UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number: 33-11419
Exact name of registrant as specified in charter: Delaware Group Equity Funds V
Address of principal executive offices: 2005 Market Street
Philadelphia, PA 19103
Name and address of agent for service: Richelle S. Maestro, Esq.
2005 Market Street
Philadelphia, PA 19103
Registrant's telephone number, including area code: (800) 523-1918
Date of fiscal year end: November 30
Date of reporting period: November 30, 2003
Item 1. Reports to Stockholders
Delaware
Investments(SM)
A member of Lincoln Financial Group(R)
Annual Report 2003
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DELAWARE SMALL CAP VALUE FUND
[LOGO]
POWERED BY RESEARCH.(SM)
Table
OF CONTENTS
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PORTFOLIO MANAGEMENT REVIEW 1
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PERFORMANCE SUMMARY 3
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FINANCIAL STATEMENTS:
Statement of Net Assets 4
Statement of Operations 7
Statements of Changes in Net Assets 8
Financial Highlights 9
Notes to Financial Statements 14
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REPORT OF INDEPENDENT AUDITORS 17
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BOARD OF TRUSTEES/OFFICERS 18
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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.
(C) 2004 Delaware Distributors, L.P.
Delaware Small Cap Value Fund
Portfolio December 10, 2003
MANAGEMENT REVIEW
Fund Manager
Christopher S. Beck
Senior Portfolio Manager
Q: Please discuss the Fund's performance in relation to the small-cap market
during the fiscal year.
A: For the 12 months ended November 30, 2003, Delaware Small Cap Value Fund
posted a +34.17% total return (Class A shares at net asset value with
distributions reinvested) slightly underperforming the Russell 2000 Value Index,
which returned +34.91% during the same fiscal year. The Fund outperformed the
Lipper Small Cap Value Funds Average, which returned +33.25% during the same
time period. We generally attribute the Fund's modest outperformance of its peer
group to strong stock selection and highly disciplined portfolio monitoring.
Small-cap stocks rallied during the period, as investors became increasingly
willing to accept greater risk. In our opinion, investor expectations for
continued economic growth also generally led to inflated valuations for lower
quality names. Often during the period, investors bought stocks of companies
with no earnings potential, high earnings multiples, and highly leveraged
balance sheets. In fact, lower-quality companies led the market after mid-March
(Source: Bloomberg). Nonetheless, we continued to focus on companies with the
ability to generate strong free cash flow, the potential to increase dividends,
and a commitment to reducing debt -- attributes that remain a core part of our
stock selection process.
Q: Can you describe your investment strategy during the past 12 months?
A: As the economy gained strength, we emphasized economically sensitive sectors
of the market. A good example is the basic industry/capital goods sector, which
has significant concentrations of metal, forest and paper, materials and mining,
and specialty/chemicals companies. We also became increasingly optimistic about
consumer-oriented stocks, particularly those that may benefit from increased
capital spending and those favoring consumer services. While we were cautious
about the technology sector -- selecting only those companies with strong
earnings prospects -- we increased our position to a modest overweighting by the
fiscal year end.
Q: Which holdings contributed positively to performance?
A: Bebe Stores, a women's clothing retailer, posted strong performance as a
result of continued strength in consumer spending. We sold this company late in
the fiscal year when the stock met our target price. Another strong retail
holding was Ann Taylor Stores, which delivered attractive performance following
a disappointing 2002. We purchased the stock in January based on its strong
balance sheet and the company's history of successfully navigating fashion
trends.
In basic industry/capital goods, Freeport McMoRan Copper & Gold, a leading
producer of gold and copper, benefited from rising commodity prices, its
issuance of a dividend, and a repurchase of company stock. As a result, Freeport
McMoRan was able to generate attractive free cash flow -- a factor that
contributed to strong performance. Another notable performer in this sector was
Louisiana-Pacific. Rising lumber prices and strong sales of one of its primary
products contributed to the company's improved profits.
The technology sector also made a positive contribution to performance. One of
the top holdings was International Rectifier, a semiconductor firm that
benefited from increased product demand. Finally, in healthcare we purchased the
stock of Humana, one of the country's largest health management organizations. A
positive environment for HMOs and the company's willingness to repurchase its
stock fueled significant free cash flow.
Q: Which holdings detracted from performance?
A: Among the sector that we refer to as capital goods, we sold farm equipment
manufacturer AGCO, based on a shift in its management strategy that emphasized
new business acquisitions over debt reduction. We also trimmed our position in
La-Z-Boy. Despite a strong housing market, demand for furniture has not met our
expectations. Over the long term, however, we believe that the company is poised
to benefit from strengthening that we still anticipate in the industry.
In the energy sector, our position in Grey Wolf, a land contract driller,
delivered disappointing returns. A combination of high oil and natural gas
prices, combined with the absence of increased spending among exploration
companies, prevented Grey Wolf from raising prices as we had anticipated.
Despite rising commodity prices, exploration companies kept a lid on increasing
capital spending. We are confident about the company's long-term prospects and
added to our position, taking advantage of attractive valuations as the stock's
price came down.
1
Finally, DRS Technologies, a defense-related electronic business, detracted from
performance. It was removed from the portfolio due to management's decision to
pursue business acquisitions rather than repurchase company stock at attractive
valuations.
Q: Please highlight a security that made a significant contribution to the
portfolio.
A: Our ability to employ comprehensive security research prompted us to purchase
Louisiana-Pacific, a leading manufacturer of building materials and the world's
top producer of oriented strand board, an innovative wood-based product. Despite
poor performance in recent years, we believed the firm offered a sound business
strategy. In the spring of 2003, management announced a plan to sell its
timberland business in order to pay down debt, a strategy that generated
significant free cash flow. In our opinion, Louisiana-Pacific's future prospects
are promising. We are optimistic that a dividend announcement and repurchase of
company stock may occur in the coming months.
2
Delaware
SMALL CAP VALUE FUND
Fund Basics Fund Performance
As of November 30, 2003 Average Annual Total Returns
- ---------------------------------------------------- Through November 30, 2003 Lifetime 10 Years Five Years One Year
Fund Objective: -------------------------------------------------------------------------
The Fund seeks capital appreciation. Class A (Est. 6/24/87)
- ---------------------------------------------------- Excluding Sales Charge +13.22% +11.40% +10.85% +34.17%
Total Fund Net Assets: Including Sales Charge +12.82% +10.74% +9.55% +26.48%
$431.04 million -------------------------------------------------------------------------
- ---------------------------------------------------- Class B (Est. 9/6/94)
Number of Holdings: Excluding Sales Charge +11.38% -- +10.07% +33.21%
128 Including Sales Charge +11.38% -- +9.76% +29.21%
- ---------------------------------------------------- -------------------------------------------------------------------------
Fund Start Date: Class C (Est. 11/29/95)
June 24, 1987 Excluding Sales Charge +11.59% -- +10.08% +32.22%
- ---------------------------------------------------- Including Sales Charge +11.59% -- +10.08% +32.22%
Your Fund Manager: -------------------------------------------------------------------------
Christopher S. Beck holds a bachelor's degree Returns reflect the reinvestment of all distributions and any applicable
from the University of Delaware, an MBA from sales charges as noted below. Returns and share values will fluctuate so
Lehigh University and is a CFA charterholder. Mr. that shares, when redeemed, may be worth more or less than their original
Beck has been in the investment business for cost. Performance for Class B and C shares, excluding sales charges,
22 years, starting with Wilmington Trust in 1981. assumes either that contingent deferred sales charges did not apply or
Later, he became Director of Research at the investment was not redeemed. Past performance is not a guarantee of
Cypress Capital Management in Wilmington and future results.
Chief Investment Officer of the University of
Delaware Endowment Fund. Prior to joining The Fund offers Class A, B, C, R, and Institutional Class shares. Class A
Delaware Investments in May 1997, he managed shares are sold with a front-end sales charge of up to 5.75% and have an
the Small Cap Fund for two years at Pitcairn annual distribution and service fee of 0.30%.
Trust Company.
- ---------------------------------------------------- Class B shares are sold with a contingent deferred sales charge that
Nasdaq Symbols: declines from 4% to zero depending upon the period of time the shares are
Class A DEVLX held. Class B shares will automatically convert to Class A shares on a
Class B DEVBX quarterly basis approximately eight years after purchase. They are also
Class C DEVCX subject to an annual distribution and service fee of 1%.
Class C shares are sold with a contingent deferred sales charge of 1%, if
redeemed during the first 12 months. They are also subject to an annual
distribution and service fee of 1%.
The cumulative total return for the lifetime period ended November 30,
2003 for Delaware Small Cap Value Fund's Class R shares was +21.35%.
Class R shares were first made available on June 2, 2003 and are
available only for certain retirement plan products. They are sold
without a sales charge and have an annual distribution and service fee of
0.60%.
The average annual total returns for the lifetime (since 6/24/87),
10-year, five-year, and one-year periods ended November 30, 2003 for
Delaware Small Cap Value Fund's Institutional Class shares were +13.45%,
+11.74%, +11.19% and +34.57%, respectively. The Institutional Class
shares were first made available on November 9, 1992 and are available
without sales or asset-based distribution charges only to certain
eligible institutional accounts. Institutional Class performance prior to
November 9, 1992 is based on Class A performance and was adjusted to
eliminate the sales charges, but not the asset-based distribution charge
of Class A shares.
The performance table and graph do not reflect the deduction of taxes the
shareholder would pay on Fund distributions or redemptions of Fund
shares.
Nasdaq Institutional Class symbol: DEVIX
Nasdaq Class R symbol: DVLRX
Performance of a $10,000 Investment
November 30, 1993 through November 30, 2003
Delaware Small Cap Value Fund Performance of $10,000 Investment chart
- ---------------------------------------------------------------------
Delaware Small Cap
Value Fund-- Class Russell 2000
A Shares Value Index
30-Nov-93 $ 9,425 $10,000
30-Nov-94 $ 9,163 $ 9,839
30-Nov-95 $11,032 $12,362
30-Nov-96 $13,136 $14,982
30-Nov-97 $17,915 $19,701
30-Nov-98 $16,576 $18,475
30-Nov-99 $16,160 $18,212
30-Nov-00 $17,296 $20,815
30-Nov-01 $20,351 $24,783
30-Nov-02 $20,677 $24,334
30-Nov-03 $27,748 $32,829
Chart assumes $10,000 invested on November 30, 1993 and includes the effect of a
5.75% front-end sales charge and the reinvestment of all distributions.
Performance of other Fund classes will vary due to different charges and
expenses. Returns plotted on the chart were as of the last day of each month
shown. The Russell 2000 Value Index is an unmanaged composite that measures the
stocks of small, value-oriented companies. An index is unmanaged and does not
reflect the costs of operating a mutual fund, such as the costs of buying,
selling, and holding securities. You cannot invest directly in an index. Past
performance is not a guarantee of future results.
3
Statement Delaware Small Cap Value Fund
OF NET ASSETS November 30, 2003
Number of Market
Shares Value
Common Stock - 93.24%
Banking & Finance - 11.40%
*Boston Private Financial Holding 148,600 $ 3,853,198
Colonial BancGroup 333,300 5,569,443
Commercial Federal 128,300 3,464,100
Compass Bancshares 168,800 6,601,768
First Federal Capital 129,600 3,036,528
*First Republic Bank 86,800 3,233,300
Gold Bancorp 225,400 2,975,280
*Greater Bay Bancorp 174,700 4,542,200
MAF Bancorp 92,400 4,057,284
*Provident Bankshares 111,400 3,237,284
*Republic Bancorp 243,650 3,350,188
*Riggs National 175,700 3,015,012
*+Sterling Financial 65,076 2,187,204
-----------
49,122,789
-----------
Basic Industry/Capital Goods - 18.36%
Arch Coal 129,600 3,433,104
*+Armor Holdings 70,400 1,707,200
Crane 129,600 3,770,064
+Crown Holdings 297,400 2,230,500
Federal Signal 84,900 1,286,235
*Florida Rock Industries 76,700 4,410,250
*Freeport McMoRan Copper & Gold - Class B 91,400 3,978,642
*Gibraltar Steel 108,000 2,633,040
*+Golden Star Resources 430,700 3,247,478
*+Griffon 316,260 6,173,395
Harsco 88,400 3,505,944
*+Insituform Technologies - Class A 137,300 2,066,365
+Jacobs Engineering Group 63,600 2,921,784
Kaydon 150,900 3,684,978
+Louisiana-Pacific 287,400 5,199,066
+Meridian Gold 175,300 2,583,922
*+Mueller Industries 76,300 2,466,016
+Pactiv 293,800 6,592,872
*Smith (A.O.) 84,300 2,962,302
+Terex 147,702 3,809,235
+Tetra Tech 171,400 4,370,700
*Texas Industries 74,800 2,184,908
Universal Forest Products 45,100 1,372,844
Wausau-Mosinee Paper 207,300 2,549,790
-----------
79,140,634
------------
Business Services - 2.65%
+Integrated Alarm Services 151,000 1,147,600
+Right Management Consultants 141,800 2,533,966
The Brinks Company 187,200 4,155,840
+United Stationers 88,300 3,562,905
-----------
11,400,311
-----------
Cable, Media & Publishing - 0.62%
Belo (A.H.) 94,200 2,676,222
-----------
2,676,222
-----------
Chemicals - 2.63%
*Fuller (H.B) 97,000 2,586,990
*MacDermid 148,100 4,857,680
Polyone 320,500 1,906,975
Spartech 90,900 1,999,800
-----------
11,351,445
-----------
Number of Market
Shares Value
Common Stock (continued)
Consumer Durables - 3.24%
*Furniture Brands International 153,600 $ 4,039,680
KB Home 88,500 6,095,880
*La-Z-Boy 106,300 2,147,260
+WCI Communities 82,800 1,670,904
-----------
13,953,724
-----------
Consumer Non-Durables - 9.22%
+Ann Taylor Stores 130,400 5,182,096
+Barnes & Noble 116,700 3,872,106
+Carter Holdings 11,400 309,852
*Cato - Class A 134,400 2,806,272
*+Department 56 91,700 1,295,721
*Goody's Family Clothing 217,200 2,306,664
*+Movie Gallery 105,400 1,864,526
*Oakley 186,100 2,437,910
Phillips-Van Heusen 165,800 2,918,080
Pier 1 Imports 149,800 3,819,900
Reebok International 80,700 3,247,368
*+Shoe Carnival 84,900 1,534,992
*+Shopko Stores 152,800 2,544,120
*+Sports Authority 47,656 2,073,036
*+Whitehall Jewelers 78,900 837,129
Wolverine World Wide 130,000 2,702,700
-----------
39,752,472
-----------
Consumer Products - 1.92%
Bunge Limited 112,700 3,209,696
+Constellation Brands 147,200 5,079,872
-----------
8,289,568
-----------
Consumer Services - 1.17%
+CEC Entertainment 100,200 5,038,056
-----------
5,038,056
-----------
Energy - 5.53%
Chesapeake Energy 326,600 3,984,520
+Comstock Resources 247,300 4,030,990
*+Grey Wolf 588,700 1,995,693
+Magnum Hunter Resources 361,300 3,248,087
+Newfield Exploration 106,400 4,351,760
Southwest Gas 147,200 3,319,360
*+Whiting Petroleum 175,200 2,910,072
-----------
23,840,482
-----------
Healthcare & Pharmaceuticals - 6.43%
*Cooper Companies 42,000 1,917,300
+Genesis Health Ventures 92,200 2,896,002
+Humana 204,300 4,562,019
*+IDEXX Laboratories 50,500 2,391,175
Owens & Minor 163,600 3,469,956
+Pharmaceutical Resources 44,500 3,229,810
+Protein Design Labs 224,400 3,110,184
*+Province Healthcare 211,100 3,236,163
+Sola International 147,700 2,894,920
-----------
27,707,529
-----------
Insurance - 4.08%
AmerUs Group 120,700 4,339,165
Berkley (W.R.) 141,600 4,835,640
*Harleysville Group 115,000 2,254,000
Platinum Underwriters Holdings 65,300 1,970,101
RenaissanceRe Holdings 87,000 4,172,520
-----------
17,571,426
-----------
4
Statement Delaware Small Cap Value Fund
OF NET ASSETS (CONTINUED)
Number of Market
Shares Value
Common Stock (continued)
REITs - 5.90%
Camden Property Trust 100,100 $ 4,208,204
Chelsea Property Group 65,800 3,553,200
Keystone Property Trust 129,300 2,619,618
Pan Pacific Retail Properties 121,000 5,620,450
Prentiss Properties Trust 103,500 3,286,125
Reckson Associates Realty 120,500 2,892,000
The St. Joe Company 93,000 3,236,400
------------
25,415,997
------------
Retail - 1.01%
+JO-ANN Stores 82,685 1,657,834
+Take-Two Interactive Software 81,700 2,704,270
------------
4,362,104
------------
Technology - 13.43%
*+Actel 139,800 3,831,918
*+ASM International N.V. 208,800 3,952,584
+Bell Microproducts 204,200 1,758,162
+Comverse Technology 294,000 5,653,620
+Filenet 101,500 2,658,285
*+Herley Industries 140,000 2,704,800
+Ingram Micro - Class A 244,100 3,558,978
*+Insight Enterprises 207,800 3,885,860
+International Rectifier 96,500 5,270,830
+Lawson Software 406,200 3,428,328
*+Overland Storage 150,500 2,958,830
*+Photronics 96,900 1,789,743
+Plexus 198,800 3,528,700
+Storage Technology 111,800 2,817,360
Symbol Technologies 175,400 2,446,830
+Tech Data 74,500 2,744,580
*+Veeco Instruments 166,700 4,917,650
------------
57,907,058
------------
Transportation - 4.01%
Alexander & Baldwin 175,200 5,511,792
+Continental Airlines - Class B 112,300 2,094,395
+Kirby 104,600 3,138,000
*+Northwest Airlines - Class A 129,200 1,706,732
+SCS Transportation 59,800 994,474
*Skywest 82,600 1,424,850
*+Yellow 79,000 2,415,030
------------
17,285,273
------------
Utilities - 1.64%
*Black Hills 50,200 1,619,452
*+El Paso Electric Company 181,900 2,310,130
PNM Resources 112,600 3,153,926
------------
7,083,508
------------
Total Common Stock (cost $287,907,835) 401,898,598
------------
Exchange Traded Funds - 2.49%
Ishares Russell 2000 Value Index Fund 68,600 10,729,040
------------
Total Exchange Traded Funds
(cost $9,845,840) 10,729,040
------------
Number of Market
Shares Value
Warrants - 0.00%
+Magnum Hunter Resources 49,500 $ 19,305
------------
Total Warrants (cost $0) 19,305
------------
Principal
Amount
Repurchase Agreements - 3.99%
With BNP Paribas 1.01% 12/1/03
(dated 11/28/03, collateralized by
$6,694,000 U.S. Treasury Notes
6.750% due 5/15/05,
market value $7,208,264) $7,065,000 7,065,000
With J. P. Morgan Securities 0.98%
12/1/03 (dated 11/28/03,
collateralized by $3,072,000
U.S. Treasury Notes 2.250% due
7/31/04, market value $3,118,639) 3,057,000 3,057,000
With UBS Warburg 1.01% 12/1/03
(dated 11/28/03, collateralized by
$2,208,000 U.S. Treasury Notes 2.000%
due 11/30/04, market value $2,242,613,
$77,000 U.S. Treasury Notes 5.500%
due 2/15/08, market value $86,185 and
$4,415,000 U.S. Treasury Notes 5.625%
due 5/15/08, market value $4,879,541) 7,064,000 7,064,000
------------
Total Repurchase Agreements (cost $17,186,000) 17,186,000
------------
Total Market Value of Securities Before Securities
Lending Collateral - 99.72% (cost $314,939,675) 429,832,943
------------
Securities Lending Collateral** - 15.25%
Short-Term Investments
ABN AMRO Bank Chicago
1.06% 6/07/04 2,496,637 2,496,506
ABN AMRO Bank Tokyo 1.10% 1/13/04 713,343 713,343
Allied Irish Dublin 1.12% 1/20/04 2,853,316 2,853,371
Credit Suisse First Boston 1.60% 12/13/04 2,853,371 2,853,371
Deutsche Bank Financial 1.071% 1/16/04 2,853,843 2,854,380
FHLMC 1.12% 1/15/04 1,611,193 1,615,357
FNMA 1.035% 1/29/04 17,834,257 17,833,349
General Electric Capital 1.13% 10/04/04 1,070,947 1,072,772
Goldman Sachs Group LP 1.193% 12/15/03 2,496,677 2,496,700
HBOS Treasury Services PLC
1.09% 12/12/03 2,853,347 2,853,371
Keybank NA 1.146% 1/26/04 1,426,920 1,427,399
Marsh & McLennan 1.291% 6/15/04 1,834,889 1,887,120
Merrill Lynch Mortgage Capital
1.163% 12/08/03 2,853,371 2,853,371
Morgan Stanley Dean Witter
1.10% 12/01/03 11,936,465 11,936,467
1.22% 12/28/04 712,184 713,343
1.30% 3/19/04 1,782,209 1,783,357
Swiss Re Financial 1.103% 1/15/04 1,780,827 1,778,398
Wachovia Bank NA 1.127% 11/15/04 2,853,428 2,855,911
Wilmington Trust 1.11% 1/22/04 2,853,313 2,853,371
------------
Total Securities Lending Collateral
(cost $65,731,257) 65,731,257
------------
5
Statement Delaware Small Cap Value Fund
OF NET ASSETS (CONTINUED)
Total Market Value of Securities - 114.97%
(cost $380,670,932) $495,564,200++
Obligation to Return Securities Lending
Collateral - (15.25%)** (65,731,257)
Receivables and Other Assets
Net of Liabilities - 0.28% 1,204,718
----------------
Net Assets Applicable to 12,409,004
Shares Outstanding - 100.00% $431,037,661
------------
Net Asset Value - Delaware Small Cap Value Fund
Class A ($240,322,302 / 6,823,893 Shares) $35.22
------
Net Asset Value - Delaware Small Cap Value Fund
Class B ($107,135,592 / 3,167,475 Shares) $33.82
------
Net Asset Value - Delaware Small Cap Value Fund
Class C ($48,452,567 / 1,433,055 Shares) $33.81
------
Net Asset Value - Delaware Small Cap Value Fund
Class R ($1,740,453 / 49,463 Shares) $35.19
------
Net Asset Value - Delaware Small Cap Value Fund
Institutional Class ($33,386,747 / 935,118 Shares) $35.70
------
Components of Net Assets at November 30, 2003:
Shares of beneficial interest
(unlimited authorization-- no par) $286,950,005
Accumulated net realized gain on investments 29,194,388
Net unrealized appreciation of investments 114,893,268
------------
Total net assets $431,037,661
------------
+Non-income producing security for the year ended November 30, 2003.
