the respective securities. Distributions received from investments in Real Estate Investment Trusts (REITs) are recorded as dividend income on ex-dividend date, subject to reclassification upon notice of the character of such distribution by the issuer. The financial statements reflect an estimate of the reclassification of the distribution character. The Fund declares and pays dividends from net investment income quarterly and distributions from net realized gains on investments, if any, annually.
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. Such commission rebates are included in realized gain on investments in the accompanying financial statements and totaled $12,025 for the year ended November 30, 2007. In general, best execution refers to many factors, including the price paid or received for a security, the commission charged, the promptness and reliability of execution, the confidentiality and placement accorded the order, and other factors affecting the overall benefit obtained by the Fund on the transaction.
The Fund receives earnings credits from its custodian when positive cash balances are maintained, which are used to offset custody fees. The expense paid under this arrangement is included in custodian fees on the Statement of operations with the corresponding expense offset shown as “expense paid indirectly.”
2. Investment Management, Administration Agreements and Other Transactions with Affiliates
In accordance with the terms of its investment management agreement, the Fund pays Delaware Management Company (DMC), a series of Delaware Management Business Trust and the investment manager, an annual fee which is calculated daily at the rate of 0.65% on the first $500 million of average daily net assets of the Fund, 0.60% on the next $500 million, 0.55% on the next $1.5 billion, and 0.50% on average daily net assets in excess of $2.5 billion.
DMC has contractually agreed to waive that portion, if any, of its management fees and reimburse the Fund to the extent necessary to ensure that annual operating expenses, exclusive of taxes, interest, brokerage fees, inverse floater program expenses, 12b-1 plan expenses, certain insurance costs and non-routine expenses or costs including but not limited to those relating to reorganizations, litigation, conducting shareholder meetings, and liquidations, do not exceed 0.75% of average daily net assets through March 31, 2008.
Effective October 1, 2007, Delaware Service Company, Inc. (DSC), an affiliate of DMC, provides fund accounting and financial administration oversight services to the Fund. For these services, the Fund pays DSC fees based on the aggregate daily net assets of the Delaware Investments® Family of Funds at the following annual rate: 0.0050% of the first $30 billion; 0.0045% of the next $10 billion; 0.0040% of the next $10 billion; and 0.0025% of aggregate average daily net assets in excess of $50 billion. The fees payable to DSC under the service agreement described above are allocated among all Funds in the Delaware Investments® Family of Funds on a relative net asset value basis. Prior to October 1, 2007, DSC provided fund accounting and administrative services to the Fund and received a fee at an annual rate of 0.04% of average daily net assets. For the year ended November 30, 2007, the Fund was charged $330,581 for these services.
DSC also provides dividend disbursing and transfer agency services. The Fund pays DSC a monthly fee based on the number of shareholder accounts for dividend disbursing and transfer agent services.
Pursuant to a distribution agreement and distribution plan, the Fund pays DDLP, the distributor and an affiliate of DMC, an annual distribution and service fee not to exceed 0.30% of the average daily net assets of the Class A shares, 1.00% of the average daily net assets of the Class B and C shares and 0.60% of the average daily net assets of Class R shares. Institutional Class shares pay no distribution and service expenses. DDLP has contracted to limit distribution and service fees through March 31, 2008 in order to prevent distribution and service fees of Class A and Class R shares from exceeding 0.25% and 0.50%, respectively, of average daily net assets.
At November 30, 2007, the Fund had liabilities payable to affiliates as follows:
| Investment management fee payable to DMC | $348,154 |
| Dividend disbursing, transfer agent fees | |
| and other expenses payable to DSC | 135,061 |
| Distribution fees payable to DDLP | 494,874 |
| Other expenses payable to DMC and affiliates* | 51,258 |
| * | DMC, as part of its administrative services, pays operating expenses on behalf of the Fund and is reimbursed on a periodic basis. Such expenses include items such as printing of shareholder reports, fees for audit, legal and tax services, registration fees and trustees’ fees. |
As provided in the investment management agreement, the Fund bears the cost of certain legal and tax services, including internal legal and tax services provided to the Fund by DMC and/or its affiliates’ employees. For the year ended November 30, 2007, the Fund was charged $50,761 for internal legal and tax services provided by DMC and/or its affiliates’ employees.
For the year ended November 30, 2007, DDLP earned $552,545 for commissions on sales of the Fund’s Class A shares. For the year ended November 30, 2007, DDLP received gross CDSC commissions of $397, $125,564 and $63,715 on redemption of the Fund’s Class A, Class B and Class C shares, respectively, and these commissions were entirely used to offset up-front commissions previously paid by DDLP to broker-dealers on sales of those shares.
Trustees’ fees and benefits include expenses accrued by the Fund for each Trustees’ retainer and per meeting fees. Certain officers of DMC, DSC and DDLP are officers and/or Trustees of the Trust. These officers and Trustees are paid no compensation by the Fund.
(continues) 27
Notes to financial statements
Delaware Dividend Income Fund
3. Investments
For the year ended November 30, 2007, the Fund made purchases of $709,120,955 and sales of $470,651,574 of investment securities other than short-term investments.
At November 30, 2007, the cost of investments for federal income tax purposes was $1,052,047,283. At November 30, 2007, the net unrealized depreciation was $3,978,116, of which $65,959,196 related to unrealized appreciation of investments and $69,937,312 related to unrealized depreciation of investments.
