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: | 811-04997 |
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, 2011 |
Item 1. Reports to Stockholders
![](https://capedge.com/proxy/N-CSR/0001206774-12-000442/del_topimg02.jpg)
Annual report Delaware Dividend Income Fund November 30, 2011 Income and growth mutual fund |
Carefully consider the Fund’s investment objectives, risk factors, charges, and expenses before investing. This and other information can be found in the Fund’s prospectus and, if available, its summary prospectus, which may be obtained by visiting www.delawareinvestments.com or calling 800 523-1918. Investors should read the prospectus and, if available, the summary prospectus carefully before investing. |
You can obtain shareholder reports and prospectuses online instead of in the mail. Visit www.delawareinvestments.com/edelivery. |
Experience Delaware Investments
Delaware Investments is committed to the pursuit of consistently superior asset management and unparalleled client service. We believe in our investment processes, which seek to deliver consistent results, and in convenient services that help add value for our clients.
If you are interested in learning more about creating an investment plan, contact your financial advisor.
You can learn more about Delaware Investments or obtain a prospectus for Delaware Dividend Income Fund at www.delawareinvestments.com.
Manage your investments online |
|
Delaware Management Holdings, Inc. and its subsidiaries (collectively known by the marketing name of Delaware Investments) are wholly owned subsidiaries of Macquarie Group Limited, a global provider of banking, financial, advisory, investment and funds management services.
Investments in Delaware Dividend Income Fund are not and will not be deposits with or liabilities of Macquarie Bank Limited ABN 46 008 583 542 and its holding companies, including their subsidiaries or related companies (Macquarie Group), and are subject to investment risk, including possible delays in repayment and loss of income and capital invested. No Macquarie Group company guarantees or will guarantee the performance of the Fund, the repayment of capital from the Fund, or any particular rate of return.
Table of contents | |
Portfolio management review | 1 |
Performance summary | 4 |
Disclosure of Fund expenses | 8 |
Security type/sector allocation | |
and top 10 equity holdings | 10 |
Statement of net assets | 13 |
Statement of operations | 34 |
Statements of changes in net assets | 36 |
Financial highlights | 38 |
Notes to financial statements | 48 |
Report of independent registered | |
public accounting firm | 66 |
Other Fund information | 67 |
Board of trustees/directors and | |
officers addendum | 72 |
About the organization | 82 |
Unless otherwise noted, views expressed herein are current as of Nov. 30, 2011, and subject to change.
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. Delaware Investments, a member of Macquarie Group, refers to Delaware Management Holdings, Inc. and its subsidiaries, including the Fund’s distributor, Delaware Distributors, L.P. Macquarie Group refers to Macquarie Group Limited and its subsidiaries and affiliates worldwide.
© 2012 Delaware Management Holdings, Inc.
All third-party trademarks cited are the property of their respective owners.
Portfolio management review | ||
Delaware Dividend Income Fund | December 6, 2011 |
Performance preview (for the year ended November 30, 2011) | |||
Delaware Dividend Income Fund (Class A shares) | 1-year return | +4.39% | |
S&P 500® Index (benchmark) | 1-year return | +7.84% |
For complete, annualized performance for Delaware Dividend Income Fund, please see the table on page 4.
The performance of Class A shares excludes the applicable sales charge and reflects the reinvestment of all distributions.
Index performance returns do not reflect any management fees, transaction costs, or expenses. Indices are unmanaged and one cannot invest directly in an index.
For the fiscal year ended Nov. 30, 2011, Delaware Dividend Income Fund Class A shares returned +4.39% at net asset value and -1.63% at maximum offer price (both figures reflect all distributions reinvested). For the same period, the Fund’s benchmark, the S&P 500 Index, returned +7.84%. Complete annualized performance for Delaware Dividend Income Fund is shown in the table on page 4.
An up-and-down year for many investors
Financial markets were highly volatile during the Fund’s fiscal year, especially during the second half of the period. Much of the turmoil came from the mounting debt crisis in Europe.
Greece remained at the center of the crisis, though other troubled countries shifted to the forefront of investors’ minds. Italy emerged as the newest and most serious trouble spot thus far — not surprising, given the nation’s role as the euro zone’s third-largest economy, coupled with its very high debt burden and low growth rate. Investors began to worry that the region’s political and monetary institutions were not up to the challenge of repairing the damage.
Financial markets were also affected by concerns about the health of the U.S. economy. In the first half of the Fund’s fiscal year, evidence pointed to sluggish
1
Portfolio management review
Delaware Dividend Income Fund
but steady economic growth. Against this backdrop, the S&P 500 Index, a measure of the broad U.S. stock market, continued to trend upward. Beginning in late July 2011, however, market conditions began to deteriorate, due in part to skepticism about whether U.S. political leaders would successfully handle the nation’s own debt-related issues. In early August, credit rating agency Standard & Poor’s demonstrated this uncertainty by downgrading the U.S. sovereign credit rating for the first time in history. (Data: Bloomberg.)
Although these serious issues remained unresolved at the close of the Fund’s fiscal year in late November, many investors became more optimistic that European policy makers could resolve the region’s debt crisis. Furthermore, economic growth in the U.S. appeared to be more resilient than many had thought. An increasing amount of data suggested a slowly improving U.S. economy. In August 2011, the Federal Reserve announced plans to maintain its short-term target interest rate of near zero until at least 2013. In November, unemployment drifted downward to 8.6%. Overall, the S&P 500 finished the Fund’s fiscal year on a strong upswing, gaining nearly 8% for the 12-month period. (Source: Dow Jones.)
Concern about credit risk weighed on the performance of other asset classes in which the Fund invests. High yield corporate bonds experienced a difficult environment during those periods when risk aversion was greatest, though they also benefited considerably during times of generally positive investor sentiment. During the Fund’s fiscal year, the high yield bond market generated a modest gain of 3.63%, as measured by the BofA Merrill Lynch U.S. High Yield Constrained Index. Investment grade bonds, while not immune to credit-quality concerns, fared better than their lower-rated counterparts, as many investors preferred higher-quality, lower-risk investments during much of the year.
Despite the up-and-down nature of the market, U.S. real estate investment trusts (REITs) enjoyed solid gains overall during the Fund’s fiscal year, as a favorable supply-demand balance, coupled with readily available financing at attractive prices, provided supportive conditions for property companies.
A shift toward large-cap value equities
The Fund’s primary objective is to seek high current income, together with the potential for capital appreciation. In managing the Fund, we pursue these goals by investing broadly in a range of income-generating securities. These include “core” fixed income holdings (such as Treasury and agency securities), as well as investment grade and high yield corporate bonds, convertible securities, REITs, and large-cap value stocks.
The Fund’s allocation to high yield bonds was relatively stable during the Fund’s fiscal year. A number of companies in this asset class held up relatively well despite volatile market conditions, and the Fund maintained a significant position in high yield debt throughout the entire fiscal year. This positioning aided the Fund’s return during the first several months of the fiscal year, as strong demand for yield gave the market a steady bid for high yield bonds. Our emphasis on higher-quality (less distressed) securities, however, slightly muted this positive effect. During the final months of the Fund’s fiscal year, this same allocation to high yield bonds hindered the Fund’s performance somewhat,
2
as many investors seemed to flee from risky securities. At this time, however, the relative higher quality of the Fund’s allocation to this asset class seemingly helped diminish the negative effect of these holdings. Throughout the fiscal year, we employed credit default swaps (CDS) in the Fund in an attempt to protect against declines in the Fund’s high yield holdings.
During its fiscal year, we increased the Fund’s exposure to large-cap value securities, which we believed offered stronger performance potential and increased defensiveness amid a difficult environment. As the fiscal year drew to a close, we believed valuations across U.S. equities were generally higher than they should be. Anticipating ongoing slow growth, we maintained the Fund’s defensive positioning among large-cap value, geared to emphasize less cyclical stocks. While circumstances can change quickly, we expect to maintain this less-cyclical positioning until we see more lasting improvements in market and economic conditions.
Within the Fund’s domestic equity position, several holdings in the energy sector were notable contributors to performance during the fiscal year. National Oilwell Varco, a maker of components for oil drilling rigs, benefited from a resurgence in demand that caused the company’s stock price to increase sharply. We sold the stock after it reached our price target. Oil exploration and production company Marathon Oil was another significant outperformer. In the information technology sector, Motorola Solutions generated steady financial performance amid difficult economic conditions.
Among performance detractors, Xerox shares fared poorly as many investors were concerned about the effects of reduced government and healthcare spending on the company’s services business. Insurance company Allstate had a challenging year, given a large number of severe storms that increased payouts to policyholders. Another noteworthy detractor in the financials sector was Bank of New York Mellon, which had difficulty growing fee income in the prevailing market environment.
Among the Fund’s REIT holdings, we tilted the portfolio toward what are generally viewed as high-quality mall, apartment, and self-storage companies for much of the fiscal year, as we believed these businesses would be well positioned to take advantage of the low interest rate environment (through lower financing costs), as well as the pricing power and increased occupancies made possible by tight property supplies.
Areas of potential opportunity
Given recent market shifts, we believe that U.S. REITs are among the market segments that have become more attractively priced. Convertible securities, offering yields in the neighborhood of 4% at the end of the Fund’s fiscal year, also strike us as relatively inexpensive (data: Barclays Capital). High yield bonds remain vulnerable to credit risk, though high yield issuers’ balance sheets are generally stronger now than before the financial crisis, and we believe they are less vulnerable to serious credit-related challenges than they were in the past.
Against this backdrop, we will continue to keep a close eye on market conditions and look to adjust the Fund’s holdings and asset allocation appropriately. In keeping with the Fund’s investment objective, we will continue to seek to provide shareholders with a steady income stream that is well diversified across multiple asset classes.
3
Performance summary | |
Delaware Dividend Income Fund | November 30, 2011 |
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 current for the most recent month end by calling 800 523-1918 or visiting our website at www.delawareinvestments.com/performance. Current performance may be lower or higher than the performance data quoted.
Fund performance1,2 | Average annual total returns through November 30, 2011 | ||||||||||||
1 year | 5 years | 10 years | Lifetime | ||||||||||
Class A (Est. Dec. 2, 1996) | |||||||||||||
Excluding sales charge | +4.39 | % | +0.36 | % | +5.69 | % | n/a | ||||||
Including sales charge | -1.63 | % | -0.83 | % | +5.07 | % | n/a | ||||||
Class B (Est. Oct. 1, 2003) | |||||||||||||
Excluding sales charge | +3.61 | % | -0.39 | % | n/a | +3.95 | % | ||||||
Including sales charge | -0.39 | % | -0.75 | % | n/a | +3.95 | % | ||||||
Class C (Est. Oct. 1, 2003) | |||||||||||||
Excluding sales charge | +3.61 | % | -0.39 | % | n/a | +3.94 | % | ||||||
Including sales charge | +2.61 | % | -0.39 | % | n/a | +3.94 | % | ||||||
Class R (Est. Oct. 1, 2003) | |||||||||||||
Excluding sales charge | +4.13 | % | +0.11 | % | n/a | +4.44 | % | ||||||
Including sales charge | +4.13 | % | +0.11 | % | n/a | +4.44 | % | ||||||
Institutional Class (Est. Dec. 2, 1996) | |||||||||||||
Excluding sales charge | +4.55 | % | +0.58 | % | +5.90 | % | n/a | ||||||
Including sales charge | +4.55 | % | +0.58 | % | +5.90 | % | n/a |
1 Returns reflect the reinvestment of all distributions and are presented both with and without the applicable sales charges described below. Returns do not reflect the deduction of taxes the shareholder would pay on Fund distributions or redemptions of Fund shares.
Expense limitations were in effect for certain classes during some or all of the periods shown in the “Fund performance” chart. The current expenses for each class are listed on the “Fund expense ratios” table on page 5. Performance would have been lower had expense limitations not been in effect.
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. This fee has been contractually limited to 0.25% of average daily net assets from March 30, 2011, through March 29, 2012.
Class B shares may be purchased only through dividend reinvestment and certain permitted exchanges as described in the prospectus. Please see the prospectus for additional information on Class B shares. 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. They are also subject to an annual distribution and service fee of up to 1.00% of average daily net assets. Class B shares will automatically convert to Class A shares on a quarterly basis
4
approximately eight years after purchase. Ten-year and lifetime performance figures for Class B shares reflect conversion to Class A shares after approximately eight years.
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 up to 1.00% of average daily net assets.
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.
Class R shares 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, which has been limited contractually to 0.50% from March 30, 2011, through March 29, 2012.
Institutional Class shares are available without sales or asset-based distribution charges only to certain eligible institutional accounts.
The “Fund performance” table and the “Performance of a $10,000 investment” graph do not reflect the deduction of taxes the shareholder would pay on Fund distributions or redemptions of Fund shares.
Fixed income securities and bond funds can lose value, and investors can lose principal, as interest rates rise. They also may be affected by economic conditions that hinder an issuer’s ability to make interest and principal payments on its debt.
The Fund may also be subject to prepayment risk, the risk that the principal of a fixed income security that is held by the Fund may be prepaid prior to maturity, potentially forcing the Fund to reinvest that money at a lower interest rate.
High yielding, noninvestment grade bonds (junk bonds) involve higher risk than investment grade bonds. The high yield secondary market is particularly susceptible to liquidity problems when institutional investors, such as mutual funds and certain other financial institutions, temporarily stop buying bonds for regulatory, financial, or other reasons. In addition, a less liquid secondary market makes it more difficult for the Fund to obtain precise valuations of the high yield securities in its portfolio.
2 The Fund’s expense ratios, as described in the most recent prospectus, are disclosed in the following “Fund expense ratios” table. Delaware Investments has agreed to reimburse certain expenses and/or waive certain fees in order to prevent total fund operating expenses (excluding certain fees and expenses) from exceeding 0.98% of the Fund’s average daily net assets from March 30, 2011, through March 29, 2012. Please see the most recent prospectus and any applicable supplement(s) for additional information on these fee waivers and/or reimbursements.
Fund expense ratios | Class A | Class B | Class C | Class R | Institutional Class | ||||
Total annual operating expenses | 1.31% | 2.01% | 2.01% | 1.61% | 1.01% | ||||
(without fee waivers) | |||||||||
Net expenses | 1.23% | 1.98% | 1.98% | 1.48% | 0.98% | ||||
(including fee waivers, if any) | |||||||||
Type of waiver | Contractual | Contractual | Contractual | Contractual | Contractual |
5
Performance summary
Delaware Dividend Income Fund
Performance of a $10,000 investment1
Average annual total returns from Nov. 30, 2001, through Nov. 30, 2011
For period beginning Nov. 30, 2001, through Nov. 30, 2011 | Starting value | Ending value | ||
Delaware Dividend Income Fund — Class A Shares | $9,425 | $16,397 | ||
S&P 500 Index | $10,000 | $13,314 |
Index performance returns do not reflect any management fees, transaction costs, or expenses. Indices are unmanaged and one cannot invest directly in an index. Past performance is not a guarantee of future results.
Performance of other Fund classes will vary due to different charges and expenses.
Nasdaq symbols | CUSIPs | |||||||
Class A | DDIAX | 24610B107 | ||||||
Class B | DDDBX | 24610B206 | ||||||
Class C | DDICX | 24610B305 | ||||||
Class R | DDDRX | 24610B842 | ||||||
Institutional Class | DDIIX | 24610B404 |
6
Disclosure of Fund expenses
For the six-month period from June 1, 2011 to November 30, 2011
As a shareholder of the Fund, you incur two types of costs: (1) transaction costs, including sales charges (loads) on purchase payments, reinvested dividends, or other distributions; redemption fees; and exchange fees; and (2) ongoing costs, including management fees; distribution and/or service (12b-1) fees; and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds.
The example is based on an investment of $1,000 invested at the beginning of the period and held for the entire six-month period from June 1, 2011 to November 30, 2011.
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.
8
Delaware Dividend Income Fund
Expense analysis of an investment of $1,000
Beginning | Ending | Expenses | ||||||||||||
Account Value | Account Value | Annualized | Paid During Period | |||||||||||
6/1/11 | 11/30/11 | Expense Ratio | 6/1/11 to 11/30/11* | |||||||||||
Actual Fund return | ||||||||||||||
Class A | $ | 1,000.00 | $ | 922.30 | 1.17% | $ | 5.64 | |||||||
Class B | 1,000.00 | 918.90 | 1.92% | 9.24 | ||||||||||
Class C | 1,000.00 | 918.90 | 1.92% | 9.24 | ||||||||||
Class R | 1,000.00 | 921.10 | 1.42% | 6.84 | ||||||||||
Institutional Class | 1,000.00 | 922.60 | 0.92% | 4.43 | ||||||||||
Hypothetical 5% return (5% return before expenses) | ||||||||||||||
Class A | $ | 1,000.00 | $ | 1,019.20 | 1.17% | $ | 5.92 | |||||||
Class B | 1,000.00 | 1,015.44 | 1.92% | 9.70 | ||||||||||
Class C | 1,000.00 | 1,015.44 | 1.92% | 9.70 | ||||||||||
Class R | 1,000.00 | 1,017.95 | 1.42% | 7.18 | ||||||||||
Institutional Class | 1,000.00 | 1,020.46 | 0.92% | 4.66 |
*“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).
9
top 10 equity holdings
Delaware Dividend Income Fund | As of November 30, 2011 |
Sector designations may be different than the sector designations presented in other Fund materials. The sector designations may represent the investment manager’s internal sector classifications, which may result in the sector designations for one fund being different than another fund’s sector designations.
Security type/sector | Percentage of net assets | |
Common Stock | 58.94 | % |
Consumer Discretionary | 3.84 | % |
Consumer Staples | 7.03 | % |
Energy | 6.10 | % |
Financials | 5.75 | % |
Healthcare | 8.92 | % |
Healthcare REITs | 0.66 | % |
Hotel REITs | 0.76 | % |
Industrial REIT | 0.37 | % |
Industrials | 5.44 | % |
Information Technology | 6.00 | % |
Malls REITs | 1.25 | % |
Materials | 1.61 | % |
Mixed REITs | 0.29 | % |
Multifamily REITs | 0.87 | % |
Office REITs | 0.78 | % |
Self-Storage REIT | 0.25 | % |
Shopping Center REITs | 0.71 | % |
Telecommunications | 3.74 | % |
Utilities | 4.57 | % |
Convertible Preferred Stock | 3.12 | % |
Commercial Mortgage-Backed Securities | 0.93 | % |
10
Security type/sector | Percentage of net assets | |
Convertible Bonds | 10.96 | % |
Capital Goods | 1.60 | % |
Communications | 1.59 | % |
Consumer Cyclical | 0.84 | % |
Consumer Non-Cyclical | 1.43 | % |
Energy | 0.24 | % |
Financials | 0.70 | % |
Industrials | 0.35 | % |
Real Estate | 0.53 | % |
Service | 0.55 | % |
Technology | 3.13 | % |
Corporate Bonds | 20.53 | % |
Automotive | 1.09 | % |
Banking | 0.66 | % |
Basic Industry | 2.88 | % |
Capital Goods | 1.25 | % |
Communications | 2.03 | % |
Consumer Cyclical | 1.25 | % |
Consumer Non-Cyclical | 0.76 | % |
Energy | 2.48 | % |
Financials | 0.53 | % |
Healthcare | 1.12 | % |
Insurance | 0.62 | % |
Media | 1.49 | % |
Services | 2.36 | % |
Technology | 1.40 | % |
Utilities | 0.61 | % |
11
Security type/sector allocation and
top 10 equity holdings
Delaware Dividend Income Fund
Security type/sector | Percentage of net assets | |
Leveraged Non-Recourse Security | 0.00 | % |
Senior Secured Loans | 0.53 | % |
Exchange-Traded Funds | 0.39 | % |
Preferred Stock | 0.94 | % |
Warrant | 0.00 | % |
Short-Term Investments | 3.17 | % |
Securities Lending Collateral | 2.43 | % |
Total Value of Securities | 101.94 | % |
Written Options | (0.07 | %) |
Obligation to Return Securities Lending Collateral | (2.62 | %) |
Receivables and Other Assets Net of Other Liabilities | 0.75 | % |
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.
Top 10 equity holdings | Percentage of net assets | |
ConocoPhillips | 1.56 | % |
Bank of New York Mellon | 1.41 | % |
Xerox | 1.40 | % |
Marsh & McLennan | 1.40 | % |
Allstate | 1.39 | % |
Baxter International | 1.39 | % |
Williams | 1.39 | % |
duPont (E.I.) deNemours | 1.38 | % |
Chevron | 1.38 | % |
Intel | 1.38 | % |
12
Statement of net assets | |
Delaware Dividend Income Fund | November 30, 2011 |
Number of shares | Value | ||||
Common Stock – 58.94% | |||||
Consumer Discretionary – 3.84% | |||||
Abercrombie & Fitch Class A | 25,000 | $ | 1,197,750 | ||
Bayerische Motoren Werke | 1,883 | 142,750 | |||
Comcast Class A | 233,700 | 5,297,979 | |||
† | DIRECTV Class A | 6,350 | 299,847 | ||
Don Quijote | 5,200 | 179,246 | |||
Hyundai Home Shopping Network | 1,341 | 134,380 | |||
Lowe’s | 213,500 | 5,126,135 | |||
PPR | 616 | 92,314 | |||
Promotora de Informaciones ADR | 4,181 | 22,117 | |||
Publicis Groupe | 2,207 | 105,429 | |||
Sumitomo Rubber Industries | 3,855 | 46,245 | |||
* | Techtronic Industries | 125,500 | 115,209 | ||
Toyota Motor | 6,600 | 217,370 | |||
Vivendi | 12,298 | 283,677 | |||
Whirlpool | 32,000 | 1,569,920 | |||
Yue Yuen Industrial Holdings | 65,500 | 190,891 | |||
15,021,259 | |||||
Consumer Staples – 7.03% | |||||
Archer-Daniels-Midland | 175,900 | 5,298,108 | |||
Aryzta | 5,710 | 275,674 | |||
Coca-Cola Amatil | 18,289 | 223,182 | |||
CVS Caremark | 138,100 | 5,363,804 | |||
Greggs | 35,140 | 274,632 | |||
Kimberly-Clark | 73,400 | 5,245,898 | |||
Kraft Foods Class A | 143,700 | 5,194,755 | |||
Safeway | 268,100 | 5,362,000 | |||
Tesco | 42,896 | 273,979 | |||
27,512,032 | |||||
Energy – 6.10% | |||||
Banpu NVDR | 2,521 | 45,548 | |||
Chevron | 52,600 | 5,408,332 | |||
CNOOC | 101,000 | 196,201 | |||
ConocoPhillips | 85,400 | 6,090,728 | |||
Enterprise Products Partners | 19,200 | 873,408 | |||
Marathon Oil | 193,000 | 5,396,280 | |||
Petroleo Brasileiro ADR | 7,491 | 187,799 | |||
Total | 4,851 | 250,285 | |||
Williams | 168,500 | 5,439,180 | |||
23,887,761 |
13
Statement of net assets
Delaware Dividend Income Fund
Number of shares | Value | ||||
Common Stock (continued) | |||||
Financials – 5.75% | |||||
Allstate | 203,800 | $ | 5,459,802 | ||
AXA | 6,434 | 93,165 | |||
Bank of New York Mellon | 283,100 | 5,509,126 | |||
Marsh & McLennan | 181,300 | 5,473,447 | |||
Mitsubishi UFJ Financial Group | 48,600 | 212,896 | |||
Nordea Bank | 22,742 | 181,058 | |||
Standard Chartered | 9,831 | 214,111 | |||
Travelers | 95,300 | 5,360,625 | |||
22,504,230 | |||||
Healthcare – 8.92% | |||||
†* | Alliance HealthCare Services | 29,989 | 36,587 | ||
Baxter International | 105,300 | 5,439,799 | |||
Cardinal Health | 125,100 | 5,311,746 | |||
Johnson & Johnson | 82,100 | 5,313,512 | |||
Meda Class A | 19,695 | 192,116 | |||
Merck | 148,200 | 5,298,150 | |||
Novartis | 4,946 | 267,120 | |||
Pfizer | 261,838 | 5,255,089 | |||
Quest Diagnostics | 90,500 | 5,308,730 | |||
Sanofi | 3,962 | 277,136 | |||
Sanofi ADR | 55,000 | 1,925,550 | |||
Teva Pharmaceutical Industries ADR | 8,027 | 317,949 | |||
34,943,484 | |||||
Healthcare REITs – 0.66% | |||||
Cogdell Spencer | 35,700 | 133,875 | |||
* | HCP | 22,815 | 881,800 | ||
Omega Healthcare Investors | 32,300 | 579,139 | |||
Ventas | 18,600 | 981,336 | |||
2,576,150 | |||||
Hotel REITs – 0.76% | |||||
Ashford Hospitality Trust | 64,200 | 511,032 | |||
Host Hotels & Resorts | 174,400 | 2,467,760 | |||
2,978,792 | |||||
Industrial REIT – 0.37% | |||||
ProLogis | 51,700 | 1,438,294 | |||
1,438,294 |
14
Number of shares | Value | ||||
Common Stock (continued) | |||||
Industrials – 5.44% | |||||
ABB ADR | 72,000 | $ | 1,365,840 | ||
Alstom | 3,701 | 128,160 | |||
Asahi Glass | 11,000 | 94,176 | |||
Compaigne de Saint-Gobain | 2,047 | 86,802 | |||
Copa Holdings Class A | 1,364 | 88,060 | |||
Deere | 32,000 | 2,536,000 | |||
† | Delta Air Lines | 123 | 999 | ||
Deutsche Post | 12,902 | 195,026 | |||
East Japan Railway | 3,746 | 229,475 | |||
† | Flextronics International | 19,100 | 114,027 | ||
ITOCHU | 17,689 | 179,786 | |||
Koninklijke Philips Electronics | 2,376 | 48,335 | |||
†* | Mobile Mini | 7,124 | 128,446 | ||
Northrop Grumman | 92,800 | 5,296,096 | |||
Raytheon | 117,100 | 5,336,247 | |||
Teleperformance | 9,367 | 184,827 | |||
Vallourec | 653 | 44,832 | |||
* | Waste Management | 168,200 | 5,264,660 | ||
21,321,794 | |||||
Information Technology – 6.00% | |||||
† | CGI Group Class A | 22,219 | 408,478 | ||
Cisco Systems | 289,500 | 5,396,280 | |||
HTC | 5,063 | 83,368 | |||
Intel | 217,000 | 5,405,470 | |||
Microsoft | 51,800 | 1,325,044 | |||
Motorola Solutions | 113,142 | 5,280,337 | |||
†* | Sohu.com | 2,070 | 102,341 | ||
Xerox | 672,500 | 5,480,875 | |||
23,482,193 | |||||
Malls REITs – 1.25% | |||||
Macerich | 44,500 | 2,229,450 | |||
Simon Property Group | 8,963 | 1,114,459 | |||
Taubman Centers | 25,000 | 1,558,250 | |||
4,902,159 | |||||
Materials – 1.61% | |||||
† | AuRico Gold | 16,595 | 166,292 | ||
duPont (E.I.) deNemours | 113,500 | 5,416,220 | |||
* | Lafarge | 1,735 | 63,420 |
15
Statement of net assets
Delaware Dividend Income Fund
Number of shares | Value | ||||
Common Stock (continued) | |||||
Materials (continued) | |||||
†∏= | PT Holdings | 1,110 | $ | 11 | |
Rexam | 41,296 | 224,009 | |||
Rio Tinto | 2,639 | 138,985 | |||
Yamana Gold | 18,309 | 308,770 | |||
6,317,707 | |||||
Mixed REITs – 0.29% | |||||
Liberty Property Trust | 9,400 | 280,214 | |||
Mission West Properties | 38,254 | 293,408 | |||
PS Business Parks | 10,900 | 574,430 | |||
1,148,052 | |||||
Multifamily REITs – 0.87% | |||||
American Campus Communities | 11,000 | 432,740 | |||
Apartment Investment & Management | 31,050 | 676,269 | |||
Colonial Properties Trust | 28,200 | 559,488 | |||
Education Realty Trust | 32,500 | 302,900 | |||
Equity Residential | 20,100 | 1,109,319 | |||
Essex Property Trust | 2,400 | 318,840 | |||
3,399,556 | |||||
Office REITs – 0.78% | |||||
* | Alexandria Real Estate Equities | 15,400 | 1,009,624 | ||
Boston Properties | 12,800 | 1,220,864 | |||
Kilroy Realty | 22,700 | 819,243 | |||
3,049,731 | |||||
Self-Storage REIT – 0.25% | |||||
Extra Space Storage | 39,900 | 961,590 | |||
961,590 | |||||
Shopping Center REITs – 0.71% | |||||
Excel Trust | 65,600 | 720,944 | |||
First Capital Realty | 60,947 | 1,018,273 | |||
Westfield Group | 119,500 | 1,032,207 | |||
2,771,424 | |||||
Telecommunications – 3.74% | |||||
AT&T | 182,400 | 5,285,952 | |||
†= | Century Communications | 1,625,000 | 0 | ||
CenturyLink | 38,900 | 1,459,528 | |||
† | GeoEye | 2,450 | 46,526 |
16
Number of shares | Value | ||||
Common Stock (continued) | |||||
Telecommunications (continued) | |||||
Mobile TeleSystems ADR | 6,735 | $ | 116,381 | ||
† | NII Holdings | 3,950 | 90,890 | ||
Telstra | 683,845 | 2,247,111 | |||
Verizon Communications | 138,800 | 5,236,924 | |||
Vodafone Group | 66,409 | 179,845 | |||
14,663,157 | |||||
Utilities – 4.57% | |||||
* | AGL Resources | 57,400 | 2,366,602 | ||
Duke Energy | 90,200 | 1,880,670 | |||
Edison International | 134,000 | 5,267,540 | |||
† | GenOn Energy | 1,270 | 3,454 | ||
National Grid | 32,859 | 323,039 | |||
Progress Energy | 97,600 | 5,307,488 | |||
TECO Energy | 147,000 | 2,760,660 | |||
17,909,453 | |||||
Total Common Stock (cost $221,206,182) | 230,788,818 | ||||
Convertible Preferred Stock – 3.12% | |||||
* | Apache 6.00% exercise price $109.12, | ||||
expiration date 8/1/13 | 20,300 | 1,154,664 | |||
Aspen Insurance Holdings 5.625% | |||||
exercise price $29.28, expiration date 12/31/49 | 39,227 | 2,101,096 | |||
# | Chesapeake Energy 144A 5.75% | ||||
exercise price $27.94, expiration date 12/31/49 | 1,570 | 1,683,825 | |||
El Paso Energy Capital Trust I 4.75% | |||||
exercise price $41.59, expiration date 3/31/28 | 39,900 | 1,834,203 | |||
HealthSouth 6.50% exercise price $30.50, | |||||
expiration date 12/31/49 | 1,753 | 1,534,313 | |||
Lucent Technologies Capital Trust I 7.75% | |||||
exercise price $24.80, expiration date 3/15/17 | 1,900 | 1,187,500 | |||
PPL 9.50% exercise price $28.80, | |||||
expiration date 7/1/13 | 30,700 | 1,748,672 | |||
SandRidge Energy 8.50% exercise price $8.01, | |||||
expiration date 12/31/49 | 8,190 | 968,468 | |||
Total Convertible Preferred Stock (cost $13,349,441) | 12,212,741 |
17
Statement of net assets
Delaware Dividend Income Fund
Principal amount | Value | |||||
Commercial Mortgage-Backed Securities – 0.93% | ||||||
Bank of America Merrill Lynch | ||||||
Commercial Mortgage Securities | ||||||
Series 2006-4 A4 5.634% 7/10/46 | $ | 1,000,000 | $ | 1,095,237 | ||
•# | DBUBS Mortgage Trust | |||||
Series 2011-LC1A C 144A 5.728% 11/10/46 | 500,000 | 455,436 | ||||
•# | Goldman Sachs Mortgage Securities II | |||||
Series 2010-C1 C 144A 5.635% 8/10/43 | 500,000 | 448,244 | ||||
• | Morgan Stanley Capital I | |||||
Series 2007-T27 A4 5.794% 6/11/42 | 1,000,000 | 1,124,553 | ||||
# | WF-RBS Commercial Mortgage Trust | |||||
Series 2011-C3 A 4.375% 3/15/44 | 500,000 | 521,508 | ||||
Total Commercial Mortgage-Backed Securities | ||||||
(cost $3,522,813) | 3,644,978 | |||||
Convertible Bonds – 10.96% | ||||||
Capital Goods – 1.60% | ||||||
AAR | ||||||
1.75% exercise price $29.27, | ||||||
expiration date 1/1/26 | 966,000 | 970,830 | ||||
#144A 1.75% exercise price $29.27, | ||||||
expiration date 1/1/26 | 1,150,000 | 1,155,750 | ||||
L-3 Communications Holdings 3.00% | ||||||
exercise price $96.48, expiration date 8/1/35 | 1,570,000 | 1,511,125 | ||||
# | Owens-Brockway Glass Container 144A 3.00% | |||||
exercise price $47.47, expiration date 5/28/15 | 2,820,000 | 2,612,025 | ||||
6,249,730 | ||||||
Communications – 1.59% | ||||||
# | Alaska Communications Systems Group | |||||
144A 6.25% exercise price $10.28 | ||||||
expiration date 4/27/18 | 2,400,000 | 1,899,000 | ||||
# | Clearwire Communications 144A 8.25% | |||||
exercise price $7.08, expiration date 11/30/40 | 1,320,000 | 519,750 | ||||
* | Leap Wireless International 4.50% | |||||
exercise price $93.21, expiration date 7/15/14 | 1,709,000 | 1,495,375 | ||||
Rovi 2.625% exercise price $47.36, | ||||||
expiration date 2/10/40 | 912,000 | 923,400 | ||||
SBA Communications 4.00% exercise price $30.38, | ||||||
expiration date 10/1/14 | 960,000 | 1,410,000 | ||||
6,247,525 |
18
Principal amount | Value | |||||
Convertible Bonds (continued) | ||||||
Consumer Cyclical – 0.84% | ||||||
ArvinMeritor 4.00% exercise price $26.73, | ||||||
expiration date 2/15/27 | $ | 2,441,000 | $ | 1,598,855 | ||
Pantry 3.00% exercise price $50.09, | ||||||
expiration date 11/15/12 | 1,755,000 | 1,711,125 | ||||
3,309,980 | ||||||
Consumer Non-Cyclical – 1.43% | ||||||
Alere 3.00% exercise price $43.98, | ||||||
expiration date 5/15/16 | 1,078,000 | 1,016,015 | ||||
Dendreon 2.875% exercise price $51.24, | ||||||
expiration date 1/13/16 | 875,000 | 619,063 | ||||
LifePoint Hospitals 3.50% exercise price $51.79, | ||||||
expiration date 5/14/14 | 1,000,000 | 1,041,250 | ||||
Mylan 3.75% exercise price $13.32, | ||||||
expiration date 9/10/15 | 1,012,000 | 1,634,379 | ||||
NuVasive | ||||||
2.25% exercise price $44.74, | ||||||
expiration date 3/15/13 | 55,000 | 51,975 | ||||
2.75% exercise price $42.13, | ||||||
expiration date 6/30/17 | 1,674,000 | 1,224,113 | ||||
5,586,795 | ||||||
Energy – 0.24% | ||||||
James River Coal 4.50% exercise price $25.78, | ||||||
expiration date 12/1/15 | 1,165,000 | 949,475 | ||||
949,475 | ||||||
Financials – 0.70% | ||||||