++Includes $64,815,360 of securities loaned.
*Fully or partially on loan.
**See Note 7 in "Notes to Financial Statements."
Summary of Abbreviation:
REIT -- Real Estate Investment Trust
Net Asset Value and Offering Price per Share --
Delaware Small Cap Value Fund
Net asset value Class A (A) $35.22
Sales charge (5.75% of offering price, or 6.10%
of amount invested per share) (B) 2.15
------
Offering price $37.37
------
(A) Net asset value per share, as illustrated, is the estimated amount which
would be paid upon redemption or repurchase of shares.
(B) See the current prospectus for purchases of $50,000 or more.
See accompanying notes
6
Statement Delaware Small Cap Value Fund
OF OPERATIONS Year Ended November 30, 2003
Investment Income:
Dividends $3,742,601
Interest 166,685
Securities lending income 74,681 $ 3,983,967
---------- ------------
Expenses:
Management fees 2,587,068
Distribution expenses -- Class A 582,304
Distribution expenses -- Class B 888,407
Distribution expenses -- Class C 372,275
Distribution expenses -- Class R 1,442
Dividend disbursing and transfer agent fees and expenses 1,493,022
Accounting and administration expenses 147,974
Reports and statements to shareholders 142,000
Registration fees 66,476
Professional fees 61,203
Trustees' fees 13,616
Custodian fees 9,914
Other 86,001 6,451,702
----------
Less expenses paid indirectly (8,728)
------------
Total expenses 6,442,974
------------
Net Investment Loss (2,459,007)
------------
Net Realized and Unrealized Gain on Investments:
Net realized gain on investments 31,761,494
Net change in unrealized appreciation/depreciation of investments 76,784,485
------------
Net Realized and Unrealized Gain on Investments 108,545,979
------------
Net Increase in Net Assets Resulting from Operations $106,086,972
============
See accompanying notes
7
Statements Delaware Small Cap Value Fund
OF CHANGES IN NET ASSETS
Year Ended
11/30/03 11/30/02
Increase (Decrease) in Net Assets from Operations:
Net investment loss $ (2,459,007) $ (1,575,259)
Net realized gain on investments 31,761,494 10,377,973
Net change in unrealized appreciation/depreciation of investments 76,784,485 (8,631,264)
------------ -------------
Net increase in net assets resulting from operations 106,086,972 171,450
------------ -------------
Dividends and Distributions to Shareholders:
From net realized gain on investments:
Class A (5,630,292) (17,247,310)
Class B (2,772,312) (8,097,635)
Class C (1,095,652) (3,057,305)
Institutional Class (599,160) (1,580,182)
------------ -------------
(10,097,416) (29,982,432)
------------ -------------
Capital Share Transactions:
Proceeds from shares sold:
Class A 38,257,242 70,648,350
Class B 14,676,802 32,584,526
Class C 11,886,179 13,692,546
Class R 1,704,178 --
Institutional Class 9,664,752 9,590,718
Net asset value of shares issued upon reinvestment of dividends and distributions:
Class A 5,300,403 16,160,406
Class B 2,552,249 7,394,694
Class C 1,028,672 2,807,911
Institutional Class 599,160 1,580,182
------------ -------------
85,669,637 154,459,333
------------ -------------
Cost of shares repurchased:
Class A (38,593,243) (73,037,419)
Class B (20,265,650) (27,817,580)
Class C (8,899,510) (10,835,304)
Class R (94,701) --
Institutional Class (3,704,109) (8,642,412)
------------ -------------
(71,557,213) (120,332,715)
------------ -------------
Increase in net assets derived from capital share transactions 14,112,424 34,126,618
------------ -------------
Net Increase in Net Assets 110,101,980 4,315,636
Net Assets:
Beginning of year 320,935,681 316,620,045
------------ -------------
End of year $431,037,661 $ 320,935,681
============ =============
See accompanying notes
8
Financial
HIGHLIGHTS
Selected data for each share of the Fund outstanding
throughout each period were as follows:
Delaware Small Cap Value Fund Class A
Year Ended
11/30/03 11/30/02 11/30/01 11/30/00 11/30/99
Net asset value, beginning of period $ 27.120 $ 29.350 $ 25.980 $ 24.680 $ 25.480
Income (loss) from investment operations:
Net investment income (loss)(1) (0.136) (0.060) 0.059 0.091 0.098
Net realized and unrealized gain (loss) on investments 9.079 0.574 4.429 1.594 (0.735)
-------- -------- -------- -------- --------
Total from investment operations 8.943 0.514 4.488 1.685 (0.637)
-------- -------- -------- -------- --------
Less dividends and distributions:
From net investment income -- -- (0.026) (0.080) (0.163)
In excess of net investment income -- -- (0.045) -- --
From net realized gain on investments (0.843) (2.744) (1.047) (0.305) --
-------- -------- -------- -------- --------
Total dividends and distributions (0.843) (2.744) (1.118) (0.385) (0.163)
-------- -------- -------- -------- --------
Net asset value, end of period $ 35.220 $ 27.120 $ 29.350 $ 25.980 $ 24.680
======== ======== ======== ======== ========
Total return(2) 34.17% 1.60% 17.66% 7.04% (2.51%)
Ratios and supplemental data:
Net assets, end of period (000 omitted) $240,322 $180,696 $182,925 $151,044 $209,886
Ratio of expenses to average net assets 1.63% 1.63% 1.58% 1.68% 1.60%
Ratio of net investment income (loss) to average net assets (0.47%) (0.21%) 0.21% 0.37% 0.38%
Portfolio turnover 42% 47% 72% 56% 37%
(1) The average shares outstanding method has been applied for per share
information.
(2) Total investment return is based on the change in net asset value of a share
during the period and assumes reinvestment of dividends and distributions at
net asset value and does not reflect the impact of a sales charge.
See accompanying notes
9
Financial
HIGHLIGHTS (CONTINUED)
Selected data for each share of the Fund outstanding throughout each period were
as follows:
Delaware Small Cap Value Fund Class B
Year Ended
11/30/03 11/30/02 11/30/01 11/30/00 11/30/99
Net asset value, beginning of period $26.260 $ 28.680 $ 25.520 $ 24.340 $ 25.140
Income (loss) from investment operations:
Net investment loss(1) (0.327) (0.252) (0.138) (0.079) (0.081)
Net realized and unrealized gain (loss) on investments 8.730 0.576 4.345 1.564 (0.719)
-------- -------- -------- -------- --------
Total from investment operations 8.403 0.324 4.207 1.485 (0.800)
-------- -------- -------- -------- --------
Less dividends and distributions:
From net realized gain on investments (0.843) (2.744) (1.047) (0.305) --
-------- -------- -------- -------- --------
Total dividends and distributions (0.843) (2.744) (1.047) (0.305) --
-------- -------- -------- -------- --------
Net asset value, end of period $ 33.820 $ 26.260 $ 28.680 $ 25.520 $ 24.340
======== ======== ======== ======== ========
Total return(2) 33.21% 0.91% 16.83% 6.27% (3.18%)
Ratios and supplemental data:
Net assets, end of period (000 omitted) $107,136 $ 86,641 $ 83,648 $ 58,156 $ 76,894
Ratio of expenses to average net assets 2.33% 2.33% 2.28% 2.38% 2.30%
Ratio of net investment loss to average net assets (1.17%) (0.91%) (0.49%) (0.33%) (0.32%)
Portfolio turnover 42% 47% 72% 56% 37%
(1) The average shares outstanding method has been applied for per share
information.
(2) Total investment return is based on the change in net asset value of a share
during the period and assumes reinvestment of dividends and distributions at
net asset value and does not reflect the impact of a sales charge.
See accompanying notes
10
Financial
HIGHLIGHTS (CONTINUED)
Selected data for each share of the Fund outstanding
throughout each period were as follows:
Delaware Small Cap Value Fund Class C
Year Ended
11/30/03 11/30/02 11/30/01 11/30/00 11/30/99
Net asset value, beginning of period $ 26.250 $ 28.670 $ 25.510 $ 24.320 $ 25.120
Income (loss) from investment operations:
Net investment loss(1) (0.326) (0.251) (0.135) (0.079) (0.081)
Net realized and unrealized gain (loss) on investments 8.729 0.575 4.342 1.574 (0.719)
-------- -------- -------- -------- --------
Total from investment operations 8.403 0.324 4.207 1.495 (0.800)
-------- -------- -------- -------- --------
Less dividends and distributions:
From net realized gain on investments (0.843) (2.744) (1.047) (0.305) --
-------- -------- -------- -------- --------
Total dividends and distributions (0.843) (2.744) (1.047) (0.305) --
-------- -------- -------- -------- --------
Net asset value, end of period $ 33.810 $ 26.250 $ 28.670 $ 25.510 $ 24.320
======== ======== ======== ======== ========
Total return(2) 33.22% 0.91% 16.88% 6.27% (3.19%)
Ratios and supplemental data:
Net assets, end of period (000 omitted) $ 48,453 $ 34,140 $ 31,823 $ 20,822 $25,818
Ratio of expenses to average net assets 2.33% 2.33% 2.28% 2.38% 2.30%
Ratio of net investment loss to average net assets (1.17%) (0.91%) (0.49%) (0.33%) (0.32%)
Portfolio turnover 42% 47% 72% 56% 37%
(1) The average shares outstanding method has been applied for per share
information.
(2) Total investment return is based on the change in net asset value of a
share during the period and assumes reinvestment of dividends and
distributions at net asset value and does not reflect the impact of a sales
charge.
See accompanying notes
11
Financial
HIGHLIGHTS (CONTINUED)
Selected data for each share of the Fund outstanding
throughout each period were as follows:
Delaware Small Cap Value Fund Class R
6/2/03(1) to
11/30/03
Net asset value, beginning of period $29.000
Income (loss) from investment operations:
Net investment loss(2) (0.160)
Net realized and unrealized gain on investments 6.350
---------
Total from investment operations 6.190
---------
Net asset value, end of period $35.190
---------
Total return(3) 21.35%
Ratios and supplemental data:
Net assets, end of period (000 omitted) $1,740
Ratio of expenses to average net assets 1.97%
Ratio of net investment loss to average net assets (0.97%)
Portfolio turnover 42%
(1) Date of commencement of operations; ratios have been annualized and total
return has not been annualized.
(2) The average shares outstanding method has been applied for per share
information.
(3) Total investment return is based on the change in net asset value of a share
during the period and assumes reinvestment of dividends and distributions at
net asset value.
See accompanying notes
12
Financial
HIGHLIGHTS (CONTINUED)
Selected data for each share of the Fund outstanding
throughout each period were as follows:
Delaware Small Cap Value Fund Institutional Class
Year Ended
11/30/03 11/30/02 11/30/01 11/30/00 11/30/99
Net asset value, beginning of period $27.400 $29.540 $26.130 $24.830 $25.640
Income (loss) from investment operations:
Net investment income (loss)(1) (0.050) 0.026 0.144 0.165 0.174
Net realized and unrealized gain (loss) on investments 9.193 0.578 4.458 1.600 (0.741)
-------- -------- -------- -------- --------
Total from investment operations 9.143 0.604 4.602 1.765 (0.567)
-------- -------- -------- -------- --------
Less dividends and distributions:
From net investment income -- -- (0.100) (0.160) (0.243)
In excess of net investment income -- -- (0.045) -- --
From net realized gain on investments (0.843) (2.744) (1.047) (0.305) --
-------- -------- -------- -------- --------
Total dividends and distributions (0.843) (2.744) (1.192) (0.465) (0.243)
-------- -------- -------- -------- --------
Net asset value, end of period $35.700 $27.400 $29.540 $26.130 $24.830
-------- -------- -------- -------- --------
Total return(2) 34.57% 1.88% 18.09% 7.35% (2.23%)
Ratios and supplemental data:
Net assets, end of period (000 omitted) $33,387 $19,459 $18,224 $10,992 $10,936
Ratio of expenses to average net assets 1.33% 1.33% 1.28% 1.38% 1.30%
Ratio of net investment income (loss) to average net assets (0.17%) 0.09% 0.51% 0.67% 0.68%
Portfolio turnover 42% 47% 72% 56% 37%
(1) The average shares outstanding method has been applied for per share
information.
(2) Total investment return is based on the change in net asset value of a share
during the period and assumes reinvestment of dividends and distributions at
net asset value.
See accompanying notes
13
Notes Delaware Small Cap Value Fund
TO FINANCIAL STATEMENTS November 30, 2003
Delaware Group Equity Funds V (the "Trust") is organized as a Delaware business
trust and offers three series: Delaware Small-Cap Contrarian Fund, Delaware
Small Cap Value Fund, and Delaware Dividend Income Fund (formerly Delaware
Retirement Income Fund). These financial statements and the related notes
pertain to Delaware Small Cap Value Fund (the "Fund"). The Trust is an open-end
investment company. The Fund is considered diversified under the Investment
Company Act of 1940, as amended, and offers Class A, Class B, Class C, Class R,
and Institutional Class shares. Class A shares are sold with a front-end sales
charge of up to 5.75%. Class B shares are sold with a contingent deferred sales
charge that declines from 4% to zero depending upon the period of time the
shares are held. Class B shares will automatically convert to Class A shares on
a quarterly basis approximately eight years after purchase. Class C shares are
sold with a contingent deferred sales charge of 1%, if redeemed during the first
twelve months. Class R and Institutional Class shares are not subject to a sales
charge and are offered for sale exclusively to a limited group of investors.
The investment objective of the Fund is to seek capital appreciation.
1. Significant Accounting Policies
The following accounting policies are in accordance with accounting principles
generally accepted in the United States and are consistently followed by the
Fund.
Security Valuation -- All equity securities are valued at the last quoted sales
price as of the time of the regular close of the New York Stock Exchange (NYSE)
on the valuation date. Securities traded on the Nasdaq Stock Market, Inc.
(NASDAQ) are valued in accordance with the NASDAQ Official Closing Price, which
may not be the last sales price. If on a particular day an equity security does
not trade, then the mean between the bid and asked prices will be used.
Short-term debt securities having less than 60 days to maturity are valued at
amortized cost, which approximates market value. 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.
Federal Income Taxes -- The Fund intends to continue to qualify for federal
income tax purposes as a regulated investment company and make the requisite
distributions to shareholders. Accordingly, no provision for federal income
taxes has been made in the financial statements.
Class Accounting -- Investment income, common expenses and realized and
unrealized gain (loss) on investments are allocated to the various classes of
the Fund on the basis of daily net assets of each class. Distribution expenses
relating to a specific class are charged directly to that class.
Repurchase Agreements -- The Fund may invest in a pooled cash account along with
other members of the Delaware Investments Family of Funds. The aggregate daily
balance of the pooled cash account is invested in repurchase agreements secured
by obligations of the U.S. government. The respective collateral is held by the
Fund's custodian bank until the maturity of the respective repurchase
agreements. Each repurchase agreement is 102% collateralized. However, in the
event of default or bankruptcy by the counterparty to the agreement, realization
of the collateral may be subject to legal proceedings.
Use of Estimates -- The preparation of financial statements in conformity with
accounting principles generally accepted in the United States requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual results
could differ from those estimates.
Other -- Expenses common to all funds within the Delaware Investments Family of
Funds are allocated amongst the funds on the basis of average net assets.
Security transactions are recorded on the date the securities are purchased or
sold (trade date). Costs used in calculating realized gains and losses on the
sale of investment securities are those of the specific securities sold.
Dividend income is recorded on the ex-dividend date and interest income is
recorded on the accrual basis. Distributions received from investments in Real
Estate Investment Trusts (REITs) are recorded as dividend income on the
ex-dividend date, subject to reclassification upon notice of the character of
such distribution by the issuer. The Fund declares and pays dividends from net
investment income and distributions from net realized gains on investments, if
any, annually.
Certain expenses of the Fund are paid through commission arrangements with
brokers. The amount of these expenses was approximately $8,279 for the year
ended November 30, 2003. In addition, the Fund receives earnings credits from
its custodian when positive cash balances are maintained, which are used to
offset custody fees. The earnings credits for the year ended November 30, 2003
were approximately $449. The expenses paid under the above arrangements are
included in their respective expense captions on the Statement of Operations
with the corresponding expense offset shown as "expenses paid indirectly."
2. Investment Management, Administration Agreements and Other Transactions with
Affiliates
In accordance with the terms of its investment management agreement, the Fund
pays Delaware Management Company (DMC), a series of Delaware Management Business
Trust and the investment manager, an annual fee which is calculated daily at the
rate of 0.75% on the first $500 million of average daily net assets of the Fund,
0.70% on the next $500 million, 0.65% on the next $1.5 billion, and 0.60% on
average daily net assets in excess of $2.5 billion.
Delaware Service Company, Inc. (DSC), an affiliate of DMC, provides accounting,
administration, dividend disbursing and transfer agent services. The Fund pays
DSC a monthly fee based on average net assets subject to certain minimums for
accounting and administration services. The Fund pays DSC a monthly fee based on
the number of shareholder accounts for dividend disbursing and transfer agent
services. Prior to June 1, 2003, the monthly fee for dividend disbursing and
transfer agent services was based on the number of shareholder accounts and
shareholder transactions.
Pursuant to a distribution agreement and distribution plan, the Fund pays
Delaware Distributors, L.P. (DDLP), the distributor and an affiliate of DMC, an
annual distribution and service fee not to exceed 0.30% of the average daily net
assets of the Class A shares, 1.00% of the average daily net assets of the Class
B and C shares and 0.60% of the average daily net assets of the Class R shares.
Institutional Class shares pay no distribution and service expenses.
At November 30, 2003, the Fund had liabilities payable to affiliates as follows:
Investment management fee payable to DMC $69,507
Dividend disbursing, transfer agent fees,
accounting and other expenses payable to DSC 64,577
Other expenses payable to DMC and affiliates 126,126
For the year ended November 30, 2003, DDLP earned $51,217 for commissions on
sales of the Fund's Class A shares. Certain officers of DMC, DSC and DDLP are
officers and/or trustees of the Trust. These officers and trustees are paid no
compensation by the Fund.
14
Notes
TO FINANCIAL STATEMENTS (CONTINUED) Delaware Small Cap Value Fund
3. Investments
For the year ended November 30, 2003, the Fund made purchases of $138,681,042
and sales of $141,212,848 of investment securities other than short-term
investments.
At November 30, 2003, the cost of investments for federal income tax purposes
was $314,961,039. At November 30, 2003, the net unrealized appreciation was
$114,871,904, of which $119,775,346 related to unrealized appreciation of
investments and $4,903,442 related to unrealized depreciation of investments.