4. Dividend and Distribution Information
Income and long-term capital gain distributions are determined in accordance with federal income tax regulations, which may differ from U.S. generally accepted accounting principles. Additionally, net short-term gains on sales of investment securities are treated as ordinary income for federal income tax purposes. The tax character of dividends and distributions paid during the years ended November 30, 2007 and 2006 was as follows:
| Year Ended | |||
| 11/30/07 | 11/30/06 | ||
| Ordinary income | $28,305,437 | $21,284,131 | |
| Long-term capital gain | 3,727,044 | 2,348,158 | |
| Total | $32,032,481 | $23,632,289 | |
5. Components of Net Assets on a Tax Basis
As of November 30, 2007, the components of net assets on a tax basis were as follows:
| Shares of beneficial interest | $925,408,861 | |
| Undistributed ordinary income | 9,455,136 | |
| Undistributed long-term capital gain | 25,820,971 | |
| Capital loss carryforwards as of 11/30/07* | (11,239,254 | ) |
| Other temporary differences | (2,226,165 | ) |
| Unrealized depreciation of investments | (3,978,116 | ) |
| Net assets | $943,241,433 | |
| *The amount of this loss which can be utilized in subsequent years is subject to an annual limitation in accordance with the Internal Revenue Code due to the Fund merger with the Lincoln National Convertible Securities Fund in 2005. | ||
The differences between book basis and tax basis components of net assets are primarily attributable to tax deferral of losses on wash sales, passive foreign investment companies (PFICS), tax treatment of market discount and premium on debt instruments, and contingent payment debt instruments.
The undistributed earnings for the Delaware Dividend Income Fund are estimated pending final notification of the tax character of distributions received from investments in REITs.
For financial reporting purposes, capital accounts are adjusted to reflect the tax character of permanent book/tax differences. Reclassifications are primarily due to, credit default swaps (CDS) contracts, PFICS, and market discount and premium on certain debt instruments. Results of operations and net assets were not affected by these reclassifications. For the year ended November 30, 2007, the Fund recorded the following reclassifications:
| Undistributed net investment income | $ 291,950 | |
| Accumulated net realized gain | (291,950 | ) |
For federal income tax purposes, capital loss carryforwards may be carried forward and applied against future capital gains. The Fund utilized $3,746,418 in 2007. Capital loss carryforwards remaining at November 30, 2007 will expire as follows: $3,174,810 expires in 2009 and $8,064,444 expires in 2010. The use of these losses are subject to an annual limitation in accordance with the Internal Revenue Code.
6. Capital Shares
Transactions in capital shares were as follows:
| Year Ended | |||||
| 11/30/07 | 11/30/06 | ||||
| Shares sold: | |||||
| Class A | 19,661,015 | 11,418,053 | |||
| Class B | 1,495,433 | 1,845,212 | |||
| Class C | 16,931,359 | 9,016,333 | |||
| Class R | 578,113 | 228,242 | |||
| Institutional Class | 491,799 | 132,589 | |||
| Shares issued upon reinvestment of | |||||
| dividends and distributions: | |||||
| Class A | 1,097,573 | 909,798 | |||
| Class B | 167,811 | 171,290 | |||
| Class C | 741,787 | 515,139 | |||
| Class R | 17,602 | 9,703 | |||
| Institutional Class | 11,771 | 4,596 | |||
| 41,194,263 | 24,250,955 | ||||
| Shares repurchased: | |||||
| Class A | (14,928,573 | ) | (6,305,076 | ) | |
| Class B | (1,336,512 | ) | (1,038,106 | ) | |
| Class C | (5,577,210 | ) | (3,013,453 | ) | |
| Class R | (418,141 | ) | (26,556 | ) | |
| Institutional Class | (267,061 | ) | (10,828 | ) | |
| (22,527,497 | ) | (10,394,019 | ) | ||
| Net increase | 18,666,766 | 13,856,936 | |||
For the years ended November 30, 2007 and 2006, 211,527 Class B shares were converted to 211,278 Class A shares valued at $2,703,112 and 136,491 Class B shares were converted to 136,372 Class A shares valued at $1,573,078, respectively. The respective amounts are included in Class B redemptions and Class A subscriptions in the table above and the Statements of changes in net assets.
28
7. Line of Credit
The Fund, along with certain other funds in the Delaware Investments® Family of Funds (Participants), participates in a $225,000,000 revolving line of credit facility to be used for temporary or emergency purposes as an additional source of liquidity to fund redemptions of investor shares. The Participants are charged an annual commitment fee, which is allocated across the Participants on the basis of each Participant’s allocation of the entire facility. The Participants may borrow up to a maximum of one third of their net assets under the agreement. The Fund had no amounts outstanding as of November 30, 2007, or at any time during the year then ended.
8. Swap Contracts
The Fund may enter into interest rate swap contracts, index swap contracts and credit default swap (CDS) contracts in accordance with its investment objectives. The Fund may use interest rate swaps to adjust the Fund’s sensitivity to interest rates or to hedge against changes in interest rates. Index swaps may be used to gain exposure to markets that the Fund invests in, such as the corporate bond market. The Fund may also use index swaps as a substitute for futures or options contracts if such contracts are not directly available to the Fund on favorable terms. The Fund may enter into CDS contracts in order to hedge against a credit event, to enhance total return or to gain exposure to certain securities or markets.
An interest rate swap involves payments received by the Fund from another party based on a variable or floating interest rate, in return for making payments based on a fixed interest rate. An interest rate swap can also work in reverse with the Fund receiving payments based on a fixed interest rate and making payments based on a variable or floating interest rate. Interest rate swaps may be used to adjust the Fund’s sensitivity to interest rates or to hedge against changes in interest rates. Periodic payments on such contracts are accrued daily and recorded as unrealized appreciation/depreciation on swap contracts. Upon periodic payment/receipt or termination of the contract, such amounts are recorded as realized gains or losses on swap contracts.
Index swaps involve commitments to pay interest in exchange for a market-linked return based on a notional amount. To the extent the total return of the security, instrument or basket of instruments underlying the transaction exceeds the offsetting interest obligation, the Fund will receive a payment from the counterparty. To the extent the total return of the security, instrument or basket of instruments underlying the transaction falls short of the offsetting interest obligation, the Fund will make a payment to the counterparty. The change in value of swap contracts outstanding, if any, is recorded as unrealized appreciation or depreciation daily. A realized gain or loss is recorded on maturity or termination of the swap contract.
A CDS contract is a risk-transfer instrument through which one party (purchaser of protection) transfers to another party (seller of protection) the financial risk of a credit event, as it relates to a particular reference security or basket of securities (such as an index). In exchange for the protection offered by the seller of protection, the purchaser of protection agrees to pay the seller of protection a periodic amount at a stated rate that is applied to the notional amount of the CDS contract. In addition, an upfront payment may be made or received by the Fund in connection with an unwinding or assignment of a CDS contract. Upon the occurrence of a credit event, the seller of protection would pay the par (or other agreed-upon) value of the referenced security (or basket of securities) to the counterparty.
