UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT
INVESTMENT COMPANIES
Investment Company Act file number: 811-4997
Exact name of registrant as specified in charter: Delaware Group Equity Funds V
Address of principal executive offices: 2005 Market Street
Philadelphia, PA 19103
Name and address of agent for service: 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: May 31, 2005
Item 1. Reports to Stockholders
Delaware
Investments(R)
-----------------------------------
A member of Lincoln Financial Group
VALUE-EQUITY
SEMIANNUAL REPORT MAY 31, 2005
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DELAWARE DIVIDEND INCOME FUND
[LOGO]
POWERED BY RESEARCH.(SM)
TABLE
OF CONTENTS
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DISCLOSURE OF FUND EXPENSES 1
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SECTOR ALLOCATION 2
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FINANCIAL STATEMENTS:
Statements of Net Assets 3
Statements of Operations 8
Statements of Changes in Net Assets 9
Financial Highlights 10
Notes to Financial Statements 14
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OTHER FUND INFORMATION 17
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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) 2005 Delaware Distributors, L.P.
DISCLOSURE For the Period December 1, 2004 to May 31, 2005
OF FUND EXPENSES
As a shareholder of the Fund, you incur two types of costs:
(1) transaction costs, including sales charges (loads) on purchase payments,
reinvested dividends, or other distributions; redemption fees; and exchange
fees; and (2) ongoing costs, including management fees; distribution and/or
service (12b-1) fees; and other fund expenses. This example is intended to help
you understand your ongoing costs (in dollars) of investing in the Fund and to
compare these costs with the ongoing costs of investing in other mutual funds.
The example is based on an investment of $1,000 invested at
the beginning of the period and held for the entire period December 1, 2004 to
May 31, 2005.
ACTUAL EXPENSES
The first section of the table shown, "Actual Fund Return," provides information
about actual account values and actual expenses. You may use the information in
this section of the table, together with the amount you invested, to estimate
the expenses that you paid over the period. Simply divide your account value by
$1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then
multiply the result by the number in the first section under the heading
entitled "Expenses Paid During Period" to estimate the expenses you paid on your
account during this period.
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The second section of the table shown, "Hypothetical 5% Return," provides
information about hypothetical account values and hypothetical expenses based on
the Fund's actual expense ratio and an assumed rate of return of 5% per year
before expenses, which is not the Fund's actual return. The hypothetical account
values and expenses may not be used to estimate the actual ending account
balance or expenses you paid for the period. You may use this information to
compare the ongoing costs of investing in the Fund and other funds. To do so,
compare this 5% hypothetical example with the 5% hypothetical examples that
appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your
ongoing costs only and do not reflect any transactional costs, such as sales
charges (loads), redemption fees, or exchange fees. Therefore, the second
section of the table is useful in comparing ongoing costs only, and will not
help you determine the relative total costs of owning different funds. In
addition, if these transactional costs were included, your costs would have been
higher. The Fund's actual expenses shown in the table reflect fee waivers in
effect. The expenses shown in the table assume reinvestment of all dividends and
distributions.
DELAWARE DIVIDEND INCOME FUND
EXPENSE ANALYSIS OF AN INVESTMENT OF $1,000
Expenses
Beginning Ending Paid During
Account Account Annualized Period
Value Value Expense 12/1/04 to
12/1/04 5/31/05 Ratio 5/31/05*
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ACTUAL FUND RETURN
Class A $1,000.00 $1,011.30 1.00% $5.01
Class B 1,000.00 1,007.40 1.75% 8.76
Class C 1,000.00 1,008.30 1.75% 8.76
Class R 1,000.00 1,010.40 1.35% 6.77
Institutional Class 1,000.00 1,013.50 0.75% 3.76
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HYPOTHETICAL 5% RETURN (5% return before expenses)
Class A $1,000.00 $1,019.95 1.00% $5.04
Class B 1,000.00 1,016.21 1.75% 8.80
Class C 1,000.00 1,016.21 1.75% 8.80
Class R 1,000.00 1,018.20 1.35% 6.79
Institutional Class 1,000.00 1,021.19 0.75% 3.78
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*Expenses are equal to the Fund's annualized expense ratio, multiplied by the
average account value over the period, multiplied by the 182/365 (to reflect the
one-half year period).
1
SECTOR ALLOCATION As of May 31, 2005
DELAWARE DIVIDEND INCOME FUND
The SEC adopted a requirement that all funds present their categories of
portfolio holdings in a table, chart, or graph format in their annual and
semiannual shareholder reports. The following chart lists the Fund's categories
of portfolio holdings as a percentage of total net assets and is provided in
compliance with such requirement.
PERCENTAGE
SECTOR OF NET ASSETS
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COMMON STOCK 58.55%
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Consumer Discretionary 2.45%
Consumer Staples 4.92%
Diversified REITs 1.22%
Energy 3.89%
Financials 10.01%
Health Care 7.32%
Healthcare REITs 0.03%
Industrials 2.57%
Industrial REITs 0.50%
Information Technology 3.81%
Lodging 0.59%
Lodging/Resort REITs 0.28%
Mall REITs 1.35%
Materials 1.18%
Mortgage REITs 4.93%
Multifamily REITs 0.32%
Office/Industrial REITs 1.02%
Office REITs 4.32%
Retail Strip Center REITs 2.06%
Telecommunication Services 3.27%
Utilities 2.51%
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CORPORATE BONDS 23.28%
- --------------------------------------------------------------------------
Capital Goods - Manufacturing 2.05%
Chemicals 0.81%
Consumer Cyclical 1.61%
Consumer Non-Cyclical 1.66%
Energy 2.06%
Finance 0.95%
Forest & Paper Products 2.38%
Gaming 1.82%
Healthcare 0.86%
Media 3.26%
Metals & Mining 0.36%
Retail 0.12%
Technology 0.50%
Telecommunications 2.49%
Textiles, Apparel & Furniture 0.16%
Transportation 0.87%
Utilities 1.32%
PERCENTAGE
SECTOR OF NET ASSETS
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CONVERTIBLE BONDS 4.77%
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Banking, Finance & Insurance 0.30%
Cable, Media & Publishing 1.10%
Computers & Technology 0.71%
Consumer Services 0.17%
Electronics & Electrical Equipment 0.06%
Energy 0.32%
Healthcare & Pharmaceuticals 1.12%
Industrial Machinery 0.13%
Leisure, Lodging & Entertainment 0.14%
Real Estate 0.22%
Retail 0.28%
Utilities 0.22%
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CONVERTIBLE PREFERRED STOCK 2.50%
- --------------------------------------------------------------------------
Automobiles & Automotive Parts 0.39%
Banking, Finance & Insurance 0.56%
Cable, Media & Publishing 0.34%
Chemicals 0.05%
Energy 0.49%
Food, Beverage & Tobacco 0.12%
Telecommunications 0.28%
Utilities 0.27%
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PREFERRED STOCK 1.01%
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Leisure, Lodging & Entertainment 0.19%
Real Estate 0.73%
Telecommunications 0.04%
Utilities 0.05%
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EXCHANGE TRADED FUNDS 0.53%
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WARRANTS 0.00%
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COMMERCIAL MORTGAGE-BACKED SECURITIES 0.15%
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REPURCHASE AGREEMENTS 7.79%
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TOTAL MARKET VALUE OF SECURITIES 98.58%
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RECEIVABLES AND OTHER ASSETS NET OF LIABILITIES 1.42%
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TOTAL NET ASSETS 100.00%
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2
STATEMENT DELAWARE DIVIDEND INCOME FUND
OF NET ASSETS May 31, 2005 (Unaudited)
Number of Market
Shares Value
COMMON STOCK - 58.55%
Consumer Discretionary - 2.45%
Limited Brands 203,500 $ 4,185,995
Mattel 227,500 4,135,950
-----------
8,321,945
-----------
Consumer Staples - 4.92%
Archer-Daniels-Midland 213,500 4,237,975
ConAgra Foods 157,600 4,121,240
Kimberly-Clark 65,600 4,220,048
Safeway 187,500 4,126,875
-----------
16,706,138
-----------
Diversified REITs - 1.22%
Vornado Realty Trust 52,800 4,155,360
-----------
4,155,360
-----------
Energy - 3.89%
Chevron 81,200 4,366,936
ConocoPhillips 41,300 4,453,792
Exxon Mobil 78,000 4,383,600
-----------
13,204,328
-----------
Financials - 10.01%
Allstate 73,300 4,266,060
Aon 184,200 4,592,107
Chubb 50,400 4,245,192
Hartford Financial Services 59,700 4,464,963
Huntington Bancshares 173,600 4,048,352
Morgan Stanley 85,500 4,186,080
Wachovia 78,500 3,983,875
Washington Mutual 101,300 4,183,690
-----------
33,970,319
-----------
Health Care - 7.32%
Abbott Laboratories 84,500 4,076,280
Baxter International 115,500 4,261,950
Bristol-Myers Squibb 157,600 3,996,736
Merck 130,000 4,217,200
Pfizer 146,700 4,092,930
Wyeth 96,800 4,198,216
-----------
24,843,312
-----------
Healthcare REITs - 0.03%
#Medical Properties Trust 144A 11,300 113,565
-----------
113,565
-----------
Industrials - 2.57%
Boeing 68,100 4,351,590
Union Pacific 65,500 4,385,880
-----------
8,737,470
-----------
Industrial REITs - 0.50%
First Potomac Realty Trust 74,700 1,691,955
-----------
1,691,955
-----------
Information Technology - 3.81%
Hewlett-Packard 191,500 4,310,665
International Business Machines 56,000 4,230,800
+Solectron 50,968 186,033
+Xerox 309,200 4,195,844
-----------
12,923,342
-----------
Number of Market
Shares Value
COMMON STOCK (continued)
Lodging - 0.59%
+Jameson Inns 928,900 $ 2,006,424
-----------
2,006,424
-----------
Lodging/Resort REITs - 0.28%
Hersha Hospitality Trust 101,100 962,472
-----------
962,472
-----------
Mall REITs - 1.35%
CBL & Associates Properties 16,000 1,303,520
Simon Property Group 47,700 3,277,944
-----------
4,581,464
-----------
Materials - 1.18%
Weyerhaeuser 62,400 4,002,960
-----------
4,002,960
-----------
Mortgage REITs - 4.93%
American Home Mortgage Investment 76,200 2,481,072
Fieldstone Investment 136,400 1,822,304
Friedman Billings Ramsey Group Class A 147,825 1,929,116
+#KKR Financial 144A 141,000 1,445,250
MortgageIT Holdings 201,800 3,420,510
+#Peoples Choice 144A 151,000 1,510,000
Saxon Capital 244,800 4,144,464
-----------
16,752,716
-----------
Multifamily REITs - 0.32%
Education Realty Trust 62,700 1,076,559
-----------
1,076,559
-----------
Office/Industrial REITs - 1.02%
Duke Realty 63,800 1,969,506
Liberty Property Trust 36,000 1,486,440
-----------
3,455,946
-----------
Office REITs - 4.32%
Brandywine Realty Trust 132,900 3,742,464
CarrAmerica Realty 105,600 3,650,592
Equity Office Properties Trust 84,100 2,732,409
Prentiss Properties Trust 62,300 2,149,350
Reckson Associates Realty 75,700 2,391,363
-----------
14,666,178
-----------
Retail Strip Center REITs - 2.06%
Developers Diversified Realty 84,100 3,834,960
Federal Realty Investment Trust 57,400 3,168,480
-----------
7,003,440
-----------
Telecommunication Services - 3.27%
+Fairpoint Communications 168,000 2,615,760
SBC Communications 180,200 4,213,076
Verizon Communications 120,800 4,273,904
-----------
11,102,740
-----------
Utilities - 2.51%
Energy East 151,200 4,233,600
FPL Group 105,700 4,296,705
-----------
8,530,305
-----------
TOTAL COMMON STOCK (cost $195,589,430) 198,808,938
-----------
3
STATEMENT DELAWARE DIVIDEND INCOME FUND
OF NET ASSETS (CONTINUED)
Principal Market
Amount (U.S. $) Value
CORPORATE BONDS - 23.28%
Capital Goods - Manufacturing - 2.05%
Allied Waste North America 9.25% 9/1/12 $795,000 $ 858,600
Anchor Glass 11.00% 2/15/13 490,000 396,900
Armor Holdings 8.25% 8/15/13 670,000 721,845
Casella Waste Systems 9.75% 2/1/13 580,000 623,500
Cenveo 9.625% 3/15/12 330,000 355,575
Geo Subordinate 11.00% 5/15/12 615,000 621,150
#Graham Packaging 144A 9.875% 10/15/14 680,000 678,300
#IMCO Recycling 144A 9.00% 11/15/14 440,000 462,000
Interline Brands 11.50% 5/15/11 772,000 853,060
PMueller Holdings 14.75% 4/15/14 785,000 571,088
#Park-Ohio Industries 144A
8.375% 11/15/14 215,000 178,450
Radnor Holdings
o9.891% 4/15/09 135,000 135,675
11.00% 3/15/10 170,000 125,375
Trimas 9.875% 6/15/12 485,000 395,275
-----------
6,976,793
-----------
Chemicals - 0.81%
Huntsman International 9.875% 3/1/09 240,000 258,000
#Huntsman International 144A
7.375% 1/1/15 460,000 458,850
Lyondell Chemical 9.875% 5/1/07 46,000 47,380
Nalco
7.75% 11/15/11 320,000 336,000
8.875% 11/15/13 190,000 199,500
Rhodia
8.875% 6/1/11 330,000 318,450
10.25% 6/1/10 310,000 331,700
++Solutia 6.72% 10/15/37 825,000 635,250
Witco 6.875% 2/1/26 160,000 154,400
-----------
2,739,530
-----------
Consumer Cyclical - 1.61%
#Accuride 144A 8.50% 2/1/15 675,000 624,375
Advanced Accessory Systems
10.75% 6/15/11 355,000 268,025
#Carrols 144A 9.00% 1/15/13 605,000 617,100
#Dana 144A 5.85% 1/15/15 135,000 115,425
Denny's 10.00% 10/1/12 275,000 278,438
#Gaylord Entertainment 144A
6.75% 11/15/14 365,000 352,225
Interface 10.38% 2/1/10 20,000 21,500
#Landry's Restaurant 144A 7.50% 12/15/14 830,000 776,049
#Lone Star Industries 144A 8.85% 6/15/05 166,000 166,000
O'Charleys 9.00% 11/1/13 665,000 704,900
Perkins Family Restaurants
10.125% 12/15/07 270,000 274,050
Royal Caribbean Cruises 7.25% 3/15/18 580,000 606,100
PTown Sports International 11.00% 2/1/14 430,000 249,400
#Uno Restaurant 144A 10.00% 2/15/11 425,000 418,625
++Venture Holdings 12.00% 6/1/09 35,000 44
-----------
5,472,256
-----------
Principal Market
Amount (U.S. $) Value
CORPORATE BONDS (continued)
Consumer Non-Cyclical - 1.66%
#Commonwealth Brands 144A
9.75% 4/15/08 $375,000 $ 394,688
10.625% 9/1/08 410,000 431,525
Corrections Corporation of America
7.50% 5/1/11 655,000 675,469
Cott Beverages 8.00% 12/15/11 715,000 761,475
Great Atlantic & Pacific Tea 7.75% 4/15/07 400,000 411,000
#Knowledge Learning 144A 7.75% 2/1/15 860,000 812,699
#Le-Natures 144A 10.00% 6/15/13 675,000 698,625
National Beef Packing 10.50% 8/1/11 425,000 410,125
Pilgrim's Pride 9.625% 9/15/11 490,000 539,000
Pinnacle Foods 8.25% 12/1/13 255,000 219,300
#Rite Aid 144A 7.50% 1/15/15 315,000 291,375
True Temper Sports 8.375% 9/15/11 5,000 4,550
-----------
5,649,831
-----------
Energy - 2.06%
Bluewater Finance 10.25% 2/15/12 653,000 685,650
#Chesapeake Energy 144A 6.625% 1/15/16 255,000 264,881
CMS Energy 9.875% 10/15/07 355,000 386,950
#Dynegy Holdings 144A 10.125% 7/15/13 858,000 956,669
El Paso Natural Gas 7.625% 8/1/10 100,000 106,011
El Paso Production Holding 7.75% 6/1/13 335,000 349,238
@#Geophysique 144A 7.50% 5/15/15 190,000 190,950
#Hilcorp Energy I 144A 10.50% 9/1/10 695,000 767,974
#Inergy Finance 144A 6.875% 12/15/14 250,000 235,000
Midland Funding II 11.75% 7/23/05 73,304 74,344
Petroleum Geo-Services
8.00% 11/5/06 56,197 57,532
10.00% 11/5/10 470,000 524,050
Plains Exploration & Production
7.125% 6/15/14 335,000 359,288
Pride International 7.375% 7/15/14 345,000 380,363
Schlumberger 2.125% 6/1/23 700,000 760,374
oSecunda International 11.141% 9/1/12 355,000 337,250
Tennessee Gas Pipeline 8.375% 6/15/32 190,000 221,241
Whiting Petroleum 7.25% 5/1/13 325,000 325,000
-----------
6,982,765
-----------
Finance - 0.95%
#America Real Estate 144A 7.125% 2/15/13 485,000 477,725
BF Saul REIT 7.50% 3/1/14 420,000 436,800
E Trade Financial 8.00% 6/15/11 720,000 756,000
#Farmers Exchange Capital 144A
7.20% 7/15/48 433,000 465,015
LaBranche & Company 11.00% 5/15/12 480,000 518,400
Tanger Properties 9.125% 2/15/08 528,000 571,560
-----------
3,225,500
-----------
Forest & Paper Products - 2.38%
Abitibi-Consolidated 6.95% 12/15/06 495,000 499,950
#Boise Cascade 144A 7.125% 10/15/14 715,000 684,613
Bowater 9.50% 10/15/12 872,000 941,759
Fort James 7.75% 11/15/23 945,000 1,084,387
MDP Acquisitions 9.625% 10/1/12 855,000 840,038
Norske Skog 8.625% 6/15/11 690,000 707,250
#Port Townsend Paper 144A 12.00% 4/15/11 546,000 532,350
Potlatch 12.50% 12/1/09 635,000 794,544
Smurfit Capital Funding 7.50% 11/20/25 590,000 533,950
Stone Container 9.75% 2/1/11 765,000 812,813
Tembec Industries 8.625% 6/30/09 785,000 639,775
-----------
8,071,429
-----------
4
DELAWARE DIVIDEND INCOME FUND
STATEMENT
OF NET ASSETS (CONTINUED)
Principal Market
Amount (U.S. $) Value
CORPORATE BONDS (continued)
Gaming - 1.82%
Ameristar Casinos 10.75% 2/15/09 $ 890,000 $ 976,775
Boyd Gaming 9.25% 8/1/09 810,000 855,563
Caesars Entertainment 9.375% 2/15/07 225,000 241,313
Mandalay Resort Group 10.25% 8/1/07 1,135,000 1,251,338
MGM MIRAGE 9.75% 6/1/07 505,000 548,556
Penn National Gaming 8.875% 3/15/10 1,370,000 1,476,174
Wheeling Island Gaming 10.125% 12/15/09 785,000 836,025
-----------
6,185,744
-----------
Healthcare - 0.86%
NDCHealth 10.50% 12/1/12 510,000 544,425
Universal Hospital Services
10.125% 11/1/11 285,000 289,275
US Oncology 10.75% 8/15/14 675,000 739,125
Vangaurd Health 9.00% 10/1/14 675,000 732,375
#Ventas Realty 144A 7.125% 6/1/15 290,000 297,250
#Warner Chilcott 144A 8.75% 2/1/15 320,000 310,400
-----------
2,912,850
-----------
Media - 3.26%
JAdelphia Communications
8.125% 7/15/06 15,000 12,975
American Media Operation
10.25% 5/1/09 1,115,000 1,151,238
#Charter Communications 144A
5.875% 11/16/09 500,000 310,000
Charter Communications Holdings
10.75% 10/1/09 2,155,000 1,680,899
#Charter Communications Operating 144A
8.00% 4/30/12 715,000 718,575
CSC Holdings 10.50% 5/15/16 990,000 1,089,000
Dex Media West 9.875% 8/15/13 135,000 154,913
Insight Midwest 10.50% 11/1/10 1,265,000 1,353,549
Lodgenet Entertainment 9.50% 6/15/13 770,000 831,600
Mediacom Broadband 11.00% 7/15/13 815,000 886,313
Nextmedia Operating 10.75% 7/1/11 815,000 892,425
Rogers Cablesystems 11.00% 12/1/15 300,000 325,875
Sheridan Acquisition 10.25% 8/15/11 215,000 221,450
Warner Music Group 7.375% 4/15/14 615,000 615,000
XM Satellite Radio 12.00% 6/15/10 740,000 830,650
-----------
11,074,462
-----------
Metals & Mining - 0.36%
#Apex Silver Mines 144A 2.875% 3/15/24 1,000,000 651,250
#Novelis 144A 7.25% 2/15/15 580,000 571,300
-----------
1,222,550
-----------
Retail - 0.12%
Adesa 7.625% 6/15/12 415,000 415,000
-----------
415,000
