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, 2012 |
Item 1. Reports to Stockholders
![](https://capedge.com/proxy/N-CSR/0001206774-13-000493/del_topimg02.jpg)
Annual report Delaware Dividend Income Fund November 30, 2012 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 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 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 delawareinvestments.com.
- 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 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 | 36 | |
Statements of changes in net assets | 38 | |
Financial highlights | 40 | |
Notes to financial statements | 50 | |
Report of independent registered | ||
public accounting firm | 68 | |
Other Fund information | 69 | |
Board of trustees/directors and | ||
officers addendum | 74 | |
About the organization | 82 |
Unless otherwise noted, views expressed herein are current as of Nov. 30, 2012, 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.
© 2013 Delaware Management Holdings, Inc.
All third-party marks cited are the property of their respective owners.
Delaware Dividend Income Fund | December 11, 2012 |
Performance preview (for the year ended November 30, 2012) | ||||
Delaware Dividend Income Fund (Class A shares) | 1-year return | +14.25% | ||
S&P 500® Index (benchmark) | 1-year return | +16.13% |
For its fiscal year ended Nov. 30, 2012, Delaware Dividend Income Fund (Class A shares) returned +14.25% at net asset value and +7.72% at maximum offer price (both figures reflect all distributions reinvested). In comparison, the Fund’s benchmark, the S&P 500 Index, returned +16.13% during the same period. Complete annualized performance for Delaware Dividend Income Fund is shown in the table on page 4.
Modest improvements in economic conditions
The U.S. economy continued its sluggish but steady growth during the 12 months ended Nov. 30, 2012. While U.S. gross domestic product (GDP) — a measure of the goods and services produced by the nation — expanded rapidly in late 2011, growth slowed significantly thereafter. High unemployment continued to be a major challenge, with the country’s jobless rate finishing the Fund’s fiscal year at 7.9%, still uncomfortably high but a notable improvement compared to the 9.0% level at the beginning of the Fund’s fiscal year. (Data: U.S. Commerce Department; U.S. Labor Department.)
Against this backdrop, the U.S. Federal Reserve continued its efforts to stimulate U.S. economic growth by keeping short-term interest rates at a historically low level and initiating a third round of so-called “quantitative easing” in the form of bond-buying programs. European officials, for instance, continued to deal with a lingering sovereign debt crisis, and many European countries were in recession when the Fund’s fiscal year drew to a close.
Financial markets responded positively
Encouraged by the aggressive actions of central banks around the world, financial markets delivered reasonably strong returns during the fiscal year, with riskier assets faring particularly well. U.S. equities, as measured by the S&P 500 Index, generated a gain of 16.13%, while high yield bonds, as measured by the BofA Merrill Lynch U.S. High Yield Constrained Index, rose 16.57%. Other income-generating asset classes that gained ground included real estate investment trusts (REITs), convertible securities, dividend-paying international equities, and investment grade bonds. (Performance data: Bloomberg.)
Fund performance benefited from large-cap equity, high yield
The Fund’s allocation to large-cap value equity investments provided a healthy contribution to overall return. The Fund maintained a dominant allocation to this asset class, amounting to approximately 50% of portfolio assets at the end of the fiscal year. Within this group of holdings, the consumer discretionary sector was particularly
1
Portfolio management review
Delaware Dividend Income Fund
strong. For instance, the Fund’s position in communications conglomerate Comcast was among the notable performers, as the company continued to benefit from its favorable financial position and recent acquisition of NBC Universal. Home-products superstore Lowe’s also performed well for the Fund, due in part to the company’s financial restructuring and a nascent recovery in housing construction. The Fund’s holdings in the financial sector were likewise beneficial, posting an advance of more than 30% for the fiscal year.
The gains noted above were offset by stocks of food retailer Safeway and grain processor Archer-Daniels-Midland. As a whole, food retailers came under pressure during the Fund’s fiscal year, and the pressure was exacerbated when a major competitor reduced its dividend payment and said it was exploring strategic options (including a possible sale of the company). Meanwhile, at large-scale food processors such as Archer-Daniels-Midland, operating results were negatively affected by factors that included (1) a drought that has gripped much of the United States, (2) a drop in grain exports, and (3) high corn prices that have led to negative margins in corn processing units.
Brief notes on the Fund’s allocations within other asset classes:
- The Fund’s high yield investments achieved solid results compared to those of the high yield market, representing outperformance in what was already a strong market segment. Bond income was certainly a component of total return, but price appreciation played an important role as well.
- Investments in REITs had a positive effect on the Fund’s performance (in absolute terms as well as versus the benchmark index), and we continued to favor real estate companies with strong fundamentals and relatively easy access to credit.
- The Fund’s allocation to convertible securities was the primary source of underperformance when compared to the index. In a market environment in which equities turned in robust results, convertibles did not generate comparable gains. In addition, the Fund’s focus on convertibles that exhibited defensive characteristics further muted the Fund’s performance in this asset class.
With monetary policy in the U.S. driving rates lower, our preferred approach has been twofold:
- Invest in hard assets to help shield the Fund’s portfolio from the potential inflationary results of Fed policies — as represented by our investments in REITs.
- Invest in financial assets to help provide what the Fed’s policies are taking away — that is, yield — which we attempt to achieve by investing in high yield bonds, dividend-paying equities, and convertibles.
A consistent management strategy
Our basic strategy remained the same during the Fund’s fiscal year, just as it does across all performance periods: We continued assembling a diversified collection of income-generating securities that provides competitive yield, while aiming to achieve greater upside potential than bonds and
2
better downside protection than equities. Diversification, it should be noted, does not protect against losses.
As always, we emphasized reasonably priced securities when making new additions to the Fund’s portfolio. At the same time, we liquidated holdings that we believed had become expensive relative to their return prospects.
During its fiscal year, the Fund’s asset mix remained largely consistent. We continued maintaining a meaningful concentration in large-cap value stocks, while keeping a comparatively small stake in REITs. Among the Fund’s REIT investments, we introduced a small position in several non-U.S. companies that we believed had become attractively valued, keeping in mind that prices for international REITs have generally trailed their U.S. counterparts in recent years.
As the fiscal year progressed, we reassessed the Fund’s exposure to high yield bonds, particularly as bond prices continued to reach what we viewed as excessively high levels. We concluded that the overall risk-reward balance had become less attractive, and that newer bonds were being issued with less-than-compelling terms. In our view, increased caution was warranted, prompting us to purchase credit default swaps as a measure of protection against potential declines in bond prices.
A more defensive posture going forward
As the fiscal year came to an end, the Fund had only modest exposure to non-U.S. investments, reflecting our continued belief that U.S. securities — especially large-cap value equities — had the potential to outperform non-U.S. securities. With European and Asian markets coming off long stretches of positive performance, we believed it was not the right time to take on more risk by investing significantly in these regions.
As the Fund’s fiscal year progressed, our overall sense of caution increased. After three years of strong market returns and proactive economic stimulus by the world’s central banks, we finished the fiscal year with a more defensive outlook, which translated to (1) seeking to avoid securities with an unfavorable risk-reward balance, (2) taking profits in higher-priced holdings, and (3) initiating steps to help hedge the portfolio’s risk. In the months ahead, we will be monitoring market conditions to see if an even more defensive stance may be warranted.
3
Delaware Dividend Income Fund | November 30, 2012 |
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 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, 2012 | ||||||||||
Lifetime | |||||||||||
(if less than | |||||||||||
1 year | 5 years | 10 years | 10 years) | ||||||||
Class A (Est. Dec. 2, 1996) | |||||||||||
Excluding sales charge | +14.25% | +3.21% | +6.84 | % | n/a | ||||||
Including sales charge | +7.72% | +2.01% | +6.21 | % | n/a | ||||||
Class B (Est. Oct. 1, 2003) | |||||||||||
Excluding sales charge | +13.39% | +2.43% | n/a | +5.03 | % | ||||||
Including sales charge | +9.39% | +2.06% | n/a | +5.03 | % | ||||||
Class C (Est. Oct. 1, 2003) | |||||||||||
Excluding sales charge | +13.50% | +2.45% | n/a | +4.94 | % | ||||||
Including sales charge | +12.50% | +2.45% | n/a | +4.94 | % | ||||||
Class R (Est. Oct. 1, 2003) | |||||||||||
Excluding sales charge | +13.97% | +2.95% | n/a | +5.44 | % | ||||||
Including sales charge | +13.97% | +2.95% | n/a | +5.44 | % | ||||||
Institutional Class (Est. Dec. 2, 1996) | |||||||||||
Excluding sales charge | +14.66% | +3.47% | +7.09 | % | n/a | ||||||
Including sales charge | +14.66% | +3.47% | +7.09 | % | 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 5.75%, and have an annual distribution and service fee of 0.30% of average daily net assets. This fee has been contractually limited to 0.25% of average daily net assets from March 29, 2012 through March 29, 2013. Performance for Class A shares, excluding sales charges, assumes that no front-end sales charge applied.
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
4
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 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 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 0.60% of average daily net assets, which has been limited contractually to 0.50% from March 29, 2012 through March 29, 2013.
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.
Diversification may not protect against market risk.
2 The Fund’s expense ratios, as described in the most recent prospectus, are disclosed in the following “Fund expense ratios” table.
Fund expense ratios | Class A | Class B | Class C | Class R | Institutional Class | |||||
Total annual operating expenses | 1.24% | 1.94% | 1.94% | 1.54% | 0.94% | |||||
(without fee waivers) | ||||||||||
Net expenses | 1.19% | 1.94% | 1.94% | 1.44% | 0.94% | |||||
(including fee waivers, if any) | ||||||||||
Type of waiver | Contractual | n/a | n/a | Contractual | n/a |
5
Performance summary
Delaware Dividend Income Fund
Performance of a $10,000 investment1
Average annual total returns from Nov. 30, 2002, through Nov. 30, 2012
For period beginning Nov. 30, 2002, through Nov. 30, 2012 | Starting value | Ending value | ||
S&P 500 Index | $10,000 | $18,520 | ||
Delaware Dividend Income Fund — Class A shares | $9,425 | $18,263 |
The chart also assumes $10,000 invested in the S&P 500 Index as of Nov. 30, 2002. The S&P 500 Index measures the performance of 500 mostly large-cap stocks weighted by market value, and is often used to represent performance of the U.S. stock market.
The BofA Merrill Lynch U.S. High Yield Constrained Index (mentioned on page 1) tracks the performance of U.S. dollar–denominated high yield corporate debt publicly issued in the U.S. domestic market, but caps individual issuer exposure at 2% of the benchmark.
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.
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, 2012 to November 30, 2012 (Unaudited)
As a shareholder of the Fund, you incur two types of costs: (1) transaction costs, including sales charges (loads) on purchase payments, reinvested dividends, or other distributions; redemption fees; and exchange fees; and (2) ongoing costs, including management fees; distribution and/or service (12b-1) fees; and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds.
The example is based on an investment of $1,000 invested at the beginning of the period and held for the entire six-month period from June 1, 2012 to November 30, 2012.
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 | |||||||||||
6/1/12 | 11/30/12 | Expense Ratio | 6/1/12 to 11/30/12* | |||||||||||
Actual Fund Return† | ||||||||||||||
Class A | $1,000.00 | $1,080.60 | 1.16% | $6.03 | ||||||||||
Class B | 1,000.00 | 1,076.50 | 1.91% | 9.92 | ||||||||||
Class C | 1,000.00 | 1,076.40 | 1.91% | 9.91 | ||||||||||
Class R | 1,000.00 | 1,079.30 | 1.41% | 7.33 | ||||||||||
Institutional Class | 1,000.00 | 1,082.00 | 0.91% | 4.74 | ||||||||||
Hypothetical 5% return (5% return before expenses) | ||||||||||||||
Class A | $1,000.00 | $1,019.20 | 1.16% | $5.86 | ||||||||||
Class B | 1,000.00 | 1,015.45 | 1.91% | 9.62 | ||||||||||
Class C | 1,000.00 | 1,015.45 | 1.91% | 9.62 | ||||||||||
Class R | 1,000.00 | 1,017.95 | 1.41% | 7.11 | ||||||||||
Institutional Class | 1,000.00 | 1,020.45 | 0.91% | 4.60 |
*“Expenses Paid During Period” are equal to the Fund’s annualized expense ratio, multiplied by the average account value over the period, multiplied by 183/366 (to reflect the one-half year period).
†Because actual returns reflect only the most recent six-month period, the returns shown may differ significantly from fiscal year returns.
9
Security type/sector allocation and | |
top 10 equity holdings | |
Delaware Dividend Income Fund | As of November 30, 2012 |
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 | 56.39 | % | |
Consumer Discretionary | 4.50 | % | |
Consumer Staples | 6.15 | % | |
Diversified REITs | 0.54 | % | |
Energy | 7.29 | % | |
Financials | 6.66 | % | |
Healthcare | 8.78 | % | |
Healthcare REITs | 0.38 | % | |
Hotel REITs | 0.48 | % | |
Industrial REIT | 0.15 | % | |
Industrials | 4.66 | % | |
Information Technology | 5.06 | % | |
Mall REITs | 0.74 | % | |
Manufactured Housing REIT | 0.12 | % | |
Materials | 1.48 | % | |
Media | 0.23 | % | |
Mixed REITs | 0.44 | % | |
Multifamily REITs | 0.75 | % | |
Office REITs | 0.43 | % | |
Retail | 0.15 | % | |
Self-Storage REIT | 0.14 | % | |
Shopping Center REITs | 0.90 | % | |
Single Tenant REIT | 0.37 | % | |
Telecommunications | 4.08 | % | |
Utilities | 1.91 | % | |
Convertible Preferred Stock | 2.76 | % | |
Commercial Mortgage-Backed Securities | 0.64 | % |
10
Security type/sector | Percentage of net assets | |
Convertible Bonds | 11.54 | % |
Basic Industry | 0.16 | % |
Capital Goods | 1.51 | % |
Communications | 1.45 | % |
Consumer Cyclical | 1.14 | % |
Consumer Non-Cyclical | 1.98 | % |
Energy | 0.52 | % |
Financials | 1.21 | % |
Industrials | 0.30 | % |
Services | 1.00 | % |
Technology | 2.27 | % |
Corporate Bonds | 20.15 | % |
Automotive | 0.73 | % |
Banking | 0.43 | % |
Basic Industry | 2.88 | % |
Capital Goods | 0.83 | % |
Communications | 1.82 | % |
Consumer Cyclical | 1.54 | % |
Consumer Non-Cyclical | 0.64 | % |
Energy | 2.59 | % |
Financials | 0.57 | % |
Healthcare | 1.41 | % |
Insurance | 0.83 | % |
Media | 1.88 | % |
Service | 2.22 | % |
Technology | 1.39 | % |
Utilities | 0.39 | % |
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 | 1.01 | % |
Exchange-Traded Funds | 0.54 | % |
Limited Partnerships | 0.79 | % |
Preferred Stock | 0.68 | % |
Short-Term Investments | 5.34 | % |
Securities Lending Collateral | 0.17 | % |
Total Value of Securities | 100.01 | % |
Option Written | (0.06 | %) |
Obligation to Return Securities Lending Collateral | (0.34 | %) |
Receivables and Other Assets Net of Other Liabilities | 0.39 | % |
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 | |
Lowe’s | 1.79 | % |
Baxter International | 1.62 | % |
Travelers | 1.57 | % |
Bank of New York Mellon | 1.57 | % |
Pfizer | 1.51 | % |
Northrop Grumman | 1.51 | % |
Motorola Solutions | 1.50 | % |
Comcast Class A | 1.50 | % |
CVS Caremark | 1.49 | % |
Verizon Communications | 1.49 | % |
12
Statement of net assets | |
Delaware Dividend Income Fund | November 30, 2012 |
Number of shares | Value | ||||
Common Stock – 56.39% | |||||
Consumer Discretionary – 4.50% | |||||
Bayerische Motoren Werke | 1,970 | $ | 174,708 | ||
Coach | 45,000 | 2,602,800 | |||
Comcast Class A | 165,600 | 6,157,008 | |||
† | DIRECTV Class A | 6,350 | 315,595 | ||
Don Quijote | 6,300 | 244,968 | |||
Hyundai Home Shopping Network | 1,917 | 215,164 | |||
Lowe’s | 203,500 | 7,344,316 | |||
Nitori Holdings | 2,093 | 155,658 | |||
PPR | 1,296 | 241,703 | |||
Publicis Groupe | 2,358 | 133,386 | |||
Sumitomo Rubber Industries | 9,255 | 109,140 | |||
Techtronic Industries | 83,500 | 164,410 | |||
Toyota Motor | 7,900 | 338,811 | |||
Yue Yuen Industrial Holdings | 80,500 | 282,002 | |||
18,479,669 | |||||
Consumer Staples – 6.15% | |||||
Archer-Daniels-Midland | 175,900 | 4,696,530 | |||
Aryzta | 6,982 | 352,980 | |||
Carlsberg Class B | 1,960 | 190,830 | |||
Coca-Cola Amatil | 10,713 | 153,629 | |||
CVS Caremark | 131,700 | 6,125,368 | |||
Greggs | 29,746 | 229,130 | |||
Kimberly-Clark | 3,200 | 274,304 | |||
† | Kraft Foods Class A | 109,100 | 4,933,502 | ||
Mondelez International Class A | 143,700 | 3,720,393 | |||
* | Safeway | 255,800 | 4,376,738 | ||
TESCO | 46,776 | 243,629 | |||
25,297,033 | |||||
Diversified REITs – 0.54% | |||||
CapLease | 26,200 | 122,616 | |||
Kenedix Realty Investment | 200 | 663,634 | |||
Lexington Realty Trust | 149,200 | 1,430,828 | |||
2,217,078 | |||||
Energy – 7.29% | |||||
Chevron | 50,300 | 5,316,207 | |||
CNOOC | 101,000 | 216,069 | |||
ConocoPhillips | 99,500 | 5,665,530 | |||
Halliburton | 183,300 | 6,113,056 |
13
Statement of net assets
Delaware Dividend Income Fund
Number of shares | Value | ||||
Common Stock (continued) | |||||
Energy (continued) | |||||
Marathon Oil | 193,000 | $ | 5,954,050 | ||
Occidental Petroleum | 70,800 | 5,324,868 | |||
* | Phillips 66 | 12,150 | 636,296 | ||
Subsea 7 | 10,339 | 236,350 | |||
Total | 5,930 | 296,729 | |||
Transocean | 4,077 | 188,357 | |||
29,947,512 | |||||
Financials – 6.66% | |||||
Allstate | 149,200 | 6,039,616 | |||
AXA | 14,446 | 237,383 | |||
Bank of New York Mellon | 269,100 | 6,442,254 | |||
Home Loan Servicing Solution | 75,105 | 1,468,303 | |||
Marsh & McLennan | 170,700 | 6,012,054 | |||
Mitsubishi UFJ Financial Group | 59,400 | 271,687 | |||
Nordea Bank | 27,802 | 254,491 | |||
Standard Chartered | 8,689 | 202,545 | |||
Travelers | 91,000 | 6,444,620 | |||
27,372,953 | |||||
Healthcare – 8.78% | |||||
† | Alliance HealthCare Services | 29,989 | 37,186 | ||
Baxter International | 100,300 | 6,646,880 | |||
Cardinal Health | 125,100 | 5,060,295 | |||
* | Johnson & Johnson | 82,100 | 5,724,833 | ||
Meda Class A | 7,432 | 76,520 | |||
Merck | 138,200 | 6,122,260 | |||
Novartis | 4,537 | 280,778 | |||
Pfizer | 247,538 | 6,193,401 | |||
Quest Diagnostics | 90,500 | 5,229,090 | |||
Sanofi | 3,497 | 312,267 | |||
Teva Pharmaceutical Industries ADR | 9,813 | 395,955 | |||
36,079,465 | |||||
Healthcare REITs – 0.38% | |||||
HCP | 11,915 | 536,771 | |||
Omega Healthcare Investors | 11,800 | 270,456 | |||
Ventas | 11,700 | 744,705 | |||
1,551,932 |
14
Number of shares | Value | ||||
Common Stock (continued) | |||||
Hotel REITs – 0.48% | |||||
Ashford Hospitality Trust | 64,200 | $ | 581,010 | ||
Host Hotels & Resorts | 33,500 | 492,115 | |||
Millennium & Copthorne Hotels | 117,372 | 914,823 | |||
1,987,948 | |||||
Industrial REIT – 0.15% | |||||
EastGroup Properties | 12,100 | 632,588 | |||
632,588 | |||||
Industrials – 4.66% | |||||
Alstom | 4,397 | 160,033 | |||
Cie de Saint-Gobain | 2,502 | 99,832 | |||
Copa Holdings Class A | 2,074 | 196,698 | |||
† | Delta Air Lines | 123 | 1,230 | ||
Deutsche Post | 9,992 | 207,402 | |||
East Japan Railway | 3,746 | 245,870 | |||
† | Flextronics International | 19,100 | 110,589 | ||
ITOCHU | 21,689 | 216,824 | |||
Koninklijke Philips Electronics | 7,846 | 202,654 | |||
Northrop Grumman | 92,800 | 6,189,760 | |||
Raytheon | 98,700 | 5,638,731 | |||
Teleperformance | 11,451 | 398,526 | |||
Waste Management | 168,200 | 5,478,274 | |||
19,146,423 | |||||
Information Technology – 5.06% | |||||
† | CGI Group Class A | 15,347 | 352,254 | ||
Cisco Systems | 289,500 | 5,474,445 | |||
Intel | 217,000 | 4,246,690 | |||
Motorola Solutions | 113,142 | 6,160,582 | |||
Xerox | 672,500 | 4,579,725 | |||
20,813,696 | |||||
Mall REITs – 0.74% | |||||
CBL & Associates Properties | 12,300 | 276,873 | |||
General Growth Properties | 58,100 | 1,125,397 | |||
Simon Property Group | 10,763 | 1,637,375 | |||
3,039,645 | |||||
Manufactured Housing REIT – 0.12% | |||||
Sun Communities | 12,800 | 494,080 | |||
494,080 |
15
Statement of net assets
Delaware Dividend Income Fund
Number of shares | Value | ||||
Common Stock (continued) | |||||
Materials – 1.48% | |||||
† | AuRico Gold | 27,593 | $ | 218,055 | |
duPont (E.I.) deNemours | 113,500 | 4,896,390 | |||
Lafarge | 2,121 | 123,221 | |||
Rexam | 38,393 | 269,227 | |||
