Item 1. Reports to Stockholders
Annual report
Alternative / specialty mutual fund
Delaware REIT Fund
October 31, 2015
Carefully consider the Fund’s investment objectives, risk factors, charges, and expenses before investing. This and other information can be found in the Fund’s prospectus and its summary prospectus, which may be obtained by visiting delawareinvestments.com or calling 800 523-1918. Investors should read the prospectus and the summary prospectus carefully before investing.
You can obtain shareholder reports and prospectuses online instead of in the mail.
Visit 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 REIT Fund at delawareinvestments.com.
Manage your investments online
| ● | | 24-hour access to your account information |
| ● | | 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.
Neither Delaware Investments nor its affiliates noted in this document are authorized deposit-taking institutions for the purpose of the Banking Act 1959 (Commonwealth of Australia). The obligations of these entities do not represent deposits or other liabilities of Macquarie Bank Limited (MBL). MBL does not guarantee or otherwise provide assurance in respect of the obligations of these entities, unless noted otherwise.
Table of contents
Unless otherwise noted, views expressed herein are current as of Oct. 31, 2015, and subject to change for events occurring after such date.
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.
©2015 Delaware Management Holdings, Inc.
All third-party marks cited are the property of their respective owners.
| | |
| Portfolio management review |
| Delaware REIT Fund | | November 10, 2015 |
Performance preview (for the year ended October 31, 2015)
| | | | | | | | |
Delaware REIT Fund (Class A shares) | | | 1-year return | | | | +5.70% | |
FTSE NAREIT Equity REITs Index (benchmark) | | | 1-year return | | | | +5.81% | |
Past performance does not guarantee future results.
For complete, annualized performance for Delaware REIT 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. Please see page 6 for a description of the index.
Index performance returns do not reflect any management fees, transaction costs, or expenses. Indices are unmanaged and one cannot invest directly in an index.
Real estate investment trusts (REITs) finished the Fund’s fiscal year ended Oct. 31, 2015, with a moderately positive return. However, that masked significant volatility in the asset class.
REITs rallied as the fiscal year began. Starting in January 2015, however, expectations grew that the U.S. Federal Reserve would raise its short-term target interest rate. This situation helped spur a nearly nine-month struggle for real estate securities, which lost close to 17% of their value from the market’s peak in January to its trough in early September (as represented by the FTSE NAREIT Equity REITs Index). From that point through the end of the fiscal year, however, REITs bounced back, as the prospect for an imminent rate hike declined and investors seemed to take advantage of improved valuations.
Real estate fundamentals remained positive overall and continued to improve. With few properties being built in most sectors, supply of real estate was very limited, while occupancy increased and rental rates grew. However, credit markets posed a challenge for the asset class. Because REITs operate with a high degree of leverage, they can be vulnerable to changes in the cost of credit, which rose modestly over the course of the fiscal year.
Fund performance
For the fiscal year ended Oct. 31, 2015, Delaware REIT Fund (Class A shares) returned +5.70% at net asset value and -0.36% at maximum offer price (both returns assume reinvestment of all distributions). The Fund’s benchmark, the FTSE NAREIT Equity REITs Index, returned +5.81% during the same time period. Complete annualized performance for Delaware REIT Fund is shown in the table on page 4.
Strength and also challenges in healthcare
The biggest relative contribution to results came from the Fund’s substantial underweighting in healthcare REITs. Within this group, the Fund especially benefited from not purchasing HCP, a weak-performing operator of healthcare facilities, early during the fiscal year. Disappointing financial results from one of HCP’s skilled nursing facilities caused the company’s shares to struggle. We subsequently purchased a small position in HCP toward the end of the period, as we believed much of the bad news had been priced into the shares.
The Fund was hurt by its exposure to Ventas. Although we thought Ventas was better positioned than many of its competitors in its senior-housing niche, it also struggled, hampering relative performance.
1
Portfolio management review
Delaware REIT Fund
The Fund’s investments in the self-storage sector – by far the strongest-performing group in the benchmark – added significant value, led by an overweighting in Extra Space Storage. Along with its large competitors, Extra Space benefited from the industry’s lack of supply and its capacity to reach renters through new advertising technologies – an ability that smaller, private operators have not been able to match. Extra Space’s shares gained more than 40% for the fiscal year, and in recognition of the stock’s higher valuation, we trimmed the Fund’s stake and reinvested the proceeds in other self-storage stocks we believed had more upside.
In the regional malls group, General Growth Properties and Simon Property Group, the two largest mall REITs, were meaningful relative contributors. Both General Growth Properties and Simon Property Group benefited from their high-quality assets in desirable locations, which have positioned the companies to drive occupancy rates and rents higher. Although security selection in regional malls added value overall, one stock that detracted from Fund results was Macerich, which we bought and sold at inopportune times during the fiscal year.
The Fund’s stake in apartment operator UDR also added value. Apartment REITs continued to perform well, as the entire industry benefited from a positive fundamental backdrop. UDR was also helped by its exposure to well-positioned coastal markets, an active focus for the company in recent years.
Challenges of hotel REITs
The Fund’s positioning in the hotel sector, the weakest-performing category in the index over the 12-month period, hindered performance. Various factors weighed on lodging operators, including increased supply in New York City, a strong dollar slowing travel from overseas, and renovation and union-related issues in San Francisco.
Within this sector, the Fund’s overweighting in Host Hotels & Resorts particularly hurt performance. The company’s shares lagged because of industry-wide challenges and the company’s weaker-than-expected financial projections and relatively poor management. Over time, however, we added to the Fund’s stake in Host Hotels due to weakness, believing it had become attractively valued. We also saw the potential for shareholder activism to create value through possible management changes and property sales. Other detractors during the fiscal year included Pebblebrook Hotel Trust and Hilton Worldwide Holdings.
Of final note, the Fund was hurt by its average cash stake of about 2%, which hampered results in a modestly rising market.
Portfolio positioning
We took advantage of the sharp market selloff between January and September to add to positions we considered to be attractive at improved valuations. At fiscal year end, we kept a close watch on the cost of credit, which had already risen for lower-quality REITs.
Throughout the fiscal year, we emphasized areas of the REIT market that we thought would continue to benefit from good fundamentals and be well positioned to potentially withstand interest rate volatility. This led us to look for opportunities in such sectors as self-storage, apartments, regional malls, and manufactured home REITs – categories we believe to have good growth potential and the ability to benefit from limited supply. That said, in light of rising valuations in these areas, we sought to reduce risk by trimming the Fund’s allocation to all but the regional malls category.
Meanwhile, we limited exposure to areas of the market where we believed slower growth and longer lease durations would make REITs more sensitive to rate changes. These included the
healthcare and so-called “freestanding,” or triple-net, categories, both of which we significantly underweighted in the Fund.
At fiscal year end, we continue to find what we believe are good investments at attractive valuations in select areas of the REIT market. We also think that heightened volatility may create occasional shorter-term investment opportunities. As one example, we have added exposure to suburban office REITs, a category that had struggled in recent years but that we now believe
is inexpensive enough to offer what we consider a good risk-reward trade-off.
Regardless of the underlying market backdrop, our investment approach remains consistent: We want to own companies that in our opinion have the potential to generate increasing cash flows and the ability to raise capital in a prudent fashion. Given the short-term variability of financial markets, we remind investors in global property stocks that real estate, in our view, is best seen as a long-term investment.
3
| | |
| Performance summary | | |
| Delaware REIT Fund | | October 31, 2015 |
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 and benchmark performance1,2 | | Average annual total returns through October 31, 2015 |
| | | 1 year | | 5 years | | 10 years |
Class A (Est. Dec. 6, 1995) | | | | | | |
Excluding sales charge | | +5.70% | | +11.81% | | +7.28% |
Including sales charge | | -0.36% | | +10.49% | | +6.65% |
Class C (Est. Nov. 11, 1997) | | | | | | |
Excluding sales charge | | +4.86% | | +10.96% | | +6.47% |
Including sales charge | | +3.86% | | +10.96% | | +6.47% |
Class R (Est. June 2, 2003) | | | | | | |
Excluding sales charge | | +5.40% | | +11.52% | | +7.01% |
Including sales charge | | +5.40% | | +11.52% | | +7.01% |
Institutional Class (Est. Nov. 11, 1997) | | | | | | |
Excluding sales charge | | +5.94% | | +12.08% | | +7.54% |
Including sales charge | | +5.94% | | +12.08% | | +7.54% |
FTSE NAREIT Equity REITs Index | | +5.81% | | +12.25% | | +7.69% |
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 and benchmark performance” table. 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 0.25% of average daily net assets. 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.
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 0.50% of average daily net assets.
Institutional Class shares are available without sales or asset-based distribution charges only to certain eligible institutional accounts.
Narrowly focused investments may exhibit higher volatility than investments in multiple industry sectors.
4
REIT investments are subject to many of the risks associated with direct real estate ownership, including changes in economic conditions, credit risk, and interest rate fluctuations.
A REIT fund’s tax status as a regulated investment company could be jeopardized if it holds real estate directly, as a result of defaults, or receives rental income from real estate holdings.
2 The Fund’s expense ratios, as described in the most recent prospectus, are disclosed in the following “Fund expense ratios” table.
| | | | | | | | |
| | | | | | | | | Institutional |
| Fund expense ratios | | Class A | | Class C | | Class R | | Class |
Total annual operating expenses | | 1.34% | | 2.09% | | 1.59% | | 1.09% |
(without fee waivers) | | | | | | | | |
Net expenses | | 1.34% | | 2.09% | | 1.59% | | 1.09% |
(including fee waivers, if any) | | | | | | | | |
Type of waiver | | n/a | | n/a | | n/a | | n/a |
5
Performance summary
Delaware REIT Fund
Performance of a $10,000 investment1
Average annual total returns from Oct. 31, 2005, through Oct. 31, 2015
1 The “Performance of a $10,000 investment” graph assumes $10,000 invested in Class A shares of the Fund on Oct. 31, 2005, 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. Expenses are listed in the “Fund expense ratios” table on page 5. Please note additional details on pages 4 through 6.