-----------
Technology - 0.50%
#Magnachip Semiconductor 144A
8.00% 12/15/14 635,000 555,625
Sanmina-SCI 10.375% 1/15/10 455,000 505,050
#Telcordia Technologies 144A
10.00% 3/15/13 720,000 633,600
-----------
1,694,275
-----------
Principal Market
Amount (U.S. $) Value
CORPORATE BONDS (continued)
Telecommunications - 2.49%
Alaska Communications Systems Holdings
9.875% 8/15/11 $ 560,000 $ 592,200
++Allegiance Telecom 11.75% 2/15/08 10,000 2,475
American Cellular 10.00% 8/1/11 260,000 254,800
Centennial Cellular Operating
10.125% 6/15/13 370,000 414,863
Cincinnati Bell 8.375% 1/15/14 895,000 890,525
*Inmarsat Finance 10.375% 11/15/12 600,000 447,000
iPCS 11.50% 5/1/12 10,000 11,000
*#Iwo Escrow 144A 10.75% 1/15/15 225,000 144,000
MCI
6.908% 5/1/07 205,000 208,844
7.688% 5/1/09 750,000 787,500
MetroPCS 10.75% 10/1/11 5,000 5,989
#New Skies Satellite 144A 9.125% 11/1/12 295,000 293,525
Nextel Communications 5.95% 3/15/14 1,000,000 1,027,500
PanAmSat 9.00% 8/15/14 390,000 426,075
#Qwest 144A 7.875% 9/1/11 620,000 646,350
#Qwest Services 144A 13.50% 12/15/10 1,020,000 1,167,899
Rural Cellular 9.875% 2/1/10 100,000 99,250
oUS LEC 11.89% 10/1/09 275,000 283,250
US Unwired 10.00% 6/15/12 215,000 236,500
#Valor Telecom 144A 7.75% 2/15/15 520,000 508,300
-----------
8,447,845
-----------
Textiles, Apparel & Furniture - 0.16%
Warnaco 8.875% 6/15/13 480,000 525,600
-----------
525,600
-----------
Transportation - 0.87%
*#H-Lines Finance Holding 144A
11.00% 4/1/13 795,000 620,100
#Horizon Lines 144A 9.00% 11/1/12 265,000 279,906
Kansas City Southern Railway
9.50% 10/1/08 440,000 482,350
OMI 7.625% 12/1/13 610,000 606,950
Seabulk International 9.50% 8/15/13 169,000 192,238
Stena 9.625% 12/1/12 420,000 460,950
Ultrapetrol 9.00% 11/24/14 350,000 316,750
-----------
2,959,244
-----------
Utilities - 1.32%
#Allegheny Energy Supply Statutory Trust 2001
Series B 144A 13.00% 11/15/07 5,000 5,700
Avista 9.75% 6/1/08 78,000 316,536
Calpine
8.25% 8/15/05 300,000 289,500
10.50% 5/15/06 40,000 118,300
o#Calpine 144A 8.891% 7/15/07 505,988 392,140
Elwood Energy 8.159% 7/5/26 245,507 278,036
Midwest Generation
8.30% 7/2/09 495,000 514,800
8.75% 5/1/34 320,000 358,400
++Mirant Americas Generation 7.625% 5/1/06 315,000 364,613
#NRG Energy 144A 8.00% 12/15/13 413,000 437,780
Orion Power Holdings 12.00% 5/1/10 370,000 444,000
PSE&G Energy Holdings 7.75% 4/16/07 259,000 268,065
Reliant Energy 9.50% 7/15/13 345,000 377,775
#Texas Genco 144A 6.875% 12/15/14 315,000 325,238
-----------
4,490,883
-----------
TOTAL CORPORATE BONDS (cost $80,472,795) 79,046,557
-----------
5
STATEMENT DELAWARE DIVIDEND INCOME FUND
OF NET ASSETS (CONTINUED)
Principal Market
Amount (U.S. $) Value
CONVERTIBLE BONDS - 4.77%
Banking, Finance & Insurance - 0.30%
PMI Group 2.50% 7/15/21 $1,000,000 $ 1,021,250
-----------
1,021,250
-----------
Cable, Media & Publishing - 1.10%
Liberty Media 3.25% 3/15/31 1,500,000 1,156,875
Mediacom Communications 5.25% 7/1/06 1,000,000 985,000
#Playboy Enterprises 144A 3.00% 3/15/25 1,400,000 1,280,999
Quebecor World USA 6.00% 10/1/07 300,000 307,500
-----------
3,730,374
-----------
Computers & Technology - 0.71%
Fairchild Semiconductor International
5.00% 11/1/08 850,000 831,938
^#ON Semiconductor 144A
0.28% 4/15/24 1,500,000 1,081,875
#Sybase 144A 1.75% 2/22/25 500,000 501,875
-----------
2,415,688
-----------
Consumer Services - 0.17%
Fluor 1.50% 2/15/24 500,000 580,625
-----------
580,625
-----------
Electronics & Electrical Equipment - 0.06%
Solectron 0.50% 2/15/34 275,000 199,375
-----------
199,375
-----------
Energy - 0.32%
Halliburton 3.125% 7/15/23 850,000 1,091,188
-----------
1,091,188
-----------
Healthcare & Pharmaceuticals - 1.12%
#Encysive Pharmaceuticals 144A
2.50% 3/15/12 875,000 826,875
Medimmune 1.00% 7/15/23 1,750,000 1,684,374
oWyeth 2.39% 1/15/24 1,250,000 1,281,463
-----------
3,792,712
-----------
Industrial Machinery - 0.13%
#Human Genome 144A 2.25% 10/15/11 500,000 458,750
-----------
458,750
-----------
Leisure, Lodging & Entertainment - 0.14%
#Regal Entertainment Group 144A
3.75% 5/15/08 350,000 466,375
-----------
466,375
-----------
Real Estate - 0.22%
Meristar Hospitality 9.50% 4/1/10 600,000 761,250
-----------
761,250
-----------
Retail - 0.28%
#Saks 144A 2.00% 3/15/24 925,000 942,344
-----------
942,344
-----------
Utilities - 0.22%
CenterPoint Energy 3.75% 5/15/23 400,000 456,500
++Mirant 2.50% 6/15/21 300,000 231,000
#Unisource Energy 144A 4.50% 3/1/35 50,000 49,875
-----------
737,375
-----------
TOTAL CONVERTIBLE BONDS (cost $16,770,535) 16,197,306
-----------
Number of Market
Shares Value
CONVERTIBLE PREFERRED STOCK - 2.50%
Automobiles & Automotive Parts - 0.39%
Ford Motor Capital Trust II 6.50% 20,000 $ 812,000
General Motors 5.25% 30,000 522,900
-----------
1,334,900
-----------
Banking, Finance & Insurance - 0.56%
Chubb 7.00% 20,000 620,600
Lehman Brothers Holdings 6.25% 11,250 298,125
Merrill Lynch 6.75% 28,000 999,011
-----------
1,917,736
-----------
Cable, Media & Publishing - 0.34%
Interpublic Group 5.375% 25,800 1,146,810
-----------
1,146,810
-----------
Chemicals - 0.05%
Huntsman 5.00% 3,900 173,063
-----------
173,063
-----------
Energy - 0.49%
#Chesapeake 5.00% 144A 16,000 1,648,000
-----------
1,648,000
-----------
Food, Beverage & Tobacco - 0.12%
Constellation Brands 5.75% 10,200 423,300
-----------
423,300
-----------
Telecommunications - 0.28%
Lucent Technologies Capital Trust I 7.75% 1,000 944,000
-----------
944,000
-----------
Utilities - 0.27%
Aquila 6.75% 4,000 137,500
#NRG Energy 144A 4.00% 750 774,469
-----------
911,969
-----------
TOTAL CONVERTIBLE PREFERRED STOCK
(cost $9,319,082) 8,499,778
-----------
PREFERRED STOCK - 1.01%
Leisure, Lodging & Entertainment - 0.19%
WestCoast Hospitality Capital Trust 9.50% 24,000 634,080
-----------
634,080
-----------
Real Estate - 0.73%
Equity Inns Series B 8.75% 18,300 484,950
LaSalle Hotel Properties 10.25% 36,500 990,792
Ramco-Gershenson Properties 9.50% 15,700 416,521
SL Green Realty 7.625% 23,000 593,688
-----------
2,485,951
-----------
Telecommunications - 0.04%
Alamosa Delaware 7.50% 150 138,506
-----------
138,506
-----------
Utilities - 0.05%
Public Service Enterprise Group 10.25% 2,400 167,160
-----------
167,160
-----------
Total Preferred Stock (cost $3,368,372) 3,425,697
-----------
6
STATEMENT DELAWARE DIVIDEND INCOME FUND
OF NET ASSETS (CONTINUED)
Number of Market
Shares Value
Exchange Traded Funds - 0.53%
iShares Dow Jones U.S. Real Estate
Index Fund 14,600 $ 1,795,070
-----------
TOTAL EXCHANGE TRADED FUNDS
(cost $1,550,582) 1,795,070
-----------
Warrants - 0.00%
+#Solutia144A, exercise price $7.59,
expiration date 7/15/09 12 0
-----------
TOTAL WARRANTS (cost $1,021) 0
-----------
Principal
Amount (U.S. $)
COMMERCIAL MORTGAGE-BACKED SECURITIES - 0.15%
#Meristar Commercial Mortgage Trust
Series 1999-C1 C 144A 8.29% 3/3/16 $450,000 494,411
-----------
TOTAL COMMERCIAL MORTGAGE-BACKED
Securities (cost $501,715) 494,411
-----------
REPURCHASE AGREEMENTS - 7.79%
With BNP Paribas 2.95% 6/1/05 (dated
5/31/05, to be repurchased at $15,395,261,
collateralized by $2,251,000 U.S. Treasury
Bills due 9/29/05, market value $2,229,207,
$1,907,000 U.S. Treasury Bills due 10/20/05,
market value $1,885,019, $3,426,000 U.S.
Treasury Bills due 11/17/05, market value
$3,377,577, $2,191,000 U.S. Treasury Notes
2.38% due 8/15/06, market value $2,177,961,
$3,379,000 U.S. Treasury Notes 6.50% due
8/15/05, market value $3,468,159, and
$2,411,000 U.S. Treasury Notes 7.00% due
7/15/06, market
value $2,567,661) 15,394,000 15,394,000
With UBS Warburg 2.95% 6/1/05
(dated 5/31/05, to be repurchased
at $11,061,906, collateralized by
$11,396,000 U.S. Treasury Notes
2.50% due 5/31/06, market
value $11,296,423) 11,061,000 11,061,000
------------
TOTAL REPURCHASE AGREEMENTS
(cost $26,455,000) 26,455,000
------------
TOTAL MARKET VALUE OF SECURITIES - 98.58%
(cost $334,028,532) 334,722,757
RECEIVABLES AND OTHER ASSETS
NET OF LIABILITIES - 1.42% 4,866,118
------------
NET ASSETS APPLICABLE TO 31,101,186 SHARES
OUTSTANDING - 100.00% $339,588,875
============
Net Asset Value - Delaware Dividend Income Fund
Class A ($167,852,654 / 15,370,351 Shares) $10.92
------
Net Asset Value - Delaware Dividend Income Fund
Class B ($46,067,017 / 4,220,221 Shares) $10.92
------
Net Asset Value - Delaware Dividend Income Fund
Class C ($124,482,938 / 11,401,980 Shares) $10.92
------
Net Asset Value - Delaware Dividend Income Fund
Class R ($818,185 / 74,949 Shares) $10.92
------
Net Asset Value - Delaware Dividend Income Fund
Institutional Class ($368,081 / 33,685 Shares) $10.93
------
COMPONENTS OF NET ASSET AT MAY 31, 2005:
Shares of beneficial interest
(unlimited authorization - no par) $333,105,990
Undistributed net investment income 2,116,197
Accumulated net realized gain on investments 3,672,463
Net unrealized appreciation of investments 694,225
------------
Total net assets $339,588,875
============
+Non-income producing security for the period ended May 31, 2005.
++Non-income producing security. Security is currently in default.
oSecurity is currently in default. The issue has missed the maturity date.
Bankruptcy proceedings are in the process to determine distribution of assets.
*Step coupon bond. Indicates security that has a zero coupon that remains in
effect until a predetermined date at which time the stated interest rate becomes
effective.
#Security exempt from registration under Rule 144A of the Securities Act of
1933. See Note 7 in "Notes to Financial Statements."
^Zero coupon security. The interest rate shown is the yield at the time of
purchase.
oVariable rate notes. The interest rate shown is the rate as of May 31, 2005.
@Illiquid security. See Note 7 in "Notes to Financial Statements." At May 31,
2005, one security was deemed illiquid which represented 0.06% of the Fund's net
assets.
SUMMARY OF ABBREVIATIONS:
REITs - Real Estate Investment Trust
NET ASSET VALUE AND OFFERING PRICE PER SHARE -
DELAWARE DIVIDEND INCOME FUND
Net asset value Class A (A) $10.92
Sales charge (5.75% of offering price) (B) 0.67
------
Offering price $11.59
======
(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
7
STATEMENT DELAWARE DIVIDEND INCOME FUND
OF OPERATIONS Six Months Ended May 31, 2005 (Unaudited)
INVESTMENT INCOME:
Dividends $3,289,164
Interest 2,964,858
Foreign tax withheld (12,774) $6,241,248
---------- ----------
EXPENSES:
Distribution expenses -- Class A 205,160
Distribution expenses -- Class B 194,456
Distribution expenses -- Class C 519,682
Distribution expenses -- Class R 1,750
Management fees 919,274
Dividend disbursing and transfer agent fees
and expenses 199,952
Registration fees 60,257
Accounting and administration expenses 44,631
Reports and statements to shareholders 29,221
Legal and professional fees 27,173
Insurance fees 15,187
Trustees' fees 7,873
Custodian fees 7,241
Pricing fees 3,852
Tax 2,058
Other 4,525 2,242,292
----------
Less expenses absorbed or waived (260,366)
Less waiver of distribution expenses -- Class A (34,193)
Less expense paid indirectly (3,282)
----------
Total expenses 1,944,451
----------
NET INVESTMENT INCOME 4,296,797
----------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
AND FOREIGN CURRENCIES:
Net realized gain (loss) on:
Investments 4,602,553
Foreign currencies (1,378)
----------
Net realized gain 4,601,175
Net change in unrealized appreciation/depreciation of investments (6,991,361)
----------
NET REALIZED AND UNREALIZED LOSS ON INVESTMENTS
AND FOREIGN CURRENCIES (2,390,186)
----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $1,906,611
==========
See accompanying notes
8
STATEMENTS DELAWARE DIVIDEND INCOME FUND
OF CHANGES IN NET ASSETS
Six Months
Ended Year Ended
5/31/05 11/30/04
(Unaudited)
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS:
Net investment income $ 4,296,797 $3,161,142
Net realized gain on investments
and foreign currencies 4,601,175 1,623,672
Net change in unrealized appreciation/
depreciation of investments (6,991,361) 7,298,755
----------- ----------
Net increase in net assets resulting from
operations 1,906,611 12,083,569
----------- ----------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income:
Class A (2,064,042) (1,382,695)
Class B (446,287) (334,815)
Class C (1,192,766) (794,269)
Class R (8,138) (4,793)
Institutional Class (5,443) (119,652)
Net realized gain on investments:
Class A (829,375) (32,120)
Class B (249,797) (11,519)
Class C (644,998) (24,930)
Class R (2,738) (10)
Institutional Class (1,641) (13,041)
----------- ----------
(5,445,225) (2,717,844)
----------- ----------
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares sold
Class A 74,617,455 103,634,846
Class B 15,986,469 29,742,332
Class C 49,264,802 76,439,150
Class R 457,745 349,869
Institutional Class 315,274 92,571
Net asset value of shares issued upon reinvestment
of dividends and distributions:
Class A 2,269,510 1,067,277
Class B 553,787 274,814
Class C 1,446,476 603,599
Class R 10,876 4,803
Institutional Class 5,780 130,995
----------- -----------
144,928,174 212,340,256
----------- -----------
Cost of shares repurchased
Class A (12,553,837) (9,699,802)
Class B (2,173,096) (1,349,886)
Class C (6,991,469) (2,649,479)
Class R (11,223) (3)
Institutional Class (47,446) (4,198,164)
----------- -----------
(21,777,071) (17,897,334)
----------- -----------
Increase in net assets derived from capital
share transactions 123,151,103 194,442,922
----------- ------------
NET INCREASE IN NET ASSETS 119,612,489 203,808,647
NET ASSETS:
Beginning of period 219,976,386 16,167,739
----------- ------------
End of period (including undistributed net
investment income of $2,116,197
and $1,056,427, respectively) $339,588,875 $219,976,386
============ ============
See accompanying notes
9
FINANCIAL
HIGHLIGHTS
Selected data for each share of the Fund outstanding
throughout each period were as follows:
Delaware Dividend Income Fund Class A
- ----------------------------------------------------------------------------------------------------------------------------------
Six Months
Ended Year Ended
5/31/05(2) 11/30/04 11/30/03 11/30/02(1) 11/30/01 11/30/00
(Unaudited)
NET ASSET VALUE, BEGINNING OF PERIOD $11.050 $10.210 $9.030 $9.230 $9.600 $9.430
INCOME (LOSS) FROM INVESTMENT OPERATIONS:
Net investment income(3) 0.187 0.345 0.450 0.429 0.405 0.403
Net realized and unrealized gain (loss) on investments
and foreign currencies (0.061) 0.891 1.213 (0.196) (0.041) 0.285
-------- -------- -------- -------- -------- -------
Total from investment operations 0.126 1.236 1.663 0.233 0.364 0.688
-------- -------- -------- -------- -------- -------
LESS DIVIDENDS AND DISTRIBUTIONS FROM:
Net investment income (0.175) (0.362) (0.483) (0.433) (0.400) (0.420)
Net realized gain on investments (0.081) (0.034) -- -- (0.334) (0.098)
-------- -------- -------- -------- -------- -------
Total dividends and distributions (0.256) (0.396) (0.483) (0.433) (0.734) (0.518)
-------- -------- -------- -------- -------- -------
NET ASSET VALUE, END OF PERIOD $10.920 $11.050 $10.210 $9.030 $9.230 $9.600
======== ======== ======== ======== ======== =======
TOTAL RETURN(4) 1.13% 12.38% 19.45% 2.58% 3.87% 7.66%
RATIOS AND SUPPLEMENTAL DATA:
Net assets, end of period (000 omitted) $167,853 $105,253 $5,821 $1 $-- $24
Ratio of expenses to average net assets 1.00% 1.00% 0.79% 0.75% 0.75% 0.75%
Ratio of expenses to average net assets prior to
expense limitation and expense paid indirectly 1.23% 1.32% 2.05% 1.30% 1.05% 1.24%
Ratio of net investment income to average net assets 3.41% 3.26% 4.69% 4.71% 4.38% 4.22%
Ratio of net investment income to average net assets
prior to expense limitation and expense paid indirectly 3.18% 2.94% 3.43% 4.16% 4.08% 3.73%
Portfolio turnover 399% 95% 212% 188% 89% 41%
(1) As required, effective December 1, 2001, the Portfolio has adopted the
provisions of the AICPA Audit and Accounting Guide for Investment Companies
that requires 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) Ratios and portfolio turnover have been annualized and total return has not
been annualized.
(3) The average shares outstanding method has been applied for per share
information.
(4) 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 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
10
FINANCIAL
HIGHLIGHTS (CONTINUED)
Selected data for each share of the Fund outstanding
throughout each period were as follows:
Delaware Dividend Income Delaware Dividend Income
Fund Class B Fund Class C
- -----------------------------------------------------------------------------------------------------------------------------------
Six Months Year 10/1/03(1) Six Months Year 10/1/03(1)
Ended Ended to Ended Ended to
5/31/05(2) 11/30/04 11/30/03 5/31/05(2) 11/30/04 11/30/03
(Unaudited) (Unaudited)
NET ASSET VALUE, BEGINNING OF PERIOD $11.040 $10.200 $9.950 $11.040 $10.200 $9.950
INCOME (LOSS) FROM INVESTMENT OPERATIONS:
Net investment income(3) 0.146 0.267 0.051 0.146 0.267 0.051
Net realized and unrealized gain (loss) on investments
and foreign currencies (0.053) 0.889 0.199 (0.053) 0.889 0.199
-------- -------- -------- -------- -------- -------
Total from investment operations 0.093 1.156 0.250 0.093 1.156 0.250
-------- -------- -------- -------- -------- -------
LESS DIVIDENDS AND DISTRIBUTIONS FROM:
Net investment income (0.132) (0.282) -- (0.132) (0.282) --
Net realized gain on investments (0.081) (0.034) -- (0.081) (0.034) --
-------- -------- -------- -------- -------- -------
Total dividends and distributions (0.213) (0.316) -- (0.213) (0.316) --
-------- -------- -------- -------- -------- -------
NET ASSET VALUE, END OF PERIOD $10.920 $11.040 $10.200 $10.920 $11.040 $10.200
======== ======== ======== ======== ======== =======
TOTAL RETURN(4) 0.74% 11.54% 2.51% 0.83% 11.53% 2.51%
RATIOS AND SUPPLEMENTAL DATA:
Net assets, end of period (000 omitted) $46,067 $32,165 $2,125 $124,483 $82,083 $4,341
Ratio of expenses to average net assets 1.75% 1.75% 1.75% 1.75% 1.75% 1.75%
Ratio of expenses to average net assets prior to
expense limitation and expense paid indirectly 1.93% 2.02% 4.10% 1.93% 2.02% 4.10%
Ratio of net investment income to average net assets 2.66% 2.51% 3.65% 2.66% 2.52% 3.65%
Ratio of net investment income to average net assets
prior to expense limitation and expense paid indirectly 2.48% 2.25% 1.30% 2.48% 2.25% 1.30%
Portfolio turnover 399% 95% 212% 399% 95% 212%
(1) Date of commencement of operations; ratios have been annualized and total
return has not been annualized.
