-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, RtW88oAJum/Ule5HJY2pAJWX1O0jHQsx8LP+Lr9AWks6TPihmQEjkNivuo8wU6B9 FuBqxnoQNlqnOpSXPkwWVw== 0000950116-04-000311.txt : 20040129 0000950116-04-000311.hdr.sgml : 20040129 20040129112645 ACCESSION NUMBER: 0000950116-04-000311 CONFORMED SUBMISSION TYPE: N-CSR PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20031130 FILED AS OF DATE: 20040129 EFFECTIVENESS DATE: 20040129 FILER: COMPANY DATA: COMPANY CONFORMED NAME: DELAWARE GROUP EQUITY FUNDS V INC CENTRAL INDEX KEY: 0000809821 FISCAL YEAR END: 1130 FILING VALUES: FORM TYPE: N-CSR SEC ACT: 1940 Act SEC FILE NUMBER: 811-04997 FILM NUMBER: 04551064 BUSINESS ADDRESS: STREET 1: ONE COMMERCE SQ STREET 2: 2005 MARKET ST CITY: PHILADELPHIA STATE: PA ZIP: 19103 BUSINESS PHONE: 2152552127 MAIL ADDRESS: STREET 1: ONE COMMERCE SQ STREET 2: 2005 MARKET ST CITY: PHILADELPHIA STATE: PA ZIP: 19103 FORMER COMPANY: FORMER CONFORMED NAME: DELAWARE GROUP VALUE FUND INC DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: DELAWARE GROUP INSIGHT FUND INC DATE OF NAME CHANGE: 19870621 N-CSR 1 n-csr.txt N-CSR UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM N-CSR CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number: 33-11419 Exact name of registrant as specified in charter: Delaware Group Equity Funds V Address of principal executive offices: 2005 Market Street Philadelphia, PA 19103 Name and address of agent for service: Richelle S. Maestro, Esq. 2005 Market Street Philadelphia, PA 19103 Registrant's telephone number, including area code: (800) 523-1918 Date of fiscal year end: November 30 Date of reporting period: November 30, 2003
Item 1. Reports to Stockholders Delaware Investments(SM) A member of Lincoln Financial Group(R) Annual Report 2003 - -------------------------------------------------------------------------------- DELAWARE SMALL CAP VALUE FUND [LOGO] POWERED BY RESEARCH.(SM) Table OF CONTENTS - ---------------------------------------------------------------------- PORTFOLIO MANAGEMENT REVIEW 1 - ---------------------------------------------------------------------- PERFORMANCE SUMMARY 3 - ---------------------------------------------------------------------- FINANCIAL STATEMENTS: Statement of Net Assets 4 Statement of Operations 7 Statements of Changes in Net Assets 8 Financial Highlights 9 Notes to Financial Statements 14 - ---------------------------------------------------------------------- REPORT OF INDEPENDENT AUDITORS 17 - ---------------------------------------------------------------------- BOARD OF TRUSTEES/OFFICERS 18 - ---------------------------------------------------------------------- Funds are not FDIC insured and are not guaranteed. It is possible to lose the principal amount invested. Mutual fund advisory services provided by Delaware Management Company, a series of Delaware Management Business Trust, which is a registered investment advisor. (C) 2004 Delaware Distributors, L.P. Delaware Small Cap Value Fund Portfolio December 10, 2003 MANAGEMENT REVIEW Fund Manager Christopher S. Beck Senior Portfolio Manager Q: Please discuss the Fund's performance in relation to the small-cap market during the fiscal year. A: For the 12 months ended November 30, 2003, Delaware Small Cap Value Fund posted a +34.17% total return (Class A shares at net asset value with distributions reinvested) slightly underperforming the Russell 2000 Value Index, which returned +34.91% during the same fiscal year. The Fund outperformed the Lipper Small Cap Value Funds Average, which returned +33.25% during the same time period. We generally attribute the Fund's modest outperformance of its peer group to strong stock selection and highly disciplined portfolio monitoring. Small-cap stocks rallied during the period, as investors became increasingly willing to accept greater risk. In our opinion, investor expectations for continued economic growth also generally led to inflated valuations for lower quality names. Often during the period, investors bought stocks of companies with no earnings potential, high earnings multiples, and highly leveraged balance sheets. In fact, lower-quality companies led the market after mid-March (Source: Bloomberg). Nonetheless, we continued to focus on companies with the ability to generate strong free cash flow, the potential to increase dividends, and a commitment to reducing debt -- attributes that remain a core part of our stock selection process. Q: Can you describe your investment strategy during the past 12 months? A: As the economy gained strength, we emphasized economically sensitive sectors of the market. A good example is the basic industry/capital goods sector, which has significant concentrations of metal, forest and paper, materials and mining, and specialty/chemicals companies. We also became increasingly optimistic about consumer-oriented stocks, particularly those that may benefit from increased capital spending and those favoring consumer services. While we were cautious about the technology sector -- selecting only those companies with strong earnings prospects -- we increased our position to a modest overweighting by the fiscal year end. Q: Which holdings contributed positively to performance? A: Bebe Stores, a women's clothing retailer, posted strong performance as a result of continued strength in consumer spending. We sold this company late in the fiscal year when the stock met our target price. Another strong retail holding was Ann Taylor Stores, which delivered attractive performance following a disappointing 2002. We purchased the stock in January based on its strong balance sheet and the company's history of successfully navigating fashion trends. In basic industry/capital goods, Freeport McMoRan Copper & Gold, a leading producer of gold and copper, benefited from rising commodity prices, its issuance of a dividend, and a repurchase of company stock. As a result, Freeport McMoRan was able to generate attractive free cash flow -- a factor that contributed to strong performance. Another notable performer in this sector was Louisiana-Pacific. Rising lumber prices and strong sales of one of its primary products contributed to the company's improved profits. The technology sector also made a positive contribution to performance. One of the top holdings was International Rectifier, a semiconductor firm that benefited from increased product demand. Finally, in healthcare we purchased the stock of Humana, one of the country's largest health management organizations. A positive environment for HMOs and the company's willingness to repurchase its stock fueled significant free cash flow. Q: Which holdings detracted from performance? A: Among the sector that we refer to as capital goods, we sold farm equipment manufacturer AGCO, based on a shift in its management strategy that emphasized new business acquisitions over debt reduction. We also trimmed our position in La-Z-Boy. Despite a strong housing market, demand for furniture has not met our expectations. Over the long term, however, we believe that the company is poised to benefit from strengthening that we still anticipate in the industry. In the energy sector, our position in Grey Wolf, a land contract driller, delivered disappointing returns. A combination of high oil and natural gas prices, combined with the absence of increased spending among exploration companies, prevented Grey Wolf from raising prices as we had anticipated. Despite rising commodity prices, exploration companies kept a lid on increasing capital spending. We are confident about the company's long-term prospects and added to our position, taking advantage of attractive valuations as the stock's price came down. 1 Finally, DRS Technologies, a defense-related electronic business, detracted from performance. It was removed from the portfolio due to management's decision to pursue business acquisitions rather than repurchase company stock at attractive valuations. Q: Please highlight a security that made a significant contribution to the portfolio. A: Our ability to employ comprehensive security research prompted us to purchase Louisiana-Pacific, a leading manufacturer of building materials and the world's top producer of oriented strand board, an innovative wood-based product. Despite poor performance in recent years, we believed the firm offered a sound business strategy. In the spring of 2003, management announced a plan to sell its timberland business in order to pay down debt, a strategy that generated significant free cash flow. In our opinion, Louisiana-Pacific's future prospects are promising. We are optimistic that a dividend announcement and repurchase of company stock may occur in the coming months. 2 Delaware SMALL CAP VALUE FUND Fund Basics Fund Performance As of November 30, 2003 Average Annual Total Returns - ---------------------------------------------------- Through November 30, 2003 Lifetime 10 Years Five Years One Year Fund Objective: ------------------------------------------------------------------------- The Fund seeks capital appreciation. Class A (Est. 6/24/87) - ---------------------------------------------------- Excluding Sales Charge +13.22% +11.40% +10.85% +34.17% Total Fund Net Assets: Including Sales Charge +12.82% +10.74% +9.55% +26.48% $431.04 million ------------------------------------------------------------------------- - ---------------------------------------------------- Class B (Est. 9/6/94) Number of Holdings: Excluding Sales Charge +11.38% -- +10.07% +33.21% 128 Including Sales Charge +11.38% -- +9.76% +29.21% - ---------------------------------------------------- ------------------------------------------------------------------------- Fund Start Date: Class C (Est. 11/29/95) June 24, 1987 Excluding Sales Charge +11.59% -- +10.08% +32.22% - ---------------------------------------------------- Including Sales Charge +11.59% -- +10.08% +32.22% Your Fund Manager: ------------------------------------------------------------------------- Christopher S. Beck holds a bachelor's degree Returns reflect the reinvestment of all distributions and any applicable from the University of Delaware, an MBA from sales charges as noted below. Returns and share values will fluctuate so Lehigh University and is a CFA charterholder. Mr. that shares, when redeemed, may be worth more or less than their original Beck has been in the investment business for cost. Performance for Class B and C shares, excluding sales charges, 22 years, starting with Wilmington Trust in 1981. assumes either that contingent deferred sales charges did not apply or Later, he became Director of Research at the investment was not redeemed. Past performance is not a guarantee of Cypress Capital Management in Wilmington and future results. Chief Investment Officer of the University of Delaware Endowment Fund. Prior to joining The Fund offers Class A, B, C, R, and Institutional Class shares. Class A Delaware Investments in May 1997, he managed shares are sold with a front-end sales charge of up to 5.75% and have an the Small Cap Fund for two years at Pitcairn annual distribution and service fee of 0.30%. Trust Company. - ---------------------------------------------------- Class B shares are sold with a contingent deferred sales charge that Nasdaq Symbols: declines from 4% to zero depending upon the period of time the shares are Class A DEVLX held. Class B shares will automatically convert to Class A shares on a Class B DEVBX quarterly basis approximately eight years after purchase. They are also Class C DEVCX subject to an annual distribution and service fee of 1%. Class C shares are sold with a contingent deferred sales charge of 1%, if redeemed during the first 12 months. They are also subject to an annual distribution and service fee of 1%. The cumulative total return for the lifetime period ended November 30, 2003 for Delaware Small Cap Value Fund's Class R shares was +21.35%. Class R shares were first made available on June 2, 2003 and are available only for certain retirement plan products. They are sold without a sales charge and have an annual distribution and service fee of 0.60%. The average annual total returns for the lifetime (since 6/24/87), 10-year, five-year, and one-year periods ended November 30, 2003 for Delaware Small Cap Value Fund's Institutional Class shares were +13.45%, +11.74%, +11.19% and +34.57%, respectively. The Institutional Class shares were first made available on November 9, 1992 and are available without sales or asset-based distribution charges only to certain eligible institutional accounts. Institutional Class performance prior to November 9, 1992 is based on Class A performance and was adjusted to eliminate the sales charges, but not the asset-based distribution charge of Class A shares. The performance table and graph do not reflect the deduction of taxes the shareholder would pay on Fund distributions or redemptions of Fund shares. Nasdaq Institutional Class symbol: DEVIX Nasdaq Class R symbol: DVLRX
Performance of a $10,000 Investment November 30, 1993 through November 30, 2003 Delaware Small Cap Value Fund Performance of $10,000 Investment chart - --------------------------------------------------------------------- Delaware Small Cap Value Fund-- Class Russell 2000 A Shares Value Index 30-Nov-93 $ 9,425 $10,000 30-Nov-94 $ 9,163 $ 9,839 30-Nov-95 $11,032 $12,362 30-Nov-96 $13,136 $14,982 30-Nov-97 $17,915 $19,701 30-Nov-98 $16,576 $18,475 30-Nov-99 $16,160 $18,212 30-Nov-00 $17,296 $20,815 30-Nov-01 $20,351 $24,783 30-Nov-02 $20,677 $24,334 30-Nov-03 $27,748 $32,829 Chart assumes $10,000 invested on November 30, 1993 and includes the effect of a 5.75% front-end sales charge and the reinvestment of all distributions. Performance of other Fund classes will vary due to different charges and expenses. Returns plotted on the chart were as of the last day of each month shown. The Russell 2000 Value Index is an unmanaged composite that measures the stocks of small, value-oriented companies. An index is unmanaged and does not reflect the costs of operating a mutual fund, such as the costs of buying, selling, and holding securities. You cannot invest directly in an index. Past performance is not a guarantee of future results. 3 Statement Delaware Small Cap Value Fund OF NET ASSETS November 30, 2003 Number of Market Shares Value Common Stock - 93.24% Banking & Finance - 11.40% *Boston Private Financial Holding 148,600 $ 3,853,198 Colonial BancGroup 333,300 5,569,443 Commercial Federal 128,300 3,464,100 Compass Bancshares 168,800 6,601,768 First Federal Capital 129,600 3,036,528 *First Republic Bank 86,800 3,233,300 Gold Bancorp 225,400 2,975,280 *Greater Bay Bancorp 174,700 4,542,200 MAF Bancorp 92,400 4,057,284 *Provident Bankshares 111,400 3,237,284 *Republic Bancorp 243,650 3,350,188 *Riggs National 175,700 3,015,012 *+Sterling Financial 65,076 2,187,204 ----------- 49,122,789 ----------- Basic Industry/Capital Goods - 18.36% Arch Coal 129,600 3,433,104 *+Armor Holdings 70,400 1,707,200 Crane 129,600 3,770,064 +Crown Holdings 297,400 2,230,500 Federal Signal 84,900 1,286,235 *Florida Rock Industries 76,700 4,410,250 *Freeport McMoRan Copper & Gold - Class B 91,400 3,978,642 *Gibraltar Steel 108,000 2,633,040 *+Golden Star Resources 430,700 3,247,478 *+Griffon 316,260 6,173,395 Harsco 88,400 3,505,944 *+Insituform Technologies - Class A 137,300 2,066,365 +Jacobs Engineering Group 63,600 2,921,784 Kaydon 150,900 3,684,978 +Louisiana-Pacific 287,400 5,199,066 +Meridian Gold 175,300 2,583,922 *+Mueller Industries 76,300 2,466,016 +Pactiv 293,800 6,592,872 *Smith (A.O.) 84,300 2,962,302 +Terex 147,702 3,809,235 +Tetra Tech 171,400 4,370,700 *Texas Industries 74,800 2,184,908 Universal Forest Products 45,100 1,372,844 Wausau-Mosinee Paper 207,300 2,549,790 ----------- 79,140,634 ------------ Business Services - 2.65% +Integrated Alarm Services 151,000 1,147,600 +Right Management Consultants 141,800 2,533,966 The Brinks Company 187,200 4,155,840 +United Stationers 88,300 3,562,905 ----------- 11,400,311 ----------- Cable, Media & Publishing - 0.62% Belo (A.H.) 94,200 2,676,222 ----------- 2,676,222 ----------- Chemicals - 2.63% *Fuller (H.B) 97,000 2,586,990 *MacDermid 148,100 4,857,680 Polyone 320,500 1,906,975 Spartech 90,900 1,999,800 ----------- 11,351,445 ----------- Number of Market Shares Value Common Stock (continued) Consumer Durables - 3.24% *Furniture Brands International 153,600 $ 4,039,680 KB Home 88,500 6,095,880 *La-Z-Boy 106,300 2,147,260 +WCI Communities 82,800 1,670,904 ----------- 13,953,724 ----------- Consumer Non-Durables - 9.22% +Ann Taylor Stores 130,400 5,182,096 +Barnes & Noble 116,700 3,872,106 +Carter Holdings 11,400 309,852 *Cato - Class A 134,400 2,806,272 *+Department 56 91,700 1,295,721 *Goody's Family Clothing 217,200 2,306,664 *+Movie Gallery 105,400 1,864,526 *Oakley 186,100 2,437,910 Phillips-Van Heusen 165,800 2,918,080 Pier 1 Imports 149,800 3,819,900 Reebok International 80,700 3,247,368 *+Shoe Carnival 84,900 1,534,992 *+Shopko Stores 152,800 2,544,120 *+Sports Authority 47,656 2,073,036 *+Whitehall Jewelers 78,900 837,129 Wolverine World Wide 130,000 2,702,700 ----------- 39,752,472 ----------- Consumer Products - 1.92% Bunge Limited 112,700 3,209,696 +Constellation Brands 147,200 5,079,872 ----------- 8,289,568 ----------- Consumer Services - 1.17% +CEC Entertainment 100,200 5,038,056 ----------- 5,038,056 ----------- Energy - 5.53% Chesapeake Energy 326,600 3,984,520 +Comstock Resources 247,300 4,030,990 *+Grey Wolf 588,700 1,995,693 +Magnum Hunter Resources 361,300 3,248,087 +Newfield Exploration 106,400 4,351,760 Southwest Gas 147,200 3,319,360 *+Whiting Petroleum 175,200 2,910,072 ----------- 23,840,482 ----------- Healthcare & Pharmaceuticals - 6.43% *Cooper Companies 42,000 1,917,300 +Genesis Health Ventures 92,200 2,896,002 +Humana 204,300 4,562,019 *+IDEXX Laboratories 50,500 2,391,175 Owens & Minor 163,600 3,469,956 +Pharmaceutical Resources 44,500 3,229,810 +Protein Design Labs 224,400 3,110,184 *+Province Healthcare 211,100 3,236,163 +Sola International 147,700 2,894,920 ----------- 27,707,529 ----------- Insurance - 4.08% AmerUs Group 120,700 4,339,165 Berkley (W.R.) 141,600 4,835,640 *Harleysville Group 115,000 2,254,000 Platinum Underwriters Holdings 65,300 1,970,101 RenaissanceRe Holdings 87,000 4,172,520 ----------- 17,571,426 ----------- 4 Statement Delaware Small Cap Value Fund OF NET ASSETS (CONTINUED) Number of Market Shares Value Common Stock (continued) REITs - 5.90% Camden Property Trust 100,100 $ 4,208,204 Chelsea Property Group 65,800 3,553,200 Keystone Property Trust 129,300 2,619,618 Pan Pacific Retail Properties 121,000 5,620,450 Prentiss Properties Trust 103,500 3,286,125 Reckson Associates Realty 120,500 2,892,000 The St. Joe Company 93,000 3,236,400 ------------ 25,415,997 ------------ Retail - 1.01% +JO-ANN Stores 82,685 1,657,834 +Take-Two Interactive Software 81,700 2,704,270 ------------ 4,362,104 ------------ Technology - 13.43% *+Actel 139,800 3,831,918 *+ASM International N.V. 208,800 3,952,584 +Bell Microproducts 204,200 1,758,162 +Comverse Technology 294,000 5,653,620 +Filenet 101,500 2,658,285 *+Herley Industries 140,000 2,704,800 +Ingram Micro - Class A 244,100 3,558,978 *+Insight Enterprises 207,800 3,885,860 +International Rectifier 96,500 5,270,830 +Lawson Software 406,200 3,428,328 *+Overland Storage 150,500 2,958,830 *+Photronics 96,900 1,789,743 +Plexus 198,800 3,528,700 +Storage Technology 111,800 2,817,360 Symbol Technologies 175,400 2,446,830 +Tech Data 74,500 2,744,580 *+Veeco Instruments 166,700 4,917,650 ------------ 57,907,058 ------------ Transportation - 4.01% Alexander & Baldwin 175,200 5,511,792 +Continental Airlines - Class B 112,300 2,094,395 +Kirby 104,600 3,138,000 *+Northwest Airlines - Class A 129,200 1,706,732 +SCS Transportation 59,800 994,474 *Skywest 82,600 1,424,850 *+Yellow 79,000 2,415,030 ------------ 17,285,273 ------------ Utilities - 1.64% *Black Hills 50,200 1,619,452 *+El Paso Electric Company 181,900 2,310,130 PNM Resources 112,600 3,153,926 ------------ 7,083,508 ------------ Total Common Stock (cost $287,907,835) 401,898,598 ------------ Exchange Traded Funds - 2.49% Ishares Russell 2000 Value Index Fund 68,600 10,729,040 ------------ Total Exchange Traded Funds (cost $9,845,840) 10,729,040 ------------ Number of Market Shares Value Warrants - 0.00% +Magnum Hunter Resources 49,500 $ 19,305 ------------ Total Warrants (cost $0) 19,305 ------------ Principal Amount Repurchase Agreements - 3.99% With BNP Paribas 1.01% 12/1/03 (dated 11/28/03, collateralized by $6,694,000 U.S. Treasury Notes 6.750% due 5/15/05, market value $7,208,264) $7,065,000 7,065,000 With J. P. Morgan Securities 0.98% 12/1/03 (dated 11/28/03, collateralized by $3,072,000 U.S. Treasury Notes 2.250% due 7/31/04, market value $3,118,639) 3,057,000 3,057,000 With UBS Warburg 1.01% 12/1/03 (dated 11/28/03, collateralized by $2,208,000 U.S. Treasury Notes 2.000% due 11/30/04, market value $2,242,613, $77,000 U.S. Treasury Notes 5.500% due 2/15/08, market value $86,185 and $4,415,000 U.S. Treasury Notes 5.625% due 5/15/08, market value $4,879,541) 7,064,000 7,064,000 ------------ Total Repurchase Agreements (cost $17,186,000) 17,186,000 ------------ Total Market Value of Securities Before Securities Lending Collateral - 99.72% (cost $314,939,675) 429,832,943 ------------ Securities Lending Collateral** - 15.25% Short-Term Investments ABN AMRO Bank Chicago 1.06% 6/07/04 2,496,637 2,496,506 ABN AMRO Bank Tokyo 1.10% 1/13/04 713,343 713,343 Allied Irish Dublin 1.12% 1/20/04 2,853,316 2,853,371 Credit Suisse First Boston 1.60% 12/13/04 2,853,371 2,853,371 Deutsche Bank Financial 1.071% 1/16/04 2,853,843 2,854,380 FHLMC 1.12% 1/15/04 1,611,193 1,615,357 FNMA 1.035% 1/29/04 17,834,257 17,833,349 General Electric Capital 1.13% 10/04/04 1,070,947 1,072,772 Goldman Sachs Group LP 1.193% 12/15/03 2,496,677 2,496,700 HBOS Treasury Services PLC 1.09% 12/12/03 2,853,347 2,853,371 Keybank NA 1.146% 1/26/04 1,426,920 1,427,399 Marsh & McLennan 1.291% 6/15/04 1,834,889 1,887,120 Merrill Lynch Mortgage Capital 1.163% 12/08/03 2,853,371 2,853,371 Morgan Stanley Dean Witter 1.10% 12/01/03 11,936,465 11,936,467 1.22% 12/28/04 712,184 713,343 1.30% 3/19/04 1,782,209 1,783,357 Swiss Re Financial 1.103% 1/15/04 1,780,827 1,778,398 Wachovia Bank NA 1.127% 11/15/04 2,853,428 2,855,911 Wilmington Trust 1.11% 1/22/04 2,853,313 2,853,371 ------------ Total Securities Lending Collateral (cost $65,731,257) 65,731,257 ------------ 5 Statement Delaware Small Cap Value Fund OF NET ASSETS (CONTINUED) Total Market Value of Securities - 114.97% (cost $380,670,932) $495,564,200++ Obligation to Return Securities Lending Collateral - (15.25%)** (65,731,257) Receivables and Other Assets Net of Liabilities - 0.28% 1,204,718 ---------------- Net Assets Applicable to 12,409,004 Shares Outstanding - 100.00% $431,037,661 ------------ Net Asset Value - Delaware Small Cap Value Fund Class A ($240,322,302 / 6,823,893 Shares) $35.22 ------ Net Asset Value - Delaware Small Cap Value Fund Class B ($107,135,592 / 3,167,475 Shares) $33.82 ------ Net Asset Value - Delaware Small Cap Value Fund Class C ($48,452,567 / 1,433,055 Shares) $33.81 ------ Net Asset Value - Delaware Small Cap Value Fund Class R ($1,740,453 / 49,463 Shares) $35.19 ------ Net Asset Value - Delaware Small Cap Value Fund Institutional Class ($33,386,747 / 935,118 Shares) $35.70 ------ Components of Net Assets at November 30, 2003: Shares of beneficial interest (unlimited authorization-- no par) $286,950,005 Accumulated net realized gain on investments 29,194,388 Net unrealized appreciation of investments 114,893,268 ------------ Total net assets $431,037,661 ------------ +Non-income producing security for the year ended November 30, 2003. ++Includes $64,815,360 of securities loaned. *Fully or partially on loan. **See Note 7 in "Notes to Financial Statements." Summary of Abbreviation: REIT -- Real Estate Investment Trust Net Asset Value and Offering Price per Share -- Delaware Small Cap Value Fund Net asset value Class A (A) $35.22 Sales charge (5.75% of offering price, or 6.10% of amount invested per share) (B) 2.15 ------ Offering price $37.37 ------ (A) Net asset value per share, as illustrated, is the estimated amount which would be paid upon redemption or repurchase of shares. (B) See the current prospectus for purchases of $50,000 or more. See accompanying notes 6 Statement Delaware Small Cap Value Fund OF OPERATIONS Year Ended November 30, 2003