Rio Tinto | 3,902 | 193,387 | |||
Yamana Gold | 19,392 | 365,448 | |||
6,065,728 | |||||
Media – 0.23% | |||||
Cablevision Systems Class A | 69,700 | 964,648 | |||
964,648 | |||||
Mixed REITs – 0.44% | |||||
Liberty Property Trust | 39,400 | 1,372,302 | |||
PS Business Parks | 6,500 | 419,185 | |||
1,791,487 | |||||
Multifamily REITs – 0.75% | |||||
Apartment Investment & Management | 35,565 | 891,615 | |||
Camden Property Trust | 7,000 | 459,900 | |||
Colonial Properties Trust | 13,600 | 277,440 | |||
Education Realty Trust | 95,200 | 981,512 | |||
Equity Residential | 8,800 | 488,488 | |||
3,098,955 | |||||
Office REITs – 0.43% | |||||
Corporate Office Properties Trust | 16,500 | 407,220 | |||
* | Government Properties Income Trust | 34,400 | 792,920 | ||
Parkway Properties | 41,543 | 558,338 | |||
1,758,478 | |||||
Retail – 0.15% | |||||
Wal-Mart Stores | 8,500 | 612,170 | |||
612,170 | |||||
Self-Storage REIT – 0.14% | |||||
Extra Space Storage | 16,800 | 590,520 | |||
590,520 | |||||
Shopping Center REITs – 0.90% | |||||
* | First Capital Realty | 45,772 | 850,147 | ||
Kimco Realty | 39,100 | 753,066 | |||
Lippo Malls Indonesia Retail Trust | 1,404,700 | 540,889 |
16
Number of shares | Value | ||||
Common Stock (continued) | |||||
Shopping Center REITs (continued) | |||||
Ramco-Gershenson Properties Trust | 43,300 | $ | 579,354 | ||
Westfield Group | 88,400 | 961,381 | |||
3,684,837 | |||||
Single Tenant REIT – 0.37% | |||||
National Retail Properties | 50,000 | 1,536,000 | |||
1,536,000 | |||||
Telecommunications – 4.08% | |||||
AT&T | 162,400 | 5,542,712 | |||
=† | Century Communications | 1,625,000 | 0 | ||
CenturyLink | 65,200 | 2,532,368 | |||
† | GeoEye | 2,450 | 74,872 | ||
KDDI | 2,000 | 148,013 | |||
Mobile TeleSystems ADR | 8,138 | 141,845 | |||
Telstra | 200,433 | 901,617 | |||
Verizon Communications | 138,800 | 6,123,857 | |||
Vivendi | 33,547 | 720,760 | |||
Vodafone Group | 49,249 | 127,150 | |||
* | Windstream | 54,400 | 455,872 | ||
16,769,066 | |||||
Utilities – 1.91% | |||||
Duke Energy Corp | 31,466 | 2,008,160 | |||
Edison International | 124,000 | 5,639,520 | |||
† | GenOn Energy | 1,270 | 3,239 | ||
* | National Grid | 18,562 | 209,654 | ||
7,860,573 | |||||
Total Common Stock (cost $203,299,676) | 231,792,484 | ||||
Convertible Preferred Stock – 2.76% | |||||
Aspen Insurance Holdings 5.625% | |||||
exercise price $29.28, expiration date 12/31/49 | 22,227 | 1,316,256 | |||
# | Chesapeake Energy 144A 5.75% | ||||
exercise price $27.90, expiration date 12/31/49 | 473 | 420,970 | |||
El Paso Energy Capital Trust I 4.75% | |||||
exercise price $34.49, expiration date 3/31/28 | 39,900 | 2,184,923 | |||
HealthSouth 6.50% exercise price $30.50, | |||||
expiration date 12/31/49 | 1,753 | 1,834,515 |
17
Statement of net assets
Delaware Dividend Income Fund
Number of shares | Value | |||||
Convertible Preferred Stock (continued) | ||||||
Huntington Bancshares 8.50% | ||||||
exercise price $11.95, expiration date 12/31/49 | 625 | $ | 774,938 | |||
MetLife 5.00% exercise price $44.28, | ||||||
expiration date 9/4/13 | 25,620 | 1,142,396 | ||||
PPL 9.50% exercise price $28.80, | ||||||
expiration date 7/1/13 | 27,300 | 1,484,847 | ||||
SandRidge Energy 8.50% exercise price $8.01, | ||||||
expiration date 12/31/49 | 4,290 | 431,960 | ||||
Wells Fargo 7.50% exercise price $156.71, | ||||||
expiration date 12/31/49 | 1,411 | 1,743,996 | ||||
Total Convertible Preferred Stock (cost $10,665,937) | 11,334,801 | |||||
Principal amount | ||||||
Commercial Mortgage-Backed Securities – 0.64% | ||||||
Bank of America Commercial Mortgage Trust | ||||||
Series 2006-4 A4 5.634% 7/10/46 | $ | 1,000,000 | 1,148,975 | |||
•# | DBUBS Mortgage Trust Series 2011-LC1A C 144A | |||||
5.728% 11/10/46 | 250,000 | 289,967 | ||||
• | Morgan Stanley Capital I Series 2007-T27 A4 | |||||
5.82% 6/11/42 | 1,000,000 | 1,190,268 | ||||
Total Commercial Mortgage-Backed Securities | ||||||
(cost $2,255,156) | 2,629,210 | |||||
Convertible Bonds – 11.54% | ||||||
Basic Industry – 0.16% | ||||||
Steel Dynamics 5.125% exercise price $17.32, | ||||||
expiration date 6/15/14 | 629,000 | 671,851 | ||||
671,851 | ||||||
Capital Goods – 1.51% | ||||||
AAR | ||||||
1.75% exercise price $28.62, | ||||||
expiration date 1/1/26 | 926,000 | 930,630 | ||||
#144A 1.75% exercise price $28.62, | ||||||
expiration date 1/1/26 | 1,150,000 | 1,155,750 | ||||
L-3 Communications Holdings 3.00% | ||||||
exercise price $91.21, expiration date 8/1/35 | 1,570,000 | 1,585,700 | ||||
#Owens-Brockway Glass Container 144A 3.00% | ||||||
exercise price $47.47, expiration date 5/28/15 | 2,554,000 | 2,534,845 | ||||
6,206,925 |
18
Principal amount | Value | |||||
Convertible Bonds (continued) | ||||||
Communications – 1.45% | ||||||
# | Alaska Communications Systems Group | |||||
144A 6.25% exercise price $10.28, | ||||||
expiration date 4/27/18 | $ | 2,400,000 | $ | 1,626,000 | ||
# | Clearwire Communications 144A 8.25% | |||||
exercise price $7.08, expiration date 11/30/40 | 754,000 | 727,610 | ||||
Leap Wireless International 4.50% | ||||||
exercise price $93.21, expiration date 7/15/14 | 1,709,000 | 1,628,890 | ||||
Rovi 2.625% exercise price $47.36, | ||||||
expiration date 2/10/40 | 714,000 | 712,215 | ||||
SBA Communications 4.00% exercise price $30.38, | ||||||
expiration date 7/22/14 | 546,000 | 1,260,919 | ||||
5,955,634 | ||||||
Consumer Cyclical – 1.14% | ||||||
ArvinMeritor 4.00% exercise price $26.73, | ||||||
expiration date 2/15/27 | 2,433,000 | 1,806,502 | ||||
# | Iconix Brand Group 144A 2.50% | |||||
exercise price $30.75, expiration date 5/31/16 | 1,245,000 | 1,261,340 | ||||
International Game Technology 3.25% | ||||||
exercise price $19.97, expiration date 5/1/14 | 996,000 | 1,037,708 | ||||
# | Titan Machinery 144A 3.75% | |||||
exercise price $43.17, expiration date 4/30/19 | 613,000 | 559,746 | ||||
4,665,296 | ||||||
Consumer Non-Cyclical – 1.98% | ||||||
* | Alere 3.00% exercise price $43.98, | |||||
expiration date 5/15/16 | 1,153,000 | 1,086,703 | ||||
Dendreon 2.875% exercise price $51.24, | ||||||
expiration date 1/13/16 | 875,000 | 591,172 | ||||
# | Illumina 144A 0.25% exercise price $83.55, | |||||
expiration date 3/11/16 | 1,030,000 | 989,444 | ||||
LifePoint Hospitals 3.50% exercise price $51.79, | ||||||
expiration date 5/14/14 | 1,000,000 | 1,028,750 | ||||
Mylan 3.75% exercise price $13.32, | ||||||
expiration date 9/10/15 | 1,012,000 | 2,135,952 | ||||
NuVasive | ||||||
2.25% exercise price $44.74, | ||||||
expiration date 3/15/13 | 55,000 | 55,069 | ||||
2.75% exercise price $42.13, | ||||||
expiration date 6/30/17 | 1,752,000 | 1,503,434 |
19
Statement of net assets
Delaware Dividend Income Fund
Principal amount | Value | |||||
Convertible Bonds (continued) | ||||||
Consumer Non-Cyclical (continued) | ||||||
# | WellPoint 144A 2.75% exercise price $75.57, | |||||
expiration date 10/15/42 | $ | 736,000 | $ | 766,820 | ||
8,157,344 | ||||||
Energy – 0.52% | ||||||
* | Chesapeake Energy 2.50% exercise price $51.14, | |||||
expiration date 5/15/37 | 683,000 | 612,993 | ||||
Helix Energy Solutions Group 3.25% | ||||||
exercise price $25.02, expiration date 3/12/32 | 1,387,000 | 1,543,037 | ||||
2,156,030 | ||||||
Financials – 1.21% | ||||||
Ares Capital 5.75% exercise price $19.13, | ||||||
expiration date 2/1/16 | 1,558,000 | 1,681,666 | ||||
BGC Partners 4.50% exercise price $9.84, | ||||||
expiration date 7/13/16 | 1,378,000 | 1,255,703 | ||||
PHH 4.00% exercise price $25.80, | ||||||
expiration date 9/1/14 | 1,814,000 | 2,023,744 | ||||
4,961,113 | ||||||
Industrials – 0.30% | ||||||
Φ | General Cable 4.50% exercise price $36.75, | |||||
expiration date 11/15/29 | 1,184,000 | 1,249,120 | ||||
1,249,120 | ||||||
Services – 1.00% | ||||||
Live Nation Entertainment 2.875% | ||||||
exercise price $27.14, expiration date 7/14/27 | 2,548,000 | 2,551,185 | ||||
MGM Resorts International 4.25% | ||||||
exercise price $18.58, expiration date 4/10/15 | 1,507,000 | 1,538,082 | ||||
4,089,267 | ||||||
Technology – 2.27% | ||||||
Advanced Micro Devices | ||||||
6.00% exercise price $28.08, | ||||||
expiration date 4/30/15 | 962,000 | 892,255 | ||||
#144A 6.00% exercise price $28.08, | ||||||
expiration date 4/30/15 | 660,000 | 612,150 | ||||
Alcatel-Lucent USA 2.875% exercise price $15.35, | ||||||
expiration date 6/15/25 | 1,486,000 | 1,472,998 | ||||
# | Ciena 144A 3.75% exercise price $20.17, | |||||
expiration date 10/15/18 | 1,141,000 | 1,262,944 |
20
Principal amount | Value | |||||
Convertible Bonds (continued) | ||||||
Technology (continued) | ||||||
Φ | Hologic 2.00% exercise price $31.17, | |||||
expiration date 2/27/42 | $ | 1,168,000 | $ | 1,132,230 | ||
Linear Technology 3.00% exercise price $42.07 | ||||||
expiration date 5/1/27 | 1,912,000 | 1,988,479 | ||||
* | SanDisk 1.50% exercise price $52.37 | |||||
expiration date 8/11/17 | 871,000 | 973,343 | ||||
VeriSign 3.25% exercise price $34.37, | ||||||
expiration date 8/15/37 | 856,000 | 997,775 | ||||
9,332,174 | ||||||
Total Convertible Bonds (cost $47,197,208) | 47,444,754 | |||||
Corporate Bonds – 20.15% | ||||||
Automotive – 0.73% | ||||||
American Axle & Manufacturing | ||||||
7.75% 11/15/19 | 300,000 | 331,500 | ||||
7.875% 3/1/17 | 97,000 | 100,638 | ||||
* | ArvinMeritor 8.125% 9/15/15 | 420,000 | 447,300 | |||
Chrysler Group 8.25% 6/15/21 | 885,000 | 979,031 | ||||
Ford Motor Credit 12.00% 5/15/15 | 170,000 | 209,950 | ||||
# | International Automotive Components Group 144A | |||||
9.125% 6/1/18 | 407,000 | 380,545 | ||||
# | Jaguar Land Rover 144A 8.125% 5/15/21 | 490,000 | 539,000 | |||
2,987,964 | ||||||
Banking – 0.43% | ||||||
•# | HBOS Capital Funding 144A 6.071% 6/29/49 | 982,000 | 810,150 | |||
• | Regions Financial Trust II 6.625% 5/15/47 | 942,000 | 947,715 | |||
1,757,865 | ||||||
Basic Industry – 2.88% | ||||||
* | AK Steel 7.625% 5/15/20 | 248,000 | 207,700 | |||
# | APERAM 144A 7.75% 4/1/18 | 275,000 | 236,500 | |||
* | ArcelorMittal 6.125% 6/1/18 | 411,000 | 410,750 | |||
# | Cemex Espana Luxembourg 144A 9.25% 5/12/20 | 485,000 | 520,163 | |||
# | Essar Steel Algoma 144A 9.375% 3/15/15 | 232,000 | 213,440 | |||
# | FMG Resources August 2006 144A | |||||
6.875% 2/1/18 | 252,000 | 249,165 | ||||
*6.875% 4/1/22 | 213,000 | 208,474 | ||||
# | HD Supply 144A 11.00% 4/15/20 | 402,000 | 466,320 | |||
Headwaters 7.625% 4/1/19 | 447,000 | 472,703 |
21
Statement of net assets
Delaware Dividend Income Fund
Principal amount | Value | |||||
Corporate Bonds (continued) | ||||||
Basic Industry (continued) | ||||||
Immucor 11.125% 8/15/19 | $ | 392,000 | $ | 441,980 | ||
# | Ineos Group Holdings 144A 8.50% 2/15/16 | 935,000 | 920,974 | |||
# | Inmet Mining 144A 8.75% 6/1/20 | 431,000 | 467,635 | |||
# | JMC Steel Group 144A 8.25% 3/15/18 | 474,000 | 490,590 | |||
# | Kinove German Bondco 144A 9.625% 6/15/18 | 310,000 | 337,125 | |||
# | Longview Fibre Paper & Packaging 144A | |||||
8.00% 6/1/16 | 474,000 | 498,885 | ||||
LyondellBasell Industries 6.00% 11/15/21 | 240,000 | 287,700 | ||||
# | MacDermid 144A 9.50% 4/15/17 | 547,000 | 571,614 | |||
# | Masonite International 144A 8.25% 4/15/21 | 523,000 | 562,225 | |||
Millar Western Forest Products 8.50% 4/1/21 | 329,000 | 289,520 | ||||
# | Murray Energy 144A 10.25% 10/15/15 | 349,000 | 333,295 | |||
# | New Gold 144A 6.25% 11/15/22 | 436,000 | 447,445 | |||
Norcraft 10.50% 12/15/15 | 265,000 | 266,325 | ||||
Nortek 8.50% 4/15/21 | 494,000 | 539,695 | ||||
# | Perstorp Holding 144A 8.75% 5/15/17 | 435,000 | 439,350 | |||
# | Ply Gem Industries 144A 9.375% 4/15/17 | 208,000 | 219,960 | |||
Rockwood Specialties Group 4.625% 10/15/20 | 411,000 | 421,789 | ||||
# | Ryerson 144A | |||||
9.00% 10/15/17 | 281,000 | 279,244 | ||||
11.25% 10/15/18 | 116,000 | 110,635 | ||||
# | Sappi Papier Holding 144A 8.375% 6/15/19 | 455,000 | 484,006 | |||
# | Taminco Global Chemical 144A 9.75% 3/31/20 | 397,000 | 430,745 | |||
11,825,952 | ||||||
Capital Goods – 0.83% | ||||||
Berry Plastics | ||||||
9.75% 1/15/21 | 244,000 | 278,770 | ||||
10.25% 3/1/16 | 305,000 | 316,819 | ||||
# | Consolidated Container 144A 10.125% 7/15/20 | 431,000 | 461,170 | |||
Kratos Defense & Security Solutions 10.00% 6/1/17 | 411,000 | 450,045 | ||||
Mueller Water Products 7.375% 6/1/17 | 232,000 | 240,700 | ||||
Reynolds Group Issuer | ||||||
8.25% 2/15/21 | 100,000 | 99,750 | ||||
9.875% 8/15/19 | 665,000 | 708,225 | ||||
# | Sealed Air 144A | |||||
8.125% 9/15/19 | 102,000 | 113,730 | ||||
8.375% 9/15/21 | 286,000 | 323,180 |
22
Principal amount | Value | |||||
Corporate Bonds (continued) | ||||||
Capital Goods (continued) | ||||||
# | Spectrum Brands Escrow 144A | |||||
6.375% 11/15/20 | $ | 87,000 | $ | 90,480 | ||
6.625% 11/15/22 | 319,000 | 334,950 | ||||
3,417,819 | ||||||
Communications – 1.82% | ||||||
# | Clearwire Communications 144A 14.75% 12/1/16 | 208,000 | 260,000 | |||
# | Columbus International 144A 11.50% 11/20/14 | 570,000 | 638,399 | |||
Cricket Communications 7.75% 10/15/20 | 233,000 | 241,738 | ||||
# | Digicel Group 144A | |||||
8.25% 9/30/20 | 200,000 | 213,500 | ||||
10.50% 4/15/18 | 430,000 | 477,300 | ||||
Hughes Satellite Systems 7.625% 6/15/21 | 407,000 | 455,840 | ||||
Intelsat Bermuda | ||||||
11.25% 2/4/17 | 644,000 | 685,054 | ||||
PIK 11.50% 2/4/17 | 436,469 | 464,839 | ||||
Intelsat Jackson Holdings | ||||||
7.25% 10/15/20 | 12,000 | 12,855 | ||||
#144A 7.25% 10/15/20 | 315,000 | 337,050 | ||||
Level 3 Communications | ||||||
#144A 8.875% 6/1/19 | 174,000 | 183,353 | ||||
11.875% 2/1/19 | 426,000 | 487,770 | ||||
# | Level 3 Financing 144A 7.00% 6/1/20 | 223,000 | 227,739 | |||
Satmex Escrow 9.50% 5/15/17 | 252,000 | 269,010 | ||||
Sprint Capital 8.75% 3/15/32 | 251,000 | 299,318 | ||||
Sprint Nextel | ||||||
8.375% 8/15/17 | 378,000 | 440,370 | ||||
9.125% 3/1/17 | 465,000 | 548,700 | ||||
# | UPCB Finance VI 144A 6.875% 1/15/22 | 150,000 | 162,750 | |||
# | Wind Acquisition Finance 144A | |||||
7.25% 2/15/18 | 200,000 | 199,000 | ||||
11.75% 7/15/17 | 225,000 | 231,188 | ||||
Windstream 7.50% 6/1/22 | 242,000 | 252,285 | ||||
Zayo Group 10.125% 7/1/20 | 363,000 | 408,375 | ||||
7,496,433 | ||||||
Consumer Cyclical – 1.54% | ||||||
Burlington Coat Factory Warehouse 10.00% 2/15/19 | 469,000 | 515,900 | ||||
# | CDR DB Sub 144A 7.75% 10/15/20 | 513,000 | 507,870 | |||
CKE Restaurants 11.375% 7/15/18 | 136,000 | 157,930 |
23
Statement of net assets
Delaware Dividend Income Fund
Principal amount | Value | |||||
Corporate Bonds (continued) | ||||||
Consumer Cyclical (continued) | ||||||
Dave & Buster’s 11.00% 6/1/18 | $ | 365,000 | $ | 409,713 | ||
#^ | Dave & Buster’s Entertainment 144A 10.004% 2/15/16 | 571,000 | 428,964 | |||
DineEquity 9.50% 10/30/18 | 605,000 | 687,430 | ||||
# | Landry’s 144A 9.375% 5/1/20 | 450,000 | 479,250 | |||
Michaels Stores 11.375% 11/1/16 | 140,000 | 146,825 | ||||
# | Pantry 144A 8.375% 8/1/20 | 450,000 | 466,875 | |||
# | Party City Holdings 144A 8.875% 8/1/20 | 489,000 | 520,785 | |||
Quiksilver 6.875% 4/15/15 | 458,000 | 451,703 | ||||
Rite Aid 9.25% 3/15/20 | 436,000 | 446,900 | ||||
Sealy Mattress 8.25% 6/15/14 | 445,000 | 447,229 | ||||
Tops Holdings 10.125% 10/15/15 | 404,000 | 426,978 | ||||
# | Wok Acquisition 144A 10.25% 6/30/20 | 218,000 | 230,535 | |||
6,324,887 | ||||||
Consumer Non-Cyclical – 0.64% | ||||||
# | Alphabet Holding 144A PIK 7.75% 11/1/17 | 165,000 | 168,713 | |||
Constellation Brands 4.625% 3/1/23 | 218,000 | 225,630 | ||||
Dean Foods 7.00% 6/1/16 | 233,000 | 251,058 | ||||
Del Monte 7.625% 2/15/19 | 447,000 | 461,527 | ||||
# | JBS USA 144A 8.25% 2/1/20 | 407,000 | 424,298 | |||
NBTY 9.00% 10/1/18 | 570,000 | 644,099 | ||||
Smithfield Foods 6.625% 8/15/22 | 208,000 | 221,000 | ||||
Visant 10.00% 10/1/17 | 258,000 | 225,750 | ||||
2,622,075 | ||||||
Energy – 2.59% | ||||||
American Petroleum Tankers Parent 10.25% 5/1/15 | 294,000 | 309,803 | ||||
Antero Resources Finance 9.375% 12/1/17 | 407,000 | 449,735 | ||||
Calumet Specialty Products Partners 9.375% 5/1/19 | 653,000 | 706,872 | ||||
Chaparral Energy | ||||||
#144A 7.625% 11/15/22 | 203,000 | 207,568 | ||||
8.25% 9/1/21 | 484,000 | 522,719 | ||||
Chesapeake Energy | ||||||
6.125% 2/15/21 | 82,000 | 83,435 | ||||
6.625% 8/15/20 | 358,000 | 376,795 | ||||
Comstock Resources 7.75% 4/1/19 | 240,000 | 243,000 | ||||
Copano Energy | ||||||
7.125% 4/1/21 | 160,000 | 169,400 | ||||
7.75% 6/1/18 | 213,000 | 224,981 |
24
Principal amount | Value | |||||
Corporate Bonds (continued) | ||||||
Energy (continued) | ||||||
Crosstex Energy | ||||||
#144A 7.125% 6/1/22 | $ | 189,000 | $ | 193,725 | ||
8.875% 2/15/18 | 311,000 | 338,990 | ||||
# | Drill Rigs Holdings 144A 6.50% 10/1/17 | 450,000 | 448,875 | |||
# | Halcon Resources 144A 8.875% 5/15/21 | 286,000 | 296,725 | |||
# | Hercules Offshore 144A 10.50% 10/15/17 | 631,000 | 673,592 | |||
# | Hilcorp Energy I 144A 8.00% 2/15/20 | 373,000 | 410,300 | |||
Holly 9.875% 6/15/17 | 228,000 | 249,945 | ||||
# | Holly Energy Partners 144A 6.50% 3/1/20 | 121,000 | 127,655 | |||
Kodiak Oil & Gas 8.125% 12/1/19 | 416,000 | 455,520 | ||||
Laredo Petroleum | ||||||
7.375% 5/1/22 | 111,000 | 120,713 | ||||
9.50% 2/15/19 | 494,000 | 555,749 | ||||
Linn Energy | ||||||
6.50% 5/15/19 | 213,000 | 217,260 | ||||
8.625% 4/15/20 | 267,000 | 293,033 | ||||
Oasis Petroleum 7.25% 2/1/19 | 368,000 | 393,760 | ||||
Offshore Group Investments 11.50% 8/1/15 | 184,000 | 202,860 | ||||
# | PDC Energy 144A 7.75% 10/15/22 | 208,000 | 211,120 | |||
Pioneer Drilling 9.875% 3/15/18 | 525,000 | 570,937 | ||||
Quicksilver Resources 9.125% 8/15/19 | 242,000 | 221,430 | ||||
Range Resources 5.00% 8/15/22 | 421,000 | 440,998 | ||||
# | Samson Investment 144A 9.75% 2/15/20 | 407,000 | 432,438 | |||
SandRidge Energy 8.125% 10/15/22 | 470,000 | 505,250 | ||||
10,655,183 | ||||||
Financials – 0.57% | ||||||
ETrade Financial 6.375% 11/15/19 | 445,000 | 451,119 | ||||
•# | ILFC E-Capital Trust II 144A 6.25% 12/21/65 | 593,000 | 483,295 | |||
International Lease Finance 5.875% 4/1/19 | 475,000 | 491,933 | ||||
# | Mattamy Group 144A 6.50% 11/15/20 | 445,000 | 447,225 | |||
# | Nuveen Investments 144A 9.50% 10/15/20 | 450,000 | 456,750 | |||
2,330,322 | ||||||
Healthcare – 1.41% | ||||||
Air Medical Group Holdings 9.25% 11/1/18 | 445,000 | 482,825 | ||||
Alere | ||||||
#144A 7.25% 7/1/18 | 230,000 | 231,150 | ||||
9.00% 5/15/16 | 363,000 | 382,965 | ||||
# | Biomet 144A 6.50% 10/1/20 | 445,000 | 442,775 |
25
Statement of net assets
Delaware Dividend Income Fund
Principal amount | Value | |||||
Corporate Bonds (continued) | ||||||
Healthcare (continued) | ||||||
# | CDRT Holding 144A PIK 9.25% 10/1/17 | $ | 218,000 | $ | 219,090 | |
Community Health Systems | ||||||
7.125% 7/15/20 | 247,000 | 261,511 | ||||
8.00% 11/15/19 | 378,000 | 413,438 | ||||
HealthSouth 7.75% 9/15/22 | 84,000 | 92,505 | ||||
# | Hologic 144A 6.25% 8/1/20 | 440,000 | 469,700 | |||
# | Kinetic Concepts 144A | |||||
10.50% 11/1/18 | 368,000 | 384,560 | ||||
12.50% 11/1/19 | 300,000 | 285,000 | ||||
# | Multiplan 144A 9.875% 9/1/18 | 393,000 | 437,213 | |||
Radnet Management 10.375% 4/1/18 | 297,000 | 302,198 | ||||
# | Sky Growth Acquisition 144A 7.375% 10/15/20 | 673,000 | 667,110 | |||
# | STHI Holding 144A 8.00% 3/15/18 | 421,000 | 459,943 | |||
# | VPI Escrow 144A 6.375% 10/15/20 | 258,000 | 275,415 | |||
5,807,398 | ||||||
Insurance – 0.83% | ||||||
• | American International Group 8.175% 5/15/58 | 630,000 | 790,650 | |||
# | Hub International 144A 8.125% 10/15/18 | 513,000 | 534,803 | |||
• | ING Groep 5.775% 12/29/49 | 1,031,000 | 970,428 | |||
•# | Liberty Mutual Group 144A 7.00% 3/15/37 | 443,000 | 440,785 | |||
• | XL Group 6.50% 12/29/49 | 758,000 | 690,538 | |||
3,427,204 | ||||||
Media – 1.88% | ||||||
AMC Networks 7.75% 7/15/21 | 237,000 | 270,180 | ||||
Cablevision Systems 8.00% 4/15/20 | 379,000 | 420,690 | ||||
CCO Holdings | ||||||
5.25% 9/30/22 | 445,000 | 450,563 | ||||
7.00% 1/15/19 | 44,000 | 47,850 | ||||
Clear Channel Communications 9.00% 3/1/21 | 922,000 | 818,274 | ||||
Clear Channel Worldwide Holdings | ||||||
7.625% 3/15/20 | 446,000 | 438,650 | ||||
DISH DBS 7.875% 9/1/19 | 281,000 | 333,688 | ||||
Entravision Communications 8.75% 8/1/17 | 253,000 | 275,138 | ||||
# | Griffey Intermediate 144A 7.00% 10/15/20 | 378,000 | 385,560 | |||
MDC Partners 11.00% 11/1/16 | 604,000 | 665,910 | ||||
# | Nara Cable Funding 144A 8.875% 12/1/18 | 400,000 | 381,000 | |||
# | Nexstar Broadcasting 144A 6.875% 11/15/20 | 329,000 | 332,290 | |||
# | Nielsen Finance 144A 4.50% 10/1/20 | 208,000 | 208,520 |
26
Principal amount | Value | |||||
Corporate Bonds (continued) | ||||||
Media (continued) | ||||||
# | ONO Finance II 144A 10.875% 7/15/19 | $ | 560,000 | $ | 495,600 | |
# | Sinclair Television Group 144A 6.125% 10/1/22 | 440,000 | 460,900 | |||
# | Truven Health Analytics 144A 10.625% 6/1/20 | 179,000 | 192,425 | |||
# | Unitymedia Hessen 144A 5.50% 1/15/23 | 200,000 | 200,000 | |||
# | Univision Communications 144A 8.50% 5/15/21 | 755,000 | 781,424 | |||
# | UPC Holding 144A 9.875% 4/15/18 | 293,000 | 329,259 | |||
Virgin Media Finance 4.875% 2/15/22 | 220,000 | 227,150 | ||||
7,715,071 | ||||||
Service – 2.22% | ||||||
*# | Algeco Scotsman Global Finance 144A | |||||
8.50% 10/15/18 | 885,000 | 918,187 | ||||
# | Caesars Entertainment Operating 144A | |||||
8.50% 2/15/20 | 431,000 | 423,458 | ||||
Cardtronics 8.25% 9/1/18 | 106,000 | 118,720 | ||||
# | Carlson Wagonlit 144A 6.875% 6/15/19 | 425,000 | 446,250 | |||
# | CEVA Group 144A 8.375% 12/1/17 | 520,000 | 509,600 | |||
CityCenter Holdings PIK 10.75% 1/15/17 | 227,000 | 245,728 | ||||
# | H&E Equipment Services 144A 7.00% 9/1/22 | 387,000 | 410,220 | |||
Kansas City Southern de Mexico | ||||||
6.125% 6/15/21 | 223,000 | 251,990 | ||||
8.00% 2/1/18 | 235,000 | 260,850 | ||||
M/I Homes 8.625% 11/15/18 | 688,000 | 748,199 | ||||
Meritage Homes 7.00% 4/1/22 | 87,000 | 94,830 | ||||
MGM Resorts International 7.75% 3/15/22 | 213,000 | 225,248 | ||||
Monitronics International 9.125% 4/1/20 | 198,000 | 203,940 | ||||