During the year ended November 30, 2007, the Fund entered into CDS contracts as a purchaser and seller of protection. Periodic payments on such contracts are accrued daily and recorded as unrealized losses on swap contracts. Upon payment, such amounts are recorded as realized losses on swap contracts. Upfront payments made or received in connection with CDS contracts are amortized over the expected life of the CDS contracts as realized losses (gains) on swap contracts. The change in value of CDS contracts is recorded as unrealized appreciation or depreciation daily. A realized gain or loss is recorded upon a credit event (as defined in the CDS agreement) or the maturity or termination of the agreement.
Credit default swaps may involve greater risks than if the Fund had invested in the referenced obligation directly. Credit default swaps are subject to general market risk, liquidity risk, counterparty risk and credit risk. If the Fund enters into a CDS contract as a purchaser of protection and no credit event occurs, its exposure is limited to the periodic payments previously made to the counterparty.
Because there is no organized market for swap contracts, the value of open swaps may differ from that which would be realized in the event the Fund terminated its position in the agreement. Risks of entering into these contracts include the potential inability of the counterparty to meet the terms of the contracts. This type of risk is generally limited to the amount of favorable movements in the value of the underlying security, instrument, or basket of instruments, if any, at the day of default. Risks also arise from potential losses from adverse market movements and such losses could exceed the unrealized amounts shown on the Statements of net assets. There were no open swap contracts at November 30, 2007.
9. Securities Lending
The Fund, along with other funds in the Delaware Investments® Family of Funds, may lend its securities pursuant to a security lending agreement (Lending Agreement) with Mellon Bank, N.A. (Mellon). With respect to each loan, if the aggregate market value of the collateral held on any business day is less than the aggregate market value of the securities which are the subject of such loan, the borrower will be notified to provide additional collateral not less than the applicable collateral requirements. Cash collateral received is invested in a collective investment vehicle (Collective Trust) established by Mellon for the purpose of investment on behalf of clients participating in its securities lending programs. The Collective Trust invests in fixed income securities, with a weighted average maturity not to exceed 90 days, rated in one of the top two tiers by Standard & Poor’s Ratings Group or Moody’s Investors Service, Inc. or repurchase agreements collateralized by such securities. However, in the event of default or bankruptcy by the lending agent, realization and/or retention of the collateral may be subject to legal proceedings. In the event the borrower fails to return loaned securities and the collateral received is insufficient to cover the value of the loaned securities and provided such collateral shortfall is not the result of investment losses, the lending agent has agreed to pay the amount of the shortfall to the 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 change 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. The security lending agent and the borrower retain a portion of the earnings from the collateral investments. The Fund records security lending income net of such allocation.
(continues) 29
Notes to financial statements
Delaware Dividend Income Fund
9. Securities Lending (continued)
At November 30, 2007, the market value of securities on loan was $115,005,495, for which cash collateral was received and invested in accordance with the Lending Agreement. Such investments are presented on the Statement of net assets under the caption “Securities Lending Collateral.”
10. Credit and Market Risk
The Fund invests a portion of its assets in high yield fixed income securities, which carry ratings of BBB or lower by Standard & Poor’s Ratings Group and/or Baa or lower by Moody’s Investor Services, Inc. Investments in these higher yielding securities are generally accompanied by a greater degree of credit risk than higher rated securities. Additionally, lower rated securities may be more susceptible to adverse economic and competitive industry conditions than investment grade securities.
The Fund invests in REITs and is subject to some of 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 year ended November 30, 2007. 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 of the Securities Act of 1933, as amended, and other securities which may not be readily marketable. The relative illiquidity of these securities may impair the 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 of Trustees 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 assets. Illiquid and Rule 144A securities have been identified on the Statement of net assets.
11. 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.
12. Termination of New Share Purchases of Class B Shares
As of the close of business on May 31, 2007, each fund in the Delaware Investments® Family of Funds no longer accepts new or subsequent investments in Class B shares of the funds, other than a reinvestment of dividends or capital gains or permitted exchanges. Existing shareholders of Class B shares may continue to hold their Class B shares, reinvest dividends into Class B shares, and exchange their Class B shares of one Fund for Class B shares of another Fund, as permitted by existing exchange privileges. Existing Class B shareholders wishing to make subsequent purchases in a Fund’s shares will be permitted to invest in other classes of the Fund, subject to that class’ pricing structure and eligibility requirements, if any.
For Class B shares outstanding as of May 31, 2007 and Class B shares acquired upon reinvestment of dividends or capital gains, all Class B share attributes, including the CDSC schedules, conversion to Class A schedule, and distribution and service (12b-1) fees, will continue in their current form. However, as of the close of business on May 31, 2007, reinvestment of redeemed shares with respect to Class B shares (which, as described in the prospectus, permits you to reinvest within 12 months of selling your shares and have any CDSC you paid on such shares credited back to your account) has been discontinued. In addition, because a Fund’s or its distributor’s ability to assess certain sales charges and fees is dependent on the sale of new shares, the termination of new purchases of Class B shares could ultimately lead to the elimination and/or reduction of such sales charges and fees. A Fund may not be able to provide shareholders with advance notice of the reduction in these sales charges and fees. You will be notified via a Prospectus Supplement if there are any changes to any attributes, sales charges, or fees.
13. Change in Custodian
On August 2, 2007, Mellon Bank, One Mellon Center, Pittsburgh, PA 15285, became the Fund’s custodian. Prior to August 2, 2007, JPMorgan Chase served as the Fund’s custodian.
14. Tax Information (Unaudited)
The information set forth below is for the Fund’s fiscal year as required by federal laws. Shareholders, however, must report distributions on a calendar year basis for income tax purposes, which may include distributions for portions of two fiscal years of a fund. Accordingly, the information needed by shareholders for income tax purposes will be sent to them in January of each year. Please consult your tax advisor for proper treatment of this information.
