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: David F. Connor, Esq.
2005 Market Street
Philadelphia, PA 19103
Registrant's telephone number,
including area code: (800) 523-1918
Date of fiscal year end: November 30
Date of reporting period: November 30, 2005
Item 1. Reports to Stockholders
VALUE-EQUITY
Delaware
Investments(R)
-----------------------------------
A member of Lincoln Financial Group
ANNUAL REPORT NOVEMBER 30, 2005
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DELAWARE DIVIDEND INCOME FUND
[GRAPHIC] POWERED BY RESEARCH(R)
TABLE
OF CONTENTS
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PORTFOLIO MANAGEMENT REVIEW 1
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PERFORMANCE SUMMARY 4
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DISCLOSURE OF FUND EXPENSES 6
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SECTOR ALLOCATION 7
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FINANCIAL STATEMENTS:
Statement of Net Assets 8
Statement of Operations 14
Statements of Changes in Net Assets 15
Financial Highlights 16
Notes to Financial Statements 20
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REPORT OF INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM 23
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BOARD OF TRUSTEES/DIRECTORS AND OFFICERS 24
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ABOUT THE ORGANIZATION 26
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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) 2006 Delaware Distributors, L.P.
DELAWARE DIVIDEND INCOME FUND
PORTFOLIO December 13, 2005
MANAGEMENT REVIEW
FUND MANAGERS
Ty Nutt, Jr.
MANAGER
Jordan L. Irving
MANAGER
Anthony A. Lombardi
MANAGER
Robert A. Vogel, Jr.
MANAGER
Timothy L. Rabe
MANAGER
Damon J. Andres
MANAGER
Q: CAN YOU PLEASE DISCUSS THE INVESTMENT ENVIRONMENT DURING THE PERIOD?
A: During the 12-month period ended November 30, 2005, the Federal Reserve
steadily increased short-term interest rates--a factor which has had a
significant impact on both equity and fixed-income markets. Stock market returns
were limited by investor concerns about rising energy prices and a string of
intense hurricanes, which disrupted oil production on the Gulf Coast and
increased federal borrowing to fund rebuilding. GDP and corporate earnings
continue to grow, but we remain cautious about the economy and believe that the
long-term trend may signal a gradual deceleration.
Q: HOW DID THE FUND PERFORM RELATIVE TO ITS BENCHMARK FOR THE 12-MONTH PERIOD
ENDED NOVEMBER 30, 2005?
A: Delaware Dividend Income Fund posted a 4.89% return at net asset value and
- -1.10% at its maximum offer price (for Class A shares; both figures represent
all distributions reinvested) for the 12-month period ended November 30, 2005.
For complete, annualized performance for Delaware Dividend Income Fund, see the
table on page 4.
The Fund underperformed its benchmark, the Standard & Poor's (S&P) 500 Index,
which returned 8.44% during the same period. Unlike the all-equity S&P 500
Index, the portfolio is diversified across four asset classes: large-cap value
equities, high-yield bonds, REITs, and convertible securities. Each portion of
the portfolio has a relatively low correlation with other asset classes in the
Fund, providing it with an effective way to manage market volatility.
Q: HOW DID THE FUND'S EQUITY ALLOCATION PERFORM?
A: In March 2005, the Delaware Investments Large Cap Value Equity team of Ty
Nutt, Jr., Jordan Irving, Anthony Lombardi, and Robert Vogel took over
day-to-day operations of the equity investments within Delaware Investments
Dividend Income Fund (Damon Andres remained as the portfolio manager responsible
for both REITs and convertible securities in the Fund, while Tim Rabe continued
to handle the Fund's allocation to high-yield fixed income).
As stock investors, we consider ourselves long-term buy-and-hold investors.
However, it is important to note that the transition of equities management this
year resulted in a lower-than-average annual turnover rate for the Fund, as the
equity allocation was adjusted shortly after the management change. We do expect
the Fund's turnover level to be much lower going forward.
During the 12-month period, the strongest equity returns came from the
industrial, financial, and information technology sectors. In the financial
sector, Aon, the world's second largest insurance broker, delivered exceptional
performance. Careful analysis led us to believe that the stock was undervalued
following a high-profile investigation by New York Attorney General Eliot
Spitzer. Under the direction of a new CEO and a long-term restructuring plan,
the company has exhibited renewed strength and we believe that it can benefit
from rising volumes and improved pricing as a result of hurricanes Katrina and
Rita.
Another positive contributor to performance was Boeing, which has undergone a
series of restructuring steps and implemented a new CEO in order to improve
efficiency and productivity. The strong performance in Boeing's commercial
aircraft division has been boosted by orders for its new 787 Dreamliner and
increased travel in Asia.
Conversely, individual security selection in the staples and health care sectors
hurt performance. The stock performance of both Pfizer and Merck, in particular,
proved disappointing during the fiscal year. Growing concern about the number of
drugs coming off patent and the impact of generic competition was compounded by
an unfavorable outlook for new product development. In addition, potential legal
liabilities related to the withdrawal of Merck's Vioxx in 2004 and Pfizer's
Bextra in April 2005, had a significant impact on valuations. We believe that
these companies have suffered unfairly, and remain optimistic that they will
benefit from strong franchises, healthy balance sheets, improving cash flow, and
attractive dividend generation over the next three to five years.
1
Q: HOW DID THE FUND'S REIT INVESTMENTS PERFORM?
A: Our REIT allocation underperformed the NAREIT Equity REIT Index, which
returned 11.46%, during the fiscal year. REITs that delivered the strongest
returns during the 12-month period were generally characterized by rich
valuations--companies that we cautiously avoid. An example is Gables Residential
Trust, which was acquired at a premium valuation, delivering outperformance this
year despite a weak balance sheet and deteriorating cash flow. It is important
to note that we did not own this security.
The Fund also had exposure to mortgage REITs, which hurt our performance
relative to the NAREIT Equity Index, as these securities underperformed due to
concerns about consumer credit and the housing market.
Q: CAN YOU GIVE SOME EXAMPLES OF KEY HOLDINGS?
A: Among diversified REIT companies, Vornado Realty Trust posted strong returns.
Successful business operations and diverse real estate exposure have contributed
to Vornado's position as an industry leader. The Fund also benefited from a
position in Simon Property Group, a regional mall company that experienced
robust growth and solid operating performance this year, and also completed an
acquisition.
By contrast, our position in Great Wolf Resorts, in the consumer discretionary
sector, did not meet performance expectations. The stock was adversely impacted
by a variety of factors, including earnings misrepresentation and poor corporate
management. We still hold the stock; we believe a buyout may be in the company's
future, which we are hopeful could lead to brighter long-term prospects.
Q: HOW DID THE PORTFOLIO'S FIXED INCOME INVESTMENTS FARE DURING THE YEAR?
A: Corporate bond investors, in general, faced a number of challenges this year.
Downgrades to General Motors and Ford Motor Company debt to non-investment grade
had a negative impact on the market. The sector was further penalized by several
high profile corporate bankruptcy filings by Northwest, Delta and Delphi, which
occurred prior to sweeping bankruptcy reform.
Our investments in high-yield corporate bonds performed favorably despite a
difficult environment. The portfolio's fixed income allocation outperformed the
Bear Stearns High Yield Index, which returned 2.59% during the 12-month period.
Our investments in Georgia Pacific, which was acquired by Koch Industries and
positions in wireless subsidiary Alamosa Holdings, which was acquired by
Sprint/Nextel, delivered attractive returns.
Conversely, we experienced disappointing performance from embattled power
producer Calpine, which teetered on the verge of bankruptcy. Our position in
Charter Communications, a highly leveraged broadband communications company,
also suffered from weakening valuations.
2
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3
PERFORMANCE SUMMARY
DELAWARE DIVIDEND INCOME FUND
The performance data quoted represent past performance; past performance does
not guarantee future results. Investment return and principal value will
fluctuate so your shares, when redeemed, may be worth more or less than their
original cost. Current performance may be lower or higher than the performance
data quoted. Please obtain the performance data for the most recent month end by
calling 800 523-1918 or visiting our Web site at
www.delawareinvestments.com/performance. You should consider the investment
objectives, risks, charges and expenses of the investment carefully before
investing. The Delaware Dividend Income Fund prospectus contains this and other
important information about the Fund. Please request a prospectus by calling 800
523-1918. Read it carefully before you invest or send money. Performance
includes reinvestment of all distributions and is subject to change.
FUND PERFORMANCE
Average Annual Total Returns
Through November 30, 2005 Lifetime Five Years One Year
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Class A (Est. 12/2/96)
Excluding Sales Charge +9.99% +8.45% +4.89%
Including Sales Charge +9.27% +7.16% -1.10%
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Class B (Est. 10/1/03)
Excluding Sales Charge +8.37% +4.09%
Including Sales Charge +7.20% +0.09%
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Class C (Est. 10/1/03)
Excluding Sales Charge +8.37% +4.09%
Including Sales Charge +8.37% +3.09%
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Returns reflect the reinvestment of all distributions and any applicable sales
charges as noted below. Performance for Class B and C shares, excluding sales
charges, assumes either that contingent deferred sales charges did not apply or
the investment was not redeemed.
The Fund offers Class A, B, C, R, and Institutional Class shares. Class A shares
are sold with a front-end sales charge of up to 5.75% and have an annual
distribution and service fee of up to 0.30%. The distributor has contracted to
limit this amount to 0.25% through March 31, 2006. Performance prior to October
1, 2003 does not reflect the impact of distribution and service (12b-1) fees and
the higher management and transfer fees currently borne by holders of Class A
shares.
Class B shares are sold with a contingent deferred sales charge that declines
from 4% to zero depending upon the period of time the shares are held. Class B
shares will automatically convert to Class A shares on a quarterly basis
approximately eight years after purchase. They are also subject to an annual
distribution and service fee of 1.00%.
Class C shares are sold with a contingent deferred sales charge of 1.00% if
redeemed during the first 12 months. They are also subject to an annual
distribution and service fee of 1.00%.
The average annual total return for the lifetime and one-year periods ended
November 30, 2005 for Delaware Dividend Income Fund's Class R shares were +8.83%
and +4.55%, respectively. Class R shares were first made available on October 1,
2003 and are available only for certain retirement plan products. They are sold
without a sales charge and have an annual distribution and service fee of 0.60%.
Effective August 1, 2005, the distributor has contracted to limit this amount to
0.50% through February 28, 2006.
The average annual total returns for lifetime, five-year, and one-year periods
ended November 30, 2005 for Delaware Dividend Income Fund's Institutional Class
were +10.06%, +8.56%, and +5.16%, respectively. Institutional Class shares were
first made available on December 2, 1996 and are available without sales or
asset-based distribution charges only to certain eligible institutional
accounts.
Expense limitations were in effect for all classes of Delaware Dividend Income
Fund during the periods shown. Performance would have been lower had the expense
limitation not been in effect.
The performance table does not reflect the deduction of taxes the shareholder
would pay on Fund distributions or redemptions of Fund shares.
Nasdaq Institutional Class symbol: DDIIX
Nasdaq Class R symbol: DDDRX
4
FUND BASICS
As of November 30, 2005
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FUND OBJECTIVE:
The Fund seeks to provide high current income and an investment that has
the potential for capital appreciation.
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TOTAL FUND NET ASSETS:
$511 million
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NUMBER OF HOLDINGS:
303
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FUND START DATE:
December 2, 1996
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YOUR FUND MANAGERS:
Ty Nutt, Jr. joined Delaware Investments in 2004. Mr. Nutt began his investment
career in 1983 at Dean Witter Reynolds where he advanced to Vice President,
Investments. In 1988, he joined Van Deventer & Hoch (V&H). As a Senior Vice
President at V&H, he was a member of the firm's Management Committee and
directed new business development in addition to his portfolio management
duties. Mr. Nutt moved to Merrill Lynch Investment Managers in 1994 and later
served as leader of the U.S. Active Large Cap Value Team. He is a member of the
New York Society of Security Analysts and the CFA Institute. Mr. Nutt graduated
from Dartmouth College with a BA.
Anthony A. Lombardi joined Delaware Investments in 2004. Mr. Lombardi's was an
Investment Analyst with Crossland Savings, FSB, Brooklyn, NY from 1989-1990. He
joined Dean Witter Reynolds, Inc. as a Research Assistant in 1990 and became
Vice President, Research Analyst. He then moved to Merrill Lynch Investment
Managers (MLIM) in 1998, and became a Portfolio Manager with the U.S. Active
Large Cap Value Team in 2000. He departed MLIM as a Director. He is a Chartered
Financial Analyst and a member of the New York Society of Security Analysts and
the CFA Institute. Mr. Lombardi graduated from Hofstra University with a BBA and
MBA in Finance.
Robert A. Vogel, Jr. joined Delaware Investments in 2004. Mr. Vogel started as a
Financial Consultant with Merrill Lynch in 1992. He then moved to Merrill Lynch
Investment Managers (MLIM), as a Portfolio Manager. He departed MLIM as a
Director. In 2004, Mr. Vogel joined Delaware Investments as Vice President,
Senior Portfolio Manager. Mr. Vogel is a Chartered Financial Analyst and a
member of the New York Society of Security Analysts and the CFA Institute. Mr.
Vogel graduated from Loyola College in Maryland earning both his BBA and MS in
Finance. He earned his MBA with a concentration in Finance at the Wharton School
of Business at the University of Pennsylvania.
Timothy L. Rabe received a bachelor's degree in finance from the University of
Illinois. Prior to joining Delaware Investments in 2000, Mr. Rabe was a
high-yield portfolio manager for Conseco Capital Management. Before that, he
worked as a tax analyst for The Northern Trust Company. Mr. Rabe is a CFA
charterholder.
Damon J. Andres earned a bachelor's degree in business administration with an
emphasis in finance and accounting from the University of Richmond. Prior to
joining Delaware Investments in 1994, he performed investment consulting
services as a Consulting Associate with Cambridge Associates, Inc. in Arlington,
Virginia. Mr. Andres is a CFA charterholder. Jordan L. Irving joined Delaware
Investments in 2004. He began his financial services career with the U.S. Active
Large Cap Value Team at Merrill Lynch Investment Managers (MLIM) in 1998. He
became a portfolio manager in 2000. In 2004, Mr. Jordan joined Delaware
Investments as Vice President, Senior Portfolio Manager. Mr. Irving graduated
from Yale University with a BA in American Studies and earned a Special Diploma
in Social Studies at Oxford University the following year.
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NASDAQ SYMBOLS:
Class A DDIAX
Class B DDDBX
Class C DDICX
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PERFORMANCE OF A $10,000 INVESTMENT
December 2, 1996 through November 30, 2005
Delaware Dividend
Income Fund -
Class A Shares S&P 500 Index
Dec. '96 $ 9,846.3 10,000
Nov. '97 $13,034 12,581
Nov. '98 $13,323 15,892
Nov. '99 $13,742 19,214
Nov. '00 $14,795 18,403
Nov. '01 $15,367.6 16,154
Nov. '02 $15,764 13,632.4
Nov. '03 $18,830.2 15,688.1
Nov. '04 $21,161.3 17,704
Nov. '05 $22,196.1 19,198.3
Chart assumes $10,000 invested on December 2, 1996 and includes the effect of a
5.75% front-end sales charge and the reinvestment of all distributions.
Performance prior to October 1, 2003 does not reflect the impact of distribution
and service (12b-1) fees currently borne by holders of Class A shares.
Performance for other Fund classes will vary due to differing charges and
expenses. The chart also assumes $10,000 invested in the S&P 500 Index at that
month's end, December 31, 1996. After December 31, 1996, returns plotted on the
chart were as of the last day of each month shown. The S&P 500 Index is an
unmanaged composite of mostly large-capitalization U.S. companies. An index is
unmanaged and does not reflect the costs of operating a mutual fund, such as the
costs of buying, selling, and holding securities. You cannot invest directly in
an index. Past performance is not a guarantee of future results.
Expense limitations were in effect for the period shown. Performance would have
been lower had the expense limitations not been in effect.
The performance graph does not reflect the deduction of taxes the shareholder
would pay on Fund distributions or redemptions of Fund shares.
5
DISCLOSURE For the Period June 1, 2005 to November 30, 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 June 1, 2005 to November 30, 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 6/1/05 to
6/1/05 11/30/05 Ratio 11/30/05
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ACTUAL FUND RETURN
Class A $1,000.00 $1,037.20 1.00% $5.11
Class B 1,000.00 1,033.30 1.75% 8.92
Class C 1,000.00 1,032.40 1.75% 8.92
Class R 1,000.00 1,034.70 1.30% 6.63
Institutional Class 1,000.00 1,037.60 0.75% 3.83
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HYPOTHETICAL 5% RETURN (5% return before expenses)
Class A $1,000.00 $1,020.20 1.00% $5.06
Class B 1,000.00 1,016.34 1.75% 8.85
Class C 1,000.00 1,016.34 1.75% 8.85
Class R 1,000.00 1,018.55 1.30% 6.58
Institutional Class 1,000.00 1,021.31 0.75% 3.80
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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 183/365 (to reflect the
one-half year period).
6
SECTOR ALLOCATION As of November 30, 2005
DELAWARE DIVIDEND INCOME FUND
Sector designations may be different than the sector designations presented in
other Fund materials.
PERCENTAGE
SECTOR OF NET ASSETS
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COMMON STOCK 53.82%
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Consumer Discretionary 3.42%
Consumer Staples 4.19%
Diversified REITs 0.84%
Energy 3.37%
Financials 10.18%
Health Care 6.43%
Health Care REITs 0.03%
Industrial REITs 0.56%
Industrials 3.83%
Information Technology 3.76%
Lodging/Resort REITs 0.73%
Mall REITs 1.46%
Materials 1.28%
Mortgage REITs 4.12%
Multifamily REITs 0.39%
Office/Industrial REITs 0.56%
Office REITs 3.18%
Shopping Center REITs 1.78%
Telecommunication Services 2.47%
Utilities 1.24%
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CORPORATE BONDS 23.01%
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Banking 0.16%
Basic Industries 3.63%
Brokerage 0.67%
Capital Goods 1.28%
Consumer Cyclical 1.28%
Consumer Non-Cyclical 2.07%
Energy 0.98%
Media 2.99%
Real Estate 0.50%
Services Cyclical 2.93%
Services Non-cyclical 1.47%
Technology & Electronics 0.61%
Telecommunications 2.68%
Utilities 1.76%
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PERCENTAGE
SECTOR OF NET ASSETS
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CONVERTIBLE BONDS 10.66%
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Aerospace & Defense 0.48%
Banking, Finance & Insurance 0.56%
Cable, Media & Publishing 1.68%
Computers & Technology 1.41%
Consumer Services 0.32%
Electronics & Electrical Equipment 0.46%
Energy 1.10%
Health Care & Pharmaceuticals 2.30%
Leisure, Lodging & Entertainment 0.09%
Real Estate 0.14%
Retail 1.42%
Telecommunications 0.16%
Transportation 0.12%
Utilities 0.42%
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CONVERTIBLE PREFERRED STOCK 5.19%
- --------------------------------------------------------------------------------
Automobiles & Automotive Parts 0.15%
Banking, Finance & Insurance 2.08%
Basic Materials 0.44%
Cable, Media & Publishing 0.69%
Consumer Products 0.12%
Energy 0.66%
Environmental Services 0.12%
Food, Beverage & Tobacco 0.20%
Telecommunications 0.19%
Utilities 0.54%
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PREFERRED STOCK 1.04%
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Leisure, Lodging & Entertainment 0.12%
Real Estate 0.88%
Telecommunications 0.04%
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EXCHANGE TRADED FUNDS 0.37%
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WARRANT 0.00%
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COMMERCIAL MORTGAGE-BACKED SECURITIES 0.15%
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REPURCHASE AGREEMENTS 5.48%
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TOTAL MARKET VALUE OF SECURITIES 99.72%
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RECEIVABLES AND OTHER ASSETS NET OF LIABILITIES 0.28%
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TOTAL NET ASSETS 100.00%
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7
DELAWARE DIVIDEND INCOME FUND
STATEMENT November 30, 2005
OF NET ASSETS
Number of Market
Shares Value
COMMON STOCK - 53.82%
Consumer Discretionary - 3.42%
+Great Wolf Resorts 141,900 $ 1,379,268
+Jameson Inns 2,011,300 4,203,617
Limited Brands 287,100 6,387,975
Mattel 332,600 5,537,790
------------
17,508,650
------------
Consumer Staples - 4.19%
Archer-Daniels-Midland 162,200 3,823,054
B&G Foods 11,000 160,050
ConAgra Foods 261,600 5,624,400
Kimberly-Clark 98,800 5,827,224
Safeway 258,500 6,010,125
------------
21,444,853
------------
Diversified REITs - 0.84%
Vornado Realty Trust 50,300 4,293,105
------------
4,293,105
-------------
Energy - 3.37%
Chevron 98,700 5,656,497
ConocoPhillips 94,700 5,730,297
Exxon Mobil 100,300 5,820,409
------------
17,207,203
------------
Financials - 10.18%
Allstate 110,800 6,215,880
Aon 191,300 6,965,233
Chubb 70,600 6,836,904
Hartford Financial Services 80,200 7,007,074
Huntington Bancshares 257,400 6,167,304
Morgan Stanley 115,800 6,488,274
Wachovia 120,700 6,445,380
Washington Mutual 143,800 5,923,122
------------
52,049,171
------------
Health Care - 6.43%
Abbott Laboratories 133,300 5,026,743
Baxter International 150,700 5,860,723
Bristol-Myers Squibb 244,500 5,278,755
Merck 211,900 6,229,860
Pfizer 235,400 4,990,480
Wyeth 131,700 5,473,452
------------
32,860,013
------------
Healthcare REITs - 0.03%
Medical Properties Trust 19,700 180,058
------------
180,058
------------
Industrial REITs - 0.56%
First Potomac Realty Trust 87,000 2,405,550
ProLogis 10,000 453,600
------------
2,859,150
------------
Industrials - 3.83%
Boeing 93,600 6,382,584
+Foster Wheeler 3,656 127,338
Union Pacific 88,900 6,804,406
Waste Management 209,800 6,275,118
------------
19,589,446
------------
Information Technology - 3.76%
Hewlett-Packard 209,300 6,209,931
International Business Machines 74,900 6,658,610
Number of Market
Shares Value
COMMON STOCK (continued)
Information Technology (continued)
+Xerox 447,000 $ 6,347,400
------------
19,215,941
------------
Lodging/Resort REITs - 0.73%
Hersha Hospitality Trust 129,900 1,197,678
Strategic Hotel Capital 135,900 2,510,073
------------
3,707,751
------------
Mall REITs - 1.46%
CBL & Associates Properties 47,700 1,919,925
Mills 7,500 321,750
Simon Property Group 67,200 5,195,232
------------
7,436,907
------------
Materials - 1.28%
duPont (E.I.) deNemours 152,500 6,519,375
------------
6,519,375
------------
Mortgage REITs - 4.12%
American Home Mortgage Investment 84,200 2,499,898
Friedman Billings Ramsey Group Class A 163,325 1,737,778
Gramercy Capital 158,000 3,705,100
JER Investors Trust 210,900 3,395,490
KKR Financial 11,100 263,625
sKKR Financial 79,300 1,883,375
MortgageIT Holdings 223,000 2,948,060
sPeoples Choice 174,600 1,309,500
Saxon Capital 278,700 3,344,400
------------
21,087,226
------------
Multifamily REITs - 0.39%
AvalonBay Communities 10,000 914,500
Equity Lifestyle Properties 23,100 1,070,916
------------
1,985,416
------------
Office/Industrial REITs - 0.56%
Duke Realty 84,200 2,862,800
------------
2,862,800
------------
Office REITs - 3.18%
Brandywine Realty Trust 158,000 4,578,840
CarrAmerica Realty 26,500 935,450
Equity Office Properties Trust 121,500 3,788,370
Prentiss Properties Trust 82,400 3,378,400