NCL 9.50% 11/15/18 | 77,000 | 85,374 | ||||
PHH | ||||||
7.375% 9/1/19 | 237,000 | 258,330 | ||||
9.25% 3/1/16 | 223,000 | 260,631 | ||||
Pinnacle Entertainment | ||||||
7.75% 4/1/22 | 174,000 | 187,050 | ||||
8.75% 5/15/20 | 28,000 | 30,660 | ||||
RSC Equipment Rental 8.25% 2/1/21 | 392,000 | 441,000 | ||||
Seven Seas Cruises 9.125% 5/15/19 | 431,000 | 450,395 | ||||
Standard Pacific 10.75% 9/15/16 | 214,000 | 263,220 | ||||
Swift Services Holdings 10.00% 11/15/18 | 421,000 | 465,205 | ||||
# | Taylor Morrison Communities 144A 7.75% 4/15/20 | 446,000 | 470,530 | |||
# | United Air Lines 144A 12.00% 11/1/13 | 535,000 | 543,693 |
27
Statement of net assets
Delaware Dividend Income Fund
Principal amount | Value | |||||
Corporate Bonds (continued) | ||||||
Service (continued) | ||||||
UR Merger Sub | ||||||
#144A 5.75% 7/15/18 | $ | 82,000 | $ | 88,663 | ||
6.125% 6/15/23 | 82,000 | 84,460 | ||||
#144A 7.625% 4/15/22 | 116,000 | 128,905 | ||||
10.25% 11/15/19 | 20,000 | 23,300 | ||||
West 7.875% 1/15/19 | 465,000 | 473,138 | ||||
9,111,774 | ||||||
Technology – 1.39% | ||||||
Aspect Software 10.625% 5/15/17 | 147,000 | 135,240 | ||||
Avaya | ||||||
9.75% 11/1/15 | 77,000 | 61,408 | ||||
10.125% 11/1/15 | 378,000 | 302,400 | ||||
CDW | ||||||
8.50% 4/1/19 | 261,000 | 282,533 | ||||
12.535% 10/12/17 | 252,000 | 270,900 | ||||
# | Cequel Communications Escrow 1 144A | |||||
6.375% 9/15/20 | 194,000 | 200,305 | ||||
First Data 11.25% 3/31/16 | 897,000 | 890,272 | ||||
GXS Worldwide 9.75% 6/15/15 | 430,000 | 450,425 | ||||
iGate 9.00% 5/1/16 | 450,000 | 491,625 | ||||
Infor US 9.375% 4/1/19 | 639,000 | 715,680 | ||||
j2 Global 8.00% 8/1/20 | 680,000 | 703,800 | ||||
# | Legend Acquisition Sub 144A 10.75% 8/15/20 | 358,000 | 341,890 | |||
MagnaChip Semiconductor 10.50% 4/15/18 | 390,000 | 439,725 | ||||
# | Viasystems 144A 7.875% 5/1/19 | 466,000 | 455,515 | |||
5,741,718 | ||||||
Utilities – 0.39% | ||||||
AES | ||||||
7.375% 7/1/21 | 198,000 | 220,275 | ||||
8.00% 6/1/20 | 51,000 | 59,160 | ||||
Elwood Energy 8.159% 7/5/26 | 455,943 | 471,901 | ||||
GenOn Energy 9.875% 10/15/20 | 445,000 | 506,188 | ||||
• | Puget Sound Energy 6.974% 6/1/67 | 313,000 | 332,134 | |||
1,589,658 | ||||||
Total Corporate Bonds (cost $78,312,067) | 82,811,323 |
28
Principal amount | Value | |||||
Leveraged Non-Recourse Security – 0.00% | ||||||
t@# | JPMorgan Fixed Income Pass Through Trust Series | |||||
2007-B 144A 0.00% 1/15/87 | $ | 1,300,000 | $ | 0 | ||
Total Leveraged Non-Recourse Securities | ||||||
(cost $1,105,000) | 0 | |||||
«Senior Secured Loans – 1.01% | ||||||
BJ’S Wholesale Club 9.75% 3/29/19 | 90,000 | 92,835 | ||||
Brock Holdings III 10.00% 2/15/18 | 160,000 | 161,600 | ||||
Dynegy Power Tranche 1st Lien 9.25% 8/5/16 | 163,986 | 171,612 | ||||
Equipower Resources Tranche 2nd Lien | ||||||
10.00% 5/23/19 | 180,000 | 184,350 | ||||
§@ | GenCorp 9.00% 7/22/13 | 490,000 | 490,000 | |||
§@ | Silver II Acquisition 8.00% 9/25/20 | 745,000 | 745,000 | |||
Smart & Final 10.50% 11/8/20 | 480,000 | 470,400 | ||||
Supervalu Tranche B 8.00% 8/1/18 | 209,475 | 211,773 | ||||
§@ | Tempur-Pedic International 4.75% 9/27/13 | 490,000 | 490,000 | |||
§@ | TPC Group 8.25% 8/27/13 | 855,000 | 855,000 | |||
WideOpenWest Finance Tranche 1st Lien | ||||||
6.25% 7/17/18 | 284,288 | 288,058 | ||||
Total Senior Secured Loans (cost $4,116,588) | 4,160,628 | |||||
Number of shares | ||||||
Exchange-Traded Funds – 0.54% | ||||||
† | iPATH S&P 500 VIX Short-Term Futures | 18,500 | 547,970 | |||
† | SPDR Gold Trust | 10,200 | 1,693,710 | |||
Total Exchange-Traded Funds (cost $2,372,934) | 2,241,680 | |||||
Limited Partnerships – 0.79% | ||||||
Brookfield Infrastructure Partners | 25,000 | 849,250 | ||||
Enterprise Products Partners | 29,200 | 1,513,436 | ||||
† | Lehigh Gas Partners | 45,800 | 886,230 | |||
Total Limited Partnerships (cost $3,041,218) | 3,248,916 | |||||
Preferred Stock – 0.68% | ||||||
# | Ally Financial 144A 7.00% | 800 | 778,950 | |||
t†@=# | Auction Pass Through Trust Series 2007-6 | |||||
144A 0.00% | 100,000 | 0 | ||||
† | Freddie Mac 6.02% | 36,000 | 53,280 |
29
Statement of net assets
Delaware Dividend Income Fund
Number of shares | Value | |||||
Preferred Stock (continued) | ||||||
• | GMAC Capital Trust I 8.125% | 17,000 | $ | 442,850 | ||
Regions Financial 6.375% | 17,000 | 421,090 | ||||
SL Green Realty 7.625% | 14,213 | 360,015 | ||||
Vornado Realty 6.625% | 28,800 | 729,792 | ||||
Total Preferred Stock (cost $3,419,828) | 2,785,977 | |||||
Principal amount | ||||||
Short-Term Investments – 5.34% | ||||||
≠Discount Notes – 1.08% | ||||||
Federal Home Loan Bank | ||||||
0.10% 1/18/13 | $ | 441,194 | 441,160 | |||
0.10% 1/23/13 | 2,580,656 | 2,580,436 | ||||
0.13% 2/6/13 | 1,161,036 | 1,160,890 | ||||
0.135% 2/15/13 | 255,428 | 255,391 | ||||
4,437,877 | ||||||
Repurchase Agreements – 4.26% | ||||||
Bank of America 0.19%, dated 11/30/12, to be | ||||||
repurchased on 12/3/12, | ||||||
repurchase price $6,281,628 (collateralized | ||||||
by U.S. government obligations 0.00%-0.25% | ||||||
1/3/13-11/30/14; market value $6,407,159) | 6,281,528 | 6,281,528 | ||||
BNP Paribas 0.20%, dated 11/30/12, to be | ||||||
repurchased on 12/3/12, | ||||||
repurchase price $11,246,659 (collateralized | ||||||
by U.S. government obligations 0.25%-2.50% | ||||||
3/31/14-11/30/17; market value $11,479,944) | 11,246,472 | 11,246,472 | ||||
17,528,000 | ||||||
Total Short-Term Investments (cost $21,965,521) | 21,965,877 | |||||
Total Value of Securities Before Securities | ||||||
Lending Collateral – 99.84% (cost $377,751,133) | 410,415,650 |
30
Number of shares | Value | ||||||||
**Securities Lending Collateral – 0.17% | |||||||||
Investment Companies | |||||||||
Delaware Investments Collateral Fund No.1 | 697,228 | $ | 697,228 | ||||||
†@Mellon GSL Reinvestment Trust II | 704,271 | 0 | |||||||
Total Securities Lending Collateral (cost $1,401,499) | 697,228 | ||||||||
Total Value of Securities – 100.01% | |||||||||
(cost $379,152,632) | 411,112,878 | © | |||||||
Number of contracts | |||||||||
Option Written – (0.06%) | |||||||||
Call Option – (0.06%) | |||||||||
Coach, strike price $52.50, expires 12/22/12 (MSC) | (450 | ) | (252,000 | ) | |||||
Total Option Written (premium received ($146,999)) | (252,000 | ) | |||||||
**Obligation to Return Securities | |||||||||
Lending Collateral – (0.34%) | (1,401,499 | ) | |||||||
«Receivables and Other Assets | |||||||||
Net of Other Liabilities – 0.39% | 1,591,261 | ||||||||
Net Assets Applicable to 37,542,074 | |||||||||
Shares Outstanding – 100.00% | $ | 411,050,640 | |||||||
Net Asset Value – Delaware Dividend Income Fund | |||||||||
Class A ($203,818,712 / 18,624,842 Shares) | $10.94 | ||||||||
Net Asset Value – Delaware Dividend Income Fund | |||||||||
Class B ($16,874,231 / 1,540,535 Shares) | $10.95 | ||||||||
Net Asset Value – Delaware Dividend Income Fund | |||||||||
Class C ($156,757,987 / 14,306,297 Shares) | $10.96 | ||||||||
Net Asset Value – Delaware Dividend Income Fund | |||||||||
Class R ($3,151,025 / 287,957 Shares) | $10.94 | ||||||||
Net Asset Value – Delaware Dividend Income Fund | |||||||||
Institutional Class ($30,448,685 / 2,782,443 Shares) | $10.94 |
31
Statement of net assets
Delaware Dividend Income Fund
Components of Net Assets at November 30, 2012: | |||
Shares of beneficial interest (unlimited authorization – no par) | $ | 535,723,854 | |
Distributions in excess of net investment income | (138,633 | ) | |
Accumulated net realized loss on investments | (156,103,287 | ) | |
Net unrealized appreciation of investments and derivatives | 31,568,706 | ||
Total net assets | $ | 411,050,640 |
* | 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, 2012, the aggregate value of fair valued securities was $0, which represented 0.00% of the Fund’s net assets. See Note 1 in “Notes to financial statements.” |
• | Variable rate security. The rate shown is the rate as of November 30, 2012. Interest rates reset periodically. |
# | Security exempt from registration under Rule 144A of the Securities Act of 1933, as amended. At November 30, 2012, the aggregate value of Rule 144A securities was $48,626,106, which represented 11.83% of the Fund’s net assets. See Note 11 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, 2012. |
@ | Illiquid security. At November 30, 2012, the aggregate value of illiquid securities was $2,580,000 which represented 0.63% of the Fund’s net assets. See Note 11 in “Notes to financial statements.” |
^ | Zero coupon security. The rate shown is the yield at the time of purchase. |
t | 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, 2012. |
≠ | The rate shown is the effective yield at the time of purchase. |
§ | All or a portion of this holding is subject to unfunded loan commitments. See Note 7 in “Notes to financial statements.” |
32
** | See Note 10 in “Notes to financial statements” for additional information on securities lending collateral. |
© | Includes $1,365,901 of securities loaned. |
« | Includes foreign currency valued at $54,342 with a cost of $56,080 and $277,000 pledged as collateral for futures contracts. |
Net Asset Value and Offering Price per Share – | ||
Delaware Dividend Income Fund | ||
Net asset value Class A (A) | $ | 10.94 |
Sales charge (5.75% of offering price) (B) | 0.67 | |
Offering price | $ | 11.61 |
(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. |
The following foreign currency exchange contracts, futures contract and swap contracts were outstanding at November 30, 2012:1
Foreign Currency Exchange Contracts
Unrealized | ||||||||||||||||||
Appreciation | ||||||||||||||||||
Counterparty | Contracts to Receive (Deliver) | In Exchange For | Settlement Date | (Depreciation) | ||||||||||||||
MNB | EUR | 504,255 | USD | (655,956 | ) | 12/4/12 | $ | (118 | ) | |||||||||
MNB | EUR | 99,864 | USD | (130,063 | ) | 12/5/12 | (177 | ) | ||||||||||
MNB | GBP | 65,040 | USD | (104,161 | ) | 12/3/12 | 39 | |||||||||||
MNB | GBP | 42,511 | USD | (68,196 | ) | 12/4/12 | (90 | ) | ||||||||||
MNB | GBP | (19,658 | ) | USD | 31,441 | 12/5/12 | (53 | ) | ||||||||||
MNB | SGD | (163,213 | ) | USD | 133,355 | 12/3/12 | (361 | ) | ||||||||||
MNB | SGD | (109,422 | ) | USD | 89,580 | 12/4/12 | (66 | ) | ||||||||||
$ | (826 | ) |
Futures Contract
Unrealized | |||||||||
Appreciation | |||||||||
Contract to Buy | Notional Cost | Notional Value | Expiration Date | (Depreciation) | |||||
79 S&P 500 EMINI | $5,535,986 | $5,586,880 | 12/22/12 | $50,894 |
33
Statement of net assets
Delaware Dividend Income Fund
Swap Contracts |
Annual | Unrealized | ||||||||||||
Protection | Termination | Appreciation | |||||||||||
Counterparty | Swap Referenced Obligation | Notional Value | Payments | Date | (Depreciation) | ||||||||
Protection Purchased: | |||||||||||||
BCLY | CDX.NA.HY.19 | $ | 2,000,000 | 5.00% | 12/20/17 | $ | 380 | ||||||
GSC | CDX.NA.HY.19 | 5,500,000 | 5.00% | 12/20/17 | 7,710 | ||||||||
JPMC | CDX.NA.HY.19 | 9,000,000 | 5.00% | 12/20/17 | (199,305 | ) | |||||||
MSC | CDX.NA.HY.19 | 6,000,000 | 5.00% | 12/20/17 | 4,775 | ||||||||
Total | $ | (186,440 | ) |
The use of foreign currency exchange contracts, futures contract, 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 and foreign currency exchange contracts 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 9 in “Notes to financial statements.”
Summary of abbreviations:
ADR — American Depositary Receipts
BCLY — Barclays Bank
CDS — Credit Default Swap
EUR — European Monetary Unit
GBP — British Pound Sterling
GSC — Goldman Sachs Capital
JPMC — JPMorgan Chase Bank
MNB — Mellon National Bank
MSC — Morgan Stanley Capital
PIK — Pay-in-kind
REIT — Real Estate Investment Trust
SGD — Singapore Dollar
USD — United States Dollar
See accompanying notes, which are an integral part of the financial statements.
34
Statement of operations | |
Delaware Dividend Income Fund | Year Ended November 30, 2012 |
Investment Income: | ||||||||
Interest | $ | 9,699,822 | ||||||
Dividends | 8,409,309 | |||||||
Security lending income | 33,814 | |||||||
Foreign tax withheld | (42,746 | ) | $ | 18,100,199 | ||||
Expenses: | ||||||||
Management fees | 2,650,311 | |||||||
Distribution expenses – Class A | 599,058 | |||||||
Distribution expenses – Class B | 201,836 | |||||||
Distribution expenses – Class C | 1,571,706 | |||||||
Distribution expenses – Class R | 19,962 | |||||||
Dividend disbursing and transfer agent fees and expenses | 564,560 | |||||||
Accounting and administration expenses | 159,277 | |||||||
Reports and statements to shareholders | 77,195 | |||||||
Registration fees | 75,262 | |||||||
Legal fees | 55,096 | |||||||
Audit and taxes | 32,486 | |||||||
Custodian fees | 23,281 | |||||||
Trustees’ fees | 18,559 | |||||||
Dues and services | 11,897 | |||||||
Pricing fees | 10,902 | |||||||
Insurance fees | 7,479 | |||||||
Consulting fees | 3,534 | |||||||
Trustees’ expenses | 1,225 | 6,083,626 | ||||||
Less waived distribution expenses – Class A | (99,182 | ) | ||||||
Less waived distribution expenses – Class R | (3,327 | ) | ||||||
Less expense paid indirectly | (781 | ) | ||||||
Total operating expenses | 5,980,336 | |||||||
Net Investment Income | 12,119,863 |
36
Net Realized and Unrealized Gain (Loss): | |||
Net realized gain (loss) on: | |||
Investments | $ | 7,867,974 | |
Foreign currencies | (23,698 | ) | |
Foreign currency exchange contracts | (66,776 | ) | |
Futures contracts | 20,349 | ||
Options written | 538,384 | ||
Swap contracts | (2,111,785 | ) | |
Net realized gain | 6,224,448 | ||
Net change in unrealized appreciation (depreciation) of: | |||
Investments | 34,394,160 | ||
Foreign currencies | 9,974 | ||
Foreign currency exchange contracts | (442 | ) | |
Futures contracts | 50,894 | ||
Options written | (118,665 | ) | |
Swap contracts | (32,270 | ) | |
Net change in unrealized appreciation (depreciation) | 34,303,651 | ||
Net Realized and Unrealized Gain | 40,528,099 | ||
Net Increase in Net Assets Resulting from Operations | $ | 52,647,962 |
See accompanying notes, which are an integral part of the financial statements.
37
Statements of changes in net assets
Delaware Dividend Income Fund
Year Ended | |||||||
11/30/12 | 11/30/11 | ||||||
Increase (Decrease) in Net Assets from Operations: | |||||||
Net investment income | $ | 12,119,863 | $ | 13,014,566 | |||
Net realized gain | 6,224,448 | 11,499,439 | |||||
Net change in unrealized appreciation (depreciation) | 34,303,651 | (9,395,452 | ) | ||||
Net increase in net assets resulting from operations | 52,647,962 | 15,118,553 | |||||
Dividends and Distributions to Shareholders from: | |||||||
Net investment income: | |||||||
Class A | (6,418,029 | ) | (7,130,302 | ) | |||
Class B | (493,834 | ) | (727,678 | ) | |||
Class C | (3,896,652 | ) | (4,449,446 | ) | |||
Class R | (98,748 | ) | (103,829 | ) | |||
Institutional Class | (1,017,121 | ) | (846,137 | ) | |||
(11,924,384 | ) | (13,257,392 | ) | ||||
Capital Share Transactions: | |||||||
Proceeds from shares sold: | |||||||
Class A | 29,742,813 | 49,039,660 | |||||
Class B | 102,079 | 216,109 | |||||
Class C | 17,557,460 | 31,981,153 | |||||
Class R | 1,266,352 | 824,420 | |||||
Institutional Class | 12,708,292 | 23,446,273 | |||||
Net asset value of shares issued upon reinvestment | |||||||
of dividends and distributions: | |||||||
Class A | 5,582,624 | 5,827,698 | |||||
Class B | 438,026 | 603,444 | |||||
Class C | 3,398,886 | 3,701,150 | |||||
Class R | 98,747 | 103,829 | |||||
Institutional Class | 806,893 | 626,298 | |||||
71,702,172 | 116,370,034 |
38
Year Ended | |||||||
11/30/12 | 11/30/11 | ||||||
Capital Share Transactions (continued): | |||||||
Cost of shares redeemed: | |||||||
Class A | $ | (40,612,519 | ) | $ | (59,591,640 | ) | |
Class B | (8,621,617 | ) | (7,530,062 | ) | |||
Class C | (31,006,812 | ) | (37,434,726 | ) | |||
Class R | (1,881,753 | ) | (683,658 | ) | |||
Institutional Class | (10,801,705 | ) | (11,165,256 | ) | |||
(92,924,406 | ) | (116,405,342 | ) | ||||
Decrease in net assets derived from | |||||||
capital share transactions | (21,222,234 | ) | (35,308 | ) | |||
Net Increase in Net Assets | 19,501,344 | 1,825,853 | |||||
Net Assets: | |||||||
Beginning of year | 391,549,296 | 389,723,443 | |||||
End of year (including distributions in excess of | |||||||
net investment income of $138,633 | |||||||
and $409,785, respectively) | $ | 411,050,640 | $ | 391,549,296 |
See accompanying notes, which are an integral part of the financial statements.
39
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 |
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 |
Ratio of net investment income to average net assets |
Ratio of net investment income to average net assets |
prior to fees waived |
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 a 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.
40
Year Ended | ||||||||||||||||
11/30/12 | 11/30/11 | 11/30/10 | 11/30/09 | 11/30/08 | ||||||||||||
$9.890 | $9.810 | $9.190 | $7.010 | $12.030 | ||||||||||||
0.348 | 0.351 | 0.373 | 0.407 | 0.400 | ||||||||||||
1.045 | 0.086 | 0.695 | 2.247 | (4.595 | ) | |||||||||||
1.393 | 0.437 | 1.068 | 2.654 | (4.195 | ) | |||||||||||
(0.343 | ) | (0.357 | ) | (0.448 | ) | (0.474 | ) | (0.489 | ) | |||||||
— | — | — | — | (0.336 | ) | |||||||||||
(0.343 | ) | (0.357 | ) | (0.448 | ) | (0.474 | ) | (0.825 | ) | |||||||
$10.940 | $9.890 | $9.810 | $9.190 | $7.010 | ||||||||||||
14.25% | 4.39% | 11.91% | 39.35% | (37.15% | ) | |||||||||||
$203,819 | $189,313 | $192,876 | $200,720 | $179,588 | ||||||||||||
1.16% | 1.19% | 1.26% | 1.17% | 1.00% | ||||||||||||
1.21% | 1.24% | 1.31% | 1.36% | 1.26% | ||||||||||||
3.28% | 3.41% | 3.93% | 5.22% | 3.92% | ||||||||||||
3.23% | 3.36% | 3.88% | 5.03% | 3.66% | ||||||||||||
47% | 110% | 109% | 69% | 51% |
41
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 |
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 |
Ratio of net investment income to average net assets |
Ratio of net investment income to average net assets |
prior to fees waived |
Portfolio turnover |
See accompanying notes, which are an integral part of the financial statements.
42
Year Ended | ||||||||||||||||
11/30/12 | 11/30/11 | 11/30/10 | 11/30/09 | 11/30/08 | ||||||||||||
$9.900 | $9.820 | $9.190 | $7.010 | $12.020 | ||||||||||||
0.268 | 0.274 | 0.302 | 0.348 | 0.324 | ||||||||||||
1.046 | 0.086 | 0.694 | 2.248 | (4.590 | ) | |||||||||||
1.314 | 0.360 | 0.996 | 2.596 | (4.266 | ) | |||||||||||
(0.264 | ) | (0.280 | ) | (0.366 | ) | (0.416 | ) | (0.408 | ) | |||||||
— | — | — | — | (0.336 | ) | |||||||||||
(0.264 | ) | (0.280 | ) | (0.366 | ) | (0.416 | ) | (0.744 | ) | |||||||
$10.950 | $9.900 | $9.820 | $9.190 | $7.010 | ||||||||||||
13.39% | 3.61% | 11.06% | 38.47% | (37.72% | ) | |||||||||||
$16,874 | $22,803 | $29,003 | $33,725 | $32,534 | ||||||||||||
1.91% | 1.94% | 2.01% | 1.92% | 1.75% | ||||||||||||
1.91% | 1.94% | 2.01% | 2.06% | 1.96% | ||||||||||||
2.53% | 2.66% | 3.18% | 4.47% | 3.17% | ||||||||||||
2.53% | 2.66% | 3.18% | 4.33% | 2.96% | ||||||||||||
47% | 110% | 109% | 69% | 51% |
43
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 |
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 |
Ratio of net investment income to average net assets |
Ratio of net investment income to average net assets |
prior to fees waived |
Portfolio turnover |
See accompanying notes, which are an integral part of the financial statements.
44
Year Ended | ||||||||||||||||
11/30/12 | 11/30/11 | 11/30/10 | 11/30/09 | 11/30/08 | ||||||||||||
$9.900 | $9.820 | $9.190 | $7.010 | $12.030 | ||||||||||||
0.268 | 0.274 | 0.302 | 0.348 | 0.323 | ||||||||||||
1.056 | 0.086 | 0.694 | 2.248 | (4.599 | ) | |||||||||||
1.324 | 0.360 | 0.996 | 2.596 | (4.276 | ) | |||||||||||
(0.264 | ) | (0.280 | ) | (0.366 | ) | (0.416 | ) | (0.408 | ) | |||||||
— | — | — | — | (0.336 | ) | |||||||||||
(0.264 | ) | (0.280 | ) | (0.366 | ) | (0.416 | ) | (0.744 | ) | |||||||
$10.960 | $9.900 | $9.820 | $9.190 | $7.010 | ||||||||||||
13.50% | 3.61% | 11.06% | 38.27% | (37.63% | ) | |||||||||||
$156,758 | $151,107 | $152,009 | $155,028 | $146,769 | ||||||||||||
1.91% | 1.94% | 2.01% | 1.92% | 1.75% | ||||||||||||
1.91% | 1.94% | 2.01% | 2.06% | 1.96% | ||||||||||||
2.53% | 2.66% | 3.18% | 4.47% | 3.17% | ||||||||||||
2.53% | 2.66% | 3.18% | 4.33% | 2.96% | ||||||||||||
47% | 110% | 109% | 69% | 51% |
45
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 |
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 |
Ratio of net investment income to average net assets |
Ratio of net investment income to average net assets |
prior to fees waived |
Portfolio turnover |
See accompanying notes, which are an integral part of the financial statements.
46
Year Ended | ||||||||||||||||
11/30/12 | 11/30/11 | 11/30/10 | 11/30/09 | 11/30/08 | ||||||||||||
$9.890 | $9.810 | $9.190 | $7.010 | $12.020 | ||||||||||||
0.321 | 0.325 | 0.349 | 0.387 | 0.374 | ||||||||||||
1.046 | 0.086 | 0.693 | 2.246 | (4.585 | ) | |||||||||||
1.367 | 0.411 | 1.042 | 2.633 | (4.211 | ) | |||||||||||
(0.317 | ) | (0.331 | ) | (0.422 | ) | (0.453 | ) | (0.463 | ) | |||||||
— | — | — | — | (0.336 | ) | |||||||||||
(0.317 | ) | (0.331 | ) | (0.422 | ) | (0.453 | ) | (0.799 | ) | |||||||
$10.940 | $9.890 | $9.810 | $9.190 | $7.010 | ||||||||||||
13.97% | 4.13% | 11.60% | 39.15% | (37.39% | ) | |||||||||||
$3,151 | $3,340 | $3,069 | $3,067 | $1,928 | ||||||||||||
1.41% | 1.44% | 1.51% | 1.42% | 1.25% | ||||||||||||
1.51% | 1.54% | 1.61% | 1.66% | 1.56% | ||||||||||||
3.03% | 3.16% | 3.68% | 4.97% | 3.67% | ||||||||||||
2.93% | 3.06% | 3.58% | 4.73% | 3.36% | ||||||||||||
47% | 110% | 109% | 69% | 51% |
47
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 |
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 |
Ratio of net investment income to average net assets |
Ratio of net investment income to average net assets |
prior to fees waived |
Portfolio turnover |
See accompanying notes, which are an integral part of the financial statements.