4. Dividend and Distribution Information
Income and long-term capital gain distributions are determined in accordance
with federal income tax regulations, which may differ from accounting principles
generally accepted in the United States. The tax character of dividends and
distributions paid during the years ended November 30, 2003 and 2002, was as
follows:
Year Ended
11/30/03 11/30/02
----------- -----------
Long-term capital gain $10,097,416 $29,982,432
As of November 30, 2003, the components of net assets on a tax basis were as
follows:
Shares of beneficial interest $286,950,005
Undistributed ordinary income 2,171,889
Undistributed net realized capital gain
on investments 27,043,863
Net unrealized appreciation of investments 114,871,904
------------
Net assets $431,037,661
------------
5. Capital Shares
Transactions in capital shares were as follows:
Year Ended
11/30/03 11/30/02
----------- -----------
Shares sold:
Class A 1,317,213 2,374,998
Class B 516,373 1,133,854
Class C 421,216 482,202
Class R 52,297 --
Institutional Class 327,466 329,019
Shares issued upon reinvestment of
dividends and distributions:
Class A 208,595 585,947
Class B 103,918 275,100
Class C 41,901 104,496
Institutional Class 23,322 56,861
----------- -----------
3,012,301 5,342,477
----------- -----------
Shares repurchased:
Class A (1,365,058) (2,530,736)
Class B (752,492) (1,025,600)
Class C (330,789) (395,887)
Class R (2,834) --
Institutional Class (125,861) (292,537)
----------- -----------
(2,577,034) (4,244,760)
----------- -----------
Net increase 435,267 1,097,717
=========== ===========
For the years ended November 30, 2003 and 2002, 76,322 Class B shares were
converted to 73,585 Class A shares valued at $2,135,097 and 4,059 Class B shares
were converted to 3,937 Class A shares valued at $105,307, respectively. The
respective amounts are included in Class B redemptions and Class A subscriptions
in the previous table and the Statements of Changes in Net Assets.
6. Line of Credit
The Fund, along with certain other funds in the Delaware Investments Family of
Funds (the "Participants"), participates in a $177,300,000 revolving line of
credit facility to be used for temporary or emergency purposes as an additional
source of liquidity to fund redemptions of investor shares. The Participants are
charged an annual commitment fee, which is allocated across the Participants on
the basis of each fund's allocation of the entire facility. The Participants may
borrow up to a maximum of one third of their net assets under the agreement. The
Fund had no amounts outstanding as of November 30, 2003, or at any time during
the year.
7. 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 J.P. Morgan Chase. Initial security loans made pursuant to the
Lending Agreement are required to be secured by U.S. Treasury obligations and/or
cash collateral not less than 102% of the market value of the securities issued
in the United States. With respect to each loan, if the aggregate market value
of the collateral held on any business day is less than the aggregate market
value of the securities which are the subject of such loan, the borrower will be
notified to provide additional collateral not less than the applicable
collateral requirements. Cash collateral received is invested in fixed-income
securities, with a weighted average maturity not to exceed 90 days, rated in one
of the top two tiers by Standard & Poor's Ratings Group or Moody's Investors
Service, Inc. or repurchase agreements collateralized by such securities.
However, in the event of default or bankruptcy by the lending agent, realization
and/or retention of the collateral may be subject to legal proceedings. In the
event the borrower fails to return loaned securities and the collateral received
is insufficient to cover the value of the loaned securities and provided such
collateral shortfall is not the result of investment losses, the lending agent
has agreed to pay the amount of the shortfall to the Fund, or at the discretion
of the lending agent, replace the loaned securities. The Fund continues to
record dividends on the securities loaned and is subject to change in fair value
of the securities loaned that may occur during the term of the loan. The Fund
has the right under the Lending Agreement to recover the securities from the
borrower on demand. The security lending agent and the borrower retain a portion
of the earnings from the collateral investments. The Fund records security
lending income net of such allocation.
At November 30, 2003, the market value of securities on loan was $64,815,360,
for which cash collateral was received and invested in accordance with the
Lending Agreement. Such investments are presented on the Statement of Net Assets
under the caption "Securities Lending Collateral."
8. Credit and Market Risks
The Fund invests a significant portion of its assets in small-sized companies
and may be subject to certain risks associated with ownership of securities of
small-sized companies. Investments in small-sized companies may be more volatile
than investments in larger companies for a number of reasons, which include more
limited financial resources or a dependence on narrow product lines.
The Fund invests in REITs and is subject to some of the risks associated with
that industry. If the Fund holds real estate directly as a result of defaults or
receives rental income directly from real estate holdings, its tax status as a
regulated investment company may be jeopardized. The Fund's REIT holdings are
also affected by interest rate changes, particularly if the REITs it holds use
floating rate debt to finance their ongoing operations.
15
Notes
TO FINANCIAL STATEMENTS (CONTINUED) Delaware Small Cap Value Fund
9. Tax Information (Unaudited)
The information set forth below is for the Fund's fiscal year as required by
federal laws. Shareholders, however, must report distributions on a calendar
year basis for income tax purposes, which may include distributions for portions
of two fiscal years of a fund. Accordingly, the information needed by
shareholders for income tax purposes will be sent to them in January of each
year. Please consult your tax advisor for proper treatment of this information.
For the fiscal year ended November 30, 2003, the Fund designates distributions
paid during the year as follows:
(A) (B)
Long-Term Ordinary
Capital Gains Income Total (C)
Distributions Distributions Distributions Qualifying
(Tax Basis) (Tax Basis) (Tax Basis) Dividends(1)
------------- ------------- ------------- ------------
100% -- 100% --
(A) and (B) are based on a percentage of the Fund's total distributions.
(C) is based on a percentage of ordinary income of the Fund.
(1) Qualifying dividends represent dividends which qualify for the corporate
dividends received deduction.
16
Report
OF INDEPENDENT AUDITORS
To the Shareholders and Board of Trustees
Delaware Group Equity Funds V - Delaware Small Cap
Value Fund
We have audited the accompanying statement of net assets of Delaware Small Cap
Value Fund (the "Fund") as of November 30, 2003, and the related statement of
operations for the year then ended, the statements of changes in net assets for
each of the two years in the period then ended, and the financial highlights for
each of the periods indicated therein. These financial statements and financial
highlights are the responsibility of the Fund's management. Our responsibility
is to express an opinion on these financial statements and financial highlights
based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements and financial highlights. Our procedures included
confirmation of securities owned as of November 30, 2003, by correspondence with
the custodian and brokers. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Delaware Small Cap Value Fund at November 30, 2003, the results of its
operations for the year then ended, the changes in its net assets for each of
the two years in the period then ended, and its financial highlights for each of
the periods indicated therein, in conformity with accounting principles
generally accepted in the United States.
Ernst + Young LLP
- ----------------------
Philadelphia, Pennsylvania
January 2, 2004
17
Delaware Investments Family of Funds
BOARD OF TRUSTEES/DIRECTORS AND OFFICERS ADDENDUM
A mutual fund is governed by a Board of 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 that perform services for the fund. The
independent fund trustees, in particular, are advocates for shareholder
interests. The following is a list of the Trustees/Officers and certain
background and related information.
Number of Other
Principal Portfolios in Fund Directorships
Name, Position(s) Occupation(s) Complex Overseen Held by
Address Held with Length of Time During by Trustee/Director Trustee/Director
and Birthdate Fund(s) Served Past 5 Years or Officer or Officer
- -----------------------------------------------------------------------------------------------------------------------------------
INTERESTED TRUSTEES
Jude T. Driscoll(2) Chairman and 3 Years - Since August 2000, 83 None
2005 Market Street Trustee(4) Executive Officer Mr. Driscoll has served in
Philadelphia, PA various executive capacities
19103 Trustee since at different times at
May 15, 2003 Delaware Investments(1)
March 10, 1963
Senior Vice President and
Director of Fixed-Income Process -
Conseco Capital Management
(June 1998 - August 2000)
Managing Director -
NationsBanc Capital Markets
(February 1996 - June 1998)
- -----------------------------------------------------------------------------------------------------------------------------------
INDEPENDENT TRUSTEES
Walter P. Babich Trustee 15 Years Board Chairman - 101 None
2005 Market Street Citadel Construction Corporation
Philadelphia, PA (1989 - Present)
19103
October 1, 1927
John H. Durham Trustee 24 Years(3) Private Investor 101 Trustee - Abington
2005 Market Street Memorial Hospital
Philadelphia, PA
19103
August 7, 1937 President/Director -
22 WR Corporation
John A. Fry Trustee(4) 2 Years President - 83 None
2005 Market Street Franklin & Marshall College
Philadelphia, PA (June 2002 - Present)
19103
Executive Vice President -
University of Pennsylvania
May 28, 1960 (April 1995 - June 2002)
Anthony D. Knerr Trustee 10 Years Founder/Managing Director - 101 None
2005 Market Street Anthony Knerr & Associates
Philadelphia, PA (Strategic Consulting)
19103 (1990 - Present)
December 7, 1938
18
Number of Other
Principal Portfolios in Fund Directorships
Name, Position(s) Occupation(s) Complex Overseen Held by
Address Held with Length of Time During by Trustee/Director Trustee/Director
and Birthdate Fund(s) Served Past 5 Years or Officer or Officer
- -----------------------------------------------------------------------------------------------------------------------------------
INDEPENDENT TRUSTEES (CONTINUED)
Ann R. Leven Trustee 14 Years Treasurer/Chief Fiscal Officer - 101 Director - Andy
2005 Market Street National Gallery of Art Warhol Foundation
Philadelphia, PA (1994 - 1999)
19103 Director -
Systemax Inc.
November 1, 1940
Thomas F. Madison Trustee 9 Years President/Chief 101 Director -
2005 Market Street Executive Officer - CenterPoint Energy
Philadelphia, PA MLM Partners, Inc.
19103 (Small Business Investing Director - Digital
and Consulting) River Inc.
(January 1993 - Present)
February 25, 1936 Director - Rimage
Corporation
Director - Valmont
Industries, Inc.
Janet L. Yeomans Trustee 4 Years Vice President/Mergers & 101 None
2005 Market Street Acquisitions - 3M Corporation
Philadelphia, PA (January 2003 - Present)
19103
Ms. Yeomans has held
July 31, 1948 various management
positions at 3M Corporation
since 1983.
- -----------------------------------------------------------------------------------------------------------------------------------
OFFICERS
Joseph H. Hastings Executive Executive Mr. Hastings has served in 101 None
2005 Market Street Vice President Vice President various executive capacities
Philadelphia, PA and and at different times at
19103 Chief Financial Chief Financial Delaware Investments.
Officer Officer since
December 19, 1949 August 21, 2003
Richelle S. Maestro Senior Vice President, Chief Legal Ms. Maestro has served in 101 None
2005 Market Street Chief Legal Officer Officer since various executive capacities
Philadelphia, PA and Secretary March 17, 2003 at different times at
19103 Delaware Investments.
November 26, 1957
Michael P. Bishof Senior Vice President 7 Years Mr. Bishof has served in 101 None
2005 Market Street and Treasurer various executive capacities
Philadelphia, PA at different times at
19103 Delaware Investments.
August 18, 1962
(1) Delaware Investments is the marketing name for Delaware Management Holdings,
Inc. and its subsidiaries, including the Registrant's investment advisor,
principal underwriter and its transfer agent.
(2) Mr. Driscoll is considered to be an "Interested Trustee" because he is an
executive officer of the Fund's manager and distributor.
(3) Mr. Durham served as a Director Emeritus from 1995 through 1998.
(4) Mr. Driscoll and Mr. Fry are not Trustees of the portfolios of Voyageur
Insured Funds, Voyageur Intermediate Tax Free Funds, Voyageur Investment
Trust, Voyageur Mutual Funds, Voyageur Mutual Funds II, Voyageur Mutual
Funds III and Voyageur Tax Free Funds.
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.
19
Delaware
Investments(SM)
- --------------------------------------
A member of Lincoln Financial Group(R)
This annual report is for the information of Delaware International Value Equity
Fund, Delaware Emerging Markets Fund, and Delaware International Small Cap Value
Fund shareholders, but it may be used with prospective investors when preceded
or accompanied by a current prospectus for Delaware International Value Equity
Fund, Delaware Emerging Markets Fund, and Delaware International Small Cap Value
Fund and the Delaware Investments Performance Update for the most recently
completed calendar quarter. The prospectus sets forth details about charges,
expenses, investment objectives, and operating policies of the Fund. You should
read the prospectus carefully before you invest. The figures in this report
represent past results which are not a guarantee of future results. The return
and principal value of an investment in the Fund will fluctuate so that shares,
when redeemed, may be worth more or less than their original cost.
Board of Trustees Affiliated Officers Contact Information
Jude T. Driscoll Joseph H. Hastings Investment Manager
Chairman Executive Vice President and Delaware Management Company
Delaware Investments Family of Funds Chief Financial Officer Philadelphia, PA
Philadelphia, PA Delaware Investments Family of Funds
Philadelphia, PA International Affiliate
Walter P. Babich Delaware International Advisers Ltd.
Board Chairman Richelle S. Maestro London, England
Citadel Construction Corporation Senior Vice President,
King of Prussia, PA Chief Legal Officer and Secretary National Distributor
Delaware Investments Family of Funds Delaware Distributors, L.P.
John H. Durham Philadelphia, PA Philadelphia, PA
Private Investor
Gwynedd Valley, PA Michael P. Bishof Shareholder Servicing, Dividend
Senior Vice President and Treasurer Disbursing and Transfer Agent
John A. Fry Delaware Investments Family of Funds Delaware Service Company, Inc.
President Philadelphia, PA 2005 Market Street
Franklin & Marshall College Philadelphia, PA 19103-7094
Lancaster, PA
For Shareholders
Anthony D. Knerr 800 523-1918
Managing Director
Anthony Knerr & Associates For Securities Dealers and Financial
New York, NY Institutions Representatives Only
800 362-7500
Ann R. Leven
Former Treasurer/Chief Fiscal Officer Web site
National Gallery of Art www.delawareinvestments.com
Washington, DC
Thomas F. Madison
President and Chief Executive Officer
MLM Partners, Inc.
Minneapolis, MN
Janet L. Yeomans
Vice President/Mergers & Acquisitions
3M Corporation
St. Paul, MN
--------------------------------------------------------------------------------
A description of the policies and procedures that the Fund uses to determine how
to vote proxies (if any) relating to portfolio securities is available without
charge (i) upon request, by calling 800 523-1918; (ii) on the Fund's website at
http://www.delawareinvestments.com; and (iii) on the Commission's website at
http://www.sec.gov.; and beginning no later than August 31, 2004, information
(if any) regarding how the Fund voted proxies relating to portfolio securities
during the most recent 12-month period ended June 30 is available without charge
(i) through the Fund's website at http://www.delawareinvestments.com; and (ii)
on the Commission's website at http://www.sec.gov.
--------------------------------------------------------------------------------
(8461) Printed in the USA
AR-021 [11/03] IVES 1/04 J9517 EXP: 1/05
Delaware
Investments(SM)
--------------------------------------
A member of Lincoln Financial Group(R)
2003 Annual Shareholder Report
- ------------------------------
- - Delaware Small Cap Contrarian Fund
Dear Shareholder
December 10, 2003
Portfolio Management Review
- ---------------------------
Delaware Small Cap Contrarian Fund
Q: Please discuss the Fund's performance in relation to the small-cap market
during the fiscal year.
A: For the 12 months ended November 30, 2003, Delaware Small Cap Contrarian Fund
posted a +35.19% total return (Class A shares at net asset value with
distributions reinvested) slightly underperforming its benchmark, the Russell
2000 Index, which rose +36.29% during the same period. The Fund outperformed the
Lipper Small-Cap Value Funds Average, which returned +33.25% during the same
time period. As an additional note, the Russell 2000 Value Index appreciated
+34.91%. We generally attribute the Fund's modest outperformance of its peer
group to strong stock selection and highly disciplined portfolio monitoring.
Small-cap stocks rallied during the period, as investors became increasingly
willing to accept greater risk. In our opinion, investor expectations for
continued economic growth also generally led to inflated valuations for lower
quality names. Often during the period, investors bought stocks of companies
with no earnings potential, high earnings multiples, and highly leveraged
balance sheets. In fact, lower-quality companies led the market after mid-March
(Source: Bloomberg). Nonetheless, we continued to focus on companies with the
ability to generate strong free cash flow, the potential to increase dividends,
and a commitment to reducing debt - attributes that remain a core part of our
stock selection process.
Q: Can you describe your investment strategy during the past 12 months?
A: As the economy gained strength, we emphasized economically sensitive sectors
of the market. A good example is the basic industry/capital goods sector, which
has significant concentrations of metal, forest and paper, materials and mining,
and specialty/chemicals companies. We also became increasingly optimistic about
consumer-oriented stocks, particularly those that may benefit from increased
capital spending and those favoring consumer services. While we were cautious
about the technology sector - selecting only those companies that we believe
possess strong earnings prospects - we increased our position to a modest
overweighting by the fiscal year end.
Q: Which holdings contributed positively to performance?
A: Bebe Stores, a women's clothing retailer, posted strong performance as a
result of continued strength in consumer spending. We sold this company late in
the fiscal year when the stock met our target price. Another strong retail
holding was Ann Taylor Stores, which delivered attractive performance following
a disappointing 2002. We purchased the stock in January based on its strong
balance sheet and the company's history of successfully navigating fashion
trends.
In basic industry/capital goods, Freeport-McMoRan Copper & Gold, a leading
producer of gold and copper, benefited from rising commodity prices, its
issuance of a dividend, and a repurchase of company stock. As a result,
Freeport-McMoRan was able to generate attractive free cash flow - a factor that
1
contributed to strong performance. Another notable performer in this sector was
Louisiana-Pacific. Rising lumber prices and strong sales of one of its primary
products contributed to the company's improved profits.
The technology sector also made a positive contribution to performance. One of
the top holdings was International Rectifier, a semiconductor firm that
benefited from increased product demand. Finally, in healthcare we purchased the
stock of Humana, one of the country's largest health management organizations. A
positive environment for HMOs and the company's willingness to repurchase its
stock fueled significant free cash flow.
Q: Please highlight a security that made a significant contribution to the
portfolio.
A: Our ability to employ comprehensive security research prompted us to purchase
Louisiana-Pacific, a leading manufacturer of building materials and the world's
top producer of oriented strand board, an innovative wood-based product. Despite
poor performance in recent years, we believed the firm offered a sound business
strategy. In the spring of 2003, management announced a plan to sell its
timberland business in order to pay down debt, a strategy that generated
significant free cash flow. In our opinion, Louisiana-Pacific's future prospects
are promising. We are optimistic that a dividend announcement and repurchase of
company stock may occur in the coming months.
Q: Which holdings detracted from performance?
A: Among the sector that we refer to as capital goods, we sold farm equipment
manufacturer AGCO, based on a shift in its management strategy that emphasized
new business acquisitions over debt reduction. We also trimmed our position in
La-Z-Boy. Despite a strong housing market, demand for furniture had not met our
expectations. Over the long term, however, we believe that the company is poised
to benefit from strengthening that we still anticipate in the industry.
In the energy sector, our position in Grey Wolf, a land contract driller,
delivered disappointing returns. A combination of high oil and natural gas
prices, combined with the absence of increased spending among exploration
companies, prevented Grey Wolf from raising prices as we had anticipated.
Despite rising commodity prices, exploration companies kept a lid on increasing
capital spending. We are confident about the company's long-term prospects and
added to our position, taking advantage of attractive valuations as the stock's
price came down.
Finally, DRS Technologies, a defense-related electronic business, detracted from
performance. It was removed from the portfolio due to management's decision to
pursue business acquisitions rather than repurchase company stock at attractive
valuations.
2
Delaware Small Cap Contrarian Fund
Fund Objective:
The Fund seeks long-term capital appreciation.
Total Fund Net Assets:
As of November 30, 2003
$3.96 million
Number of Holdings:
As of November 30, 2003
126
Your Fund Manager:
Christopher S. Beck holds a bachelor's degree from the University of Delaware,
an MBA from Lehigh University and is a CFA charterholder. Mr. Beck has been in
the investment business for 22 years, starting with Wilmington Trust in 1981.
Later, he became Director of Research at Cypress Capital Management in
Wilmington and Chief Investment Officer of the University of Delaware Endowment
Fund. Prior to joining Delaware in May 1997, he managed the Small Cap Fund for
two years at Pitcairn Trust Company.
Performance Summary+
3
Average Annual Total Returns
Through November 30, 2003
Lifetime One Year
Delaware Small Cap Contrarian Fund
Class A (Est. 12/29/98)
Excluding Sales Charge +14.82% +35.19%
Including Sales Charge +13.44% +27.39%
Institutional Class (Est. 12/29/98) +14.82% +35.19%
Lipper Small-Cap Value
Funds Average (235 Funds) +12.79%* +33.25%
Russell 2000 Index +6.82%* +36.29%
The results shown above assume reinvestment of all distributions. Class A
returns, including sales charges, reflect a maximum up-front sales charge of
5.75%. Returns and share value will fluctuate so that shares, when redeemed, may
be worth more or less than the original share price. No 12b-1 fees were imposed
on Class A shares for the periods shown and had such charges been imposed,
returns would have been lower. Class B, C, and R shares were not offered during
the periods shown. Institutional Class shares are available without sales or
asset-based distribution charges only to certain eligible institutional
accounts.