Reckson Associates Realty 97,900 3,595,867
------------
16,276,927
------------
Shopping Center REITs - 1.78%
Developers Diversified Realty 100,900 4,570,770
Federal Realty Investment Trust 71,700 4,515,666
------------
9,086,436
------------
Telecommunication Services - 2.47%
AT&T 253,900 6,324,649
Verizon Communications 196,600 6,287,268
------------
12,611,917
------------
Utilities - 1.24%
Progress Energy 141,400 6,331,892
------------
6,331,892
------------
TOTAL COMMON STOCK (cost $267,797,757) 275,114,237
------------
8
DELAWARE DIVIDEND INCOME FUND
STATEMENT
OF NET ASSETS (CONTINUED)
Principal Market
Amount (U.S.$) Value
CORPORATE BONDS - 23.01%
Banking - 0.16%
Western Financial 9.625% 5/15/12 $ 735,000 $ 828,713
-----------
828,713
-----------
Basic Industries - 3.63%
Abitibi-Consolidated 6.95% 4/1/08 275,000 279,125
AK Steel
7.75% 6/15/12 250,000 226,875
7.875% 2/15/09 465,000 446,400
#Apex Silver Mines 144A 2.875% 3/15/24 1,000,000 787,500
Bowater 9.50% 10/15/12 1,315,000 1,361,024
Donohue Forest Products 7.625% 5/15/07 545,000 562,713
Fort James 7.75% 11/15/23 1,575,000 1,984,499
Georgia-Pacific
8.875% 5/15/31 385,000 386,925
9.50% 12/1/11 445,000 476,706
Gold Kist 10.25% 3/15/14 495,000 561,825
Huntsman International
9.875% 3/1/09 240,000 253,500
10.125% 7/1/09 205,000 212,175
#Huntsman International 144A
7.375% 1/1/15 460,000 446,775
Lyondell Chemical 10.50% 6/1/13 100,000 114,125
Nalco 7.75% 11/15/11 320,000 330,400
#Nell AF Sarl 144A 8.375% 8/15/15 650,000 640,250
NewPage 10.00% 5/1/12 675,000 668,250
Norske Skog 8.625% 6/15/11 1,272,000 1,249,740
#Novelis 144A 7.50% 2/15/15 275,000 258,500
#Port Townsend Paper 144A 12.00% 4/15/11 740,000 503,200
Potlatch 13.00% 12/1/09 635,000 762,120
Rhodia
8.875% 6/1/11 860,000 877,200
10.25% 6/1/10 465,000 512,663
Smurfit Capital Funding 7.50% 11/20/25 1,285,000 1,130,800
aSolutia 6.72% 10/15/37 1,070,000 770,400
Stone Container 9.75% 2/1/11 1,010,000 1,027,675
Tembec Industries 8.625% 6/30/09 1,875,000 1,246,875
Witco 6.875% 2/1/26 500,000 472,500
------------
18,550,740
-----------
Brokerage - 0.67%
E Trade Financial 8.00% 6/15/11 1,260,000 1,294,649
#E Trade Financial 144A 8.00% 6/15/11 145,000 148,988
FINOVA Group 7.50% 11/15/09 1,406,500 513,373
LaBranche & Company
9.50% 5/15/09 560,000 590,800
11.00% 5/15/12 805,000 891,538
-----------
3,439,348
-----------
Capital Goods - 1.28%
aAnchor Glass 11.00% 2/15/13 350,000 255,500
Armor Holdings 8.25% 8/15/13 910,000 987,350
Graham Packaging 9.875% 10/15/14 965,000 938,463
Interface 10.375% 2/1/10 445,000 480,600
Interline Brands 11.50% 5/15/11 972,000 1,083,779
Intertape Polymer 8.50% 8/1/14 960,000 902,971
~Mueller Holdings 14.75% 4/15/14 1,115,000 844,613
#Panolam Industrial 144A 10.75% 10/1/13 410,000 395,650
Trimas 9.875% 6/15/12 785,000 647,625
-----------
6,536,551
-----------
Principal Market
Amount (U.S.$) Value
CORPORATE BONDS (continued)
Consumer Cyclical - 1.28%
Accuride 8.50% 2/1/15 $ 700,000 $ 689,500
Autonation 9.00% 8/1/08 360,000 387,900
General Motors Acceptance Corporation
6.875% 9/15/11 305,000 275,893
8.00% 11/1/31 320,000 314,646
Landry's Restaurant 7.50% 12/15/14 525,000 496,125
#Metaldyne 144A 11.00% 11/1/13 950,000 855,000
#Neiman Marcus 144A 10.375% 10/15/15 690,000 701,213
O'Charleys 9.00% 11/1/13 965,000 998,774
#Uno Restaurant 144A 10.00% 2/15/11 650,000 572,000
aVenture Holdings 12.00% 6/1/09 35,000 44
Visteon
7.00% 3/10/14 175,000 141,531
8.25% 8/1/10 470,000 411,250
Warnaco 8.875% 6/15/13 630,000 685,125
-----------
6,529,001
-----------
Consumer Non-Cyclical - 2.07%
Biovail 7.875% 4/1/10 1,250,000 1,303,125
#Commonwealth Brands 144A
9.75% 4/15/08 375,000 416,719
10.625% 9/1/08 700,000 802,375
Constellation Brands 8.125% 1/15/12 477,000 498,465
Cott Beverages 8.00% 12/15/11 995,000 1,024,850
#Doane Pet Care 144A 10.625% 11/15/15 375,000 382,969
#Le-Natures 144A 10.00% 6/15/13 915,000 947,025
National Beef Packing 10.50% 8/1/11 935,000 970,063
Pilgrim's Pride 9.625% 9/15/11 745,000 791,563
Playtex Products 9.375% 6/1/11 855,000 905,231
Rayovac 8.50% 10/1/13 390,000 355,388
True Temper Sports 8.375% 9/15/11 505,000 457,025
#Warner Chilcott 144A 8.75% 2/1/15 1,610,000 1,473,149
#Williams Scotsman 144A 8.50% 10/1/15 220,000 227,700
-----------
10,555,647
-----------
Energy - 0.98%
Bluewater Finance 10.25% 2/15/12 438,000 469,755
#Compton Petroleum 144A 7.625% 12/1/13 335,000 341,700
El Paso Natural Gas 7.625% 8/1/10 285,000 297,981
El Paso Production Holding 7.75% 6/1/13 835,000 860,049
#Hilcorp Energy 144A
7.75% 11/1/15 265,000 269,638
10.50% 9/1/10 584,000 649,700
Inergy Finance 6.875% 12/15/14 250,000 234,375
Plains Exploration & Production
7.125% 6/15/14 335,000 345,050
Pride International 7.375% 7/15/14 345,000 373,463
oSecunda International 12.15% 9/1/12 430,000 453,650
Tennessee Gas Pipeline 8.375% 6/15/32 355,000 398,882
Whiting Petroleum 7.25% 5/1/13 325,000 330,688
-----------
5,024,931
-----------
Media - 2.99%
JAdelphia Communications 8.125% 7/15/06 65,000 39,000
#CCH I Notes 144A 11.00% 10/1/15 1,810,000 1,561,124
Cenveo 9.625% 3/15/12 405,000 438,413
#Charter Communications 144A
5.875% 11/16/09 500,000 371,875
Charter Communications Holdings
11.125% 1/15/11 835,000 509,350
~13.50% 1/15/11 1,040,000 722,800
9
DELAWARE DIVIDEND INCOME FUND
STATEMENT
OF NET ASSETS (CONTINUED)
Principal Market
Amount (U.S.$) Value
CORPORATE BONDS (continued)
Media (continued)
#Charter Communications Operating 144A
8.375% 4/30/14 $ 665,000 $ 665,000
CSC Holdings 10.50% 5/15/16 915,000 981,338
Dex Media East 12.125% 11/15/12 640,000 748,800
#EchoStar Communications 144A
5.75% 5/15/08 500,000 489,375
Insight Midwest 10.50% 11/1/10 1,785,000 1,885,405
Lodgenet Entertainment 9.50% 6/15/13 1,215,000 1,330,424
Mediacom Capital 9.50% 1/15/13 1,310,000 1,293,625
Rogers Cablesystems 11.00% 12/1/15 820,000 867,150
Sheridan Acquisition Group 10.25% 8/15/11 215,000 224,675
#Sirius Satellite 144A 9.625% 8/1/13 935,000 918,638
Vertis 10.875% 6/15/09 445,000 434,988
Warner Music Group 7.375% 4/15/14 990,000 965,250
XM Satellite Radio 12.00% 6/15/10 757,000 855,410
-----------
15,302,640
-----------
Real Estate - 0.50%
American Real Estate Partners
8.125% 6/1/12 580,000 594,500
#American Real Estate Partners 144A
7.125% 2/15/13 250,000 246,875
BF Saul REIT 7.50% 3/1/14 975,000 1,001,812
Tanger Properties 9.125% 2/15/08 658,000 707,268
-----------
2,550,455
-----------
Services Cyclical - 2.93%
Adesa 7.625% 6/15/12 710,000 710,000
Ameristar Casinos 10.75% 2/15/09 125,000 133,438
#CCM Merger 144A 8.00% 8/1/13 650,000 632,125
Corrections Corporation of America
7.50% 5/1/11 575,000 600,875
Foster Wheeler 10.359% 9/15/11 159,000 179,670
#FTI Consulting 144A 7.625% 6/15/13 740,000 765,900
Gaylord Entertainment 6.75% 11/15/14 625,000 606,250
~H-Lines Finance Holdings 11.00% 4/1/13 1,296,000 1,075,680
Horizon Lines 9.00% 11/1/12 437,000 462,674
Kansas City Southern Railway
9.50% 10/1/08 765,000 830,025
#Knowledge Learning 144A 7.75% 2/1/15 860,000 817,000
Mandalay Resort Group 10.25% 8/1/07 1,685,000 1,807,162
MGM MIRAGE 9.75% 6/1/07 15,000 15,863
OMI 7.625% 12/1/13 1,075,000 1,091,125
Penn National Gaming 8.875% 3/15/10 1,790,000 1,883,974
Royal Caribbean Cruises 7.25% 3/15/18 325,000 346,938
Seabulk International 9.50% 8/15/13 469,000 528,798
Stena 9.625% 12/1/12 820,000 897,900
~Town Sports International 11.00% 2/1/14 505,000 338,350
United Air Lines 7.73% 7/1/10 224,828 221,082
Wheeling Island Gaming 10.125% 12/15/09 970,000 1,020,925
-----------
14,965,754
-----------
Services Non-cyclical - 1.47%
Aleris International 9.00% 11/15/14 635,000 665,163
Allied Waste North America 9.25% 9/1/12 790,000 863,075
Casella Waste Systems 9.75% 2/1/13 1,185,000 1,262,024
Geo Subordinate 11.00% 5/15/12 615,000 595,013
Healthsouth 10.75% 10/1/08 1,350,000 1,302,749
NDCHealth 10.50% 12/1/12 835,000 953,988
US Oncology 10.75% 8/15/14 1,065,000 1,184,813
~Vanguard Health 11.25% 10/1/15 970,000 698,400
-----------
7,525,225
-----------
Principal Market
Amount (U.S.$) Value
CORPORATE BONDS (continued)
Technology & Electronics - 0.61%
#Avago Technologies Finance 144A
10.125% 12/1/13 $ 340,000 $ 348,500
#Ikon Office Solutions 144A 7.75% 9/15/15 65,000 62,400
Magnachip Semiconductor 8.00% 12/15/14 850,000 790,500
Sanmina-SCI 10.375% 1/15/10 915,000 1,004,213
#Sunguard Data Systems 144A
9.125% 8/15/13 200,000 208,000
10.25% 8/15/15 705,000 715,575
-----------
3,129,188
-----------
Telecommunications - 2.68%
Alaska Communications Systems
9.875% 8/15/11 560,000 609,700
aAllegiance Telecom 11.75% 2/15/08 10,000 2,650
American Cellular 10.00% 8/1/11 480,000 522,000
American Tower 7.125% 10/15/12 575,000 596,563
Centennial Cellular Operating
10.125% 6/15/13 580,000 649,600
Cincinnati Bell 8.375% 1/15/14 1,015,000 999,775
#Digicel Limited 144A 9.25% 9/1/12 580,000 600,300
~Inmarsat Finance 10.375% 11/15/12 1,275,000 1,045,500
iPCS 11.50% 5/1/12 10,000 11,575
~Iwo Escrow Company 10.75% 1/15/15 225,000 162,563
MCI
6.908% 5/1/07 255,000 258,506
7.688% 5/1/09 800,000 831,000
PanAmSat 9.00% 8/15/14 175,000 184,625
Qwest 7.875% 9/1/11 620,000 668,050
o#Qwest 144A 7.12% 6/15/13 485,000 525,013
Rural Cellular
9.625% 5/15/08 600,000 612,750
9.875% 2/1/10 640,000 672,800
o#Rural Cellular 144A 10.041% 11/1/12 425,000 422,875
#Telcordia Technologies 144A
10.00% 3/15/13 1,350,000 1,181,249
Time Warner Telecommunications
9.75% 7/15/08 455,000 465,806
Triton Communications 9.375% 2/1/11 750,000 566,250
oUS LEC 12.716% 10/1/09 435,000 469,800
Valor Telecommunications Enterprises
7.75% 2/15/15 835,000 822,475
#Wind Acquisition 144A 10.75% 12/1/15 800,000 836,000
-----------
13,717,425
-----------
Utilities - 1.76%
Avista 9.75% 6/1/08 278,000 305,461
Calpine
7.625% 4/15/06 605,000 205,700
10.50% 5/15/06 415,000 141,100
o#Calpine 144A 9.90% 7/15/07 504,700 393,666
CMS Energy 9.875% 10/15/07 705,000 756,113
#Dynegy Holdings 144A 10.125% 7/15/13 1,183,000 1,330,874
Elwood Energy 8.159% 7/5/26 949,398 1,050,271
Midwest Generation
8.30% 7/2/09 945,000 982,800
8.75% 5/1/34 495,000 548,213
aMirant Americas 8.30% 5/1/11 605,000 754,738
Orion Power Holdings 12.00% 5/1/10 626,000 716,770
PSEG Energy Holdings 7.75% 4/16/07 259,000 265,475
Reliant Energy 9.50% 7/15/13 300,000 307,500
10
DELAWARE DIVIDEND INCOME FUND
STATEMENT
OF NET ASSETS (CONTINUED)
Principal Market
Amount (U.S.$) Value
CORPORATE BONDS (continued)
Utilities (continued)
#Tenaska Alabama Partners 144A
7.00% 6/30/21 $ 797,314 $ 810,000
#Texas Genco 144A 6.875% 12/15/14 375,000 403,125
------------
8,971,806
------------
TOTAL CORPORATE BONDS (cost $120,123,911) 117,627,424
------------
CONVERTIBLE BONDS - 10.66%
Aerospace & Defense - 0.48%
EDO 4.00% 11/15/25 exercise price
$34.19, expiration date 11/15/25 975,000 985,969
#L-3 Communications 144A
3.00% 8/1/35 exercise price
$102.31, expiration date 8/1/35 1,500,000 1,466,250
------------
2,452,219
------------
Banking, Finance & Insurance - 0.56%
PMI Group 2.50% 7/15/21 exercise price
$44.16, expiration date 7/15/21 2,750,000 2,842,813
------------
2,842,813
------------
Cable, Media & Publishing - 1.68%
EchoStar 5.75% 5/15/08 exercise price
$43.29, expiration date 5/15/08 500,000 489,375
Liberty Media 3.25% 3/15/31 exercise
price $53.86, expiration date 3/8/31 3,000,000 2,298,750
Mediacom Communications 5.25%
7/1/06 exercise price $18.72,
expiration date 7/1/06 2,500,000 2,487,500
#Playboy Enterprises 144A 3.00%
3/15/25 exercise price $17.02,
expiration date 3/15/25 3,240,000 3,316,950
------------
8,592,575
------------
Computers & Technology - 1.41%
Fairchild Semiconductor International
5.00% 11/1/08 exercise price
$30.00, expiration date 11/1/08 2,500,000 2,437,500
^#ON Semiconductor 144A 0.36%
4/15/24 exercise price $9.82,
expiration date 4/15/24 3,500,000 2,795,625
#Sybase 144A 1.75% 2/22/25 exercise price
$25.22, expiration date 2/22/25 1,875,000 1,957,031
------------
7,190,156
------------
Consumer Services - 0.32%
Fluor 1.50% 2/15/24 exercise price
$55.94, expiration date 2/15/24 1,200,000 1,644,000
------------
1,644,000
------------
Electronics & Electrical Equipment - 0.46%
Fisher Scientific 3.25% 3/1/24 exercise
price $80.40, expiration date 3/1/24 1,500,000 1,530,000
Solectron 0.50% 2/15/34 exercise price
$9.67, expiration date 2/15/34 1,100,000 816,750
------------
2,346,750
------------
Energy - 1.10%
Halliburton 3.125% 7/15/23 exercise
price $37.65, expiration date 7/15/23 1,250,000 2,200,000
Pride International 3.25% 5/1/33 exercise
price $25.70, expiration date 5/1/33 1,140,000 1,477,725
Principal Market
Amount (U.S.$) Value
CONVERTIBLE BONDS (continued)
Energy (continued)
Schlumberger 2.125% 6/1/23 exercise
price $116.89, expiration date 6/1/23 $1,500,000 $ 1,933,124
------------
5,610,849
------------
Healthcare & Pharmaceuticals - 2.30%
CV Therapeutics 3.25% 8/16/13 exercise
price $27.00, expiration date 8/16/13 500,000 556,875
Encysive Pharmaceuticals 2.50% 3/15/12
exercise price $13.95,
expiration date 3/15/12 625,000 622,656
#Encysive Pharmaceuticals 144A 2.50%
3/15/12 exercise price $13.95,
expiration date 3/15/12 2,000,000 1,992,500
Medimmune 1.00% 7/15/23 exercise
price $68.18, expiration date 7/15/23 3,250,000 3,180,937
#Nektar Therapeutics 144A 3.25% 9/28/12
exercise price $21.52,
expiration date 9/28/12 2,250,000 2,283,750
oWyeth 3.32% 1/15/24 exercise price
$60.39, expiration date 1/15/24 3,000,000 3,057,330
------------
11,694,048
------------
Leisure, Lodging & Entertainment - 0.09%
#Regal Entertainment Group 144A
3.75% 5/15/08 exercise price $15.30,
expiration date 5/15/08 350,000 467,688
------------
467,688
------------
Real Estate - 0.14%
MeriStar Hospitality 9.50% 4/1/10 exercise
price $10.18, expiration date 4/1/10 600,000 732,750
------------
732,750
------------
Retail - 1.42%
~Dick's Sporting Goods 1.606% 2/18/24
exercise price $58.13,
expiration date 2/18/24 1,480,000 1,063,750
oLowe's 0.861% 10/19/21 exercise price
$50.03, expiration date 10/19/21 1,250,000 1,471,875
#Saks 144A 2.00% 3/15/24 exercise price
$18.69, expiration date 3/15/24 2,200,000 2,180,750
Sonic Automotive 5.25% 5/7/09 exercise
price $46.87, expiration date 5/7/09 1,000,000 981,250
^TJX 1.75% 2/13/21 exercise price
$20.56, expiration date 2/13/21 2,000,000 1,582,500
------------
7,280,125
------------
Telecommunications - 0.16%
Qwest Communications International
3.50% 11/15/25 exercise price $5.90,
expiration date 11/15/25 750,000 821,250
------------
821,250
------------
Transportation - 0.12%
#ExpressJet Holdings 144A
4.25% 8/1/23 exercise price $18.20,
expiration date 8/1/23 750,000 633,750
------------
633,750
------------
Utilities - 0.42%
CenterPoint Energy
3.75% 5/15/23 exercise price $11.58,
expiration date 5/15/23 400,000 483,000
11
DELAWARE DIVIDEND INCOME FUND
STATEMENT
OF NET ASSETS (CONTINUED)
Principal Market
Amount (U.S.$) Value
CONVERTIBLE BONDS (continued)
Utilities (continued)
#CenterPoint Energy 144A
3.75% 5/15/23 exercise price $11.58,
expiration date 5/15/23 $1,030,000 $ 1,243,726
aMirant 2.50% 6/15/21 exercise price
$67.95, expiration date 6/15/21 425,000 448,375
------------
2,175,101
------------
TOTAL CONVERTIBLE BONDS (cost $52,858,668) 54,484,074
------------
Number of
Shares
CONVERTIBLE PREFERRED STOCK - 5.19%
Automobiles & Automotive Parts - 0.15%
Ford Motor Capital Trust II 6.50% exercise
price $17.70, expiration date 1/15/32 25,000 771,000
------------
771,000
------------
Banking, Finance & Insurance - 2.08%
Chubb 7.00% exercise price $71.40,
expiration date 8/16/06 80,000 2,786,400
oCitigroup Funding 4.583% exercise price
$29.50, expiration date 9/27/08 69,000 2,294,112
E Trade Financial 6.125% exercise price
$21.82, expiration date 11/18/08 37,500 1,002,375
Lehman Brothers Holdings 6.25% exercise
price $54.24, expiration date 10/15/07 66,750 1,752,188
Merrill Lynch 6.75% exercise price $40.80,
expiration date 10/15/07 70,000 2,763,320
------------
10,598,395
------------
Basic Materials - 0.44%
Huntsman 5.00% exercise price $28.29,
expiration date 2/16/08 52,500 2,270,625
------------
2,270,625
------------
Cable, Media & Publishing - 0.69%
Interpublic Group 5.375% exercise price
$16.47, expiration date 12/15/06 59,000 2,128,130
#Interpublic Group 144A 5.25% exercise
price $13.66, expiration date 12/31/49 1,500 1,373,625
------------
3,501,755
------------
Consumer Products - 0.12%
Newell Financial Trust I 5.25% exercise
price $50.69, expiration date 12/1/27 15,000 630,000
------------
630,000
------------
Energy - 0.66%
Chesapeake 4.50% exercise price $44.17,
expiration date 12/31/49 24,000 2,154,000
El Paso Energy Capital Trust 4.75% exercise
price $41.59, expiration date 3/31/28 34,600 1,232,452
------------
3,386,452
------------
Environmental Services - 0.12%
Allied Waste Industries 6.25% exercise
price $10.13, expiration date 4/1/06 13,100 629,062
------------
629,062
------------
Food, Beverage & Tobacco - 0.20%
Constellation Brands 5.75% exercise
price $17.08, expiration date 9/1/06 28,200 1,001,100
------------
1,001,100
------------
Number of Market
Shares Value
CONVERTIBLE PREFERRED STOCK (continued)
Telecommunications - 0.19%
Lucent Technologies Capital Trust I 7.75%
exercise price $4.84,
expiration date 3/15/17 1,000 $ 966,375
------------
966,375
------------
Utilities - 0.54%
oCenterPoint Energy
2.00% 9/15/29 exercise price $18.09,
expiration date 9/15/29 26,000 897,286
#NRG Energy 144A 4.00% exercise price
$40.00, expiration date 12/31/49 1,500 1,841,250
------------
2,738,536
------------
TOTAL CONVERTIBLE PREFERRED STOCK
(cost $28,311,941) 26,493,300
------------
PREFERRED STOCK - 1.04%
Leisure, Lodging & Entertainment - 0.12%
Red Lion Hotels 9.50% 24,000 631,800
------------
631,800
------------
Real Estate - 0.88%
Equity Inns Series B 8.75% 18,300 479,460
LaSalle Hotel Properties 10.25% 36,500 956,300
Ramco-Gershenson Properties 9.50% 15,700 419,269
SL Green Realty 7.625% 103,000 2,607,187
------------
4,462,216
------------
Telecommunications - 0.04%
Alamosa Delaware 7.50% 150 206,588
------------
206,588
------------
TOTAL PREFERRED STOCK (cost $5,242,104) 5,300,604
------------
EXCHANGE TRADED FUNDS - 0.37%
iShares Dow Jones
U.S. Real Estate Index Fund 29,200 1,906,176
------------
TOTAL EXCHANGE TRADED FUNDS
(cost $1,550,582) 1,906,176
------------
WARRANT - 0.00%
#Solutia 144A, exercise price $7.59,
expiration date 7/15/09 12 0
------------
TOTAL WARRANT (cost $1,021) 0
------------
Principal
Amount (U.S.$)
COMMERCIAL MORTGAGE-BACKED SECURITIES - 0.15%
#First Union National Bank
Commercial Mortgage Trust
Series 2001-C2 L 144A 6.46% 1/12/43 $ 750,000 744,390
------------
TOTAL COMMERCIAL MORTGAGE-BACKED SECURITIES
(cost $761,221) 744,390
------------
12
DELAWARE DIVIDEND INCOME FUND
STATEMENT
OF NET ASSETS (CONTINUED)
Principal Market
Amount (U.S.$) Value
REPURCHASE AGREEMENTS - 5.48%
With BNP Paribas 3.92% 12/1/05
(dated 11/30/05, to be repurchased at
$18,824,050, collateralized by
$19,299,000 U.S. Treasury Bills due
1/19/06, market value $19,202,634) $18,822,000 $ 18,822,000
With UBS Warburg 3.93% 12/1/05
(dated 11/30/05, to be repurchased
at $9,197,004, collateralized by
$9,389,000 U.S. Treasury Bills due
12/8/05, market value $9,382,257) 9,196,000 9,196,000
------------
TOTAL REPURCHASE AGREEMENTS
(cost $28,018,000) 28,018,000
------------
TOTAL MARKET VALUE OF SECURITIES - 99.72%
(cost $504,665,205) 509,688,204
RECEIVABLES AND OTHER ASSETS
NET OF LIABILITIES - 0.28% 1,407,472
------------
NET ASSETS APPLICABLE TO 45,902,818
SHARES OUTSTANDING - 100.00% $511,095,676
============
Net Asset Value - Delaware Dividend Income Fund
Class A ($285,158,737 / 25,607,431 Shares) $11.14
------
Net Asset Value - Delaware Dividend Income Fund
Class B ($57,903,803 / 5,202,227 Shares) $11.13
------
Net Asset Value - Delaware Dividend Income Fund
Class C ($165,662,577/ 14,880,292 Shares) $11.13
------
Net Asset Value - Delaware Dividend Income Fund
Class R ($1,429,168 / 128,380 Shares) $11.13
------
Net Asset Value - Delaware Dividend Income Fund
Institutional Class ($941,391 / 84,488 Shares) $11.14
------
COMPONENTS OF NET ASSETS AT NOVEMBER 30, 2005:
Shares of beneficial interest
(unlimited authorization - no par) $517,981,803
Undistributed net investment income 5,363,184
Accumulated net realized loss on investments (17,272,310)
Net unrealized appreciation of investments 5,022,999
------------
Total net assets $511,095,676
============
JSecurity is currently in default. The issue has missed the maturity date.
Bankruptcy proceedings are in process to determine distribution of assets. The
date listed is the estimate of when proceedings will be finalized.
+ Non-income producing security for the year ended November 30, 2005.
a Non-income producing security. Security is currently in default.
o Variable rate securities. The interest rate shown is the rate as of November
30, 2005.
^ Zero coupon security. The interest rate shown is the yield at the time of
purchase.
~ 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. At November 30, 2005, the aggregate amount of Rule 144A securities
equals $47,422,824, which represented 9.28% of the Fund's net assets. See
Note 8 in "Notes to Financial Statements."
s Restricted Security. Investment in a security not registered under the
Securities Act of 1933. This security has certain restrictions on resale which
may limit its liquidity. At November 30, 2005, the aggregate amount of the
restricted securities equals $1,309,500, which represented 0.26% of the Fund's
net assets. See Note 8 in "Notes to Financial Statements."
SUMMARY OF ABBREVIATIONS:
REIT - Real Estate Investment Trust
NET ASSET VALUE AND OFFERING PRICE PER SHARE -
DELAWARE DIVIDEND INCOME FUND
Net asset value Class A (A) $11.14
Sales charge (5.75% of offering price) (B) 0.68
------
Offering price $11.82
======
(A) Net asset value per share, as illustrated, is the amount which would be
paid upon redemption or repurchase of shares.
(B) See the current prospectus for purchases of $50,000 or more.
See accompanying notes
13
STATEMENT DELAWARE DIVIDEND INCOME FUND
OF OPERATIONS Year Ended November 30, 2005
INVESTMENT INCOME:
Dividends $9,525,642
Interest 9,029,244
Foreign tax withheld (12,774) $18,542,112
--------- -----------
EXPENSES:
Management fees 2,463,270
Distribution expenses -- Class A 606,845
Distribution expenses -- Class B 459,326
Distribution expenses -- Class C 1,265,326
Distribution expenses -- Class R 4,775
Dividend disbursing and transfer agent fees and expenses 570,082
Registration fees 174,433
Reports and statements to shareholders 155,501
Accounting and administration expenses 139,555
Legal and professional fees 111,810
Custodian fees 30,460
Insurance fees 24,680
Trustees' fees 18,279
Pricing fees 7,702
Taxes (other than taxes on income) 2,832
Other 16,613 6,051,489
---------
Less expenses absorbed or waived (860,647)
Less waiver of distribution expenses -- Class A (101,141)
Less waiver of distribution expenses -- Class R (363)
Less expense paid indirectly (23,475)
-----------
Total expenses 5,065,863
-----------
NET INVESTMENT INCOME 13,476,249
-----------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND FOREIGN CURRENCIES:
Net realized gain (loss) on:
Investments 4,694,181
Foreign currencies (1,378)
-----------
Net realized gain 4,692,803
Net change in unrealized appreciation/depreciation of investments (2,561,963)
-----------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS AND FOREIGN CURRENCIES 2,130,840
-----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $15,607,089
===========
See accompanying notes
14
STATEMENTS
OF CHANGES IN NET ASSETS
DELAWARE DIVIDEND INCOME FUND
Year Ended
11/30/05 11/30/04
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS:
Net investment income $ 13,476,249 $ 3,161,142
Net realized gain on investments and foreign currencies 4,692,803 1,623,672
Net change in unrealized appreciation/depreciation of investments (2,561,963) 7,298,755
------------ ------------
Net increase in net assets resulting from operations 15,607,089 12,083,569
------------ ------------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income:
Class A (6,111,307) (1,382,695)
Class B (1,112,078) (334,815)
Class C (3,064,142) (794,269)
Class R (21,534) (4,793)
Institutional Class (12,391) (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 (2,737) (10)
Institutional Class (1,641) (13,041)
------------ ------------
(12,050,000) (2,717,844)
------------ ------------
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares sold:
Class A 155,512,307 103,634,846
Class B 30,360,760 29,742,332
Class C 95,529,471 76,439,150
Class R 1,064,376 349,869
Institutional Class 919,948 92,571
Net asset value of shares issued upon reinvestment of dividends and distributions:
Class A 5,175,642 1,067,277
Class B 1,092,408 274,814
Class C 2,975,103 603,599
Class R 24,272 4,803
Institutional Class 11,878 130,995
Net assets from reorganization1:
Class A 85,145,873 --
------------ ------------
377,812,038 212,340,256
------------ ------------
Cost of shares repurchased:
Class A (68,079,584) (9,699,802)
Class B (6,143,372) (1,349,886)
Class C (15,879,276) (2,649,479)
Class R (49,450) (3)
Institutional Class (98,155) (4,198,164)
------------ ------------
(90,249,837) (17,897,334)
------------ ------------
Increase in net assets derived from capital share transactions 287,562,201 194,442,922
------------ ------------
NET INCREASE IN NET ASSETS 291,119,290 203,808,647
NET ASSETS:
Beginning of period 219,976,386 16,167,739
------------ ------------
End of period (including undistributed net investment income of $4,815,839
and 1,046,063, respectively) $511,095,676 $219,976,386
============ ============
(1) See Note 6 in "Notes to Financial Statements."