For the fiscal year ended November 30, 2007, the Fund designates distributions paid during the year as follows:
| (A) | (B) | |||||
| Long-Term | Ordinary | |||||
| Capital Gain | Income | Total | (C) | |||
| Distributions | Distributions* | Distributions | Qualifying | |||
| (Tax Basis) | (Tax Basis) | (Tax Basis) | Dividends1 | |||
| 12% | 88% | 100% | 35% |
| (A) and (B) are based on a percentage of the Fund’s total distributions. |
| (C) is based on percentage of ordinary income distributions. |
| 1 Qualifying dividends represent dividends which qualify for the corporate dividends received reduction. |
| *For the fiscal year ended November 30, 2007, certain dividends paid by the Fund may be subject to a maximum tax rate of 15%, as provided for by the Jobs and Growth Tax Relief Reconciliation Act of 2003. The Fund intends to designate up to a maximum amount of $11,843,033 to be taxed at a maximum rate of 15%. Complete information will be computed and reported in conjunction with your 2007 Form 1099-DIV. |
For the fiscal year ended November 30, 2007, certain interest income paid by the Fund, determined to be Qualified Interest Income, may be subject to relief from U.S. withholding for foreign shareholders, as provided by the American Jobs Creation Act of 2004. For the fiscal year ended November 30, 2007, the Fund has designated maximum distributions of Qualified Interest Income of $17,492,338.
30
Report of independent
registered public accounting firm
To the Shareholders and Board of Trustees
Delaware Group Equity Funds V – Delaware Dividend Income Fund
We have audited the accompanying statement of net assets of Delaware Dividend Income Fund (one of the series constituting Delaware Group Equity Funds V) (the “Fund”) as of November 30, 2007, and the related statement of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended, and the financial highlights for each of the periods indicated therein. These financial statements and financial highlights are the responsibility of the Fund’s management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. We were not engaged to perform an audit of the Fund’s internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Fund’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements and financial highlights, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our procedures included confirmation of securities owned as of November 30, 2007, by correspondence with the custodian and brokers or by other appropriate auditing procedures where replies from brokers were not received. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of the Delaware Dividend Income Fund of Delaware Group Equity Funds V at November 30, 2007, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended, and its financial highlights for each of the periods indicated therein, in conformity with U.S. generally accepted accounting principles.
Philadelphia, Pennsylvania
January 22, 2008
31
Other Fund information (unaudited)
Delaware Dividend Income Fund
Fund management
Thomas H. Chow, CFA
Senior Vice President, Senior Portfolio Manager
Thomas H. Chow is a member of the firm’s taxable fixed income portfolio management team with primary responsibility for portfolio construction and strategic asset allocation. His experience includes significant exposure to asset liability management strategies and credit risk opportunities. Prior to joining Delaware Investments in 2001, he was a trader of high grade and high yield securities, and was involved in the portfolio management of collateralized bond obligations (CBOs) and insurance portfolios at SunAmerica/AIG from 1997 to 2001. Before that, he was an analyst, trader, and portfolio manager at Conseco Capital Management from 1989 to 1997. Chow received a bachelor’s degree in business analysis from Indiana University, and he is a Fellow of Life Management Institute.
Kevin P. Loome, CFA
Senior Vice President, Senior Portfolio Manager,
Head of High Yield Investments
Kevin P. Loome is head of the High Yield fixed income team, responsible for portfolio construction and strategic asset allocation of all high yield fixed income assets. Prior to joining Delaware Investments in August 2007, Loome spent 11 years at T. Rowe Price, starting as an analyst and leaving the firm as a portfolio manager. He began his career with Morgan Stanley as a corporate finance analyst in the New York and London offices. Loome received his bachelor’s degree in commerce from the University of Virginia and earned an MBA from the Tuck School of Business at Dartmouth.
Babak (Bob) Zenouzi
Senior Vice President, Senior Portfolio Manager
Bob Zenouzi is the lead manager for the domestic and global REIT effort at Delaware Investments, which includes the team, its process, and its institutional and retail products, which he created during his prior time with the firm. He also focuses on opportunities in Japan, Singapore, and Malaysia for the firm’s global REIT product. Additionally, he serves as lead portfolio manager for the firm’s Dividend Income products, which he helped to create in the 1990s. He rejoined Delaware Investments in May 2006. In his first term with the firm, he spent seven years as an analyst and portfolio manager, leaving in 1999 to work at Chartwell Investment Partners, where from 1999 to 2006 he was a partner and senior portfolio manager on Chartwell’s Small-Cap Value portfolio. He began his career with The Boston Company, where he held several positions in accounting and financial analysis. Zenouzi earned a master’s degree in finance from Boston College and a bachelor’s degree from Babson College. He is a member of the National Association of Real Estate Investment Trusts and the Urban Land Institute.
Damon J. Andres, CFA
Vice President, Senior Portfolio Manager
Damon J. Andres, who joined Delaware Investments in 1994, currently serves as a portfolio manager for REIT investments and convertibles. He also serves as a portfolio manager for the firm’s Dividend Income products. From 1991 to 1994, he performed investment-consulting services as a consulting associate with Cambridge Associates. Andres earned a bachelor’s degree in business administration with an emphasis in finance and accounting from the University of Richmond.
D. Tysen Nutt Jr.
Senior Vice President, Senior Portfolio Manager,
Team Leader — Large-Cap Value Focus Equity
D. Tysen Nutt Jr. joined Delaware Investments in 2004 as senior vice president and senior portfolio manager for the firm’s Large-Cap Value Focus strategy. Before joining the firm, Nutt led the U.S. Active Large-Cap Value team within Merrill Lynch Investment Managers (MLIM), where he managed mutual funds and separate accounts for institutions and private clients. He departed MLIM as a managing director. Prior to joining MLIM in 1994, Nutt was with Van Deventer & Hoch (V&H) where he managed large-cap value portfolios for institutions and private clients. He began his investment career at Dean Witter Reynolds, where he eventually became vice president, investments. Nutt earned his bachelor’s degree from Dartmouth College, and he is a member of the New York Society of Security Analysts and the CFA Institute.