Investment Income: Dividends $3,742,601 Interest 166,685 Securities lending income 74,681 $ 3,983,967 ---------- ------------ Expenses: Management fees 2,587,068 Distribution expenses -- Class A 582,304 Distribution expenses -- Class B 888,407 Distribution expenses -- Class C 372,275 Distribution expenses -- Class R 1,442 Dividend disbursing and transfer agent fees and expenses 1,493,022 Accounting and administration expenses 147,974 Reports and statements to shareholders 142,000 Registration fees 66,476 Professional fees 61,203 Trustees' fees 13,616 Custodian fees 9,914 Other 86,001 6,451,702 ---------- Less expenses paid indirectly (8,728) ------------ Total expenses 6,442,974 ------------ Net Investment Loss (2,459,007) ------------ Net Realized and Unrealized Gain on Investments: Net realized gain on investments 31,761,494 Net change in unrealized appreciation/depreciation of investments 76,784,485 ------------ Net Realized and Unrealized Gain on Investments 108,545,979 ------------ Net Increase in Net Assets Resulting from Operations $106,086,972 ============
See accompanying notes 7
Statements Delaware Small Cap Value Fund OF CHANGES IN NET ASSETS Year Ended 11/30/03 11/30/02 Increase (Decrease) in Net Assets from Operations: Net investment loss $ (2,459,007) $ (1,575,259) Net realized gain on investments 31,761,494 10,377,973 Net change in unrealized appreciation/depreciation of investments 76,784,485 (8,631,264) ------------ ------------- Net increase in net assets resulting from operations 106,086,972 171,450 ------------ ------------- Dividends and Distributions to Shareholders: From net realized gain on investments: Class A (5,630,292) (17,247,310) Class B (2,772,312) (8,097,635) Class C (1,095,652) (3,057,305) Institutional Class (599,160) (1,580,182) ------------ ------------- (10,097,416) (29,982,432) ------------ ------------- Capital Share Transactions: Proceeds from shares sold: Class A 38,257,242 70,648,350 Class B 14,676,802 32,584,526 Class C 11,886,179 13,692,546 Class R 1,704,178 -- Institutional Class 9,664,752 9,590,718 Net asset value of shares issued upon reinvestment of dividends and distributions: Class A 5,300,403 16,160,406 Class B 2,552,249 7,394,694 Class C 1,028,672 2,807,911 Institutional Class 599,160 1,580,182 ------------ ------------- 85,669,637 154,459,333 ------------ ------------- Cost of shares repurchased: Class A (38,593,243) (73,037,419) Class B (20,265,650) (27,817,580) Class C (8,899,510) (10,835,304) Class R (94,701) -- Institutional Class (3,704,109) (8,642,412) ------------ ------------- (71,557,213) (120,332,715) ------------ ------------- Increase in net assets derived from capital share transactions 14,112,424 34,126,618 ------------ ------------- Net Increase in Net Assets 110,101,980 4,315,636 Net Assets: Beginning of year 320,935,681 316,620,045 ------------ ------------- End of year $431,037,661 $ 320,935,681 ============ =============
See accompanying notes 8 Financial HIGHLIGHTS Selected data for each share of the Fund outstanding throughout each period were as follows:
Delaware Small Cap Value Fund Class A Year Ended 11/30/03 11/30/02 11/30/01 11/30/00 11/30/99 Net asset value, beginning of period $ 27.120 $ 29.350 $ 25.980 $ 24.680 $ 25.480 Income (loss) from investment operations: Net investment income (loss)(1) (0.136) (0.060) 0.059 0.091 0.098 Net realized and unrealized gain (loss) on investments 9.079 0.574 4.429 1.594 (0.735) -------- -------- -------- -------- -------- Total from investment operations 8.943 0.514 4.488 1.685 (0.637) -------- -------- -------- -------- -------- Less dividends and distributions: From net investment income -- -- (0.026) (0.080) (0.163) In excess of net investment income -- -- (0.045) -- -- From net realized gain on investments (0.843) (2.744) (1.047) (0.305) -- -------- -------- -------- -------- -------- Total dividends and distributions (0.843) (2.744) (1.118) (0.385) (0.163) -------- -------- -------- -------- -------- Net asset value, end of period $ 35.220 $ 27.120 $ 29.350 $ 25.980 $ 24.680 ======== ======== ======== ======== ======== Total return(2) 34.17% 1.60% 17.66% 7.04% (2.51%) Ratios and supplemental data: Net assets, end of period (000 omitted) $240,322 $180,696 $182,925 $151,044 $209,886 Ratio of expenses to average net assets 1.63% 1.63% 1.58% 1.68% 1.60% Ratio of net investment income (loss) to average net assets (0.47%) (0.21%) 0.21% 0.37% 0.38% Portfolio turnover 42% 47% 72% 56% 37%
(1) The average shares outstanding method has been applied for per share information. (2) Total investment return is based on the change in net asset value of a share during the period and assumes reinvestment of dividends and distributions at net asset value and does not reflect the impact of a sales charge. See accompanying notes 9 Financial HIGHLIGHTS (CONTINUED) Selected data for each share of the Fund outstanding throughout each period were as follows:
Delaware Small Cap Value Fund Class B Year Ended 11/30/03 11/30/02 11/30/01 11/30/00 11/30/99 Net asset value, beginning of period $26.260 $ 28.680 $ 25.520 $ 24.340 $ 25.140 Income (loss) from investment operations: Net investment loss(1) (0.327) (0.252) (0.138) (0.079) (0.081) Net realized and unrealized gain (loss) on investments 8.730 0.576 4.345 1.564 (0.719) -------- -------- -------- -------- -------- Total from investment operations 8.403 0.324 4.207 1.485 (0.800) -------- -------- -------- -------- -------- Less dividends and distributions: From net realized gain on investments (0.843) (2.744) (1.047) (0.305) -- -------- -------- -------- -------- -------- Total dividends and distributions (0.843) (2.744) (1.047) (0.305) -- -------- -------- -------- -------- -------- Net asset value, end of period $ 33.820 $ 26.260 $ 28.680 $ 25.520 $ 24.340 ======== ======== ======== ======== ======== Total return(2) 33.21% 0.91% 16.83% 6.27% (3.18%) Ratios and supplemental data: Net assets, end of period (000 omitted) $107,136 $ 86,641 $ 83,648 $ 58,156 $ 76,894 Ratio of expenses to average net assets 2.33% 2.33% 2.28% 2.38% 2.30% Ratio of net investment loss to average net assets (1.17%) (0.91%) (0.49%) (0.33%) (0.32%) Portfolio turnover 42% 47% 72% 56% 37%
(1) The average shares outstanding method has been applied for per share information. (2) Total investment return is based on the change in net asset value of a share during the period and assumes reinvestment of dividends and distributions at net asset value and does not reflect the impact of a sales charge. See accompanying notes 10 Financial HIGHLIGHTS (CONTINUED) Selected data for each share of the Fund outstanding throughout each period were as follows:
Delaware Small Cap Value Fund Class C Year Ended 11/30/03 11/30/02 11/30/01 11/30/00 11/30/99 Net asset value, beginning of period $ 26.250 $ 28.670 $ 25.510 $ 24.320 $ 25.120 Income (loss) from investment operations: Net investment loss(1) (0.326) (0.251) (0.135) (0.079) (0.081) Net realized and unrealized gain (loss) on investments 8.729 0.575 4.342 1.574 (0.719) -------- -------- -------- -------- -------- Total from investment operations 8.403 0.324 4.207 1.495 (0.800) -------- -------- -------- -------- -------- Less dividends and distributions: From net realized gain on investments (0.843) (2.744) (1.047) (0.305) -- -------- -------- -------- -------- -------- Total dividends and distributions (0.843) (2.744) (1.047) (0.305) -- -------- -------- -------- -------- -------- Net asset value, end of period $ 33.810 $ 26.250 $ 28.670 $ 25.510 $ 24.320 ======== ======== ======== ======== ======== Total return(2) 33.22% 0.91% 16.88% 6.27% (3.19%) Ratios and supplemental data: Net assets, end of period (000 omitted) $ 48,453 $ 34,140 $ 31,823 $ 20,822 $25,818 Ratio of expenses to average net assets 2.33% 2.33% 2.28% 2.38% 2.30% Ratio of net investment loss to average net assets (1.17%) (0.91%) (0.49%) (0.33%) (0.32%) Portfolio turnover 42% 47% 72% 56% 37%
(1) The average shares outstanding method has been applied for per share information. (2) Total investment return is based on the change in net asset value of a share during the period and assumes reinvestment of dividends and distributions at net asset value and does not reflect the impact of a sales charge. See accompanying notes 11 Financial HIGHLIGHTS (CONTINUED) Selected data for each share of the Fund outstanding throughout each period were as follows: Delaware Small Cap Value Fund Class R 6/2/03(1) to 11/30/03 Net asset value, beginning of period $29.000 Income (loss) from investment operations: Net investment loss(2) (0.160) Net realized and unrealized gain on investments 6.350 --------- Total from investment operations 6.190 --------- Net asset value, end of period $35.190 --------- Total return(3) 21.35% Ratios and supplemental data: Net assets, end of period (000 omitted) $1,740 Ratio of expenses to average net assets 1.97% Ratio of net investment loss to average net assets (0.97%) Portfolio turnover 42% (1) Date of commencement of operations; ratios have been annualized and total return has not been annualized. (2) The average shares outstanding method has been applied for per share information. (3) Total investment return is based on the change in net asset value of a share during the period and assumes reinvestment of dividends and distributions at net asset value. See accompanying notes 12 Financial HIGHLIGHTS (CONTINUED) Selected data for each share of the Fund outstanding throughout each period were as follows:
Delaware Small Cap Value Fund Institutional Class Year Ended 11/30/03 11/30/02 11/30/01 11/30/00 11/30/99 Net asset value, beginning of period $27.400 $29.540 $26.130 $24.830 $25.640 Income (loss) from investment operations: Net investment income (loss)(1) (0.050) 0.026 0.144 0.165 0.174 Net realized and unrealized gain (loss) on investments 9.193 0.578 4.458 1.600 (0.741) -------- -------- -------- -------- -------- Total from investment operations 9.143 0.604 4.602 1.765 (0.567) -------- -------- -------- -------- -------- Less dividends and distributions: From net investment income -- -- (0.100) (0.160) (0.243) In excess of net investment income -- -- (0.045) -- -- From net realized gain on investments (0.843) (2.744) (1.047) (0.305) -- -------- -------- -------- -------- -------- Total dividends and distributions (0.843) (2.744) (1.192) (0.465) (0.243) -------- -------- -------- -------- -------- Net asset value, end of period $35.700 $27.400 $29.540 $26.130 $24.830 -------- -------- -------- -------- -------- Total return(2) 34.57% 1.88% 18.09% 7.35% (2.23%) Ratios and supplemental data: Net assets, end of period (000 omitted) $33,387 $19,459 $18,224 $10,992 $10,936 Ratio of expenses to average net assets 1.33% 1.33% 1.28% 1.38% 1.30% Ratio of net investment income (loss) to average net assets (0.17%) 0.09% 0.51% 0.67% 0.68% Portfolio turnover 42% 47% 72% 56% 37%
(1) The average shares outstanding method has been applied for per share information. (2) Total investment return is based on the change in net asset value of a share during the period and assumes reinvestment of dividends and distributions at net asset value. See accompanying notes 13 Notes Delaware Small Cap Value Fund TO FINANCIAL STATEMENTS November 30, 2003 Delaware Group Equity Funds V (the "Trust") is organized as a Delaware business trust and offers three series: Delaware Small-Cap Contrarian Fund, Delaware Small Cap Value Fund, and Delaware Dividend Income Fund (formerly Delaware Retirement Income Fund). These financial statements and the related notes pertain to Delaware Small Cap Value Fund (the "Fund"). The Trust is an open-end investment company. The Fund is considered diversified under the Investment Company Act of 1940, as amended, and offers Class A, Class B, Class C, Class R, and Institutional Class shares. Class A shares are sold with a front-end sales charge of up to 5.75%. Class B shares are sold with a contingent deferred sales charge that declines from 4% to zero depending upon the period of time the shares are held. Class B shares will automatically convert to Class A shares on a quarterly basis approximately eight years after purchase. Class C shares are sold with a contingent deferred sales charge of 1%, if redeemed during the first twelve months. Class R and Institutional Class shares are not subject to a sales charge and are offered for sale exclusively to a limited group of investors. The investment objective of the Fund is to seek capital appreciation. 1. Significant Accounting Policies The following accounting policies are in accordance with accounting principles generally accepted in the United States and are consistently followed by the Fund. Security Valuation -- All equity securities are valued at the last quoted sales price as of the time of the regular close of the New York Stock Exchange (NYSE) on the valuation date. Securities traded on the Nasdaq Stock Market, Inc. (NASDAQ) are valued in accordance with the NASDAQ Official Closing Price, which may not be the last sales price. If on a particular day an equity security does not trade, then the mean between the bid and asked prices will be used. Short-term debt securities having less than 60 days to maturity are valued at amortized cost, which approximates market value. Other securities and assets for which market quotations are not readily available are valued at fair value as determined in good faith under the direction of the Fund's Board of Trustees. Federal Income Taxes -- The Fund intends to continue to qualify for federal income tax purposes as a regulated investment company and make the requisite distributions to shareholders. Accordingly, no provision for federal income taxes has been made in the financial statements. Class Accounting -- Investment income, common expenses and realized and unrealized gain (loss) on investments are allocated to the various classes of the Fund on the basis of daily net assets of each class. Distribution expenses relating to a specific class are charged directly to that class. Repurchase Agreements -- The Fund may invest in a pooled cash account along with other members of the Delaware Investments Family of Funds. The aggregate daily balance of the pooled cash account is invested in repurchase agreements secured by obligations of the U.S. government. The respective collateral is held by the Fund's custodian bank until the maturity of the respective repurchase agreements. Each repurchase agreement is 102% collateralized. However, in the event of default or bankruptcy by the counterparty to the agreement, realization of the collateral may be subject to legal proceedings. Use of Estimates -- The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Other -- Expenses common to all funds within the Delaware Investments Family of Funds are allocated amongst the funds on the basis of average net assets. Security transactions are recorded on the date the securities are purchased or sold (trade date). Costs used in calculating realized gains and losses on the sale of investment securities are those of the specific securities sold. Dividend income is recorded on the ex-dividend date and interest income is recorded on the accrual basis. Distributions received from investments in Real Estate Investment Trusts (REITs) are recorded as dividend income on the ex-dividend date, subject to reclassification upon notice of the character of such distribution by the issuer. The Fund declares and pays dividends from net investment income and distributions from net realized gains on investments, if any, annually. Certain expenses of the Fund are paid through commission arrangements with brokers. The amount of these expenses was approximately $8,279 for the year ended November 30, 2003. In addition, the Fund receives earnings credits from its custodian when positive cash balances are maintained, which are used to offset custody fees. The earnings credits for the year ended November 30, 2003 were approximately $449. The expenses paid under the above arrangements are included in their respective expense captions on the Statement of Operations with the corresponding expense offset shown as "expenses paid indirectly." 2. Investment Management, Administration Agreements and Other Transactions with Affiliates In accordance with the terms of its investment management agreement, the Fund pays Delaware Management Company (DMC), a series of Delaware Management Business Trust and the investment manager, an annual fee which is calculated daily at the rate of 0.75% on the first $500 million of average daily net assets of the Fund, 0.70% on the next $500 million, 0.65% on the next $1.5 billion, and 0.60% on average daily net assets in excess of $2.5 billion. Delaware Service Company, Inc. (DSC), an affiliate of DMC, provides accounting, administration, dividend disbursing and transfer agent services. The Fund pays DSC a monthly fee based on average net assets subject to certain minimums for accounting and administration services. The Fund pays DSC a monthly fee based on the number of shareholder accounts for dividend disbursing and transfer agent services. Prior to June 1, 2003, the monthly fee for dividend disbursing and transfer agent services was based on the number of shareholder accounts and shareholder transactions. Pursuant to a distribution agreement and distribution plan, the Fund pays Delaware Distributors, L.P. (DDLP), the distributor and an affiliate of DMC, an annual distribution and service fee not to exceed 0.30% of the average daily net assets of the Class A shares, 1.00% of the average daily net assets of the Class B and C shares and 0.60% of the average daily net assets of the Class R shares. Institutional Class shares pay no distribution and service expenses. At November 30, 2003, the Fund had liabilities payable to affiliates as follows: Investment management fee payable to DMC $69,507 Dividend disbursing, transfer agent fees, accounting and other expenses payable to DSC 64,577 Other expenses payable to DMC and affiliates 126,126 For the year ended November 30, 2003, DDLP earned $51,217 for commissions on sales of the Fund's Class A shares. Certain officers of DMC, DSC and DDLP are officers and/or trustees of the Trust. These officers and trustees are paid no compensation by the Fund. 14 Notes TO FINANCIAL STATEMENTS (CONTINUED) Delaware Small Cap Value Fund 3. Investments For the year ended November 30, 2003, the Fund made purchases of $138,681,042 and sales of $141,212,848 of investment securities other than short-term investments. At November 30, 2003, the cost of investments for federal income tax purposes was $314,961,039. At November 30, 2003, the net unrealized appreciation was $114,871,904, of which $119,775,346 related to unrealized appreciation of investments and $4,903,442 related to unrealized depreciation of investments. 4. Dividend and Distribution Information Income and long-term capital gain distributions are determined in accordance with federal income tax regulations, which may differ from accounting principles generally accepted in the United States. The tax character of dividends and distributions paid during the years ended November 30, 2003 and 2002, was as follows: Year Ended 11/30/03 11/30/02 ----------- ----------- Long-term capital gain $10,097,416 $29,982,432 As of November 30, 2003, the components of net assets on a tax basis were as follows: Shares of beneficial interest $286,950,005 Undistributed ordinary income 2,171,889 Undistributed net realized capital gain on investments 27,043,863 Net unrealized appreciation of investments 114,871,904 ------------ Net assets $431,037,661 ------------ 5. Capital Shares Transactions in capital shares were as follows: Year Ended 11/30/03 11/30/02 ----------- ----------- Shares sold: Class A 1,317,213 2,374,998 Class B 516,373 1,133,854 Class C 421,216 482,202 Class R 52,297 -- Institutional Class 327,466 329,019 Shares issued upon reinvestment of dividends and distributions: Class A 208,595 585,947 Class B 103,918 275,100 Class C 41,901 104,496 Institutional Class 23,322 56,861 ----------- ----------- 3,012,301 5,342,477 ----------- ----------- Shares repurchased: Class A (1,365,058) (2,530,736) Class B (752,492) (1,025,600) Class C (330,789) (395,887) Class R (2,834) -- Institutional Class (125,861) (292,537) ----------- ----------- (2,577,034) (4,244,760) ----------- ----------- Net increase 435,267 1,097,717 =========== =========== For the years ended November 30, 2003 and 2002, 76,322 Class B shares were converted to 73,585 Class A shares valued at $2,135,097 and 4,059 Class B shares were converted to 3,937 Class A shares valued at $105,307, respectively. The respective amounts are included in Class B redemptions and Class A subscriptions in the previous table and the Statements of Changes in Net Assets. 