N-CSR 1 p408000_ncsr.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: 811-4997 Exact name of registrant as specified in charter: Delaware Group Equity Funds V Address of principal executive offices: 2005 Market Street Philadelphia, PA 19103 Name and address of agent for service: Richelle S. Maestro, Esq. 2005 Market Street Philadelphia, PA 19103 Registrant's telephone number, including area code: (800) 523-1918 Date of fiscal year end: November 30 Date of reporting period: May 31, 2005
Item 1. Reports to Stockholders Delaware Investments(R) ----------------------------------- A member of Lincoln Financial Group VALUE-EQUITY SEMIANNUAL REPORT MAY 31, 2005 -------------------------------------------------------------------------------- DELAWARE DIVIDEND INCOME FUND [LOGO] POWERED BY RESEARCH.(SM) TABLE OF CONTENTS ----------------------------------------------------------------- DISCLOSURE OF FUND EXPENSES 1 ----------------------------------------------------------------- SECTOR ALLOCATION 2 ----------------------------------------------------------------- FINANCIAL STATEMENTS: Statements of Net Assets 3 Statements of Operations 8 Statements of Changes in Net Assets 9 Financial Highlights 10 Notes to Financial Statements 14 ----------------------------------------------------------------- OTHER FUND INFORMATION 17 ----------------------------------------------------------------- Funds are not FDIC insured and are not guaranteed. It is possible to lose the principal amount invested. Mutual fund advisory services provided by Delaware Management Company, a series of Delaware Management Business Trust, which is a registered investment advisor. (C) 2005 Delaware Distributors, L.P. DISCLOSURE For the Period December 1, 2004 to May 31, 2005 OF FUND EXPENSES As a shareholder of the Fund, you incur two types of costs: (1) transaction costs, including sales charges (loads) on purchase payments, reinvested dividends, or other distributions; redemption fees; and exchange fees; and (2) ongoing costs, including management fees; distribution and/or service (12b-1) fees; and other fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds. The example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period December 1, 2004 to May 31, 2005. ACTUAL EXPENSES The first section of the table shown, "Actual Fund Return," provides information about actual account values and actual expenses. You may use the information in this section of the table, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first section under the heading entitled "Expenses Paid During Period" to estimate the expenses you paid on your account during this period. HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES The second section of the table shown, "Hypothetical 5% Return," provides information about hypothetical account values and hypothetical expenses based on the Fund's actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund's actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds. Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as sales charges (loads), redemption fees, or exchange fees. Therefore, the second section of the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher. The Fund's actual expenses shown in the table reflect fee waivers in effect. The expenses shown in the table assume reinvestment of all dividends and distributions. DELAWARE DIVIDEND INCOME FUND EXPENSE ANALYSIS OF AN INVESTMENT OF $1,000
Expenses Beginning Ending Paid During Account Account Annualized Period Value Value Expense 12/1/04 to 12/1/04 5/31/05 Ratio 5/31/05* ------------------------------------------------------------------------------------------------------------- ACTUAL FUND RETURN Class A $1,000.00 $1,011.30 1.00% $5.01 Class B 1,000.00 1,007.40 1.75% 8.76 Class C 1,000.00 1,008.30 1.75% 8.76 Class R 1,000.00 1,010.40 1.35% 6.77 Institutional Class 1,000.00 1,013.50 0.75% 3.76 ------------------------------------------------------------------------------------------------------------- HYPOTHETICAL 5% RETURN (5% return before expenses) Class A $1,000.00 $1,019.95 1.00% $5.04 Class B 1,000.00 1,016.21 1.75% 8.80 Class C 1,000.00 1,016.21 1.75% 8.80 Class R 1,000.00 1,018.20 1.35% 6.79 Institutional Class 1,000.00 1,021.19 0.75% 3.78 -------------------------------------------------------------------------------------------------------------
*Expenses are equal to the Fund's annualized expense ratio, multiplied by the average account value over the period, multiplied by the 182/365 (to reflect the one-half year period). 1 SECTOR ALLOCATION As of May 31, 2005 DELAWARE DIVIDEND INCOME FUND The SEC adopted a requirement that all funds present their categories of portfolio holdings in a table, chart, or graph format in their annual and semiannual shareholder reports. The following chart lists the Fund's categories of portfolio holdings as a percentage of total net assets and is provided in compliance with such requirement. PERCENTAGE SECTOR OF NET ASSETS -------------------------------------------------------------------------- COMMON STOCK 58.55% -------------------------------------------------------------------------- Consumer Discretionary 2.45% Consumer Staples 4.92% Diversified REITs 1.22% Energy 3.89% Financials 10.01% Health Care 7.32% Healthcare REITs 0.03% Industrials 2.57% Industrial REITs 0.50% Information Technology 3.81% Lodging 0.59% Lodging/Resort REITs 0.28% Mall REITs 1.35% Materials 1.18% Mortgage REITs 4.93% Multifamily REITs 0.32% Office/Industrial REITs 1.02% Office REITs 4.32% Retail Strip Center REITs 2.06% Telecommunication Services 3.27% Utilities 2.51% -------------------------------------------------------------------------- CORPORATE BONDS 23.28% -------------------------------------------------------------------------- Capital Goods - Manufacturing 2.05% Chemicals 0.81% Consumer Cyclical 1.61% Consumer Non-Cyclical 1.66% Energy 2.06% Finance 0.95% Forest & Paper Products 2.38% Gaming 1.82% Healthcare 0.86% Media 3.26% Metals & Mining 0.36% Retail 0.12% Technology 0.50% Telecommunications 2.49% Textiles, Apparel & Furniture 0.16% Transportation 0.87% Utilities 1.32% PERCENTAGE SECTOR OF NET ASSETS -------------------------------------------------------------------------- CONVERTIBLE BONDS 4.77% -------------------------------------------------------------------------- Banking, Finance & Insurance 0.30% Cable, Media & Publishing 1.10% Computers & Technology 0.71% Consumer Services 0.17% Electronics & Electrical Equipment 0.06% Energy 0.32% Healthcare & Pharmaceuticals 1.12% Industrial Machinery 0.13% Leisure, Lodging & Entertainment 0.14% Real Estate 0.22% Retail 0.28% Utilities 0.22% -------------------------------------------------------------------------- -------------------------------------------------------------------------- CONVERTIBLE PREFERRED STOCK 2.50% -------------------------------------------------------------------------- Automobiles & Automotive Parts 0.39% Banking, Finance & Insurance 0.56% Cable, Media & Publishing 0.34% Chemicals 0.05% Energy 0.49% Food, Beverage & Tobacco 0.12% Telecommunications 0.28% Utilities 0.27% -------------------------------------------------------------------------- PREFERRED STOCK 1.01% -------------------------------------------------------------------------- Leisure, Lodging & Entertainment 0.19% Real Estate 0.73% Telecommunications 0.04% Utilities 0.05% -------------------------------------------------------------------------- EXCHANGE TRADED FUNDS 0.53% -------------------------------------------------------------------------- WARRANTS 0.00% -------------------------------------------------------------------------- COMMERCIAL MORTGAGE-BACKED SECURITIES 0.15% -------------------------------------------------------------------------- REPURCHASE AGREEMENTS 7.79% -------------------------------------------------------------------------- TOTAL MARKET VALUE OF SECURITIES 98.58% -------------------------------------------------------------------------- RECEIVABLES AND OTHER ASSETS NET OF LIABILITIES 1.42% -------------------------------------------------------------------------- TOTAL NET ASSETS 100.00% -------------------------------------------------------------------------- 2 STATEMENT DELAWARE DIVIDEND INCOME FUND OF NET ASSETS May 31, 2005 (Unaudited) Number of Market Shares Value COMMON STOCK - 58.55% Consumer Discretionary - 2.45% Limited Brands 203,500 $ 4,185,995 Mattel 227,500 4,135,950 ----------- 8,321,945 ----------- Consumer Staples - 4.92% Archer-Daniels-Midland 213,500 4,237,975 ConAgra Foods 157,600 4,121,240 Kimberly-Clark 65,600 4,220,048 Safeway 187,500 4,126,875 ----------- 16,706,138 ----------- Diversified REITs - 1.22% Vornado Realty Trust 52,800 4,155,360 ----------- 4,155,360 ----------- Energy - 3.89% Chevron 81,200 4,366,936 ConocoPhillips 41,300 4,453,792 Exxon Mobil 78,000 4,383,600 ----------- 13,204,328 ----------- Financials - 10.01% Allstate 73,300 4,266,060 Aon 184,200 4,592,107 Chubb 50,400 4,245,192 Hartford Financial Services 59,700 4,464,963 Huntington Bancshares 173,600 4,048,352 Morgan Stanley 85,500 4,186,080 Wachovia 78,500 3,983,875 Washington Mutual 101,300 4,183,690 ----------- 33,970,319 ----------- Health Care - 7.32% Abbott Laboratories 84,500 4,076,280 Baxter International 115,500 4,261,950 Bristol-Myers Squibb 157,600 3,996,736 Merck 130,000 4,217,200 Pfizer 146,700 4,092,930 Wyeth 96,800 4,198,216 ----------- 24,843,312 ----------- Healthcare REITs - 0.03% #Medical Properties Trust 144A 11,300 113,565 ----------- 113,565 ----------- Industrials - 2.57% Boeing 68,100 4,351,590 Union Pacific 65,500 4,385,880 ----------- 8,737,470 ----------- Industrial REITs - 0.50% First Potomac Realty Trust 74,700 1,691,955 ----------- 1,691,955 ----------- Information Technology - 3.81% Hewlett-Packard 191,500 4,310,665 International Business Machines 56,000 4,230,800 +Solectron 50,968 186,033 +Xerox 309,200 4,195,844 ----------- 12,923,342 ----------- Number of Market Shares Value COMMON STOCK (continued) Lodging - 0.59% +Jameson Inns 928,900 $ 2,006,424 ----------- 2,006,424 ----------- Lodging/Resort REITs - 0.28% Hersha Hospitality Trust 101,100 962,472 ----------- 962,472 ----------- Mall REITs - 1.35% CBL & Associates Properties 16,000 1,303,520 Simon Property Group 47,700 3,277,944 ----------- 4,581,464 ----------- Materials - 1.18% Weyerhaeuser 62,400 4,002,960 ----------- 4,002,960 ----------- Mortgage REITs - 4.93% American Home Mortgage Investment 76,200 2,481,072 Fieldstone Investment 136,400 1,822,304 Friedman Billings Ramsey Group Class A 147,825 1,929,116 +#KKR Financial 144A 141,000 1,445,250 MortgageIT Holdings 201,800 3,420,510 +#Peoples Choice 144A 151,000 1,510,000 Saxon Capital 244,800 4,144,464 ----------- 16,752,716 ----------- Multifamily REITs - 0.32% Education Realty Trust 62,700 1,076,559 ----------- 1,076,559 ----------- Office/Industrial REITs - 1.02% Duke Realty 63,800 1,969,506 Liberty Property Trust 36,000 1,486,440 ----------- 3,455,946 ----------- Office REITs - 4.32% Brandywine Realty Trust 132,900 3,742,464 CarrAmerica Realty 105,600 3,650,592 Equity Office Properties Trust 84,100 2,732,409 Prentiss Properties Trust 62,300 2,149,350 Reckson Associates Realty 75,700 2,391,363 ----------- 14,666,178 ----------- Retail Strip Center REITs - 2.06% Developers Diversified Realty 84,100 3,834,960 Federal Realty Investment Trust 57,400 3,168,480 ----------- 7,003,440 ----------- Telecommunication Services - 3.27% +Fairpoint Communications 168,000 2,615,760 SBC Communications 180,200 4,213,076 Verizon Communications 120,800 4,273,904 ----------- 11,102,740 ----------- Utilities - 2.51% Energy East 151,200 4,233,600 FPL Group 105,700 4,296,705 ----------- 8,530,305 ----------- TOTAL COMMON STOCK (cost $195,589,430) 198,808,938 ----------- 3 STATEMENT DELAWARE DIVIDEND INCOME FUND OF NET ASSETS (CONTINUED) Principal Market Amount (U.S. $) Value CORPORATE BONDS - 23.28% Capital Goods - Manufacturing - 2.05% Allied Waste North America 9.25% 9/1/12 $795,000 $ 858,600 Anchor Glass 11.00% 2/15/13 490,000 396,900 Armor Holdings 8.25% 8/15/13 670,000 721,845 Casella Waste Systems 9.75% 2/1/13 580,000 623,500 Cenveo 9.625% 3/15/12 330,000 355,575 Geo Subordinate 11.00% 5/15/12 615,000 621,150 #Graham Packaging 144A 9.875% 10/15/14 680,000 678,300 #IMCO Recycling 144A 9.00% 11/15/14 440,000 462,000 Interline Brands 11.50% 5/15/11 772,000 853,060 PMueller Holdings 14.75% 4/15/14 785,000 571,088 #Park-Ohio Industries 144A 8.375% 11/15/14 215,000 178,450 Radnor Holdings o9.891% 4/15/09 135,000 135,675 11.00% 3/15/10 170,000 125,375 Trimas 9.875% 6/15/12 485,000 395,275 ----------- 6,976,793 ----------- Chemicals - 0.81% Huntsman International 9.875% 3/1/09 240,000 258,000 #Huntsman International 144A 7.375% 1/1/15 460,000 458,850 Lyondell Chemical 9.875% 5/1/07 46,000 47,380 Nalco 7.75% 11/15/11 320,000 336,000 8.875% 11/15/13 190,000 199,500 Rhodia 8.875% 6/1/11 330,000 318,450 10.25% 6/1/10 310,000 331,700 ++Solutia 6.72% 10/15/37 825,000 635,250 Witco 6.875% 2/1/26 160,000 154,400 ----------- 2,739,530 ----------- Consumer Cyclical - 1.61% #Accuride 144A 8.50% 2/1/15 675,000 624,375 Advanced Accessory Systems 10.75% 6/15/11 355,000 268,025 #Carrols 144A 9.00% 1/15/13 605,000 617,100 #Dana 144A 5.85% 1/15/15 135,000 115,425 Denny's 10.00% 10/1/12 275,000 278,438 #Gaylord Entertainment 144A 6.75% 11/15/14 365,000 352,225 Interface 10.38% 2/1/10 20,000 21,500 #Landry's Restaurant 144A 7.50% 12/15/14 830,000 776,049 #Lone Star Industries 144A 8.85% 6/15/05 166,000 166,000 O'Charleys 9.00% 11/1/13 665,000 704,900 Perkins Family Restaurants 10.125% 12/15/07 270,000 274,050 Royal Caribbean Cruises 7.25% 3/15/18 580,000 606,100 PTown Sports International 11.00% 2/1/14 430,000 249,400 #Uno Restaurant 144A 10.00% 2/15/11 425,000 418,625 ++Venture Holdings 12.00% 6/1/09 35,000 44 ----------- 5,472,256 ----------- Principal Market Amount (U.S. $) Value CORPORATE BONDS (continued) Consumer Non-Cyclical - 