48
Year Ended | ||||||||||||||||
11/30/12 | 11/30/11 | 11/30/10 | 11/30/09 | 11/30/08 | ||||||||||||
$9.890 | $9.810 | $9.190 | $7.010 | $12.040 | ||||||||||||
0.375 | 0.375 | 0.399 | 0.426 | 0.425 | ||||||||||||
1.045 | 0.088 | 0.697 | 2.246 | (4.602 | ) | |||||||||||
1.420 | 0.463 | 1.096 | 2.672 | (4.177 | ) | |||||||||||
(0.370 | ) | (0.383 | ) | (0.476 | ) | (0.492 | ) | (0.517 | ) | |||||||
— | — | — | — | (0.336 | ) | |||||||||||
(0.370 | ) | (0.383 | ) | (0.476 | ) | (0.492 | ) | (0.853 | ) | |||||||
$10.940 | $9.890 | $9.810 | $9.190 | $7.010 | ||||||||||||
14.66% | 4.55% | 12.24% | 39.68% | (37.04% | ) | |||||||||||
$30,449 | $24,986 | $12,766 | $2,394 | $2,288 | ||||||||||||
0.91% | 0.94% | 1.01% | 0.92% | 0.75% | ||||||||||||
0.91% | 0.94% | 1.01% | 1.06% | 0.96% | ||||||||||||
3.53% | 3.66% | 4.18% | 5.47% | 4.17% | ||||||||||||
3.53% | 3.66% | 4.18% | 5.33% | 3.96% | ||||||||||||
47% | 110% | 109% | 69% | 51% |
49
Delaware Dividend Income Fund | November 30, 2012 |
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 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 normally valued at the last quoted sales price on the valuation date. Debt securities and credit default swap (CDS) contracts are valued based upon valuations provided by an independent pricing service or counterparty 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. U.S. government and agency securities are valued at the mean between the bid and ask prices, which approximates fair value. Valuations for fixed income securities utilize matrix systems, which reflect such factors as security prices, yields, maturities, and ratings, and are supplemented by dealer and exchange quotations. Swaps prices are derived using daily swap curves and models that incorporate a number of market data factors, such as discounted cash flows, trades and values of the underlying reference instruments. Investment company securities are valued at net asset value per share, as reported by
50
the underlying investment company. 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 and options on futures contracts are valued at the daily quoted settlement prices. Exchange-traded options are valued at the last reported sale price or, if no sales are reported, at the mean between the last reported bid and 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).
Federal & Foreign Income Taxes — No provision for federal income taxes has been made as the Fund intends to continue to qualify for federal income tax purposes as a regulated investment company 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 for all open federal income tax years (November 30, 2009 - November 30, 2012), and has concluded that no provision for federal income tax is required in the Fund’s financial statements. In regards to foreign taxes, the Fund only has open tax years in certain foreign countries it invests in back to the inception of the Fund.
Class Accounting — Investment income, common expenses and realized and unrealized gain (loss) on investments are allocated to the various classes of the Fund on the basis of daily net assets of each class. Distribution expenses relating to a specific class are charged directly to that class.
Repurchase Agreements — The Fund may purchase certain 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, 2012.
51
Notes to financial statements
Delaware Dividend Income Fund
1. Significant Accounting Policies (continued)
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 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. 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 among 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 debt securities are amortized to interest income over the lives of the respective securities using the effective interest method. Distributions received from investments in Real Estate Investment Trusts (REITs) are recorded as dividend income on the ex-dividend date, subject to reclassification upon notice of the character of such distributions by the issuer. The Fund declares and pays dividends from net investment income 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.
52
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, 2012.
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, 2012.
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, 2012, the Fund earned $781 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.
Prior to March 29, 2012, 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 and certain other expenses) did not exceed 0.98% of average daily net assets of the Fund. This expense waiver and reimbursement applied 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, 2012, the Fund was charged $19,974 for these services.
53
Notes to financial statements
Delaware Dividend Income Fund
2. Investment Management, Administration Agreements and Other Transactions with Affiliates (continued)
DSC is also the transfer agent and dividend disbursing agent of the Fund. The Fund pays DSC a monthly asset-based fee for these services. Pursuant to a sub-transfer agency agreement between DSC and BNY Mellon Investment Servicing (US) Inc. (BNYMIS), BNYMIS provides certain sub-transfer agency services to the Fund. Sub-transfer agency fees are passed on to and paid directly by the Fund.
Pursuant to a distribution agreement and distribution plan, the Fund pays DDLP, the distributor and an affiliate of DMC, an annual distribution and service fee not to exceed 0.30% of the average daily net assets of the Class A shares, 1.00% of the average daily net assets of the Class B and C shares and 0.60% of the average daily net assets of Class R shares. Institutional Class shares pay no distribution and service expenses. DDLP has contracted to waive distribution and service fees through March 29, 2013 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, 2012, the Fund had liabilities payable to affiliates as follows:
Investment management fee payable to DMC | $ | 217,668 |
Dividend disbursing, transfer agent and fund accounting | ||
oversight fees and other expenses payable to DSC | 9,040 | |
Distribution fees payable to DDLP | 185,329 | |
Other expenses payable to DMC and affiliates* | 8,439 |
*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, 2012, the Fund was charged $11,247 for internal legal and tax services provided by DMC and/or its affiliates’ employees.
For the year ended November 30, 2012, DDLP earned $78,824 for commissions on sales of the Fund’s Class A shares. For the year ended November 30, 2012 DDLP received gross CDSC commissions of $146, $2,929 and $3,069 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.
54
3. Investments
For the year ended November 30, 2012, the Fund made purchases of $182,167,139 and sales of $214,283,411 of investment securities other than U.S. government securities and short-term investments.
At November 30, 2012, the cost of investments for federal income tax purposes was $391,503,539. At November 30, 2012, the net unrealized appreciation was $19,609,339, of which $44,492,279 related to unrealized appreciation of investments and $24,882,940 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, exchange-traded options contracts) |
Level 2 | – | other observable inputs (including, but not limited to: quoted prices for similar assets or liabilities in markets that are active, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the assets or liabilities (such as interest rates, yield curves, volatilities, prepayment speeds, loss severities, credit risks and default rates) or other market-corroborated inputs) (e.g., debt securities, government securities, swap contracts, foreign currency exchange contracts, foreign securities utilizing international fair value pricing, broker-quoted securities, fair valued securities) |
Level 3 | – | 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) |
55
Notes to financial statements
Delaware Dividend Income Fund
3. Investments (continued)
Level 3 investments are valued using significant unobservable inputs. The Fund may also use an income-based valuation approach in which the anticipated future cash flows of the investment are discounted to calculate fair value. Discounts may also be applied due to the nature or duration of any restrictions on the disposition of the investments. Valuations may also be based upon current market prices of securities that are comparable in coupon, rating, maturity and industry. The derived value of a Level 3 investment may not represent the value which is received upon disposition and this could impact the results of operations.
The following table summarizes the valuation of the Fund’s investments by fair value hierarchy levels as of November 30, 2012:
Level 1 | Level 2 | Level 3 | Total | ||||||||||||
Commercial Mortgage-Backed | |||||||||||||||
Securities | $ | — | $ | 2,629,210 | $ | — | $ | 2,629,210 | |||||||
Common Stock | 231,792,484 | — | — | 231,792,484 | |||||||||||
Convertible Preferred Stock | 5,846,254 | 5,488,547 | — | 11,334,801 | |||||||||||
Corporate Debt | — | 133,926,705 | 490,000 | 134,416,705 | |||||||||||
Exchange-Traded Funds | 2,241,680 | — | — | 2,241,680 | |||||||||||
Other | 5,202,663 | 832,230 | — | 6,034,893 | |||||||||||
Short-Term Investments | — | 21,965,877 | — | 21,965,877 | |||||||||||
Securities Lending Collateral | — | 697,228 | — | 697,228 | |||||||||||
Total | $ | 245,083,081 | $ | 165,539,797 | $ | 490,000 | $ | 411,112,878 | |||||||
Foreign Currency | |||||||||||||||
Exchange Contracts | $ | — | $ | (826 | ) | $ | — | $ | (826 | ) | |||||
Futures Contract | 50,894 | — | — | 50,894 | |||||||||||
Option Written | (252,000 | ) | — | — | (252,000 | ) | |||||||||
Swap Contracts | — | (186,440 | ) | — | (186,440 | ) |
The securities that have been deemed worthless on the statement of net assets are considered to be level 3 securities in this table.
A reconciliation of Level 3 investments is presented when the Fund has a significant amount of Level 3 investments at the beginning, interim or end of period in relation to net assets.
During the year ended November 30, 2012, there were no transfers between Level 1 investments, Level 2 investments or Level 3 investments that had a significant impact to the Fund. This does not include transfers between Level 1 investments and Level 2 investments due to the Fund utilizing international fair value pricing during the year. In accordance with the fair valuation procedures described in Note 1, international fair value pricing uses other observable market-based inputs in place of the closing exchange price due to the events occurring after the close of the exchange or market on which the investment is principally traded causing a change in classification between levels. The Fund’s policy is to recognize transfers between levels at the beginning of the reporting period.
56
Management has determined not to provide additional disclosure on Level 3 inputs under ASU No. 2011-04 since the Level 3 investments are not considered significant to the Fund’s net assets at the end of the period.
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, 2012 and 2011 was as follows:
Year Ended | |||||
11/30/12 | 11/30/11 | ||||
Ordinary income | $ | 11,924,384 | $ | 13,257,392 |
5. Components of Net Assets on a Tax Basis
As of November 30, 2012, the components of net assets on a tax basis were as follows:
Shares of beneficial interest | $ | 535,723,854 | ||
Undistributed ordinary income | 1,454,692 | |||
Capital loss carryforwards | (145,626,126 | ) | ||
Other temporary differences | 330,813 | |||
Unrealized appreciation | 19,167,407 | |||
Net assets | $ | 411,050,640 |
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, mark-to market of foreign currency contracts, tax treatment of CDS contracts, tax treatment of partnership income, passive foreign investment companies, tax preferred securities, 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, market discount and premium on certain debt instruments, passive foreign investment companies, contingent payment debt instruments, swaps, partnerships, REITs, tax preferred securities, and dividends and distributions. Results of operations and net assets were not affected by these reclassifications. For the year ended November 30, 2012, the Fund recorded the following reclassifications.
Paid-in capital | $ | (161,694 | ) | |
Distributions in excess of net investment income | 75,673 | |||
Accumulated net realized loss | 86,021 |
For federal income tax purposes, capital loss carryforwards may be carried forward and applied against future capital gains. $4,100,774 was utilized in 2012. Capital loss carryforwards remaining at November 30, 2012 will expire as follows: $90,877,076 expires in 2016 and $54,749,050 expires in 2017.
57
Notes to financial statements
Delaware Dividend Income Fund
5. Components of Net Assets on a Tax Basis (continued)
On December 22, 2010, the Regulated Investment Company Modernization Act of 2010 (Act) was enacted, which changed various technical rules governing the tax treatment of regulated investment companies. The changes were generally effective for taxable years beginning after the date of enactment. Under the Act, the Fund is 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 | ||||||
11/30/12 | 11/30/11 | |||||
Shares sold: | ||||||
Class A | 2,797,793 | 4,733,184 | ||||
Class B | 9,586 | 21,274 | ||||
Class C | 1,650,812 | 3,076,327 | ||||
Class R | 120,275 | 80,472 | ||||
Institutional Class | 1,204,797 | 2,273,998 | ||||
Shares issued upon reinvestment of dividends and distributions: | ||||||
Class A | 526,855 | 569,861 | ||||
Class B | 41,400 | 58,903 | ||||
Class C | 320,522 | 361,745 | ||||
Class R | 9,332 | 10,179 | ||||
Institutional Class | 76,031 | 61,445 | ||||
6,757,403 | 11,247,388 | |||||
Shares redeemed: | ||||||
Class A | (3,846,267 | ) | (5,824,333 | ) | ||
Class B | (814,349 | ) | (730,840 | ) | ||
Class C | (2,927,509 | ) | (3,657,004 | ) | ||
Class R | (179,453 | ) | (65,859 | ) | ||
Institutional Class | (1,025,570 | ) | (1,109,973 | ) | ||
(8,793,148 | ) | (11,388,009 | ) | |||
Net decrease | (2,035,745 | ) | (140,621 | ) |
58
For the years ended November 30, 2012 and 2011, 204,345 Class B shares were converted to 204,433 Class A shares valued at $2,148,049 and 53,216 Class B shares were converted to 53,257 Class A shares valued at $547,202, 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. Unfunded Commitments
The Fund may invest in floating rate loans. In connection with these investments, the Fund may also enter into unfunded corporate loan commitments (commitments). Commitments may obligate the Fund to furnish temporary financing to a borrower until permanent financing can be arranged. In connection with these commitments, the Fund earns a commitment fee, typically set as a percentage of the commitment amount.
As of November 30, 2012, the Fund had the following unfunded loan commitments:
Borrower | Unfunded Loan Commitment | |||
GenCorp | $ | 490,000 | ||
Silver II Acquisition | 745,000 | |||
Tempur-Pedic International | 490,000 | |||
TPC Group | 855,000 |
8. Line of Credit
The Fund, along with certain other funds in the Delaware Investments® Family of Funds (Participants), was a participant in a $125,000,000 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. Each Participant was individually, and not jointly, liable for its particular advances, if any, under the line of credit. The line of credit under the agreement expired on November 13, 2012.
On November 13, 2012, 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 line of credit available under the agreement expires on November 12, 2013. The Fund had no amounts outstanding as of November 30, 2012 or at any time during the year then ended.
9. 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.
59
Notes to financial statements
Delaware Dividend Income Fund
9. Derivatives (continued)
Foreign Currency Exchange Contracts — The Fund enters 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.
Futures Contracts — A futures contract is an agreement in which the writer (or seller) of the contract agrees to deliver to the buyer an amount of cash or securities equal to a specific dollar amount times the difference between the value of a specific security or index at the close of the last trading day of the contract and the price at which the agreement is made. The Fund may use futures in the normal course of pursuing its investment objective. The Fund may invest in financial futures contracts to hedge its existing portfolio securities against fluctuations in fair value caused by changes in prevailing market interest rates. Upon entering into a futures contract, the Fund deposits cash or pledges U.S. government securities to a broker, equal to the minimum “initial margin” requirements of the exchange on which the contract is traded. Subsequent payments are received from the broker or paid to the broker each day, based on the daily fluctuation in the market value of the contract. These receipts or payments are known as “variation margin” and are recorded daily by the Fund as unrealized gains or losses until the contracts are closed. When the contracts are closed, the Fund records a realized gain or loss equal to the difference between the value of the contract at the time it was opened and the value at the time it was closed. Risks of entering into futures contracts include potential imperfect correlation between the futures contracts and the underlying securities and the possibility of an illiquid secondary market for these instruments. When investing in futures, there is minimal counterparty credit risk to the Fund because futures are exchange-traded and the exchange’s clearinghouse, as counterparty to all exchange-traded futures, guarantees against default. The Fund posted $277,000 as collateral for futures contracts.
60
Options Contracts — During the year ended November 30, 2012, 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, 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 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 options written during the year ended November 30, 2012 for the Fund were as follows:
Number of | |||||||
Contracts | Premiums | ||||||
Options outstanding at November 30, 2011 | 1,040 | $ | 305,554 | ||||
Options written | 6,475 | 883,730 | |||||
Options expired | (6,665 | ) | (985,618 | ) | |||
Options terminated in closing purchase transactions | (400 | ) | (56,667 | ) | |||
Options outstanding at November 30, 2012 | 450 | $ | 146,999 |
Swap Contracts — The Fund may enter into CDS contracts in the normal course of pursuing its investment objective. 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. The Fund will not be permitted to enter into any swap transactions unless, at the time of entering into such transactions, the unsecured long-term debt of the actual counterparty combined with any credit enhancements, is rated at least BBB- by S&P or Baa3 by Moody’s or is determined to be of equivalent quality by the manager.
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
61
Notes to financial statements
Delaware Dividend Income Fund
9. Derivatives (continued)
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, 2012, the Fund entered into CDS contracts as a purchaser of protection. Periodic payments on such contracts are accrued daily and recorded as unrealized losses on swap contracts. Upon payment, such amounts are recorded as realized losses (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. For the year ended November 30, 2012, the Fund did not enter into any CDS contracts as a seller of protection.
CDS contracts 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.
Swaps Generally. 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.
62
Fair values of derivative instruments as of November 30, 2012 were as follows:
Asset Derivatives | Liability Derivatives | ||||||||||
Statement of Net Assets Location | Fair Value | Statement of Net Assets Location | Fair Value | ||||||||
Forward currency exchange contracts (Foreign currency | |||||||||||
exchange contracts) | Receivables and other assets net of other liabilities | $ | 39 | Receivables and other assets net of other liabilities | $ | (865 | ) | ||||
Interest rate contracts | |||||||||||
(Futures contracts) | Receivables and other assets net of other liabilities | 50,894 | Receivables and other assets net of other liabilities | — | |||||||
Equity contracts | |||||||||||
(Options written) | Options written, at value | — | Options written, at value | (252,000 | ) | ||||||
Credit contracts | |||||||||||
(Swap contracts) | Receivables and other assets net of other liabilities | 12,865 | Receivables and other assets net of other liabilities | (199,305 | ) | ||||||
Total | $ | 63,798 | $ | (452,170 | ) |
63
Notes to financial statements
Delaware Dividend Income Fund
9. Derivatives (continued)
The effect of derivative instruments on the statement of operations for the year ended November 30, 2012 was as follows:
Location of Gain or Loss on Derivatives Recognized in Income | Realized Gain or Loss on Derivatives Recognized in Income | Change in Unrealized Appreciation or Depreciation on Derivatives 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 foreign currency exchange contracts | $ | (66,776 | ) | $ | (442 | ) | |||||
Interest rate contracts | ||||||||||||
(Futures contracts) | Net realized gain on futures contracts and net change in unrealized appreciation (depreciation) of futures contracts | 20,349 | 50,894 | |||||||||
Equity contracts | ||||||||||||
(Options written) | Net realized gain on options written and net change in unrealized appreciation (depreciation) of options written | 538,384 | (118,665 | ) | ||||||||
Credit contracts | ||||||||||||
(Swap contracts) | Net realized loss on swap contracts and net change in unrealized appreciation (depreciation) of swap contracts | (2,111,785 | ) | (32,270 | ) | |||||||
Total | $ | (1,619,828 | ) | $ | (100,483 | ) |
64
Derivatives Generally. The table below summarizes the average balance of derivative holdings by the Fund during the year ended November 30, 2012.
Long | Short | ||
Derivative | Derivative | ||
Volume | Volume | ||
Foreign currency exchange contracts (average cost) | USD 115,529 | USD 108,925 | |
Futures contracts (average notional value) | 98,787 | 3,670,521 | |
Swap contracts (average notional value)* | 13,484,980 | — | |
Options contracts (average notional value) | — | 76,505 |
*Long represents buying protection and short represents selling protection.
10. 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 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 Delaware Management Company (DMC), a series of Delaware Management Business Trust, 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. In October 2008, BNY Mellon transferred certain distressed securities from the Fund’s 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
65
Notes to financial statements
Delaware Dividend Income Fund
10. Securities Lending (continued)
with securities loans. In the event of default or bankruptcy by the lending agent, realization and/or retention of the collateral may be subject to legal proceedings. In the event the borrower fails to return loaned securities and the collateral received is insufficient to cover the value of the loaned securities and provided such collateral shortfall is not the result of investment losses, the lending agent has agreed to pay the amount of the shortfall to the Fund or, at the discretion of the lending agent, replace the loaned securities. The Fund continues to record dividends or interest, as applicable, on the securities loaned and is subject to changes in value of the securities loaned that may occur during the term of the loan. The Fund has the right under the Lending Agreement to recover the securities from the borrower on demand. With respect to security loans collateralized by non-cash collateral, the Fund receives loan premiums paid by the borrower. With respect to security loans collateralized by cash collateral, the earnings from the collateral investments are shared among the Fund, the security lending agent and the borrower. The Fund records security lending income net of allocations to the security lending agent and the borrower.
The Collective Trust used for the investment of cash collateral received from borrowers of securities 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.
At November 30, 2012, the value of securities on loan was $1,365,901, for which cash collateral was received and invested in accordance with the Lending Agreement. At November 30, 2012, the value of invested collateral was $697,228. These investments are presented on the statement of net assets under the caption “Securities Lending Collateral”.
11. 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
66
direct real estate holdings during the year ended November 30, 2012. 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. Rule 144A and illiquid securities have been identified on the statement of net assets.
12. 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.
13. Subsequent Events
Management has determined that no material events or transactions occurred subsequent to November 30, 2012 that would require recognition or disclosure in the Fund’s financial statements.
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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, 2012, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended and the financial highlights for each of the three 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, 2012 by correspondence with the custodian and brokers, provide a reasonable basis for our opinion. The financial highlights for each of the two 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 18, 2013
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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 21-23, 2012 (the “Annual Meeting”), the Board of Trustees (the “Board”), including a majority of disinterested or independent Trustees, approved the renewal of the Investment Advisory Agreement for Delaware Dividend Income Fund (the “Fund”). In making its decision, the Board considered information furnished at regular quarterly Board meetings, including reports detailing Fund performance, investment strategies and expenses, as well as information prepared specifically in connection with the renewal of the investment advisory and sub-advisory contracts. Information furnished specifically in connection with the renewal of the Investment Advisory Agreement with Delaware Management Company (“DMC”) 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 2012 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; comparative client fee information; 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 recognized DMC’s receipt of several industry distinctions. The Board gave favorable consideration to DMC’s efforts to control expenditures while maintaining service levels committed
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Other Fund information
(Unaudited)
Delaware Dividend Income Fund
Board Consideration of Delaware Dividend Income Fund investment advisory agreement (continued)
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. The Board noted 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 the importance of investment performance 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, 2012. 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-year period was in the third quartile of its Performance Universe. The report further showed that the Fund’s total return for the three- and ten-year periods was in the first quartile and the Fund’s total return for the five-year period was in the fourth quartile. The Fund’s performance results were mixed but tended toward median, which was acceptable.
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
70
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 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 was in the quartile with the second lowest expenses of its Expense Group and its total expenses were in the quartile with the second highest expenses of its Expense Group. The Board gave favorable consideration to the Fund’s management fee, but noted that the Fund’s total expenses were not in line with the Board’s objective. In evaluating total expenses, the Board considered various initiatives implemented by Management, such as the 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
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Other Fund information
(Unaudited)
Delaware Dividend Income Fund
Board Consideration of Delaware Dividend Income Fund investment advisory agreement (continued)
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.
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, 2012, the Fund designates distributions paid during the year as follows:
(A) | Ordinary Income Distributions (Tax Basis)* | 100.00 | % |
Qualifying Dividends1 | 43.90 | % |
1 Qualifying dividends represent dividends which qualify for the corporate dividends received deduction.
For the fiscal year ended November 30, 2012, 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 the Tax Relief, Unemployment Insurance Reauthorization and Jobs Creation Act of 2010. For the fiscal year ended November 30, 2012, the Fund has designated maximum distributions of Qualified Interest Income of 55.73%.
72
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 | ||||
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 | ||||
1 Patrick P. Coyne is considered to be an “Interested Trustee” because he is an executive officer of the Fund’s(s’) investment advisor.
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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 | 71 | 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) | ||||
Private Investor | 71 | Director | ||
(March 2004–Present) | Bryn Mawr Bank Corp. (BMTC) | |||
(2007–2011) | ||||
President | 71 | 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) | ||||
2 Delaware Investments is the marketing name for Delaware Management Holdings, Inc. and its subsidiaries, including the Fund’s(s’) investment advisor, principal underwriter, and its transfer agent.
75
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) | ||||
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 | ||||
Frances A. Sevilla-Sacasa | Trustee | Since September 2011 | ||
2005 Market Street | ||||
Philadelphia, PA 19103 | ||||
January 1956 | ||||
Janet L. Yeomans | Trustee | Since April 1999 | ||
2005 Market Street | ||||
Philadelphia, PA 19103 | ||||
July 1948 | ||||
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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 | ||
Managing Director | 71 | None | ||
Anthony Knerr & Associates | ||||
(Strategic Consulting) | ||||
(1990–Present) | ||||
Private Investor | 71 | None | ||
(2004–Present) | ||||
Chief Executive Officer — | 71 | Trust Manager — Camden | ||
Banco Itaú Europa | Property Trust | |||
International | (since August 2011) | |||
(since April 2012) | ||||
Executive Advisor to Dean | ||||
(August 2011–March 2012) | ||||
and Interim Dean | ||||
(January 2011–July 2011) — | ||||
University of Miami School of | ||||
Business Administration | ||||
President — U.S. Trust, | ||||
Bank of America Private | ||||
Wealth Management | ||||
(Private Banking) | ||||
(July 2007–December 2008) | ||||
Vice President and Treasurer | 71 | Director, Audit | ||
(January 2006–July 2012) | Committee Member and | |||
Vice President — Mergers & Acquisitions | Investment Committee | |||
(January 2003–January 2006), and | Member | |||
Vice President and Treasurer | Okabena Company | |||
(July 1995–January 2003) | ||||
3M Corporation | Chair — 3M | |||
Investment Management | ||||
Company | ||||
(January 2005–July 2012) | ||||
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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) | ||||
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 | ||
Founder | 71 | Director and Compensation | ||
Investor Analytics | Committee Member | |||
(Risk Management) | Investor Analytics | |||
(May 1999–Present) | ||||
Director | ||||
Founder | Oxigene, Inc. | |||
P/E Investments | (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 | Executive Vice President, | Executive Vice President | ||
2005 Market Street | General Counsel | since February 2012; | ||
Philadelphia, PA 19103 | and Chief Legal Officer | Senior Vice President | ||
February 1966 | October 2005– | |||
February 2012; | ||||
General Counsel and | ||||
Chief Legal Officer | ||||
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 | 71 | None3 | ||
Vice President and Deputy | ||||
General Counsel of | ||||
Delaware Investments | ||||
since 2000. | ||||
Daniel V. Geatens has served | 71 | None3 | ||
in various capacities at | ||||
different times at | ||||
Delaware Investments. | ||||
David P. O’Connor has served in | 71 | None3 | ||
various executive and legal | ||||
capacities at different times | ||||
at Delaware Investments. | ||||
Richard Salus has served in | 71 | 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 Frances A. Sevilla-Sacasa Chief Executive Officer Banco Itaú Europa International Miami, FL | Janet L. Yeomans Former 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 Executive 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 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 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 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 Fund’s website at delawareinvestments.com; and (ii) on the SEC’s website at sec.gov.