6. Line of Credit The Fund, along with certain other funds in the Delaware Investments Family of Funds (the "Participants"), participates in a $177,300,000 revolving line of credit facility to be used for temporary or emergency purposes as an additional source of liquidity to fund redemptions of investor shares. The Participants are charged an annual commitment fee, which is allocated across the Participants on the basis of each fund's allocation of the entire facility. The Participants may borrow up to a maximum of one third of their net assets under the agreement. The Fund had no amounts outstanding as of November 30, 2003, or at any time during the year. 7. Securities Lending The Fund, along with other funds in the Delaware Investments Family of Funds, may lend its securities pursuant to a security lending agreement (Lending Agreement) with J.P. Morgan Chase. Initial security loans made pursuant to the Lending Agreement are required to be secured by U.S. Treasury obligations and/or cash collateral not less than 102% of the market value of the securities issued in the United States. With respect to each loan, if the aggregate market value of the collateral held on any business day is less than the aggregate market value of the securities which are the subject of such loan, the borrower will be notified to provide additional collateral not less than the applicable collateral requirements. Cash collateral received is invested in fixed-income securities, with a weighted average maturity not to exceed 90 days, rated in one of the top two tiers by Standard & Poor's Ratings Group or Moody's Investors Service, Inc. or repurchase agreements collateralized by such securities. However, in the event of default or bankruptcy by the lending agent, realization and/or retention of the collateral may be subject to legal proceedings. In the event the borrower fails to return loaned securities and the collateral received is insufficient to cover the value of the loaned securities and provided such collateral shortfall is not the result of investment losses, the lending agent has agreed to pay the amount of the shortfall to the Fund, or at the discretion of the lending agent, replace the loaned securities. The Fund continues to record dividends on the securities loaned and is subject to change in fair value of the securities loaned that may occur during the term of the loan. The Fund has the right under the Lending Agreement to recover the securities from the borrower on demand. The security lending agent and the borrower retain a portion of the earnings from the collateral investments. The Fund records security lending income net of such allocation. At November 30, 2003, the market value of securities on loan was $64,815,360, for which cash collateral was received and invested in accordance with the Lending Agreement. Such investments are presented on the Statement of Net Assets under the caption "Securities Lending Collateral." 8. Credit and Market Risks The Fund invests a significant portion of its assets in small-sized companies and may be subject to certain risks associated with ownership of securities of small-sized companies. Investments in small-sized companies may be more volatile than investments in larger companies for a number of reasons, which include more limited financial resources or a dependence on narrow product lines. The Fund invests in REITs and is subject to some of the risks associated with that industry. If the Fund holds real estate directly as a result of defaults or receives rental income directly from real estate holdings, its tax status as a regulated investment company may be jeopardized. The Fund's REIT holdings are also affected by interest rate changes, particularly if the REITs it holds use floating rate debt to finance their ongoing operations. 15 Notes TO FINANCIAL STATEMENTS (CONTINUED) Delaware Small Cap Value Fund 9. Tax Information (Unaudited) The information set forth below is for the Fund's fiscal year as required by federal laws. Shareholders, however, must report distributions on a calendar year basis for income tax purposes, which may include distributions for portions of two fiscal years of a fund. Accordingly, the information needed by shareholders for income tax purposes will be sent to them in January of each year. Please consult your tax advisor for proper treatment of this information. For the fiscal year ended November 30, 2003, the Fund designates distributions paid during the year as follows: (A) (B) Long-Term Ordinary Capital Gains Income Total (C) Distributions Distributions Distributions Qualifying (Tax Basis) (Tax Basis) (Tax Basis) Dividends(1) ------------- ------------- ------------- ------------ 100% -- 100% -- (A) and (B) are based on a percentage of the Fund's total distributions. (C) is based on a percentage of ordinary income of the Fund. (1) Qualifying dividends represent dividends which qualify for the corporate dividends received deduction. 16 Report OF INDEPENDENT AUDITORS To the Shareholders and Board of Trustees Delaware Group Equity Funds V - Delaware Small Cap Value Fund We have audited the accompanying statement of net assets of Delaware Small Cap Value Fund (the "Fund") as of November 30, 2003, and the related statement of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended, and the financial highlights for each of the periods indicated therein. These financial statements and financial highlights are the responsibility of the Fund's management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements and financial highlights. Our procedures included confirmation of securities owned as of November 30, 2003, by correspondence with the custodian and brokers. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of Delaware Small Cap Value Fund at November 30, 2003, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended, and its financial highlights for each of the periods indicated therein, in conformity with accounting principles generally accepted in the United States. Ernst + Young LLP - ---------------------- Philadelphia, Pennsylvania January 2, 2004 17 Delaware Investments Family of Funds BOARD OF TRUSTEES/DIRECTORS AND OFFICERS ADDENDUM A mutual fund is governed by a Board of Trustees which has oversight responsibility for the management of a fund's business affairs. Trustees establish procedures and oversee and review the performance of the investment manager, the distributor and others that perform services for the fund. The independent fund trustees, in particular, are advocates for shareholder interests. The following is a list of the Trustees/Officers and certain background and related information.
Number of Other Principal Portfolios in Fund Directorships Name, Position(s) Occupation(s) Complex Overseen Held by Address Held with Length of Time During by Trustee/Director Trustee/Director and Birthdate Fund(s) Served Past 5 Years or Officer or Officer - ----------------------------------------------------------------------------------------------------------------------------------- INTERESTED TRUSTEES Jude T. Driscoll(2) Chairman and 3 Years - Since August 2000, 83 None 2005 Market Street Trustee(4) Executive Officer Mr. Driscoll has served in Philadelphia, PA various executive capacities 19103 Trustee since at different times at May 15, 2003 Delaware Investments(1) March 10, 1963 Senior Vice President and Director of Fixed-Income Process - Conseco Capital Management (June 1998 - August 2000) Managing Director - NationsBanc Capital Markets (February 1996 - June 1998) - ----------------------------------------------------------------------------------------------------------------------------------- INDEPENDENT TRUSTEES Walter P. Babich Trustee 15 Years Board Chairman - 101 None 2005 Market Street Citadel Construction Corporation Philadelphia, PA (1989 - Present) 19103 October 1, 1927 John H. Durham Trustee 24 Years(3) Private Investor 101 Trustee - Abington 2005 Market Street Memorial Hospital Philadelphia, PA 19103 August 7, 1937 President/Director - 22 WR Corporation John A. Fry Trustee(4) 2 Years President - 83 None 2005 Market Street Franklin & Marshall College Philadelphia, PA (June 2002 - Present) 19103 Executive Vice President - University of Pennsylvania May 28, 1960 (April 1995 - June 2002) Anthony D. Knerr Trustee 10 Years Founder/Managing Director - 101 None 2005 Market Street Anthony Knerr & Associates Philadelphia, PA (Strategic Consulting) 19103 (1990 - Present) December 7, 1938
18
Number of Other Principal Portfolios in Fund Directorships Name, Position(s) Occupation(s) Complex Overseen Held by Address Held with Length of Time During by Trustee/Director Trustee/Director and Birthdate Fund(s) Served Past 5 Years or Officer or Officer - ----------------------------------------------------------------------------------------------------------------------------------- INDEPENDENT TRUSTEES (CONTINUED) Ann R. Leven Trustee 14 Years Treasurer/Chief Fiscal Officer - 101 Director - Andy 2005 Market Street National Gallery of Art Warhol Foundation Philadelphia, PA (1994 - 1999) 19103 Director - Systemax Inc. November 1, 1940 Thomas F. Madison Trustee 9 Years President/Chief 101 Director - 2005 Market Street Executive Officer - CenterPoint Energy Philadelphia, PA MLM Partners, Inc. 19103 (Small Business Investing Director - Digital and Consulting) River Inc. (January 1993 - Present) February 25, 1936 Director - Rimage Corporation Director - Valmont Industries, Inc. Janet L. Yeomans Trustee 4 Years Vice President/Mergers & 101 None 2005 Market Street Acquisitions - 3M Corporation Philadelphia, PA (January 2003 - Present) 19103 Ms. Yeomans has held July 31, 1948 various management positions at 3M Corporation since 1983. - ----------------------------------------------------------------------------------------------------------------------------------- OFFICERS Joseph H. Hastings Executive Executive Mr. Hastings has served in 101 None 2005 Market Street Vice President Vice President various executive capacities Philadelphia, PA and and at different times at 19103 Chief Financial Chief Financial Delaware Investments. Officer Officer since December 19, 1949 August 21, 2003 Richelle S. Maestro Senior Vice President, Chief Legal Ms. Maestro has served in 101 None 2005 Market Street Chief Legal Officer Officer since various executive capacities Philadelphia, PA and Secretary March 17, 2003 at different times at 19103 Delaware Investments. November 26, 1957 Michael P. Bishof Senior Vice President 7 Years Mr. Bishof has served in 101 None 2005 Market Street and Treasurer various executive capacities Philadelphia, PA at different times at 19103 Delaware Investments. August 18, 1962
(1) Delaware Investments is the marketing name for Delaware Management Holdings, Inc. and its subsidiaries, including the Registrant's investment advisor, principal underwriter and its transfer agent. (2) Mr. Driscoll is considered to be an "Interested Trustee" because he is an executive officer of the Fund's manager and distributor. (3) Mr. Durham served as a Director Emeritus from 1995 through 1998. (4) Mr. Driscoll and Mr. Fry are not Trustees of the portfolios of Voyageur Insured Funds, Voyageur Intermediate Tax Free Funds, Voyageur Investment Trust, Voyageur Mutual Funds, Voyageur Mutual Funds II, Voyageur Mutual Funds III and Voyageur Tax Free Funds. The Statement of Additional Information for the Fund(s) includes additional information about the Trustees and Officers and is available, without charge, upon request by calling 800 523-1918. 19 Delaware Investments(SM) - -------------------------------------- A member of Lincoln Financial Group(R) This annual report is for the information of Delaware International Value Equity Fund, Delaware Emerging Markets Fund, and Delaware International Small Cap Value Fund shareholders, but it may be used with prospective investors when preceded or accompanied by a current prospectus for Delaware International Value Equity Fund, Delaware Emerging Markets Fund, and Delaware International Small Cap Value Fund and the Delaware Investments Performance Update for the most recently completed calendar quarter. The prospectus sets forth details about charges, expenses, investment objectives, and operating policies of the Fund. You should read the prospectus carefully before you invest. The figures in this report represent past results which are not a guarantee of future results. The return and principal value of an investment in the Fund will fluctuate so that shares, when redeemed, may be worth more or less than their original cost.
Board of Trustees Affiliated Officers Contact Information Jude T. Driscoll Joseph H. Hastings Investment Manager Chairman Executive Vice President and Delaware Management Company Delaware Investments Family of Funds Chief Financial Officer Philadelphia, PA Philadelphia, PA Delaware Investments Family of Funds Philadelphia, PA International Affiliate Walter P. Babich Delaware International Advisers Ltd. Board Chairman Richelle S. Maestro London, England Citadel Construction Corporation Senior Vice President, King of Prussia, PA Chief Legal Officer and Secretary National Distributor Delaware Investments Family of Funds Delaware Distributors, L.P. John H. Durham Philadelphia, PA Philadelphia, PA Private Investor Gwynedd Valley, PA Michael P. Bishof Shareholder Servicing, Dividend Senior Vice President and Treasurer Disbursing and Transfer Agent John A. Fry Delaware Investments Family of Funds Delaware Service Company, Inc. President Philadelphia, PA 2005 Market Street Franklin & Marshall College Philadelphia, PA 19103-7094 Lancaster, PA For Shareholders Anthony D. Knerr 800 523-1918 Managing Director Anthony Knerr & Associates For Securities Dealers and Financial New York, NY Institutions Representatives Only 800 362-7500 Ann R. Leven Former Treasurer/Chief Fiscal Officer Web site National Gallery of Art www.delawareinvestments.com Washington, DC Thomas F. Madison President and Chief Executive Officer MLM Partners, Inc. Minneapolis, MN Janet L. Yeomans Vice President/Mergers & Acquisitions 3M Corporation St. Paul, MN -------------------------------------------------------------------------------- A description of the policies and procedures that the Fund uses to determine how to vote proxies (if any) relating to portfolio securities is available without charge (i) upon request, by calling 800 523-1918; (ii) on the Fund's website at http://www.delawareinvestments.com; and (iii) on the Commission's website at http://www.sec.gov.; and beginning no later than August 31, 2004, information (if any) regarding how the Fund voted proxies relating to portfolio securities during the most recent 12-month period ended June 30 is available without charge (i) through the Fund's website at http://www.delawareinvestments.com; and (ii) on the Commission's website at http://www.sec.gov. --------------------------------------------------------------------------------
(8461) Printed in the USA AR-021 [11/03] IVES 1/04 J9517 EXP: 1/05 Delaware Investments(SM) -------------------------------------- A member of Lincoln Financial Group(R) 2003 Annual Shareholder Report - ------------------------------ - - Delaware Small Cap Contrarian Fund Dear Shareholder December 10, 2003 Portfolio Management Review - --------------------------- Delaware Small Cap Contrarian Fund Q: Please discuss the Fund's performance in relation to the small-cap market during the fiscal year. A: For the 12 months ended November 30, 2003, Delaware Small Cap Contrarian Fund posted a +35.19% total return (Class A shares at net asset value with distributions reinvested) slightly underperforming its benchmark, the Russell 2000 Index, which rose +36.29% during the same period. The Fund outperformed the Lipper Small-Cap Value Funds Average, which returned +33.25% during the same time period. As an additional note, the Russell 2000 Value Index appreciated +34.91%. We generally attribute the Fund's modest outperformance of its peer group to strong stock selection and highly disciplined portfolio monitoring. Small-cap stocks rallied during the period, as investors became increasingly willing to accept greater risk. In our opinion, investor expectations for continued economic growth also generally led to inflated valuations for lower quality names. Often during the period, investors bought stocks of companies with no earnings potential, high earnings multiples, and highly leveraged balance sheets. In fact, lower-quality companies led the market after mid-March (Source: Bloomberg). Nonetheless, we continued to focus on companies with the ability to generate strong free cash flow, the potential to increase dividends, and a commitment to reducing debt - attributes that remain a core part of our stock selection process. Q: Can you describe your investment strategy during the past 12 months? A: As the economy gained strength, we emphasized economically sensitive sectors of the market. A good example is the basic industry/capital goods sector, which has significant concentrations of metal, forest and paper, materials and mining, and specialty/chemicals companies. We also became increasingly optimistic about consumer-oriented stocks, particularly those that may benefit from increased capital spending and those favoring consumer services. While we were cautious about the technology sector - selecting only those companies that we believe possess strong earnings prospects - we increased our position to a modest overweighting by the fiscal year end. Q: Which holdings contributed positively to performance? A: Bebe Stores, a women's clothing retailer, posted strong performance as a result of continued strength in consumer spending. We sold this company late in the fiscal year when the stock met our target price. Another strong retail holding was Ann Taylor Stores, which delivered attractive performance following a disappointing 2002. We purchased the stock in January based on its strong balance sheet and the company's history of successfully navigating fashion trends. In basic industry/capital goods, Freeport-McMoRan Copper & Gold, a leading producer of gold and copper, benefited from rising commodity prices, its issuance of a dividend, and a repurchase of company stock. As a result, Freeport-McMoRan was able to generate attractive free cash flow - a factor that 1 contributed to strong performance. Another notable performer in this sector was Louisiana-Pacific. Rising lumber prices and strong sales of one of its primary products contributed to the company's improved profits. The technology sector also made a positive contribution to performance. One of the top holdings was International Rectifier, a semiconductor firm that benefited from increased product demand. Finally, in healthcare we purchased the stock of Humana, one of the country's largest health management organizations. A positive environment for HMOs and the company's willingness to repurchase its stock fueled significant free cash flow. Q: Please highlight a security that made a significant contribution to the portfolio. A: Our ability to employ comprehensive security research prompted us to purchase Louisiana-Pacific, a leading manufacturer of building materials and the world's top producer of oriented strand board, an innovative wood-based product. Despite poor performance in recent years, we believed the firm offered a sound business strategy. In the spring of 2003, management announced a plan to sell its timberland business in order to pay down debt, a strategy that generated significant free cash flow. In our opinion, Louisiana-Pacific's future prospects are promising. We are optimistic that a dividend announcement and repurchase of company stock may occur in the coming months. Q: Which holdings detracted from performance? A: Among the sector that we refer to as capital goods, we sold farm equipment manufacturer AGCO, based on a shift in its management strategy that emphasized new business acquisitions over debt reduction. We also trimmed our position in La-Z-Boy. Despite a strong housing market, demand for furniture had not met our expectations. Over the long term, however, we believe that the company is poised to benefit from strengthening that we still anticipate in the industry. In the energy sector, our position in Grey Wolf, a land contract driller, delivered disappointing returns. A combination of high oil and natural gas prices, combined with the absence of increased spending among exploration companies, prevented Grey Wolf from raising prices as we had anticipated. Despite rising commodity prices, exploration companies kept a lid on increasing capital spending. We are confident about the company's long-term prospects and added to our position, taking advantage of attractive valuations as the stock's price came down. Finally, DRS Technologies, a defense-related electronic business, detracted from performance. It was removed from the portfolio due to management's decision to pursue business acquisitions rather than repurchase company stock at attractive valuations. 2 Delaware Small Cap Contrarian Fund Fund Objective: The Fund seeks long-term capital appreciation. Total Fund Net Assets: As of November 30, 2003 $3.96 million Number of Holdings: As of November 30, 2003 126 Your Fund Manager: Christopher S. Beck holds a bachelor's degree from the University of Delaware, an MBA from Lehigh University and is a CFA charterholder. Mr. Beck has been in the investment business for 22 years, starting with Wilmington Trust in 1981. Later, he became Director of Research at Cypress Capital Management in Wilmington and Chief Investment Officer of the University of Delaware Endowment Fund. Prior to joining Delaware in May 1997, he managed the Small Cap Fund for two years at Pitcairn Trust Company. Performance Summary+ 3 Average Annual Total Returns Through November 30, 2003 Lifetime One Year Delaware Small Cap Contrarian Fund Class A (Est. 12/29/98) Excluding Sales Charge +14.82% +35.19% Including Sales Charge +13.44% +27.39% Institutional Class (Est. 12/29/98) +14.82% +35.19% Lipper Small-Cap Value Funds Average (235 Funds) +12.79%* +33.25% Russell 2000 Index +6.82%* +36.29% The results shown above assume reinvestment of all distributions. Class A returns, including sales charges, reflect a maximum up-front sales charge of 5.75%. Returns and share value will fluctuate so that shares, when redeemed, may be worth more or less than the original share price. No 12b-1 fees were imposed on Class A shares for the periods shown and had such charges been imposed, returns would have been lower. Class B, C, and R shares were not offered during the periods shown. Institutional Class shares are available without sales or asset-based distribution charges only to certain eligible institutional accounts. The Lipper categories represent the average return of specific mutual funds tracked by Lipper (Source: Lipper Inc.). The Russell 2000 Index is an unmanaged composite that tracks the stocks of 2,000 U.S. companies with small market capitalizations. You cannot invest directly in an index. Past performance is not a guarantee of future results. An expense limitation was in effect for all classes of Delaware Small Cap Contrarian Fund during the periods shown. Performance would have been lower had the expense limitation not been in effect. The performance table does not reflect the deduction of taxes the shareholder would pay on Fund distributions or redemptions of Fund shares. This report is for the information of Delaware Small Cap Contrarian Fund shareholders. The current prospectus for the Fund sets forth details about charges, expenses, investment objectives, and operating policies of the Fund. You should read the prospectus carefully before you invest or send money. Summary investment results are documented in the Fund's current Statement of Additional Information. +Please see the following page for the line graph on the Fund's performance since inception. *Assumes start date of December 31, 1998. 