1.66% #Commonwealth Brands 144A 9.75% 4/15/08 $375,000 $ 394,688 10.625% 9/1/08 410,000 431,525 Corrections Corporation of America 7.50% 5/1/11 655,000 675,469 Cott Beverages 8.00% 12/15/11 715,000 761,475 Great Atlantic & Pacific Tea 7.75% 4/15/07 400,000 411,000 #Knowledge Learning 144A 7.75% 2/1/15 860,000 812,699 #Le-Natures 144A 10.00% 6/15/13 675,000 698,625 National Beef Packing 10.50% 8/1/11 425,000 410,125 Pilgrim's Pride 9.625% 9/15/11 490,000 539,000 Pinnacle Foods 8.25% 12/1/13 255,000 219,300 #Rite Aid 144A 7.50% 1/15/15 315,000 291,375 True Temper Sports 8.375% 9/15/11 5,000 4,550 ----------- 5,649,831 ----------- Energy - 2.06% Bluewater Finance 10.25% 2/15/12 653,000 685,650 #Chesapeake Energy 144A 6.625% 1/15/16 255,000 264,881 CMS Energy 9.875% 10/15/07 355,000 386,950 #Dynegy Holdings 144A 10.125% 7/15/13 858,000 956,669 El Paso Natural Gas 7.625% 8/1/10 100,000 106,011 El Paso Production Holding 7.75% 6/1/13 335,000 349,238 @#Geophysique 144A 7.50% 5/15/15 190,000 190,950 #Hilcorp Energy I 144A 10.50% 9/1/10 695,000 767,974 #Inergy Finance 144A 6.875% 12/15/14 250,000 235,000 Midland Funding II 11.75% 7/23/05 73,304 74,344 Petroleum Geo-Services 8.00% 11/5/06 56,197 57,532 10.00% 11/5/10 470,000 524,050 Plains Exploration & Production 7.125% 6/15/14 335,000 359,288 Pride International 7.375% 7/15/14 345,000 380,363 Schlumberger 2.125% 6/1/23 700,000 760,374 oSecunda International 11.141% 9/1/12 355,000 337,250 Tennessee Gas Pipeline 8.375% 6/15/32 190,000 221,241 Whiting Petroleum 7.25% 5/1/13 325,000 325,000 ----------- 6,982,765 ----------- Finance - 0.95% #America Real Estate 144A 7.125% 2/15/13 485,000 477,725 BF Saul REIT 7.50% 3/1/14 420,000 436,800 E Trade Financial 8.00% 6/15/11 720,000 756,000 #Farmers Exchange Capital 144A 7.20% 7/15/48 433,000 465,015 LaBranche & Company 11.00% 5/15/12 480,000 518,400 Tanger Properties 9.125% 2/15/08 528,000 571,560 ----------- 3,225,500 ----------- Forest & Paper Products - 2.38% Abitibi-Consolidated 6.95% 12/15/06 495,000 499,950 #Boise Cascade 144A 7.125% 10/15/14 715,000 684,613 Bowater 9.50% 10/15/12 872,000 941,759 Fort James 7.75% 11/15/23 945,000 1,084,387 MDP Acquisitions 9.625% 10/1/12 855,000 840,038 Norske Skog 8.625% 6/15/11 690,000 707,250 #Port Townsend Paper 144A 12.00% 4/15/11 546,000 532,350 Potlatch 12.50% 12/1/09 635,000 794,544 Smurfit Capital Funding 7.50% 11/20/25 590,000 533,950 Stone Container 9.75% 2/1/11 765,000 812,813 Tembec Industries 8.625% 6/30/09 785,000 639,775 ----------- 8,071,429 ----------- 4 DELAWARE DIVIDEND INCOME FUND STATEMENT OF NET ASSETS (CONTINUED) Principal Market Amount (U.S. $) Value CORPORATE BONDS (continued) Gaming - 1.82% Ameristar Casinos 10.75% 2/15/09 $ 890,000 $ 976,775 Boyd Gaming 9.25% 8/1/09 810,000 855,563 Caesars Entertainment 9.375% 2/15/07 225,000 241,313 Mandalay Resort Group 10.25% 8/1/07 1,135,000 1,251,338 MGM MIRAGE 9.75% 6/1/07 505,000 548,556 Penn National Gaming 8.875% 3/15/10 1,370,000 1,476,174 Wheeling Island Gaming 10.125% 12/15/09 785,000 836,025 ----------- 6,185,744 ----------- Healthcare - 0.86% NDCHealth 10.50% 12/1/12 510,000 544,425 Universal Hospital Services 10.125% 11/1/11 285,000 289,275 US Oncology 10.75% 8/15/14 675,000 739,125 Vangaurd Health 9.00% 10/1/14 675,000 732,375 #Ventas Realty 144A 7.125% 6/1/15 290,000 297,250 #Warner Chilcott 144A 8.75% 2/1/15 320,000 310,400 ----------- 2,912,850 ----------- Media - 3.26% JAdelphia Communications 8.125% 7/15/06 15,000 12,975 American Media Operation 10.25% 5/1/09 1,115,000 1,151,238 #Charter Communications 144A 5.875% 11/16/09 500,000 310,000 Charter Communications Holdings 10.75% 10/1/09 2,155,000 1,680,899 #Charter Communications Operating 144A 8.00% 4/30/12 715,000 718,575 CSC Holdings 10.50% 5/15/16 990,000 1,089,000 Dex Media West 9.875% 8/15/13 135,000 154,913 Insight Midwest 10.50% 11/1/10 1,265,000 1,353,549 Lodgenet Entertainment 9.50% 6/15/13 770,000 831,600 Mediacom Broadband 11.00% 7/15/13 815,000 886,313 Nextmedia Operating 10.75% 7/1/11 815,000 892,425 Rogers Cablesystems 11.00% 12/1/15 300,000 325,875 Sheridan Acquisition 10.25% 8/15/11 215,000 221,450 Warner Music Group 7.375% 4/15/14 615,000 615,000 XM Satellite Radio 12.00% 6/15/10 740,000 830,650 ----------- 11,074,462 ----------- Metals & Mining - 0.36% #Apex Silver Mines 144A 2.875% 3/15/24 1,000,000 651,250 #Novelis 144A 7.25% 2/15/15 580,000 571,300 ----------- 1,222,550 ----------- Retail - 0.12% Adesa 7.625% 6/15/12 415,000 415,000 ----------- 415,000 ----------- Technology - 0.50% #Magnachip Semiconductor 144A 8.00% 12/15/14 635,000 555,625 Sanmina-SCI 10.375% 1/15/10 455,000 505,050 #Telcordia Technologies 144A 10.00% 3/15/13 720,000 633,600 ----------- 1,694,275 ----------- Principal Market Amount (U.S. $) Value CORPORATE BONDS (continued) Telecommunications - 2.49% Alaska Communications Systems Holdings 9.875% 8/15/11 $ 560,000 $ 592,200 ++Allegiance Telecom 11.75% 2/15/08 10,000 2,475 American Cellular 10.00% 8/1/11 260,000 254,800 Centennial Cellular Operating 10.125% 6/15/13 370,000 414,863 Cincinnati Bell 8.375% 1/15/14 895,000 890,525 *Inmarsat Finance 10.375% 11/15/12 600,000 447,000 iPCS 11.50% 5/1/12 10,000 11,000 *#Iwo Escrow 144A 10.75% 1/15/15 225,000 144,000 MCI 6.908% 5/1/07 205,000 208,844 7.688% 5/1/09 750,000 787,500 MetroPCS 10.75% 10/1/11 5,000 5,989 #New Skies Satellite 144A 9.125% 11/1/12 295,000 293,525 Nextel Communications 5.95% 3/15/14 1,000,000 1,027,500 PanAmSat 9.00% 8/15/14 390,000 426,075 #Qwest 144A 7.875% 9/1/11 620,000 646,350 #Qwest Services 144A 13.50% 12/15/10 1,020,000 1,167,899 Rural Cellular 9.875% 2/1/10 100,000 99,250 oUS LEC 11.89% 10/1/09 275,000 283,250 US Unwired 10.00% 6/15/12 215,000 236,500 #Valor Telecom 144A 7.75% 2/15/15 520,000 508,300 ----------- 8,447,845 ----------- Textiles, Apparel & Furniture - 0.16% Warnaco 8.875% 6/15/13 480,000 525,600 ----------- 525,600 ----------- Transportation - 0.87% *#H-Lines Finance Holding 144A 11.00% 4/1/13 795,000 620,100 #Horizon Lines 144A 9.00% 11/1/12 265,000 279,906 Kansas City Southern Railway 9.50% 10/1/08 440,000 482,350 OMI 7.625% 12/1/13 610,000 606,950 Seabulk International 9.50% 8/15/13 169,000 192,238 Stena 9.625% 12/1/12 420,000 460,950 Ultrapetrol 9.00% 11/24/14 350,000 316,750 ----------- 2,959,244 ----------- Utilities - 1.32% #Allegheny Energy Supply Statutory Trust 2001 Series B 144A 13.00% 11/15/07 5,000 5,700 Avista 9.75% 6/1/08 78,000 316,536 Calpine 8.25% 8/15/05 300,000 289,500 10.50% 5/15/06 40,000 118,300 o#Calpine 144A 8.891% 7/15/07 505,988 392,140 Elwood Energy 8.159% 7/5/26 245,507 278,036 Midwest Generation 8.30% 7/2/09 495,000 514,800 8.75% 5/1/34 320,000 358,400 ++Mirant Americas Generation 7.625% 5/1/06 315,000 364,613 #NRG Energy 144A 8.00% 12/15/13 413,000 437,780 Orion Power Holdings 12.00% 5/1/10 370,000 444,000 PSE&G Energy Holdings 7.75% 4/16/07 259,000 268,065 Reliant Energy 9.50% 7/15/13 345,000 377,775 #Texas Genco 144A 6.875% 12/15/14 315,000 325,238 ----------- 4,490,883 ----------- TOTAL CORPORATE BONDS (cost $80,472,795) 79,046,557 ----------- 5 STATEMENT DELAWARE DIVIDEND INCOME FUND OF NET ASSETS (CONTINUED) Principal Market Amount (U.S. $) Value CONVERTIBLE BONDS - 4.77% Banking, Finance & Insurance - 0.30% PMI Group 2.50% 7/15/21 $1,000,000 $ 1,021,250 ----------- 1,021,250 ----------- Cable, Media & Publishing - 1.10% Liberty Media 3.25% 3/15/31 1,500,000 1,156,875 Mediacom Communications 5.25% 7/1/06 1,000,000 985,000 #Playboy Enterprises 144A 3.00% 3/15/25 1,400,000 1,280,999 Quebecor World USA 6.00% 10/1/07 300,000 307,500 ----------- 3,730,374 ----------- Computers & Technology - 0.71% Fairchild Semiconductor International 5.00% 11/1/08 850,000 831,938 ^#ON Semiconductor 144A 0.28% 4/15/24 1,500,000 1,081,875 #Sybase 144A 1.75% 2/22/25 500,000 501,875 ----------- 2,415,688 ----------- Consumer Services - 0.17% Fluor 1.50% 2/15/24 500,000 580,625 ----------- 580,625 ----------- Electronics & Electrical Equipment - 0.06% Solectron 0.50% 2/15/34 275,000 199,375 ----------- 199,375 ----------- Energy - 0.32% Halliburton 3.125% 7/15/23 850,000 1,091,188 ----------- 1,091,188 ----------- Healthcare & Pharmaceuticals - 1.12% #Encysive Pharmaceuticals 144A 2.50% 3/15/12 875,000 826,875 Medimmune 1.00% 7/15/23 1,750,000 1,684,374 oWyeth 2.39% 1/15/24 1,250,000 1,281,463 ----------- 3,792,712 ----------- Industrial Machinery - 0.13% #Human Genome 144A 2.25% 10/15/11 500,000 458,750 ----------- 458,750 ----------- Leisure, Lodging & Entertainment - 0.14% #Regal Entertainment Group 144A 3.75% 5/15/08 350,000 466,375 ----------- 466,375 ----------- Real Estate - 0.22% Meristar Hospitality 9.50% 4/1/10 600,000 761,250 ----------- 761,250 ----------- Retail - 0.28% #Saks 144A 2.00% 3/15/24 925,000 942,344 ----------- 942,344 ----------- Utilities - 0.22% CenterPoint Energy 3.75% 5/15/23 400,000 456,500 ++Mirant 2.50% 6/15/21 300,000 231,000 #Unisource Energy 144A 4.50% 3/1/35 50,000 49,875 ----------- 737,375 ----------- TOTAL CONVERTIBLE BONDS (cost $16,770,535) 16,197,306 ----------- Number of Market Shares Value CONVERTIBLE PREFERRED STOCK - 2.50% Automobiles & Automotive Parts - 0.39% Ford Motor Capital Trust II 6.50% 20,000 $ 812,000 General Motors 5.25% 30,000 522,900 ----------- 1,334,900 ----------- Banking, Finance & Insurance - 0.56% Chubb 7.00% 20,000 620,600 Lehman Brothers Holdings 6.25% 11,250 298,125 Merrill Lynch 6.75% 28,000 999,011 ----------- 1,917,736 ----------- Cable, Media & Publishing - 0.34% Interpublic Group 5.375% 25,800 1,146,810 ----------- 1,146,810 ----------- Chemicals - 0.05% Huntsman 5.00% 3,900 173,063 ----------- 173,063 ----------- Energy - 0.49% #Chesapeake 5.00% 144A 16,000 1,648,000 ----------- 1,648,000 ----------- Food, Beverage & Tobacco - 0.12% Constellation Brands 5.75% 10,200 423,300 ----------- 423,300 ----------- Telecommunications - 0.28% Lucent Technologies Capital Trust I 7.75% 1,000 944,000 ----------- 944,000 ----------- Utilities - 0.27% Aquila 6.75% 4,000 137,500 #NRG Energy 144A 4.00% 750 774,469 ----------- 911,969 ----------- TOTAL CONVERTIBLE PREFERRED STOCK (cost $9,319,082) 8,499,778 ----------- PREFERRED STOCK - 1.01% Leisure, Lodging & Entertainment - 0.19% WestCoast Hospitality Capital Trust 9.50% 24,000 634,080 ----------- 634,080 ----------- Real Estate - 0.73% Equity Inns Series B 8.75% 18,300 484,950 LaSalle Hotel Properties 10.25% 36,500 990,792 Ramco-Gershenson Properties 9.50% 15,700 416,521 SL Green Realty 7.625% 23,000 593,688 ----------- 2,485,951 ----------- Telecommunications - 0.04% Alamosa Delaware 7.50% 150 138,506 ----------- 138,506 ----------- Utilities - 0.05% Public Service Enterprise Group 10.25% 2,400 167,160 ----------- 167,160 ----------- Total Preferred Stock (cost $3,368,372) 3,425,697 ----------- 6 STATEMENT DELAWARE DIVIDEND INCOME FUND OF NET ASSETS (CONTINUED) Number of Market Shares Value Exchange Traded Funds - 0.53% iShares Dow Jones U.S. Real Estate Index Fund 14,600 $ 1,795,070 ----------- TOTAL EXCHANGE TRADED FUNDS (cost $1,550,582) 1,795,070 ----------- Warrants - 0.00% +#Solutia144A, exercise price $7.59, expiration date 7/15/09 12 0 ----------- TOTAL WARRANTS (cost $1,021) 0 ----------- Principal Amount (U.S. $) COMMERCIAL MORTGAGE-BACKED SECURITIES - 0.15% #Meristar Commercial Mortgage Trust Series 1999-C1 C 144A 8.29% 3/3/16 $450,000 494,411 ----------- TOTAL COMMERCIAL MORTGAGE-BACKED Securities (cost $501,715) 494,411 ----------- REPURCHASE AGREEMENTS - 7.79% With BNP Paribas 2.95% 6/1/05 (dated 5/31/05, to be repurchased at $15,395,261, collateralized by $2,251,000 U.S. Treasury Bills due 9/29/05, market value $2,229,207, $1,907,000 U.S. Treasury Bills due 10/20/05, market value $1,885,019, $3,426,000 U.S. Treasury Bills due 11/17/05, market value $3,377,577, $2,191,000 U.S. Treasury Notes 2.38% due 8/15/06, market value $2,177,961, $3,379,000 U.S. Treasury Notes 6.50% due 8/15/05, market value $3,468,159, and $2,411,000 U.S. Treasury Notes 7.00% due 7/15/06, market value $2,567,661) 15,394,000 15,394,000 With UBS Warburg 2.95% 6/1/05 (dated 5/31/05, to be repurchased at $11,061,906, collateralized by $11,396,000 U.S. Treasury Notes 2.50% due 5/31/06, market value $11,296,423) 11,061,000 11,061,000 ------------ TOTAL REPURCHASE AGREEMENTS (cost $26,455,000) 26,455,000 ------------ TOTAL MARKET VALUE OF SECURITIES - 98.58% (cost $334,028,532) 334,722,757 RECEIVABLES AND OTHER ASSETS NET OF LIABILITIES - 1.42% 4,866,118 ------------ NET ASSETS APPLICABLE TO 31,101,186 SHARES OUTSTANDING - 100.00% $339,588,875 ============ Net Asset Value - Delaware Dividend Income Fund Class A ($167,852,654 / 15,370,351 Shares) $10.92 ------ Net Asset Value - Delaware Dividend Income Fund Class B ($46,067,017 / 4,220,221 Shares) $10.92 ------ Net Asset Value - Delaware Dividend Income Fund Class C ($124,482,938 / 11,401,980 Shares) $10.92 ------ Net Asset Value - Delaware Dividend Income Fund Class R ($818,185 / 74,949 Shares) $10.92 ------ Net Asset Value - Delaware Dividend Income Fund Institutional Class ($368,081 / 33,685 Shares) $10.93 ------ COMPONENTS OF NET ASSET AT MAY 31, 2005: Shares of beneficial interest (unlimited authorization - no par) $333,105,990 Undistributed net investment income 2,116,197 Accumulated net realized gain on investments 3,672,463 Net unrealized appreciation of investments 694,225 ------------ Total net assets $339,588,875 ============ +Non-income producing security for the period ended May 31, 2005. ++Non-income producing security. Security is currently in default. oSecurity is currently in default. The issue has missed the maturity date. Bankruptcy proceedings are in the process to determine distribution of assets. *Step coupon bond. Indicates security that has a zero coupon that remains in effect until a predetermined date at which time the stated interest rate becomes effective. #Security exempt from registration under Rule 144A of the Securities Act of 1933. See Note 7 in "Notes to Financial Statements." ^Zero coupon security. The interest rate shown is