See accompanying notes
15
FINANCIAL
HIGHLIGHTS
Selected data for each share of the Fund outstanding
throughout each period were as follows:
Delaware Dividend Income Fund Class A
Year Ended
11/30/05 11/30/04 11/30/03 11/30/02(1) 11/30/01
NET ASSET VALUE, BEGINNING OF PERIOD $11.050 $10.210 $9.030 $9.230 $9.600
INCOME (LOSS) FROM INVESTMENT OPERATIONS:
Net investment income(2) 0.450 0.345 0.450 0.429 0.405
Net realized and unrealized gain (loss) on investments and
foreign currencies 0.081 0.891 1.213 (0.196) (0.041)
-------- -------- -------- --------- ------
Total from investment operations 0.531 1.236 1.663 0.233 0.364
-------- -------- -------- --------- -------
LESS DIVIDENDS AND DISTRIBUTIONS FROM:
Net investment income (0.360) (0.362) (0.483) (0.433) (0.400)
Net realized gain on investments (0.081) (0.034) -- -- (0.334)
-------- -------- -------- --------- -------
Total dividends and distributions (0.441) (0.396) (0.483) (0.433) (0.734)
-------- -------- -------- --------- ---------
NET ASSET VALUE, END OF PERIOD $11.140 $11.050 $10.210 $9.030 $9.230
======== ======== ======== ========= ========
TOTAL RETURN(3) 4.89% 12.38% 19.45% 2.58% 3.87%
RATIOS AND SUPPLEMENTAL DATA:
Net assets, end of period (000 omitted) $285,159 $105,253 $5,821 $1 --
Ratio of expenses to average net assets 1.00% 1.00% 0.79% 0.75% 0.75%
Ratio of expenses to average net assets
prior to expense limitation and expense paid indirectly 1.27% 1.32% 2.05% 1.30% 1.05%
Ratio of net investment income to average net assets 4.05% 3.26% 4.69% 4.71% 4.38%
Ratio of net investment income to average net assets
prior to expense limitation and expense paid indirectly 3.78% 2.94% 3.43% 4.16% 4.08%
Portfolio turnover 85% 95% 212% 188% 89%
(1) As required, effective December 1, 2001, the Portfolio adopted the
provisions of the AICPA Audit and Accounting Guide for Investment Companies
that requires amortization of all premium and discounts on debt securities.
The effect of this change for the year ended November 30, 2002 was a
decrease in net investment income per share of $0.048, an increase in net
realized and unrealized gain (loss) per share of $0.048, and a decrease in
the ratio of net investment income to average net assets of 0.53%. Per share
data and ratios for periods prior to December 1, 2001 have not been restated
to reflect this change in accounting.
(2) The average shares outstanding method has been applied for per share
information.
(3) Total investment return is based on the change in net asset value of a share
during the period and assumes reinvestment of dividends and distributions at
net asset value and does not reflect the impact of a sales charge. Total
investment return reflects 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
16
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
Year 10/1/03(1) Year 10/1/03(1)
Ended to Ended to
11/30/05 11/30/04 11/30/03 11/30/05 11/30/04 11/30/03
NET ASSET VALUE, BEGINNING OF PERIOD $11.040 $10.200 $9.950 $11.040 $10.200 $9.950
INCOME FROM INVESTMENT OPERATIONS:
Net investment income(2) 0.367 0.267 0.051 0.367 0.267 0.051
Net realized and unrealized gain on investments and foreign currencies 0.079 0.889 0.199 0.079 0.889 0.199
------- ------- ------- ------- ------- -------
Total from investment operations 0.446 1.156 0.250 0.446 1.156 0.250
------- ------- ------- ------- ------- -------
LESS DIVIDENDS AND DISTRIBUTIONS FROM:
Net investment income (0.275) (0.282) -- (0.275) (0.282) --
Net realized gain on investments (0.081) (0.034) -- (0.081) (0.034) --
------- ------- ------- ------- ------- -------
Total dividends and distributions (0.356) (0.316) -- (0.356) (0.316) --
------- ------- ------- ------- ------- -------
NET ASSET VALUE, END OF PERIOD $11.130 $11.040 $10.200 $11.130 $11.040 $10.200
======= ======= ======= ======== ======= =======
TOTAL RETURN(3) 4.09% 11.54% 2.51% 4.09% 11.53% 2.51%
RATIOS AND SUPPLEMENTAL DATA:
Net assets, end of period (000 omitted) $57,904 $32,165 $2,125 $165,663 $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 1.97% 2.02% 4.10% 1.97% 2.02% 4.10%
Ratio of net investment income to average net assets 3.30% 2.51% 3.65% 3.30% 2.52% 3.65%
Ratio of net investment income to average net assets
prior to expense limitation and expense paid indirectly 3.08% 2.25% 1.30% 3.08% 2.25% 1.30%
Portfolio turnover 85% 95% 212% 85% 95% 212%
(1) Date of commencement of operations; ratios have been annualized and total
return has not been annualized.
(2) The average shares outstanding method has been applied for per share
information.
(3) Total investment return is based on the change in net asset value of a share
during the period and assumes reinvestment of dividends and distributions at
net asset value and does not reflect the impact of a sales charge. Total
investment return reflects 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
17
FINANCIAL
HIGHLIGHTS (CONTINUED)
Selected data for each share of the Fund outstanding
throughout each period were as follows:
Delaware Dividend Income Fund Class R
Year 10/1/03(1)
Ended to
11/30/05 11/30/04 11/30/03
NET ASSET VALUE, BEGINNING OF PERIOD $11.040 $10.220 $9.950
INCOME FROM INVESTMENT OPERATIONS:
Net investment income(2) 0.416 0.308 0.056
Net realized and unrealized gain on investments and foreign currencies 0.078 0.879 0.214
------- ------- -------
Total from investment operations 0.494 1.187 0.270
------- ------- -------
LESS DIVIDENDS AND DISTRIBUTIONS FROM:
Net investment income (0.323) (0.333) --
Net realized gain on investments (0.081) (0.034) --
------- ------- -------
Total dividends and distributions (0.404) (0.367) --
------- ------- -------
NET ASSET VALUE, END OF PERIOD $11.130 $11.040 $10.220
======= ======= =======
TOTAL RETURN3 4.55% 11.86% 2.71%
RATIOS AND SUPPLEMENTAL DATA:
Net assets, end of period (000 omitted) $1,429 $373 $3
Ratio of expenses to average net assets 1.30% 1.35% 1.35%
Ratio of expenses to average net assets
prior to expense limitation and expense paid indirectly 1.57% 1.62% 3.70%
Ratio of net investment income to average net assets 3.75% 2.89% 4.05%
Ratio of net investment income to average net assets
prior to expense limitation and expense paid indirectly 3.48% 2.62% 1.70%
Portfolio turnover 85% 95% 212%
(1) Date of commencement of operations; ratios have been annualized and total
return has not been annualized.
(2) The average shares outstanding method has been applied for per share
information.
(3) Total investment return is based on the change in net asset value of a share
during the period and assumes reinvestment of dividends and distributions at
net asset value. Total investment return reflects a waiver and payment of
fees by the manager and distributor, as applicable. Performance would have
been lower had the expense limitation not been in effect.
See accompanying notes
18
FINANCIAL
HIGHLIGHTS (CONTINUED)
Selected data for each share of the Fund outstanding
throughout each period were as follows:
Delaware Dividend Income Fund Institutional Class
Year Ended
11/30/05 11/30/04 11/30/03 11/30/02(1) 11/30/01
NET ASSET VALUE, BEGINNING OF PERIOD $11.050 $10.220 $9.030 $9.230 $9.600
INCOME (LOSS) FROM INVESTMENT OPERATIONS:
Net investment income(2) 0.477 0.371 0.453 0.429 0.405
Net realized and unrealized gain (loss) on investments and foreign currencies 0.082 0.882 1.220 (0.196) (0.041)
------- ------- ------- ------ ------
Total from investment operations 0.559 1.253 1.673 0.233 0.364
------- ------- ------- ------ ------
LESS DIVIDENDS AND DISTRIBUTIONS FROM:
Net investment income (0.388) (0.389) (0.483) (0.433) (0.400)
Net realized gain on investments (0.081) (0.034) -- -- (0.334)
------- ------- ------- ------ ------
Total dividends and distributions (0.469) (0.423) (0.483) (0.433) (0.734)
------- ------- ------- ------ ------
NET ASSET VALUE, END OF PERIOD $11.140 $11.050 $10.220 $9.030 $9.230
======= ======= ======= ====== ======
TOTAL RETURN(3) 5.16% 12.55% 19.56% 2.58% 3.87%
RATIOS AND SUPPLEMENTAL DATA:
Net assets, end of period (000 omitted) $941 $102 $3,879 $3,233 $3,265
Ratio of expenses to average net assets 0.75% 0.75% 0.75% 0.75% 0.75%
Ratio of expenses to average net assets
prior to expense limitation and expense paid indirectly 0.97% 1.02% 1.75% 1.00% 0.75%
Ratio of net investment income to average net assets 4.30% 3.49% 4.73% 4.71% 4.38%
Ratio of net investment income to average net assets
prior to expense limitation and expense paid indirectly 4.08% 3.22% 3.73% 4.46% 4.38%
Portfolio turnover 85% 95% 212% 188% 89%
(1) As required, effective December 1, 2001, the Portfolio adopted the
provisions of the AICPA Audit and Accounting Guide for Investment Companies
that requires amortization of all premium and discounts on debt securities.
The effect of this change for the year ended November 30, 2002 was a
decrease in net investment income per share of $0.048, an increase in net
realized and unrealized gain (loss) per share of $0.048, and a decrease in
the ratio of net investment income to average net assets of 0.53%. Per share
data and ratios for periods prior to December 1, 2001 have not been restated
to reflect this change in accounting.
(2) The average shares outstanding method has been applied for per share
information.
(3) Total investment return is based on the change in net asset value of a
share during the period and assumes reinvestment of dividends and
distributions at net asset value. Total investment return reflects waiver
and payment of fees by the manager. Performance would have been lower had
the expense limitation not been in effect.
See accompanying notes
19
NOTES DELAWARE DIVIDEND INCOME FUND
TO FINANCIAL STATEMENTS
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 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 the bid
and asked prices will be used. Long-term debt securities are valued by an
independent pricing service and such prices are believed to reflect the fair
value of such securities. Short-term debt securities having less than 60 days to
maturity are valued at amortized cost, which approximates market value. Other
securities and assets for which market quotations are not readily available are
valued at fair value as determined in good faith under the direction of the
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
each 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(R) 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(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 character of such distributions by the issuer. 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.
Subject to best execution, the Fund may direct certain security trades to
brokers who have agreed to rebate a portion of the related brokerage commission
to the Fund in cash. Such commission rebates are included in realized gain on
securities in the accompanying financial statements and totaled $6,542 for the
year ended November 30, 2005.
The Fund receives earnings credits from its custodian when positive cash
balances are maintained, which are used to offset custody fees. 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 through March 31, 2006.
Delaware Service Company, Inc. (DSC), an affiliate of DMC, provides accounting,
administration, dividend disbursing and transfer agent services. Effective May
19, 2005, the Fund pays DSC a monthly fee computed at the annual rate of 0.04%
of the Fund's average daily net assets for accounting and administration
services. Prior to May 19, 2005, the Fund paid 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. Effective August 1, 2005, DDLP has contracted
to limit distribution and service fees through February 28, 2006 for Class R
shares to no more than 0.50% of average daily net assets.
20
NOTES DELAWARE DIVIDEND INCOME FUND
TO FINANCIAL STATEMENTS (CONTINUED)
2. INVESTMENT MANAGEMENT, ADMINISTRATION AGREEMENTS AND
OTHER TRANSACTIONS WITH AFFILIATES (CONTINUED)
At November 30, 2005, the Fund had liabilities payable to affiliates as follows:
Investment management fee payable to DMC $26,746
Dividend disbursing, transfer agent fees,
accounting and administration fees and
other expenses payable to DSC 86,336
Distribution fee payable to DDLP 478,156
Other expenses payable to DMC and affiliates 12,981
*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 in-house legal services provided to
the Fund by DMC employees. For the year ended November 30, 2005, the Fund was
charged $25,936 for internal legal services provided by DMC.
For the year ended November 30, 2005, DDLP earned $518,066 for commissions on
sales of the Fund's Class A shares. For the year ended November 30, 2005, DDLP
received gross contingent deferred sales charge commissions of $1,480, $77,992,
and $30,019 on redemption of the Fund's Class A, Class B, and Class C shares,
respectively, and these commissions were entirely used to offset up-front
commissions previously paid by DDLP to broker-dealers on sales of those shares.
Certain officers of DMC, DSC and DDLP are officers and/or trustees of the Trust.
These officers and trustees are paid no compensation by the Fund.
3. INVESTMENTS
For the year ended November 30, 2005, the Fund made purchases of $514,055,764
and sales of $300,670,350 of investment securities other than short-term
investments.
At November 30, 2005, the cost of investments for federal income tax was
$505,820,935. At November 30, 2005, the net unrealized appreciation was
$3,867,269, of which $26,379,905 related to unrealized appreciation of
investments and $22,512,636 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, gains (losses) on foreign currency
transactions and net short-term gains on sales of investment securities are
treated as ordinary income for federal income tax purposes. The tax character of
dividends and distributions paid during the years ended November 30, 2005 and
2004 was as follows:
11/30/05 11/30/04
-------- --------
Ordinary income $11,900,620 $2,717,844
Long-term capital gain 149,380 --
----------- ----------
Total $12,050,000 $2,717,844
=========== ==========
As of November 30, 2005, the components of net assets on a tax basis were as
follows:
Shares of beneficial interest $517,981,803
Undistributed ordinary income 6,163,804
Undistributed long-term capital gain 1,814,890
Capital loss carryforwards (18,732,090)
Unrealized appreciation of investments 3,867,269
------------
Net assets $511,095,676
============
The differences between book basis and tax basis components of net assets are
primarily attributable to tax deferral of losses on wash sales, tax treatment of
market discount and premium on debt instruments, tax treatment of contingent
payment debt instruments and estimates of tax character of distributions from
Real Estate Investment Trusts. The undistributed earnings for Delaware Dividend
Income 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. Reclassifications are primarily
due to tax treatment of market discount and premium on certain debt instruments
and contingent payment debt instruments, gain (loss) on foreign currency
transactions and limitations on capital loss carryforwards due to the
reorganization. Results of operations and net assets were not affected by these
reclassifications. For the year ended November 30, 2005, the Fund recorded the
following permanent reclassifications.
Paid-in-Capital $(5,123,495)
Undistributed net investment income 1,151,960
Accumulated net realized gain on investments 3,971,535
For federal income tax purposes, capital loss carryforwards may be carried
forward and applied against future capital gains. The Fund utilized $1,632,001
of capital loss carryforwards in 2005. Such capital loss carryforwards expire as
follows: $10,667,646 expires in 2009 and $8,064,444 expires in 2010. The use of
these losses are subject to an annual limitation in accordance with the Internal
Revenue Code.
5. CAPITAL SHARES
Transactions in capital shares were as follows:
Year Ended
11/30/05 11/30/04
Shares sold:
Class A 14,033,811 9,774,324
Class B 2,744,286 2,806,174
Class C 8,613,965 7,203,243
Class R 96,885 33,044
Institutional Class 83,093 8,765
Shares issued upon reinvestment
of dividends and distributions:
Class A 467,873 101,364
Class B 98,641 26,108
Class C 268,682 57,292
Class R 2,197 455
Institutional Class 1,076 12,554
Shares issued from reorganization(1):
Class A 7,705,509 --
----------- -----------
34,116,018 20,023,323
----------- -----------
Shares repurchased:
Class A (6,128,075) (917,417)
Class B (554,170) (127,032)
Class C (1,436,755) (251,612)
Class R (4,499) --
Institutional Class (8,958) (391,674)
----------- -----------
(8,132,457) (1,687,735)
----------- -----------
Net increase 25,983,561 18,335,588
=========== ===========
(1) See Note 6.
21
NOTES DELAWARE DIVIDEND INCOME FUND
TO FINANCIAL STATEMENTS (CONTINUED)
5. CAPITAL SHARES (CONTINUED)
For the years ended November 30, 2005 and 2004, 69,809 Class B shares were
converted to 69,746 Class A shares valued at $779,637 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.
6. FUND REORGANIZATION
On June 24, 2005, the 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
was 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. The net assets, net unrealized depreciation and accumulated
realized losses of LNV Fund as of the close of business on June 24, 2005 were as
follows:
Net Accumulated
Net Unrealized Net Realized
Assets Depreciation Loss
----------- ------------ ------------
Lincoln National Convertible
Securities Fund $85,145,873 $(100,624) $(25,487,586)
The net assets of the Fund prior to the reorganization were $369,303,593.
7. LINE OF CREDIT
The Fund, along with certain other funds in the Delaware Investments(R) Family
of Funds (the "Participants"), participates in a $225,000,000 revolving line of
credit facility to be used for temporary or emergency purposes as an additional
source of liquidity to fund redemptions of investor shares. The Participants are
charged an annual commitment fee, which is allocated across the Participants on
the basis of each fund's allocation of the entire facility. The Participants may
borrow up to a maximum of one third of their net assets under the agreement. The
Fund had no amounts outstanding as of November 30, 2005, or at any time during
the year ended November 30, 2005.
8. 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.
While maintaining oversight, the Board of Trustees has delegated to the
investment adviser the day-to-day functions of determining whether individual
securities are liquid for purposes of a fund's limitation on investments in
illiquid assets. No securities have been determined to be illiquid under the
Fund's Liquidity Procedures.
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 year ended November 30,
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 ongoing
operations.
9. CONTRACTUAL OBLIGATIONS
The Fund enters into contracts 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.
10. TAX INFORMATION (UNAUDITED)
The information set forth below is for the Fund's fiscal year as required by
federal laws. Shareholders, however, must report distributions on a calendar
year basis for income tax purposes, which may include distributions for portions
of two fiscal years of a fund. Accordingly, the information needed by
shareholders for income tax purposes will be sent to them in January of each
year. Please consult your tax advisor for proper treatment of this information.
For the fiscal year ended November 30, 2005, the Fund designates distributions
paid during the year as follows:
(A) (B)
Long-Term Ordinary
Capital Gain Income Total (C)
Distributions Distributions* Distributions Qualifying
(Tax Basis) (Tax Basis) (Tax Basis) Dividends(1)
- ------------- ------------- ----------- -------------
1% 99% 100% 36%
(A) and (B) are based on a percentage of the Fund's total distributions.
(C) is based on a percentage of ordinary income of the Fund.
(1) Qualifying dividends represent dividends which qualify for the corporate
dividends received deduction.
* For the fiscal year ended November 30, 2005, certain dividends paid by the
Fund may be subject to a maximum tax rate of 15%, as provided for by the
Jobs and Growth Tax Relief Reconciliation Act of 2003. The Fund intends to
designate up to a maximum amount of $11,900,620 to be taxed at a maximum
rate of 15%. Complete information will be computed and reported in
conjunction with your 2005 Form 1099-DIV.
22
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and Board of Trustees
Delaware Group Equity Funds V - Delaware Dividend
Income Fund
We have audited the accompanying statement of net assets of the Delaware
Dividend Income Fund (one of the series constituting Delaware Group Equity Funds
V) (the "Fund") as of November 30, 2005, and the related statement of operations
for the year then ended, the statements of changes in net assets for each of the
two years in the period then ended, and the financial highlights for each of the
periods indicated therein. These financial statements and financial highlights
are the responsibility of the Fund's management. Our responsibility is to
express an opinion on these financial statements and financial highlights based
on our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements and financial highlights are free of material misstatement. We were
not engaged to perform an audit of the Fund's internal control over financial
reporting. Our audits included consideration of internal control over financial
reporting as a basis for designing audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion on the
effectiveness of the Fund's internal control over financial reporting.
Accordingly, we express no such opinion. An audit also includes examining, on a
test basis, supporting the amounts and disclosures in the financial statements
and financial highlights, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. Our procedures included confirmation of securities owned
as of November 30, 2005, by correspondence with the custodian and brokers or by
other appropriate auditing procedures where replies from brokers were not
received. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of the
Delaware Dividend Income Fund of Delaware Group Equity Funds V at November 30,
2005, the results of its operations for the year then ended, the changes in its
net assets for each of the two years in the period then ended, and its financial
highlights for each of the periods indicated therein, in conformity with U.S.
generally accepted accounting principles.
/s/ Ernst & Young LLP
----------------------
Ernst & Young LLP
Philadelphia, Pennsylvania
January 11, 2006
23
DELAWARE INVESTMENTS(R) FAMILY OF FUNDS
BOARD OF TRUSTEES/DIRECTORS AND OFFICERS ADDENDUM
A mutual fund is governed by a Board of Trustees/Directors ("Trustees"), which
has oversight responsibility for the management of a fund's business affairs.
Trustees establish procedures and oversee and review the performance of the
investment manager, the distributor and others who perform services for the
fund. The independent fund trustees, in particular, are advocates for
shareholder interests. The following is a list of the Trustees and Officers with
certain background and related information.
NUMBER OF OTHER
PRINCIPAL PORTFOLIOS IN FUND DIRECTORSHIPS
NAME, POSITION(S) OCCUPATION(S) COMPLEX OVERSEEN HELD BY
ADDRESS HELD WITH LENGTH OF TIME DURING BY TRUSTEE TRUSTEE
AND BIRTHDATE FUND(S) SERVED PAST 5 YEARS OR OFFICER OR OFFICER
- ------------------------------------------------------------------------------------------------------------------------------------
INTERESTED TRUSTEES
JUDE T. DRISCOLL(2) Chairman, 5 Years - Since August 2000, 87 None
2005 Market Street President, Executive Officer Mr. Driscoll has served in
Philadelphia, PA Chief Executive various executive capacities
19103 Officer and 2 Years - at different times at
Trustee Trustee Delaware Investments(1)
March 10, 1963
- ------------------------------------------------------------------------------------------------------------------------------------
INDEPENDENT TRUSTEES
THOMAS L. BENNETT Trustee Since Private Investor - 87 None
2005 Market Street March 23, 2005 (March 2004 - Present)
Philadelphia, PA
19103 Investment Manager -
Morgan Stanley & Co.
October 4, 1947 (January 1984 - March 2004)
- ------------------------------------------------------------------------------------------------------------------------------------
JOHN A. FRY Trustee 4 Years President - 87 Director -
2005 Market Street Franklin & Marshall College Community Health
Philadelphia, PA (June 2002 - Present) Systems
19103
Executive Vice President -
May 28, 1960 University of Pennsylvania
(April 1995 - June 2002)
- ------------------------------------------------------------------------------------------------------------------------------------
ANTHONY D. KNERR Trustee 12 Years Founder/Managing Director - 87 None
2005 Market Street Anthony Knerr & Associates
Philadelphia, PA (Strategic Consulting)
19103 (1990 - Present)
December 7, 1938
- ------------------------------------------------------------------------------------------------------------------------------------
LUCINDA S. LANDRETH Trustee Since Chief Investment Officer - 87 None
2005 Market Street March 23, 2005 Assurant, Inc.
Philadelphia, PA (Insurance)
19103 (2002 - 2004)
June 24, 1947
- ------------------------------------------------------------------------------------------------------------------------------------
ANN R. LEVEN Trustee 16 Years Treasurer/Chief Fiscal Officer - 87 Director and
2005 Market Street National Gallery of Art Audit Committee
Philadelphia, PA (1994 - 1999) Chairperson - Andy
19103 Warhol Foundation
November 1, 1940 Director and Audit
Committee Member -
Systemax Inc.
- ------------------------------------------------------------------------------------------------------------------------------------
24
NUMBER OF OTHER
PRINCIPAL PORTFOLIOS IN FUND DIRECTORSHIPS
NAME, POSITION(S) OCCUPATION(S) COMPLEX OVERSEEN HELD BY
ADDRESS HELD WITH LENGTH OF TIME DURING BY TRUSTEE TRUSTEE
AND BIRTHDATE FUND(S) SERVED PAST 5 YEARS OR OFFICER OR OFFICER
- ------------------------------------------------------------------------------------------------------------------------------------
INDEPENDENT TRUSTEES (continued)
THOMAS F. MADISON Trustee 11 Years President/Chief Executive 87 Director -
2005 Market Street Officer - MLM Partners, Banner Health
Philadelphia, PA Inc. (Small Business
19103 Investing and Consulting) Director -
(January 1993 - Present) CenterPoint Energy
February 25, 1936
Director and Audit
Committee Member -
Digital River Inc.
Director and Audit
Committee Member -
Rimage
Corporation
Director - Valmont
Industries Inc.
- ------------------------------------------------------------------------------------------------------------------------------------
JANET L. YEOMANS Trustee 6 Years Vice President/Mergers & 87 None
2005 Market Street Acquisitions - 3M Corporation
Philadelphia, PA (January 2003 - Present)
19103
July 31, 1948 Ms. Yeomans has held
various management positions
at 3M Corporation since 1983.
- ------------------------------------------------------------------------------------------------------------------------------------
J. RICHARD ZECHER Trustee Since Founder - 87 Director and Audit
2005 Market Street March 23, 2005 Investor Analytics Committee Member -
Philadelphia, PA (Risk Management) Investor Analytics
19103 (May 1999 - Present)
Director and Audit
July 3, 1940 Committee Member -
Oxigene, Inc.
- ------------------------------------------------------------------------------------------------------------------------------------
OFFICERS
MICHAEL P. BISHOF Senior Vice Chief Financial Mr. Bishof has served in 87 None(3)
2005 Market Street President and Officer since various executive capacities
Philadelphia, PA Chief Financial February 17, 2005 at different times at
19103 Officer Delaware Investments.
August 18, 1962
- ------------------------------------------------------------------------------------------------------------------------------------
DAVID F. CONNOR Vice President, Vice President since Mr. Conner has served as 87 None(3)
2005 Market Street Deputy General September 21, 2000 Vice President and Deputy
Philadelphia, PA Counsel and Secretary and Secretary General Counsel of Delaware
19103 since Investments since 2000.
October 25, 2005
December 2, 1963
- ------------------------------------------------------------------------------------------------------------------------------------
DAVID P. O'CONNOR Senior Vice Senior Vice President, Mr. O'Conner has served in 87 None(3)
2005 Market Street President, General Counsel and various executive and legal
Philadelphia, PA General Counsel Chief Legal Officer capacities at different times
19103 and Chief since at Delware Investments.