The Lipper categories represent the average return of specific mutual funds
tracked by Lipper (Source: Lipper Inc.). The Russell 2000 Index is an unmanaged
composite that tracks the stocks of 2,000 U.S. companies with small market
capitalizations. You cannot invest directly in an index. Past performance is not
a guarantee of future results.
An expense limitation was in effect for all classes of Delaware Small Cap
Contrarian Fund during the periods shown. Performance would have been lower had
the expense limitation not been in effect.
The performance table does not reflect the deduction of taxes the shareholder
would pay on Fund distributions or redemptions of Fund shares.
This report is for the information of Delaware Small Cap Contrarian Fund
shareholders. The current prospectus for the Fund sets forth details about
charges, expenses, investment objectives, and operating policies of the Fund.
You should read the prospectus carefully before you invest or send money.
Summary investment results are documented in the Fund's current Statement of
Additional Information.
+Please see the following page for the line graph on the Fund's performance
since inception.
*Assumes start date of December 31, 1998.
4
Delaware Small Cap Contrarian Fund
Performance of a $10,000 Investment
December 29, 1998 (Fund's inception) to November 30, 2003
Delaware Small Cap
Contrarian Fund -
Class A Shares Russell 2000 Index
12/29/98 $ 9,425 $10,000
11/30/99 $ 9,902 $10,893
11/30/00 $10,948 $10,829
11/30/01 $13,621 $11,351
11/30/02 $13,768 $10,147
11/30/03 $18,608 $13,829
Chart assumes $10,000 invested on December 29, 1998 and includes the effect of a
5.75% front-end sales charge and the reinvestment of all distributions.
Performance of other Fund classes will vary due to differing charges and
expenses. Chart also assumes $10,000 invested in the Russell 2000 Index at that
month's end, December 31, 1998. After December 31, 1998, returns plotted on the
chart were as of the last day of each month shown. The Russell 2000 Index is an
unmanaged composite that tracks the stocks of 2,000 U.S. companies with small
market capitalizations. No 12b-1 fees were imposed on Class A shares for the
periods shown and had such charges been imposed, returns would have been lower.
An expense limitation was in effect for all classes of the Fund during the
periods shown. Performance would have been lower had the expense limitation not
been in effect. An index is unmanaged and does not reflect the costs of
operating a mutual fund, such as the costs of buying, selling, and holding
securities. The chart does not reflect the deduction of taxes the shareholder
would pay on Fund distributions or redemptions of Fund shares. You cannot invest
directly in an index. Past performance is not a guarantee of future results.
5
Statement of Net Assets
DELAWARE SMALL CAP CONTRARIAN FUND
November 30, 2003
Number of Market
Shares Value
Common Stock - 94.73%
Banking & Finance - 11.52%
Boston Private Financial Holding 1,400 $36,302
Colonial BancGroup 3,200 53,472
Commercial Federal 1,300 35,100
Compass Bancshares 1,500 58,665
First Federal Capital 1,200 28,116
First Republic Bank 800 29,800
Gold Banc Corp 2,100 27,720
Greater Bay Bancorp 1,600 41,600
MAF Bancorp 900 39,519
Provident Bankshares 1,000 29,060
Republic Bancorp 2,200 30,250
Riggs National 1,600 27,456
+Sterling Financial 583 19,595
--------
456,655
--------
Basic Industry/Capital Goods - 18.89%
+Armor Holdings 600 14,550
Crane 1,200 34,908
+Crown Holdings 2,700 20,250
Federal Signal 800 12,120
Florida Rock Industries 800 46,000
Freeport-McMoRan Copper & Gold-Class B 800 34,824
Gibraltar Steel 1,000 24,380
+Golden Star Resources 4,000 30,160
+Griffon 3,000 58,560
Harsco 800 31,728
+Insituform Technologies-Class A 1,300 19,565
+Jacobs Engineering Group 600 27,564
Kaydon 1,400 34,188
+Louisiana-Pacific 2,700 48,843
+Meridian Gold 1,600 23,584
+Mueller Industries 700 22,624
+Pactiv 2,800 62,831
Smith (A.O.) 900 31,626
+Terex 1,300 33,527
+Tetra Tech 1,600 40,800
Texas Industries 700 20,447
The Brinks Company 1,800 39,960
Universal Forest Products 400 12,176
Wausau-Mosinee Paper 1,900 23,370
--------
748,585
--------
Business Services - 1.67%
+Intergrated Alarm Services 1,400 10,640
+Right Management Consultants 1,300 23,231
+United Stationers 800 32,280
--------
66,151
--------
Cable, Media & Publishing - 0.65%
Belo-Class A 900 25,569
--------
25,569
--------
Chemicals - 3.01%
Fuller (H.B) 1,000 26,670
MacDermid 1,400 45,920
PolyOne 3,000 17,850
Spartech 1,300 28,600
--------
119,040
--------
6
Statement of Net Assets (Continued)
Number of Market
Shares Value
Common Stock (Continued)
Consumer Durables - 3.24%
Furniture Brands International 1,400 $36,820
KB Home 800 55,104
La-Z-Boy 1,000 20,200
+WCI Communities 800 16,144
--------
128,268
--------
Consumer Non-Durables - 9.93%
+AnnTaylor Stores 1,300 51,662
+Barnes & Noble 1,100 36,498
Cato-Class A 1,200 25,056
+Department 56 800 11,304
Goody's Family Clothing 2,000 21,240
+Jo-Ann Stores 1,035 20,752
+Movie Gallery 1,000 17,690
Oakley 1,700 22,270
Phillips-Van Heusen 1,500 26,400
Pier 1 Imports 1,400 35,700
Reebok International 800 32,192
+Shoe Carnival 800 14,464
+ShopKo Stores 1,400 23,310
+Sports Authority 444 19,314
+Whitehall Jewellers 800 8,488
Wolverine World Wide 1,300 27,027
--------
393,367
--------
Consumer Products - 1.94%
Bunge Limited 1,000 28,480
+Constellation Brands 1,400 48,314
--------
76,794
--------
Consumer Services - 1.14%
+CEC Entertainment 900 45,252
--------
45,252
--------
Energy - 5.62%
Arch Coal 1,200 31,788
Chesapeake Energy 3,100 37,820
+Comstock Resources 2,300 37,490
+Grey Wolf 5,400 18,306
+Magnum Hunter Resources 3,300 29,667
+Newfield Exploration 1,000 40,900
+Whiting Petroleum 1,600 26,576
--------
222,547
--------
Healthcare & Pharmaceuticals - 6.46%
Cooper Companies 400 18,260
+Humana 1,900 42,427
+IDEXX Laboratories 500 23,675
+NeighborCare 800 25,128
Owens & Minor 1,500 31,815
+Pharmaceutical Resources 400 29,032
+Protein Design Labs 2,100 29,106
+Province Healthcare 1,900 29,127
+Sola International 1,400 27,440
--------
256,010
--------
Insurance - 4.13%
AmerUs Group 1,100 39,545
Berkley (W.R.) 1,350 46,103
Harleysville Group 1,100 21,560
Platinum Underwriters Holdings 600 18,102
RenaissanceRe Holdings 800 38,368
--------
163,678
--------
7
Statement of Net Assets (Continued)
Number of Market
Shares Value
Common Stock (Continued)
REITs - 5.86%
Camden Property Trust 900 $37,836
Chelsea Property Group 600 32,400
Keystone Property Trust 1,200 24,312
Pan Pacific Retail Properties 1,100 51,095
Prentiss Properties Trust 900 28,575
Reckson Associates Realty 1,100 26,400
The St. Joe Company 900 31,320
---------
231,938
---------
Retail - 0.67%
+Take-Two Interactive Software 800 26,480
---------
26,480
---------
Technology - 13.53%
+Actel 1,300 35,633
+ASM International N.V 1,900 35,967
+Bell Microproducts 1,900 16,359
+Comverse Technology 2,700 51,920
+Filenet 900 23,571
+Herley Industries 1,300 25,116
+Ingram Micro-Class A 2,300 33,534
+Insight Enterprises 1,900 35,530
+International Rectifier 900 49,158
+Lawson Software 3,800 32,072
+Overland Storage 1,400 27,524
+Photronics 1,100 20,317
+Plexus 1,800 31,950
+Storage Technology 1,000 25,200
Symbol Technologies 1,600 22,320
+Tech Data 700 25,788
+Veeco Instruments 1,500 44,250
---------
536,209
---------
Transportation - 4.07%
Alexander & Baldwin 1,600 50,336
+Continental Airlines-Class B 1,100 20,515
+Kirby 1,000 30,000
+Northwest Airlines-Class A 1,200 15,852
+SCS Transportation 550 9,147
Skywest 800 13,800
+Yellow 700 21,399
---------
161,049
---------
Utilities - 2.40%
Black Hills 500 16,130
+El Paso Electric 1,700 21,590
PNM Resources 1,000 28,010
Southwest Gas 1,300 29,315
95,045
---------
Total Common Stock (cost $2,741,858) 3,752,637
---------
Exchange Traded Funds - 2.37%
iShares Russell 2000 Value 600 93,840
---------
Total Exchange Traded Funds (cost $85,548) 93,840
---------
8
Statement of Net Assets (Continued)
Principal Market
Amount Value
Repurchase Agreements - 2.90%
With BNP Paribas 1.01% 12/1/03
(dated 11/28/03, collateralized by $44,790
U.S. Treasury Notes 6.75% due 5/15/05, market
value $48,234) $47,275 $ 47,275
With J. P. Morgan Securities 0.98% 12/1/03
(dated 11/28/03, collateralized by $20,560
U.S. Treasury Notes 2.25% due 7/31/04, market
value $20,868) 20,450 20,450
With UBS Warburg 1.01% 12/1/03
(dated 11/28/03, collateralized by $14,770
U.S. Treasury Notes 2.00% due 11/30/04, market
value $15,006, $520 U.S. Treasury Notes 5.50%
due 2/15/08, market value $577 and $29,550 U.S.
Treasury Notes 5.625% due 5/15/08, market value $32,651) 47,275 47,275
----------
Total Repurchase Agreements (cost $115,000) 115,000
----------
Total Market Value of Securities - 100.00%
(cost $2,942,406) 3,961,477
Liabilities Net of Receivables and Other Assets - 0.00% (114)
----------
Net Assets Applicable to 302,926 Shares Outstanding - 100.00% $3,961,363
==========
Net Asset Value - Delaware Small Cap Contrarian
Fund Class A
($12,863 / 983.7 Shares) $13.08
======
Net Asset Value - Delaware Small Cap Contrarian
Fund Institutional Class
($3,948,500 / 301,942 Shares) $13.08
======
Components of Net Assets at November 30, 2003:
Shares of beneficial interest (unlimited authorization - no par) $2,646,118
Undistributed net investment income 10,627
Accumulated net realized gain on investments 285,547
Net unrealized appreciation of investments 1,019,071
----------
Total net assets $3,961,363
==========
+Non-income producing security for the year ended November 30, 2003.
Summary of Abbreviation:
REIT - Real Estate Investment Trust
Net Asset Value and Offering Price per Share -
Delaware Small Cap Contrarian Fund
Net asset value Class A (A) $13.08
Sales charge (5.75% of offering price, or 6.12%
of the amount invested per share) (B) 0.80
------
Offering price $13.88
------
_______________________________
(A) Net asset value per share, as illustrated, is the estimated amount which
would be paid upon the redemption or repurchase of shares.
(B) See the current prospectus for purchases of $50,000 or more.
See accompanying notes
9
Delaware Small Cap Contrarian Fund
Statement of Operations
Year Ended November 30, 2003
Investment Income:
Dividends $33,029
Interest 1,677 $ 34,706
----------
Expenses:
Management fees $24,025
Trustees' fees 2,223
Registration fees 1,963
Accounting and administration expenses 1,371
Dividend disbursing and transfer agent fees and expenses 1,153
Custodian fees 686
Reports and statements to shareholders 627
Professional fees 541
Distribution expenses - Class A 6
Other 728 33,323
-------
Less expenses absorbed or waived (9,219)
Less waiver of distribution expenses - Class A (6)
Less expenses paid indirectly (84)
----------
Total expenses 24,014
----------
Net Investment Income 10,692
----------
Net Realized and Unrealized Gain on Investments:
Net realized gain on investments 287,735
Net change in unrealized appreciation/depreciation of investments 730,117
----------
Net Realized and Unrealized Gain on Investments 1,017,852
----------
Net Increase in Net Assets Resulting from Operations $1,028,544
==========
See accompanying notes
10
Delaware Small Cap Contrarian Fund
Statements of Changes in Net Assets
Year Ended
11/30/03 11/30/02
---------- ----------
Increase (Decrease) in Net Assets from Operations:
Net investment income $ 10,692 $ 22,348
Net realized gain on investments 287,735 149,177
Net change in unrealized appreciation/depreciation of investments 730,117 (140,890)
---------- ----------
Net increase in net assets resulting from operations 1,028,544 30,635
---------- ----------
Dividends and Distributions to Shareholders from:
Net investment income:
Institutional Class (21,293)
(28,045)
Net realized gain on investments:
Class A (1) (2)
Institutional Class (147,913) (228,515)
---------- ----------
(169,207) (256,562)
---------- ----------
Capital Share Transactions:
Proceeds from shares sold:
Class A
Institutional Class 14,346 -
4 -
Net asset value of shares issued upon
reinvestment of dividends and distributions:
Class A 1 3
Institutional Class 169,206 256,560
---------- ----------
183,557 256,563
---------- ----------
Cost of shares repurchased:
Class A (2,303) (15)
---------- ----------
(2,303) (15)
---------- ----------
Increase in net assets derived from
capital share transactions 181,254 256,548
---------- ----------
Net Increase in Net Assets 1,040,591 30,621
Net Assets:
Beginning of year 2,920,772 2,890,151
---------- ----------
End of year $3,961,363 $2,920,772
========== ==========
See accompanying notes
11
Financial Highlights
Selected data for each share of the Fund outstanding throughout each period were
as follows:
Delaware Small Cap Contrarian Fund Class A
------------------------------------------------------------------------
12/29/98(1)
Year Ended to
11/30/03 11/30/02 11/30/01 11/30/00 11/30/99
------------------------------------------------------------------------
Net asset value, beginning of period $10.290 $11.130 $9.090 $8.930 $8.500
Income from investment operations:
Net investment income(2) 0.036 0.079 0.111 0.159 0.104
Net realized and unrealized gain on investments 3.350 0.069 2.082 0.720 0.326
------------------------------------------------------------------------
Total from investment operations 3.386 0.148 2.193 0.879 0.430
------------------------------------------------------------------------
Less dividends and distributions from:
Net investment income (0.075) (0.108) (0.153) (0.135) -
Net realized gain on investments (0.521) (0.880) - (0.584) -
------------------------------------------------------------------------
Total dividends and distributions (0.596) (0.988) (0.153) (0.719) -
------------------------------------------------------------------------
Net asset value, end of period $13.080 $10.290 $11.130 $9.090 $8.930
========================================================================
Total return(3) 35.19% 1.08% 24.42% 10.56% 5.06%
Ratios and supplemental data:
Net assets, end of period (000 omitted) $13 $- $- $- $-
Ratio of expenses to average net assets 0.75% 0.75% 0.75% 0.75% 0.80%
Ratio of expenses to average net assets prior to
expense limitation and expenses paid indirectly 1.34% 1.34% 1.18% 1.24% 2.14%
Ratio of net investment income to average net assets 0.33% 0.74% 1.07% 1.81% 1.27%
Ratio of net investment income (loss) to average
net assets prior to expense limitation and expenses
paid indirectly (0.26%) 0.15% 0.63% 1.32% (0.12%)
Portfolio turnover 44% 76% 82% 125% 63%
(1) Date of commencement of operations; ratios and portfolio turnover have been
annualized and total return has not been annualized.
(2) The average shares outstanding method has been applied for per share
information.
(3) Total investment return is based on the change in net asset value of a share
during the period and assumes reinvestment of dividends and distributions at
net asset value and does not reflect the impact of a sales charge. Total
investment return reflects a waiver and payment of fees by the manager and
distributor. Performance would have been lower had the expense limitation
not been in effect.
See accompanying notes
12
Financial Highlights (Continued)
Selected data for each share of the Fund outstanding throughout each period were
as follows:
Delaware Small Cap Contrarian Fund Institutional Class
------------------------------------------------------------------------
12/29/98(1)
Year Ended to
11/30/03 11/30/02 11/30/01 11/30/00 11/30/99
------------------------------------------------------------------------
Net asset value, beginning of period $10.290 $11.130 $9.090 $8.930 $8.500
Income from investment operations:
Net investment income2 0.036 0.079 0.111 0.159 0.104
Net realized and unrealized gain on investments 3.350 0.069 2.082 0.720 0.326
------------------------------------------------------------------------
Total from investment operations 3.386 0.148 2.193 0.879 0.430
------------------------------------------------------------------------
Less dividends and distributions from:
Net investment income (0.075) (0.108) (0.153) (0.135) -
Net realized gain on investments (0.521) (0.880) - (0.584) -
------------------------------------------------------------------------
Total dividends and distributions (0.596) (0.988) (0.153) (0.719) -
------------------------------------------------------------------------
Net asset value, end of period $13.080 $10.290 $11.130 $9.090 $8.930
========================================================================
Total return3 35.19% 1.08% 24.42% 10.56% 5.06%
Ratios and supplemental data:
Net assets, end of period (000 omitted) $3,948 $2,921 $2,890 $2,322 $2,101
Ratio of expenses to average net assets 0.75% 0.75% 0.75% 0.75% 0.80%
Ratio of expenses to average net assets prior to
expense limitation and expenses paid indirectly 1.04% 1.04% 0.88% 0.94% 1.84%
Ratio of net investment income to average net assets 0.33% 0.74% 1.07% 1.81% 1.27%
Ratio of net investment income to average net assets
prior to expense limitation and expenses paid indirectly 0.04% 0.45% 0.93% 1.62% 0.18%
Portfolio turnover 44% 76% 82% 125% 63%
(1) Date of commencement of operations; ratios and portfolio turnover have been
annualized and total return has not been annualized.
(2) The average shares outstanding method has been applied for per share
information.
(3) Total investment return is based on the change in net asset value of a share
during the period and assumes reinvestment of dividends and distributions at
net asset value. Total investment return reflects a waiver and payment of
fees by the manager. Performance would have been lower had the expense
limitation not been in effect.
See accompanying notes
13
Notes to Financial Statements
November 30, 2003
Delaware Group Equity Funds V (the "Trust") is organized as a Delaware statutory
trust and offers three series: Delaware Dividend Income Fund (formerly Delaware
Retirement Income Fund), Delaware Small Cap Contrarian Fund and Delaware Small
Cap Value Fund. These financial statements and the related notes pertain to
Delaware Small Cap Contrarian Fund (the "Fund"). The Trust is an open-end
investment company. The Fund is considered diversified under the Investment
Company Act of 1940, as amended, and offers Class A, Class B, Class C, Class R
and Institutional Class shares. Class A shares are sold with a front-end sales
charge of up to 5.75%. Class B shares are sold with a contingent deferred sales
charge that declines from 4% to zero depending upon the period of time the
shares are held. Class B shares will automatically convert to Class A shares on
a quarterly basis approximately eight years after purchase. Class C shares are
sold with a contingent deferred sales charge of 1%, if redeemed during the first
12 months. Class R and Institutional Class shares are not subject to a sales
charge and are offered for sale exclusively to a limited group of investors. As
of November 30, 2003, only Class A and Institutional Class have commenced
operations.
The investment objective of the Fund is to seek long-term capital appreciation.
1. Significant Accounting Policies
The following accounting policies are in accordance with accounting principles
generally accepted in the United States and are consistently followed by the
Fund.
Security Valuation- All equity securities are valued at the last quoted sales
price as of the time of the regular close of the New York Stock Exchange (NYSE)
on the valuation date. Securities traded on the Nasdaq Stock Market, Inc.
(NASDAQ) are valued in accordance with the NASDAQ Official Closing Price, which
may not be the last sales price. If on a particular day an equity security does
not trade, then the mean between bid and asked prices will be used. Short-term
debt securities having less than 60 days to maturity are valued at amortized
cost, which approximates market value. Other securities and assets for which
market quotations are not readily available are valued at fair value as
determined in good faith under the direction of the Fund's Board of Trustees. In
determining whether market quotations are readily available or fair valuation
will be used, various factors will be taken into consideration, such as market
closures, or with respect to foreign securities, aftermarket trading or
significant events after local market trading (e.g., government actions or
pronouncements, trading volume or volatility on markets, exchanges among
dealers, or news events).
Federal Income Taxes- The Fund intends to continue to qualify for federal income
tax purposes as a regulated investment company and make the requisite
distributions to shareholders. Accordingly, no provision for federal income
taxes has been made in the financial statements.