4 Delaware Small Cap Contrarian Fund Performance of a $10,000 Investment December 29, 1998 (Fund's inception) to November 30, 2003 Delaware Small Cap Contrarian Fund - Class A Shares Russell 2000 Index 12/29/98 $ 9,425 $10,000 11/30/99 $ 9,902 $10,893 11/30/00 $10,948 $10,829 11/30/01 $13,621 $11,351 11/30/02 $13,768 $10,147 11/30/03 $18,608 $13,829 Chart assumes $10,000 invested on December 29, 1998 and includes the effect of a 5.75% front-end sales charge and the reinvestment of all distributions. Performance of other Fund classes will vary due to differing charges and expenses. Chart also assumes $10,000 invested in the Russell 2000 Index at that month's end, December 31, 1998. After December 31, 1998, returns plotted on the chart were as of the last day of each month shown. The Russell 2000 Index is an unmanaged composite that tracks the stocks of 2,000 U.S. companies with small market capitalizations. No 12b-1 fees were imposed on Class A shares for the periods shown and had such charges been imposed, returns would have been lower. An expense limitation was in effect for all classes of the Fund during the periods shown. Performance would have been lower had the expense limitation not been in effect. An index is unmanaged and does not reflect the costs of operating a mutual fund, such as the costs of buying, selling, and holding securities. The chart does not reflect the deduction of taxes the shareholder would pay on Fund distributions or redemptions of Fund shares. You cannot invest directly in an index. Past performance is not a guarantee of future results. 5 Statement of Net Assets DELAWARE SMALL CAP CONTRARIAN FUND November 30, 2003 Number of Market Shares Value Common Stock - 94.73% Banking & Finance - 11.52% Boston Private Financial Holding 1,400 $36,302 Colonial BancGroup 3,200 53,472 Commercial Federal 1,300 35,100 Compass Bancshares 1,500 58,665 First Federal Capital 1,200 28,116 First Republic Bank 800 29,800 Gold Banc Corp 2,100 27,720 Greater Bay Bancorp 1,600 41,600 MAF Bancorp 900 39,519 Provident Bankshares 1,000 29,060 Republic Bancorp 2,200 30,250 Riggs National 1,600 27,456 +Sterling Financial 583 19,595 -------- 456,655 -------- Basic Industry/Capital Goods - 18.89% +Armor Holdings 600 14,550 Crane 1,200 34,908 +Crown Holdings 2,700 20,250 Federal Signal 800 12,120 Florida Rock Industries 800 46,000 Freeport-McMoRan Copper & Gold-Class B 800 34,824 Gibraltar Steel 1,000 24,380 +Golden Star Resources 4,000 30,160 +Griffon 3,000 58,560 Harsco 800 31,728 +Insituform Technologies-Class A 1,300 19,565 +Jacobs Engineering Group 600 27,564 Kaydon 1,400 34,188 +Louisiana-Pacific 2,700 48,843 +Meridian Gold 1,600 23,584 +Mueller Industries 700 22,624 +Pactiv 2,800 62,831 Smith (A.O.) 900 31,626 +Terex 1,300 33,527 +Tetra Tech 1,600 40,800 Texas Industries 700 20,447 The Brinks Company 1,800 39,960 Universal Forest Products 400 12,176 Wausau-Mosinee Paper 1,900 23,370 -------- 748,585 -------- Business Services - 1.67% +Intergrated Alarm Services 1,400 10,640 +Right Management Consultants 1,300 23,231 +United Stationers 800 32,280 -------- 66,151 -------- Cable, Media & Publishing - 0.65% Belo-Class A 900 25,569 -------- 25,569 -------- Chemicals - 3.01% Fuller (H.B) 1,000 26,670 MacDermid 1,400 45,920 PolyOne 3,000 17,850 Spartech 1,300 28,600 -------- 119,040 -------- 6 Statement of Net Assets (Continued) Number of Market Shares Value Common Stock (Continued) Consumer Durables - 3.24% Furniture Brands International 1,400 $36,820 KB Home 800 55,104 La-Z-Boy 1,000 20,200 +WCI Communities 800 16,144 -------- 128,268 -------- Consumer Non-Durables - 9.93% +AnnTaylor Stores 1,300 51,662 +Barnes & Noble 1,100 36,498 Cato-Class A 1,200 25,056 +Department 56 800 11,304 Goody's Family Clothing 2,000 21,240 +Jo-Ann Stores 1,035 20,752 +Movie Gallery 1,000 17,690 Oakley 1,700 22,270 Phillips-Van Heusen 1,500 26,400 Pier 1 Imports 1,400 35,700 Reebok International 800 32,192 +Shoe Carnival 800 14,464 +ShopKo Stores 1,400 23,310 +Sports Authority 444 19,314 +Whitehall Jewellers 800 8,488 Wolverine World Wide 1,300 27,027 -------- 393,367 -------- Consumer Products - 1.94% Bunge Limited 1,000 28,480 +Constellation Brands 1,400 48,314 -------- 76,794 -------- Consumer Services - 1.14% +CEC Entertainment 900 45,252 -------- 45,252 -------- Energy - 5.62% Arch Coal 1,200 31,788 Chesapeake Energy 3,100 37,820 +Comstock Resources 2,300 37,490 +Grey Wolf 5,400 18,306 +Magnum Hunter Resources 3,300 29,667 +Newfield Exploration 1,000 40,900 +Whiting Petroleum 1,600 26,576 -------- 222,547 -------- Healthcare & Pharmaceuticals - 6.46% Cooper Companies 400 18,260 +Humana 1,900 42,427 +IDEXX Laboratories 500 23,675 +NeighborCare 800 25,128 Owens & Minor 1,500 31,815 +Pharmaceutical Resources 400 29,032 +Protein Design Labs 2,100 29,106 +Province Healthcare 1,900 29,127 +Sola International 1,400 27,440 -------- 256,010 -------- Insurance - 4.13% AmerUs Group 1,100 39,545 Berkley (W.R.) 1,350 46,103 Harleysville Group 1,100 21,560 Platinum Underwriters Holdings 600 18,102 RenaissanceRe Holdings 800 38,368 -------- 163,678 -------- 7 Statement of Net Assets (Continued) Number of Market Shares Value Common Stock (Continued) REITs - 5.86% Camden Property Trust 900 $37,836 Chelsea Property Group 600 32,400 Keystone Property Trust 1,200 24,312 Pan Pacific Retail Properties 1,100 51,095 Prentiss Properties Trust 900 28,575 Reckson Associates Realty 1,100 26,400 The St. Joe Company 900 31,320 --------- 231,938 --------- Retail - 0.67% +Take-Two Interactive Software 800 26,480 --------- 26,480 --------- Technology - 13.53% +Actel 1,300 35,633 +ASM International N.V 1,900 35,967 +Bell Microproducts 1,900 16,359 +Comverse Technology 2,700 51,920 +Filenet 900 23,571 +Herley Industries 1,300 25,116 +Ingram Micro-Class A 2,300 33,534 +Insight Enterprises 1,900 35,530 +International Rectifier 900 49,158 +Lawson Software 3,800 32,072 +Overland Storage 1,400 27,524 +Photronics 1,100 20,317 +Plexus 1,800 31,950 +Storage Technology 1,000 25,200 Symbol Technologies 1,600 22,320 +Tech Data 700 25,788 +Veeco Instruments 1,500 44,250 --------- 536,209 --------- Transportation - 4.07% Alexander & Baldwin 1,600 50,336 +Continental Airlines-Class B 1,100 20,515 +Kirby 1,000 30,000 +Northwest Airlines-Class A 1,200 15,852 +SCS Transportation 550 9,147 Skywest 800 13,800 +Yellow 700 21,399 --------- 161,049 --------- Utilities - 2.40% Black Hills 500 16,130 +El Paso Electric 1,700 21,590 PNM Resources 1,000 28,010 Southwest Gas 1,300 29,315 95,045 --------- Total Common Stock (cost $2,741,858) 3,752,637 --------- Exchange Traded Funds - 2.37% iShares Russell 2000 Value 600 93,840 --------- Total Exchange Traded Funds (cost $85,548) 93,840 --------- 8 Statement of Net Assets (Continued) Principal Market Amount Value Repurchase Agreements - 2.90% With BNP Paribas 1.01% 12/1/03 (dated 11/28/03, collateralized by $44,790 U.S. Treasury Notes 6.75% due 5/15/05, market value $48,234) $47,275 $ 47,275 With J. P. Morgan Securities 0.98% 12/1/03 (dated 11/28/03, collateralized by $20,560 U.S. Treasury Notes 2.25% due 7/31/04, market value $20,868) 20,450 20,450 With UBS Warburg 1.01% 12/1/03 (dated 11/28/03, collateralized by $14,770 U.S. Treasury Notes 2.00% due 11/30/04, market value $15,006, $520 U.S. Treasury Notes 5.50% due 2/15/08, market value $577 and $29,550 U.S. Treasury Notes 5.625% due 5/15/08, market value $32,651) 47,275 47,275 ---------- Total Repurchase Agreements (cost $115,000) 115,000 ---------- Total Market Value of Securities - 100.00% (cost $2,942,406) 3,961,477 Liabilities Net of Receivables and Other Assets - 0.00% (114) ---------- Net Assets Applicable to 302,926 Shares Outstanding - 100.00% $3,961,363 ========== Net Asset Value - Delaware Small Cap Contrarian Fund Class A ($12,863 / 983.7 Shares) $13.08 ====== Net Asset Value - Delaware Small Cap Contrarian Fund Institutional Class ($3,948,500 / 301,942 Shares) $13.08 ====== Components of Net Assets at November 30, 2003: Shares of beneficial interest (unlimited authorization - no par) $2,646,118 Undistributed net investment income 10,627 Accumulated net realized gain on investments 285,547 Net unrealized appreciation of investments 1,019,071 ---------- Total net assets $3,961,363 ========== +Non-income producing security for the year ended November 30, 2003. Summary of Abbreviation: REIT - Real Estate Investment Trust Net Asset Value and Offering Price per Share - Delaware Small Cap Contrarian Fund Net asset value Class A (A) $13.08 Sales charge (5.75% of offering price, or 6.12% of the amount invested per share) (B) 0.80 ------ Offering price $13.88 ------ _______________________________ (A) Net asset value per share, as illustrated, is the estimated amount which would be paid upon the redemption or repurchase of shares. (B) See the current prospectus for purchases of $50,000 or more. See accompanying notes 9 Delaware Small Cap Contrarian Fund Statement of Operations Year Ended November 30, 2003
Investment Income: Dividends $33,029 Interest 1,677 $ 34,706 ---------- Expenses: Management fees $24,025 Trustees' fees 2,223 Registration fees 1,963 Accounting and administration expenses 1,371 Dividend disbursing and transfer agent fees and expenses 1,153 Custodian fees 686 Reports and statements to shareholders 627 Professional fees 541 Distribution expenses - Class A 6 Other 728 33,323 ------- Less expenses absorbed or waived (9,219) Less waiver of distribution expenses - Class A (6) Less expenses paid indirectly (84) ---------- Total expenses 24,014 ---------- Net Investment Income 10,692 ---------- Net Realized and Unrealized Gain on Investments: Net realized gain on investments 287,735 Net change in unrealized appreciation/depreciation of investments 730,117 ---------- Net Realized and Unrealized Gain on Investments 1,017,852 ---------- Net Increase in Net Assets Resulting from Operations $1,028,544 ==========
See accompanying notes 10 Delaware Small Cap Contrarian Fund Statements of Changes in Net Assets
Year Ended 11/30/03 11/30/02 ---------- ---------- Increase (Decrease) in Net Assets from Operations: Net investment income $ 10,692 $ 22,348 Net realized gain on investments 287,735 149,177 Net change in unrealized appreciation/depreciation of investments 730,117 (140,890) ---------- ---------- Net increase in net assets resulting from operations 1,028,544 30,635 ---------- ---------- Dividends and Distributions to Shareholders from: Net investment income: Institutional Class (21,293) (28,045) Net realized gain on investments: Class A (1) (2) Institutional Class (147,913) (228,515) ---------- ---------- (169,207) (256,562) ---------- ---------- Capital Share Transactions: Proceeds from shares sold: Class A Institutional Class 14,346 - 4 - Net asset value of shares issued upon reinvestment of dividends and distributions: Class A 1 3 Institutional Class 169,206 256,560 ---------- ---------- 183,557 256,563 ---------- ---------- Cost of shares repurchased: Class A (2,303) (15) ---------- ---------- (2,303) (15) ---------- ---------- Increase in net assets derived from capital share transactions 181,254 256,548 ---------- ---------- Net Increase in Net Assets 1,040,591 30,621 Net Assets: Beginning of year 2,920,772 2,890,151 ---------- ---------- End of year $3,961,363 $2,920,772 ========== ==========
See accompanying notes 11 Financial Highlights Selected data for each share of the Fund outstanding throughout each period were as follows:
Delaware Small Cap Contrarian Fund Class A ------------------------------------------------------------------------ 12/29/98(1) Year Ended to 11/30/03 11/30/02 11/30/01 11/30/00 11/30/99 ------------------------------------------------------------------------ Net asset value, beginning of period $10.290 $11.130 $9.090 $8.930 $8.500 Income from investment operations: Net investment income(2) 0.036 0.079 0.111 0.159 0.104 Net realized and unrealized gain on investments 3.350 0.069 2.082 0.720 0.326 ------------------------------------------------------------------------ Total from investment operations 3.386 0.148 2.193 0.879 0.430 ------------------------------------------------------------------------ Less dividends and distributions from: Net investment income (0.075) (0.108) (0.153) (0.135) - Net realized gain on investments (0.521) (0.880) - (0.584) - ------------------------------------------------------------------------ Total dividends and distributions (0.596) (0.988) (0.153) (0.719) - ------------------------------------------------------------------------ Net asset value, end of period $13.080 $10.290 $11.130 $9.090 $8.930 ======================================================================== Total return(3) 35.19% 1.08% 24.42% 10.56% 5.06% Ratios and supplemental data: Net assets, end of period (000 omitted) $13 $- $- $- $- Ratio of expenses to average net assets 0.75% 0.75% 0.75% 0.75% 0.80% Ratio of expenses to average net assets prior to expense limitation and expenses paid indirectly 1.34% 1.34% 1.18% 1.24% 2.14% Ratio of net investment income to average net assets 0.33% 0.74% 1.07% 1.81% 1.27% Ratio of net investment income (loss) to average net assets prior to expense limitation and expenses paid indirectly (0.26%) 0.15% 0.63% 1.32% (0.12%) Portfolio turnover 44% 76% 82% 125% 63%
(1) Date of commencement of operations; ratios and portfolio turnover have been annualized and total return has not been annualized. (2) The average shares outstanding method has been applied for per share information. (3) Total investment return is based on the change in net asset value of a share during the period and assumes reinvestment of dividends and distributions at net asset value and does not reflect the impact of a sales charge. Total investment return reflects a waiver and payment of fees by the manager and distributor. Performance would have been lower had the expense limitation not been in effect. See accompanying notes 12 Financial Highlights (Continued) Selected data for each share of the Fund outstanding throughout each period were as follows:
Delaware Small Cap Contrarian Fund Institutional Class ------------------------------------------------------------------------ 12/29/98(1) Year Ended to 11/30/03 11/30/02 11/30/01 11/30/00 11/30/99 ------------------------------------------------------------------------ Net asset value, beginning of period $10.290 $11.130 $9.090 $8.930 $8.500 Income from investment operations: Net investment income2 0.036 0.079 0.111 0.159 0.104 Net realized and unrealized gain on investments 3.350 0.069 2.082 0.720 0.326 ------------------------------------------------------------------------ Total from investment operations 3.386 0.148 2.193 0.879 0.430 ------------------------------------------------------------------------ Less dividends and distributions from: Net investment income (0.075) (0.108) (0.153) (0.135) - Net realized gain on investments (0.521) (0.880) - (0.584) - ------------------------------------------------------------------------ Total dividends and distributions (0.596) (0.988) (0.153) (0.719) - ------------------------------------------------------------------------ Net asset value, end of period $13.080 $10.290 $11.130 $9.090 $8.930 ======================================================================== Total return3 35.19% 1.08% 24.42% 10.56% 5.06% Ratios and supplemental data: Net assets, end of period (000 omitted) $3,948 $2,921 $2,890 $2,322 $2,101 Ratio of expenses to average net assets 0.75% 0.75% 0.75% 0.75% 0.80% Ratio of expenses to average net assets prior to expense limitation and expenses paid indirectly 1.04% 1.04% 0.88% 0.94% 1.84% Ratio of net investment income to average net assets 0.33% 0.74% 1.07% 1.81% 1.27% Ratio of net investment income to average net assets prior to expense limitation and expenses paid indirectly 0.04% 0.45% 0.93% 1.62% 0.18% Portfolio turnover 44% 76% 82% 125% 63%
(1) Date of commencement of operations; ratios and portfolio turnover have been annualized and total return has not been annualized. (2) The average shares outstanding method has been applied for per share information. (3) Total investment return is based on the change in net asset value of a share during the period and assumes reinvestment of dividends and distributions at net asset value. Total investment return reflects a waiver and payment of fees by the manager. Performance would have been lower had the expense limitation not been in effect. See accompanying notes 13 Notes to Financial Statements November 30, 2003 Delaware Group Equity Funds V (the "Trust") is organized as a Delaware statutory trust and offers three series: Delaware Dividend Income Fund (formerly Delaware Retirement Income Fund), Delaware Small Cap Contrarian Fund and Delaware Small Cap Value Fund. These financial statements and the related notes pertain to Delaware Small Cap Contrarian Fund (the "Fund"). The Trust is an open-end investment company. The Fund is considered diversified under the Investment Company Act of 1940, as amended, and offers Class A, Class B, Class C, Class R and Institutional Class shares. Class A shares are sold with a front-end sales charge of up to 5.75%. Class B shares are sold with a contingent deferred sales charge that declines from 4% to zero depending upon the period of time the shares are held. Class B shares will automatically convert to Class A shares on a quarterly basis approximately eight years after purchase. Class C shares are sold with a contingent deferred sales charge of 1%, if redeemed during the first 12 months. Class R and Institutional Class shares are not subject to a sales charge and are offered for sale exclusively to a limited group of investors. As of November 30, 2003, only Class A and Institutional Class have commenced operations. The investment objective of the Fund is to seek long-term capital appreciation. 1. Significant Accounting Policies The following accounting policies are in accordance with accounting principles generally accepted in the United States and are consistently followed by the Fund. Security Valuation- All equity securities are valued at the last quoted sales price as of the time of the regular close of the New York Stock Exchange (NYSE) on the valuation date. Securities traded on the Nasdaq Stock Market, Inc. (NASDAQ) are valued in accordance with the NASDAQ Official Closing Price, which may not be the last sales price. If on a particular day an equity security does not trade, then the mean between bid and asked prices will be used. Short-term debt securities having less than 60 days to maturity are valued at amortized cost, which approximates market value. Other securities and assets for which market quotations are not readily available are valued at fair value as determined in good faith under the direction of the Fund's Board of Trustees. In determining whether market quotations are readily available or fair valuation will be used, various factors will be taken into consideration, such as market closures, or with respect to foreign securities, aftermarket trading or significant events after local market trading (e.g., government actions or pronouncements, trading volume or volatility on markets, exchanges among dealers, or news events). Federal Income Taxes- The Fund intends to continue to qualify for federal income tax purposes as a regulated investment company and make the requisite distributions to shareholders. Accordingly, no provision for federal income taxes has been made in the financial statements. Class Accounting- Investment income, common expenses and realized and unrealized gain (loss) on investments are allocated to the various classes of the Fund on the basis of daily net assets of each class. Distribution expenses relating to a specific class are charged directly to that class. Repurchase Agreements- The Fund may invest in a pooled cash account along with other members of the Delaware Investments Family of Funds. The aggregate daily balance of the pooled cash account is invested in repurchase agreements secured 14 by obligations of the U.S. government. The respective collateral is held by the Fund's custodian bank until the maturity of the respective repurchase agreements. Each repurchase agreement is 102% collateralized. However, in the event of default or bankruptcy by the counterparty to the agreement, realization of the collateral may be subject to legal proceedings. Use of Estimates- The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Other- Expenses common to all funds within the Delaware Investments Family of Funds are allocated amongst the funds on the basis of average net assets. Security transactions are recorded on the date the securities are purchased or sold (trade date). Costs used in calculating realized gains and losses on the sale of investment securities are those of the specific securities sold. Dividend income is recorded on the ex-dividend date and interest income is recorded on the accrual basis. Distributions received from investments in Real Estate Investment Trusts are recorded as dividend income on ex-dividend date, subject to reclassification upon notice of the character of such distribution by the issuer. The Fund declares and pays dividends from net investment income and distributions from net realized gain on investments, if any, annually. Certain expenses of the Fund are paid through commission arrangements with brokers. The amount of these expenses was approximately $77 for the year ended November 30, 2003. In addition, the Fund may receive earnings credits from its custodian when positive cash balances are maintained, which are used to offset custody fees. The earnings credits for the year ended November 30, 2003 were approximately $7. The expenses paid under the above arrangements are included in their respective expense captions on the Statement of Operations with the corresponding expense offset shown as "expenses paid indirectly". 2. Investment Management, Administration Agreements and Other Transactions with Affiliates In accordance with the terms of its investment management agreement, the Fund pays Delaware Management Company (DMC), a series of Delaware Management Business Trust and the investment manager, an annual fee which is calculated daily at the rate of 0.75% on the first $500 million of average daily net assets of the Fund, 0.70% on the next $500 million, 0.65% on the next $1.5 billion, and 0.60% on daily average net assets in excess of $2.5 billion. DMC has contractually agreed to waive that portion, if any, of its management fee and reimburse the Fund to the extent necessary to ensure that annual operating expenses, exclusive of taxes, interest, brokerage commissions, distribution fees, certain insurance costs and extraordinary expenses, do not exceed 0.75% of average daily net assets through May 31, 2004. Delaware Service Company, Inc. (DSC), an affiliate of DMC, provides accounting, administration, dividend disbursing and transfer agent services. The Fund pays DSC a monthly fee based on average net assets subject to certain minimums for accounting and administration services. The Fund pays DSC a monthly fee based on the number of shareholder accounts for dividend disbursing and transfer agent services. Prior to June 1, 2003, the monthly fee for dividend disbursing and transfer agent services was based on the number of shareholder accounts and shareholder transactions. 