(2) Ratios and portfolio turnover have been annualized and total return has not
been annualized.
(3) The average shares outstanding method has been applied for per share
information.
(4) 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 waiver and payment of fees by the manager.
Performance would have been lower had the expense limitation not been in
effect.
See accompanying notes
11
FINANCIAL
HIGHLIGHTS (CONTINUED)
Selected data for each share of the Fund outstanding
throughout each period were as follows:
Delaware Dividend Income Fund Class R
- ------------------------------------------------------------------------------------------------------
Six Months Year 10/1/03(1)
Ended Ended to
5/31/05(2) 11/30/04 11/30/03
(Unaudited)
NET ASSET VALUE, BEGINNING OF PERIOD $11.040 $10.220 $9.950
INCOME FROM INVESTMENT OPERATIONS:
Net investment income(3) 0.168 0.308 0.056
Net realized and unrealized gain (loss) on investments
and foreign currencies (0.052) 0.879 0.214
-------- --------- --------
Total from investment operations 0.116 1.187 0.270
-------- --------- --------
LESS DIVIDENDS AND DISTRIBUTIONS FROM:
Net investment income (0.155) (0.333) --
Net realized gain on investments (0.081) (0.034) --
-------- --------- --------
Total dividends and distributions (0.236) (0.367) --
-------- --------- --------
NET ASSET VALUE, END OF PERIOD $10.920 $11.040 $10.220
======== ========= ========
TOTAL RETURN(4) 1.04% 11.86% 2.71%
RATIOS AND SUPPLEMENTAL DATA:
Net assets, end of period (000 omitted) $818 $373 $3
Ratio of expenses to average net assets 1.35% 1.35% 1.35%
Ratio of expenses to average net assets prior to
expense limitation and expense paid indirectly 1.53% 1.62% 3.70%
Ratio of net investment income to average net assets 3.06% 2.89% 4.05%
Ratio of net investment income to average net assets
prior to expense limitation and expense paid indirectly 2.88% 2.62% 1.70%
Portfolio turnover 399% 95% 212%
(1) Date of commencement of operations; ratios have been annualized and total
return has not been annualized.
(2) Ratios and portfolio turnover have been annualized and total return has not
been annualized.
(3) The average shares outstanding method has been applied for per share
information.
(4) 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 waiver and payment of fees by the manager.
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 Dividend Income Fund Institutional Class
- ------------------------------------------------------------------------------------------------------------------------------------
Six Months
Ended Year Ended
5/31/05(2) 11/30/04 11/30/03 11/30/02(1) 11/30/01 11/30/00
(Unaudited)
NET ASSET VALUE, BEGINNING OF PERIOD $11.050 $10.220 $9.030 $9.230 $9.600 $9.420
INCOME (LOSS) FROM INVESTMENT OPERATIONS:
Net investment income(3) 0.200 0.371 0.453 0.429 0.405 0.403
Net realized and unrealized gain (loss) on investments
and foreign currencies (0.050) 0.882 1.220 (0.196) (0.041) 0.295
-------- -------- -------- -------- -------- ------
Total from investment operations 0.150 1.253 1.673 0.233 0.364 0.698
-------- -------- -------- -------- -------- ------
LESS DIVIDENDS AND DISTRIBUTIONS FROM:
Net investment income (0.189) (0.389) (0.483) (0.433) (0.400) (0.420)
Net realized gain on investments (0.081) (0.034) -- -- (0.334) (0.098)
-------- -------- -------- -------- -------- ------
Total dividends and distributions (0.270) (0.423) (0.483) (0.433) (0.734) (0.518)
-------- -------- -------- -------- -------- ------
NET ASSET VALUE, END OF PERIOD $10.930 $11.050 $10.220 $9.030 $9.230 $9.600
======== ======== ======== ======== ======== ======
TOTAL RETURN(4) 1.35% 12.55% 19.56% 2.58% 3.87% 7.78%
RATIOS AND SUPPLEMENTAL DATA:
Net assets, end of period (000 omitted) $368 $102 $3,879 $3,233 $3,265 $3,145
Ratio of expenses to average net assets 0.75% 0.75% 0.75% 0.75% 0.75% 0.75%
Ratio of expenses to average net assets prior to
expense limitation and expense paid indirectly 0.93% 1.02% 1.75% 1.00% 0.75% 0.94%
Ratio of net investment income to average net assets 3.66% 3.49% 4.73% 4.71% 4.38% 4.22%
Ratio of net investment income to average net assets
prior to expense limitation and expense paid indirectly 3.48% 3.22% 3.73% 4.46% 4.38% 4.03%
Portfolio turnover 399% 95% 212% 188% 89% 41%
(1) As required, effective December 1, 2001, the Portfolio has adopted the
provisions of the AICPA Audit and Accounting Guide for Investment Companies
that requires 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) Ratios and portfolio turnover have been annualized and total return has not
been annualized.
(3) The average shares outstanding method has been applied for per share
information.
(4) 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 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 DELAWARE DIVIDEND INCOME FUND
TO FINANCIAL STATEMENTS May 31, 2005 (Unaudited)
Delaware Group Equity Funds V (the "Trust") is organized as a Delaware statutory
trust and offers three series: Delaware Dividend Income Fund, Delaware Small Cap
Core Fund (formerly 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 8 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 the potential for capital appreciation.
1. SIGNIFICANT ACCOUNTING POLICIES
The following accounting policies are in accordance with U.S. generally accepted
accounting principles and are consistently followed by the Fund.
Security Valuation -- Equity securities, except those traded on the Nasdaq Stock
Market, Inc. (NASDAQ), are valued at the last quoted sales price as of the time
of the regular close of the New York Stock Exchange (NYSE) on the valuation
date. Securities traded on the NASDAQ are valued in accordance with the NASDAQ
Official Closing Price, which may not be the last sales price. If on a
particular day an equity security does not trade, then the mean between 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
Funds' 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
Fund on the basis of daily net assets of each class. Distribution expenses
relating to a specific class are charged directly to that class.
Repurchase Agreements -- The Fund may invest in a pooled cash account along with
other members of the Delaware Investments Family of Funds pursuant to an
exemptive order issued by the Securities and Exchange Commission. 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
U.S. generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from those estimates.
Other -- Expenses common to all funds within the Delaware Investments Family of
Funds are allocated amongst the funds on the basis of average net assets.
Management fees and some other expenses are paid monthly. Security transactions
are recorded on the date the securities are purchased or sold (trade date).
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. The Fund declares and pays dividends from net
investment income quarterly and distributions from net realized gain on
investments, if any, annually.
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 period ended May 31, 2005 were approximately $3,282. The expense
paid under the above arrangement is included in custodian fees on the Statement
of Operations with the corresponding expense offset shown as "expense paid
indirectly."
2. INVESTMENT MANAGEMENT, ADMINISTRATION AGREEMENTS AND OTHER TRANSACTIONS WITH
AFFILIATES
In accordance with the terms of its investment
management agreement, the Fund pays Delaware Management Company (DMC), a series
of Delaware Management Business Trust and the investment manager, an annual fee
which is calculated daily at a 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 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 of the Fund through March 31, 2006.
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.
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 Class R shares. DDLP
has contracted to waive distribution and service fees through March 31, 2006 in
order to prevent distribution and service fees of Class A shares from exceeding
0.25% of average daily net assets. Institutional Class shares pay no
distribution and service expenses.
14
NOTES DELAWARE DIVIDEND INCOME FUND
TO FINANCIAL STATEMENTS (CONTINUED)
2. INVESTMENT MANAGEMENT, ADMINISTRATION AGREEMENTS AND OTHER TRANSACTIONS WITH
AFFILIATES (CONTINUED)
At May 31, 2005, the Fund had liabilities payable to affiliates as follows:
Investment management fee payable to DMC $149,323
Dividend disbursing, transfer agent fees,
accounting and administration fees and
other expenses payable to DSC 142,151
Other expenses payable to DMC and affiliates* 97,467
*DMC, as part of its administrative services, pays operating expenses on behalf
of the Fund and is reimbursed on a periodic basis. Such expenses include items
such as printing of shareholder reports, fees for audit, legal and tax services,
registration fees and trustees' fees.
As provided in the investment management agreement, the Fund bears the cost of
certain legal services expenses, including internal legal services provided to
the Fund by DMC employees. For the six months ended May 31, 2005, the Delaware
Dividend Income Fund was charged $7,935 for internal legal services provided by
DMC.
For the six months ended May 31, 2005, DDLP earned $245,884 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 six months ended May 31, 2005, the Fund made purchases of $279,305,437
and sales of $163,412,156 of investment securities other than short-term
investments.
At May 31, 2005, the cost of investments for federal income tax purposes has
been estimated since the final tax characteristics cannot be determined until
fiscal year end. At May 31, 2005, the cost of investments was $334,568,950. At
May 31, 2005, the net unrealized appreciation was $153,807 of which $12,087,601
related to unrealized appreciation of investments and $11,933,794 related to
unrealized depreciation of investments.
4. DIVIDEND AND DISTRIBUTION INFORMATION
Income and long-term capital gain distributions are determined in accordance
with federal income tax regulations, which may differ from U.S. generally
accepted accounting principles. Additionally, net short-term gains on sales of
investment securities are treated as ordinary income for federal income tax
purposes. The tax character of dividends and distributions paid during the six
months ended May 31, 2005 and the year ended November 30, 2004 was as follows:
Six Months Year
Ended Ended
5/31/05* 10/31/04
------------ -----------
Ordinary income $5,295,844 $2,717,844
Long-term capital gain 149,381 --
------------ -----------
Total $5,445,225 $2,717,844
------------ -----------
*Tax information for the six months ended May 31, 2005 is estimated and the tax
character of dividends and distributions may be redesignated at fiscal year end.
The components of net assets are estimated since final tax characteristics
cannot be determined until fiscal year end. As of May 31, 2005, the estimated
components of net assets on a tax basis were as follows:
Shares of beneficial interest $333,105,990
Undistributed ordinary income 4,348,598
Undistributed long-term capital gains 1,980,480
Unrealized appreciation of investments 153,807
-------------
Net assets $339,588,875
=============
For financial reporting purposes, capital accounts are adjusted to reflect the
tax character of permanent book/tax differences. For the six months ended May
31, 2005, the Fund recorded an estimate of these differences since the final tax
characteristics cannot be determined until fiscal year end. Reclassifications
are primarily due to tax treatment of market discounts and premiums on certain
debt instruments. Results of operations and net assets were not affected by
these reclassifications.
Undistributed net investment income $479,649
Accumulated net realized gain (loss) (479,649)
5. CAPITAL SHARES
Transactions in capital shares were as follows:
Six Months Year
Ended Ended
5/31/05 11/30/04
Shares sold:
Class A 6,781,652 9,774,324
Class B 1,455,043 2,806,174
Class C 4,474,299 7,203,243
Class R 41,207 33,044
Institutional Class 28,274 8,765
Shares issued upon reinvestment of
dividends and distributions:
Class A 206,179 101,364
Class B 50,189 26,108
Class C 131,164 57,292
Class R 991 455
Institutional Class 527 12,554
---------- ----------
13,169,525 20,023,323
---------- ----------
Shares repurchased:
Class A (1,145,794) (917,417)
Class B (198,479) (127,032)
Class C (637,884) (251,612)
Class R (1,046) --
Institutional Class (4,393) (391,674)
---------- ----------
(1,987,596) (1,687,735)
---------- ----------
Net increase 11,181,929 18,335,588
========== ==========
For the six months ended May 31, 2005 and the year ended November 30, 2004,
29,369 Class B shares were converted to 29,341 Class A shares valued at $324,155
and 24,503 Class B shares were converted to 24,480 Class A shares valued at
$262,099, respectively. The respective amounts are included in Class B
redemptions and Class A subscriptions in the table above and the Statements of
Changes in Net Assets.
15
NOTES DELAWARE DIVIDEND INCOME FUND
TO FINANCIAL STATEMENTS (CONTINUED)
6. LINE OF CREDIT
The Fund, along with certain other funds in the Delaware Investments Family of
Funds (the "Participants"), participates in a $183,100,000 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 at May 31, 2005, or at any time during the
period.
7. CREDIT AND MARKET RISKS
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. At
May 31, 2005, 144A securities represented approximately 9.62% of total assets.
144A securities comprising 0.06% of total assets have been determined to be
illiquid securities under the Fund's Liquidity Procedures. While maintaining
oversight, the Board of Trustees has delegated to the investment adviser the
day-to-day functions of determining whether individual Rule 144A securities are
liquid for purposes of a fund's limitation on investments in illiquid assets.
Illiquid securities, if any, have been denoted on the Statement of Net Assets.
The Fund invests a portion of its assets in high-yield fixed-income securities,
which carry ratings of BBB or lower by Standard & Poor's Ratings Group and/or
Baa or lower by Moody's Investor Services, Inc. Investments in these higher
yielding securities are generally accompanied by a greater degree of credit risk
than higher rated securities. Additionally, lower rated securities may be more
susceptible to adverse economic and competitive industry conditions than
investment grade securities.
The Fund invests in 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 period ended May 31, 2005.
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.
8. CONTRACTUAL OBLIGATIONS
The Fund enters into contracts in the normal course of business that contain a
variety of indemnifications. The Fund's maximum exposure under these
arrangements is unknown. However, the Fund has not had prior claims or losses
pursuant to these contracts. Management has reviewed the Fund's existing
contracts and expects the risk of loss to be remote.
16
OTHER DELAWARE DIVIDEND INCOME FUND
FUND INFORMATION
The shareholders of Delaware Group Equity Funds V (the "Trust") approved on the
following proposals at the special meeting of shareholders on March 23, 2005 or
as adjourned. The description of each proposal and number of shares voted are as
follows:
1. To elect a Board of Trustees for the Trust (shareholders of all series of the
Trust voting together).
Shares Voted
Shares Voted For Withhold Authority
---------------- -------------------
Thomas L. Bennett 18,156,829 445,948
Jude T. Driscoll 18,162,841 439,936
John A. Fry 18,168,910 433,866
Anthony D. Knerr 18,156,910 445,867
Lucinda S. Landreth 18,162,718 440,059
Ann R. Leven 18,155,177 447,600
Thomas F. Madison 18,153,700 449,700
Janet L. Yeomans 18,172,872 429,905
J. Richard Zecher 18,163,732 439,044
2. To approve the use of a "manager of managers" structure whereby the
investment manager of the Funds will be able to hire and replace subadvisers
without shareholder approval.
For Against Abstain Broker Non-Votes
---- ------- ------- ----------------
Delaware Dividend Income Fund 8,364,100 418,309 285,313 2,285,724
SUBSEQUENT EVENT NOTE - FUND MERGER
On June 24, 2005, the Dividend Income Fund completed the acquisition of the net
assets of Lincoln National Convertible Securities Fund, Inc. ("LNV Fund")
pursuant to a plan of reorganization approved by the shareholders of LNV Fund at
a reconvened Special Meeting of Shareholders held on June 16, 2005. The
transaction, which is structured as a tax-free reorganization, entailed (i) the
acquisition of all of the assets of LNV Fund by Dividend Income Fund in exchange
for Class A shares of Dividend Income Fund and (ii) the pro rata distribution of
such shares to LNV Fund's shareholders in exchange for their shares of LNV Fund.
LNV Fund was a closed-end, diversified investment management company managed by
Delaware Management Company. Delaware Management Company is a series of Delaware
Management Business Trust, a wholly owned subsidiary of Lincoln National
Corporation. As of June 22, 2005, LNV Fund had total assets of approximately
$85.5 million.
17
OTHER DELAWARE DIVIDEND INCOME FUND
FUND INFORMATION (CONTINUED)
BOARD CONSIDERATION OF DELAWARE DIVIDEND INCOME FUND INVESTMENT ADVISORY
AGREEMENT
At a meeting held on May 18-19, 2005 (the "Annual Meeting"), the Board of
Trustees, including a majority of disinterested or independent Trustees,
approved the renewal of the Investment Advisory Agreement for the Delaware
Dividend Income Fund (the "Fund"). In making its decision, the Board considered
information furnished throughout the year at regular Board meetings, as well as
information prepared specifically in connection with the Annual Meeting.
Information furnished and discussed throughout the year included reports
detailing Fund performance, investment strategies, expenses, compliance matters
and other services provided by Delaware Management Company ("DMC"), the Fund's
investment adviser. Information furnished specifically in connection with the
Annual Meeting included materials provided by DMC and its affiliates ("Delaware
Investments(R)") concerning, among other things, the level of services provided
to the Fund, the costs of such services to the Fund, economies of scale and the
financial condition and profitability of Delaware Investments. In addition, in
connection with the Annual Meeting, the Board separately received and reviewed
independent historical and comparative reports prepared by Lipper Inc.
("Lipper"), an independent statistical compilation organization. The Lipper
reports compared the Fund's investment performance and expenses with those of
other comparable mutual funds. The Board also requested and received certain
supplemental information regarding management's policy with respect to advisory
fee levels and its philosophy with respect to breakpoints; the structure of
portfolio manager compensation; the investment manager's profitability organized
by client type, including the Fund; and any constraints or limitations on the
availability of securities in certain investment styles which might inhibit the
adviser's ability to fully invest in accordance with the Fund's policies.
In considering such materials, the independent Trustees received assistance and
advice from and met separately with independent counsel and representatives from
Lipper. At the meeting with representatives from Lipper, Jude Driscoll, Chairman
of the Delaware Investments Family of Funds, and Chairman and Chief Executive
Officer of the investment adviser, was present to respond to questions raised by
Lipper and the independent Trustees. While the Board considered the Investment
Advisory Agreements for all of the funds in the Delaware Investments Family of
Funds at the same Board meeting, information was provided and considered by the
Board for each fund individually. In approving the continuance of the Investment
Advisory Agreement for the Fund, the Board, including a majority of independent
Trustees, determined that the existing advisory fee structure was fair and
reasonable and that the continuance of the Investment Advisory Agreement was in
the best interests of the Fund and its shareholders. While attention was given
to all information furnished, the following discusses the primary factors
relevant to the Board's deliberations and determination, including those
relating to the selection of the investment adviser and the approval of the
advisory fee.
NATURE, EXTENT AND QUALITY OF SERVICE. Consideration was given to the services
provided by Delaware Investments to the Fund and its shareholders. In reviewing
the nature, extent and quality of services, the Board emphasized reports
furnished to it throughout the year at regular Board Meetings covering matters
such as the compliance of portfolio managers with the investment policies,
strategies and restrictions for the Fund, the compliance of management personnel
with the Code of Ethics adopted throughout the Delaware Investments Family of
Funds complex, the adherence to fair value pricing procedures as established by
the Board, and the accuracy of net asset value calculations. The Board noted
that it was pleased with the current staffing of the Fund's investment adviser
during the past year, the emphasis on research and the compensation system for
advisory personnel. Favorable consideration was given to DMC's efforts to
maintain, and in some instances increase, financial and human resources
committed to fund matters. Other factors taken into account by the Board were
Delaware Investments' preparedness for, and response to, legal and regulatory
matters. The Board also considered the transfer agent and shareholder services
provided to Fund shareholders by Delaware Investments' affiliate, Delaware
Service Company, Inc., noting the receipt by such affiliate of the DALBAR
Pyramid Award in four of the last six years and the continuing expenditures by
Delaware Investments to increase and improve the scope of shareholder services.
Additionally, the Board noted the extent of benefits provided to Fund
shareholders for being part of the Delaware Investments Family of Funds,
including the privilege to exchange investments between the same class of funds
without a sales charge, the ability to reinvest Fund dividends into other funds
and the privilege to combine holdings in other funds to obtain a reduced sales
charge. The Board was satisfied with the nature, extent and quality of the
overall services provided by Delaware Investments.
INVESTMENT PERFORMANCE. The Board considered the investment performance of DMC
and the Fund. The Board was pleased by DMC's investment performance, noting
Barron's ranking of the Delaware Investments Family of Funds in the top quartile
of mutual fund families for 2002 - 2004. The Board placed significant emphasis
on the investment performance of the Fund in view of its importance to
shareholders. While consideration was given to performance reports and
discussions with portfolio managers at Board meetings throughout the year,
particular attention in assessing performance was given to the Lipper reports
furnished for the Annual Meeting. The Lipper reports prepared for the Fund
showed the investment performance of its Class A shares in comparison to a group
of similar funds as selected by Lipper (the "Performance Universe"). A fund with
the highest performance is ranked first, and a fund with the lowest is ranked
last. The highest/best performing 25% of funds in the Performance Universe make
up the first quartile; the next 25% - the second quartile; the next 25% - the
third quartile; and the lowest/worst performing 25% of funds in the Performance
Universe make up the fourth quartile. Comparative annualized performance for the
Fund was shown for the past one, three and five year periods ended February 28,
2005. The Board noted its objective that the Fund's performance be at or above
the median of its Performance Universe. The following paragraph summarizes the
performance results for the Fund and the Board's view of such performance.
The Performance Universe for this Fund consisted of the Fund and all retail and
institutional income funds as selected by Lipper. The Lipper report comparison
showed that the Fund's total return for the one, three and five year periods was
in the first quartile of such Performance Universe. The Board was satisfied with
such performance.
18
OTHER DELAWARE DIVIDEND INCOME FUND
FUND INFORMATION (CONTINUED)
BOARD CONSIDERATION OF DELAWARE DIVIDEND INCOME FUND INVESTMENT ADVISORY
AGREEMENT (CONTINUED)
COMPARATIVE EXPENSES. The Board considered expense comparison data for the
Delaware Investments Family of Funds, Delaware Investments' institutional
separate account business and other lines of business at Delaware Investments.