the yield at the time of purchase. oVariable rate notes. The interest rate shown is the rate as of May 31, 2005. @Illiquid security. See Note 7 in "Notes to Financial Statements." At May 31, 2005, one security was deemed illiquid which represented 0.06% of the Fund's net assets. SUMMARY OF ABBREVIATIONS: REITs - Real Estate Investment Trust NET ASSET VALUE AND OFFERING PRICE PER SHARE - DELAWARE DIVIDEND INCOME FUND Net asset value Class A (A) $10.92 Sales charge (5.75% of offering price) (B) 0.67 ------ Offering price $11.59 ====== (A) Net asset value per share, as illustrated, is the estimated amount which would be paid upon the redemption or repurchase of shares. (B) See the current prospectus for purchases of $50,000 or more. See accompanying notes 7 STATEMENT DELAWARE DIVIDEND INCOME FUND OF OPERATIONS Six Months Ended May 31, 2005 (Unaudited) INVESTMENT INCOME: Dividends $3,289,164 Interest 2,964,858 Foreign tax withheld (12,774) $6,241,248 ---------- ---------- EXPENSES: Distribution expenses -- Class A 205,160 Distribution expenses -- Class B 194,456 Distribution expenses -- Class C 519,682 Distribution expenses -- Class R 1,750 Management fees 919,274 Dividend disbursing and transfer agent fees and expenses 199,952 Registration fees 60,257 Accounting and administration expenses 44,631 Reports and statements to shareholders 29,221 Legal and professional fees 27,173 Insurance fees 15,187 Trustees' fees 7,873 Custodian fees 7,241 Pricing fees 3,852 Tax 2,058 Other 4,525 2,242,292 ---------- Less expenses absorbed or waived (260,366) Less waiver of distribution expenses -- Class A (34,193) Less expense paid indirectly (3,282) ---------- Total expenses 1,944,451 ---------- NET INVESTMENT INCOME 4,296,797 ---------- NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND FOREIGN CURRENCIES: Net realized gain (loss) on: Investments 4,602,553 Foreign currencies (1,378) ---------- Net realized gain 4,601,175 Net change in unrealized appreciation/depreciation of investments (6,991,361) ---------- NET REALIZED AND UNREALIZED LOSS ON INVESTMENTS AND FOREIGN CURRENCIES (2,390,186) ---------- NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $1,906,611 ========== See accompanying notes 8 STATEMENTS DELAWARE DIVIDEND INCOME FUND OF CHANGES IN NET ASSETS Six Months Ended Year Ended 5/31/05 11/30/04 (Unaudited) INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS: Net investment income $ 4,296,797 $3,161,142 Net realized gain on investments and foreign currencies 4,601,175 1,623,672 Net change in unrealized appreciation/ depreciation of investments (6,991,361) 7,298,755 ----------- ---------- Net increase in net assets resulting from operations 1,906,611 12,083,569 ----------- ---------- DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM: Net investment income: Class A (2,064,042) (1,382,695) Class B (446,287) (334,815) Class C (1,192,766) (794,269) Class R (8,138) (4,793) Institutional Class (5,443) (119,652) Net realized gain on investments: Class A (829,375) (32,120) Class B (249,797) (11,519) Class C (644,998) (24,930) Class R (2,738) (10) Institutional Class (1,641) (13,041) ----------- ---------- (5,445,225) (2,717,844) ----------- ---------- CAPITAL SHARE TRANSACTIONS: Proceeds from shares sold Class A 74,617,455 103,634,846 Class B 15,986,469 29,742,332 Class C 49,264,802 76,439,150 Class R 457,745 349,869 Institutional Class 315,274 92,571 Net asset value of shares issued upon reinvestment of dividends and distributions: Class A 2,269,510 1,067,277 Class B 553,787 274,814 Class C 1,446,476 603,599 Class R 10,876 4,803 Institutional Class 5,780 130,995 ----------- ----------- 144,928,174 212,340,256 ----------- ----------- Cost of shares repurchased Class A (12,553,837) (9,699,802) Class B (2,173,096) (1,349,886) Class C (6,991,469) (2,649,479) Class R (11,223) (3) Institutional Class (47,446) (4,198,164) ----------- ----------- (21,777,071) (17,897,334) ----------- ----------- Increase in net assets derived from capital share transactions 123,151,103 194,442,922 ----------- ------------ NET INCREASE IN NET ASSETS 119,612,489 203,808,647 NET ASSETS: Beginning of period 219,976,386 16,167,739 ----------- ------------ End of period (including undistributed net investment income of $2,116,197 and $1,056,427, respectively) $339,588,875 $219,976,386 ============ ============ See accompanying notes 9 FINANCIAL HIGHLIGHTS Selected data for each share of the Fund outstanding throughout each period were as follows:
Delaware Dividend Income Fund Class A ---------------------------------------------------------------------------------------------------------------------------------- Six Months Ended Year Ended 5/31/05(2) 11/30/04 11/30/03 11/30/02(1) 11/30/01 11/30/00 (Unaudited) NET ASSET VALUE, BEGINNING OF PERIOD $11.050 $10.210 $9.030 $9.230 $9.600 $9.430 INCOME (LOSS) FROM INVESTMENT OPERATIONS: Net investment income(3) 0.187 0.345 0.450 0.429 0.405 0.403 Net realized and unrealized gain (loss) on investments and foreign currencies (0.061) 0.891 1.213 (0.196) (0.041) 0.285 -------- -------- -------- -------- -------- ------- Total from investment operations 0.126 1.236 1.663 0.233 0.364 0.688 -------- -------- -------- -------- -------- ------- LESS DIVIDENDS AND DISTRIBUTIONS FROM: Net investment income (0.175) (0.362) (0.483) (0.433) (0.400) (0.420) Net realized gain on investments (0.081) (0.034) -- -- (0.334) (0.098) -------- -------- -------- -------- -------- ------- Total dividends and distributions (0.256) (0.396) (0.483) (0.433) (0.734) (0.518) -------- -------- -------- -------- -------- ------- NET ASSET VALUE, END OF PERIOD $10.920 $11.050 $10.210 $9.030 $9.230 $9.600 ======== ======== ======== ======== ======== ======= TOTAL RETURN(4) 1.13% 12.38% 19.45% 2.58% 3.87% 7.66% RATIOS AND SUPPLEMENTAL DATA: Net assets, end of period (000 omitted) $167,853 $105,253 $5,821 $1 $-- $24 Ratio of expenses to average net assets 1.00% 1.00% 0.79% 0.75% 0.75% 0.75% Ratio of expenses to average net assets prior to expense limitation and expense paid indirectly 1.23% 1.32% 2.05% 1.30% 1.05% 1.24% Ratio of net investment income to average net assets 3.41% 3.26% 4.69% 4.71% 4.38% 4.22% Ratio of net investment income to average net assets prior to expense limitation and expense paid indirectly 3.18% 2.94% 3.43% 4.16% 4.08% 3.73% Portfolio turnover 399% 95% 212% 188% 89% 41%
(1) As required, effective December 1, 2001, the Portfolio has adopted the provisions of the AICPA Audit and Accounting Guide for Investment Companies that requires amortization of all premiums and discounts on debt securities. The effect of this change for the year ended November 30, 2002 was a decrease in net investment income per share of $0.048, an increase in net realized and unrealized gain (loss) per share of $0.048, and a decrease in the ratio of net investment income to average net assets of 0.53%. Per share data and ratios for periods prior to December 1, 2001 have not been restated to reflect this change in accounting. (2) Ratios and portfolio turnover have been annualized and total return has not been annualized. (3) The average shares outstanding method has been applied for per share information. (4) Total investment return is based on the change in net asset value of a share during the period and assumes reinvestment of dividends and distributions at net asset value and does not reflect the impact of a sales charge. Total investment return reflects waiver and payment of fees by the manager and distributor. Performance would have been lower had the expense limitation not been in effect. See accompanying notes 10 FINANCIAL HIGHLIGHTS (CONTINUED) Selected data for each share of the Fund outstanding throughout each period were as follows:
Delaware Dividend Income Delaware Dividend Income Fund Class B Fund Class C ----------------------------------------------------------------------------------------------------------------------------------- Six Months Year 10/1/03(1) Six Months Year 10/1/03(1) Ended Ended to Ended Ended to 5/31/05(2) 11/30/04 11/30/03 5/31/05(2) 11/30/04 11/30/03 (Unaudited) (Unaudited) NET ASSET VALUE, BEGINNING OF PERIOD $11.040 $10.200 $9.950 $11.040 $10.200 $9.950 INCOME (LOSS) FROM INVESTMENT OPERATIONS: Net investment income(3) 0.146 0.267 0.051 0.146 0.267 0.051 Net realized and unrealized gain (loss) on investments and foreign currencies (0.053) 0.889 0.199 (0.053) 0.889 0.199 -------- -------- -------- -------- -------- ------- Total from investment operations 0.093 1.156 0.250 0.093 1.156 0.250 -------- -------- -------- -------- -------- ------- LESS DIVIDENDS AND DISTRIBUTIONS FROM: Net investment income (0.132) (0.282) -- (0.132) (0.282) -- Net realized gain on investments (0.081) (0.034) -- (0.081) (0.034) -- -------- -------- -------- -------- -------- ------- Total dividends and distributions (0.213) (0.316) -- (0.213) (0.316) -- -------- -------- -------- -------- -------- ------- NET ASSET VALUE, END OF PERIOD $10.920 $11.040 $10.200 $10.920 $11.040 $10.200 ======== ======== ======== ======== ======== ======= TOTAL RETURN(4) 0.74% 11.54% 2.51% 0.83% 11.53% 2.51% RATIOS AND SUPPLEMENTAL DATA: Net assets, end of period (000 omitted) $46,067 $32,165 $2,125 $124,483 $82,083 $4,341 Ratio of expenses to average net assets 1.75% 1.75% 1.75% 1.75% 1.75% 1.75% Ratio of expenses to average net assets prior to expense limitation and expense paid indirectly 1.93% 2.02% 4.10% 1.93% 2.02% 4.10% Ratio of net investment income to average net assets 2.66% 2.51% 3.65% 2.66% 2.52% 3.65% Ratio of net investment income to average net assets prior to expense limitation and expense paid indirectly 2.48% 2.25% 1.30% 2.48% 2.25% 1.30% Portfolio turnover 399% 95% 212% 399% 95% 212%
(1) Date of commencement of operations; ratios have been annualized and total return has not been annualized. (2) Ratios and portfolio turnover have been annualized and total return has not been annualized. (3) The average shares outstanding method has been applied for per share information. (4) Total investment return is based on the change in net asset value of a share during the period and assumes reinvestment of dividends and distributions at net asset value and does not reflect the impact of a sales charge. Total investment return reflects waiver and payment of fees by the manager. Performance would have been lower had the expense limitation not been in effect. See accompanying notes 11 FINANCIAL HIGHLIGHTS (CONTINUED) Selected data for each share of the Fund outstanding throughout each period were as follows:
Delaware Dividend Income Fund Class R ------------------------------------------------------------------------------------------------------ Six Months Year 10/1/03(1) Ended Ended to 5/31/05(2) 11/30/04 11/30/03 (Unaudited) NET ASSET VALUE, BEGINNING OF PERIOD $11.040 $10.220 $9.950 INCOME FROM INVESTMENT OPERATIONS: Net investment income(3) 0.168 0.308 0.056 Net realized and unrealized gain (loss) on investments and foreign currencies (0.052) 0.879 0.214 -------- --------- -------- Total from investment operations 0.116 1.187 0.270 -------- --------- -------- LESS DIVIDENDS AND DISTRIBUTIONS FROM: Net investment income (0.155) (0.333) -- Net realized gain on investments (0.081) (0.034) -- -------- --------- -------- Total dividends and distributions (0.236) (0.367) -- -------- --------- -------- NET ASSET VALUE, END OF PERIOD $10.920 $11.040 $10.220 ======== ========= ======== TOTAL RETURN(4) 1.04% 11.86% 2.71% RATIOS AND SUPPLEMENTAL DATA: Net assets, end of period (000 omitted) $818 $373 $3 Ratio of expenses to average net assets 1.35% 1.35% 1.35% Ratio of expenses to average net assets prior to expense limitation and expense paid indirectly 1.53% 1.62% 3.70% Ratio of net investment income to average net assets 3.06% 2.89% 4.05% Ratio of net investment income to average net assets prior to expense limitation and expense paid indirectly 2.88% 2.62% 1.70% Portfolio turnover 399% 95% 212%
(1) Date of commencement of operations; ratios have been annualized and total return has not been annualized. (2) Ratios and portfolio turnover have been annualized and total return has not been annualized. (3) The average shares outstanding method has been applied for per share information. (4) Total investment return is based on the change in net asset value of a share during the period and assumes reinvestment of dividends and distributions at net asset value. Total investment return reflects waiver and payment of fees by the manager. Performance would have been lower had the expense limitation not been in effect. See accompanying notes 12 FINANCIAL HIGHLIGHTS (CONTINUED) Selected data for each share of the Fund outstanding throughout each period were as follows:
Delaware Dividend Income Fund Institutional Class ------------------------------------------------------------------------------------------------------------------------------------ Six Months Ended Year Ended 5/31/05(2) 11/30/04 11/30/03 11/30/02(1) 11/30/01 11/30/00 (Unaudited) NET ASSET VALUE, BEGINNING OF PERIOD $11.050 $10.220 $9.030 $9.230 $9.600 $9.420 INCOME (LOSS) FROM INVESTMENT OPERATIONS: Net investment income(3) 0.200 0.371 0.453 0.429 0.405 0.403 Net realized and unrealized gain (loss) on investments and foreign currencies (0.050) 0.882 1.220 (0.196) (0.041) 0.295 -------- -------- -------- -------- -------- ------ Total from investment operations 0.150 1.253 1.673 0.233 0.364 0.698 -------- -------- -------- -------- -------- ------ LESS DIVIDENDS AND DISTRIBUTIONS FROM: Net investment income (0.189) (0.389) (0.483) (0.433) (0.400) (0.420) Net realized gain on investments (0.081) (0.034) -- -- (0.334) (0.098) -------- -------- -------- -------- -------- ------ Total dividends and distributions (0.270) (0.423) (0.483) (0.433) (0.734) (0.518) -------- -------- -------- -------- -------- ------ NET ASSET VALUE, END OF PERIOD $10.930 $11.050 $10.220 $9.030 $9.230 $9.600 ======== ======== ======== ======== ======== ====== TOTAL RETURN(4) 1.35% 12.55% 19.56% 2.58% 3.87% 7.78% RATIOS AND SUPPLEMENTAL DATA: Net assets, end of period (000 omitted) $368 $102 $3,879 $3,233 $3,265 $3,145 Ratio of expenses to average net assets 0.75% 0.75% 0.75% 0.75% 0.75% 0.75% Ratio of expenses to average net assets prior to expense limitation and expense paid indirectly 0.93% 1.02% 1.75% 1.00% 0.75% 0.94% Ratio of net investment income to average net assets 3.66% 3.49% 4.73% 4.71% 4.38% 4.22% Ratio of net investment income to average net assets prior to expense limitation and expense paid indirectly 3.48% 3.22% 3.73% 4.46% 4.38% 4.03% Portfolio turnover 399% 95% 212% 188% 89% 41%