15 Pursuant to the distribution agreement and distribution plan, the Fund pays Delaware Distributors, L.P. (DDLP), the distributor and an affiliate of DMC, an annual distribution and service fee not to exceed 0.30% of the average daily net assets of the Class A shares, 1.00% of the average daily net assets of the Class B and C shares, and 0.60% of the average daily net assets of Class R shares. DDLP has elected voluntarily to waive such distribution and service fees at this time. Institutional Class shares pay no distribution and service expenses. At November 30, 2003, the Fund had liabilities payable to affiliates as follows: Investment management fee payable to DMC $2,037 Dividend disbursing, transfer agent fees, accounting and other expenses payable to DSC 153 Other expenses payable to DMC and affiliates* 536 *DMC, as part of its administrative services, pays Fund operating expenses on behalf of the Fund and is reimbursed on a periodic basis. Such expenses include items such as printing of shareholder reports, professional fees, custodian fees and trustee fees. Certain officers of DMC, DSC and DDLP are officers and/or trustees of the Trust. These officers and trustees are paid no compensation by the Fund. 3. Investments For the year ended November 30, 2003, the Fund made purchases of $1,471,632 and sales of $1,347,061 of investment securities other than short-term investments. At November 30, 2003, the cost of investments for federal income tax purposes was $2,942,430. At November 30, 2003, the net unrealized appreciation was $1,019,047, of which $1,063,083 related to unrealized appreciation of investments and $44,036 related to unrealized depreciation of investments. 16 4. Dividend and Distribution Information Income and long-term capital gain distributions are determined in accordance with federal income tax regulations, which may differ from accounting principles generally accepted in the United States. The tax character of dividends and distributions paid during the years ended November 30, 2003 and 2002 was as follows: 2003 2002 ---------------------------- Ordinary income $19,145 $116,077 Long-term capital gain 150,062 140,485 ---------------------------- Total dividends and distributions $169,207 $256,562 ---------------------------- As of November 30, 2003, the components of net assets on a tax basis were as follows: Shares of beneficial interest $2,646,118 Undistributed ordinary income 92,348 Undistributed long-term capital gains 203,850 Unrealized appreciation of investments 1,019,047 ---------- Net assets $3,961,363 ---------- 5. Capital Shares Transactions in capital shares were as follows: Year Ended Year Ended 11/30/03 11/30/02 ---------------------------- Shares sold: Class A 1,177 - Shares issued upon reinvestment of dividends and distributions: Institutional Class 18,039 24,227 ---------------------------- 19,216 24,227 ---------------------------- Shares repurchased: Class A (195) (1) ---------------------------- (195) (1) ---------------------------- Net increase 19,021 24,226 ============================ 17 6. Line of Credit The Fund, along with certain other funds in the Delaware Investments Family of Funds (the "Participants"), participates in a $177,300,000 revolving line of credit facility to be used for temporary or emergency purposes as an additional source of liquidity to fund redemptions of investor shares. The Participants are charged an annual commitment fee, which is allocated across the Participants on the basis of each fund's allocation of the entire facility. The Participants may borrow up to a maximum of one-third of their net assets under the agreement. The Fund had no amount outstanding as of November 30, 2003, or at any time during the year. 7. Credit and Market Risk The Fund may invest up to 15% of its net assets in illiquid securities, which may include securities with contractual restrictions on resale, securities exempt from registration under Rule 144A of the Securities Act of 1933, as amended, and other securities which may not be readily marketable. The relative illiquidity of these securities may impair the Fund from disposing of them in a timely manner and at a fair price when it is necessary or desirable to do so. The Fund invests a significant portion of its assets in small and mid-sized companies and may be subject to certain risks associated with ownership of securities of small and mid-sized companies. Investments in small or mid-sized companies may be more volatile than investments in larger companies for a number of reasons, which include more limited financial resources or a dependence of narrow product lines. 18 8. Tax Information (unaudited) The information set forth below is for the Fund's fiscal year as required by federal laws. Shareholders, however, must report distributions on a calendar year basis for income tax purposes, which may include distributions for portions of two fiscal years of a fund. Accordingly, the information needed by shareholders for income tax purposes will be sent to them in January of each year. Please consult your tax advisor for proper treatment of this information. For the fiscal year ended November 30, 2003, the Fund designates distributions paid during the year as follows: (A) (B) Long-Term Ordinary Capital Gain Income Total (C) Distributions Distribution Distributions Qualifying(1) (Tax Basis) (Tax Basis) (Tax Basis) Dividends ----------- ----------- ----------- --------- 89% 11% 100% 100% _____________________________ (A) and (B) are based on a percentage of the Fund's total distributions. (C) is based on a percentage of ordinary income of the Fund. (1) Qualifying dividends represent dividends which qualify for the corporate dividends received deduction. 19 Report of Independent Auditors To the Shareholders and Board of Trustees Delaware Group Equity Funds V - Delaware Small Cap Contrarian Fund We have audited the accompanying statements of net assets of Delaware Small Cap Contrarian Fund (the "Fund") as of November 30, 2003, and the related statement of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended, and the financial highlights for each of the periods indicated therein. These financial statements and financial highlights are the responsibility of the Fund's management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements and financial highlights. Our procedures included confirmation of securities owned as of November 30, 2003, by correspondence with the custodian and brokers. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of Delaware Small Cap Contrarian Fund at November 30, 2003, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended, and its financial highlights for each of the periods indicated therein, in conformity with accounting principles generally accepted in the United States. Ernst & Young LLP Philadelphia, Pennsylvania January 2, 2004 20 Delaware Investments Family of Funds Board of Trustees/Officers Addendum A mutual fund is governed by a Board of Trustees which has oversight responsibility for the management of a fund's business affairs. Trustees establish procedures and oversee and review the performance of the investment manager, the distributor and others that perform services for the fund. The independent fund trustees, in particular, are advocates for shareholder interests. The following is a list of the Trustees/Officers and certain background and related information.
Principal Number of Other Name, Position(s) Occupation(s) Portfolios in Fund Directorships Address Held with Length of Time During Complex Overseen Held by and Birthdate Fund(s) Served Past 5 Years by Trustee Trustee - ----------------------------------------------------------------------------------------------------------------------------------- INTERESTED TRUSTEES Jude T. Driscoll(2) Chairman and 3 Years - Since August 2000, 83 None 2005 Market Street Trustee(4) Executive Officer Mr. Driscoll has served in Philadelphia, PA various executive capacities 19103 Trustee as of at different times at May 15, 2003 Delaware Investments(1) March 10, 1963 Senior Vice President and Director of Fixed-Income Process - Conseco Capital Management (June 1998 - August 2000) Managing Director - NationsBanc Capital Markets (February 1996 - June 1998) - ----------------------------------------------------------------------------------------------------------------------------------- INDEPENDENT TRUSTEES Walter P. Babich Trustee 15 Years Board Chairman - 101 None 2005 Market Street Citadel Construction Corporation Philadelphia, PA (1989 - Present) 19103 October 1, 1927 John H. Durham Trustee 24 Years(3) Private Investor 101 Trustee - Abington 2005 Market Street Memorial Hospital Philadelphia, PA 19103 August 7, 1937 President/Director - 22 WR Corporation John A. Fry Trustee(4) 2 Years President - 83 None 2005 Market Street Franklin & Marshall College Philadelphia, PA (June 2002 - Present) 19103 Executive Vice President - University of Pennsylvania May 28, 1960 (April 1995 - June 2002) Anthony D. Knerr Trustee 10 Years Founder/Managing Director - 101 None 2005 Market Street Anthony Knerr & Associates Philadelphia, PA (Strategic Consulting) 19103 (1990 - Present) December 7, 1938
21
Principal Number of Other Name, Position(s) Occupation(s) Portfolios in Fund Directorships Address Held with Length of Time During Complex Overseen Held by and Birthdate Fund(s) Served Past 5 Years by Trustee Trustee - ----------------------------------------------------------------------------------------------------------------------------------- INDEPENDENT TRUSTEES (CONTINUED) Ann R. Leven Trustee 14 Years Treasurer/Chief Fiscal Officer - 101 Director - Andy 2005 Market Street National Gallery of Art Warhol Foundation Philadelphia, PA (1994 - 1999) 19103 Director - Systemax Inc. November 1, 1940 Thomas F. Madison Trustee 9 Years President/Chief 101 Director - 2005 Market Street Executive Officer - CenterPoint Energy Philadelphia, PA MLM Partners, Inc. 19103 (Small Business Investing Director - Digital and Consulting) River Inc. (January 1993 - Present) February 25, 1936 Director - Rimage Corporation Director - Valmont Industries, Inc. Janet L. Yeomans Trustee 4 Years Vice President/Mergers & 101 None 2005 Market Street Acquisitions - 3M Corporation Philadelphia, PA (January 2003 - Present) 19103 Ms. Yeomans has held July 31, 1948 various management positions at 3M Corporation since 1983. - ----------------------------------------------------------------------------------------------------------------------------------- OFFICERS Joseph H. Hastings Executive Executive Mr. Hastings has served in 101 None 2005 Market Street Vice President Vice President various executive capacities Philadelphia, PA and and at different times at 19103 Chief Financial Chief Financial Delaware Investments. Officer Officer since December 19, 1949 August 21, 2003 Richelle S. Maestro Senior Vice President, 4 Years Ms. Maestro has served in 101 None 2005 Market Street Chief Legal Officer various executive capacities Philadelphia, PA and Secretary at different times at 19103 Delaware Investments. November 26, 1957 Michael P. Bishof Senior Vice President 7 Years Mr. Bishof has served in 101 None 2005 Market Street and Treasurer various executive capacities Philadelphia, PA at different times at 19103 Delaware Investments. August 18, 1962
(1) Delaware Investments is the marketing name for Delaware Management Holdings, Inc. and its subsidiaries, including the Registrant's investment advisor, principal underwriter and its transfer agent. (2) Mr. Driscoll is considered to be an "Interested Trustee" because he is an executive officer of the Fund's manager and distributor. (3) Mr. Durham served as a Director Emeritus from 1995 through 1998. (4) Mr. Driscoll and Mr. Fry are not Trustees of the portfolios of Voyageur Insured Funds, Voyageur Intermediate Tax Free Funds, Voyageur Investment Trust, Voyageur Mutual Funds, Voyageur Mutual Funds II, Voyageur Mutual Funds III and Voyageur Tax Free Funds. The Statement of Additional Information for the Fund(s) includes additional information about the Trustees and Officers and is available, without charge, upon request by calling 800 523-1918. 22 Delaware Investments(SM) -------------------------------------- VALUE-EQUITY A member of Lincoln Financial Group(R) Annual Report 2003 - -------------------------------------------------------------------------------- DELAWARE DIVIDEND INCOME FUND [Logo] POWERED BY RESEARCH.(SM) Table OF CONTENTS - ----------------------------------------------------------------- PORTFOLIO MANAGEMENT REVIEW 1 - ----------------------------------------------------------------- PERFORMANCE SUMMARY 3 - ----------------------------------------------------------------- FINANCIAL STATEMENTS: Statement of Net Assets 5 Statement of Assets and Liabilities 9 Statement of Operations 10 Statements of Changes in Net Assets 11 Financial Highlights 12 Notes to Financial Statements 16 - ----------------------------------------------------------------- REPORT OF INDEPENDENT AUDITORS 19 - ----------------------------------------------------------------- BOARD OF TRUSTEES/OFFICERS 20 - ----------------------------------------------------------------- Funds are not FDIC insured and are not guaranteed. It is possible to lose the principal amount invested. Mutual fund advisory services provided by Delaware Management Company, a series of Delaware Management Business Trust, which is a registered investment advisor. (C) 2004 Delaware Distributors, L.P. Portfolio Delaware Dividend Income Fund MANAGEMENT REVIEW December 10, 2003 Fund Managers Timothy L. Rabe Senior Portfolio Manager Nancy M. Crouse Senior Portfolio Manager Damon J. Andres Portfolio Manager Q: How did the Fund perform relative to its benchmark and peer group during the fiscal year? A: Delaware Dividend Income Fund (formerly Delaware Retirement Income Fund) gained +19.45% (Class A shares at net asset value with distributions reinvested) during the 12-month period ended November 30, 2003. The Fund's benchmark, the Standard & Poor's (S&P) 500 Index rose +15.08% during the same period. The Fund's peer group, the Lipper Income Funds Average, rose +12.22% during the fiscal year. Q: How would you describe your equity outlook at the beginning of the fiscal year? A: Our outlook for stocks at the onset of the 12-month period was generally optimistic. We believed the economic recovery would likely gather steam in 2003, to the benefit of corporate profitability. We also experienced an environment marked by attractive stock valuations, which favors our value-oriented style of investing. Over the course of the fiscal year, the Fund's exposure to large-cap stocks rose, which benefited performance. Q: Please explain your equity strategy during the fiscal year. A: Given our outlook for an economy that continues to strengthen, we favored such market sectors as financials. We experienced a sound return from JP Morgan Chase, a stock that we believed demonstrated a solid balance sheet and dividend yield. We also tended toward economically-sensitive companies. Weyerhaeuser was a stock in this group that performed well. The producer of wood-related products generated an attractive income stream and was well positioned, in our opinion, to benefit from the economy's continued improvement. Q: Did any common stocks within the Fund underperform relative to your expectations? A: Some of our healthcare positions turned in sub-par performance that we believed did not reflect the quality of the portfolio's underlying companies. We credit investor uncertainty in part for this circumstance, partially created by proposed changes in Medicare legislation and concerns regarding product patent expirations. We believe the outlook for companies such as Pfizer and Wyeth remain bright, given their solid financial structures, attractive dividend yields, and the potential for earnings acceleration in 2004. Q: How does the passage of new tax legislation in May 2003 impact the Fund's common stock holdings moving forward? A: Beyond the relatively immediate effect of lowering the tax rate assessed against dividends for most taxpayers, we believe the legislation dovetails nicely into the trend among corporate leaders for greater managerial and fiscal discipline, as well as their attempt to re-orient how investors are rewarded. The 1990s saw many companies use earnings to buy back their stock in an attempt to increase price through reduced supply. Lately we have witnessed more companies turning to dividends -- either by starting a dividend or increasing an existing dividend -- as a chief means of returning profits to investors. With tax cuts benefiting most recipients of dividend income, we believe the case for improved dividend distributions moving forward becomes stronger yet. For your Fund, which allocates just over half of its assets to dividend-paying common stocks, these general trends can enhance the total return for companies which generate excess cash flow. Q: High-yield bonds performed well for the 12-month period. What were some causes for this asset class' performance turnaround? A: We believe a primary cause for the high-yield bond market rebound was the Federal Reserve's push to add liquidity to the economy. By lowering short-term interest rates, the Fed was attempting to provide incentive for greater bank lending, which in turn puts more money to work in the economy and tends to foster economic expansion. When the prospects for a stronger economy became apparent, investors directed their assets toward securities that particularly benefit from such an environment, including high-yield corporate bonds and high-yield bond mutual funds. High-yield bonds also benefited from generally improving operational conditions throughout the business community. As conditions improved within the asset class, issuing companies tended to extend their debt, and default rates declined from double-digit levels to roughly the five-to-six percent range. 1 Q: How did you manage the Fund's high-yield bond allocation during the fiscal year? A: We saw no reason to alter the manner in which we strategically managed the portfolio during the 12-month period. We sought to continue focusing on the lower-rated securities within this asset class, given the availability of attractive yields, as well as the general prospects for improving credit conditions and rising bond prices. We tended to hold a greater weighting in utility bonds, due in part to the presence of "fallen angels" -- high-grade bonds that were downgraded to high-yield status. Given Delaware's fundamental research capabilities, we believe we could identify attractive candidates for acquisition among such bonds given their high income production and potential for appreciation. Q: Please describe securities that impacted Fund performance during the 12-month period. A: Issues that provided positive performance for the Fund included Charter Communications. We believe Charter possesses adequate assets with which to cover its liabilities and general operations that continue to show signs of improvement. Upon reaching its target value, we sold all positions of Charter by fiscal year end. Calpine, an independent power producer, likewise has been on the mend, as evidenced by its recent introduction of $3 billion in debt. While our overall return was strong, we held some underperforming securities, too. One was DiGiorgio Foods, which declined in value after losing one of its larger customers. In our opinion, the company possesses adequate liquidity to stage a recovery. Our holdings in Foster Wheeler also underperformed. The company is in the midst of a restructuring with its bondholders. Foster Wheeler was no longer a holding of the Fund at fiscal year-end. Q: Could you describe how real estate investment trusts (REITs) impacted the Fund's performance? A: We maintained our conservative approach to the REIT market, focusing on securities with compelling valuations and stable cash flows. For our effort, we were well rewarded, with the portfolio's collection of REITs generating a return in excess of 30 percent for the 12-month period. Strategically, we sought cyclically-oriented securities, such as those in the retail sector. This move contributed positive return versus the NAREIT Equity REIT Index, as did the election to hold a lower position in apartment REITs. An area in which we lost a measure of performance included hotel REITs, although this sector enjoyed a strong third quarter of 2003. Our exposure to the office sector also held back performance due to declining occupancy rates early in the year. Q: Convertible securities represent the fourth major asset class of the Fund. How well did these hybrid securities perform during the 12-month period? A: As a percentage of net assets, convertible securities currently represent a smaller asset class within your Fund. However, we believe they play a beneficial role in adding diversification to the portfolio, as well as the ability to generate income and offer the potential for capital appreciation. Our approach to managing the portfolio's convertible securities did not change over the 12-month period -- with our research focused on companies selling at attractive valuations and featuring strong cash flows and balance sheets. Their fiscal year performance within the Fund was in line with the broad equity market, yet with less volatility and a greater income stream. 