#Ares Capital 144A 5.75% exercise price $19.13, | ||||||
expiration date 2/1/16 | 1,558,000 | 1,480,100 | ||||
#BGC Partners 144A 4.50% exercise price $9.84, | ||||||
expiration date 7/13/16 | 1,378,000 | 1,250,535 | ||||
2,730,635 | ||||||
Industrials – 0.35% | ||||||
#Altra Holdings 144A 2.75% exercise price $27.70, | ||||||
expiration date 2/27/31 | 562,000 | 521,958 | ||||
Φ | General Cable 4.50% exercise price $36.75, | |||||
expiration date 11/15/29 | 850,000 | 836,187 | ||||
1,358,145 |
19
Statement of net assets
Delaware Dividend Income Fund
Principal amount | Value | |||||
Convertible Bonds (continued) | ||||||
Real Estate – 0.53% | ||||||
# | Lexington Master 144A 5.45% | |||||
exercise price $19.49, expiration date 1/15/27 | $ | 216,000 | $ | 217,080 | ||
# | Lexington Realty Trust 144A 6.00% | |||||
exercise price $7.09, expiration date 1/11/30 | 1,604,000 | 1,876,680 | ||||
2,093,760 | ||||||
Service – 0.55% | ||||||
Live Nation Entertainment 2.875% | ||||||
exercise price $27.14, expiration date 7/14/27 | 2,402,000 | 2,158,798 | ||||
2,158,798 | ||||||
Technology – 3.13% | ||||||
Advanced Micro Devices | ||||||
5.75% exercise price $20.13, | ||||||
expiration date 8/15/12 | 447,000 | 452,029 | ||||
6.00% exercise price $28.08, | ||||||
expiration date 4/30/15 | 962,000 | 945,165 | ||||
#144A 6.00% exercise price $28.08, | ||||||
expiration date 4/30/15 | 660,000 | 648,450 | ||||
Alcatel-Lucent USA 2.875% exercise price $15.35, | ||||||
expiration date 6/15/25 | 1,716,000 | 1,501,500 | ||||
# | Ciena 144A 3.75% exercise price $20.17, | |||||
expiration date 10/15/18 | 1,616,000 | 1,519,040 | ||||
Equinix 4.75% exercise price $84.32, | ||||||
expiration date 6/15/16 | 1,222,000 | 1,704,690 | ||||
Φ | Hologic 2.00% exercise price $38.59, | |||||
expiration date 12/15/37 | 2,181,000 | 2,071,949 | ||||
Linear Technology 3.00% exercise price $44.11, | ||||||
expiration date 5/1/27 | 1,912,000 | 1,966,970 | ||||
VeriSign 3.25% exercise price $34.37, | ||||||
expiration date 8/15/37 | 1,252,000 | 1,428,845 | ||||
12,238,638 | ||||||
Total Convertible Bonds (cost $46,458,467) | 42,923,481 | |||||
Corporate Bonds – 20.53% | ||||||
Automotive – 1.09% | ||||||
American Axle & Manufacturing | ||||||
7.75% 11/15/19 | 310,000 | 298,375 | ||||
7.875% 3/1/17 | 435,000 | 421,950 |
20
Principal amount | Value | ||||||
Corporate Bonds (continued) | |||||||
Automotive (continued) | |||||||
ArvinMeritor 8.125% 9/15/15 | $ | 434,000 | $ | 386,260 | |||
# | Chrysler Group 144A 8.25% 6/15/21 | 1,160,000 | 980,200 | ||||
Dana Holding 6.75% 2/15/21 | 395,000 | 398,456 | |||||
Ford Motor Credit 12.00% 5/15/15 | 500,000 | 612,255 | |||||
# | International Automotive Components Group | ||||||
144A 9.125% 6/1/18 | 330,000 | 315,150 | |||||
# | Jaguar Land Rover 144A 8.125% 5/15/21 | 490,000 | 465,500 | ||||
Tomkins 9.00% 10/1/18 | 344,000 | 373,240 | |||||
4,251,386 | |||||||
Banking – 0.66% | |||||||
BAC Capital Trust VI 5.625% 3/8/35 | 835,000 | 677,579 | |||||
• | Fifth Third Capital Trust IV 6.50% 4/15/37 | 640,000 | 620,800 | ||||
•# | HBOS Capital Funding 144A 6.071% 6/29/49 | 1,014,000 | 628,680 | ||||
• | Regions Financial Trust II 6.625% 5/15/47 | 815,000 | 660,150 | ||||
2,587,209 | |||||||
Basic Industry – 2.88% | |||||||
* | AK Steel 7.625% 5/15/20 | 601,000 | 549,914 | ||||
# | Algoma Acquisition 144A 9.875% 6/15/15 | 458,000 | 373,270 | ||||
# | APERAM 144A 7.75% 4/1/18 | 275,000 | 236,500 | ||||
* | Associated Materials 9.125% 11/1/17 | 339,000 | 288,574 | ||||
*# | Cemex Espana Luxembourg 144A 9.25% 5/12/20 | 955,000 | 658,949 | ||||
# | FMG Resources August 2006 144A | ||||||
6.875% 2/1/18 | 300,000 | 276,750 | |||||
7.00% 11/1/15 | 345,000 | 335,513 | |||||
Headwaters 7.625% 4/1/19 | 462,000 | 396,165 | |||||
Hexion US Finance 9.00% 11/15/20 | 275,000 | 217,250 | |||||
# | Ineos Group Holdings 144A 8.50% 2/15/16 | 555,000 | 435,675 | ||||
Interface 7.625% 12/1/18 | 348,000 | 363,660 | |||||
# | International Wire Group Holdings | ||||||
144A 9.75% 4/15/15 | 409,000 | 417,127 | |||||
James River Coal 7.875% 4/1/19 | 430,000 | 328,950 | |||||
# | JMC Steel Group 144A 8.25% 3/15/18 | 490,000 | 463,050 | ||||
# | Kinove German Bondco 144A 9.625% 6/15/18 | 410,000 | 373,100 | ||||
# | Longview Fibre Paper & Packaging | ||||||
144A 8.00% 6/1/16 | 490,000 | 494,900 | |||||
# | LyondellBasell Industries 144A 6.00% 11/15/21 | 240,000 | 246,000 | ||||
# | MacDermid 144A 9.50% 4/15/17 | 565,000 | 542,400 | ||||
# | Masonite International 144A 8.25% 4/15/21 | 475,000 | 448,875 |
21
Statement of net assets
Delaware Dividend Income Fund
Principal amount | Value | |||||||
Corporate Bonds (continued) | ||||||||
Basic Industry (continued) | ||||||||
# | Millar Western Forest Products 144A 8.50% 4/1/21 | $ | 340,000 | $ | 260,100 | |||
Momentive Performance Materials 9.00% 1/15/21 | 910,000 | 652,924 | ||||||
# | Murray Energy 144A 10.25% 10/15/15 | 361,000 | 358,293 | |||||
Norcraft 10.50% 12/15/15 | 534,000 | 483,270 | ||||||
# | Nortek 144A 8.50% 4/15/21 | 510,000 | 422,025 | |||||
Ply Gem Industries 13.125% 7/15/14 | 421,000 | 402,055 | ||||||
Polypore International 7.50% 11/15/17 | 482,000 | 496,460 | ||||||
@= | PT Holdings 12.431% 8/27/12 | 339,851 | 154,632 | |||||
Ryerson | ||||||||
•7.804% 11/1/14 | 239,000 | 218,685 | ||||||
12.00% 11/1/15 | 387,000 | 389,903 | ||||||
11,284,969 | ||||||||
Capital Goods – 1.25% | ||||||||
Berry Plastics | ||||||||
9.75% 1/15/21 | 412,000 | 395,520 | ||||||
10.25% 3/1/16 | 315,000 | 291,375 | ||||||
# | DAE Aviation Holdings 144A 11.25% 8/1/15 | 466,000 | 486,970 | |||||
Kratos Defense & Security Solutions 10.00% 6/1/17 | 425,000 | 430,313 | ||||||
* | Manitowoc 9.50% 2/15/18 | 414,000 | 429,525 | |||||
Mueller Water Products 7.375% 6/1/17 | 490,000 | 431,813 | ||||||
Pregis 12.375% 10/15/13 | 437,000 | 408,595 | ||||||
# | Reynolds Group Issuer 144A | |||||||
8.25% 2/15/21 | 100,000 | 85,500 | ||||||
9.00% 4/15/19 | 710,000 | 642,550 | ||||||
9.875% 8/15/19 | 755,000 | 694,599 | ||||||
# | Sealed Air 144A | |||||||
8.125% 9/15/19 | 105,000 | 111,825 | ||||||
8.375% 9/15/21 | 145,000 | 155,513 | ||||||
TriMas 9.75% 12/15/17 | 321,000 | 343,470 | ||||||
4,907,568 | ||||||||
Communications – 2.03% | ||||||||
# | Clearwire Communications 144A 12.00% 12/1/15 | 785,000 | 667,250 | |||||
# | Columbus International 144A 11.50% 11/20/14 | 570,000 | 592,800 | |||||
Cricket Communications 7.75% 10/15/20 | 486,000 | 382,725 | ||||||
# | Digicel Group 144A | |||||||
8.875% 1/15/15 | 210,000 | 207,900 | ||||||
10.50% 4/15/18 | 430,000 | 432,150 | ||||||
# | EH Holding 144A 7.625% 6/15/21 | 390,000 | 385,125 | |||||
# | Integra Telecom Holdings 144A 10.75% 4/15/16 | 360,000 | 319,500 |
22
Principal amount | Value | ||||||
Corporate Bonds (continued) | |||||||
Communications (continued) | |||||||
Intelsat Bermuda | |||||||
11.25% 2/4/17 | $ | 1,165,000 | $ | 1,074,712 | |||
PIK 11.50% 2/4/17 | 450,469 | 414,431 | |||||
# | Intelsat Jackson Holdings 144A 7.25% 10/15/20 | 12,000 | 11,460 | ||||
† | Level 3 Communications 11.875% 2/1/19 | 240,000 | 249,600 | ||||
† | Level 3 Financing 10.00% 2/1/18 | 437,000 | 450,110 | ||||
NII Capital 7.625% 4/1/21 | 240,000 | 244,800 | |||||
PAETEC Holding 9.875% 12/1/18 | 310,000 | 337,125 | |||||
Satmex Escrow 9.50% 5/15/17 | 240,000 | 244,800 | |||||
Sprint Capital 8.75% 3/15/32 | 524,000 | 410,030 | |||||
Sprint Nextel 8.375% 8/15/17 | 390,000 | 336,375 | |||||
Telesat Canada 12.50% 11/1/17 | 291,000 | 323,738 | |||||
West 7.875% 1/15/19 | 480,000 | 482,400 | |||||
# | Wind Acquisition Finance 144A 11.75% 7/15/17 | 420,000 | 364,350 | ||||
7,931,381 | |||||||
Consumer Cyclical – 1.25% | |||||||
Brown Shoe 7.125% 5/15/19 | 385,000 | 363,825 | |||||
# | Burlington Coat Factory Warehouse | ||||||
144A 10.00% 2/15/19 | 760,000 | 735,300 | |||||
* | CKE Restaurants 11.375% 7/15/18 | 158,000 | 169,060 | ||||
Dave & Buster’s 11.00% 6/1/18 | 377,000 | 388,310 | |||||
DineEquity 9.50% 10/30/18 | 625,000 | 650,000 | |||||
# | Icon Health & Fitness 144A 11.875% 10/15/16 | 165,000 | 133,650 | ||||
Michaels Stores | |||||||
11.375% 11/1/16 | 145,000 | 152,975 | |||||
13.00% 11/1/16 | 280,000 | 298,200 | |||||
# | Needle Merger Sub 144A 8.125% 3/15/19 | 395,000 | 365,375 | ||||
OSI Restaurant Partners 10.00% 6/15/15 | 465,000 | 481,275 | |||||
Quiksilver 6.875% 4/15/15 | 683,000 | 638,605 | |||||
Rite Aid 8.625% 3/1/15 | 110,000 | 102,850 | |||||
Tops Holding 10.125% 10/15/15 | 417,000 | 432,638 | |||||
4,912,063 | |||||||
Consumer Non-Cyclical – 0.76% | |||||||
# | Armored Autogroup 144A 9.25% 11/1/18 | 451,000 | 363,055 | ||||
# | Blue Merger Sub 144A 7.625% 2/15/19 | 462,000 | 415,800 | ||||
Dean Foods 7.00% 6/1/16 | 346,000 | 337,350 | |||||
NBTY 9.00% 10/1/18 | 589,000 | 630,230 | |||||
* | Pinnacle Foods Finance 10.625% 4/1/17 | 546,000 | 567,840 |
23
Statement of net assets
Delaware Dividend Income Fund
Principal amount | Value | |||||||
Corporate Bonds (continued) | ||||||||
Consumer Non-Cyclical (continued) | ||||||||
* | Visant 10.00% 10/1/17 | $ | 267,000 | $ | 246,975 | |||
# | Viskase 144A 9.875% 1/15/18 | 393,000 | 393,983 | |||||
2,955,233 | ||||||||
Energy – 2.48% | ||||||||
American Petroleum Tankers Parent 10.25% 5/1/15 | 304,000 | 311,600 | ||||||
Antero Resources Finance 9.375% 12/1/17 | 420,000 | 445,200 | ||||||
# | Calumet Specialty Products Partners | |||||||
144A 9.375% 5/1/19 | 480,000 | 463,200 | ||||||
Chaparral Energy 8.25% 9/1/21 | 705,000 | 697,949 | ||||||
Chesapeake Energy | ||||||||
6.625% 8/15/20 | 387,000 | 402,480 | ||||||
6.875% 11/15/20 | 52,000 | 54,860 | ||||||
Comstock Resources 7.75% 4/1/19 | 448,000 | 425,600 | ||||||
Copano Energy 7.75% 6/1/18 | 220,000 | 220,000 | ||||||
Crosstex Energy 8.875% 2/15/18 | 321,000 | 343,470 | ||||||
# | Hercules Offshore 144A 10.50% 10/15/17 | 347,000 | 334,855 | |||||
# | Hilcorp Energy I 144A 8.00% 2/15/20 | 385,000 | 407,138 | |||||
Holly 9.875% 6/15/17 | 236,000 | 260,190 | ||||||
# | Kodiak Oil & Gas 144A 8.125% 12/1/19 | 410,000 | 416,663 | |||||
# | Laredo Petroleum 144A 9.50% 2/15/19 | 510,000 | 531,037 | |||||
Linn Energy | ||||||||
8.625% 4/15/20 | 276,000 | 289,800 | ||||||
#144A 6.50% 5/15/19 | 220,000 | 210,100 | ||||||
# | NFR Energy 144A 9.75% 2/15/17 | 802,000 | 693,730 | |||||
# | Oasis Petroleum 144A 7.25% 2/1/19 | 380,000 | 389,500 | |||||
Offshore Group Investments 11.50% 8/1/15 | 385,000 | 414,838 | ||||||
PetroHawk Energy 7.25% 8/15/18 | 472,000 | 531,000 | ||||||
Petroleum Development 12.00% 2/15/18 | 401,000 | 431,075 | ||||||
Pioneer Drilling | ||||||||
9.875% 3/15/18 | 277,000 | 287,041 | ||||||
#144A 9.875% 3/15/18 | 265,000 | 274,606 | ||||||
Quicksilver Resources 9.125% 8/15/19 | 405,000 | 426,769 | ||||||
SandRidge Energy 7.50% 3/15/21 | 490,000 | 450,800 | ||||||
9,713,501 | ||||||||
Financials – 0.53% | ||||||||
E Trade Financial PIK 12.50% 11/30/17 | 405,000 | 459,675 | ||||||
•†# | ILFC E-Capital Trust I 144A 4.77% 12/21/65 | 355,000 | 214,665 | |||||
•†# | ILFC E-Capital Trust II 144A 6.25% 12/21/65 | 818,000 | 541,925 |
24
Principal amount | Value | ||||||
Corporate Bonds (continued) | |||||||
Financials (continued) | |||||||
Nuveen Investments | |||||||
10.50% 11/15/15 | $ | 675,000 | $ | 648,000 | |||
#144A 10.50% 11/15/15 | 207,000 | 196,650 | |||||
2,060,915 | |||||||
Healthcare – 1.12% | |||||||
Accellent 10.00% 11/1/17 | 262,000 | 206,980 | |||||
# | AMGH Merger Sub 144A 9.25% 11/1/18 | 460,000 | 458,850 | ||||
Community Health Systems | |||||||
*8.875% 7/15/15 | 268,000 | 276,040 | |||||
#144A 8.00% 11/15/19 | 215,000 | 209,088 | |||||
HealthSouth 7.75% 9/15/22 | 95,000 | 92,625 | |||||
# | Immucor 144A 11.125% 8/15/19 | 215,000 | 220,375 | ||||
# | inVentiv Health 144A 10.00% 8/15/18 | 392,000 | 373,380 | ||||
# | Kinetic Concepts 144A 10.50% 11/1/18 | 130,000 | 125,125 | ||||
Lantheus Medical Imaging 9.75% 5/15/17 | 605,000 | 503,662 | |||||
LVB Acquisition 11.625% 10/15/17 | 426,000 | 457,950 | |||||
# | Multiplan 144A 9.875% 9/1/18 | 471,000 | 472,177 | ||||
Radiation Therapy Services 9.875% 4/15/17 | 385,000 | 290,675 | |||||
Radnet Management 10.375% 4/1/18 | 307,000 | 273,230 | |||||
# | STHI Holding 144A 8.00% 3/15/18 | 435,000 | 442,613 | ||||
4,402,770 | |||||||
Insurance – 0.62% | |||||||
• | American International Group 8.175% 5/15/58 | 606,000 | 537,068 | ||||
• | ING Groep 5.775% 12/29/49 | 1,180,000 | 796,500 | ||||
•# | Liberty Mutual Group 144A 7.00% 3/15/37 | 568,000 | 477,120 | ||||
• | XL Group 6.50% 12/31/49 | 783,000 | 614,655 | ||||
2,425,343 | |||||||
Media – 1.49% | |||||||
Affinion Group 7.875% 12/15/18 | 457,000 | 382,738 | |||||
# | AMC Networks 144A 7.75% 7/15/21 | 485,000 | 515,313 | ||||
# | AMO Escrow 144A 11.50% 12/15/17 | 228,000 | 208,620 | ||||
* | Cablevision Systems 8.00% 4/15/20 | 197,000 | 200,940 | ||||
CCO Holdings | |||||||
7.00% 1/15/19 | 45,000 | 45,506 | |||||
8.125% 4/30/20 | 549,000 | 581,939 | |||||
Clear Channel Communications 9.00% 3/1/21 | 472,000 | 391,760 | |||||
Entravision Communications 8.75% 8/1/17 | 275,000 | 270,188 |
25
Statement of net assets
Delaware Dividend Income Fund
Principal amount | Value | ||||||
Corporate Bonds (continued) | |||||||
Media (continued) | |||||||
MDC Partners | |||||||
11.00% 11/1/16 | $ | 389,000 | $ | 416,230 | |||
#144A 11.00% 11/1/16 | 235,000 | 249,100 | |||||
Nexstar Broadcasting 8.875% 4/15/17 | 371,000 | 376,565 | |||||
*# | ONO Finance II 144A 10.875% 7/15/19 | 685,000 | 571,975 | ||||
# | UPC Holding 144A 9.875% 4/15/18 | 480,000 | 496,800 | ||||
# | UPCB Finance III 144A 6.625% 7/1/20 | 226,000 | 216,960 | ||||
Virgin Media Finance 8.375% 10/15/19 | 380,000 | 408,500 | |||||
WMG Acquisition 9.50% 6/15/16 | 285,000 | 300,675 | |||||
# | XM Satellite Radio 144A 7.625% 11/1/18 | 175,000 | 181,125 | ||||
5,814,934 | |||||||
Services – 2.36% | |||||||
# | ARAMARK Holdings PIK 144A 8.625% 5/1/16 | 690,000 | 703,799 | ||||
Beazer Homes USA 9.125% 5/15/19 | 542,000 | 356,365 | |||||
Cardtronics 8.25% 9/1/18 | 110,000 | 119,625 | |||||
Casella Waste Systems 7.75% 2/15/19 | 505,000 | 493,638 | |||||
*# | Delta Air Lines 144A 12.25% 3/15/15 | 354,000 | 377,010 | ||||
# | Equinox Holdings 144A 9.50% 2/1/16 | 433,000 | 439,495 | ||||
Harrah’s Operating 10.00% 12/15/18 | 1,096,000 | 706,919 | |||||
Kansas City Southern de Mexico | |||||||
6.125% 6/15/21 | 230,000 | 238,050 | |||||
8.00% 2/1/18 | 243,000 | 267,300 | |||||
M/I Homes 8.625% 11/15/18 | 711,000 | 627,458 | |||||
* | Marina District Finance 9.875% 8/15/18 | 147,000 | 131,933 | ||||
MGM Resorts International 11.375% 3/1/18 | 1,275,000 | 1,380,187 | |||||
Peninsula Gaming 10.75% 8/15/17 | 440,000 | 453,200 | |||||
PHH 9.25% 3/1/16 | 390,000 | 403,650 | |||||
* | Pinnacle Entertainment 8.75% 5/15/20 | 354,000 | 345,150 | ||||
RSC Equipment Rental | |||||||
8.25% 2/1/21 | 405,000 | 386,775 | |||||
10.25% 11/15/19 | 21,000 | 22,155 | |||||
# | Seven Seas Cruises 144A 9.125% 5/15/19 | 630,000 | 646,538 | ||||
Standard Pacific 10.75% 9/15/16 | 221,000 | 226,525 | |||||
Swift Services Holdings 10.00% 11/15/18 | 160,000 | 167,200 | |||||
*# | Swift Transportation 144A 12.50% 5/15/17 | 174,000 | 185,310 | ||||
# | United Air Lines 144A 12.00% 11/1/13 | 553,000 | 573,738 | ||||
9,252,020 |
26
Principal amount | Value | ||||||
Corporate Bonds (continued) | |||||||
Technology – 1.40% | |||||||
Advanced Micro Devices 7.75% 8/1/20 | $ | 695,000 | $ | 701,950 | |||
Aspect Software 10.625% 5/15/17 | 152,000 | 155,040 | |||||
Avaya | |||||||
�� 9.75% 11/1/15 | 80,000 | 63,000 | |||||
#144A 7.00% 4/1/19 | 454,000 | 408,600 | |||||
PIK 10.125% 11/1/15 | 285,000 | 226,575 | |||||
CDW 12.535% 10/12/17 | 505,000 | 502,475 | |||||
First Data 11.25% 3/31/16 | 1,327,000 | 1,088,139 | |||||
GXS Worldwide 9.75% 6/15/15 | 434,000 | 402,535 | |||||
# | iGate 144A 9.00% 5/1/16 | 465,000 | 467,325 | ||||
MagnaChip Semiconductor 10.50% 4/15/18 | 283,000 | 290,783 | |||||
Sanmina-SCI 8.125% 3/1/16 | 1,000 | 1,033 | |||||
# | Seagate HDD Cayman 144A 7.75% 12/15/18 | 475,000 | 491,625 | ||||
# | Telcordia Technologies 144A 11.00% 5/1/18 | 535,000 | 668,750 | ||||
5,467,830 | |||||||
Utilities – 0.61% | |||||||
AES 8.00% 6/1/20 | 53,000 | 57,571 | |||||
# | Calpine 144A | ||||||
7.50% 2/15/21 | 280,000 | 287,000 | |||||
7.875% 1/15/23 | 185,000 | 191,938 | |||||
Elwood Energy 8.159% 7/5/26 | 519,112 | 510,676 | |||||
GenOn Energy | |||||||
*9.50% 10/15/18 | 214,000 | 217,210 | |||||
9.875% 10/15/20 | 195,000 | 194,513 | |||||
Mirant Americas 8.50% 10/1/21 | 665,000 | 615,124 | |||||
• | Puget Sound Energy 6.974% 6/1/67 | 323,000 | 320,728 | ||||
2,394,760 | |||||||
Total Corporate Bonds (cost $84,103,788) | 80,361,882 | ||||||
Leveraged Non-Recourse Security – 0.00% | |||||||
w@# | JPMorgan Fixed Income Pass Through Trust | ||||||
Series 2007-B 144A 0.00% 1/15/87 | 1,300,000 | 0 | |||||
Total Leveraged Non-Recourse Security (cost $1,105,000) | 0 |
27
Statement of net assets
Delaware Dividend Income Fund
Principal amount | Value | ||||||
«Senior Secured Loans – 0.53% | |||||||
Brock Holdings III 10.00% 2/15/18 | $ | 160,000 | $ | 148,134 | |||
Clear Channel Communication Tranche B | |||||||
3.89% 1/29/16 | 560,000 | 419,415 | |||||
Dynegy Tranche 1st Lien 9.25% 7/11/16 | 215,000 | 217,657 | |||||
PQ 6.74% 7/30/15 | 720,000 | 639,302 | |||||
Texas Competitive Electric Holdings | |||||||
3.76% 10/10/14 | 895,000 | 653,350 | |||||
Total Senior Secured Loan (cost $2,156,306) | 2,077,858 | ||||||
Number of shares | |||||||
Exchange-Traded Funds – 0.39% | |||||||
* | ProShares UltraShort Real Estate | 16,000 | 645,280 | ||||
† | SPDR Gold Trust | 5,200 | 884,676 | ||||
Total Exchange-Traded Funds (cost $1,531,741) | 1,529,956 | ||||||
Preferred Stock – 0.94% | |||||||
Ally Financial | |||||||
∏•8.50% | 10,000 | 173,500 | |||||
#144A 7.00% | 1,400 | 980,875 | |||||
w@=#† | Auction Pass Through Trust | ||||||
Series 2007-6 144A 0.00% | 100,000 | 0 | |||||
@ | Cogdell Spencer 8.50% | 45,300 | 979,839 | ||||
DDR 7.50% | 10,850 | 264,523 | |||||
† | Freddie Mac 6.02% | 36,000 | 58,050 | ||||
• | GMAC Capital Trust I 8.125% | 20,000 | 380,000 | ||||
†= | PT Holdings | 222 | 0 | ||||
SL Green Realty 7.625% | 13,400 | 333,660 | |||||
Vornado Realty Trust 6.625% | 18,900 | 468,153 | |||||
@† | W2007 Grace Acquisitions I 8.75% | 20,900 | 53,556 | ||||
Total Preferred Stock (cost $5,507,638) | 3,692,156 | ||||||
Warrant – 0.00% | |||||||
@= | Port Townsend | 222 | 2 | ||||
Total Warrant (cost $5,328) | 2 |
28
Principal amount | Value | ||||||||
Short-Term Investments – 3.17% | |||||||||
≠Discount Note – 0.17% | |||||||||
Federal Home Loan Bank 0.01% 12/23/11 | $ | 671,673 | $ | 671,669 | |||||
671,669 | |||||||||
Repurchase Agreement – 3.00% | |||||||||
BNP Paribas 0.08%, dated 11/30/11, | |||||||||
to be repurchased on 12/1/11, | |||||||||
repurchase price $11,734,026 | |||||||||
(collateralized by U.S. government | |||||||||
obligations 0.00%-4.25% 1/13/12-5/15/21; | |||||||||
market value $11,968,680) | 11,734,000 | 11,734,000 | |||||||
11,734,000 | |||||||||
Total Short-Term Investments (cost $12,405,669) | 12,405,669 | ||||||||
Total Value of Securities Before Securities | |||||||||
Lending Collateral – 99.51% (cost $391,352,373) | 389,637,541 | ||||||||
Number of shares | |||||||||
Securities Lending Collateral**– 2.43% | |||||||||
Investment Companies | |||||||||
BNY Mellon SL DBT II Liquidating Fund | 443,456 | 428,645 | |||||||
Delaware Investments Collateral Fund No. 1 | 9,101,664 | 9,101,664 | |||||||
†@Mellon GSL Reinvestment Trust II | 704,271 | 0 | |||||||
Total Securities Lending Collateral (cost $10,249,391) | 9,530,309 | ||||||||
Total Value of Securities – 101.94% (cost $401,601,764) | 399,167,850 | © | |||||||
Number of contracts | |||||||||
Written Options – (0.07%) | |||||||||
Call Options – (0.07%) | |||||||||
DE, strike price $70.00, expires 12/17/11 (MSC) | (170 | ) | (160,650 | ) | |||||
WHR, strike price $50.00, expires 12/17/11 (MSC) | (180 | ) | (21,240 | ) | |||||
WHR, strike price $52.50, expires 12/17/11 (MSC) | (140 | ) | (5,600 | ) | |||||
SNY, strike price $33.00, expires 12/17/11 (MSC) | (250 | ) | (60,000 | ) | |||||
SNY, strike price $34.00, expires 12/17/11 (MSC) | (300 | ) | (44,400 | ) | |||||
Total Written Options (premium received $(305,554)) | (291,890 | ) |
29
Statement of net assets
Delaware Dividend Income Fund
Obligation to Return Securities | ||||
Lending Collateral** – (2.62%) | $ | (10,249,391 | ) | |
Receivables and Other Assets | ||||
Net of Other Liabilities – 0.75% | 2,922,727 | |||
Net Assets Applicable to 39,577,819 | ||||
Shares Outstanding – 100.00% | $ | 391,549,296 | ||
Net Asset Value – Delaware Dividend Income Fund | ||||
Class A ($189,313,103 / 19,146,461 Shares) | $9.89 | |||
Net Asset Value – Delaware Dividend Income Fund | ||||
Class B ($22,802,682 / 2,303,898 Shares) | $9.90 | |||
Net Asset Value – Delaware Dividend Income Fund | ||||
Class C ($151,106,709 / 15,262,472 Shares) | $9.90 | |||
Net Asset Value – Delaware Dividend Income Fund | ||||
Class R ($3,340,213 / 337,803 Shares) | $9.89 | |||
Net Asset Value – Delaware Dividend Income Fund | ||||
Institutional Class ($24,986,589 / 2,527,185 Shares) | $9.89 | |||
Components of Net Assets at November 30, 2011: | ||||
Shares of beneficial interest (unlimited authorization – no par) | $ | 557,107,782 | ||
Distributions in excess of net investment income | (409,785 | ) | ||
Accumulated net realized loss on investments | (162,413,756 | ) | ||
Net unrealized depreciation of investments and derivatives | (2,734,945 | ) | ||
Total net assets | $ | 391,549,296 |
* | Fully or partially on loan. |
† | Non income producing security. |
= | Security is being fair valued in accordance with the Fund’s fair valuation policy. At November 30, 2011, the aggregate value of fair valued securities was $154,645, which represented 0.04% of the Fund’s net assets. See Note 1 in “Notes to financial statements.” |
@ | Illiquid security. At November 30, 2011, the aggregate value of illiquid securities was $1,188,029 which represented 0.30% of the Fund’s net assets. See Note 10 in “Notes to financial statements.” |
30
• | Variable rate security. The rate shown is the rate as of November 30, 2011. Interest rates reset periodically. |
# | Security exempt from registration under Rule 144A of the Securities Act of 1933, as amended. At November 30, 2011, the aggregate value of Rule 144A securities was $49,420,786, which represented 12.62% of the Fund’s net assets. See Note 10 in “Notes to financial statements.” |
Φ | Step coupon bond. Coupon increases or decreases periodically based on a predetermined schedule. Stated rate in effect at November 30, 2011. |
∏ | Restricted security. These investments are in securities not registered under the Securities Act of 1933, as amended, and have certain restrictions on resale which may limit their liquidity. At November 30, 2011, the aggregate value of restricted securities was $173,511 or 0.04% of the Fund’s net assets. See Note 10 in “Notes to financial statements.” |
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. |
« | 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. Stated rate in effect at November 30, 2011. |
≠ | The rate shown is the effective yield at the time of purchase. |
** | See Note 9 in “Notes to financial statements” for additional information on securities lending collateral and non-cash collateral. |
© | Includes $10,224,411 of securities loaned. |
Net Asset Value and Offering Price Per Share – | |||
Delaware Dividend Income Fund | |||
Net asset value Class A (A) | $ | 9.89 | |
Sales charge (5.75% of offering price) (B) | 0.60 | ||
Offering price | $ | 10.49 |
(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. |
31
Statement of net assets
Delaware Dividend Income Fund
The following foreign currency exchange contracts and swap contracts were outstanding at November 30, 2011:1 |
Foreign Currency Exchange Contracts
Unrealized | |||||||||||||||||||||
Appreciation | |||||||||||||||||||||
Counterparty | Contracts to Receive (Deliver) | In Exchange For | Settlement Date | (Depreciation) | |||||||||||||||||
MNB | AUD | 2,300 | USD | (2,376 | ) | 12/5/11 | (12 | ) | |||||||||||||
MNB | CAD | 9,410 | USD | (9,291 | ) | 12/2/11 | (65 | ) | |||||||||||||
MNB | CHF | 5,153 | USD | (5,682 | ) | 12/5/11 | (40 | ) | |||||||||||||
MNB | EUR | 2,536 | USD | (3,431 | ) | 12/2/11 | (23 | ) | |||||||||||||
MNB | EUR | 12,629 | USD | (17,085 | ) | 12/5/11 | (115 | ) | |||||||||||||
MNB | GBP | 6,828 | USD | (10,771 | ) | 12/5/11 | (54 | ) | |||||||||||||
MNB | HKD | 35,772 | USD | (4,605 | ) | 12/2/11 | (1 | ) | |||||||||||||
MNB | JPY | (120,900 | ) | USD | 1,550 | 12/1/11 | (9 | ) | |||||||||||||
MNB | JPY | 680,238 | USD | (8,798 | ) | 12/5/11 | (25 | ) | |||||||||||||
MNB | KRW | 1,542,110 | USD | (1,373 | ) | 12/2/11 | (21 | ) | |||||||||||||
MNB | SEK | 25,612 | USD | (3,803 | ) | 12/5/11 | (19 | ) | |||||||||||||
$ | (384 | ) |
Swap Contracts
CDS Contracts
Annual | Unrealized | ||||||||||||||||
Protection | Termination | Appreciation | |||||||||||||||
Counterparty | Swap Referenced Obligation | Notional Value | Payments | Date | (Depreciation) | ||||||||||||
Protection Purchased: | |||||||||||||||||
BAML | CDX.NA.HY.17 | $ | 1,980,000 | 5.00% | 12/20/16 | $ | (14,937 | ) | |||||||||
CITI | CDX.NA.HY.17 | 1,980,000 | 5.00% | 12/20/16 | (19,823 | ) | |||||||||||
GSC | CDX.NA.HY.17 | 9,900,000 | 5.00% | 12/20/16 | (176,942 | ) | |||||||||||
JPMC | CDX.NA.HY.17 | 1,980,000 | 5.00% | 12/20/16 | (22,217 | ) | |||||||||||
Total | $ | (233,919 | ) |
The use of foreign currency exchange contracts, written options and swaps contracts involves elements of market risk and risks in excess of the amount recognized in the financial statements. The notional values presented above represent the Fund’s total exposure in such contracts, whereas only the net unrealized appreciation (depreciation) is reflected in the Fund’s net assets.
1See Note 8 in “Notes to financial statements.”
32
Summary of abbreviations: |
See accompanying notes, which are an integral part of the financial statements.
33
Statement of operations | |
Delaware Dividend Income Fund | Year Ended November 30, 2011 |
Investment Income: | |||||||||
Interest | $ | 11,370,794 | |||||||
Dividends | 7,973,003 | ||||||||
Security lending income | 188,430 | ||||||||
Foreign tax withheld | (95,655 | ) | $ | 19,436,572 | |||||
Expenses: | |||||||||
Management fees | 2,742,840 | ||||||||
Distribution expenses – Class A | 620,213 | ||||||||
Distribution expenses – Class B | 270,338 | ||||||||
Distribution expenses – Class C | 1,640,826 | ||||||||
Distribution expenses – Class R | 19,360 | ||||||||
Dividend disbursing and transfer agent fees and expenses | 751,497 | ||||||||
Accounting and administration expenses | 165,883 | ||||||||
Reports and statements to shareholders | 75,596 | ||||||||
Registration fees | 72,201 | ||||||||
Custodian fees | 48,882 | ||||||||
Legal fees | 31,613 | ||||||||
Audit and taxes | 30,867 | ||||||||
Trustees’ fees | 22,417 | ||||||||
Dues and services | 12,079 | ||||||||
Pricing fees | 9,760 | ||||||||
Insurance fees | 8,796 | ||||||||
Consulting fees | 4,200 | ||||||||
Trustees’ expenses | 1,438 | 6,528,806 | |||||||
Less waived distribution expenses – Class A | (102,683 | ) | |||||||
Less waived distribution expenses – Class R | (3,227 | ) | |||||||
Less expense paid indirectly | (890 | ) | |||||||
Total operating expenses | 6,422,006 | ||||||||
Net Investment Income | 13,014,566 |
34
Net Realized and Unrealized Gain (Loss): | ||||
Net realized gain (loss) on: | ||||
Investments | $ | 12,060,369 | ||
Foreign currencies | (75,850 | ) | ||
Foreign currency exchange contracts | (258,894 | ) | ||
Written options | 305,386 | |||
Swap contracts | (531,572 | ) | ||
Net realized gain | 11,499,439 | |||
Net change in unrealized appreciation (depreciation) of | ||||
investments and derivatives | (9,395,452 | ) | ||
Net Realized and Unrealized Gain | 2,103,987 | |||
Net Increase in Net Assets Resulting from Operations | $ | 15,118,553 |
See accompanying notes, which are an integral part of the financial statements.
35
Statements of changes in net assets
Delaware Dividend Income Fund
Year Ended | ||||||||
11/30/11 | 11/30/10 | |||||||
Increase (Decrease) in Net Assets from Operations: | ||||||||
Net investment income | $ | 13,014,566 | $ | 13,892,879 | ||||
Net realized gain (loss) | 11,499,439 | (2,793,120 | ) | |||||
Net change in unrealized appreciation (depreciation) | (9,395,452 | ) | 31,162,256 | |||||
Net increase in net assets resulting | ||||||||
from operations | 15,118,553 | 42,262,015 | ||||||
Dividends and Distributions to Shareholders from: | ||||||||
Net investment income: | ||||||||
Class A | (7,130,302 | ) | (9,092,299 | ) | ||||
Class B | (727,678 | ) | (1,216,637 | ) | ||||
Class C | (4,449,446 | ) | (5,878,746 | ) | ||||
Class R | (103,829 | ) | (151,477 | ) | ||||
Institutional Class | (846,137 | ) | (431,703 | ) | ||||
(13,257,392 | ) | (16,770,862 | ) | |||||
Capital Share Transactions: | ||||||||
Proceeds from shares sold: | ||||||||
Class A | 49,039,660 | 27,671,433 | ||||||
Class B | 216,109 | 284,117 | ||||||
Class C | 31,981,153 | 19,653,715 | ||||||
Class R | 824,420 | 756,560 | ||||||
Institutional Class | 23,446,273 | 12,586,556 | ||||||
Net asset value of shares issued upon reinvestment | ||||||||
of dividends and distributions: | ||||||||
Class A | 5,827,698 | 7,304,780 | ||||||
Class B | 603,444 | 1,000,567 | ||||||
Class C | 3,701,150 | 4,801,845 | ||||||
Class R | 103,829 | 151,477 | ||||||
Institutional Class | 626,298 | 313,834 | ||||||
116,370,034 | 74,524,884 |
36
Year Ended | ||||||||
11/30/11 | 11/30/10 | |||||||
Capital Share Transactions (continued): | ||||||||
Cost of shares repurchased: | ||||||||
Class A | $ | (59,591,640 | ) | $ | (55,570,505 | ) | ||
Class B | (7,530,062 | ) | (8,071,290 | ) | ||||
Class C | (37,434,726 | ) | (37,547,418 | ) | ||||
Class R | (683,658 | ) | (1,147,063 | ) | ||||
Institutional Class | (11,165,256 | ) | (2,890,606 | ) | ||||
(116,405,342 | ) | (105,226,882 | ) | |||||
Decrease in net assets derived from | ||||||||
capital share transactions | (35,308 | ) | (30,701,998 | ) | ||||
Net Increase (Decrease) in Net Assets | 1,825,853 | (5,210,845 | ) | |||||
Net Assets: | ||||||||
Beginning of year | 389,723,443 | 394,934,288 | ||||||
End of year (including distributions in excess of | ||||||||
net investment income of $409,785 | ||||||||
and $2,249,604, respectively) | $ | 391,549,296 | $ | 389,723,443 |
See accompanying notes, which are an integral part of the financial statements.
37
Financial highlights
Delaware Dividend Income Fund Class A
Selected data for each share of the Fund outstanding throughout each period were as follows:
Net asset value, beginning of period |
Income (loss) from investment operations: |
Net investment income1 |
Net realized and unrealized gain (loss) |
Total from investment operations |
Less dividends and distributions from: |
Net investment income |
Net realized gain on investments |
Total dividends and distributions |
Net asset value, end of period |
Total return2 |
Ratios and supplemental data: |
Net assets, end of period (000 omitted) |
Ratio of expenses to average net assets |
Ratio of expenses to average net assets |
prior to fees waived and expense paid indirectly |
Ratio of net investment income to average net assets |
Ratio of net investment income to average net assets |
prior to fees waived and expense paid indirectly |
Portfolio turnover |
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 during all of the periods shown reflects waiver by the manager and/or distributor. Performance would have been lower had the waivers not been in effect. |
See accompanying notes, which are an integral part of the financial statements.
38
Year Ended | ||||||||||||||||
11/30/11 | 11/30/10 | 11/30/09 | 11/30/08 | 11/30/07 | ||||||||||||
$9.810 | $9.190 | $7.010 | $12.030 | $12.590 | ||||||||||||
0.351 | 0.373 | 0.407 | 0.400 | 0.456 | ||||||||||||
0.086 | 0.695 | 2.247 | (4.595 | ) | (0.529 | ) | ||||||||||
0.437 | 1.068 | 2.654 | (4.195 | ) | (0.073 | ) | ||||||||||
(0.357 | ) | (0.448 | ) | (0.474 | ) | (0.489 | ) | (0.426 | ) | |||||||
— | — | — | (0.336 | ) | (0.061 | ) | ||||||||||
(0.357 | ) | (0.448 | ) | (0.474 | ) | (0.825 | ) | (0.487 | ) | |||||||
$9.890 | $9.810 | $9.190 | $7.010 | $12.030 | ||||||||||||
4.39% | 11.91% | 39.35% | (37.15% | ) | (0.72% | ) | ||||||||||
$189,313 | $192,876 | $200,720 | $179,588 | $450,620 | ||||||||||||
1.19% | 1.26% | 1.17% | 1.00% | 1.00% | ||||||||||||
1.24% | 1.31% | 1.36% | 1.26% | 1.17% | ||||||||||||
3.41% | 3.93% | 5.22% | 3.92% | 3.60% | ||||||||||||
3.36% | 3.88% | 5.03% | 3.66% | 3.43% | ||||||||||||
110% | 109% | 69% | 51% | 52% |
39
Financial highlights
Delaware Dividend Income Fund Class B
Selected data for each share of the Fund outstanding throughout each period were as follows:
Net asset value, beginning of period |
Income (loss) from investment operations: |
Net investment income1 |
Net realized and unrealized gain (loss) |
Total from investment operations |
Less dividends and distributions from: |
Net investment income |
Net realized gain on investments |
Total dividends and distributions |
Net asset value, end of period |
Total return2 |
Ratios and supplemental data: |
Net assets, end of period (000 omitted) |
Ratio of expenses to average net assets |
Ratio of expenses to average net assets |
prior to fees waived and expense paid indirectly |
Ratio of net investment income to average net assets |
Ratio of net investment income to average net assets |
prior to fees waived and expense paid indirectly |
Portfolio turnover |
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 during some of the periods shown reflects a waiver by the manager. Performance would have been lower had the waiver not been in effect. |
See accompanying notes, which are an integral part of the financial statements.