Legal Officer October 25, 2005
February 21, 1966
- ------------------------------------------------------------------------------------------------------------------------------------
JOHN J. O'CONNOR Senior Vice Treasurer since Mr. O'Connor has served in 87 None(3)
2005 Market Street President and February 17, 2005 various executive capacities
Philadelphia, PA Treasurer at different times at
19103 Delaware Investments.
June 16, 1957
- ------------------------------------------------------------------------------------------------------------------------------------
(1) Delaware Investments is the marketing name for Delaware Management Holdings,
Inc. and its subsidiaries, including the Fund's(s') investment advisor,
principal underwriter and its transfer agent.
(2) Mr. Driscoll is considered to be an "Interested Trustee" because he is an
executive officer of the Fund's(s') manager and distributor.
(3) Mr. Bishof, Mr. Connor, Mr. David P. O'Connor and Mr. John J. O'Connor also
serve in similar capacities for the six portfolios of the Optimum Fund
Trust, which have the same investment advisor, principal underwriter, and
transfer agent as the registrant.
The Statement of Additional Information for the Fund(s) includes additional
information about the Trustees/Directors and Officers and is available, without
charge, upon request by calling 800 523-1918.
25
ABOUT
THE ORGANIZATION
This annual report is for the information of Delaware Dividend Income Fund
shareholders, but it may be used with prospective investors when preceded or
accompanied by 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 AFFILIATED OFFICERS CONTACT INFORMATION
JUDE T. DRISCOLL MICHAEL P. BISHOF INVESTMENT MANAGER
Chairman Senior Vice President and Delaware Management Company,
Delaware Investments(R) 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 DAVID F. CONNOR Delaware Distributors, L.P.
Rosemont, PA Vice President, Deputy General Counsel Philadelphia, PA
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 DAVID P. O'CONNOR 2005 Market Street
Senior Vice President, General Counsel Philadelphia, PA 19103-7094
ANTHONY D. KNERR and Chief Legal Officer
Managing Director Delaware Investments Family of Funds FOR SHAREHOLDERS
Anthony Knerr & Associates Philadelphia, PA 800 523-1918
New York, NY
JOHN J. O'CONNOR FOR SECURITIES DEALERS AND FINANCIAL
LUCINDA S. LANDRETH Senior Vice President and Treasurer INSTITUTIONS REPRESENTATIVES ONLY
Former Chief Investment Officer Delaware Investments Family of Funds 800 362-7500
Assurant, Inc. Philadelphia, PA
Philadelphia, PA WEB SITE
www.delawareinvestments.com
ANN R. LEVEN
Former Treasurer/Chief Fiscal Officer Delaware Investments is the marketing name for
National Gallery of Art Delaware Management Holdings, Inc. and
Washington, DC its subsidiaries.
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.
-----------------------------------------------------------------------------------
26
Delaware
Investments(R)
- -----------------------------------
A member of Lincoln Financial Group
CONTACT INFORMATION
WEB SITE
www.delawareinvestments.com
E-MAIL
service@delinvest.com
SHAREHOLDER SERVICE CENTER
800 523-1918
Call the Shareholder Service Center Monday to Friday, 8 a.m. to 7 p.m. Eastern
Time:
[_] For fund information, literature, price, yield and performance figures.
[_] For information on existing regular investment accounts and retirement plan
accounts including wire investments, wire redemptions, telephone redemptions
and telephone exchanges.
DELAPHONE SERVICE
800 362-FUND (800 362-3863)
[_] For convenient access to account information or current performance
information on all Delaware Investments Funds seven days a week, 24 hours a
day, use this Touch-Tone(R) service.
- --------------------------------------------------------------------------------
Printed in the USA
(9975) ANN-0512 DIVINC
AR-129 [11/05] IVES 1/06 MF0512098 PO10669
Delaware
Investments(R)
-----------------------------------
A member of Lincoln Financial Group
CORE-EQUITY
ANNUAL REPORT NOVEMBER 30, 2005
- --------------------------------------------------------------------------------
DELAWARE SMALL CAP CORE FUND
(FORMERLY DELAWARE SMALL CAP CONTRARIAN FUND)
[GRAPHIC] POWERED BY RESEARCH(R)
TABLE
OF CONTENTS
- --------------------------------------------------------------
PORTFOLIO MANAGEMENT REVIEW 1
- --------------------------------------------------------------
PERFORMANCE SUMMARY 4
- --------------------------------------------------------------
DISCLOSURE OF FUND EXPENSES 6
- --------------------------------------------------------------
SECTOR ALLOCATION 7
- --------------------------------------------------------------
FINANCIAL STATEMENTS:
Statement of Net Assets 8
Statement of Assets and Liabilities 11
Statement of Operations 12
Statements of Changes in Net Assets 13
Financial Highlights 14
Notes to Financial Statements 17
- --------------------------------------------------------------
REPORT OF INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM 20
- --------------------------------------------------------------
BOARD OF TRUSTEES/DIRECTORS AND OFFICERS 21
- --------------------------------------------------------------
ABOUT THE ORGANIZATION 23
- --------------------------------------------------------------
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) 2006 Delaware Distributors, L.P.
DELAWARE SMALL CAP CORE FUND
PORTFOLIO December 13, 2005
MANAGEMENT REVIEW
FUND MANAGERS
Christopher S. Adams
Co-manager
Francis X. Morris
Co-manager
Michael S. Morris
Co-manager
Donald G. Padilla
Co-manager
Q: HOW DID THE FUND PERFORM OVER THE LAST YEAR?
A: The Fund had a good year, returning 9.04% at net asset value and 2.78% at
full offer (Class A shares; both figures represent all dividends reinvested).
Its benchmark, the Russell 2000 Index, which advanced 8.14%. Please see page 4
for a complete performance summary and disclosure.
Q: CAN YOU TELL US ABOUT THE INVESTMENT ENVIRONMENT OVER THE PAST YEAR?
A: This year's Russell 2000 Index return of 8.14% continues a trend of strong
small-up performance. True, it's a smaller absolute number, but the market faced
substantial challenges this year, including a series of 25 basis point increases
in interest rates, as the Federal Reserve acted to control both the risk of
inflation and the possibility of stagflation, and worked to counter the effects
of escalating prices for oil, natural gas, and other basic commodities, as the
maturing global economy increased demand. The markets also adjusted with
concerns over whether rising real estate prices constituted a "bubble" that
could rapidly deflate due to higher interest rates and threaten the stability of
the overall economy. The uncertainty over the economic and social impacts of
devastating hurricanes in New Orleans, the Gulf region, and Florida also led to
a downturn in consumer confidence.
The market continued to be resilient, yet investors exercised caution, which
limited gains. The economy performed well, with GDP advancing 4.3% in the third
quarter of 2005. Corporations managed to increase their earnings, even in the
second half when they were facing difficult year-over-year comparisons.
Shareholder-friendly activity was broadly evident, including share buybacks,
debt reductions, and other moves to strengthen balance sheets. Merger and
acquisition activity was strong due to excess liquidity and a high level of
private equity investment. Employment levels remained high and, at the end of
our fiscal year, small cap companies' valuations appeared quite reasonable to
us, relative to their recent history.
Q: WHAT STRATEGIES DID THE FUND EMPLOY IN RESPONSE TO THIS MARKET ENVIRONMENT?
A: Delaware Small Cap Core Fund follows a well-defined investment process that
is a fusion of quantitative screening and fundamental security selection. Our
proprietary quantitative model helps us identify and measure the relative
attractiveness of stocks in each sector--and across the entire universe of
companies in the small cap index. Over time, we've found that our disciplined
quantitative screening tool has provided us with an attractive opportunity
universe from which to generate investment ideas.
Fundamental qualitative research allows us to scrutinize the model's results in
more human terms. We look for companies with these characteristics: a
competitive advantage relative to its peers; a leadership position in its
industry; a product or service that has high barriers to entry. It's also very
important that we can identify a catalyst that will cause the market to revalue
the stock. The combination works well, as quantitative research basically
focuses on historical numbers, whereas fundamental research is forward-looking.
Our sell discipline is just as critical as our initial decisions to buy stocks.
We automatically sell any security that grows and remains beyond $3 billion in
capitalization, so our portfolio remains representative of the asset class. We
also sell when stocks reach price targets that our model and research have
identified; the company's fundamental outlook changes; or we find better
opportunities.
Q: CAN YOU GIVE EXAMPLES OF SOME OF THE STOCKS YOUR PROCESS SUCCESSFULLY
IDENTIFIED THIS YEAR?
A: Administaff is a professional employer organization that allows
small-to-mid-sized companies to outsource non-core functions including personnel
management and other HR functions such as payroll, workers compensation and
medical insurance. The stock advanced 202.3% this fiscal year, as companies
realized that Administaff could provide these services more cheaply than they
could on their own.
Holly is an independent petroleum refiner that produces gasoline, diesel, and
jet fuel. The company benefited from the rise in energy prices to return 115.9%.
Its primary operations are centered around the southwestern portion of the U.S.;
as it is not heavily exposed to the Gulf region, the impact from Hurricane
Katrina was migated.
1
Quality Systems markets health care information systems that automate medical
and dental practices. The company has consistently beat consensus estimates due
to a big surge in outsourcing by health care providers, who are finding it more
cost effective to replace outdated systems than upgrade them. As a result, the
stock price advanced 164.2%, and having met its target price, was sold during
the fiscal year.
Q: CAN YOU ALSO TALK ABOUT SOME INVESTMENTS THAT DETRACTED FROM THE FUND'S
PERFORMANCE?
A: RSA Security creates electronic security solutions for
e-commerce companies. The stock declined -38.9%, mostly due to earnings
disappointments early in the year. Investors were concerned about competing
products, the CFO left, and RSA made an acquisition in an unrelated business. We
sold our entire position, as we were worried about the lack of management focus,
reflected in this non-core acquisition.
Tempur-Pedic International is a vertically integrated manufacturer, marketer,
and distributor of premium visco-elastic foam mattresses and pillows that are
sold globally in 60 countries, primarily under the Tempur and Tempur-Pedic
brands. When the company modestly lowered its earning guidance, the market
seemed to overreact, in our view, with an immediate price decline of 30%.
Research indicates that the beds are superior and people are willing to pay a
premium price. Though disappointed in the year's -41.5% decline, we continue to
own the stock.
PolyOne is an international producer of polymers and plastics. It had a
challenging year due to supply chain problems and the high cost of raw
materials. The stock declined -37.5%. We met with management who presented what
we think is a credible plan to bring down their high levels of debt and clean up
their balance sheet. They also plan to get margins back to where they want them
to be by expanding in fast-growing regions such as China and Eastern Europe. We
are confident existing management can turn the company around and we still own
the stock.
2
This page intentionally left blank.
3
PERFORMANCE SUMMARY
DELAWARE SMALL CAP CORE FUND (FORMERLY DELAWARE SMALL CAP CONTRARIAN FUND)
The performance data quoted represent past performance; past performance does
not guarantee future results. Investment return and principal value will
fluctuate so your shares, when redeemed, may be worth more or less than their
original cost. Current performance may be lower or higher than the performance
data quoted. Please obtain the performance data for the most recent month end by
calling 800 523-1918 or visiting our Web site at
www.delawareinvestments.com/performance. You should consider the investment
objectives, risks, charges, and expenses of the investment carefully before
investing. The Delaware Small Cap Core Fund prospectus contains this and other
important information about the Fund. Please request a prospectus by calling 800
523-1918. Read it carefully before you invest or send money. Performance
includes reinvestment of all distributions and is subject to change. Instances
of high double-digit returns are highly unusual, and cannot be sustained, and
were achieved primarily during favorable market conditions.
FUND PERFORMANCE
Average Annual Total Returns
Through November 30, 2005 Lifetime Five Years One Year
- --------------------------------------------------------------------------------------------------
Class A (Est. 12/29/98)
Excluding Sales Charge +14.78% +17.46% +9.04%
Including Sales Charge +13.80% +16.09% +2.78%
- --------------------------------------------------------------------------------------------------
Class C (Est. 8/1/05)
Excluding Sales Charge -2.41% N/A N/A
Including Sales Charge -3.41% N/A N/A
- --------------------------------------------------------------------------------------------------
Returns reflect the reinvestment of all distributions and any applicable sales
charges as noted below.
Returns and share value will fluctuate so that shares, when redeemed, may be
worth more or less than the original share price.
The Fund offers Class A, C, R, and Institutional Class shares. Class A shares
are sold with a front-end sales charge of up to 5.75% and have an annual
distribution and service fee of up to 0.30%. The distributor has contracted to
limit this amount of 0.25% through March 31, 2007. Performance prior to August
1, 2005, does not reflect the impact of distribution or service (12b-1) fees
currently borne by holders of Class A shares.
Class C shares are sold with a contingent deferred sales charge of 1% if
redeemed during the first 12 months. They are also subject to an annual
distribution and service fee of 1%.
Class R shares are available only for certain retirement plan products. They are
sold without a sales charge and have an annual distribution and service fee of
0.60%. The distributor has contracted to limit this amount to 0.50% through
March 31, 2007.
Prior to August 1, 2005, the Fund had not engaged in a broad distribution effort
of its shares and had been subject to limited redemption requests. The Fund's
past performance does not necessarily indicate how it will perform in the
future. The returns reflect waivers and expense caps in effect during the
period, which was lower than the current expense caps. The returns would have
been lower without the waivers and expense caps in effect.
On November 1, 2004, the Fund's strategy and management changed. The new
management team retained the Fund's small-cap focus by investing primarily in
stocks of small companies hat are believed to have attractive valuations, growth
prospects, and strong cash flow.
The average annual total returns for the lifetime, five-year, and one-year
periods ended November 30, 2005 for Delaware Small Cap Core Fund's Institutional
Class were +14.80%, +17.48%, and +9.14%, respectively. The Institutional Class
shares were first made available on December 29, 1998 and are available without
sales charges or asset based distribution charges only to certain eligible
institutional accounts.
The performance table does not reflect the deduction of taxes the shareholder
would pay on Fund distributions or redemptions of Fund shares.
Nasdaq Institutional Class Symbol: DCCIX
Nasdaq Class R Symbol: DCCRX
4
FUND BASICS
As of November 30, 2005
- --------------------------------------------------------------------------------
FUND OBJECTIVE:
The Fund seeks long-term capital appreciation.
- --------------------------------------------------------------------------------
TOTAL FUND NET ASSETS:
$11 million
- --------------------------------------------------------------------------------
NUMBER OF HOLDINGS:
215
- --------------------------------------------------------------------------------
FUND START DATE:
December 29, 1998
- --------------------------------------------------------------------------------
YOUR FUND MANAGERS:
Mr. Adams is a portfolio manager in the Core Equity Team at Delaware
Investments. He also performs analysis and research to support the portfolio
management function. He joined Delaware in 1995 after several years experience
in the financial services industry in the U.S. and U.K. He holds both bachelor's
and master's degrees in History and Economics from Oxford University, England
and received a M.B.A. with dual majors in Finance & Insurance/Risk Management
from the Wharton School of the University of Pennsylvania. He is a CFA
Charterholder and member of the CFA Institute.
M. Francis Morris joined Delaware Investments in 1997. He previously served as
vice president and director of equity research at PNC Asset Management. Mr.
Morris received a bachelor's degree at Providence College and an MBA degree at
Widener University. He is a member of the Association for Investment Management
and Research and the National Association of Petroleum Investment Analysts.
Mr. Padilla is a member of the portfolio construction group within the Core
Equity team. He also performs analysis and research to support the portfolio
management function. Mr. Padilla joined Delaware Investments in 1994 as an
assistant controller in the firm's treasury function, responsible for managing
corporate cash investments, developing financial models, and the financial
operations of the Lincoln Life 401(k) annuities segment. Prior to joining
Delaware Investments, he held positions at The Vanguard Group. Mr. Padilla holds
a bachelor's degree in accounting from Lehigh University and is a member of the
Financial Analysts of Philadelphia, Inc.
Mr. Michael Morris joined Delaware Investments in 1999, having previously
Mr. Morris worked as a senior equity analyst at Pilgrim Baxter, covering
financial stocks. Mr. Morris holds a bachelor's of science degree in Finance
from Indiana University. Mr. Morris is a CFA Charterholder and a member of the
Bank and Financial Analysts Association. He has been co-managing the Delaware
Balanced Fund since November 2001.
- --------------------------------------------------------------------------------
NASDAQ SYMBOLS:
Class A DCCAX
Class C DCCCX
- --------------------------------------------------------------------------------
PERFORMANCE OF A $10,000 INVESTMENT
December 29, 1998 (Fund's inception) through November 30, 2005
Delaware Small
Cap Core Fund --
Class A Shares Russell 2000 Index
12/29/98 9,425 10,000
11/30/99 9,902.38 10,893
11/30/00 10,948.1 10,829
11/30/01 13,621.3 11,351
11/30/02 13,768.4 10,146.9
11/30/03 18,608 13,829.3
11/30/04 22,445 16,216.2
11/30/05 24,474 17,536.2
Chart assumes $10,000 invested on December 29, 1998 and includes the effect of a
5.75% front-end sales charge and the reinvestment of all distributions.
Performance prior to August 1, 2005, does not reflect the impact of distribution
and service (12b-1) fees currently borne by holders of Class A shares.
Performance of other Fund classes will vary due to different charges and
expenses. The chart also assumes $10,000 invested in the Russell 2000 Index at
the month's end December 31, 1998. After December 31, 1998, returns plotted on
the chart were as of the last day of each month shown. The Russell 2000 Index is
an unmanaged composite of mostly large-capitalization U.S. companies. An index
is unmanaged and does not reflect the costs of operating a mutual fund, such as
the costs of buying, selling, and holding securities. You cannot invest directly
in an index. Past performance is not a guarantee of future results.
An expense limitation was in effect for the periods shown. Performance would
have been lower had the expense limitation not been in effect.
The performance graph does not reflect the deduction of taxes the shareholder
would pay on Fund distributions or redemptions of Fund shares
5
DISCLOSURE For the Period June 1, 2005 to November 30, 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 June 1, 2005 to November 30, 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 SMALL CAP CORE FUND
EXPENSE ANALYSIS OF AN INVESTMENT OF $1,000
Expenses
Beginning Ending Paid During
Account Account Annualized Period
Value Value Expense 6/1/05 to
6/1/05 11/30/05 Ratio 11/30/05
- -----------------------------------------------------------------------
ACTUAL FUND RETURN
Class A $1,000.00 $1,084.80 1.17% $ 6.11
Class C(1) 1,000.00 975.90 2.00% 9.91
Class R(1) 1,000.00 975.90 1.50% 7.43
Institutional Class 1,000.00 1,085.80 1.00% 5.23
- -----------------------------------------------------------------------
HYPOTHETICAL 5% RETURN (5% return before expenses)
Class A $1,000.00 $1,019.20 1.17% $ 5.92
Class C(1) 1,000.00 1,015.04 2.00% 10.10
Class R(1) 1,000.00 1,017.55 1.50% 7.59
Institutional Class 1,000.00 1,020.05 1.00% 5.06
- -----------------------------------------------------------------------
"Expenses Paid During Period" are equal to the Fund's annualized expense ratio,
multiplied by the average account value over the period, multiplied by 183/365
(to reflect the one-half year period).
(1) Commencement of operation was August 1, 2005. For purposes of this analysis,
Class C and Class R shares' annualized expense ratio was applied to the period
of June 1, 2005 to November 30, 2005. However, the ending account value for
"Actual Fund Return" uses the performance since inception and is not annualized.
6
SECTOR ALLOCATION As of November 30, 2005
DELAWARE SMALL CAP CORE FUND
Sector designations may be different than the sector designations presented in
other Fund materials.
PERCENTAGE
SECTOR OF NET ASSETS
- -----------------------------------------------------------------
COMMON STOCK 96.59%
- -----------------------------------------------------------------
Basic Materials 5.44%
Business Services 4.07%
Capital Goods 8.97%
Consumer Discretionary 6.02%
Consumer Services 2.26%
Consumer Staples 1.79%
Credit Cyclicals 1.93%
Energy 6.09%
Finance 16.70%
Health Care 12.83%
Media 1.63%
Real Estate 5.02%
Technology 20.01%
Transportation 2.17%
Utilities 1.66%
- -----------------------------------------------------------------
REPURCHASE AGREEMENTS 1.75%
- -----------------------------------------------------------------
TOTAL MARKET VALUE OF SECURITIES 98.34%
- -----------------------------------------------------------------
RECEIVABLES AND OTHER ASSETS NET OF LIABILITIES 1.66%
- -----------------------------------------------------------------
TOTAL NET ASSETS 100.00%
- -----------------------------------------------------------------
7
DELAWARE SMALL CAP CORE FUND
STATEMENT November 30, 2005
OF NET ASSETS
Number of Market
Shares Value
COMMON STOCK - 96.59%
Basic Materials - 5.44%
+AK Steel Holding 5,200 $ 43,108
Ameron International 800 35,960
+Century Aluminum 2,300 53,176
Chemtura 3,800 45,790
Chesapeake 2,300 40,480
Cytec Industries 1,200 54,348
Ferro 2,300 43,470
+FMC 1,000 53,170
+NS Group 1,750 71,820
+PolyOne 6,800 39,236
+USG 1,000 61,200
Wausau Paper 3,000 35,460
Worthington Industries 2,050 41,595
----------
618,813
----------
Business Services - 4.07%
Administaff 1,400 63,069
+Armor Holdings 1,250 54,863
Clark 3,350 47,336
Healthcare Services Group 2,550 54,188
+Labor Ready 2,650 58,512
McGrath RentCorp 1,500 42,885
+Sourcecorp 1,750 45,605
UniFirst 1,450 44,805
+United Stationers 1,050 51,450
----------
462,713
----------
Capital Goods - 8.97%
Acuity Brands 2,050 63,734
+AGCO 3,000 50,790
Applied Industrial Technologies 1,050 33,548
+Aviall 1,400 42,980
Barnes Group 1,650 56,876
Briggs & Stratton 1,050 38,000
Crane 1,400 44,366
DRS Technologies 1,150 56,810
+Flowserve 1,500 56,040
+Genlyte Group 1,400 73,779
Hughes Supply 1,750 67,794
+Innovative Solutions & Support 2,900 42,775
+Kadant 2,050 37,331
Lawson Products 1,200 45,300
Lincoln Electric Holdings 1,050 42,851
Lufkin Industries 1,100 49,225
+Orbital Sciences 4,850 58,491
+Rofin-Sinar Technologies 1,050 45,329
+Terex 900 55,458
+URS 1,400 58,968
----------
1,020,445
----------
Consumer Discretionary - 6.02%
+Aeropostale 1,750 43,523
+Charming Shoppes 6,350 74,612
+Children's Place Retail Stores 1,550 76,879
+Conn's 1,650 55,787
+Guitar Center 1,050 55,377
+Jos A Bank Clothiers 1,200 60,012
+Pacific Sunwear Of California 2,800 74,088
+Quiksilver 3,450 42,366
Number of Market
Shares Value
COMMON STOCK (continued)
Consumer Discretionary (continued)
Stage Stores 2,350 $ 70,289
Stride Rite 3,850 52,899
+Tempur-Pedic International 3,000 34,050
Yankee Candle 1,750 44,363
--------
684,245
--------
Consumer Services - 2.26%
CKE Restaurants 3,600 45,396
+ExpressJet Holdings 3,400 29,648
IHOP 1,200 57,360
Lone Star Steakhouse & Saloon 1,400 32,438
+Papa John's International 800 43,568
+Shuffle Master 1,750 49,018
--------
257,428
--------
Consumer Staples - 1.79%
Casey's General Stores 3,350 77,117
Chiquita Brands International 2,300 47,840
Longs Drug Stores 900 38,367
Nu Skin Enterprises Class A 2,350 40,843
--------
204,167
--------
Credit Cyclicals - 1.93%
+Jacuzzi Brands 4,900 39,543
M/I Homes 1,100 48,125
+Meritage Homes 800 53,176
Thor Industries 2,050 78,556
--------
219,400
--------
Energy - 6.09%
+Grey Wolf 7,650 57,452
+Hercules Offshore 1,900 51,072
Holly 1,250 76,025
+James River Coal 1,150 48,415
+Oceaneering International 1,200 61,200
+Offshore Logistics 1,200 36,780
+Oil States International 2,350 80,041
Penn Virginia 900 53,694
St Mary Land & Exploration 1,650 58,773
+Universal Compression Holdings 1,500 60,570
+Veritas DGC 2,050 67,035
World Fuel Services 1,200 41,220
--------
692,277
--------
Finance - 16.70%
ADVANTA 1,650 53,427
+Affiliated Managers Group 900 70,955
American Home Mortgage Investment 1,900 56,411
AmerUs Group 700 41,111
Bancfirst 700 55,797
Center Financial 2,450 61,495
City Holding 1,900 69,312
Commercial Capital Bancorp 3,600 60,048
+CompuCredit 1,200 46,884
Dime Community Bancshares 2,450 36,285
Direct General 3,700 63,233
FBL Financial Group Class A 1,500 47,025
First Marblehead 1,700 57,460
First Place Financial - Ohio 2,050 48,913
8
DELAWARE SMALL CAP CORE FUND
STATEMENT
OF NET ASSETS (CONTINUED)
Number of Market
Shares Value
COMMON STOCK (continued)
Finance (continued)
+FirstFed Financial 1,050 $ 54,957
Flagstar Bancorp 2,800 42,196
Frontier Financial 2,350 76,092
Greater Bay Bancorp 1,750 46,620
Hanover Insurance Group 1,100 43,945
Independent Bank - Michigan 1,230 35,879
Kansas City Life Insurance 800 40,384
MainSource Financial Group 1,940 35,095
Ohio Casualty 2,800 82,879
PFF Bancorp 2,050 62,628
Presidential Life 2,350 45,332
Republic Bancorp 4,150 51,543
RLI 1,200 62,640
+Sierra Health Services 900 70,397
Sterling Bancshares 3,600 56,124
+Stifel Financial 1,200 44,928
TierOne 2,150 64,436
+Triad Guaranty 1,000 43,360
Trustmark 2,150 61,490
+United America Indemnity 2,400 45,480
West Coast Bancorp Oregon 2,450 64,558
----------
1,899,319
----------
Health Care - 12.83%
+Adolor 2,800 40,796
+Alkermes 3,000 54,540
+American Healthways 1,250 55,513
+Applera-Celera Genomics 3,000 37,260
+Apria Healthcare Group 1,350 33,021
+Bio-Rad Laboratories Class A 800 46,736
+Candela 4,900 70,559
+Digene 2,050 56,211
+First Horizon Pharmaceutical 3,000 52,860
+Gen-Probe 900 41,553
+Geron 4,900 44,002
+Immunogen 6,850 37,881
+Kensey Nash 1,750 40,058
+LifePoint Hospitals 1,050 39,953
+Medarex 4,800 50,208
Mentor 1,150 56,051
+MGI PHARMA 2,900 57,245
+Myogen 1,750 38,045
+Noven Pharmaceuticals 3,150 42,557
Owens & Minor 1,550 43,958
+Pharmion 2,500 43,425
PolyMedica 1,050 39,858
+Res-Care 3,850 66,643
+Serologicals 2,050 41,164
+Sybron Dental Specialties 1,650 72,170
+Techne 900 49,734
+Telik 2,700 45,306
+United Therapeutics 1,050 75,001
Vital Signs 700 33,411
West Pharmaceutical Services 2,150 53,686
----------
1,459,405
----------
Number of Market
Shares Value
COMMON STOCK (continued)
Media - 1.63%
+4Kids Entertainment 2,450 $ 40,057
infoUSA 3,350 33,936
Journal Communications Class A 2,300 31,073
+Mediacom Communications 8,750 45,587
+Scholastic 1,050 34,934
--------
185,587
--------
Real Estate - 5.02%
Brandywine Realty Trust 2,450 71,000
Equity Inns 3,850 52,822
First Industrial Realty Trust 1,150 46,748
Glimcher Realty Trust 2,100 53,928
Home Properties 1,250 52,038
Maguire Properties 1,200 38,400
Nationwide Health Properties 2,500 56,875
Pennsylvania Real Estate Investment Trust 1,200 44,316
Prentiss Properties Trust 1,200 49,200
Senior Housing Properties Trust 2,800 52,668
Shurgard Storage Centers Class A 900 52,668
--------
570,663
--------
Technology - 20.01%
+AMIS Holdings 3,950 39,382
Anixter International 1,150 42,136
+Artesyn Technologies 3,600 35,928
+Axcelis Technologies 10,200 48,348
+Blackboard 1,750 54,145
+CACI International 1,000 55,360
+Catapult Communications 3,000 50,730
+Cymer 1,900 72,617
+Digital River 1,150 29,808
+Digitas 3,000 37,500
+Dionex 1,000 47,230
+Dobson Communications Class A 7,150 52,696
+EarthLink 4,350 49,764
FactSet Research Systems 1,200 46,464
+FileNet 2,150 57,921
+Internet Security Systems 2,050 46,863
+iPayment 800 32,016
+j2 Global Communications 1,150 54,890
+KEMET 4,600 36,800
+Kulicke & Soffa Industries 4,600 38,870
+Mercury Computer Systems 2,400 47,952
+MIPS Technologies 9,250 54,668
+MTC Technologies 1,050 34,409
+Multi-Fineline Electronix 1,700 62,899
+Netgear 2,800 54,040
+OmniVision Technologies 3,250 57,525
+ON Semiconductor 10,550 61,190
+Palm 2,050 58,179
+Photronics 3,250 51,610
Plantronics 1,200 33,144
+Progress Software 2,050 63,426
Quality Systems 600 48,672
+RadiSys 3,350 61,304
9
DELAWARE SMALL CAP CORE FUND
STATEMENT
OF NET ASSETS (CONTINUED)
Number of Market
Shares Value
COMMON STOCK (continued)
Technology (continued)
+Secure Computing 4,350 $ 59,769
+SI International 1,650 44,798
+Skyworks Solutions 10,050 54,170
+Tekelec 3,400 44,200
+Tessera Technologies 2,100 57,750
+UbiquiTel 4,800 46,944
United Online 2,800 39,508
+Universal Electronics 1,750 30,345
+Varian Semiconductor Equipment 1,650 72,632
+Verint Systems 1,250 47,038
+Viasat 2,450 67,742
+WebEx Communications 2,150 51,192
+Wind River Systems 3,000 41,340
-----------
2,275,914
-----------
Transportation - 2.17%
Arkansas Best 1,050 43,302
+HUB Group 1,800 72,990
Pacer International 2,800 74,004
+SCS Transportation 2,900 57,159
-----------
247,455
-----------
Utilities - 1.66%
Black Hills 1,500 54,824
Cascade Natural Gas 2,050 41,595
Middlesex Water 2,150 40,958
Otter Tail 1,700 51,085
-----------
188,462
-----------
TOTAL COMMON STOCK (cost $10,266,922) 10,986,293
-----------
Principal
Amount
REPURCHASE AGREEMENTS - 1.75%
With BNP Paribas 3.92% 12/1/05
(dated 11/30/05, to be repurchased
at $133,715, collateralized by
$137,100 U.S. Treasury Bills due
1/19/06, market value $136,388) $133,700 133,700
With UBS Warburg 3.93% 12/1/05
(dated 11/30/05, to be repurchased
at $65,307, collateralized by
$66,700 U.S. Treasury Bills due
12/8/05, market value $66,638) 65,300 65,300
-----------
TOTAL REPURCHASE AGREEMENTS
(cost $199,000) 199,000
-----------
TOTAL MARKET VALUE OF SECURITIES - 98.34%
(cost $10,465,922) 11,185,293
RECEIVABLES AND OTHER ASSETS
NET OF LIABILITIES - 1.66% 188,870
-----------
NET ASSETS APPLICABLE TO 999,090 SHARES
OUTSTANDING - 100.00% $11,374,163
===========
Net Asset Value - Delaware Small Cap Core Fund
Class A ($3,863,092 / 339,442 Shares) $11.38
------
Net Asset Value - Delaware Small Cap Core Fund
Class C ($865,971 / 76,257 Shares) $11.36
------
Net Asset Value - Delaware Small Cap Core Fund
Class R ($11.36 / 1 Share) $11.36
------
Net Asset Value - Delaware Small Cap Core Fund
Institutional Class ($6,645,089 / 583,390 Shares) $11.39
------
COMPONENTS OF NET ASSETS AT NOVEMBER 30, 2005:
Shares of beneficial interest
(unlimited authorization -- no par) $10,398,158
Undistributed net investment income 17,534
Accumulated net realized gain on investments 239,100
Net unrealized appreciation of investments 719,371
-----------
Total net assets $11,374,163
===========
+Non-income producing security for the year ended November 30, 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) $11.38
Sales charge (5.75% of offering price) (B) 0.69
------
Offering price $12.07
======
(A) Net asset value per share, as illustrated, is the amount which would be
paid upon redemption or repurchase of shares.