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![](https://capedge.com/proxy/N-CSR/0001206774-13-000493/del_topimg02.jpg)
Annual report Delaware Small Cap Core Fund November 30, 2012 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 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 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 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 | 3 | |
Disclosure of Fund expenses | 6 | |
Security type/sector allocation | ||
and top 10 equity holdings | 8 | |
Statement of net assets | 10 | |
Statement of operations | 17 | |
Statements of changes in net assets | 18 | |
Financial highlights | 20 | |
Notes to financial statements | 28 | |
Report of independent registered | ||
public accounting firm | 39 | |
Other Fund information | 40 | |
Board of trustees/directors and | ||
officers addendum | 44 | |
About the organization | 52 |
Unless otherwise noted, views expressed herein are current as of Nov. 30, 2012, 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.
© 2013 Delaware Management Holdings, Inc.
All third-party marks cited are the property of their respective owners.
Portfolio management review | |
Delaware Small Cap Core Fund | December 11, 2012 |
Performance preview (for the year ended November 30, 2012) | ||||
Delaware Small Cap Core Fund (Class A shares) | 1-year return | +12.91% | ||
Russell 2000® Index (benchmark) | 1-year return | +13.09% |
When the Fund’s fiscal year began in December 2011, small-cap stocks were declining as recessionary concerns weighed on global markets. The start of 2012, however, generally saw better investor sentiment due to an improving economy and, as a result, shares of small-cap stocks began to appreciate. At that time, valuations were cheap, especially in the small-cap area, after the big selloff in late 2011. In April 2012, the U.S. Federal Reserve reaffirmed that it would maintain its key interest rate in its current low range. The spring and early summer months, however, featured renewed volatility, primarily caused by political and economic uncertainty. Worries included: speculation about Greece’s potential exit from the euro zone; additional evidence of deterioration within Spain’s banks; and uncertainty about upcoming political policies and elections in several euro zone countries and in the United States.
Due to this uncertainty, domestic and international equity markets retreated from April to June. General market sentiment improved again in June when European leaders signaled a more comprehensive approach to stabilizing banks and sovereign credits. In the summer and early fall, domestic stock performance received a boost from the latest bond-buying programs by the Fed and the European Central Bank, along with the impending stimulus in China that appeared poised to support the global economy. The U.S. economy was able to maintain a moderate growth pace, thanks to an improvement in housing and a positive report about manufacturing.
Within the Fund
For the fiscal year ended Nov. 30, 2012, Delaware Small Cap Core Fund returned +12.91% at net asset value and +6.44% at maximum offer price (both figures reflect Class A shares with all distributions reinvested). For the same period, the Fund’s benchmark, the Russell 2000 Index, returned +13.09%. Complete annualized performance for Delaware Small Cap Core Fund is shown in the table on page 3.
Despite slightly lagging its benchmark, the Fund had a strong fiscal year overall, with stock selection in the healthcare, financial, and consumer staples sectors performing well. Holdings in the technology, basic materials, and capital goods sectors detracted from relative performance.
LogMeIn and Adtran, two companies within the technology sector, underperformed. LogMeIn provides essential cloud computing and mobile services to individuals, businesses, and IT organizations, allowing them to securely connect more than 150 million internet-enabled
1
Portfolio management review
Delaware Small Cap Core Fund
devices across the globe including computers, smartphones, and tablets. LogMeIn has a large customer base and has been successful in generating revenue via its many service offerings. In our view, the stock price declined 50% for two reasons: management lowered its second-quarter guidance due to a pull back from its largest customer base in Europe, and an adverse ruling in a patent lawsuit. Although the share price has suffered due to these issues, we continue to like the company’s management and products, and we remain confident in the company’s long-term risk/reward profile for the stock.
The Fund’s holding in Adtran, a provider of network access products to telecommunication companies, retreated 48% during the Fund’s fiscal year. Adtran’s profits declined because of economic weakness in Europe and reduced spending on wireline equipment by major U.S. telecommunication companies. In our analysis, we did not think that capital expenditures on Adtran’s products would recover sufficiently enough to lift its stock price, and we sold our position.
One of the Fund’s best performers was pharmacy benefit management (PBM) company, Catalyst Health Solutions, which advanced approximately 75% during the Fund’s fiscal year. In late April 2012, SXC Health Solutions agreed to acquire Catalyst Health Solutions for about $4.4 billion in cash and stock. Both companies are benefits managers that contract with drug companies and pharmacies to dispense medicine and process claims, and this merger will enable them to better compete with the country’s major PBMs.
The finance sector was another strong area within the Fund due in part to life insurance firm Delphi Financial Group, whose stock price rose 62% during the Fund’s fiscal year, aided by an announcement of a future acquisition. The firm is conservatively managed with a strong focus on niche business lines in the employee benefits market where there is less competition than in other insurance segments. That was one of the reasons that Japanese firm Tokio Marine Holdings, Japan’s second-largest casualty insurer, decided to buy Delphi Financial Group in December 2011 for approximately $2.7 billion, representing a large premium to Delphi’s stock price at the time of the announcement.
We follow a bottom-up (stock by stock) investing approach and, as a result, we pursue individual companies that we believe provide the most value, regardless of the sector. Our goal is to find companies that we believe have strong balance sheets and cash flow, sustainable competitive advantages, and high-quality management teams that can potentially deliver value to shareholders even under challenging economic conditions.
2
Performance summary | |
Delaware Small Cap Core Fund | November 30, 2012 |
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 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, 2012 | ||||||||
Lifetime | |||||||||
(if less than | |||||||||
1 year | 5 years | 10 years | 10 years) | ||||||
Class A (Est. Dec. 29, 1998) | |||||||||
Excluding sales charge | +12.91% | +3.16% | +8.87% | n/a | |||||
Including sales charge | +6.44% | +1.95% | +8.23% | n/a | |||||
Class C (Est. Aug. 1, 2005) | |||||||||
Excluding sales charge | +11.99% | +2.40% | n/a | +2.79% | |||||
Including sales charge | +10.99% | +2.40% | n/a | +2.79% | |||||
Class R (Est. Aug. 1, 2005) | |||||||||
Excluding sales charge | +12.55% | +2.90% | n/a | +3.31% | |||||
Including sales charge | +12.55% | +2.90% | n/a | +3.31% | |||||
Institutional Class (Est. Dec. 29, 1998) | |||||||||
Excluding sales charge | +13.14% | +3.41% | +9.07% | n/a | |||||
Including sales charge | +13.14% | +3.41% | +9.07% | 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 4. 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 5.75%, and have an annual distribution and service fee of 0.30% of average daily net assets. This fee has been contractually limited to 0.25% of average daily net assets from March 29, 2012 through March 29, 2013. Performance for Class A shares, excluding sales charges, assumes that no front-end sales charge applied.
Class C shares are sold with a contingent deferred sales charge of 1.00% if redeemed during the first 12 months. They are also subject to an annual distribution and service fee of 1.00% of average daily net assets.
3
Performance summary
Delaware Small Cap Core Fund
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 distribution and service fee of 0.60% of average daily net assets, which has been limited contractually to 0.50% from March 29, 2012 through March 29, 2013.
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.
Investments in small and/or medium-sized companies typically exhibit greater risk and higher volatility than larger, more established companies.
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 1.15% of the Fund’s average daily net assets from March 29, 2012 through March 29, 2013. 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 | 1.45% | 2.15% | 1.75% | 1.15% | ||||
(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 |
4
Performance of a $10,000 investment1
Average annual total returns from Nov. 30, 2002, through Nov. 30, 2012
For period beginning Nov. 30, 2002, through Nov. 30, 2012 | Starting value | Ending value | ||||||||||
Russell 2000 Index | $ | 10,000 | $ | 23,049 | ||||||||
Delaware Small Cap Core Fund — Class A shares | $ | 9,425 | $ | 22,053 |
1 The “Performance of a $10,000 investment” graph assumes $10,000 invested in Class A shares of the Fund on Nov. 30, 2002, 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 4. Please note additional details on pages 3 through 5.
The chart also assumes $10,000 invested in the Russell 2000 Index as of Nov. 30, 2002. 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 |
5
Disclosure of Fund expenses
For the six-month period from June 1, 2012 to November 30, 2012 (Unaudited)
As a shareholder of the Fund, you incur two types of costs: (1) transaction costs, including sales charges (loads) on purchase payments, reinvested dividends, or other distributions; redemption fees; and exchange fees; and (2) ongoing costs, including management fees; distribution and/or service (12b-1) fees; and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds.
The example is based on an investment of $1,000 invested at the beginning of the period and held for the entire six-month period from June 1, 2012 to November 30, 2012.
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.
6
Delaware Small Cap Core Fund
Expense analysis of an investment of $1,000
Beginning | Ending | Expenses | |||||||||||||||
Account Value | Account Value | Annualized | Paid During Period | ||||||||||||||
6/1/12 | 11/30/12 | Expense Ratio | 6/1/12 to 11/30/12* | ||||||||||||||
Actual Fund return† | |||||||||||||||||
Class A | $ | 1,000.00 | $ | 1,065.20 | 1.36% | $ | 7.02 | ||||||||||
Class C | 1,000.00 | 1,060.90 | 2.11% | 10.87 | |||||||||||||
Class R | 1,000.00 | 1,062.80 | 1.61% | 8.30 | |||||||||||||
Institutional Class | 1,000.00 | 1,065.40 | 1.11% | 5.73 | |||||||||||||
Hypothetical 5% return (5% return before expenses) | |||||||||||||||||
Class A | $ | 1,000.00 | $ | 1,018.20 | 1.36% | $ | 6.86 | ||||||||||
Class C | 1,000.00 | 1,014.45 | 2.11% | 10.63 | |||||||||||||
Class R | 1,000.00 | 1,016.95 | 1.61% | 8.12 | |||||||||||||
Institutional Class | 1,000.00 | 1,019.45 | 1.11% | 5.60 |
*“Expenses Paid During Period” are equal to the Fund’s annualized expense ratio, multiplied by the average account value over the period, multiplied by 183/366 (to reflect the one-half year period).
†Because actual returns reflect only the most recent six-month period, the returns shown may differ significantly from fiscal year returns.
7
Security type/sector allocation and | |
top 10 equity holdings | |
Delaware Small Cap Core Fund | As of November 30, 2012 (Unaudited) |
Sector designations may be different than the sector designations presented in other Fund materials. The sector designations may represent the investment manager’s internal sector classifications, which may result in the sector designations for one fund being different than another fund’s sector designations.
Sector type/sector | Percentage of net assets | ||||
Common Stock | 98.37 | % | |||
Basic Materials | 5.50 | % | |||
Business Services | 4.84 | % | |||
Capital Goods | 11.29 | % | |||
Communication Services | 1.97 | % | |||
Consumer Discretionary | 5.70 | % | |||
Consumer Services | 4.65 | % | |||
Consumer Staples | 3.42 | % | |||
Credit Cyclicals | 1.71 | % | |||
Energy | 5.75 | % | |||
Financials | 14.54 | % | |||
Healthcare | 12.11 | % | |||
Media | 1.32 | % | |||
Real Estate | 5.91 | % | |||
Technology | 16.30 | % | |||
Transportation | 1.39 | % | |||
Utilities | 1.97 | % | |||
Short-Term Investments | 1.60 | % | |||
Securities Lending Collateral | 0.21 | % | |||
Total Value of Securities | 100.18 | % | |||
Obligation to Return Securities Lending Collateral | (0.46 | %) | |||
Receivables and Other Assets Net of Other Liabilities | 0.28 | % | |||
Total Net Assets | 100.00 | % |
8
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 | |
Steven Madden | 1.21 | % |
Applied Industrial Technologies | 1.12 | % |
AFC Enterprises | 1.10 | % |
Alkermes | 1.06 | % |
Esterline Technologies | 1.04 | % |
Air Methods | 1.02 | % |
Bristow Group | 0.99 | % |
Iconix Brand Group | 0.99 | % |
EastGroup Properties | 0.98 | % |
Sovran Self Storage | 0.97 | % |
9
Statement of net assets | |
Delaware Small Cap Core Fund | November 30, 2012 |
Number of shares | Value | |||||
Common Stock – 98.37% | ||||||
Basic Materials – 5.50% | ||||||
Boise | 65,900 | $ | 540,380 | |||
Buckeye Technologies | 20,600 | 571,032 | ||||
† | Coeur d’Alene Mines | 21,500 | 500,090 | |||
Innophos Holdings | 11,000 | 527,010 | ||||
Kaiser Aluminum | 7,400 | 450,438 | ||||
Koppers Holdings | 13,420 | 474,934 | ||||
Materion | 20,600 | 422,300 | ||||
† | TPC Group | 10,200 | 489,906 | |||
†* | U.S. Silica Holdings | 40,800 | 592,416 | |||
4,568,506 | ||||||
Business Services – 4.84% | ||||||
† | Cross Country Healthcare | 54,600 | 218,946 | |||
† | FTI Consulting | 16,000 | 494,560 | |||
† | Kforce | 47,850 | 615,351 | |||
McGrath RentCorp | 14,880 | 416,938 | ||||
† | TeleTech Holdings | 34,700 | 590,594 | |||
U.S. Ecology | 29,780 | 650,991 | ||||
* | United Stationers | 24,800 | 761,111 | |||
† | WageWorks | 14,738 | 272,211 | |||
4,020,702 | ||||||
Capital Goods – 11.29% | ||||||
AAON | 29,925 | 629,921 | ||||
Acuity Brands | 11,120 | 735,588 | ||||
Applied Industrial Technologies | 23,340 | 934,301 | ||||
Barnes Group | 27,400 | 577,866 | ||||
† | Chart Industries | 10,934 | 661,288 | |||
† | Columbus McKinnon | 32,020 | 479,019 | |||
ESCO Technologies | 14,700 | 539,490 | ||||
† | Esterline Technologies | 14,100 | 862,074 | |||
Granite Construction | 18,900 | 578,340 | ||||
† | Kadant | 22,900 | 555,325 | |||
Lufkin Industries | 10,180 | 557,457 | ||||
† | MYR Group | 28,700 | 615,328 | |||
† | Rofin-Sinar Technologies | 21,400 | 452,610 | |||
† | Tetra Tech | 20,500 | 528,080 | |||
†* | Titan Machinery | 21,550 | 477,117 | |||
Triumph Group | 3,100 | 203,391 | ||||
9,387,195 |
10
Number of shares | Value | |||||
Common Stock (continued) | ||||||
Communication Services – 1.97% | ||||||
Atlantic Tele-Network | 9,584 | $ | 353,458 | |||
† | InterXion Holding | 23,091 | 501,305 | |||
NTELOS Holdings | 23,675 | 305,408 | ||||
† | RigNet | 24,801 | 476,675 | |||
1,636,846 | ||||||
Consumer Discretionary – 5.70% | ||||||
DSW Class A | 2,500 | 170,075 | ||||
† | Express | 30,400 | 453,872 | |||
† | G-III Apparel Group | 17,600 | 669,680 | |||
† | Iconix Brand Group | 40,700 | 820,512 | |||
Jones Group | 17,500 | 205,800 | ||||
† | Jos. A. Bank Clothiers | 16,850 | 726,235 | |||
† | Perry Ellis International | 31,600 | 685,088 | |||
† | Steven Madden | 22,600 | 1,005,926 | |||
4,737,188 | ||||||
Consumer Services – 4.65% | ||||||
† | AFC Enterprises | 34,600 | 914,824 | |||
† | Buffalo Wild Wings | 7,520 | 544,749 | |||
CEC Entertainment | 14,510 | 454,163 | ||||
Cheesecake Factory | 15,300 | 523,107 | ||||
† | Jack in the Box | 26,080 | 718,504 | |||
† | SHFL Entertainment | 51,500 | 708,640 | |||
3,863,987 | ||||||
Consumer Staples – 3.42% | ||||||
Casey’s General Stores | 15,900 | 785,460 | ||||
J&J Snack Foods | 11,586 | 728,759 | ||||
† | Prestige Brands Holdings | 26,400 | 570,240 | |||
† | Susser Holdings | 20,650 | 753,932 | |||
2,838,391 | ||||||
Credit Cyclicals – 1.71% | ||||||
Cooper Tire & Rubber | 29,400 | 734,412 | ||||
† | Tenneco | 21,500 | 689,505 | |||
1,423,917 | ||||||
Energy – 5.75% | ||||||
Berry Petroleum Class A | 14,700 | 457,317 | ||||
† | Bonanza Creek Energy | 21,200 | 502,440 | |||
Bristow Group | 15,750 | 820,575 |
11
Statement of net assets
Delaware Small Cap Core Fund
Number of shares | Value | |||||
Common Stock (continued) | ||||||
Energy (continued) | ||||||
† | C&J Energy Services | 21,400 | $ | 427,358 | ||
† | Carrizo Oil & Gas | 24,500 | 508,375 | |||
† | Diamondback Energy | 8,210 | 147,780 | |||
† | Key Energy Services | 61,600 | 412,104 | |||
† | Pioneer Energy Services | 67,000 | 484,410 | |||
† | Rosetta Resources | 15,100 | 678,594 | |||
† | Swift Energy | 22,200 | 343,656 | |||
4,782,609 | ||||||
Financials – 14.54% | ||||||
Alterra Capital Holdings | 29,950 | 700,830 | ||||
American Equity Investment Life Holding | 59,800 | 689,494 | ||||
† | AMERISAFE | 13,500 | 349,380 | |||
BBCN Bancorp | 38,800 | 441,544 | ||||
† | Capital Bank Financial | 27,797 | 479,776 | |||
Cardinal Financial | 43,500 | 652,500 | ||||
City Holding | 16,750 | 562,800 | ||||
Dime Community Bancshares | 39,200 | 546,840 | ||||
Flushing Financial | 38,600 | 577,456 | ||||
Home BancShares | 14,300 | 474,188 | ||||
Independent Bank | 20,000 | 574,000 | ||||
Park National | 10,000 | 630,900 | ||||
† | Piper Jaffray | 18,500 | 524,845 | |||
Primerica | 20,700 | 592,641 | ||||
ProAssurance | 5,230 | 474,256 | ||||
Prosperity Bancshares | 15,800 | 649,854 | ||||
Susquehanna Bancshares | 59,800 | 614,744 | ||||
† | Texas Capital Bancshares | 10,900 | 490,936 | |||
Trustmark | 19,700 | 437,734 | ||||
† | Walter Investment Management | 15,500 | 655,340 | |||
Webster Financial | 32,000 | 666,240 | ||||
† | Western Alliance Bancorp | 29,000 | 294,640 | |||
12,080,938 | ||||||
Healthcare – 12.11% | ||||||
† | Acorda Therapeutics | 22,000 | 553,960 | |||
† | Air Methods | 7,800 | 851,526 | |||
† | Align Technology | 27,070 | 741,447 | |||
† | Alkermes | 45,630 | 881,115 | |||
† | Cepheid | 8,600 | 278,812 |
12
Number of shares | Value | |||||
Common Stock (continued) | ||||||
Healthcare (continued) | ||||||
CONMED | 21,940 | $ | 606,202 | |||
CryoLife | 55,500 | 329,670 | ||||
† | Greenway Medical Technologies | 15,504 | 301,398 | |||
† | Haemonetics | 9,600 | 777,888 | |||
† | ICON ADR | 24,800 | 684,232 | |||
†* | Incyte | 27,900 | 491,040 | |||
†* | InterMune | 38,300 | 350,828 | |||
† | Merit Medical Systems | 47,287 | 656,344 | |||
† | Quidel | 36,600 | 641,598 | |||
†* | Spectrum Pharmaceuticals | 55,600 | 658,304 | |||
† | WellCare Health Plans | 11,400 | 550,278 | |||
West Pharmaceutical Services | 13,210 | 713,736 | ||||
10,068,378 | ||||||
Media – 1.32% | ||||||
Cinemark Holdings | 23,533 | 640,098 | ||||
National CineMedia | 31,950 | 456,885 | ||||
1,096,983 | ||||||
Real Estate – 5.91% | ||||||
DCT Industrial Trust | 102,800 | 642,500 | ||||
DuPont Fabros Technology | 33,100 | 764,279 | ||||
EastGroup Properties | 15,600 | 815,568 | ||||
EPR Properties | 15,100 | 684,785 | ||||
LaSalle Hotel Properties | 28,500 | 687,135 | ||||
Ramco-Gershenson Properties Trust | 38,500 | 515,130 | ||||
Sovran Self Storage | 13,030 | 805,124 | ||||
4,914,521 | ||||||
Technology – 16.30% | ||||||
†* | Amkor Technology | 86,100 | 365,925 | |||
Anixter International | 10,150 | 619,962 | ||||
† | Applied Micro Circuits | 76,300 | 521,129 | |||
† | Brightcove | 36,400 | 353,808 | |||
† | Cirrus Logic | 14,200 | 444,744 | |||
† | comScore | 20,500 | 272,855 | |||
† | EPAM Systems | 16,821 | 346,008 | |||
† | ExactTarget | 22,433 | 462,344 | |||
† | ExlService Holdings | 12,390 | 332,672 | |||
† | FARO Technologies | 18,090 | 638,215 | |||
IXYS | 38,300 | 310,230 |
13
Statement of net assets
Delaware Small Cap Core Fund
Number of shares | Value | ||||||
Common Stock (continued) | |||||||
Technology (continued) | |||||||
j2 Global | 24,500 | $ | 740,879 | ||||
†* | KEYW Holding | 40,582 | 521,885 | ||||
† | Liquidity Services | 11,700 | 480,402 | ||||
† | LogMeln | 25,577 | 547,348 | ||||
† | Netgear | 15,210 | 530,221 | ||||
† | OpenTable | 9,100 | 408,499 | ||||
Plantronics | 14,500 | 487,635 | |||||
†* | QuinStreet | 21,868 | 136,675 | ||||
† | RPX | 22,659 | 205,744 | ||||
† | Semtech | 29,100 | 795,884 | ||||
† | Shutterfly | 16,700 | 450,065 | ||||
† | SS&C Technologies Holdings | 20,932 | 493,786 | ||||
†* | Synaptics | 20,420 | 545,622 | ||||
Syntel | 7,700 | 463,232 | |||||
† | Trulia | 4,903 | 87,175 | ||||
† | ValueClick | 31,730 | 598,745 | ||||
†* | ViaSat | 11,230 | 429,323 | ||||
† | Vocus | 32,350 | 551,891 | ||||
† | WNS Holdings ADR | 37,698 | 400,730 | ||||
13,543,633 | |||||||
Transportation – 1.39% | |||||||
† | Genesee & Wyoming Class A | 8,000 | 583,600 | ||||
† | XPO Logistics | 36,000 | 571,320 | ||||
1,154,920 | |||||||
Utilities – 1.97% | |||||||
Cleco | 17,600 | 709,104 | |||||
NorthWestern | 13,300 | 461,377 | |||||
UIL Holdings | 13,016 | 466,884 | |||||
1,637,365 | |||||||
Total Common Stock (cost $69,402,132) | 81,756,079 | ||||||
Principal amount | |||||||
Short-Term Investments – 1.60% | |||||||
≠Discount Notes – 0.40% | |||||||
Federal Home Loan Bank | |||||||
0.10% 1/18/13 | $ | 41,669 | 41,666 | ||||
0.10% 1/23/13 | 155,016 | 155,003 | |||||
0.13% 2/6/13 | 109,656 | 109,642 | |||||
0.135% 2/15/13 | 24,124 | 24,121 | |||||
330,432 |
14
Principal amount | Value | |||||||
Short-Term Investments (continued) | ||||||||
Repurchase Agreements – 1.20% | ||||||||
Bank of America 0.19%, dated 11/30/12, to be | ||||||||
repurchased on 12/3/12, repurchase price $357,302 | ||||||||
(collateralized by U.S. government obligations 0.00%- | ||||||||
0.25% 1/3/13-11/30/14; market value $364,442) | $ | 357,296 | $ | 357,296 | ||||
BNP Paribas 0.20%, dated 11/30/12, to be | ||||||||
repurchased on 12/3/12, repurchase price $639,715 | ||||||||
(collateralized by U.S. government obligations 0.25%- | ||||||||
2.50% 3/31/14-11/30/17; market value $652,984) | 639,704 | 639,704 | ||||||
997,000 | ||||||||
Total Short-Term Investments (cost $1,327,403) | 1,327,432 | |||||||
Total Value of Securities Before Securities | ||||||||
Lending Collateral – 99.97% (cost $70,729,535) | 83,083,511 | |||||||
Number of shares | ||||||||
**Securities Lending Collateral – 0.21% | ||||||||
Investment Companies | ||||||||
Delaware Investments Collateral Fund No. 1 | 176,605 | 176,605 | ||||||
@†Mellon GSL Reinvestment Trust II | 203,386 | 0 | ||||||
Total Securities Lending Collateral (cost $379,991) | 176,605 | |||||||
Total Value of Securities – 100.18% | ||||||||
(cost $71,109,526) | 83,260,116 | © | ||||||
**Obligation to Return Securities | ||||||||
Lending Collateral – (0.46%) | (379,991 | ) | ||||||
Receivables and Other Assets | ||||||||
Net of Other Liabilities – 0.28% | 228,357 | |||||||
Net Assets Applicable to 6,146,080 | ||||||||
Shares Outstanding – 100.00% | $ | 83,108,482 | ||||||
Net Asset Value – Delaware Small Cap Core Fund | ||||||||
Class A ($25,084,066 / 1,850,237 Shares) | $13.56 | |||||||
Net Asset Value – Delaware Small Cap Core Fund | ||||||||
Class C ($10,051,648 / 780,010 Shares) | $12.89 | |||||||
Net Asset Value – Delaware Small Cap Core Fund | ||||||||
Class R ($6,808,752 / 509,553 Shares) | $13.36 | |||||||
Net Asset Value – Delaware Small Cap Core Fund | ||||||||
Institutional Class ($41,164,016 / 3,006,280 Shares) | $13.69 |
15
Statement of net assets
Delaware Small Cap Core Fund
Components of Net Assets at November 30, 2012: | |||
Shares of beneficial interest (unlimited authorization – no par) | $ | 79,642,615 | |
Accumulated net investment loss | (88,155 | ) | |
Accumulated net realized loss on investments | (8,596,568 | ) | |
Net unrealized appreciation of investments | 12,150,590 | ||
Total net assets | $ | 83,108,482 |
† | Non income producing security. |
* | Fully or partially on loan. |
≠ | 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. |
@ | Illiquid security. At November 30, 2012, the aggregate value of illiquid securities was $0, which represented 0.00% of the Fund’s net assets. See Note 9 in “Notes to financial statements.” |
© | Includes $372,677 of securities loaned. |
Net Asset Value and Offering Price Per Share – | ||
Delaware Small Cap Core Fund | ||
Net asset value Class A (A) | $ | 13.56 |
Sales charge (5.75% of offering price) (B) | 0.83 | |
Offering price | $ | 14.39 |
(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.