40
Year Ended | ||||||||||||||||
11/30/11 | 11/30/10 | 11/30/09 | 11/30/08 | 11/30/07 | ||||||||||||
$9.820 | $9.190 | $7.010 | $12.020 | $12.580 | ||||||||||||
0.274 | 0.302 | 0.348 | 0.324 | 0.360 | ||||||||||||
0.086 | 0.694 | 2.248 | (4.590 | ) | (0.528 | ) | ||||||||||
0.360 | 0.996 | 2.596 | (4.266 | ) | (0.168 | ) | ||||||||||
(0.280 | ) | (0.366 | ) | (0.416 | ) | (0.408 | ) | (0.331 | ) | |||||||
— | — | — | (0.336 | ) | (0.061 | ) | ||||||||||
(0.280 | ) | (0.366 | ) | (0.416 | ) | (0.744 | ) | (0.392 | ) | |||||||
$9.900 | $9.820 | $9.190 | $7.010 | $12.020 | ||||||||||||
3.61% | 11.06% | 38.47% | (37.72% | ) | (1.38% | ) | ||||||||||
$22,803 | $29,003 | $33,725 | $32,534 | $78,235 | ||||||||||||
1.94% | 2.01% | 1.92% | 1.75% | 1.75% | ||||||||||||
1.94% | 2.01% | 2.06% | 1.96% | 1.87% | ||||||||||||
2.66% | 3.18% | 4.47% | 3.17% | 2.85% | ||||||||||||
2.66% | 3.18% | 4.33% | 2.96% | 2.73% | ||||||||||||
110% | 109% | 69% | 51% | 52% |
41
Financial highlights
Delaware Dividend Income Fund Class C
Selected data for each share of the Fund outstanding throughout each period were as follows:
Net asset value, beginning of period |
Income (loss) from investment operations: |
Net investment income1 |
Net realized and unrealized gain (loss) |
Total from investment operations |
Less dividends and distributions from: |
Net investment income |
Net realized gain on investments |
Total dividends and distributions |
Net asset value, end of period |
Total return2 |
Ratios and supplemental data: |
Net assets, end of period (000 omitted) |
Ratio of expenses to average net assets |
Ratio of expenses to average net assets |
prior to fees waived and expense paid indirectly |
Ratio of net investment income to average net assets |
Ratio of net investment income to average net assets |
prior to fees waived and expense paid indirectly |
Portfolio turnover |
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 during some of the periods shown reflects a waiver by the manager. Performance would have been lower had the waiver not been in effect. |
See accompanying notes, which are an integral part of the financial statements.
42
Year Ended | ||||||||||||||||
11/30/11 | 11/30/10 | 11/30/09 | 11/30/08 | 11/30/07 | ||||||||||||
$9.820 | $9.190 | $7.010 | $12.030 | $12.580 | ||||||||||||
0.274 | 0.302 | 0.348 | 0.323 | 0.360 | ||||||||||||
0.086 | 0.694 | 2.248 | (4.599 | ) | (0.518 | ) | ||||||||||
0.360 | 0.996 | 2.596 | (4.276 | ) | (0.158 | ) | ||||||||||
(0.280 | ) | (0.366 | ) | (0.416 | ) | (0.408 | ) | (0.331 | ) | |||||||
— | — | — | (0.336 | ) | (0.061 | ) | ||||||||||
(0.280 | ) | (0.366 | ) | (0.416 | ) | (0.744 | ) | (0.392 | ) | |||||||
$9.900 | $9.820 | $9.190 | $7.010 | $12.030 | ||||||||||||
3.61% | 11.06% | 38.27% | (37.63% | ) | (1.38% | ) | ||||||||||
$151,107 | $152,009 | $155,028 | $146,769 | $402,782 | ||||||||||||
1.94% | 2.01% | 1.92% | 1.75% | 1.75% | ||||||||||||
1.94% | 2.01% | 2.06% | 1.96% | 1.87% | ||||||||||||
2.66% | 3.18% | 4.47% | 3.17% | 2.85% | ||||||||||||
2.66% | 3.18% | 4.33% | 2.96% | 2.73% | ||||||||||||
110% | 109% | 69% | 51% | 52% |
43
Financial highlights
Delaware Dividend Income Fund Class R
Selected data for each share of the Fund outstanding throughout each period were as follows:
Net asset value, beginning of period |
Income (loss) from investment operations: |
Net investment income1 |
Net realized and unrealized gain (loss) |
Total from investment operations |
Less dividends and distributions from: |
Net investment income |
Net realized gain on investments |
Total dividends and distributions |
Net asset value, end of period |
Total return2 |
Ratios and supplemental data: |
Net assets, end of period (000 omitted) |
Ratio of expenses to average net assets |
Ratio of expenses to average net assets |
prior to fees waived and expense paid indirectly |
Ratio of net investment income to average net assets |
Ratio of net investment income to average net assets |
prior to fees waived and expense paid indirectly |
Portfolio turnover |
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 during all of the periods shown reflects waivers by the manager and/or distributor. Performance would have been lower had the waivers not been in effect. |
See accompanying notes, which are an integral part of the financial statements.
44
Year Ended | ||||||||||||||||
11/30/11 | 11/30/10 | 11/30/09 | 11/30/08 | 11/30/07 | ||||||||||||
$9.810 | $9.190 | $7.010 | $12.020 | $12.580 | ||||||||||||
0.325 | 0.349 | 0.387 | 0.374 | 0.424 | ||||||||||||
0.086 | 0.693 | 2.246 | (4.585 | ) | (0.528 | ) | ||||||||||
0.411 | 1.042 | 2.633 | (4.211 | ) | (0.104 | ) | ||||||||||
(0.331 | ) | (0.422 | ) | (0.453 | ) | (0.463 | ) | (0.395 | ) | |||||||
— | — | — | (0.336 | ) | (0.061 | ) | ||||||||||
(0.331 | ) | (0.422 | ) | (0.453 | ) | (0.799 | ) | (0.456 | ) | |||||||
$9.890 | $9.810 | $9.190 | $7.010 | $12.020 | ||||||||||||
4.13% | 11.60% | 39.15% | (37.39% | ) | (0.88% | ) | ||||||||||
$3,340 | $3,069 | $3,067 | $1,928 | $6,220 | ||||||||||||
1.44% | 1.51% | 1.42% | 1.25% | 1.25% | ||||||||||||
1.54% | 1.61% | 1.66% | 1.56% | 1.47% | ||||||||||||
3.16% | 3.68% | 4.97% | 3.67% | 3.35% | ||||||||||||
3.06% | 3.58% | 4.73% | 3.36% | 3.13% | ||||||||||||
110% | 109% | 69% | 51% | 52% |
45
Financial highlights
Delaware Dividend Income Fund Institutional Class
Selected data for each share of the Fund outstanding throughout each period were as follows:
Net asset value, beginning of period |
Income (loss) from investment operations: |
Net investment income1 |
Net realized and unrealized gain (loss) |
Total from investment operations |
Less dividends and distributions from: |
Net investment income |
Net realized gain on investments |
Total dividends and distributions |
Net asset value, end of period |
Total return2 |
Ratios and supplemental data: |
Net assets, end of period (000 omitted) |
Ratio of expenses to average net assets |
Ratio of expenses to average net assets |
prior to fees waived and expense paid indirectly |
Ratio of net investment income to average net assets |
Ratio of net investment income to average net assets |
prior to fees waived and expense paid indirectly |
Portfolio turnover |
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 during some of the periods shown reflects a waiver by the manager. Performance would have been lower had the waiver not been in effect. |
See accompanying notes, which are an integral part of the financial statements.
46
Year Ended | ||||||||||||||||
11/30/11 | 11/30/10 | 11/30/09 | 11/30/08 | 11/30/07 | ||||||||||||
$9.810 | $9.190 | $7.010 | $12.040 | $12.600 | ||||||||||||
0.375 | 0.399 | 0.426 | 0.425 | 0.488 | ||||||||||||
0.088 | 0.697 | 2.246 | (4.602 | ) | (0.528 | ) | ||||||||||
0.463 | 1.096 | 2.672 | (4.177 | ) | (0.040 | ) | ||||||||||
(0.383 | ) | (0.476 | ) | (0.492 | ) | (0.517 | ) | (0.459 | ) | |||||||
— | — | — | (0.336 | ) | (0.061 | ) | ||||||||||
(0.383 | ) | (0.476 | ) | (0.492 | ) | (0.853 | ) | (0.520 | ) | |||||||
$9.890 | $9.810 | $9.190 | $7.010 | $12.040 | ||||||||||||
4.55% | 12.24% | 39.68% | (37.04% | ) | (0.46% | ) | ||||||||||
$24,986 | $12,766 | $2,394 | $2,288 | $5,384 | ||||||||||||
0.94% | 1.01% | 0.92% | 0.75% | 0.75% | ||||||||||||
0.94% | 1.01% | 1.06% | 0.96% | 0.87% | ||||||||||||
3.66% | 4.18% | 5.47% | 4.17% | 3.85% | ||||||||||||
3.66% | 4.18% | 5.33% | 3.96% | 3.73% | ||||||||||||
110% | 109% | 69% | 51% | 52% |
47
Notes to financial statements | |
Delaware Dividend Income Fund | November 30, 2011 |
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 maximum 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 B shares may be purchased only 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 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 (U.S. GAAP) 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 ask prices will be used, which approximates fair value. Securities listed on a foreign exchange are generally valued at the last quoted sales price on the valuation date. U.S. government and agency securities are valued at the mean between the bid and ask prices, which approximates fair value. Short-term debt securities are valued at market value. Other debt securities and credit default swap (CDS) contracts are valued based upon valuations provided by an independent pricing service or broker and reviewed by management. To the extent current market prices are not available, the pricing service may take into account developments related to the specific security, as well as transactions in comparable securities. Investment company securities are valued at net asset value per share. Open-end investment companies are valued at their published net asset value. Foreign currency exchange contracts are valued at the mean between the bid and ask prices, which approximates fair value. Interpolated values are derived when the settlement date of the contract is an interim date for which quotations are not available. Futures contracts are valued at the daily quoted settlement
48
prices. Exchange-traded options are valued at the last reported sale price or, if no sales are reported, at the mean between the last reported bid and ask prices. Generally, index 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 (Board). In determining whether market quotations are readily available or fair valuation will be used, various factors will be taken into consideration, such as market closures or suspension of trading in a security. The Fund may use fair value pricing more frequently for securities traded primarily in non-U.S. markets because, among other things, most foreign markets close well before the Fund values its securities, generally as of 4:00 p.m. Eastern time. The earlier close of these foreign markets gives rise to the possibility that significant events, including broad market moves, government actions or pronouncements, aftermarket trading, or news events may have occurred in the interim. To account for this, the Fund may frequently value foreign securities using fair value prices based on third-party vendor modeling tools (international fair value pricing).
Federal Income Taxes — No provision for federal income taxes has been made as the Fund intends to continue to qualify for federal income tax purposes as a regulated investment company under Subchapter M of the Internal Revenue Code of 1986, as amended, and make the requisite distributions to shareholders. The Fund evaluates tax positions taken or expected to be taken in the course of preparing the Fund’s tax returns to determine whether the tax positions are “more-likely-than-not” of being sustained by the applicable tax authority. Tax positions not deemed to meet the more-likely-than-not threshold are recorded as a tax benefit or expense in the current year. Management has analyzed the Fund’s tax positions taken on federal income tax returns for all open tax years (November 30, 2008 – November 30, 2011), and has concluded that no provision for federal income tax is required in 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 purchase certain U.S. government securities subject to the counterparty’s agreement to repurchase them at an agreed upon date and price. The counterparty will be required on a daily basis to maintain the value of the collateral subject to the agreement at not less than the repurchase price (including accrued interest). The agreements are conditioned upon the collateral being deposited under the Federal Reserve book-entry system with the Fund’s custodian or a third party sub-custodian. In the event of default or bankruptcy by the other party to the agreement, retention of the collateral may be subject to legal proceedings. All open repurchase agreements as of the date of this report were entered into on November 30, 2011.
Foreign Currency Transactions — Transactions denominated in foreign currencies are recorded at the prevailing exchange rates on the valuation date in accordance with the Fund’s prospectus. The value of all assets and liabilities denominated in foreign currencies is translated into U.S. dollars at the exchange rate of such currencies against the U.S. dollar daily. Transaction
49
Notes to financial statements
Delaware Dividend Income Fund
1. Significant Accounting Policies (continued)
gains or losses resulting from changes in exchange rates during the reporting period or upon settlement of the foreign currency transaction are reported in operations for the current period. The Fund generally isolates that portion of realized gains and losses on investments in debt securities which is due to changes in foreign exchange rates from that which is due to changes in market prices of debt securities. For foreign equity securities, these changes are included in net realized and unrealized gain or loss on investments. The Fund reports certain foreign currency related transactions as components of realized gains (losses) for financial reporting purposes, whereas such components are treated as ordinary income (loss) for federal income tax purposes.
Use of Estimates — The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the fair value of investments, the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates and the differences could be material.
Other — Expenses directly attributable to the Fund are charged directly to the Fund. Other expenses common to various funds within the Delaware Investments® Family of Funds are generally allocated amongst such funds on the basis of average net assets. Management fees and some other expenses are paid monthly. Security transactions are recorded on the date the securities are purchased or sold (trade date) for financial reporting purposes. Costs used in calculating realized gains and losses on the sale of investment securities are those of the specific securities sold. Dividend income is recorded on the ex-dividend date and interest income is recorded on the accrual basis. Foreign dividends are also recorded on the ex-dividend date or as soon after the ex-dividend date that the Fund is aware of such dividends, net of all non-rebatable tax withholdings. Withholding taxes on foreign dividends have been recorded in accordance with the Fund’s understanding of the applicable country’s tax rules and rates. Discounts and premiums on non-convertible bonds are amortized to interest income over the lives of the respective securities. Distributions received from investments in Real Estate Investment Trusts (REITs) are recorded as dividend income on the ex-dividend date, subject to reclassification upon notice of the character of such distributions by the issuer. The Fund declares and pays dividends from net investment income monthly and distributions from net realized gain on investments, if any, annually. The Fund may distribute income dividends and capital gains more frequently, if necessary for tax purposes. Dividends and distributions, if any, are recorded on the ex-dividend date.
Subject to seeking best execution, the Fund may direct certain security trades to brokers who have agreed to rebate a portion of the related brokerage commission to the Fund in cash. In general, best execution refers to many factors, including the price paid or received for a security, the commission charged, the promptness and reliability of execution, the confidentiality and placement accorded the order, and other factors affecting the overall benefit obtained by the Fund on the transaction. There were no commission rebates for the year ended November 30, 2011.
50
The Fund may receive earnings credits from its custodian when positive cash balances are maintained, which are used to offset custody fees. There were no earnings credits for the year ended November 30, 2011.
The Fund receives earnings credits from its transfer agent when positive cash balances are maintained, which are used to offset transfer agent fees. The expense paid under this arrangement is included in dividend disbursing and transfer agent fees and expenses on the statement of operations with the corresponding expense offset shown as “expense paid indirectly.” For the year ended November 30, 2011, the Fund earned $890 under this agreement.
2. Investment Management, Administration Agreements and Other Transactions with Affiliates
In accordance with the terms of its investment management agreement, the Fund pays Delaware Management Company (DMC), a series of 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.
Effective March 30, 2011, 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 (excluding any 12b-1 plan and certain other expenses) do not exceed 0.98% of average daily net assets of the Fund through March 29, 2012. Prior to March 30, 2011, DMC had 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, (excluding any 12b-1 plan expenses, taxes, interest, inverse floater program expenses, brokerage fees, certain insurance costs, and nonroutine expenses or costs including, but not limited to, those relating to reorganizations, litigation, conducting shareholder meetings, and liquidations (collectively, nonroutine expenses)) did not exceed 1.07% of average daily net assets of the Fund. For purposes of this waiver and reimbursement, nonroutine expenses may also include such additional costs and expenses, as may be agreed upon from time to time by the Fund’s Board and DMC. The expense waiver and reimbursement apply only to expenses paid directly by the Fund.
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. For the year ended November 30, 2011, the Fund was charged $20,876 for these services.
51
Notes to financial statements
Delaware Dividend Income Fund
2. Investment Management, Administration Agreements and Other Transactions with Affiliates (continued)
DSC also provides dividend disbursing and transfer agent services. Effective July 18, 2011, the Fund pays DSC a monthly asset-based fee for these services. Prior to July 18, 2011, the Fund paid 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 Class C shares and 0.60% of the average daily net assets of the Class R shares. Institutional Class shares pay no distribution and service expenses. DDLP has contracted to waive distribution and service fees through March 29, 2012 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, 2011, the Fund had liabilities payable to affiliates as follows:
Investment management fee payable to DMC | $ | 209,464 |
Dividend disbursing, transfer agent and fund accounting | ||
oversight fees and other expenses payable to DSC | 9,308 | |
Distribution fees payable to DDLP | 184,032 | |
Other expenses payable to DMC and affiliates* | 14,764 |
*DMC, as part of its administrative services, pays operating expenses on behalf of the Fund and is reimbursed on a periodic basis. 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, 2011, the Fund was charged $7,610 for internal legal and tax services provided by DMC and/or its affiliates’ employees.
For the year ended November 30, 2011, DDLP earned $88,596 for commissions on sales of the Fund’s Class A shares. For the year ended November 30, 2011 DDLP received gross CDSC commissions of $16, $23,561 and $6,321 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 include expenses accrued by the Fund for each Trustee’s retainer and meeting fees. Certain officers of DMC, DSC and DDLP are officers and/or Trustees of the Trust. These officers and Trustees are paid no compensation by the Fund.
52
3. Investments
For the year ended November 30, 2011, the Fund made purchases of $447,112,592 and sales of $439,872,237 of investment securities other than U.S. government securities and short-term investments. For the year ended November 30, 2011, the Fund made purchases of $- and sales of $48,800 of long-term U.S. government securities.
At November 30, 2011, the cost of investments for federal income tax purposes was $ 414,830,378. At November 30, 2011, the net unrealized depreciation was $(15,662,528), of which $21,966,083 related to unrealized appreciation of investments and $(37,628,611) related to unrealized depreciation of investments.
U.S. GAAP defines fair value as the price that the Fund would receive to sell an asset or pay to transfer a liability in an orderly transaction between market participants at the measurement date under current market conditions. A three level hierarchy for fair value measurements has been established based upon the transparency of inputs to the valuation of an asset or liability. Inputs may be observable or unobservable and refer broadly to the assumptions that market participants would use in pricing the asset or liability. Observable inputs reflect the assumptions market participants would use in pricing the asset or liability based on market data obtained from sources independent of the reporting entity. Unobservable inputs reflect the reporting entity’s own assumptions about the assumptions that market participants would use in pricing the asset or liability developed based on the best information available under the circumstances. The Fund’s investment in its entirety is assigned a level based upon the observability of the inputs which are significant to the overall valuation. The three level hierarchy of inputs is summarized below.
Level 1 – | inputs are quoted prices in active markets for identical investments (e.g., equity securities, open-end investment companies, futures contracts, options contracts) |
Level 2 – | other observable inputs (including, but not limited to: quoted prices for similar assets or liabilities in markets that are active, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the assets or liabilities (such as interest rates, yield curves, volatilities, prepayment speeds, loss severities, credit risks and default rates) or other market-corroborated inputs) (e.g., debt securities, government securities, swap contracts, foreign currency exchange contracts, foreign securities utilizing international fair value pricing.) |
Level 3 – | inputs are significant unobservable inputs (including the Fund’s own assumptions used to determine the fair value of investments) (e.g., broker-quoted securities, fair valued securities) |
53
Notes to financial statements
Delaware Dividend Income Fund
3. Investments (continued)
The following table summarizes the valuation of the Fund’s investments by fair value hierarchy levels as of November 30, 2011:
Level 1 | Level 2 | Level 3 | Total | |||||||||||
Commercial Mortgage Backed | ||||||||||||||
Securities | $ | — | $ | 3,644,978 | $ | — | $ | 3,644,978 | ||||||
Common Stock | 220,820,789 | 9,968,018 | 11 | 230,788,818 | ||||||||||
Corporate Debt | 2,988,867 | 134,432,463 | 154,632 | 137,575,962 | ||||||||||
Investment Companies | 1,529,956 | — | — | 1,529,956 | ||||||||||
Short-Term Investments | — | 12,405,669 | — | 12,405,669 | ||||||||||
Securities Lending Collateral | — | 9,530,309 | — | 9,530,309 | ||||||||||
Other | 2,599,675 | 1,092,481 | 2 | 3,692,158 | ||||||||||
Total | $ | 227,939,287 | $ | 171,073,918 | $ | 154,645 | $ | 399,167,850 | ||||||
Foreign Currency | ||||||||||||||
Exchange Contracts | $ | — | $ | (384 | ) | $ | — | $ | (384 | ) | ||||
Swap Contracts | $ | — | $ | (233,919 | ) | $ | — | $ | (233,919 | ) | ||||
Written Options | $ | (291,890 | ) | $ | — | $ | — | $ | (291,890 | ) |
The following is a reconciliation of investments in which significant unobservable inputs (Level 3) were used in determining fair value:
Corporate | Common | Security | ||||||||||||||||
Debt | Stock | Lending | Other | Total | ||||||||||||||
Balance as of 11/30/10 | $ | 966,947 | $ | 11 | $ | — | $ | 14,637 | $ | 981,595 | ||||||||
Purchases | 6,592 | — | — | — | 6,592 | |||||||||||||
Sales | (735,482 | ) | (7,681 | ) | — | (27,213 | ) | (770,376 | ) | |||||||||
Net realized gain | 2,524 | — | — | 4 | 2,528 | |||||||||||||
Transfer out of Level 3 | — | — | — | (553,160 | ) | (553,160 | ) | |||||||||||
Net change in unrealized | ||||||||||||||||||
appreciation/depreciation | (85,949 | ) | 7,681 | — | 565,734 | 487,466 | ||||||||||||
Balance as of 11/30/11 | $ | 154,632 | $ | 11 | $ | — | $ | 2 | $ | 154,645 | ||||||||
Net change in unrealized | ||||||||||||||||||
appreciation/depreciation | ||||||||||||||||||
from investments still held | ||||||||||||||||||
as of 11/30/11 | $ | (87,850 | ) | $ | — | $ | — | $ | 27,209 | $ | (60,641 | ) |
54
During the year ended November 30, 2011, transfers out of Level 3 investments into Level 2 investments were made in the amount of $553,160 for the Fund. The transfer was due to the Fund’s pricing vendor being able to supply a matrix price with observable inputs for an investment that had been utilizing a broker quoted price. During the year ended November 30, 2011, there were no transfers between Level 1 investments and Level 2 investments that had a material impact to the Fund. This does not include transfers between Level 1 investments and Level 2 investments due to the Fund utilizing international fair value pricing during the year.
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. GAAP. Additionally, distributions from net gains on foreign currency transactions and net short-term gains on sales of investment securities are treated as ordinary income for federal income tax purposes. The tax character of dividends and distributions paid during the years ended November 30, 2011 and 2010 was as follows:
Year Ended | ||||
11/30/11 | 11/30/10 | |||
Ordinary income | $13,257,392 | $16,770,862 |
5. Components of Net Assets on a Tax Basis
As of November 30, 2011, the components of net assets on a tax basis were as follows:
Shares of beneficial interest | $ | 557,107,782 | |
Capital loss carryforwards | (149,893,736 | ) | |
Other temporary differences | 64,624 | ||
Unrealized depreciation | (15,729,374 | ) | |
Net assets | $ | 391,549,296 |
The differences between book basis and tax basis components of net assets are primarily attributable to tax deferral of losses on wash sales, tax treatment of market discount and premium on debt instruments, tax treatment of partnership income and contingent payment debt instruments.
For financial reporting purposes, capital accounts are adjusted to reflect the tax character of permanent book/tax differences. Reclassifications are primarily due to tax treatment of gain (loss) on foreign currency transactions, partnership income, contingent payment on debt instruments, market discount and premium on certain debt instruments and CDS contracts. Results of operations and net assets were not affected by these reclassifications. For the year ended November 30, 2011, the Fund recorded the following reclassifications.
55
Notes to financial statements
Delaware Dividend Income Fund
5. Components of Net Assets on a Tax Basis (continued)
Distributions in excess of net investment income | $ | 2,082,645 | |
Accumulated net realized loss | (1,803,578 | ) | |
Paid-in capital | (279,067 | ) |
For federal income tax purposes, capital loss carryforwards may be carried forward and applied against future capital gains. $ 11,227,318 was utilized in 2011. Capital loss carryforwards remaining at November 30, 2011 will expire as follows: $95,144,686 expires in 2016 and $ 54,749,050 expires in 2017.
On December 22, 2010, the Regulated Investment Company Modernization Act of 2010 (the Act) was enacted, which changed various technical rules governing the tax treatment of regulated investment companies. The changes are generally effective for taxable years beginning after the date of enactment. Under the Act, the Fund will be permitted to carry forward capital losses incurred in taxable years beginning after the date of enactment for an unlimited period. However, any losses incurred during those future taxable years will be required to be utilized prior to the losses incurred in pre-enactment taxable years, which carry an expiration date. As a result of this ordering rule, pre-enactment capital loss carryforwards may be more likely to expire unused. Additionally, post-enactment capital loss carryforwards will retain their character as either short-term or long-term capital losses rather than being considered all short-term as permitted under previous regulation.
56
6. Capital Shares
Transactions in capital shares were as follows:
Year Ended | |||||
11/30/11 | 11/30/10 | ||||
Shares sold: | |||||
Class A | 4,733,184 | 2,903,974 | |||
Class B | 21,274 | 29,560 | |||
Class C | 3,076,327 | 2,058,302 | |||
Class R | 80,472 | 80,422 | |||
Institutional Class | 2,273,998 | 1,307,297 | |||
Shares issued upon reinvestment of dividends and distributions: | |||||
Class A | 569,861 | 773,532 | |||
Class B | 58,903 | 105,905 | |||
Class C | 361,745 | 507,969 | |||
Class R | 10,179 | 16,044 | |||
Institutional Class | 61,445 | 33,090 | |||
11,247,388 | 7,816,095 | ||||
Shares repurchased: | |||||
Class A | (5,824,333 | ) | (5,850,259 | ) | |
Class B | (730,840 | ) | (851,188 | ) | |
Class C | (3,657,004 | ) | (3,952,273 | ) | |
Class R | (65,859 | ) | (117,344 | ) | |
Institutional Class | (1,109,973 | ) | (299,012 | ) | |
(11,388,009 | ) | (11,070,076 | ) | ||
Net decrease | (140,621 | ) | (3,253,981 | ) |
For the years ended November 30, 2011 and 2010, 53,216 Class B shares were converted to 53,257 Class A shares valued at $547,202 and 87,197 Class B shares were converted to 87,127 Class A shares valued at $830,839, 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), was a participant in a $50,000,000 revolving line of credit to be used for temporary or emergency purposes as an additional source of liquidity to fund redemptions of investor shares. Under the agreement, the Participants were charged an annual commitment fee, which was allocated across the Participants on the basis of each Participant’s allocation of the entire facility. The Participants were permitted to borrow up to a maximum of one third of their net assets under the agreement. The line of credit expired on November 15, 2011.
57
Notes to financial statements
Delaware Dividend Income Fund
7. Line of Credit (continued)
On November 15, 2011, the Fund, along with the other Participants, entered into an amendment to the agreement for a $125,000,000 revolving line of credit. The agreement is to be used as described above and operates in substantially the same manner as the original agreement. The agreement expires on November 13, 2012. The Fund had no amounts outstanding as of November 30, 2011 or at any time during the year then ended.
8. Derivatives
U.S. GAAP requires disclosures that enable investors to understand: 1) how and why an entity uses derivatives, 2) how they are accounted for, and 3) how they affect an entity’s results of operations and financial position.
Foreign Currency Exchange Contracts — The Fund may enter into foreign currency exchange contracts as a way of managing foreign exchange rate risk. The Fund may enter into these contracts to fix the U.S. dollar value of a security that it has agreed to buy or sell for the period between the date the trade was entered into and the date the security is delivered and paid for. The Fund may also use these contracts to hedge the U.S. dollar value of securities it already owns that are denominated in foreign currencies. The change in value is recorded as an unrealized gain or loss. When the contract is closed, a realized gain or loss is recorded equal to the difference between the value of the contract at the time it was opened and the value at the time it was closed.
The use of foreign currency exchange contracts does not eliminate fluctuations in the underlying prices of the securities, but does establish a rate of exchange that can be achieved in the future. Although foreign currency exchange contracts limit the risk of loss due to an unfavorable change in the value of the hedged currency, they also limit any potential gain that might result should the value of the currency change favorably. In addition, the Fund could be exposed to risks if the counterparties to the contracts are unable to meet the terms of their contracts. The Fund’s maximum risk of loss from counterparty credit risk is the value of its currency exchanged with the counterparty. The risk is generally mitigated by having a netting arrangement between the Fund and the counterparty and by the posting of collateral by the counterparty to the Fund to cover the Fund’s exposure to the counterparty.
Options Contracts — During the year ended November 30, 2011, the Fund entered into options contracts in the normal course of pursuing its investment objective. The Fund may buy or write options contracts for any number of reasons, including without limitation: to manage the Fund’s exposure to changes in securities prices and foreign currencies; to earn income; as an efficient means of adjusting the Fund’s overall exposure to certain markets; to protect the value of portfolio securities; and as a cash management tool. The Fund may buy or write call or put options on securities, futures, swaps “swaptions”, financial indices, and foreign currencies. When the Fund buys an option, a premium is paid and an asset is recorded and adjusted on a daily basis to reflect the current market value of the options purchased. When the Fund writes an option, a premium is received and a liability is recorded and adjusted on a daily basis to reflect the current market value of the options written. Premiums received from writing options that expire unexercised are
58
treated by the Fund on the expiration date as realized gains. The difference between the premium received and the amount paid on effecting a closing purchase transaction, including brokerage commissions, is treated as realized gain or loss. If a call option is exercised, the premium is added to the proceeds from the sale of the underlying security in determining whether the Fund has a realized gain or loss. If a put option is exercised, the premium reduces the cost basis of the securities purchased by the Fund. The Fund, as writer of an option, bears the market risk of an unfavorable change in the price of the security underlying the written option. When writing options, the Fund is subject to minimal counterparty risk because the counterparty is only obligated to pay premiums and does not bear the market risk of an unfavorable market change. Transactions in written options during the year ended November 30, 2011 for the Fund were as follows:
Number of | ||||||
contracts | Premiums | |||||
Options outstanding at November 30, 2010 | — | $ | — | |||
Options written | 7,767 | 653,950 | ||||
Options expired | (5,639 | ) | (235,927 | ) | ||
Options terminated in closing purchase transactions | (1,088 | ) | (112,469 | ) | ||
Options outstanding at November 30, 2011 | 1,040 | $ | 305,554 |
Swap Contracts — The Fund may enter into index swap contracts and CDS contracts in the normal course of pursuing its investment objective. 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.
Index Swaps. Index swaps involve commitments to pay interest in exchange for a market linked return based on a notional amount. To the extent the total return of the security, instrument or basket of instruments underlying the transaction exceeds the offsetting interest obligation, the 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. The Fund’s maximum risk of loss from counterparty credit risk is the discounted net value of the cash flows to be received from/paid to the counterparty over the index swap contract’s remaining life, to the extent that the amount is positive. This risk is mitigated by having a netting arrangement between the Fund and the counterparty and by the posting of collateral by the counterparty to the Fund to cover the Fund’s exposure to the counterparty. No index swap contracts were outstanding at November 30, 2011.
59
Notes to financial statements
Delaware Dividend Income Fund
8. Derivatives (continued)
Credit Default Swaps. A CDS contract is a risk-transfer instrument through which one party (purchaser of protection) transfers to another party (seller of protection) the financial risk of a credit event (as defined in the CDS agreement), as it relates to a particular reference security or basket of securities (such as an index). In exchange for the protection offered by the seller of protection, the purchaser of protection agrees to pay the seller of protection a periodic amount at a stated rate that is applied to the notional amount of the CDS contract. In addition, an upfront payment may be made or received by the 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 reference security (or basket of securities) to the counterparty. Credit events generally include, among others, bankruptcy, failure to pay, and obligation default.
During the year ended November 30, 2011, the Fund entered into CDS contracts as a purchaser of protection. Periodic payments on such contracts are accrued daily and recorded as unrealized losses (gains) on swap contracts. Upon payment, such amounts are recorded as realized losses (gains) on swap contracts. Upfront payments made or received in connection with CDS contracts are amortized over the expected life of the CDS contracts as unrealized losses (gains) on swap contracts. The change in value of CDS contracts is recorded as unrealized appreciation or depreciation daily. A realized gain or loss is recorded upon a credit event (as defined in the CDS agreement) or the maturity or termination of the agreement. At November 30, 2011, the net unrealized depreciation of credit default swaps was $233,919. If a credit event had occurred for all open swap transactions where collateral posting was required as of November 30, 2011, the swaps’ credit-risk-related contingent features would have been triggered and the Fund would have received $15,840,000 less the value of the contracts’ related reference obligations. The Fund received securities collateral of $350,000 and cash collateral of $886,000 for certain open derivatives.
CDS may involve greater risks than if the Fund had invested in the reference obligation directly. CDS contracts are subject to general market risk, liquidity risk, counterparty risk and credit risk. The Fund’s maximum risk of loss from counterparty credit risk, either as the seller of protection or the buyer of protection, is the fair value of the contract. This risk is mitigated by having a netting arrangement between the Fund and the counterparty and by the posting of collateral by the counterparty to the Fund to cover the Fund’s exposure to the counterparty.
60
Swaps Generally. Because there are generally no organized markets 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 movement in the value of the underlying security, instrument or basket of instruments, if any, at the day of default. Risks also arise from potential losses from adverse market movements and such losses could exceed the unrealized amounts shown on the statement of net assets.
Fair values of derivative instruments as of November 30, 2011 were as follows:
Asset Derivatives | Liability Derivatives | ||||||||||
Statement of Net | Statement of Net | ||||||||||
Assets Location | Fair Value | Assets Location | Fair Value | ||||||||
Forward currency exchange | |||||||||||
contracts (Foreign currency | |||||||||||
exchange contracts) | Receivables and other assets net of other liabilities | $ | — | Receivables and other assets net of other liabilities | $ | (384 | ) | ||||
Equity contracts | |||||||||||
(Written options) | Written options, at value | 13,664 | Written options, at value | — | |||||||
Credit contracts | |||||||||||
(Swap contracts) | Receivables and other assets net of other liabilities | — | Receivables and other assets net of other liabilities | (233,919 | ) | ||||||
Total | $ | 13,664 | $ | (234,303 | ) |
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Notes to financial statements
Delaware Dividend Income Fund
8. Derivatives (continued)
The effect of derivative instruments on the statement of operations for the year ended November 30, 2011 was as follows:
Realized Gain | Change in Unrealized | |||||||||||
or Loss on | Appreciation or | |||||||||||
Derivatives | Depreciation | |||||||||||
Location of Gain or Loss on | Recognized in | on Derivatives | ||||||||||
Derivatives Recognized in Income | Income | Recognized in Income | ||||||||||
Forward currency exchange | ||||||||||||
contracts (Foreign currency | ||||||||||||
exchange contracts) | Net realized loss on foreign currency exchange contracts and net change in unrealized appreciation/depreciation of investments and foreign currencies | $ | (258,894 | ) | $ | (384 | ) | |||||
Equity contracts | ||||||||||||
(Written options) | Net realized gain on written options and net change in unrealized appreciation/depreciation of investments and foreign currencies | 305,386 | 13,664 | |||||||||
Credit contracts | ||||||||||||
(Swap contracts) | Net realized loss on swap contracts and net change in unrealized appreciation/depreciation of investments and foreign currencies | (531,572 | ) | (233,919 | ) | |||||||
Total | $ | (485,080 | ) | $ | (220,639 | ) |
Derivatives Generally. The table below summarizes the average balance of derivative holdings by the Fund during the year ended November 30, 2011. The average balance of derivatives held is generally similar to the volume of derivative activity for the year ended November 30, 2011.
Asset | Liability | ||||
Derivative | Derivative | ||||
Volume | Volume | ||||
Forward foreign currency contracts (average cost) | $ | 132,660 | $ | 176,091 | |
Options contracts (average notional amount) | — | 29,723 | |||
Swap contracts (average notional amount) | 5,640,521 | — |
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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 The Bank of New York Mellon (BNY Mellon). At the time a security is loaned, the borrower must post collateral equal to the required percentage of the market value of the loaned security, including any accrued interest. The required percentage is: (i) 102% with respect to U.S. securities and foreign securities that are denominated and payable in U.S. dollars; and (ii) 105% with respect to foreign securities. With respect to each loan, if on any business day the aggregate market value of securities collateral plus cash collateral held is less than the aggregate market value of the securities which are the subject of such loan, the borrower will be notified to provide additional collateral by the end of the following business day which, together with the collateral already held, will be not less than the applicable initial collateral requirements for such security loan. If the aggregate market value of securities collateral and cash collateral held with respect to a security loan exceeds the applicable initial collateral requirement, upon request of the borrower BNY Mellon must return enough collateral to the borrower by the end of the following business day to reduce the value of the remaining initial collateral to the applicable initial collateral requirement for such security loan. As a result of the foregoing, the value of the collateral held with respect to a loaned security may be temporarily more or less than the value of the security on loan.
Cash collateral received is generally invested in the Delaware Investments Collateral Fund No. 1 (Collective Trust) established by BNY Mellon for the purpose of investment on behalf of funds managed by DMC that participate in BNY Mellon’s securities lending program. The Collective Trust may invest in U.S. government securities and high quality corporate debt, asset-backed and other money market securities and in repurchase agreements collateralized by such securities, provided that the Collective Trust will generally have a dollar-weighted average portfolio maturity of 60 days or less. The Collective Trust seeks to maintain a net asset value per unit of $1.00, but there can be no assurance that it will always be able to do so. The Fund may incur investment losses as a result of investing securities lending collateral in the Collective Trust or another collateral investment pool. This could occur if an investment in a collateral investment pool defaulted or if it were necessary to liquidate assets in the collateral investment pool to meet returns on outstanding security loans at a time when the collateral investment pool’s net asset value per unit was less than $1.00. Under those circumstances, the Fund may not receive an amount from the collateral investment pool that is equal in amount to the collateral the Fund would be required to return to the borrower of the securities and the Fund would be required to make up for this shortfall. Effective April 20, 2009, BNY Mellon transferred the assets of the Fund’s previous collateral investment pool other than cash and assets with a maturity of one business day or less to the BNY Mellon SL DBT II Liquidating Fund (Liquidating Fund), effectively bifurcating the previous collateral investment pool. The Fund’s exposure to the Liquidating Fund is expected to decrease as the Liquidating Fund’s assets mature or are sold. In October 2008, BNY Mellon transferred certain distressed securities from the previous collateral investment pool into the Mellon GSL Reinvestment Trust II. The Fund can also accept U.S. government securities and letters of credit (non-cash collateral) in connection with securities loans. In the event of default
63
Notes to financial statements
Delaware Dividend Income Fund
9. Securities Lending (continued)
or bankruptcy by the lending agent, realization and/or retention of the collateral may be subject to legal proceedings. In the event the borrower fails to return loaned securities and the collateral received is insufficient to cover the value of the loaned securities and provided such collateral shortfall is not the result of investment losses, the lending agent has agreed to pay the amount of the shortfall to the Fund or, at the discretion of the lending agent, replace the loaned securities. The Fund continues to record dividends or interest, as applicable, on the securities loaned and is subject to changes in value of the securities loaned that may occur during the term of the loan. The Fund has the right under the Lending Agreement to recover the securities from the borrower on demand. With respect to security loans collateralized by non-cash collateral, the Fund receives loan premiums paid by the borrower. With respect to security loans collateralized by cash collateral, the earnings from the collateral investments are shared among the Fund, the security lending agent and the borrower. The Fund records security lending income net of allocations to the security lending agent and the borrower.