The graph also assumes $10,000 invested in the FTSE NAREIT Equity REITs Index as of Oct. 31, 2005. The FTSE NAREIT Equity REITs Index measures the performance of all publicly traded equity real estate investment trusts (REITs) traded on U.S. exchanges, excluding timber and infrastructure REITs.
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 | | DPREX | | 246248868 | | |
Class C | | DPRCX | | 246248793 | | |
Class R | | DPRRX | | 246248561 | | |
Institutional Class | | DPRSX | | 246248777 | | |
6
Disclosure of Fund expenses
For the six-month period from May 1, 2015 to October 31, 2015 (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 May 1, 2015 to Oct. 31, 2015.
Actual expenses
The first section of the table shown, “Actual Fund return,” provides information about actual account values and actual expenses. You may use the information in this section of the table, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first section under the heading entitled “Expenses Paid During Period” to estimate the expenses you paid on your account during this period.
Hypothetical example for comparison purposes
The second section of the table shown, “Hypothetical 5% return,” provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as sales charges (loads), redemption fees, or exchange fees. Therefore, the second section of the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher. The expenses shown in the table assume reinvestment of all dividends and distributions.
7
Disclosure of Fund expenses
For the six-month period from May 1, 2015 to October 31, 2015 (Unaudited)
Delaware REIT Fund
Expense analysis of an investment of $1,000
| | | | | | | | |
| | | Beginning | | Ending | | | | Expenses |
| | | | |
| | | Account Value | | Account Value | | Annualized | | Paid During Period |
| | | | |
| | | 5/1/15 | | 10/31/15 | | Expense Ratio | | 5/1/15 to 10/31/15* |
Actual Fund return† | | |
Class A | | $1,000.00 | | $1,032.70 | | 1.41% | | $7.22 |
Class C | | 1,000.00 | | 1,028.10 | | 2.16% | | 11.04 |
Class R | | 1,000.00 | | 1,031.40 | | 1.66% | | 8.50 |
Institutional Class | | 1,000.00 | | 1,033.20 | | 1.16% | | 5.94 |
Hypothetical 5% return (5% return before expenses) | | |
Class A | | $1,000.00 | | $1,018.10 | | 1.41% | | $7.17 |
Class C | | 1,000.00 | | 1,014.32 | | 2.16% | | 10.96 |
Class R | | 1,000.00 | | 1,016.84 | | 1.66% | | 8.44 |
Institutional Class | | 1,000.00 | | 1,019.36 | | 1.16% | | 5.90 |
* “Expenses Paid During Period” are equal to the Fund’s annualized expense ratio, multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period).
† Because actual returns reflect only the most recent six-month period, the returns shown may differ significantly from fiscal year returns.
8
| | |
| Security type / sector allocation and top 10 equity holdings |
| Delaware REIT Fund | | As of October 31, 2015 (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.
| | | | |
| Security type / sector | | Percentage of net assets | | |
Common Stocks | | 97.06% | | |
Diversified REITs | | 4.38% | | |
Healthcare REITs | | 5.75% | | |
Hotel REITs | | 7.19% | | |
Industrial REITs | | 5.12% | | |
Mall REITs | | 16.62% | | |
Manufactured Housing REIT | | 1.01% | | |
Multifamily REITs | | 16.78% | | |
Office REITs | | 13.58% | | |
Office/Industrial REITs | | 4.37% | | |
Self-Storage REITs | | 7.50% | | |
Shopping Center REITs | | 12.26% | | |
Single Tenant REITs | | 1.89% | | |
Specialty REIT | | 0.61% | | |
Short-Term Investments | | 2.84% | | |
Total Value of Securities | | 99.90% | | |
Receivables and Other Assets Net of Liabilities | | 0.10% | | |
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 | | |
Simon Property Group | | 10.31% | | |
Equity Residential | | 5.17% | | |
Public Storage | | 4.98% | | |
General Growth Properties | | 4.77% | | |
AvalonBay Communities | | 4.22% | | |
Host Hotels & Resorts | | 3.68% | | |
SL Green Realty | | 3.53% | | |
Vornado Realty Trust | | 3.34% | | |
Duke Realty | | 3.09% | | |
Kimco Realty | | 3.05% | | |
| | | | | |
9
Schedule of investments
| | |
Delaware REIT Fund | | October 31, 2015 |
| | | | | | | | |
| | | Number of shares | | | Value (U.S. $) | |
| |
Common Stock – 97.06% | | | | | | | | |
| |
Diversified REITs – 4.38% | | | | | | | | |
Digital Realty Trust | | | 33,000 | | | $ | 2,440,680 | |
Vornado Realty Trust | | | 77,732 | | | | 7,815,953 | |
| | | | | | | | |
| | | | | | | 10,256,633 | |
| | | | | | | | |
Healthcare REITs – 5.75% | | | | | | | | |
Care Capital Properties | | | 6,269 | | | | 206,564 | |
Ventas | | | 121,177 | | | | 6,509,628 | |
Welltower | | | 103,800 | | | | 6,733,506 | |
| | | | | | | | |
| | | | | | | 13,449,698 | |
| | | | | | | | |
Hotel REITs – 7.19% | | | | | | | | |
DiamondRock Hospitality | | | 72,700 | | | | 849,136 | |
Hilton Worldwide Holdings | | | 102,100 | | | | 2,551,479 | |
Host Hotels & Resorts | | | 496,764 | | | | 8,608,920 | |
Pebblebrook Hotel Trust | | | 70,813 | | | | 2,420,388 | |
Strategic Hotels & Resorts † | | | 169,200 | | | | 2,385,720 | |
| | | | | | | | |
| | | | | | | 16,815,643 | |
| | | | | | | | |
Industrial REITs – 5.12% | | | | | | | | |
DCT Industrial Trust | | | 98,951 | | | | 3,673,061 | |
First Industrial Realty Trust | | | 85,000 | | | | 1,842,800 | |
Prologis | | | 151,009 | | | | 6,452,615 | |
| | | | | | | | |
| | | | | | | 11,968,476 | |
| | | | | | | | |
Mall REITs – 16.62% | | | | | | | | |
General Growth Properties | | | 385,411 | | | | 11,157,648 | |
Macerich | | | 8,700 | | | | 737,238 | |
Simon Property Group | | | 119,758 | | | | 24,126,447 | |
Taubman Centers | | | 37,200 | | | | 2,863,656 | |
| | | | | | | | |
| | | | | | | 38,884,989 | |
| | | | | | | | |
Manufactured Housing REIT – 1.01% | | | | | | | | |
Equity LifeStyle Properties | | | 39,136 | | | | 2,366,945 | |
| | | | | | | | |
| | | | | | | 2,366,945 | |
| | | | | | | | |
Multifamily REITs – 16.78% | | | | | | | | |
Apartment Investment & Management | | | 123,200 | | | | 4,828,208 | |
AvalonBay Communities | | | 56,451 | | | | 9,869,328 | |
Equity Residential | | | 156,423 | | | | 12,094,626 | |
Essex Property Trust | | | 22,727 | | | | 5,009,940 | |
Post Properties | | | 25,000 | | | | 1,493,500 | |
UDR | | | 172,700 | | | | 5,951,242 | |
| | | | | | | | |
| | | | | | | 39,246,844 | |
| | | | | | | | |
Office REITs – 13.58% | | | | | | | | |
Alexandria Real Estate Equities | | | 34,100 | | | | 3,060,134 | |
Boston Properties | | | 38,274 | | | | 4,816,783 | |
Brandywine Realty Trust | | | 242,000 | | | | 3,267,000 | |
10
| | | | | | | | |
| | | Number of shares | | | Value (U.S. $) | |
| |
Common Stock (continued) | | | | | | | | |
| |
Office REITs (continued) | | | | | | | | |
Douglas Emmett | | | 79,100 | | | $ | 2,416,505 | |
Empire State Realty Trust | | | 121,400 | | | | 2,163,348 | |
Equity Commonwealth † | | | 120,700 | | | | 3,465,297 | |
Hudson Pacific Properties | | | 80,200 | | | | 2,291,314 | |
Paramount Group | | | 114,300 | | | | 2,031,111 | |
SL Green Realty | | | 69,662 | | | | 8,263,306 | |
| | | | | | | | |
| | | | | | | 31,774,798 | |
| | | | | | | | |
Office/Industrial REITs – 4.37% | | | | | | | | |
Duke Realty | | | 349,600 | | | | 7,236,720 | |
PS Business Parks | | | 34,829 | | | | 2,987,980 | |
| | | | | | | | |
| | | | | | | 10,224,700 | |
| | | | | | | | |
Self-Storage REITs – 7.50% | | | | | | | | |
CubeSmart | | | 132,200 | | | | 3,677,804 | |
Extra Space Storage | | | 27,894 | | | | 2,210,321 | |
Public Storage | | | 50,802 | | | | 11,657,027 | |
| | | | | | | | |
| | | | | | | 17,545,152 | |
| | | | | | | | |
Shopping Center REITs – 12.26% | | | | | | | | |
Brixmor Property Group | | | 124,900 | | | | 3,199,938 | |
DDR | | | 298,275 | | | | 5,011,020 | |
Equity One | | | 133,900 | | | | 3,559,062 | |
Federal Realty Investment Trust | | | 26,300 | | | | 3,773,787 | |
Kimco Realty | | | 266,679 | | | | 7,138,997 | |
Regency Centers | | | 43,819 | | | | 2,977,939 | |
Retail Properties of America | | | 83,600 | | | | 1,251,492 | |
Urban Edge Properties | | | 75,100 | | | | 1,782,874 | |
| | | | | | | | |
| | | | | | | 28,695,109 | |
| | | | | | | | |
Single Tenant REITs – 1.89% | | | | | | | | |
National Retail Properties | | | 73,100 | | | | 2,777,800 | |
STORE Capital | | | 72,500 | | | | 1,643,575 | |
| | | | | | | | |
| | | | | | | 4,421,375 | |
| | | | | | | | |
Specialty REIT – 0.61% | | | | | | | | |
American Residential Properties | | | 86,349 | | | | 1,430,803 | |
| | | | | | | | |
| | | | | | | 1,430,803 | |
| | | | | | | | |
Total Common Stock (cost $202,839,488) | | | | | | | 227,081,165 | |
| | | | | | | | |
| | |
| | | Principal amount° | | | | |
| |
Short-Term Investments – 2.84% | | | | | | | | |
| |
Discount Notes – 0.94%≠ | | | | | | | | |
Federal Home Loan Bank | | | | | | | | |
0.105% 11/3/15 | | | 137,707 | | | | 137,707 | |
11
Schedule of investments
Delaware REIT Fund
| | | | | | | | |
| | | Principal amount° | | | Value (U.S. $) | |
| |