(B) See the current prospectus for purchases of $50,000 or more.
See accompanying notes
10
DELAWARE SMALL CAP CORE FUND
STATEMENT November 30, 2005
OF ASSETS AND LIABILITIES
ASSETS:
Investments at market $11,185,293
Cash 3,926
Dividends and interest receivable 8,640
Receivable for securities sold 811,788
Subscriptions receivable 256,621
Due from DMC 25,440
-----------
Total assets 12,291,708
-----------
LIABILITIES:
Payable for securities purchased 894,733
Due to manager and affiliates 8,778
Other accrued expenses 14,034
-----------
Total liabilities 917,545
-----------
Total net assets $11,374,163
===========
Investments at cost $10,465,922
See accompanying notes
11
DELAWARE SMALL CAP CORE FUND
STATEMENT Year Ended November 30, 2005
OF OPERATIONS
INVESTMENT INCOME:
Dividends $65,809
Interest 4,730 $ 70,539
------- --------
EXPENSES:
Registration fees 60,818
Management fees 42,610
Reports and statements to shareholders 12,874
Legal and professional fees 10,825
Distribution expenses -- Class A 1,278
Distribution expenses-- Class C 854
Accounting and administration expenses 2,088
Pricing fees 1,798
Dividend disbursing and transfer agent fees and expenses 1,771
Custodian fees 1,227
Taxes (other than taxes on income) 506
Insurance fees 373
Trustees' fees 308
Other 3,211 140,541
-------
Less expenses absorbed or waived (84,101)
Less waived distribution expenses -- Class A (249)
Less expense paid indirectly (99)
--------
Total expenses 56,092
--------
NET INVESTMENT INCOME 14,447
--------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Net realized gain on investments 244,228
Net change in unrealized appreciation/depreciation of investments 282,499
--------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS 526,727
--------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $541,174
========
See accompanying notes
12
DELAWARE SMALL CAP CORE FUND
STATEMENTS
OF CHANGES IN NET ASSETS
Year Ended
11/30/05 11/30/04
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS:
Net investment income $ 14,447 $ 8,533
Net realized gain on investments 244,228 1,393,660
Net change in unrealized appreciation/depreciation of investments 282,499 (582,199)
----------- ----------
Net increase in net assets resulting from operations 541,174 819,994
----------- ----------
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 3,781,560 3,904
Class C 844,303 --
Class R 12 --
Institutional Class 1,440,217 --
Net asset value of shares issued upon reinvestment of dividends and distributions:
Class A 5,879 971
Institutional Class 1,395,541 298,017
----------- ----------
7,467,512 302,892
----------- ----------
Cost of shares repurchased:
Class A (9,325) --
Institutional Class (9,039) --
----------- ----------
(18,364) --
----------- ----------
Increase in net assets derived from capital share transactions 7,449,148 302,892
----------- ----------
NET INCREASE IN NET ASSETS 6,588,902 823,898
NET ASSETS:
Beginning of year 4,785,261 3,961,363
----------- ----------
End of year (including undistributed net investment income of $17,534 and $6,576, respectively) $11,374,163 $4,785,261
=========== ==========
See accompanying notes
13
FINANCIAL
HIGHLIGHTS
Selected data for each share of the Fund outstanding
throughout each period were as follows:
Delaware Small Cap Core Fund Class A
Year Ended
11/30/05 11/30/04 11/30/03 11/30/02 11/30/01
NET ASSET VALUE, BEGINNING OF PERIOD $14.600 $13.080 $10.290 $11.130 $ 9.090
INCOME FROM INVESTMENT OPERATIONS:
Net investment income(1) 0.022 0.026 0.036 0.079 0.111
Net realized and unrealized gain on investments 1.035 2.481 3.350 0.069 2.082
------- ------- ------- ------- -------
Total from investment operations 1.057 2.507 3.386 0.148 2.193
------- ------- ------- ------- -------
LESS DIVIDENDS AND DISTRIBUTIONS FROM:
Net investment income (0.025) (0.044) (0.075) (0.108) (0.153)
Net realized gain on investments (4.252) (0.943) (0.521) (0.880) --
------- ------- ------- ------- -------
Total dividends and distributions (4.277) (0.987) (0.596) (0.988) (0.153)
------- ------- ------- ------- -------
NET ASSET VALUE, END OF PERIOD $11.380 $14.600 $13.080 $10.290 $11.130
======= ======= ======= ======= =======
TOTAL RETURN(2) 9.04% 20.62% 35.19% 1.08% 24.42%
RATIOS AND SUPPLEMENTAL DATA:
Net assets, end of period (000 omitted) $ 3,863 $20 $13 $-- $--
Ratio of expenses to average net assets 1.02% 0.75% 0.75% 0.75% 0.75%
Ratio of expenses to average net assets prior to expense limitation and
expense paid indirectly 2.53% 1.30% 1.34% 1.34% 1.18%
Ratio of net investment income to average net assets 0.20% 0.20% 0.33% 0.74% 1.07%
Ratio of net investment income (loss) to average net assets prior to
expense limitation and expense paid indirectly (1.31%) (0.35%) (0.26%) 0.15% 0.63%
Portfolio turnover 104% 136% 44% 76% 82%
(1) The average shares outstanding method has been applied for per share
information.
(2) Total investment return is based on the change in net asset value of a share
during the period and assumes reinvestment of dividends and distributions at
net asset value and does not reflect the impact of a sales charge. Total
investment return reflects waivers and payment of fees by the manager and
distributor. Performance would have been lower had the expense limitation
not been in effect.
See accompanying notes
14
FINANCIAL
HIGHLIGHTS (CONTINUED)
Selected data for each share of the Fund outstanding
throughout each period were as follows:
Delaware Small Cap Core Fund Class C
8/1/05(1)
to
11/30/05
NET ASSET VALUE, BEGINNING OF PERIOD $11.640
LOSS FROM INVESTMENT OPERATIONS:
Net investment loss(2) (0.021)
Net realized and unrealized loss on investments (0.259)
-------
Total from investment operations (0.280)
-------
NET ASSET VALUE, END OF PERIOD $11.360
=======
TOTAL RETURN(3) (2.41%)
RATIOS AND SUPPLEMENTAL DATA:
Net assets, end of period (000 omitted) $866
Ratio of expenses to average net assets 2.00%
Ratio of expenses to average net assets prior to expense limitation and
expense paid indirectly 5.14%
Ratio of net investment loss to average net assets (0.56%)
Ratio of net investment loss to average net assets prior to expense
limitation and expense paid indirectly (3.71%)
Portfolio turnover 104%
(1) Date of commencement of operations; ratios have been annualized and total
return has not been annualized.
(2) The average shares outstanding method has been applied for per share
information.
(3) Total investment return is based on the change in net asset value of a
share during the period and assumes reinvestment of dividends and
distributions at net asset value and does not reflect the impact of a sales
charge. Total investment return reflects 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
15
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
Year Ended
11/30/05 11/30/04 11/30/03 11/30/02 11/30/01
NET ASSET VALUE, BEGINNING OF PERIOD $14.600 $13.080 $10.290 $11.130 $9.090
INCOME FROM INVESTMENT OPERATIONS:
Net investment income(1) 0.031 0.026 0.036 0.079 0.111
Net realized and unrealized gain on investments 1.036 2.481 3.350 0.069 2.082
------- ------- ------- ------- -------
Total from investment operations 1.067 2.507 3.386 0.148 2.193
------- ------- ------- ------- -------
LESS DIVIDENDS AND DISTRIBUTIONS FROM:
Net investment income (0.025) (0.044) (0.075) (0.108) (0.153)
Net realized gain on investments (4.252) (0.943) (0.521) (0.880) --
------- ------- ------- ------- -------
Total dividends and distributions (4.277) (0.987) (0.596) (0.988) (0.153)
------- ------- ------- ------- -------
NET ASSET VALUE, END OF PERIOD $11.390 $14.600 $13.080 $10.290 $11.130
======= ======= ======= ======= =======
TOTAL RETURN(2) 9.14% 20.62% 35.19% 1.08% 24.42%
RATIOS AND SUPPLEMENTAL DATA:
Net assets, end of period (000 omitted) $6,645 $4,765 $3,948 $2,921 $2,890
Ratio of expenses to average net assets 0.94% 0.75% 0.75% 0.75% 0.75%
Ratio of expenses to average net assets prior to expense limitation and
expense paid indirectly 2.23% 1.00% 1.04% 1.04% 0.88%
Ratio of net investment income to average net assets 0.28% 0.20% 0.33% 0.74% 1.07%
Ratio of net investment income (loss) to average net assets prior to
expense limitation and expense paid indirectly (1.01%) (0.05%) 0.04% 0.45% 0.93%
Portfolio turnover 104% 136% 44% 76% 82%
(1) The average shares outstanding method has been applied for per share
information.
(2) Total investment return is based on the change in net asset value of a
share during the period and assumes reinvestment of dividends and
distributions at net asset value. Total investment return reflects waivers
and payment of fees by the manager. Performance would have been lower had
the expense limitation not been in effect.
As of November 30, 2005, Class R had one share outstanding, representing the
initial seed purchase. Shareholder data for this class is not disclosed because
management does not believe it to be meaningful.
See accompanying notes
16
DELAWARE SMALL CAP CORE FUND
NOTES November 30, 2005
TO FINANCIAL STATEMENTS
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 C, Class R
and Institutional Class shares. Class A shares are sold with a front-end sales
charge of up to 5.75%. 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 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(R) 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(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 distributions by the issuer. The Fund
declares and pays dividends from net investment income and distributions from
net realized gain on investment, if any, annually.
Subject to best execution, the Fund may direct certain security trades to
brokers who have agreed to rebate a portion of the related brokerage commission
to the Fund in cash. There were no commission rebates during the year ended
November 30, 2005.
The Fund receives earnings credits from its custodian when positive cash
balances are maintained, which are used to offset custody fees. The expense paid
under the above arrangement is included in the custodian fees and 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.
Effective June 1, 2005, 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 of the Fund through
March 31, 2007. Prior to June 1, 2005, DMC had contractually agreed to waive its
fees in order to prevent such expenses from exceeding 0.75% of the average daily
net assets of the Fund.
Delaware Service Company, Inc. (DSC), an affiliate of DMC, provides accounting,
administration, dividend disbursing and transfer agent services. Effective May
19, 2005, the Fund pays DSC a monthly fee computed at the annual rare of 0.04%
of the Fund's average daily net assets, for accounting and administration
services. Prior to May 19, 2005, the Fund paid 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.
17
DELAWARE SMALL CAP CORE FUND
NOTES
TO FINANCIAL STATEMENTS (CONTINUED)
2. INVESTMENT MANAGEMENT, ADMINISTRATION AGREEMENTS AND OTHER TRANSACTIONS WITH
AFFILIATES (CONTINUED)
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
C shares and 0.60% of the average daily net assets of the Class R shares. DDLP
has contracted to waive distribution and service fees through March 31, 2007 in
order to prevent distribution and services fees of Class A shares from exceeding
0.25% of average daily net assets. Prior to August 1, 2005, the distributor
waived the entire 0.30% Class A distribution and service fee. DDLP has
contracted to limit distribution and service fees through March 31, 2007 for
Class R shares to no more than 0.50% of average daily net assets. Institutional
Class shares pay no distribution and services expenses.
At November 30, 2005, the Fund had receivables due from or liabilities payable
to affiliates as follows:
Dividend disbursing, transfer agent, accounting
and administration fees and other expenses
payable to DSC $ (1,124)
Distribution fee payable to DDLP (1,884)
Other expenses payable to DMC and affiliates* (5,770)
Receivable from DMC under expense limitation agreement 25,440
*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 year ended November 30,
2005, the Fund was charged $442 for internal legal services provided by DMC.
For the year ended November 30, 2005, DDLP earned $6,159 for commissions on
sales of the Fund's Class A shares.
Certain officers of DMC, DSC and DDLP are officers and/or trustees of the Trust.
These officers and trustees are paid no compensation by the Fund.
3. INVESTMENTS
For the year ended November 30, 2005, the Fund made purchases of $11,699,438 and
sales of $5,984,900 of investment securities other than short-term investments.
At November 30, 2005, the cost of investments for federal income tax purposes
was $10,475,049. At November 30, 2005, net unrealized appreciation was $710,244
of which $972,602 related to unrealized appreciation of investments and $262,358
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 years
ended November 30, 2005 and 2004 was as follows:
Year Ended
11/30/05 11/30/04
---------- --------
Ordinary income $ 246,155 $ 94,305
Long-term capital gain 1,155,265 204,683
---------- --------
Total $1,401,420 $298,988
========== ========
As of November 30, 2005, the components of net assets on a tax basis were as
follows:
Shares of beneficial interest $10,398,158
Undistributed ordinary income 206,638
Undistributed long-term capital gain 59,123
Unrealized appreciation of investments 710,244
-----------
Net assets $11,374,163
===========
The difference between book basis and tax basis components of net assets are
primarily attributable to tax deferral of losses on wash sales.
For financial reporting purposes, capital accounts are adjusted to reflect the
tax character of permanent book/tax differences. Reclassifications are primarily
due to tax treatment of dividends and distributions. Results of operations and
net assets were not affected by these reclassifications. For the year ended
November 30, 2005, the Fund recorded the following reclassifications:
Undistributed net investment income $4,702
Accumulated net realized gain (loss) (4,702)
5. CAPITAL SHARES
Transactions in capital shares were as follows:
Year Ended
11/30/05 11/30/04
Shares sold:
Class A 338,367 312
Class C 76,257 --
Class R 1 --
Institutional Class 127,717 --
Shares issued upon reinvestment of
dividends and distributions:
Class A 548 79
Institutional Class 130,181 24,347
------- ------
673,071 24,738
------- ------
Shares repurchased:
Class A (848) --
Institutional Class (797) --
------ ------
(1,645) --
------ ------
Net increase 671,426 24,738
======= ======
18
DELAWARE SMALL CAP CORE FUND
NOTES
TO FINANCIAL STATEMENTS (CONTINUED)
6. LINE OF CREDIT
The Fund, along with certain other funds in the Delaware Investments(R) Family
of Funds (the "Participants"), participates in a $225,000,000 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 bases of each fund's allocation of the entire facility. The Participants may
borrow up to a maximum of one third of their net assets under the agreement. The
Fund had no amounts outstanding as of November 30, 2005, or at any time during
the year.
7. CREDIT AND MARKET RISK
The Fund invests a significant portion of its assets in small companies and may
be subject to certain risks associated with ownership of securities of small
companies. Investments in small-sized companies may be more volatile than
investments in larger companies for a number of reasons, which include 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 risks associated with that industry. If the Fund holds real estate
directly as a result of defaults or receives rental income directly from real
estate holdings, its tax status as a regulated investment company may be
jeopardized. There were no direct holdings during the year ended November 30,
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 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.
While maintaining oversight, the Board of Trustees has delegated to DMC the
day-to-day functions of determining whether individual securities are liquid for
purposes of the Fund's limitation on investments in illiquid assets. At November
30, 2005, no securities have been determined to be illiquid under the Fund's
Liquidity Procedures.
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.
9. TAX INFORMATION (UNAUDITED)
The information set forth below is for the Fund's fiscal year as required by
federal laws. Shareholders, however, must report distributions on a calendar
year basis for income tax purposes, which may include distributions for portions
of two fiscal years of a fund. Accordingly, the information needed by
shareholders for income tax purposes will be sent to them in January of each
year. Please consult your tax advisor for proper treatment of this information.
For the fiscal year ended November 30, 2005, the Fund designates dividends and
distributions paid during the year as follows:
(A) (B)
Long-Term Ordinary
Capital Gain Income Total (C)
Distributions Distribution* Distributions Qualifying
(Tax Basis) (Tax Basis) (Tax Basis) Dividends(1)
- ------------ ------------- ------------- ------------
82% 18% 100% 100%
(A) and (B) are based on a percentage of the Fund's total distributions.
(C) is based on a percentage of the Fund's ordinary income of the Fund.
(1) Qualifying dividends represent dividends which qualify for the corporate
dividends received deduction.
*For the fiscal year ended November 30, 2005, certain dividends paid by the Fund
may be subject to a maximum tax rate of 15%, as provided for by the Jobs and
Growth Tax Relief Reconciliation Act of 2003. The Fund intends to designate up
to a maximum amount of $246,155 to be taxed at a maximum rate of 15%. Complete
information will be computed and reported in conjunction with your 2005 Form
1099-DIV.
19
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and Board of Trustees
Delaware Group Equity Funds V - Delaware Small Cap Core Fund
We have audited the accompanying statement of net assets and statement of assets
and liabilities of the Delaware Small Cap Core Fund (one of the series
constituting Delaware Group Equity Funds V) (the "Fund") as of November 30,
2005, and the related statement of operations for the year then ended, the
statements of changes in net assets for each of the two years in the period then
ended, and the financial highlights for each of the periods indicated therein.
These financial statements and financial highlights are the responsibility of
the Fund's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements and financial highlights are free of material misstatement. We were
not engaged to perform an audit of the Fund's internal control over financial
reporting. Our audits included consideration of internal control over financial
reporting as a basis for designing audit procedures that are appropriate in the
circumstances, but not for the purpose of an opinion on the effectiveness of the
Fund's internal control over financial reporting. Accordingly, we express no
such opinion. An audit also includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements and financial
highlights, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
Our procedures included confirmation of securities owned as of November 30,
2005, by correspondence with the custodian and brokers or by other appropriate
auditing procedures where replies from brokers were not received. We believe
that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of the
Delaware Small Cap Core Fund of Delaware Group Equity Funds V at November 30,
2005, the results of its operations for the year then ended, the changes in its
net assets for each of the two years in the period then ended, and its financial
highlights for each of the periods indicated therein, in conformity with U.S.
generally accepted accounting principles.
/s/ Ernst & Young
Philadelphia, Pennsylvania
January 11, 2006
20
DELAWARE INVESTMENTS(R) FAMILY OF FUNDS
BOARD OF TRUSTEES/DIRECTORS AND OFFICERS ADDENDUM
A mutual fund is governed by a Board of Trustees/Directors ("Trustees"), which
has oversight responsibility for the management of a fund's business affairs.
Trustees establish procedures and oversee and review the performance of the
investment manager, the distributor and others who perform services for the
fund. The independent fund trustees, in particular, are advocates for
shareholder interests. The following is a list of the Trustees and Officers with
certain background and related information.
NUMBER OF OTHER
PRINCIPAL PORTFOLIOS IN FUND DIRECTORSHIPS
NAME, POSITION(S) OCCUPATION(S) COMPLEX OVERSEEN HELD BY
ADDRESS HELD WITH LENGTH OF TIME DURING BY TRUSTEE TRUSTEE
AND BIRTHDATE FUND(S) SERVED PAST 5 YEARS OR OFFICER OR OFFICER
- ------------------------------------------------------------------------------------------------------------------------------------
INTERESTED TRUSTEES
JUDE T. DRISCOLL(2) Chairman, 5 Years - Since August 2000, 87 None
2005 Market Street President, Executive Officer Mr. Driscoll has served in
Philadelphia, PA Chief Executive various executive capacities
19103 Officer and 2 Years - at different times at
Trustee Trustee Delaware Investments(1)
March 10, 1963
- ------------------------------------------------------------------------------------------------------------------------------------
INDEPENDENT TRUSTEES
THOMAS L. BENNETT Trustee Since Private Investor - 87 None
2005 Market Street March 23, 2005 (March 2004 - Present)
Philadelphia, PA
19103 Investment Manager -
Morgan Stanley & Co.
October 4, 1947 (January 1984 - March 2004)
- ------------------------------------------------------------------------------------------------------------------------------------
JOHN A. FRY Trustee 4 Years President - 87 Director -
2005 Market Street Franklin & Marshall College Community Health
Philadelphia, PA (June 2002 - Present) Systems
19103
Executive Vice President -
May 28, 1960 University of Pennsylvania
(April 1995 - June 2002)
- ------------------------------------------------------------------------------------------------------------------------------------
ANTHONY D. KNERR Trustee 12 Years Founder/Managing Director - 87 None
2005 Market Street Anthony Knerr & Associates
Philadelphia, PA (Strategic Consulting)
19103 (1990 - Present)
December 7, 1938
- ------------------------------------------------------------------------------------------------------------------------------------
LUCINDA S. LANDRETH Trustee Since Chief Investment Officer - 87 None
2005 Market Street March 23, 2005 Assurant, Inc.
Philadelphia, PA (Insurance)
19103 (2002 - 2004)
June 24, 1947
- ------------------------------------------------------------------------------------------------------------------------------------
ANN R. LEVEN Trustee 16 Years Treasurer/Chief Fiscal Officer - 87 Director and
2005 Market Street National Gallery of Art Audit Committee
Philadelphia, PA (1994 - 1999) Chairperson - Andy
19103 Warhol Foundation
November 1, 1940 Director and Audit
Committee Member -
Systemax Inc.
21
NUMBER OF OTHER
PRINCIPAL PORTFOLIOS IN FUND DIRECTORSHIPS
NAME, POSITION(S) OCCUPATION(S) COMPLEX OVERSEEN HELD BY
ADDRESS HELD WITH LENGTH OF TIME DURING BY TRUSTEE TRUSTEE
AND BIRTHDATE FUND(S) SERVED PAST 5 YEARS OR OFFICER OR OFFICER
- ------------------------------------------------------------------------------------------------------------------------------------
INDEPENDENT TRUSTEES (CONTINUED)
THOMAS F. MADISON Trustee 11 Years President/Chief Executive 87 Director -
2005 Market Street Officer - MLM Partners, Banner Health
Philadelphia, PA Inc. (Small Business
19103 Investing and Consulting) Director -
(January 1993 - Present) CenterPoint Energy
February 25, 1936
Director and Audit
Committee Member -
Digital River Inc.
Director and Audit
Committee Member -
Rimage
Corporation
Director - Valmont
Industries, Inc.
- ------------------------------------------------------------------------------------------------------------------------------------
JANET L. YEOMANS Trustee 6 Years Vice President/Mergers & 87 None
2005 Market Street Acquisitions -
Philadelphia, PA 3M Corporation
19103 (January 2003 - Present)
July 31, 1948 Ms. Yeomans has held
various management
positions at 3M Corporation
since 1983.