At November 30, 2011, the value of securities on loan was $10,224,411, for which the Fund received collateral, comprised of non-cash collateral valued at $2,884 and cash collateral of $10,249,391. At November 30, 2011, the value of invested collateral was $9,530,309. Investments purchased with cash collateral are presented on the statement of net asset 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 are securities rated lower than BBB- by Standard & Poor’s and Baa3 by Moody’s Investors Service, or similarly rated by another nationally recognized statistical rating organization. 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 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, 2011. 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 has delegated to DMC the day-to-day functions of determining whether
64
individual securities are liquid for purposes of the Fund’s limitation on investments in illiquid securities. Securities eligible for resale pursuant to Rule 144A, which are determined to be liquid, are not subject to the Fund’s 15% limit on investments in illiquid securities. Rule 144A and illiquid 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. Subsequent Events
Management has determined that no material events or transactions occurred subsequent to November 30, 2011 that would require recognition or disclosure in the Fund’s financial statements.
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. All designations are based on financial information available as of the date of this annual report and, accordingly are subject to change. For any and all items requiring designation, it is the intention of the Fund to designate the maximum amount permitted under the Internal Revenue Code and the regulations thereunder.
For the fiscal year ended November 30, 2011, the Fund designates distributions paid during the year as follows:
(A) | Ordinary Income Distributions (Tax Basis)* | 100% |
Qualifying Dividends1 | 40% |
For the fiscal year ended November 30, 2011, certain dividends paid by the Fund have been determined to be interest-related dividends and may be subject to relief from U.S. withholding for foreign shareholders, as provided by the American Jobs Creation Act of 2004 and as extended by Tax Relief, Unemployment Insurance Reauthorization and Jobs Creation Act of 2010. For the fiscal year ended November 30, 2011, the Fund has designated maximum distributions of Qualified Interest Income of $ 8,247,315.
65
Report of independent
registered public accounting firm
To the Board of Trustees of Delaware Group Equity Funds V and Shareholders of
Delaware Dividend Income Fund:
In our opinion, the accompanying statement of net assets and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of Delaware Dividend Income Fund (one of the series constituting Delaware Group Equity Funds V, hereafter referred to as the “Fund”) at November 30, 2011, the results of its operations for the year then ended and the changes in its net assets and the financial highlights for each of the two years in the period then ended, in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to as “financial statements”) are the responsibility of the Fund’s management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements 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 are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities at November 30, 2011 by correspondence with the custodian and brokers, provide a reasonable basis for our opinion. The financial highlights for each of the three years in the period ended November 30, 2009 were audited by other independent accountants whose report dated January 21, 2010 expressed an unqualified opinion on those statements.
PricewaterhouseCoopers LLP
Philadelphia, Pennsylvania
January 23, 2012
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Other Fund information
(Unaudited)
Delaware Dividend Income Fund
Board Consideration of Delaware Dividend Income Fund Investment Advisory Agreement
At a meeting held on August 16-17, 2011 (the “Annual Meeting”), the Board of Trustees (the “Board”), including a majority of disinterested or independent Trustees, approved the renewal of the Investment Advisory Agreement for the Delaware Dividend Income Fund (the “Fund”). In making its decision, the Board considered information furnished specifically in connection with the renewal of the Investment Advisory Agreement with Delaware Management Company (“DMC”), which included materials provided by DMC and its affiliates (“Delaware Investments”) concerning, among other things, the nature, extent and quality of services provided to the Fund, the costs of such services to the Fund, economies of scale and the financial condition and profitability of Delaware Investments. In addition, in connection with the Annual Meeting, reports were provided in May 2011 and included independent historical and comparative reports provided by Lipper, Inc., an independent statistical compilation organization (“Lipper”). The Lipper reports compared the Fund’s investment performance and expenses with those of other comparable mutual funds. The independent Trustees reviewed and discussed the Lipper reports with independent legal counsel to the independent Trustees. The Board requested and received information regarding DMC’s policy with respect to advisory fee levels and its breakpoint philosophy; the structure of portfolio manager compensation; the investment manager’s profitability; and any constraints or limitations on the availability of securities in certain investment styles, which had in the past year inhibited, or which were likely in the future to inhibit, DMC’s ability to invest fully in accordance with Fund policies.
In considering information relating to the approval of the Fund’s advisory agreement, the independent Trustees received assistance and advice from and met separately with independent legal counsel to the independent Trustees. Although the Board gave attention to all information furnished, the following discussion identifies, under separate headings, the primary factors taken into account by the Board during its contract renewal considerations.
Nature, Extent and Quality of Service. The Board considered the services provided by Delaware Investments to the Fund and its shareholders. In reviewing the nature, extent and quality of services, the Board considered reports furnished to it throughout the year, which covered matters such as the relative performance of the Fund, compliance of portfolio managers with the investment policies, strategies and restrictions for the Fund, compliance by DMC and Delaware Distributors, L.P. (together, “Management”) personnel with the Code of Ethics adopted throughout the Delaware Investments® Family of Funds complex and adherence to fair value pricing procedures as established by the Board. The Board was pleased with the current staffing of the Fund’s investment advisor and the emphasis placed on research in the investment process. The Board gave favorable consideration to DMC’s efforts to control expenditures while maintaining service levels committed to fund matters. The Board noted that in July 2011 Management implemented measures to reduce overall costs and improve transfer agent and shareholder servicing functions through outsourcing. It is expected that such measures will improve the quality and lower the cost of delivering transfer agent and shareholder servicing services to the Fund. The Board once again noted the benefits provided to Fund shareholders through each
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Other Fund information
(Unaudited)
Delaware Dividend Income Fund
Board Consideration of Delaware Dividend Income Fund Investment Advisory Agreement (continued)
shareholder’s ability to exchange an investment in one Delaware Investments® fund for the same class of shares in another Delaware Investments fund without a sales charge, to reinvest Fund dividends into additional shares of the Fund or into additional shares of other Delaware Investments funds and the privilege to combine holdings in other Delaware Investments funds to obtain a reduced sales charge. The Board was satisfied with the nature, extent and quality of the overall services provided by Delaware Investments.
Investment Performance. The Board placed significant emphasis on the investment performance of the Fund in view of its importance to shareholders. Although the Board gave appropriate consideration to performance reports and discussions with portfolio managers at Investment Committee meetings throughout the year, the Board gave particular weight to the Lipper reports furnished for the Annual Meeting. The Lipper reports prepared for the Fund showed the investment performance of its Class A shares in comparison to a group of similar funds as selected by Lipper (the “Performance Universe”). A fund with the best performance ranked first, and a fund with the poorest performance ranked last. The highest/best performing 25% of funds in the Performance Universe make up the first quartile; the next 25%, the second quartile; the next 25%, the third quartile; and the poorest/worst performing 25% of funds in the Performance Universe make up the fourth quartile. Comparative annualized performance for the Fund was shown for the past one-, three-, five- and ten-year periods, as applicable, ended March 31, 2011. The Board’s objective is that the Fund’s performance for the periods considered be at or above the median of its Performance Universe. The following paragraph summarizes the performance results for the Fund and the Board’s view of such performance.
The Performance Universe for the Fund consisted of the Fund and all retail and institutional mixed asset target allocation moderate funds as selected by Lipper. The Lipper report comparison showed that the Fund’s total return for the one-, three- and ten-year periods was in the first quartile of its Performance Universe. The report further showed that the Fund’s total return for the five-year period was in the second quartile. The Board was satisfied with performance.
Comparative Expenses. The Board considered expense comparison data for the Delaware Investments Family of Funds. Management provided the Board with information on pricing levels and fee structures for the Fund as of its most recently completed fiscal year. The Board also focused on the comparative analysis of effective management fees and total expense ratios of the Fund versus effective management fees and expense ratios of a group of similar funds as selected by Lipper (the “Expense Group”). In reviewing comparative costs, the Fund’s contractual management fee and the actual management fee incurred by the Fund were compared with the contractual management fees (assuming all funds in the Expense Group were similar in size to the Fund) and actual management fees (as reported by each fund) within the Expense Group, taking into account any applicable breakpoints and fee waivers. The Fund’s total expenses were also compared with those of its Expense Group. The Lipper total expenses, for comparative consistency, were shown by Lipper for Class A shares and comparative total expenses including 12b-1 and non
68
12b-1 service fees. The Board considered fees paid to Delaware Investments for non-management services. The Board’s objective is to limit the Fund’s total expense ratio to be competitive with that of the Expense Group. The following paragraph summarizes the expense results for the Fund and the Board’s view of such expenses.
The expense comparisons for the Fund showed that its actual management fee and total expenses were in the quartile with the second highest expenses of its Expense Group. The Board noted that the Fund’s management fee and total expenses were not in line with the Board’s objective. In evaluating total expenses, the Board considered fee waivers in place through March 2012 and various initiatives implemented by Management, such as the outsourcing of certain transfer agency services, creating an opportunity for a reduction in expenses. The Board was satisfied with Management’s efforts to improve the Fund’s total expense ratio and bring it in line with the Board’s objective.
Management Profitability. The Board considered the level of profits realized by Delaware Investments in connection with the operation of the Fund. In this respect, the Board reviewed the Investment Management Profitability Analysis that addressed the overall profitability of Delaware Investments’ business in providing management and other services to each of the individual funds and the Delaware Investments® Family of Funds as a whole. Specific attention was given to the methodology followed in allocating costs for the purpose of determining profitability. Management stated that the level of profits of Delaware Investments, to a certain extent, reflect recent operational cost savings and efficiencies initiated by Delaware Investments. The Board considered Delaware Investments’ efforts to improve services provided to fund shareholders and to meet additional regulatory and compliance requirements resulting from recent industry-wide Securities and Exchange Commission initiatives. The Board also considered the extent to which Delaware Investments might derive ancillary benefits from fund operations, including the potential for procuring additional business as a result of the prestige and visibility associated with its role as service provider to the Delaware Investments Family of Funds and the benefits from allocation of fund brokerage to improve trading efficiencies. The Board found that the management fees were reasonable in light of the services rendered and the level of profitability of Delaware Investments.
Economies of Scale. The Trustees considered whether economies of scale are realized by Delaware Investments as the Fund’s assets increase and the extent to which any economies of scale are reflected in the level of management fees charged. The Trustees reviewed the standardized advisory fee pricing and structure, approved by the Board and shareholders, which includes breakpoints. Breakpoints in the advisory fee occur when the advisory fee rate is reduced on assets in excess of specified levels. Breakpoints result in a lower advisory fee than would otherwise be the case on all assets when the asset levels specified are exceeded. The Board noted that the fee under the Fund’s management contract fell within the standard structure. Although the Fund has not reached a size at which it can take advantage of breakpoints, the Board recognized that the fee was structured so that when the Fund grows, economies of scale may be shared.
69
Other Fund information
(Unaudited)
Delaware Dividend Income Fund
Change in Independent Registered Public Accounting Firm
Due to independence matters under the Securities and Exchange Commission’s auditor independence rules relating to the January 4, 2010 acquisition of Delaware Investments (including DMC, DDLP and DSC) by Macquarie Group, Ernst & Young LLP (E&Y) has resigned as the independent registered public accounting firm for Delaware Group® Equity Funds V (the Trust) effective May 20, 2010. At a meeting held on May 20, 2010, the Board of Trustees of the Trust, upon recommendation of the Audit Committee, selected PricewaterhouseCoopers LLP (PwC) to serve as the independent registered public accounting firm for the Trust for the fiscal year ending November 30, 2010. During the fiscal years ended November 30, 2009 and 2008, E&Y’s audit reports on the financial statements of the Trust did not contain any adverse opinion or disclaimer of opinion, nor were they qualified or modified as to uncertainty, audit scope, or accounting principles. In addition, there were no disagreements between the Trust and E&Y on accounting principles, financial statements disclosures or audit scope, which, if not resolved to the satisfaction of E&Y, would have caused them to make reference to the disagreement in their reports. Neither the Trust nor anyone on its behalf has consulted with PwC at any time prior to their selection with respect to the application of accounting principles to a specified transaction, either completed or proposed or the type of audit opinion that might be rendered on the Trust’s financial statements.
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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
Name, Address, | Position(s) | Length of | ||
and Birth Date | Held with Fund(s) | Time Served | ||
Interested Trustees | ||||
Patrick P. Coyne1 | Chairman, President, | Chairman and Trustee | ||
2005 Market Street | Chief Executive Officer, | since August 16, 2006 | ||
Philadelphia, PA 19103 | and Trustee | |||
April 1963 | President and | |||
Chief Executive Officer | ||||
since August 1, 2006 | ||||
1 Patrick P. Coyne is considered to be an “Interested Trustee” because he is an executive officer of the Fund’s(s’) investment advisor.
72
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 | ||||
Principal Occupation(s) | Fund Complex Overseen | Other Directorships | ||
During Past 5 Years | by Trustee or Officer | Held by Trustee or Officer | ||
Patrick P. Coyne has served in | 74 | Director and Audit | ||
various executive capacities | Committee Member | |||
at different times at | Kaydon Corp. | |||
Delaware Investments.2 | ||||
Board of Governors Member | ||||
Investment Company | ||||
Institute (ICI) | ||||
Finance Committee Member | ||||
St. John Vianney Roman | ||||
Catholic Church | ||||
Board of Trustees | ||||
Agnes Irwin School | ||||
Member of Investment | ||||
Committee | ||||
Cradle of Liberty Council, | ||||
BSA | ||||
(2007–2010) | ||||
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Board of trustees/directors and officers addendum
Delaware Investments® Family of Funds
Name, Address, | Position(s) | Length of | ||
and Birth Date | Held with Fund(s) | Time Served | ||
Independent Trustees | ||||
Thomas L. Bennett | Trustee | Since March 2005 | ||
2005 Market Street | ||||
Philadelphia, PA 19103 | ||||
October 1947 | ||||
John A. Fry | Trustee | Since January 2001 | ||
2005 Market Street | ||||
Philadelphia, PA 19103 | ||||
May 1960 | ||||
Anthony D. Knerr | Trustee | Since April 1990 | ||
2005 Market Street | ||||
Philadelphia, PA 19103 | ||||
December 1938 | ||||
Lucinda S. Landreth | Trustee | Since March 2005 | ||
2005 Market Street | ||||
Philadelphia, PA 19103 | ||||
June 1947 | ||||
74
Number of Portfolios in | ||||
Principal Occupation(s) | Fund Complex Overseen | Other Directorships | ||
During Past 5 Years | by Trustee or Officer | Held by Trustee or Officer | ||
Private Investor | 74 | Chairman of Investment | ||
(March 2004–Present) | Committee | |||
Pennsylvania Academy of | ||||
Investment Manager | Fine Arts | |||
Morgan Stanley & Co. | ||||
(January 1984–March 2004) | Investment Committee and | |||
Governance Committee | ||||
Member | ||||
Pennsylvania Horticultural | ||||
Society | ||||
Director | ||||
Bryn Mawr Bank Corp. (BMTC) | ||||
(2007–2011) | ||||
President | 74 | Board of Governors Member — | ||
Drexel University | NASDAQ OMX PHLX LLC | |||
(August 2010–Present) | ||||
Director and Audit | ||||
President | Committee Member | |||
Franklin & Marshall College | Community Health Systems | |||
(July 2002–July 2010) | ||||
Director — Ecore | ||||
International | ||||
(2009–2010) | ||||
Director — Allied | ||||
Barton Securities Holdings | ||||
(2005–2008) | ||||
Managing Director | 74 | None | ||
Anthony Knerr & Associates | ||||
(Strategic Consulting) | ||||
(1990–Present) | ||||
Chief Investment Officer | 74 | None | ||
Assurant, Inc. (Insurance) | ||||
(2002–2004) | ||||
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Board of trustees/directors and officers addendum
Delaware Investments® Family of Funds
Name, Address, | Position(s) | Length of | ||
and Birth Date | Held with Fund(s) | Time Served | ||
Independent Trustees (continued) | ||||
Ann R. Leven | Trustee | Since October 1989 | ||
2005 Market Street | ||||
Philadelphia, PA 19103 | ||||
November 1940 | ||||
Frances A. Sevilla-Sacasa | Trustee | Since September 2011 | ||
2005 Market Street | ||||
Philadelphia, PA 19103 | ||||
January 1956 | ||||
76
Number of Portfolios in | ||||
Principal Occupation(s) | Fund Complex Overseen | Other Directorships | ||
During Past 5 Years | by Trustee or Officer | Held by Trustee or Officer | ||
Consultant | 74 | Director and Audit | ||
ARL Associates | Committee Chair | |||
(Financial Planning) | Systemax Inc. | |||
(1983–Present) | (2001–2009) | |||
Director and Audit | ||||
Committee Chairperson | ||||
Andy Warhol Foundation | ||||
(1999–2007) | ||||
Executive Advisor to Dean | 74 | Trust Manager — Camden | ||
(since August 2011) and | Property Trust | |||
Interim Dean | (since August 2011) | |||
(January 2011–July 2011) — | ||||
University of Miami School of | Board of Trustees | |||
Business Administration | Thunderbird School of | |||
Global Management | ||||
President — U.S. Trust, | (2007–2011) | |||
Bank of America Private | ||||
Wealth Management | Board of Trustees | |||
(Private Banking) | Carrollton School of the | |||
(July 2007–December 2008) | Sacred Heart | |||
(since 2007) | ||||
President and Director | ||||
(November 2005–June 2007) and | Board Member | |||
Chief Executive Officer | Foreign Policy Association | |||
(April 2007–June 2007) — | (since 2006) | |||
U.S. Trust Company | ||||
(Private Banking) | Board of Trustees | |||
Georgetown Preparatory School | ||||
(2005–2011) | ||||
Board of Trustees | ||||
Miami City Ballet | ||||
(2000–2011) | ||||
Board of Trustees | ||||
St. Thomas University | ||||
(2005–2011) | ||||
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Board of trustees/directors and officers addendum
Delaware Investments® Family of Funds
Name, Address, | Position(s) | Length of | ||
and Birth Date | Held with Fund(s) | Time Served | ||
Independent Trustees (continued) | ||||
Janet L. Yeomans | Trustee | Since April 1999 | ||
2005 Market Street | ||||
Philadelphia, PA 19103 | ||||
July 1948 | ||||
J. Richard Zecher | Trustee | Since March 2005 | ||
2005 Market Street | ||||
Philadelphia, PA 19103 | ||||
July 1940 | ||||
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Number of Portfolios in | ||||
Principal Occupation(s) | Fund Complex Overseen | Other Directorships | ||
During Past 5 Years | by Trustee or Officer | Held by Trustee or Officer | ||
Vice President and Treasurer | 74 | Director and Audit | ||
(January 2006–Present) | Committee Member | |||
Vice President — Mergers & Acquisitions | Okabena Company | |||
(January 2003–January 2006), and | ||||
Vice President and Treasurer | Chair — 3M | |||
(July 1995–January 2003) | Investment Management | |||
3M Corporation | Company | |||
Founder | 74 | Director and Audit | ||
Investor Analytics | Committee Member | |||
(Risk Management) | Investor Analytics | |||
(May 1999–Present) | ||||
Director | ||||
Founder | Oxigene, Inc. | |||
Sutton Asset Management | (2003–2008) | |||
(Hedge Fund) | ||||
(September 1996–Present) | ||||
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Board of trustees/directors and officers addendum
Delaware Investments® Family of Funds
Name, Address, | Position(s) | Length of | ||
and Birth Date | Held with Fund(s) | Time Served | ||
Officers | ||||
David F. Connor | Vice President, | Vice President since | ||
2005 Market Street | Deputy General | September 2000 | ||
Philadelphia, PA 19103 | Counsel, and Secretary | and Secretary since | ||
December 1963 | October 2005 | |||
Daniel V. Geatens | Vice President | Treasurer | ||
2005 Market Street | and Treasurer | since October 2007 | ||
Philadelphia, PA 19103 | ||||
October 1972 | ||||
David P. O’Connor | Senior Vice President, | Senior Vice President, | ||
2005 Market Street | General Counsel, | General Counsel, and | ||
Philadelphia, PA 19103 | and Chief Legal Officer | Chief Legal Officer | ||
February 1966 | since October 2005 | |||
Richard Salus | Senior Vice President | Chief Financial Officer | ||
2005 Market Street | and Chief Financial Officer | since November 2006 | ||
Philadelphia, PA 19103 | ||||
October 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.
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Number of Portfolios in | ||||
Principal Occupation(s) | Fund Complex Overseen | Other Directorships | ||
During Past 5 Years | by Trustee or Officer | Held by Trustee or Officer | ||
David F. Connor has served as | 74 | None3 | ||
Vice President and Deputy | ||||
General Counsel of | ||||
Delaware Investments | ||||
since 2000. | ||||
Daniel V. Geatens has served | 74 | None3 | ||
in various capacities at | ||||
different times at | ||||
Delaware Investments. | ||||
David P. O’Connor has served in | 74 | None3 | ||
various executive and legal | ||||
capacities at different times | ||||
at Delaware Investments. | ||||
Richard Salus has served in | 74 | None3 | ||
various executive capacities | ||||
at different times at | ||||
Delaware Investments. | ||||
3 David F. Connor, Daniel V. Geatens, David P. O’Connor, and Richard Salus serve in similar capacities for the six portfolios of the Optimum Fund Trust, which have the same investment advisor, principal underwriter, and transfer agent as the registrant.
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About the organization
Board of trustees | |||
Patrick P. Coyne Chairman, President, and Chief Executive Officer Delaware Investments® Family of Funds Philadelphia, PA Thomas L. Bennett Private Investor Rosemont, PA John A. Fry President Drexel University Philadelphia, PA | Anthony D. Knerr Founder and Managing Director Anthony Knerr & Associates New York, NY Lucinda S. Landreth Former Chief Investment Officer Assurant, Inc. Philadelphia, PA | Ann R. Leven Consultant ARL Associates New York, NY Frances A. Sevilla-Sacasa Executive Advisor to Dean, University of Miami School of Business Administration Coral Gables, FL | Janet L. Yeomans Vice President and Treasurer 3M Corporation St. Paul, MN J. Richard Zecher Founder Investor Analytics Scottsdale, AZ |
Affiliated officers | |||
David F. Connor Vice President, Deputy General Counsel, and Secretary Delaware Investments Family of Funds Philadelphia, PA | Daniel V. Geatens Vice President and Treasurer Delaware Investments Family of Funds Philadelphia, PA | David P. O’Connor Senior Vice President, General Counsel, and Chief Legal Officer Delaware Investments Family of Funds Philadelphia, PA | Richard Salus Senior Vice President and Chief Financial Officer Delaware Investments Family of Funds Philadelphia, PA |
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 the Delaware Investments Fund fact sheet for the most recently completed calendar quarter. These documents are available at www.delawareinvestments.com. |
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 (SEC) for the first and third quarters of each fiscal year on Form N-Q. The Fund’s Forms N-Q, as well as a description of the policies and procedures that the Fund uses to determine how to vote proxies (if any) relating to portfolio securities are available without charge (i) upon request, by calling 800 523-1918; and (ii) on the SEC’s website at 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 website at www.delawareinvestments.com. The Fund’s Forms N-Q may be reviewed and copied at the SEC’s Public Reference Room in Washington, D.C.; information on the operation of the Public Reference Room may be obtained by calling 800 SEC-0330. Information (if any) regarding how the Fund voted proxies relating to portfolio securities during the most recently disclosed 12-month period ended June 30 is available without charge (i) through the Funds’ website at www.delawareinvestments.com; and (ii) on the SEC’s website at www.sec.gov. |
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![](https://capedge.com/proxy/N-CSR/0001206774-12-000442/del_topimg02.jpg)
Annual report Delaware Small Cap Core Fund November 30, 2011 U.S. core equity mutual fund |
Carefully consider the Fund’s investment objectives, risk factors, charges, and expenses before investing. This and other information can be found in the Fund’s prospectus and, if available, its summary prospectus, which may be obtained by visiting www.delawareinvestments.com or calling 800 523-1918. Investors should read the prospectus and, if available, the summary prospectus carefully before investing. |
You can obtain shareholder reports and prospectuses online instead of in the mail. Visit www.delawareinvestments.com/edelivery. |
Experience Delaware Investments
Delaware Investments is committed to the pursuit of consistently superior asset management and unparalleled client service. We believe in our investment processes, which seek to deliver consistent results, and in convenient services that help add value for our clients.
If you are interested in learning more about creating an investment plan, contact your financial advisor.
You can learn more about Delaware Investments or obtain a prospectus for Delaware Small Cap Core Fund at www.delawareinvestments.com.
Manage your investments online
- 24-hour access to your account information
- Obtain share prices
- Check your account balance and recent transactions
- Request statements or literature
- Make purchases and redemptions
Delaware Management Holdings, Inc. and its subsidiaries (collectively known by the marketing name of Delaware Investments) are wholly owned subsidiaries of Macquarie Group Limited, a global provider of banking, financial, advisory, investment and funds management services.
Investments in Delaware Small Cap Core Fund are not and will not be deposits with or liabilities of Macquarie Bank Limited ABN 46 008 583 542 and its holding companies, including their subsidiaries or related companies (Macquarie Group), and are subject to investment risk, including possible delays in repayment and loss of income and capital invested. No Macquarie Group company guarantees or will guarantee the performance of the Fund, the repayment of capital from the Fund, or any particular rate of return.
Table of contents
Portfolio management review | 1 |
Performance summary | 4 |
Disclosure of Fund expenses | 8 |
Security type/sector allocation | |
and top 10 equity holdings | 10 |
Statement of net assets | 12 |
Statement of operations | 19 |
Statements of changes in net assets | 20 |
Financial highlights | 22 |
Notes to financial statements | 30 |
Report of independent registered | |
public accounting firm | 41 |
Other Fund information | 42 |
Board of trustees/directors and | |
officers addendum | 46 |
About the organization | 56 |
Unless otherwise noted, views expressed herein are current as of Nov. 30, 2011, and subject to change.
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. Delaware Investments, a member of Macquarie Group, refers to Delaware Management Holdings, Inc. and its subsidiaries, including the Fund’s distributor, Delaware Distributors, L.P. Macquarie Group refers to Macquarie Group Limited and its subsidiaries and affiliates worldwide.
© 2012 Delaware Management Holdings, Inc.
All third-party trademarks cited are the property of their respective owners.
Portfolio management review | |
Delaware Small Cap Core Fund | December 6, 2011 |
Performance preview (for the year ended November 30, 2011) | |||
Delaware Small Cap Core Fund (Class A shares) | 1-year return | +8.10% | |
Russell 2000® Index (benchmark) | 1-year return | +2.75% | |
Past performance does not guarantee future results. |
During the Fund’s fiscal year ended Nov. 30, 2011, small-cap stocks followed a sharp up-down-up pattern in response to decelerating global economic growth, a deepening credit crunch in the euro zone, and overall fragile investor sentiment regarding risk. Yet despite a steep decline beginning in early July 2011, many small-cap stocks finished the fiscal year close to where they began twelve months earlier (source: Bloomberg).
The beginning of the Fund’s fiscal year was about a year and a half into a strong bull market that roughly coincided with the United States’ attempts to recover from the 2008-2009 recession. During the final weeks of 2010, optimism was still high that the pace of economic growth would accelerate in 2011, led by recoveries in the labor and housing markets.
However, by early spring 2011, a series of events had begun to chip away at that optimism. First, fast-rising food and energy prices undermined consumer buying power. A broad bull market in commodities was driven by Federal Reserve policy which pushed the dollar lower, and by popular uprisings in the Middle East and Africa that toppled long-entrenched dictatorships and threatened energy supplies. In March 2011, a devastating earthquake, tsunami, and nuclear crisis in Japan disrupted not only that country’s failing economy, but global supply chains as well. By summer, it was apparent to many that U.S. economic growth was decelerating and a double-dip recession seemed possible, if not likely. The economic backdrop grew more unsettled as a political showdown emerged over raising the nation’s debt ceiling, increasing the odds of a technical default on Treasury debt. No sooner had that issue been temporarily resolved than sovereign credit concerns flared up again in the euro zone. With bond yields rising (and prices declining) in larger peripheral economies, most notably Italy and Spain, many investors feared that a breakup of the euro zone was a distinct possibility.
As the fiscal year drew to a close, stock prices were mostly rising amid near hyper-volatility. While the euro zone crisis remained unresolved, a consensus emerged that European politicians and institutions had heard the dire warnings from financial markets and were prepared to do whatever it took to keep the single currency experiment alive. Sentiment was further bolstered by the joint efforts of six global central banks to provide dollar liquidity to euro zone banks, thus attempting to ease fears of a freeze in credit availability. Finally, there were hopeful
1
Portfolio management review
Delaware Small Cap Core Fund
signs that the U.S. economy was gaining traction after the summer slowdown, with employment, manufacturing, and housing all showing signs of life.
Within the Fund
For the fiscal year ended Nov. 30, 2011, Delaware Small Cap Core Fund Class A shares returned +8.10% at net asset value and +1.89% at maximum offer price. Both figures reflect all distributions reinvested. For the same period, the Fund’s benchmark, the Russell 2000 Index, returned +2.75%. Complete annualized performance for Delaware Small Cap Core Fund is shown in the table on page 4.
Stock selection in the capital goods, healthcare, technology, and financial sectors contributed to the Fund’s outperformance versus its benchmark. While not immune to swings in investor sentiment or global economic downturns, many of the companies within these sectors operated within domestic, differentiated markets, and were positioned to experience growth despite a weaker climate. The capital goods sector also was a strong area for the Fund — particularly at the beginning of its fiscal year when solid global demand had positive effects on several of the Fund’s holdings.
One of the Fund’s best performers was pharmaceutical company, Regeneron, which advanced 85% during the Fund’s fiscal year. The company’s promising trial data from Eylea, a drug used to treat macular degeneration (which causes vision loss in the elderly), was well received by the market; Eylea was ultimately approved by the FDA in November 2011. We sold this stock as the company��s growth meant it “graduated” from small-cap index status. Technology was another strong sector. In general, we’ve sought companies that offer the prospect of strong secular growth due to advantageous research and development (R&D) and structural positioning.
Liquidity Services, which advanced 120% during the fiscal year, is an example of one of these companies. Liquidity Services is an e-commerce company that helps organizations (primarily in the U.S. and Europe) resell unused or unwanted inventory. The company offers the only major platform for this service, and the stock generated strong results during the Fund’s fiscal year. More recently, the acquisition of a competitor boosted both its customer base and stock price. It’s important to note that high returns, such as those previously discussed, are unusual and were primarily achieved during favorable market conditions.
In contrast, stocks that underperformed during the fiscal year included holdings in Ferro and Kforce. Ferro, a specialty chemical company, provides a broad range of chemicals that are used in product coatings, including solar panels. The stock declined 62% during the Fund’s fiscal year as the company was hit hard by the downturn in the solar energy market. We recognized the challenges posed by the solar energy market, but given the stock’s current valuations and long-term future prospects, we continued to hold the stock at the end of the fiscal year.
2
The Fund’s holding in Kforce lost ground during the fiscal year, declining 19%. A professional staffing company, Kforce focuses on information technology, financial services, government, and healthcare companies. Exposure to government was one source of weakness for Kforce, as budgets were generally hit by declining revenues. Additionally, the staffing industry’s gross margins have been under pressure. The stock fell on weak guidance over summer 2011 and has since rebounded. We generally view its markets and business model positively in the long term and continue to hold the stock.
In such a turbulent market, we continue to maintain our approach of investing in companies with what we view as strong balance sheets and cash flow, sustainable competitive advantages, and high-quality management teams that could potentially deliver value to their shareholders even under challenging economic conditions.
In such a turbulent market, we continue to maintain our approach of investing in companies with what we view as strong balance sheets and cash flow, sustainable competitive advantages, and high-quality management teams that could potentially deliver value to their shareholders even under challenging economic conditions.
3
Performance summary | |
Delaware Small Cap Core Fund | November 30, 2011 |
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 current for the most recent month end by calling 800 523-1918 or visiting our website at www.delawareinvestments.com/performance. Current performance may be lower or higher than the performance data quoted.
Fund performance1,2 | Average annual total returns through November 30, 2011 | ||||||||
1 year | 5 years | 10 years | Lifetime | ||||||
Class A (Est. Dec. 29, 1998) | |||||||||
Excluding sales charge | +8.10% | -0.05% | +7.67% | n/a | |||||
Including sales charge | +1.89% | -1.22% | +7.04% | n/a | |||||
Class C (Est. Aug. 1, 2005) | |||||||||
Excluding sales charge | +7.37% | -0.79% | n/a | +1.41% | |||||
Including sales charge | +6.37% | -0.79% | n/a | +1.41% | |||||
Class R (Est. Aug. 1, 2005) | |||||||||
Excluding sales charge | +7.79% | -0.30% | n/a | +1.92% | |||||
Including sales charge | +7.79% | -0.30% | n/a | +1.92% | |||||
Institutional Class (Est. Dec. 29, 1998) | |||||||||
Excluding sales charge | +8.37% | +0.20% | +7.85% | n/a | |||||
Including sales charge | +8.37% | +0.20% | +7.85% | n/a |
1Returns reflect the reinvestment of all distributions and are presented both with and without the applicable sales charges described below. Returns do not reflect the deduction of taxes the shareholder would pay on Fund distributions or redemptions of Fund shares.
Expense limitations were in effect for certain classes during some or all of the periods shown in the “Fund performance” chart. The current expenses for each class are listed on the “Fund expense ratios” table on page 5. Performance would have been lower had expense limitations not been in effect.
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. This fee has been contractually limited to 0.25% of average daily net assets from March 30, 2011, through March 29, 2012.
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 up to 1.00% of average daily net assets.
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.
Class R shares are available only for certain retirement plan products. They are sold without a sales charge and have an annual
4
distribution and service fee of up to 0.60% of average daily net assets, which has been limited contractually to 0.50% from March 30, 2011, through March 29, 2012.
Institutional Class shares are available without sales or asset-based distribution charges only to certain eligible institutional accounts.
Narrowly focused investments may exhibit higher volatility than investments in multiple industry sectors.
Investments in small and/or medium-sized companies typically exhibit greater risk and higher volatility than larger, more established companies.
The “Fund performance” table and the “Performance of a $10,000 investment” graph do not reflect the deduction of taxes the shareholder would pay on Fund distributions or redemptions of Fund shares.
2The Fund’s expense ratios, as described in the most recent prospectus, are disclosed in the following “Fund expense ratios” table. Delaware Investments has agreed to reimburse certain expenses and/or waive certain fees in order to prevent total fund operating expenses (excluding certain fees and expenses) from exceeding 1.15% of the Fund’s average daily net assets from March 30, 2011, through March 29, 2012. Please see the most recent prospectus and any applicable supplement(s) for additional information on these fee waivers and/or reimbursements.
Fund expense ratios | Class A | Class C | Class R | Institutional Class | |||
Total annual operating expenses | 1.54% | 2.24% | 1.84% | 1.24% | |||
(without fee waivers) | |||||||
Net expenses | 1.40% | 2.15% | 1.65% | 1.15% | |||
(including fee waivers, if any) | |||||||
Type of waiver | Contractual | Contractual | Contractual | Contractual |
5
Performance summary
Delaware Small Cap Core Fund
Performance of a $10,000 investment1
Average annual total returns from Nov. 30, 2001, through Nov. 30, 2011
For period beginning Nov. 30, 2001, through Nov. 30, 2011 | Starting value | Ending value | ||
Delaware Small Cap Core Fund — Class A Shares | $9,425 | $19,743 | ||
Russell 2000 Index | $10,000 | $18,221 |
1The “Performance of a $10,000 investment” graph assumes $10,000 invested in Class A shares of the Fund on Nov. 30, 2001, and includes the effect of a 5.75% front-end sales charge and the reinvestment of all distributions. The graph does not reflect the deduction of taxes the shareholders would pay on Fund distributions or redemptions of Fund shares. Expense limitations were in effect for some or all of the periods shown. Performance would have been lower had expense limitations not been in effect. Current expenses are listed in the “Fund expense ratios” table on page 5. Please note additional details on pages 4 through 6.
The chart also assumes $10,000 invested in the Russell 2000 Index as of Nov. 30, 2001. The Russell 2000 Index measures the performance of the small-cap segment of the U.S. equity universe.
Index performance returns do not reflect any management fees, transaction costs, or expenses. Indices are unmanaged and one cannot invest directly in an index. Past performance is not a guarantee of future results.
Performance of other Fund classes will vary due to different charges and expenses.
Nasdaq symbols | CUSIPs | |||||
Class A | DCCAX | 24610B883 | ||||
Class C | DCCCX | 24610B867 | ||||
Class R | DCCRX | 24610B834 | ||||
Institutional Class | DCCIX | 24610B859 |
6
Disclosure of Fund expenses
For the six-month period from June 1, 2011 to November 30, 2011
As a shareholder of the Fund, you incur two types of costs: (1) transaction costs, including sales charges (loads) on purchase payments, reinvested dividends, or other distributions; redemption fees; and exchange fees; and (2) ongoing costs, including management fees; distribution and/or service (12b-1) fees; and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds.
The example is based on an investment of $1,000 invested at the beginning of the period and held for the entire six-month period from June 1, 2011 to November 30, 2011.
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.
8
Delaware Small Cap Core Fund
Expense analysis of an investment of $1,000
Beginning | Ending | Expenses | |||||||||||||||
Account Value | Account Value | Annualized | Paid During Period | ||||||||||||||
6/1/11 | 11/30/11 | Expense Ratio | 6/1/11 to 11/30/11* | ||||||||||||||
Actual Fund return | |||||||||||||||||
Class A | $ | 1,000.00 | $ | 890.90 | 1.38% | $ | 6.54 | ||||||||||
Class C | 1,000.00 | 888.80 | 2.13% | 10.09 | |||||||||||||
Class R | 1,000.00 | 890.50 | 1.63% | 7.72 | |||||||||||||
Institutional Class | 1,000.00 | 892.30 | 1.13% | 5.36 | |||||||||||||
Hypothetical 5% return (5% return before expenses) | |||||||||||||||||
Class A | $ | 1,000.00 | $ | 1,018.15 | 1.38% | $ | 6.98 | ||||||||||
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 |
9
top 10 equity holdings
Delaware Small Cap Core Fund | As of November 30, 2011 |
Sector designations may be different than the sector designations presented in other Fund materials. The sector designations may represent the investment manager’s internal sector classifications, which may result in the sector designations for one fund being different than another fund’s sector designations.
Security type/sector | Percentage of net assets | ||||
Common Stock | 97.97 | % | |||
Basic Materials | 5.41 | % | |||
Business Services | 4.31 | % | |||
Capital Goods | 11.25 | % | |||
Communication Services | 2.26 | % | |||
Consumer Discretionary | 5.29 | % | |||
Consumer Services | 4.52 | % | |||
Consumer Staples | 4.25 | % | |||
Credit Cyclicals | 1.10 | % | |||
Energy | 5.74 | % | |||
Financials | 12.86 | % | |||
Healthcare | 12.85 | % | |||
Media | 1.81 | % | |||
Real Estate | 6.40 | % | |||
Technology | 16.70 | % | |||
Transportation | 1.35 | % | |||
Utilities | 1.87 | % | |||
Short-Term Investments | 2.14 | % | |||
Securities Lending Collateral | 1.16 | % | |||
Total Value of Securities | 101.27 | % | |||
Obligation to Return Securities Lending Collateral | (1.46 | %) | |||
Receivables and Other Assets Net of Other Liabilities | 0.19 | % | |||
Total Net Assets | 100.00 | % |
10
Holdings are for informational purposes only and are subject to change at any time. They are not a recommendation to buy, sell, or hold any security.