32
Anthony A. Lombardi, CFA
Vice President, Senior Portfolio Manager
Anthony A. Lombardi joined Delaware Investments in 2004 as a vice president and senior portfolio manager for the firm’s Large-Cap Value Focus strategy. Previously, Lombardi worked at Merrill Lynch Investment Managers from 1998 to 2004, where he rose to the position of director and portfolio manager for the U.S. Active Large-Cap Value team, managing mutual funds and separate accounts for institutions and private clients. Prior to that, he worked at Dean Witter Reynolds for seven years as a sell-side equity research analyst, and he began his career as an investment analyst with Crossland Savings in 1989. Lombardi graduated from Hofstra University, receiving a bachelor’s degree in finance and an MBA with a concentration in finance. He is a member of the New York Society of Security Analysts and the CFA Institute.
Robert A. Vogel Jr., CFA
Vice President, Senior Portfolio Manager
Robert A. Vogel Jr. joined Delaware Investments in 2004 as a vice president, senior portfolio manager for the firm’s Large-Cap Value Focus strategy. He previously worked at Merrill Lynch Investment Managers for more than seven years, where he rose to the position of director and portfolio manager within the U.S. Active Large-Cap Value team. He began his career in 1992 as a financial consultant at Merrill Lynch. Vogel graduated from Loyola College in Maryland, earning both bachelor’s and master’s degrees in finance. He also earned an MBA with a concentration in finance from The Wharton School of the University of Pennsylvania, and he is a member of the New York Society of Security Analysts and The CFA Society of Philadelphia.
Nikhil G. Lalvani, CFA
Vice President, Portfolio Manager
Nikhil G. Lalvani is a portfolio manager with the firm’s Large-Cap Value Focus team. At Delaware Investments, Lalvani has served as both a fundamental and quantitative analyst. Prior to joining the firm in 1997, he was a research associate with Bloomberg. Lalvani holds a bachelor’s degree in finance from The Pennsylvania State University and is a member of The CFA Society of Philadelphia.
Nashira S. Wynn
Vice President, Portfolio Manager
Nashira S. Wynn is a portfolio manager with the firm’s Large-Cap Value Focus team. Prior to joining Delaware Investments in 2004, she was an equity research analyst for Merrill Lynch Investment Managers, starting there in July 2001. Wynn earned a bachelor’s degree in finance, with a minor in economics, from The College of New Jersey, and she attended England’s Oxford University as a presidential scholar.
33
Board of trustees/directors and officers addendum
Delaware Investments® Family of Funds
A mutual fund is governed by a Board of Trustees/Directors (“Trustees”), which has oversight responsibility for the management of a fund’s business affairs. Trustees establish procedures and oversee and review the performance of the investment manager, the distributor, and others who perform services for the fund. The independent fund trustees, in particular, are advocates for shareholder interests. Each trustee has served in that capacity since he or she was elected to or appointed to the Board of Trustees, and will continue to serve until his or her retirement or the election of a new trustee in his or her place. The following is a list of the Trustees and Officers with certain background and related information.
| Number of | |||||
| Portfolios in Fund | Other | ||||
| Name, | Complex Overseen | Directorships | |||
| Address, | Position(s) | Length of | Principal Occupation(s) | by Trustee | Held by |
| and Birth Date | Held with Fund(s) | Time Served | During Past 5 Years | or Officer | Trustee or Officer |
| Interested Trustees | |||||
| Patrick P. Coyne1 | Chairman, | Chairman and Trustee | Patrick P. Coyne has served in | 84 | Director — |
| 2005 Market Street | President, | since August 16, 2006 | various executive capacities | Kaydon Corp. | |
| Philadelphia, PA | Chief Executive | at different times at | |||
| 19103 | Officer, and | President and | Delaware Investments.2 | ||
| Trustee | Chief Executive Officer | ||||
| April 14, 1963 | since August 1, 2006 | ||||
| Independent Trustees | |||||
| Thomas L. Bennett | Trustee | Since | Private Investor — | 84 | Director — |
| 2005 Market Street | March 2005 | (March 2004–Present) | Bryn Mawr | ||
| Philadelphia, PA | Bank Corp. (BMTC) | ||||
| 19103 | Investment Manager — | (April 2007–Present) | |||
| Morgan Stanley & Co. | |||||
| October 4, 1947 | (January 1984–March 2004) | ||||
| John A. Fry | Trustee | Since | President — | 84 | Director — |
| 2005 Market Street | January 2001 | Franklin & Marshall College | Community Health | ||
| Philadelphia, PA | (June 2002–Present) | Systems | |||
| 19103 | |||||
| Executive Vice President — | Director — | ||||
| May 28, 1960 | University of Pennsylvania | Allied Barton | |||
| (April 1995–June 2002) | Security Holdings | ||||
| Anthony D. Knerr | Trustee | Since | Founder and Managing Director — | 84 | None |
| 2005 Market Street | April 1990 | Anthony Knerr & Associates | |||
| Philadelphia, PA | (Strategic Consulting) | ||||
| 19103 | (1990–Present) | ||||
| December 7, 1938 | |||||
| Lucinda S. Landreth | Trustee | Since | Chief Investment Officer — | 84 | None |
| 2005 Market Street | March 2005 | Assurant, Inc. | |||
| Philadelphia, PA | (Insurance) | ||||
| 19103 | (2002–2004) | ||||
| June 24, 1947 | |||||
| Ann R. Leven | Trustee | Since | Consultant — | 84 | Director and |
| 2005 Market Street | October 1989 | ARL Associates | Audit Committee | ||
| Philadelphia, PA | (Financial Planning) | Chairperson — Andy | |||
| 19103 | (1983–Present) | Warhol Foundation | |||
| November 1, 1940 | Director and Audit | ||||
| Committee Chair — | |||||
| Systemax, Inc. | |||||
34
| Number of | |||||
| Portfolios in Fund | Other | ||||
| Name, | Complex Overseen | Directorships | |||
| Address, | Position(s) | Length of | Principal Occupation(s) | by Trustee | Held by |
| and Birth Date | Held with Fund(s) | Time Served | During Past 5 Years | or Officer | Trustee or Officer |
| Independent Trustees (continued) | |||||