Class Accounting- Investment income, common expenses and realized and unrealized
gain (loss) on investments are allocated to the various classes of the Fund on
the basis of daily net assets of each class. Distribution expenses relating to a
specific class are charged directly to that class.
Repurchase Agreements- The Fund may invest in a pooled cash account along with
other members of the Delaware Investments Family of Funds. The aggregate daily
balance of the pooled cash account is invested in repurchase agreements secured
14
by obligations of the U.S. government. The respective collateral is held by the
Fund's custodian bank until the maturity of the respective repurchase
agreements. Each repurchase agreement is 102% collateralized. However, in the
event of default or bankruptcy by the counterparty to the agreement, realization
of the collateral may be subject to legal proceedings.
Use of Estimates- The preparation of financial statements in conformity with
accounting principles generally accepted in the United States requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual results
could differ from those estimates.
Other- Expenses common to all funds within the Delaware Investments Family of
Funds are allocated amongst the funds on the basis of average net assets.
Security transactions are recorded on the date the securities are purchased or
sold (trade date). Costs used in calculating realized gains and losses on the
sale of investment securities are those of the specific securities sold.
Dividend income is recorded on the ex-dividend date and interest income is
recorded on the accrual basis. Distributions received from investments in Real
Estate Investment Trusts are recorded as dividend income on ex-dividend date,
subject to reclassification upon notice of the character of such distribution by
the issuer. The Fund declares and pays dividends from net investment income and
distributions from net realized gain on investments, if any, annually.
Certain expenses of the Fund are paid through commission arrangements with
brokers. The amount of these expenses was approximately $77 for the year ended
November 30, 2003. In addition, the Fund may receive earnings credits from its
custodian when positive cash balances are maintained, which are used to offset
custody fees. The earnings credits for the year ended November 30, 2003 were
approximately $7. The expenses paid under the above arrangements are included in
their respective expense captions on the Statement of Operations with the
corresponding expense offset shown as "expenses paid indirectly".
2. Investment Management, Administration Agreements and Other Transactions
with Affiliates
In accordance with the terms of its investment management agreement, the Fund
pays Delaware Management Company (DMC), a series of Delaware Management Business
Trust and the investment manager, an annual fee which is calculated daily at the
rate of 0.75% on the first $500 million of average daily net assets of the Fund,
0.70% on the next $500 million, 0.65% on the next $1.5 billion, and 0.60% on
daily average net assets in excess of $2.5 billion.
DMC has contractually agreed to waive that portion, if any, of its management
fee and reimburse the Fund to the extent necessary to ensure that annual
operating expenses, exclusive of taxes, interest, brokerage commissions,
distribution fees, certain insurance costs and extraordinary expenses, do not
exceed 0.75% of average daily net assets through May 31, 2004.
Delaware Service Company, Inc. (DSC), an affiliate of DMC, provides accounting,
administration, dividend disbursing and transfer agent services. The Fund pays
DSC a monthly fee based on average net assets subject to certain minimums for
accounting and administration services. The Fund pays DSC a monthly fee based on
the number of shareholder accounts for dividend disbursing and transfer agent
services. Prior to June 1, 2003, the monthly fee for dividend disbursing and
transfer agent services was based on the number of shareholder accounts and
shareholder transactions.
15
Pursuant to the distribution agreement and distribution plan, the Fund pays
Delaware Distributors, L.P. (DDLP), the distributor and an affiliate of DMC, an
annual distribution and service fee not to exceed 0.30% of the average daily net
assets of the Class A shares, 1.00% of the average daily net assets of the Class
B and C shares, and 0.60% of the average daily net assets of Class R shares.
DDLP has elected voluntarily to waive such distribution and service fees at this
time. Institutional Class shares pay no distribution and service expenses.
At November 30, 2003, the Fund had liabilities payable to affiliates as follows:
Investment management fee payable to DMC $2,037
Dividend disbursing, transfer agent fees,
accounting and other expenses payable to DSC 153
Other expenses payable to DMC and affiliates* 536
*DMC, as part of its administrative services, pays Fund operating expenses on
behalf of the Fund and is reimbursed on a periodic basis. Such expenses include
items such as printing of shareholder reports, professional fees, custodian fees
and trustee fees.
Certain officers of DMC, DSC and DDLP are officers and/or trustees of the Trust.
These officers and trustees are paid no compensation by the Fund.
3. Investments
For the year ended November 30, 2003, the Fund made purchases of $1,471,632 and
sales of $1,347,061 of investment securities other than short-term investments.
At November 30, 2003, the cost of investments for federal income tax purposes
was $2,942,430. At November 30, 2003, the net unrealized appreciation was
$1,019,047, of which $1,063,083 related to unrealized appreciation of
investments and $44,036 related to unrealized depreciation of investments.
16
4. Dividend and Distribution Information
Income and long-term capital gain distributions are determined in accordance
with federal income tax regulations, which may differ from accounting principles
generally accepted in the United States. The tax character of dividends and
distributions paid during the years ended November 30, 2003 and 2002 was as
follows:
2003 2002
----------------------------
Ordinary income $19,145 $116,077
Long-term capital gain 150,062 140,485
----------------------------
Total dividends and distributions $169,207 $256,562
----------------------------
As of November 30, 2003, the components of net assets on a tax basis were as
follows:
Shares of beneficial interest $2,646,118
Undistributed ordinary income 92,348
Undistributed long-term capital gains 203,850
Unrealized appreciation of investments 1,019,047
----------
Net assets $3,961,363
----------
5. Capital Shares
Transactions in capital shares were as follows:
Year Ended Year Ended
11/30/03 11/30/02
----------------------------
Shares sold:
Class A 1,177 -
Shares issued upon
reinvestment of
dividends and distributions:
Institutional Class 18,039 24,227
----------------------------
19,216 24,227
----------------------------
Shares repurchased:
Class A (195) (1)
----------------------------
(195) (1)
----------------------------
Net increase 19,021 24,226
============================
17
6. Line of Credit
The Fund, along with certain other funds in the Delaware Investments Family of
Funds (the "Participants"), participates in a $177,300,000 revolving line of
credit facility to be used for temporary or emergency purposes as an additional
source of liquidity to fund redemptions of investor shares. The Participants are
charged an annual commitment fee, which is allocated across the Participants on
the basis of each fund's allocation of the entire facility. The Participants may
borrow up to a maximum of one-third of their net assets under the agreement. The
Fund had no amount outstanding as of November 30, 2003, or at any time during
the year.
7. Credit and Market Risk
The Fund may invest up to 15% of its net assets in illiquid securities, which
may include securities with contractual restrictions on resale, securities
exempt from registration under Rule 144A of the Securities Act of 1933, as
amended, and other securities which may not be readily marketable. The relative
illiquidity of these securities may impair the Fund from disposing of them in a
timely manner and at a fair price when it is necessary or desirable to do so.
The Fund invests a significant portion of its assets in small and mid-sized
companies and may be subject to certain risks associated with ownership of
securities of small and mid-sized companies. Investments in small or mid-sized
companies may be more volatile than investments in larger companies for a number
of reasons, which include more limited financial resources or a dependence of
narrow product lines.
18
8. Tax Information (unaudited)
The information set forth below is for the Fund's fiscal year as required by
federal laws. Shareholders, however, must report distributions on a calendar
year basis for income tax purposes, which may include distributions for portions
of two fiscal years of a fund. Accordingly, the information needed by
shareholders for income tax purposes will be sent to them in January of each
year. Please consult your tax advisor for proper treatment of this information.
For the fiscal year ended November 30, 2003, the Fund designates distributions
paid during the year as follows:
(A) (B)
Long-Term Ordinary
Capital Gain Income Total (C)
Distributions Distribution Distributions Qualifying(1)
(Tax Basis) (Tax Basis) (Tax Basis) Dividends
----------- ----------- ----------- ---------
89% 11% 100% 100%
_____________________________
(A) and (B) are based on a percentage of the Fund's total distributions.
(C) is based on a percentage of ordinary income of the Fund.
(1) Qualifying dividends represent dividends which qualify for the corporate
dividends received deduction.
19
Report of Independent Auditors
To the Shareholders and Board of Trustees
Delaware Group Equity Funds V - Delaware Small Cap Contrarian Fund
We have audited the accompanying statements of net assets of Delaware Small Cap
Contrarian Fund (the "Fund") as of November 30, 2003, and the related statement
of operations for the year then ended, the statements of changes in net assets
for each of the two years in the period then ended, and the financial highlights
for each of the periods indicated therein. These financial statements and
financial highlights are the responsibility of the Fund's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements and financial highlights. Our procedures included
confirmation of securities owned as of November 30, 2003, by correspondence with
the custodian and brokers. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Delaware Small Cap Contrarian Fund at November 30, 2003, the results of its
operations for the year then ended, the changes in its net assets for each of
the two years in the period then ended, and its financial highlights for each of
the periods indicated therein, in conformity with accounting principles
generally accepted in the United States.
Ernst & Young LLP
Philadelphia, Pennsylvania
January 2, 2004
20
Delaware Investments Family of Funds
Board of Trustees/Officers Addendum
A mutual fund is governed by a Board of 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 that perform services for the fund. The
independent fund trustees, in particular, are advocates for shareholder
interests. The following is a list of the Trustees/Officers and certain
background and related information.
Principal Number of Other
Name, Position(s) Occupation(s) Portfolios in Fund Directorships
Address Held with Length of Time During Complex Overseen Held by
and Birthdate Fund(s) Served Past 5 Years by Trustee Trustee
- -----------------------------------------------------------------------------------------------------------------------------------
INTERESTED TRUSTEES
Jude T. Driscoll(2) Chairman and 3 Years - Since August 2000, 83 None
2005 Market Street Trustee(4) Executive Officer Mr. Driscoll has served in
Philadelphia, PA various executive capacities
19103 Trustee as of at different times at
May 15, 2003 Delaware Investments(1)
March 10, 1963
Senior Vice President and
Director of Fixed-Income Process -
Conseco Capital Management
(June 1998 - August 2000)
Managing Director -
NationsBanc Capital Markets
(February 1996 - June 1998)
- -----------------------------------------------------------------------------------------------------------------------------------
INDEPENDENT TRUSTEES
Walter P. Babich Trustee 15 Years Board Chairman - 101 None
2005 Market Street Citadel Construction Corporation
Philadelphia, PA (1989 - Present)
19103
October 1, 1927
John H. Durham Trustee 24 Years(3) Private Investor 101 Trustee - Abington
2005 Market Street Memorial Hospital
Philadelphia, PA
19103
August 7, 1937 President/Director -
22 WR Corporation
John A. Fry Trustee(4) 2 Years President - 83 None
2005 Market Street Franklin & Marshall College
Philadelphia, PA (June 2002 - Present)
19103
Executive Vice President -
University of Pennsylvania
May 28, 1960 (April 1995 - June 2002)
Anthony D. Knerr Trustee 10 Years Founder/Managing Director - 101 None
2005 Market Street Anthony Knerr & Associates
Philadelphia, PA (Strategic Consulting)
19103 (1990 - Present)
December 7, 1938
21
Principal Number of Other
Name, Position(s) Occupation(s) Portfolios in Fund Directorships
Address Held with Length of Time During Complex Overseen Held by
and Birthdate Fund(s) Served Past 5 Years by Trustee Trustee
- -----------------------------------------------------------------------------------------------------------------------------------
INDEPENDENT TRUSTEES (CONTINUED)
Ann R. Leven Trustee 14 Years Treasurer/Chief Fiscal Officer - 101 Director - Andy
2005 Market Street National Gallery of Art Warhol Foundation
Philadelphia, PA (1994 - 1999)
19103 Director -
Systemax Inc.
November 1, 1940
Thomas F. Madison Trustee 9 Years President/Chief 101 Director -
2005 Market Street Executive Officer - CenterPoint Energy
Philadelphia, PA MLM Partners, Inc.
19103 (Small Business Investing Director - Digital
and Consulting) River Inc.
(January 1993 - Present)
February 25, 1936 Director - Rimage
Corporation
Director - Valmont
Industries, Inc.
Janet L. Yeomans Trustee 4 Years Vice President/Mergers & 101 None
2005 Market Street Acquisitions - 3M Corporation
Philadelphia, PA (January 2003 - Present)
19103
Ms. Yeomans has held
July 31, 1948 various management
positions at 3M Corporation
since 1983.
- -----------------------------------------------------------------------------------------------------------------------------------
OFFICERS
Joseph H. Hastings Executive Executive Mr. Hastings has served in 101 None
2005 Market Street Vice President Vice President various executive capacities
Philadelphia, PA and and at different times at
19103 Chief Financial Chief Financial Delaware Investments.
Officer Officer since
December 19, 1949 August 21, 2003
Richelle S. Maestro Senior Vice President, 4 Years Ms. Maestro has served in 101 None
2005 Market Street Chief Legal Officer various executive capacities
Philadelphia, PA and Secretary at different times at
19103 Delaware Investments.
November 26, 1957
Michael P. Bishof Senior Vice President 7 Years Mr. Bishof has served in 101 None
2005 Market Street and Treasurer various executive capacities
Philadelphia, PA at different times at
19103 Delaware Investments.
August 18, 1962
(1) Delaware Investments is the marketing name for Delaware Management Holdings,
Inc. and its subsidiaries, including the Registrant's investment advisor,
principal underwriter and its transfer agent.
(2) Mr. Driscoll is considered to be an "Interested Trustee" because he is an
executive officer of the Fund's manager and distributor.
(3) Mr. Durham served as a Director Emeritus from 1995 through 1998.
(4) Mr. Driscoll and Mr. Fry are not Trustees of the portfolios of Voyageur
Insured Funds, Voyageur Intermediate Tax Free Funds, Voyageur Investment
Trust, Voyageur Mutual Funds, Voyageur Mutual Funds II, Voyageur Mutual
Funds III and Voyageur Tax Free Funds.
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.
22
Delaware
Investments(SM)
--------------------------------------
VALUE-EQUITY A member of Lincoln Financial Group(R)
Annual Report 2003
- --------------------------------------------------------------------------------
DELAWARE DIVIDEND INCOME FUND
[Logo] POWERED BY RESEARCH.(SM)
Table
OF CONTENTS
- -----------------------------------------------------------------
PORTFOLIO MANAGEMENT REVIEW 1
- -----------------------------------------------------------------
PERFORMANCE SUMMARY 3
- -----------------------------------------------------------------
FINANCIAL STATEMENTS:
Statement of Net Assets 5
Statement of Assets and Liabilities 9
Statement of Operations 10
Statements of Changes in Net Assets 11
Financial Highlights 12
Notes to Financial Statements 16
- -----------------------------------------------------------------
REPORT OF INDEPENDENT AUDITORS 19
- -----------------------------------------------------------------
BOARD OF TRUSTEES/OFFICERS 20
- -----------------------------------------------------------------
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.
(C) 2004 Delaware Distributors, L.P.
Portfolio Delaware Dividend Income Fund
MANAGEMENT REVIEW December 10, 2003
Fund Managers
Timothy L. Rabe
Senior Portfolio Manager
Nancy M. Crouse
Senior Portfolio Manager
Damon J. Andres
Portfolio Manager
Q: How did the Fund perform relative to its benchmark and peer group during the
fiscal year?
A: Delaware Dividend Income Fund (formerly Delaware Retirement Income Fund)
gained +19.45% (Class A shares at net asset value with distributions reinvested)
during the 12-month period ended November 30, 2003. The Fund's benchmark, the
Standard & Poor's (S&P) 500 Index rose +15.08% during the same period. The
Fund's peer group, the Lipper Income Funds Average, rose +12.22% during the
fiscal year.
Q: How would you describe your equity outlook at the beginning of the
fiscal year?
A: Our outlook for stocks at the onset of the 12-month period was generally
optimistic. We believed the economic recovery would likely gather steam in 2003,
to the benefit of corporate profitability. We also experienced an environment
marked by attractive stock valuations, which favors our value-oriented style of
investing. Over the course of the fiscal year, the Fund's exposure to large-cap
stocks rose, which benefited performance.
Q: Please explain your equity strategy during the fiscal year.
A: Given our outlook for an economy that continues to strengthen, we favored
such market sectors as financials. We experienced a sound return from JP Morgan
Chase, a stock that we believed demonstrated a solid balance sheet and dividend
yield. We also tended toward economically-sensitive companies. Weyerhaeuser was
a stock in this group that performed well. The producer of wood-related products
generated an attractive income stream and was well positioned, in our opinion,
to benefit from the economy's continued improvement.
Q: Did any common stocks within the Fund underperform relative to your
expectations?
A: Some of our healthcare positions turned in sub-par performance that we
believed did not reflect the quality of the portfolio's underlying companies. We
credit investor uncertainty in part for this circumstance, partially created by
proposed changes in Medicare legislation and concerns regarding product patent
expirations. We believe the outlook for companies such as Pfizer and Wyeth
remain bright, given their solid financial structures, attractive dividend
yields, and the potential for earnings acceleration in 2004.
Q: How does the passage of new tax legislation in May 2003 impact the Fund's
common stock holdings moving forward?
A: Beyond the relatively immediate effect of lowering the tax rate assessed
against dividends for most taxpayers, we believe the legislation dovetails
nicely into the trend among corporate leaders for greater managerial and fiscal
discipline, as well as their attempt to re-orient how investors are rewarded.
The 1990s saw many companies use earnings to buy back their stock in an attempt
to increase price through reduced supply.
Lately we have witnessed more companies turning to dividends -- either by
starting a dividend or increasing an existing dividend -- as a chief means of
returning profits to investors. With tax cuts benefiting most recipients of
dividend income, we believe the case for improved dividend distributions moving
forward becomes stronger yet. For your Fund, which allocates just over half of
its assets to dividend-paying common stocks, these general trends can enhance
the total return for companies which generate excess cash flow.
Q: High-yield bonds performed well for the 12-month period. What were some
causes for this asset class' performance turnaround?
A: We believe a primary cause for the high-yield bond market rebound was the
Federal Reserve's push to add liquidity to the economy. By lowering short-term
interest rates, the Fed was attempting to provide incentive for greater bank
lending, which in turn puts more money to work in the economy and tends to
foster economic expansion. When the prospects for a stronger economy became
apparent, investors directed their assets toward securities that particularly
benefit from such an environment, including high-yield corporate bonds and
high-yield bond mutual funds. High-yield bonds also benefited from generally
improving operational conditions throughout the business community. As
conditions improved within the asset class, issuing companies tended to extend
their debt, and default rates declined from double-digit levels to roughly the
five-to-six percent range.
1
Q: How did you manage the Fund's high-yield bond allocation during the fiscal
year?
A: We saw no reason to alter the manner in which we strategically managed the
portfolio during the 12-month period. We sought to continue focusing on the
lower-rated securities within this asset class, given the availability of
attractive yields, as well as the general prospects for improving credit
conditions and rising bond prices. We tended to hold a greater weighting in
utility bonds, due in part to the presence of "fallen angels" -- high-grade
bonds that were downgraded to high-yield status. Given Delaware's fundamental
research capabilities, we believe we could identify attractive candidates for
acquisition among such bonds given their high income production and potential
for appreciation.
Q: Please describe securities that impacted Fund performance during the 12-month
period.
A: Issues that provided positive performance for the Fund included Charter
Communications. We believe Charter possesses adequate assets with which to cover
its liabilities and general operations that continue to show signs of
improvement. Upon reaching its target value, we sold all positions of Charter by
fiscal year end. Calpine, an independent power producer, likewise has been on
the mend, as evidenced by its recent introduction of $3 billion in debt. While
our overall return was strong, we held some underperforming securities, too. One
was DiGiorgio Foods, which declined in value after losing one of its larger
customers. In our opinion, the company possesses adequate liquidity to stage a
recovery. Our holdings in Foster Wheeler also underperformed. The company is in
the midst of a restructuring with its bondholders. Foster Wheeler was no longer
a holding of the Fund at fiscal year-end.
Q: Could you describe how real estate investment trusts (REITs) impacted the
Fund's performance?
A: We maintained our conservative approach to the REIT market, focusing on
securities with compelling valuations and stable cash flows. For our effort, we
were well rewarded, with the portfolio's collection of REITs generating a return
in excess of 30 percent for the 12-month period. Strategically, we sought
cyclically-oriented securities, such as those in the retail sector. This move
contributed positive return versus the NAREIT Equity REIT Index, as did the
election to hold a lower position in apartment REITs. An area in which we lost a
measure of performance included hotel REITs, although this sector enjoyed a
strong third quarter of 2003. Our exposure to the office sector also held back
performance due to declining occupancy rates early in the year.
Q: Convertible securities represent the fourth major asset class of the Fund.
How well did these hybrid securities perform during the 12-month period?