16
Statement of operations | |
Delaware Small Cap Core Fund | Year Ended November 30, 2012 |
Investment Income: | |||||||
Dividends | $ | 901,719 | |||||
Securities lending income | 8,696 | ||||||
Interest | 2,672 | $ | 913,087 | ||||
Expenses: | |||||||
Management fees | 576,941 | ||||||
Distribution expenses – Class A | 76,047 | ||||||
Distribution expenses – Class C | 87,504 | ||||||
Distribution expenses – Class R | 39,692 | ||||||
Dividend disbursing and transfer agent fees and expenses | 119,359 | ||||||
Registration fees | 58,614 | ||||||
Accounting and administration expenses | 30,047 | ||||||
Reports and statements to shareholders | 27,566 | ||||||
Audit and tax | 12,043 | ||||||
Dues and services | 8,907 | ||||||
Legal fees | 6,329 | ||||||
Trustees’ fees | 3,482 | ||||||
Pricing fees | 3,035 | ||||||
Custodian fees | 2,788 | ||||||
Insurance fees | 1,352 | ||||||
Consulting fees | 663 | ||||||
Trustees’ expenses | 228 | 1,054,597 | |||||
Less waived distribution expenses – Class A | (12,675 | ) | |||||
Less waived distribution expenses – Class R | (6,615 | ) | |||||
Less expense paid indirectly | (122 | ) | |||||
Total operating expenses | 1,035,185 | ||||||
Net Investment Loss | (122,098 | ) | |||||
Net Realized and Unrealized Gain: | |||||||
Net realized gain on investments | 5,527,183 | ||||||
Net change in unrealized appreciation (depreciation) of investments | 3,363,440 | ||||||
Net Realized and Unrealized Gain | 8,890,623 | ||||||
Net Increase in Net Assets Resulting from Operations | $ | 8,768,525 |
See accompanying notes, which are an integral part of the financial statements.
17
Statements of changes in net assets
Delaware Small Cap Core Fund
Year Ended | ||||||||
11/30/12 | 11/30/11 | |||||||
Increase (Decrease) in Net Assets from Operations: | ||||||||
Net investment loss | $ | (122,098 | ) | $ | (139,065 | ) | ||
Net realized gain | 5,527,183 | 9,209,066 | ||||||
Net change in unrealized appreciation (depreciation) | 3,363,440 | (3,287,624 | ) | |||||
Net increase in net assets resulting from operations | 8,768,525 | 5,782,377 | ||||||
Dividends and Distributions to Shareholders from: | ||||||||
Net investment income: | ||||||||
Class A | — | (92,099 | ) | |||||
Class R | — | (8,964 | ) | |||||
Institutional Class | — | (212,181 | ) | |||||
— | (313,244 | ) | ||||||
Capital Share Transactions: | ||||||||
Proceeds from shares sold: | ||||||||
Class A | 8,834,083 | 6,030,562 | ||||||
Class C | 3,125,991 | 1,033,137 | ||||||
Class R | 2,206,774 | 2,426,192 | ||||||
Institutional Class | 10,737,301 | 6,692,393 | ||||||
Net asset value of shares issued upon reinvestment | ||||||||
of dividends and distributions: | ||||||||
Class A | — | 78,094 | ||||||
Class R | — | 8,964 | ||||||
Institutional Class | — | 208,938 | ||||||
24,904,149 | 16,478,280 |
18
Year Ended | ||||||||
11/30/12 | 11/30/11 | |||||||
Capital Share Transactions (continued): | ||||||||
Cost of shares redeemed: | ||||||||
Class A | $ | (10,866,354 | ) | $ | (6,881,717 | ) | ||
Class C | (1,705,061 | ) | (2,211,672 | ) | ||||
Class R | (1,931,142 | ) | (2,387,206 | ) | ||||
Institutional Class | (4,714,614 | ) | (12,489,064 | ) | ||||
(19,217,171 | ) | (23,969,659 | ) | |||||
Increase (decrease) in net assets derived from | ||||||||
capital share transactions | 5,686,978 | (7,491,379 | ) | |||||
Net Increase (Decrease) in Net Assets | 14,455,503 | (2,022,246 | ) | |||||
Net Assets: | ||||||||
Beginning of year | 68,652,979 | 70,675,225 | ||||||
End of year (including accumulated net investment loss of | ||||||||
$88,155 and $—, respectively) | $ | 83,108,482 | $ | 68,652,979 |
See accompanying notes, which are an integral part of the financial statements.
19
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 |
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 |
Ratio of net investment income (loss) to average net assets |
Ratio of net investment income (loss) to average net assets |
prior to fees waived |
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. |
See accompanying notes, which are an integral part of the financial statements.
20
Year Ended | ||||||||||||||||
11/30/12 | 11/30/11 | 11/30/10 | 11/30/09 | 11/30/08 | ||||||||||||
$12.010 | $11.150 | $8.740 | $6.930 | $12.150 | ||||||||||||
(0.022 | ) | (0.024 | ) | 0.034 | 0.003 | 0.019 | ||||||||||
1.572 | 0.928 | 2.376 | 1.815 | (4.747 | ) | |||||||||||
1.550 | 0.904 | 2.410 | 1.818 | (4.728 | ) | |||||||||||
— | (0.044 | ) | — | (0.008 | ) | — | ||||||||||
— | — | — | — | (0.492 | ) | |||||||||||
— | (0.044 | ) | — | (0.008 | ) | (0.492 | ) | |||||||||
$13.560 | $12.010 | $11.150 | $8.740 | $6.930 | ||||||||||||
12.91% | 8.10% | 27.57% | 25.36% | (40.55% | ) | |||||||||||
$25,084 | $24,242 | $23,191 | $24,512 | $17,529 | ||||||||||||
1.36% | 1.39% | 1.40% | 1.45% | 1.34% | ||||||||||||
1.41% | 1.45% | 1.54% | 1.63% | 1.57% | ||||||||||||
(0.17% | ) | (0.20% | ) | 0.35% | 0.04% | 0.19% | ||||||||||
(0.22% | ) | (0.26% | ) | 0.21% | (0.14% | ) | (0.04% | ) | ||||||||
37% | 42% | 37% | 79% | 84% |
21
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 |
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 |
Ratio of net investment loss to average net assets |
Ratio of net investment loss to average net assets |
prior to fees waived |
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.
22
Year Ended | ||||||||||||||||
11/30/12 | 11/30/11 | 11/30/10 | 11/30/09 | 11/30/08 | ||||||||||||
$11.510 | $10.720 | $8.470 | $6.750 | $11.940 | ||||||||||||
(0.115 | ) | (0.112 | ) | (0.039 | ) | (0.052 | ) | (0.055 | ) | |||||||
1.495 | 0.902 | 2.289 | 1.772 | (4.643 | ) | |||||||||||
1.380 | 0.790 | 2.250 | 1.720 | (4.698 | ) | |||||||||||
— | — | — | — | (0.492 | ) | |||||||||||
— | — | — | — | (0.492 | ) | |||||||||||
$12.890 | $11.510 | $10.720 | $8.470 | $6.750 | ||||||||||||
11.99% | 7.37% | 26.56% | 25.48% | (41.03% | ) | |||||||||||
$10,051 | $7,702 | $8,285 | $7,468 | $7,494 | ||||||||||||
2.11% | 2.14% | 2.15% | 2.20% | 2.09% | ||||||||||||
2.11% | 2.15% | 2.24% | 2.33% | 2.27% | ||||||||||||
(0.92% | ) | (0.95% | ) | (0.40% | ) | (0.71% | ) | (0.56% | ) | |||||||
(0.92% | ) | (0.96% | ) | (0.49% | ) | (0.84% | ) | (0.74% | ) | |||||||
37% | 42% | 37% | 79% | 84% |
23
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 |
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 |
Ratio of net investment income (loss) to average net assets |
Ratio of net investment loss to average net assets |
prior to fees waived |
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.
24
Year Ended | ||||||||||||||||
11/30/12 | 11/30/11 | 11/30/10 | 11/30/09 | 11/30/08 | ||||||||||||
$11.870 | $11.030 | $8.660 | $6.870 | $12.090 | ||||||||||||
(0.054 | ) | (0.054 | ) | 0.009 | (0.016 | ) | (0.005 | ) | ||||||||
1.544 | 0.913 | 2.361 | 1.806 | (4.723 | ) | |||||||||||
1.490 | 0.859 | 2.370 | 1.790 | (4.728 | ) | |||||||||||
— | (0.019 | ) | — | — | — | |||||||||||
— | — | — | — | (0.492 | ) | |||||||||||
— | (0.019 | ) | — | — | (0.492 | ) | ||||||||||
$13.360 | $11.870 | $11.030 | $8.660 | $6.870 | ||||||||||||
12.55% | 7.79% | 27.37% | 26.06% | (40.75% | ) | |||||||||||
$6,809 | $5,786 | $5,322 | $3,848 | $2,611 | ||||||||||||
1.61% | 1.64% | 1.65% | 1.70% | 1.59% | ||||||||||||
1.71% | 1.75% | 1.84% | 1.93% | 1.87% | ||||||||||||
(0.42% | ) | (0.45% | ) | 0.10% | (0.21% | ) | (0.06% | ) | ||||||||
(0.52% | ) | (0.56% | ) | (0.09% | ) | (0.44% | ) | (0.34% | ) | |||||||
37% | 42% | 37% | 79% | 84% |
25
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 |
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 |
Ratio of net investment income to average net assets |
Ratio of net investment income to average net assets |
prior to fees waived |
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.
26
Year Ended | ||||||||||||||||
11/30/12 | 11/30/11 | 11/30/10 | 11/30/09 | 11/30/08 | ||||||||||||
$12.100 | $11.230 | $8.790 | $6.970 | $12.190 | ||||||||||||
0.011 | 0.006 | 0.060 | 0.022 | 0.044 | ||||||||||||
1.579 | 0.934 | 2.385 | 1.830 | (4.772 | ) | |||||||||||
1.590 | 0.940 | 2.445 | 1.852 | (4.728 | ) | |||||||||||
— | (0.070 | ) | (0.005 | ) | (0.032 | ) | — | |||||||||
— | — | — | — | (0.492 | ) | |||||||||||
— | (0.070 | ) | (0.005 | ) | (0.032 | ) | (0.492 | ) | ||||||||
$13.690 | $12.100 | $11.230 | $8.790 | $6.970 | ||||||||||||
13.14% | 8.37% | 27.83% | 25.78% | (40.41% | ) | |||||||||||
$41,164 | $30,923 | $33,877 | $30,401 | $22,988 | ||||||||||||
1.11% | 1.14% | 1.15% | 1.20% | 1.09% | ||||||||||||
1.11% | 1.15% | 1.24% | 1.33% | 1.27% | ||||||||||||
0.08% | 0.05% | 0.60% | 0.29% | 0.44% | ||||||||||||
0.08% | 0.04% | 0.51% | 0.16% | 0.26% | ||||||||||||
37% | 42% | 37% | 79% | 84% |
27
Notes to financial statements | |
Delaware Small Cap Core Fund | November 30, 2012 |
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. 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, as reported by the underlying investment company. 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).
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
28
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 for all open federal income tax years (November 30, 2009 – November 30, 2012), 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, 2012.
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 ex-dividend date, subject to reclassification upon notice of the character of such distributions by the issuer. The Fund declares and pays dividends from net investment income and distributions from net realized gain on investments, if any, annually. The Fund may distribute income dividends and capital gains more frequently, if necessary for tax purposes. Dividends and distributions, if any, are recorded on the ex-dividend date.
29
Notes to financial statements
Delaware Small Cap Core 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, 2012.
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, 2012.
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, 2012, the Fund earned $122 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, 2013. 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, 2012, the Fund was charged $3,768 for these services.
30
DSC is also the transfer agent and dividend disbursing agent of the Fund. The Fund pays DSC a monthly asset-based fee for these services. Pursuant to a sub-transfer agency agreement between DSC and BNY Mellon Investment Servicing (US) Inc. (BNYMIS), BNYMIS provides certain sub-transfer agency services to the Fund. Sub-transfer agency fees are passed on to and paid directly by the Fund.
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, 2013, 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, 2012, the Fund had liabilities payable to affiliates as follows:
Investment management fee payable to DMC | $ | 49,905 |
Dividend disbursing, transfer agent and fund accounting | ||
oversight fees and other expenses payable to DSC | 1,796 | |
Distribution fees payable to DDLP | 15,784 | |
Other expenses payable to DMC and affiliates* | 3,662 |
*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, 2012, the Fund was charged $2,104 for internal legal and tax services provided by DMC and/or its affiliates’ employees.
For the year ended November 30, 2012, DDLP earned $10,409 for commissions on sales of the Fund’s Class A shares. For the year ended November 30, 2012, DDLP received gross CDSC commissions of $4 and $396 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.
31
Notes to financial statements
Delaware Small Cap Core Fund
3. Investments
For the year ended November 30, 2012, the Fund made purchases of $33,573,962 and sales of $27,933,121 of investment securities other than short-term investments.
At November 30, 2012, the cost of investments for federal income tax purposes was $72,315,096. At November 30, 2012, the net unrealized appreciation was $10,945,020, of which $15,144,558 related to unrealized appreciation of investments and $4,199,538 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, exchange-traded options contracts) |
Level 2 | – | other observable inputs (including, but not limited to: quoted prices for similar assets or liabilities in markets that are active, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the assets or liabilities (such as interest rates, yield curves, volatilities, prepayment speeds, loss severities, credit risks and default rates) or other market-corroborated inputs) (e.g., debt securities, government securities, swap contracts, foreign currency exchange contracts, foreign securities utilizing international fair value pricing, broker-quoted securities, fair valued securities) |
Level 3 | – | 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) |
32
Level 3 investments are valued using significant unobservable inputs. The Fund may also use an income-based valuation approach in which the anticipated future cash flows of the investment are discounted to calculate fair value. Discounts may also be applied due to the nature or duration of any restrictions on the disposition of the investments. Valuations may also be based upon current market prices of securities that are comparable in coupon, rating, maturity and industry. The derived value of a Level 3 investment may not represent the value which is received upon disposition and this could impact the results of operations.
The following table summarizes the valuation of the Fund’s investments by fair value hierarchy levels as of November 30, 2012:
Level 1 | Level 2 | Level 3 | Total | ||||||||||
Common Stock | $ | 81,756,079 | $ | — | $— | $ | 81,756,079 | ||||||
Short-Term Investments | — | 1,327,432 | — | 1,327,432 | |||||||||
Securities Lending Collateral | — | 176,605 | — | 176,605 | |||||||||
Total | $ | 81,756,079 | $ | 1,504,037 | $— | $ | 83,260,116 |
The securities deemed worthless on the statement of net assets have been included as level 3 securities within the fair value hierarchy.
A reconciliation of Level 3 investments is presented when the Fund has a significant amount of Level 3 investments at the beginning, interim or end of the period in relation to net assets.
During the year ended November 30, 2012, there were no transfers between Level 1 investments, Level 2 investments or Level 3 investments that had a significant impact to the Fund. The Fund’s policy is to recognize transfers between levels at the beginning of the reporting period.
Management has determined not to provide additional disclosure on Level 3 inputs under ASU No. 2011-04 since the Level 3 investments are not considered significant to the Fund’s net assets at the end of the period.
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. There were no dividends and distributions paid during the year ended November 30, 2012. The tax character of dividends and distributions paid during the year ended November 30, 2011 was as follows:
Year Ended | |
11/30/11 | |
Ordinary income | $313,244 |
33
Notes to financial statements
Delaware Small Cap Core Fund
5. Components of Net Assets on a Tax Basis
As of November 30, 2012, the components of net assets on a tax basis were as follows:
Shares of beneficial interest | $ | 79,642,615 | |
Qualified late year losses deferred | (88,155 | ) | |
Capital loss carryforwards | (7,390,998 | ) | |
Unrealized appreciation of investments | 10,945,020 | ||
Net assets | $ | 83,108,482 |
The differences between book basis and tax basis components of net assets are primarily attributable to tax deferral of losses on wash sales.
Qualified late year losses represent losses realized on investment transactions from January 1, 2012 through November 30, 2012 that, in accordance with federal income tax regulations, the Fund has elected to defer and treat as having arisen in the following fiscal year.
For financial reporting purposes, capital accounts are adjusted to reflect the tax character of permanent book/tax differences. Reclassifications are primarily due to net operating losses. Results of operations and net assets were not affected by these reclassifications. For the year ended November 30, 2012, the Fund recorded the following reclassifications.
Accumulated net investment loss | $ | 33,943 | |
Paid-in capital | (33,943 | ) |
For federal income tax purposes, capital loss carryforwards may be carried forward and applied against future capital gains. $5,132,829 was utilized in November 30, 2012. Capital loss carryforwards remaining at November 30, 2012 will expire as follows: $7,390,998 expires in 2017.
On December 22, 2010, the Regulated Investment Company Modernization Act of 2010 (Act) was enacted, which changed various technical rules governing the tax treatment of regulated investment companies. The changes were generally effective for taxable years beginning after the date of enactment. Under the Act, the Fund is 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.
34
6. Capital Shares
Transactions in capital shares were as follows:
Year Ended | ||||||
11/30/12 | 11/30/11 | |||||
Shares sold: | ||||||
Class A | 665,954 | 495,598 | ||||
Class C | 247,010 | 87,394 | ||||
Class R | 169,158 | 202,526 | ||||
Institutional Class | 805,690 | 564,736 | ||||
Shares issued upon reinvestment of dividends and distributions: | ||||||
Class A | — | 6,438 | ||||
Class R | — | 746 | ||||
Institutional Class | — | 17,126 | ||||
1,887,812 | 1,374,564 | |||||
Shares redeemed: | ||||||
Class A | (833,529 | ) | (563,294 | ) | ||
Class C | (136,402 | ) | (190,556 | ) | ||
Class R | (147,035 | ) | (198,480 | ) | ||
Institutional Class | (354,193 | ) | (1,042,755 | ) | ||
(1,471,159 | ) | (1,995,085 | ) | |||
Net increase (decrease) | 416,653 | (620,521 | ) |
7. Line of Credit
The Fund, along with certain other funds in the Delaware Investments® Family of Funds (Participants), was a participant in a $125,000,000 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. Each Participant was individually, and not jointly, liable for its particular advances, if any, under the line of credit. The line of credit available under the agreement expired on November 13, 2012.
On November 13, 2012, 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 line of credit available under the agreement expires on November 12, 2013. The Fund had no amounts outstanding as of November 30, 2012 or at any time during the year then ended.
35
Notes to financial statements
Delaware Small Cap Core Fund
8. Securities Lending
The Fund, along with other funds in the Delaware Investments® Family of Funds, may lend its securities pursuant to a security lending agreement (Lending Agreement) with 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. In October 2008, BNY Mellon transferred certain distressed securities from the Fund’s 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 change in value of the securities loaned that may occur during the term of the loan. The Fund has the right under the Lending Agreement to recover the securities from the borrower on demand. 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.
36
The Collective Trust used for the investment of cash collateral received from borrowers of securities 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 this shortfall.
At November 30, 2012, the value of securities on loan was $372,677, for which cash collateral was received and invested in accordance with the Lending Agreement. At November 30, 2012, the value of invested collateral was $176,605. 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.
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, 2012. 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 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, 2012, there were no Rule 144A securities. Illiquid securities have been identified on the statement of net assets.
37
Notes to financial statements
Delaware Small Cap Core Fund
10. Contractual Obligations
The Fund enters into contracts in the normal course of business that contain a variety of indemnifications. The Fund’s maximum exposure under these arrangements is unknown. However, the Fund has not had prior claims or losses pursuant to these contracts. Management has reviewed the Fund’s existing contracts and expects the risk of loss to be remote.
11. Subsequent Events
Management has determined that no material events or transactions occurred subsequent to November 30, 2012 that would require recognition or disclosure in the Fund’s financial statements.
38
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, 2012, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended and the financial highlights for each of the three 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, 2012 by correspondence with the custodian and brokers, provide a reasonable basis for our opinion. The financial highlights for each of the two 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 15, 2013
39
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 21-23, 2012 (the “Annual Meeting”), the Board of Trustees (the “Board”), including a majority of disinterested or independent Trustees, approved the renewal of the Investment Advisory Agreement for Delaware Small Cap Core Fund (the “Fund”). In making its decision, the Board considered information furnished at regular quarterly Board meetings, including reports detailing Fund performance, investment strategies and expenses, as well as information prepared specifically in connection with the renewal of the investment advisory and sub-advisory contracts. Information furnished specifically in connection with the renewal of the Investment Advisory Agreement with Delaware Management Company (“DMC”) 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 2012 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; comparative client fee information; 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 recognized DMC’s receipt of several industry distinctions. The Board gave favorable consideration to DMC’s efforts to control expenditures while maintaining service levels committed
40
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. The Board noted 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 the importance of investment performance 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, 2012. 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- 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 three- and five-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 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,
41
Other Fund information
(Unaudited)
Delaware Small Cap Core Fund
Board Consideration of Delaware Small Cap Core Fund investment advisory agreement (continued)
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.
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. 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.
42
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 | ||||
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 | ||||
1 Patrick P. Coyne is considered to be an “Interested Trustee” because he is an executive officer of the Fund’s(s’) investment advisor.
44
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 | 71 | 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) | ||||
Private Investor | 71 | Director | ||
(March 2004–Present) | Bryn Mawr Bank Corp. (BMTC) | |||
(2007–2011) | ||||
President | 71 | 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) | ||||
2 Delaware Investments is the marketing name for Delaware Management Holdings, Inc. and its subsidiaries, including the Fund’s(s’) investment advisor, principal underwriter, and its transfer agent.
45
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) | ||||
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 | ||||
Frances A. Sevilla-Sacasa | Trustee | Since September 2011 | ||
2005 Market Street | ||||
Philadelphia, PA 19103 | ||||
January 1956 | ||||
Janet L. Yeomans | Trustee | Since April 1999 | ||
2005 Market Street | ||||
Philadelphia, PA 19103 | ||||
July 1948 | ||||
46
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 | ||
Managing Director | 71 | None | ||
Anthony Knerr & Associates | ||||
(Strategic Consulting) | ||||
(1990–Present) | ||||
Private Investor | 71 | None | ||
(2004–Present) | ||||
Chief Executive Officer — | 71 | Trust Manager — Camden | ||
Banco Itaú Europa | Property Trust | |||
International | (since August 2011) | |||
(since April 2012) | ||||
Executive Advisor to Dean | ||||
(August 2011–March 2012) | ||||
and Interim Dean | ||||
(January 2011–July 2011) — | ||||
University of Miami School of | ||||
Business Administration | ||||
President — U.S. Trust, | ||||
Bank of America Private | ||||
Wealth Management | ||||
(Private Banking) | ||||
(July 2007–December 2008) | ||||
Vice President and Treasurer | 71 | Director, Audit | ||
(January 2006–July 2012) | Committee Member and | |||
Vice President — Mergers & Acquisitions | Investment Committee | |||
(January 2003–January 2006), and | Member | |||
Vice President and Treasurer | Okabena Company | |||
(July 1995–January 2003) | ||||
3M Corporation | Chair — 3M | |||
Investment Management | ||||
Company | ||||
(January 2005–July 2012) | ||||
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 (continued) | ||||
J. Richard Zecher | Trustee | Since March 2005 | ||
2005 Market Street | ||||
Philadelphia, PA 19103 | ||||
July 1940 | ||||
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 | ||
Founder | 71 | Director and Compensation | ||
Investor Analytics | Committee Member | |||
(Risk Management) | Investor Analytics | |||
(May 1999–Present) | ||||
Director | ||||
Founder | Oxigene, Inc. | |||
P/E Investments | (2003–2008) | |||
(Hedge Fund) | ||||
(September 1996–Present) |
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 | ||
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 | Executive Vice President, | Executive Vice President | ||
2005 Market Street | General Counsel | since February 2012; | ||
Philadelphia, PA 19103 | and Chief Legal Officer | Senior Vice President | ||
February 1966 | October 2005– | |||
February 2012; | ||||
General Counsel and | ||||
Chief Legal Officer | ||||
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.
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 | ||
David F. Connor has served as | 71 | None3 | ||
Vice President and Deputy | ||||
General Counsel of | ||||
Delaware Investments | ||||
since 2000. | ||||
Daniel V. Geatens has served | 71 | None3 | ||
in various capacities at | ||||
different times at | ||||
Delaware Investments. | ||||
David P. O’Connor has served in | 71 | None3 | ||
various executive and legal | ||||
capacities at different times | ||||
at Delaware Investments. | ||||
Richard Salus has served in | 71 | 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 Frances A. Sevilla-Sacasa Chief Executive Officer Banco Itaú Europa International Miami, FL | Janet L. Yeomans Former 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 Executive 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 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 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 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 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 Fund’s website at delawareinvestments.com; and (ii) on the SEC’s website at sec.gov.
52
![](https://capedge.com/proxy/N-CSR/0001206774-13-000493/del_topimg02.jpg)
Annual report Delaware Small Cap Value Fund November 30, 2012 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 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 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 delawareinvestments.com.
- 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 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 | 19 |
Statements of changes in net assets | 20 |
Financial highlights | 22 |
Notes to financial statements | 32 |
Report of independent registered | |
public accounting firm | 42 |
Other Fund information | 43 |
Board of trustees/directors and | |
officers addendum | 48 |
About the organization | 56 |
Unless otherwise noted, views expressed herein are current as of Nov. 30, 2012, 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.
© 2013 Delaware Management Holdings, Inc.
All third-party marks cited are the property of their respective owners.
Portfolio management review | ||
Delaware Small Cap Value Fund | December 11, 2012 |
Performance preview (for the year ended November 30, 2012) | |||
Delaware Small Cap Value Fund (Class A shares) | 1-year return | +10.21% | |
Russell 2000® Value Index (benchmark) | 1-year return | +15.05% |
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.