| Thomas F. Madison | Trustee | Since | President and Chief | 84 | Director — |
| 2005 Market Street | May 19973 | Executive Officer — | CenterPoint Energy | ||
| Philadelphia, PA | MLM Partners, Inc. | ||||
| 19103 | (Small Business Investing | Director and Audit | |||
| and Consulting) | Committee Chair — | ||||
| February 25, 1936 | (January 1993–Present) | Digital River, Inc. | |||
| Director and Audit | |||||
| Committee Member — | |||||
| Rimage | |||||
| Corporation | |||||
| Director — Valmont | |||||
| Industries, Inc. | |||||
| Janet L. Yeomans | Trustee | Since | Treasurer | 84 | None |
| 2005 Market Street | April 1999 | (January 2006–Present) | |||
| Philadelphia, PA | Vice President — Mergers & Acquisitions | ||||
| 19103 | (January 2003–January 2006), and | ||||
| Vice President | |||||
| (July 1995–January 2003) | |||||
| 3M Corporation | |||||
| July 31, 1948 | Ms. Yeomans has held | ||||
| various management positions | |||||
| at 3M Corporation since 1983. | |||||
| J. Richard Zecher | Trustee | Since | Founder — | 84 | Director and Audit |
| 2005 Market Street | March 2005 | Investor Analytics | Committee Member — | ||
| Philadelphia, PA | (Risk Management) | Investor Analytics | |||
| 19103 | (May 1999–Present) | ||||
| Director and Audit | |||||
| July 3, 1940 | Founder — | Committee Member — | |||
| Sutton Asset Management | Oxigene, Inc. | ||||
| (Hedge Fund) | |||||
| (September 1996–Present) | |||||
| Officers | |||||
| David F. Connor | Vice President, | Vice President since | David F. Connor has served as | 84 | None4 |
| 2005 Market Street | Deputy General | September 2000 | Vice President and Deputy | ||
| Philadelphia, PA | Counsel, and Secretary | and Secretary | General Counsel of | ||
| 19103 | since | Delaware Investments | |||
| October 2005 | since 2000. | ||||
| December 2, 1963 | |||||
| Daniel V. Geatens | Vice President | Treasurer | Daniel V. Geatens has served | 84 | None4 |
| 2005 Market Street | and Treasurer | since | in various capacities at | ||
| Philadelphia, PA | October 25, 2007 | different times at | |||
| 19103 | Delaware Investments. | ||||
| October 26, 1972 | |||||
| David P. O’Connor | Senior Vice | Senior Vice President, | David P. O’Connor has served in | 84 | None4 |
| 2005 Market Street | President, | General Counsel, and | various executive and legal | ||
| Philadelphia, PA | General Counsel, | Chief Legal Officer | capacities at different times | ||
| 19103 | and Chief | since | at Delaware Investments. | ||
| Legal Officer | October 2005 | ||||
| February 21, 1966 | |||||
| Richard Salus | Senior | Chief Financial | Richard Salus has served in | 84 | None4 |
| 2005 Market Street | Vice President | Officer since | various executive capacities | ||
| Philadelphia, PA | and | November 2006 | at different times at | ||
| 19103 | Chief Financial | Delaware Investments. | |||
| Officer | |||||
| October 4, 1963 | |||||
The Statement of Additional Information for the Fund(s) includes additional information about the Trustees and Officers and is available, without charge, upon request by calling 800 523-1918.
35
About the organization
This annual report is for the information of Delaware Dividend Income Fund shareholders, but it may be used with prospective investors when preceded or accompanied by a current prospectus for Delaware Dividend Income Fund and the Delaware Investments® Performance Update for the most recently completed calendar quarter. The prospectus sets forth details about charges, expenses, investment objectives, and operating policies of the investment company. You should read the prospectus carefully before you invest. The figures in this report represent past results that are not a guarantee of future results. The return and principal value of an investment in the investment company will fluctuate so that shares, when redeemed, may be worth more or less than their original cost.
| Board of trustees Patrick P. Coyne Thomas L. Bennett John A. Fry Anthony D. Knerr Lucinda S. Landreth Ann R. Leven Thomas F. Madison Janet L. Yeomans J. Richard Zecher | Affiliated officers David F. Connor Daniel V. Geatens David P. O’Connor Richard Salus
| Contact information Investment manager National distributor Shareholder servicing, dividend For shareholders For securities dealers and financial Web site |
Delaware Investments is the marketing name of Delaware Management Holdings, Inc. and its subsidiaries.
The Fund files its complete schedule of portfolio holdings with the Securities and Exchange Commission for the first and third quarters of each fiscal year on Form N-Q. The 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 Commission’s Web site at http://www.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 Fund’s Schedule of Investments are available without charge on the Fund’s Web site at http://www.delawareinvestments.com. The Fund’s Forms N-Q may be reviewed and copied at the Commission’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 Web site at http://www.delawareinvestments.com; and (ii) on the Commission’s Web site at http://www.sec.gov.
36
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Register for Account Access today! Please visit us at www.delawareinvestments.com, select Individual Investors, and click Account Access.
Please call our Shareholder Service Center at 800 523-1918 Monday through Friday from 8:00 a.m. to 7:00 p.m., Eastern time, for assistance with any questions.
 |  |
| (2611) | Printed in the USA |
| AR-129 [11/07] CGI 1/08 | MF-07-12-016 PO12520 |
2
Item 2. Code of Ethics
The registrant has adopted a code of ethics that applies to the registrant’s principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions, regardless of whether these individuals are employed by the registrant or a third party. A copy of the registrant’s Code of Business Ethics has been posted on Delaware Investments’ internet website at www.delawareinvestments.com. Any amendments to the Code of Business Ethics, and information on any waiver from its provisions granted by the registrant, will also be posted on this website within five business days of such amendment or waiver and will remain on the website for at least 12 months.