Top 10 equity holdings | Percentage of net assets | |
Casey’s General Stores | 1.19% | |
Onyx Pharmaceuticals | 1.16% | |
Key Energy Group | 1.06% | |
Align Technology | 1.05% | |
Steven Madden | 1.04% | |
Susser Holdings | 1.03% | |
Applied Industrial Technologies | 1.01% | |
SonoSite | 0.98% | |
AFC Enterprises | 0.97% | |
United Stationers | 0.97% |
11
Delaware Small Cap Core Fund | November 30, 2011 |
Number of shares | Value | |||||
Common Stock – 97.97% | ||||||
Basic Materials – 5.41% | ||||||
Boise | 56,300 | $ | 336,111 | |||
† | Castle (A.M.) | 34,900 | 474,640 | |||
† | Coeur d’Alene Mines | 18,400 | 538,568 | |||
† | Ferro | 55,500 | 322,455 | |||
† | Gibraltar Industries | 28,200 | 382,110 | |||
Innophos Holdings | 5,400 | 265,950 | ||||
† | KapStone Paper & Packaging | 7,213 | 119,592 | |||
Koppers Holdings | 9,120 | 301,234 | ||||
Silgan Holdings | 14,160 | 551,390 | ||||
† | TPC Group | 17,500 | 420,000 | |||
3,712,050 | ||||||
Business Services – 4.31% | ||||||
† | AMN Healthcare Services | 68,930 | 316,389 | |||
† | CRA International | 12,120 | 247,490 | |||
† | Kforce | 40,850 | 500,413 | |||
McGrath RentCorp | 10,680 | 298,933 | ||||
† | TeleTech Holdings | 29,700 | 523,017 | |||
U.S. Ecology | 22,080 | 407,155 | ||||
United Stationers | 19,800 | 664,092 | ||||
2,957,489 | ||||||
Capital Goods – 11.25% | ||||||
* | AAON | 25,625 | 561,444 | |||
Acuity Brands | 9,520 | 478,380 | ||||
Applied Industrial Technologies | 20,040 | 691,982 | ||||
Barnes Group | 23,400 | 582,894 | ||||
† | Chart Industries | 9,334 | 568,067 | |||
† | Columbus McKinnon | 27,420 | 344,395 | |||
Ducommun | 8,000 | 95,760 | ||||
ESCO Technologies | 12,500 | 338,750 | ||||
† | Esterline Technologies | 12,000 | 646,440 | |||
Granite Construction | 11,000 | 273,900 | ||||
† | Kadant | 19,500 | 398,580 | |||
Lufkin Industries | 6,680 | 468,134 | ||||
† | MYR Group | 24,500 | 429,730 | |||
† | Rofin-Sinar Technologies | 12,100 | 291,126 | |||
† | Tetra Tech | 17,500 | 391,825 | |||
†* | Titan Machinery | 20,350 | 441,595 |
12
Number of shares | Value | |||||
Common Stock (continued) | ||||||
Capital Goods (continued) | ||||||
Triumph Group | 7,700 | $ | 458,073 | |||
Tutor Perini | 16,180 | 266,808 | ||||
7,727,883 | ||||||
Communication Services – 2.26% | ||||||
* | Alaska Communications Systems Group | 35,000 | 187,250 | |||
Atlantic Tele-Network | 8,184 | 338,818 | ||||
† | InterXion Holding | 15,591 | 205,801 | |||
† | Lumos Networks | 9,345 | 136,717 | |||
NTELOS Holdings | 13,745 | 290,157 | ||||
† | RigNet | 23,800 | 391,748 | |||
1,550,491 | ||||||
Consumer Discretionary – 5.29% | ||||||
Big 5 Sporting Goods | 27,200 | 248,064 | ||||
DSW Class A | 11,200 | 504,000 | ||||
† | G-III Apparel Group | 21,000 | 387,030 | |||
† | Iconix Brand Group | 34,900 | 602,374 | |||
* | Jones Group | 14,900 | 161,665 | |||
†* | Jos. A. Bank Clothiers | 12,750 | 628,320 | |||
† | Perry Ellis International | 27,000 | 386,100 | |||
† | Steven Madden | 20,000 | 713,200 | |||
3,630,753 | ||||||
Consumer Services – 4.52% | ||||||
† | AFC Enterprises | 42,500 | 667,249 | |||
† | Bally Technologies | 7,440 | 285,250 | |||
† | Buffalo Wild Wings | 6,320 | 407,514 | |||
CEC Entertainment | 12,410 | 417,969 | ||||
† | Cheesecake Factory | 12,100 | 343,156 | |||
† | Jack in the Box | 22,280 | 456,740 | |||
† | Shuffle Master | 47,200 | 523,448 | |||
3,101,326 | ||||||
Consumer Staples – 4.25% | ||||||
Casey’s General Stores | 15,300 | 816,714 | ||||
†* | Fresh Market | 9,489 | 372,253 | |||
J&J Snack Foods | 11,000 | 570,680 | ||||
† | Prestige Brands Holdings | 45,500 | 449,540 | |||
† | Susser Holdings | 30,850 | 708,933 | |||
2,918,120 |
13
Statement of net assets
Delaware Small Cap Core Fund
Number of shares | Value | |||||
Common Stock (continued) | ||||||
Credit Cyclicals – 1.10% | ||||||
Cooper Tire & Rubber | 21,900 | $ | 293,460 | |||
† | Tenneco | 15,900 | 460,464 | |||
753,924 | ||||||
Energy – 5.74% | ||||||
Berry Petroleum Class A | 12,500 | 548,500 | ||||
Bristow Group | 13,450 | 619,507 | ||||
†* | Carrizo Oil & Gas | 20,900 | 594,814 | |||
† | Key Energy Group | 48,300 | 729,330 | |||
†* | Pioneer Drilling | 57,200 | 628,056 | |||
† | Rosetta Resources | 9,600 | 521,664 | |||
† | Swift Energy | 10,300 | 302,717 | |||
3,944,588 | ||||||
Financials – 12.86% | ||||||
Alterra Capital Holdings | 21,050 | 483,098 | ||||
American Equity Investment Life Holding | 44,200 | 488,852 | ||||
Apollo Investment | 50,750 | 365,908 | ||||
Cardinal Financial | 37,300 | 398,737 | ||||
City Holding | 11,150 | 363,044 | ||||
Delphi Financial Group | 19,100 | 525,250 | ||||
Dime Community Bancshares | 33,400 | 395,456 | ||||
Flushing Financial | 37,600 | 486,544 | ||||
Home BancShares | 16,600 | 412,676 | ||||
@ | Independent Bank | 17,100 | 446,994 | |||
Park National | 8,500 | 517,650 | ||||
† | Piper Jaffray | 15,700 | 324,990 | |||
Primerica | 21,500 | 493,640 | ||||
ProAssurance | 5,630 | 448,204 | ||||
Prosperity Bancshares | 15,200 | 607,847 | ||||
Susquehanna Bancshares | 57,900 | 458,568 | ||||
† | Texas Capital Bancshares | 17,000 | 490,620 | |||
Trustmark | 26,000 | 581,360 | ||||
Webster Financial | 27,400 | 539,780 | ||||
8,829,218 | ||||||
Healthcare – 12.85% | ||||||
† | Acorda Therapeutics | 17,500 | 405,125 | |||
† | Air Methods | 8,000 | 645,760 | |||
† | Align Technology | 29,370 | 719,565 |
14
Number of shares | Value | |||||
Common Stock (continued) | ||||||
Healthcare (continued) | ||||||
† | Alkermes | 41,630 | $ | 636,523 | ||
† | Catalyst Health Solutions | 10,690 | 556,094 | |||
† | CONMED | 16,440 | 432,208 | |||
† | CryoLife | 47,400 | 195,288 | |||
† | Haemonetics | 8,200 | 485,686 | |||
† | ICON ADR | 21,200 | 360,612 | |||
†* | Incyte | 31,600 | 435,132 | |||
† | Merit Medical Systems | 36,787 | 510,971 | |||
† | Onyx Pharmaceuticals | 18,090 | 797,769 | |||
Quality Systems | 12,700 | 448,945 | ||||
†* | Quidel | 31,400 | 569,910 | |||
†* | SonoSite | 16,250 | 672,750 | |||
† | Spectrum Pharmaceuticals | 33,400 | 462,590 | |||
West Pharmaceutical Services | 12,610 | 485,863 | ||||
8,820,791 | ||||||
Media – 1.81% | ||||||
Cinemark Holdings | 20,233 | 396,364 | ||||
† | Knology | 34,350 | 489,488 | |||
National CineMedia | 27,350 | 356,644 | ||||
1,242,496 | ||||||
Real Estate – 6.40% | ||||||
DCT Industrial Trust | 87,900 | 422,799 | ||||
* | DuPont Fabros Technology | 21,700 | 488,901 | |||
EastGroup Properties | 13,300 | 566,181 | ||||
Entertainment Properties Trust | 12,900 | 576,630 | ||||
Home Properties | 11,710 | 643,699 | ||||
LaSalle Hotel Properties | 24,300 | 568,863 | ||||
Sovran Self Storage | 14,730 | 613,357 | ||||
Tanger Factory Outlet Centers | 18,100 | 513,135 | ||||
4,393,565 | ||||||
Technology – 16.70% | ||||||
ADTRAN | 18,600 | 614,358 | ||||
†* | Amkor Technology | 84,100 | 373,404 | |||
† | Anixter International | 9,550 | 586,466 | |||
† | Applied Micro Circuits | 65,300 | 487,138 | |||
† | Cirrus Logic | 20,200 | 329,058 | |||
† | comScore | 17,500 | 347,725 |
15
Statement of net assets
Delaware Small Cap Core Fund
Number of shares | Value | ||||||
Common Stock (continued) | |||||||
Technology (continued) | |||||||
† | ExlService Holdings | 9,490 | $ | 252,434 | |||
† | FARO Technologies | 11,690 | 566,381 | ||||
†* | IXYS | 36,200 | 417,748 | ||||
j2 Global Communications | 20,900 | 566,599 | |||||
†* | KEYW Holding | 27,482 | 223,429 | ||||
† | Liquidity Services | 13,400 | 456,404 | ||||
† | LogMeIn | 15,077 | 648,461 | ||||
† | Netgear | 11,110 | 422,069 | ||||
Plantronics | 14,100 | 485,886 | |||||
† | Progress Software | 22,425 | 456,797 | ||||
†* | QuinStreet | 38,600 | 357,436 | ||||
† | RPX | 8,959 | 126,501 | ||||
† | Semtech | 17,600 | 408,320 | ||||
† | SolarWinds | 12,480 | 409,219 | ||||
† | SS&C Technologies Holdings | 31,132 | 499,669 | ||||
†* | SuccessFactors | 16,000 | 409,600 | ||||
†* | Synaptics | 9,320 | 302,527 | ||||
Syntel | 7,700 | 368,368 | |||||
† | ValueClick | 29,130 | 450,350 | ||||
†* | ViaSat | 9,630 | 455,692 | ||||
† | Vocus | 20,950 | 444,559 | ||||
11,466,598 | |||||||
Transportation – 1.35% | |||||||
* | Box Ships | 27,861 | 284,739 | ||||
† | HUB Group Class A | 21,670 | 645,333 | ||||
930,072 | |||||||
Utilities – 1.87% | |||||||
Cleco | 15,000 | 542,100 | |||||
NorthWestern | 10,200 | 355,776 | |||||
UIL Holdings | 11,016 | 383,797 | |||||
1,281,673 | |||||||
Total Common Stock (cost $58,266,933) | 67,261,037 | ||||||
Principal amount | |||||||
Short-Term Investments – 2.14% | |||||||
≠Discount Note – 0.06% | |||||||
Federal Home Loan Bank 0.01% 12/23/11 | $ | 38,729 | 38,729 | ||||
38,729 |
16
Principal amount | Value | ||||||||
Short-Term Investments (continued) | |||||||||
Repurchase Agreements – 2.08% | |||||||||
BNP Paribas 0.08%, dated 11/30/11, to be repurchased on | |||||||||
12/1/11, repurchase price $1,431,003 (collateralized by | |||||||||
U.S. government obligations 0.00%-4.25% 1/13/12- | |||||||||
5/15/21; market value $1,459,620) | $ | 1,431,000 | $ | 1,431,000 | |||||
1,431,000 | |||||||||
Total Short-Term Investments (cost $1,469,729) | 1,469,729 | ||||||||
Total Value of Securities Before Securities | |||||||||
Lending Collateral – 100.11% (cost $59,736,662) | 68,730,766 | ||||||||
Number of shares | |||||||||
Securities Lending Collateral** – 1.16% | |||||||||
Investment Companies | |||||||||
BNY Mellon SL DBT II Liquidating Fund | 106,822 | 103,254 | |||||||
Delaware Investments Collateral Fund No. 1 | 689,792 | 689,792 | |||||||
@†Mellon GSL Reinvestment Trust II | 203,386 | 0 | |||||||
Total Securities Lending Collateral (cost $1,000,000) | 793,046 | ||||||||
Total Value of Securities – 101.27% | |||||||||
(cost $60,736,662) | 69,523,812 | © | |||||||
Obligation to Return Securities | |||||||||
Lending Collateral** – (1.46%) | (1,000,000 | ) | |||||||
Receivables and Other Assets | |||||||||
Net of Other Liabilities – 0.19% | 129,167 | ||||||||
Net Assets Applicable to 5,729,427 | |||||||||
Shares Outstanding – 100.00% | $ | 68,652,979 | |||||||
Net Asset Value – Delaware Small Cap Core Fund | |||||||||
Class A ($24,242,178 / 2,017,812 Shares) | $12.01 | ||||||||
Net Asset Value – Delaware Small Cap Core Fund | |||||||||
Class C ($7,701,689 / 669,402 Shares) | $11.51 | ||||||||
Net Asset Value – Delaware Small Cap Core Fund | |||||||||
Class R ($5,786,231 / 487,430 Shares) | $11.87 | ||||||||
Net Asset Value – Delaware Small Cap Core Fund | |||||||||
Institutional Class ($30,922,881 / 2,554,783 Shares) | $12.10 |
17
Statement of net assets
Delaware Small Cap Core Fund
Components of Net Assets at November 30, 2011: | |||
Shares of beneficial interest (unlimited authorization – no par) | $ | 73,989,580 | |
Accumulated net realized loss on investments | (14,123,751 | ) | |
Net unrealized appreciation of investments | 8,787,150 | ||
Total net assets | $ | 68,652,979 |
† | Non income producing security. |
* | Fully or partially on loan. |
@ | Illiquid security. At November 30, 2011, the aggregate value of illiquid securities was $446,994, which represented 0.65% of the Fund’s net assets. See Note 9 in “Notes to financial statements.” |
≠ | The rate shown is the effective yield at the time of purchase. |
** | See Note 8 in “Notes to financial statements” for additional information on securities lending collateral. |
© | Includes $1,019,534 of securities loaned. |
Net Asset Value and Offering Price Per Share – | |
Delaware Small Cap Core Fund | |
Net asset value Class A (A) | $12.01 |
Sales charge (5.75% of offering price) (B) | 0.73 |
Offering price | $12.74 |
(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. |
ADR — American Depositary Receipt
See accompanying notes, which are an integral part of the financial statements.
18
Statement of operations | |
Delaware Small Cap Core Fund | Year Ended November 30, 2011 |
Investment Income: | ||||||
Dividends | $ | 882,197 | ||||
Securities lending income | 21,392 | |||||
Interest | 824 | $ | 904,413 | |||
Expenses: | ||||||
Management fees | 571,410 | |||||
Distribution expenses – Class A | 74,926 | |||||
Distribution expenses – Class C | 86,783 | |||||
Distribution expenses – Class R | 34,701 | |||||
Dividend disbursing and transfer agent fees and expenses | 146,413 | |||||
Registration fees | 55,492 | |||||
Accounting and administration expenses | 29,950 | |||||
Reports and statements to shareholders | 28,172 | |||||
Audit and tax | 14,625 | |||||
Dues and services | 8,869 | |||||
Legal fees | 6,527 | |||||
Trustees’ fees | 4,060 | |||||
Pricing fees | 2,873 | |||||
Custodian fees | 2,742 | |||||
Insurance fees | 1,621 | |||||
Consulting fees | 795 | |||||
Trustees’ expenses | 260 | 1,070,219 | ||||
Less fees waived | (8,338 | ) | ||||
Less waived distribution expenses – Class A | (12,487 | ) | ||||
Less waived distribution expenses – Class R | (5,784 | ) | ||||
Less expense paid indirectly | (132 | ) | ||||
Total operating expenses | 1,043,478 | |||||
Net Investment Loss | (139,065 | ) | ||||
Net Realized and Unrealized Gain (Loss): | ||||||
Net realized gain on investments | 9,209,066 | |||||
Net change in unrealized appreciation (depreciation) of investments | (3,287,624 | ) | ||||
Net Realized and Unrealized Gain on Investments | 5,921,442 | |||||
Net Increase in Net Assets Resulting from Operations | $ | 5,782,377 |
See accompanying notes, which are an integral part of the financial statements.
19
Statements of changes in net assets
Delaware Small Cap Core Fund
Year Ended | |||||||
11/30/11 | 11/30/10 | ||||||
Increase (Decrease) in Net Assets from Operations: | |||||||
Net investment income (loss) | $ | (139,065 | ) | $ | 261,395 | ||
Net realized gain | 9,209,066 | 3,522,341 | |||||
Net change in unrealized appreciation (depreciation) | (3,287,624 | ) | 12,929,275 | ||||
Net increase in net assets resulting from operations | 5,782,377 | 16,713,011 | |||||
Dividends and Distributions to Shareholders from: | |||||||
Net investment income: | |||||||
Class A | (92,099 | ) | — | ||||
Class R | (8,964 | ) | — | ||||
Institutional Class | (212,181 | ) | (17,356 | ) | |||
(313,244 | ) | (17,356 | ) | ||||
Capital Share Transactions: | |||||||
Proceeds from shares sold: | |||||||
Class A | 6,030,562 | 4,306,525 | |||||
Class C | 1,033,137 | 686,381 | |||||
Class R | 2,426,192 | 2,049,922 | |||||
Institutional Class | 6,692,393 | 7,109,533 | |||||
Net asset value of shares issued upon reinvestment | |||||||
of dividends and distributions: | |||||||
Class A | 78,094 | — | |||||
Class R | 8,964 | — | |||||
Institutional Class | 208,938 | 17,356 | |||||
16,478,280 | 14,169,717 |
20
Year Ended | |||||||
11/30/11 | 11/30/10 | ||||||
Capital Share Transactions (continued): | |||||||
Cost of shares repurchased: | |||||||
Class A | $ | (6,881,717 | ) | $ | (11,425,713 | ) | |
Class C | (2,211,672 | ) | (1,741,133 | ) | |||
Class R | (2,387,206 | ) | (1,642,766 | ) | |||
Institutional Class | (12,489,064 | ) | (11,609,584 | ) | |||
(23,969,659 | ) | (26,419,196 | ) | ||||
Decrease in net assets derived from capital share transactions | (7,491,379 | ) | (12,249,479 | ) | |||
Net Increase (Decrease) in Net Assets | (2,022,246 | ) | 4,446,176 | ||||
Net Assets: | |||||||
Beginning of year | 70,675,225 | 66,229,049 | |||||
End of year (including undistributed net investment income of | |||||||
$— and $280,680, respectively) | $ | 68,652,979 | $ | 70,675,225 |
See accompanying notes, which are an integral part of the financial statements.
21
Financial highlights
Delaware Small Cap Core Fund Class A
Selected data for each share of the Fund outstanding throughout each period were as follows:
Net asset value, beginning of period |
Income (loss) from investment operations: |
Net investment income (loss)1 |
Net realized and unrealized gain (loss) |
Total from investment operations |
Less dividends and distributions from: |
Net investment income |
Net realized gain on investments |
Total dividends and distributions |
Net asset value, end of period |
Total return2 |
Ratios and supplemental data: |
Net assets, end of period (000 omitted) |
Ratio of expenses to average net assets |
Ratio of expenses to average net assets |
prior to fees waived and expense paid indirectly |
Ratio of net investment income (loss) to average net assets |
Ratio of net investment income (loss) to average net assets |
prior to fees waived and expense paid indirectly |
Portfolio turnover |
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 during all of the periods shown reflects waivers by the manager and distributor. Performance would have been lower had the waivers not been in effect. |
See accompanying notes, which are an integral part of the financial statements.
22
Year Ended | ||||||||||||||||
11/30/11 | 11/30/10 | 11/30/09 | 11/30/08 | 11/30/07 | ||||||||||||
$11.150 | $8.740 | $6.930 | $12.150 | $13.030 | ||||||||||||
(0.024 | ) | 0.034 | 0.003 | 0.019 | (0.010 | ) | ||||||||||
0.928 | 2.376 | 1.815 | (4.747 | ) | (0.450 | ) | ||||||||||
0.904 | 2.410 | 1.818 | (4.728 | ) | (0.460 | ) | ||||||||||
(0.044 | ) | — | (0.008 | ) | — | — | ||||||||||
— | — | — | (0.492 | ) | (0.420 | ) | ||||||||||
(0.044 | ) | — | (0.008 | ) | (0.492 | ) | (0.420 | ) | ||||||||
$12.010 | $11.150 | $8.740 | $6.930 | $12.150 | ||||||||||||
8.10% | 27.57% | 25.36% | (40.55% | ) | (3.62% | ) | ||||||||||
$24,242 | $23,191 | $24,512 | $17,529 | $41,871 | ||||||||||||
1.39% | 1.40% | 1.45% | 1.34% | 1.29% | ||||||||||||
1.45% | 1.54% | 1.63% | 1.57% | 1.47% | ||||||||||||
(0.20% | ) | 0.35% | 0.04% | 0.19% | (0.07% | ) | ||||||||||
(0.26% | ) | 0.21% | (0.14% | ) | (0.04% | ) | (0.25% | ) | ||||||||
42% | 37% | 79% | 84% | 104% |
23
Financial highlights
Delaware Small Cap Core Fund Class C
Selected data for each share of the Fund outstanding throughout each period were as follows:
Net asset value, beginning of period |
Income (loss) from investment operations: |
Net investment loss1 |
Net realized and unrealized gain (loss) |
Total from investment operations |
Less dividends and distributions from: |
Net realized gain on investments |
Total dividends and distributions |
Net asset value, end of period |
Total return2 |
Ratios and supplemental data: |
Net assets, end of period (000 omitted) |
Ratio of expenses to average net assets |
Ratio of expenses to average net assets |
prior to fees waived and expense paid indirectly |
Ratio of net investment loss to average net assets |
Ratio of net investment loss to average net assets |
prior to fees waived and expense paid indirectly |
Portfolio turnover |
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 during all of the periods shown reflects waivers by the manager. Performance would have been lower had the waiver not been in effect. |
See accompanying notes, which are an integral part of the financial statements.
24
Year Ended | ||||||||||||||||
11/30/11 | 11/30/10 | 11/30/09 | 11/30/08 | 11/30/07 | ||||||||||||
$10.720 | $8.470 | $6.750 | $11.940 | $12.910 | ||||||||||||
(0.112 | ) | (0.039 | ) | (0.052 | ) | (0.055 | ) | (0.105 | ) | |||||||
0.902 | 2.289 | 1.772 | (4.643 | ) | (0.445 | ) | ||||||||||
0.790 | 2.250 | 1.720 | (4.698 | ) | (0.550 | ) | ||||||||||
— | — | — | (0.492 | ) | (0.420 | ) | ||||||||||
— | — | — | (0.492 | ) | (0.420 | ) | ||||||||||
$11.510 | $10.720 | $8.470 | $6.750 | $11.940 | ||||||||||||
7.37% | 26.56% | 25.48% | (41.03% | ) | (4.37% | ) | ||||||||||
$7,702 | $8,285 | $7,468 | $7,494 | $18,697 | ||||||||||||
2.14% | 2.15% | 2.20% | 2.09% | 2.04% | ||||||||||||
2.15% | 2.24% | 2.33% | 2.27% | 2.17% | ||||||||||||
(0.95% | ) | (0.40% | ) | (0.71% | ) | (0.56% | ) | (0.82% | ) | |||||||
(0.96% | ) | (0.49% | ) | (0.84% | ) | (0.74% | ) | (0.95% | ) | |||||||
42% | 37% | 79% | 84% | 104% |
25
Financial highlights
Delaware Small Cap Core Fund Class R
Selected data for each share of the Fund outstanding throughout each period were as follows:
Net asset value, beginning of period |
Income (loss) from investment operations: |
Net investment income (loss)1 |
Net realized and unrealized gain (loss) |
Total from investment operations |
Less dividends and distributions from: |
Net investment income |
Net realized gain on investments |
Total dividends and distributions |
Net asset value, end of period |
Total return2 |
Ratios and supplemental data: |
Net assets, end of period (000 omitted) |
Ratio of expenses to average net assets |
Ratio of expenses to average net assets |
prior to fees waived and expense paid indirectly |
Ratio of net investment income (loss) to average net assets |
Ratio of net investment loss to average net assets |
prior to fees waived and expense paid indirectly |
Portfolio turnover |
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 during all of the periods shown reflects waivers by the manager and distributor. Performance would have been lower had the waivers not been in effect. |
See accompanying notes, which are an integral part of the financial statements.
26
Year Ended | ||||||||||||||||
11/30/11 | 11/30/10 | 11/30/09 | 11/30/08 | 11/30/07 | ||||||||||||
$11.030 | $ 8.660 | $ 6.870 | $12.090 | $13.000 | ||||||||||||
(0.054 | ) | 0.009 | (0.016 | ) | (0.005 | ) | (0.042 | ) | ||||||||
0.913 | 2.361 | 1.806 | (4.723 | ) | (0.448 | ) | ||||||||||
0.859 | 2.370 | 1.790 | (4.728 | ) | (0.490 | ) | ||||||||||
(0.019 | ) | — | — | — | — | |||||||||||
— | — | — | (0.492 | ) | (0.420 | ) | ||||||||||
(0.019 | ) | — | — | (0.492 | ) | (0.420 | ) | |||||||||
$11.870 | $11.030 | $ 8.660 | $ 6.870 | $12.090 | ||||||||||||
7.79% | 27.37% | 26.06% | (40.75% | ) | (3.86% | ) | ||||||||||
$5,786 | $ 5,322 | $3,848 | $2,611 | $3,100 | ||||||||||||
1.64% | 1.65% | 1.70% | 1.59% | 1.54% | ||||||||||||
1.75% | 1.84% | 1.93% | 1.87% | 1.77% | ||||||||||||
(0.45% | ) | 0.10% | (0.21% | ) | (0.06% | ) | (0.32% | ) | ||||||||
(0.56% | ) | (0.09% | ) | (0.44% | ) | (0.34% | ) | (0.55% | ) | |||||||
42% | 37% | 79% | 84% | 104% |
27
Financial highlights
Delaware Small Cap Core Fund Institutional Class
Selected data for each share of the Fund outstanding throughout each period were as follows:
Net asset value, beginning of period |
Income (loss) from investment operations: |
Net investment income1 |
Net realized and unrealized gain (loss) |
Total from investment operations |
Less dividends and distributions from: |
Net investment income |
Net realized gain on investments |
Total dividends and distributions |
Net asset value, end of period |
Total return2 |
Ratios and supplemental data: |
Net assets, end of period (000 omitted) |
Ratio of expenses to average net assets |
Ratio of expenses to average net assets |
prior to fees waived and expense paid indirectly |
Ratio of net investment income to average net assets |
Ratio of net investment income to average net assets |
prior to fees waived and expense paid indirectly |
Portfolio turnover |
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 during all of the periods shown reflects a waiver by the manager. Performance would have been lower had the waiver not been in effect. |
See accompanying notes, which are an integral part of the financial statements.
28
Year Ended | ||||||||||||||||
11/30/11 | 11/30/10 | 11/30/09 | 11/30/08 | 11/30/07 | ||||||||||||
$11.230 | $ 8.790 | $ 6.970 | $ 12.190 | $ 13.040 | ||||||||||||
0.006 | 0.060 | 0.022 | 0.044 | 0.023 | ||||||||||||
0.934 | 2.385 | 1.830 | (4.772 | ) | (0.453 | ) | ||||||||||
0.940 | 2.445 | 1.852 | (4.728 | ) | (0.430 | ) | ||||||||||
(0.070 | ) | (0.005 | ) | (0.032 | ) | — | — | |||||||||
— | — | — | (0.492 | ) | (0.420 | ) | ||||||||||
(0.070 | ) | (0.005 | ) | (0.032 | ) | (0.492 | ) | (0.420 | ) | |||||||
$12.100 | $11.230 | $ 8.790 | $ 6.970 | $ 12.190 | ||||||||||||
8.37% | 27.83% | 25.78% | (40.41% | ) | (3.38% | ) | ||||||||||
$30,923 | $33,877 | $30,401 | $22,988 | $31,176 | ||||||||||||
1.14% | 1.15% | 1.20% | 1.09% | 1.04% | ||||||||||||
1.15% | 1.24% | 1.33% | 1.27% | 1.17% | ||||||||||||
0.05% | 0.60% | 0.29% | 0.44% | 0.18% | ||||||||||||
0.04% | 0.51% | 0.16% | 0.26% | 0.05% | ||||||||||||
42% | 37% | 79% | 84% | 104% |
29
Notes to financial statements | |
Delaware Small Cap Core Fund | November 30, 2011 |
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 maximum 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 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 long-term capital appreciation.
1. Significant Accounting Policies
The following accounting policies are in accordance with U.S. generally accepted accounting principles (U.S. GAAP) 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 ask prices will be used, which approximates fair value. Short-term debt securities are valued at market value. U.S. government and agency securities are valued at the mean between the bid and ask prices, which approximates fair value. Investment company securities are valued at net asset value per share. Generally, other securities and assets for which market quotations are not readily available are valued at fair value as determined in good faith under the direction of the Fund’s Board of Trustees (Board). In determining whether market quotations are readily available or fair valuation will be used, various factors will be taken into consideration, such as market closures or suspension of trading in a security. The Fund may use fair value pricing more frequently for securities traded primarily in non-U.S. markets because, among other things, most foreign markets close well before the Fund values its securities, generally as of 4:00 p.m. Eastern time. The earlier close of these foreign markets gives rise to the possibility that significant events, including broad market moves, government actions or pronouncements, aftermarket trading, or news events may have occurred in the interim. To account for this, the Fund may frequently value foreign securities using fair value prices based on third-party vendor modeling tools (international fair value pricing).
30
Federal Income Taxes — No provision for federal income taxes has been made as the Fund intends to continue to qualify for federal income tax purposes as a regulated investment company under Subchapter M of the Internal Revenue Code of 1986, as amended, and make the requisite distributions to shareholders. The Fund evaluates tax positions taken or expected to be taken in the course of preparing the Fund’s tax returns to determine whether the tax positions are “more-likely-than-not” of being sustained by the applicable tax authority. Tax positions not deemed to meet the more-likely-than-not threshold are recorded as a tax benefit or expense in the current year. Management has analyzed the Fund’s tax positions taken on federal income tax returns for all open tax years (November 30, 2008 – November 30, 2011), and has concluded that no provision for federal income tax is required in 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 purchase certain U.S. government securities subject to the counterparty’s agreement to repurchase them at an agreed upon date and price. The counterparty will be required on a daily basis to maintain the value of the collateral subject to the agreement at not less than the repurchase price (including accrued interest). The agreements are conditioned upon the collateral being deposited under the Federal Reserve book-entry system with the Fund’s custodian or a third party sub-custodian. In the event of default or bankruptcy by the other party to the agreement, retention of the collateral may be subject to legal proceedings. All open repurchase agreements were entered into on November 30, 2011.
Use of Estimates — The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the fair value of investments, the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates and the differences could be material.
Other — Expenses directly attributable to the Fund are charged directly to the Fund. Other expenses common to various funds within the Delaware 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,
31
Notes to financial statements
Delaware Small Cap Core Fund
1. Significant Accounting Policies (continued)
subject to reclassification upon notice of the character of such distributions by the issuer. The Fund declares and pays dividends from net investment income and distributions from net realized gain on investments, if any, annually. The Fund may distribute income dividends and capital gains more frequently, if necessary for tax purposes. Dividends and distributions, if any, are recorded on the ex-dividend date.
Subject to seeking best execution, the Fund may direct certain security trades to brokers who have agreed to rebate a portion of the related brokerage commission to the Fund in cash. In general, best execution refers to many factors, including the price paid or received for a security, the commission charged, the promptness and reliability of execution, the confidentiality and placement accorded the order, and other factors affecting the overall benefit obtained by the Fund on the transaction. There were no commission rebates for the year ended November 30, 2011.
The Fund may receive earnings credits from its custodian when positive cash balances are maintained, which are used to offset custody fees. There were no earnings credits for the year ended November 30, 2011.
The Fund may receive earnings credits from its transfer agent when positive cash balances are maintained, which are used to offset transfer agent fees. The expense paid under this arrangement is included in dividend disbursing and transfer agent fees and expenses on the statement of operations with the corresponding expense offset shown as “expense paid indirectly.” For the year ended November 30, 2011, the Fund earned $132 under this agreement.
2. Investment Management, Administration Agreements and Other Transactions with Affiliates
In accordance with the terms of its investment management agreement, the Fund pays Delaware Management Company (DMC), a series of 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.
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 (excluding any 12b-1 plan and certain other expenses) do not exceed 1.15% of average daily net assets of the Fund through March 29, 2012. This expense waiver and reimbursement applies only to expenses paid directly by the Fund.
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
32
the next $10 billion; and 0.0025% of aggregate average daily net assets in excess of $50 billion. The fees payable to DSC under the service agreement described above are allocated among all Funds in the Delaware Investments® Family of Funds on a relative net asset value basis. For the year ended November 30, 2011, the Fund was charged $3,769 for these services.
DSC also provides dividend disbursing and transfer agency services. Effective July 18, 2011, the Fund pays DSC a monthly asset-based fee for these services. Prior to July 18, 2011, the Fund paid 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 29, 2012, 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, 2011, the Fund had liabilities payable to affiliates as follows:
Investment management fees payable to DMC | $ | 44,528 | |
Dividend disbursing, transfer agent and fund accounting | |||
oversight fees and other expenses payable to DSC | 1,715 | ||
Distribution fees payable to DDLP | 13,247 | ||
Other expenses payable to DMC and affiliates* | 2,515 |
*DMC, as part of its administrative services, pays operating expenses on behalf of the Fund and is reimbursed on a periodic basis. 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, 2011, the Fund was charged $1,906 for internal legal and tax services provided by DMC and/or its affiliates’ employees.
For the year ended November 30, 2011, DDLP earned $3,184 for commissions on sales of the Fund’s Class A shares. For the year ended November 30, 2011, DDLP received gross CDSC commissions of $ 4 and $ 395 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 include expenses accrued by the Fund for each Trustee’s retainer and meeting fees. Certain officers of DMC, DSC and DDLP are officers and/or Trustees of the Trust. These officers and Trustees are paid no compensation by the Fund.
33
Notes to financial statements
Delaware Small Cap Core Fund
3. Investments
For the year ended November 30, 2011, the Fund made purchases of $31,262,385 and sales of $39,535,923 of investment securities other than short-term investments.
At November 30, 2011, the cost of investments for federal income tax purposes was $62,331,140. At November 30, 2011, the net unrealized appreciation was $7,192,672, of which $12,901,844 related to unrealized appreciation of investments and $5,709,172 related to unrealized depreciation of investments.
U.S. GAAP defines fair value as the price that the Fund would receive to sell an asset or pay to transfer a liability in an orderly transaction between market participants at the measurement date under current market conditions. A three level hierarchy for fair value measurements has been established based upon the transparency of inputs to the valuation of an asset or liability. Inputs may be observable or unobservable and refer broadly to the assumptions that market participants would use in pricing the asset or liability. Observable inputs reflect the assumptions market participants would use in pricing the asset or liability based on market data obtained from sources independent of the reporting entity. Unobservable inputs reflect the reporting entity’s own assumptions about the assumptions that market participants would use in pricing the asset or liability developed based on the best information available under the circumstances. The Fund’s investment in its entirety is assigned a level based upon the observability of the inputs which are significant to the overall valuation. The three level hierarchy of inputs is summarized below.
Level 1 | – | inputs are quoted prices in active markets for identical investments (e.g., equity securities, open-end investment companies, futures contracts, options contracts) |
Level 2 | – | other observable inputs (including, but not limited to: quoted prices for similar assets or liabilities in markets that are active, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the assets or liabilities (such as interest rates, yield curves, volatilities, prepayment speeds, loss severities, credit risks and default rates) or other market-corroborated inputs) (e.g., debt securities, government securities, swap contracts, foreign currency exchange contracts, foreign securities utilizing international fair value pricing) |
Level 3 | – | inputs are significant unobservable inputs (including the Fund’s own assumptions used to determine the fair value of investments) (e.g., broker-quoted securities, fair valued securities) |
34
The following table summarizes the valuation of the Fund’s investments by fair value hierarchy levels as of November 30, 2011:
Level 1 | Level 2 | Level 3 | Total | |||||||||
Common Stock | $ | 67,261,037 | $ | — | $ | — | $ | 67,261,037 | ||||
Short-Term Investments | — | 1,469,729 | — | 1,469,729 | ||||||||
Securities Lending Collateral | — | 793,046 | — | 793,046 | ||||||||
Total | $ | 67,261,037 | $ | 2,262,775 | $ | — | $ | 69,523,812 |
The value of Level 3 investments was zero at the beginning and end of the period and there was no change in unrealized appreciation/depreciation.
During the year ended November 30, 2011, there were no transfers between Level 1 investments, Level 2 investments or Level 3 investments that had a material impact to the Fund.
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. GAAP. Additionally, distributions from net short-term gains on sales of investment securities are treated as ordinary income for federal income tax purposes. The tax character of dividends and distributions paid during the years ended November 30, 2011 and 2010 was as follows:
Year Ended | ||||
11/30/11 | 11/30/10 | |||
Ordinary income | $313,244 | $17,356 |
5. Components of Net Assets on a Tax Basis
As of November 30, 2011, the components of net assets on a tax basis were as follows:
Shares of beneficial interest | $ | 73,989,580 | ||
Capital loss carryforwards | (12,529,273 | ) | ||
Unrealized appreciation | 7,192,672 | |||
Net assets | $ | 68,652,979 |
The differences between book basis and tax basis components of net assets are primarily attributable to tax deferral of losses on wash sales.
For financial reporting purposes, capital accounts are adjusted to reflect the tax character of permanent book/tax differences. Reclassifications are primarily due to tax treatment of gain (loss) on dividends and distributions. Results of operations and net assets were not affected by these reclassifications. For the year ended November 30, 2011, the Fund recorded the following reclassifications.
Undistributed net investment income | $ | 171,629 | ||
Paid-in capital | (171,629 | ) |
35
Notes to financial statements
Delaware Small Cap Core Fund
5. Components of Net Assets on a Tax Basis (continued)
For federal income tax purposes, capital loss carryforwards may be carried forward and applied against future capital gains. $8,542,640 was utilized in 2011. Capital loss carryforwards remaining at November 30, 2011 will expire as follows: $2,895,120 expires in 2016 and $9,634,153 expires in 2017.
On December 22, 2010, the Regulated Investment Company Modernization Act of 2010 (the Act) was enacted, which changed various technical rules governing the tax treatment of regulated investment companies. The changes are generally effective for taxable years beginning after the date of enactment. Under the Act, the Fund will be permitted to carry forward capital losses incurred in taxable years beginning after the date of enactment for an unlimited period. However, any losses incurred during those future taxable years will be required to be utilized prior to the losses incurred in pre-enactment taxable years, which carry an expiration date. As a result of this ordering rule, pre-enactment capital loss carryforwards may be more likely to expire unused. Additionally, post-enactment capital loss carryforwards will retain their character as either short-term or long-term capital losses rather than being considered all short-term as permitted under previous regulation.