(1) As required, effective December 1, 2001, the Portfolio has adopted the provisions of the AICPA Audit and Accounting Guide for Investment Companies that requires amortization of all premiums and discounts on debt securities. The effect of this change for the year ended November 30, 2002 was a decrease in net investment income per share of $0.048, an increase in net realized and unrealized gain (loss) per share of $0.048, and a decrease in the ratio of net investment income to average net assets of 0.53%. Per share data and ratios for periods prior to December 1, 2001 have not been restated to reflect this change in accounting. (2) Ratios and portfolio turnover have been annualized and total return has not been annualized. (3) The average shares outstanding method has been applied for per share information. (4) Total investment return is based on the change in net asset value of a share during the period and assumes reinvestment of dividends and distributions at net asset value. Total investment return reflects waiver and payment of fees by the manager. Performance would have been lower had the expense limitation not been in effect. See accompanying notes 13 NOTES DELAWARE DIVIDEND INCOME FUND TO FINANCIAL STATEMENTS May 31, 2005 (Unaudited) Delaware Group Equity Funds V (the "Trust") is organized as a Delaware statutory trust and offers three series: Delaware Dividend Income Fund, Delaware Small Cap Core Fund (formerly Delaware Small Cap Contrarian Fund) and Delaware Small Cap Value Fund. These financial statements and the related notes pertain to Delaware Dividend Income Fund (the "Fund"). The Trust is an open-end investment company. The Fund is considered diversified under the Investment Company Act of 1940, as amended, and offers Class A, Class B, Class C, Class R and Institutional Class shares. Class A shares are sold with a front-end sales charge of up to 5.75%. Class B shares are sold with a contingent deferred sales charge that declines from 4% to zero depending upon the period of time the shares were held. Class B shares will automatically convert to Class A shares on a quarterly basis approximately 8 years after purchase. Class C shares are sold with a contingent deferred sales charge of 1%, if redeemed during the first 12 months. Class R and Institutional Class shares are not subject to a sales charge and are offered for sale exclusively to a limited group of investors. The investment objective of the Fund is to seek to provide high current income and the potential for capital appreciation. 1. SIGNIFICANT ACCOUNTING POLICIES The following accounting policies are in accordance with U.S. generally accepted accounting principles and are consistently followed by the Fund. Security Valuation -- Equity securities, except those traded on the Nasdaq Stock Market, Inc. (NASDAQ), are valued at the last quoted sales price as of the time of the regular close of the New York Stock Exchange (NYSE) on the valuation date. Securities traded on the NASDAQ are valued in accordance with the NASDAQ Official Closing Price, which may not be the last sales price. If on a particular day an equity security does not trade, then the mean between bid and asked prices will be used. Long-term debt securities are valued by an independent pricing service and such prices are believed to reflect the fair value of such securities. Short-term debt securities having less than 60 days to maturity are valued at amortized cost, which approximates market value. Other securities and assets for which market quotations are not readily available are valued at fair value as determined in good faith under the direction of the Funds' Board of Trustees. In determining whether market quotations are readily available or fair valuation will be used, various factors will be taken into consideration, such as market closures, or with respect to foreign securities, aftermarket trading or significant events after local market trading (e.g., government actions or pronouncements, trading volume or volatility on markets, exchanges among dealers, or news events). Federal Income Taxes -- The Fund intends to continue to qualify for federal income tax purposes as a regulated investment company and make the requisite distributions to shareholders. Accordingly, no provision for federal income taxes has been made in the financial statements. Class Accounting -- Investment income, common expenses and realized and unrealized gain (loss) on investments are allocated to the various classes of Fund on the basis of daily net assets of each class. Distribution expenses relating to a specific class are charged directly to that class. Repurchase Agreements -- The Fund may invest in a pooled cash account along with other members of the Delaware Investments Family of Funds pursuant to an exemptive order issued by the Securities and Exchange Commission. The aggregate daily balance of the pooled cash account is invested in repurchase agreements secured by obligations of the U.S. government. The respective collateral is held by the Fund's custodian bank until the maturity of the respective repurchase agreements. Each repurchase agreement is 102% collateralized. However, in the event of default or bankruptcy by the counterparty to the agreement, realization of the collateral may be subject to legal proceedings. Use of Estimates -- The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Other -- Expenses common to all funds within the Delaware Investments Family of Funds are allocated amongst the funds on the basis of average net assets. Management fees and some other expenses are paid monthly. Security transactions are recorded on the date the securities are purchased or sold (trade date). Costs used in calculating realized gains and losses on the sale of investment securities are those of the specific securities sold. Dividend income is recorded on the ex-dividend date and interest income is recorded on the accrual basis. Discounts and premiums are amortized to interest income over the lives of the respective securities. The Fund declares and pays dividends from net investment income quarterly and distributions from net realized gain on investments, if any, annually. The Fund receives earnings credits from its custodian when positive cash balances are maintained, which are used to offset custody fees. The earnings credits for the period ended May 31, 2005 were approximately $3,282. The expense paid under the above arrangement is included in custodian fees on the Statement of Operations with the corresponding expense offset shown as "expense paid indirectly." 2. INVESTMENT MANAGEMENT, ADMINISTRATION AGREEMENTS AND OTHER TRANSACTIONS WITH AFFILIATES In accordance with the terms of its investment management agreement, the Fund pays Delaware Management Company (DMC), a series of Delaware Management Business Trust and the investment manager, an annual fee which is calculated daily at a rate of 0.65% on the first $500 million of average daily net assets of the Fund, 0.60% on the next $500 million, 0.55% on the next $1.5 billion, and 0.50% on daily average net assets in excess of $2.5 billion. DMC has contractually agreed to waive that portion, if any, of its management fee and reimburse the Fund to the extent necessary to ensure that annual operating expenses, exclusive of taxes, interest, brokerage commissions, distribution fees, certain insurance costs and extraordinary expenses, do not exceed 0.75% of average daily net assets of the Fund through March 31, 2006. Delaware Service Company, Inc. (DSC), an affiliate of DMC, provides accounting, administration, dividend disbursing and transfer agent services. The Fund pays DSC a monthly fee based on average net assets subject to certain minimums for accounting and administration services. The Fund pays DSC a monthly fee based on the number of shareholder accounts for dividend disbursing and transfer agent services. Pursuant to a distribution agreement and distribution plan, the Fund pays Delaware Distributors, L.P. (DDLP), the distributor and an affiliate of DMC, an annual distribution and service fee not to exceed 0.30% of the average daily net assets of the Class A shares, 1.00% of the average daily net assets of the Class B and C shares and 0.60% of the average daily net assets of Class R shares. DDLP has contracted to waive distribution and service fees through March 31, 2006 in order to prevent distribution and service fees of Class A shares from exceeding 0.25% of average daily net assets. Institutional Class shares pay no distribution and service expenses. 14 NOTES DELAWARE DIVIDEND INCOME FUND TO FINANCIAL STATEMENTS (CONTINUED) 2. INVESTMENT MANAGEMENT, ADMINISTRATION AGREEMENTS AND OTHER TRANSACTIONS WITH AFFILIATES (CONTINUED) At May 31, 2005, the Fund had liabilities payable to affiliates as follows: Investment management fee payable to DMC $149,323 Dividend disbursing, transfer agent fees, accounting and administration fees and other expenses payable to DSC 142,151 Other expenses payable to DMC and affiliates* 97,467 *DMC, as part of its administrative services, pays operating expenses on behalf of the Fund and is reimbursed on a periodic basis. Such expenses include items such as printing of shareholder reports, fees for audit, legal and tax services, registration fees and trustees' fees. As provided in the investment management agreement, the Fund bears the cost of certain legal services expenses, including internal legal services provided to the Fund by DMC employees. For the six months ended May 31, 2005, the Delaware Dividend Income Fund was charged $7,935 for internal legal services provided by DMC. For the six months ended May 31, 2005, DDLP earned $245,884 for commissions on sales of the Fund's Class A shares. Certain officers of DMC, DSC and DDLP are officers and/or trustees of the Trust. These officers and trustees are paid no compensation by the Fund. 3. INVESTMENTS For the six months ended May 31, 2005, the Fund made purchases of $279,305,437 and sales of $163,412,156 of investment securities other than short-term investments. At May 31, 2005, the cost of investments for federal income tax purposes has been estimated since the final tax characteristics cannot be determined until fiscal year end. At May 31, 2005, the cost of investments was $334,568,950. At May 31, 2005, the net unrealized appreciation was $153,807 of which $12,087,601 related to unrealized appreciation of investments and $11,933,794 related to unrealized depreciation of investments. 4. DIVIDEND AND DISTRIBUTION INFORMATION Income and long-term capital gain distributions are determined in accordance with federal income tax regulations, which may differ from U.S. generally accepted accounting principles. Additionally, net short-term gains on sales of investment securities are treated as ordinary income for federal income tax purposes. The tax character of dividends and distributions paid during the six months ended May 31, 2005 and the year ended November 30, 2004 was as follows: Six Months Year Ended Ended 5/31/05* 10/31/04 ------------ ----------- Ordinary income $5,295,844 $2,717,844 Long-term capital gain 149,381 -- ------------ ----------- Total $5,445,225 $2,717,844 ------------ ----------- *Tax information for the six months ended May 31, 2005 is estimated and the tax character of dividends and distributions may be redesignated at fiscal year end. The components of net assets are estimated since final tax characteristics cannot be determined until fiscal year end. As of May 31, 2005, the estimated components of net assets on a tax basis were as follows: Shares of beneficial interest $333,105,990 Undistributed ordinary income 4,348,598 Undistributed long-term capital gains 1,980,480 Unrealized appreciation of investments 153,807 ------------- Net assets $339,588,875 ============= For financial reporting purposes, capital accounts are adjusted to reflect the tax character of permanent book/tax differences. For the six months ended May 31, 2005, the Fund recorded an estimate of these differences since the final tax characteristics cannot be determined until fiscal year end. Reclassifications are primarily due to tax treatment of market discounts and premiums on certain debt instruments. Results of operations and net assets were not affected by these reclassifications. Undistributed net investment income $479,649 Accumulated net realized gain (loss) (479,649) 5. CAPITAL SHARES Transactions in capital shares were as follows: Six Months Year Ended Ended 5/31/05 11/30/04 Shares sold: Class A 6,781,652 9,774,324 Class B 1,455,043 2,806,174 Class C 4,474,299 7,203,243 Class R 41,207 33,044 Institutional Class 28,274 8,765 Shares issued upon reinvestment of dividends and distributions: Class A 206,179 101,364 Class B 50,189 26,108 Class C 131,164 57,292 Class R 991 455 Institutional Class 527 12,554 ---------- ---------- 13,169,525 20,023,323 ---------- ---------- Shares repurchased: Class A (1,145,794) (917,417) Class B (198,479) (127,032) Class C (637,884) (251,612) Class R (1,046) -- Institutional Class (4,393) (391,674) ---------- ---------- (1,987,596) (1,687,735) ---------- ---------- Net increase 11,181,929 18,335,588 ========== ========== For the six months ended May 31, 2005 and the year ended November 30, 2004, 29,369 Class B shares were converted to 29,341 Class A shares valued at $324,155 and 24,503 Class B shares were converted to 24,480 Class A shares valued at $262,099, respectively. The respective amounts are included in Class B redemptions and Class A subscriptions in the table above and the Statements of Changes in Net Assets. 