Small-cap value stocks posted solid gains during the Fund’s fiscal year ended Nov. 30, 2012, as supportive monetary policy and resilient earnings generally offset investors’ recurrent fears about political dysfunction and debt in the United States and Europe. Despite generally holding significant amounts of cash, however, corporations remained cautious, continuing a modest volume of mergers and acquisitions.
In this market environment, interest-rate sensitive groups such as real estate investment trusts (REITs) outperformed, as did consumer stocks including homebuilders and autos. Conversely, the technology and energy sectors lagged due to lackluster global growth and the reserve currency status of the U.S. dollar.
In December 2011, European Central Bank (ECB) initiated the first of two longer-term funding operations intended to relieve pressure on the region’s troubled sovereigns and financial institutions. With the “tail risk” of a euro zone breakup averted, stock prices rose briskly until March 2012, when signs of a global growth slowdown became visible. Though investors understood that some European countries were already in a recession, there were also new indications that the U.S. economy was slowing while China struggled to restore double-digit economic growth without inflating a credit bubble.
Ironically, it was those concerns that may have caused an increase in global equity market performance. By early June 2012, many investors seem to have concluded that economic conditions were so tenuous that central banks would have little choice but to further ease monetary policy. As those expectations were met, U.S. stocks rallied sharply through mid-September. Despite political uncertainty and the approaching “fiscal cliff,” equity prices remained firm to close the Fund’s fiscal year near their highs at the start of this period.
Within the Fund
For the fiscal year ended Nov. 30, 2012, Delaware Small Cap Value Fund returned +10.21% at net asset value and +3.87% at maximum offer price (both figures represent Class A shares with all distributions reinvested). For the same period, the Russell 2000 Value Index returned +15.05%. Complete annualized performance for Delaware Small Cap Value Fund is shown in the table on page 4.
An underweight position in real estate investment trusts (REITS) as well as weak stock selection within the sector detracted from relative returns. This sector had a strong run in recent years as many investors reached for yield in the low-rate environment.
1
Portfolio management review
Delaware Small Cap Value Fund
However, that seemingly unrelenting demand pushed valuations to levels that were overly rich, in our opinion.
The Fund benefited most from its holdings in the technology, basic industry, healthcare, and transportation sectors. Specifically, we continued to find stocks within the technology sector that fit our preference for companies that generate large amounts of free cash flow despite less than robust economic activity. In general, we feel that technology businesses continued to exhibit clean balance sheets, suggesting the ability to buy back shares.
With regard to individual holdings, Cirrus Logic contributed to the Fund’s relative performance during the fiscal year. Reflecting its position as a major supplier of audio chips to Apple, the company announced a significant increase in order backlog, raised forward earnings guidance, and authorized a $200 million stock buy back program. We believe the stock remains attractively priced on the basis of projected 2013 earnings and beyond, and continue to maintain our position. Of course, we recognize that the company’s close relationship to Apple is a double-edged sword, as evidenced by the sharp retracement in its share price during Apple’s selloff late in the fiscal year. Still, management is presently in the process of diversifying the company’s client base, and while this process will take time, we believe it should be successful.
The Fund also benefited from its overweight position in the fashion retailer Stage Stores. After languishing for several quarters, the company’s same-store sales suddenly began to increase at a brisk pace, fueling a powerful advance in its stock price. We maintained our position as valuation remain attractive to us based on increased earnings expectations. Fund holdings in the paint producer Valspar also outperformed. Valspar benefited from stable-to-falling commodity costs and an upturn in the domestic housing market. Though we reduced the Fund’s holdings in the stock late in the fiscal year, we continue to retain a significant position.
Meanwhile, the Fund’s weighting in the discount retailer Big Lots detracted from relative performance. Given its history of inconsistent same-store sales, the company’s share price lurched sharply lower on a series of marginally disappointing quarterly earnings announcements. We continue to hold the stock on the basis of the company’s strong (if spotty) earnings and internally-financed share buyback program. Our stake in the chemical producer Ferro Corporation also underperformed as demand waned for the adhesives it supplies to the solar panel industry. Faced with lingering uncertainty about the viability of the solar business, we exited the position.
Finally, the Fund’s holdings in the independent energy exploration-and-development company Forest Oil, detracted from relative performance. Although we believe the stock is undervalued and continue to maintain a position, newly appointed president and chief executive officer Patrick McDonald must convince investors that the company’s significant asset base (mostly oil and gas holdings in the south central region of the U.S.) can be monetized and its production profile improved.
2
As the fiscal year ended, the Fund was positioned in companies that, in our view, met its traditional criteria of generating strong free cash flow and sporting healthy balance sheets. Historically, those types of businesses often benefit disproportionately from mergers-and-acquisitions activity while retaining the financial resources to return money to shareholders through dividend increases, debt pay-downs, and share repurchases.
3
Performance summary | |
Delaware Small Cap Value Fund | November 30, 2012 |
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 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, 2012 | |||||||
Lifetime | ||||||||
(if less than | ||||||||
1 year | 5 years | 10 years | 10 years) | |||||
Class A (Est. June 24, 1987) | ||||||||
Excluding sales charge | +10.21% | +5.20% | +9.65% | n/a | ||||
Including sales charge | +3.87% | +3.96% | +9.00% | n/a | ||||
Class B (Est. Sept. 6, 1994) | ||||||||
Excluding sales charge | +9.37% | +4.41% | +9.01% | n/a | ||||
Including sales charge | +5.37% | +4.03% | +9.01% | n/a | ||||
Class C (Est. Nov. 29, 1995) | ||||||||
Excluding sales charge | +9.37% | +4.41% | +8.85% | n/a | ||||
Including sales charge | +8.37% | +4.41% | +8.85% | n/a | ||||
Class R (Est. June 2, 2003) | ||||||||
Excluding sales charge | +9.96% | +4.93% | n/a | +8.76% | ||||
Including sales charge | +9.96% | +4.93% | n/a | +8.76% | ||||
Institutional Class (Est. Nov. 9, 1992) | ||||||||
Excluding sales charge | +10.49% | +5.46% | +9.94% | n/a | ||||
Including sales charge | +10.49% | +5.46% | +9.94% | 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 5.75%, and have an annual distribution and service fee of 0.30% of average daily net assets. This fee has been contractually limited to 0.25% of average daily net assets from March 29, 2012 through March 29, 2013. Performance for Class A shares, excluding sales charges, assumes that no front-end sales charge applied.
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
4
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 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 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 0.60% of average daily net assets, which has been limited contractually to 0.50% from March 29, 2012 through March 29, 2013.
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.
Investments in small and/or medium-sized companies typically exhibit greater risk and higher volatility than larger, more established companies.
2 The Fund’s expense ratios, as described in the most recent prospectus, are disclosed in the following “Fund expense ratios” table.
Fund expense ratios | Class A | Class B | Class C | Class R | Institutional Class | ||||
Total annual operating expenses | 1.42% | 2.12% | 2.12% | 1.72% | 1.12% | ||||
(without fee waivers) | |||||||||
Net expenses | 1.37% | 2.12% | 2.12% | 1.62% | 1.12% | ||||
(including fee waivers, if any) | |||||||||
Type of waiver | Contractual | n/a | n/a | Contractual | n/a |
5
Performance summary
Delaware Small Cap Value Fund
Performance of a $10,000 investment1
Average annual total returns from Nov. 30, 2002, through Nov. 30, 2012
For period beginning Nov. 30, 2002, through Nov. 30, 2012 | Starting value | Ending value | ||
Delaware Small Cap Value Fund — Class A Shares | $9,425 | $23,680 | ||
Russell 2000 Value Index | $10,000 | $22,765 |
1 The “Performance of a $10,000 investment” graph assumes $10,000 invested in Class A shares of the Fund on Nov. 30, 2002, 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, 2002. 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, 2012 to November 30, 2012 (Unaudited)
As a shareholder of the Fund, you incur two types of costs: (1) transaction costs, including sales charges (loads) on purchase payments, reinvested dividends, or other distributions; redemption fees; and exchange fees; and (2) ongoing costs, including management fees; distribution and/or service (12b-1) fees; and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds.
The example is based on an investment of $1,000 invested at the beginning of the period and held for the entire six-month period from June 1, 2012 to November 30, 2012.
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 | |||||||
6/1/12 | 11/30/12 | Expense Ratio | 6/1/12 to 11/30/12* | |||||||
Actual Fund return† | ||||||||||
Class A | $1,000.00 | $1,060.80 | 1.34% | $ | 6.90 | |||||
Class B | 1,000.00 | 1,056.70 | 2.09% | 10.75 | ||||||
Class C | 1,000.00 | 1,056.80 | 2.09% | 10.75 | ||||||
Class R | 1,000.00 | 1,059.60 | 1.59% | 8.19 | ||||||
Institutional Class | 1,000.00 | 1,062.00 | 1.09% | 5.62 | ||||||
Hypothetical 5% return (5% return before expenses) | ||||||||||
Class A | $1,000.00 | $1,018.30 | 1.34% | $ | 6.76 | |||||
Class B | 1,000.00 | 1,014.55 | 2.09% | 10.53 | ||||||
Class C | 1,000.00 | 1,014.55 | 2.09% | 10.53 | ||||||
Class R | 1,000.00 | 1,017.05 | 1.59% | 8.02 | ||||||
Institutional Class | 1,000.00 | 1,019.55 | 1.09% | 5.50 |
*“Expenses Paid During Period” are equal to the Fund’s annualized expense ratio, multiplied by the average account value over the period, multiplied by 183/366 (to reflect the one-half year period).
†Because actual returns reflect only the most recent six-month period, the returns shown may differ significantly from fiscal year returns.
9
Security type/sector allocation and top 10 equity holdings | |
Delaware Small Cap Value Fund | As of November 30, 2012 (Unaudited) |
Sector designations may be different than the sector designations presented in other Fund materials. The sector designations may represent the investment manager’s internal sector classifications, which may result in the sector designations for one fund being different than another fund’s sector designations.
Sector type/sector | Percentage of net assets | |
Common Stock | 95.41 | % |
Basic Industry | 9.21 | % |
Business Services | 1.39 | % |
Capital Spending | 9.57 | % |
Consumer Cyclical | 2.86 | % |
Consumer Services | 11.55 | % |
Consumer Staples | 1.31 | % |
Energy | 6.45 | % |
Financial Services | 20.65 | % |
Healthcare | 6.99 | % |
Real Estate | 3.89 | % |
Technology | 15.94 | % |
Transportation | 3.06 | % |
Utilities | 2.54 | % |
Short-Term Investments | 3.52 | % |
Securities Lending Collateral | 0.04 | % |
Total Value of Securities | 98.97 | % |
Obligation to Return Securities Lending Collateral | (0.08 | %) |
Receivables and Other Assets Net of Other Liabilities | 1.11 | % |
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 | ||||
United Rentals | 2.82 | % | |||
Whiting Petroleum | 2.22 | % | |||
Platinum Underwriters Holdings | 2.19 | % | |||
Synopsys | 2.17 | % | |||
East West Bancorp | 2.14 | % | |||
Cirrus Logic | 1.99 | % | |||
Regal Beloit | 1.69 | % | |||
Cytec Industries | 1.64 | % | |||
Chicago Bridge & Iron | 1.64 | % | |||
Albemarle | 1.62 | % |
11
Statement of net assets | |
Delaware Small Cap Value Fund | November 30, 2012 |
Number of shares | Value | |||||||
Common Stock – 95.41% | ||||||||
Basic Industry – 9.21% | ||||||||
Albemarle | 267,000 | $ | 15,963,930 | |||||
† | Chemtura | 293,300 | 5,959,856 | |||||
Cytec Industries | 236,100 | 16,205,904 | ||||||
Fuller (H.B.) | 415,100 | 13,636,035 | ||||||
Glatfelter | 468,600 | 7,961,514 | ||||||
Kaiser Aluminum | 243,527 | 14,823,488 | ||||||
Olin | 272,600 | 5,650,998 | ||||||
Valspar | 171,500 | 10,766,770 | ||||||
90,968,495 | ||||||||
Business Services – 1.39% | ||||||||
Brink’s | 220,400 | 6,052,184 | ||||||
United Stationers | 250,418 | 7,685,328 | ||||||
13,737,512 | ||||||||
Capital Spending – 9.57% | ||||||||
Actuant Class A | 362,500 | 10,429,125 | ||||||
Altra Holdings | 509,500 | 9,583,695 | ||||||
Chicago Bridge & Iron | 398,600 | 16,195,118 | ||||||
Gardner Denver | 196,300 | 13,711,555 | ||||||
Regal Beloit | 239,900 | 16,733,025 | ||||||
† | United Rentals | 671,400 | 27,883,242 | |||||
94,535,760 | ||||||||
Consumer Cyclical – 2.86% | ||||||||
* | Autoliv | 112,000 | 6,760,320 | |||||
Dana Holding | 485,000 | 6,877,300 | ||||||
Knoll | 418,000 | 6,002,480 | ||||||
† | Meritage Homes | 246,300 | 8,625,426 | |||||
28,265,526 | ||||||||
Consumer Services – 11.55% | ||||||||
† | Big Lots | 236,300 | 6,654,208 | |||||
Brinker International | 273,400 | 8,188,330 | ||||||
Cato Class A | 285,700 | 8,302,442 | ||||||
CEC Entertainment | 226,500 | 7,089,450 | ||||||
Cheesecake Factory | 308,400 | 10,544,196 | ||||||
† | Children’s Place Retail Stores | 155,700 | 7,568,577 | |||||
Finish Line Class A | 401,000 | 8,272,630 | ||||||
† | Genesco | 82,100 | 4,542,593 | |||||
Guess | 162,200 | 4,196,114 |
12
Number of shares | Value | |||||||
Common Stock (continued) | ||||||||
Consumer Services (continued) | ||||||||
† | Hanesbrands | 83,000 | $ | 2,996,300 | ||||
† | Jack in the Box | 206,700 | 5,694,585 | |||||
Men’s Wearhouse | 229,300 | 7,438,492 | ||||||
Meredith | 212,500 | 6,625,750 | ||||||
Rent-A-Center | 199,200 | 6,924,192 | ||||||
Stage Stores | 304,200 | 7,869,654 | ||||||
† | Warnaco Group | 99,800 | 7,174,622 | |||||
Wolverine World Wide | 93,050 | 4,027,204 | ||||||
114,109,339 | ||||||||
Consumer Staples – 1.31% | ||||||||
Harris Teeter Supermarkets | 339,900 | 12,912,801 | ||||||
12,912,801 | ||||||||
Energy – 6.45% | ||||||||
† | Forest Oil | 456,800 | 2,909,816 | |||||
† | Helix Energy Solutions Group | 863,900 | 15,126,889 | |||||
Patterson-UTI Energy | 586,900 | 10,423,344 | ||||||
Southwest Gas | 319,700 | 13,408,218 | ||||||
† | Whiting Petroleum | 522,500 | 21,913,650 | |||||
63,781,917 | ||||||||
Financial Services – 20.65% | ||||||||
Bank of Hawaii | 327,100 | 14,219,037 | ||||||
Berkley (W.R.) | 125,000 | 4,968,750 | ||||||
Boston Private Financial Holdings | 838,800 | 7,742,124 | ||||||
Comerica | 83,555 | 2,472,392 | ||||||
Community Bank System | 558,800 | 15,020,544 | ||||||
CVB Financial | 316,900 | 3,219,704 | ||||||
East West Bancorp | 1,001,523 | 21,182,212 | ||||||
First Financial Bancorp | 663,400 | 9,639,202 | ||||||
First Midwest Bancorp | 504,400 | 6,305,000 | ||||||
Hancock Holding | 503,600 | 15,823,112 | ||||||
Independent Bank | 448,600 | 12,874,820 | ||||||
Infinity Property & Casualty | 273,500 | 14,965,920 | ||||||
NBT Bancorp | 640,400 | 12,660,708 | ||||||
Platinum Underwriters Holdings | 485,000 | 21,592,201 | ||||||
S&T Bancorp | 306,200 | 5,196,214 | ||||||
Selective Insurance Group | 791,200 | 14,779,616 | ||||||
StanCorp Financial Group | 128,600 | 4,373,686 | ||||||
Univest Corp. of Pennsylvania | 32,300 | 543,286 |
13
Statement of net assets
Delaware Small Cap Value Fund
Number of shares | Value | |||||||
Common Stock (continued) | ||||||||
Financial Services (continued) | ||||||||
Validus Holdings | 245,884 | $ | 8,719,047 | |||||
WesBanco | 364,400 | 7,692,484 | ||||||
203,990,059 | ||||||||
Healthcare – 6.99% | ||||||||
Cooper | 82,400 | 7,823,056 | ||||||
† | Haemonetics | 111,700 | 9,051,051 | |||||
* | Owens & Minor | 303,100 | 8,298,878 | |||||
Service Corp. International | 818,400 | 11,400,312 | ||||||
STERIS | 261,200 | 8,925,204 | ||||||
Teleflex | 180,700 | 12,504,440 | ||||||
Universal Health Services Class B | 245,700 | 11,073,699 | ||||||
69,076,640 | ||||||||
Real Estate – 3.89% | ||||||||
† | Alexander & Baldwin | 307,800 | 9,190,908 | |||||
Brandywine Realty Trust | 545,237 | 6,504,677 | ||||||
Education Realty Trust | 512,300 | 5,281,813 | ||||||
* | Government Properties Income Trust | 156,000 | 3,595,800 | |||||
Highwoods Properties | 243,600 | 7,853,664 | ||||||
Washington Real Estate Investment Trust | 230,300 | 5,969,376 | ||||||
38,396,238 | ||||||||
Technology – 15.94% | ||||||||
Black Box | 181,013 | 4,461,970 | ||||||
† | Brocade Communications Systems | 1,875,800 | 10,654,544 | |||||
† | Cirrus Logic | 628,100 | 19,672,092 | |||||
† | Compuware | 1,493,200 | 13,961,420 | |||||
†* | Electronics for Imaging | 331,200 | 6,080,832 | |||||
† | NetScout Systems | 375,500 | 9,432,560 | |||||
† | ON Semiconductor | 1,538,500 | 10,200,255 | |||||
† | Parametric Technology | 619,900 | 12,546,776 | |||||
† | Premiere Global Services | 833,750 | 7,078,537 | |||||
QAD Class A | 90,160 | 1,188,309 | ||||||
@ | QAD Class B | 22,540 | 280,285 | |||||
† | RF Micro Devices | 1,137,600 | 4,914,432 | |||||
† | Synopsys | 654,800 | 21,477,440 | |||||
† | Tech Data | 207,100 | 9,147,607 | |||||
† | Teradyne | 793,900 | 12,416,596 | |||||
† | Vishay Intertechnology | 1,437,400 | 13,942,780 | |||||
157,456,435 |
14
Number of shares | Value | ||||||||
Common Stock (continued) | |||||||||
Transportation – 3.06% | |||||||||
† | Kirby | 130,100 | $ | 7,530,188 | |||||
Matson | 325,000 | 7,475,000 | |||||||
† | Saia | 287,400 | 6,225,084 | ||||||
Werner Enterprises | 415,600 | 9,014,364 | |||||||
30,244,636 | |||||||||
Utilities – 2.54% | |||||||||
Black Hills | 160,800 | 5,738,952 | |||||||
El Paso Electric | 349,900 | 11,144,315 | |||||||
NorthWestern | 237,300 | 8,231,937 | |||||||
25,115,204 | |||||||||
Total Common Stock (cost $790,295,490) | 942,590,562 | ||||||||
Principal amount | |||||||||
Short-Term Investments – 3.52% | |||||||||
≠Discount Notes – 0.89% | |||||||||
Federal Home Loan Bank | |||||||||
0.10% 1/18/13 | $ | 1,328,976 | 1,328,873 | ||||||
0.10% 1/23/13 | 3,164,396 | 3,164,127 | |||||||
0.13% 2/6/13 | 3,497,304 | 3,496,864 | |||||||
0.135% 2/15/13 | 769,407 | 769,296 | |||||||
8,759,160 | |||||||||
Repurchase Agreements – 2.63% | |||||||||
Bank of America 0.19%, dated 11/30/12, to be | |||||||||
repurchased on 12/3/12, repurchase price | |||||||||
$9,313,853 (collateralized by U.S. government | |||||||||
obligations 0.00%-0.25% 1/3/13-11/30/14; | |||||||||
market value $9,499,980) | 9,313,706 | 9,313,706 | |||||||
BNP Paribas 0.20%, dated 11/30/12, to be | |||||||||
repurchased on 12/3/12, repurchase price | |||||||||
$16,675,572 (collateralized by U.S. government | |||||||||
obligations 0.25%-2.50% 3/31/14-11/30/17; | |||||||||
market value $17,021,467) | 16,675,294 | 16,675,294 | |||||||
25,989,000 | |||||||||
Total Short-Term Investments (cost $34,747,374) | 34,748,160 | ||||||||
Total Value of Securities Before Securities | |||||||||
Lending Collateral – 98.93% (cost $825,042,864) | 977,338,722 |
15
Statement of net assets
Delaware Small Cap Value Fund
Number of shares | Value | ||||||||
**Securities Lending Collateral – 0.04% | |||||||||
Investment Companies | |||||||||
Delaware Investments Collateral Fund No.1 | 464,602 | $ | 464,602 | ||||||
@†Mellon GSL Reinvestment Trust II | 372,296 | 0 | |||||||
Total Securities Lending Collateral (cost $836,898) | 464,602 | ||||||||
Total Value of Securities – 98.97% | |||||||||
(cost $825,879,762) | 977,803,324 | © | |||||||
**Obligation to Return Securities | |||||||||
Lending Collateral – (0.08%) | (836,898 | ) | |||||||
Receivables and Other Assets | |||||||||
Net of Other Liabilities – 1.11% | 11,003,863 | ||||||||
Net Assets Applicable to 24,777,024 | |||||||||
Shares Outstanding – 100.00% | $ | 987,970,289 | |||||||
Net Asset Value – Delaware Small Cap Value Fund | |||||||||
Class A ($522,403,634 / 13,142,849 Shares) | $39.75 | ||||||||
Net Asset Value – Delaware Small Cap Value Fund | |||||||||
Class B ($6,423,664 / 186,410 Shares) | $34.46 | ||||||||
Net Asset Value – Delaware Small Cap Value Fund | |||||||||
Class C ($66,230,914 / 1,922,794 Shares) | $34.45 | ||||||||
Net Asset Value – Delaware Small Cap Value Fund | |||||||||
Class R ($44,378,786 / 1,144,794 Shares) | $38.77 | ||||||||
Net Asset Value – Delaware Small Cap Value Fund | |||||||||
Institutional Class ($348,533,291 / 8,380,177 Shares) | $41.59 |
Components of Net Assets at November 30, 2012: | ||||||||
Shares of beneficial interest (unlimited authorization – no par) | $ | 828,776,845 | ||||||
Undistributed net investment income | 1,017,323 | |||||||
Accumulated net realized gain on investments | 6,252,559 | |||||||
Net unrealized appreciation of investments | 151,923,562 | |||||||
Total net assets | $ | 987,970,289 |
16
† | Non income producing security. |
* | Fully or partially on loan. |
@ | Illiquid security. At November 30, 2012, the aggregate value of illiquid securities was $280,285, which represented 0.03% 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 $813,812 of securities loaned. |
Net Asset Value and Offering Price Per Share – | |||
Delaware Small Cap Value Fund | |||
Net asset value Class A (A) | $ | 39.75 | |
Sales charge (5.75% of offering price) (B) | 2.43 | ||
Offering price | $ | 42.18 |
(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, 2012 |
Investment Income: | ||||||||
Dividends | $ | 11,354,145 | ||||||
Interest | 43,534 | |||||||
Securities lending income | 1,910 | |||||||
Foreign tax withheld | (12,111 | ) | $ | 11,387,478 | ||||
Expenses: | ||||||||
Management fees | 5,540,930 | |||||||
Distribution expenses – Class A | 1,372,434 | |||||||
Distribution expenses – Class B | 81,884 | |||||||
Distribution expenses – Class C | 591,056 | |||||||
Distribution expenses – Class R | 218,534 | |||||||
Dividend disbursing and transfer agent fees and expenses | 1,741,831 | |||||||
Accounting and administration expenses | 295,160 | |||||||
Reports and statements to shareholders | 154,672 | |||||||
Registration fees | 139,371 | |||||||
Legal fees | 65,419 | |||||||
Audit and tax | 36,216 | |||||||
Trustees’ fees | 33,648 | |||||||
Custodian fees | 13,380 | |||||||
Dues and services | 12,055 | |||||||
Insurance fees | 9,649 | |||||||
Consulting fees | 6,752 | |||||||
Pricing fees | 3,189 | |||||||
Trustees’ expenses | 2,079 | 10,318,259 | ||||||
Less waiver of distribution expenses – Class A | (228,739 | ) | ||||||
Less waiver of distribution expenses – Class R | (36,422 | ) | ||||||
Less expense paid indirectly | (1,295 | ) | ||||||
Total expenses | 10,051,803 | |||||||
Net Investment Income | 1,335,675 | |||||||
Net Realized and Unrealized Gain on Investments: | ||||||||
Net realized gain on investments | 6,504,252 | |||||||
Net change in unrealized appreciation (depreciation) | ||||||||
of investments | 54,895,533 | |||||||
Net Realized and Unrealized Gain on Investments | 61,399,785 | |||||||
Net Increase in Net Assets Resulting from Operations | $ | 62,735,460 |
See accompanying notes, which are an integral part of the financial statements.