Item 3. Audit Committee Financial Expert
The registrant’s Board of Trustees/Directors has determined that each member of the registrant’s Audit Committee is an audit committee financial expert, as defined below. For purposes of this item, an “audit committee financial expert” is a person who has the following attributes:
a. An understanding of generally accepted accounting principles and financial statements;
b. The ability to assess the general application of such principles in connection with the accounting for estimates, accruals, and reserves;
c. Experience preparing, auditing, analyzing, or evaluating financial statements that present a breadth and level of complexity of accounting issues that are generally comparable to the breadth and complexity of issues that can reasonably be expected to be raised by the registrant’s financial statements, or experience actively supervising one or more persons engaged in such activities;
d. An understanding of internal controls and procedures for financial reporting; and
e. An understanding of audit committee functions.
An “audit committee financial expert” shall have acquired such attributes through:
a. Education and experience as a principal financial officer, principal accounting officer, controller, public accountant, or auditor or experience in one or more positions that involve the performance of similar functions;
b. Experience actively supervising a principal financial officer, principal accounting officer, controller, public accountant, auditor, or person performing similar functions;
3
c. Experience overseeing or assessing the performance of companies or public accountants with respect to the preparation, auditing, or evaluation of financial statements; or
d. Other relevant experience.
The registrant’s Board of Trustees/Directors has also determined that each member of the registrant’s Audit Committee is independent. In order to be “independent” for purposes of this item, the Audit Committee member may not: (i) other than in his or her capacity as a member of the Board of Trustees/Directors or any committee thereof, accept directly or indirectly any consulting, advisory or other compensatory fee from the issuer; or (ii) be an “interested person” of the registrant as defined in Section 2(a)(19) of the Investment Company Act of 1940.
The names of the audit committee financial experts on the registrant’s Audit Committee are set forth below:
Thomas L. Bennett 1
Thomas F. Madison
Janet L. Yeomans 1
J. Richard Zecher
Item 4. Principal Accountant Fees and Services
(a) Audit fees.
The aggregate fees billed for services provided to the registrant by its independent auditors for the audit of the registrant’s annual financial statements and for services normally provided by the independent auditors in connection with statutory and regulatory filings or engagements were $89,800 for the fiscal year ended November 30, 2007.
_______________________
1 The instructions to Form N-CSR require disclosure on the relevant experience of persons who qualify as audit committee financial experts based on “other relevant experience.” The Board of Trustees/Directors has determined that Mr. Bennett qualifies as an audit committee financial expert by virtue of his education, Chartered Financial Analyst designation, and his experience as a credit analyst, portfolio manager and the manager of other credit analysts and portfolio managers. The Board of Trustees/Directors has determined that Ms. Yeomans qualifies as an audit committee financial expert by virtue of her education and experience as the Treasurer of a large global corporation.
4
The aggregate fees billed for services provided to the registrant by its independent auditors for the audit of the registrant’s annual financial statements and for services normally provided by the independent auditors in connection with statutory and regulatory filings or engagements were $70,200 for the fiscal year ended November 30, 2006.
(b) Audit-related fees.
The aggregate fees billed by the registrant’s independent auditors for services relating to the performance of the audit of the registrant’s financial statements and not reported under paragraph (a) of this Item were $0 for the fiscal year ended November 30, 2007.
The aggregate fees billed by the registrant’s independent auditors for services relating to the performance of the audit of the financial statements of the registrant’s investment adviser and other service providers under common control with the adviser and that relate directly to the operations or financial reporting of the registrant were $19,074 for the registrant’s fiscal year ended November 30, 2007. The percentage of these fees relating to services approved by the registrant’s Audit Committee pursuant to the de minimis exception from the pre-approval requirement in Rule 2-01(c)(7)(i)(C) of Regulation S-X was 0%. These audit-related services were as follows: issuance of report concerning transfer agent's system of internal accounting control pursuant to Rule 17Ad-13 of the Securities Exchange Act.
The aggregate fees billed by the registrant’s independent auditors for services relating to the performance of the audit of the registrant’s financial statements and not reported under paragraph (a) of this Item were $0 for the fiscal year ended November 30, 2006.
The aggregate fees billed by the registrant’s independent auditors for services relating to the performance of the audit of the financial statements of the registrant’s investment adviser and other service providers under common control with the adviser and that relate directly to the operations or financial reporting of the registrant were $33,700 for the registrant’s fiscal year ended November 30, 2006. The percentage of these fees relating to services approved by the registrant’s Audit Committee pursuant to the de minimis exception from the pre-approval requirement in Rule 2-01(c)(7)(i)(C) of Regulation S-X was 0%. These audit-related services were as follows: issuance of report concerning transfer agent's system of internal accounting control pursuant to Rule 17Ad-13 of the Securities Exchange Act; and issuance of agreed upon procedures reports to the registrant's Board in connection with the pass-through of internal legal cost relating to the operations of the registrant.
5
(c) Tax fees.
The aggregate fees billed by the registrant’s independent auditors for tax-related services provided to the registrant were $34,650 for the fiscal year ended November 30, 2007. The percentage of these fees relating to services approved by the registrant’s Audit Committee pursuant to the de minimis exception from the pre-approval requirement in Rule 2-01(c)(7)(i)(C) of Regulation S-X was 0%. These tax-related services were as follows: review of income tax returns and review of annual excise distribution calculations.
The aggregate fees billed by the registrant’s independent auditors for tax-related services provided to the registrant’s investment adviser and other service providers under common control with the adviser and that relate directly to the operations or financial reporting of the registrant were $0 for the registrant’s fiscal year ended November 30, 2007.
The aggregate fees billed by the registrant’s independent auditors for tax-related services provided to the registrant were $13,700 for the fiscal year ended November 30, 2006. The percentage of these fees relating to services approved by the registrant’s Audit Committee pursuant to the de minimis exception from the pre-approval requirement in Rule 2-01(c)(7)(i)(C) of Regulation S-X was 0%. These tax-related services were as follows: review of income tax returns and review of annual excise distribution calculations.
The aggregate fees billed by the registrant’s independent auditors for tax-related services provided to the registrant’s adviser and other service providers under common control with the adviser and that relate directly to the operations or financial reporting of the registrant were $0 for the registrant’s fiscal year ended November 30, 2006.
(d) All other fees.
The aggregate fees billed for all services provided by the independent auditors to the registrant other than those set forth in paragraphs (a), (b) and (c) of this Item were $0 for the fiscal year ended November 30, 2007.