A: As a percentage of net assets, convertible securities currently represent a
smaller asset class within your Fund. However, we believe they play a beneficial
role in adding diversification to the portfolio, as well as the ability to
generate income and offer the potential for capital appreciation. Our approach
to managing the portfolio's convertible securities did not change over the
12-month period -- with our research focused on companies selling at attractive
valuations and featuring strong cash flows and balance sheets. Their fiscal year
performance within the Fund was in line with the broad equity market, yet with
less volatility and a greater income stream.
2
Delaware
DIVIDEND INCOME FUND
Fund Basics
As of November 30, 2003
- --------------------------------------------------------------------------------
Fund Objective:
The Fund seeks to provide high current income
and an investment that has the potential for
capital appreciation.
- --------------------------------------------------------------------------------
Total Fund Net Assets:
$16.17 million
- --------------------------------------------------------------------------------
Number of Holdings:
169
- --------------------------------------------------------------------------------
Fund Start Date:
December 2, 1996
- --------------------------------------------------------------------------------
Your Fund Managers:
Damon J. Andres earned a bachelor's degree in business administration with an
emphasis in finance and accounting from the University of Richmond. Prior to
joining Delaware Investments in 1994, Mr. Andres performed investment-consulting
services with Cambridge Associates, Inc. in Arlington, Virginia. Mr. Andres is a
CFA charterholder.
Nancy M. Crouse has a bachelor's degree from Lafayette College and an MBA from
the University of Pittsburgh. She is the consumer growth and consumer staples
team leader, a member of the portfolio review team and a co-manager of open and
closed end mutual funds. Ms. Crouse began her career in finance at Philadelphia
National Bank. Before joining Delaware Investments in 1993, she served as Vice
President at CoreStates Investment Advisers, where she performed securities
analysis and managed balanced portfolios. Ms. Crouse is a CFA charterholder and
a member of the Philadelphia Society of Financial Analysts.
Timothy L. Rabe is Senior Vice-President/Senior Portfolio Manager of Delaware's
high-yield funds. Mr. Rabe received a bachelor's degree in finance from the
University of Illinois. Prior to joining Delaware Investments in 2000, Mr. Rabe
was a high-yield portfolio manager for Conseco Capital Management. Before that,
he worked as a tax analyst for The Northern Trust Company. Mr. Rabe is a CFA
charterholder.
- --------------------------------------------------------------------------------
Nasdaq Symbols:
Class A DDIAX
Class B DDDBX
Class C DDICX
Fund Performance
Average Annual Total Returns
Through November 30, 2003 Lifetime Five Years One Year
- --------------------------------------------------------------------------------
Class A (Est. 12/2/96)
Excluding Sales Charge +10.40% +7.16% +19.45%
Including Sales Charge +9.47% +5.90% +12.59%
- --------------------------------------------------------------------------------
Class B (Est. 10/1/03)
Excluding Sales Charge +2.51%
Including Sales Charge -1.49%
- --------------------------------------------------------------------------------
Class C (Est. 10/1/03)
Excluding Sales Charge +2.51%
Including Sales Charge +1.51%
- --------------------------------------------------------------------------------
Returns reflect the reinvestment of all distributions and any applicable sales
charges as noted below. Returns and share values will fluctuate so that shares,
when redeemed, may be worth more or less than their original cost. Performance
for Class B and C shares, excluding sales charges, assumes either that
contingent deferred sales charges did not apply or the investment was not
redeemed. Past performance is not a guarantee of future results.
The Fund offers Class A, B, C, R, and Institutional Class shares. Class A shares
are sold with a front-end sales charge of up to 5.75% and have an annual
distribution and service fee of up to 0.30%.
Class B shares are sold with a contingent deferred sales charge that declines
from 4% to zero depending upon the period of time the shares are held. Class B
shares will automatically convert to Class A shares on a quarterly basis
approximately eight years after purchase. They are also subject to an annual
distribution and service fee of 1%.
Class C shares are sold with a contingent deferred sales charge of 1%, if
redeemed during the first 12 months. They are also subject to an annual
distribution and service fee of 1%.
The cumulative total return for the lifetime period ended November 30, 2003 for
Delaware Dividend Income Fund's Class R shares was +2.71%. Class R shares were
first made available on October 1, 2003 and are available only for certain
retirement plan products. They are sold without a sales charge and have an
annual distribution and service fee of 0.60%.
The average annual total returns for lifetime, five-year and one-year periods
ended November 30, 2003 for Delaware Dividend Income Fund's Institutional Class
shares were +10.42%, +7.21%, and +19.56%, respectively. Institutional Class
shares were first made available on December 2, 1996 and are available without
sales or asset-based distribution charges only to certain eligible institutional
accounts.
An expense limitation was in effect for all classes of Delaware Dividend Income
Fund during the periods shown. Performance would have been lower had the expense
limitation not been in effect.
The performance table and graph on the following page do not reflect the
deduction of taxes the shareholder would pay on Fund distributions or
redemptions of Fund shares.
Nasdaq Institutional Class symbol: DDIIX
Nasdaq Class R symbol: DDDRX
3
Performance of a $10,000 Investment
December 2, 1996 (Fund's inception) through November 30, 2003
Delaware Dividend
Income Fund -- Class A
Date Shares S&P 500 Index
12/2/1996 $ 9,425
12/31/1996 $10,000
11/30/1997 $13,034 $12,581
11/30/1998 $13,323 $15,892
11/30/1999 $13,742 $19,214
11/30/2000 $14,795 $18,403
11/30/2001 $15,368 $16,154
11/30/2002 $15,764 $13,632
11/30/2003 $18,830 $15,688
Chart assumes $10,000 invested on December 2, 1996 and includes the effect of a
5.75% front-end sales charge and the reinvestment of all distributions.
Performance prior to October 1, 2003 does not reflect the impact of distribution
and service (12b-1) fees and the higher management and transfer agency fees
currently borne by holders of Class A shares. Performance for other Fund classes
will vary due to differing charges and expenses. The chart also assumes $10,000
invested in the S&P 500 Index at that month's end, December 31, 1996. After
December 31, 1996, returns plotted on the chart were as of the last day of each
month shown. The S&P 500 Index is an unmanaged composite of mostly
large-capitalization U.S. companies. An index is unmanaged and does not reflect
the costs of operating a mutual fund, such as the costs of buying, selling, and
holding securities. You cannot invest directly in an index. Past performance is
not a guarantee of future results.
4
Statement Delaware Dividend Income Fund
OF NET ASSETS November 30, 2003
Number of Market
Shares Value (U.S.$)
- --------------------------------------------------------------------------------
Common Stock - 52.52%
- --------------------------------------------------------------------------------
Banking, Finance & Insurance - 9.67%
Bank of America 2,818 $ 212,562
Friedman Billings Ramsey Group - Class A 12,825 273,814
JP Morgan Chase 8,000 282,880
KeyCorp 11,600 322,364
Mellon Financial 7,200 207,360
Morgan Stanley 4,800 265,344
------------
1,564,324
------------
Chemicals - 4.29%
Air Products & Chemicals 3,800 182,172
Dow Chemical 7,200 270,360
Rohm & Haas 6,000 240,900
------------
693,432
------------
Computers & Technology - 1.28%
Pitney Bowes 5,200 206,700
------------
206,700
------------
Consumer Products - 2.63%
Black & Decker 5,200 241,228
Kimberly-Clark 3,400 184,348
------------
425,576
------------
Electronics & Electrical Equipment - 2.59%
Emerson Electric 3,900 238,056
Raytheon 6,500 180,115
------------
418,171
------------
Energy - 4.36%
ChevronTexaco 2,100 157,710
Exxon-Mobil 6,300 227,871
Kerr-McGee 7,600 319,124
------------
704,705
------------
Food, Beverage & Tobacco - 3.68%
General Mills 6,500 292,565
PepsiCo 6,300 303,156
------------
595,721
------------
Healthcare & Pharmaceuticals - 3.25%
Pfizer 8,600 288,530
Wyeth 6,000 236,400
------------
524,930
------------
Investment Company - 1.38%
Gladstone Capital 10,400 222,872
------------
222,872
------------
Paper & Forest Products - 1.34%
Weyerhaeuser 3,800 216,600
------------
216,600
------------
REITs - 14.28%
Apartment Investment & Management 6,100 207,705
Camden Property Trust 2,900 121,916
CarrAmerica Realty 10,600 308,248
CBL & Associates Properties 4,500 253,125
Crescent Real Estate Equities 11,500 182,275
Equity Office Properties Trust 10,800 299,484
*+Fieldstone Investment Corporate 144A 20,000 329,999
*First Potomac Realty Trust 11,300 192,100
Lasalle Hotel Properties 11,600 210,888
Ramco-Gershenon Properties 7,800 203,190
------------
2,308,930
------------
Number of Market
Shares Value (U.S.$)
- --------------------------------------------------------------------------------
Common Stock (continued)
- --------------------------------------------------------------------------------
Telecommunications - 1.48%
Verizon Communications 7,300 $ 239,221
------------
239,221
------------
Utilities - 2.29%
Duke Energy 7,100 128,084
FPL Group 3,800 241,490
------------
369,574
------------
Total Common Stock (cost $8,263,858) 8,490,756
------------
Principal
Amount (U.S.$)
- --------------------------------------------------------------------------------
Corporate Bonds - 15.76%
- --------------------------------------------------------------------------------
Aerospace & Defense - 0.13%
+Armor Holdings 144A 8.25% 8/15/13 $20,000 21,400
------------
21,400
------------
Automobiles & Automotive Parts - 0.71%
+Advanced Accessory Systems
144A 10.75% 6/15/11 24,000 26,040
Collins & Aikman 10.75% 12/31/11 10,000 9,050
General Motors 8.375% 7/15/33 21,000 22,943
+Metaldyne 144A 10.00% 11/1/13 25,000 24,125
+United Component 144A 9.375% 6/15/13 30,000 32,100
------------
114,258
------------
Banking, Finance & Insurance - 0.55%
+Crum & Forster 144A 10.375% 6/15/13 27,000 29,565
+Farmers Exchange Capital
144A 7.20% 7/15/48 34,000 29,769
Finova Group 7.50% 11/15/09 15,000 8,400
TIG Holdings 8.125% 4/15/05 20,000 20,425
------------
88,159
------------
Building & Materials - 1.15%
+Beazer Homes USA 144A 6.50% 11/15/13 25,000 25,000
+Lone Star Industries 144A 8.85% 6/15/05 26,000 27,268
Meritage 9.75% 6/1/11 25,000 27,906
Schuler Homes 10.50% 7/15/11 30,000 34,462
Standard-Pacific 9.25% 4/15/12 17,000 18,955
Technical Olympic USA 10.375% 7/1/12 20,000 22,300
WCI Communities 10.625% 2/15/11 27,000 30,375
------------
186,266
------------
Business Services - 0.11%
Brickman Group 11.75% 12/15/09 15,000 17,325
------------
17,325
------------
Cable, Media & Publishing - 1.24%
CSC Holdings 10.50% 5/15/16 25,000 27,750
Insight Midwest 10.50% 11/1/10 25,000 27,375
Lodgenet Entertainment 9.50% 6/15/13 30,000 32,774
Mediacom Broadband 11.00% 7/15/13 30,000 32,325
PanAmSat 8.50% 2/1/12 25,000 27,313
+Sheridan Acquisition 144A 10.25% 8/15/11 26,000 27,560
Vertis 10.875% 6/15/09 25,000 25,750
------------
200,847
------------
Chemicals - 0.56%
Huntsman International 9.875% 3/1/09 25,000 26,937
+++Johnsondiversey 144A 10.67% 5/15/13 28,000 21,350
Lyondell Chemical 9.625% 5/1/07 16,000 16,560
+Nalco 144A 7.75% 11/15/11 25,000 26,188
------------
91,035
------------
5
Statement Delaware Dividend Income Fund
OF NET ASSETS (CONTINUED)
Principal Market
Amount (U.S.$) Value (U.S.$)
- --------------------------------------------------------------------------------
Corporate Bonds (continued)
- --------------------------------------------------------------------------------
Computers & Technology - 0.82%
Amkor Technologies 7.75% 5/15/13 $15,000 $ 16,125
Cooperative Computing 10.50% 6/15/11 16,000 17,440
Lone Star Technologies 9.00% 6/1/11 10,000 9,750
Northern Telecom Capital 7.875% 6/15/26 48,000 47,280
+Stratus Technologies 144A 10.375% 12/1/08 40,000 41,200
------------
131,795
------------
Consumer Products - 0.74%
American Greetings 11.75% 7/15/08 22,000 25,630
+Hines Nurseries 144A 10.25% 10/1/11 30,000 32,625
Jafra Cosmetics 10.75% 5/15/11 30,000 32,250
Salton 10.75% 12/15/05 28,000 28,840
------------
119,345
------------
Consumer Services - 0.33%
Alderwoods Group 12.25% 1/2/09 20,000 22,500
Corrections Corp of America 7.50% 5/1/11 4,000 4,210
+Corrections Corp of America 144A
7.50% 5/1/11 25,000 26,313
------------
53,023
------------
Energy - 1.84%
Bluewater Finance 10.25% 2/15/12 28,000 28,630
Citgo Petroleum 11.375% 2/1/11 24,000 27,840
+Dynegy Holdings 144A 10.125% 7/15/13 28,000 31,010
El Paso Natural Gas 7.625% 8/1/10 26,000 26,260
Hanover Equipment Trust 8.50% 9/1/08 29,000 29,725
+Hilcorp Energy/Finance 144A 10.50% 9/1/10 35,000 38,324
+Massey Energy 144A 6.625% 11/15/10 20,000 20,300
Southern Natural Gas 8.875% 3/15/10 13,000 14,398
Tennessee Gas Pipeline 8.375% 6/15/32 29,000 30,378
Transcontinental Gas Pipe Line
6.25% 1/15/08 18,000 18,675
8.875% 7/15/12 12,000 14,190
Williams 8.125% 3/15/12 17,000 18,445
------------
298,175
------------
Environmental Services - 0.39%
Casella Waste Systems 9.75% 2/1/13 30,000 33,750
IESI 10.25% 6/15/12 26,000 28,340
------------
62,090
------------
Food, Beverage & Tobacco - 1.17%
B&G Foods 9.625% 8/1/07 19,000 19,665
+Commonwealth Brands
144A 10.625% 9/1/08 31,000 33,634
DiGiorgio 10.00% 6/15/07 13,000 12,318
+Le-Natures 144A 9.00% 6/15/13 10,000 10,400
+National Beef Packing 144A 10.50% 8/1/11 23,000 25,300
+O'Charleys 144A 9.00% 11/1/13 25,000 25,188
+Pinnacle Foods 144A 8.25% 12/1/13 35,000 36,049
+Seminis 144A 10.25% 10/1/13 25,000 26,656
------------
189,210
------------
Healthcare & Pharmaceuticals - 0.32%
Alliance Imaging 10.375% 4/15/11 20,000 20,850
Team Health 12.00% 3/15/09 29,000 31,538
------------
52,388
------------
Home Builders - 0.04%
DR Horton 9.75% 9/15/10 5,000 5,913
------------
5,913
------------
Principal Market
Amount (U.S.$) Value (U.S.$)
- --------------------------------------------------------------------------------
Corporate Bonds (continued)
- --------------------------------------------------------------------------------
Leisure, Lodging & Entertainment - 0.93%
+Gaylord Entertainment 144A 8.00% 11/15/13 $20,000 $ 20,900
+Hard Rock Hotel 144A 8.875% 6/1/13 15,000 15,900
Herbst Gaming 10.75% 9/1/08 16,000 18,000
+Host Marriott 144A 7.125% 11/1/13 20,000 19,900
+Imax 144A 9.625% 12/1/10 15,000 15,600
+Poster Financial Group 144A 8.75% 12/1/11 25,000 25,719
Royal Caribbean
6.875% 12/1/13 10,000 10,025
7.50% 10/15/27 25,000 23,969
------------
150,013
------------
Metals & Mining - 0.22%
AK Steel 7.75% 6/15/12 21,000 14,280
United States Steel 10.75% 8/1/08 19,000 21,233
------------
35,513
------------
Packaging & Containers - 0.70%
AEP Industries 9.875% 11/15/07 25,000 25,000
Portola Packaging 10.75% 10/1/05 24,000 23,880
Radnor Holdings 11.00% 3/15/10 26,000 23,855
+Silgan Holdings 144A 6.75% 11/15/13 15,000 15,075
+Tekni-Plex 144A 8.75% 11/15/13 25,000 25,688
------------
113,498
------------
Paper & Forest Products - 0.53%
Fort James 7.75% 11/15/23 46,000 45,655
+Millar Western Forest Products 144A
7.75% 11/15/13 30,000 30,638
Tembec Industries 8.625% 6/30/09 10,000 9,975
------------
86,268
------------
REITs - 0.12%
Tanger Properties 9.125% 2/15/08 18,000 19,755
------------
19,755
------------
Retail - 0.38%
Office Depot 10.00% 7/15/08 17,000 20,400
Petco Animal Supplies 10.75% 11/1/11 22,000 26,070
Remington Arms 10.50% 2/1/11 14,000 14,630
------------
61,100
------------
Telecommunications - 0.52%
+Alaska Communications Systems Holdings
144A 9.875% 8/15/11 30,000 31,650
+Centennial Cellular 144A 10.125% 6/15/13 25,000 26,500
+Cincinnati Bell 144A 8.375% 1/15/14 10,000 10,525
+Eircom Funding 144A 8.25% 8/15/13 9,000 9,810
+Level 3 Financing 144A 10.75% 10/15/11 5,000 5,250
------------
83,735
------------
Textiles, Apparel & Furniture - 0.06%
+Warnaco 144A 8.875% 6/15/13 10,000 10,200
------------
10,200
------------
Transportation & Shipping - 0.72%
Hornbeck Offshore Services
10.625% 8/1/08 19,000 20,948
Kansas City Southern Railway
9.50% 10/1/08 25,000 28,156
+OMI 144A 7.625% 12/1/13 15,000 15,150
Overseas Shipholding Group 8.25% 3/15/13 31,000 33,208
+Seabulk International 144A 9.50% 8/15/13 19,000 19,903
------------
117,365
------------
6
Statement Delaware Dividend Income Fund
OF NET ASSETS (CONTINUED)
Principal Market
Amount (U.S.$) Value (U.S.$)
- --------------------------------------------------------------------------------
Corporate Bonds (continued)
- --------------------------------------------------------------------------------
Utilities - 1.48%
Avista 9.75% 6/1/08 $18,000 $ 21,150
+Calpine 144A 8.75% 7/15/13 30,000 27,825
Cogentrix Energy 8.75% 10/15/08 20,000 20,275
Elwood Energy 8.159% 7/5/26 9,454 9,608
Homer City Funding 8.137% 10/1/19 23,000 24,351
Illinois Power 7.50% 6/15/09 30,000 32,699
Midland Funding II 11.75% 7/23/05 16,496 17,898
Midwest Generation 8.30% 7/2/09 25,000 25,500
+MSW Energy Holdings 144A 7.375% 9/1/10 10,000 10,350
PSEG Energy Holdings 7.75% 4/16/07 29,000 30,051
+Reliant Resources 144A 9.50% 7/15/13 20,000 20,300
------------
240,007
------------
Total Corporate Bonds (cost $2,494,326) 2,548,683
------------
Number of
Shares
- --------------------------------------------------------------------------------
Preferred Stock - 4.50%
- --------------------------------------------------------------------------------
Energy - 1.28%
Chesapeake Energy 5.00% 2,000 206,500
------------
206,500
------------
REITs - 2.36%
Equity Inns Series B 8.75% 7,300 194,545
LaSalle Hotel Properties 10.25% 3,300 91,575
Ramco-Gershenson Properties 9.50% 3,500 96,338
------------
382,458
------------
Utilities - 0.86%
Public Service Enterprise Group 10.25% 2,400 139,200
------------
139,200
------------
Total Preferred Stock (cost $688,685) 728,158
------------
Principal
Amount (U.S.$)
- --------------------------------------------------------------------------------
Convertible Bonds - 4.38%
- --------------------------------------------------------------------------------
Banking, Finance & Insurance - 0.72%
Meristar Hospitality 9.50% 4/1/10 $100,000 115,875
------------
115,875
------------
Cable, Media & Publishing - 1.27%
Quebecor World USA 6.00% 10/1/07 200,000 205,500
------------
205,500
------------
Computers & Technology - 1.34%
+Eastman Kodak 144A 3.375% 10/15/33 200,000 217,000
------------
217,000
------------
Leisure, Lodging & Entertainment - 1.05%
+Regal Entertainment 144A 3.75% 5/15/08 150,000 169,125
------------
169,125
------------
Total Convertible Bonds (cost $680,000) 707,500
------------
Number of Market
Shares Value (U.S.$)
- --------------------------------------------------------------------------------
Convertible Preferred Stock - 2.24%
- --------------------------------------------------------------------------------
Banking, Finance & Insurance - 0.85%
Chubb 7.00% 5,000 $ 137,500
------------
137,500
------------
Food, Beverage & Tobacco - 1.24%
Constellation Brands 5.75% 6,200 199,949
------------
199,949
------------
Telecommunications - 0.00%
**Intermedia Communications 13.50% 1 31
------------
31
------------
Transportation - 0.15%
Union Pacific Capital Trust 6.25% 133 6,766
+Union Pacific Capital Trust
TIDES 144A 6.25% 359 18,265
------------
25,031
------------
Total Convertible Preferred Stock
(cost $324,687) 362,511
------------
Principal
Amount (U.S.$)
- --------------------------------------------------------------------------------
Foreign Bonds - 0.95%
- --------------------------------------------------------------------------------
British Virgin Islands - 0.07%
Chippac International 12.75% 8/1/09 $10,000 11,150
------------
11,150
------------
Canada - 0.46%
Ainsworth Lumber 12.50% 7/15/07 24,000 27,960
+Hollinger 144A 11.875% 3/1/11 15,000 16,500
Pacifica Papers 10.00% 3/15/09 24,000 25,500
Rogers Cablesystems 10.00% 3/15/05 5,000 5,450
------------
75,410
------------
France - 0.10%
+Rhodia 144A 8.875% 6/1/11 19,000 16,910
------------
16,910
------------
Ireland - 0.17%
Smurfit Capital 7.50% 11/20/25 28,000 26,880
------------
26,880
------------
Sweden - 0.15%
Stena AB 9.625% 12/1/12 21,000 23,520
------------
23,520
------------
Total Foreign Bonds (cost $152,292) 153,870
------------
Number of
Shares
- --------------------------------------------------------------------------------
Warrant - 0.00%
- --------------------------------------------------------------------------------
*+Solutia 144A 12 222
------------
Total Warrant (cost $1,021) 222
------------
Principal
Amount (U.S.$)
- --------------------------------------------------------------------------------
Repurchase Agreements - 16.72%
- --------------------------------------------------------------------------------
With BNP Paribas 1.01% 12/1/03
(dated 11/28/03, collateralized by
$1,052,800 U.S. Treasury Notes 6.75%
due 5/15/05, market value $1,133,710) $1,111,100 1,111,100
7
Statement Delaware Dividend Income Fund
OF NET ASSETS (CONTINUED)
Principal Market
Amount (U.S.$) Value (U.S.$)
- --------------------------------------------------------------------------------
Repurchase Agreements (continued)
- --------------------------------------------------------------------------------
With J. P. Morgan Securities 0.98% 12/1/03
(dated 11/28/03, collateralized by
$483,200 U.S. Treasury Notes 2.25%
due 7/31/04, market value $490,497) $ 480,800 $ 480,800
With UBS Warburg 1.01% 12/1/03
(dated 11/28/03, collateralized by
$347,200 U.S. Treasury Notes 2.00%
due 11/30/04, market value $352,716,
$12,200 U.S. Treasury Notes 5.50%
due 2/15/08, market value $13,555 and
$694,400 U.S. Treasury Notes 5.625%
due 5/15/08, market value $767,450) 1,111,100 1,111,100
-----------
Total Repurchase Agreements
(cost $2,703,000) 2,703,000
-----------
Total Market Value of Securities - 97.07%
(cost $15,307,869) 15,694,700
Receivables and Other Assets
Net of Liabilities - 2.93% 473,039
-----------
Net Assets Applicable to 1,583,669
Shares Outstanding - 100.00% $16,167,739
===========
Net Asset Value - Delaware Dividend Income Fund
Class A ($5,820,631 / 570,043 Shares) $10.21
------
Net Asset Value - Delaware Dividend Income Fund
Class B ($2,124,529 / 208,218 Shares) $10.20
------
Net Asset Value - Delaware Dividend Income Fund
Class C ($4,340,966 / 425,478 Shares) $10.20
------
Net Asset Value - Delaware Dividend Income Fund
Class R ($3,042 / 297.7 Shares) $10.22
------
Net Asset Value - Delaware Dividend Income Fund
Institutional Class ($3,878,571 / 379,632 Shares) $10.22
------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Components of Net Assets at November 30, 2003:
Shares of beneficial interest
(unlimited authorization - no par) $15,511,965
Undistributed net investment income 191,505
Accumulated net realized gain on investments 77,438
Net unrealized appreciation of investments 386,831
-----------
Total net assets $16,167,739
===========
*Non-income producing security for the year ended November 30, 2003.