Short-Term Investments (continued) | |
| |
Discount Notes≠ (continued) | | | | | | | | |
Federal Home Loan Bank | | | | | | | | |
0.12% 1/4/16 | | | 133,737 | | | $ | 133,719 | |
0.12% 1/25/16 | | | 497,983 | | | | 497,890 | |
0.14% 2/18/16 | | | 488,792 | | | | 488,630 | |
0.155% 2/3/16 | | | 88,306 | | | | 88,281 | |
0.18% 2/26/16 | | | 68,684 | | | | 68,660 | |
0.18% 3/7/16 | | | 70,029 | | | | 69,986 | |
0.185% 1/19/16 | | | 4,218 | | | | 4,217 | |
0.19% 3/22/16 | | | 692,265 | | | | 691,791 | |
0.195% 12/2/15 | | | 5,974 | | | | 5,974 | |
0.295% 3/2/16 | | | 2,041 | | | | 2,040 | |
| | | | | | | | |
| | | | | | | 2,188,895 | |
| | | | | | | | |
Repurchase Agreements – 1.90% | | | | | | | | |
Bank of America Merrill Lynch
0.04%, dated 10/30/15, to be repurchased on 11/2/15, repurchase price $746,977 (collateralized by U.S. government obligations 3.625% 8/15/43; market value $761,914) | | | 746,975 | | | | 746,975 | |
Bank of Montreal
0.05%, dated 10/30/15, to be repurchased on 11/2/15, repurchase price $373,489 (collateralized by U.S. government obligations 2.00%–4.50% 8/15/25–8/15/45; market value $380,957) | | | 373,487 | | | | 373,487 | |
BNP Paribas
0.06%, dated 10/30/15, to be repurchased on 11/2/15, repurchase price $3,323,716 (collateralized by U.S. government obligations 0.00%–8.50% 2/29/16–11/15/44; market value $3,390,173) | | | 3,323,699 | | | | 3,323,699 | |
| | | | | | | | |
| | | | | | | 4,444,161 | |
| | | | | | | | |
Total Short-Term Investments (cost $6,632,877) | | | | | | | 6,633,056 | |
| | | | | | | | |
Total Value of Securities – 99.90%
(cost $209,472,365) | | | | | | $ | 233,714,221 | |
| | | | | | | | |
| ≠ | The rate shown is the effective yield at the time of purchase. |
| ° | Principal amount shown is stated in U.S. dollars unless noted that the security is denominated in another currency. |
| † | Non-income-producing security. |
REIT – Real Estate Investment Trust
See accompanying notes, which are an integral part of the financial statements.
12
This page intentionally left blank.
Statement of assets and liabilities
| | |
Delaware REIT Fund | | October 31, 2015 |
| | | | |
Assets: | | | | |
Investments, at value1 | | $ | 227,081,165 | |
Short-term investments, at value2 | | | 6,633,056 | |
Cash | | | 94,595 | |
Receivable for securities sold | | | 4,590,950 | |
Receivable for fund shares sold | | | 209,271 | |
Dividends and interest receivable | | | 74,610 | |
| | | | |
Total assets | | | 238,683,647 | |
| | | | |
Liabilities: | | | | |
Payable for securities purchased | | | 4,229,175 | |
Payable for fund shares redeemed | | | 164,647 | |
Investment management fees payable | | | 148,215 | |
Other accrued expenses | | | 128,829 | |
Distribution fees payable to affiliates | | | 42,747 | |
Other affiliates payable | | | 17,275 | |
Trustees’ fees and expenses payable | | | 569 | |
| | | | |
Total liabilities | | | 4,731,457 | |
| | | | |
Total Net Assets | | $ | 233,952,190 | |
| | | | |
| |
Net Assets Consist of: | | | | |
Paid-in capital | | $ | 189,078,137 | |
Accumulated net realized gain on investments | | | 20,632,197 | |
Net unrealized appreciation of investments | | | 24,241,856 | |
| | | | |
Total Net Assets | | $ | 233,952,190 | |
| | | | |
14
| | | | |
Net Asset Value | | | | |
Class A: | | | | |
Net assets | | $ | 90,899,416 | |
Shares of beneficial interest outstanding, unlimited authorization, no par | | | 5,851,119 | |
Net asset value per share | | $ | 15.54 | |
Sales charge | | | 5.75 | % |
Offering price per share, equal to net asset value per share / (1 – sales charge) | | $ | 16.49 | |
| |
Class C: | | | | |
Net assets | | $ | 22,084,831 | |
Shares of beneficial interest outstanding, unlimited authorization, no par | | | 1,424,525 | |
Net asset value per share | | $ | 15.50 | |
| |
Class R: | | | | |
Net assets | | $ | 12,025,259 | |
Shares of beneficial interest outstanding, unlimited authorization, no par | | | 774,306 | |
Net asset value per share | | $ | 15.53 | |
| |
Institutional Class: | | | | |
Net assets | | $ | 108,942,684 | |
Shares of beneficial interest outstanding, unlimited authorization, no par | | | 6,995,092 | |
Net asset value per share | | $ | 15.57 | |
| |
| | | | |
| 1Investments, at cost | | $ | 202,839,488 | |
| 2Short-term investments, at cost | | | 6,632,877 | |
See accompanying notes, which are an integral part of the financial statements.
15
Statement of operations
| | |
Delaware REIT Fund | | Year ended October 31, 2015 |
| | | | |
Investment Income: | | | | |
Dividends | | $ | 5,350,183 | |
Interest | | | 3,396 | |
| | | | |
| | | 5,353,579 | |
| | | | |
Expenses: | | | | |
Management fees | | | 1,847,270 | |
Distribution expenses – Class A | | | 241,314 | |
Distribution expenses – Class C | | | 230,315 | |
Distribution expenses – Class R | | | 65,888 | |
Dividend disbursing and transfer agent fees and expenses | | | 424,993 | |
Reports and statements to shareholders | | | 233,069 | |
Accounting and administration expenses | | | 78,619 | |
Registration fees | | | 66,065 | |
Audit and tax | | | 34,989 | |
Legal fees | | | 24,180 | |
Custodian fees | | | 17,993 | |
Trustees’ fees and expenses | | | 11,557 | |
Other | | | 15,477 | |
| | | | |
| | | 3,291,729 | |
Less expense paid indirectly | | | (124 | ) |
| | | | |
Total operating expenses | | | 3,291,605 | |
| | | | |
Net Investment Income | | | 2,061,974 | |
| | | | |
| |
Net Realized and Unrealized Gain (Loss): | | | | |
Net realized gain on investments | | | 26,090,366 | |
Net change in unrealized appreciation (depreciation) of investments | | | (14,219,970 | ) |
| | | | |
Net Realized and Unrealized Gain | | | 11,870,396 | |
| | | | |
Net Increase in Net Assets Resulting from Operations | | $ | 13,932,370 | |
| | | | |
See accompanying notes, which are an integral part of the financial statements.
16
This page intentionally left blank.
Statements of changes in net assets
Delaware REIT Fund
| | | | | | | | |
| | | Year ended | |
| | | 10/31/15 | | | 10/31/14 | |
Increase (Decrease) in Net Assets from Operations: | | | | | | | | |
Net investment income | | $ | 2,061,974 | | | $ | 2,147,349 | |
Net realized gain | | | 26,090,366 | | | | 14,342,077 | |
Net change in unrealized appreciation (depreciation) | | | (14,219,970 | ) | | | 23,485,829 | |
| | | | | | | | |
Net increase in net assets resulting from operations | | | 13,932,370 | | | | 39,975,255 | |
| | | | | | | | |
| | |
Dividends and Distributions to Shareholders from: | | | | | | | | |
Net investment income: | | | | | | | | |
Class A | | | (1,470,382 | ) | | | (1,608,611 | ) |
Class B | | | — | | | | (7,621 | ) |
Class C | | | (195,910 | ) | | | (220,273 | ) |
Class R | | | (170,764 | ) | | | (166,996 | ) |
Institutional Class | | | (1,977,470 | ) | | | (2,230,880 | ) |
| | |
Net realized gain: | | | | | | | | |
Class A | | | (4,518,655 | ) | | | (2,793,786 | ) |
Class B | | | — | | | | (18,951 | ) |
Class C | | | (1,061,514 | ) | | | (643,989 | ) |
Class R | | | (591,895 | ) | | | (309,110 | ) |
Institutional Class | | | (5,235,326 | ) | | | (3,303,719 | ) |
| | | | | | | | |
| | | (15,221,916 | ) | | | (11,303,936 | ) |
| | | | | | | | |
| | |
Capital Share Transactions: | | | | | | | | |
Proceeds from shares sold: | | | | | | | | |
Class A | | | 14,840,517 | | | | 19,218,001 | |
Class B | | | — | | | | 15 | |
Class C | | | 3,083,052 | | | | 3,276,207 | |
Class R | | | 4,803,315 | | | | 4,493,898 | |
Institutional Class | | | 14,933,229 | | | | 20,111,578 | |
Net asset value of shares issued upon reinvestment of dividends and distributions: | | | | | | | | |
Class A | | | 5,805,743 | | | | 4,211,290 | |
Class B | | | — | | | | 26,418 | |
Class C | | | 1,227,010 | | | | 848,285 | |
Class R | | | 760,013 | | | | 471,716 | |
Institutional Class | | | 7,173,432 | | | | 5,509,412 | |
| | | | | | | | |
| | | 52,626,311 | | | | 58,166,820 | |
| | | | | | | | |
18
| | | | | | | | |
| | | Year ended | |
| | | 10/31/15 | | | 10/31/14 | |
Capital Share Transactions (continued): | | | | | | | | |
Cost of shares redeemed: | | | | | | | | |
Class A | | $ | (28,050,468 | ) | | $ | (26,964,999 | ) |
Class B | | | — | | | | (797,702 | ) |
Class C | | | (5,229,447 | ) | | | (4,586,951 | ) |
Class R | | | (5,961,227 | ) | | | (4,199,109 | ) |
Institutional Class | | | (32,554,747 | ) | | | (26,042,255 | ) |
| | | | | | | | |
| | | (71,795,889 | ) | | | (62,591,016 | ) |
| | | | | | | | |
Decrease in net assets derived from capital share transactions | | | (19,169,578 | ) | | | (4,424,196 | ) |
| | | | | | | | |
Net Increase (Decrease) in Net Assets | | | (20,459,124 | ) | | | 24,247,123 | |
| | |
Net Assets: | | | | | | | | |
Beginning of year | | | 254,411,314 | | | | 230,164,191 | |
| | | | | | | | |
End of year (there was no undistributed net investment income at either year end) | | $ | 233,952,190 | | | $ | 254,411,314 | |
| | | | | | | | |
See accompanying notes, which are an integral part of the financial statements.