The aggregate fees billed for all services other than those set forth in paragraphs (b) and (c) of this Item provided by the registrant’s independent auditors to the registrant’s adviser and other service providers under common control with the adviser and that relate directly to the operations or financial reporting of the registrant were $0 for the registrant’s fiscal year ended November 30, 2007.
The aggregate fees billed for all services provided by the independent auditors to the registrant other than those set forth in paragraphs (a), (b) and (c) of this Item were $0 for the fiscal year ended November 30, 2006.
6
The aggregate fees billed for all services other than those set forth in paragraphs (b) and (c) of this Item provided by the registrant’s independent auditors to the registrant’s adviser and other service providers under common control with the adviser and that relate directly to the operations or financial reporting of the registrant were $0 for the registrant’s fiscal year ended November 30, 2006.
(e) The registrant’s Audit Committee has established pre-approval policies and procedures as permitted by Rule 2-01(c)(7)(i)(B) of Regulation S-X (the “Pre-Approval Policy”) with respect to services provided by the registrant’s independent auditors. Pursuant to the Pre-Approval Policy, the Audit Committee has pre-approved the services set forth in the table below with respect to the registrant up to the specified fee limits. Certain fee limits are based on aggregate fees to the registrant and other registrants within the Delaware Investments Family of Funds.
| Service | Range of Fees |
| Audit Services | |
| Statutory audits or financial audits for new Funds | up to $25,000 per Fund |
| Services associated with SEC registration statements (e.g., Form N-1A, Form N-14, | |
| etc.), periodic reports and other documents filed with the SEC or other documents issued | |
| in connection with securities offerings (e.g., comfort letters for closed-end Fund | up to $10,000 per Fund |
| offerings, consents), and assistance in responding to SEC comment letters | |
| Consultations by Fund management as to the accounting or disclosure treatment of | |
| transactions or events and/or the actual or potential impact of final or proposed rules, | |
| standards or interpretations by the SEC, FASB, or other regulatory or standard-setting | up to $25,000 in the aggregate |
| bodies (Note: Under SEC rules, some consultations may be considered “audit-related | |
| services” rather than “audit services”) | |
| Audit-Related Services | |
| Consultations by Fund management as to the accounting or disclosure treatment of | |
| transactions or events and /or the actual or potential impact of final or proposed rules, | |
| standards or interpretations by the SEC, FASB, or other regulatory or standard-setting | up to $25,000 in the aggregate |
| bodies (Note: Under SEC rules, some consultations may be considered “audit services” | |
| rather than “audit-related services”) | |
| Tax Services | |
| U.S. federal, state and local and international tax planning and advice (e.g., consulting | |
| on statutory, regulatory or administrative developments, evaluation of Funds’ tax | up to $25,000 in the aggregate |
| compliance function, etc.) | |
| U.S. federal, state and local tax compliance (e.g., excise distribution reviews, etc.) | up to $5,000 per Fund |
| Review of federal, state, local and international income, franchise and other tax returns | up to $5,000 per Fund |
Under the Pre-Approval Policy, the Audit Committee has also pre-approved the services set forth in the table below with respect to the registrant’s investment adviser and other entities controlling, controlled by or under common control with the investment adviser that provide ongoing services to the registrant (the “Control Affiliates”) up to the specified fee limit. This fee limit is based on aggregate fees to the investment adviser and its Control Affiliates.
7
| Service | Range of Fees |
| Non-Audit Services | |
| Services associated with periodic reports and other documents filed with the SEC and | up to $10,000 in the aggregate |
| assistance in responding to SEC comment letters |
The Pre-Approval Policy requires the registrant’s independent auditors to report to the Audit Committee at each of its regular meetings regarding all services initiated since the last such report was rendered, including those services authorized by the Pre-Approval Policy.
(f) Not applicable.
(g) The aggregate non-audit fees billed by the registrant’s independent auditors for services rendered to the registrant and to its investment adviser and other service providers under common control with the adviser were $289,012 and $272,920 for the registrant’s fiscal years ended November 30, 2007 and November 30, 2006, respectively.
(h) In connection with its selection of the independent auditors, the registrant’s Audit Committee has considered the independent auditors’ provision of non-audit services to the registrant’s investment adviser and other service providers under common control with the adviser that were not required to be pre-approved pursuant to Rule 2-01(c)(7)(ii) of Regulation S-X. The Audit Committee has determined that the independent auditors’ provision of these services is compatible with maintaining the auditors’ independence.
Item 5. Audit Committee of Listed Registrants
Not applicable.
8
Item 6. Schedule of Investments
Included as part of report to shareholders filed under Item 1 of this Form N-CSR.
Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End Management Investment Companies
Not applicable.
Item 8. Portfolio Managers of Closed-End Management Investment Companies
Not applicable.
Item 9. Purchases of Equity Securities by Closed-End Management Investment Company and Affiliated Purchasers
Not applicable.
Item 10. Submission of Matters to a Vote of Security Holders
Not applicable.
Item 11. Controls and Procedures
The registrant’s principal executive officer and principal financial officer have evaluated the registrant’s disclosure controls and procedures within 90 days of the filing of this report and have concluded that they are effective in providing reasonable assurance that the information required to be disclosed by the registrant in its reports or statements filed under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission.
There were no significant changes in the registrant’s internal control over financial reporting that occurred during the second fiscal quarter of the period covered by the report to stockholders included herein (i.e., the registrant’s fourth fiscal quarter) that have materially affected, or are reasonably likely to materially affect, the registrant’s internal control over financial reporting.
9
| 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. |
10
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf, by the undersigned, thereunto duly authorized.
Name of Registrant: DELAWARE GROUP EQUITY FUNDS V
| PATRICK P. COYNE | |||
| By: | Patrick P. Coyne | ||
| Title: | Chief Executive Officer | ||
| Date: | January 7, 2008 | ||
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
| PATRICK P. COYNE | |||
| By: | Patrick P. Coyne | ||
| Title: | Chief Executive Officer | ||
| Date: | January 7, 2008 | ||
| RICHARD SALUS | |||
| By: | Richard Salus | ||
| Title: | Chief Financial Officer | ||
| Date: | January 7, 2008 | ||
11