- ------------------------------------------------------------------------------------------------------------------------------------
J. RICHARD ZECHER Trustee Since Founder - 87 Director and Audit
2005 Market Street March 23, 2005 Investor Analytics Committee Member -
Philadelphia, PA (Risk Management) Investor Analytics
19103 (May 1999 - Present)
Director and Audit
July 3, 1940 Committee Member -
Oxigene, Inc.
- ------------------------------------------------------------------------------------------------------------------------------------
OFFICERS
MICHAEL P. BISHOF Senior Vice Chief Financial Mr. Bishof has served in 87 None(3)
2005 Market Street President and Officer since various executive capacities
Philadelphia, PA Chief Financial February 17, 2005 at different times at
19103 Officer Delaware Investments.
August 18, 1962
- ------------------------------------------------------------------------------------------------------------------------------------
DAVID F. CONNOR Vice President, Vice President since Mr. Connor has served as 87 None(3)
2005 Market Street Deputy General September 21, 2000 Vice President and Deputy
Philadelphia, PA Counsel and Secretary and Secretary General Counsel of Delaware
19103 since Investments since 2000.
October 25, 2005
December 2, 1963
- ------------------------------------------------------------------------------------------------------------------------------------
DAVID P. O'CONNOR Senior Vice Senior Vice President, Mr. O'Connor has served in 87 None(3)
2005 Market Street President, General Counsel and various executive and legal
Philadelphia, PA General Counsel Chief Legal Officer capacities at different times
19103 and Chief since at Delaware Investments.
Legal Officer October 25, 2005
February 21, 1966
- ------------------------------------------------------------------------------------------------------------------------------------
JOHN J. O'CONNOR Senior Vice President Treasurer Mr. O'Connor has served in 87 None(3)
2005 Market Street and Treasurer since various executive capacities
Philadelphia, PA February 17, 2005 at different times at
19103 Delaware Investments.
June 16, 1957
- ------------------------------------------------------------------------------------------------------------------------------------
(1) Delaware Investments is the marketing name for Delaware Management
Holdings, Inc. and its subsidiaries, including the Fund's(s') investment
advisor, principal underwriter and its transfer agent.
(2) Mr. Driscoll is considered to be an "Interested Trustee" because he is an
executive officer of the Fund's(s') manager and distributor.
(3) Mr. Bishof, Mr. Connor, Mr. David P. O'Connor and Mr. John J. O'Connor also
serve in similar capacities for the six portfolios of the Optimum Fund
Trust, which have the same investment advisor, principal underwriter, and
transfer agent as the registrant.
The Statement of Additional Information for the Fund(s) includes additional
information about the Trustees and Officers and is available, without charge,
upon request by calling 800 523-1918.
22
ABOUT
THE ORGANIZATION
This annual report is for the information of Delaware Small Cap Core Fund
shareholders, but it may be used with prospective investors when preceded or
accompanied by a current prospectus for Delaware Small Cap Core Fund and the
Delaware Investments(R) 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(R) Family of Funds Chief Financial Officer a Series of Delaware Management
Philadelphia, PA Delaware Investments(R) Family of Funds Business Trust
Philadelphia, PA Philadelphia, PA
THOMAS L. BENNETT NATIONAL DISTRIBUTOR
Private Investor DAVID F. CONNOR Delaware Distributors, L.P.
Rosemont, PA Vice President, Deputy General Counsel Philadelphia, PA
and Secretary
JOHN A. FRY Delaware Investments(R) Family of Funds SHAREHOLDER SERVICING, DIVIDEND
President Philadelphia, PA DISBURSING AND TRANSFER AGENT
Franklin & Marshall College Delaware Service Company, Inc.
Lancaster, PA DAVID P. O'CONNOR 2005 Market Street
Senior Vice President, General Counsel Philadelphia, PA 19103-7094
ANTHONY D. KNERR and Chief Legal Officer
Managing Director Delaware Investments(R) Family of Funds FOR SHAREHOLDERS
Anthony Knerr & Associates Philadelphia, PA 800 523-1918
New York, NY
JOHN J. O'CONNOR FOR SECURITIES DEALERS AND FINANCIAL
LUCINDA S. LANDRETH Senior Vice President and Treasurer INSTITUTIONS REPRESENTATIVES ONLY
Former Chief Investment Officer Delaware Investments(R) Family of Funds 800 362-7500
Assurant, Inc. Philadelphia, PA
Philadelphia, PA WEB SITE
www.delawareinvestments.com
ANN R. LEVEN
Former Treasurer/Chief Fiscal Officer Delaware Investments is the marketing
National Gallery of Art name for Delaware Management
Washington, DC Holdings, Inc. and its subsidiaries.
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.
23
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24
Delaware
Investments(R)
- -----------------------------------
A member of Lincoln Financial Group
CONTACT INFORMATION
WEB SITE
www.delawareinvestments.com
E-MAIL
service@delinvest.com
SHAREHOLDER SERVICE CENTER
800 523-1918
Call the Shareholder Service Center Monday to Friday, 8 a.m. to 7 p.m. Eastern
Time:
[_] For fund information, literature, price, yield and performance figures.
[_] For information on existing regular investment accounts and retirement plan
accounts including wire investments, wire redemptions, telephone redemptions
and telephone exchanges.
DELAPHONE SERVICE 800 362-FUND (800 362-3863)
[_] For convenient access to account information or current performance
information on all Delaware Investments(R) Funds seven days a week, 24 hours
a day, use this Touch-Tone(R) service.
- --------------------------------------------------------------------------------
Printed in the USA
(9980) ANN-0512 SCC
AR-480 [11/05] IVES 1/06 MF0512094 PO10678
Delaware
Investments(R)
-----------------------------------
A member of Lincoln Financial Group
VALUE-EQUITY
ANNUAL REPORT NOVEMBER 30, 2005
- --------------------------------------------------------------------------------
DELAWARE SMALL CAP VALUE FUND
[GRAPHIC
OMITTED] POWERED BY RESEARCH(R)
TABLE
OF CONTENTS
- --------------------------------------------------------------
PORTFOLIO MANAGEMENT REVIEW 1
- --------------------------------------------------------------
PERFORMANCE SUMMARY 4
- --------------------------------------------------------------
DISCLOSURE OF FUND EXPENSES 6
- --------------------------------------------------------------
SECTOR ALLOCATION 7
- --------------------------------------------------------------
FINANCIAL STATEMENTS:
Statement of Net Assets 8
Statement of Operations 11
Statements of Changes in Net Assets 12
Financial Highlights 13
Notes to Financial Statements 18
- --------------------------------------------------------------
REPORT OF INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM 21
- --------------------------------------------------------------
BOARD OF TRUSTEES/DIRECTORS AND OFFICERS 22
- --------------------------------------------------------------
ABOUT THE ORGANIZATION 24
- --------------------------------------------------------------
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)2006 Delaware Distributors, L.P.
PORTFOLIO DELAWARE SMALL CAP VALUE FUND
MANAGEMENT REVIEW December 13, 2005
FUND MANAGER
Christopher S. Beck
Senior Portfolio Manager
Q: HOW DID THE FUND PERFORM VERSUS ITS BENCHMARK INDEX AND PEER GROUP FOR THE
ONE-YEAR PERIOD ENDED NOVEMBER 30, 2005?
A: Class A shares of Delaware Small Cap Value Fund returned +11.42% at net asset
value and +5.01% at their maximum offer price for Class A shares (both figures
reflect all distributions reinvested). For complete, annualized performance of
Delaware Small Cap Value Fund, please see the performance table on page 4.
During the same 12-month period, the Fund's benchmark, the Russell 2000 Value
Index, gained +8.04%, and its peer group, as measured by the Lipper Small Cap
Value Funds Average, returned +9.16% (source: Lipper Inc.).
Q: HOW WOULD YOU CHARACTERIZE THE MARKET ENVIRONMENT FOR THE FUND OVER THE LAST
YEAR?
A: Small caps continued to perform well compared to the U.S. stock market as a
whole, but stock investors faced an array of challenges and concerns over the
course of the last fiscal year. These included high oil prices, the continuation
of "measured" interest rate increases by the Federal Reserve, and two severe
hurricanes that devastated the Gulf Coast region of the U.S. late in the fiscal
period. Damage from the hurricanes, an associated loss of jobs in the Gulf Coast
region, and rising oil prices in particular had equity investors worried about
effects on the economy this past autumn.
Despite all this, the year was marked by sound economic growth on the whole, and
by the time the Fund's fiscal year ended on November 30, 2005, economic news had
turned more positive. The U.S. Department of Commerce reported that the sales of
new homes rose sharply this autumn, as did factory orders for "big-ticket"
manufactured items. The Conference Board noted that its Consumer Confidence
Index, which dropped precipitously in September after Hurricane Katrina,
rebounded well in November. The index climbed to 98.9 after registering 85.2 in
October. Gasoline prices also dropped late in our fiscal year as some Gulf Coast
refineries came back on line, and many analysts expected the Labor Department to
report job gains for November. With the economy robust, the Fed was generally
expected to raise interest rates again in December, as it continued to do
throughout the year.
Q: WHAT STRATEGIES DID YOU EMPLOY IN MANAGING THE FUND GIVEN THIS ENVIRONMENT?
A: In general, we strive to identify small companies that we believe offer
above-average opportunities for long-term price appreciation because their
current stock price does not appear to accurately reflect the companies'
underlying value or future earning potential.
Small caps did lead the broad market once again, but the year included periods
of both positive and negative performance for small cap stocks, and the
environment was one in which valuation-conscious investors might prosper. That
said, index results suggest that there was no real advantage to employing either
a growth or value focus during the period, as returns for the two were
practically even, based on the Russell 2000 style-based indexes.
As always, we carefully evaluated the financial strength of the companies we
follow, the nature of management, and any developments affecting the company or
its industry. We also look at factors such as anticipated new products or
services, possible management changes, and projected takeovers or technological
breakthroughs. Using extensive analysis, our goal is to identify companies
within the universe of undervalued small cap stocks, where true value is likely
to be recognized and rewarded with a rising stock price in the future.
Because there is added risk when investing in smaller companies, we take care to
maintain a well-diversified portfolio, and at fiscal year end held 128
individual stocks across a wide array of industries.
Q: WHAT OTHER STRATEGIES DID YOU USE TO MANAGE RISKS IN THIS SMALL-CAP FUND?
A: We generally maintain a long-term investment approach and focus on securities
that we believe may appreciate over an extended period of time, regardless of
interim market fluctuations. We don't typically try to predict overall stock
market movements and generally do not trade for short-term purposes.
We also limit the amount of assets invested in any one industry or in any
individual security, and continuously monitor the portfolio. Because we focus on
stocks that are already selling at relatively low prices, we believe that the
Fund will typically be positioned to experience less price volatility than peer
funds that do not use a value-oriented strategy.
1
Q: WHAT PARTICULAR HOLDINGS INFLUENCED PERFORMANCE SIGNIFICANTLY?
A: Carter's, Arch Coal, and financial services firm W.R Berkeley, were among the
biggest contributors to performance. Our two most disappointing performers were
FairPoint Communications and transportation company Yellow Roadway.
Q: WHAT WERE SOME OF THE FACTORS THAT AFFECTED FUND PERFORMANCE DURING THE
FISCAL YEAR?
A: By the first calendar quarter of 2005, the environment for small cap
investors turned challenging as the market slowed. Regardless of growth or value
orientation, small caps were generally in decline at that point, with one
exception being the energy sector and energy-related holdings.
Energy prices were a big influence on markets during the year in general, and
throughout the 22 months we closely monitored energy prices and their direct
effects on some of our holdings. For instance, we elected to sell our position
in Continental Airlines during the year, which was a result of increased
expenses that the company incurred due to an enormous upsurge in fuel costs.
During the first half of the fiscal year, we also sold several energy-related
holdings given a general belief that the energy sector was nearing the end of a
run of strong performance.
At fiscal year end, the Fund's largest holdings included Colonial BancGroup,
Brink's and Alexander & Baldwin - a company with diversified business lines that
include transportation, food products, and property management. The Fund did
retain several energy holdings - including W-H Energy Services and Whiting
Petroleum - where we remained positive about their outlooks.
Another key shift during the year was with regard our general approach to
cyclical stocks. For several years, Delaware Small Cap Value Fund held larger
positions in economically sensitive sectors than the benchmark index. During the
fiscal year, we moderated this positioning, as we saw that the Federal Reserve
remained committed to increasing interest rates and believed the change was in
order.
Small cap stocks have now posted a long run in which they have outperformed the
broad market over several years. It is possible that continued rising interest
rates will have more of a negative impact on small caps over time, but we
believe that our focus on companies that generate significant cash flows may
provide a cushion during a potentially difficult market environment. From a
valuation standpoint, we are not convinced that small caps appeared overvalued
versus large cap equities at fiscal year end. We do intend to proceed with
caution, however, seeking stocks with attractive valuations that are generating
those strong cash flows.
2
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3
PERFORMANCE SUMMARY
DELAWARE SMALL CAP VALUE FUND
The performance data quoted represent past performance; past performance does
not guarantee future results. Investment return and principal value will
fluctuate so your shares, when redeemed, may be worth more or less than their
original cost. Current performance may be lower or higher than the performance
data quoted. Please obtain the performance data for the most recent month end by
calling 800 523-1918 or visiting our Web site at
ww.delawareinvestments.com/performance. You should consider the investment
objectives, risks, charges, and expenses of the investment carefully before
investing. The Delaware Small Cap Value Fund prospectus contains this and other
important information about the Fund. Please request a prospectus by calling 800
523-1918. Read it carefully before you invest or send money. Instances of high
double-digit returns are highly unusual and cannot be sustained and were
achieved primarily during favorable market conditions.
FUND PERFORMANCE
Average Annual Total Returns
Through November 30, 2005 Lifetime 10 Years Five Year One Year
- ----------------------------------------------------------------------------------------------------
Class A (Est. 6/24/87)
Excluding Sales Charge +13.51% +12.94% +16.58% +11.42%
Including Sales Charge +13.14% +12.27% +15.21% +5.01%
- ----------------------------------------------------------------------------------------------------
Class B (Est. 9/6/94)
Excluding Sales Charge +12.25% +12.31% +15.78% +10.68%
Including Sales Charge +12.25% +12.31% +15.53% +6.78%
- ----------------------------------------------------------------------------------------------------
Class C (Est. 11/29/95)
Excluding Sales Charge +12.28% +12.16% +15.79% +10.65%
Including Sales Charge +12.28% +12.16% +15.79% +9.67%
- ----------------------------------------------------------------------------------------------------
Returns reflect the reinvestment of all distributions and any applicable sales
charges as noted below. Performance for Class B and C shares, excluding sales
charges, assumes either that contingent deferred sales charges did not apply or
the investment was not redeemed.
The Fund offers Class A, B, C, R, and Institutional Class shares. Class A shares
are sold with a front-end sales charge of up to 5.75% and have an annual
distribution and service fee of up to 0.30%.
Class B shares are sold with a contingent deferred sales charge that declines
from 4% to zero depending upon the period of time the shares are held. Class B
shares will automatically convert to Class A shares on a quarterly basis
approximately eight years after purchase. They are also subject to an annual
distribution and service fee of 1.00%. Lifetime and 10-year performance figures
for Class B shares reflect conversion to Class A shares after eight years.
Class C shares are sold with a contingent deferred sales charge of 1.00% if
redeemed during the first 12 months. They are also subject to an annual
distribution and service fee of 1.00%.
The average annual total return for the lifetime and one-year periods ended
November 30, 2005 for Delaware Small Cap Value Fund's Class R shares were
+21.31% and +11.15%, respectively. Class R shares were first made available on
June 2, 2003 and are available only for certain retirement plan products. They
are sold without a sales charge and have an annual distribution and service fee
of 0.60%. Effective August 1, 2005, the distributor has contracted to limit
distribution and service fees through March 31, 2006 to 0.50% of average daily
net assets.
The average annual total returns for the lifetime (since 6/24/87), 10-year,
five-year, and one-year periods ended November 30, 2005 for Delaware Small Cap
Value Fund's Institutional Class were +13.75%, +13.28%, +16.95%, and +11.77%,
respectively. The Institutional Class shares were first made available on
November 9, 1992 and are available without sales or asset-based distribution
charges only to certain eligible institutional accounts. Institutional Class
performance prior to November 9, 1992 is based on Class A performance and was
adjusted to eliminate the sales charges, but not the asset-based distribution
charge of Class A shares.
The performance table does not reflect the deduction of taxes the shareholder
would pay on Fund distributions or redemptions of Fund shares.
Nasdaq Institutional Class symbol: DEVIX
Nasdaq Class R symbol: DEVRX
4
FUND BASICS
As of November 30, 2005
- --------------------------------------------- --------------------------------------------------------------------------------
FUND OBJECTIVE: YOUR FUND MANAGER:
The Fund seeks capital appreciation. Christopher S. Beck has 24 years of experience in the investment industry.
Before joining Delaware Investments in 1997, he was director of research at
- --------------------------------------------- Cypress Capital Management, chief investment officer of the University of
TOTAL FUND NET ASSETS: Delaware Endowment Fund, and manager of a small-cap fund at Pitcairn Trust
$682 million Company. He holds a bachelor's degree from the University of Delaware and an MBA
from Lehigh University. He is also a CFA charterholder.
- ---------------------------------------------
NUMBER OF HOLDINGS: --------------------------------------------------------------------------------
128 NASDAQ SYMBOLS:
Class A DEVLX
- --------------------------------------------- Class B DEVBX
FUND START DATE: Class C DEVCX
June 24, 1987
--------------------------------------------------------------------------------
- ---------------------------------------------
PERFORMANCE OF A $10,000 INVESTMENT
November 30, 1995 through November 30, 2005
Delaware
Small Cap
Value Fund - Russell 2000
Class A Shares Value Index
--------------- -------------
30-Nov-95 9425 10000
30-Nov-96 11223 12119
30-Nov-97 15306 15949
30-Nov-98 14162 14957
30-Nov-99 13806 14743
30-Nov-00 14777 16854
30-Nov-01 17387 20054
30-Nov-02 17665 19691
30-Nov-03 23707 26566
30-Nov-04 28571 32864
30-Nov-05 31834 35507
Chart assumes $10,000 invested on November 30, 1995 and includes the effect of a
5.75% front-end sales charge and the reinvestment of all distributions.
Performance of other Fund classes will vary due to different charges and
expenses. Returns plotted on the chart were as of the last day of each month
shown. The Russell 2000 Value Index is an unmanaged composite that measures the
stocks of small, value-oriented companies. An index is unmanaged and does not
reflect the costs of operating a mutual fund, such as the costs of buying,
selling, and holding securities. You cannot invest directly in an index. Past
performance is not a guarantee of future results.
The performance graph does not reflect the deduction of taxes the shareholder
would pay on Fund distributions or redemptions of Fund shares.
5
DISCLOSURE For the Period June 1, 2005 to November 30, 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 June 1, 2005 to November 30, 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 for Class R shares.
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 6/1/05 to
6/1/05 11/30/05 Ratio 11/30/05
- -------------------------------------------------------------------------------
ACTUAL FUND RETURN
Class A $1,000.00 $1,092.10 1.46% $ 7.66
Class B 1,000.00 1,088.40 2.16% 11.31
Class C 1,000.00 1,088.40 2.16% 11.31
Class R 1,000.00 1,091.00 1.68% 8.81
Institutional Class 1,000.00 1,093.70 1.16% 6.09
- -------------------------------------------------------------------------------
HYPOTHETICAL 5% RETURN (5% return before expenses)
Class A $1,000.00 $1,017.75 1.46% $ 7.38
Class B 1,000.00 1,014.24 2.16% 10.91
Class C 1,000.00 1,014.24 2.16% 10.91
Class R 1,000.00 1,016.65 1.68% 8.49
Institutional Class 1,000.00 1,019.25 1.16% 5.87
- -------------------------------------------------------------------------------
"Expenses Paid During Period" are equal to the Fund's annualized expense ratio,
multiplied by the average account value over the period, multiplied by 183/365
(to reflect the one-half year period).
6
SECTOR ALLOCATION As of November 30, 2005
DELAWARE SMALL CAP VALUE FUND
Sector designations may be different than the sector designations presented in
other Fund materials.
PERCENTAGE
SECTOR OF NET ASSETS
- -----------------------------------------------------------------
COMMON STOCK 93.23%
- -----------------------------------------------------------------
Basic Industry 11.15%
Business Services 2.02%
Capital Spending 6.36%
Consumer Cyclical 1.87%
Consumer Services 12.61%
Consumer Staples 3.17%
Energy 8.46%
Financial Services 16.84%
Health Care 6.78%
Real Estate 4.92%
Technology 12.18%
Transportation 3.67%
Utilities 3.20%
- -----------------------------------------------------------------
EXCHANGE TRADED FUNDS 2.06%
- -----------------------------------------------------------------
REPURCHASE AGREEMENTS 4.96%
- -----------------------------------------------------------------
SECURITIES LENDING COLLATERAL 18.99%
- -----------------------------------------------------------------
TOTAL MARKET VALUE OF SECURITIES 119.24%
- -----------------------------------------------------------------
OBLIGATION TO RETURN SECURITIES LENDING COLLATERAL (18.99%)
- -----------------------------------------------------------------
LIABILITIES NET OF RECEIVABLES AND OTHER ASSETS (0.25%)
- -----------------------------------------------------------------
TOTAL NET ASSETS 100.00%
- -----------------------------------------------------------------
7
STATEMENT DELAWARE SMALL CAP VALUE FUND
OF NET ASSETS November 30, 2005
Number of Market
Shares Value
- -------------------------------------------------------------
COMMON STOCK - 93.23%
Basic Industry - 11.15%
*Albemarle 123,000 $ 4,526,400
*+Alpha Natural Resources 238,800 5,735,976
Arch Coal 106,200 8,181,648
*+Chaparral Steel 84,200 2,105,000
Crane 159,800 5,064,062
+Crown Holdings 371,800 6,893,172
*Federal Signal 75,800 1,238,572
*Fuller (H.B.) 174,300 5,399,814
+Griffon 199,360 4,856,410
IPSCO 60,100 4,650,538
*MacDermid 208,400 5,920,644
+Pactiv 156,800 3,173,632
*+PolyOne 457,500 2,639,775
*Smith (A.O.) 90,300 3,275,181
Spartech 202,700 4,299,267
*Texas Industries 84,200 4,199,896
*Westlake Chemical 138,200 3,872,364
-----------
76,032,351
-----------
Business Services - 2.02%
Brink's 180,400 8,327,264
*+United Stationers 110,359 5,407,591
-----------
13,734,855
-----------
Capital Spending - 6.36%
*+Casella Waste Systems 320,800 3,926,592
*Gibraltar Industries 216,714 4,765,541
Harsco 101,600 6,751,320
+Insituform Technologies Class A 142,100 2,823,527
*Kaydon 188,700 6,106,332
*Mueller Industries 145,700 3,944,099
*Wabtec 281,700 7,276,311
Walter Industries 154,800 7,794,180
-----------
43,387,902
-----------
Consumer Cyclical - 1.87%
Furniture Brands International 146,600 2,924,670
KB HOME 102,000 7,116,540
*+WCI Communities 106,600 2,737,488
-----------
12,778,698
-----------
Consumer Services - 12.61%
+AnnTaylor Stores 233,150 7,071,440
Belo Class A 146,100 3,184,980
Borders Group 225,400 4,595,906
*+Carter's 31,300 1,913,995
*Cato Class A 333,400 7,201,440
CBRL Group 66,000 2,441,340
*+CEC Entertainment 155,600 5,570,480
+Dollar Tree Stores 233,500 5,361,160
*K Swiss 159,300 4,974,939
Kellwood 165,100 3,817,112
*Kenneth Cole Productions Class A 123,300 3,462,264
*+Lenox Group 92,600 1,144,536
Meredith 79,000 4,029,000
Pier 1 Imports 299,500 3,803,650
*+Sports Authority 166,443 5,237,961
*Stage Stores 127,500 3,813,525
*Thor Industries 191,000 7,319,120
Wolverine World Wide 243,650 5,292,078
*+Zale 204,300 5,699,970
-----------
85,934,896
-----------
Number of Market
Shares Value
- -------------------------------------------------------------
COMMON STOCK (CONTINUED)
Consumer Staples - 3.17%
American Greetings Class A 239,800 $ 6,282,760
Bunge Limited 76,300 4,082,050
+Constellation Brands 232,800 5,498,736
+Del Monte Foods 578,700 5,717,556
-----------
21,581,102
-----------
Energy - 8.46%
*+Energy Partners 269,900 6,245,486
+Grey Wolf 808,900 6,074,839
+Newfield Exploration 152,800 7,068,528
*+Newpark Resources 710,900 5,210,897
Southwest Gas 186,500 4,945,980
Tesoro 68,100 3,750,267
TODCO 113,300 4,700,817
*+W-H Energy Services 279,700 9,322,401
*+Whiting Petroleum 248,900 10,316,905
-----------
57,636,120
-----------
Financial Services - 16.84%
*AmerUs Group 159,800 9,385,054
Bank of Hawaii 140,500 7,251,205
*Bankunited Financial Class A 243,500 6,206,815
Berkley (W.R.) 223,900 10,438,218
*Boston Private Financial Holdings 231,600 7,179,600
Colonial BancGroup 437,900 10,908,088
Compass Bancshares 63,500 3,077,210
*First Republic Bank 199,800 7,746,246
*Greater Bay Bancorp 233,000 6,207,120
*Harleysville Group 137,300 3,749,663
*Independent Bank 67,600 1,975,948
*Infinity Property & Casualty 136,800 5,054,760
*MAF Bancorp 142,900 6,083,253
*NBT Bancorp 99,600 2,277,852
Platinum Underwriters Holdings 176,100 5,364,006
*Provident Bankshares 222,100 7,915,644
*Republic Bancorp 322,436 4,004,660
*Sterling Financial 210,668 5,498,435
*+Triad Guaranty 103,400 4,483,424
-----------
114,807,201
-----------
Health Care - 6.78%
+Alderwoods Group 413,000 6,203,260
*Arrow International 107,200 3,197,776
*+Bio-Rad Laboratories Class A 99,100 5,789,422
*Diagnostic Products 81,200 3,698,660
*Owens & Minor 213,100 6,043,516
+Par Pharmaceuticals 129,000 3,432,690
+Pediatrix Medical Group 80,200 6,781,712
*+PRA International 156,500 4,341,310
+RehabCare Group 133,200 2,578,752
Service Corp International 508,100 4,171,501
-----------
46,238,599
-----------
Real Estate - 4.92%
*Ashford Hospitality Trust 266,400 2,842,488
Brandywine Realty Trust 138,000 3,999,240
Camden Property Trust 133,200 7,858,800
Education Realty Trust 179,700 2,244,453
Highland Hospitality 394,000 4,259,140
Prentiss Properties Trust 137,300 5,629,300
Reckson Associates Realty 183,000 6,721,590
-----------
33,555,011
-----------
8
STATEMENT DELAWARE SMALL CAP VALUE FUND
OF NET ASSETS (CONTINUED)
Number of Market
Shares Value
- -------------------------------------------------------------
COMMON STOCK (CONTINUED)
Technology - 12.18%
Acxiom 268,000 $ 5,944,240
*+Bell Microproducts 383,000 3,293,800
+Brocade Communications Systems 1,064,764 4,653,019
*+Checkpoint Systems 253,100 6,061,745
*+CommScope 277,500 5,691,525
+Datastream Systems 330,100 2,673,810
+Emulex 258,000 5,141,940
+Entegris 413,300 4,174,330
+Ingram Micro Class A 379,200 7,121,376
*+Insight Enterprises 239,800 4,995,034
+International Rectifier 119,900 4,251,654
+NETGEAR 154,200 2,976,060
*+Overland Storage 46,100 366,956
* Plexus 282,000 6,063,000
*QAD 207,200 1,616,160
Symbol Technologies 292,200 3,339,846
*+Synnex 200,900 3,144,085
+Synopsys 295,600 5,770,112
*Technitrol 326,300 5,775,510
-----------
83,054,202
-----------
Transportation - 3.67%
Alexander & Baldwin 168,900 8,448,378
+Kirby 133,200 7,086,240
*+SCS Transportation 85,500 1,685,205
*SkyWest 114,300 3,394,710
+Yellow Roadway 93,200 4,390,652
-----------
25,005,185
-----------
Utilities - 3.20%
*Black Hills 66,600 2,434,230
+El Paso Electric 243,700 5,271,231
FairPoint Communications 232,600 2,779,570
*Otter Tail 173,200 5,204,660
PNM Resources 235,400 6,113,338
-----------
21,803,029
-----------
TOTAL COMMON STOCK (cost $488,822,206) 635,549,151
-----------
EXCHANGE TRADED FUNDS - 2.06%
*iShares Russell 2000
Value Index Fund 210,400 14,035,783
-----------
TOTAL EXCHANGE TRADED FUNDS
(cost $13,650,881) 14,035,783
-----------
Principal Market
Amounts Value
- -------------------------------------------------------------
REPURCHASE AGREEMENTS - 4.96%
With BNP Paribas 3.92% 12/1/05
(dated 11/30/05, to be repurchased
at $22,733,475, collateralized by
$23,307,000 U.S. Treasury Bills
due 1/19/06, market value
$23,190,103) $22,731,000 $ 22,731,000
With UBS Warburg 3.93% 12/1/05
(dated 11/30/05, to be
repurchased at $11,106,212,
collateralized by $11,339,000
U.S. Treasury Bills due
12/8/05, market value
$11,330,504) 11,105,000 11,105,000
------------
TOTAL REPURCHASE AGREEMENTS
(cost $33,836,000) 33,836,000
------------
TOTAL MARKET VALUE OF SECURITIES BEFORE
SECURITIES LENDING COLLATERAL - 100.25%
(cost $536,309,087) 683,420,934
------------
SECURITIES LENDING COLLATERAL** - 18.99%
Short-Term Investments
oAbbey National 4.14% 1/13/06 3,176,478 3,176,904
oAustralia New Zealand
4.15% 1/2/07 4,292,538 4,292,538
oBank of New York 4.07% 4/4/06 3,434,030 3,434,030
oBank of the West 4.07% 3/2/06 4,292,538 4,292,538
oBayerische Landesbank 4.21%
8/25/06 4,292,538 4,292,538
oBear Stearns
4.14% 1/17/06 858,508 858,654
4.15% 5/31/06 5,151,045 5,151,045
oBeta Finance 4.08% 4/18/06 4,292,538 4,292,322
oCalyon London 3.77% 12/30/05 3,004,776 3,015,486
oCDC Financial Products 4.16%
1/3/06 5,580,299 5,580,299
oCitigroup Global Markets
4.10% 12/1/05 10,952,541 10,952,541
4.13% 12/7/05 5,580,299 5,580,299
oCommonwealth Bank Australia
4.16% 1/2/07 4,292,538 4,292,538
oCredit Suisse First Boston
New York
4.02% 12/29/05 901,433 901,450
4.12% 4/18/06 4,635,940 4,635,940
Deutsche Bank London 3.76%
12/27/05 1,287,761 1,287,921
oGoldman Sachs 4.20% 11/30/06 5,580,299 5,580,299
oLehman Holdings 4.14% 12/23/05 4,292,538 4,293,816
oManufacturers & Traders 4.18%
9/26/06 4,292,538 4,291,668
oMarshall & Ilsley Bank 3.97%
12/29/05 4,292,538 4,292,602
oMerrill Lynch Mortgage Capital
4.16% 1/12/06 5,580,299 5,580,299
oMorgan Stanley 4.24% 11/30/06 5,322,746 5,322,746
oNational City Bank 4.06% 1/23/06 4,893,493 4,893,581
oNordea Bank Norge ASA 4.10%
1/2/07 4,292,538 4,292,538
oProcter & Gamble 3.77% 1/2/07 4,292,538 4,292,538
oRoyal Bank of Scotland 4.13%
1/2/07 4,292,538 4,292,538
oSigma Finance 4.08% 3/16/06 1,287,761 1,287,848
oSociete Generale NY 4.06%
1/2/07 2,146,269 2,146,269
oToyota Motor Credit 4.05%
6/23/06 4,292,538 4,292,754
oWells Fargo 4.11% 1/2/07 4,292,538 4,292,538
Wilmington Trust Company 4.05%
1/5/06 4,292,538 4,292,538
------------
TOTAL SECURITIES LENDING COLLATERAL
(cost $129,481,615) 129,481,615
------------
9
STATEMENT DELAWARE SMALL CAP VALUE FUND
OF NET ASSETS (CONTINUED)
TOTAL MARKET VALUE OF SECURITIES - 119.24%
(cost $665,790,702) $812,902,549o
OBLIGATION TO RETURN SECURITIES LENDING
COLLATERAL - (18.99%)** (129,481,615)
LIABILITIES NET OF RECEIVABLES AND
OTHER ASSETS - (0.25%) (1,710,228)
---------------
NET ASSETS APPLICABLE TO 17,804,466 SHARES
OUTSTANDING - 100.00% $ 681,710,706
===============
Net Asset Value - Delaware Small Cap Value Fund
Class A ($409,567,030 / 10,471,337 Shares) $ 39.11
-------
Net Asset Value - Delaware Small Cap Value Fund
Class B ($110,684,006 / 3,017,005 Shares) $ 36.69
-------
Net Asset Value - Delaware Small Cap Value Fund
Class C ($119,967,861 / 3,271,359 Shares) $ 36.67
-------
Net Asset Value - Delaware Small Cap Value Fund
Class R ($10,574,029 / 272,258 Shares) $ 38.84
-------
Net Asset Value - Delaware Small Cap Value Fund
Institutional Class ($30,917,780 / 772,507 Shares) $ 40.02
-------
COMPONENTS OF NET ASSETS AT NOVEMBER 30, 2005:
Shares of beneficial interest
(unlimited authorization -- no par) $479,708,925
Accumulated net realized gain on investments 54,889,934
Net unrealized appreciation of investments 147,111,847
------------
Total net assets $681,710,706
============
oVariable rate securities. The interest rate shown is the rate as of
December 31, 2005.