19
Financial highlights
Delaware REIT 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 from investment operations: |
Net investment income1 |
Net realized and unrealized gain |
Total from investment operations |
|
Less dividends and distributions from: |
Net investment income |
Net realized gain |
Total dividends and distributions |
|
Net asset value, end of period |
|
Total 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 some of the periods shown reflects waivers by the manager and/or distributor. Performance would have been lower had the waivers not been in effect.
See accompanying notes, which are an integral part of the financial statements.
20
| | | | | | | | | | | | | | | | | | | | |
| | | Year ended | |
| | | | |
| | | 10/31/15 | | | 10/31/14 | | | 10/31/13 | | | 10/31/12 | | | 10/31/11 | |
| |
| | $ | 15.610 | | | $ | 13.870 | | | $ | 12.850 | | | $ | 11.530 | | | $ | 10.460 | |
| | | | | |
| | | | | | | | | | | | | | | | | | | | |
| | | 0.125 | | | | 0.125 | | | | 0.153 | | | | 0.122 | | | | 0.098 | |
| | | 0.758 | | | | 2.308 | | | | 1.100 | | | | 1.412 | | | | 1.145 | |
| | | | | | | | | | | | | | | | | | | | |
| | | 0.883 | | | | 2.433 | | | | 1.253 | | | | 1.534 | | | | 1.243 | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | |
| | | | | | | | | | | | | | | | | | | | |
| | | (0.238 | ) | | | (0.254 | ) | | | (0.233 | ) | | | (0.214 | ) | | | (0.173 | ) |
| | | (0.715 | ) | | | (0.439 | ) | | | — | | | | — | | | | — | |
| | | | | | | | | | | | | | | | | | | | |
| | | (0.953 | ) | | | (0.693 | ) | | | (0.233 | ) | | | (0.214 | ) | | | (0.173 | ) |
| | | | | | | | | | | | | | | | | | | | |
| | | | | |
| | $ | 15.540 | | | $ | 15.610 | | | $ | 13.870 | | | $ | 12.850 | | | $ | 11.530 | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | |
| | | 5.70% | | | | 18.53% | | | | 9.82% | | | | 13.38% | | | | 12.01% | |
| | | | | |
| | | | | | | | | | | | | | | | | | | | |
| | $ | 90,899 | | | $ | 98,986 | | | $ | 91,593 | | | $ | 83,114 | | | $ | 75,149 | |
| | | 1.37% | | | | 1.34% | | | | 1.31% | | | | 1.30% | | | | 1.51% | |
| | | 1.37% | | | | 1.34% | | | | 1.36% | | | | 1.35% | | | | 1.57% | |
| | | 0.81% | | | | 0.89% | | | | 1.11% | | | | 0.98% | | | | 0.89% | |
| | | 0.81% | | | | 0.89% | | | | 1.06% | | | | 0.93% | | | | 0.83% | |
| | | 67% | | | | 83% | | | | 101% | | | | 87% | | | | 129% | |
|
| |
21
Financial highlights
Delaware REIT 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 from investment operations: |
Net investment income1 |
Net realized and unrealized gain |
Total from investment operations |
|
Less dividends and distributions from: |
Net investment income |
Net realized gain |
Total dividends and distributions |
|
Net asset value, end of period |
|
Total 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 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 | |
| | | | |
| | | 10/31/15 | | | 10/31/14 | | | 10/31/13 | | | 10/31/12 | | | 10/31/11 | |
| |
| | $ | 15.590 | | | $ | 13.860 | | | $ | 12.830 | | | $ | 11.510 | | | $ | 10.450 | |
| | | | | |
| | | | | | | | | | | | | | | | | | | | |
| | | 0.008 | | | | 0.019 | | | | 0.050 | | | | 0.028 | | | | 0.015 | |
| | | 0.750 | | | | 2.299 | | | | 1.111 | | | | 1.415 | | | | 1.136 | |
| | | | | | | | | | | | | | | | | | | | |
| | | 0.758 | | | | 2.318 | | | | 1.161 | | | | 1.443 | | | | 1.151 | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | |
| | | | | | | | | | | | | | | | | | | | |
| | | (0.133 | ) | | | (0.149 | ) | | | (0.131 | ) | | | (0.123 | ) | | | (0.091 | ) |
| | | (0.715 | ) | | | (0.439 | ) | | | — | | | | — | | | | — | |
| | | | | | | | | | | | | | | | | | | | |
| | | (0.848 | ) | | | (0.588 | ) | | | (0.131 | ) | | | (0.123 | ) | | | (0.091 | ) |
| | | | | | | | | | | | | | | | | | | | |
| | | | | |
| | $ | 15.500 | | | $ | 15.590 | | | $ | 13.860 | | | $ | 12.830 | | | $ | 11.510 | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | |
| | | 4.86% | | | | 17.68% | | | | 9.00% | | | | 12.57% | | | | 11.08% | |
| | | | | |
| | | | | | | | | | | | | | | | | | | | |
| | $ | 22,085 | | | $ | 23,171 | | | $ | 21,083 | | | $ | 20,198 | | | $ | 18,345 | |
| | | 2.12% | | | | 2.09% | | | | 2.06% | | | | 2.05% | | | | 2.26% | |
| | | 2.12% | | | | 2.09% | | | | 2.06% | | | | 2.05% | | | | 2.27% | |
| | | 0.06% | | | | 0.14% | | | | 0.36% | | | | 0.23% | | | | 0.14% | |
| | | 0.06% | | | | 0.14% | | | | 0.36% | | | | 0.23% | | | | 0.13% | |
| | | 67% | | | | 83% | | | | 101% | | | | 87% | | | | 129% | |
|
| |
23
Financial highlights
Delaware REIT 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 from investment operations: |
Net investment income1 |
Net realized and unrealized gain |
Total from investment operations |
|
Less dividends and distributions from: |
Net investment income |
Net realized gain |
Total dividends and distributions |
|
Net asset value, end of period |
|
Total 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 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 | |
| | | | |
| | | 10/31/15 | | | 10/31/14 | | | 10/31/13 | | | 10/31/12 | | | 10/31/11 | |
| | | | |
| | $ | 15.610 | | | $ | 13.870 | | | $ | 12.850 | | | $ | 11.530 | | | $ | 10.460 | |
| | | | | |
| | | | | | | | | | | | | | | | | | | | |
| | | 0.086 | | | | 0.091 | | | | 0.119 | | | | 0.091 | | | | 0.071 | |
| | | 0.753 | | | | 2.307 | | | | 1.100 | | | | 1.412 | | | | 1.145 | |
| | | | | | | | | | | | | | | | | | | | |
| | | 0.839 | | | | 2.398 | | | | 1.219 | | | | 1.503 | | | | 1.216 | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | |
| | | | | | | | | | | | | | | | | | | | |
| | | (0.204 | ) | | | (0.219 | ) | | | (0.199 | ) | | | (0.183 | ) | | | (0.146 | ) |
| | | (0.715 | ) | | | (0.439 | ) | | | — | | | | — | | | | — | |
| | | | | | | | | | | | | | | | | | | | |
| | | (0.919 | ) | | | (0.658 | ) | | | (0.199 | ) | | | (0.183 | ) | | | (0.146 | ) |
| | | | | | | | | | | | | | | | | | | | |
| | | | | |
| | $ | 15.530 | | | $ | 15.610 | | | $ | 13.870 | | | $ | 12.850 | | | $ | 11.530 | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | |
| | | 5.40% | | | | 18.24% | | | | 9.54% | | | | 13.09% | | | | 11.73% | |
| | | | | |
| | | | | | | | | | | | | | | | | | | | |
| | $ | 12,025 | | | $ | 12,614 | | | $ | 10,503 | | | $ | 9,446 | | | $ | 6,368 | |
| | | 1.62% | | | | 1.59% | | | | 1.56% | | | | 1.55% | | | | 1.76% | |
| | | 1.62% | | | | 1.59% | | | | 1.65% | | | | 1.65% | | | | 1.87% | |
| | | 0.56% | | | | 0.64% | | | | 0.86% | | | | 0.73% | | | | 0.64% | |
| | | 0.56% | | | | 0.64% | | | | 0.77% | | | | 0.63% | | | | 0.53% | |
| | | 67% | | | | 83% | | | | 101% | | | | 87% | | | | 129% | |
|
| |
25
Financial highlights
Delaware REIT 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 from investment operations: |
Net investment income1 |
Net realized and unrealized gain |
Total from investment operations |
|
Less dividends and distributions from: |
Net investment income |
Net realized gain |
Total dividends and distributions |
|
Net asset value, end of period |
|
Total 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 | |
| | | | |
| | | 10/31/15 | | | 10/31/14 | | | 10/31/13 | | | 10/31/12 | | | 10/31/11 | |
| |
| | $ | 15.640 | | | $ | 13.900 | | | $ | 12.880 | | | $ | 11.550 | | | $ | 10.480 | |
| | | | | |
| | | | | | | | | | | | | | | | | | | | |
| | | 0.164 | | | | 0.161 | | | | 0.188 | | | | 0.153 | | | | 0.127 | |
| | | 0.755 | | | | 2.308 | | | | 1.099 | | | | 1.422 | | | | 1.144 | |
| | | | | | | | | | | | | | | | | | | | |
| | | 0.919 | | | | 2.469 | | | | 1.287 | | | | 1.575 | | | | 1.271 | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | |
| | | | | | | | | | | | | | | | | | | | |
| | | (0.274 | ) | | | (0.290 | ) | | | (0.267 | ) | | | (0.245 | ) | | | (0.201 | ) |
| | | (0.715 | ) | | | (0.439 | ) | | | — | | | | — | | | | — | |
| | | | | | | | | | | | | | | | | | | | |
| | | (0.989 | ) | | | (0.729 | ) | | | (0.267 | ) | | | (0.245 | ) | | | (0.201 | ) |
| | | | | | | | | | | | | | | | | | | | |
| | | | | |
| | $ | 15.570 | | | $ | 15.640 | | | $ | 13.900 | | | $ | 12.880 | | | $ | 11.550 | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | |
| | | 5.94% | | | | 18.80% | | | | 10.07% | | | | 13.72% | | | | 12.27% | |
| | | | | |
| | | | | | | | | | | | | | | | | | | | |