15 NOTES DELAWARE DIVIDEND INCOME FUND TO FINANCIAL STATEMENTS (CONTINUED) 6. LINE OF CREDIT The Fund, along with certain other funds in the Delaware Investments Family of Funds (the "Participants"), participates in a $183,100,000 revolving line of credit facility to be used for temporary or emergency purposes as an additional source of liquidity to fund redemptions of investor shares. The Participants are charged an annual commitment fee, which is allocated across the Participants on the basis of each fund's allocation of the entire facility. The Participants may borrow up to a maximum of one third of their net assets under the agreement. The Fund had no amount outstanding at May 31, 2005, or at any time during the period. 7. CREDIT AND MARKET RISKS The Fund may invest up to 15% of its total assets in illiquid securities, which may include securities with contractual restrictions on resale, securities exempt from registration under Rule 144A of the Securities Act of 1933, as amended, and other securities which may not be readily marketable. The relative illiquidity of these securities may impair the Fund from disposing of them in a timely manner and at a fair price when it is necessary or desirable to do so. At May 31, 2005, 144A securities represented approximately 9.62% of total assets. 144A securities comprising 0.06% of total assets have been determined to be illiquid securities under the Fund's Liquidity Procedures. While maintaining oversight, the Board of Trustees has delegated to the investment adviser the day-to-day functions of determining whether individual Rule 144A securities are liquid for purposes of a fund's limitation on investments in illiquid assets. Illiquid securities, if any, have been denoted on the Statement of Net Assets. The Fund invests a portion of its assets in high-yield fixed-income securities, which carry ratings of BBB or lower by Standard & Poor's Ratings Group and/or Baa or lower by Moody's Investor Services, Inc. Investments in these higher yielding securities are generally accompanied by a greater degree of credit risk than higher rated securities. Additionally, lower rated securities may be more susceptible to adverse economic and competitive industry conditions than investment grade securities. The Fund invests in real estate investment trusts (REITs) and is subject to some of the risks associated with that industry. If the Fund holds real estate directly as a result of defaults or receives rental income directly from real estate holdings, its tax status as a regulated investment company may be jeopardized. There were no direct holdings during the period ended May 31, 2005. The Fund's REIT holdings are also affected by interest rate changes, particularly if the REITs it holds use floating rate debt to finance their ongoing operations. 8. CONTRACTUAL OBLIGATIONS The Fund enters into contracts in the normal course of business that contain a variety of indemnifications. The Fund's maximum exposure under these arrangements is unknown. However, the Fund has not had prior claims or losses pursuant to these contracts. Management has reviewed the Fund's existing contracts and expects the risk of loss to be remote. 16 OTHER DELAWARE DIVIDEND INCOME FUND FUND INFORMATION The shareholders of Delaware Group Equity Funds V (the "Trust") approved on the following proposals at the special meeting of shareholders on March 23, 2005 or as adjourned. The description of each proposal and number of shares voted are as follows: 1. To elect a Board of Trustees for the Trust (shareholders of all series of the Trust voting together). Shares Voted Shares Voted For Withhold Authority ---------------- ------------------- Thomas L. Bennett 18,156,829 445,948 Jude T. Driscoll 18,162,841 439,936 John A. Fry 18,168,910 433,866 Anthony D. Knerr 18,156,910 445,867 Lucinda S. Landreth 18,162,718 440,059 Ann R. Leven 18,155,177 447,600 Thomas F. Madison 18,153,700 449,700 Janet L. Yeomans 18,172,872 429,905 J. Richard Zecher 18,163,732 439,044 2. To approve the use of a "manager of managers" structure whereby the investment manager of the Funds will be able to hire and replace subadvisers without shareholder approval. For Against Abstain Broker Non-Votes ---- ------- ------- ---------------- Delaware Dividend Income Fund 8,364,100 418,309 285,313 2,285,724 SUBSEQUENT EVENT NOTE - FUND MERGER On June 24, 2005, the Dividend Income Fund completed the acquisition of the net assets of Lincoln National Convertible Securities Fund, Inc. ("LNV Fund") pursuant to a plan of reorganization approved by the shareholders of LNV Fund at a reconvened Special Meeting of Shareholders held on June 16, 2005. The transaction, which is structured as a tax-free reorganization, entailed (i) the acquisition of all of the assets of LNV Fund by Dividend Income Fund in exchange for Class A shares of Dividend Income Fund and (ii) the pro rata distribution of such shares to LNV Fund's shareholders in exchange for their shares of LNV Fund. LNV Fund was a closed-end, diversified investment management company managed by Delaware Management Company. Delaware Management Company is a series of Delaware Management Business Trust, a wholly owned subsidiary of Lincoln National Corporation. As of June 22, 2005, LNV Fund had total assets of approximately $85.5 million. 17 OTHER DELAWARE DIVIDEND INCOME FUND FUND INFORMATION (CONTINUED) BOARD CONSIDERATION OF DELAWARE DIVIDEND INCOME FUND INVESTMENT ADVISORY AGREEMENT At a meeting held on May 18-19, 2005 (the "Annual Meeting"), the Board of Trustees, including a majority of disinterested or independent Trustees, approved the renewal of the Investment Advisory Agreement for the Delaware Dividend Income Fund (the "Fund"). In making its decision, the Board considered information furnished throughout the year at regular Board meetings, as well as information prepared specifically in connection with the Annual Meeting. Information furnished and discussed throughout the year included reports detailing Fund performance, investment strategies, expenses, compliance matters and other services provided by Delaware Management Company ("DMC"), the Fund's investment adviser. Information furnished specifically in connection with the Annual Meeting included materials provided by DMC and its affiliates ("Delaware Investments(R)") concerning, among other things, the level of services provided to the Fund, the costs of such services to the Fund, economies of scale and the financial condition and profitability of Delaware Investments. In addition, in connection with the Annual Meeting, the Board separately received and reviewed independent historical and comparative reports prepared by Lipper Inc. ("Lipper"), an independent statistical compilation organization. The Lipper reports compared the Fund's investment performance and expenses with those of other comparable mutual funds. The Board also requested and received certain supplemental information regarding management's policy with respect to advisory fee levels and its philosophy with respect to breakpoints; the structure of portfolio manager compensation; the investment manager's profitability organized by client type, including the Fund; and any constraints or limitations on the availability of securities in certain investment styles which might inhibit the adviser's ability to fully invest in accordance with the Fund's policies. In considering such materials, the independent Trustees received assistance and advice from and met separately with independent counsel and representatives from Lipper. At the meeting with representatives from Lipper, Jude Driscoll, Chairman of the Delaware Investments Family of Funds, and Chairman and Chief Executive Officer of the investment adviser, was present to respond to questions raised by Lipper and the independent Trustees. While the Board considered the Investment Advisory Agreements for all of the funds in the Delaware Investments Family of Funds at the same Board meeting, information was provided and considered by the Board for each fund individually. In approving the continuance of the Investment Advisory Agreement for the Fund, the Board, including a majority of independent Trustees, determined that the existing advisory fee structure was fair and reasonable and that the continuance of the Investment Advisory Agreement was in the best interests of the Fund and its shareholders. While attention was given to all information furnished, the following discusses the primary factors relevant to the Board's deliberations and determination, including those relating to the selection of the investment adviser and the approval of the advisory fee. NATURE, EXTENT AND QUALITY OF SERVICE. Consideration was given to the services provided by Delaware Investments to the Fund and its shareholders. In reviewing the nature, extent and quality of services, the Board emphasized reports furnished to it throughout the year at regular Board Meetings covering matters such as the compliance of portfolio managers with the investment policies, strategies and restrictions for the Fund, the compliance of management personnel with the Code of Ethics adopted throughout the Delaware Investments Family of Funds complex, the adherence to fair value pricing procedures as established by the Board, and the accuracy of net asset value calculations. The Board noted that it was pleased with the current staffing of the Fund's investment adviser during the past year, the emphasis on research and the compensation system for advisory personnel. Favorable consideration was given to DMC's efforts to maintain, and in some instances increase, financial and human resources committed to fund matters. Other factors taken into account by the Board were Delaware Investments' preparedness for, and response to, legal and regulatory matters. The Board also considered the transfer agent and shareholder services provided to Fund shareholders by Delaware Investments' affiliate, Delaware Service Company, Inc., noting the receipt by such affiliate of the DALBAR Pyramid Award in four of the last six years and the continuing expenditures by Delaware Investments to increase and improve the scope of shareholder services. Additionally, the Board noted the extent of benefits provided to Fund shareholders for being part of the Delaware Investments Family of Funds, including the privilege to exchange investments between the same class of funds without a sales charge, the ability to reinvest Fund dividends into other funds and the privilege to combine holdings in other funds to obtain a reduced sales charge. The Board was satisfied with the nature, extent and quality of the overall services provided by Delaware Investments. INVESTMENT PERFORMANCE. The Board considered the investment performance of DMC and the Fund. The Board was pleased by DMC's investment performance, noting Barron's ranking of the Delaware Investments Family of Funds in the top quartile of mutual fund families for 2002 - 2004. The Board placed significant emphasis on the investment performance of the Fund in view of its importance to shareholders. While consideration was given to performance reports and discussions with portfolio managers at Board meetings throughout the year, particular attention in assessing performance was given to the Lipper reports furnished for the Annual Meeting. The Lipper reports prepared for the Fund showed the investment performance of its Class A shares in comparison to a group of similar funds as selected by Lipper (the "Performance Universe"). A fund with the highest performance is ranked first, and a fund with the lowest is ranked last. The highest/best performing 25% of funds in the Performance Universe make up the first quartile; the next 25% - the second quartile; the next 25% - the third quartile; and the lowest/worst performing 25% of funds in the Performance Universe make up the fourth quartile. Comparative annualized performance for the Fund was shown for the past one, three and five year periods ended February 28, 2005. The Board noted its objective that the Fund's performance be at or above the median of its Performance Universe. The following paragraph summarizes the performance results for the Fund and the Board's view of such performance. The Performance Universe for this Fund consisted of the Fund and all retail and institutional income funds as selected by Lipper. The Lipper report comparison showed that the Fund's total return for the one, three and five year periods was in the first quartile of such Performance Universe. The Board was satisfied with such performance. 