19
Statements of changes in net assets
Delaware Small Cap Value Fund
Year Ended | ||||||||
11/30/12 | 11/30/11 | |||||||
Increase (Decrease) in Net Assets from Operations: | ||||||||
Net investment gain (loss) | $ | 1,335,675 | $ | (486,462 | ) | |||
Net realized gain | 6,504,252 | 27,352,166 | ||||||
Net change in unrealized appreciation (depreciation) | 54,895,533 | (6,539,548 | ) | |||||
Net increase in net assets resulting from operations | 62,735,460 | 20,326,156 | ||||||
Dividends and Distributions to Shareholders from: | ||||||||
Net investment income: | ||||||||
Class A | — | (4,185 | ) | |||||
Class C | — | (509 | ) | |||||
Net realized gain on investments: | ||||||||
Class A | (18,061,149 | ) | (1,183,704 | ) | ||||
Class B | (503,913 | ) | (58,291 | ) | ||||
Class C | (2,847,089 | ) | (219,108 | ) | ||||
Class R | (4,348,768 | ) | (84,036 | ) | ||||
Institutional Class | (1,391,736 | ) | (186,063 | ) | ||||
(27,152,655 | ) | (1,735,896 | ) | |||||
Capital Share Transactions: | ||||||||
Proceeds from shares sold: | ||||||||
Class A | 254,891,248 | 151,663,684 | ||||||
Class B | 60,866 | 167,931 | ||||||
Class C | 20,845,992 | 13,933,835 | ||||||
Class R | 26,856,223 | 20,205,702 | ||||||
Institutional Class | 304,482,220 | 97,448,973 | ||||||
Net asset value of shares issued upon reinvestment | ||||||||
of dividends and distributions: | ||||||||
Class A | 17,499,346 | 1,137,737 | ||||||
Class B | 476,308 | 54,435 | ||||||
Class C | 2,639,701 | 204,307 | ||||||
Class R | 1,391,128 | 83,842 | ||||||
Institutional Class | 3,578,023 | 136,429 | ||||||
632,721,055 | 285,036,875 |
20
Year Ended | ||||||||
11/30/12 | 11/30/11 | |||||||
Capital Share Transactions (continued): | ||||||||
Cost of shares redeemed: | ||||||||
Class A | $ | (146,679,412 | ) | $ | (95,563,435 | ) | ||
Class B | (4,265,249 | ) | (5,241,706 | ) | ||||
Class C | (12,058,654 | ) | (12,778,850 | ) | ||||
Class R | (13,904,316 | ) | (13,626,473 | ) | ||||
Institutional Class | (60,952,716 | ) | (54,344,733 | ) | ||||
(237,860,347 | ) | (181,555,197 | ) | |||||
Increase in net assets derived | ||||||||
from capital share transactions | 394,860,708 | 103,481,678 | ||||||
Net Increase in Net Assets | 430,443,513 | 122,071,938 | ||||||
Net Assets: | ||||||||
Beginning of year | 557,526,776 | 435,454,838 | ||||||
End of year (including undistributed net investment | ||||||||
income of $1,017,323 and $—, respectively) | $ | 987,970,289 | $ | 557,526,776 |
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 |
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 |
Ratio of net investment income (loss) to average net assets |
Ratio of net investment income (loss) to average net assets prior to fees waived |
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. |
See accompanying notes, which are an integral part of the financial statements.
22
Year Ended | ||||||||||||||||
11/30/12 | 11/30/11 | 11/30/10 | 11/30/09 | 11/30/08 | ||||||||||||
$37.860 | $36.190 | $27.530 | $21.340 | $36.000 | ||||||||||||
0.074 | (0.008 | ) | (0.003 | ) | 0.059 | 0.072 | ||||||||||
3.622 | 1.818 | 8.680 | 6.191 | (11.314 | ) | |||||||||||
3.696 | 1.810 | 8.677 | 6.250 | (11.242 | ) | |||||||||||
— | — | (0.017 | ) | (0.060 | ) | — | ||||||||||
(1.806 | ) | (0.140 | ) | — | — | (3.418 | ) | |||||||||
(1.806 | ) | (0.140 | ) | (0.017 | ) | (0.060 | ) | (3.418 | ) | |||||||
$39.750 | $37.860 | $36.190 | $27.530 | $21.340 | ||||||||||||
10.21% | 4.99% | 31.53% | 29.01% | (34.55% | ) | |||||||||||
$522,403 | $375,299 | $301,747 | $233,317 | $205,439 | ||||||||||||
1.32% | 1.37% | 1.43% | 1.43% | 1.44% | ||||||||||||
1.37% | 1.42% | 1.49% | 1.62% | 1.52% | ||||||||||||
0.19% | (0.02% | ) | (0.01% | ) | 0.27% | 0.25% | ||||||||||
0.14% | (0.07% | ) | (0.07% | ) | 0.08% | 0.17% | ||||||||||
11% | 29% | 12% | 19% | 13% |
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 |
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 |
Ratio of net investment loss to average net assets |
Ratio of net investment loss to average net assets prior to fees waived |
Portfolio turnover |
See accompanying notes, which are an integral part of the financial statements.
24
Year Ended | ||||||||||||||||
11/30/12 | 11/30/11 | 11/30/10 | 11/30/09 | 11/30/08 | ||||||||||||
$33.300 | $32.080 | $24.570 | $19.130 | $32.860 | ||||||||||||
(0.189 | ) | (0.262 | ) | (0.214 | ) | (0.088 | ) | (0.127 | ) | |||||||
3.155 | 1.622 | 7.724 | 5.528 | (10.185 | ) | |||||||||||
2.966 | 1.360 | 7.510 | 5.440 | (10.312 | ) | |||||||||||
(1.806 | ) | (0.140 | ) | — | — | (3.418 | ) | |||||||||
(1.806 | ) | (0.140 | ) | — | — | (3.418 | ) | |||||||||
$34.460 | $33.300 | $32.080 | $24.570 | $19.130 | ||||||||||||
9.37% | 4.23% | 30.57% | 28.44% | (35.08% | ) | |||||||||||
$6,424 | $9,835 | $14,249 | $17,532 | $21,825 | ||||||||||||
2.07% | 2.12% | 2.18% | 2.18% | 2.19% | ||||||||||||
2.07% | 2.12% | 2.19% | 2.32% | 2.22% | ||||||||||||
(0.56% | ) | (0.77% | ) | (0.76% | ) | (0.48% | ) | (0.50% | ) | |||||||
(0.56% | ) | (0.77% | ) | (0.77% | ) | (0.62% | ) | (0.53% | ) | |||||||
11% | 29% | 12% | 19% | 13% |
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 |
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 |
Ratio of net investment loss to average net assets |
Ratio of net investment loss to average net assets prior to fees waived |
Portfolio turnover |
See accompanying notes, which are an integral part of the financial statements.
26
Year Ended | ||||||||||||||||
11/30/12 | 11/30/11 | 11/30/10 | 11/30/09 | 11/30/08 | ||||||||||||
$33.280 | $32.070 | $24.560 | $19.120 | $32.850 | ||||||||||||
(0.188 | ) | (0.260 | ) | (0.215 | ) | (0.090 | ) | (0.126 | ) | |||||||
3.164 | 1.610 | 7.725 | 5.530 | (10.186 | ) | |||||||||||
2.976 | 1.350 | 7.510 | 5.440 | (10.312 | ) | |||||||||||
(1.806 | ) | (0.140 | ) | — | — | (3.418 | ) | |||||||||
(1.806 | ) | (0.140 | ) | — | — | (3.418 | ) | |||||||||
$34.450 | $33.280 | $32.070 | $24.560 | $19.120 | ||||||||||||
9.37% | 4.20% | 30.58% | 28.45% | (35.05% | ) | |||||||||||
$66,231 | $52,648 | $49,706 | $44,564 | $44,339 | ||||||||||||
2.07% | 2.12% | 2.18% | 2.18% | 2.19% | ||||||||||||
2.07% | 2.12% | 2.19% | 2.32% | 2.22% | ||||||||||||
(0.56% | ) | (0.77% | ) | (0.76% | ) | (0.48% | ) | (0.50% | ) | |||||||
(0.56% | ) | (0.77% | ) | (0.77% | ) | (0.62% | ) | (0.53% | ) | |||||||
11% | 29% | 12% | 19% | 13% |
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 |
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 |
Ratio of net investment income (loss) to average net assets |
Ratio of net investment loss to average net assets prior to fees waived |
Portfolio turnover |
See accompanying notes, which are an integral part of the financial statements.
28
Year Ended | ||||||||||||||||
11/30/12 | 11/30/11 | 11/30/10 | 11/30/09 | 11/30/08 | ||||||||||||
$37.050 | $35.510 | $27.070 | $20.970 | $35.530 | ||||||||||||
(0.022 | ) | (0.102 | ) | (0.081 | ) | 0.003 | (0.002 | ) | ||||||||
3.548 | 1.782 | 8.521 | 6.097 | (11.140 | ) | |||||||||||
3.526 | 1.680 | 8.440 | 6.100 | (11.142 | ) | |||||||||||
(1.806 | ) | (0.140 | ) | — | — | (3.418 | ) | |||||||||
(1.806 | ) | (0.140 | ) | — | — | (3.418 | ) | |||||||||
$38.770 | $37.050 | $35.510 | $27.070 | $20.970 | ||||||||||||
9.96% | 4.72% | 31.18% | 29.09% | (34.74% | ) | |||||||||||
$44,379 | $28,303 | $20,757 | $15,971 | $12,761 | ||||||||||||
1.57% | 1.62% | 1.68% | 1.68% | 1.69% | ||||||||||||
1.67% | 1.72% | 1.79% | 1.92% | 1.82% | ||||||||||||
(0.06% | ) | (0.27% | ) | (0.26% | ) | 0.02% | — | |||||||||
(0.16% | ) | (0.37% | ) | (0.37% | ) | (0.22% | ) | (0.13% | ) | |||||||
11% | 29% | 12% | 19% | 13% |
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 |
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 |
Ratio of net investment income to average net assets |
Ratio of net investment income to average net assets prior to fees waived |
Portfolio turnover |
See accompanying notes, which are an integral part of the financial statements.
30
Year Ended | ||||||||||||||||
11/30/12 | 11/30/11 | 11/30/10 | 11/30/09 | 11/30/08 | ||||||||||||
$39.430 | $37.590 | $28.580 | $22.170 | $37.190 | ||||||||||||
0.180 | 0.090 | 0.081 | 0.116 | 0.148 | ||||||||||||
3.786 | 1.890 | 9.005 | 6.427 | (11.750 | ) | |||||||||||
3.966 | 1.980 | 9.086 | 6.543 | (11.602 | ) | |||||||||||
— | — | (0.076 | ) | (0.133 | ) | — | ||||||||||
(1.806 | ) | (0.140 | ) | — | — | (3.418 | ) | |||||||||
(1.806 | ) | (0.140 | ) | (0.076 | ) | (0.133 | ) | (3.418 | ) | |||||||
$41.590 | $39.430 | $37.590 | $28.580 | $22.170 | ||||||||||||
10.49% | 5.26% | 31.85% | 29.28% | (34.38% | ) | |||||||||||
$348,533 | $91,442 | $48,996 | $15,912 | $13,920 | ||||||||||||
1.07% | 1.12% | 1.18% | 1.18% | 1.19% | ||||||||||||
1.07% | 1.12% | 1.19% | 1.32% | 1.22% | ||||||||||||
0.44% | 0.23% | 0.24% | 0.52% | 0.50% | ||||||||||||
0.44% | 0.23% | 0.23% | 0.38% | 0.47% | ||||||||||||
11% | 29% | 12% | 19% | 13% |
31
Notes to financial statements | |
Delaware Small Cap Value Fund | November 30, 2012 |
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, as reported by the underlying investment company. 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 for all open federal income tax years (November 30, 2009 – November 30, 2012), 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, 2012.
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 among such funds on the basis of average net assets. Management fees and some other expenses are paid monthly. Security transactions are recorded on the date the securities are purchased or sold (trade date) for financial reporting purposes. Costs used in calculating realized gains and losses on the sale of investment securities are those of the specific securities sold. Dividend income is recorded on the ex-dividend date and interest income is recorded on the accrual basis. Distributions received from investments in Real Estate Investment Trusts (REITs) are recorded as dividend income on the ex-dividend date, subject to reclassification upon notice of the character of such distributions by the issuer. 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
33
Notes to financial statements
Delaware Small Cap Value Fund
1. Significant Accounting Policies (continued)
tax rules and rates. The Fund declares and pays dividends from net investment income and distributions from net realized gain on investments, if any, annually. 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.
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, 2012.
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, 2012.
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, 2012, the Fund earned $1,295 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.
Prior to March 29, 2012, 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 and certain other expenses) did not exceed 1.20% of average daily net assets of the Fund. This expense waiver and reimbursement applied 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, 2012, the Fund was charged $37,009 for these services.
34
DSC is also the transfer agent and dividend disbursing agent of the Fund. The Fund pays DSC a monthly asset-based fee for these services. Pursuant to a sub-transfer agency agreement between DSC and BNY Mellon Investment Servicing (US) Inc. (BNYMIS), BNYMIS provides certain sub-transfer agency services to the Fund. Sub-transfer agency fees are passed on to and paid directly by the Fund.
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 of 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, 2013 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, 2012, the Fund had liabilities payable to affiliates as follows:
Investment management fee payable to DMC | $ | 565,308 |
Dividend disbursing, transfer agent and fund accounting | ||
oversight fees and other expenses payable to DSC | 21,024 | |
Distribution fees payable to DDLP | 183,136 | |
Other expenses payable to DMC and affiliates* | 44,083 |
*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, 2012, the Fund was charged $20,190 for internal legal and tax services provided by DMC and/or its affiliates’ employees.
For the year ended November 30, 2012, DDLP earned $51,679 for commissions on sales of the Fund’s Class A shares. For the year ended November 30, 2012, DDLP received gross CDSC commissions of $ 9, $ 666 and $ 2,286 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.
3. Investments
For the year ended November 30, 2012, the Fund made purchases of $417,156,555 and sales of $ 76,491,122 of investment securities other than short-term investments.
35
Notes to financial statements
Delaware Small Cap Value Fund
3. Investments (continued)
At November 30, 2012, the cost of investments for federal income tax purposes was $ 826,371,019. At November 30, 2012, the net unrealized appreciation was $ 151,432,305 of which $173,084,984 related to unrealized appreciation of investments and $21,652,679 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, exchange-traded options contracts) |
Level 2 | – | other observable inputs (including, but not limited to: quoted prices for similar assets or liabilities in markets that are active, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the assets or liabilities (such as interest rates, yield curves, volatilities, prepayment speeds, loss severities, credit risks and default rates) or other market-corroborated inputs) (e.g., debt securities, government securities, swap contracts, foreign currency exchange contracts, foreign securities utilizing international fair value pricing, broker-quoted securities, fair valued securities) |
Level 3 | – | 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) |
Level 3 investments are valued using significant unobservable inputs. The Fund may also use an income-based valuation approach in which the anticipated future cash flows of the investment are discounted to calculate fair value. Discounts may also be applied due to the nature or duration of any restrictions on the disposition of the investments. Valuations may also be based upon current market prices of securities that are comparable in coupon, rating, maturity and industry. The derived value of a Level 3 investment may not represent the value which is received upon disposition and this could impact the results of operations.
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The following table summarizes the valuation of the Fund’s investments by fair value hierarchy levels as of November 30, 2012:
Level 1 | Level 2 | Level 3 | Total | |||||||||||
Common Stock | $ | 942,590,562 | $ | — | $ | — | $ | 942,590,562 | ||||||
Short-Term Investments | — | 34,748,160 | — | 34,748,160 | ||||||||||
Securities Lending Collateral | — | 464,602 | — | 464,602 | ||||||||||
Total | $ | 942,590,562 | $ | 35,212,762 | $ | — | $ | 977,803,324 |
The securities deemed worthless on the statement of net assets have been included as Level 3 securities within the fair value hierarchy.
A reconciliation of Level 3 investments is presented when the Fund has a significant amount of Level 3 investments at the beginning, interim or end of the period in relation to net assets.
During the year ended November 30, 2012, there were no transfers between Level 1 investments, Level 2 investments, or Level 3 investments that had a significant impact to the Fund. The Fund’s policy is to recognize transfers between levels at the beginning of the reporting period.
Management has determined not to provide additional disclosure on Level 3 inputs under ASU No. 2011-04 since the Level 3 investments are not considered significant to the Fund’s net assets at the end of the period.
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, 2012 and 2011 was as follows:
Year Ended | ||||||
11/30/12 | 11/30/11 | |||||
Ordinary income | $ | 5,374,345 | $ | 4,694 | ||
Long-term capital gain | 21,778,310 | 1,731,202 | ||||
Total | $ | 27,152,655 | $ | 1,735,896 |
5. Components of Net Assets on a Tax Basis
As of November 30, 2012, the components of net assets on a tax basis were as follows:
Shares of beneficial interest | $ | 828,776,845 |
Undistributed ordinary income | 1,017,323 | |
Undistributed long-term capital gains | 6,743,816 | |
Unrealized appreciation | 151,432,305 | |
Net assets | $ | 987,970,289 |
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Notes to financial statements
Delaware Small Cap Value Fund
5. Components of Net Assets on a Tax Basis (continued)
The differences between book basis and tax basis components of net assets are primarily attributable to tax deferral of losses on wash sales.
For financial reporting purposes, capital accounts are adjusted to reflect the tax character of permanent book/tax differences. Reclassifications are primarily due to tax treatment of dividends and distributions, net operating losses, and REIT adjustments. Results of operations and net assets were not affected by these reclassifications. For the year ended November 30, 2012, the Fund recorded the following reclassifications.
Accumulated net realized gain | $ | 318,352 | |
Undistributed net investment income | (318,352 | ) |
6. Capital Shares
Transactions in capital shares were as follows:
Year Ended | ||||||
11/30/12 | 11/30/11 | |||||
Shares sold: | ||||||
Class A | 6,535,447 | 4,049,492 | ||||
Class B | 1,802 | 4,661 | ||||
Class C | 615,066 | 405,160 | ||||
Class R | 705,870 | 537,051 | ||||
Institutional Class | 7,453,049 | 2,431,608 | ||||
Shares issued upon reinvestment of dividends and distributions: | ||||||
Class A | 481,148 | 29,398 | ||||
Class B | 14,997 | 1,587 | ||||
Class C | 83,166 | 5,962 | ||||
Class R | 39,131 | 2,208 | ||||
Institutional Class | 94,233 | 3,391 | ||||
16,023,909 | 7,470,518 | |||||
Shares redeemed: | ||||||
Class A | (3,787,414 | ) | (2,503,903 | ) | ||
Class B | (125,780 | ) | (155,015 | ) | ||
Class C | (357,385 | ) | (379,274 | ) | ||
Class R | (364,034 | ) | (359,999 | ) | ||
Institutional Class | (1,485,984 | ) | (1,419,438 | ) | ||
(6,120,597 | ) | (4,817,629 | ) | |||
Net increase | 9,903,312 | 2,652,889 |
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For the years ended November 30, 2012 and 2011, 54,036 Class B shares were converted to 47,127 Class A shares valued at $1,832,315 and 70,557 Class B shares were converted to 62,342 Class A shares valued at $ 2,357,536, 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 $125,000,000 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. Each Participant was individually, and not jointly, liable for its particular advances, if any, under the line of credit. The line of credit available under the agreement expired on November 13, 2012.
On November 13, 2012, 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 line of credit available under the agreement expires on November 12, 2013. The Fund had no amounts outstanding as of November 30, 2012 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 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.
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Notes to financial statements
Delaware Small Cap Value Fund
8. Securities Lending (continued)
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. In October 2008, BNY Mellon transferred certain distressed securities from the Fund’s 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.
The Collective Trust used for the investment of cash collateral received from borrowers of securities 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.
At November 30, 2012, the value of the securities on loan was $813,812, for which cash collateral was received and invested in accordance with the Lending Agreement. At November 30, 2012, the value of invested collateral was $464,602. These investments are presented on the statement of net assets under the caption “Securities Lending Collateral.”
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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, 2012. 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, 2012, 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, 2012 that would require recognition or disclosure in the Fund’s financial statements.
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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, 2012, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended and the financial highlights for each of the three 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, 2012 by correspondence with the custodian and brokers, provide a reasonable basis for our opinion. The financial highlights for each of the two 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 15, 2013
42
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 21-23, 2012 (the “Annual Meeting”), the Board of Trustees (the “Board”), including a majority of disinterested or independent Trustees, approved the renewal of the Investment Advisory Agreement for Delaware Small Cap Value Fund (the “Fund”). In making its decision, the Board considered information furnished at regular quarterly Board meetings, including reports detailing Fund performance, investment strategies and expenses, as well as information prepared specifically in connection with the renewal of the investment advisory and sub-advisory contracts. Information furnished specifically in connection with the renewal of the Investment Advisory Agreement with Delaware Management Company (“DMC”) 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 2012 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; comparative client fee information; 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 recognized DMC’s receipt of several industry distinctions. The Board gave favorable consideration to DMC’s efforts to control expenditures while maintaining service levels committed
43
Other Fund information
(Unaudited)
Delaware Small Cap Value Fund
Board Consideration of Delaware Small Cap Value Fund investment advisory agreement (continued)
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. The Board noted 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 the importance of investment performance 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, 2012. 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 value funds as selected by Lipper. The Lipper report comparison showed that the Fund’s total return for the one-, three- and five-year periods was in the first quartile of its Performance Universe. The report further showed that the Fund’s total return for the ten-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
44
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 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 was in the quartile with the second lowest expenses of its Expense Group and its total expenses were in the quartile with the second highest expenses of its Expense Group. The Board gave favorable consideration to the Fund’s management fee, but noted that the Fund’s total expenses were not in line with the Board’s objective. In evaluating the total expenses, the Board considered 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
45
Other Fund information
(Unaudited)
Delaware Small Cap Value Fund
Board Consideration of Delaware Small Cap Value Fund investment advisory agreement (continued)
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. The Board also noted that the Fund’s assets exceeded the first breakpoint level. The Board believed that, given the extent to which economics of scale might be realized by the advisor and its affiliates, the schedule of fees under the Investment Advisory Agreement provides a sharing of benefits with the Fund and its shareholders.
Tax Information (Unaudited)
The information set forth below is for the Fund’s fiscal year as required by federal income tax 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, 2012, the Fund designates distributions paid during the year as follows:
(A) | (B) | ||||||
Long-Term | Ordinary | ||||||
Capital Gains | Income | Total | (C) | ||||
Distributions | Distributions* | Distributions | Qualifying | ||||
(Tax Basis) | (Tax Basis) | (Tax Basis) | Dividends1 | ||||
80.21% | 19.79% | 100.00% | 100.00% |
(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, 2012, 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 the Tax Relief, Unemployment Insurance Reauthorization and Jobs Creation Act of 2010. The Fund intends to designate up to a maximum percentage of 100% to be taxed at maximum rate of 15%. Complete information will be computed and reported in conjunction with your 2012 Form 1099-DIV. |
For the fiscal year ended November 30, 2012, 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 the Tax Relief, Unemployment Insurance Reauthorization and Jobs Creation Act of 2010. For the fiscal year ended November 30 2012, the Fund has designated maximum Qualified Short-Term Capital Gain distributions of $4,755,041.
46
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 | ||||
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 | ||||
1 Patrick P. Coyne is considered to be an “Interested Trustee” because he is an executive officer of the Fund’s(s’) investment advisor.
48
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 | 71 | 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) | ||||
Private Investor | 71 | Director | ||
(March 2004–Present) | Bryn Mawr Bank Corp. (BMTC) | |||
(2007–2011) | ||||
President | 71 | 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) | ||||
2 Delaware Investments is the marketing name for Delaware Management Holdings, Inc. and its subsidiaries, including the Fund’s(s’) investment advisor, principal underwriter, and its transfer agent.
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) | ||||
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 | ||||
Frances A. Sevilla-Sacasa | Trustee | Since September 2011 | ||
2005 Market Street | ||||
Philadelphia, PA 19103 | ||||
January 1956 | ||||
Janet L. Yeomans | Trustee | Since April 1999 | ||
2005 Market Street | ||||
Philadelphia, PA 19103 | ||||
July 1948 | ||||
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 | ||
Managing Director | 71 | None | ||
Anthony Knerr & Associates | ||||
(Strategic Consulting) | ||||
(1990–Present) | ||||
Private Investor | 71 | None | ||
(2004–Present) | ||||
Chief Executive Officer — | 71 | Trust Manager — Camden | ||
Banco Itaú Europa | Property Trust | |||
International | (since August 2011) | |||
(since April 2012) | ||||
Executive Advisor to Dean | ||||
(August 2011–March 2012) | ||||
and Interim Dean | ||||
(January 2011–July 2011) — | ||||
University of Miami School of | ||||
Business Administration | ||||
President — U.S. Trust, | ||||
Bank of America Private | ||||
Wealth Management | ||||
(Private Banking) | ||||
(July 2007–December 2008) | ||||
Vice President and Treasurer | 71 | Director, Audit | ||
(January 2006–July 2012) | Committee Member and | |||
Vice President — Mergers & Acquisitions | Investment Committee | |||
(January 2003–January 2006), and | Member | |||
Vice President and Treasurer | Okabena Company | |||
(July 1995–January 2003) | ||||
3M Corporation | Chair — 3M | |||
Investment Management | ||||
Company | ||||
(January 2005–July 2012) | ||||
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) | ||||
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 | ||
Founder | 71 | Director and Compensation | ||
Investor Analytics | Committee Member | |||
(Risk Management) | Investor Analytics | |||
(May 1999–Present) | ||||
Director | ||||
Founder | Oxigene, Inc. | |||
P/E Investments | (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 | Executive Vice President, | Executive Vice President | ||
2005 Market Street | General Counsel | since February 2012; | ||
Philadelphia, PA 19103 | and Chief Legal Officer | Senior Vice President | ||
February 1966 | October 2005– | |||
February 2012; | ||||
General Counsel and | ||||
Chief Legal Officer | ||||
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 | 71 | None3 | ||
Vice President and Deputy | ||||
General Counsel of | ||||
Delaware Investments | ||||
since 2000. | ||||
Daniel V. Geatens has served | 71 | None3 | ||
in various capacities at | ||||
different times at | ||||
Delaware Investments. | ||||
David P. O’Connor has served in | 71 | None3 | ||
various executive and legal | ||||
capacities at different times | ||||
at Delaware Investments. | ||||
Richard Salus has served in | 71 | 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 Frances A. Sevilla-Sacasa Chief Executive Officer Banco Itaú Europa International Miami, FL | Janet L. Yeomans Former 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 Executive 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 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 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 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 Fund’s website at delawareinvestments.com; and (ii) on the SEC’s website at sec.gov.
56
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:
Thomas L. Bennett1
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 $67,800 for the fiscal year ended November 30, 2012.
The aggregate fees billed for services provided to the registrant by its independent auditors for the audit of the registrant’s 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.
(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, 2012.
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 $685,000 for the registrant’s fiscal year ended November 30, 2012. 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; group reporting 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, 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 advisor and other service providers under common control with the advisor 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 minimus 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.
(c) Tax fees.
The aggregate fees billed by the registrant’s independent auditors for tax-related services provided to the registrant were $12,640 for the fiscal year ended November 30, 2012. 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, 2012.
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.
(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, 2012.
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, 2012.
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.
(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 $10,867,923 and $5,228,766 for the registrant’s fiscal years ended November 30, 2012 and November 30, 2011, 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
/s/ PATRICK P. COYNE | |
By: | Patrick P. Coyne |
Title: | Chief Executive Officer |
Date: | February 1, 2013 |
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.
/s/ PATRICK P. COYNE | |
By: | Patrick P. Coyne |
Title: | Chief Executive Officer |
Date: | February 1, 2013 |
/s/ RICHARD SALUS | |
By: | Richard Salus |
Title: | Chief Financial Officer |
Date: | February 1, 2013 |