| | $ | 108,943 | | | $ | 119,640 | | | $ | 106,221 | | | $ | 101,102 | | | $ | 98,003 | |
| | | 1.12% | | | | 1.09% | | | | 1.06% | | | | 1.05% | | | | 1.26% | |
| | | 1.12% | | | | 1.09% | | | | 1.06% | | | | 1.05% | | | | 1.27% | |
| | | 1.06% | | | | 1.14% | | | | 1.36% | | | | 1.23% | | | | 1.14% | |
| | | 1.06% | | | | 1.14% | | | | 1.36% | | | | 1.23% | | | | 1.13% | |
| | | 67% | | | | 83% | | | | 101% | | | | 87% | | | | 129% | |
|
| |
27
Notes to financial statements
| | |
| Delaware REIT Fund | | October 31, 2015 |
The Real Estate Investment Trust Portfolio (Delaware REIT Fund or Fund) is a series of Delaware Pooled® Trust (Trust), which is organized as a Delaware statutory trust. 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 5.75%. Class A share purchases of $1,000,000 or more will incur a contingent deferred sales charge (CDSC) of 1.00% if redeemed during the first year and 0.50% during the second year, provided that Delaware Distributors, L.P. (DDLP) paid a financial advisor a commission on the purchase of those shares. Effective Sept. 25, 2014, all remaining shares of Class B were converted to Class A shares. Class C shares are sold with a CDSC of 1.00%, if redeemed during the first 12 months. Class R and Institutional Class shares are not subject to a sales charge and are offered for sale exclusively to certain eligible investors. This report contains information relating only to Delaware REIT Fund. All other Delaware Pooled Trust Portfolios are included in a separate report.
The investment objectives of the Fund are to seek maximum long-term total return, with capital appreciation as a secondary objective. It seeks to achieve its objectives by investing primarily in securities of companies principally engaged in the real estate industry.
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 LLC (Nasdaq), are valued at the last quoted sales price as of the time of the regular close of the New York Stock Exchange on the valuation date. Equity securities traded on the Nasdaq are valued in accordance with the Nasdaq Official Closing Price, which may not be the last sales price. If, on a particular day, an equity security does not trade, the mean between the bid and ask prices will be used, which approximates fair value. 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.
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 (Oct. 31, 2012–Oct. 31, 2015), and has concluded that no provision for federal income tax is required in the Fund’s financial statements.
28
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 Oct. 30, 2015, and will mature on the next business day.
Use of Estimates – The Fund is an investment company, whose financial statements are prepared in conformity with U.S. GAAP. Therefore, the Fund follows the accounting and reporting guidelines for investment companies. 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. Discounts and premiums on debt securities are accreted or amortized to interest income, respectively over the lives of the respective securities using the effective interest method. Distributions received from investments in real estate investment trusts (REITs) are recorded as dividend income on the ex-dividend date, subject to reclassification upon notice of the character of such distributions by the issuer. The Fund declares and pays dividends from net investment income quarterly and net realized gain on investments, if any, annually. The Fund may distribute more frequently, if necessary for tax purposes. Dividends and distributions, if any, are recorded on the ex-dividend date.
Subject to seeking best execution, the Fund may direct certain security trades to brokers who have agreed to rebate a portion of the related brokerage commission to the Fund in cash. In general, best execution refers to many factors, including the price paid or received for a security, the commission charged, the promptness and reliability of execution, the confidentiality and placement accorded the order, and other factors affecting the overall benefit obtained by the Fund on the transaction. There were no commission rebates for the year ended Oct. 31, 2015.
The Fund may receive earnings credits from its custodian when positive cash balances are maintained, which may be used to offset custody fees. There were no such earnings credits for the year ended Oct. 31, 2015.
29
Notes to financial statements
Delaware REIT Fund
1. Significant Accounting Policies (continued)
The Fund receives earnings credits from its transfer agent when positive cash balances are maintained, which may be used to offset transfer agent fees. If the amount earned is greater than one dollar, the expense paid under this arrangement is included on the “Statement of operations” under “Dividend disbursing and transfer agent fees and expenses” with the corresponding expense offset shown under “Less expense paid indirectly.” For the year ended Oct. 31, 2015, the Fund earned $124 under the 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 the average daily net assets of the Fund; 0.70% on the next $500 million; 0.65% on the next $1.5 billion; and 0.60% on average daily net assets in excess of $2.5 billion.
Delaware Investments Fund Services Company (DIFSC), an affiliate of DMC, provides fund accounting and financial administration oversight services to the Fund. For these services, DIFSC’s fees are calculated 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 DIFSC under the service agreement described above are allocated among all retail funds in the Delaware Investments Family of Funds on a relative net asset value (NAV) basis. For the year ended Oct. 31, 2015, the Fund was charged $11,648 for these services. This amount is included on the “Statement of operations” under “Accounting and administration expenses.”
DIFSC is also the transfer agent and dividend disbursing agent of the Fund. For these services, DIFSC’s fees are calculated based on the aggregate daily net assets of the retail funds within the Delaware Investments Family of Funds at the following annual rate: 0.025% of the first $20 billion; 0.020% of the next $5 billion; 0.015% of the next $5 billion; and 0.013% of average daily net assets in excess of $30 billion. The fees payable to DIFSC under the service agreement described above are allocated among all retail funds in the Delaware Investments Family of Funds on a relative NAV basis. For the year ended Oct. 31, 2015, the Fund was charged $51,029 for these services. This amount is included on the “Statement of operations” under “Dividend disbursing and transfer agent fees and expenses.” Pursuant to a sub-transfer agency agreement between DIFSC and BNY Mellon Investment Servicing (US) Inc. (BNYMIS), BNYMIS provides certain sub-transfer agency services to the Fund. Sub-transfer agency fees are 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 0.25% of the average daily net assets of the Class A shares, 1.00% of the average daily net assets of the Class C shares, and 0.50% of the average daily net assets of the Class R shares. Institutional Class shares pay no distribution and service fee.
As provided in the investment management agreement, the Fund bears a portion of the cost of certain resources shared with DMC, including the cost of internal personnel of DMC and/or its affiliates that provide legal, tax, and regulatory reporting services to the Fund. For the year ended Oct. 31, 2015, the
30
Fund was charged $6,254 for internal legal, tax, and regulatory reporting services provided by DMC and/ or its affiliates’ employees. This amount is included on the “Statement of operations” under “Legal fees.”
For the year ended Oct. 31, 2015, DDLP earned $17,790 for commissions on sales of the Fund’s Class A shares. For the year ended Oct. 31, 2015, DDLP received gross CDSC commissions of $1,645 on redemptions of the Fund’s Class C shares and these commissions were entirely used to offset upfront commissions previously paid by DDLP to broker/dealers on sales of those shares.
Trustees’ fees include expenses accrued by the Fund for each Trustee’s retainer and meeting fees. Certain officers of DMC, DIFSC, and DDLP are officers and/or Trustees of the Trust. These officers and Trustees are paid no compensation by the Fund.