18 OTHER DELAWARE DIVIDEND INCOME FUND FUND INFORMATION (CONTINUED) BOARD CONSIDERATION OF DELAWARE DIVIDEND INCOME FUND INVESTMENT ADVISORY AGREEMENT (CONTINUED) COMPARATIVE EXPENSES. The Board considered expense comparison data for the Delaware Investments Family of Funds, Delaware Investments' institutional separate account business and other lines of business at Delaware Investments. The Board stated its belief that, given the differing level of service provided to Delaware Investments' various clients and other factors that related to the establishment of fee levels, variations in the levels of fees and expenses were justified. The Board placed significant emphasis on the comparative analysis of the management fees and total expense ratios of the Fund compared with those of a group of similar funds as selected by Lipper (the "Expense Group") and among the other Delaware Investments funds. In reviewing comparative costs, the Fund's contractual management fee and the actual management fee incurred by the Fund were compared with the contractual management fees (assuming all funds in the Expense Group were similar in size to the Fund) and actual management fees (as reported by each fund) of other funds within the Expense Group, taking into effect any applicable breakpoints and fee waivers. The Fund's total expenses were also compared with those of its Expense Group. The Lipper total expenses, for comparative consistency, were shown by Lipper for Class A shares and compared total expenses including 12b-1 and non-12b-1 service fees. The Board noted its objective to limit the Fund's total expense ratio to an acceptable range as compared to the median of the Expense Group. The following paragraph summarizes the expense results for the Fund and the Board's view of such expenses. Such expense comparisons for the Fund showed that its management fee and total expenses were in the quartile with the lowest expenses of its Expense Group. The Board was satisfied with the management fees and total expenses of the Fund in comparison to its Expense Group as shown in the Lipper report. MANAGEMENT PROFITABILITY. The Board considered the level of profits, if any, realized by Delaware Investments(R) in connection with the operation of the Fund. In this respect, the Board reviewed the Investment Management Profitability Analysis that addressed the overall profitability of Delaware Investments' business in providing management and other services to each of the individual funds and the Delaware Investments Family of Funds as a whole. Specific attention was given to the methodology followed in allocating costs for the purpose of determining profitability. Management stated that the level of profits of Delaware Investments, to a certain extent, reflected operational cost savings and efficiencies initiated by Delaware Investments. The Board considered Delaware Investments' expenditures to improve services provided to fund shareholders and to meet additional regulatory and compliance requirements resulting from the Sarbanes-Oxley Act and recent SEC initiatives. The Board also considered the extent to which Delaware Investments might derive ancillary benefits from fund operations, including the potential for procuring additional business as a result of the prestige and visibility associated with its role as service provider to the Delaware Investments Family of Funds, the benefits from allocation of fund brokerage to improve trading efficiencies and the use of "soft" commission dollars to pay for proprietary and non-proprietary research. At the Board's request, management also provided information relating to Delaware Investments' profitability by client type. The information provided set forth the revenue, expenses and pre-tax income/loss attributable to the Delaware Investments Family of Funds, Delaware Investments' separate account business and other lines of business at Delaware Investments. Emphasis was given to the level and type of service provided to the various clients. The Board was satisfied with the level of profits realized by Delaware Investments from the relationships with the Fund and the Delaware Investments Family of Funds. ECONOMIES OF SCALE. The Trustees considered whether economies of scale are realized by Delaware Investments as the Fund's assets increase and the extent to which any economies of scale are reflected in the level of management fees charged. The Trustees took into account the standardized advisory fee pricing and structure approved by the Board and shareholders as part of a complex-wide shareholder meeting conducted in 1998/1999. At that time, Delaware Investments introduced breakpoints to account for management economies of scale. The Board noted that the fee under the Fund's management contract fell within the standard structure. Although the Fund has not reached a size at which it can take advantage of breakpoints, the Board recognized that the fee was structured so that when the Fund grows, economies of scale may be shared. 19 This page intentionally left blank. Delaware Investments(R) ----------------------------------- A member of Lincoln Financial Group This semiannual report is for the information of Delaware Dividend Income Fund shareholders, but it may be used with prospective investors when preceded or accompanied by a current prospectus for Delaware Dividend Income Fund and the Delaware Investments Performance Update for the most recently completed calendar quarter. The prospectus sets forth details about charges, expenses, investment objectives, and operating policies of the Fund. You should read the prospectus carefully before you invest. The figures in this report represent past results that are not a guarantee of future results. The return and principal value of an investment in the Fund will fluctuate so that shares, when redeemed, may be worth more or less than their original cost. BOARD OF TRUSTEES JUDE T. DRISCOLL Chairman Delaware Investments Family of Funds Philadelphia, PA THOMAS L. BENNETT Private Investor Rosemont, PA JOHN A. FRY President Franklin & Marshall College Lancaster, PA ANTHONY D. KNERR Managing Director Anthony Knerr & Associates New York, NY LUCINDA S. LANDRETH Former Chief Investment Officer Assurant, Inc. Philadelphia, PA ANN R. LEVEN Former Treasurer/Chief Fiscal Officer National Gallery of Art Washington, DC THOMAS F. MADISON President and Chief Executive Officer MLM Partners, Inc. Minneapolis, MN JANET L. YEOMANS Vice President/Mergers & Acquisitions 3M Corporation St. Paul, MN J. RICHARD ZECHER Founder Investor Analytics Scottsdale, AZ AFFILIATED OFFICERS MICHAEL P. BISHOF Senior Vice President and Chief Financial Officer Delaware Investments Family of Funds Philadelphia, PA RICHELLE S. MAESTRO Executive Vice President, Chief Legal Officer and Secretary Delaware Investments Family of Funds Philadelphia, PA JOHN J. O'CONNOR Senior Vice President and Treasurer Delaware Investments Family of Funds Philadelphia, PA CONTACT INFORMATION Investment Manager Delaware Management Company, a Series of Delaware Management Business Trust Philadelphia, PA NATIONAL DISTRIBUTOR Delaware Distributors, L.P. Philadelphia, PA SHAREHOLDER SERVICING, DIVIDEND DISBURSING AND TRANSFER AGENT Delaware Service Company, Inc. 2005 Market Street Philadelphia, PA 19103-7094 FOR SHAREHOLDERS 800 523-1918 FOR SECURITIES DEALERS AND FINANCIAL INSTITUTIONS REPRESENTATIVES ONLY 800 362-7500 WEB SITE www.delawareinvestments.com -------------------------------------------------------------------------------- The Fund files its complete schedule of portfolio holdings with the Securities and Exchange Commission for the first and third quarters of each fiscal year on Form N-Q. The Fund's Forms N-Q, as well as a description of the policies and procedures that the Fund uses to determine how to vote proxies (if any) relating to portfolio securities is available without charge (i) upon request, by calling 800 523-1918; (ii) on the Fund's Web site at http://www.delawareinvestments.com; and (iii) on the Commission's Web site at http://www.sec.gov. The Fund's Forms N-Q may be reviewed and copied at the Commission's Public Reference Room in Washington, DC; information on the operation of the Public Reference Room may be obtained by calling 1-800-SEC-0330. Information (if any) regarding how the Fund voted proxies relating to portfolio securities during the most recently disclosed 12-month period ended June 30 is available without charge (i) through the Fund's Web site at http://www.delawareinvestments.com; and (ii) on the Commission's Web site at http://www.sec.gov. -------------------------------------------------------------------------------- (9486) Printed in the USA SA-129-[5/05]IVES 7/05 MF-05-06-093 PO 10243 Delaware Investments(R) ----------------------------------- A member of Lincoln Financial Group SEMIANNUAL REPORT 2005 MAY 31, 2005 -------------------------------------------------------------------------------- DELAWARE SMALL CAP CORE FUND [LOGO] POWERED BY RESEARCH.(SM) May 11, 2005 Dear Shareholder: In the first four months of 2005, we saw the U.S. economy continue to grow, leading the Federal Reserve to keep in place its approach of "measured" interest rate increases. For the six months ended May 31, 2005, the stock and bond markets generated modest performances. A benchmark for equities of large companies based in the United States, the Standard & Poor's 500 Index, returned +2.42%. By way of comparison, domestic bonds, as measured by the Lehman Brothers Aggregate Bond Index, experienced a slightly greater return of +2.90% (source: Lipper Inc.) A NEW YEAR IS OFTEN A TIME OF REFLECTION AND FOR LOOKING FORWARD TO THE FUTURE. This is especially true at Delaware Investments(R) this year. As part of Lincoln Financial Group(R), Delaware Investments began a yearlong celebration of 100 years of Lincoln history, 75+ years of Delaware history and the past 10 years together. Today Delaware Investments is recognized as an integral part of Lincoln Financial Group's ability to offer a broad variety of high quality financial solutions for investors. In assessing the rest of the year, we believe there will be positive economic growth, although at a more moderate pace than what we experienced in 2004. Containment of oil prices, along with modest inflation expectations, may help foster this growth. Our views on interest rates, oil prices and the intermediate-term outlook for the U.S. economy impact the way we invest our portfolios. MOST IMPORTANTLY, THOUGH, DELAWARE INVESTMENTS IS AN ASSET MANAGEMENT COMPANY COMMITTED TO FUNDAMENTAL, STYLE-SPECIFIC INVESTMENT RESEARCH ACROSS THE MULTIPLE ASSET CLASSES IN WHICH WE INVEST. We rely on our in-depth proprietary research, carefully weighing the risks and potential returns of individual securities, to achieve a goal of creating long-term out-performance. From our determined beginnings at the start of the Great Depression, we've learned how important consistent performance is to our clients. As we look forward to the rest of 2005, a final reflection: We recognize that employees are a competitive advantage in a service-based industry such as investment management. AT DELAWARE INVESTMENTS, WE'RE PROUD OF OUR PEOPLE. It is their dedication to and passion for our business that drives our success. We recently welcomed a new investment management team to Delaware. The addition of our Focus Growth Equity Team, based in San Francisco, brings additional strength to our growth-oriented investment capabilities and also provides Delaware Investments with a west coast presence that includes a second equity trading floor. As our capabilities at Delaware Investments grow, so does our passion for our business. All of us at Delaware Investments thank you for your continued support. Join us as we welcome the future with a legacy of commitment that continues to focus on you. Sincerely, /s/ Jude T. Driscoll Jude T. Driscoll Chairman Delaware Investments Family of Funds DISCLOSURE OF FUND EXPENSES As a shareholder of a fund, you incur two types of costs (1) transaction costs, including sales charges (loads) on purchase payments, reinvested dividends, or other distributions; redemption fees; end exchange fees; and (2) ongoing costs, including management fees; distribution, and/or service (12b-1) fees; and other fund expenses. This Example is intended to help you understand your ongoing costs (in dollars) of investing in a fund and to compare these costs with the ongoing costs of investing in other mutual funds. The Example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period from December 1, 2004 to May 31, 2005. ACTUAL EXPENSES The first section of the table shown, "Actual Fund Return," provides information about actual account values and actual expenses. You may use the information in this section together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first section under the heading entitled "Expenses Paid During Period" to estimate the expenses you paid on your account during the period. HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES The second section of the table shown, "Hypothetical 5% Return," provides information about hypothetical account values and hypothetical expenses based on a fund's actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund's actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the fund and other funds. To do so, compare the 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of other funds. Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as sales charges (loads), redemption fees, or exchange fees. Therefore, the second section of the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher. The Fund's actual expenses shown in the table reflect fee waivers in effect. The expenses shown in the table assume reinvestment of all dividends and distributions. DELAWARE SMALL CAP CORE FUND EXPENSE ANALYSIS OF AN INVESTMENT OF $1,000
Expense Beginning Ending Paid During Account Account Annualized Period Value Value Expense 12/1/04 to 12/1/04 5/31/05 Ratio 5/31/05 ---------------------------------------------------------------------------------------------------------------- ACTUAL FUND RETURN Class A $1,000.00 $1,005.20 0.78% $3.90 Institutional Class 1,000.00 1,005.20 0.78% 3.90 ---------------------------------------------------------------------------------------------------------------- HYPOTHETICAL 5% RETURN (5% return before expenses) Class A $1,000.00 $1,021.04 0.78% $3.93 Institutional Class 1,000.00 1,021.04 0.78% 3.93 ----------------------------------------------------------------------------------------------------------------