**Non-income producing security. Security is currently in default.
+Security exempt from registration under Rule 144A of the Securities Act of
1933. See Note 7 in "Notes to Financial Statements."
++Step coupon bond.
Summary of Abbreviations:
REITs - Real Estate Investment Trusts
TIDES - Term Income Deferred Equity Securities
Net Asset Value and Offering Price per Share -
Delaware Dividend Income Fund
Net asset value Class A (A) $10.21
Sales charge (5.75% of offering price,
or 6.07% of amount invested per share) (B) 0.62
------
Offering price $10.83
======
(A) Net asset value per share, as illustrated, is the estimated amount which
would be paid upon redemption or repurchase of shares.
(B) See the current prospectus for purchases of $50,000 or more.
See accompanying notes
8
Statement Delaware Dividend Income Fund
OF ASSETS AND LIABILITIES November 30, 2003
Assets:
Investments at market (cost $15,307,869) $15,694,700
Cash 30,716
Subscriptions receivable 1,565,380
Receivables for securities sold 57,573
Dividends receivable 23,639
Interest receivable 68,554
Prepaid expenses 46,567
Due from DMC 25,556
-----------
Total assets 17,512,685
-----------
Liabilities:
Payables for securities purchased 1,322,471
Liquidations payable 200
Accrued expenses 22,275
-----------
Total liabilities 1,344,946
-----------
Total Net Assets $16,167,739
===========
See accompanying notes
9
Statement Delaware Dividend Income Fund
OF OPERATIONS Year Ended November 30, 2003
Investment Income:
Dividends $112,549
Interest 118,770 $231,319
-------- --------
Expenses:
Management fees 27,247
Distribution expense-- Class A 831
Distribution expense-- Class B 1,146
Distribution expense-- Class C 2,165
Distribution expense-- Class R 1
Reports and statements to shareholders 16,335
Registration fees 15,908
Custodian fees 4,714
Trustees' fees 2,102
Dividend disbursing and transfer agent fees and expenses 1,896
Professional fees 1,712
Accounting and administration expenses 1,822
Other 2,387 78,266
--------
Less expenses absorbed or waived (42,494)
Less waiver of distribution expenses-- Class A (146)
Less expenses paid indirectly (156)
--------
Total expenses 35,470
--------
Net Investment Income 195,849
--------
Net Realized and Unrealized Gain on investments:
Net realized gain on investments 115,690
Net change in unrealized appreciation/depreciation of investments 433,193
--------
Net Realized and Unrealized Gain on Investments 548,883
--------
Net Increase in Net Assets Resulting from Operations $744,732
========
See accompanying notes
10
Statements Delaware Dividend Income Fund
OF CHANGES IN NET ASSETS
Year Ended
11/30/03 11/30/02
Increase (Decrease) in Net Assets from Operations:
Net investment income $ 195,849 $ 154,220
Net realized gain on investments 115,690 80,901
Net change in unrealized appreciation/depreciation
of investments 433,193 (147,989)
----------- ----------
Net increase in net assets resulting from operations 744,732 87,132
----------- ----------
Dividends and Distributions to Shareholders from:
Net investment income:
Class A (83) (1)
Institutional Class (172,891) (153,263)
----------- ----------
(172,974) (153,264)
----------- ----------
Capital Share Transactions:
Proceeds from shares sold:
Class A 5,863,682 1,218
Class B 2,117,277 --
Class C 4,302,013 --
Class R 3,010 --
Institutional Class 15,207 3,250,000
Net asset value of shares issued upon reinvestment of dividends and distributions:
Class A 83 1
Institutional Class 172,891 153,263
----------- ----------
12,474,163 3,404,482
----------- ----------
Cost of shares repurchased:
Class A (98,673) --
Class B (12,463) --
Class C (989) --
Institutional Class (15) (3,369,860)
----------- ----------
(112,140) (3,369,860)
----------- ----------
Increase in net assets derived from capital share transactions 12,362,023 34,622
----------- ----------
Net Increase (Decrease) in Net Assets 12,933,781 (31,510)
Net Assets:
Beginning of year 3,233,958 3,265,468
----------- ----------
End of year $16,167,739 $3,233,958
=========== ==========
See accompanying notes
11
Financial
HIGHLIGHTS
Selected data for each share of the Fund outstanding
throughout each period were as follows:
- ------------------------------------------------------------------------------------------------------------------------------------
Delaware Dividend Income Fund Class A
- ------------------------------------------------------------------------------------------------------------------------------------
Year Ended
11/30/03 11/30/02(1) 11/30/01 11/30/00 11/30/99
Net asset value, beginning of period $9.030 $9.230 $9.600 $9.430 $10.160
Income (loss) from investment operations:
Net investment income(2) 0.450 0.429 0.405 0.403 0.431
Net realized and unrealized gain (loss) on investments 1.213 (0.196) (0.041) 0.285 (0.156)
------- ------ ------ ------ -------
Total from investment operations 1.663 0.233 0.364 0.688 0.275
------- ------ ------ ------ -------
Less dividends and distributions from:
Net investment income (0.483) (0.433) (0.400) (0.420) (0.620)
Net realized gain on investments -- -- (0.334) (0.098) (0.385)
------- ------ ------ ------ -------
Total dividends and distributions (0.483) (0.433) (0.734) (0.518) (1.005)
------- ------ ------ ------ -------
Net asset value, end of period $10.210 $9.030 $9.230 $9.600 $9.430
======= ====== ====== ====== =======
Total return(3) 19.45% 2.58% 3.87% 7.66% 3.14%
Ratios and supplemental data:
Net assets, end of period (000 omitted) $5,821 $1 -- $24 $22
Ratio of expenses to average net assets 0.79% 0.75% 0.75% 0.75% 0.75%
Ratio of expenses to average net assets
prior to expense limitation and expenses paid indirectly 2.05% 1.30% 1.05% 1.24% 1.17%
Ratio of net investment income to average net assets 4.69% 4.71% 4.38% 4.22% 4.46%
Ratio of net investment income to average net assets
prior to expense limitation and expenses paid indirectly 3.43% 4.16% 4.08% 3.73% 4.03%
Portfolio turnover 212% 188% 89% 41% 42%
(1) As required, effective December 1, 2001, the Fund adopted the provisions of
the AICPA Audit and Accounting Guide for Investment Companies that require
amortization of all premiums and discounts on debt securities. The effect
of this change for the year ended November 30, 2002 was a decrease in net
investment income per share of $0.048, an increase in net realized and
unrealized gain (loss) per share of $0.048, and a decrease in the ratio of
net investment income to average net assets of 0.53%. Per share data and
ratios for periods prior to December 1, 2001 have not been restated to
reflect this change in accounting.
(2) The average shares outstanding method has been applied for per share
information.
(3) Total investment return is based on the change in net asset value of a
share during the period and assumes reinvestment of dividends and
distributions at net asset value and does not reflect the impact of a sales
charge. Total investment return reflects waivers and payment of fees by the
manager and distributor. Performance would have been lower had the expense
limitation not been in effect.
See accompanying notes
12
Financial
HIGHLIGHTS (CONTINUED)
Selected data for each share of the Fund outstanding
throughout the period were as follows:
- ------------------------------------------------------------------------------------------------------------------------------------
Delaware Dividend Income Delaware Dividend Income
Fund Class B Fund Class C
- ------------------------------------------------------------------------------------------------------------------------------------
10/1/03(1) 10/1/03(1)
to to
11/30/03 11/30/03
Net asset value, beginning of period $9.950 $9.950
Income from investment operations:
Net investment income(2) 0.051 0.051
Net realized and unrealized gain on investments 0.199 0.199
------- -------
Total from investment operations 0.250 0.250
------- -------
Net asset value, end of period $10.200 $10.200
======= =======
Total return(3) 2.51% 2.51%
Ratios and supplemental data:
Net assets, end of period (000 omitted) $2,125 $4,341
Ratio of expenses to average net assets 1.75% 1.75%
Ratio of expenses to average net assets
prior to expense limitation and expenses paid indirectly 4.10% 4.10%
Ratio of net investment income to average net assets 3.65% 3.65%
Ratio of net investment income to average net assets
prior to expense limitation and expenses paid indirectly 1.30% 1.30%
Portfolio turnover 212% 212%
(1) Date of commencement of operations; ratios have been annualized and total
return has not been annualized.
(2) The average shares outstanding method has been applied for per share
information.
(3) Total investment return is based on the change in net asset value of a
share during the period and assumes reinvestment of dividends and
distributions at net asset value and does not reflect the impact of a sales
charge. Total investment return reflects waivers and payment of fees by the
manager. Performance would have been lower had the expense limitation not
been in effect.
See accompanying notes
13
Financial
HIGHLIGHTS (CONTINUED)
Selected data for each share of the Fund outstanding
throughout the period were as follows:
- ------------------------------------------------------------------------------------------------------------------------------------
Delaware Dividend Income Fund Class R
- ------------------------------------------------------------------------------------------------------------------------------------
10/1/03(1)
to
11/30/03
Net asset value, beginning of period $9.950
Income from investment operations:
Net investment income(2) 0.056
Net realized and unrealized gain on investments 0.214
-------
Total from investment operations 0.270
-------
Net asset value, end of period $10.220
=======
Total return(3) 2.71%
Ratios and supplemental data:
Net assets, end of period (000 omitted) $3
Ratio of expenses to average net assets 1.35%
Ratio of expenses to average net assets
prior to expense limitation and expenses paid indirectly 3.70%
Ratio of net investment income to average net assets 4.05%
Ratio of net investment income to average net assets
prior to expense limitation and expenses paid indirectly 1.70%
Portfolio turnover 212%
(1) Date of commencement of operations; ratios have been annualized and total
return has not been annualized.
(2) The average shares outstanding method has been applied for per share
information.
(3) Total investment return is based on the change in net asset value of a
share during the period and assumes reinvestment of dividends and
distributions at net asset value. Total investment return reflects waivers
and payment of fees by the manager. Performance would have been lower had
the expense limitation not been in effect.
See accompanying notes
14
Financial
HIGHLIGHTS (CONTINUED)
Selected data for each share of the Fund outstanding
throughout each period were as follows:
- ------------------------------------------------------------------------------------------------------------------------------------
Delaware Dividend Income Fund Institutional Class
- ------------------------------------------------------------------------------------------------------------------------------------
Year Ended
11/30/03 11/30/02(1) 11/30/01 11/30/00 11/30/99
Net asset value, beginning of period $9.030 $9.230 $9.600 $9.420 $10.150
Income (loss) from investment operations:
Net investment income(2) 0.453 0.429 0.405 0.403 0.431
Net realized and unrealized gain (loss) on investments 1.220 (0.196) (0.041) 0.295 (0.156)
------- ------ ------ ------ -------
Total from investment operations 1.673 0.233 0.364 0.698 0.275
------- ------ ------ ------ -------
Less dividends and distributions from:
Net investment income (0.483) (0.433) (0.400) (0.420) (0.620)
Net realized gain on investments -- -- (0.334) (0.098) (0.385)
------- ------ ------ ------ -------
Total dividends and distributions (0.483) (0.433) (0.734) (0.518) (1.005)
------- ------ ------ ------ -------
Net asset value, end of period $10.220 $9.030 $9.230 $9.600 $9.420
======= ====== ====== ====== ======
Total return(3) 19.56% 2.58% 3.87% 7.78% 3.15%
Ratios and supplemental data:
Net assets, end of period (000 omitted) $3,879 $3,233 $3,265 $3,145 $2,924
Ratio of expenses to average net assets 0.75% 0.75% 0.75% 0.75% 0.75%
Ratio of expenses to average net assets
prior to expense limitation and expenses paid indirectly 1.75% 1.00% 0.75% 0.94% 0.87%
Ratio of net investment income to average net assets 4.73% 4.71% 4.38% 4.22% 4.46%
Ratio of net investment income to average net assets
prior to expense limitation and expenses paid indirectly 3.73% 4.46% 4.38% 4.03% 4.33%
Portfolio turnover 212% 188% 89% 41% 42%
(1) As required, effective December 1, 2001, the Fund adopted the provisions of
the AICPA Audit and Accounting Guide for Investment Companies that require
amortization of all premiums and discounts on debt securities. The effect
of this change for the year ended November 30, 2002 was a decrease in net
investment income per share of $0.048, an increase in net realized and
unrealized gain (loss) per share of $0.048, and a decrease in the ratio of
net investment income to average net assets of 0.53%. Per share data and
ratios for periods prior to December 1, 2001 have not been restated to
reflect this change in accounting.
(2) The average shares outstanding method has been applied for per share
information.
(3) Total investment return is based on the change in net asset value of a
share during the period and assumes reinvestment of dividends and
distributions at net asset value. Total investment return reflects waivers
and payment of fees by the manager, as applicable. Performance would have
been lower had the expense limitation not been in effect.
See accompanying notes
15
Notes Delaware Dividend Income Fund
TO FINANCIAL STATEMENTS November 30, 2003
Delaware Group Equity Funds V (the "Trust") is organized as a Delaware statutory
trust and offers three series: Delaware Dividend Income Fund (formerly Delaware
Retirement Income Fund), Delaware Small Cap Contrarian Fund and Delaware Small
Cap Value Fund. These financial statements and the related notes pertain to
Delaware Dividend Income Fund (the "Fund"). The Trust is an open-end investment
company. The Fund is considered diversified under the Investment Company Act of
1940, as amended, and offers Class A, Class B, Class C, Class R and
Institutional Class shares. Class A shares are sold with a front-end sales
charge of up to 5.75%. Class B shares are sold with a contingent deferred sales
charge that declines from 4% to zero depending upon the period of time the
shares were held. Class B shares will automatically convert to Class A shares on
a quarterly basis approximately eight years after purchase. Class C shares are
sold with a contingent deferred sales charge of 1%, if redeemed during the first
12 months. Class R and Institutional Class shares are not subject to a sales
charge and are offered for sale exclusively to a limited group of investors.
The investment objective of the Fund is to seek to provide high current income
and an investment that has the potential for capital appreciation.
1. Significant Accounting Policies
The following accounting policies are in accordance with accounting principles
generally accepted in the United States and are consistently followed by the
Fund.
Security Valuation -- All equity securities are valued at the last quoted sales
price as of the time of the regular close of the New York Stock Exchange (NYSE)
on the valuation date. Securities traded on the Nasdaq Stock Market, Inc.
(NASDAQ) are valued in accordance with the NASDAQ Official Closing Price, which
may not be the best sales price. If on a particular day an equity security does
not trade, then the mean between the bid and asked prices will be used.
Long-term debt securities are valued by an independent pricing service and such
prices are believed to reflect the fair value of such securities. Short-term
debt securities having less than 60 days to maturity are valued at amortized
cost, which approximates market value. Other securities and assets for which
market quotations are not readily available are valued at fair value as
determined in good faith under the direction of the Fund's Board of Trustees. In
determining whether market quotations are readily available or fair valuation
will be used, various factors will be taken into consideration, such as market
closures, or with respect to foreign securities, aftermarket trading or
significant events after local market trading (e.g., government actions or
pronouncements, trading volume or volatility on markets, exchanges among
dealers, or news events).
Federal Income Taxes -- The Fund intends to continue to qualify for federal
income tax purposes as a regulated investment company and make the requisite
distributions to shareholders. Accordingly, no provision for federal income
taxes has been made in the financial statements.
Class Accounting -- Investment income, common expenses and realized and
unrealized gain (loss) on investments are allocated to the various classes of
the Fund on the basis of daily net assets of each class. Distribution expenses
relating to a specific class are charged directly to that class.
Repurchase Agreements -- The Fund may invest in a pooled cash account along with
other members of the Delaware Investments Family of Funds. The aggregate daily
balance of the pooled cash account is invested in repurchase agreements secured
by obligations of the U.S. government. The respective collateral is held by the
Fund's custodian bank until the maturity of the respective repurchase
agreements. Each repurchase agreement is 102% collateralized. However, in the
event of default or bankruptcy by the counterparty to the agreement, realization
of the collateral may be subject to legal proceedings.
Use of Estimates -- The preparation of financial statements in conformity with
accounting principles generally accepted in the United States requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual results
could differ from those estimates.
Other -- Expenses common to all funds within the Delaware Investments Family of
Funds are allocated amongst the funds on the basis of average net assets.
Security transactions are recorded on the date the securities are purchased or
sold (trade date). 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 are amortized to interest
income over the lives of the respective securities. Distributions received from
investments in Real Estate Investment Trusts are recorded as dividend income on
the ex-dividend date, subject to reclassification upon notice of the character
of such distribution by the issuer. The Fund declares and pays dividends from
net investment income and distributions from net realized gain on investments,
if any, annually.