3. Investments
For the year ended Oct. 31, 2015, the Fund made purchases and sales of investment securities other than short-term investments as follows:
| | | | |
Purchases | | $ | 160,652,806 | |
Sales | | | 188,313,797 | |
At Oct. 31, 2015, the cost and unrealized appreciation (depreciation) of investments for federal income tax purposes were as follows:
| | | | |
Cost of investments | | $ | 212,209,635 | |
| | | | |
Aggregate unrealized appreciation of investments | | $ | 29,064,881 | |
Aggregate unrealized depreciation of investments | | | (7,560,295 | ) |
| | | | |
Net unrealized appreciation of investments | | $ | 21,504,586 | |
| | | | |
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 based on the best information available under the circumstances. The Fund’s investment in its entirety is assigned a level based upon the observability of the inputs which are significant to the overall valuation. The three-level hierarchy of inputs is summarized below.
| | |
| |
| Level 1 – | | Inputs are quoted prices in active markets for identical investments. (Examples: equity securities, open-end investment companies, futures contracts, exchange-traded options contracts) |
| |
| Level 2 – | | Other observable inputs, including, but not limited to: quoted prices for similar assets or liabilities in markets that are active, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the assets |
31
Notes to financial statements
Delaware REIT Fund
3. Investments (continued)
| | |
| |
| | or liabilities (such as interest rates, yield curves, volatilities, prepayment speeds, loss severities, credit risks, and default rates) or other market-corroborated inputs. (Examples: debt securities, government securities, swap contracts, foreign currency exchange contracts, foreign securities utilizing international fair value pricing, broker-quoted securities, fair valued securities) |
| |
| Level 3 – | | Significant unobservable inputs, including the Fund’s own assumptions used to determine the fair value of investments. (Examples: broker-quoted securities, fair valued securities) |
| | |
Level 3 investments are valued using significant unobservable inputs. The Fund may also use an income-based valuation approach in which the anticipated future cash flows of the investment are discounted to calculate fair value. Discounts may also be applied due to the nature or duration of any restrictions on the disposition of the investments. Valuations may also be based upon current market prices of securities that are comparable in coupon, rating, maturity, and industry. The derived value of a Level 3 investment may not represent the value which is received upon disposition and this could impact the results of operations.
The following table summarizes the valuation of the Fund’s investments by fair value hierarchy levels as of Oct. 31, 2015:
| | | | | | | | | | | | |
| Securities | | Level 1 | | | Level 2 | | | Total | |
| | | |
Common Stock | | $ | 227,081,165 | | | $ | — | | | $ | 227,081,165 | |
Short-Term Investments | | | — | | | | 6,633,056 | | | | 6,633,056 | |
| | | | | | | | | | | | |
Total Value of Securities | | $ | 227,081,165 | | | $ | 6,633,056 | | | $ | 233,714,221 | |
| | | | | | | | | | | | |
During the year ended Oct. 31, 2015, 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.
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. At Oct. 31, 2015, there were no Level 3 investments.
4. Dividends and Distribution Information
Income and long-term capital gain distributions are determined in accordance with federal income tax regulations, which may differ from U.S. 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 Oct. 31, 2015 and 2014 was as follows:
32
| | | | | | | | |
| | | Year ended | |
| | | 10/31/15 | | | 10/31/14 | |
Ordinary income | | | $4,046,794 | | | | $4,234,381 | |
Long-term capital gains | | | 11,175,122 | | | | 7,069,555 | |
| | | | | | | | |
Total | | $ | 15,221,916 | | | $ | 11,303,936 | |
| | | | | | | | |
5. Components of Net Assets on a Tax Basis
As of Oct. 31, 2015, the components of net assets on a tax basis were as follows:
| | | | |
Shares of beneficial interest | | $ | 189,078,137 | |
Undistributed ordinary income* | | | 2,442,746 | |
Undistributed long-term capital gains* | | | 20,926,721 | |
Unrealized appreciation of investments | | | 21,504,586 | |
| | | | |
Net assets | | $ | 233,952,190 | |
| | | | |
*The undistributed earnings for the Fund are estimated pending final notification of the tax character of distributions received from investments in REITs.
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 dividends and distributions and tax treatment of REIT adjustments. Results of operations and net assets were not affected by these reclassifications. For the year ended Oct. 31, 2015, the Fund recorded the following reclassifications:
| | | | |
Undistributed net investment income | | $ | 1,752,552 | |
Accumulated net realized gain | | | (1,752,552 | ) |
33
Notes to financial statements
Delaware REIT Fund
6. Capital Shares
Transactions in capital shares were as follows:
| | | | | | | | |
| | | Year ended | |
| | | 10/31/15 | | | 10/31/14 | |
Shares sold: | | | | | | | | |
Class A | | | 945,659 | | | | 1,340,926 | |
Class B | | | — | | | | 1 | |
Class C | | | 197,810 | | | | 228,822 | |
Class R | | | 304,959 | | | | 316,050 | |
Institutional Class | | | 968,761 | | | | 1,429,626 | |
| | |
Shares issued upon reinvestment of dividends and distributions: | | | | | | | | |
Class A | | | 372,567 | | | | 319,834 | |
Class B | | | — | | | | 2,028 | |
Class C | | | 78,713 | | | | 64,991 | |
Class R | | | 48,764 | | | | 35,837 | |
Institutional Class | | | 459,797 | | | | 416,035 | |
| | | | | | | | |
| | | 3,377,030 | | | | 4,154,150 | |
| | | | | | | | |
| | |
Shares redeemed: | | | | | | | | |
Class A | | | (1,808,907 | ) | | | (1,921,542 | ) |
Class B | | | — | | | | (57,147 | ) |
Class C | | | (338,364 | ) | | | (329,125 | ) |
Class R | | | (387,568 | ) | | | (300,856 | ) |
Institutional Class | | | (2,081,667 | ) | | | (1,838,197 | ) |
| | | | | | | | |
| | | (4,616,506 | ) | | | (4,446,867 | ) |
| | | | | | | | |
Net decrease | | | (1,239,476 | ) | | | (292,717 | ) |
| | | | | | | | |
Certain shareholders of Class A and Class C shares may exchange their shares for Institutional Class shares. For the years ended Oct. 31, 2015, 1,038 Class A shares and 578 Class C shares were exchanged for 1,611 Institutional Class shares valued $25,773. These exchange transactions are included as subscriptions and redemptions in the table above and the “Statements of changes in net assets.”
For the year ended Oct. 31, 2014, 25,030 Class B shares were converted to 25,009 Class A shares valued at $352,617. The 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 $225,000,000 revolving line of credit intended to be used for temporary or emergency purposes as an additional source of liquidity to fund redemptions of investor shares. Under the agreement, the Participants were charged an annual commitment fee of 0.08%, which was allocated
34
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 Nov. 10, 2014.
On Nov. 10, 2014, the Fund, along with the other Participants, entered into an amendment to the agreement for a $275,000,000 revolving line of credit. The line of credit was to be used as described above and operated in substantially the same manner as the agreement described above. The line of credit available under the agreement expired on Nov. 9, 2015.
The Fund had no amounts outstanding as of Oct. 31, 2015, or at any time during the year then ended.
8. Offsetting
In December 2011, the Financial Accounting Standards Board (FASB) issued guidance that expanded disclosure requirements on the offsetting of certain assets and liabilities. The disclosures are required for investments and derivative financial instruments subject to master netting or similar agreements which are eligible for offset on the “Statement of assets and liabilities” and require an entity to disclose both gross and net information about such investments and transactions in the financial statements. In January 2013, the FASB issued guidance that clarified which investments and transactions are subject to the offsetting disclosure requirements. The scope of the disclosure requirements for offsetting is limited to derivative instruments, repurchase agreements and reverse repurchase agreements, and securities borrowing. The guidance is effective for financial statements with fiscal years beginning on or after Jan. 1, 2013, and interim periods within those fiscal years.
In order to better define its contractual rights and to secure rights that will help the Fund mitigate its counterparty risk, the Fund entered into an International Swaps and Derivatives Association, Inc. Master Agreement (ISDA Master Agreement) or similar agreement with certain of its derivative contract counterparties. An ISDA Master Agreement is a bilateral agreement between the Fund and a counterparty that governs certain over-the-counter (OTC) derivatives and foreign exchange contracts and typically contains, among other things, collateral posting items and netting provisions in the event of a default and/or termination event. Under an ISDA Master Agreement, the Fund may, under certain circumstances, offset with the counterparty certain derivative financial instruments’ payables and/or receivables with collateral held and/or posted and create one single net payment. The provisions of the ISDA Master Agreement typically permit a single net payment in the event of default (close-out) including the bankruptcy or insolvency of the counterparty. However, bankruptcy or insolvency laws of a particular jurisdiction may impose restrictions on or prohibitions against the right of offset in bankruptcy, insolvency, or other events.
For financial reporting purposes, the Fund does not offset derivative assets and derivative liabilities that are subject to netting arrangements on the “Statement of assets and liabilities.”
At Oct. 31, 2015, the Fund had the following assets and liabilities subject to offsetting provisions:
35
Notes to financial statements
Delaware REIT Fund
8. Offsetting (continued)
Master Repurchase Agreements
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | Fair Value of | | | | | | |
| | | Repurchase | | Non-Cash | | Cash Collateral | | Net Collateral | | |
Counterparty | | Agreements | | Collateral Received | | Received | | Received | | Net Exposure(a) |
Bank of America Merrill Lynch | | | $ | 746,975 | | | | $ | (746,975 | ) | | | $ | — | | | | $ | (746,975 | ) | | | $ | — | |
Bank of Montreal | | | | 373,487 | | | | | (373,487 | ) | | | | — | | | | | (373,487 | ) | | | | — | |
BNP Paribas | | | | 3,323,699 | | | | | (3,323,699 | ) | | | | — | | | | | (3,323,699 | ) | | | | — | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
Total | | | $ | 4,444,161 | | | | $ | (4,444,161 | ) | | | $ | — | | | | $ | (4,444,161 | ) | | | $ | — | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
(a)Net exposure represents the receivable (payable) that would be due from (to) the counterparty in the event of default.
9. Securities Lending
The Fund, along with other funds in the Delaware Investments® Family of Funds, may lend its securities pursuant to a security lending agreement (Lending Agreement) with The Bank of New York Mellon (BNY Mellon). At the time a security is loaned, the borrower must post collateral equal to the required percentage of the market value of the loaned security, including any accrued interest. The required percentage is: (1) 102% with respect to U.S. securities and foreign securities that are denominated and payable in U.S. dollars; and (2) 105% with respect to foreign securities. With respect to each loan, if on any business day the aggregate market value of securities collateral plus cash collateral held is less than the aggregate market value of the securities which are the subject of such loan, the borrower will be notified to provide additional collateral by the end of the following business day which, together with the collateral already held, will be not less than the applicable initial collateral requirements for such security loan. If the aggregate market value of securities collateral and cash collateral held with respect to a security loan exceeds the applicable initial collateral requirement, upon request of the borrower, BNY Mellon must return enough collateral to the borrower by the end of the following business day to reduce the value of the remaining collateral to the applicable initial collateral requirement for such security loan. As a result of the foregoing, the value of the collateral held with respect to a loaned security on any particular day may be more or less than the value of the security on loan.