The Board stated its belief that, given the differing level of service provided
to Delaware Investments' various clients and other factors that related to the
establishment of fee levels, variations in the levels of fees and expenses were
justified. The Board placed significant emphasis on the comparative analysis of
the management fees and total expense ratios of the Fund compared with those of
a group of similar funds as selected by Lipper (the "Expense Group") and among
the other Delaware Investments funds. In reviewing comparative costs, the Fund's
contractual management fee and the actual management fee incurred by the Fund
were compared with the contractual management fees (assuming all funds in the
Expense Group were similar in size to the Fund) and actual management fees (as
reported by each fund) of other funds within the Expense Group, taking into
effect any applicable breakpoints and fee waivers. The Fund's total expenses
were also compared with those of its Expense Group. The Lipper total expenses,
for comparative consistency, were shown by Lipper for Class A shares and
compared total expenses including 12b-1 and non-12b-1 service fees. The Board
noted its objective to limit the Fund's total expense ratio to an acceptable
range as compared to the median of the Expense Group. The following paragraph
summarizes the expense results for the Fund and the Board's view of such
expenses.
Such expense comparisons for the Fund showed that its management fee and total
expenses were in the quartile with the lowest expenses of its Expense Group. The
Board was satisfied with the management fees and total expenses of the Fund in
comparison to its Expense Group as shown in the Lipper report.
MANAGEMENT PROFITABILITY. The Board considered the level of profits, if any,
realized by Delaware Investments(R) in connection with the operation of the
Fund. In this respect, the Board reviewed the Investment Management
Profitability Analysis that addressed the overall profitability of Delaware
Investments' business in providing management and other services to each of the
individual funds and the Delaware Investments Family of Funds as a whole.
Specific attention was given to the methodology followed in allocating costs for
the purpose of determining profitability. Management stated that the level of
profits of Delaware Investments, to a certain extent, reflected operational cost
savings and efficiencies initiated by Delaware Investments. The Board considered
Delaware Investments' expenditures to improve services provided to fund
shareholders and to meet additional regulatory and compliance requirements
resulting from the Sarbanes-Oxley Act and recent SEC initiatives. The Board also
considered the extent to which Delaware Investments might derive ancillary
benefits from fund operations, including the potential for procuring additional
business as a result of the prestige and visibility associated with its role as
service provider to the Delaware Investments Family of Funds, the benefits from
allocation of fund brokerage to improve trading efficiencies and the use of
"soft" commission dollars to pay for proprietary and non-proprietary research.
At the Board's request, management also provided information relating to
Delaware Investments' profitability by client type. The information provided set
forth the revenue, expenses and pre-tax income/loss attributable to the Delaware
Investments Family of Funds, Delaware Investments' separate account business and
other lines of business at Delaware Investments. Emphasis was given to the level
and type of service provided to the various clients. The Board was satisfied
with the level of profits realized by Delaware Investments from the
relationships with the Fund and the Delaware Investments Family of Funds.
ECONOMIES OF SCALE. The Trustees considered whether economies of scale are
realized by Delaware Investments as the Fund's assets increase and the extent to
which any economies of scale are reflected in the level of management fees
charged. The Trustees took into account the standardized advisory fee pricing
and structure approved by the Board and shareholders as part of a complex-wide
shareholder meeting conducted in 1998/1999. At that time, Delaware Investments
introduced breakpoints to account for management economies of scale. The Board
noted that the fee under the Fund's management contract fell within the standard
structure. Although the Fund has not reached a size at which it can take
advantage of breakpoints, the Board recognized that the fee was structured so
that when the Fund grows, economies of scale may be shared.
19
This page intentionally left blank.
Delaware
Investments(R)
- -----------------------------------
A member of Lincoln Financial Group
This semiannual report is for the information of Delaware Dividend Income Fund
shareholders, but it may be used with prospective investors when preceded or
accompanied by a current prospectus for Delaware Dividend Income Fund and the
Delaware Investments Performance Update for the most recently completed calendar
quarter. The prospectus sets forth details about charges, expenses, investment
objectives, and operating policies of the Fund. You should read the prospectus
carefully before you invest. The figures in this report represent past results
that are not a guarantee of future results. The return and principal value of an
investment in the Fund will fluctuate so that shares, when redeemed, may be
worth more or less than their original cost.
BOARD OF TRUSTEES
JUDE T. DRISCOLL
Chairman
Delaware Investments Family of Funds
Philadelphia, PA
THOMAS L. BENNETT
Private Investor
Rosemont, PA
JOHN A. FRY
President
Franklin & Marshall College
Lancaster, PA
ANTHONY D. KNERR
Managing Director
Anthony Knerr & Associates
New York, NY
LUCINDA S. LANDRETH
Former Chief Investment Officer
Assurant, Inc.
Philadelphia, PA
ANN R. LEVEN
Former Treasurer/Chief Fiscal Officer
National Gallery of Art
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
J. RICHARD ZECHER
Founder
Investor Analytics
Scottsdale, AZ
AFFILIATED OFFICERS
MICHAEL P. BISHOF
Senior Vice President and
Chief Financial Officer
Delaware Investments Family of Funds
Philadelphia, PA
RICHELLE S. MAESTRO
Executive Vice President,
Chief Legal Officer and Secretary
Delaware Investments Family of Funds
Philadelphia, PA
JOHN J. O'CONNOR
Senior Vice President and Treasurer
Delaware Investments Family of Funds
Philadelphia, PA
CONTACT INFORMATION
Investment Manager
Delaware Management Company,
a Series of Delaware Management Business Trust
Philadelphia, PA
NATIONAL DISTRIBUTOR
Delaware Distributors, L.P.
Philadelphia, PA
SHAREHOLDER SERVICING, DIVIDEND
DISBURSING AND TRANSFER AGENT
Delaware Service Company, Inc.
2005 Market Street
Philadelphia, PA 19103-7094
FOR SHAREHOLDERS
800 523-1918
FOR SECURITIES DEALERS AND FINANCIAL
INSTITUTIONS REPRESENTATIVES ONLY
800 362-7500
WEB SITE
www.delawareinvestments.com
- --------------------------------------------------------------------------------
The Fund files its complete schedule of portfolio holdings with the Securities
and Exchange Commission for the first and third quarters of each fiscal year on
Form N-Q. The Fund's Forms N-Q, as well as a description of the policies and
procedures that the Fund uses to determine how to vote proxies (if any) relating
to portfolio securities is available without charge (i) upon request, by calling
800 523-1918; (ii) on the Fund's Web site at http://www.delawareinvestments.com;
and (iii) on the Commission's Web site at http://www.sec.gov. The Fund's Forms
N-Q may be reviewed and copied at the Commission's Public Reference Room in
Washington, DC; information on the operation of the Public Reference Room may be
obtained by calling 1-800-SEC-0330.
Information (if any) regarding how the Fund voted proxies relating to portfolio
securities during the most recently disclosed 12-month period ended June 30 is
available without charge (i) through the Fund's Web site at
http://www.delawareinvestments.com; and (ii) on the Commission's Web site at
http://www.sec.gov.
- --------------------------------------------------------------------------------
(9486) Printed in the USA
SA-129-[5/05]IVES 7/05 MF-05-06-093 PO 10243
Delaware
Investments(R)
-----------------------------------
A member of Lincoln Financial Group
SEMIANNUAL REPORT 2005 MAY 31, 2005
- --------------------------------------------------------------------------------
DELAWARE SMALL CAP CORE FUND
[LOGO]
POWERED BY RESEARCH.(SM)
May 11, 2005
Dear Shareholder:
In the first four months of 2005, we saw the U.S. economy continue to grow,
leading the Federal Reserve to keep in place its approach of "measured" interest
rate increases. For the six months ended May 31, 2005, the stock and bond
markets generated modest performances. A benchmark for equities of large
companies based in the United States, the Standard & Poor's 500 Index, returned
+2.42%. By way of comparison, domestic bonds, as measured by the Lehman Brothers
Aggregate Bond Index, experienced a slightly greater return of +2.90% (source:
Lipper Inc.)
A NEW YEAR IS OFTEN A TIME OF REFLECTION AND FOR LOOKING FORWARD TO THE FUTURE.
This is especially true at Delaware Investments(R) this year. As part of Lincoln
Financial Group(R), Delaware Investments began a yearlong celebration of 100
years of Lincoln history, 75+ years of Delaware history and the past 10 years
together. Today Delaware Investments is recognized as an integral part of
Lincoln Financial Group's ability to offer a broad variety of high quality
financial solutions for investors.
In assessing the rest of the year, we believe there will be positive economic
growth, although at a more moderate pace than what we experienced in 2004.
Containment of oil prices, along with modest inflation expectations, may help
foster this growth.
Our views on interest rates, oil prices and the intermediate-term outlook for
the U.S. economy impact the way we invest our portfolios. MOST IMPORTANTLY,
THOUGH, DELAWARE INVESTMENTS IS AN ASSET MANAGEMENT COMPANY COMMITTED TO
FUNDAMENTAL, STYLE-SPECIFIC INVESTMENT RESEARCH ACROSS THE MULTIPLE ASSET
CLASSES IN WHICH WE INVEST. We rely on our in-depth proprietary research,
carefully weighing the risks and potential returns of individual securities, to
achieve a goal of creating long-term out-performance. From our determined
beginnings at the start of the Great Depression, we've learned how important
consistent performance is to our clients.
As we look forward to the rest of 2005, a final reflection: We recognize that
employees are a competitive advantage in a service-based industry such as
investment management. AT DELAWARE INVESTMENTS, WE'RE PROUD OF OUR PEOPLE. It is
their dedication to and passion for our business that drives our success. We
recently welcomed a new investment management team to Delaware. The addition of
our Focus Growth Equity Team, based in San Francisco, brings additional strength
to our growth-oriented investment capabilities and also provides Delaware
Investments with a west coast presence that includes a second equity trading
floor. As our capabilities at Delaware Investments grow, so does our passion for
our business.
All of us at Delaware Investments thank you for your continued support. Join us
as we welcome the future with a legacy of commitment that continues to focus on
you.
Sincerely,
/s/ Jude T. Driscoll
Jude T. Driscoll
Chairman
Delaware Investments Family of Funds
DISCLOSURE
OF FUND EXPENSES
As a shareholder of a fund, you incur two types of costs (1) transaction costs,
including sales charges (loads) on purchase payments, reinvested dividends, or
other distributions; redemption fees; end exchange fees; and (2) ongoing costs,
including management fees; distribution, and/or service (12b-1) fees; and other
fund expenses. This Example is intended to help you understand your ongoing
costs (in dollars) of investing in a fund and to compare these costs with the
ongoing costs of investing in other mutual funds.
The Example is based on an investment of $1,000 invested at the beginning of the
period and held for the entire period from December 1, 2004 to May 31, 2005.
ACTUAL EXPENSES
The first section of the table shown, "Actual Fund Return," provides information
about actual account values and actual expenses. You may use the information in
this section together with the amount you invested, to estimate the expenses
that you paid over the period. Simply divide your account value by $1,000 (for
example, an $8,600 account value divided by $1,000 = 8.6), then multiply the
result by the number in the first section under the heading entitled "Expenses
Paid During Period" to estimate the expenses you paid on your account during the
period.
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The second section of the table shown, "Hypothetical 5% Return," provides
information about hypothetical account values and hypothetical expenses based on
a fund's actual expense ratio and an assumed rate of return of 5% per year
before expenses, which is not the Fund's actual return. The hypothetical account
values and expenses may not be used to estimate the actual ending account
balance or expenses you paid for the period. You may use this information to
compare the ongoing costs of investing in the fund and other funds. To do so,
compare the 5% hypothetical example with the 5% hypothetical examples that
appear in the shareholder reports of other funds.
Please note that the expenses shown in the table are meant to highlight your
ongoing costs only and do not reflect any transactional costs, such as sales
charges (loads), redemption fees, or exchange fees. Therefore, the second
section of the table is useful in comparing ongoing costs only, and will not
help you determine the relative total costs of owning different funds. In
addition, if these transactional costs were included, your costs would have been
higher. The Fund's actual expenses shown in the table reflect fee waivers in
effect. The expenses shown in the table assume reinvestment of all dividends and
distributions.
DELAWARE SMALL CAP CORE FUND
EXPENSE ANALYSIS OF AN INVESTMENT OF $1,000
Expense
Beginning Ending Paid During
Account Account Annualized Period
Value Value Expense 12/1/04 to
12/1/04 5/31/05 Ratio 5/31/05
- ----------------------------------------------------------------------------------------------------------------
ACTUAL FUND RETURN
Class A $1,000.00 $1,005.20 0.78% $3.90
Institutional Class 1,000.00 1,005.20 0.78% 3.90
- ----------------------------------------------------------------------------------------------------------------
HYPOTHETICAL 5% RETURN (5% return before expenses)
Class A $1,000.00 $1,021.04 0.78% $3.93
Institutional Class 1,000.00 1,021.04 0.78% 3.93
- ----------------------------------------------------------------------------------------------------------------
*EXPENSES ARE EQUAL TO THE FUND'S ANNUALIZED EXPENSE RATIO, MULTIPLIED BY THE
AVERAGE ACCOUNT VALUE OVER THE PERIOD, MULTIPLIED BY 182/365 (TO REFLECT THE
ONE-HALF YEAR PERIOD).
SECTOR ALLOCATION As of May 31, 2005
DELAWARE SMALL CAP CORE FUND
The SEC adopted a requirement that all funds present their categories of
portfolio holdings in a table, chart, or graph format in their annual and
semiannual shareholder report, whether or not a schedule of investments is
utilized. The following chart lists the Fund's categories of portfolio holdings
as a percentage of total net assets and is provided in compliance with such
requirement.
PERCENTAGE
SECTOR OF NET ASSETS
- ----------------------------------------------------------------------
COMMON STOCK 98.25%
- ----------------------------------------------------------------------
Basic Materials 5.96%
Business Services 5.43%
Capital Goods 8.39%
Consumer Discretionary 6.34%
Consumer Services 2.72%
Consumer Staples 2.16%
Credit Cyclicals 3.51%
Energy 5.70%
Finance 15.36%
Healthcare 13.00%
Media 2.60%
REITs 5.34%
Technology 17.23%
Transportation 1.87%
Utilities 2.64%
- ----------------------------------------------------------------------
REPURCHASE AGREEMENTS 1.85%
- ----------------------------------------------------------------------
TOTAL MARKET VALUE OF SECURITIES 100.10%
- ----------------------------------------------------------------------
LIABILITIES NET OF RECEIVABLES AND OTHER ASSETS (0.10%)
- ----------------------------------------------------------------------
TOTAL NET ASSETS 100.00%
- ----------------------------------------------------------------------
STATEMENT OF DELAWARE SMALL CAP CORE FUND
NET ASSETS May 31, 2005 (Unaudited)
Number of Market
Shares Value
COMMON STOCK- 98.25%
Basic Materials - 5.96%
Aceto 1,500 $ 10,905
+AK Steel Holding 2,100 16,065
Ameron International 300 9,900
+Century Aluminum 800 17,928
Crompton 2,000 30,700
Cytec Industries 600 24,996
Ferro 600 11,544
+FMC 600 33,270
+Maverick Tube 900 27,189
+NS Group 800 23,056
+PolyOne 3,100 20,832
+USG 600 27,510
Wausau-Mosinee Paper 1,400 17,500
Worthington Industries 900 15,084
---------
286,479
---------
Business Services - 5.43%
Administaff 1,400 29,904
Clark 1,100 15,950
Gevity HR 600 10,290
Harland (John H.) 500 18,835
Healthcare Services Group 1,200 22,440
+ITT Educational Services 200 9,078
+Labor Ready 1,500 30,960
McGrath RentCorp 800 18,440
+NCO Group 700 13,902
+Sourcecorp 700 14,987
UniFirst 500 18,300
+United Stationers 500 24,515
+Universal Technical Institute 300 9,165
+West 700 24,598
---------
261,364
---------
Capital Goods - 8.39%
Acuity Brands 900 22,095
+AGCO 1,200 22,032
Applied Industrial Technologies 450 13,698
+Aviall 600 18,468
Barnes Group 500 15,340
Briggs & Stratton 700 23,702
DRS Technologies 500 23,540
+Flowserve 500 14,735
+Genlyte Group 600 26,736
+Griffon 500 9,965
Helix Technology 1,200 15,132
Hughes Supply 400 10,400
+Kadant 500 10,250
Lawson Products 500 21,400
Lincoln Electric Holdings 500 16,380
NN 1,100 13,959
+Orbital Sciences 1,700 16,507
Oshkosh Truck 100 7,974
+Rofin-Sinar Technologies 400 12,920
+Terex 800 31,616
Toro 600 25,830
Watsco 700 30,933
---------
403,612
---------
STATEMENT
OF NET ASSETS (CONTINUED) Number of Market
Shares Value
COMMON STOCK (continued)
Consumer Discretionary - 6.34%
+Aeropostale 800 $ 21,800
+AnnTaylor Stores 800 20,608
+Brookstone 900 18,126
+Charming Shoppes 2,700 24,381
+Conn's 1,100 20,999
Finish Line Class A 1,400 27,888
+GameStop 1,100 32,076
Goody's Family Clothing 1,300 9,230
+Guitar Center 500 28,495
+JOS A Bank Clothiers 600 23,652
+Pacific Sunwear of California 1,100 23,100
Stride Rite 1,300 15,457
+Tempur-Pedic International 1,000 23,330
Yankee Candle 500 15,775
---------
304,917
---------
Consumer Services - 2.72%
+Argosy Gaming 500 23,185
CKE Restaurants 1,400 23,100
+ExpressJet Holdings 1,500 12,945
IHOP 600 28,566
Lone Star Steakhouse & Saloon 600 18,126
+Papa John's International 300 11,700
+Penn National Gaming 400 13,028
---------
130,650
---------
Consumer Staples - 2.16%
Chiquita Brands International 600 17,448
Lancaster Colony 300 13,182
Longs Drug Stores 400 16,416
Nu Skin Enterprises Class A 1,000 22,590
Ralcorp Holdings 500 19,070
Sanderson Farms 400 15,160
---------
103,866
---------
Credit Cyclicals - 3.51%
ArvinMeritor 700 10,080
Beazer Homes USA 600 32,076
+Jacuzzi Brands 2,300 23,483
M/I Homes 400 20,192
+Meritage 400 29,088
Monaco Coach 1,000 16,410
Standard-Pacific 200 16,024
Thor Industries 700 21,252
---------
168,605
---------
Energy - 5.70%
+Forest Oil 900 35,784
Holly 800 30,584
+Meridian Resource 4,500 20,385
+Oceaneering International 600 21,900
+Offshore Logistics 600 18,792
+Oil States International 1,300 30,108
+Spinnaker Exploration 700 21,469
+Stone Energy 300 12,909
+Universal Compression Holdings 600 20,520
+Veritas DGC 900 24,300
+W-H Energy Services 1,000 21,670
World Fuel Services 600 15,810
---------
274,231
---------
STATEMENT
OF NET ASSETS (CONTINUED) Number of Market
Shares Value
COMMON STOCK (continued)
Finance - 15.36%
+Affiliated Managers Group 500 $ 33,350
American Home Mortgage Investment 700 22,792
AmerUs Group 500 23,795
Bancfirst 200 15,748
City Holding 500 16,890
Commercial Capital Bancorp 1,300 22,035
+CompuCredit 800 25,224
Delphi Financial Group Class A 500 21,200
Dime Community Bancshares 1,000 15,100
FBL Financial Group Class A 700 18,725
Financial Federal 700 26,110
First Place Financial Ohio 900 17,721
+FirstFed Financial 300 16,254
Flagstar Bancorp 1,100 21,736
Frontier Financial 1,050 26,145
Greater Bay Bancorp 1,200 30,156
Independent Bank - Michigan 600 16,884
Kansas City Life Insurance 300 14,136
MainSource Financial Group 840 15,347
Merchants Bancshares 700 18,536
+Metris 1,600 20,768
MFA Mortgage Investments 1,500 10,635
+Molina Healthcare 400 17,120
Ohio Casualty 900 21,510
PFF Bancorp 900 26,136
+Piper Jaffray 500 14,135
Presidential Life 800 12,120
Republic Bancorp 1,680 23,192
RLI 600 26,244
+Sierra Health Services 400 26,428
Sterling Bancshares 1,600 21,760
TierOne 1,000 24,125
+Triad Guaranty 200 10,840
Trustmark 1,000 28,570
+United America Indemnity 775 13,214
West Coast Bancorp Oregon 1,100 23,936
---------
738,617
---------
Healthcare - 13.00%
+Adolor 1,100 10,516
+Albany Molecular Research 800 9,528
+Alkermes 1,200 13,920
Alpharma Class A 900 11,583
+American Healthways 600 23,562
+Applera-Celera Genomics 1,400 13,888
+Apria Healthcare Group 600 18,900
Arrow International 600 20,280
+Bio-Rad Laboratories Class A 300 16,164
+Candela 2,300 23,529
+Digene 600 15,096
+Enzo Biochemical 600 9,162
+First Horizon Pharmaceutical 1,400 26,320
+Gen-Probe 400 15,544
+Geron 2,300 18,400
+Immunogen 2,200 13,112
+Kensey Nash 800 21,760
+Kos Pharmaceuticals 400 23,092
+LifePoint Hospitals 500 22,490
+Medarex 1,300 9,854
Mentor 500 20,455
+Noven Pharmaceuticals 1,000 18,000
Owens & Minor 700 21,700
PolyMedica 500 17,550
+Priority Healthcare Class B 800 18,304
+Res-Care 1,800 23,994
+Serologicals 900 19,341
STATEMENT
OF NET ASSETS (CONTINUED) Number of Market
Shares Value
COMMON STOCK (continued)
Healthcare (Continued)
+Sybron Dental Specialties 700 $ 25,949
+Techne 400 18,640
+Telik 1,200 17,112
+United Therapeutics 500 24,980
Vital Signs 300 12,651
West Pharmaceutical Services 1,000 27,840
+Wright Medical Group 800 22,032
---------
625,248
---------
Media - 2.60%
+4Kids Entertainment 1,000 19,000
infoUSA 1,500 18,120
Journal Communications Class A 1,000 16,750
+Lin TV Class A 900 13,095
Media General Class A 200 12,220
+Mediacom Communications 2,600 15,808
+Scholastic 500 18,760
Sinclair Broadcasting Group 1,300 11,453
---------
125,206
---------
Real Estate - 5.34%
Brandywine Realty Trust 600 16,896
Equity Inns 1,800 21,582
First Industrial Realty Trust 500 19,400
Glimcher Realty Trust 700 18,025
Home Properties 500 20,600
HRPT Properties Trust 1,200 14,196
Maguire Properties 600 15,690
National Health Investors 800 21,336
Nationwide Health Properties 900 20,223
Pennsylvania Real Estate Investment Trust 400 17,600
Prentiss Properties Trust 600 20,700
Senior Housing Properties Trust 800 14,392
Shurgard Storage Centers Class A 400 17,460
SL Green Realty 300 18,585
---------
256,685
---------
Technology - 17.23%
+AMIS Holdings 1,200 14,400
+Artesyn Technologies 1,600 13,168
+ASK Jeeves 400 12,164
+Aspect Communications 1,200 11,520
+Aspen Technology 3,200 16,768
+Avid Technology 300 17,592
+Axcelis Technologies 3,500 23,275
+Blackboard 1,200 23,652
+CACI International 400 25,784
+Cymer 700 19,887
+Digital River 500 13,760
+Digitas 1,400 15,498
+Dionex 400 17,940
+DSP Group 400 9,408
+Dycom Industries 800 15,712
+EarthLink 2,000 21,220
FactSet Research Systems 600 19,206
+FileNet 600 16,716
+Internet Security Systems 900 19,980
+iPayment 400 15,256
+j2 Global Communications 500 17,540
+KEMET 2,100 14,700
+Kulicke & Soffa Industries 4,400 25,564
+Mercury Computer Systems 600 17,340
+MTC Technologies 500 16,765
+Multi-Fineline Electronix 700 11,424
+Netgear 1,300 25,571
+OmniVision Technologies 1,400 22,148
+Photronics 1,100 25,333
Plantronics 400 13,768
STATEMENT
OF NET ASSETS (CONTINUED) Number of Market
Shares Value
COMMON STOCK (CONTINUED)
Technology (Continued)
+Progress Software 900 $ 26,253
Quality Systems 400 24,052
+RadiSys 1,300 21,021
+RF Micro Devices 1,500 6,975
+RSA Security 2,100 25,830
+SI International 600 17,010
+Sigmatel 600 13,584
+Skyworks Solutions 2,700 17,091
+Take-Two Interactive Software 1,050 27,048
United Online 900 11,646
+Universal Electronics 800 13,344
+Varian Semiconductor Equipment 700 28,406
+Verint Systems 300 10,500
+Viasat 900 18,261
+WebEx Communications 800 21,488
+Wind River Systems 800 13,112
---------
828,680
---------
Transportation - 1.87%
Arkansas Best 400 13,092
+HUB Group 1,000 27,480
+Pacer International 1,200 27,372
+SCS Transportation 1,200 21,900
---------
89,844
---------
Utilities - 2.64%
Black Hills 500 18,310
Cascade Natural Gas 700 13,454
Cleco 700 14,623
Great Plains Energy 400 12,600
Middlesex Water 500 9,670
Otter Tail 500 12,730
UGI 1,200 31,812
Westar Energy 600 13,842
---------
127,041
---------
TOTAL COMMON STOCK (cost $4,334,031) 4,725,045
---------
Principal
Amount
REPURCHASE AGREEMENTS- 1.85%
With BNP Paribas 2.95% 6/1/05
(dated 5/31/05, to be repurchased
at $51,804, collateralized by $7,600
U.S. Treasury Bills due 9/29/05,
market value $7,500, $6,400 U.S.