*EXPENSES ARE EQUAL TO THE FUND'S ANNUALIZED EXPENSE RATIO, MULTIPLIED BY THE AVERAGE ACCOUNT VALUE OVER THE PERIOD, MULTIPLIED BY 182/365 (TO REFLECT THE ONE-HALF YEAR PERIOD). SECTOR ALLOCATION As of May 31, 2005 DELAWARE SMALL CAP CORE FUND The SEC adopted a requirement that all funds present their categories of portfolio holdings in a table, chart, or graph format in their annual and semiannual shareholder report, whether or not a schedule of investments is utilized. The following chart lists the Fund's categories of portfolio holdings as a percentage of total net assets and is provided in compliance with such requirement. PERCENTAGE SECTOR OF NET ASSETS ---------------------------------------------------------------------- COMMON STOCK 98.25% ---------------------------------------------------------------------- Basic Materials 5.96% Business Services 5.43% Capital Goods 8.39% Consumer Discretionary 6.34% Consumer Services 2.72% Consumer Staples 2.16% Credit Cyclicals 3.51% Energy 5.70% Finance 15.36% Healthcare 13.00% Media 2.60% REITs 5.34% Technology 17.23% Transportation 1.87% Utilities 2.64% ---------------------------------------------------------------------- REPURCHASE AGREEMENTS 1.85% ---------------------------------------------------------------------- TOTAL MARKET VALUE OF SECURITIES 100.10% ---------------------------------------------------------------------- LIABILITIES NET OF RECEIVABLES AND OTHER ASSETS (0.10%) ---------------------------------------------------------------------- TOTAL NET ASSETS 100.00% ---------------------------------------------------------------------- STATEMENT OF DELAWARE SMALL CAP CORE FUND NET ASSETS May 31, 2005 (Unaudited) Number of Market Shares Value COMMON STOCK- 98.25% Basic Materials - 5.96% Aceto 1,500 $ 10,905 +AK Steel Holding 2,100 16,065 Ameron International 300 9,900 +Century Aluminum 800 17,928 Crompton 2,000 30,700 Cytec Industries 600 24,996 Ferro 600 11,544 +FMC 600 33,270 +Maverick Tube 900 27,189 +NS Group 800 23,056 +PolyOne 3,100 20,832 +USG 600 27,510 Wausau-Mosinee Paper 1,400 17,500 Worthington Industries 900 15,084 --------- 286,479 --------- Business Services - 5.43% Administaff 1,400 29,904 Clark 1,100 15,950 Gevity HR 600 10,290 Harland (John H.) 500 18,835 Healthcare Services Group 1,200 22,440 +ITT Educational Services 200 9,078 +Labor Ready 1,500 30,960 McGrath RentCorp 800 18,440 +NCO Group 700 13,902 +Sourcecorp 700 14,987 UniFirst 500 18,300 +United Stationers 500 24,515 +Universal Technical Institute 300 9,165 +West 700 24,598 --------- 261,364 --------- Capital Goods - 8.39% Acuity Brands 900 22,095 +AGCO 1,200 22,032 Applied Industrial Technologies 450 13,698 +Aviall 600 18,468 Barnes Group 500 15,340 Briggs & Stratton 700 23,702 DRS Technologies 500 23,540 +Flowserve 500 14,735 +Genlyte Group 600 26,736 +Griffon 500 9,965 Helix Technology 1,200 15,132 Hughes Supply 400 10,400 +Kadant 500 10,250 Lawson Products 500 21,400 Lincoln Electric Holdings 500 16,380 NN 1,100 13,959 +Orbital Sciences 1,700 16,507 Oshkosh Truck 100 7,974 +Rofin-Sinar Technologies 400 12,920 +Terex 800 31,616 Toro 600 25,830 Watsco 700 30,933 --------- 403,612 --------- STATEMENT OF NET ASSETS (CONTINUED) Number of Market Shares Value COMMON STOCK (continued) Consumer Discretionary - 6.34% +Aeropostale 800 $ 21,800 +AnnTaylor Stores 800 20,608 +Brookstone 900 18,126 +Charming Shoppes 2,700 24,381 +Conn's 1,100 20,999 Finish Line Class A 1,400 27,888 +GameStop 1,100 32,076 Goody's Family Clothing 1,300 9,230 +Guitar Center 500 28,495 +JOS A Bank Clothiers 600 23,652 +Pacific Sunwear of California 1,100 23,100 Stride Rite 1,300 15,457 +Tempur-Pedic International 1,000 23,330 Yankee Candle 500 15,775 --------- 304,917 --------- Consumer Services - 2.72% +Argosy Gaming 500 23,185 CKE Restaurants 1,400 23,100 +ExpressJet Holdings 1,500 12,945 IHOP 600 28,566 Lone Star Steakhouse & Saloon 600 18,126 +Papa John's International 300 11,700 +Penn National Gaming 400 13,028 --------- 130,650 --------- Consumer Staples - 2.16% Chiquita Brands International 600 17,448 Lancaster Colony 300 13,182 Longs Drug Stores 400 16,416 Nu Skin Enterprises Class A 1,000 22,590 Ralcorp Holdings 500 19,070 Sanderson Farms 400 15,160 --------- 103,866 --------- Credit Cyclicals - 3.51% ArvinMeritor 700 10,080 Beazer Homes USA 600 32,076 +Jacuzzi Brands 2,300 23,483 M/I Homes 400 20,192 +Meritage 400 29,088 Monaco Coach 1,000 16,410 Standard-Pacific 200 16,024 Thor Industries 700 21,252 --------- 168,605 --------- Energy - 5.70% +Forest Oil 900 35,784 Holly 800 30,584 +Meridian Resource 4,500 20,385 +Oceaneering International 600 21,900 +Offshore Logistics 600 18,792 +Oil States International 1,300 30,108 +Spinnaker Exploration 700 21,469 +Stone Energy 300 12,909 +Universal Compression Holdings 600 20,520 +Veritas DGC 900 24,300 +W-H Energy Services 1,000 21,670 World Fuel Services 600 15,810 --------- 274,231 --------- STATEMENT OF NET ASSETS (CONTINUED) Number of Market Shares Value COMMON STOCK (continued) Finance - 15.36% +Affiliated Managers Group 500 $ 33,350 American Home Mortgage Investment 700 22,792 AmerUs Group 500 23,795 Bancfirst 200 15,748 City Holding 500 16,890 Commercial Capital Bancorp 1,300 22,035 +CompuCredit 800 25,224 Delphi Financial Group Class A 500 21,200 Dime Community Bancshares 1,000 15,100 FBL Financial Group Class A 700 18,725 Financial Federal 700 26,110 First Place Financial Ohio 900 17,721 +FirstFed Financial 300 16,254 Flagstar Bancorp 1,100 21,736 Frontier Financial 1,050 26,145 Greater Bay Bancorp 1,200 30,156 Independent Bank - Michigan 600 16,884 Kansas City Life Insurance 300 14,136 MainSource Financial Group 840 15,347 Merchants Bancshares 700 18,536 +Metris 1,600 20,768 MFA Mortgage Investments 1,500 10,635 +Molina Healthcare 400 17,120 Ohio Casualty 900 21,510 PFF Bancorp 900 26,136 +Piper Jaffray 500 14,135 Presidential Life 800 12,120 Republic Bancorp 1,680 23,192 RLI 600 26,244 +Sierra Health Services 400 26,428 Sterling Bancshares 1,600 21,760 TierOne 1,000 24,125 +Triad Guaranty 200 10,840 Trustmark 1,000 28,570 +United America Indemnity 775 13,214 West Coast Bancorp Oregon 1,100 23,936 --------- 738,617 --------- Healthcare - 13.00% +Adolor 1,100 10,516 +Albany Molecular Research 800 9,528 +Alkermes 1,200 13,920 Alpharma Class A 900 11,583 +American Healthways 600 23,562 +Applera-Celera Genomics 1,400 13,888 +Apria Healthcare Group 600 18,900 Arrow International 600 20,280 +Bio-Rad Laboratories Class A 300 16,164 +Candela 2,300 23,529 +Digene 600 15,096 +Enzo Biochemical 600 9,162 +First Horizon Pharmaceutical 1,400 26,320 +Gen-Probe 400 15,544 +Geron 2,300 18,400 +Immunogen 2,200 13,112 +Kensey Nash 800 21,760 +Kos Pharmaceuticals 400 23,092 +LifePoint Hospitals 500 22,490 +Medarex 1,300 9,854 Mentor 500 20,455 +Noven Pharmaceuticals 1,000 18,000 Owens & Minor 700 21,700 PolyMedica 500 17,550 +Priority Healthcare Class B 800 18,304 +Res-Care 1,800 23,994 +Serologicals 900 19,341 STATEMENT OF NET ASSETS (CONTINUED) Number of Market Shares Value COMMON STOCK (continued) Healthcare (Continued) +Sybron Dental Specialties 700 $ 25,949 +Techne 400 18,640 +Telik 1,200 17,112 +United Therapeutics 500 24,980 Vital Signs 300 12,651 West Pharmaceutical Services 1,000 27,840 +Wright Medical Group 800 22,032 --------- 625,248 --------- Media - 2.60% +4Kids Entertainment 1,000 19,000 infoUSA 1,500 18,120 Journal Communications Class A 1,000 16,750 +Lin TV Class A 900 13,095 Media General Class A 200 12,220 +Mediacom Communications 2,600 15,808 +Scholastic 500 18,760 Sinclair Broadcasting Group 1,300 11,453 --------- 125,206 --------- Real Estate - 5.34% Brandywine Realty Trust 600 16,896 Equity Inns 1,800 21,582 First Industrial Realty Trust 500 19,400 Glimcher Realty Trust 700 18,025 Home Properties 500 20,600 HRPT Properties Trust 1,200 14,196 Maguire Properties 600 15,690 National Health Investors 800 21,336 Nationwide Health Properties 900 20,223 Pennsylvania Real Estate Investment Trust 400 17,600 Prentiss Properties Trust 600 20,700 Senior Housing Properties Trust 800 14,392 Shurgard Storage Centers Class A 400 17,460 SL Green Realty 300 18,585 --------- 256,685 --------- Technology - 17.23% +AMIS Holdings 1,200 14,400 +Artesyn Technologies 1,600 13,168 +ASK Jeeves 400 12,164 +Aspect Communications 1,200 11,520 +Aspen Technology 3,200 16,768 +Avid Technology 300 17,592 +Axcelis Technologies 3,500 23,275 +Blackboard 1,200 23,652 +CACI International 400 25,784 +Cymer 700 19,887 +Digital River 500 13,760 +Digitas 1,400 15,498 +Dionex 400 17,940 +DSP Group 400 9,408 +Dycom Industries 800 15,712 +EarthLink 2,000 21,220 FactSet Research Systems 600 19,206 +FileNet 600 16,716 +Internet Security Systems 900 19,980 +iPayment 400 15,256 +j2 Global Communications 500 17,540 +KEMET 2,100 14,700 +Kulicke & Soffa Industries 4,400 25,564 +Mercury Computer Systems 600 17,340 +MTC Technologies 500 16,765 +Multi-Fineline Electronix 700 11,424 +Netgear 1,300 25,571 +OmniVision Technologies 1,400 22,148 +Photronics 1,100 25,333 Plantronics 400 13,768 STATEMENT OF NET ASSETS (CONTINUED) Number of Market Shares Value COMMON STOCK (CONTINUED) Technology (Continued) +Progress Software 900 $ 26,253 Quality Systems 400 24,052 +RadiSys 1,300 21,021 +RF Micro Devices 1,500 6,975 +RSA Security 2,100 25,830 +SI International 600 17,010 +Sigmatel 600 13,584 +Skyworks Solutions 2,700 17,091 +Take-Two Interactive Software 1,050 27,048 United Online 900 11,646 +Universal Electronics 800 13,344 +Varian Semiconductor Equipment 700 28,406 +Verint Systems 300 10,500 +Viasat 900 18,261 +WebEx Communications 800 21,488 +Wind River Systems 800 13,112 --------- 828,680 --------- Transportation - 1.87% Arkansas Best 400 13,092 +HUB Group 1,000 27,480 +Pacer International 1,200 27,372 +SCS Transportation 1,200 21,900 --------- 89,844 --------- Utilities - 2.64% Black Hills 500 18,310 Cascade Natural Gas 700 13,454 Cleco 700 14,623 Great Plains Energy 400 12,600 Middlesex Water 500 9,670 Otter Tail 500 12,730 UGI 1,200 31,812 Westar Energy 600 13,842 --------- 127,041 --------- TOTAL COMMON STOCK (cost $4,334,031) 4,725,045 --------- Principal Amount REPURCHASE AGREEMENTS- 1.85% With BNP Paribas 2.95% 6/1/05 (dated 5/31/05, to be repurchased at $51,804, collateralized by $7,600 U.S. Treasury Bills due 9/29/05, market value $7,500, $6,400 U.S. Treasury Bills due 10/20/05, market value $6,342, $11,500 U.S. Treasury Bills due 11/17/05, market value $11,363, $7,400 U.S. Treasury Notes 2.38% due 8/15/06, market value $7,327, $11,400 U.S. Treasury Notes 6.50% due 8/15/05, market value $11,668, and $8,100 U.S. Treasury Notes 7.00% due 7/15/06, market value $8,638) $51,800 51,800 With UBS Warburg 2.95% 6/1/05 (dated 5/31/05, to be repurchased at $37,203, collateralized by $38,300 U.S. Treasury Notes 2.50% due 5/31/06, market value $38,003) 37,200 37,200 ---------- TOTAL REPURCHASE AGREEMENTS (cost $89,000) 89,000 ---------- TOTAL MARKET VALUE OF SECURITIES - 100.10% (cost $4,423,031) 4,814,045 LIABILITIES NET OF RECEIVABLES AND OTHER ASSETS - (0.10%) (4,998) ---------- NET ASSETS APPLICABLE TO 458,593 SHARES OUTSTANDING - 100.00% $4,809,047 ---------- STATEMENT OF NET ASSETS (CONTINUED) Net Asset Value - Delaware Small Cap Core Fund Class A ($22,259 / 2,122 Shares) $ 10.49 ---------- Net Asset Value - Delaware Small Cap Core Fund Institutional Class ($4,786,788 / 456,471 Shares) $ 10.49 ----------- COMPONENTS OF NET ASSETS AT MAY 31, 2005: Shares of beneficial interest (unlimited authorization - no par) $4,352,511 Undistributed net investment income 10,286 Accumulated net realized gain on investments 55,236 Net unrealized appreciation of investments 391,014 ---------- Total net assets $4,809,047 ---------- +Non-income producing security for the period ended May 31, 2005. SUMMARY OF ABBREVIATIONS: REIT - Real Estate Investment Trust NET ASSET VALUE AND OFFERING PRICE PER SHARE - DELAWARE SMALL CAP CORE FUND Net asset value Class A (A) $ 10.49 Sales charge (5.75% of offering price) (B) 0.64 ---------- Offering price $ 11.13 ---------- (A) Net asset value per share, as illustrated, is the estimated amount which would be paid upon the redemption or repurchase of shares. (B) See the current prospectus for purchases of $50,000 or more. See accompanying notes DELAWARE SMALL CAP CORE STATEMENT OF OPERATIONS Six Months Ended May 31, 2005 INVESTMENT INCOME: Dividends $ 24,751 Interest 798 $ 25,549 ----------- EXPENSES: Management fees 17,693 Distribution expenses - Class A 32 Legal and professional fees 2,358 Pricing fees 705 Registration fees 552 Accounting and administration expenses 543 Custodian fees 449 Taxes (other than taxes on income) 274 Insurance fees 230 Trustees' fees 132 Dividend disbursing and transfer agent fees and expenses 106 Reports and statements to shareholders 104 Other 84 23,262 ----------- Less expenses absorbed or waived (4,870) Less waiver of distribution expenses - Class A (32) Less expenses paid indirectly (10) ----------- Total expenses 18,350 ----------- Net Investment Income 7,199 ----------- NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS: Net realized gain on investments 60,364 Net change in unrealized appreciation/ depreciation of investments (45,858) ----------- NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS 14,506 ----------- NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 21,705 ===========
See accompanying notes DELAWARE SMALL CAP CORE FUND STATEMENTS OF CHANGES IN NET ASSETS
Six Months Year Ended Ended 5/31/05 11/30/04 -------------- ------------ INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS: Net investment income $ 7,199 $ 8,533 Net realized gain on investments 60,364 1,393,660 Net change in unrealized appreciation/depreciation of investments (45,858) (582,199) -------------- ------------ Net increase in net assets resulting from operations 21,705 819,994 -------------- ------------ DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM: Net investment income: Class A (34) (43) Institutional Class (8,157) (13,285) Net realized gain on investments: Class A (5,845) (928) Institutional Class (1,387,384) (284,732) -------------- ------------ (1,401,420) (298,988) -------------- ------------ CAPITAL SHARE TRANSACTIONS: Proceeds from shares sold: Class A 2,080 3,904 Institutional Class -- -- Net asset value of shares issued upon reinvestment of dividends and distributions: Class A 5,880 971 Institutional Class 1,395,541 298,017 -------------- ------------ 1,403,501 302,892 -------------- ------------ Increase in net assets derived from capital share transactions 1,403,501 302,892 -------------- ------------ Net Increase in Net Assets 23,786 823,898 NET ASSETS: Beginning of period 4,785,261 3,961,363 -------------- ------------ End of period (including undistributed net investment income of $5,584 and $6,576, respectively) $ 4,809,047 $ 4,785,261 ============== ============