Cash collateral received is generally invested in the Delaware Investments Collateral Fund No. 1 (Collective Trust) established by BNY Mellon for the purpose of investment on behalf of funds managed by DMC that participate in BNY Mellon’s securities lending program. The Collective Trust may invest in U.S. government securities and high-quality corporate debt, asset-backed and other money market securities, and in repurchase agreements collateralized by such securities, provided that the Collective Trust will generally have a dollar-weighted average portfolio maturity of 60 days or less. The 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 the 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.
36
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 NAV 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. This could occur if an investment in the Collective Trust defaulted or if it were necessary to liquidate assets in the Collective Trust to meet returns on outstanding security loans at a time when the Collective Trust’s NAV per unit was less than $1.00. Under those circumstances, the Fund may not receive an amount from the Collective Trust 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.
During the year ended Oct. 31, 2015, the Fund had no securities out on loan.
10. Credit and Market Risk
The Fund concentrates its investments in the real estate industry 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. The Fund is also affected by interest rate changes, particularly if the REITs it holds use floating rate debt to finance their ongoing operations. Its investments may also tend to fluctuate more widely than that of a fund that invests in a broad range of industries.
The Fund may invest up to 15% of its net assets in illiquid securities, which may include securities with contractual restrictions on resale, securities exempt from registration under Rule 144A promulgated under the Securities Act of 1933, as amended, and other securities which may not be readily marketable. The relative illiquidity of these securities may impair the Fund from disposing of them in a timely manner 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 Oct. 31, 2015, there were no Rule 144A securities held by the Fund and no securities have been determined to be illiquid under the Fund’s Liquidity Procedures.
11. Contractual Obligations
The Fund enters into contracts in the normal course of business that contain a variety of indemnifications. The Fund’s maximum exposure under these arrangements is unknown. However, the Fund has not had prior claims or losses pursuant to these contracts. Management has reviewed the Fund’s existing contracts and expects the risk of loss to be remote.
37
Notes to financial statements
Delaware REIT Fund
12. Recent Accounting Pronouncements
In June 2014, the FASB issued guidance to improve the financial reporting of reverse repurchase agreements and other similar transactions. The guidance includes expanded disclosure requirements for entities that enter into reverse repurchase agreements and similar transactions accounted for as secured borrowings. The guidance is effective for financial statements with fiscal years beginning on or after Dec. 15, 2014 and interim periods within those fiscal years. Management has determined this pronouncement has no impact to the Fund’s financial statements.
In May 2015, the FASB issued Accounting Standards Update (“ASU”) No. 2015-07 regarding “Disclosures for Investments in Certain Entities That Calculate Net Asset Value per Share.” The amendments in this update are effective for the Funds for fiscal years beginning after Dec. 15, 2015, and interim periods within those fiscal years. ASU No. 2015-07 will eliminate the requirement to categorize investments in the fair value hierarchy if their fair value is measured at NAV per share (or its equivalent) using the practical expedient in the FASB’s fair value measurement guidance. Management is evaluating the impact, if any, of this guidance on the Fund’s financial statement disclosures.
13. Subsequent Events
On Nov. 9, 2015, each Fund, along with the other Participants, entered into an amendment to the agreement for a $155,000,000 revolving line of credit to be used as described in Note 7 and to be operated in substantially the same manner as the agreement described in Note 7, with the exception of the annual commitment fee. Under the amendment to the agreement, the Participants are charged an annual commitment fee of 0.10%, which is allocated across the Participants on the basis of each Participant’s allocation of the entire facility. The line of credit available under the agreement expires on Nov. 7, 2016.
Management has determined that no other material events or transactions occurred subsequent to Oct. 31, 2015 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 Pooled® Trust
and the Shareholders of The Real Estate Investment Trust Portfolio:
In our opinion, the accompanying statement of assets and liabilities, including the schedule of investments, 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 The Real Estate Investment Trust Portfolio (one of the series constituting Delaware Pooled Trust, hereafter referred to as the “Fund”) at October 31, 2015, 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 five 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 October 31, 2015 by correspondence with the custodian and brokers, and the application of alternative auditing procedures where confirmations of securities purchased had not been received, provide a reasonable basis for our opinion
PricewaterhouseCoopers LLP
Philadelphia, Pennsylvania
December 18, 2015
39
Other Fund information (Unaudited)
Delaware REIT Fund
Tax Information
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 the 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 disclosures 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 reporting, it is the intention of the Fund to report the maximum amount permitted under the Internal Revenue Code and the regulations thereunder.
For the fiscal year ended Oct. 31, 2015, the Fund reports distributions paid during the year as follows:
| | | | |
(A) Long-Term Capital Gains Distributions (Tax Basis) | | | 73.41 | % |
(B) Ordinary Income Distributions (Tax Basis) | | | 26.59 | % |
Total Distributions. | | | 100.00 | % |
(A) and (B) are based on a percentage of the Fund’s total distributions.
Board consideration of Delaware REIT Fund investment advisory agreement
At a meeting held on Aug. 18–20, 2015 (the “Annual Meeting”), the Board of Trustees (collectively referred to here as the “Board”), including a majority of disinterested or independent Trustees, approved the renewal of the Investment Advisory Agreement for Delaware REIT Fund (the “Fund”). In making its decision, the Board considered information furnished at regular quarterly Board meetings, including reports detailing Fund performance, investment strategies and expenses, as well as information prepared specifically in connection with the renewal of the investment advisory and sub-advisory contracts. Information furnished specifically in connection with the renewal of the Investment Management Agreement with Delaware Management Company (“DMC”) 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 investment manager’s financial condition and profitability. In addition, in connection with the Annual Meeting, reports were provided to the Trustees in May 2015 and included 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. In addition to the information noted above, the Board also requested and received information regarding DMC’s policy with respect to advisory fee levels and its breakpoint philosophy; the structure of portfolio manager compensation; comparative client fee information; and any constraints or limitations on the availability of securities for certain investment styles, which had in the past year inhibited, or which were likely in the future to inhibit, the investment manager’s ability to invest fully in accordance with Fund policies.
In considering information relating to the approval of the Fund’s advisory agreement, the Independent Trustees received assistance and advice from and met separately with independent legal counsel to the Independent Trustees. They also engaged a consultant to assist them in analyzing portions of the data
40
received. The Independent Trustees reviewed and discussed with such consultant two reports prepared by the consultant with respect to such data. Although the Board gave attention to all information furnished, the following discussion identifies, under separate headings, the primary factors taken into account by the Board during its contract renewal considerations.
Nature, extent, and quality of service. The Board considered the services provided by DMC to the Fund and its shareholders. In reviewing the nature, extent, and quality of services, the Board considered reports furnished to it throughout the year, which covered matters such as the relative performance of the Fund; compliance of portfolio managers with the investment policies, strategies, and restrictions for the Fund; compliance by DMC and Delaware Distributors, L.P. (together, “Management”) personnel with the Code of Ethics adopted throughout the Delaware 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 adviser and the emphasis placed on research in the investment process. The Board recognized DMC’s receipt of several industry distinctions during the past several years. The Board gave favorable consideration to DMC’s efforts to control expenditures while maintaining service levels committed to Fund matters. The Board noted that, in the third and fourth quarters of 2013, Management reduced the maximum 12b-1 fee for certain Funds; and in November 2013 Management negotiated a substantial reduction in fees for fund accounting services provided to the Funds. 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 DMC.
Investment performance. The Board placed significant emphasis on the investment performance of the Fund in view of the importance of investment performance to shareholders. Although the Board 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 1-, 3-, 5-, and 10-year periods, to the extent applicable, ended March 31, 2015. 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 Performance Universe for the Fund consisted of the Fund and all retail and institutional real estate funds as selected by Lipper. The Lipper report comparison showed that the Fund’s total return for the 1-, 3-, and 10-year periods was in the third quartile of its Performance Universe. The report further showed that the Fund’s total return for the 5-year period was in the second quartile of its Performance Universe. The Board determined that the Fund’s performance results were mixed. In evaluating the Fund’s performance, the Board considered the numerous investment and performance reports
41
Other Fund information (Unaudited)
Delaware REIT Fund
Board consideration of Delaware REIT Fund investment advisory agreement (continued)
delivered by Management personnel to the Board’s Investments Committee. The Board was satisfied that Management was taking action to improve Fund performance and to meet the Board’s performance objective.
Comparative expenses. The Board considered expense comparison data for the Delaware Investments® Family of Funds. Management provided the Board with information on pricing levels and fee structures for the Fund as of its most recently completed fiscal year. The Board also focused on the comparative analysis of effective management fees and total expense ratios of the Fund versus effective management fees and expense ratios of a group of similar funds as selected by Lipper (the “Expense Group”). In reviewing comparative costs, the Fund’s contractual management fee and the actual management fee incurred by the Fund were compared with the contractual management fees (assuming all funds in the Expense Group were similar in size to the Fund) and actual management fees (as reported by each fund) within the Expense Group, taking into account any applicable breakpoints and fee waivers. The Fund’s total expenses were also compared with those of its Expense Group. The Lipper total expenses, for comparative consistency, were shown by Lipper for Class A shares and comparative total expenses including 12b-1 and non-12b-1 service fees. The Board considered fees paid to DMC 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 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 DMC in connection with the operation of the Fund. In this respect, the Board reviewed the Investment Management Profitability Analysis that addressed the overall profitability of DMC’s business in providing management and other services to each of the individual funds and the Delaware 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 DMC, to a certain extent, reflects recent operational cost savings and efficiencies initiated by DMC. The Board considered DMC’s efforts to improve services provided to fund shareholders and to meet additional regulatory and compliance requirements resulting from recent industry-wide Securities and Exchange Commission initiatives. The Board also considered the extent to which DMC might derive ancillary benefits from fund operations, including the potential for procuring additional business as a result of the prestige and visibility associated with its role as service provider to the Delaware 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 DMC.