Treasury Bills due 10/20/05,
market value $6,342, $11,500 U.S.
Treasury Bills due 11/17/05, market
value $11,363, $7,400 U.S. Treasury
Notes 2.38% due 8/15/06, market
value $7,327, $11,400 U.S. Treasury
Notes 6.50% due 8/15/05, market
value $11,668, and $8,100 U.S.
Treasury Notes 7.00% due 7/15/06,
market value $8,638) $51,800 51,800
With UBS Warburg 2.95% 6/1/05
(dated 5/31/05, to be
repurchased at $37,203,
collateralized by $38,300
U.S. Treasury Notes 2.50%
due 5/31/06, market value $38,003) 37,200 37,200
----------
TOTAL REPURCHASE AGREEMENTS
(cost $89,000) 89,000
----------
TOTAL MARKET VALUE OF SECURITIES - 100.10%
(cost $4,423,031) 4,814,045
LIABILITIES NET OF RECEIVABLES AND
OTHER ASSETS - (0.10%) (4,998)
----------
NET ASSETS APPLICABLE TO 458,593 SHARES
OUTSTANDING - 100.00% $4,809,047
----------
STATEMENT
OF NET ASSETS (CONTINUED)
Net Asset Value - Delaware Small Cap Core
Fund Class A ($22,259 / 2,122 Shares) $ 10.49
----------
Net Asset Value - Delaware Small Cap Core
Fund Institutional Class ($4,786,788 / 456,471 Shares) $ 10.49
-----------
COMPONENTS OF NET ASSETS AT MAY 31, 2005:
Shares of beneficial interest
(unlimited authorization - no par) $4,352,511
Undistributed net investment income 10,286
Accumulated net realized gain on investments 55,236
Net unrealized appreciation of investments 391,014
----------
Total net assets $4,809,047
----------
+Non-income producing security for the period ended May 31, 2005.
SUMMARY OF ABBREVIATIONS:
REIT - Real Estate Investment Trust
NET ASSET VALUE AND OFFERING PRICE PER SHARE -
DELAWARE SMALL CAP CORE FUND
Net asset value Class A (A) $ 10.49
Sales charge (5.75% of offering price) (B) 0.64
----------
Offering price $ 11.13
----------
(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
DELAWARE SMALL CAP CORE STATEMENT OF OPERATIONS
Six Months Ended May 31, 2005
INVESTMENT INCOME:
Dividends $ 24,751
Interest 798 $ 25,549
-----------
EXPENSES:
Management fees 17,693
Distribution expenses - Class A 32
Legal and professional fees 2,358
Pricing fees 705
Registration fees 552
Accounting and administration expenses 543
Custodian fees 449
Taxes (other than taxes on income) 274
Insurance fees 230
Trustees' fees 132
Dividend disbursing and transfer agent fees and expenses 106
Reports and statements to shareholders 104
Other 84 23,262
-----------
Less expenses absorbed or waived (4,870)
Less waiver of distribution expenses - Class A (32)
Less expenses paid indirectly (10)
-----------
Total expenses 18,350
-----------
Net Investment Income 7,199
-----------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain on investments 60,364
Net change in unrealized appreciation/
depreciation of investments (45,858)
-----------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS 14,506
-----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 21,705
===========
See accompanying notes
DELAWARE SMALL CAP CORE FUND
STATEMENTS OF CHANGES IN NET ASSETS
Six Months Year
Ended Ended
5/31/05 11/30/04
-------------- ------------
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS:
Net investment income $ 7,199 $ 8,533
Net realized gain on investments 60,364 1,393,660
Net change in unrealized appreciation/depreciation of investments (45,858) (582,199)
-------------- ------------
Net increase in net assets resulting from operations 21,705 819,994
-------------- ------------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income:
Class A
(34) (43)
Institutional Class
(8,157) (13,285)
Net realized gain on investments:
Class A (5,845) (928)
Institutional Class (1,387,384) (284,732)
-------------- ------------
(1,401,420) (298,988)
-------------- ------------
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares sold:
Class A 2,080 3,904
Institutional Class -- --
Net asset value of shares issued upon reinvestment of dividends and
distributions:
Class A 5,880 971
Institutional Class 1,395,541 298,017
-------------- ------------
1,403,501 302,892
-------------- ------------
Increase in net assets derived from
capital share transactions 1,403,501 302,892
-------------- ------------
Net Increase in Net Assets 23,786 823,898
NET ASSETS:
Beginning of period 4,785,261 3,961,363
-------------- ------------
End of period (including undistributed net investment
income of $5,584 and $6,576, respectively) $ 4,809,047 $ 4,785,261
============== ============
See accompanying notes
FINANCIAL HIGHLIGHTS
Selected data for each share of the Fund outstanding
throughout each period were as follows:
Delaware Small Cap Core Fund Class
- -----------------------------------------------------------------------------------------------------------------------------------
Six Months
Ended Year Ended
5/31/05(1) 11/30/04 11/30/03 11/30/02 11/30/01 11/30/00
NET ASSET VALUE, BEGINNING OF PERIOD $14.600 $13.080 $10.290 $11.130 $ 9.090 $8.930
INCOME FROM INVESTMENT OPERATIONS:
Net investment income(2) 0.016 0.026 0.036 0.079 0.111 0.159
Net realized and unrealized
gain on investments 0.151 2.481 3.350 0.069 2.082 0.720
------- ------- ------- ------- ------- ------
Total from investment operations 0.167 2.507 3.386 0.148 2.193 0.879
------- ------- ------- ------- ------- ------
LESS DIVIDENDS AND DISTRIBUTIONS FROM:
Net investment income (0.025) (0.044) (0.075) (0.108) (0.153) (0.135)
Net realized gain on investments (4.252) (0.943) (0.521) (0.880) -- (0.584)
------- ------- ------- ------- ------- ------
Total dividends and distributions (4.277) (0.987) (0.596) (0.988) (0.153) (0.719)
------- ------- ------- ------- ------- ------
NET ASSET VALUE, END OF PERIOD $10.490 $14.600 $13.080 $10.290 $11.130 $9.090
======= ======= ======= ======= ======= ======
TOTAL RETURN(3) 0.52% 20.62% 35.19% 1.08% 24.42% 10.56%
RATIOS AND SUPPLEMENTAL DATA:
Net assets, end of period (000 omitted) $22 $20 $13 $-- $-- $--
Ratio of expenses to average net assets 0.78% 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 1.28% 1.30% 1.34% 1.34% 1.18% 1.24%
Ratio of net investment income to
average net assets 0.30% 0.20% 0.33% 0.74% 1.07% 1.81%
Ratio of net investment income (loss)
to average net assets prior
to expense limitation and expenses
paid indirectly (0.20%) (0.35%) (0.26%) 0.15% 0.63% 1.32%
Portfolio turnover 39% 136% 44% 76% 82% 125%
(1) 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
FINANCIAL
HIGHLIGHTS (CONTINUED)
Selected data for each share of the Fund outstanding
throughout each period were as follows:
Delaware Small Cap Core Fund Institutional Class
- -----------------------------------------------------------------------------------------------------------------------------------
Six Months
Ended Year Ended
5/31/05(1) 11/30/04 11/30/03 11/30/02 11/30/01 11/30/00
NET ASSET VALUE, BEGINNING OF PERIOD $14.600 $13.080 $10.290 $11.130 $9.090 $8.930
INCOME FROM INVESTMENT OPERATIONS:
Net investment income(2) 0.016 0.026 0.036 0.079 0.111 0.159
Net realized and unrealized
gain on investments 0.151 2.481 3.350 0.069 2.082 0.720
------- ------- ------- ------- ------- ------
Total from investment operations 0.167 2.507 3.386 0.148 2.193 0.879
------- ------- ------- ------- ------- ------
LESS DIVIDENDS AND DISTRIBUTIONS FROM:
Net investment income (0.025) (0.044) (0.075) (0.108) (0.153) (0.135)
Net realized gain on investments (4.252) (0.943) (0.521) (0.880) - (0.584)
------- ------- ------- ------- ------- ------
Total dividends and distributions (4.277) (0.987) (0.596) (0.988) (0.153) (0.719)
------- ------- ------- ------- ------- ------
NET ASSET VALUE, END OF PERIOD $10.490 $14.600 $13.080 $10.290 $11.130 $9.090
======= ======= ======= ======= ======= ======
TOTAL RETURN(3) 0.52% 20.62% 35.19% 1.08% 24.42% 10.56%
RATIOS AND SUPPLEMENTAL DATA:
Net assets, end of period
(000 omitted) $4,787 $4,765 $3,948 $2,921 $2,890 $2,322
Ratio of expenses to
average net assets 0.78% 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 0.98% 1.00% 1.04% 1.04% 0.88% 0.94%
Ratio of net investment income
to average net assets 0.30% 0.20% 0.33% 0.74% 1.07% 1.81%
Ratio of net investment income
(loss) to average net
assets prior to expense
limitation and expenses
paid indirectly 0.10% (0.05%) 0.04% 0.45% 0.93% 1.62%
Portfolio turnover 39% 136% 44% 76% 82% 125%
(1) 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
NOTES
TO FINANCIAL STATEMENTS May 31, 2005 (UNAUDITED)
Delaware Group Equity Funds V (the "Trust") is organized as a Delaware statutory
trust and offers three series: Delaware Dividend Income Fund, Delaware Small Cap
Core Fund and Delaware Small Cap Value Fund. These financial statements and the
related notes pertain to Delaware Small Cap Core Fund (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 8 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 May 31, 2005, 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 U.S. generally accepted
accounting principles and are consistently followed by the Fund.
Security Valuation - Equity securities, except those traded on the Nasdaq Stock
Market, Inc. (NASDAQ), are valued at the last quoted sales price as of the time
of the regular close of the New York Stock Exchange (NYSE) on the valuation
date. Securities traded on the NASDAQ are valued in accordance with the NASDAQ
Official Closing Price, which may not be the last sales price. If on a
particular day an equity security does not trade, then the mean between the bid
and asked prices will be used. Short-term debt securities having less than 60
days to maturity are valued at amortized cost, which approximates market value.
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
U.S. generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from those estimates.
Other - Expenses common to all funds within the Delaware Investments(R) Family
of Funds are allocated amongst the funds on the basis of average net assets.
Management fees and some other expenses are paid monthly. Security transactions
are recorded on the date the securities are purchased or sold (trade date).
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.
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 six months ended May 31, 2005 were approximately $10. 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 1.00% of average daily net assets through December 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.
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 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 May 31, 2005, the Fund had liabilities payable to affiliates as follows:
Investment management fee payable to DMC $2,173
Dividend disbursing, transfer agent,
accounting and administration fees and other
expenses payable to DSC 568
Other expenses payable to DMC and affiliates* 2,040
*DMC, as part of its administrative services, pays operating expenses on behalf
of the Fund and is reimbursed on a periodic basis. Such expenses include items
such as printing of shareholder reports, fees for audit, legal and tax services,
registration fees and trustees' fees.
As provided in the investment management agreement the Fund bears the cost of
certain legal services expenses, including internal legal services provided to
the Fund by DMC employees. For the six months ended May 31, 2005, the Fund was
charged $158 for internal legal services provided by DMC.
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 six months ended May 31, 2005, the Fund made purchases of $922,780 and
sales of $957,757 of investment securities other than short-term investments.
At May 31, 2005, the cost of investments for federal income tax purposes has
been estimated since the final tax characteristics cannot be determined until
fiscal year end. At May 31, 2005, the cost of investments was $4,424,722. At May
31, 2005, the net unrealized appreciation was $389,323 of which $596,163 related
to unrealized appreciation of investments and $206,840 related to unrealized
depreciation of investments.
4. DIVIDEND AND DISTRIBUTION INFORMATION
Income and long-term capital gain distributions are determined in accordance
with federal income tax regulations, which may differ from U.S. generally
accepted accounting principles. The tax character of dividends and distributions
paid during the six months ended May 31, 2005 and the year ended November 30,
2004 were as follows:
5/31/05* 11/30/04
---------------------------------
Ordinary income $ 250,664 $ 94,305
Long-term capital gain 1,150,757 204,683
---------------------------------
Total dividends and distributions $1,401,420 $298,988
---------------------------------
*Tax information for the period ended May 31, 2005 is an estimate and the tax
character of dividends and distributions may be redesignated at fiscal year end.
The components of net assets are estimated since final tax characteristics
cannot be determined until fiscal year end. As of May 31, 2005, the estimated
components of net assets on a tax basis were as follows:
Shares of beneficial interest $4,352,511
Undistributed ordinary income 46,906
Undistributed long-term capital gains 20,307
Unrealized appreciation of investments 389,323
-----------
Net assets $4,809,047
-----------
The difference between book basis and tax basis components of net assets are
primarily attributable to tax deferral of losses on wash.
For financial reporting purposes, capital accounts are adjusted to reflect the
tax character of permanent book/tax differences. For the six months ended May
31, 2005, the Fund recorded an estimate of these differences since the final tax
characteristics cannot be determined until fiscal year end. Reclassifications
are primarily due to tax treatment of distribution differences. Results of
operations and net assets were not affected by these reclassifications.
Undistributed net investment income Accumulated net realized gain (loss)
- ----------------------------------- ------------------------------------
$4,702 $(4,702)
5. CAPITAL SHARES
Transactions in capital shares were as follows:
Six Months
Ended Year Ended
5/31/05 11/30/04
---------- ----------
Shares sold:
Class A 199 312
Shares issued upon reinvestment of
dividends and distributions:
Class A 548 79
Institutional Class 130,182 24,347
---------- ----------
130,929 24,738
---------- ----------
Shares repurchased: -- --
---------- ----------
Class A -- --
---------- ----------
Net increase 130,929 24,735
========== ==========
6. LINE OF CREDIT
The Fund, along with certain other funds in the Delaware Investments(R) Family
of Funds (the "Participants"), participate in a $183,100,000 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 May 31, 2005, or at any time during the
period.
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 each Fund from disposing of them in a
timely manner and at a fair price when it is necessary or desirable to do so. As
of May 31, 2005, this fund did not hold any illiquid 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 period ended May 31, 2005.
The Fund's REIT holdings are also affected by interest rate changes,
particularly if the REITs it holds use floating rate debt to finance their
ongoing operations.
The Fund invests a significant portion of its assets in small companies and may
be subject to certain risks associated with ownership of securities of small
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.
8. CONTRACTUAL OBLIGATIONS
The Fund enters into contracts in the normal course of business that contain a
variety of indemnifications. The Fund's maximum exposure under these
arrangements is unknown. However, the Fund has not had prior claims or losses
pursuant to these contracts. Management has reviewed the Fund's existing
contracts and expects the risk of loss to be remote.
OTHER
FUND INFORMATION
PROXY VOTING RESULTS
The shareholders of Delaware Group Equity Funds V (the "Trust") voted on the
proposal at the special meeting of shareholders on March 23, 2005 or as
adjourned. The description of each proposal and number of shares voted are as
follows:
1. To elect the 9 nominees specified as Trustees.
SHARES VOTED FOR SHARES VOTED WITHHELD AUTHORITY
---------------------------------------------------------------
Thomas L. Bennett 18,156,829 445,948
Jude T. Driscoll 18,162,841 439,936
John A. Fry 18,168,910 433,866
Anthony D. Knerr 18,156,910 445,867
Lucinda S. Landreth 18,162,718 440,059
Ann R. Leven 18,155,177 447,600
Thomas F. Madison 18,153,700 449,700
Janet L. Yeomans 18,172,872 429,905
J. Richard Zecher 18,163,732 439,044
2. To approve the use of a "manager of managers" structure whereby the
investment manager of the funds of the Trust will be able to hire and replace
subadvisors without shareholder approval.
FOR AGAINST ABSTAIN BROKER
-----------------------------------------
NON-VOTES
Delaware Small Cap Core Fund 326,921 0 0 0
BOARD CONSIDERATION OF DELAWARE SMALL CAP CORE FUND INVESTMENT ADVISORY
AGREEMENT
At a meeting held on May 18-19, 2005 (the "Annual Meeting"), the Board of
Trustees, including a majority of disinterested or independent Trustees,
approved the renewal of the Investment Advisory Agreement for the Delaware Small
Cap Core Fund (the "Fund"). In making its decision, the Board considered
information furnished throughout the year at regular Board meetings, as well as
information prepared specifically in connection with the Annual Meeting.
Information furnished and discussed throughout the year included reports
detailing Fund performance, investment strategies, expenses, compliance matters
and other services provided by Delaware Management Company ("DMC"), the
investment adviser. Information furnished specifically in connection with the
Annual Meeting included materials provided by DMC and its affiliates ("Delaware
Investments(R)") concerning, among other things, the level of services provided
to the Fund, the costs of such services to the Fund, economies of scale and the
financial condition and profitability of Delaware Investments. In addition, in
connection with the Annual Meeting, the Board separately received and reviewed
independent historical and comparative reports prepared by Lipper Inc.
("Lipper"), an independent statistical compilation organization. The Lipper
reports compared the Fund's investment performance and expenses with those of
other comparable mutual funds. The Board also requested and received certain
supplemental information regarding management's policy with respect to advisory
fee levels and its philosophy with respect to breakpoints; the structure of
portfolio manager compensation; the investment manager's profitability organized
by client type, including the Fund; and any constraints or limitations on the
availability of securities in certain investment styles which might inhibit the
adviser's ability to fully invest in accordance with the Fund's policies.