Certain expenses of the Fund are paid through commission arrangements with
brokers. The amount of these expenses was approximately $100 for the year ended
November 30, 2003. In addition, the Fund receives earnings credits from its
custodian when positive cash balances are maintained, which are used to offset
custody fees. The earnings credits for the year ended November 30, 2003 were
approximately $56. The expenses paid under the above arrangements are included
in their respective expense captions on the Statement of Operations with the
corresponding expense offset shown as "expenses paid indirectly."
2. Investment Management, Administration Agreements and Other Transactions with
Affiliates
In accordance with the terms of its investment management agreement, the Fund
pays Delaware Management Company (DMC), a series of Delaware Management Business
Trust and the investment manager, an annual fee which is calculated daily at the
rate of 0.65% on the first $500 million of average daily net assets of the Fund,
0.60% on the next $500 million, 0.55% on the next $1.5 billion, and 0.50% on
average daily net assets in excess of $2.5 billion.
DMC has contractually agreed to waive that portion, if any, of its management
fee and reimburse the Fund to the extent necessary to ensure that annual
operating expenses, exclusive of taxes, interest, brokerage commissions,
distribution fees, certain insurance costs and extraordinary expenses, do not
exceed 0.75% of average daily net assets of the Fund through January 31, 2005.
Delaware Service Company, Inc. (DSC), an affiliate of DMC, provides accounting,
administration, dividend disbursing and transfer agent services. The Fund pays
DSC a monthly fee based on average net assets subject to certain minimums for
accounting and administration services. The Fund pays DSC a monthly fee based on
the number of shareholder accounts for dividend disbursing and transfer agent
services. Prior to June 1, 2003, the monthly fee for dividend disbursing and
transfer agent services was based on the number of shareholder accounts and
shareholder transactions.
Pursuant to a distribution agreement and distribution plan, the Fund pays
Delaware Distributors, L.P. (DDLP), the distributor and an affiliate of DMC, an
annual distribution and service fee not to exceed 0.30% of the average daily net
assets of the Class A shares, 1.00% of the average daily net assets of the Class
B and C shares and 0.60% of the average daily net assets
16
Notes Delaware Dividend Income Fund
TO FINANCIAL STATEMENTS (CONTINUED)
2. Investment Management, Administration Agreements and Other Transactions with
Affiliates (continued)
of Class R shares. DDLP has contracted to waive distribution and service fees
through January 31, 2005 in order to prevent distribution and service fees of
Class A shares from exceeding 0.25% of average daily net assets. Prior to
October 1, 2003, DDLP elected voluntarily to waive the distribution and service
fees of Class A shares. Institutional Class shares pay no distribution and
service expenses.
At November 30, 2003, the Fund had receivables from or liabilities payable to
affiliates as follows:
Dividend disbursing, transfer agent fees,
accounting and other expenses payable to DSC $ (3,541)
Other expenses payable to DMC and affiliates* (7,056)
Receivable from DMC under expense limitation agreement 25,556
* DMC, as part of its administration services, pays Fund operating expenses on
behalf of the Fund and is reimbursed on a periodic basis. Such expenses
include items such as printing of shareholder reports, professional fees,
custodian fees and trustee fees.
For the year ended November 30, 2003, DDLP earned $29,670 for commissions on
sales of the Fund's Class A shares.
Certain officers of DMC, DSC and DDLP are officers and/or trustees of the Trust.
These officers and trustees are paid no compensation by the Fund.
3. Investments
For the year ended November 30, 2003, the Fund made purchases of $18,254,966 and
sales of $8,924,731 of investment securities other than short-term investments.
At November 30, 2003, the cost of investments for federal income tax purposes
was $15,309,727. At November 30, 2003, the net unrealized appreciation was
$384,973, of which $494,244 related to unrealized appreciation of investments
and $109,271 related to unrealized depreciation of investments.
4. Dividend and Distribution Information
Income and long-term capital gain distributions are determined in accordance
with federal income tax regulations, which may differ from accounting principles
generally accepted in the United States. The tax character of dividends and
distributions paid during the years ended November 30, 2003 and 2002 was as
follows:
2003 2002
---- ----
Ordinary income $172,974 $153,264
As of November 30, 2003, the components of net assets on a tax basis were
as follows:
Shares of beneficial interest $15,511,965
Undistributed ordinary income 270,801
Unrealized appreciation of investments 384,973
-----------
Net assets $16,167,739
===========
5. Capital Shares
Transactions in capital shares were as follows:
Year Ended
11/30/03 11/30/02
Shares sold:
Class A 579,601 142
Class B 209,452 --
Class C 425,577 --
Class R 298 --
Institutional Class 1,484 357,536
Shares issued upon reinvestment of
dividends and distributions:
Class A 10 --
Institutional Class 20,198 17,182
--------- --------
1,236,620 374,860
--------- --------
Shares repurchased:
Class A (9,712) --
Class B (1,234) --
Class C (99) --
Institutional Class (2) (370,722)
--------- --------
(11,047) (370,722)
--------- --------
Net increase 1,225,573 4,138
========= ========
6. Line of Credit
The Fund, along with certain other funds in the Delaware Investments Family of
Funds (the "Participants"), participates in a $177,300,000 revolving line of
credit facility to be used for temporary or emergency purposes as an additional
source of liquidity to fund redemptions of investor shares. The Participants are
charged an annual commitment fee, which is allocated across the Participants on
the basis of each fund's allocation of the entire facility. The Participants may
borrow up to a maximum of one third of their net assets under the agreement. The
Fund had no amounts outstanding at November 30, 2003, or at any time during the
year.
7. Credit and Market Risk
The Fund may invest up to 15% of its total assets in illiquid securities, which
may include securities with contractual restrictions on resale, securities
exempt from registration under Rule 144A of the Securities Act of 1933, as
amended, and other securities which may not be readily marketable. The relative
illiquidity of these securities may impair the Fund from disposing of them in a
timely manner and at a fair price when it is necessary or desirable to do so.
The Fund invests in high-yield fixed-income securities, which carry ratings of
BBB or lower by S&P and/or Baa or lower by Moody's. Investments in these higher
yielding securities are generally accompanied by a greater degree of credit risk
than higher rated securities. Additionally, lower rated securities may be more
susceptible to adverse economic and competitive industry conditions than
investment grade securities.
The Fund invests in real estate investment trusts (REITs) and is subject to some
of the risks associated with that industry. If the Fund holds real estate
directly as a result of defaults or receives rental income directly from real
estate holdings, its tax status as a regulated investment company may be
jeopardized. There were no direct holdings during the year ended November 30,
2003. The Fund's REIT holdings are also affected by interest rate changes,
particularly if the REITs it holds use floating rate debt to finance their
ongoing operations.
17
Notes Delaware Dividend Income Fund
TO FINANCIAL STATEMENTS (CONTINUED)
8. Tax Information (Unaudited)
The information set forth below is for the Fund's fiscal year as required by
federal laws. Shareholders, however, must report distributions on a calendar
year basis for income tax purposes, which may include distributions for portions
of two fiscal years of a fund. Accordingly, the information needed by
shareholders for income tax purposes will be sent to them in January of each
year. Please consult your tax advisor for proper treatment of this information.
For the fiscal year ended November 30, 2003, the Fund designates distributions
paid during the year as follows:
(A) (B)
Long-Term Ordinary
Capital Gains Income Total (C)
Distributions Distributions Distributions Qualifying
(Tax Basis) (Tax Basis) (Tax Basis) Dividends(1)
------------- ------------ -------------- -------------
-- 100% 100% 43%
(A) and (B) are based on a percentage of the Fund's total distributions.
(C) is based on a percentage of ordinary income of the Fund.
(1) Qualifying dividends represent dividends which qualify for the corporate
dividends received deduction.
18
Report
OF INDEPENDENT AUDITORS
To the Shareholders and Board of Trustees
Delaware Group Equity Funds V -- Delaware Dividend
Income Fund
We have audited the accompanying statement of net assets and the statement of
assets and liabilities of Delaware Dividend Income Fund (the "Fund") as of
November 30, 2003, and the related statement of operations for the year then
ended, the statements of changes in net assets for each of the two years in the
period then ended, and the financial highlights for each of the periods
indicated therein. These financial statements and financial highlights are the
responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements and financial highlights. Our procedures included
confirmation of securities owned as of November 30, 2003, by correspondence with
the custodian and brokers or by other appropriate auditing procedures where
replies from brokers were not received. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Delaware Dividend Income Fund at November 30, 2003, the results of its
operations for the year then ended, the changes in its net assets for each of
the two years in the period then ended, and its financial highlights for each of
the periods indicated therein, in conformity with accounting principles
generally accepted in the United States.
Ernst + Young LLP
Philadelphia, Pennsylvania
January 2, 2004
19
Delaware Investments Family of Funds
BOARD OF TRUSTEES/DIRECTORS AND OFFICERS ADDENDUM
A mutual fund is governed by a Board of 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 that perform services for the fund. The
independent fund trustees, in particular, are advocates for shareholder
interests. The following is a list of the Trustees/Officers and certain
background and related information.
Number of Other
Principal Portfolios in Fund Directorships
Name, Position(s) Occupation(s) Complex Overseen Held by
Address Held with Length of Time During by Trustee/Director Trustee/Director
and Birthdate Fund(s) Served Past 5 Years or Officer or Officer
- -----------------------------------------------------------------------------------------------------------------------------------
INTERESTED TRUSTEES
Jude T. Driscoll(2) Chairman and 3 Years - Since August 2000, 83 None
2005 Market Street Trustee(4) Executive Officer Mr. Driscoll has served in
Philadelphia, PA various executive capacities
19103 Trustee since at different times at
May 15, 2003 Delaware Investments(1)
March 10, 1963
Senior Vice President and
Director of Fixed-Income Process -
Conseco Capital Management
(June 1998 - August 2000)
Managing Director -
NationsBanc Capital Markets
(February 1996 - June 1998)
- -----------------------------------------------------------------------------------------------------------------------------------
INDEPENDENT TRUSTEES
Walter P. Babich Trustee 15 Years Board Chairman - 101 None
2005 Market Street Citadel Construction Corporation
Philadelphia, PA (1989 - Present)
19103
October 1, 1927
John H. Durham Trustee 24 Years(3) Private Investor 101 Trustee - Abington
2005 Market Street Memorial Hospital
Philadelphia, PA
19103
August 7, 1937 President/Director -
22 WR Corporation
John A. Fry Trustee(4) 2 Years President - 83 None
2005 Market Street Franklin & Marshall College
Philadelphia, PA (June 2002 - Present)
19103
Executive Vice President -
University of Pennsylvania
May 28, 1960 (April 1995 - June 2002)
Anthony D. Knerr Trustee 10 Years Founder/Managing Director - 101 None
2005 Market Street Anthony Knerr & Associates
Philadelphia, PA (Strategic Consulting)
19103 (1990 - Present)
December 7, 1938
20
Number of Other
Principal Portfolios in Fund Directorships
Name, Position(s) Occupation(s) Complex Overseen Held by
Address Held with Length of Time During by Trustee/Director Trustee/Director
and Birthdate Fund(s) Served Past 5 Years or Officer or Officer
- -----------------------------------------------------------------------------------------------------------------------------------
INDEPENDENT TRUSTEES (CONTINUED)
Ann R. Leven Trustee 14 Years Treasurer/Chief Fiscal Officer - 101 Director - Andy
2005 Market Street National Gallery of Art Warhol Foundation
Philadelphia, PA (1994 - 1999)
19103 Director -
Systemax Inc.
November 1, 1940
Thomas F. Madison Trustee 9 Years President/Chief 101 Director -
2005 Market Street Executive Officer - CenterPoint Energy
Philadelphia, PA MLM Partners, Inc.
19103 (Small Business Investing Director - Digital
and Consulting) River Inc.
(January 1993 - Present)
February 25, 1936 Director - Rimage
Corporation
Director - Valmont
Industries, Inc.
Janet L. Yeomans Trustee 4 Years Vice President/Mergers & 101 None
2005 Market Street Acquisitions - 3M Corporation
Philadelphia, PA (January 2003 - Present)
19103
Ms. Yeomans has held
July 31, 1948 various management
positions at 3M Corporation
since 1983.
- -----------------------------------------------------------------------------------------------------------------------------------
OFFICERS
Joseph H. Hastings Executive Executive Mr. Hastings has served in 101 None
2005 Market Street Vice President Vice President various executive capacities
Philadelphia, PA and and at different times at
19103 Chief Financial Chief Financial Delaware Investments.
Officer Officer since
December 19, 1949 August 21, 2003
Richelle S. Maestro Senior Vice President, Chief Legal Ms. Maestro has served in 101 None
2005 Market Street Chief Legal Officer Officer since various executive capacities
Philadelphia, PA and Secretary March 17, 2003 at different times at
19103 Delaware Investments.
November 26, 1957
Michael P. Bishof Senior Vice President 7 Years Mr. Bishof has served in 101 None
2005 Market Street and Treasurer various executive capacities
Philadelphia, PA at different times at
19103 Delaware Investments.
August 18, 1962
(1) Delaware Investments is the marketing name for Delaware Management Holdings,
Inc. and its subsidiaries, including the Registrant's investment advisor,
principal underwriter and its transfer agent.
(2) Mr. Driscoll is considered to be an "Interested Trustee" because he is an
executive officer of the Fund's manager and distributor.
(3) Mr. Durham served as a Director Emeritus from 1995 through 1998.
(4) Mr. Driscoll and Mr. Fry are not Trustees of the portfolios of Voyageur
Insured Funds, Voyageur Intermediate Tax Free Funds, Voyageur Investment
Trust, Voyageur Mutual Funds, Voyageur Mutual Funds II, Voyageur Mutual
Funds III and Voyageur Tax Free Funds.
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.
21
Delaware
Investments(SM)
- --------------------------------------
A member of Lincoln Financial Group(R)
This annual report is for the information of Delaware International Value Equity
Fund, Delaware Emerging Markets Fund, and Delaware International Small Cap Value
Fund shareholders, but it may be used with prospective investors when preceded
or accompanied by a current prospectus for Delaware International Value Equity
Fund, Delaware Emerging Markets Fund, and Delaware International Small Cap Value
Fund and the Delaware Investments Performance Update for the most recently
completed calendar quarter. The prospectus sets forth details about charges,
expenses, investment objectives, and operating policies of the Fund. You should
read the prospectus carefully before you invest. The figures in this report
represent past results which are not a guarantee of future results. The return
and principal value of an investment in the Fund will fluctuate so that shares,
when redeemed, may be worth more or less than their original cost.
Board of Trustees Affiliated Officers Contact Information
Jude T. Driscoll Joseph H. Hastings Investment Manager
Chairman Executive Vice President and Delaware Management Company
Delaware Investments Family of Funds Chief Financial Officer Philadelphia, PA
Philadelphia, PA Delaware Investments Family of Funds
Philadelphia, PA International Affiliate
Walter P. Babich Delaware International Advisers Ltd.
Board Chairman Richelle S. Maestro London, England
Citadel Construction Corporation Senior Vice President,
King of Prussia, PA Chief Legal Officer and Secretary National Distributor
Delaware Investments Family of Funds Delaware Distributors, L.P.
John H. Durham Philadelphia, PA Philadelphia, PA
Private Investor
Gwynedd Valley, PA Michael P. Bishof Shareholder Servicing, Dividend
Senior Vice President and Treasurer Disbursing and Transfer Agent
John A. Fry Delaware Investments Family of Funds Delaware Service Company, Inc.
President Philadelphia, PA 2005 Market Street
Franklin & Marshall College Philadelphia, PA 19103-7094
Lancaster, PA
For Shareholders
Anthony D. Knerr 800 523-1918
Managing Director
Anthony Knerr & Associates For Securities Dealers and Financial
New York, NY Institutions Representatives Only
800 362-7500
Ann R. Leven
Former Treasurer/Chief Fiscal Officer Web site
National Gallery of Art www.delawareinvestments.com
Washington, DC
Thomas F. Madison
President and Chief Executive Officer
MLM Partners, Inc.
Minneapolis, MN
Janet L. Yeomans
Vice President/Mergers & Acquisitions
3M Corporation
St. Paul, MN
--------------------------------------------------------------------------------
A description of the policies and procedures that the Fund uses to determine how
to vote proxies (if any) relating to portfolio securities is available without
charge (i) upon request, by calling 800 523-1918; (ii) on the Fund's website at
http://www.delawareinvestments.com; and (iii) on the Commission's website at
http://www.sec.gov.; and beginning no later than August 31, 2004, information
(if any) regarding how the Fund voted proxies relating to portfolio securities
during the most recent 12-month period ended June 30 is available without charge
(i) through the Fund's website at http://www.delawareinvestments.com; and (ii)
on the Commission's website at http://www.sec.gov.
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(8464) Printed in the USA
AR-129 [11/03] IVES 1/04 J9518 EXP: 1/05
Item 2. Code of Ethics
The registrant has adopted a code of ethics that applies to the
registrant's principal executive officer, principal financial officer, principal
accounting officer or controller, or persons performing similar functions,
regardless of whether these individuals are employed by the registrant or a
third party. A copy of the registrant's Code of Business Ethics has been posted
on Delaware Investments' internet website at www.delawareinvestments.com. Any
amendments to the Code of Business Ethics, and information on any waiver from
its provisions granted by the registrant, will also be posted on this website
within five business days of such amendment or waiver and will remain on the
website for at least 12 months.
Item 3. Audit Committee Financial Expert
The registrant's Board of Trustees/Directors has determined that each
member of the registrant's Audit Committee is an audit committee financial
expert, as defined below. For purposes of this item, an "audit committee
financial expert" is a person who has the following attributes:
a. An understanding of generally accepted accounting principles and
financial statements;
b. The ability to assess the general application of such principles in
connection with the accounting for estimates, accruals, and reserves;
c. Experience preparing, auditing, analyzing, or evaluating financial
statements that present a breadth and level of complexity of accounting issues
that are generally comparable to the breadth and complexity of issues that can
reasonably be expected to be raised by the registrant's financial statements, or
experience actively supervising one or more persons engaged in such activities;
d. An understanding of internal controls and procedures for financial
reporting; and
e. An understanding of audit committee functions.
An "audit committee financial expert" shall have acquired such attributes
through:
a. Education and experience as a principal financial officer, principal
accounting officer, controller, public accountant, or auditor or experience in
one or more positions that involve the performance of similar functions;
b. Experience actively supervising a principal financial officer,
principal accounting officer, controller, public accountant, auditor, or person
performing similar functions;
c. Experience overseeing or assessing the performance of companies or
public accountants with respect to the preparation, auditing, or evaluation of
financial statements; or
d. Other relevant experience.
The registrant's Board of Trustees/Directors has also determined that
each member of the registrant's Audit Committee is independent. In order to be
"independent" for purposes of this item, the Audit Committee member may not: (i)
other than in his or her capacity as a member of the Board of Trustees/Directors
or any committee thereof, accept directly or indirectly any consulting, advisory
or other compensatory fee from the issuer; or (ii) be an "interested person" of
the registrant as defined in Section 2(a)(19) of the Investment Company Act of
1940.
The names of the audit committee financial experts on the registrant's
Audit Committee are set forth below:
Ann R. Leven
Thomas F. Madison
Janet L. Yeomans (1)
Item 4. Principal Accountant Fees and Services
Required only for fiscal years ending after December 15, 2003.
Not applicable.
Item 5. Audit Committee of Listed Registrants
Not applicable.
Item 6. [Reserved]
Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End
Management Investment Companies
Not applicable.
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(1) The instructions to Form N-CSR require disclosure on the relevant experience
of persons who qualify as audit committee financial experts based on "other
relevant experience." The Board of Trustees/Directors has determined that Ms.
Yeomans qualifies as an audit committee financial expert by virtue of her
education and experience as the Treasurer of a large global corporation.
Item 8. [Reserved]
Item 9. 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 registrant's last fiscal
half-year (the registrant's second fiscal half-year in the case of an annual
report) that have materially affected, or are reasonably likely to materially
affect, the registrant's internal control over financial reporting.
Item 10. Exhibits
(a) (1) Code of Ethics
Not applicable.
(2) Certifications of Principal Executive Officer and Principal Financial
Officer pursuant to Rule 30a-2 under the Investment Company Act of 1940
are attached hereto as Exhibit 99.CERT.
(b) Certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
are furnished herewith as Exhibit 99.906CERT.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and
the Investment Company Act of 1940, the registrant has duly caused this report
to be signed on its behalf, by the undersigned, thereunto duly authorized.
Name of Registrant: Delaware Group Equity Funds V
Jude T. Driscoll
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By: Jude T. Driscoll
Title: Chairman
Date: January 29, 2004
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.
Jude T. Driscoll
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By: Jude T. Driscoll
Title: Chairman
Date: January 29, 2004
Joseph H. Hastings
- -------------------------------------
By: Joseph H. Hastings
Title: Chief Financial Officer
Date: January 27, 2004