+Non-income producing security for the year ended November 30, 2005.
*Fully or partially on loan.
**See Note 7 in "Notes to Financial Statements."
oIncludes $127,678,635 of securities loaned.
NET ASSET VALUE AND OFFERING PRICE PER SHARE -
DELAWARE SMALL CAP VALUE FUND
Net asset value Class A (A) $ 39.11
Sales charge (5.75% of offering price) (B) 2.39
========
Offering price $ 41.50
========
(A) Net asset value per share, as illustrated, is the amount which would be
paid upon redemption or repurchase of shares.
(B) See the current prospectus for purchases of $50,000 or more.
See accompanying notes
10
STATEMENT DELAWARE SMALL CAP VALUE FUND
OF OPERATIONS Year Ended November 30, 2005
INVESTMENT INCOME:
Dividends $5,747,793
Interest 967,565
Securities lending income 150,702
Foreign tax withheld (1,007) $6,865,053
----------- -----------
EXPENSES:
Management fees 4,120,481
Distribution expenses -- Class A 980,598
Distribution expenses -- Class B 1,089,065
Distribution expenses -- Class C 849,639
Distribution expenses -- Class R 42,845
Dividend disbursing and transfer agent fees and expenses 1,453,270
Accounting and administration expenses 202,217
Reports and statements to shareholders 198,662
Registration fees 130,873
Legal and professional fees 85,117
Insurance 40,016
Trustees' fees 28,290
Custodian fees 17,705
Taxes (other than taxes on income) 15,927
Pricing fees 809
Other 21,071 9,276,585
-----------
Less waiver of distribution expenses -- Class R (3,115)
Less expenses paid indirectly (1,138)
-----------
Total expenses 9,272,332
-----------
NET INVESTMENT LOSS (2,407,279)
-----------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS AND FOREIGN CURRENCIES:
Net realized gain on:
Investments 57,318,760
Foreign currencies 99
-----------
Net realized gain 57,318,859
Net change in unrealized appreciation/depreciation of investments 5,620,978
-----------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS 62,939,837
-----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $60,532,558
===========
See accompanying notes
11
STATEMENTS DELAWARE SMALL CAP VALUE FUND
OF CHANGES IN NET ASSETS
Year Ended
11/30/05 11/30/04
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS:
Net investment loss $ (2,407,279) $ (2,385,975)
Net realized gain on investments 57,318,859 59,163,709
Net change in unrealized appreciation/depreciation of investments 5,620,978 26,597,601
-------------- --------------
Net increase in net assets resulting from operations 60,532,558 83,375,335
-------------- --------------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM: Net realized gain on
investments:
Class A (31,763,824) (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)
-------------- --------------
(56,765,148) (29,228,620)
-------------- --------------
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares sold:
Class A 169,715,275 56,360,643
Class B 14,236,482 12,292,857
Class C 63,480,297 20,538,825
Class R 8,843,862 3,470,893
Institutional Class 14,240,093 11,602,459
Net asset value of shares issued upon reinvestment of dividends and
distributions:
Class A 29,903,497 15,140,871
Class B 12,427,282 6,672,916
Class C 7,549,508 3,179,515
Class R 548,342 130,217
Institutional Class 2,698,187 2,199,835
-------------- --------------
323,642,825 131,589,031
-------------- --------------
Cost of shares repurchased:
Class A (65,214,888) (72,260,823)
Class B (24,899,314) (26,208,562)
Class C (18,127,279) (12,909,856)
Class R (3,578,256) (1,329,592)
Institutional Class (10,142,609) (27,801,757)
-------------- --------------
(121,962,346) (140,510,590)
-------------- --------------
Increase (decrease) in net assets derived from capital share transactions 201,680,479 (8,921,559)
-------------- --------------
NET INCREASE IN NET ASSETS 205,447,889 45,225,156
NET ASSETS:
Beginning of year 476,262,817 431,037,661
-------------- --------------
End of year (there was no undistributed net investment income at either year end) $681,710,706 $476,262,817
============== ==============
See accompanying notes
12
FINANCIAL
HIGHLIGHTS
Selected data for each share of the Fund outstanding
throughout each period were as follows:
Delaware Small Cap Value Fund Class A
- ------------------------------------------------------------------------------------------------------------------------------
Year Ended
11/30/05 11/30/04 11/30/03 11/30/02 11/30/01
NET ASSET VALUE, BEGINNING OF PERIOD $39.640 $35.220 $27.120 $29.350 $25.980
INCOME (LOSS) FROM INVESTMENT OPERATIONS:
Net investment income (loss)(1) (0.075) (0.105) (0.136) (0.060) 0.059
Net realized and unrealized gain on investments 4.170 6.879 9.079 0.574 4.429
-------- -------- -------- -------- --------
Total from investment operations 4.095 6.774 8.943 0.514 4.488
-------- -------- -------- -------- --------
LESS DIVIDENDS AND DISTRIBUTIONS:
From net investment income -- -- -- -- (0.026)
From net realized gain on investments (4.625) (2.354) (0.843) (2.744) (1.047)
In excess of net realized gain on investments -- -- -- -- (0.045)
-------- -------- -------- -------- --------
Total dividends and distributions (4.625) (2.354) (0.843) (2.744) (1.118)
-------- -------- -------- -------- --------
NET ASSET VALUE, END OF PERIOD $39.110 $39.640 $35.220 $27.120 $29.350
======== ======== ======== ======== ========
TOTAL RETURN(2) 11.42% 20.52% 34.17% 1.60% 17.66%
RATIOS AND SUPPLEMENTAL DATA:
Net assets, end of period (000 omitted) $409,567 $270,332 $240,322 $180,696 $182,925
Ratio of expenses to average net assets 1.44% 1.54% 1.63% 1.63% 1.58%
Ratio of net investment income (loss) to average net assets (0.20%) (0.30%) (0.47%) (0.21%) 0.21%
Portfolio turnover 33% 35% 42% 47% 72%
(1) The average shares outstanding method has been applied for per share
information.
(2) Total investment return is based on the change in net asset value of a
share during the period and assumes reinvestment of dividends and
distributions at net asset value and does not reflect the impact of a
sales charge.
See accompanying notes
13
FINANCIAL
HIGHLIGHTS (CONTINUED)
Selected data for each share of the Fund outstanding throughout each period were
as follows:
Delaware Small Cap Value Fund Class B
- -----------------------------------------------------------------------------------------------------------------------------
Year Ended
11/30/05 11/30/04 11/30/03 11/30/02 11/30/01
NET ASSET VALUE, BEGINNING OF PERIOD $37.690 $33.820 $26.260 $28.680 $25.520
INCOME (LOSS) FROM INVESTMENT OPERATIONS:
Net investment loss(1) (0.311) (0.334) (0.327) (0.252) (0.138)
Net realized and unrealized gain on investments 3.936 6.558 8.730 0.576 4.345
-------- -------- -------- -------- --------
Total from investment operations 3.625 6.224 8.403 0.324 4.207
-------- -------- -------- -------- --------
LESS DIVIDENDS AND DISTRIBUTIONS FROM:
Net realized gain on investments (4.625) (2.354) (0.843) (2.744) (1.047)
-------- -------- -------- -------- --------
Total dividends and distributions (4.625) (2.354) (0.843) (2.744) (1.047)
-------- -------- -------- -------- --------
NET ASSET VALUE, END OF PERIOD $36.690 $37.690 $33.820 $26.260 $28.680
======== ======= ======= ======= =======
TOTAL RETURN(2) 10.68% 19.69% 33.21% 0.91% 16.83%
RATIOS AND SUPPLEMENTAL DATA:
Net assets, end of period (000 omitted) $110,684 $111,348 $107,136 $86,641 $83,648
Ratio of expenses to average net assets 2.14% 2.24% 2.33% 2.33% 2.28%
Ratio of net investment loss to average net assets (0.90%) (1.00%) (1.17%) (0.91%) (0.49%)
Portfolio turnover 33% 35% 42% 47% 72%
(1) The average shares outstanding method has been applied for per share
information.
(2) Total investment return is based on the change in net asset value of a
share during the period and assumes reinvestment of dividends and
distributions at net asset value and does not reflect the impact of a
sales charge.
See accompanying notes
14
FINANCIAL
HIGHLIGHTS (CONTINUED)
Selected data for each share of the Fund outstanding throughout each period were
as follows:
Delaware Small Cap Value Fund Class C
- -----------------------------------------------------------------------------------------------------------------------------
Year Ended
11/30/05 11/30/04 11/30/03 11/30/02 11/30/01
NET ASSET VALUE, BEGINNING OF PERIOD $37.680 $33.810 $26.250 $28.670 $25.510
INCOME (LOSS) FROM INVESTMENT OPERATIONS:
Net investment loss(1) (0.313) (0.333) (0.326) (0.251) (0.135)
Net realized and unrealized gain on investments 3.928 6.557 8.729 0.575 4.342
-------- -------- -------- -------- --------
Total from investment operations 3.615 6.224 8.403 0.324 4.207
-------- -------- -------- -------- --------
LESS DIVIDENDS AND DISTRIBUTIONS FROM:
Net realized gain on investments (4.625) (2.354) (0.843) (2.744) (1.047)
-------- -------- -------- -------- --------
Total dividends and distributions (4.625) (2.354) (0.843) (2.744) (1.047)
-------- -------- -------- -------- --------
NET ASSET VALUE, END OF PERIOD $36.670 $37.680 $33.810 $26.250 $28.670
======== ======= ======= ======= =======
TOTAL RETURN(2) 10.65% 19.69% 33.22% 0.91% 16.88%
RATIOS AND SUPPLEMENTAL DATA:
Net assets, end of period (000 omitted) $119,968 $66,313 $48,453 $34,140 $31,823
Ratio of expenses to average net assets 2.14% 2.24% 2.33% 2.33% 2.28%
Ratio of net investment loss to average net assets (0.90%) (1.00%) (1.17%) (0.91%) (0.49%)
Portfolio turnover 33% 35% 42% 47% 72%
(1) The average shares outstanding method has been applied for per share
information.
(2) Total investment return is based on the change in net asset value of a
share during the period and assumes reinvestment of dividends and
distributions at net asset value and does not reflect the impact of a
sales charge.
See accompanying notes
15
FINANCIAL
HIGHLIGHTS (CONTINUED)
Selected data for each share of the Fund outstanding throughout each period were
as follows:
Delaware Small Cap Value Fund Class R
- -------------------------------------------------------------------------------------------------------------------------
6/2/03(1)
Year Ended to
11/30/05 11/30/04 11/30/03
NET ASSET VALUE, BEGINNING OF PERIOD $39.480 $35.190 $29.000
INCOME (LOSS) FROM INVESTMENT OPERATIONS:
Net investment loss(2) (0.169) (0.209) (0.160)
Net realized and unrealized gain on investments 4.154 6.853 6.350
-------- -------- -------
Total from investment operations 3.985 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 $38.840 $39.480 $35.190
======== ======== ========
TOTAL RETURN(3) 11.15% 20.15% 21.35%
RATIOS AND SUPPLEMENTAL DATA:
Net assets, end of period (000 omitted) $10,574 $4,539 $1,740
Ratio of expenses to average net assets 1.70% 1.84% 1.97%
Ratio of expenses to average net assets prior to expense limitation and
expenses paid indirectly 1.74% 1.84% 1.97%
Ratio of net investment loss to average net assets (0.46%) (0.60%) (0.97%)
Ratio of net investment loss to average net assets prior to expense
limitation and expenses paid indirectly (0.50%) (0.60%) (0.97%)
Portfolio turnover 33% 35% 42%
(1) Date of commencement of operations, ratios have been annualized and total
return has not been annualized.
(2) The average shares outstanding method has been applied for per share
information.
(3) Total investment return is based on the change in net asset value of a
share during the period and assumes reinvestment of dividends and
distributions at net asset value. Total investment return reflects waivers
and payment of fees by the distributor, as applicable. Performance would
be lower had the expenses limitation not been in effect.
See accompanying notes
16
FINANCIAL
HIGHLIGHTS (CONTINUED)
Selected data for each share of the Fund outstanding throughout each period were
as follows:
Delaware Small Cap Value Fund Institutional Class
- ------------------------------------------------------------------------------------------------------------------------------
Year Ended
11/30/05 11/30/04 11/30/03 11/30/02 11/30/01
NET ASSET VALUE, BEGINNING OF PERIOD $40.350 $35.700 $27.400 $29.540 $26.130
INCOME (LOSS) FROM INVESTMENT OPERATIONS:
Net investment income (loss)(1) 0.036 -- (0.050) 0.026 0.144
Net realized and unrealized gain on investments 4.259 7.004 9.193 0.578 4.458
-------- ------- ------- ------- -------
Total from investment operations 4.295 7.004 9.143 0.604 4.602
-------- ------- ------- ------- -------
LESS DIVIDENDS AND DISTRIBUTIONS:
From net investment income -- -- -- -- (0.100)
From net realized gain on investments (4.625) (2.354) (0.843) (2.744) (1.047)
In excess of net realized gain on investments -- -- -- -- (0.045)
-------- ------- ------- ------- -------
Total dividends and distributions (4.625) (2.354) (0.843) (2.744) (1.192)
-------- ------- ------- ------- -------
NET ASSET VALUE, END OF PERIOD $40.020 $40.350 $35.700 $27.400 $29.540
======== ======= ======= ======= ========
TOTAL RETURN(2) 11.77% 20.88% 34.57% 1.88% 18.09%
RATIOS AND SUPPLEMENTAL DATA:
Net assets, end of period (000 omitted) $30,918 $23,731 $33,387 $19,459 $18,224
Ratio of expenses to average net assets 1.14% 1.24% 1.33% 1.33% 1.28%
Ratio of net investment income (loss) to average net assets 0.10% -- (0.17%) 0.09 0.51
Portfolio turnover 33% 35% 42% 47% 72%
(1) The average shares outstanding method has been applied for per share
information.
(2) Total investment return is based on the change in net asset value of a
share during the period and assumes reinvestment of dividends and
distributions at net asset value.
See accompanying notes
17
NOTES DELAWARE SMALL CAP VALUE FUND
TO FINANCIAL STATEMENTS November 30, 2005
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 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.
Securities lending collateral is 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(R) 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 may 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 the ex-dividend date, subject to
reclassification upon notice of the character of such distributions by the
issuer. The Fund declares and pays dividends from net investment income and
distribution from net realized gains on investments, if any, annually.
Subject to best execution, the Fund may direct certain security trades to
brokers who have agreed to rebate a portion of the related brokerage commission
to the Fund in cash. Such commission rebates are included in realized gain on
securities in the accompanying financial statements and totaled $37,851 for the
year ended November 30, 2005.
The Fund receives earnings credits from its custodian when positive cash
balances are maintained, which are used to offset custody fees. 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. Effective May
19, 2005, the Fund pays DSC a monthly fee computed at the annual rate of 0.04%
of the Fund's average daily net assets for accounting and administration
services. Prior to May 19, 2005, the Fund paid 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. Effective
August 1, 2005, DDLP has contracted to limit distribution and service fees
through March 31, 2006 for Class R shares to no more than 0.50% of average daily
net assets.
18
NOTES DELAWARE SMALL CAP VALUE FUND
TO FINANCIAL STATEMENTS (CONTINUED)
2. INVESTMENT MANAGEMENT, ADMINISTRATION AGREEMENTS AND
OTHER TRANSACTIONS WITH AFFILIATES (CONTINUED)
At November 30, 2005, the Fund had liabilities payable to affiliates as follows:
Investment management fee payable to DMC $406,683
Dividend disbursing, transfer agent fees,
accounting and administration fees and
other expenses payable to DSC 182,148
Distribution fee payable to DDLP 286,348
Other expenses payable to DMC and affiliates* 24,600
*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 in-house legal
services provided to the Fund by DMC employees. For the year ended November 30,
2005, the Fund was charged $36,777 for internal legal services provided by DMC.
For the year ended November 30, 2005, DDLP earned $169,234 for commissions on
sales of the Fund's Class A shares. For the year ended November 30, 2005, DDLP
received gross contingent deferred sales charge commissions of $232, $130,351,
and $13,338 on redemption of the Fund's Class A, Class B, and Class C shares,
respectively, and these commissions were entirely used to offset up-front
commissions previously paid by DDLP to broker-dealers on sales of those shares.
Certain officers of DMC, DSC and DDLP are officers and/or trustees of the Trust.
These officers and trustees are paid no compensation by the Fund.
3. INVESTMENTS
For the year ended November 30, 2005, the Fund made purchases of $292,457,101
and sales of $171,534,817 of investment securities other than short-term
investments.
At November 30, 2005, the cost of investments for federal income tax purposes
was $665,881,853. At November 30, 2005, net unrealized appreciation was
$147,020,696, of which $160,809,251 related to unrealized appreciation of
investments and $13,788,555 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 characters of dividends and distributions paid during the
years ended November 30, 2005 and 2004 were as follows:
11/30/05 11/30/04
----------- ------------
Ordinary Income $12,396,508 $ 2,051,867
Long-term capital gain 44,368,640 27,176,753
------------ -------------
Total Distribution $56,765,148 $29,228,620
============ =============
As of November 30, 2005, the components of net assets on a tax basis were as
follows:
Shares of beneficial interest $479,708,925
Undistributed ordinary income 5,982,465
Undistributed long-term capital gain 48,998,620
Unrealized appreciation of investments 147,020,696
------------
Net assets $681,710,706
============
The differences between book basis and tax basis components of net assets are
primarily attributable to tax deferral of losses on wash sales. 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. Reclassifications are
primarily due to tax treatment of net operating losses and recharacterization of
Real Estate Investment Trust dividends. Results of operations and net assets
were not affected by these reclassifications. For the year ended November 30,
2005, the Fund recorded the following permanent reclassifications.
Undistributed net investment loss $2,407,279
Accumulated net realized gain (loss) on investments $(2,407,279)
5. CAPITAL SHARES
Transactions in capital shares were as follows:
Year Ended
11/30/05 11/30/04
Shares sold:
Class A 4,580,248 1,612,277
Class B 410,074 368,241
Class C 1,810,137 616,133
Class R 238,720 99,598
Institutional Class 375,009 327,242
Shares issued upon reinvestment of
dividends and distributions:
Class A 835,591 455,639
Class B 367,867 209,774
Class C 223,532 99,985
Class R 15,416 3,923
Institutional Class 73,902 65,219
---------- ----------
8,930,496 3,858,031
---------- ----------
Shares repurchased:
Class A (1,764,729) (2,071,582)
Class B (715,069) (791,357)
Class C (522,361) (389,122)
Class R (96,840) (38,022)
Institutional Class (264,582) (739,401)
---------- ----------
(3,363,581) (4,029,484)
---------- ----------
Net increase (decrease) 5,566,915 (171,453)
========== ==========
For the years ended November 30, 2005 and 2004, 116,955 Class B shares were
converted to 110,188 Class A shares valued at $4,191,667 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.
19
6. LINE OF CREDIT
The Fund, along with certain other funds in the Delaware Investments(R) Family
of Funds (the "Participants"), participates in a $225,000,000 revolving line of
credit facility to be used for temporary or emergency purposes as an additional
source of liquidity to fund redemptions of investor shares. The Participants are
charged an annual commitment fee, which is allocated across the Participants on
the basis of each fund's allocation of the entire facility. The Participants may
borrow up to a maximum of one third of their net assets under the agreement. The
Fund had no amounts outstanding as of November 30, 2005, or at any time during
the year ended November 30, 2005.
7. SECURITIES LENDING
The Fund, along with other funds in the Delaware Investments(R) 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 changes in value of
the securities loaned that may occur during the term of the loan. The Fund has
the right under the Lending Agreement to recover the securities from the
borrower on demand. The security lending agent and the borrower retain a portion
of the earnings from the collateral investments. The Fund records security
lending income net of such allocation.
At November 30, 2005, the market value of securities on loan was $127,678,635,
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 Lending Collateral."
8. CREDIT AND MARKET RISK
The Fund invests a significant portion of its assets in small companies and may
be subject to certain risks associated with ownership of securities of small-
and mid-sized companies. Investments in small- and mid- sized companies may be
more volatile than investments in larger companies for a number of reasons,
which include 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 risks associated with that industry. If the Fund holds real estate
directly as a result of defaults or receives rental income directly from real
estate holdings, its tax status as a regulated investment company may be
jeopardized. There were no direct holdings during the year ended November 30,
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 may invest up to 10% 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.
While maintaining oversight, the Board of Trustees has delegated to the
investment advisor the day-to-day functions of determining whether individual
securities are liquid for purposes of the Fund's limitation on investments in
illiquid assets. At November 30, 2005, none of the securities have been deemed
to be illiquid under the Fund's Liquidity Procedures.
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.