In considering such materials, the independent Trustees received assistance and
advice from and met separately with independent counsel and representatives from
Lipper. At the meeting with representatives from Lipper, Jude Driscoll, Chairman
of the Delaware Investments(R) Family of Funds, and Chairman and Chief Executive
Officer of the investment adviser, was present to respond to questions raised by
Lipper and the independent Trustees. While the Board considered the Investment
Advisory Agreements for all of the funds in the Delaware Investments Family of
Funds at the same Board meeting, information was provided and considered by the
Board for each fund individually. In approving the continuance of the Investment
Advisory Agreement for the Fund, the Board, including a majority of independent
Trustees, determined that the existing advisory fee structure was fair and
reasonable and that the continuance of the Investment Advisory Agreement was in
the best interests of the Fund and its shareholders. While attention was given
to all information furnished, the following discusses the primary factors
relevant to the Board's deliberations and determination, including those
relating to the selection of the investment adviser and the approval of the
advisory fee.
NATURE, EXTENT AND QUALITY OF SERVICE. Consideration was given to the services
provided by Delaware Investments to the Fund and its shareholders. In reviewing
the nature, extent and quality of services, the Board emphasized reports
furnished to it throughout the year at regular Board meetings covering matters
such as the compliance of portfolio managers with the investment policies,
strategies and restrictions for the Fund, the compliance of management personnel
with the Code of Ethics adopted throughout the Delaware Investments Family of
Funds complex, the adherence to fair value pricing procedures as established by
the Board, and the accuracy of net asset value calculations. The Board noted
that it was pleased with the current staffing of the Fund's investment adviser
during the past year, the emphasis on research and the compensation system for
advisory personnel. Favorable consideration was given to DMC's efforts to
maintain, and in some instances increase, financial and human resources
committed to fund matters. Other factors taken into account by the Board were
Delaware Investments' preparedness for, and response to, legal and regulatory
matters. The Board also considered the transfer agent and shareholder services
provided to Fund shareholders by Delaware Investments' affiliate, Delaware
Service Company, Inc., noting the receipt by such affiliate of the DALBAR
Pyramid Award in four of the last six years and the continuing expenditures by
Delaware Investments to increase and improve the scope of shareholder services.
Additionally, the Board noted the extent of benefits provided to Fund
shareholders for being part of the Delaware Investments Family of Funds,
including the privilege to exchange investments between the same class of funds
without a sales charge, the ability to reinvest Fund dividends into other funds
and the privilege to combine holdings in other funds to obtain a reduced sales
charge. The Board was satisfied with the nature, extent and quality of the
overall services provided by Delaware Investments.
INVESTMENT PERFORMANCE. The Board considered the investment performance of DMC
and the Fund. The Board was pleased by DMC's investment performance, noting
Barron's ranking of the Delaware Investments Family of Funds in the top quartile
of mutual fund families for 2002 - 2004. The Board placed significant emphasis
on the investment performance of the Fund in view of its importance to
shareholders. While consideration was given to performance reports and
discussions with portfolio managers at Board meetings throughout the year,
particular attention in assessing performance was given to the Lipper reports
furnished for the Annual Meeting. The Lipper reports prepared for the Fund
showed the investment performance of its Class A shares in comparison to a group
of similar funds as selected by Lipper (the "Performance Universe"). A fund with
the highest performance is ranked first, and a fund with the lowest is ranked
last. The highest/best performing 25% of funds in the Performance Universe make
up the first quartile; the next 25% - the second quartile; the next 25% - the
third quartile; and the lowest/worst performing 25% of funds in the Performance
Universe make up the fourth quartile. Comparative annualized performance for the
Fund was shown for the past one, three and five year periods ended February 28,
2005. The Board noted its objective that the Fund's performance be at or above
the
median of its Performance Universe. The following summarizes the performance
results for the Fund and the Board's view of such performance.
The Performance Universe for this Fund consisted of the Fund and all retail and
institutional small cap core funds as selected by Lipper. The Lipper report
comparison showed that the Fund's total return for the one year period was in
the second quartile of such Performance Universe. The report further showed that
the Fund's total return for the three and five year periods was in highest
quartile. The Board was satisfied with such performance.
COMPARATIVE EXPENSES. The Board considered expense comparison data for the
Delaware Investments(R) Family of Funds, Delaware Investments' institutional
separate account business and other lines of business at Delaware Investments.
The Board stated its belief that, given the differing level of service provided
to Delaware Investments' various clients and other factors that related to the
establishment of fee levels, variations in the levels of fees and expenses were
justified. The Board placed significant emphasis on the comparative analysis of
the management fees and total expense ratios of the Fund compared with those of
a group of similar funds as selected by Lipper (the "Expense Group") and among
the other Delaware Investments funds. In reviewing comparative costs, the Fund's
contractual management fee and the actual management fee incurred by the Fund
were compared with the contractual management fees (assuming all funds in the
Expense Group were similar in site to the Fund) and actual management fees (as
reported by each fund) of other funds within the Expense Group, taking into
effect any applicable breakpoints and fee waivers. The Fund's total expenses
were also compared with those of its Expense Group. The Lipper total expenses,
for comparative consistency, were shown by Lipper for Class A shares and
compared total expenses including 12b-1 and non-12b-1 service fees. The Board
noted its objective to limit the Fund's total expense ratio to an acceptable
range as compared to the median of the Expense Group. The following summarizes
the expense results for the Fund and the Board's view of such expenses.
Such expense comparisons for the Fund showed that its management fee and total
expenses were in the quartile with the lowest expenses of its Expense Group. The
Board was satisfied with the management fees and total expenses of the Fund in
comparison to its Expense Group as shown in the Lipper report.
MANAGEMENT PROFITABILITY. The Board considered the level of profits, if any,
realized by Delaware Investments in connection with the operation of the Fund.
In this respect, the Board reviewed the Investment Management Profitability
Analysis that addressed the overall profitability of Delaware Investments'
business in providing management and other services to each of the individual
funds and the Delaware Investments Family of Funds as a whole. Specific
attention was given to the methodology followed in allocating costs for the
purpose of determining profitability. Management stated that the level of
profits of Delaware Investments, to a certain extent, reflected operational cost
savings and efficiencies initiated by Delaware Investments. The Board considered
Delaware Investments' expenditures to improve services provided to fund
shareholders and to meet additional regulatory and compliance requirements
resulting from the Sarbanes-Oxley Act and recent SEC initiatives. The Board also
considered the extent to which Delaware Investments might derive ancillary
benefits from fund operations, including the potential for procuring additional
business as a result of the prestige and visibility associated with their roles
as service providers to the Delaware Investments Family of Funds, the benefits
from allocation of fund brokerage to improve trading efficiencies and the use of
"soft" commission dollars to pay for proprietary and non-proprietary research.
At the Board's request, management also provided information relating to
Delaware Investments' profitability by client type. The information provided set
forth the revenue, expenses and pre-tax income/loss attributable to the Delaware
Investments Family of Funds, Delaware Investments' separate account business and
other lines of business at Delaware Investments. Emphasis was given to the level
and type of service provided to the various clients. The Board was satisfied
with the level of profits realized by Delaware Investments from its
relationships with the Fund and the Delaware Investments Family of Funds.
ECONOMIES OF SCALE. The Trustees considered whether economies of scale are
realized by Delaware Investments as the Fund's assets increase and the extent to
which any economies of scale are reflected in the level of management fees
charged. The Trustees took into account the standardized advisory fee pricing
and structure approved by the Board and shareholders as part of a complex-wide
shareholder meeting conducted in 1998/1999. At that time, Delaware
Investments(R) introduced breakpoints to account for management economies of
scale. The Board noted that the fee under the Fund's management contract fell
within the standard structure. Although the Fund has not reached a size at which
it can take advantage of breakpoints, the Board recognized that the fee was
structured so that when the Fund grows, economies of scale may be shared.
Delaware
Investments(R)
-----------------------------------
A member of Lincoln Financial Group
VALUE-EQUITY
SEMIANNUAL REPORT MAY 31, 2005
- -------------------------------------------------------------------------------
DELAWARE SMALL CAP VALUE FUND
[LOGO]
POWERED BY RESEARCH.(SM)
TABLE
OF CONTENTS
- -----------------------------------------------------------------
DISCLOSURE OF FUND EXPENSES 1
- -----------------------------------------------------------------
SECTOR ALLOCATION 2
- -----------------------------------------------------------------
FINANCIAL STATEMENTS:
Statement of Net Assets 3
Statement of Operations 6
Statements of Changes in Net Assets 7
Financial Highlights 8
Notes to Financial Statements 13
- -----------------------------------------------------------------
OTHER FUND INFORMATION 16
- -----------------------------------------------------------------
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) 2005 Delaware Distributors, L.P.
DISCLOSURE For the Period December 1, 2004 to May 31, 2005
OF FUND EXPENSES
As a shareholder of the fund, you incur two types of costs:
(1) transaction costs, including sales charges (loads) on purchase payments,
reinvested dividends, or other distributions; redemption fees; and exchange
fees; and (2) ongoing costs, including management fees; distribution and/or
service (12b-1) fees; and other fund expenses. This example is intended to help
you understand your ongoing costs (in dollars) of investing in the fund and to
compare these costs with the ongoing costs of investing in other mutual funds.
The example is based on an investment of $1,000 invested at the beginning of the
period and held for the entire period December 1, 2004 to May 31, 2005.
ACTUAL EXPENSES
The first section of the table shown, "Actual Fund Return," provides information
about actual account values and actual expenses. You may use the information in
this section of the table, together with the amount you invested, to estimate
the expenses that you paid over the period. Simply divide your account value by
$1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then
multiply the result by the number in the first section under the heading
entitled "Expenses Paid During Period" to estimate the expenses you paid on your
account during this period.
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The second section of the table shown, "Hypothetical 5% Return," provides
information about hypothetical account values and hypothetical expenses based on
the Fund's actual expense ratio and an assumed rate of return of 5% per year
before expenses, which is not the Fund's actual return. The hypothetical account
values and expenses may not be used to estimate the actual ending account
balance or expenses you paid for the period. You may use this information to
compare the ongoing costs of investing in the Fund and other funds. To do so,
compare this 5% hypothetical example with the 5% hypothetical examples that
appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your
ongoing costs only and do not reflect any transactional costs, such as sales
charges (loads), redemption fees, or exchange fees. Therefore, the second
section of the table is useful in comparing ongoing costs only, and will not
help you determine the relative total costs of owning different funds. In
addition, if these transactional costs were included, your costs would have been
higher. The expenses shown in the table assume reinvestment of all dividends and
distributions.
DELAWARE SMALL CAP VALUE FUND
EXPENSE ANALYSIS OF AN INVESTMENT OF $1,000
Expenses
Beginning Ending Paid During
Account Account Annualized Period
Value Value Expense 12/1/04 to
12/1/04 5/31/05 Ratio 5/31/05*
- -------------------------------------------------------------------------------------------------------------
ACTUAL FUND RETURN
Class A $1,000.00 $1,020.20 1.42% $7.15
Class B 1,000.00 1,016.90 2.12% 10.66
Class C 1,000.00 1,016.60 2.12% 10.66
Class R 1,000.00 1,018.80 1.72% 8.66
Institutional Class 1,000.00 1,021.90 1.12% 5.65
- -------------------------------------------------------------------------------------------------------------
HYPOTHETICAL 5% RETURN (5% return before expenses)
Class A $1,000.00 $1,017.85 1.42% $7.14
Class B 1,000.00 1,014.36 2.12% 10.65
Class C 1,000.00 1,014.36 2.12% 10.65
Class R 1,000.00 1,016.36 1.72% 8.65
Institutional Class 1,000.00 1,019.35 1.12% 5.64
- -------------------------------------------------------------------------------------------------------------
* Expenses are equal to the Fund's annualized expense ratio, multiplied by the
average account value over the period, multiplied by 182/365 (to reflect the
one-half year period).
1
SECTOR ALLOCATION As of May 31, 2005
DELAWARE SMALL CAP VALUE FUND
The SEC adopted a requirement that all funds present their categories of
portfolio holdings in a table, chart, or graph format in their annual and
semiannual shareholder reports, whether or not a schedule of investments is
utilized. The following chart lists the Fund's categories of portfolio holdings
as a percentage of total net assets and is provided in compliance with such
requirement.
PERCENTAGE
SECTOR OF NET ASSETS
- -------------------------------------------------------------------------
COMMON STOCK 92.72%
- -------------------------------------------------------------------------
Basic Industry 12.63%
Business Services 1.92%
Capital Spending 6.77%
Consumer Cyclical 2.47%
Consumer Services 12.34%
Consumer Staples 2.92%
Energy 8.04%
Financial Services 14.64%
Healthcare 8.09%
Real Estate 4.59%
Technology 10.37%
Transportation 4.21%
Utilities 3.73%
- -------------------------------------------------------------------------
REPURCHASE AGREEMENTS 7.00%
- -------------------------------------------------------------------------
TOTAL MARKET VALUE OF SECURITIES
BEFORE SECURITIES LENDING COLLATERAL 99.72%
- -------------------------------------------------------------------------
SECURITIES LENDING COLLATERAL 19.55%
- -------------------------------------------------------------------------
TOTAL MARKET VALUE OF SECURITIES 119.27%
- -------------------------------------------------------------------------
OBLIGATION TO RETURN SECURITIES LENDING COLLATERAL (19.55%)
- -------------------------------------------------------------------------
RECEIVABLES AND OTHER ASSETS NET OF LIABILITIES 0.28%
- -------------------------------------------------------------------------
TOTAL NET ASSETS 100.00%
- -------------------------------------------------------------------------
2
STATEMENT DELAWARE SMALL CAP VALUE FUND
OF NET ASSETS May 31, 2005 (Unaudited)
Number of Market
Shares Value
COMMON STOCK - 92.72%
Basic Industry - 12.63%
+Alpha Natural Resources 163,700 $ 3,912,430
*Arch Coal 150,700 7,301,415
Crane 140,300 3,685,681
+Crown Holdings 313,000 4,660,570
*Federal Signal 75,800 1,184,754
*Fuller (H.B.) 127,500 4,131,000
*+Griffon 247,060 4,923,906
Louisiana-Pacific 162,300 4,086,714
*MacDermid 175,400 5,105,894
*+Meridian Gold 232,000 3,832,640
+Pactiv 187,100 4,275,235
+PolyOne 432,600 2,907,072
*Smith (A.O.) 79,600 2,496,256
*Spartech 178,500 3,611,055
Texas Industries 105,200 4,841,304
*Wausau-Mosinee Paper 175,400 2,192,500
*Westlake Chemical 147,200 3,529,856
------------
66,678,282
------------
Business Services - 1.92%
Brink's 177,200 5,530,412
+United Stationers 93,559 4,587,198
------------
10,117,610
------------
Capital Spending - 6.77%
*+Casella Waste Systems 295,100 3,367,091
*Gibraltar Industries 231,814 4,534,282
Harsco 93,500 5,425,805
*+Insituform Technologies Class A 129,300 1,918,812
*Kaydon 159,100 4,540,714
*Mueller Industries 117,000 3,159,000
*Wabtec 281,700 5,831,190
*Walter Industries 163,700 6,940,880
------------
35,717,774
------------
Consumer Cyclical - 2.47%
*Furniture Brands International 128,600 2,586,146
KB HOME 113,600 7,672,544
*+WCI Communities 93,500 2,795,650
------------
13,054,340
------------
Consumer Services - 12.34%
+AnnTaylor Stores 204,650 5,271,784
Belo Class A 85,300 2,096,674
Borders Group 152,000 3,844,080
*+Carter's 48,500 2,262,525
*Cato Class A 214,500 6,190,470
*+Department 56 100,300 1,119,348
*K Swiss 176,700 5,672,070
*Kellwood 152,000 3,824,320
*Kenneth Cole Productions Class A 107,900 3,247,790
*Oakley 185,500 2,726,850
Pier 1 Imports 280,600 4,711,274
Reebok International 118,600 4,828,206
*+Sports Authority 117,743 3,767,776
*Thor Industries 167,100 5,073,156
*Wolverine World Wide 211,350 4,856,823
*+Zale 180,000 5,612,400
------------
65,105,546
------------
Number of Market
Shares Value
COMMON STOCK (continued)
Consumer Staples - 2.92%
*American Greetings Class A 210,500 $ 5,468,790
Bunge Limited 69,600 4,317,984
+Constellation Brands 202,200 5,623,182
------------
15,409,956
------------
Energy - 8.04%
*+Energy Partners 356,500 8,146,025
+Grey Wolf 765,100 5,026,707
+Newfield Exploration 204,200 7,851,490
*+Newpark Resources 689,800 4,207,780
*Southwest Gas 163,700 4,089,226
*+W-H Energy Services 243,400 5,274,478
*+Whiting Petroleum 226,200 7,821,996
------------
42,417,702
------------
Financial Services - 14.64%
*AmerUs Group 139,100 6,619,769
Berkley (W.R.) 204,300 7,244,478
*Boston Private Financial Holdings 217,700 5,329,296
Colonial BancGroup 382,000 8,514,780
*Commercial Federal 179,800 4,496,798
Compass Bancshares 63,500 2,830,195
*First Republic Bank 175,400 5,626,832
*Greater Bay Bancorp 228,400 5,739,692
*Harleysville Group 128,600 2,611,866
Infinity Property & Casualty 18,898 604,736
*MAF Bancorp 115,200 4,902,912
*NBT Bancorp 14,500 343,650
Platinum Underwriters Holdings 152,700 4,642,080
*Provident Bankshares 186,200 5,891,368
*Republic Bancorp 274,624 3,791,184
+Sterling Financial 114,312 4,040,929
*+Triad Guaranty 74,900 4,059,580
------------
77,290,145
------------
Healthcare - 8.09%
*+Alderwoods Group 362,500 5,020,625
*Arrow International 93,800 3,170,440
+Bio-Rad Laboratories Class A 87,300 4,703,724
*Diagnostic Products 70,800 3,082,632
*+Kindred Healthcare 134,400 5,185,152
*Owens & Minor 185,500 5,750,500
+Par Pharmaceuticals 119,700 3,830,400
+Pediatrix Medical Group 70,200 5,168,826
*+RehabCare Group 115,900 3,220,861
Service Corp International 467,700 3,545,166
------------
42,678,326
------------
Real Estate - 4.59%
Ashford Hospitality Trust 233,800 2,328,648
Camden Property Trust 115,900 5,981,599
Education Realty Trust 192,500 3,305,225
*Highland Hospitality 292,300 3,098,380
Prentiss Properties Trust 128,600 4,436,700
Reckson Associates Realty 161,400 5,098,626
------------
24,249,178
------------
3
STATEMENT DELAWARE SMALL CAP VALUE FUND
OF NET ASSETS (CONTINUED)
Number of Market
Shares Value
COMMON STOCK (continued)
Technology - 10.37%
*+Bell Microproducts 351,300 $ 2,880,660
*+Checkpoint Systems 222,100 3,913,402
+Datastream Systems 330,100 1,957,493
*+Entegris 385,800 3,742,260
*+Herley Industries 142,900 2,502,179
+Insight Enterprises 210,500 4,121,590
+International Rectifier 105,200 5,026,456
+NETGEAR 248,800 4,893,896
*+Overland Storage 223,500 2,165,715
*+Plexus 209,600 2,882,000
*QAD 207,200 1,454,544
+Storage Technology 177,100 5,716,788
Symbol Technologies 268,900 3,095,039
*+SYNNEX 175,700 2,779,574
+Tech Data 95,100 3,414,090
*Technitrol 320,500 4,208,165
------------
54,753,851
------------
Transportation - 4.21%
*Alexander & Baldwin 168,900 7,507,605
*+Continental Airlines Class B 152,000 2,106,720
+Kirby 116,900 4,986,954
+SCS Transportation 82,300 1,501,975
*SkyWest 99,600 1,816,704
*+Yellow Roadway 81,800 4,317,404
------------
22,237,362
------------
Utilities - 3.73%
*Black Hills 58,500 2,142,270
+El Paso Electric 198,900 3,991,923
+Fairpoint Communications 264,900 4,124,493
*Otter Tail 152,000 3,869,920
*PNM Resources 191,300 5,574,482
------------
19,703,088
------------
Total Common Stock
(cost $374,564,771) 489,413,160
------------
Principal
Amount
REPURCHASE AGREEMENTS - 7.00%
With BNP Paribas 2.95% 6/1/05
(dated 5/31/05, to be repurchased at
$21,515,763, collateralized by
$3,146,000 U.S. Treasury Bills due
9/29/05, market value $3,115,413,
$2,665,000 U.S. Treasury Bills due
10/20/05, market value $2,634,395,
$4,788,000 U.S. Treasury Bills due
11/17/05, market value $4,720,310,
$3,063,000 U.S. Treasury Notes 2.38%
due 8/15/06, market value
$3,043,794, $4,722,000 U.S. Treasury
Notes 6.50% due 8/15/05, market
value $4,846,902, and $3,370,000
U.S. Treasury Notes 7.00% due
7/15/06, market value $3,588,417) 21,514,00 21,514,000
Principal Market
Amount Value
REPURCHASE AGREEMENTS - 7.00%
With UBS Warburg 2.95% 6/1/05
(dated 5/31/05, to be repurchased at
$15,459,267, collateralized by
$15,927,000 U.S. Treasury Notes 2.50%
due 5/31/06, market value $15,787,236) $15,458,00 $ 15,458,000
------------
Total Repurchase Agreements
(cost $36,972,000) 36,972,000
------------
TOTAL MARKET VALUE OF SECURITIES
BEFORE SECURITIES LENDING COLLATERAL - 99.72%
(cost $411,536,771) 526,385,160
------------
SECURITIES LENDING COLLATERAL** - 19.55%
Short-Term Investments
Abbey National 3.13% 1/13/06 2,191,786 2,191,786
Australia New Zealand 3.08% 6/23/06 2,960,654 2,960,654
Bank of New York 3.06% 4/4/06 2,368,524 2,368,524
Bank of the West 3.06% 3/2/06 2,961,242 2,960,654
Barclays London 3.10% 7/21/05 2,960,739 2,960,691
Barclays New York 3.12% 6/1/05 296,017 296,017
Bayerische Landesbank 3.08% 6/30/06 2,960,012 2,960,654
Bear Stearns
3.14% 1/17/06 592,113 592,432
3.15% 11/30/05 2,959,162 2,960,654
Beta Finance 3.08% 4/18/06 2,960,905 2,960,358
Citigroup Global Markets
3.10% 6/1/05 23,718,046 23,718,046
3.13% 6/7/05 3,197,507 3,197,507
Credit Swiss First Boston New York
3.07% 4/18/06 3,197,507 3,197,507
3.10% 12/29/05 621,600 621,774
Deutsche Bank 3.10% 7/11/05 2,368,546 2,368,523
Goldman Sachs 3.20% 5/31/06 3,256,394 3,256,720
Lehman Holdings 3.14% 12/23/05 2,961,168 2,963,320
Marshall & Ilsley Bank 3.05% 12/29/05 2,960,880 2,960,788
Merrill Lynch Mortgage Capital
3.16% 7/12/05 2,960,654 2,960,654
Morgan Stanley
3.21% 6/30/06 591,553 592,131
3.24% 5/31/06 295,888 296,066
National City Bank Cleveland
3.06% 1/23/06 3,375,561 3,375,328
Pfizer 3.05% 6/30/06 2,842,228 2,842,228
Proctor & Gamble 2.93% 6/30/06 2,960,654 2,960,654
Royal Bank of Canada 3.05% 6/27/05 2,960,574 2,960,574
Royal Bank of Scotland 3.06% 6/30/06 2,960,333 2,960,654
Sigma Finance 3.06% 9/30/05 2,783,042 2,782,728
Societe Generale New York
3.06% 6/14/05 2,674,305 2,674,199
Sun Trust Bank 3.08% 8/5/05 1,480,246 1,480,246
Wal Mart Stores 3.03% 6/21/05 3,540,282 3,534,368
Washington Mutual Bank
3.10% 7/8/05 2,960,601 2,960,654
Wells Fargo 3.06% 6/30/06 2,960,654 2,960,654
Wilmington Trust Company
2.96% 6/3/05 2,369,354 2,369,351
------------
TOTAL SECURITIES LENDING COLLATERAL**
(cost $103,207,098) 103,207,098
------------
4
STATEMENT DELAWARE SMALL CAP VALUE FUND
OF NET ASSETS (CONTINUED)
TOTAL MARKET VALUE OF SECURITIES - 119.27%
(cost $514,743,869) $629,592,258^
OBLIGATION TO RETURN SECURITIES LENDING
COLLATERAL - (19.55%)** (103,207,098)
RECEIVABLES AND OTHER ASSETS
NET OF LIABILITIES - 0.28% 1,496,640
-------------
NET ASSETS APPLICABLE TO 15,047,608 SHARES
OUTSTANDING - 100.00% $527,881,800
=============
Net Asset Value -- Delaware Small Cap Value Fund
Class A ($311,624,086 / 8,701,930 Shares) $35.81
------
Net Asset Value -- Delaware Small Cap Value Fund
Class B ($106,534,605 / 3,160,614 Shares) $33.71
------
Net Asset Value -- Delaware Small Cap Value Fund
Class C ($77,240,057 / 2,292,431 Shares) $33.69
------
Net Asset Value -- Delaware Small Cap Value Fund
Class R ($6,395,937 / 179,654 Shares) $35.60
------
Net Asset Value -- Delaware Small Cap Value Fund
Institutional Class ($26,087,115 / 712,979 Shares) $36.59
------
COMPONENTS OF NET ASSETS AT MAY 31, 2005:
Shares of beneficial interest
(unlimited authorization -- no par) $376,762,773
Accumulated net realized gain on investments 36,270,638
Net unrealized appreciation of investments 114,848,389
------------
Total net assets $527,881,800
============
+Non-income producing security for the period ended May 31, 2005.