6. Capital Shares
Transactions in capital shares were as follows:
Year Ended | ||||||
11/30/11 | 11/30/10 | |||||
Shares sold: | ||||||
Class A | 495,598 | 429,893 | ||||
Class C | 87,394 | 72,175 | ||||
Class R | 202,526 | 205,640 | ||||
Institutional Class | 564,736 | 711,873 | ||||
Shares issued upon reinvestment of dividends and distributions: | ||||||
Class A | 6,438 | — | ||||
Class R | 746 | — | ||||
Institutional Class | 17,126 | 1,846 | ||||
1,374,564 | 1,421,427 | |||||
Shares repurchased: | ||||||
Class A | (563,294 | ) | (1,154,997 | ) | ||
Class C | (190,556 | ) | (181,685 | ) | ||
Class R | (198,480 | ) | (167,239 | ) | ||
Institutional Class | (1,042,755 | ) | (1,158,242 | ) | ||
(1,995,085 | ) | (2,662,163 | ) | |||
Net decrease | (620,521 | ) | (1,240,736 | ) |
36
7. Line of Credit
The Fund, along with certain other funds in the Delaware Investments® Family of Funds (Participants), was a participant in a $50,000,000 revolving line of credit to be used for temporary or emergency purposes as an additional source of liquidity to fund redemptions of investor shares. Under the agreement, the Participants were charged an annual commitment fee, which was allocated across the Participants on the basis of each Participant’s allocation of the entire facility. The Participants were permitted to borrow up to a maximum of one third of their net assets under the agreement. The line of credit expired on November 15, 2011.
On November 15, 2011, the Fund, along with the other Participants, entered into an amendment to the agreement for a $125,000,000 revolving line of credit. The agreement is to be used as described above and operates in substantially the same manner as the original agreement. The agreement expires on November 13, 2012. The Fund had no amounts outstanding as of November 30, 2011 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 The Bank of New York Mellon (BNY Mellon). At the time a security is loaned, the borrower must post collateral equal to the required percentage of the market value of the loaned security, including any accrued interest. The required percentage is: (i) 102% with respect to U.S. securities and foreign securities that are denominated and payable in U.S. dollars; and (ii) 105% with respect to foreign securities. With respect to each loan, if on any business day the aggregate market value of securities collateral plus cash collateral held is less than the aggregate market value of the securities which are the subject of such loan, the borrower will be notified to provide additional collateral by the end of the following business day which, together with the collateral already held, will be not less than the applicable initial collateral requirements for such security loan. If the aggregate market value of securities collateral and cash collateral held with respect to a security loan exceeds the applicable initial collateral requirement, upon the request of the borrower BNY Mellon must return enough collateral to the borrower by the end of the following business day to reduce the value of the remaining collateral to the applicable initial collateral requirement for such security loan. As a result of the foregoing, the value of the collateral held with respect to a loaned security may be temporarily more or less than the value of the security on loan.
Cash collateral received is generally invested in the Delaware Investments Collateral Fund No. 1 (Collective Trust) established by BNY Mellon for the purpose of investment on behalf of funds managed by DMC that participate in BNY Mellon’s securities lending program. The Collective Trust may invest in U.S. government securities and high quality corporate debt, asset-backed and other money market securities and in repurchase agreements collateralized by such securities, provided that the Collective Trust will generally have a dollar-weighted average portfolio maturity of 60 days or less. The Collective Trust seeks to maintain a net asset value per unit of $1.00, but there can be no assurance that it will always be able to do so. The Fund may incur investment
37
Notes to financial statements
Delaware Small Cap Core Fund
8. Securities Lending (continued)
losses as a result of investing securities lending collateral in the Collective Trust or another collateral investment pool. This could occur if an investment in a collateral investment pool defaulted or if it were necessary to liquidate assets in the collateral investment pool to meet returns on outstanding security loans at a time when the collateral investment pool’s net asset value per unit was less than $1.00. Under those circumstances, the Fund may not receive an amount from the collateral investment pool that is equal in amount to the collateral the Fund would be required to return to the borrower of the securities and the Fund would be required to make up this shortfall. Effective April 20, 2009, BNY Mellon transferred the assets of the Fund’s previous collateral investment pool other than cash and assets with a maturity of one business day or less to the BNY Mellon SL DBT II Liquidating Fund (Liquidating Fund), effectively bifurcating the previous collateral investment pool. The Fund’s exposure to the Liquidating Fund is expected to decrease as the Liquidating Fund’s assets mature or are sold. In October 2008, BNY Mellon transferred certain distressed securities from the previous collateral investment pool into the Mellon GSL Reinvestment Trust II. The Fund can also accept U.S. government securities and letters of credit (non-cash collateral) in connection with securities loans. In the event of default or bankruptcy by the lending agent, realization and/or retention of the collateral may be subject to legal proceedings. In the event the borrower fails to return loaned securities and the collateral received is insufficient to cover the value of the loaned securities and provided such collateral shortfall is not the result of investment losses, the lending agent has agreed to pay the amount of the shortfall to the Fund, or at the discretion of the lending agent, replace the loaned securities. The Fund continues to record dividends or interest, as applicable, on the securities loaned and is subject to changes in value of the securities loaned that may occur during the term of the loan. The Fund has the right under the Lending Agreement to recover the securities from the borrower on demand. With respect to security loans collateralized by non-cash collateral, the Fund receives loan premiums paid by the borrower. With respect to security loans collateralized by cash collateral, the earnings from the collateral investments are shared among the Fund, the security lending agent and the borrower. The Fund records security lending income net of allocations to the security lending agent and the borrower.
At November 30, 2011, the value of securities on loan was $1,019,534 for which cash collateral was received and invested in accordance with the Lending Agreement. At November 30, 2011, the value of invested collateral was $793,046. These 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-sized 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.
38
The Fund invests in REITs and is subject to the risks associated with that industry. If the Fund holds real estate directly as a result of defaults or receives rental income directly from real estate holdings, its tax status as a regulated investment company may be jeopardized. There were no direct real estate holdings during the year ended November 30, 2011. 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 has delegated to DMC the day-to-day functions of determining whether individual securities are liquid for purposes of the Fund’s limitation on investments in illiquid securities. Securities eligible for resale pursuant to Rule 144A, which are determined to be liquid, are not subject to the Fund’s 15% limit on investments in illiquid securities. As of November 30, 2011, there were no Rule 144A securities. Illiquid securities have been identified on the statement of net assets.
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. Subsequent Events
Management has determined that no material events or transactions occurred subsequent to November 30, 2011 that would require recognition or disclosure in the Fund’s financial statements.
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. All designations are based on financial information available as of the date of this annual report and, accordingly are subject to change. For any and all items requiring designation, it is the intention of the Fund to designate the maximum amount permitted under the Internal Revenue Code and the regulations thereunder.
39
Notes to financial statements
Delaware Small Cap Core Fund
12. Tax Information (Unaudited) (continued)
For the fiscal year ended November 30, 2011, the Fund designates distributions paid during the year as follows:
(A) Ordinary Income Distributions* (Tax Basis) | 100% |
(B) Qualifying Dividends1 | 79% |
40
Report of independent
registered public accounting firm
To the Board of Trustees of Delaware Group® Equity Funds V
and Shareholders of Delaware Small Cap Core Fund:
In our opinion, the accompanying statement of net assets and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of Delaware Small Cap Core Fund (one of the series constituting Delaware Group Equity Funds V, hereafter referred to as the “Fund”) at November 30, 2011, the results of its operations for the year then ended and the changes in its net assets and the financial highlights for each of the two years in the period then ended, in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to as “financial statements”) are the responsibility of the Fund’s management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements 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 are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities at November 30, 2011 by correspondence with the custodian, provide a reasonable basis for our opinion. The financial highlights for each of the three years in the period ended November 30, 2009 were audited by other independent accountants whose report dated January 21, 2010 expressed an unqualified opinion on those statements.
PricewaterhouseCoopers LLP
Philadelphia, Pennsylvania
January 23, 2012
41
Other Fund information
(Unaudited)
Delaware Small Cap Core Fund
Board Consideration of Delaware Small Cap Core Fund Investment Advisory Agreement
At a meeting held on August 16-17, 2011 (the “Annual Meeting”), the Board of Trustees (the “Board”), including a majority of disinterested or independent Trustees, approved the renewal of the Investment Advisory Agreement for the Delaware Small Cap Core Fund (the “Fund”). In making its decision, the Board considered information furnished specifically in connection with the renewal of the Investment Advisory Agreement with Delaware Management Company (“DMC”), which included materials provided by DMC and its affiliates (“Delaware Investments”) concerning, among other things, the nature, extent and quality of services provided to the Fund, the costs of such services to the Fund, economies of scale and the financial condition and profitability of Delaware Investments. In addition, in connection with the Annual Meeting, reports were provided in May 2011 and included independent historical and comparative reports provided by Lipper, Inc., an independent statistical compilation organization (“Lipper”). The Lipper reports compared the Fund’s investment performance and expenses with those of other comparable mutual funds. The independent Trustees reviewed and discussed the Lipper reports with independent legal counsel to the independent Trustees. The Board requested and received information regarding DMC’s policy with respect to advisory fee levels and its breakpoint philosophy; the structure of portfolio manager compensation; the investment manager’s profitability; and any constraints or limitations on the availability of securities in certain investment styles, which had in the past year inhibited, or which were likely in the future to inhibit, DMC’s ability to invest fully in accordance with Fund policies.
In considering information relating to the approval of the Fund’s advisory agreement, the independent Trustees received assistance and advice from and met separately with independent legal counsel to the independent Trustees. Although the Board gave attention to all information furnished, the following discussion identifies, under separate headings, the primary factors taken into account by the Board during its contract renewal considerations.
Nature, Extent and Quality of Service. The Board considered the services provided by Delaware Investments to the Fund and its shareholders. In reviewing the nature, extent and quality of services, the Board considered reports furnished to it throughout the year, which covered matters such as the relative performance of the Fund, compliance of portfolio managers with the investment policies, strategies and restrictions for the Fund, compliance by DMC and Delaware Distributors, L.P. (together, “Management”) personnel with the Code of Ethics adopted throughout the Delaware Investments® Family of Funds complex and adherence to fair value pricing procedures as established by the Board. The Board was pleased with the current staffing of the Fund’s investment advisor and the emphasis placed on research in the investment process. The Board gave favorable consideration to DMC’s efforts to control expenditures while maintaining service levels committed to fund matters. The Board noted that in July 2011 Management implemented measures to reduce overall costs and improve transfer agent and shareholder servicing functions through outsourcing. It is expected that such measures will improve the quality and lower the cost of delivering transfer agent and shareholder servicing services to the Fund. The Board once again noted
42
the benefits provided to Fund shareholders through each shareholder’s ability to exchange an investment in one Delaware Investments fund for the same class of shares in another Delaware Investments fund without a sales charge, to reinvest Fund dividends into additional shares of the Fund or into additional shares of other Delaware Investments funds and the privilege to combine holdings in other Delaware Investments funds to obtain a reduced sales charge. The Board was satisfied with the nature, extent and quality of the overall services provided by Delaware Investments.
Investment Performance. The Board placed significant emphasis on the investment performance of the Fund in view of its importance to shareholders. Although the Board gave appropriate consideration to performance reports and discussions with portfolio managers at Investment Committee meetings throughout the year, the Board gave particular weight to the Lipper reports furnished for the Annual Meeting. The Lipper reports prepared for the Fund showed the investment performance of its Class A shares in comparison to a group of similar funds as selected by Lipper (the “Performance Universe”). A fund with the best performance ranked first, and a fund with the poorest performance ranked last. The highest/best performing 25% of funds in the Performance Universe make up the first quartile; the next 25%, the second quartile; the next 25%, the third quartile; and the poorest/worst performing 25% of funds in the Performance Universe make up the fourth quartile. Comparative annualized performance for the Fund was shown for the past one-, three-, five- and ten-year periods, as applicable, ended March 31, 2011. The Board’s objective is that the Fund’s performance for the periods considered be at or above the median of its Performance Universe. The following paragraph summarizes the performance results for the Fund and the Board’s view of such performance.
The Performance Universe for the Fund consisted of the Fund and all retail and institutional small-cap core funds as selected by Lipper. The Lipper report comparison showed that the Fund’s total return for the one-, three- and ten-year periods was in the second quartile of its Performance Universe. The report further showed that the Fund’s total return for the five-year period was in the third quartile. The Board was satisfied with performance.
Comparative Expenses. The Board considered expense comparison data for the Delaware Investments Family of Funds. Management provided the Board with information on pricing levels and fee structures for the Fund as of its most recently completed fiscal year. The Board also focused on the comparative analysis of effective management fees and total expense ratios of the Fund versus effective management fees and expense ratios of a group of similar funds as selected by Lipper (the “Expense Group”). In reviewing comparative costs, the Fund’s contractual management fee and the actual management fee incurred by the Fund were compared with the contractual management fees (assuming all funds in the Expense Group were similar in size to the Fund) and actual management fees (as reported by each fund) within the Expense Group, taking into account any applicable breakpoints and fee waivers. The Fund’s total expenses were also compared with those of its Expense Group. The Lipper total expenses, for comparative consistency, were shown by Lipper for
43
Other Fund information
(Unaudited)
Delaware Small Cap Core Fund
Board Consideration of Delaware Small Cap Core Fund Investment Advisory Agreement (continued)
Class A shares and comparative total expenses including 12b-1 and non 12b-1 service fees. The Board considered fees paid to Delaware Investments for non-management services. The Board’s objective is to limit the Fund’s total expense ratio to be competitive with that of the Expense Group. The following paragraph summarizes the expense results for the Fund and the Board’s view of such expenses.
The expense comparisons for the Fund showed that its actual management fee and total expenses were in the quartile with the lowest expenses of its Expense Group. The Board was satisfied with the management fee and total expenses of the Fund in comparison to those of its Expense Group as shown in the Lipper report.
Management Profitability. The Board considered the level of profits realized by Delaware Investments in connection with the operation of the Fund. In this respect, the Board reviewed the Investment Management Profitability Analysis that addressed the overall profitability of Delaware Investments’ business in providing management and other services to each of the individual funds and the Delaware Investments Family of Funds as a whole. Specific attention was given to the methodology followed in allocating costs for the purpose of determining profitability. Management stated that the level of profits of Delaware Investments, to a certain extent, reflect recent operational cost savings and efficiencies initiated by Delaware Investments. The Board considered Delaware Investments’ efforts to improve services provided to fund shareholders and to meet additional regulatory and compliance requirements resulting from recent industry-wide Securities and Exchange Commission initiatives. The Board also considered the extent to which Delaware Investments might derive ancillary benefits from fund operations, including the potential for procuring additional business as a result of the prestige and visibility associated with its role as service provider to the Delaware Investments Family of Funds and the benefits from allocation of fund brokerage to improve trading efficiencies. The Board found that the management fees were reasonable in light of the services rendered and the level of profitability of Delaware Investments.
Economies of Scale. The Trustees considered whether economies of scale are realized by Delaware Investments as the Fund’s assets increase and the extent to which any economies of scale are reflected in the level of management fees charged. The Trustees reviewed the standardized advisory fee pricing and structure, approved by the Board and shareholders, which includes breakpoints. Breakpoints in the advisory fee occur when the advisory fee rate is reduced on assets in excess of specified levels. Breakpoints result in a lower advisory fee than would otherwise be the case on all assets when the asset levels specified are exceeded. The Board noted that the fee under the Fund’s management contract fell within the standard structure. Although the Fund has not reached a size at which it can take advantage of breakpoints, the Board recognized that the fee was structured so that when the Fund grows, economies of scale may be shared.
44
Change in Independent Registered Public Accounting Firm
Due to independence matters under the Securities and Exchange Commission’s auditor independence rules relating to the January 4, 2010 acquisition of Delaware Investments (including DMC, DDLP and DSC) by Macquarie Group, Ernst & Young LLP (E&Y) has resigned as the independent registered public accounting firm for Delaware Group® Equity Funds V (the Trust) effective May 20, 2010. At a meeting held on May 20, 2010, the Board of Trustees of the Trust, upon recommendation of the Audit Committee, selected PricewaterhouseCoopers LLP (PwC) to serve as the independent registered public accounting firm for the Trust for the fiscal year ending November 30, 2011. During the fiscal years ended November 30, 2009 and 2008, E&Y’s audit reports on the financial statements of the Trust did not contain any adverse opinion or disclaimer of opinion, nor were they qualified or modified as to uncertainty, audit scope, or accounting principles. In addition, there were no disagreements between the Trust and E&Y on accounting principles, financial statements disclosures or audit scope, which, if not resolved to the satisfaction of E&Y, would have caused them to make reference to the disagreement in their reports. Neither the Trust nor anyone on its behalf has consulted with PwC at any time prior to their selection with respect to the application of accounting principles to a specified transaction, either completed or proposed or the type of audit opinion that might be rendered on the Trust’s financial statements.
45
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
Name, Address, | Position(s) | Length of | ||
and Birth Date | Held with Fund(s) | Time Served | ||
Interested Trustees | ||||
Patrick P. Coyne1 | Chairman, President, | Chairman and Trustee | ||
2005 Market Street | Chief Executive Officer, | since August 16, 2006 | ||
Philadelphia, PA 19103 | and Trustee | |||
April 1963 | President and | |||
Chief Executive Officer | ||||
since August 1, 2006 | ||||
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 | ||||
Principal Occupation(s) | Fund Complex Overseen | Other Directorships | ||
During Past 5 Years | by Trustee or Officer | Held by Trustee or Officer | ||
Patrick P. Coyne has served in | 74 | Director and Audit | ||
various executive capacities | Committee Member | |||
at different times at | Kaydon Corp. | |||
Delaware Investments.2 | ||||
Board of Governors Member | ||||
Investment Company | ||||
Institute (ICI) | ||||
Finance Committee Member | ||||
St. John Vianney Roman | ||||
Catholic Church | ||||
Board of Trustees | ||||
Agnes Irwin School | ||||
Member of Investment | ||||
Committee | ||||
Cradle of Liberty Council, | ||||
BSA | ||||
(2007–2010) | ||||
47
Board of trustees/directors and officers addendum
Delaware Investments® Family of Funds
Name, Address, | Position(s) | Length of | ||
and Birth Date | Held with Fund(s) | Time Served | ||
Independent Trustees | ||||
Thomas L. Bennett | Trustee | Since March 2005 | ||
2005 Market Street | ||||
Philadelphia, PA 19103 | ||||
October 1947 | ||||
John A. Fry | Trustee | Since January 2001 | ||
2005 Market Street | ||||
Philadelphia, PA 19103 | ||||
May 1960 | ||||
Anthony D. Knerr | Trustee | Since April 1990 | ||
2005 Market Street | ||||
Philadelphia, PA 19103 | ||||
December 1938 | ||||
Lucinda S. Landreth | Trustee | Since March 2005 | ||
2005 Market Street | ||||
Philadelphia, PA 19103 | ||||
June 1947 | ||||
48
Number of Portfolios in | ||||
Principal Occupation(s) | Fund Complex Overseen | Other Directorships | ||
During Past 5 Years | by Trustee or Officer | Held by Trustee or Officer | ||
Private Investor | 74 | Chairman of Investment | ||
(March 2004–Present) | Committee | |||
Pennsylvania Academy of | ||||
Investment Manager | Fine Arts | |||
Morgan Stanley & Co. | ||||
(January 1984–March 2004) | Investment Committee and | |||
Governance Committee | ||||
Member | ||||
Pennsylvania Horticultural | ||||
Society | ||||
Director | ||||
Bryn Mawr Bank Corp. (BMTC) | ||||
(2007–2011) | ||||
President | 74 | Board of Governors Member — | ||
Drexel University | NASDAQ OMX PHLX LLC | |||
(August 2010–Present) | ||||
Director and Audit | ||||
President | Committee Member | |||
Franklin & Marshall College | Community Health Systems | |||
(July 2002–July 2010) | ||||
Director — Ecore | ||||
International | ||||
(2009–2010) | ||||
Director — Allied | ||||
Barton Securities Holdings | ||||
(2005–2008) | ||||
Managing Director | 74 | None | ||
Anthony Knerr & Associates | ||||
(Strategic Consulting) | ||||
(1990–Present) | ||||
Chief Investment Officer | 74 | None | ||
Assurant, Inc. (Insurance) | ||||
(2002–2004) | ||||
49
Board of trustees/directors and officers addendum
Delaware Investments® Family of Funds
Name, Address, | Position(s) | Length of | ||
and Birth Date | Held with Fund(s) | Time Served | ||
Independent Trustees (continued) | ||||
Ann R. Leven | Trustee | Since October 1989 | ||
2005 Market Street | ||||
Philadelphia, PA 19103 | ||||
November 1940 | ||||
Frances A. Sevilla-Sacasa | Trustee | Since September 2011 | ||
2005 Market Street | ||||
Philadelphia, PA 19103 | ||||
January 1956 | ||||
50
Number of Portfolios in | ||||
Principal Occupation(s) | Fund Complex Overseen | Other Directorships | ||
During Past 5 Years | by Trustee or Officer | Held by Trustee or Officer | ||
Consultant | 74 | Director and Audit | ||
ARL Associates | Committee Chair | |||
(Financial Planning) | Systemax Inc. | |||
(1983–Present) | (2001–2009) | |||
Director and Audit | ||||
Committee Chairperson | ||||
Andy Warhol Foundation | ||||
(1999–2007) | ||||
Executive Advisor to Dean | 74 | Trust Manager — Camden | ||
(since August 2011) and | Property Trust | |||
Interim Dean | (since August 2011) | |||
(January 2011–July 2011) — | ||||
University of Miami School of | Board of Trustees | |||
Business Administration | Thunderbird School of | |||
Global Management | ||||
President — U.S. Trust, | (2007–2011) | |||
Bank of America Private | ||||
Wealth Management | Board of Trustees | |||
(Private Banking) | Carrollton School of the | |||
(July 2007–December 2008) | Sacred Heart | |||
(since 2007) | ||||
President and Director | ||||
(November 2005–June 2007) and | Board Member | |||
Chief Executive Officer | Foreign Policy Association | |||
(April 2007–June 2007) — | (since 2006) | |||
U.S. Trust Company | ||||
(Private Banking) | Board of Trustees | |||
Georgetown Preparatory School | ||||
(2005–2011) | ||||
Board of Trustees | ||||
Miami City Ballet | ||||
(2000–2011) | ||||
Board of Trustees | ||||
St. Thomas University | ||||
(2005–2011) | ||||
51
Board of trustees/directors and officers addendum
Delaware Investments® Family of Funds
Name, Address, | Position(s) | Length of | ||
and Birth Date | Held with Fund(s) | Time Served | ||
Independent Trustees (continued) | ||||
Janet L. Yeomans | Trustee | Since April 1999 | ||
2005 Market Street | ||||
Philadelphia, PA 19103 | ||||
July 1948 | ||||
J. Richard Zecher | Trustee | Since March 2005 | ||
2005 Market Street | ||||
Philadelphia, PA 19103 | ||||
July 1940 | ||||
52
Number of Portfolios in | ||||
Principal Occupation(s) | Fund Complex Overseen | Other Directorships | ||
During Past 5 Years | by Trustee or Officer | Held by Trustee or Officer | ||
Vice President and Treasurer | 74 | Director and Audit | ||
(January 2006–Present) | Committee Member | |||
Vice President — Mergers & Acquisitions | Okabena Company | |||
(January 2003–January 2006), and | ||||
Vice President and Treasurer | Chair — 3M | |||
(July 1995–January 2003) | Investment Management | |||
3M Corporation | Company | |||
Founder | 74 | Director and Audit | ||
Investor Analytics | Committee Member | |||
(Risk Management) | Investor Analytics | |||
(May 1999–Present) | ||||
Director | ||||
Founder | Oxigene, Inc. | |||
Sutton Asset Management | (2003–2008) | |||
(Hedge Fund) | ||||
(September 1996–Present) | ||||
53
Board of trustees/directors and officers addendum
Delaware Investments® Family of Funds
Name, Address, | Position(s) | Length of | ||
and Birth Date | Held with Fund(s) | Time Served | ||
Officers | ||||
David F. Connor | Vice President, | Vice President since | ||
2005 Market Street | Deputy General | September 2000 | ||
Philadelphia, PA 19103 | Counsel, and Secretary | and Secretary since | ||
December 1963 | October 2005 | |||
Daniel V. Geatens | Vice President | Treasurer | ||
2005 Market Street | and Treasurer | since October 2007 | ||
Philadelphia, PA 19103 | ||||
October 1972 | ||||
David P. O’Connor | Senior Vice President, | Senior Vice President, | ||
2005 Market Street | General Counsel, | General Counsel, and | ||
Philadelphia, PA 19103 | and Chief Legal Officer | Chief Legal Officer | ||
February 1966 | since October 2005 | |||
Richard Salus | Senior Vice President | Chief Financial Officer | ||
2005 Market Street | and Chief Financial Officer | since November 2006 | ||
Philadelphia, PA 19103 | ||||
October 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.
54
Number of Portfolios in | ||||
Principal Occupation(s) | Fund Complex Overseen | Other Directorships | ||
During Past 5 Years | by Trustee or Officer | Held by Trustee or Officer | ||
David F. Connor has served as | 74 | None3 | ||
Vice President and Deputy | ||||
General Counsel of | ||||
Delaware Investments | ||||
since 2000. | ||||
Daniel V. Geatens has served | 74 | None3 | ||
in various capacities at | ||||
different times at | ||||
Delaware Investments. | ||||
David P. O’Connor has served in | 74 | None3 | ||
various executive and legal | ||||
capacities at different times | ||||
at Delaware Investments. | ||||
Richard Salus has served in | 74 | None3 | ||
various executive capacities | ||||
at different times at | ||||
Delaware Investments. | ||||
3 David F. Connor, Daniel V. Geatens, David P. O’Connor, and Richard Salus serve in similar capacities for the six portfolios of the Optimum Fund Trust, which have the same investment advisor, principal underwriter, and transfer agent as the registrant.
55
About the organization
Board of trustees | |||
Patrick P. Coyne Chairman, President, and Chief Executive Officer Delaware Investments® Family of Funds Philadelphia, PA Thomas L. Bennett Private Investor Rosemont, PA John A. Fry President Drexel University Philadelphia, PA | Anthony D. Knerr Founder and Managing Director Anthony Knerr & Associates New York, NY Lucinda S. Landreth Former Chief Investment Officer Assurant, Inc. Philadelphia, PA | Ann R. Leven Consultant ARL Associates New York, NY Frances A. Sevilla-Sacasa Executive Advisor to Dean, University of Miami School of Business Administration Coral Gables, FL | Janet L. Yeomans Vice President and Treasurer 3M Corporation St. Paul, MN J. Richard Zecher Founder Investor Analytics Scottsdale, AZ |
Affiliated officers | |||
David F. Connor Vice President, Deputy General Counsel, and Secretary Delaware Investments Family of Funds Philadelphia, PA | Daniel V. Geatens Vice President and Treasurer Delaware Investments Family of Funds Philadelphia, PA | David P. O’Connor Senior Vice President, General Counsel, and Chief Legal Officer Delaware Investments Family of Funds Philadelphia, PA | Richard Salus Senior Vice President and Chief Financial Officer Delaware Investments Family of Funds Philadelphia, PA |
This annual report is for the information of Delaware Small Cap Core shareholders, but it may be used with prospective investors when preceded or accompanied by the Delaware Investments Fund fact sheet for the most recently completed calendar quarter. These documents are available at www.delawareinvestments.com. |
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 (SEC) for the first and third quarters of each fiscal year on Form N-Q. The Fund’s Forms N-Q, as well as a description of the policies and procedures that the Fund uses to determine how to vote proxies (if any) relating to portfolio securities are available without charge (i) upon request, by calling 800 523-1918; and (ii) on the SEC’s website at 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 website at www.delawareinvestments.com. The Fund’s Forms N-Q may be reviewed and copied at the SEC’s Public Reference Room in Washington, D.C.; information on the operation of the Public Reference Room may be obtained by calling 800 SEC-0330. Information (if any) regarding how the Fund voted proxies relating to portfolio securities during the most recently disclosed 12-month period ended June 30 is available without charge (i) through the Funds’ website at www.delawareinvestments.com; and (ii) on the SEC’s website at www.sec.gov. |
56
![](https://capedge.com/proxy/N-CSR/0001206774-12-000442/del_topimg02.jpg)
Annual report Delaware Small Cap Value Fund November 30, 2011 U.S. value equity mutual fund |
Carefully consider the Fund’s investment objectives, risk factors, charges, and expenses before investing. This and other information can be found in the Fund’s prospectus and, if available, its summary prospectus, which may be obtained by visiting www.delawareinvestments.com or calling 800 523-1918. Investors should read the prospectus and, if available, the summary prospectus carefully before investing. |
You can obtain shareholder reports and prospectuses online instead of in the mail. Visit www.delawareinvestments.com/edelivery. |
Experience Delaware Investments
Delaware Investments is committed to the pursuit of consistently superior asset management and unparalleled client service. We believe in our investment processes, which seek to deliver consistent results, and in convenient services that help add value for our clients.
If you are interested in learning more about creating an investment plan, contact your financial advisor.
You can learn more about Delaware Investments or obtain a prospectus for Delaware Small Cap Value Fund at www.delawareinvestments.com.
Manage your investments online |
|
Delaware Management Holdings, Inc. and its subsidiaries (collectively known by the marketing name of Delaware Investments) are wholly owned subsidiaries of Macquarie Group Limited, a global provider of banking, financial, advisory, investment and funds management services.
Investments in Delaware Small Cap Value Fund are not and will not be deposits with or liabilities of Macquarie Bank Limited ABN 46 008 583 542 and its holding companies, including their subsidiaries or related companies (Macquarie Group), and are subject to investment risk, including possible delays in repayment and loss of income and capital invested. No Macquarie Group company guarantees or will guarantee the performance of the Fund, the repayment of capital from the Fund, or any particular rate of return.
Table of contents | |
Portfolio management review | 1 |
Performance summary | 4 |
Disclosure of Fund expenses | 8 |
Security type/sector allocation and | |
top 10 equity holdings | 10 |
Statement of net assets | 12 |
Statement of operations | 18 |
Statements of changes in net assets | 20 |
Financial highlights | 22 |
Notes to financial statements | 32 |
Report of independent registered | |
public accounting firm | 43 |
Other Fund information | 44 |
Board of trustees/directors and | |
officers addendum | 48 |
About the organization | 58 |
Unless otherwise noted, views expressed herein are current as of Nov. 30, 2011, and subject to change.
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. Delaware Investments, a member of Macquarie Group, refers to Delaware Management Holdings, Inc. and its subsidiaries, including the Fund’s distributor, Delaware Distributors, L.P. Macquarie Group refers to Macquarie Group Limited and its subsidiaries and affiliates worldwide.
© 2012 Delaware Management Holdings, Inc.
All third-party trademarks cited are the property of their respective owners.
Portfolio management review | |
Delaware Small Cap Value Fund | December 6, 2011 |
Performance preview (for the year ended November 30, 2011) | ||||
Delaware Small Cap Value Fund (Class A shares) | 1-year return | +4.99% | ||
Russell 2000® Value Index (benchmark) | 1-year return | +0.77% |
Past performance does not guarantee future results. For complete, annualized performance for Delaware Small Cap Value Fund, please see the table on page 4. The performance of Class A shares excludes the applicable sales charge and reflects the reinvestment of all distributions. Index performance returns do not reflect any management fees, transaction costs, or expenses. Indices are unmanaged and one cannot invest directly in an index. |
During the Fund’s fiscal year ended Nov. 30, 2011, small-cap value stocks followed a sharp up-down-up pattern in response to decelerating global economic growth, a deepening credit crunch in the euro zone, and generally fragile investor sentiment regarding risk. Yet despite a drop of approximately 20% beginning in early July 2011, many small-cap stocks finished the fiscal year close to where they began 12 months earlier (source: Bloomberg).
At the beginning of the Fund’s fiscal year, securities markets were about a year and a half into a strong bull market. During the final weeks of 2010, optimism was high that the pace of economic growth would accelerate in 2011, led by recoveries in the labor and housing markets.
However, by early spring 2011, a series of events began to chip away at that optimism. First, fast-rising food and energy prices undermined consumer buying power. A broad bull market in commodities was driven by Federal Reserve policy that pushed the dollar lower, and by popular uprisings in the Middle East and Africa that toppled long-entrenched dictatorships and threatened energy supplies.
In March 2011, a devastating earthquake, tsunami, and nuclear crisis in Japan disrupted not only that country’s failing economy, but global supply chains as well. By summer, it was apparent to many that the U.S. economy was maintaining a very modest rate of growth and a double-dip recession was a real possibility. The economic backdrop grew more unsettled as a political showdown emerged over raising the nation’s debt ceiling, increasing the odds of a technical default on Treasury debt. No sooner had that issue been temporarily resolved than sovereign credit concerns flared up again in the euro zone. With bond yields rising in larger peripheral economies, most notably Italy and Spain, many investors feared that a breakup of the euro zone was a distinct possibility.
As the Fund’s fiscal year drew to a close, stock prices were mostly rising amid near hypervolatility. While the euro zone crisis remained unresolved, a consensus emerged that European politicians and institutions had heard the dire warnings from financial markets and were prepared to do whatever it took to keep the euro zone’s single currency experiment alive. Sentiment was further bolstered by the joint efforts of six global central banks to provide dollar liquidity
1
Portfolio management review
Delaware Small Cap Value Fund
to euro zone banks, thus attempting to ease fears of a freeze in credit availability. Finally, there were hopeful signs that the U.S. economy was gaining traction after the summer slowdown, with employment, manufacturing, and housing all showing signs of life.
Within the Fund
For the fiscal year ended Nov. 30, 2011, Delaware Small Cap Value Fund Class A shares returned +4.99% at net asset value and -1.05% at maximum offer price (both figures reflect all distributions reinvested). For the same period, the Fund’s benchmark, the Russell 2000 Value Index returned +0.77%. Complete annualized performance for Delaware Small Cap Value Fund is shown in the table on page 4.
Security selection, rather than sector allocation, was the driving force behind Fund performance for its fiscal year. Stock selection was strong in several sectors, including consumer services, financials, capital spending, transportation, utilities, and healthcare. Conversely, subpar stock selection detracted from performance in the energy, real estate investment trust (REIT), and consumer cyclicals sectors.
Harleysville Group, a property and casualty insurer, contributed to Fund performance for its fiscal year. In late September 2011, Nationwide Insurance offered to acquire the company in a deal that is expected to close during the first quarter of 2012. On the day of the announcement, after a sharp jump in its stock price, we opportunistically sold the shares.
Footwear retailer Genesco also contributed to performance, with its stock price pushed higher by rising earnings expectations and the encouraging same-store sales. We trimmed the Fund’s shares in the stock as the price rose, but continued to hold a significant allocation. Also, Big Lots, a retailer specializing in the sale of overstocked goods from other retailers, posted positive gains in the latter part of the Fund’s fiscal year — earnings were generally in line with expectations and the company continued repurchasing significant amounts of its own stock. We added to the Fund’s position because we believe the valuation is still compelling.
Finally, International Coal Group is a producer of metallurgical coal used in making steel as well as thermal coal that utilities use to generate electricity. The stock increased, as it benefited from an agreement in which Arch Coal acquired the company. We sold the stock shortly after the announcement of the acquisition’s completion in June 2011.
Several stocks detracted from the Fund’s performance during its fiscal year. Forest Oil struggled due to chronic weakness in natural gas prices, which remain near the low end of their historical ratio relative to oil prices. We think the gap should close over time and thus, we increased exposure to the stock on an incremental basis.
The Fund’s holdings in the diversified mining company Thompson Creek Metals also underperformed. The company extracts molybdenum oxide, which is used in steel production, from North American mines. We sold the stock at a loss when pricing power failed to develop and the company’s management added financial leverage.
Also within the basic industry sector, Ferro, a specialty chemical company that produces materials which enhance the performance of industrial, solar, and electronics products
2
failed to produce positive returns — the company’s stock declined 54% as earnings came in below expectations. We retained the Fund’s position in the stock, due to our positive view of its valuation and the strength of the company’s cash flow.
Finally, Checkpoint Systems, a company that provides in-store security screening equipment for the retail industry, detracted from Fund performance. We sold our shares after the company’s disappointing second and third quarter reports indicated the need for additional restructuring and layoffs.
We believe the Fund continues to be positioned to potentially benefit from a growing economy and it is therefore overweight in the more cyclical sectors of the domestic equity market, including consumer services, basic industries, and capital spending (although we have slightly reduced exposure to capital goods and commodity producers). We expect to continue to carry underweight positions in the more defensive areas of the market including REITs and utilities while being underweight in financial services.
3
Performance summary | |
Delaware Small Cap Value Fund | November 30, 2011 |
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 current for the most recent month end by calling 800 523-1918 or visiting our website at www.delawareinvestments.com/performance. Current performance may be lower or higher than the performance data quoted.
Fund performance1,2 | Average annual total returns through November 30, 2011 | ||||||||
1 year | 5 years | 10 years | Lifetime | ||||||
Class A (Est. June 24, 1987) | |||||||||
Excluding sales charge | +4.99% | +1.71% | +8.76% | n/a | |||||
Including sales charge | -1.05% | +0.51% | +8.12% | n/a | |||||
Class B (Est. Sept. 6, 1994) | |||||||||
Excluding sales charge | +4.23% | +0.95% | +8.13% | n/a | |||||
Including sales charge | +0.23% | +0.58% | +8.13% | n/a | |||||
Class C (Est. Nov. 29, 1995) | |||||||||
Excluding sales charge | +4.20% | +0.95% | +7.98% | n/a | |||||
Including sales charge | +3.20% | +0.95% | +7.98% | n/a | |||||
Class R (Est. June 2, 2003) | |||||||||
Excluding sales charge | +4.72% | +1.45% | n/a | +8.62% | |||||
Including sales charge | +4.72% | +1.45% | n/a | +8.62% | |||||
Institutional Class (Est. Nov. 9, 1992) | |||||||||
Excluding sales charge | +5.26% | +1.96% | +9.06% | n/a | |||||
Including sales charge | +5.26% | +1.96% | +9.06% | n/a |
1Returns reflect the reinvestment of all distributions and are presented both with and without the applicable sales charges described below. Returns do not reflect the deduction of taxes the shareholder would pay on Fund distributions or redemptions of Fund shares.
Expense limitations were in effect for certain classes during some or all of the periods shown in the “Fund performance” chart. The current expenses for each class are listed on the “Fund expense ratios” table on page 5. Performance would have been lower had expense limitations not been in effect.
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. This fee has been contractually limited to 0.25% of average daily net assets from March 30, 2011, through March 29, 2012.
Class B shares may be purchased only through dividend reinvestment and certain permitted exchanges as described in the prospectus. Please see the prospectus for additional information on Class B shares. Class B shares have a contingent deferred sales charge that
4
declines from 4.00% to zero depending on the period of time the shares are held. They are also subject to an annual distribution and service fee of up to 1.00% of average daily net assets. Class B shares will automatically convert to Class A shares on a quarterly basis approximately eight years after purchase. Ten-year and lifetime performance figures for Class B shares reflect conversion to Class A shares after approximately eight years.
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 up to 1.00% of average daily net assets.
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.
Class R shares 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, which has been limited contractually to 0.50% from March 30, 2011, through March 29, 2012.
Institutional Class shares are available without sales or asset-based distribution charges only to certain eligible institutional accounts.
Investments in small and/or medium-sized companies typically exhibit greater risk and higher volatility than larger, more established companies.
The “Fund performance” table and the “Performance of a $10,000 investment” graph do not reflect the deduction of taxes the shareholder would pay on Fund distributions or redemptions of Fund shares.
2The Fund’s expense ratios, as described in the most recent prospectus, are disclosed in the following “Fund expense ratios” table. Delaware Investments has agreed to reimburse certain expenses and/or waive certain fees in order to prevent total fund operating expenses (excluding certain fees and expenses) from exceeding 1.20% of the Fund’s average daily net assets from March 30, 2011, through March 29, 2012. Please see the most recent prospectus and any applicable supplement(s) for additional information on these fee waivers and/or reimbursements.