2 Delaware DIVIDEND INCOME FUND Fund Basics As of November 30, 2003 - -------------------------------------------------------------------------------- Fund Objective: The Fund seeks to provide high current income and an investment that has the potential for capital appreciation. - -------------------------------------------------------------------------------- Total Fund Net Assets: $16.17 million - -------------------------------------------------------------------------------- Number of Holdings: 169 - -------------------------------------------------------------------------------- Fund Start Date: December 2, 1996 - -------------------------------------------------------------------------------- Your Fund Managers: Damon J. Andres earned a bachelor's degree in business administration with an emphasis in finance and accounting from the University of Richmond. Prior to joining Delaware Investments in 1994, Mr. Andres performed investment-consulting services with Cambridge Associates, Inc. in Arlington, Virginia. Mr. Andres is a CFA charterholder. Nancy M. Crouse has a bachelor's degree from Lafayette College and an MBA from the University of Pittsburgh. She is the consumer growth and consumer staples team leader, a member of the portfolio review team and a co-manager of open and closed end mutual funds. Ms. Crouse began her career in finance at Philadelphia National Bank. Before joining Delaware Investments in 1993, she served as Vice President at CoreStates Investment Advisers, where she performed securities analysis and managed balanced portfolios. Ms. Crouse is a CFA charterholder and a member of the Philadelphia Society of Financial Analysts. Timothy L. Rabe is Senior Vice-President/Senior Portfolio Manager of Delaware's high-yield funds. Mr. Rabe received a bachelor's degree in finance from the University of Illinois. Prior to joining Delaware Investments in 2000, Mr. Rabe was a high-yield portfolio manager for Conseco Capital Management. Before that, he worked as a tax analyst for The Northern Trust Company. Mr. Rabe is a CFA charterholder. - -------------------------------------------------------------------------------- Nasdaq Symbols: Class A DDIAX Class B DDDBX Class C DDICX Fund Performance Average Annual Total Returns Through November 30, 2003 Lifetime Five Years One Year - -------------------------------------------------------------------------------- Class A (Est. 12/2/96) Excluding Sales Charge +10.40% +7.16% +19.45% Including Sales Charge +9.47% +5.90% +12.59% - -------------------------------------------------------------------------------- Class B (Est. 10/1/03) Excluding Sales Charge +2.51% Including Sales Charge -1.49% - -------------------------------------------------------------------------------- Class C (Est. 10/1/03) Excluding Sales Charge +2.51% Including Sales Charge +1.51% - -------------------------------------------------------------------------------- Returns reflect the reinvestment of all distributions and any applicable sales charges as noted below. Returns and share values will fluctuate so that shares, when redeemed, may be worth more or less than their original cost. Performance for Class B and C shares, excluding sales charges, assumes either that contingent deferred sales charges did not apply or the investment was not redeemed. Past performance is not a guarantee of future results. The Fund offers Class A, B, C, R, and Institutional Class shares. Class A shares are sold with a front-end sales charge of up to 5.75% and have an annual distribution and service fee of up to 0.30%. Class B shares are sold with a contingent deferred sales charge that declines from 4% to zero depending upon the period of time the shares are held. Class B shares will automatically convert to Class A shares on a quarterly basis approximately eight years after purchase. They are also subject to an annual distribution and service fee of 1%. Class C shares are sold with a contingent deferred sales charge of 1%, if redeemed during the first 12 months. They are also subject to an annual distribution and service fee of 1%. The cumulative total return for the lifetime period ended November 30, 2003 for Delaware Dividend Income Fund's Class R shares was +2.71%. Class R shares were first made available on October 1, 2003 and are available only for certain retirement plan products. They are sold without a sales charge and have an annual distribution and service fee of 0.60%. The average annual total returns for lifetime, five-year and one-year periods ended November 30, 2003 for Delaware Dividend Income Fund's Institutional Class shares were +10.42%, +7.21%, and +19.56%, respectively. Institutional Class shares were first made available on December 2, 1996 and are available without sales or asset-based distribution charges only to certain eligible institutional accounts. An expense limitation was in effect for all classes of Delaware Dividend Income Fund during the periods shown. Performance would have been lower had the expense limitation not been in effect. The performance table and graph on the following page do not reflect the deduction of taxes the shareholder would pay on Fund distributions or redemptions of Fund shares. Nasdaq Institutional Class symbol: DDIIX Nasdaq Class R symbol: DDDRX 3 Performance of a $10,000 Investment December 2, 1996 (Fund's inception) through November 30, 2003 Delaware Dividend Income Fund -- Class A Date Shares S&P 500 Index 12/2/1996 $ 9,425 12/31/1996 $10,000 11/30/1997 $13,034 $12,581 11/30/1998 $13,323 $15,892 11/30/1999 $13,742 $19,214 11/30/2000 $14,795 $18,403 11/30/2001 $15,368 $16,154 11/30/2002 $15,764 $13,632 11/30/2003 $18,830 $15,688 Chart assumes $10,000 invested on December 2, 1996 and includes the effect of a 5.75% front-end sales charge and the reinvestment of all distributions. Performance prior to October 1, 2003 does not reflect the impact of distribution and service (12b-1) fees and the higher management and transfer agency fees currently borne by holders of Class A shares. Performance for other Fund classes will vary due to differing charges and expenses. The chart also assumes $10,000 invested in the S&P 500 Index at that month's end, December 31, 1996. After December 31, 1996, returns plotted on the chart were as of the last day of each month shown. The S&P 500 Index is an unmanaged composite of mostly large-capitalization U.S. companies. An index is unmanaged and does not reflect the costs of operating a mutual fund, such as the costs of buying, selling, and holding securities. You cannot invest directly in an index. Past performance is not a guarantee of future results. 4 Statement Delaware Dividend Income Fund OF NET ASSETS November 30, 2003 Number of Market Shares Value (U.S.$) - -------------------------------------------------------------------------------- Common Stock - 52.52% - -------------------------------------------------------------------------------- Banking, Finance & Insurance - 9.67% Bank of America 2,818 $ 212,562 Friedman Billings Ramsey Group - Class A 12,825 273,814 JP Morgan Chase 8,000 282,880 KeyCorp 11,600 322,364 Mellon Financial 7,200 207,360 Morgan Stanley 4,800 265,344 ------------ 1,564,324 ------------ Chemicals - 4.29% Air Products & Chemicals 3,800 182,172 Dow Chemical 7,200 270,360 Rohm & Haas 6,000 240,900 ------------ 693,432 ------------ Computers & Technology - 1.28% Pitney Bowes 5,200 206,700 ------------ 206,700 ------------ Consumer Products - 2.63% Black & Decker 5,200 241,228 Kimberly-Clark 3,400 184,348 ------------ 425,576 ------------ Electronics & Electrical Equipment - 2.59% Emerson Electric 3,900 238,056 Raytheon 6,500 180,115 ------------ 418,171 ------------ Energy - 4.36% ChevronTexaco 2,100 157,710 Exxon-Mobil 6,300 227,871 Kerr-McGee 7,600 319,124 ------------ 704,705 ------------ Food, Beverage & Tobacco - 3.68% General Mills 6,500 292,565 PepsiCo 6,300 303,156 ------------ 595,721 ------------ Healthcare & Pharmaceuticals - 3.25% Pfizer 8,600 288,530 Wyeth 6,000 236,400 ------------ 524,930 ------------ Investment Company - 1.38% Gladstone Capital 10,400 222,872 ------------ 222,872 ------------ Paper & Forest Products - 1.34% Weyerhaeuser 3,800 216,600 ------------ 216,600 ------------ REITs - 14.28% Apartment Investment & Management 6,100 207,705 Camden Property Trust 2,900 121,916 CarrAmerica Realty 10,600 308,248 CBL & Associates Properties 4,500 253,125 Crescent Real Estate Equities 11,500 182,275 Equity Office Properties Trust 10,800 299,484 *+Fieldstone Investment Corporate 144A 20,000 329,999 *First Potomac Realty Trust 11,300 192,100 Lasalle Hotel Properties 11,600 210,888 Ramco-Gershenon Properties 7,800 203,190 ------------ 2,308,930 ------------ Number of Market Shares Value (U.S.$) - -------------------------------------------------------------------------------- Common Stock (continued) - -------------------------------------------------------------------------------- Telecommunications - 1.48% Verizon Communications 7,300 $ 239,221 ------------ 239,221 ------------ Utilities - 2.29% Duke Energy 7,100 128,084 FPL Group 3,800 241,490 ------------ 369,574 ------------ Total Common Stock (cost $8,263,858) 8,490,756 ------------ Principal Amount (U.S.$) - -------------------------------------------------------------------------------- Corporate Bonds - 15.76% - -------------------------------------------------------------------------------- Aerospace & Defense - 0.13% +Armor Holdings 144A 8.25% 8/15/13 $20,000 21,400 ------------ 21,400 ------------ Automobiles & Automotive Parts - 0.71% +Advanced Accessory Systems 144A 10.75% 6/15/11 24,000 26,040 Collins & Aikman 10.75% 12/31/11 10,000 9,050 General Motors 8.375% 7/15/33 21,000 22,943 +Metaldyne 144A 10.00% 11/1/13 25,000 24,125 +United Component 144A 9.375% 6/15/13 30,000 32,100 ------------ 114,258 ------------ Banking, Finance & Insurance - 0.55% +Crum & Forster 144A 10.375% 6/15/13 27,000 29,565 +Farmers Exchange Capital 144A 7.20% 7/15/48 34,000 29,769 Finova Group 7.50% 11/15/09 15,000 8,400 TIG Holdings 8.125% 4/15/05 20,000 20,425 ------------ 88,159 ------------ Building & Materials - 1.15% +Beazer Homes USA 144A 6.50% 11/15/13 25,000 25,000 +Lone Star Industries 144A 8.85% 6/15/05 26,000 27,268 Meritage 9.75% 6/1/11 25,000 27,906 Schuler Homes 10.50% 7/15/11 30,000 34,462 Standard-Pacific 9.25% 4/15/12 17,000 18,955 Technical Olympic USA 10.375% 7/1/12 20,000 22,300 WCI Communities 10.625% 2/15/11 27,000 30,375 ------------ 186,266 ------------ Business Services - 0.11% Brickman Group 11.75% 12/15/09 15,000 17,325 ------------ 17,325 ------------ Cable, Media & Publishing - 1.24% CSC Holdings 10.50% 5/15/16 25,000 27,750 Insight Midwest 10.50% 11/1/10 25,000 27,375 Lodgenet Entertainment 9.50% 6/15/13 30,000 32,774 Mediacom Broadband 11.00% 7/15/13 30,000 32,325 PanAmSat 8.50% 2/1/12 25,000 27,313 +Sheridan Acquisition 144A 10.25% 8/15/11 26,000 27,560 Vertis 10.875% 6/15/09 25,000 25,750 ------------ 200,847 ------------ Chemicals - 0.56% Huntsman International 9.875% 3/1/09 25,000 26,937 +++Johnsondiversey 144A 10.67% 5/15/13 28,000 21,350 Lyondell Chemical 9.625% 5/1/07 16,000 16,560 +Nalco 144A 7.75% 11/15/11 25,000 26,188 ------------ 91,035 ------------ 5 Statement Delaware Dividend Income Fund OF NET ASSETS (CONTINUED) Principal Market Amount (U.S.$) Value (U.S.$) - -------------------------------------------------------------------------------- Corporate Bonds (continued) - -------------------------------------------------------------------------------- Computers & Technology - 0.82% Amkor Technologies 7.75% 5/15/13 $15,000 $ 16,125 Cooperative Computing 10.50% 6/15/11 16,000 17,440 Lone Star Technologies 9.00% 6/1/11 10,000 9,750 Northern Telecom Capital 7.875% 6/15/26 48,000 47,280 +Stratus Technologies 144A 10.375% 12/1/08 40,000 41,200 ------------ 131,795 ------------ Consumer Products - 0.74% American Greetings 11.75% 7/15/08 22,000 25,630 +Hines Nurseries 144A 10.25% 10/1/11 30,000 32,625 Jafra Cosmetics 10.75% 5/15/11 30,000 32,250 Salton 10.75% 12/15/05 28,000 28,840 ------------ 119,345 ------------ Consumer Services - 0.33% Alderwoods Group 12.25% 1/2/09 20,000 22,500 Corrections Corp of America 7.50% 5/1/11 4,000 4,210 +Corrections Corp of America 144A 7.50% 5/1/11 25,000 26,313 ------------ 53,023 ------------ Energy - 1.84% Bluewater Finance 10.25% 2/15/12 28,000 28,630 Citgo Petroleum 11.375% 2/1/11 24,000 27,840 +Dynegy Holdings 144A 10.125% 7/15/13 28,000 31,010 El Paso Natural Gas 7.625% 8/1/10 26,000 26,260 Hanover Equipment Trust 8.50% 9/1/08 29,000 29,725 +Hilcorp Energy/Finance 144A 10.50% 9/1/10 35,000 38,324 +Massey Energy 144A 6.625% 11/15/10 20,000 20,300 Southern Natural Gas 8.875% 3/15/10 13,000 14,398 Tennessee Gas Pipeline 8.375% 6/15/32 29,000 30,378 Transcontinental Gas Pipe Line 6.25% 1/15/08 18,000 18,675 8.875% 7/15/12 12,000 14,190 Williams 8.125% 3/15/12 17,000 18,445 ------------ 298,175 ------------ Environmental Services - 0.39% Casella Waste Systems 9.75% 2/1/13 30,000 33,750 IESI 10.25% 6/15/12 26,000 28,340 ------------ 62,090 ------------ Food, Beverage & Tobacco - 1.17% B&G Foods 9.625% 8/1/07 19,000 19,665 +Commonwealth Brands 144A 10.625% 9/1/08 31,000 33,634 DiGiorgio 10.00% 6/15/07 13,000 12,318 +Le-Natures 144A 9.00% 6/15/13 10,000 10,400 +National Beef Packing 144A 10.50% 8/1/11 23,000 25,300 +O'Charleys 144A 9.00% 11/1/13 25,000 25,188 +Pinnacle Foods 144A 8.25% 12/1/13 35,000 36,049 +Seminis 144A 10.25% 10/1/13 25,000 26,656 ------------ 189,210 ------------ Healthcare & Pharmaceuticals - 0.32% Alliance Imaging 10.375% 4/15/11 20,000 20,850 Team Health 12.00% 3/15/09 29,000 31,538 ------------ 52,388 ------------ Home Builders - 0.04% DR Horton 9.75% 9/15/10 5,000 5,913 ------------ 5,913 ------------ Principal Market Amount (U.S.$) Value (U.S.$) - -------------------------------------------------------------------------------- Corporate Bonds (continued) - -------------------------------------------------------------------------------- Leisure, Lodging & Entertainment - 0.93% +Gaylord Entertainment 144A 8.00% 11/15/13 $20,000 $ 20,900 +Hard Rock Hotel 144A 8.875% 6/1/13 15,000 15,900 Herbst Gaming 10.75% 9/1/08 16,000 18,000 +Host Marriott 144A 7.125% 11/1/13 20,000 19,900 +Imax 144A 9.625% 12/1/10 15,000 15,600 +Poster Financial Group 144A 8.75% 12/1/11 25,000 25,719 Royal Caribbean 6.875% 12/1/13 10,000 10,025 7.50% 10/15/27 25,000 23,969 ------------ 150,013 ------------ Metals & Mining - 0.22% AK Steel 7.75% 6/15/12 21,000 14,280 United States Steel 10.75% 8/1/08 19,000 21,233 ------------ 35,513 ------------ Packaging & Containers - 0.70% AEP Industries 9.875% 11/15/07 25,000 25,000 Portola Packaging 10.75% 10/1/05 24,000 23,880 Radnor Holdings 11.00% 3/15/10 26,000 23,855 +Silgan Holdings 144A 6.75% 11/15/13 15,000 15,075 +Tekni-Plex 144A 8.75% 11/15/13 25,000 25,688 ------------ 113,498 ------------ Paper & Forest Products - 0.53% Fort James 7.75% 11/15/23 46,000 45,655 +Millar Western Forest Products 144A 7.75% 11/15/13 30,000 30,638 Tembec Industries 8.625% 6/30/09 10,000 9,975 ------------ 86,268 ------------ REITs - 0.12% Tanger Properties 9.125% 2/15/08 18,000 19,755 ------------ 19,755 ------------ Retail - 0.38% Office Depot 10.00% 7/15/08 17,000 20,400 Petco Animal Supplies 10.75% 11/1/11 22,000 26,070 Remington Arms 10.50% 2/1/11 14,000 14,630 ------------ 61,100 ------------ Telecommunications - 0.52% +Alaska Communications Systems Holdings 144A 9.875% 8/15/11 30,000 31,650 +Centennial Cellular 144A 10.125% 6/15/13 25,000 26,500 +Cincinnati Bell 144A 8.375% 1/15/14 10,000 10,525 +Eircom Funding 144A 8.25% 8/15/13 9,000 9,810 +Level 3 Financing 144A 10.75% 10/15/11 5,000 5,250 ------------ 83,735 ------------ Textiles, Apparel & Furniture - 0.06% +Warnaco 144A 8.875% 6/15/13 10,000 10,200 ------------ 10,200 ------------ Transportation & Shipping - 0.72% Hornbeck Offshore Services 10.625% 8/1/08 19,000 20,948 Kansas City Southern Railway 9.50% 10/1/08 25,000 28,156 +OMI 144A 7.625% 12/1/13 15,000 15,150 Overseas Shipholding Group 8.25% 3/15/13 31,000 33,208 +Seabulk International 144A 9.50% 8/15/13 19,000 19,903 ------------ 117,365 ------------ 6 Statement Delaware Dividend Income Fund OF NET ASSETS (CONTINUED) Principal Market Amount (U.S.$) Value (U.S.$) - -------------------------------------------------------------------------------- Corporate Bonds (continued) - -------------------------------------------------------------------------------- Utilities - 1.48% Avista 9.75% 6/1/08 $18,000 $ 21,150 +Calpine 144A 8.75% 7/15/13 30,000 27,825 Cogentrix Energy 8.75% 10/15/08 20,000 20,275 Elwood Energy 8.159% 7/5/26 9,454 9,608 Homer City Funding 8.137% 10/1/19 23,000 24,351 Illinois Power 7.50% 6/15/09 30,000 32,699 Midland Funding II 11.75% 7/23/05 16,496 17,898 Midwest Generation 8.30% 7/2/09 25,000 25,500 +MSW Energy Holdings 144A 7.375% 9/1/10 10,000 10,350 PSEG Energy Holdings 7.75% 4/16/07 29,000 30,051 +Reliant Resources 144A 9.50% 7/15/13 20,000 20,300 ------------ 240,007 ------------ Total Corporate Bonds (cost $2,494,326) 2,548,683 ------------ Number of Shares - -------------------------------------------------------------------------------- Preferred Stock - 4.50% - -------------------------------------------------------------------------------- Energy - 1.28% Chesapeake Energy 5.00% 2,000 206,500 ------------ 206,500 ------------ REITs - 2.36% Equity Inns Series B 8.75% 7,300 194,545 LaSalle Hotel Properties 10.25% 3,300 91,575 Ramco-Gershenson Properties 9.50% 3,500 96,338 ------------ 382,458 ------------ Utilities - 0.86% Public Service Enterprise Group 10.25% 2,400 139,200 ------------ 139,200 ------------ Total Preferred Stock (cost $688,685) 728,158 ------------ Principal Amount (U.S.$) - -------------------------------------------------------------------------------- Convertible Bonds - 4.38% - -------------------------------------------------------------------------------- Banking, Finance & Insurance - 0.72% Meristar Hospitality 9.50% 4/1/10 $100,000 115,875 ------------ 115,875 ------------ Cable, Media & Publishing - 1.27% Quebecor World USA 6.00% 10/1/07 200,000 205,500 ------------ 205,500 ------------ Computers & Technology - 1.34% +Eastman Kodak 144A 3.375% 10/15/33 200,000 217,000 ------------ 217,000 ------------ Leisure, Lodging & Entertainment - 1.05% +Regal Entertainment 144A 3.75% 5/15/08 150,000 169,125 ------------ 169,125 ------------ Total Convertible Bonds (cost $680,000) 707,500 ------------ Number of Market Shares Value (U.S.$) - -------------------------------------------------------------------------------- Convertible Preferred Stock - 2.24% - -------------------------------------------------------------------------------- Banking, Finance & Insurance - 0.85% Chubb 7.00% 5,000 $ 137,500 ------------ 137,500 ------------ Food, Beverage & Tobacco - 1.24% Constellation Brands 5.75% 6,200 199,949 ------------ 199,949 ------------ Telecommunications - 0.00% **Intermedia Communications 13.50% 1 31 ------------ 31 ------------ Transportation - 0.15% Union Pacific Capital Trust 6.25% 133 6,766 +Union Pacific Capital Trust TIDES 144A 6.25% 359 18,265 ------------ 25,031 ------------ Total Convertible Preferred Stock (cost $324,687) 362,511 ------------ Principal Amount (U.S.$) - -------------------------------------------------------------------------------- Foreign Bonds - 0.95% - -------------------------------------------------------------------------------- British Virgin Islands - 0.07% Chippac International 12.75% 8/1/09 $10,000 11,150 ------------ 11,150 ------------ Canada - 0.46% Ainsworth Lumber 12.50% 7/15/07 24,000 27,960 +Hollinger 144A 11.875% 3/1/11 15,000 16,500 Pacifica Papers 10.00% 3/15/09 24,000 25,500 Rogers Cablesystems 10.00% 3/15/05 5,000 5,450 ------------ 75,410 ------------ France - 0.10% +Rhodia 144A 8.875% 6/1/11 19,000 16,910 ------------ 16,910 ------------ Ireland - 0.17% Smurfit Capital 7.50% 11/20/25 28,000 26,880 ------------ 26,880 ------------ Sweden - 0.15% Stena AB 9.625% 12/1/12 21,000 23,520 ------------ 23,520 ------------ Total Foreign Bonds (cost $152,292) 153,870 ------------ Number of Shares - -------------------------------------------------------------------------------- Warrant - 0.00% - -------------------------------------------------------------------------------- *+Solutia 144A 12 222 ------------ Total Warrant (cost $1,021) 222 ------------ Principal Amount (U.S.$) - -------------------------------------------------------------------------------- Repurchase Agreements - 16.72% - -------------------------------------------------------------------------------- With BNP Paribas 1.01% 12/1/03 (dated 11/28/03, collateralized by $1,052,800 U.S. Treasury Notes 6.75% due 5/15/05, market value $1,133,710) $1,111,100 1,111,100 7 Statement Delaware Dividend Income Fund OF NET ASSETS (CONTINUED) Principal Market Amount (U.S.$) Value (U.S.$) - -------------------------------------------------------------------------------- Repurchase Agreements (continued) - -------------------------------------------------------------------------------- With J. P. Morgan Securities 0.98% 12/1/03 (dated 11/28/03, collateralized by $483,200 U.S. Treasury Notes 2.25% due 7/31/04, market value $490,497) $ 480,800 $ 480,800 With UBS Warburg 1.01% 12/1/03 (dated 11/28/03, collateralized by $347,200 U.S. Treasury Notes 2.00% due 11/30/04, market value $352,716, $12,200 U.S. Treasury Notes 5.50% due 2/15/08, market value $13,555 and $694,400 U.S. Treasury Notes 5.625% due 5/15/08, market value $767,450) 1,111,100 1,111,100 ----------- Total Repurchase Agreements (cost $2,703,000) 2,703,000 ----------- Total Market Value of Securities - 97.07% (cost $15,307,869) 15,694,700 Receivables and Other Assets Net of Liabilities - 2.93% 473,039 ----------- Net Assets Applicable to 1,583,669 Shares Outstanding - 100.00% $16,167,739 =========== Net Asset Value - Delaware Dividend Income Fund Class A ($5,820,631 / 570,043 Shares) $10.21 ------ Net Asset Value - Delaware Dividend Income Fund Class B ($2,124,529 / 208,218 Shares) $10.20 ------ Net Asset Value - Delaware Dividend Income Fund Class C ($4,340,966 / 425,478 Shares) $10.20 ------ Net Asset Value - Delaware Dividend Income Fund Class R ($3,042 / 297.7 Shares) $10.22 ------ Net Asset Value - Delaware Dividend Income Fund Institutional Class ($3,878,571 / 379,632 Shares) $10.22 ------ - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Components of Net Assets at November 30, 2003: Shares of beneficial interest (unlimited authorization - no par) $15,511,965 Undistributed net investment income 191,505 Accumulated net realized gain on investments 77,438 Net unrealized appreciation of investments 386,831 ----------- Total net assets $16,167,739 =========== *Non-income producing security for the year ended November 30, 2003. **Non-income producing security. Security is currently in default. +Security exempt from registration under Rule 144A of the Securities Act of 1933. See Note 7 in "Notes to Financial Statements." ++Step coupon bond. Summary of Abbreviations: REITs - Real Estate Investment Trusts TIDES - Term Income Deferred Equity Securities Net Asset Value and Offering Price per Share - Delaware Dividend Income Fund Net asset value Class A (A) $10.21 Sales charge (5.75% of offering price, or 6.07% of amount invested per share) (B) 0.62 ------ Offering price $10.83 ====== (A) Net asset value per share, as illustrated, is the estimated amount which would be paid upon redemption or repurchase of shares. (B) See the current prospectus for purchases of $50,000 or more. See accompanying notes 8 Statement Delaware Dividend Income Fund OF ASSETS AND LIABILITIES November 30, 2003 Assets: Investments at market (cost $15,307,869) $15,694,700 Cash 30,716 Subscriptions receivable 1,565,380 Receivables for securities sold 57,573 Dividends receivable 23,639 Interest receivable 68,554 Prepaid expenses 46,567 Due from DMC 25,556 ----------- Total assets 17,512,685 ----------- Liabilities: Payables for securities purchased 1,322,471 Liquidations payable 200 Accrued expenses 22,275 ----------- Total liabilities 1,344,946 ----------- Total Net Assets $16,167,739 =========== See accompanying notes 9 Statement Delaware Dividend Income Fund OF OPERATIONS Year Ended November 30, 2003