*Fully or partially on loan.
**See Note 7 in "Notes to Financial Statements."
^Includes $101,220,188 of securities loaned.
NET ASSET VALUE AND OFFERING PRICE PER SHARE -
DELAWARE SMALL CAP VALUE FUND
Net asset value Class A (A) $35.81
Sales charge (5.75% of offering price) (B) 2.18
------
Offering price $37.99
======
(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
5
STATEMENT DELAWARE SMALL CAP VALUE FUND
OF OPERATIONS Six Months Ended May 31, 2005 (Unaudited)
INVESTMENT INCOME:
Dividends $2,072,785
Interest 338,091
Securities lending income 61,484 $ 2,472,360
------------
EXPENSES:
Management fees 1,840,285
Distribution expenses -- Class A 424,496
Distribution expenses -- Class B 539,034
Distribution expenses -- Class C 347,831
Distribution expenses -- Class R 16,864
Dividend disbursing and transfer agent fees
and expenses 583,437
Accounting and administration expenses 77,229
Reports and statements to shareholders 74,603
Registration fees 54,252
Legal and professional fees 37,131
Insurance fees 31,622
Trustees' fees 13,121
Taxes (other than taxes on income) 11,647
Custodian fees 7,476
Pricing fees 362
Other 12,033 4,071,423
----------
Less expenses paid indirectly (458)
------------
Total expenses 4,070,965
------------
NET INVESTMENT LOSS (1,598,605)
------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain on investments 37,890,890
Net change in unrealized appreciation/depreciation
of investments (26,642,480)
------------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS 11,248,410
------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $9,649,805
============
See accompanying notes
6
STATEMENTS
OF CHANGES IN NET ASSETS DELAWARE SMALL CAP VALUE FUND
Six Months Year
Ended Ended
5/31/05 11/30/04
(Unaudited)
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS:
Net investment loss $ (1,598,605) $ (2,385,975)
Net realized gain on investments 37,890,890 59,163,709
Net change in unrealized appreciation/depreciation
of investments (26,642,480) 26,597,601
------------ ------------
Net increase in net assets resulting from operations 9,649,805 83,375,335
------------ ------------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net realized gain on investments:
Class A (31,763,825) (16,080,554)
Class B (13,514,764) (7,388,227)
Class C (8,240,031) (3,426,454)
Class R (548,342) (133,545)
Institutional Class (2,698,187) (2,199,840)
------------ ------------
(56,765,149) (29,228,620)
------------ ------------
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares sold:
Class A 65,719,635 56,360,643
Class B 7,124,231 12,292,857
Class C 19,204,358 20,538,825
Class R 2,814,767 3,470,893
Institutional Class 5,297,272 11,602,459
Net asset value of shares issued upon reinvestment
of dividends and distributions:
Class A 29,902,456 15,140,871
Class B 12,427,282 6,672,916
Class C 7,549,508 3,179,515
Class R 549,180 130,217
Institutional Class 2,698,467 2,199,835
------------ ------------
153,287,156 131,589,031
------------ ------------
Cost of shares repurchased:
Class A (28,453,811) (72,260,823)
Class B (12,686,521) (26,208,562)
Class C (8,841,304) (12,909,856)
Class R (1,067,916) (1,329,592)
Institutional Class (3,503,277) (27,801,757)
------------ ------------
(54,552,829) (140,510,590)
------------ ------------
Increase (decrease) in net assets derived from
capital share transactions 98,734,327 (8,921,559)
------------ ------------
NET INCREASE IN NET ASSETS 51,618,983 45,225,156
NET ASSETS:
Beginning of period 476,262,817 431,037,661
------------ ------------
End of period (there was no undistributed net
investment income at either period end) $527,881,800 $476,262,817
============ ============
See accompanying notes
7
FINANCIAL
HIGHLIGHTS
Selected data for each share of the Fund outstanding
throughout each period were as follows:
Delaware Small Cap Value Class A
- -----------------------------------------------------------------------------------------------------------------------------------
Six Months Year
Ended Ended
5/31/05(1) 11/30/04 11/30/03 11/30/02 11/30/01 11/30/00
(Unaudited)
NET ASSET VALUE, BEGINNING OF PERIOD $39.640 $35.220 $27.120 $29.350 $25.980 $24.680
INCOME (LOSS) FROM INVESTMENT OPERATIONS:
Net investment income (loss)(2) (0.073) (0.105) (0.136) (0.060) 0.059 0.091
Net realized and unrealized gain on investments 0.868 6.879 9.079 0.574 4.429 1.594
------- ------- ------- ------- ------- -------
Total from investment operations 0.795 6.774 8.943 0.514 4.488 1.685
------- ------- ------- ------- ------- -------
LESS DIVIDENDS AND DISTRIBUTIONS FROM:
Net investment income -- -- -- -- (0.026) (0.080)
Net realized gain on investments (4.625) (2.354) (0.843) (2.744) (1.047) (0.305)
In excess of net realized gain on investments -- -- -- -- (0.045) --
------- ------- ------- ------- ------- -------
Total dividends and distributions (4.625) (2.354) (0.843) (2.744) (1.118) (0.385)
------- ------- ------- ------- ------- -------
NET ASSET VALUE, END OF PERIOD $35.810 $39.640 $35.220 $27.120 $29.350 $25.980
======= ======= ======= ======= ======= =======
TOTAL RETURN(3) 2.02% 20.52% 34.17% 1.60% 17.66% 7.04%
RATIOS AND SUPPLEMENTAL DATA:
Net assets, end of period (000 omitted) $311,624 $270,332 $240,322 $180,696 $182,925 $151,044
Ratio of expenses to average net assets 1.42% 1.54% 1.63% 1.63% 1.58% 1.68%
Ratio of net investment income (loss) to average net assets (0.41%) (0.30%) (0.47%) (0.21%) 0.21% 0.37%
Portfolio turnover 37% 35% 42% 47% 72% 56%
(1) 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.
See accompanying notes
8
FINANCIAL
HIGHLIGHTS (CONTINUED)
Selected data for each share of the Fund outstanding
throughout each period were as follows:
Delaware Small Cap Value Class B
- -----------------------------------------------------------------------------------------------------------------------------------
Six Months Year
Ended Ended
5/31/05(1) 11/30/04 11/30/03 11/30/02 11/30/01 11/30/00
(Unaudited)
NET ASSET VALUE, BEGINNING OF PERIOD $37.690 $33.820 $26.260 $28.680 $25.520 $24.340
INCOME (LOSS) FROM INVESTMENT OPERATIONS:
Net investment loss(2) (0.188) (0.334) (0.327) (0.252) (0.138) (0.079)
Net realized and unrealized gain on investments 0.833 6.558 8.730 0.576 4.345 1.564
------- ------- ------- ------- ------- -------
Total from investment operations 0.645 6.224 8.403 0.324 4.207 1.485
------- ------- ------- ------- ------- -------
LESS DIVIDENDS AND DISTRIBUTIONS FROM:
Net realized gain on investments (4.625) (2.354) (0.843) (2.744) (1.047) (0.305)
------- ------- ------- ------- ------- -------
Total dividends and distributions (4.625) (2.354) (0.843) (2.744) (1.047) (0.305)
------- ------- ------- ------- ------- -------
NET ASSET VALUE, END OF PERIOD $33.710 $37.690 $33.820 $26.260 $28.680 $25.520
======= ======= ======= ======= ======= =======
TOTAL RETURN(3) 1.69% 19.69% 33.21% 0.91% 16.83% 6.27%
RATIOS AND SUPPLEMENTAL DATA:
Net assets, end of period (000 omitted) $106,535 $111,348 $107,136 $86,641 $83,648 $58,156
Ratio of expenses to average net assets 2.12% 2.24% 2.33% 2.33% 2.28% 2.38%
Ratio of net investment loss to average net assets (1.11%) (1.00%) (1.17%) (0.91%) (0.49%) (0.33%)
Portfolio turnover 37% 35% 42% 47% 72% 56%
(1) 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.
See accompanying notes
9
FINANCIAL
HIGHLIGHTS
Selected data for each share of the Fund outstanding
throughout each period were as follows:
Delaware Small Cap Value Class C
- -----------------------------------------------------------------------------------------------------------------------------------
Six Months Year
Ended Ended
5/31/05(1) 11/30/04 11/30/03 11/30/02 11/30/01 11/30/00
(Unaudited)
NET ASSET VALUE, BEGINNING OF PERIOD $37.680 $33.810 $26.250 $28.670 $25.510 $24.320
INCOME (LOSS) FROM INVESTMENT OPERATIONS:
Net investment loss(2) (0.187) (0.333) (0.326) (0.251) (0.135) (0.079)
Net realized and unrealized gain on investments 0.822 6.557 8.729 0.575 4.342 1.574
------- ------- ------- ------- ------- -------
Total from investment operations 0.635 6.224 8.403 0.324 4.207 1.495
------- ------- ------- ------- ------- -------
LESS DIVIDENDS AND DISTRIBUTIONS FROM:
Net realized gain on investments (4.625) (2.354) (0.843) (2.744) (1.047) (0.305)
------- ------- ------- ------- ------- -------
Total dividends and distributions (4.625) (2.354) (0.843) (2.744) (1.047) (0.305)
------- ------- ------- ------- ------- -------
NET ASSET VALUE, END OF PERIOD $33.690 $37.680 $33.810 $26.250 $28.670 $25.510
======= ======= ======= ======= ======= =======
TOTAL RETURN(3) 1.66% 19.69% 33.22% 0.91% 16.88% 6.27%
RATIOS AND SUPPLEMENTAL DATA:
Net assets, end of period (000 omitted) $77,240 $66,313 $48,453 $34,140 $31,823 $20,822
Ratio of expenses to average net assets 2.12% 2.24% 2.33% 2.33% 2.28% 2.38%
Ratio of net investment loss to average net assets (1.11%) (1.00%) (1.17%) (0.91%) (0.49%) (0.33%)
Portfolio turnover 37% 35% 42% 47% 72% 56%
(1) 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.
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 Class R
- ----------------------------------------------------------------------------------------------
Six Months 6/2/03(2)
Ended to
5/31/05(1) 11/30/04 11/30/03
(Unaudited)
NET ASSET VALUE, BEGINNING OF PERIOD $39.480 $35.190 $29.000
INCOME (LOSS) FROM INVESTMENT OPERATIONS:
Net investment loss(3) (0.126) (0.209) (0.160)
Net realized and unrealized gain on investments 0.871 6.853 6.350
------- ------- -------
Total from investment operations 0.745 6.644 6.190
------- ------- -------
LESS DIVIDENDS AND DISTRIBUTIONS FROM:
Net realized gain on investments (4.625) (2.354) --
------- ------- -------
Total dividends and distributions (4.625) (2.354) --
------- ------- -------
NET ASSET VALUE, END OF PERIOD $35.600 $39.480 $35.190
======= ======= =======
TOTAL RETURN(4) 1.88% 20.15% 21.35%
RATIOS AND SUPPLEMENTAL DATA:
Net assets, end of period (000 omitted) $6,396 $4,539 $1,740
Ratio of expenses to average net assets 1.72% 1.84% 1.97%
Ratio of net investment loss to average net assets (0.71%) (0.60%) (0.97%)
Portfolio turnover 37% 35% 42%
(1) Ratios and portfolio turnover have been annualized and total return has not
been annualized.
(2) Date of commencement of operations, ratios have been annualized and total
return has not been annualized.
(3) The average shares outstanding method has been applied for per share
information.
(4) 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
11
FINANCIAL
HIGHLIGHTS
Selected data for each share of the Fund outstanding
throughout each period were as follows:
Delaware Small Cap Value Institutional Class
- -----------------------------------------------------------------------------------------------------------------------------------
Six Months Year
Ended Ended
5/31/05(1) 11/30/04 11/30/03 11/30/02 11/30/01 11/30/00
(Unaudited)
NET ASSET VALUE, BEGINNING OF PERIOD $40.350 $35.700 $27.400 $29.540 $26.130 $24.830
INCOME (LOSS) FROM INVESTMENT OPERATIONS:
Net investment income (loss)(2) (0.019) 0.000 (0.050) 0.026 0.144 0.165
Net realized and unrealized gain on investments 0.884 7.004 9.193 0.578 4.458 1.600
------- ------- ------- ------- ------- -------
Total from investment operations 0.865 7.004 9.143 0.604 4.602 1.765
------- ------- ------- ------- ------- -------
LESS DIVIDENDS AND DISTRIBUTIONS FROM:
Net investment income -- -- -- -- (0.100) (0.160)
Net realized gain on investments (4.625) (2.354) (0.843) (2.744) (1.047) (0.305)
In excess of net realized gain on investments -- -- -- -- (0.045) --
------- ------- ------- ------- ------- -------
Total dividends and distributions (4.625) (2.354) (0.843) (2.744) (1.192) (0.465)
------- ------- ------- ------- ------- -------
NET ASSET VALUE, END OF PERIOD $36.590 $40.350 $35.700 $27.400 $29.540 $26.130
======= ======= ======= ======= ======= =======
TOTAL RETURN(3) 2.19% 20.88% 34.57% 1.88% 18.09% 7.35%
RATIOS AND SUPPLEMENTAL DATA:
Net assets, end of period (000 omitted) $26,087 $23,731 $33,387 $19,459 $18,224 $10,992
Ratio of expenses to average net assets 1.12% 1.24% 1.33% 1.33% 1.28% 1.38%
Ratio of net investment income (loss) to average net assets (0.11%) 0.00% (0.17%) 0.09% 0.51% 0.67%
Portfolio turnover 37% 35% 42% 47% 72% 56%
(1) 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.
See accompanying notes
12
NOTES DELAWARE SMALL CAP VALUE FUND
TO FINANCIAL STATEMENTS May 31, 2005 (Unaudited)
Delaware Group Equity Funds V (the "Trust") is organized as a Delaware statutory
trust and offers three series: Delaware Dividend Income Fund, Delaware Small-Cap
Core Fund (formerly Small-Cap Contrarian Fund), and Delaware Small Cap Value
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 U.S. generally accepted
accounting principles and are consistently followed by the Fund.
Security Valuation -- Equity securities, except those traded on the Nasdaq Stock
Market, Inc. (NASDAQ), are valued at the last quoted sales price as of the time
of the regular close of the New York Stock Exchange (NYSE) on the valuation
date. Securities traded on the NASDAQ are valued in accordance with the NASDAQ
Official Closing Price, which may not be the last sales price. If on a
particular day an equity security does not trade, then the mean between the bid
and asked prices will be used. Short-term debt securities having less than 60
days to maturity are valued at amortized cost, which approximates market value.
Other securities and assets for which market quotations are 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 have 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 pursuant to an
exemptive order issued by the Securities and Exchange Commission. 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
U.S. generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from those estimates.
Other -- Expenses common to all funds within the Delaware Investments Family of
Funds are allocated amongst the funds on the basis of average net assets.
Management fees and some other expenses are paid monthly. Security transactions
are recorded on the date the securities are purchased or sold (trade date).
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.
The Fund receives earnings credits from it's custodian when positive cash
balances are maintained, which are used to offset custody fees. The earnings
credit for the period ended May 31, 2005 was approximately $458. The expense
paid under the above arrangement is included in custodian fees on the Statement
of Operations with the corresponding expense offset shown as "expense paid
indirectly."
2. INVESTMENT MANAGEMENT, ADMINISTRATION AGREEMENTS AND OTHER TRANSACTIONS
WITH AFFILIATES
In accordance with the terms of its investment management agreement, the Fund
pays Delaware Management Company (DMC), a series of Delaware Management Business
Trust and the investment manager, an annual fee which is calculated daily at the
rate of 0.75% on the first $500 million of average daily net assets of the Fund,
0.70% on the next $500 million, 0.65% on the next $1.5 billion, and 0.60% on
average daily net assets in excess of $2.5 billion.
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 1.45% of average daily net assets of the Fund through February 28, 2006.
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.
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 May 31, 2005, the Fund had liabilities payable to affiliates as follows:
Investment management fee payable to DMC $322,778
Dividend disbursing, transfer agent, accounting and
administration fees and other expenses payable to DSC 379,121
Other expenses payable to DMC and affiliates* 160,986
* DMC, as part of its administrative services, pays operating expenses on
behalf of the Fund and is reimbursed on a periodic basis. Such expenses
include items such as printing of shareholder reports, fees for audit, legal,
and tax services, registration fees and trustees' fees.
13
NOTES DELAWARE SMALL CAP VALUE FUND
TO FINANCIAL STATEMENTS (CONTINUED)
2. INVESTMENT MANAGEMENT, ADMINISTRATION AGREEMENTS AND OTHER TRANSACTIONS WITH
AFFILIATES (CONTINUED)
As provided in the investment management agreement the Fund bears the cost of
certain legal services expenses, including internal legal services provided to
the Fund by DMC employees. For the six months ended May 31, 2005, the Fund was
charged $13,509 for internal legal services provided by DMC.
For the six months ended May 31, 2005, DDLP earned $70,830 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 six months ended May 31, 2005, the Fund made purchases of $99,684,568
and sales of $87,334,182 of investment securities other than short-term
investments.
At May 31, 2005, the cost of investments for federal income tax purposes has
been estimated since the final tax characteristics cannot be determined until
fiscal year end. At May 31, 2005, the cost of investments was $514,765,233. At
May 31, 2005, the net unrealized appreciation was $114,827,025 of which
$126,301,498 related to unrealized appreciation of investments and $11,474,473
related to unrealized depreciation of investments.