Economies of scale. The Trustees considered whether economies of scale are realized by DMC as the Fund’s assets increase and the extent to which any economies of scale are reflected in the level of management fees charged. The Trustees reviewed the standardized advisory fee pricing and structure, approved by the Board and shareholders, which includes breakpoints, and which applies to most funds in the Delaware Investments Family of Funds complex. Breakpoints in the advisory fee occur when the advisory fee rate is reduced on assets in excess of specified levels. Breakpoints result in a lower
42
advisory fee than would otherwise be the case in the absence of breakpoints, when the asset levels specified in the breakpoints are exceeded. The Board noted that the fee under the Fund’s management contract fell within the standardized fee pricing structure. Although the Fund has not reached a size at which it can take advantage of any breakpoints in the applicable fee schedule, the Board recognized that the fee was structured so that if the Fund grows, economies of scale may be shared.
43
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 Trustee | | | | |
| Shawn K. Lytle1 | | President, | | Trustee since |
| 2005 Market Street | | Chief Executive Officer, | | September 1, 2015 |
| Philadelphia, PA 19103 | | and Trustee | | |
| February 1970 | | | | President and |
| | | | Chief Executive Officer |
| | | | since August 20, 2015 |
| | | | | |
| | | | | |
Independent Trustees | | | | |
| Thomas L. Bennett | | Chairman and Trustee | | Trustee since |
| 2005 Market Street | | | | March 2005 |
| Philadelphia, PA 19103 | | | | |
| October 1947 | | | | Chairman since |
| | | | March 1, 2015 |
| | | | | |
| Ann D. Borowiec | | Trustee | | Since March 31, 2015 |
| 2005 Market Street | | | | |
| Philadelphia, PA 19103 | | | | |
| November 1958 | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| Joseph W. Chow | | Trustee | | Since January 2013 |
| 2005 Market Street | | | | |
| Philadelphia, PA 19103 | | | | |
| January 1953 | | | | |
| | | | | |
| | | | | |
| | | | | |
1 Shawn K.Lytle 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 the Past Five Years | | by Trustee or Officer | | Held by Trustee or Officer |
| | | | |
| Shawn K. Lytle has served as | | 64 | | Trustee — UBS |
| President of | | | | Relationship Funds, |
| Delaware Investments2 | | | | SMA Relationship |
| since June 2015 and was the | | | | Trust, and UBS Funds |
| Regional Head of Americas for | | | | (May 2010–April 2015) |
| UBS Global Asset | | | | |
| Management from | | | | |
| 2010 through 2015. | | | | |
| | | | |
| Private Investor | | 64 | | Director — |
| (March 2004–Present) | | | | Bryn Mawr Bank Corp. (BMTC) |
| | | | (2007–2011) |
| | | | | |
| | | | | |
| | | | | |
| Chief Executive Officer | | 64 | | None |
| Private Wealth Management | | | | |
| (2011–2013) and | | | | |
| Market Manager, | | | | |
| New Jersey Private | | | | |
| Bank (2005–2011) — | | | | |
| J.P. Morgan Chase & Co. | | | | |
| | | | | |
| Executive Vice President | | 64 | | Director and Audit Committee |
| (Emerging Economies | | | | Member — Hercules |
| Strategies, Risks, and | | | | Technology Growth |
| Corporate Administration) | | | | Capital, Inc. |
| State Street Corporation | | | | (2004–2014) |
| (July 2004–March 2011) | | | | |
| | | | | |
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) | | |
| John A. Fry | | Trustee | | Since January 2001 |
| 2005 Market Street | | | | |
| Philadelphia, PA 19103 | | | | |
| May 1960 | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| 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 | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
46
| | | | |
| | | Number of Portfolios in | | |
| Principal Occupation(s) | | Fund Complex Overseen | | Other Directorships |
| During the Past Five Years | | by Trustee or Officer | | Held by Trustee or Officer |
| | |
| President — | | 64 | | Director — Hershey Trust |
| Drexel University | | | | Company |
| (August 2010–Present) | | | | |
| | | | Director, Audit Committee, |
| President — | | | | and Governance Committee |
| Franklin & Marshall College | | | | Member — Community |
| (July 2002–July 2010) | | | | Health Systems |
| | | | |
| | | | Director — Drexel |
| | | | Morgan & Co. |
| | |
| | | | | |
| Private Investor | | 64 | | None |
| (2004–Present) | | | | |
| | | | | |
| | | | | |
| | | | | |
| Chief Executive Officer — | | 64 | | Trust Manager and |
| Banco Itaú | | | | Audit Committee |
| International | | | | Member — Camden |
| (April 2012–Present) | | | | Property Trust |
| | | | |
| 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) | | | | |
| | | | | |
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) | | |
| Thomas K. Whitford | | Trustee | | Since January 2013 |
| 2005 Market Street | | | | |
| Philadelphia, PA 19103 | | | | |
| March 1956 | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| Janet L. Yeomans | | Trustee | | Since April 1999 |
| 2005 Market Street | | | | |
| Philadelphia, PA 19103 | | | | |
| July 1948 | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
48
| | | | |
| | | Number of Portfolios in | | |
| Principal Occupation(s) | | Fund Complex Overseen | | Other Directorships |
| During the Past Five Years | | by Trustee or Officer | | Held by Trustee or Officer |
| | |
| Vice Chairman | | 64 | | Director — HSBC Finance |
| (2010–April 2013), | | | | Corporation and HSBC |
| Chief Administrative | | | | North America Holdings Inc. |
| Officer (2008–2010), | | | | |
| and Executive Vice | | | | Director — |
| President and Chief | | | | HSBC Bank |
| Administrative Officer | | | | |
| (2007–2009) — | | | | |
| PNC Financial | | | | |
| Services Group | | | | |
| | | | | |
| Vice President and Treasurer | | 64 | | Director, Audit and |
| (January 2006–July 2012) | | | | Compliance Committee Chair, |
| Vice President — | | | | Investment Committee |
| Mergers & Acquisitions | | | | Member, and Governance |
| (January 2003–January 2006), | | | | Committee Member — |
| and Vice President | | | | Okabena Company |
| and Treasurer | | | | |
| (July 1995–January 2003) | | | | Chair — 3M |
| 3M Corporation | | | | Investment Management |
| | | | Company |
| | | | (2005–2012) |
| | | | | |
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 | | Senior Vice President, | | Senior Vice President |
| 2005 Market Street | | General Counsel, | | since May 2013; |
| Philadelphia, PA 19103 | | and Secretary | | General Counsel |
| December 1963 | | | | since May 2015; |
| | | | Secretary since |
| | | | October 2005 |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| Daniel V. Geatens | | Vice President | | Treasurer since October 2007 |
| 2005 Market Street | | and Treasurer | | |
| Philadelphia, PA 19103 | | | | |
| October 1972 | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| 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 the Past Five Years | | by Trustee or Officer | | Held by Trustee or Officer |
| | |
| David F. Connor has served as | | 64 | | None3 |
| Senior Vice President of | | | | |
| the Fund(s) and | | | | |
| the investment advisor | | | | |
| since 2013, General Counsel | | | | |
| of the Fund(s) and | | | | |
| the investment advisor | | | | |
| since 2015, and Secretary | | | | |
| of the Fund(s) and the | | | | |
| investment advisor since 2005. | | | | |
| | | | | |
| Daniel V. Geatens has served | | 64 | | None3 |
| as Vice President and | | | | |
| Treasurer of the Fund(s) | | | | |
| since 2007 and Vice President | | | | |
| and Director of Financial | | | | |
| Administration of the | | | | |
| investment advisor since 2010. | | | | |
| | | | | |
| Richard Salus has served as | | 64 | | None3 |
| Senior Vice President | | | | |
| and Chief Financial Officer | | | | |
| of the Fund(s) and the | | | | |
| investment advisor since 2006. | | | | |
| | | | | |
3 David F. Connor, Daniel V. Geatens, 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.
51
About the organization
Board of trustees
Shawn K. Lytle
President and
Chief Executive Officer
Delaware Investments®
Family of Funds
Philadelphia, PA
Thomas L. Bennett
Chairman of the Board
Delaware Investments
Family of Funds
Private Investor
Rosemont, PA
Ann D. Borowiec
Former Chief Executive
Officer
Private Wealth Management
J.P. Morgan Chase & Co.
New York, NY
Joseph W. Chow
Former Executive Vice
President
State Street Corporation
Brookline, MA
John A. Fry
President
Drexel University
Philadelphia, PA
Lucinda S. Landreth
Former Chief Investment
Officer
Assurant, Inc.
New York, NY
Frances A.
Sevilla-Sacasa
Chief Executive Officer
Banco Itaú
International
Miami, FL
Thomas K. Whitford
Former Vice Chairman
PNC Financial Services Group
Pittsburgh, PA
Janet L. Yeomans
Former Vice President and
Treasurer
3M Corporation
St. Paul, MN
Affiliated officers
David F. Connor
Senior Vice President,
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
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 REIT 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 Schedule of Investments included in the Fund’s most recent Form N-Q 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
Item 2. Code of Ethics
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 names of the audit committee financial experts on the registrant’s Audit Committee are set forth below:
Item 4. Principal Accountant Fees and Services
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 $329,550 for the fiscal year ended October 31, 2015.
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 $330,175 for the fiscal year ended October 31, 2014.
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 October 31, 2015.
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 October 31, 2014.
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 October 31, 2015.
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 October 31, 2014.
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 October 31, 2015.
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 October 31, 2014.
(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.
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.
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 $11,111,212 and $5,653,375 for the registrant’s fiscal years ended October 31, 2015 and October 31, 2014, 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
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.
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.
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.