Investment Income: Dividends $112,549 Interest 118,770 $231,319 -------- -------- Expenses: Management fees 27,247 Distribution expense-- Class A 831 Distribution expense-- Class B 1,146 Distribution expense-- Class C 2,165 Distribution expense-- Class R 1 Reports and statements to shareholders 16,335 Registration fees 15,908 Custodian fees 4,714 Trustees' fees 2,102 Dividend disbursing and transfer agent fees and expenses 1,896 Professional fees 1,712 Accounting and administration expenses 1,822 Other 2,387 78,266 -------- Less expenses absorbed or waived (42,494) Less waiver of distribution expenses-- Class A (146) Less expenses paid indirectly (156) -------- Total expenses 35,470 -------- Net Investment Income 195,849 -------- Net Realized and Unrealized Gain on investments: Net realized gain on investments 115,690 Net change in unrealized appreciation/depreciation of investments 433,193 -------- Net Realized and Unrealized Gain on Investments 548,883 -------- Net Increase in Net Assets Resulting from Operations $744,732 ========
See accompanying notes 10 Statements Delaware Dividend Income Fund OF CHANGES IN NET ASSETS
Year Ended 11/30/03 11/30/02 Increase (Decrease) in Net Assets from Operations: Net investment income $ 195,849 $ 154,220 Net realized gain on investments 115,690 80,901 Net change in unrealized appreciation/depreciation of investments 433,193 (147,989) ----------- ---------- Net increase in net assets resulting from operations 744,732 87,132 ----------- ---------- Dividends and Distributions to Shareholders from: Net investment income: Class A (83) (1) Institutional Class (172,891) (153,263) ----------- ---------- (172,974) (153,264) ----------- ---------- Capital Share Transactions: Proceeds from shares sold: Class A 5,863,682 1,218 Class B 2,117,277 -- Class C 4,302,013 -- Class R 3,010 -- Institutional Class 15,207 3,250,000 Net asset value of shares issued upon reinvestment of dividends and distributions: Class A 83 1 Institutional Class 172,891 153,263 ----------- ---------- 12,474,163 3,404,482 ----------- ---------- Cost of shares repurchased: Class A (98,673) -- Class B (12,463) -- Class C (989) -- Institutional Class (15) (3,369,860) ----------- ---------- (112,140) (3,369,860) ----------- ---------- Increase in net assets derived from capital share transactions 12,362,023 34,622 ----------- ---------- Net Increase (Decrease) in Net Assets 12,933,781 (31,510) Net Assets: Beginning of year 3,233,958 3,265,468 ----------- ---------- End of year $16,167,739 $3,233,958 =========== ==========
See accompanying notes 11 Financial HIGHLIGHTS
Selected data for each share of the Fund outstanding throughout each period were as follows: - ------------------------------------------------------------------------------------------------------------------------------------ Delaware Dividend Income Fund Class A - ------------------------------------------------------------------------------------------------------------------------------------ Year Ended 11/30/03 11/30/02(1) 11/30/01 11/30/00 11/30/99 Net asset value, beginning of period $9.030 $9.230 $9.600 $9.430 $10.160 Income (loss) from investment operations: Net investment income(2) 0.450 0.429 0.405 0.403 0.431 Net realized and unrealized gain (loss) on investments 1.213 (0.196) (0.041) 0.285 (0.156) ------- ------ ------ ------ ------- Total from investment operations 1.663 0.233 0.364 0.688 0.275 ------- ------ ------ ------ ------- Less dividends and distributions from: Net investment income (0.483) (0.433) (0.400) (0.420) (0.620) Net realized gain on investments -- -- (0.334) (0.098) (0.385) ------- ------ ------ ------ ------- Total dividends and distributions (0.483) (0.433) (0.734) (0.518) (1.005) ------- ------ ------ ------ ------- Net asset value, end of period $10.210 $9.030 $9.230 $9.600 $9.430 ======= ====== ====== ====== ======= Total return(3) 19.45% 2.58% 3.87% 7.66% 3.14% Ratios and supplemental data: Net assets, end of period (000 omitted) $5,821 $1 -- $24 $22 Ratio of expenses to average net assets 0.79% 0.75% 0.75% 0.75% 0.75% Ratio of expenses to average net assets prior to expense limitation and expenses paid indirectly 2.05% 1.30% 1.05% 1.24% 1.17% Ratio of net investment income to average net assets 4.69% 4.71% 4.38% 4.22% 4.46% Ratio of net investment income to average net assets prior to expense limitation and expenses paid indirectly 3.43% 4.16% 4.08% 3.73% 4.03% Portfolio turnover 212% 188% 89% 41% 42%
(1) As required, effective December 1, 2001, the Fund adopted the provisions of the AICPA Audit and Accounting Guide for Investment Companies that require amortization of all premiums and discounts on debt securities. The effect of this change for the year ended November 30, 2002 was a decrease in net investment income per share of $0.048, an increase in net realized and unrealized gain (loss) per share of $0.048, and a decrease in the ratio of net investment income to average net assets of 0.53%. Per share data and ratios for periods prior to December 1, 2001 have not been restated to reflect this change in accounting. (2) The average shares outstanding method has been applied for per share information. (3) Total investment return is based on the change in net asset value of a share during the period and assumes reinvestment of dividends and distributions at net asset value and does not reflect the impact of a sales charge. Total investment return reflects waivers and payment of fees by the manager and distributor. Performance would have been lower had the expense limitation not been in effect. See accompanying notes 12 Financial HIGHLIGHTS (CONTINUED)
Selected data for each share of the Fund outstanding throughout the period were as follows: - ------------------------------------------------------------------------------------------------------------------------------------ Delaware Dividend Income Delaware Dividend Income Fund Class B Fund Class C - ------------------------------------------------------------------------------------------------------------------------------------ 10/1/03(1) 10/1/03(1) to to 11/30/03 11/30/03 Net asset value, beginning of period $9.950 $9.950 Income from investment operations: Net investment income(2) 0.051 0.051 Net realized and unrealized gain on investments 0.199 0.199 ------- ------- Total from investment operations 0.250 0.250 ------- ------- Net asset value, end of period $10.200 $10.200 ======= ======= Total return(3) 2.51% 2.51% Ratios and supplemental data: Net assets, end of period (000 omitted) $2,125 $4,341 Ratio of expenses to average net assets 1.75% 1.75% Ratio of expenses to average net assets prior to expense limitation and expenses paid indirectly 4.10% 4.10% Ratio of net investment income to average net assets 3.65% 3.65% Ratio of net investment income to average net assets prior to expense limitation and expenses paid indirectly 1.30% 1.30% Portfolio turnover 212% 212%
(1) Date of commencement of operations; ratios have been annualized and total return has not been annualized. (2) The average shares outstanding method has been applied for per share information. (3) Total investment return is based on the change in net asset value of a share during the period and assumes reinvestment of dividends and distributions at net asset value and does not reflect the impact of a sales charge. Total investment return reflects waivers and payment of fees by the manager. Performance would have been lower had the expense limitation not been in effect. See accompanying notes 13 Financial HIGHLIGHTS (CONTINUED)
Selected data for each share of the Fund outstanding throughout the period were as follows: - ------------------------------------------------------------------------------------------------------------------------------------ Delaware Dividend Income Fund Class R - ------------------------------------------------------------------------------------------------------------------------------------ 10/1/03(1) to 11/30/03 Net asset value, beginning of period $9.950 Income from investment operations: Net investment income(2) 0.056 Net realized and unrealized gain on investments 0.214 ------- Total from investment operations 0.270 ------- Net asset value, end of period $10.220 ======= Total return(3) 2.71% Ratios and supplemental data: Net assets, end of period (000 omitted) $3 Ratio of expenses to average net assets 1.35% Ratio of expenses to average net assets prior to expense limitation and expenses paid indirectly 3.70% Ratio of net investment income to average net assets 4.05% Ratio of net investment income to average net assets prior to expense limitation and expenses paid indirectly 1.70% Portfolio turnover 212%
(1) Date of commencement of operations; ratios have been annualized and total return has not been annualized. (2) The average shares outstanding method has been applied for per share information. (3) Total investment return is based on the change in net asset value of a share during the period and assumes reinvestment of dividends and distributions at net asset value. Total investment return reflects waivers and payment of fees by the manager. Performance would have been lower had the expense limitation not been in effect. See accompanying notes 14 Financial HIGHLIGHTS (CONTINUED)
Selected data for each share of the Fund outstanding throughout each period were as follows: - ------------------------------------------------------------------------------------------------------------------------------------ Delaware Dividend Income Fund Institutional Class - ------------------------------------------------------------------------------------------------------------------------------------ Year Ended 11/30/03 11/30/02(1) 11/30/01 11/30/00 11/30/99 Net asset value, beginning of period $9.030 $9.230 $9.600 $9.420 $10.150 Income (loss) from investment operations: Net investment income(2) 0.453 0.429 0.405 0.403 0.431 Net realized and unrealized gain (loss) on investments 1.220 (0.196) (0.041) 0.295 (0.156) ------- ------ ------ ------ ------- Total from investment operations 1.673 0.233 0.364 0.698 0.275 ------- ------ ------ ------ ------- Less dividends and distributions from: Net investment income (0.483) (0.433) (0.400) (0.420) (0.620) Net realized gain on investments -- -- (0.334) (0.098) (0.385) ------- ------ ------ ------ ------- Total dividends and distributions (0.483) (0.433) (0.734) (0.518) (1.005) ------- ------ ------ ------ ------- Net asset value, end of period $10.220 $9.030 $9.230 $9.600 $9.420 ======= ====== ====== ====== ====== Total return(3) 19.56% 2.58% 3.87% 7.78% 3.15% Ratios and supplemental data: Net assets, end of period (000 omitted) $3,879 $3,233 $3,265 $3,145 $2,924 Ratio of expenses to average net assets 0.75% 0.75% 0.75% 0.75% 0.75% Ratio of expenses to average net assets prior to expense limitation and expenses paid indirectly 1.75% 1.00% 0.75% 0.94% 0.87% Ratio of net investment income to average net assets 4.73% 4.71% 4.38% 4.22% 4.46% Ratio of net investment income to average net assets prior to expense limitation and expenses paid indirectly 3.73% 4.46% 4.38% 4.03% 4.33% Portfolio turnover 212% 188% 89% 41% 42%
(1) As required, effective December 1, 2001, the Fund adopted the provisions of the AICPA Audit and Accounting Guide for Investment Companies that require amortization of all premiums and discounts on debt securities. The effect of this change for the year ended November 30, 2002 was a decrease in net investment income per share of $0.048, an increase in net realized and unrealized gain (loss) per share of $0.048, and a decrease in the ratio of net investment income to average net assets of 0.53%. Per share data and ratios for periods prior to December 1, 2001 have not been restated to reflect this change in accounting. (2) The average shares outstanding method has been applied for per share information. (3) Total investment return is based on the change in net asset value of a share during the period and assumes reinvestment of dividends and distributions at net asset value. Total investment return reflects waivers and payment of fees by the manager, as applicable. Performance would have been lower had the expense limitation not been in effect. See accompanying notes 15 Notes Delaware Dividend Income Fund TO FINANCIAL STATEMENTS November 30, 2003 Delaware Group Equity Funds V (the "Trust") is organized as a Delaware statutory trust and offers three series: Delaware Dividend Income Fund (formerly Delaware Retirement Income Fund), Delaware Small Cap Contrarian Fund and Delaware Small Cap Value Fund. These financial statements and the related notes pertain to Delaware Dividend Income Fund (the "Fund"). The Trust is an open-end investment company. The Fund is considered diversified under the Investment Company Act of 1940, as amended, and offers Class A, Class B, Class C, Class R and Institutional Class shares. Class A shares are sold with a front-end sales charge of up to 5.75%. Class B shares are sold with a contingent deferred sales charge that declines from 4% to zero depending upon the period of time the shares were held. Class B shares will automatically convert to Class A shares on a quarterly basis approximately eight years after purchase. Class C shares are sold with a contingent deferred sales charge of 1%, if redeemed during the first 12 months. Class R and Institutional Class shares are not subject to a sales charge and are offered for sale exclusively to a limited group of investors. The investment objective of the Fund is to seek to provide high current income and an investment that has the potential for capital appreciation. 1. Significant Accounting Policies The following accounting policies are in accordance with accounting principles generally accepted in the United States and are consistently followed by the Fund. Security Valuation -- All equity securities are valued at the last quoted sales price as of the time of the regular close of the New York Stock Exchange (NYSE) on the valuation date. Securities traded on the Nasdaq Stock Market, Inc. (NASDAQ) are valued in accordance with the NASDAQ Official Closing Price, which may not be the best sales price. If on a particular day an equity security does not trade, then the mean between the bid and asked prices will be used. Long-term debt securities are valued by an independent pricing service and such prices are believed to reflect the fair value of such securities. Short-term debt securities having less than 60 days to maturity are valued at amortized cost, which approximates market value. Other securities and assets for which market quotations are not readily available are valued at fair value as determined in good faith under the direction of the Fund's Board of Trustees. In determining whether market quotations are readily available or fair valuation will be used, various factors will be taken into consideration, such as market closures, or with respect to foreign securities, aftermarket trading or significant events after local market trading (e.g., government actions or pronouncements, trading volume or volatility on markets, exchanges among dealers, or news events). Federal Income Taxes -- The Fund intends to continue to qualify for federal income tax purposes as a regulated investment company and make the requisite distributions to shareholders. Accordingly, no provision for federal income taxes has been made in the financial statements. Class Accounting -- Investment income, common expenses and realized and unrealized gain (loss) on investments are allocated to the various classes of the Fund on the basis of daily net assets of each class. Distribution expenses relating to a specific class are charged directly to that class. Repurchase Agreements -- The Fund may invest in a pooled cash account along with other members of the Delaware Investments Family of Funds. The aggregate daily balance of the pooled cash account is invested in repurchase agreements secured by obligations of the U.S. government. The respective collateral is held by the Fund's custodian bank until the maturity of the respective repurchase agreements. Each repurchase agreement is 102% collateralized. However, in the event of default or bankruptcy by the counterparty to the agreement, realization of the collateral may be subject to legal proceedings. Use of Estimates -- The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Other -- Expenses common to all funds within the Delaware Investments Family of Funds are allocated amongst the funds on the basis of average net assets. Security transactions are recorded on the date the securities are purchased or sold (trade date). Costs used in calculating realized gains and losses on the sale of investment securities are those of the specific securities sold. Dividend income is recorded on the ex-dividend date and interest income is recorded on the accrual basis. Discounts and premiums are amortized to interest income over the lives of the respective securities. Distributions received from investments in Real Estate Investment Trusts are recorded as dividend income on the ex-dividend date, subject to reclassification upon notice of the character of such distribution by the issuer. The Fund declares and pays dividends from net investment income and distributions from net realized gain on investments, if any, annually. Certain expenses of the Fund are paid through commission arrangements with brokers. The amount of these expenses was approximately $100 for the year ended November 30, 2003. In addition, the Fund receives earnings credits from its custodian when positive cash balances are maintained, which are used to offset custody fees. The earnings credits for the year ended November 30, 2003 were approximately $56. The expenses paid under the above arrangements are included in their respective expense captions on the Statement of Operations with the corresponding expense offset shown as "expenses paid indirectly." 2. Investment Management, Administration Agreements and Other Transactions with Affiliates In accordance with the terms of its investment management agreement, the Fund pays Delaware Management Company (DMC), a series of Delaware Management Business Trust and the investment manager, an annual fee which is calculated daily at the rate of 0.65% on the first $500 million of average daily net assets of the Fund, 0.60% on the next $500 million, 0.55% on the next $1.5 billion, and 0.50% on average daily net assets in excess of $2.5 billion. DMC has contractually agreed to waive that portion, if any, of its management fee and reimburse the Fund to the extent necessary to ensure that annual operating expenses, exclusive of taxes, interest, brokerage commissions, distribution fees, certain insurance costs and extraordinary expenses, do not exceed 0.75% of average daily net assets of the Fund through January 31, 2005. Delaware Service Company, Inc. (DSC), an affiliate of DMC, provides accounting, administration, dividend disbursing and transfer agent services. The Fund pays DSC a monthly fee based on average net assets subject to certain minimums for accounting and administration services. The Fund pays DSC a monthly fee based on the number of shareholder accounts for dividend disbursing and transfer agent services. Prior to June 1, 2003, the monthly fee for dividend disbursing and transfer agent services was based on the number of shareholder accounts and shareholder transactions. Pursuant to a distribution agreement and distribution plan, the Fund pays Delaware Distributors, L.P. (DDLP), the distributor and an affiliate of DMC, an annual distribution and service fee not to exceed 0.30% of the average daily net assets of the Class A shares, 1.00% of the average daily net assets of the Class B and C shares and 0.60% of the average daily net assets 16 Notes Delaware Dividend Income Fund TO FINANCIAL STATEMENTS (CONTINUED) 2. Investment Management, Administration Agreements and Other Transactions with Affiliates (continued) of Class R shares. DDLP has contracted to waive distribution and service fees through January 31, 2005 in order to prevent distribution and service fees of Class A shares from exceeding 0.25% of average daily net assets. Prior to October 1, 2003, DDLP elected voluntarily to waive the distribution and service fees of Class A shares. Institutional Class shares pay no distribution and service expenses. At November 30, 2003, the Fund had receivables from or liabilities payable to affiliates as follows: Dividend disbursing, transfer agent fees, accounting and other expenses payable to DSC $ (3,541) Other expenses payable to DMC and affiliates* (7,056) Receivable from DMC under expense limitation agreement 25,556 * DMC, as part of its administration services, pays Fund operating expenses on behalf of the Fund and is reimbursed on a periodic basis. Such expenses include items such as printing of shareholder reports, professional fees, custodian fees and trustee fees. For the year ended November 30, 2003, DDLP earned $29,670 for commissions on sales of the Fund's Class A shares. Certain officers of DMC, DSC and DDLP are officers and/or trustees of the Trust. These officers and trustees are paid no compensation by the Fund. 3. Investments For the year ended November 30, 2003, the Fund made purchases of $18,254,966 and sales of $8,924,731 of investment securities other than short-term investments. At November 30, 2003, the cost of investments for federal income tax purposes was $15,309,727. At November 30, 2003, the net unrealized appreciation was $384,973, of which $494,244 related to unrealized appreciation of investments and $109,271 related to unrealized depreciation of investments. 