Fund expense ratios | Class A | Class B | Class C | Class R | Institutional Class | |||||
Total annual operating expenses | 1.49% | 2.19% | 2.19% | 1.79% | 1.19% | |||||
(without fee waivers) | ||||||||||
Net expenses | 1.44% | 2.19% | 2.19% | 1.69% | 1.19% | |||||
(including fee waivers, if any) | ||||||||||
Type of waiver | Contractual | Contractual | Contractual | Contractual | Contractual |
5
Performance summary
Delaware Small Cap Value Fund
Performance of a $10,000 investment1
Average annual total returns from Nov. 30, 2001, through Nov. 30, 2011
For period beginning Nov. 30, 2001, through Nov. 30, 2011 | Starting value | Ending value | ||
Delaware Small Cap Value Fund — Class A Shares | $9,425 | $21,830 | ||
Russell 2000 Value Index | $10,000 | $19,429 |
1The “Performance of a $10,000 investment” graph assumes $10,000 invested in Class A shares of the Fund on Nov. 30, 2001, and includes the effect of a 5.75% front-end sales charge and the reinvestment of all distributions. The graph does not reflect the deduction of taxes the shareholders would pay on Fund distributions or redemptions of Fund shares. Expense limitations were in effect for some or all of the periods shown. Performance would have been lower had expense limitations not been in effect. Current expenses are listed in the “Fund expense ratios” table on page 5. Please note additional details on pages 4 through 6.
The chart also assumes $10,000 invested in the Russell 2000 Value Index as of Nov. 30, 2001. The Russell 2000 Value Index measures the performance of the small-cap value segment of the U.S. equity universe. It includes those Russell 2000 companies with lower price-to-book ratios and lower forecasted growth values.
Index performance returns do not reflect any management fees, transaction costs, or expenses. Indices are unmanaged and one cannot invest directly in an index. Past performance is not a guarantee of future results.
Performance of other Fund classes will vary due to different charges and expenses.
Nasdaq symbols | CUSIPs | ||||
Class A | DEVLX | 246097109 | |||
Class B | DEVBX | 246097307 | |||
Class C | DEVCX | 246097406 | |||
Class R | DVLRX | 246097505 | |||
Institutional Class | DEVIX | 246097208 |
6
Disclosure of Fund expenses
For the six-month period from June 1, 2011 to November 30, 2011
As a shareholder of the Fund, you incur two types of costs: (1) transaction costs, including sales charges (loads) on purchase payments, reinvested dividends, or other distributions; redemption fees; and exchange fees; and (2) ongoing costs, including management fees; distribution and/or service (12b-1) fees; and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds.
The example is based on an investment of $1,000 invested at the beginning of the period and held for the entire six-month period from June 1, 2011 to November 30, 2011.
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.
8
Delaware Small Cap Value Fund
Expense analysis of an investment of $1,000
Beginning | Ending | Expenses | ||||||||||||
Account Value | Account Value | Annualized | Paid During Period | |||||||||||
6/1/11 | 11/30/11 | Expense Ratio | 6/1/11 to 11/30/11* | |||||||||||
Actual Fund return | ||||||||||||||
Class A | $ | 1,000.00 | $ | 921.20 | 1.37% | $ | 6.60 | |||||||
Class B | 1,000.00 | 917.60 | 2.12% | 10.19 | ||||||||||
Class C | 1,000.00 | 917.60 | 2.12% | 10.19 | ||||||||||
Class R | 1,000.00 | 919.80 | 1.62% | 7.80 | ||||||||||
Institutional Class | 1,000.00 | 922.10 | 1.12% | 5.40 | ||||||||||
Hypothetical 5% return (5% return before expenses) | ||||||||||||||
Class A | $ | 1,000.00 | $ | 1,018.20 | 1.37% | $ | 6.93 | |||||||
Class B | 1,000.00 | 1,014.44 | 2.12% | 10.71 | ||||||||||
Class C | 1,000.00 | 1,014.44 | 2.12% | 10.71 | ||||||||||
Class R | 1,000.00 | 1,016.95 | 1.62% | 8.19 | ||||||||||
Institutional Class | 1,000.00 | 1,019.45 | 1.12% | 5.67 |
*“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).
9
Security type/sector allocation and top 10 equity holdings | |
Delaware Small Cap Value Fund | As of November 30, 2011 |
Sector designations may be different than the sector designations presented in other Fund materials. The sector designations may represent the investment manager’s internal sector classifications, which may result in the sector designations for one fund being different than another fund’s sector designations.
Security type/sector | Percentage of net assets | ||
Common Stock | 97.01 | % | |
Basic Industry | 8.74 | % | |
Business Services | 1.74 | % | |
Capital Spending | 9.57 | % | |
Consumer Cyclical | 1.44 | % | |
Consumer Services | 15.71 | % | |
Consumer Staples | 0.91 | % | |
Energy | 8.18 | % | |
Financial Services | 20.64 | % | |
Healthcare | 5.92 | % | |
Real Estate | 3.31 | % | |
Technology | 14.54 | % | |
Transportation | 3.24 | % | |
Utilities | 3.07 | % | |
Short-Term Investments | 3.01 | % | |
Securities Lending Collateral | 2.17 | % | |
Total Value of Securities | 102.19 | % | |
Obligation to Return Securities Lending Collateral | (2.24 | %) | |
Receivables and Other Assets Net of Other Liabilities | 0.05 | % | |
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.
10
Top 10 equity holdings | Percentage of net assets | ||
Albemarle | 2.77% | ||
Whiting Petroleum | 2.59% | ||
United Rentals | 2.24% | ||
East West Bancorp | 2.16% | ||
Synopsys | 2.08% | ||
Infinity Property & Casualty | 2.00% | ||
Gardner Denver | 1.89% | ||
Platinum Underwriters Holdings | 1.78% | ||
FMC | 1.69% | ||
Chicago Bridge & Iron | 1.65% |
11
Statement of net assets | ||
Delaware Small Cap Value Fund | November 30, 2011 |
Number of shares | Value | ||||
Common Stock – 97.01% | |||||
Basic Industry – 8.74% | |||||
Albemarle | 282,700 | $ | 15,415,631 | ||
Cytec Industries | 125,200 | 5,904,432 | |||
† | Ferro | 562,300 | 3,266,963 | ||
FMC | 112,200 | 9,415,824 | |||
* | Glatfelter | 213,900 | 3,101,550 | ||
Kaiser Aluminum | 96,000 | 4,473,600 | |||
Valspar | 193,700 | 7,143,656 | |||
48,721,656 | |||||
Business Services – 1.74% | |||||
Brink’s | 149,900 | 3,690,538 | |||
United Stationers | 155,118 | 5,202,658 | |||
Viad | 44,500 | 825,475 | |||
9,718,671 | |||||
Capital Spending – 9.57% | |||||
Actuant Class A | 293,600 | 6,729,312 | |||
† | Altra Holdings | 348,000 | 6,173,520 | ||
Chicago Bridge & Iron | 222,200 | 9,187,970 | |||
Gardner Denver | 122,900 | 10,534,988 | |||
Regal Beloit | 156,400 | 8,236,024 | |||
† | United Rentals | 443,800 | 12,488,532 | ||
53,350,346 | |||||
Consumer Cyclical – 1.44% | |||||
* | Autoliv | 66,400 | 3,537,792 | ||
* | Knoll | 206,800 | 3,135,088 | ||
† | Meritage Homes | 60,800 | 1,326,656 | ||
7,999,536 | |||||
Consumer Services – 15.71% | |||||
† | Big Lots | 192,300 | 7,713,153 | ||
Brinker International | 183,100 | 4,409,048 | |||
Cato Class A | 194,500 | 4,977,255 | |||
CEC Entertainment | 154,100 | 5,190,088 | |||
† | Cheesecake Factory | 175,700 | 4,982,852 | ||
*† | Children’s Place Retail Stores | 107,700 | 5,801,799 | ||
† | Collective Brands | 242,400 | 3,381,480 | ||
Finish Line Class A | 254,800 | 5,371,184 | |||
† | Genesco | 90,800 | 5,361,740 | ||
† | Jack in the Box | 201,100 | 4,122,550 |
12
Number of shares | Value | ||||
Common Stock (continued) | |||||
Consumer Services (continued) | |||||
Men’s Wearhouse | 204,500 | $ | 5,691,235 | ||
Meredith | 130,900 | 3,796,100 | |||
Movado Group | 68,300 | 1,074,359 | |||
PETsMART | 146,500 | 7,068,625 | |||
Rent-A-Center | 171,100 | 6,151,045 | |||
* | Stage Stores | 289,200 | 3,626,568 | ||
*† | Warnaco Group | 71,900 | 3,644,611 | ||
Wolverine World Wide | 141,650 | 5,218,386 | |||
87,582,078 | |||||
Consumer Staples – 0.91% | |||||
Ruddick | 127,400 | 5,076,890 | |||
5,076,890 | |||||
Energy – 8.18% | |||||
† | Forest Oil | 397,500 | 6,375,900 | ||
† | Helix Energy Solutions Group | 377,000 | 6,687,980 | ||
† | Lone Pine Resources | 419,106 | 3,139,104 | ||
Patterson-UTI Energy | 300,700 | 6,320,714 | |||
* | Southwest Gas | 214,700 | 8,680,321 | ||
† | Whiting Petroleum | 310,200 | 14,427,402 | ||
45,631,421 | |||||
Financial Services – 20.64% | |||||
Bank of Hawaii | 196,700 | 8,369,585 | |||
Berkley (W.R.) | 111,200 | 3,793,032 | |||
Boston Private Financial Holdings | 393,600 | 3,058,272 | |||
Comerica | 76,555 | 1,930,717 | |||
Community Bank System | 298,500 | 7,886,370 | |||
CVB Financial | 215,700 | 2,120,331 | |||
East West Bancorp | 614,523 | 12,026,214 | |||
First Financial Bancorp | 373,900 | 5,937,532 | |||
First Midwest Bancorp | 265,800 | 2,525,100 | |||
Hancock Holding | 266,300 | 8,131,471 | |||
@ | Independent Bank | 259,000 | 6,770,260 | ||
@ | Infinity Property & Casualty | 194,400 | 11,164,392 | ||
@ | NBT Bancorp | 418,700 | 8,918,310 | ||
Platinum Underwriters Holdings | 288,900 | 9,946,827 | |||
S&T Bancorp | 156,900 | 2,896,374 | |||
Selective Insurance Group | 506,800 | 8,352,064 |
13
Statement of net assets
Delaware Small Cap Value Fund
Number of shares | Value | ||||
Common Stock (continued) | |||||
Financial Services (continued) | |||||
StanCorp Financial Group | 80,500 | $ | 2,838,430 | ||
Univest Corp. of Pennsylvania | 32,300 | 488,376 | |||
Validus Holdings | 145,484 | 4,377,614 | |||
Wesbanco | 181,700 | 3,568,588 | |||
115,099,859 | |||||
Healthcare – 5.92% | |||||
Cooper | 73,300 | 4,490,358 | |||
† | Haemonetics | 76,000 | 4,501,480 | ||
* | Owens & Minor | 177,600 | 5,470,080 | ||
Service Corp. International | 666,700 | 6,833,675 | |||
Teleflex | 81,700 | 4,973,896 | |||
Universal Health Services Class B | 167,000 | 6,716,740 | |||
32,986,229 | |||||
Real Estate – 3.31% | |||||
Brandywine Realty Trust | 346,837 | 3,020,950 | |||
Education Realty Trust | 300,600 | 2,801,592 | |||
Government Properties Income Trust | 122,900 | 2,673,075 | |||
Highwoods Properties | 157,700 | 4,548,068 | |||
Washington Real Estate Investment Trust | 199,000 | 5,414,790 | |||
18,458,475 | |||||
Technology – 14.54% | |||||
* | Black Box | 123,013 | 3,509,561 | ||
† | Brocade Communications Systems | 1,282,100 | 6,897,698 | ||
† | Cirrus Logic | 427,100 | 6,957,459 | ||
† | Compuware | 731,800 | 6,044,668 | ||
† | Electronics for Imaging | 225,100 | 3,329,229 | ||
† | NetScout Systems | 115,400 | 2,039,118 | ||
† | ON Semiconductor | 871,000 | 6,558,630 | ||
† | Parametric Technology | 421,600 | 8,781,928 | ||
† | Premiere Global Services | 539,650 | 4,462,906 | ||
*@ | QAD Class A | 90,160 | 991,760 | ||
*@ | QAD Class B | 22,540 | 248,165 | ||
† | RF Micro Devices | 804,600 | 5,012,658 | ||
† | Synopsys | 415,200 | 11,613,144 | ||
† | Tech Data | 140,700 | 6,926,661 | ||
† | Vishay Intertechnology | 777,900 | 7,693,431 | ||
81,067,016 |
14
Number of shares | Value | |||||
Common Stock (continued) | ||||||
Transportation – 3.24% | ||||||
Alexander & Baldwin | 194,200 | $ | 7,358,238 | |||
† | Kirby | 138,800 | 8,922,064 | |||
† | Saia | 152,500 | 1,773,575 | |||
18,053,877 | ||||||
Utilities – 3.07% | ||||||
Black Hills | 99,100 | 3,245,525 | ||||
El Paso Electric | 237,900 | 8,212,308 | ||||
NorthWestern | 161,400 | 5,629,632 | ||||
17,087,465 | ||||||
Total Common Stock (cost $443,422,634) | 540,833,519 | |||||
Principal amount | ||||||
Short-Term Investments – 3.01% | ||||||
≠Discount Note – 0.03% | ||||||
Federal Home Loan Bank 0.01% 12/23/11 | $ | 200,449 | 200,447 | |||
200,447 | ||||||
Repurchase Agreements – 2.98% | ||||||
BNP Paribas 0.08%, dated 11/30/11, to be | ||||||
repurchased on 12/1/11, repurchase price | ||||||
$16,605,037 (collateralized by U.S. government | ||||||
obligations 0.00%-4.25% 1/13/12-5/15/21; | ||||||
market value $16,937,100) | 16,605,000 | 16,605,000 | ||||
16,605,000 | ||||||
Total Short-Term Investments (cost $16,805,447) | 16,805,447 | |||||
Total Value of Securities Before Securities | ||||||
Lending Collateral – 100.02% (cost $460,228,081) | 557,638,966 | |||||
Number of shares | ||||||
Securities Lending Collateral** – 2.17% | ||||||
Investment Companies | ||||||
BNY Mellon SL DBT II Liquidating Fund | 316,166 | 305,606 | ||||
Delaware Investments Collateral Fund No. 1 | 11,797,213 | 11,797,213 | ||||
@†Mellon GSL Reinvestment Trust II | 372,296 | 0 | ||||
Total Security Lending Collateral (cost $12,485,675) | 12,102,819 |
15
Statement of net assets
Delaware Small Cap Value Fund
Total Value of Securities – 102.19% | |||||
(cost $472,713,756) | $ | 569,741,785 | © | ||
Obligation to Return Securities | |||||
Lending Collateral** – (2.24%) | (12,485,675 | ) | |||
Receivables and Other Assets | |||||
Net of Other Liabilities – 0.05% | 270,666 | ||||
Net Assets Applicable to 14,873,712 | |||||
Shares Outstanding – 100.00% | $ | 557,526,776 | |||
Net Asset Value – Delaware Small Cap Value Fund | |||||
Class A ($375,299,333 / 9,913,668 Shares) | $37.86 | ||||
Net Asset Value – Delaware Small Cap Value Fund | |||||
Class B ($9,835,309 / 295,391 Shares) | $33.30 | ||||
Net Asset Value – Delaware Small Cap Value Fund | |||||
Class C ($52,647,978 / 1,581,947 Shares) | $33.28 | ||||
Net Asset Value – Delaware Small Cap Value Fund | |||||
Class R ($28,302,641 / 763,827 Shares) | $37.05 | ||||
Net Asset Value – Delaware Small Cap Value Fund | |||||
Institutional Class ($91,441,515 / 2,318,879 Shares) | $39.43 |
Components of Net Assets at November 30, 2011: | |||||
Shares of beneficial interest (unlimited authorization – no par) | $ | 433,916,137 | |||
Accumulated net realized gain on investments | 26,582,610 | ||||
Net unrealized appreciation of investments | 97,028,029 | ||||
Total net assets | $ | 557,526,776 |
† | Non income producing security. |
* | Fully or partially on loan. |
@ | Illiquid security. At November 30, 2011, the aggregate value of illiquid securities was $28,092,887, which represented 5.04% of the Fund’s net assets. See Note 9 in “Notes to financial statements.” |
≠ | The rate shown is the effective yield at the time of purchase. |
** | See Note 8 in “Notes to financial statements” for additional information on securities lending collateral. |
© | Includes $12,851,543 of securities loaned. |
16
Net Asset Value and Offering Price Per Share – | ||
Delaware Small Cap Value Fund | ||
Net asset value Class A (A) | $ | 37.86 |
Sales charge (5.75% of offering price) (B) | 2.31 | |
Offering Price | $ | 40.17 |
(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, which are an integral part of the financial statements.
17
Statement of operations | |
Delaware Small Cap Value Fund | Year Ended November 30, 2011 |
Investment Income: | ||||||||
Dividends | $ | 6,841,656 | ||||||
Securities lending income | 29,917 | |||||||
Interest | 8,834 | |||||||
Foreign tax withheld | (6,470 | ) | $ | 6,873,937 | ||||
Expenses: | ||||||||
Management fees | 3,808,803 | |||||||
Distribution expenses – Class A | 1,019,253 | |||||||
Distribution expenses – Class B | 122,248 | |||||||
Distribution expenses – Class C | 544,571 | |||||||
Distribution expenses – Class R | 156,458 | |||||||
Dividend disbursing and transfer agent fees and expenses | 1,374,223 | |||||||
Accounting and administration expenses | 200,155 | |||||||
Registration fees | 96,346 | |||||||
Reports and statements to shareholders | 92,434 | |||||||
Legal fees | 44,205 | |||||||
Audit and tax | 31,406 | |||||||
Trustees’ fees | 27,030 | |||||||
Dues and services | 11,700 | |||||||
Insurance fees | 9,416 | |||||||
Custodian fees | 9,373 | |||||||
Consulting fees | 5,183 | |||||||
Pricing fees | 3,076 | |||||||
Trustees’ expenses | 1,664 | 7,557,544 | ||||||
Less waiver of distribution expenses – Class A | (169,875 | ) | ||||||
Less waiver of distribution expenses – Class R | (26,077 | ) | ||||||
Less expense paid indirectly | (1,193 | ) | ||||||
Total expenses | 7,360,399 | |||||||
Net Investment Loss | (486,462 | ) | ||||||
Net Realized and Unrealized Gain (Loss): | ||||||||
Net realized gain on investments | 27,352,166 | |||||||
Net change in unrealized appreciation (depreciation) | (6,539,548 | ) | ||||||
Net Realized and Unrealized Gain | 20,812,618 | |||||||
Net Increase in Net Assets Resulting from Operations | $ | 20,326,156 |
See accompanying notes, which are an integral part of the financial statements.
18
Statements of changes in net assets
Delaware Small Cap Value Fund
Year Ended | ||||||||
11/30/11 | 11/30/10 | |||||||
Increase (Decrease) in Net Assets from Operations: | ||||||||
Net investment loss | $ | (486,462 | ) | $ | (483,604 | ) | ||
Net realized gain | 27,352,166 | 16,083,685 | ||||||
Net change in unrealized appreciation (depreciation) | (6,539,548 | ) | 84,464,063 | |||||
Net increase in net assets resulting from operations | 20,326,156 | 100,064,144 | ||||||
Dividends and Distributions to Shareholders from: | ||||||||
Net investment income: | ||||||||
Class A | (4,185 | ) | (143,912 | ) | ||||
Class C | (509 | ) | — | |||||
Institutional Class | — | (42,552 | ) | |||||
Net realized gain on investments: | ||||||||
Class A | (1,183,704 | ) | — | |||||
Class B | (58,291 | ) | — | |||||
Class C | (219,108 | ) | — | |||||
Class R | (84,036 | ) | — | |||||
Institutional Class | (186,063 | ) | — | |||||
(1,735,896 | ) | (186,464 | ) | |||||
Capital Share Transactions: | ||||||||
Proceeds from shares sold: | ||||||||
Class A | 151,663,684 | 69,133,015 | ||||||
Class B | 167,931 | 256,093 | ||||||
Class C | 13,933,835 | 5,440,766 | ||||||
Class R | 20,205,702 | 8,274,775 | ||||||
Institutional Class | 97,448,973 | 34,976,228 | ||||||
Net asset value of shares issued upon reinvestment | ||||||||
of dividends and distributions: | ||||||||
Class A | 1,137,737 | 135,343 | ||||||
Class B | 54,435 | — | ||||||
Class C | 204,307 | — | ||||||
Class R | 83,842 | — | ||||||
Institutional Class | 136,429 | 42,441 | ||||||
285,036,875 | 118,258,661 |
20
Year Ended | ||||||||
11/30/11 | 11/30/10 | |||||||
Capital Share Transactions (continued): | ||||||||
Cost of shares repurchased: | ||||||||
Class A | $ | (95,563,435 | ) | $ | (71,846,195 | ) | ||
Class B | (5,241,706 | ) | (7,834,135 | ) | ||||
Class C | (12,778,850 | ) | (12,744,076 | ) | ||||
Class R | (13,626,473 | ) | (8,353,991 | ) | ||||
Institutional Class | (54,344,733 | ) | (9,199,557 | ) | ||||
(181,555,197 | ) | (109,977,954 | ) | |||||
Increase in net assets derived | ||||||||
from capital share transactions | 103,481,678 | 8,280,707 | ||||||
Net Increase in Net Assets | 122,071,938 | 108,158,387 | ||||||
Net Assets: | ||||||||
Beginning of year | 435,454,838 | 327,296,451 | ||||||
End of year (there was no undistributed | ||||||||
income at either year end) | $ | 557,526,776 | $ | 435,454,838 |
See accompanying notes, which are an integral part of the financial statements.
21
Financial highlights
Delaware Small Cap Value Fund Class A
Selected data for each share of the Fund outstanding throughout each period were as follows:
Net asset value, beginning of period |
Income (loss) from investment operations: |
Net investment income (loss)1 |
Net realized and unrealized gain (loss) |
Total from investment operations |
Less dividends and distributions: |
Net investment income |
From net realized gain on investments |
Total dividends and distributions |
Net asset value, end of period |
Total return2 |
Ratios and supplemental data: |
Net assets, end of period (000 omitted) |
Ratio of expenses to average net assets |
Ratio of expenses to average net assets |
prior to fees waived and expense paid indirectly |
Ratio of net investment income (loss) to average net assets |
Ratio of net investment income (loss) to average net assets |
prior to fees waived and expense paid indirectly |
Portfolio turnover |
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 during all of the periods shown reflects waivers by the manager and/or distributor. Performance would have been lower had the waivers not been in effect. |
22
Year Ended | ||||||||||||||||
11/30/11 | 11/30/10 | 11/30/09 | 11/30/08 | 11/30/07 | ||||||||||||
$36.190 | $27.530 | $21.340 | $ 36.000 | $41.970 | ||||||||||||
(0.008 | ) | (0.003 | ) | 0.059 | 0.072 | (0.050 | ) | |||||||||
1.818 | 8.680 | 6.191 | (11.314 | ) | (2.647 | ) | ||||||||||
1.810 | 8.677 | 6.250 | (11.242 | ) | (2.697 | ) | ||||||||||
— | (0.017 | ) | (0.060 | ) | — | — | ||||||||||
(0.140 | ) | — | — | (3.418 | ) | (3.273 | ) | |||||||||
(0.140 | ) | (0.017 | ) | (0.060 | ) | (3.418 | ) | (3.273 | ) | |||||||
$37.860 | $36.190 | $27.530 | $ 21.340 | $36.000 | ||||||||||||
4.99% | 31.53% | 29.01% | (34.55% | ) | (6.90% | ) | ||||||||||
$375,299 | $301,747 | $233,317 | $205,439 | $389,129 | ||||||||||||
1.37% | 1.43% | 1.43% | 1.44% | 1.37% | ||||||||||||
1.42% | 1.49% | 1.62% | 1.52% | 1.42% | ||||||||||||
(0.02% | ) | (0.01% | ) | 0.27% | 0.25% | (0.12% | ) | |||||||||
(0.07% | ) | (0.07% | ) | 0.08% | 0.17% | (0.17% | ) | |||||||||
29% | 12% | 19% | 13% | 23% |
23
Financial highlights
Delaware Small Cap Value Fund Class B
Selected data for each share of the Fund outstanding throughout each period were as follows:
Net asset value, beginning of period |
Income (loss) from investment operations: |
Net investment loss1 |
Net realized and unrealized gain (loss) |
Total from investment operations |
Less dividends and distributions from: |
Net realized gain on investments |
Total dividends and distributions |
Net asset value, end of period |
Total return2 |
Ratios and supplemental data: |
Net assets, end of period (000 omitted) |
Ratio of expenses to average net assets |
Ratio of expenses to average net assets |
prior to fees waived and expense paid indirectly |
Ratio of net investment loss to average net assets |
Ratio of net investment loss to average net assets |
prior to fees waived and expense paid indirectly |
Portfolio turnover |
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 during some of the periods shown reflects a waiver by the manager. Performance would have been lower had the waiver not been in effect. |
See accompanying notes, which are an integral part of the financial statements.
24
Year Ended | ||||||||||||||||
11/30/11 | 11/30/10 | 11/30/09 | 11/30/08 | 11/30/07 | ||||||||||||
$32.080 | $24.570 | $19.130 | $ 32.860 | $38.860 | ||||||||||||
(0.262 | ) | (0.214 | ) | (0.088 | ) | (0.127 | ) | (0.314 | ) | |||||||
1.622 | 7.724 | 5.528 | (10.185 | ) | (2.413 | ) | ||||||||||
1.360 | 7.510 | 5.440 | (10.312 | ) | (2.727 | ) | ||||||||||
(0.140 | ) | — | — | (3.418 | ) | (3.273 | ) | |||||||||
(0.140 | ) | — | — | (3.418 | ) | (3.273 | ) | |||||||||
$33.300 | $32.080 | $24.570 | $ 19.130 | $32.860 | ||||||||||||
4.23% | 30.57% | 28.44% | (35.08% | ) | (7.59% | ) | ||||||||||
$9,835 | $14,249 | $17,532 | $21,825 | $54,684 | ||||||||||||
2.12% | 2.18% | 2.18% | 2.19% | 2.12% | ||||||||||||
2.12% | 2.19% | 2.32% | 2.22% | 2.12% | ||||||||||||
(0.77% | ) | (0.76% | ) | (0.48% | ) | (0.50% | ) | (0.87% | ) | |||||||
(0.77% | ) | (0.77% | ) | (0.62% | ) | (0.53% | ) | (0.87% | ) | |||||||
29% | 12% | 19% | 13% | 23% |
25
Financial highlights
Delaware Small Cap Value Fund Class C
Selected data for each share of the Fund outstanding throughout each period were as follows:
Net asset value, beginning of period |
Income (loss) from investment operations: |
Net investment loss1 |
Net realized and unrealized gain (loss) |
Total from investment operations |
Less dividends and distributions from: |
Net realized gain on investments |
Total dividends and distributions |
Net asset value, end of period |
Total return2 |
Ratios and supplemental data: |
Net assets, end of period (000 omitted) |
Ratio of expenses to average net assets |
Ratio of expenses to average net assets |
prior to fees waived and expense paid indirectly |
Ratio of net investment loss to average net assets |
Ratio of net investment loss to average net assets |
prior to fees waived and expense paid indirectly |
Portfolio turnover |
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 during some of the periods shown reflects a waiver by the manager. Performance would have been lower had the waiver not been in effect. |
See accompanying notes, which are an integral part of the financial statements.
26
Year Ended | ||||||||||||||||
11/30/11 | 11/30/10 | 11/30/09 | 11/30/08 | 11/30/07 | ||||||||||||
$32.070 | $24.560 | $19.120 | $ 32.850 | $38.840 | ||||||||||||
(0.260 | ) | (0.215 | ) | (0.090 | ) | (0.126 | ) | (0.314 | ) | |||||||
1.610 | 7.725 | 5.530 | (10.186 | ) | (2.403 | ) | ||||||||||
1.350 | 7.510 | 5.440 | (10.312 | ) | (2.717 | ) | ||||||||||
(0.140 | ) | — | — | (3.418 | ) | (3.273 | ) | |||||||||
(0.140 | ) | — | — | (3.418 | ) | (3.273 | ) | |||||||||
$33.280 | $32.070 | $24.560 | $ 19.120 | $32.850 | ||||||||||||
4.20% | 30.58% | 28.45% | (35.05% | ) | (7.56% | ) | ||||||||||
$52,648 | $49,706 | $44,564 | $44,339 | $97,428 | ||||||||||||
2.12% | 2.18% | 2.18% | 2.19% | 2.12% | ||||||||||||
2.12% | 2.19% | 2.32% | 2.22% | 2.12% | ||||||||||||
(0.77% | ) | (0.76% | ) | (0.48% | ) | (0.50% | ) | (0.87% | ) | |||||||
(0.77% | ) | (0.77% | ) | (0.62% | ) | (0.53% | ) | (0.87% | ) | |||||||
29% | 12% | 19% | 13% | 23% |
27
Financial highlights
Delaware Small Cap Value Fund Class R
Selected data for each share of the Fund outstanding throughout each period were as follows:
Net asset value, beginning of period |
Income (loss) from investment operations: |
Net investment income (loss)1 |
Net realized and unrealized gain (loss) |
Total from investment operations |
Less dividends and distributions from: |
Net realized gain on investments |
Total dividends and distributions |
Net asset value, end of period |
Total return2 |
Ratios and supplemental data: |
Net assets, end of period (000 omitted) |
Ratio of expenses to average net assets |
Ratio of expenses to average net assets |
prior to fees waived and expense paid indirectly |
Ratio of net investment income (loss) to average net assets |
Ratio of net investment loss to average net assets |
prior to fees waived and expense paid indirectly |
Portfolio turnover |
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 value. Total investment return during all of the periods shown reflects waivers by the manager and/or distributor. Performance would have been lower had the waivers not been in effect. |
See accompanying notes, which are an integral part of the financial statements.
28
Year Ended | ||||||||||||||||
11/30/11 | 11/30/10 | 11/30/09 | 11/30/08 | 11/30/07 | ||||||||||||
$35.510 | $27.070 | $20.970 | $35.530 | $41.550 | ||||||||||||
(0.102 | ) | (0.081 | ) | 0.003 | (0.002 | ) | (0.146 | ) | ||||||||
1.782 | 8.521 | 6.097 | (11.140 | ) | (2.601 | ) | ||||||||||
1.680 | 8.440 | 6.100 | (11.142 | ) | (2.747 | ) | ||||||||||
(0.140 | ) | — | — | (3.418 | ) | (3.273 | ) | |||||||||
(0.140 | ) | — | — | (3.418 | ) | (3.273 | ) | |||||||||
$37.050 | $35.510 | $27.070 | $20.970 | $35.530 | ||||||||||||
4.72% | 31.18% | 29.09% | (34.74% | ) | (7.11% | ) | ||||||||||
$28,303 | $20,757 | $15,971 | $12,761 | $21,126 | ||||||||||||
1.62% | 1.68% | 1.68% | 1.69% | 1.62% | ||||||||||||
1.72% | 1.79% | 1.92% | 1.82% | 1.72% | ||||||||||||
(0.27% | ) | (0.26% | ) | 0.02% | — | (0.37% | ) | |||||||||
(0.37% | ) | (0.37% | ) | (0.22% | ) | (0.13% | ) | (0.47% | ) | |||||||
29% | 12% | 19% | 13% | 23% |
29
Financial highlights
Delaware Small Cap Value Fund Institutional Class
Selected data for each share of the Fund outstanding throughout each period were as follows:
Net asset value, beginning of period |
Income (loss) from investment operations: |
Net investment income1 |
Net realized and unrealized gain (loss) |
Total from investment operations |
Less dividends and distributions from: |
Net investment income |
Net realized gain on investments |
Total dividends and distributions |
Net asset value, end of period |
Total return2 |
Ratios and supplemental data: |
Net assets, end of period (000 omitted) |
Ratio of expenses to average net assets |
Ratio of expenses to average net assets |
prior to fees waived and expense paid indirectly |
Ratio of net investment income to average net assets |
Ratio of net investment income to average net assets |
prior to fees waived and expense paid indirectly |
Portfolio turnover |
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 during some of the periods shown reflects a waiver by the manager. Performance would have been lower had the waiver not been in effect. |
See accompanying notes, which are an integral part of the financial statements.
30
Year Ended | ||||||||||||||||
11/30/11 | 11/30/10 | 11/30/09 | 11/30/08 | 11/30/07 | ||||||||||||
$37.590 | $28.580 | $22.170 | $37.190 | $43.140 | ||||||||||||
0.090 | 0.081 | 0.116 | 0.148 | 0.049 | ||||||||||||
1.890 | 9.005 | 6.427 | (11.750 | ) | (2.726 | ) | ||||||||||
1.980 | 9.086 | 6.543 | (11.602 | ) | (2.677 | ) | ||||||||||
— | (0.076 | ) | (0.133 | ) | — | — | ||||||||||
(0.140 | ) | — | — | (3.418 | ) | (3.273 | ) | |||||||||
(0.140 | ) | (0.076 | ) | (0.133 | ) | (3.418 | ) | (3.273 | ) | |||||||
$39.430 | $37.590 | $28.580 | $22.170 | $37.190 | ||||||||||||
5.26% | 31.85% | 29.28% | (34.38% | ) | (6.65% | ) | ||||||||||
$91,442 | $48,996 | $15,912 | $13,920 | $26,308 | ||||||||||||
1.12% | 1.18% | 1.18% | 1.19% | 1.12% | ||||||||||||
1.12% | 1.19% | 1.32% | 1.22% | 1.12% | ||||||||||||
0.23% | 0.24% | 0.52% | 0.50% | 0.13% | ||||||||||||
0.23% | 0.23% | 0.38% | 0.47% | 0.13% | ||||||||||||
29% | 12% | 19% | 13% | 23% |
31
Notes to financial statements | |
Delaware Small Cap Value Fund | November 30, 2011 |
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 maximum 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 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 (U.S. GAAP) 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 ask prices will be used, which approximates fair value. Investment company securities are valued at net asset value per share. Short-term debt securities are valued at market value. U.S. government and agency securities are valued at the mean between the bid and ask prices, which approximates fair value. Generally, other securities and assets for which market quotations are not readily available are valued at fair value as determined in good faith under the direction of the Fund’s Board of Trustees (Board). In determining whether market quotations are readily available or fair valuation will be used, various factors will be taken into consideration, such as market closures, or suspension of trading in a security. The Fund may use fair value pricing more frequently for securities traded primarily in non-U.S. markets because, among other things, most foreign markets close well before the Fund values its securities, generally as of 4:00 p.m. Eastern time. The earlier close of these foreign markets gives rise to the possibility that significant events, including broad market moves, government actions or pronouncements, aftermarket trading, or news events may have occurred in the interim. To account for this, the Fund may frequently value foreign securities using fair value prices based on third-party vendor modeling tools (international fair value pricing).
32
Federal Income Taxes — No provision for federal income taxes has been made as the Fund intends to continue to qualify for federal income tax purposes as a regulated investment company under Subchapter M of the Internal Revenue Code of 1986, as amended, and make the requisite distributions to shareholders. The Fund evaluates tax positions taken or expected to be taken in the course of preparing the Fund’s tax returns to determine whether the tax positions are “more-likely-than-not” of being sustained by the applicable tax authority. Tax positions not deemed to meet the more-likely-than-not threshold are recorded as a tax benefit or expense in the current year. Management has analyzed the Fund’s tax positions taken on federal income tax returns for all open tax years (November 30, 2008 – November 30, 2011), and has concluded that no provision for federal income tax is required in 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 purchase certain U.S. government securities subject to the counterparty’s agreement to repurchase them at an agreed upon date and price. The counterparty will be required on a daily basis to maintain the value of the collateral subject to the agreement at not less than the repurchase price (including accrued interest). The agreements are conditioned upon the collateral being deposited under the Federal Reserve book-entry system with the Fund’s custodian or a third party sub-custodian. In the event of default or bankruptcy by the other party to the agreement, retention of the collateral may be subject to legal proceedings. All open repurchase agreements as of the date of this report were entered into on November 30, 2011.
Use of Estimates — The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the fair value of investments, the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates and the difference could be material.
Other — Expenses directly attributable to the Fund are charged directly to the Fund. Other expenses common to various funds within the Delaware 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 distribution by the issuer. The Fund declares and pays dividends from net investment income and distributions from net realized gain on investments, if any, annually. Dividends and distributions, if any are recorded on the ex-dividend date. The Fund may distribute income dividends and capital gains more frequently, if necessary for tax purposes.
33
Notes to financial statements
Delaware Small Cap Value Fund
1. Significant Accounting Policies (continued)
Subject to seeking best execution, the Fund may direct certain security trades to brokers who have agreed to rebate a portion of the related brokerage commission to the Fund in cash. In general, best execution refers to many factors, including the price paid or received for a security, the commission charged, the promptness and reliability of execution, the confidentiality and placement accorded the order, and other factors affecting the overall benefit obtained by the Fund on the transaction. There were no commission rebates for the year ended November 30, 2011.
The Fund may receive earnings credits from its custodian when positive cash balances are maintained, which are used to offset custody fees. There were no earnings credits for the year ended November 30, 2011.
The Fund may receive earnings credits from its transfer agent when positive cash balances are maintained, which are used to offset transfer agent fees. The expense paid under this arrangement is included in dividend disbursing and transfer agent fees and expenses on the statement of operations with the corresponding expense offset shown as “expense paid indirectly.” For the year ended November 30, 2011, the Fund earned $1,193 under this agreement.
2. Investment Management, Administration Agreements and Other Transactions with Affiliates
In accordance with the terms of its investment management agreement, the Fund pays Delaware Management Company (DMC), a series of 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 the average daily net assets in excess $2.5 billion.
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 (excluding any 12b-1 plan and certain other expenses) do not exceed 1.20% of average daily net assets of the Fund through March 29, 2012. This expense waiver and reimbursement applies only to expenses paid directly by the Fund.
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. For the year ended November 30, 2011, the Fund was charged $ 25,189 for these services.
34
DSC also provides dividend disbursing and transfer agency services. Effective July 18, 2011, the Fund pays DSC a monthly asset-based fee for these services. Prior to July 18, 2011, the Fund paid 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 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 29, 2012 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, 2011, the Fund had liabilities payable to affiliates as follows:
Investment management fees payable to DMC | $ | 324,757 | |
Dividend disbursing, transfer agent and fund accounting | |||
oversight fees and other expenses payable to DSC | 16,211 | ||
Distribution fees payable to DDLP | 133,385 | ||
Other expenses payable to DMC and affiliates* | 17,281 |
*DMC, as part of its administrative services, pays operating expenses on behalf of the Fund and is reimbursed on a periodic basis. 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, 2011, the Fund was charged $15,278 for internal legal and tax services provided by DMC and/or its affiliates’ employees.
For the year ended November 30, 2011, DDLP earned $40,251 for commissions on sales of the Fund’s Class A shares. For the year ended November 30, 2011, DDLP received gross CDSC commissions of $53, $9,307 and $1,561 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 include expenses accrued by the Fund for each Trustee’s retainer and meeting fees. Certain officers of DMC, DSC and DDLP are officers and/or Trustees of the Trust. These officers and Trustees are paid no compensation by the Fund.
35
Notes to financial statements
Delaware Small Cap Value Fund
3. Investments
For the year ended November 30, 2011, the Fund made purchases of $245,792,854 and sales of $144,190,241 of investment securities other than short-term investments.
At November 30, 2011, the cost of investments for federal income tax purposes was $472,878,973. At November 30, 2011, the net unrealized appreciation was $96,862,812 of which $ 120,907,503 related to unrealized appreciation of investments and $24,044,691 related to unrealized depreciation of investments.