4. DIVIDEND AND DISTRIBUTION INFORMATION
Income and long-term capital gain distributions are determined in accordance
with federal income tax regulations, which may differ from U.S. generally
accepted accounting principles. The tax character of dividends and distributions
paid during the six months ended May 31, 2005 and year ended November 30, 2004,
were as follows:
Six Months Year
Ended Ended
5/31/05* 11/30/04
----------- -----------
Ordinary income $12,614,183 $ 2,051,867
Long-term capital gain 44,150,966 27,176,753
----------- -----------
Total $56,765,149 $29,228,620
=========== ===========
* Tax information for the period ended May 31, 2005 is an estimate and the tax
character of dividends and distributions may be redesignated at fiscal year
end.
The components of net assets are estimated since final tax characteristics
cannot be determined until fiscal year end. As of May 31, 2005, the estimated
components of net assets on a tax basis were as follows:
Shares of beneficial interest $376,762,773
Undistributed ordinary income 5,771,158
Undistributed long-term capital gain 30,520,844
Unrealized appreciation of investments 114,827,025
------------
Net assets $527,881,800
============
The differences between book basis and tax basis components of net assets are
primarily attributable to tax defferal of losses on wash sales and estimates of
tax character of distributions from Real Estate Investment Trusts. The
undistributed earnings for Delaware Small Cap Value Fund may be subject to
reclassification upon notice of the character of distributions received from
investments in Real Estate Investment Trusts.
For financial reporting purposes, capital accounts are adjusted to reflect the
tax character of permanent book/tax differences. For the six months ended May
31, 2005, the Fund recorded an estimate of these differences. Since the final
tax characteristics cannot be determined until fiscal year end.
Reclassifications are primarily due to tax treatment of net operating losses.
Results of operations and net assets were not affected by these
reclassifications.
Accumulated net investment loss $ 1,598,605
Accumulated realized gain on investments $(1,598,605)
5. CAPITAL SHARES
Transactions in capital shares were as follows:
Six Months Year
Ended Ended
5/31/05 11/30/04
--------- ----------
Shares sold:
Class A 1,842,599 1,612,277
Class B 210,735 368,241
Class C 571,241 616,133
Class R 79,418 99,598
Institutional Class 146,254 327,242
Shares issued upon reinvestment of
dividends and distributions:
Class A 835,593 455,639
Class B 367,867 209,774
Class C 223,532 99,985
Class R 15,416 3,923
Institutional Class 73,902 65,219
--------- ----------
4,366,557 3,858,031
--------- ----------
Shares repurchased:
Class A (796,489) (2,071,582)
Class B (372,121) (791,357)
Class C (262,393) (389,122)
Class R (30,142) (38,022)
Institutional Class (95,355) (739,401)
--------- ----------
(1,556,500) (4,029,484)
--------- ----------
Net increase (decrease) 2,810,057 (171,453)
========= ========
For the six months ended May 31, 2005, and the year ended November 30, 2004,
40,363 Class B shares were converted to 38,201 Class A shares valued at
$1,506,576 and 119,383 Class B shares were converted to 113,988 Class A shares
valued at $3,975,630, respectively. The respective amounts are included in Class
B redemptions and Class A subscriptions in the table above and the Statements of
Changes in Net Assets.
6. LINE OF CREDIT
The Fund, along with certain other funds in the Delaware Investments Family of
Funds (the "Participants"), participates in a $183,100,000 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 May 31, 2005, or at any time during the
six months period ended May 31, 2005.
14
NOTES DELAWARE SMALL CAP VALUE FUND
TO FINANCIAL STATEMENTS (CONTINUED)
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. government obligations
and/or cash collateral not less than 102% of the market value of the securities
issued in the United States and 105% of the market value of securities issued
outside 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 May 31, 2005, the market value of securities on loan was $101,220,188, 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- 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 on narrow product lines.
The Fund invests in real estate investment trusts (REITs) and is subject to some
of the risk associated with that industry. If the Fund holds real estate
directly as a result of defaults or receives rental income directly form real
estate holdings, its tax status as a regulated investment company may be
jeopardized. There were no direct holdings during the six months ended May 31,
2005. The Funds holdings are also affected by interest rate changes,
particularly if the REITs it holds use floating rate debt to finance their
ongoing operations.
The Fund may invest a portion 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. At
May 31, 2005, there were no Rule 144A securities. While maintaining oversight,
the Board of Trustees has delegated to the investment adviser the day-to-day
functions of determining whether individual Rule 144A securities are liquid for
purposes of the Fund's limitation on investments in illiquid assets. Illiquid
securities, if any, have been denoted on the Statement of Net Assets.
9. CONTRACTUAL OBLIGATIONS
The Fund enters into contracts in the normal course of business that contain a
variety of indemnifications. The Fund's maximum exposure under these
arrangements is unknown . However, the Fund has not had prior claims or losses
pursuant to these contracts. Management has reviewed the Fund's existing
contracts and expects the risk of loss to be remote.
15
OTHER DELAWARE SMALL CAP VALUE FUND
FUND INFORMATION
The shareholders of Delaware Group Equity V (the "Trust") voted on the following
proposals at the special meeting of shareholders on March 23, 2005 or as
adjourned. The description of each proposal and number of shares voted are as
follows:
1. To elect the 9 nominees specified as Trustees.
Shares Voted
Shares Voted For Withheld Authority
---------------- ------------------
Thomas L. Bennett 18,156,829 445,948
Jude T. Driscoll 18,162,841 439,936
John A. Fry 18,168,911 433,866
Anthony D. Knerr 18,156,910 445,867
Lucinda S. Landreth 18,162,718 440,059
Ann R. Leven 18,155,177 447,600
Thomas F. Madison 18,153,700 449,077
Janet L. Yeomans 18,172,872 429,905
J. Richard Zecher 18,163,733 439,044
2. To approve the use of a "manager of managers" structure whereby the
investment manager of the funds of the Trust will be able to hire and replace
subadvisers without shareholder approval.
For Against Abstain Broker Non-Votes
-------- -------- ------- ----------------
Delaware Small Cap Value Fund 5,124,802 426,477 165,917 1,205,215
BOARD CONSIDERATION OF DELAWARE SMALL CAP VALUE FUND INVESTMENT ADVISORY
AGREEMENT
At a meeting held on May 18-19, 2005 (the "Annual Meeting"), the Board of
Trustees, including a majority of disinterested or independent Trustees,
approved the renewal of the Investment Advisory Agreement for the Delaware Small
Cap Value Fund (the "Fund"). In making its decision, the Board considered
information furnished throughout the year at regular Board meetings, as well as
information prepared specifically in connection with the Annual Meeting.
Information furnished and discussed throughout the year included reports
detailing Fund performance, investment strategies, expenses, compliance matters
and other services provided by the investment adviser. Information furnished
specifically in connection with the Annual Meeting included materials provided
by Delaware Investments concerning, among other things, the level of services
provided to the Fund, the costs of such services to the Fund, economies of scale
and the financial condition and profitability of Delaware Investments. In
addition, in connection with the Annual Meeting, the Board separately received
and reviewed independent historical and comparative reports prepared by Lipper
Inc. ("Lipper"), an independent statistical compilation organization. The Lipper
reports compared the Fund's investment performance and expenses with those of
other comparable mutual funds. The Board also requested and received certain
supplemental information regarding management's policy with respect to advisory
fee levels and its philosophy with respect to breakpoints; the structure of
portfolio manager compensation; the investment manager's profitability organized
by client type, including the Fund; and any constraints or limitations on the
availability of securities in certain investment styles which might inhibit the
adviser's ability to fully invest in accordance with the Fund's policies.
In considering such materials, the independent Trustees received assistance and
advice from and met separately with independent counsel and representatives from
Lipper. At the meeting with representatives from Lipper, Jude Driscoll, Chairman
of the funds, and Chairman and Chief Executive Officer of the investment
adviser, was present to respond to questions raised by Lipper and the
independent Trustees. While the Board considered the Investment Advisory
Agreements for all of the funds in the Delaware Investments Family of Funds at
the same Board meeting, information was provided and considered by the Board for
each fund individually. In approving the continuance of the Investment Advisory
Agreement for the Fund, the Board, including a majority of independent Trustees,
determined that the existing advisory fee structure was fair and reasonable and
that the continuance of the Investment Advisory Agreement was in the best
interests of the Fund and its shareholders. While attention was given to all
information furnished, the following discusses the primary factors relevant to
the Board's discussion and determination, including those relating to the
selection of the investment adviser and the approval of the advisory fee.
NATURE, EXTENT AND QUALITY OF SERVICE. Consideration was given to the services
provided by Delaware Investments and its affiliates to the Fund and its
shareholders. In reviewing the nature, extent and quality of services, the Board
emphasized reports periodically furnished to it covering matters such as the
compliance of portfolio managers with the investment policies and restrictions
for the Fund, the compliance of management personnel with the Code of Ethics
adopted throughout the Delaware Investments Family of Funds complex, the
adherence to fair value pricing procedures as established by the Board, and the
accuracy of net asset value calculations. The Board noted that it was pleased
with the current staffing of the Fund's investment adviser during the past year,
the emphasis on research and the compensation system for advisory personnel.
Favorable consideration was given to Delaware Investments' efforts to maintain,
and in some instances increase, financial and human resources committed to fund
matters. Other factors taken into account by the Board were Delaware
Investments' preparedness for, and response to, legal and regulatory matters.
The Board also considered the transfer agent and shareholder services provided
to Fund shareholders by Delaware Investments' affiliate, Delaware Service
Company, Inc., noting the receipt by such affiliate of the DALBAR Pyramid Award
in four of the last six years and the
16
OTHER DELAWARE SMALL CAP VALUE FUND
FUND INFORMATION (CONTINUED)
BOARD CONSIDERATION OF DELAWARE SMALL CAP VALUE FUND INVESTMENT ADVISORY
AGREEMENT (CONTINUED)
continuing expenditures by Delaware Investments to increase and improve the
scope of shareholder services. Additionally, the Board noted the extent of
benefits provided to Fund shareholders from being part of the Delaware
Investments Family of Funds, including the privilege to exchange investments
between the same class of funds without a sales charge, the ability to reinvest
Fund dividends into other funds and the privilege to combine holdings in other
funds to obtain a reduced sales charge. The Board was satisfied with the nature
and quality of the overall services provided by Delaware Investments and its
affiliates.
INVESTMENT PERFORMANCE. The Board considered the investment performance of
Delaware Investments and the Fund. The Board was pleased by Delaware
Investments' performance, noting Barron's ranking of the Delaware Investments
Family of Funds in the top quartile of mutual fund families for 2002 - 2004. The
Board placed significant emphasis on the investment performance of the Fund in
view of its importance to shareholders. While consideration was given to
performance reports and discussions with portfolio managers at Board meetings
throughout the year, particular attention in assessing performance was given to
the Lipper reports furnished for the Annual Meeting. The Lipper reports prepared
for the Fund showed the investment performance of its Class A shares in
comparison to a group of similar funds as selected by Lipper (the "Performance
Universe"). A fund with the highest performance is ranked first, and a fund with
the lowest is ranked last. The highest/best performing 25% of funds in the
Performance Universe make up the first quartile; the next 25% - the second
quartile; the next 25% - the third quartile; and the lowest/worst performing 25%
of funds in the Performance Universe make up the fourth quartile. Comparative
annualized performance for the Fund was shown for the past one, three, five and
10 year periods ended February 28, 2005. The Board noted its objective that the
Fund's performance be at or above the median of its Performance Universe. The
following paragraph summarizes the performance results for the Fund and the
Board's view of such performance.
The Performance Universe for this Fund consisted of the Fund and all retail and
institutional small cap value funds as selected by Lipper. The Lipper report
comparison showed that the Fund's total return for the one, three, five and 10
year periods was in the second highest quartile of such Performance Universe.
The Board was satisfied with such performance.
COMPARATIVE EXPENSES. The Board considered expense comparison data for the
Delaware Investments Family of Funds, Delaware Investments' institutional
separate account business and other lines of business at Delaware Investments.
The Board stated its belief that, given the differing level of service provided
to Delaware Investments' various clients and other factors that related to the
establishment of feel levels, variations in the levels of fees and expenses were
justified. The Board placed significant emphasis on the comparative analysis of
the management fees and total expense ratios of the Fund compared with those of
a group of similar funds as selected by Lipper (the "Expense Group") and among
the other Delaware Investments funds. In reviewing comparative costs, the Fund's
management fee schedule and the actual management fee incurred by the Fund after
taking breakpoints and fee waivers into effect were compared with the management
fees of other funds within its Expense Group. The Fund's total expenses were
also compared with those of its Lipper Expense Group. The Lipper total expenses,
for comparative consistency, were shown by Lipper for Class A shares and
compared total expenses including 12b-1 and non-12b-1 service fees. The Board
noted its objective to limit the Fund's total expense ratio to an acceptable
range as compared to the median of the Expense Group. The following paragraph
summarizes the expense results for the Fund and the Board's view of such
expenses.
Such expense comparisons for the Fund showed that its management fee was in the
quartile with the lowest expenses and its total expenses were in the quartile
with the second highest expenses of its Lipper Expense Group. The Board gave
favorable consideration to the Fund's management fee, but noted that the Fund's
total expenses were not in line with the Board's stated objective. In evaluating
the total expenses, the Board considered recent cost saving initiatives
implemented by management, including a reduction in sub-transfer agency expenses
as a result of Delaware Investments' outsourcing of its retirement
administration services. The Board was encouraged by management's efforts to
minimize costs and improve the Fund's total expense ratio.
MANAGEMENT PROFITABILITY. The Board considered the level of profits, if any,
realized by Delaware Investments, including its affiliates in connection with
the operation of the Fund. In this respect, the Board reviewed the Investment
Management Profitability Analysis that addressed the overall profitability of
Delaware Investments' business in providing management and other services to
each of the individual funds. Specific attention was given to the methodology
followed in allocating costs for the purpose of determining profitability.
Management stated that the level of profits of Delaware Investments and its
affiliates, to a certain extent, reflected operational cost savings and
efficiencies initiated by Delaware Investments. The Board considered Delaware
Investments' expenditures to improve services provided to the Fund's
shareholders and to meet additional regulatory and compliance requirements
resulting from Sarbanes-Oxley and recent SEC initiatives. The Board also
considered the extent to which Delaware Investments and its affiliates might
derive ancillary benefits from fund operations, including the potential for
procuring additional business as a result of the prestige and visibility
associated with their role as service providers to the Delaware Investments
Family of Funds, the benefits from allocation of fund brokerage to improve
trading efficiencies and the use of "soft" commission dollars to pay for
proprietary and non-proprietary research. At the Board's request, management
also provided information relating to Delaware Investments' profitability by
client type, including the Fund. The information provided set forth the revenue,
expenses and pre-tax income/loss attributable to the Delaware Investments Family
of Funds, Delaware Investments' separate account business and other lines of
business at Delaware Investments. Emphasis was given to the level and type of
service provided to the various clients. The Board was satisfied with the level
of profits realized by Delaware Investments and its affiliates.
ECONOMIES OF SCALE. The Trustees considered whether economies of scale are
realized by Delaware Investments as the Fund's assets increase and the extent to
which any economies of scale are reflected in the level of management fees
charged. The Trustees took into account the standardized advisory fee pricing
and structure approved by the Board and shareholders as part of a complex wide
proxy conducted in 1998/1999. At that time, Delaware Investments introduced
breakpoints to account for management economies of scale. The Board noted that
the fee under the Fund's management contract fell within the standard structure.
The Board also noted that the Fund's assets exceeded the first breakpoint level.
The Board believed that, given the extent to which economies of scale might be
realized by the manager and its affiliates, the schedule of fees under the
Investment Advisory Agreement provides a sharing of benefits with the Fund and
its shareholders.
17
Delaware
Investments(R)
- -----------------------------------
A member of Lincoln Financial Group
This semiannual report is for the information of Delaware Small Cap Value Fund
shareholders, but it may be used with prospective investors when preceded or
accompanied by a current prospectus for Delaware Small Cap Value Fund and the
Delaware Investments Performance Update for the most recently completed calendar
quarter. The prospectus sets forth details about charges, expenses, investment
objectives, and operating policies of the Fund. You should read the prospectus
carefully before you invest. The figures in this report represent past results
that are not a guarantee of future results. The return and principal value of an
investment in the 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 MICHAEL P. BISHOF INVESTMENT MANAGER
Chairman Senior Vice President and Delaware Management Company,
Delaware Investments Family of Funds Chief Financial Officer a Series of Delaware Management Business Trust
Philadelphia, PA Delaware Investments Family of Funds Philadelphia, PA
Philadelphia, PA
THOMAS L. BENNETT NATIONAL DISTRIBUTOR
Private Investor RICHELLE S. MAESTRO Delaware Distributors, L.P.
Rosemont, PA Executive Vice President, Philadelphia, PA
Chief Legal Officer and Secretary
JOHN A. FRY Delaware Investments Family of Funds SHAREHOLDER SERVICING, DIVIDEND
President Philadelphia, PA DISBURSING AND TRANSFER AGENT
Franklin & Marshall College Delaware Service Company, Inc.
Lancaster, PA JOHN J. O'CONNOR 2005 Market Street
Senior Vice President and Treasurer Philadelphia, PA 19103-7094
ANTHONY D. KNERR Delaware Investments Family of Funds
Managing Director Philadelphia, PA FOR SHAREHOLDERS
Anthony Knerr & Associates 800 523-1918
New York, NY
FOR SECURITIES DEALERS AND FINANCIAL
LUCINDA S. LANDRETH INSTITUTIONS REPRESENTATIVES ONLY
Former Chief Investment Officer 800 362-7500
Assurant, Inc.
Philadelphia, PA WEB SITE
www.delawareinvestments.com
ANN R. LEVEN
Former Treasurer/Chief Fiscal Officer
National Gallery of Art
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
J. RICHARD ZECHER
Founder
Investor Analytics
Scottsdale, AZ
- --------------------------------------------------------------------------------
The Fund files its complete schedule of portfolio holdings with the Securities
and Exchange Commission for the first and third quarters of each fiscal year on
Form N-Q. The Fund's Forms N-Q, as well as a description of the policies and
procedures that the Fund uses to determine how to vote proxies (if any) relating
to portfolio securities is available without charge (i) upon request, by calling
800 523-1918; (ii) on the Fund's Web site at http://www.delawareinvestments.com;
and (iii) on the Commission's Web site at http://www.sec.gov. The Fund's Forms
N-Q may be reviewed and copied at the Commission's Public Reference Room in
Washington, DC; information on the operation of the Public Reference Room may be
obtained by calling 1-800-SEC-0330.
Information (if any) regarding how the Fund voted proxies relating to portfolio
securities during the most recently disclosed 12-month period ended June 30 is
available without charge (i) through the Fund's Web site at
http://www.delawareinvestments.com; and (ii) on the Commission's Web site at
http://www.sec.gov.
- --------------------------------------------------------------------------------
(9483) Printed in the USA
SA-021-[5/05]IVES 7/05 MF-05-06-092 PO 10242
Item 2. Code of Ethics
Not applicable.
Item 3. Audit Committee Financial Expert
Not applicable.
Item 4. Principal Accountant Fees and Services
Not applicable.
Item 5. Audit Committee of Listed Registrants
Not applicable.
Item 6. Schedule of Investments
Included as part of report to shareholders filed under Item 1 of this
Form N-CSR.
Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End
Management Investment Companies
Not applicable.
Item 8. Portfolio Managers of Closed-End Management Investment Companies
Not applicable.
Item 9. Purchases of Equity Securities by Closed-End Management Investment
Companies and Affiliated Purchasers
Not applicable.
Item 10. Submission of Matters to a Vote of Security Holders
Not applicable.
Item 11. Controls and Procedures
The registrant's principal executive officer and principal financial
officer have evaluated the registrant's disclosure controls and procedures
within 90 days of the filing of this report and have concluded that they are
effective in providing reasonable assurance that the information required to be
disclosed by the registrant in its reports or statements filed under the
Securities Exchange Act of 1934 is recorded, processed, summarized and reported
within the time periods specified in the rules and forms of the Securities and
Exchange Commission.
There were no significant changes in the registrant's internal control
over financial reporting that occurred during the second fiscal quarter of the
period covered by the report to stockholders included herein (i.e., the
registrant's second fiscal quarter) that have materially affected, or are
reasonably likely to materially affect, the registrant's internal control over
financial reporting.
Item 12. Exhibits
(a)(1) Code of Ethics
Not applicable.
(2) Certifications of Principal Executive Officer and Principal Financial
Officer pursuant to Rule 30a-2 under the Investment Company Act of 1940
are attached hereto as Exhibit 99.CERT.
(3) Written solicitations to purchase securities pursuant to Rule 23c-1
under the Securities Exchange Act of 1934.
Not applicable.
(b) Certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 are
furnished herewith as Exhibit 99.906CERT.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and
the Investment Company Act of 1940, the registrant has duly caused this report
to be signed on its behalf, by the undersigned, thereunto duly authorized.
DELAWARE GROUP EQUITY FUNDS V
/s/ Jude T. Driscoll
- --------------------------------
By: Jude T. Driscoll
Title: Chief Executive Officer
Date: July 22, 2005
Pursuant to the requirements of the Securities Exchange Act of 1934 and
the Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
/s/ Jude T. Driscoll
- -------------------------------
By: Jude T. Driscoll
Title: Chief Executive Officer
Date: July 22, 2005
/s/ Michael P. Bishof
- -------------------------------
By: Michael P. Bishof
Title: Chief Financial Officer
Date: July 22, 2005