4. Dividend and Distribution Information Income and long-term capital gain distributions are determined in accordance with federal income tax regulations, which may differ from accounting principles generally accepted in the United States. The tax character of dividends and distributions paid during the years ended November 30, 2003 and 2002 was as follows: 2003 2002 ---- ---- Ordinary income $172,974 $153,264 As of November 30, 2003, the components of net assets on a tax basis were as follows: Shares of beneficial interest $15,511,965 Undistributed ordinary income 270,801 Unrealized appreciation of investments 384,973 ----------- Net assets $16,167,739 =========== 5. Capital Shares Transactions in capital shares were as follows: Year Ended 11/30/03 11/30/02 Shares sold: Class A 579,601 142 Class B 209,452 -- Class C 425,577 -- Class R 298 -- Institutional Class 1,484 357,536 Shares issued upon reinvestment of dividends and distributions: Class A 10 -- Institutional Class 20,198 17,182 --------- -------- 1,236,620 374,860 --------- -------- Shares repurchased: Class A (9,712) -- Class B (1,234) -- Class C (99) -- Institutional Class (2) (370,722) --------- -------- (11,047) (370,722) --------- -------- Net increase 1,225,573 4,138 ========= ======== 6. Line of Credit The Fund, along with certain other funds in the Delaware Investments Family of Funds (the "Participants"), participates in a $177,300,000 revolving line of credit facility to be used for temporary or emergency purposes as an additional source of liquidity to fund redemptions of investor shares. The Participants are charged an annual commitment fee, which is allocated across the Participants on the basis of each fund's allocation of the entire facility. The Participants may borrow up to a maximum of one third of their net assets under the agreement. The Fund had no amounts outstanding at November 30, 2003, or at any time during the year. 7. Credit and Market Risk The Fund may invest up to 15% of its total assets in illiquid securities, which may include securities with contractual restrictions on resale, securities exempt from registration under Rule 144A of the Securities Act of 1933, as amended, and other securities which may not be readily marketable. The relative illiquidity of these securities may impair the Fund from disposing of them in a timely manner and at a fair price when it is necessary or desirable to do so. The Fund invests in high-yield fixed-income securities, which carry ratings of BBB or lower by S&P and/or Baa or lower by Moody's. Investments in these higher yielding securities are generally accompanied by a greater degree of credit risk than higher rated securities. Additionally, lower rated securities may be more susceptible to adverse economic and competitive industry conditions than investment grade securities. The Fund invests in real estate investment trusts (REITs) and is subject to some of the risks associated with that industry. If the Fund holds real estate directly as a result of defaults or receives rental income directly from real estate holdings, its tax status as a regulated investment company may be jeopardized. There were no direct holdings during the year ended November 30, 2003. The Fund's REIT holdings are also affected by interest rate changes, particularly if the REITs it holds use floating rate debt to finance their ongoing operations. 17 Notes Delaware Dividend Income Fund TO FINANCIAL STATEMENTS (CONTINUED) 8. Tax Information (Unaudited) The information set forth below is for the Fund's fiscal year as required by federal laws. Shareholders, however, must report distributions on a calendar year basis for income tax purposes, which may include distributions for portions of two fiscal years of a fund. Accordingly, the information needed by shareholders for income tax purposes will be sent to them in January of each year. Please consult your tax advisor for proper treatment of this information. For the fiscal year ended November 30, 2003, the Fund designates distributions paid during the year as follows: (A) (B) Long-Term Ordinary Capital Gains Income Total (C) Distributions Distributions Distributions Qualifying (Tax Basis) (Tax Basis) (Tax Basis) Dividends(1) ------------- ------------ -------------- ------------- -- 100% 100% 43% (A) and (B) are based on a percentage of the Fund's total distributions. (C) is based on a percentage of ordinary income of the Fund. (1) Qualifying dividends represent dividends which qualify for the corporate dividends received deduction. 18 Report OF INDEPENDENT AUDITORS To the Shareholders and Board of Trustees Delaware Group Equity Funds V -- Delaware Dividend Income Fund We have audited the accompanying statement of net assets and the statement of assets and liabilities of Delaware Dividend Income Fund (the "Fund") as of November 30, 2003, and the related statement of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended, and the financial highlights for each of the periods indicated therein. These financial statements and financial highlights are the responsibility of the Fund's management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements and financial highlights. Our procedures included confirmation of securities owned as of November 30, 2003, by correspondence with the custodian and brokers or by other appropriate auditing procedures where replies from brokers were not received. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of Delaware Dividend Income Fund at November 30, 2003, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended, and its financial highlights for each of the periods indicated therein, in conformity with accounting principles generally accepted in the United States. Ernst + Young LLP Philadelphia, Pennsylvania January 2, 2004 19 Delaware Investments Family of Funds BOARD OF TRUSTEES/DIRECTORS AND OFFICERS ADDENDUM A mutual fund is governed by a Board of Trustees which has oversight responsibility for the management of a fund's business affairs. Trustees establish procedures and oversee and review the performance of the investment manager, the distributor and others that perform services for the fund. The independent fund trustees, in particular, are advocates for shareholder interests. The following is a list of the Trustees/Officers and certain background and related information.
Number of Other Principal Portfolios in Fund Directorships Name, Position(s) Occupation(s) Complex Overseen Held by Address Held with Length of Time During by Trustee/Director Trustee/Director and Birthdate Fund(s) Served Past 5 Years or Officer or Officer - ----------------------------------------------------------------------------------------------------------------------------------- INTERESTED TRUSTEES Jude T. Driscoll(2) Chairman and 3 Years - Since August 2000, 83 None 2005 Market Street Trustee(4) Executive Officer Mr. Driscoll has served in Philadelphia, PA various executive capacities 19103 Trustee since at different times at May 15, 2003 Delaware Investments(1) March 10, 1963 Senior Vice President and Director of Fixed-Income Process - Conseco Capital Management (June 1998 - August 2000) Managing Director - NationsBanc Capital Markets (February 1996 - June 1998) - ----------------------------------------------------------------------------------------------------------------------------------- INDEPENDENT TRUSTEES Walter P. Babich Trustee 15 Years Board Chairman - 101 None 2005 Market Street Citadel Construction Corporation Philadelphia, PA (1989 - Present) 19103 October 1, 1927 John H. Durham Trustee 24 Years(3) Private Investor 101 Trustee - Abington 2005 Market Street Memorial Hospital Philadelphia, PA 19103 August 7, 1937 President/Director - 22 WR Corporation John A. Fry Trustee(4) 2 Years President - 83 None 2005 Market Street Franklin & Marshall College Philadelphia, PA (June 2002 - Present) 19103 Executive Vice President - University of Pennsylvania May 28, 1960 (April 1995 - June 2002) Anthony D. Knerr Trustee 10 Years Founder/Managing Director - 101 None 2005 Market Street Anthony Knerr & Associates Philadelphia, PA (Strategic Consulting) 19103 (1990 - Present) December 7, 1938
20
Number of Other Principal Portfolios in Fund Directorships Name, Position(s) Occupation(s) Complex Overseen Held by Address Held with Length of Time During by Trustee/Director Trustee/Director and Birthdate Fund(s) Served Past 5 Years or Officer or Officer - ----------------------------------------------------------------------------------------------------------------------------------- INDEPENDENT TRUSTEES (CONTINUED) Ann R. Leven Trustee 14 Years Treasurer/Chief Fiscal Officer - 101 Director - Andy 2005 Market Street National Gallery of Art Warhol Foundation Philadelphia, PA (1994 - 1999) 19103 Director - Systemax Inc. November 1, 1940 Thomas F. Madison Trustee 9 Years President/Chief 101 Director - 2005 Market Street Executive Officer - CenterPoint Energy Philadelphia, PA MLM Partners, Inc. 19103 (Small Business Investing Director - Digital and Consulting) River Inc. (January 1993 - Present) February 25, 1936 Director - Rimage Corporation Director - Valmont Industries, Inc. Janet L. Yeomans Trustee 4 Years Vice President/Mergers & 101 None 2005 Market Street Acquisitions - 3M Corporation Philadelphia, PA (January 2003 - Present) 19103 Ms. Yeomans has held July 31, 1948 various management positions at 3M Corporation since 1983. - ----------------------------------------------------------------------------------------------------------------------------------- OFFICERS Joseph H. Hastings Executive Executive Mr. Hastings has served in 101 None 2005 Market Street Vice President Vice President various executive capacities Philadelphia, PA and and at different times at 19103 Chief Financial Chief Financial Delaware Investments. Officer Officer since December 19, 1949 August 21, 2003 Richelle S. Maestro Senior Vice President, Chief Legal Ms. Maestro has served in 101 None 2005 Market Street Chief Legal Officer Officer since various executive capacities Philadelphia, PA and Secretary March 17, 2003 at different times at 19103 Delaware Investments. November 26, 1957 Michael P. Bishof Senior Vice President 7 Years Mr. Bishof has served in 101 None 2005 Market Street and Treasurer various executive capacities Philadelphia, PA at different times at 19103 Delaware Investments. August 18, 1962
(1) Delaware Investments is the marketing name for Delaware Management Holdings, Inc. and its subsidiaries, including the Registrant's investment advisor, principal underwriter and its transfer agent. (2) Mr. Driscoll is considered to be an "Interested Trustee" because he is an executive officer of the Fund's manager and distributor. (3) Mr. Durham served as a Director Emeritus from 1995 through 1998. (4) Mr. Driscoll and Mr. Fry are not Trustees of the portfolios of Voyageur Insured Funds, Voyageur Intermediate Tax Free Funds, Voyageur Investment Trust, Voyageur Mutual Funds, Voyageur Mutual Funds II, Voyageur Mutual Funds III and Voyageur Tax Free Funds. The Statement of Additional Information for the Fund(s) includes additional information about the Trustees and Officers and is available, without charge, upon request by calling 800 523-1918. 21 Delaware Investments(SM) - -------------------------------------- A member of Lincoln Financial Group(R) This annual report is for the information of Delaware International Value Equity Fund, Delaware Emerging Markets Fund, and Delaware International Small Cap Value Fund shareholders, but it may be used with prospective investors when preceded or accompanied by a current prospectus for Delaware International Value Equity Fund, Delaware Emerging Markets Fund, and Delaware International Small Cap Value Fund and the Delaware Investments Performance Update for the most recently completed calendar quarter. The prospectus sets forth details about charges, expenses, investment objectives, and operating policies of the Fund. You should read the prospectus carefully before you invest. The figures in this report represent past results which are not a guarantee of future results. The return and principal value of an investment in the Fund will fluctuate so that shares, when redeemed, may be worth more or less than their original cost.
Board of Trustees Affiliated Officers Contact Information Jude T. Driscoll Joseph H. Hastings Investment Manager Chairman Executive Vice President and Delaware Management Company Delaware Investments Family of Funds Chief Financial Officer Philadelphia, PA Philadelphia, PA Delaware Investments Family of Funds Philadelphia, PA International Affiliate Walter P. Babich Delaware International Advisers Ltd. Board Chairman Richelle S. Maestro London, England Citadel Construction Corporation Senior Vice President, King of Prussia, PA Chief Legal Officer and Secretary National Distributor Delaware Investments Family of Funds Delaware Distributors, L.P. John H. Durham Philadelphia, PA Philadelphia, PA Private Investor Gwynedd Valley, PA Michael P. Bishof Shareholder Servicing, Dividend Senior Vice President and Treasurer Disbursing and Transfer Agent John A. Fry Delaware Investments Family of Funds Delaware Service Company, Inc. President Philadelphia, PA 2005 Market Street Franklin & Marshall College Philadelphia, PA 19103-7094 Lancaster, PA For Shareholders Anthony D. Knerr 800 523-1918 Managing Director Anthony Knerr & Associates For Securities Dealers and Financial New York, NY Institutions Representatives Only 800 362-7500 Ann R. Leven Former Treasurer/Chief Fiscal Officer Web site National Gallery of Art www.delawareinvestments.com Washington, DC Thomas F. Madison President and Chief Executive Officer MLM Partners, Inc. Minneapolis, MN Janet L. Yeomans Vice President/Mergers & Acquisitions 3M Corporation St. Paul, MN -------------------------------------------------------------------------------- A description of the policies and procedures that the Fund uses to determine how to vote proxies (if any) relating to portfolio securities is available without charge (i) upon request, by calling 800 523-1918; (ii) on the Fund's website at http://www.delawareinvestments.com; and (iii) on the Commission's website at http://www.sec.gov.; and beginning no later than August 31, 2004, information (if any) regarding how the Fund voted proxies relating to portfolio securities during the most recent 12-month period ended June 30 is available without charge (i) through the Fund's website at http://www.delawareinvestments.com; and (ii) on the Commission's website at http://www.sec.gov. --------------------------------------------------------------------------------
(8464) Printed in the USA AR-129 [11/03] IVES 1/04 J9518 EXP: 1/05 Item 2. Code of Ethics The registrant has adopted a code of ethics that applies to the registrant's principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions, regardless of whether these individuals are employed by the registrant or a third party. A copy of the registrant's Code of Business Ethics has been posted on Delaware Investments' internet website at www.delawareinvestments.com. Any amendments to the Code of Business Ethics, and information on any waiver from its provisions granted by the registrant, will also be posted on this website within five business days of such amendment or waiver and will remain on the website for at least 12 months. Item 3. Audit Committee Financial Expert The registrant's Board of Trustees/Directors has determined that each member of the registrant's Audit Committee is an audit committee financial expert, as defined below. For purposes of this item, an "audit committee financial expert" is a person who has the following attributes: a. An understanding of generally accepted accounting principles and financial statements; b. The ability to assess the general application of such principles in connection with the accounting for estimates, accruals, and reserves; c. Experience preparing, auditing, analyzing, or evaluating financial statements that present a breadth and level of complexity of accounting issues that are generally comparable to the breadth and complexity of issues that can reasonably be expected to be raised by the registrant's financial statements, or experience actively supervising one or more persons engaged in such activities; d. An understanding of internal controls and procedures for financial reporting; and e. An understanding of audit committee functions. An "audit committee financial expert" shall have acquired such attributes through: a. Education and experience as a principal financial officer, principal accounting officer, controller, public accountant, or auditor or experience in one or more positions that involve the performance of similar functions; b. Experience actively supervising a principal financial officer, principal accounting officer, controller, public accountant, auditor, or person performing similar functions; c. Experience overseeing or assessing the performance of companies or public accountants with respect to the preparation, auditing, or evaluation of financial statements; or d. Other relevant experience. The registrant's Board of Trustees/Directors has also determined that each member of the registrant's Audit Committee is independent. In order to be "independent" for purposes of this item, the Audit Committee member may not: (i) other than in his or her capacity as a member of the Board of Trustees/Directors or any committee thereof, accept directly or indirectly any consulting, advisory or other compensatory fee from the issuer; or (ii) be an "interested person" of the registrant as defined in Section 2(a)(19) of the Investment Company Act of 1940. The names of the audit committee financial experts on the registrant's Audit Committee are set forth below: Ann R. Leven Thomas F. Madison Janet L. Yeomans (1) Item 4. Principal Accountant Fees and Services Required only for fiscal years ending after December 15, 2003. Not applicable. Item 5. Audit Committee of Listed Registrants Not applicable. Item 6. [Reserved] Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End Management Investment Companies Not applicable. - ----------------------- (1) The instructions to Form N-CSR require disclosure on the relevant experience of persons who qualify as audit committee financial experts based on "other relevant experience." The Board of Trustees/Directors has determined that Ms. Yeomans qualifies as an audit committee financial expert by virtue of her education and experience as the Treasurer of a large global corporation. Item 8. [Reserved] Item 9. Controls and Procedures The registrant's principal executive officer and principal financial officer have evaluated the registrant's disclosure controls and procedures within 90 days of the filing of this report and have concluded that they are effective in providing reasonable assurance that the information required to be disclosed by the registrant in its reports or statements filed under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission. There were no significant changes in the registrant's internal control over financial reporting that occurred during the registrant's last fiscal half-year (the registrant's second fiscal half-year in the case of an annual report) that have materially affected, or are reasonably likely to materially affect, the registrant's internal control over financial reporting. Item 10. Exhibits (a) (1) Code of Ethics Not applicable. (2) Certifications of Principal Executive Officer and Principal Financial Officer pursuant to Rule 30a-2 under the Investment Company Act of 1940 are attached hereto as Exhibit 99.CERT. (b) Certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 are furnished herewith as Exhibit 99.906CERT. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf, by the undersigned, thereunto duly authorized. Name of Registrant: Delaware Group Equity Funds V Jude T. Driscoll - ------------------------------------- By: Jude T. Driscoll Title: Chairman Date: January 29, 2004 Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. Jude T. Driscoll - ------------------------------------- By: Jude T. Driscoll Title: Chairman Date: January 29, 2004 Joseph H. Hastings - ------------------------------------- By: Joseph H. Hastings Title: Chief Financial Officer Date: January 27, 2004 EX-99.CERT 3 ex99cert.txt EX-99.CERT EXHIBIT 99.CERT CERTIFICATION I, Jude T. Driscoll, certify that: 1. I have reviewed this report on Form N-CSR of Delaware Group Equity Funds V; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, changes in net assets, and cash flows (if the financial statements are required to include a statement of cash flows) of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in rule 30a-3(c) under the Investment Company Act of 1940) for the registrant and have: (a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of a date within 90 days prior to the filing date of this report based on such evaluation; and (c) disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal half-year (the registrant's second fiscal half-year in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer(s) and I have disclosed to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): (a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize, and report financial information; and (b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: January 29, 2004 Jude T. Driscoll - ------------------------------------- By: Jude T. Driscoll Title: Chairman EXHIBIT 99.CERT CERTIFICATION I, Joseph H. Hastings, certify that: 1. I have reviewed this report on Form N-CSR of Delaware Group Equity Funds V; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, changes in net assets, and cash flows (if the financial statements are required to include a statement of cash flows) of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in rule 30a-3(c) under the Investment Company Act of 1940) for the registrant and have: (a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of a date within 90 days prior to the filing date of this report based on such evaluation; and (c) disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal half-year (the registrant's second fiscal half-year in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer(s) and I have disclosed to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): (a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize, and report financial information; and (b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: January 27, 2004 Joseph H. Hastings - ------------------------------------- By: Joseph H. Hastings Title: Chief Financial Officer EXHIBIT 99.906CERT Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 In connection with the attached report of the registrant on Form N-CSR to be filed with the Securities and Exchange Commission (the "Report"), each of the undersigned officers of the registrant does hereby certify, to the best of such officer's knowledge, that: 1. The Report fully complies with the requirements of Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934; and 2. The information contained in the Report fairly represents, in all material respects, the financial condition and results of operations of the registrant as of, and for, the periods presented in the Report. Date: January 29, 2004 Jude T. Driscoll - ------------------------------------- By: Jude T. Driscoll Title: Chairman Joseph H. Hastings - ------------------------------------- By: Joseph H. Hastings Title: Chief Financial Officer A signed original of this written statement required by Section 906 of the Sarbanes-Oxley Act, or other document authenticating, acknowledging, or otherwise adopting the signatures that appear in typed form within the electronic version of this written statement required by Section 906, has been provided to the registrant and will be retained by the registrant and furnished to the SEC or its staff upon request. -----END PRIVACY-ENHANCED MESSAGE-----