U.S. GAAP defines fair value as the price that the Fund would receive to sell an asset or pay to transfer a liability in an orderly transaction between market participants at the measurement date under current market conditions. A three level hierarchy for fair value measurements has been established based upon the transparency of inputs to the valuation of an asset or liability. Inputs may be observable or unobservable and refer broadly to the assumptions that market participants would use in pricing the asset or liability. Observable inputs reflect the assumptions market participants would use in pricing the asset or liability based on market data obtained from sources independent of the reporting entity. Unobservable inputs reflect the reporting entity’s own assumptions about the assumptions that market participants would use in pricing the asset or liability developed based on the best information available under the circumstances. The Fund’s investment in its entirety is assigned a level based upon the observability of the inputs which are significant to the overall valuation. The three level hierarchy of inputs is summarized below.
Level 1 | – | inputs are quoted prices in active markets for identical investments (e.g., equity securities, open-end investment companies, futures contracts, options contracts) |
Level 2 | – | other observable inputs (including, but not limited to: quoted prices for similar assets or liabilities in markets that are active, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the assets or liabilities (such as interest rates, yield curves, volatilities, prepayment speeds, loss severities, credit risks and default rates) or other market-corroborated inputs) (e.g., debt securities, government securities, swap contracts, foreign currency exchange contracts, foreign securities utilizing international fair value pricing) |
Level 3 | – | inputs are significant unobservable inputs (including the Fund’s own assumptions used to determine the fair value of investments) (e.g., broker-quoted securities, fair valued securities) |
The following table summarizes the valuation of the Fund’s investments by fair value hierarchy levels as of November 30, 2011:
Level 1 | Level 2 | Level 3 | Total | |||||||||||
Common Stock | $ | 540,833,519 | $ | — | $ | — | $ | 540,833,519 | ||||||
Short-Term Investments | — | 16,805,447 | — | 16,805,447 | ||||||||||
Securities Lending Collateral | — | 12,102,819 | — | 12,102,819 | ||||||||||
Total | $ | 540,833,519 | $ | 28,908,266 | $ | — | $ | 569,741,785 |
36
The value of Level 3 investments was zero at the beginning and end of the year and there was no change in unrealized appreciation/depreciation.
During the year ended November 30, 2011, there were no transfers between Level 1 Investments, Level 2 investments, or Level 3 investments that had a material impact to the Fund.
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. GAAP. Additionally, distributions from net short-term gains on sales of investment securities are treated as ordinary income for federal income tax purposes. The tax character of dividends and distributions paid during the years ended November 30, 2011 and 2010 was as follows:
Year Ended | ||||||
11/30/11 | 11/30/10 | |||||
Ordinary income | $ | 4,694 | $ | 184,464 | ||
Long-term capital gain | 1,731,202 | — | ||||
Total | $ | 1,735,896 | $ | 184,464 |
5. Components of Net Assets on a Tax Basis
As of November 30, 2011, the components of net assets on a tax basis were as follows:
Shares of beneficial interest | $ | 433,916,137 | |
Undistributed Ordinary Income | 5,055,993 | ||
Undistributed long-term capital gains | 21,691,834 | ||
Unrealized appreciation | 96,862,812 | ||
Net assets | $ | 557,526,776 |
The differences between book basis and tax basis components of net assets are primarily attributable to tax deferral of losses on wash sales.
For financial reporting purposes, capital accounts are adjusted to reflect the tax character of permanent book/tax differences. Reclassifications are primarily due to tax treatment of net operating losses and dividends and distributions. Results of operations and net assets were not affected by these reclassifications. For the year ended November 30, 2011, the Fund recorded the following reclassifications.
Accumulated net realized gain | $ | (397,214 | ) | |
Accumulated net investment loss | 491,156 | |||
Paid in Capital | (93,942 | ) |
37
Notes to financial statements
Delaware Small Cap Value Fund
6. Capital Shares
Transactions in capital shares were as follows:
Year Ended | ||||||
11/30/11 | 11/30/10 | |||||
Shares sold: | ||||||
Class A | 4,049,492 | 2,114,409 | ||||
Class B | 4,661 | 8,932 | ||||
Class C | 405,160 | 187,602 | ||||
Class R | 537,051 | 256,654 | ||||
Institutional Class | 2,431,608 | 1,028,999 | ||||
Shares issued upon reinvestment of dividends and distributions: | ||||||
Class A | 29,398 | 4,585 | ||||
Class B | 1,587 | — | ||||
Class C | 5,962 | — | ||||
Class R | 2,208 | — | ||||
Institutional Class | 3,391 | 1,388 | ||||
7,470,518 | 3,602,569 | |||||
Shares repurchased: | ||||||
Class A | (2,503,903 | ) | (2,255,756 | ) | ||
Class B | (155,015 | ) | (278,191 | ) | ||
Class C | (379,274 | ) | (451,745 | ) | ||
Class R | (359,999 | ) | (262,198 | ) | ||
Institutional Class | (1,419,438 | ) | (283,813 | ) | ||
(4,817,629 | ) | (3,531,703 | ) | |||
Net increase | 2,652,889 | 70,866 |
For the years ended November 30, 2011 and 2010, 70,557 Class B shares were converted to 62,342 Class A shares valued at $2,357,536 and 158,555 Class B shares were converted to 141,196 Class A shares valued at $4,460,506, 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), was a participant in a $50,000,000 revolving line of credit to be used for temporary or emergency purposes as an additional source of liquidity to fund redemptions of investor shares. Under the agreement, the Participants were charged an annual commitment fee, which was allocated across the Participants on the basis of each Participant’s allocation of the entire facility. The Participants were permitted to borrow up to a maximum of one third of their net assets under the agreement. The line of credit expired on November 15, 2011.
38
On November 15, 2011, the Fund, along with the other participants, entered into an amendment to the agreement for a $125,000,000, revolving line of credit. The agreement is to be used as described above and operates in substantially the same manner as the original agreement. The agreement expires on November 13, 2012. The Fund had no amounts outstanding as of November 30, 2011 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 The Bank of New York Mellon (BNY Mellon). At the time a security is loaned, the borrower must post collateral equal to the required percentage of the market value of the loaned security, including any accrued interest. The required percentage is: (i) 102% with respect to U.S. securities and foreign securities that are denominated and payable in U.S. dollars; and (ii) 105% with respect to foreign securities. With respect to each loan, if on any business day the aggregate market value of securities collateral plus cash collateral held is less than the aggregate market value of the securities which are the subject of such loan, the borrower will be notified to provide additional collateral by the end of the following business day which, together with the collateral already held, will be not less than the applicable initial collateral requirements for such security loan. If the aggregate market value of securities collateral and cash collateral held with respect to a security loan exceeds the applicable initial collateral requirement, upon the request of the borrower BNY Mellon must return enough collateral to the borrower by the end of the following business day to reduce the value of the remaining collateral to the applicable initial collateral requirement for such security loan. As a result of the foregoing, the value of the collateral held with respect to a loaned security may be temporarily more or less than the value of the security on loan.
Cash collateral received is generally invested in the Delaware Investments Collateral Fund No. 1 (Collective Trust) established by BNY Mellon for the purpose of investment on behalf of funds managed by DMC that participate in BNY Mellon’s securities lending program. The Collective Trust may invest in U.S. government securities and high quality corporate debt, asset-backed and other money market securities and in repurchase agreements collateralized by such securities, provided that the Collective Trust will generally have a dollar-weighted average portfolio maturity of 60 days or less. The Collective Trust seeks to maintain a net asset value per unit of $1.00, but there can be no assurance that it will always be able to do so. The Fund may incur investment losses as a result of investing securities lending collateral in the Collective Trust or another collateral investment pool. This could occur if an investment in a collateral investment pool defaulted or if it were necessary to liquidate assets in the collateral investment pool to meet returns on outstanding security loans at a time when the collateral investment pool’s net asset value per unit was less than $1.00. Under those circumstances, the Fund may not receive an amount from the collateral investment pool that is equal in amount to the collateral the Fund would be required to return to the borrower of the securities and the Fund would be required to make up for this shortfall. Effective April 20, 2009, BNY Mellon transferred the assets of the Fund’s previous collateral investment pool other than cash and assets with a maturity of one business day or less
39
Notes to financial statements
Delaware Small Cap Value Fund
8. Securities Lending (continued)
to the BNY Mellon SL DBT II Liquidating Fund (Liquidating Fund), effectively bifurcating the previous collateral investment pool. The Fund’s exposure to the Liquidating Fund is expected to decrease as the Liquidating Fund’s assets mature or are sold. In October 2008, BNY Mellon transferred certain distressed securities from the previous collateral investment pool into the Mellon GSL Reinvestment Trust II. The Fund can also accept U.S. government securities and letters of credit (non-cash collateral) in connection with securities loans. In the event of default or bankruptcy by the lending agent, realization and/or retention of the collateral may be subject to legal proceedings. In the event the borrower fails to return loaned securities and the collateral received is insufficient to cover the value of the loaned securities and provided such collateral shortfall is not the result of investment losses, the lending agent has agreed to pay the amount of the shortfall to the 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 are subject to changes in value of the securities loaned that may occur during the term of the loan. The Fund has the right under the Lending Agreement to recover the securities from the borrower on demand. With respect to security loans collateralized by non-cash collateral, the Fund receives loan premiums paid by the borrower. With respect to security loans collateralized by cash collateral, the earnings from the collateral investments are shared among the Fund, the security lending agent and the borrower. The Fund records security lending income net of allocations to the security lending agent and the borrower.
At November 30, 2011, the value of the securities on loan was $12,851,543, for which cash collateral was received and invested in accordance with the Lending Agreement. At November 30, 2011, the value of invested collateral was $12,102,819. These 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 real estate holdings during the year ended November 30, 2011. 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.
40
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 has delegated to DMC the day-to-day functions of determining whether individual securities are liquid for purposes of the Fund’s limitation on investments in illiquid securities. Securities eligible for resale pursuant to Rule 144A, which are determined to be liquid, are not subject to the Fund’s 15% limit on investments in illiquid securities. As of November 30, 2011, there were no Rule 144A securities. Illiquid securities have been identified on the statement of net assets.
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. Subsequent Events
Management has determined that no material events or transactions occurred subsequent to November 30, 2011 that would require recognition or disclosure in the Fund’s financial statements.
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. All designations are based on financial information available as of the date of this annual report and, accordingly are subject to change. For any and all items requiring designation, it is the intention of the Fund to designate the maximum amount permitted under the Internal Revenue Code and the regulations thereunder.
41
Notes to financial statements
Delaware Small Cap Value Fund
12. Tax Information (Unaudited) (continued)
For the fiscal year ended November 30, 2011, the Fund designates distributions paid during the year as follows:
(A) | Long-Term Capital Gains Distributions (Tax Basis) | 100% |
(B) | Ordinary Income Distributions* (Tax Basis) | 0% |
Total Distributions (Tax Basis) | 100% | |
(C) | Qualifying Dividends1 | 100% |
(A) | and (B) are based on a percentage of the Fund’s total distributions. |
(C) | is based on a percentage of the Fund’s ordinary income distributions. |
1Qualifying dividends represent dividends which qualify for the corporate dividends received deduction. | |
*For the fiscal year ended November 30, 2011, 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 and as extended by Tax Relief, Unemployment Insurance Reauthorization and Jobs Creation Act of 2010. The Fund intends to designate up to a maximum amount of $4,694 to be taxed at maximum rate of 15%. Complete information will be computed and reported in conjunction with your 2010 or 2011 Form 1099-DIV. For the fiscal year ended November 30, 2011, certain interest income and short-term gains paid by the Fund, determined to be Qualified Interest Income and Short-Term Capital Gains, may be subject to relief from U.S. withholding for foreign shareholders, as provided by the American Jobs Creation Act of 2004 and as extended by Tax Relief, Unemployment Insurance Reauthorization and Jobs Creation Act of 2010. For the fiscal year ended November 30, 2011, the Fund has designated maximum distributions of Qualified Interest Income of $3,471. |
42
Report of independent
registered public accounting firm
To the Board of Trustees of Delaware Group Equity Funds V
and Shareholders of Delaware Small Cap Value Fund:
In our opinion, the accompanying statement of net assets and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of Delaware Small Cap Value Fund (one of the series constituting Delaware Group Equity Funds V, hereafter referred to as the “Fund”) at November 30, 2011, the results of its operations for the year then ended and the changes in its net assets and the financial highlights for each of the two years in the period then ended, in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to as “financial statements”) are the responsibility of the Fund’s management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements 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 are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities at November 30, 2011 by correspondence with the custodian and brokers, provide a reasonable basis for our opinion. The financial highlights for each of the three years in the period ended November 30, 2009 were audited by other independent accountants whose report dated January 21, 2010 expressed an unqualified opinion on those statements.
PricewaterhouseCoopers LLP
Philadelphia, Pennsylvania
January 23, 2012
43
Other Fund information
(Unaudited)
Delaware Small Cap Value Fund
Board Consideration of Delaware Small Cap Value Fund Investment Advisory Agreement
At a meeting held on August 16-17, 2011 (the “Annual Meeting”), the Board of Trustees (the “Board”), including a majority of disinterested or independent Trustees, approved the renewal of the Investment Advisory Agreement for the Delaware Small Cap Value Fund (the “Fund”). In making its decision, the Board considered information furnished specifically in connection with the renewal of the Investment Advisory Agreement with Delaware Management Company (“DMC”), which included materials provided by DMC and its affiliates (“Delaware Investments”) concerning, among other things, the nature, extent and quality of services provided to the Fund, the costs of such services to the Fund, economies of scale and the financial condition and profitability of Delaware Investments. In addition, in connection with the Annual Meeting, reports were provided in May 2011 and included independent historical and comparative reports provided by Lipper, Inc., an independent statistical compilation organization (“Lipper”). The Lipper reports compared the Fund’s investment performance and expenses with those of other comparable mutual funds. The independent Trustees reviewed and discussed the Lipper reports with independent legal counsel to the independent Trustees. The Board requested and received information regarding DMC’s policy with respect to advisory fee levels and its breakpoint philosophy; the structure of portfolio manager compensation; the investment manager’s profitability; and any constraints or limitations on the availability of securities in certain investment styles, which had in the past year inhibited, or which were likely in the future to inhibit, DMC’s ability to invest fully in accordance with Fund policies.
In considering information relating to the approval of the Fund’s advisory agreement, the independent Trustees received assistance and advice from and met separately with independent legal counsel to the independent Trustees. Although the Board gave attention to all information furnished, the following discussion identifies, under separate headings, the primary factors taken into account by the Board during its contract renewal considerations.
Nature, Extent and Quality of Service. The Board considered the services provided by Delaware Investments to the Fund and its shareholders. In reviewing the nature, extent and quality of services, the Board considered reports furnished to it throughout the year, which covered matters such as the relative performance of the Fund, compliance of portfolio managers with the investment policies, strategies and restrictions for the Fund, compliance by DMC and Delaware Distributors, L.P. (together, “Management”) personnel with the Code of Ethics adopted throughout the Delaware Investments Family of Funds complex and adherence to fair value pricing procedures as established by the Board. The Board was pleased with the current staffing of the Fund’s investment advisor and the emphasis placed on research in the investment process. The Board gave favorable consideration to DMC’s efforts to control expenditures while maintaining service levels committed to fund matters. The Board noted that in July 2011 Management implemented measures to reduce overall costs and improve transfer agent and shareholder servicing functions through outsourcing. It is expected that such measures will improve the quality and lower the cost of delivering transfer agent and shareholder servicing services to the Fund. The Board once again noted the benefits provided to Fund shareholders
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through each shareholder’s ability to exchange an investment in one Delaware Investments fund for the same class of shares in another Delaware Investments fund without a sales charge, to reinvest Fund dividends into additional shares of the Fund or into additional shares of other Delaware Investments funds and the privilege to combine holdings in other Delaware Investments funds to obtain a reduced sales charge. The Board was satisfied with the nature, extent and quality of the overall services provided by Delaware Investments.
Investment Performance. The Board placed significant emphasis on the investment performance of the Fund in view of its importance to shareholders. Although the Board gave appropriate consideration to performance reports and discussions with portfolio managers at Investment Committee meetings throughout the year, the Board gave particular weight to the Lipper reports furnished for the Annual Meeting. The Lipper reports prepared for the Fund showed the investment performance of its Class A shares in comparison to a group of similar funds as selected by Lipper (the “Performance Universe”). A fund with the best performance ranked first, and a fund with the poorest performance ranked last. The highest/best performing 25% of funds in the Performance Universe make up the first quartile; the next 25%, the second quartile; the next 25%, the third quartile; and the poorest/worst performing 25% of funds in the Performance Universe make up the fourth quartile. Comparative annualized performance for the Fund was shown for the past one-, three-, five- and ten-year periods, as applicable, ended March 31, 2011. The Board’s objective is that the Fund’s performance for the periods considered be at or above the median of its Performance Universe. The following paragraph summarizes the performance results for the Fund and the Board’s view of such performance.
Lipper currently classifies the Fund as a small cap core fund. However, Management believes that it would be more appropriate to include the Fund in the small cap value category. Accordingly, the Lipper report prepared for the Fund compares the Fund’s performance to two separate Performance Universes consisting of the Fund and all retail and institutional small cap core funds and all retail and institutional small cap value funds. When compared to small cap core funds, the Lipper report showed that the Fund’s total return for the one-, three- and ten-year periods was in the first quartile of its Performance Universe. The report further showed that the Fund’s total return for the five-year period was in the second quartile. When compared to small cap value funds, the Lipper report showed that the Fund’s total return for the one- and three-year periods was in the first quartile of its Performance Universe. The report further showed that the Fund’s total return for the five- and ten-year periods was in the second quartile. The Board was satisfied with performance.
Comparative Expenses. The Board considered expense comparison data for the Delaware Investments Family of Funds. Management provided the Board with information on pricing levels and fee structures for the Fund as of its most recently completed fiscal year. The Board also focused on the comparative analysis of effective management fees and total expense ratios of the Fund versus effective management fees and expense ratios of a group of similar funds as selected by Lipper (the “Expense Group”). In reviewing comparative costs, the Fund’s contractual management fee and the actual management fee incurred by the Fund were compared with the
45
Other Fund information
(Unaudited)
Delaware Small Cap Value Fund
Board Consideration of Delaware Small Cap Value Fund Investment Advisory Agreement (continued)
contractual management fees (assuming all funds in the Expense Group were similar in size to the Fund) and actual management fees (as reported by each fund) within the Expense Group, taking into account any applicable breakpoints and fee waivers. The Fund’s total expenses were also compared with those of its Expense Group. The Lipper total expenses, for comparative consistency, were shown by Lipper for Class A shares and comparative total expenses including 12b-1 and non 12b-1 service fees. The Board considered fees paid to Delaware Investments for non-management services. The Board’s objective is to limit the Fund’s total expense ratio to be competitive with that of the Expense Group. The following paragraph summarizes the expense results for the Fund and the Board’s view of such expenses.
When compared to other small cap core funds, the expense comparisons for the Fund showed that its actual management fee and total expenses were in the quartile with the second lowest expenses of its Expense Group. When compared to other small cap value funds, the expense comparisons for the Fund showed that its actual management fee and total expenses were in the quartile with the second highest expenses of its Expense Group. The Board noted that, when compared to other small cap value funds, the Fund’s total expenses were not in line with the Board’s objective. In evaluating the total expenses, the Board considered fee waivers in place through March 2012 and various initiatives implemented by Management, such as the outsourcing of certain transfer agency services, creating an opportunity for a reduction in expenses. The Board was satisfied with Management’s efforts to improve the Fund’s total expense ratio and bring it in line with the Board’s objective.
Management Profitability. The Board considered the level of profits realized by Delaware Investments in connection with the operation of the Fund. In this respect, the Board reviewed the Investment Management Profitability Analysis that addressed the overall profitability of Delaware Investments’ business in providing management and other services to each of the individual funds and the Delaware Investments Family of Funds as a whole. Specific attention was given to the methodology followed in allocating costs for the purpose of determining profitability. Management stated that the level of profits of Delaware Investments, to a certain extent, reflect recent operational cost savings and efficiencies initiated by Delaware Investments. The Board considered Delaware Investments’ efforts to improve services provided to fund shareholders and to meet additional regulatory and compliance requirements resulting from recent industry-wide Securities and Exchange Commission initiatives. The Board also considered the extent to which Delaware Investments might derive ancillary benefits from fund operations, including the potential for procuring additional business as a result of the prestige and visibility associated with its role as service provider to the Delaware Investments Family of Funds and the benefits from allocation of fund brokerage to improve trading efficiencies. The Board found that the management fees were reasonable in light of the services rendered and the level of profitability of Delaware Investments.
46
Economies of Scale. The Trustees considered whether economies of scale are realized by Delaware Investments as the Fund’s assets increase and the extent to which any economies of scale are reflected in the level of management fees charged. The Trustees reviewed the standardized advisory fee pricing and structure, approved by the Board and shareholders, which includes breakpoints. Breakpoints in the advisory fee occur when the advisory fee rate is reduced on assets in excess of specified levels. Breakpoints result in a lower advisory fee than would otherwise be the case on all assets when the asset levels specified are exceeded. The Board noted that the fee under the Fund’s management contract fell within the standard structure. Although the Fund has not reached a size at which it can take advantage of breakpoints, the Board recognized that the fee was structured so that when the Fund grows, economies of scale may be shared.
Change in Independent Registered Public Accounting Firm
Due to independence matters under the Securities and Exchange Commission’s auditor independence rules relating to the January 4, 2010 acquisition of Delaware Investments (including DMC, DDLP and DSC) by Macquarie Group, Ernst & Young LLP (E&Y) has resigned as the independent registered public accounting firm for Delaware Group® Equity Funds V (the Trust) effective May 20, 2010. At a meeting held on May 20, 2010, the Board of Trustees of the Trust, upon recommendation of the Audit Committee, selected PricewaterhouseCoopers LLP (PwC) to serve as the independent registered public accounting firm for the Trust for the fiscal year ending November 30, 2011. During the fiscal years ended November 30, 2009 and 2008, E&Y’s audit reports on the financial statements of the Trust did not contain any adverse opinion or disclaimer of opinion, nor were they qualified or modified as to uncertainty, audit scope, or accounting principles. In addition, there were no disagreements between the Trust and E&Y on accounting principles, financial statements disclosures or audit scope, which, if not resolved to the satisfaction of E&Y, would have caused them to make reference to the disagreement in their reports. Neither the Trust nor anyone on its behalf has consulted with PwC at any time prior to their selection with respect to the application of accounting principles to a specified transaction, either completed or proposed or the type of audit opinion that might be rendered on the Trust’s financial statements.
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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
Name, Address, | Position(s) | Length of | ||
and Birth Date | Held with Fund(s) | Time Served | ||
Interested Trustees | ||||
Patrick P. Coyne1 | Chairman, President, | Chairman and Trustee | ||
2005 Market Street | Chief Executive Officer, | since August 16, 2006 | ||
Philadelphia, PA 19103 | and Trustee | |||
April 1963 | President and | |||
Chief Executive Officer | ||||
since August 1, 2006 | ||||
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 | ||||
Principal Occupation(s) | Fund Complex Overseen | Other Directorships | ||
During Past 5 Years | by Trustee or Officer | Held by Trustee or Officer | ||
Patrick P. Coyne has served in | 74 | Director and Audit | ||
various executive capacities | Committee Member | |||
at different times at | Kaydon Corp. | |||
Delaware Investments.2 | ||||
Board of Governors Member | ||||
Investment Company | ||||
Institute (ICI) | ||||
Finance Committee Member | ||||
St. John Vianney Roman | ||||
Catholic Church | ||||
Board of Trustees | ||||
Agnes Irwin School | ||||
Member of Investment | ||||
Committee | ||||
Cradle of Liberty Council, | ||||
BSA | ||||
(2007–2010) | ||||
49
Board of trustees/directors and officers addendum
Delaware Investments® Family of Funds
Name, Address, | Position(s) | Length of | ||
and Birth Date | Held with Fund(s) | Time Served | ||
Independent Trustees | ||||
Thomas L. Bennett | Trustee | Since March 2005 | ||
2005 Market Street | ||||
Philadelphia, PA 19103 | ||||
October 1947 | ||||
John A. Fry | Trustee | Since January 2001 | ||
2005 Market Street | ||||
Philadelphia, PA 19103 | ||||
May 1960 | ||||
Anthony D. Knerr | Trustee | Since April 1990 | ||
2005 Market Street | ||||
Philadelphia, PA 19103 | ||||
December 1938 | ||||
Lucinda S. Landreth | Trustee | Since March 2005 | ||
2005 Market Street | ||||
Philadelphia, PA 19103 | ||||
June 1947 | ||||
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Number of Portfolios in | ||||
Principal Occupation(s) | Fund Complex Overseen | Other Directorships | ||
During Past 5 Years | by Trustee or Officer | Held by Trustee or Officer | ||
Private Investor | 74 | Chairman of Investment | ||
(March 2004–Present) | Committee | |||
Pennsylvania Academy of | ||||
Investment Manager | Fine Arts | |||
Morgan Stanley & Co. | ||||
(January 1984–March 2004) | Investment Committee and | |||
Governance Committee | ||||
Member | ||||
Pennsylvania Horticultural | ||||
Society | ||||
Director | ||||
Bryn Mawr Bank Corp. (BMTC) | ||||
(2007–2011) | ||||
President | 74 | Board of Governors Member — | ||
Drexel University | NASDAQ OMX PHLX LLC | |||
(August 2010–Present) | ||||
Director and Audit | ||||
President | Committee Member | |||
Franklin & Marshall College | Community Health Systems | |||
(July 2002–July 2010) | ||||
Director — Ecore | ||||
International | ||||
(2009–2010) | ||||
Director — Allied | ||||
Barton Securities Holdings | ||||
(2005–2008) | ||||
Managing Director | 74 | None | ||
Anthony Knerr & Associates | ||||
(Strategic Consulting) | ||||
(1990–Present) | ||||
Chief Investment Officer | 74 | None | ||
Assurant, Inc. (Insurance) | ||||
(2002–2004) | ||||
51
Board of trustees/directors and officers addendum
Delaware Investments® Family of Funds
Name, Address, | Position(s) | Length of | ||
and Birth Date | Held with Fund(s) | Time Served | ||
Independent Trustees (continued) | ||||
Ann R. Leven | Trustee | Since October 1989 | ||
2005 Market Street | ||||
Philadelphia, PA 19103 | ||||
November 1940 | ||||
Frances A. Sevilla-Sacasa | Trustee | Since September 2011 | ||
2005 Market Street | ||||
Philadelphia, PA 19103 | ||||
January 1956 | ||||
52
Number of Portfolios in | ||||
Principal Occupation(s) | Fund Complex Overseen | Other Directorships | ||
During Past 5 Years | by Trustee or Officer | Held by Trustee or Officer | ||
Consultant | 74 | Director and Audit | ||
ARL Associates | Committee Chair | |||
(Financial Planning) | Systemax Inc. | |||
(1983–Present) | (2001–2009) | |||
Director and Audit | ||||
Committee Chairperson | ||||
Andy Warhol Foundation | ||||
(1999–2007) | ||||
Executive Advisor to Dean | 74 | Trust Manager — Camden | ||
(since August 2011) and | Property Trust | |||
Interim Dean | (since August 2011) | |||
(January 2011–July 2011) — | ||||
University of Miami School of | Board of Trustees | |||
Business Administration | Thunderbird School of | |||
Global Management | ||||
President — U.S. Trust, | (2007–2011) | |||
Bank of America Private | ||||
Wealth Management | Board of Trustees | |||
(Private Banking) | Carrollton School of the | |||
(July 2007–December 2008) | Sacred Heart | |||
(since 2007) | ||||
President and Director | ||||
(November 2005–June 2007) and | Board Member | |||
Chief Executive Officer | Foreign Policy Association | |||
(April 2007–June 2007) — | (since 2006) | |||
U.S. Trust Company | ||||
(Private Banking) | Board of Trustees | |||
Georgetown Preparatory School | ||||
(2005–2011) | ||||
Board of Trustees | ||||
Miami City Ballet | ||||
(2000–2011) | ||||
Board of Trustees | ||||
St. Thomas University | ||||
(2005–2011) | ||||
53
Board of trustees/directors and officers addendum
Delaware Investments® Family of Funds
Name, Address, | Position(s) | Length of | ||
and Birth Date | Held with Fund(s) | Time Served | ||
Independent Trustees (continued) | ||||
Janet L. Yeomans | Trustee | Since April 1999 | ||
2005 Market Street | ||||
Philadelphia, PA 19103 | ||||
July 1948 | ||||
J. Richard Zecher | Trustee | Since March 2005 | ||
2005 Market Street | ||||
Philadelphia, PA 19103 | ||||
July 1940 | ||||
54
Number of Portfolios in | ||||
Principal Occupation(s) | Fund Complex Overseen | Other Directorships | ||
During Past 5 Years | by Trustee or Officer | Held by Trustee or Officer | ||
Vice President and Treasurer | 74 | Director and Audit | ||
(January 2006–Present) | Committee Member | |||
Vice President — Mergers & Acquisitions | Okabena Company | |||
(January 2003–January 2006), and | ||||
Vice President and Treasurer | Chair — 3M | |||
(July 1995–January 2003) | Investment Management | |||
3M Corporation | Company | |||
Founder | 74 | Director and Audit | ||
Investor Analytics | Committee Member | |||
(Risk Management) | Investor Analytics | |||
(May 1999–Present) | ||||
Director | ||||
Founder | Oxigene, Inc. | |||
Sutton Asset Management | (2003–2008) | |||
(Hedge Fund) | ||||
(September 1996–Present) | ||||
55
Board of trustees/directors and officers addendum
Delaware Investments® Family of Funds
Name, Address, | Position(s) | Length of | ||
and Birth Date | Held with Fund(s) | Time Served | ||
Officers | ||||
David F. Connor | Vice President, | Vice President since | ||
2005 Market Street | Deputy General | September 2000 | ||
Philadelphia, PA 19103 | Counsel, and Secretary | and Secretary since | ||
December 1963 | October 2005 | |||
Daniel V. Geatens | Vice President | Treasurer | ||
2005 Market Street | and Treasurer | since October 2007 | ||
Philadelphia, PA 19103 | ||||
October 1972 | ||||
David P. O’Connor | Senior Vice President, | Senior Vice President, | ||
2005 Market Street | General Counsel, | General Counsel, and | ||
Philadelphia, PA 19103 | and Chief Legal Officer | Chief Legal Officer | ||
February 1966 | since October 2005 | |||
Richard Salus | Senior Vice President | Chief Financial Officer | ||
2005 Market Street | and Chief Financial Officer | since November 2006 | ||
Philadelphia, PA 19103 | ||||
October 1963 | ||||
56
Number of Portfolios in | ||||
Principal Occupation(s) | Fund Complex Overseen | Other Directorships | ||
During Past 5 Years | by Trustee or Officer | Held by Trustee or Officer | ||
David F. Connor has served as | 74 | None3 | ||
Vice President and Deputy | ||||
General Counsel of | ||||
Delaware Investments | ||||
since 2000. | ||||
Daniel V. Geatens has served | 74 | None3 | ||
in various capacities at | ||||
different times at | ||||
Delaware Investments. | ||||
David P. O’Connor has served in | 74 | None3 | ||
various executive and legal | ||||
capacities at different times | ||||
at Delaware Investments. | ||||
Richard Salus has served in | 74 | None3 | ||
various executive capacities | ||||
at different times at | ||||
Delaware Investments. | ||||
Board of trustees | |||
Patrick P. Coyne Chairman, President, and Chief Executive Officer Delaware Investments® Family of Funds Philadelphia, PA Thomas L. Bennett Private Investor Rosemont, PA John A. Fry President Drexel University Philadelphia, PA | Anthony D. Knerr Founder and Managing Director Anthony Knerr & Associates New York, NY Lucinda S. Landreth Former Chief Investment Officer Assurant, Inc. Philadelphia, PA | Ann R. Leven Consultant ARL Associates New York, NY Frances A. Sevilla-Sacasa Executive Advisor to Dean, University of Miami School of Business Administration Coral Gables, FL | Janet L. Yeomans Vice President and Treasurer 3M Corporation St. Paul, MN J. Richard Zecher Founder Investor Analytics Scottsdale, AZ |
Affiliated officers | |||
David F. Connor Vice President, Deputy General Counsel, and Secretary Delaware Investments Family of Funds Philadelphia, PA | Daniel V. Geatens Vice President and Treasurer Delaware Investments Family of Funds Philadelphia, PA | David P. O’Connor Senior Vice President, General Counsel, and Chief Legal Officer Delaware Investments Family of Funds Philadelphia, PA | Richard Salus Senior Vice President and Chief Financial Officer Delaware Investments Family of Funds Philadelphia, PA |
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 the Delaware Investments Fund fact sheet for the most recently completed calendar quarter. These documents are available at www.delawareinvestments.com. |
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 (SEC) for the first and third quarters of each fiscal year on Form N-Q. The Fund’s Forms N-Q, as well as a description of the policies and procedures that the Fund uses to determine how to vote proxies (if any) relating to portfolio securities are available without charge (i) upon request, by calling 800 523-1918; and (ii) on the SEC’s website at 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 website at www.delawareinvestments.com. The Fund’s Forms N-Q may be reviewed and copied at the SEC’s Public Reference Room in Washington, D.C.; information on the operation of the Public Reference Room may be obtained by calling 800 SEC-0330.
Information (if any) regarding how the Fund voted proxies relating to portfolio securities during the most recently disclosed 12-month period ended June 30 is available without charge (i) through the Funds’ website at www.delawareinvestments.com; and (ii) on the SEC’s website at www.sec.gov.
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 the Delaware Investments Internet Web site 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 Web site within five business days of such amendment or waiver and will remain on the Web site for at least 12 months.
Item 3. Audit Committee Financial Expert
The registrant’s Board of Trustees/Directors has determined that certain members of the registrant’s Audit Committee are audit committee financial experts, as defined below. For purposes of this item, an “audit committee financial expert” is a person who has the following attributes:
a. An understanding of generally accepted accounting principles and financial statements;
b. The ability to assess the general application of such principles in connection with the accounting for estimates, accruals, and reserves;
c. Experience preparing, auditing, analyzing, or evaluating financial statements that present a breadth and level of complexity of accounting issues that are generally comparable to the breadth and complexity of issues that can reasonably be expected to be raised by the registrant’s financial statements, or experience actively supervising one or more persons engaged in such activities;
d. An understanding of internal controls and procedures for financial reporting; and
e. An understanding of audit committee functions.
An “audit committee financial expert” shall have acquired such attributes through:
a. Education and experience as a principal financial officer, principal accounting officer, controller, public accountant, or auditor or experience in one or more positions that involve the performance of similar functions;
b. Experience actively supervising a principal financial officer, principal accounting officer, controller, public accountant, auditor, or person performing similar functions;
c. Experience overseeing or assessing the performance of companies or public accountants with respect to the preparation, auditing, or evaluation of financial statements; or
d. Other relevant experience.
The registrant’s Board of Trustees/Directors has also determined that each member of the registrant’s Audit Committee is independent. In order to be “independent” for purposes of this item, the Audit Committee member may not: (i) other than in his or her capacity as a member of the Board of Trustees/Directors or any committee thereof, accept directly or indirectly any consulting, advisory or other compensatory fee from the issuer; or (ii) be an “interested person” of the registrant as defined in Section 2(a)(19) of the Investment Company Act of 1940.
The names of the audit committee financial experts on the registrant’s Audit Committee are set forth below:
John A. Fry
Frances A. Sevilla-Sacasa
Janet L. Yeomans
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 $58,402 for the fiscal year ended November 30, 2011.
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 $60,600 for the fiscal year ended November 30, 2010.
(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, 2011.
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 $593,000 for the registrant’s fiscal year ended November 30, 2011. 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: year end audit procedures; reporting up and subsidiary statutory audits.
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, 2010.
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 $84,000 for the registrant’s fiscal year ended November 30, 2010. 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: audit procedures performed on Delaware Investments for its consolidation into Macquarie’s financial statements as of March 31, 2010.
(c) Tax fees.
The aggregate fees billed by the registrant’s independent auditors for tax-related services provided to the registrant were $11,450 for the fiscal year ended November 30, 2011. 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, 2011.
The aggregate fees billed by the registrant’s independent auditors for tax-related services provided to the registrant were $11,150 for the fiscal year ended November 30, 2010. 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 $10,000 for the registrant’s fiscal year ended November 30, 2010. 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: state and local tax services.
(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, 2011.
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 $25,000 for the registrant’s fiscal year ended November 30, 2011. 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 other services were as follows: attest examination of management's assertion to the controls in place at the transfer agent to be in compliance with Rule 17ad-13(a)(3) of the Securities Exchange Act of 1934.
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, 2010.
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, 2010.
(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 offerings, consents), and assistance in responding to SEC comment letters | up to $10,000 per Fund |
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 bodies (Note: Under SEC rules, some consultations may be considered “audit-related services” rather than “audit services”) | up to $25,000 in the aggregate |
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 bodies (Note: Under SEC rules, some consultations may be considered “audit services” rather than “audit-related services”) | up to $25,000 in the aggregate |
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 compliance function, etc.) | up to $25,000 in the aggregate |
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.
Service | Range of Fees |
Non-Audit Services | |
Services associated with periodic reports and other documents filed with the SEC and assistance in responding to SEC comment letters | up to $10,000 in the aggregate |
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 $5,228,766 and $0 for the registrant’s fiscal years ended November 30, 2011 and November 30, 2010, respectively.
(h) In connection with its selection of the independent auditors, the registrant’s Audit Committee has considered the independent auditors’ provision of non-audit services to the registrant’s investment adviser and other service providers under common control with the adviser that were not required to be pre-approved pursuant to Rule 2-01(c)(7)(ii) of Regulation S-X. The Audit Committee has determined that the independent auditors’ provision of these services is compatible with maintaining the auditors’ independence.
Item 5. Audit Committee of Listed Registrants
Not applicable.
Item 6. Investments
(a) Included as part of report to shareholders filed under Item 1 of this Form N-CSR.
(b) Divestment of securities in accordance with Section 13(c) of the Investment Company Act of 1940.
Not applicable.
Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End Management Investment Companies
Not applicable.
Item 8. Portfolio Managers of Closed-End Management Investment Companies
Not applicable.
Item 9. Purchases of Equity Securities by Closed-End Management Investment Company and Affiliated Purchasers
Not applicable.
Item 10. Submission of Matters to a Vote of Security Holders
Not applicable.
Item 11. Controls and Procedures
The registrant’s principal executive officer and principal financial officer have evaluated the registrant’s disclosure controls and procedures within 90 days of the filing of this report and have concluded that they are effective in providing reasonable assurance that the information required to be disclosed by the registrant in its reports or statements filed under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission.
There were no significant changes in the registrant’s internal control over financial reporting that occurred during the second fiscal quarter of the period covered by the report to stockholders included herein (i.e., the registrant’s fourth fiscal quarter) that have materially affected, or are reasonably likely to materially affect, the registrant’s internal control over financial reporting.
Item 12. Exhibits
(a) | (1) Code of Ethics | |
Not applicable. | ||
(2) Certifications of Principal Executive Officer and Principal Financial Officer pursuant to Rule 30a-2 under the Investment Company Act of 1940 are attached hereto as Exhibit 99.CERT. | ||
(3) Written solicitations to purchase securities pursuant to Rule 23c-1 under the Securities Exchange Act of 1934. | ||
Not applicable. | ||
(b) | Certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 are furnished herewith as Exhibit 99.906CERT. |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf, by the undersigned, thereunto duly authorized.
Name of Registrant: Delaware Group® Equity Funds V
PATRICK P. COYNE | |
By: | Patrick P. Coyne |
Title: | Chief Executive Officer |
Date: | February 1, 2012 |
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: | February 1, 2012 |
RICHARD SALUS | |
By: | Richard Salus |
Title: | Chief Financial Officer |
Date: | February 1, 2012 |