10. TAX INFORMATION (UNAUDITED)
The information set forth below is for the Fund's fiscal year as required by
federal laws. Shareholders, however, must report distributions on a calendar
year basis for income tax purposes, which may include distributions for portions
of two fiscal years of a fund. Accordingly, the information needed by
shareholders for income tax purposes will be sent to them in January of each
year. Please consult your tax advisor for proper treatment of this information.
For the fiscal year ended November 30, 2005, the Fund designates distributions
paid during the year as follows:
(A) (B)
Long-Term Ordinary
Capital Gain Income Total (C)
Distributions Distributions* Distributions Qualifying
(Tax Basis) (Tax Basis) (Tax Basis) Dividends(1)
- ------------- --------------- ------------- ------------
78% 22% 100% 5%
(A) and (B) are based on a percentage of the Fund's total distributions.
(C) is based on a percentage of ordinary income of the Fund.
(1) Qualifying dividends represent dividends which qualify for the corporate
dividends received deduction.
*For the fiscal year ended November 30, 2005 certain dividends paid by the Fund
may be subject to a maximum tax rate of 15%, as provided for by the Jobs and
Growth Tax Relief Reconciliation Act of 2003. The Fund intends to designate up
to a maximum amount of $12,396,508 to be taxed at a maximum rate of 15%.
Complete information will be computed and reported in conjunction with your 2005
Form 1099-DIV.
20
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and Board of Trustees
Delaware Group Equity Funds V - Delaware Small Cap Value Fund
We have audited the accompanying statement of net assets of the Delaware Small
Cap Value Fund (one of the series constituting Delaware Group Equity Funds V)
(the "Fund") as of November 30, 2005, and the related statement of operations
for the year then ended, the statements of changes in net assets for each of the
two years in the period then ended, and the financial highlights for each of the
periods indicated therein. These financial statements and financial highlights
are the responsibility of the Fund's management. Our responsibility is to
express an opinion on these financial statements and financial highlights based
on our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements and financial highlights are free of material misstatement. We were
not engaged to perform an audit of the Fund's internal control over financial
reporting. Our audits included consideration of internal control over financial
reporting as a basis for designing audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion on the
effectiveness of the Fund's internal control over financial reporting.
Accordingly, we express no such opinion. An audit also includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements and financial highlights, assessing the accounting principles used
and significant estimates made by management, and evaluating the overall
financial statement presentation. Our procedures included confirmation of
securities owned as of November 30, 2005, by correspondence with the custodian
and brokers or by other appropriate auditing procedures where replies from
brokers were not received. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of the
Delaware Small Cap Value Fund of Delaware Group Equity Funds V at November 30,
2005, the results of its operations for the year then ended, the changes in its
net assets for each of the two years in the period then ended, and its financial
highlights for each of the periods indicated therein, in conformity with U.S.
generally accepted accounting principles.
/s/ Ernst & Young LLP
Philadelphia, Pennsylvania
January 11, 2006
21
DELAWARE INVESTMENTS(R) FAMILY OF FUNDS
BOARD OF TRUSTEES/DIRECTORS AND OFFICERS ADDENDUM
A mutual fund is governed by a Board of Trustees/Directors ("Trustees"), which
has oversight responsibility for the management of a fund's business affairs.
Trustees establish procedures and oversee and review the performance of the
investment manager, the distributor and others who perform services for the
fund. The independent fund trustees, in particular, are advocates for
shareholder interests. The following is a list of the Trustees and Officers with
certain background and related information.
NUMBER OF OTHER
PRINCIPAL PORTFOLIOS IN FUND DIRECTORSHIPS
NAME, POSITION(S) OCCUPATION(S) COMPLEX OVERSEEN HELD BY
ADDRESS HELD WITH LENGTH OF TIME DURING BY TRUSTEE TRUSTEE
AND BIRTHDATE FUND(S) SERVED PAST 5 YEARS OR OFFICER OR OFFICER
- -----------------------------------------------------------------------------------------------------------------------------------
INTERESTED TRUSTEES
JUDE T. DRISCOLL(2) Chairman, 5 Years - Since August 2000, 87 None
2005 Market Street President, Executive Officer Mr. Driscoll has served in
Philadelphia, PA Chief Executive various executive capacities
19103 Officer and 2 Years - at different times at
Trustee Trustee Delaware Investments(1)
March 10, 1963
- -----------------------------------------------------------------------------------------------------------------------------------
INDEPENDENT TRUSTEES
THOMAS L. BENNETT Trustee Since Private Investor - 87 None
2005 Market Street March 23, 2005 (March 2004 - Present)
Philadelphia, PA
19103 Investment Manager -
Morgan Stanley & Co.
October 4, 1947 (January 1984 - March 2004)
- -----------------------------------------------------------------------------------------------------------------------------------
JOHN A. FRY Trustee 4 Years President - 87 Director -
2005 Market Street Franklin & Marshall College Community Health
Philadelphia, PA (June 2002 - Present) Systems
19103
Executive Vice President -
May 28, 1960 University of Pennsylvania
(April 1995 - June 2002)
- -----------------------------------------------------------------------------------------------------------------------------------
ANTHONY D. KNERR Trustee 12 Years Founder/Managing Director - 87 None
2005 Market Street Anthony Knerr & Associates
Philadelphia, PA (Strategic Consulting)
19103 (1990 - Present)
December 7, 1938
- -----------------------------------------------------------------------------------------------------------------------------------
LUCINDA S. LANDRETH Trustee Since Chief Investment Officer - 87 None
2005 Market Street March 23, 2005 Assurant, Inc.
Philadelphia, PA (Insurance)
19103 (2002 - 2004)
June 24, 1947
- -----------------------------------------------------------------------------------------------------------------------------------
ANN R. LEVEN Trustee 16 Years Treasurer/Chief Fiscal Officer - 87 Director and
2005 Market Street National Gallery of Art Audit Committee
Philadelphia, PA (1994 - 1999) Chairperson - Andy
19103 Warhol Foundation
November 1, 1940 Director and Audit
Committee Member -
Systemax Inc.
- -----------------------------------------------------------------------------------------------------------------------------------
22
NUMBER OF OTHER
PRINCIPAL PORTFOLIOS IN FUND DIRECTORSHIPS
NAME, POSITION(S) OCCUPATION(S) COMPLEX OVERSEEN HELD BY
ADDRESS HELD WITH LENGTH OF TIME DURING BY TRUSTEE TRUSTEE
AND BIRTHDATE FUND(S) SERVED PAST 5 YEARS OR OFFICER OR OFFICER
- -----------------------------------------------------------------------------------------------------------------------------------
INDEPENDENT TRUSTEES (CONTINUED)
THOMAS F. MADISON Trustee 11 Years President/Chief 87 Director -
2005 Market Street Executive Officer - Banner Health
Philadelphia, PA MLM Partners, Inc.
19103 (Small Business Investing Director -
and Consulting) CenterPoint Energy
February 25, 1936 (January 1993 - Present)
Director and Audit
Committee Member -
Digital River Inc.
Director and Audit
Committee Member -
Rimage
Corporation
Director - Valmont
Industries, Inc.
- -----------------------------------------------------------------------------------------------------------------------------------
JANET L. YEOMANS Trustee 6 Years Vice President/Mergers & 87 None
2005 Market Street Acquisitions - 3M Corporation
Philadelphia, PA (January 2003 - Present)
19103 Ms. Yeomans has
held various
management positions
July 31, 1948 at 3M Corporation
since 1983.
- -----------------------------------------------------------------------------------------------------------------------------------
J. RICHARD ZECHER Trustee Since Founder - 87 Director and Audit
2005 Market Street March 23, 2005 Investor Analytics Committee Member -
Philadelphia, PA (Risk Management) Investor Analytics
19103 (May 1999 - Present)
Director and Audit
July 3, 1940 Committee Member -
Oxigene, Inc.
- -----------------------------------------------------------------------------------------------------------------------------------
OFFICERS
MICHAEL P. BISHOF Senior Chief Financial Mr. Bishof has served in 87 None(3)
2005 Market Street Vice President Officer since various executive capacities
Philadelphia, PA and February 17, 2005 at different times at
19103 Chief Financial Delaware Investments.
Officer
August 18, 1962
- -----------------------------------------------------------------------------------------------------------------------------------
DAVID F. CONNOR Vice President, Vice President since Mr. Connor has served as 87 None(3)
2005 Market Street Deputy General September 21, 2000 Vice President and Deputy
Philadelphia, PA Counsel and and Secretary General Counsel of Delaware
19103 Secretary since Investments since 2000.
October 25, 2005
December 2, 1963
- -----------------------------------------------------------------------------------------------------------------------------------
DAVID P. O'CONNOR Senior Vice Senior Vice President, Mr. O'Connor has served in 87 None(3)
2005 Market Street President, General Counsel and various executive and legal
Philadelphia, PA General Counsel Chief Legal Officer capacities at different times
19103 and Chief since at Delaware Investments.
Legal Officer October 25, 2005
February 21, 1966
- -----------------------------------------------------------------------------------------------------------------------------------
JOHN J. O'CONNOR Senior Vice President Treasurer Mr. O'Connor has served in 87 None(3)
2005 Market Street and Treasurer since various executive capacities
Philadelphia, PA February 17, 2005 at different times at
19103 Delaware Investments.
June 16, 1957
- -----------------------------------------------------------------------------------------------------------------------------------
(1) Delaware Investments is the marketing name for Delaware Management Holdings,
Inc. and its subsidiaries, including the Fund's(s') investment advisor,
principal underwriter and its transfer agent.
(2) Mr. Driscoll is considered to be an "Interested Trustee" because he is an
executive officer of the Fund's(s') manager and distributor.
(3) Mr. Bishof, Mr. Connor, Mr. David P. O'Connor and Mr. John J. O'Connor also
serve in similar capacities for the six portfolios of the Optimum Fund
Trust, which have the same investment advisor, principal underwriter, and
transfer agent as the registrant.
The Statement of Additional Information for the Fund(s) includes additional
information about the Trustees and Officers and is available, without charge,
upon request by calling 800 523-1918.
23
ABOUT
THE ORGANIZATION
This annual report is for the information of Delaware Small Cap Value Fund, but
may be used with prospective investors when preceded or accompanied by a current
prospectus for Delaware Small Cap Value Fund and the Delaware Investments(R)
Performance Update for the most recently completed calendar quarter. The
prospectus sets forth details about charges, expenses, investment objectives,
and operating policies of the Fund. You should read the prospectus carefully
before you invest. The figures in this report represent past results which are
not a guarantee of future results. The return and principal value of an
investment in the Fund will fluctuate so that shares, when redeemed, may be
worth more or less than their original cost.
BOARD OF TRUSTEES AFFILIATED OFFICERS CONTACT INFORMATION
JUDE T. DRISCOLL MICHAEL P. BISHOF INVESTMENT MANAGER
Chairman Senior Vice President and Delaware Management Company,
Delaware Investments(R) Family of Funds Chief Financial Officer a Series of Delaware Management Business Trust
Philadelphia, PA Delaware Investments(R) Family of Funds Philadelphia, PA
Philadelphia, PA
THOMAS L. BENNETT NATIONAL DISTRIBUTOR
Private Investor DAVID F. CONNOR Delaware Distributors, L.P.
Rosemont, PA Vice President, Deputy General Counsel Philadelphia, PA
and Secretary
JOHN A. FRY Delaware Investments(R) Family of Funds SHAREHOLDER SERVICING, DIVIDEND
President Philadelphia, PA DISBURSING AND TRANSFER AGENT
Franklin & Marshall College Delaware Service Company, Inc.
Lancaster, PA DAVID P. O'CONNOR 2005 Market Street
Senior Vice President, General Counsel Philadelphia, PA 19103-7094
ANTHONY D. KNERR and Chief Legal Officer
Managing Director Delaware Investments(R) Family of Funds FOR SHAREHOLDERS
Anthony Knerr & Associates Philadelphia, PA 800 523-1918
New York, NY
JOHN J. O'CONNOR FOR SECURITIES DEALERS AND FINANCIAL
LUCINDA S. LANDRETH Senior Vice President and Treasurer INSTITUTIONS REPRESENTATIVES ONLY
Former Chief Investment Officer Delaware Investments(R) Family of Funds 800 362-7500
Assurant, Inc. Philadelphia, PA WEB SITE
Philadelphia, PA www.delawareinvestments.com
ANN R. LEVEN Delaware Investments is the marketing name
Former Treasurer/Chief Fiscal Officer for Delaware Management Holdings, Inc. and
National Gallery of Art its subsidiaries.
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.
- --------------------------------------------------------------------------------
24
Delaware
Investments(R)
- -----------------------------------
A member of Lincoln Financial Group
CONTACT INFORMATION
WEB SITE
www.delawareinvestments.com
E-MAIL
service@delinvest.com
SHAREHOLDER SERVICE CENTER
800 523-1918
Call the Shareholder Service Center Monday to Friday, 8 a.m. to 7 p.m.
Eastern Time:
o For fund information, literature, price, yield and performance figures.
o For information on existing regular investment accounts and retirement plan
accounts including wire investments, wire redemptions, telephone redemptions
and telephone exchanges.
DELAPHONE SERVICE
800 362-FUND (800 362-3863)
o For convenient access to account information or current performance
information on all Delaware Investments(R) Funds seven days a week, 24 hours
a day, use this Touch-Tone(R) service.
- --------------------------------------------------------------------------------
Printed in the USA
(9979) ANN-0512 SCV
AR-021 [11/05] IVES 1/06 MF0512086 PO10665
Item 2. Code of Ethics
The registrant has adopted a code of ethics that applies to the
registrant's principal executive officer, principal financial officer, principal
accounting officer or controller, or persons performing similar functions,
regardless of whether these individuals are employed by the registrant or a
third party. A copy of the registrant's Code of Business Ethics has been posted
on Delaware Investments' internet website at www.delawareinvestments.com. Any
amendments to the Code of Business Ethics, and information on any waiver from
its provisions granted by the registrant, will also be posted on this website
within five business days of such amendment or waiver and will remain on the
website for at least 12 months.
Item 3. Audit Committee Financial Expert
The registrant's Board of Trustees/Directors has determined that each
member of the registrant's Audit Committee is an audit committee financial
expert, as defined below. For purposes of this item, an "audit committee
financial expert" is a person who has the following attributes:
a. An understanding of generally accepted accounting principles and
financial statements;
b. The ability to assess the general application of such principles in
connection with the accounting for estimates, accruals, and reserves;
c. Experience preparing, auditing, analyzing, or evaluating financial
statements that present a breadth and level of complexity of accounting issues
that are generally comparable to the breadth and complexity of issues that can
reasonably be expected to be raised by the registrant's financial statements, or
experience actively supervising one or more persons engaged in such activities;
d. An understanding of internal controls and procedures for financial
reporting; and
2
e. An understanding of audit committee functions.
An "audit committee financial expert" shall have acquired such attributes
through:
a. Education and experience as a principal financial officer, principal
accounting officer, controller, public accountant, or auditor or experience in
one or more positions that involve the performance of similar functions;
b. Experience actively supervising a principal financial officer,
principal accounting officer, controller, public accountant, auditor, or person
performing similar functions;
c. Experience overseeing or assessing the performance of companies or
public accountants with respect to the preparation, auditing, or evaluation of
financial statements; or
d. Other relevant experience.
The registrant's Board of Trustees/Directors has also determined that
each member of the registrant's Audit Committee is independent. In order to be
"independent" for purposes of this item, the Audit Committee member may not: (i)
other than in his or her capacity as a member of the Board of Trustees/Directors
or any committee thereof, accept directly or indirectly any consulting, advisory
or other compensatory fee from the issuer; or (ii) be an "interested person" of
the registrant as defined in Section 2(a)(19) of the Investment Company Act of
1940.
The names of the audit committee financial experts on the registrant's
Audit Committee are set forth below:
Thomas L. Bennett (1)
Thomas F. Madison
Janet L. Yeomans (1)
J. Richard Zecher
Item 4. Principal Accountant Fees and Services
(a) Audit fees.
The aggregate fees billed for services provided to the registrant by
its independent auditors for the audit of the registrant's annual financial
statements and for services normally provided by the independent auditors in
connection with statutory and regulatory filings or engagements were $66,000 for
the fiscal year ended November 30, 2005.
The aggregate fees billed for services provided to the registrant by its
independent auditors for the audit of the registrant's annual financial
statements and for services normally provided by the independent auditors in
connection with statutory and regulatory filings or engagements were $59,550 for
the fiscal year ended November 30, 2004.
- ------------------
(1) The instructions to Form N-CSR require disclosure on the relevant experience
of persons who qualify as audit committee financial experts based on "other
relevant experience." The Board of Trustees/Directors has determined that Mr.
Bennett qualifies as an audit committee financial expert by virtue of his
education, Chartered Financial Analyst designation, and his experience as a
credit analyst, portfolio manager and the manager of other credit analysts and
portfolio managers. The Board of Trustees/Directors has determined that Ms.
Yeomans qualifies as an audit committee financial expert by virtue of her
education and experience as the Treasurer of a large global corporation.
3
(b) Audit-related fees.
The aggregate fees billed by the registrant's independent auditors for
services relating to the performance of the audit of the registrant's financial
statements and not reported under paragraph (a) of this Item were $0 for the
fiscal year ended November 30, 2005.
The aggregate fees billed by the registrant's independent auditors for
services relating to the performance of the audit of the financial statements of
the registrant's investment adviser and other service providers under common
control with the adviser and that relate directly to the operations or financial
reporting of the registrant were $159,700 for the registrant's fiscal year ended
November 30, 2005. The percentage of these fees relating to services approved by
the registrant's Audit Committee pursuant to the de minimis exception from the
pre-approval requirement in Rule 2-01(c)(7)(i)(C) of Regulation S-X was 0%.
These audit-related services were as follows: issuance of reports concerning
transfer agent's system of internal accounting control pursuant to Rule 17Ad-13
of the Securities Exchange Act; issuance of agreed upon procedures reports to
the registrant's Board in connection with the annual transfer agent and fund
accounting service agent contract renewals and the pass-through of internal
legal cost relating to the operations of the registrant; and preparation of
Report on Controls Placed in Operation and Tests of Operating Effectiveness
Relating to the Retirement Plan Services Division ("SAS 70 report").
The aggregate fees billed by the registrant's independent auditors for
services relating to the performance of the audit of the registrant's financial
statements and not reported under paragraph (a) of this Item were $0 for the
fiscal year ended November 30, 2004.
The aggregate fees billed by the registrant's independent auditors for
services relating to the performance of the audit of the financial statements of
the registrant's investment adviser and other service providers under common
control with the adviser and that relate directly to the operations or financial
reporting of the registrant were $164,700 for the registrant's fiscal year ended
November 30, 2004. The percentage of these fees relating to services approved by
the registrant's Audit Committee pursuant to the de minimis exception from the
pre-approval requirement in Rule 2-01(c)(7)(i)(C) of Regulation S-X was 0%.
These audit-related services were as follows: issuance of reports concerning
transfer agent's system of internal accounting control pursuant to Rule 17Ad-13
of the Securities Exchange Act; issuance of agreed upon procedures reports to
the registrant's Board in connection with the annual transfer agent and fund
accounting service agent contract renewals and the pass-through of internal
legal cost relating to the operations of the registrant; and preparation of
Report on Controls Placed in Operation and Tests of Operating Effectiveness
Relating to the Retirement Plan Services Division ("SAS 70 report").
4
(c) Tax fees.
The aggregate fees billed by the registrant's independent auditors for
tax-related services provided to the registrant were $10,900 for the fiscal year
ended November 30, 2005. The percentage of these fees relating to services
approved by the registrant's Audit Committee pursuant to the de minimis
exception from the pre-approval requirement in Rule 2-01(c)(7)(i)(C) of
Regulation S-X was 0%. These tax-related services were as follows: review of
income tax returns and review of annual excise distribution calculations.
The aggregate fees billed by the registrant's independent auditors for
tax-related services provided to the registrant's investment adviser and other
service providers under common control with the adviser and that relate directly
to the operations or financial reporting of the registrant were $0 for the
registrant's fiscal year ended November 30, 2005.
The aggregate fees billed by the registrant's independent auditors for
tax-related services provided to the registrant were $5,250 for the fiscal year
ended November 30, 2004. The percentage of these fees relating to services
approved by the registrant's Audit Committee pursuant to the de minimis
exception from the pre-approval requirement in Rule 2-01(c)(7)(i)(C) of
Regulation S-X was 0%. These tax-related services were as follows: review of
income tax returns and review of annual excise distribution calculations.
The aggregate fees billed by the registrant's independent auditors for
tax-related services provided to the registrant's adviser and other service
providers under common control with the adviser and that relate directly to the
operations or financial reporting of the registrant were $0 for the registrant's
fiscal year ended November 30, 2004.
(d) All other fees.
The aggregate fees billed for all services provided by the independent
auditors to the registrant other than those set forth in paragraphs (a), (b) and
(c) of this Item were $0 for the fiscal year ended November 30, 2005.
The aggregate fees billed for all services other than those set forth
in paragraphs (b) and (c) of this Item provided by the registrant's independent
auditors to the registrant's adviser and other service providers under common
control with the adviser and that relate directly to the operations or financial
reporting of the registrant were $0 for the registrant's fiscal year ended
November 30, 2005.
The aggregate fees billed for all services provided by the independent
auditors to the registrant other than those set forth in paragraphs (a), (b) and
(c) of this Item were $0 for the fiscal year ended November 30, 2004.
The aggregate fees billed for all services other than those set forth
in paragraphs (b) and (c) of this Item provided by the registrant's independent
auditors to the registrant's adviser and other service providers under common
control with the adviser and that relate directly to the operations or financial
reporting of the registrant were $0 for the registrant's fiscal year ended
November 30, 2004.
5
(e) The registrant's Audit Committee has established pre-approval
policies and procedures as permitted by Rule 2-01(c)(7)(i)(B) of Regulation S-X
(the "Pre-Approval Policy") with respect to services provided by the
registrant's independent auditors. Pursuant to the Pre-Approval Policy, the
Audit Committee has pre-approved the services set forth in the table below with
respect to the registrant up to the specified fee limits. Certain fee limits are
based on aggregate fees to the registrant and other registrants within the
Delaware Investments Family of Funds.
- --------------------------------------------------------------------------------------------------------------------
SERVICE RANGE OF FEES
- --------------------------------------------------------------------------------------------------------------------
AUDIT SERVICES
- --------------------------------------------------------------------------------------------------------------------
Statutory audits or financial audits for new Funds up to $25,000 per Fund
- --------------------------------------------------------------------------------------------------------------------
Services associated with SEC registration statements (e.g., Form N-1A, Form
N-14, etc.), periodic reports and other documents filed with the SEC or other
documents issued in connection with securities offerings (e.g., comfort letters up to $10,000 per Fund
for closed-end Fund offerings, consents), and assistance in responding to SEC
comment letters
- --------------------------------------------------------------------------------------------------------------------
Consultations by Fund management as to the accounting or disclosure treatment of
transactions or events and/or the actual or potential impact of final or
proposed rules, standards or interpretations by the SEC, FASB, or other up to $25,000 in the aggregate
regulatory or standard-setting bodies (Note: Under SEC rules, some
consultations may be considered "audit-related services" rather than "audit
services")
- --------------------------------------------------------------------------------------------------------------------
AUDIT-RELATED SERVICES
- --------------------------------------------------------------------------------------------------------------------
Consultations by Fund management as to the accounting or disclosure treatment of
transactions or events and /or the actual or potential impact of final or
proposed rules, standards or interpretations by the SEC, FASB, or other up to $25,000 in the aggregate
regulatory or standard-setting bodies (Note: Under SEC rules, some
consultations may be considered "audit services" rather than "audit-related
services")
- --------------------------------------------------------------------------------------------------------------------
TAX SERVICES
- --------------------------------------------------------------------------------------------------------------------
U.S. federal, state and local and international tax planning and advice (e.g.,
consulting on statutory, regulatory or administrative developments, evaluation up to $25,000 in the aggregate
of Funds' tax compliance function, etc.)
- --------------------------------------------------------------------------------------------------------------------
U.S. federal, state and local tax compliance (e.g., excise distribution up to $5,000 per Fund
reviews, etc.)
- --------------------------------------------------------------------------------------------------------------------
Review of federal, state, local and international income, franchise and other up to $5,000 per Fund
tax returns
- --------------------------------------------------------------------------------------------------------------------
Under the Pre-Approval Policy, the Audit Committee has also
pre-approved the services set forth in the table below with respect to the
registrant's investment adviser and other entities controlling, controlled by or
under common control with the investment adviser that provide ongoing services
to the registrant (the "Control Affiliates") up to the specified fee limit. This
fee limit is based on aggregate fees to the investment adviser and its Control
Affiliates.
- --------------------------------------------------------------------------------------------------------------------
SERVICE RANGE OF FEES
- --------------------------------------------------------------------------------------------------------------------
NON-AUDIT SERVICES
- --------------------------------------------------------------------------------------------------------------------
Services associated with periodic reports and other documents filed with the up to $10,000 in the aggregate
SEC and assistance in responding to SEC comment letters
- --------------------------------------------------------------------------------------------------------------------
The Pre-Approval Policy requires the registrant's independent auditors
to report to the Audit Committee at each of its regular meetings regarding all
services initiated since the last such report was rendered, including those
services authorized by the Pre-Approval Policy.
(f) Not applicable.
6
(g) The aggregate non-audit fees billed by the registrant's independent
auditors for services rendered to the registrant and to its investment adviser
and other service providers under common control with the adviser were $341,960
and $357,709 for the registrant's fiscal years ended November 30, 2005 and
November 30, 2004, respectively.
(h) In connection with its selection of the independent auditors, the
registrant's Audit Committee has considered the independent auditors' provision
of non-audit services to the registrant's investment adviser and other service
providers under common control with the adviser that were not required to be
pre-approved pursuant to Rule 2-01(c)(7)(ii) of Regulation S-X. The Audit
Committee has determined that the independent auditors' provision of these
services is compatible with maintaining the auditors' independence.
Item 5. Audit Committee of Listed Registrants
Not applicable.
Item 6. 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
Company and Affiliated Purchasers
Not applicable.
Item 10. Submission of Matters to a Vote of Security Holders
Not applicable.
Item 11. Controls and Procedures
The registrant's principal executive officer and principal financial
officer have evaluated the registrant's disclosure controls and procedures
within 90 days of the filing of this report and have concluded that they are
effective in providing reasonable assurance that the information required to be
disclosed by the registrant in its reports or statements filed under the
Securities Exchange Act of 1934 is recorded, processed, summarized and reported
within the time periods specified in the rules and forms of the Securities and
Exchange Commission.
There were no significant changes in the registrant's internal control
over financial reporting that occurred during the second fiscal quarter of the
period covered by the report to stockholders included herein (i.e., the
registrant's fourth fiscal quarter) that have materially affected, or are
reasonably likely to materially affect, the registrant's internal control over
financial reporting.
7
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
JUDE T. DRISCOLL
- ------------------------------------
By: Jude T. Driscoll
Title: Chief Executive Officer
Date: February 1, 2006
Pursuant to the requirements of the Securities Exchange Act of 1934 and
the Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
JUDE T. DRISCOLL
- ------------------------------------
By: Jude T. Driscoll
Title: Chief Executive Officer
Date: February 1, 2006
MICHAEL P. BISHOF
- ------------------------------------
By: Michael P. Bishof
Title: Chief Financial Officer
Date: February 1, 2006
8