See accompanying notes FINANCIAL HIGHLIGHTS Selected data for each share of the Fund outstanding throughout each period were as follows:
Delaware Small Cap Core Fund Class ----------------------------------------------------------------------------------------------------------------------------------- Six Months Ended Year Ended 5/31/05(1) 11/30/04 11/30/03 11/30/02 11/30/01 11/30/00 NET ASSET VALUE, BEGINNING OF PERIOD $14.600 $13.080 $10.290 $11.130 $ 9.090 $8.930 INCOME FROM INVESTMENT OPERATIONS: Net investment income(2) 0.016 0.026 0.036 0.079 0.111 0.159 Net realized and unrealized gain on investments 0.151 2.481 3.350 0.069 2.082 0.720 ------- ------- ------- ------- ------- ------ Total from investment operations 0.167 2.507 3.386 0.148 2.193 0.879 ------- ------- ------- ------- ------- ------ LESS DIVIDENDS AND DISTRIBUTIONS FROM: Net investment income (0.025) (0.044) (0.075) (0.108) (0.153) (0.135) Net realized gain on investments (4.252) (0.943) (0.521) (0.880) -- (0.584) ------- ------- ------- ------- ------- ------ Total dividends and distributions (4.277) (0.987) (0.596) (0.988) (0.153) (0.719) ------- ------- ------- ------- ------- ------ NET ASSET VALUE, END OF PERIOD $10.490 $14.600 $13.080 $10.290 $11.130 $9.090 ======= ======= ======= ======= ======= ====== TOTAL RETURN(3) 0.52% 20.62% 35.19% 1.08% 24.42% 10.56% RATIOS AND SUPPLEMENTAL DATA: Net assets, end of period (000 omitted) $22 $20 $13 $-- $-- $-- Ratio of expenses to average net assets 0.78% 0.75% 0.75% 0.75% 0.75% 0.75% Ratio of expenses to average net assets prior to expense limitation and expenses paid indirectly 1.28% 1.30% 1.34% 1.34% 1.18% 1.24% Ratio of net investment income to average net assets 0.30% 0.20% 0.33% 0.74% 1.07% 1.81% Ratio of net investment income (loss) to average net assets prior to expense limitation and expenses paid indirectly (0.20%) (0.35%) (0.26%) 0.15% 0.63% 1.32% Portfolio turnover 39% 136% 44% 76% 82% 125%
(1) Ratios and portfolio turnover have been annualized and total return has not been annualized. (2) The average shares outstanding method has been applied for per share information. (3) Total investment return is based on the change in net asset value of a share during the period and assumes reinvestment of dividends and distributions at net asset value and does not reflect the impact of a sales charge. Total investment return reflects a waiver and payment of fees by the manager and distributor. Performance would have been lower had the expense limitation not been in effect. See accompanying notes FINANCIAL HIGHLIGHTS (CONTINUED) Selected data for each share of the Fund outstanding throughout each period were as follows:
Delaware Small Cap Core Fund Institutional Class ----------------------------------------------------------------------------------------------------------------------------------- Six Months Ended Year Ended 5/31/05(1) 11/30/04 11/30/03 11/30/02 11/30/01 11/30/00 NET ASSET VALUE, BEGINNING OF PERIOD $14.600 $13.080 $10.290 $11.130 $9.090 $8.930 INCOME FROM INVESTMENT OPERATIONS: Net investment income(2) 0.016 0.026 0.036 0.079 0.111 0.159 Net realized and unrealized gain on investments 0.151 2.481 3.350 0.069 2.082 0.720 ------- ------- ------- ------- ------- ------ Total from investment operations 0.167 2.507 3.386 0.148 2.193 0.879 ------- ------- ------- ------- ------- ------ LESS DIVIDENDS AND DISTRIBUTIONS FROM: Net investment income (0.025) (0.044) (0.075) (0.108) (0.153) (0.135) Net realized gain on investments (4.252) (0.943) (0.521) (0.880) - (0.584) ------- ------- ------- ------- ------- ------ Total dividends and distributions (4.277) (0.987) (0.596) (0.988) (0.153) (0.719) ------- ------- ------- ------- ------- ------ NET ASSET VALUE, END OF PERIOD $10.490 $14.600 $13.080 $10.290 $11.130 $9.090 ======= ======= ======= ======= ======= ====== TOTAL RETURN(3) 0.52% 20.62% 35.19% 1.08% 24.42% 10.56% RATIOS AND SUPPLEMENTAL DATA: Net assets, end of period (000 omitted) $4,787 $4,765 $3,948 $2,921 $2,890 $2,322 Ratio of expenses to average net assets 0.78% 0.75% 0.75% 0.75% 0.75% 0.75% Ratio of expenses to average net assets prior to expense limitation and expenses paid indirectly 0.98% 1.00% 1.04% 1.04% 0.88% 0.94% Ratio of net investment income to average net assets 0.30% 0.20% 0.33% 0.74% 1.07% 1.81% Ratio of net investment income (loss) to average net assets prior to expense limitation and expenses paid indirectly 0.10% (0.05%) 0.04% 0.45% 0.93% 1.62% Portfolio turnover 39% 136% 44% 76% 82% 125%
(1) Ratios and portfolio turnover have been annualized and total return has not been annualized. (2) The average shares outstanding method has been applied for per share information. (3) Total investment return is based on the change in net asset value of a share during the period and assumes reinvestment of dividends and distributions at net asset value. Total investment return reflects a waiver and payment of fees by the manager. Performance would have been lower had the expense limitation not been in effect. See accompanying notes NOTES TO FINANCIAL STATEMENTS May 31, 2005 (UNAUDITED) Delaware Group Equity Funds V (the "Trust") is organized as a Delaware statutory trust and offers three series: Delaware Dividend Income Fund, Delaware Small Cap Core Fund and Delaware Small Cap Value Fund. These financial statements and the related notes pertain to Delaware Small Cap Core Fund (the "Fund"). The Trust is an open-end investment company. The Fund is considered diversified under the Investment Company Act of 1940, as amended, and offers Class A, Class B, Class C, Class R and Institutional Class shares. Class A shares are sold with a front-end sales charge of up to 5.75%. Class B shares are sold with a contingent deferred sales charge that declines from 4% to zero depending upon the period of time the shares are held. Class B shares will automatically convert to Class A shares on a quarterly basis approximately 8 years after purchase. Class C shares are sold with a contingent deferred sales charge of 1%, if redeemed during the first 12 months. Class R and Institutional Class shares are not subject to a sales charge and are offered for sale exclusively to a limited group of investors. As of May 31, 2005, only Class A and Institutional Class have commenced operations. The investment objective of the Fund is to seek long-term capital appreciation. 1. SIGNIFICANT ACCOUNTING POLICIES The following accounting policies are in accordance with U.S. generally accepted accounting principles and are consistently followed by the Fund. Security Valuation - Equity securities, except those traded on the Nasdaq Stock Market, Inc. (NASDAQ), are valued at the last quoted sales price as of the time of the regular close of the New York Stock Exchange (NYSE) on the valuation date. Securities traded on the NASDAQ are valued in accordance with the NASDAQ Official Closing Price, which may not be the last sales price. If on a particular day an equity security does not trade, then the mean between the bid and asked prices will be used. Short-term debt securities having less than 60 days to maturity are valued at amortized cost, which approximates market value. Other securities and assets for which market quotations are not readily available are valued at fair value as determined in good faith under the direction of the Fund's Board of Trustees. In determining whether market quotations are readily available or fair valuation will be used, various factors will be taken into consideration, such as market closures, or with respect to foreign securities, aftermarket trading or significant events after local market trading (e.g., government actions or pronouncements, trading volume or volatility on markets, exchanges among dealers, or news events). Federal Income Taxes - The Fund intends to continue to qualify for federal income tax purposes as a regulated investment company and make the requisite distributions to shareholders. Accordingly, no provision for federal income taxes has been made in the financial statements. Class Accounting - Investment income, common expenses and realized and unrealized gain (loss) on investments are allocated to the various classes of the Fund on the basis of daily net assets of each class. Distribution expenses relating to a specific class are charged directly to that class. Repurchase Agreements - The Fund may invest in a pooled cash account along with other members of the Delaware Investments Family of Funds. The aggregate daily balance of the pooled cash account is invested in repurchase agreements secured by obligations of the U.S. government. The respective collateral is held by the Fund's custodian bank until the maturity of the respective repurchase agreements. Each repurchase agreement is 102% collateralized. However, in the event of default or bankruptcy by the counterparty to the agreement, realization of the collateral may be subject to legal proceedings. Use of Estimates - The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Other - Expenses common to all funds within the Delaware Investments(R) Family of Funds are allocated amongst the funds on the basis of average net assets. Management fees and some other expenses are paid monthly. Security transactions are recorded on the date the securities are purchased or sold (trade date). Costs used in calculating realized gains and losses on the sale of investment securities are those of the specific securities sold. Dividend income is recorded on the ex-dividend date and interest income is recorded on the accrual basis. Distributions received from investments in Real Estate Investment Trusts are recorded as dividend income on ex-dividend date, subject to reclassification upon notice of the character of such distribution by the issuer. The Fund declares and pays dividends from net investment income and distributions from net realized gain on investments, if any, annually. The Fund receives earnings credits from its custodian when positive cash balances are maintained, which are used to offset custody fees. The earnings credits for the six months ended May 31, 2005 were approximately $10. The expenses paid under the above arrangements are included in their respective expense captions on the Statement of Operations with the corresponding expense offset shown as "expenses paid indirectly." 2. INVESTMENT MANAGEMENT, ADMINISTRATION AGREEMENTS AND OTHER TRANSACTIONS WITH AFFILIATES In accordance with the terms of its investment management agreement, the Fund pays Delaware Management Company (DMC), a series of Delaware Management Business Trust and the investment manager, an annual fee which is calculated daily at the rate of 0.75% on the first $500 million of average daily net assets of the Fund, 0.70% on the next $500 million, 0.65% on the next $1.5 billion, and 0.60% on daily average net assets in excess of $2.5 billion. DMC has contractually agreed to waive that portion, if any, of its management fee and reimburse the Fund to the extent necessary to ensure that annual operating expenses, exclusive of taxes, interest, brokerage commissions, distribution fees, certain insurance costs and extraordinary expenses, do not exceed 1.00% of average daily net assets through December 31, 2005. Delaware Service Company, Inc. (DSC), an affiliate of DMC, provides accounting, administration, dividend disbursing and transfer agent services. The Fund pays DSC a monthly fee based on average net assets subject to certain minimums for accounting and administration services. The Fund pays DSC a monthly fee based on the number of shareholder accounts for dividend disbursing and transfer agent services. Pursuant to a distribution agreement and distribution plan, the Fund pays Delaware Distributors, L.P. (DDLP), the distributor and an affiliate of DMC, an annual distribution and service fee not to exceed 0.30% of the average daily net assets of the Class A shares, 1.00% of the average daily net assets of the Class B and C shares, and 0.60% of the average daily net assets of Class R shares. DDLP has elected voluntarily to waive such distribution and service fees at this time. Institutional Class shares pay no distribution and service expenses. At May 31, 2005, the Fund had liabilities payable to affiliates as follows: Investment management fee payable to DMC $2,173 Dividend disbursing, transfer agent, accounting and administration fees and other expenses payable to DSC 568 Other expenses payable to DMC and affiliates* 2,040 *DMC, as part of its administrative services, pays operating expenses on behalf of the Fund and is reimbursed on a periodic basis. Such expenses include items such as printing of shareholder reports, fees for audit, legal and tax services, registration fees and trustees' fees. As provided in the investment management agreement the Fund bears the cost of certain legal services expenses, including internal legal services provided to the Fund by DMC employees. For the six months ended May 31, 2005, the Fund was charged $158 for internal legal services provided by DMC. Certain officers of DMC, DSC and DDLP are officers and/or trustees of the Trust. These officers and trustees are paid no compensation by the Fund. 3. INVESTMENTS For the six months ended May 31, 2005, the Fund made purchases of $922,780 and sales of $957,757 of investment securities other than short-term investments. At May 31, 2005, the cost of investments for federal income tax purposes has been estimated since the final tax characteristics cannot be determined until fiscal year end. At May 31, 2005, the cost of investments was $4,424,722. At May 31, 2005, the net unrealized appreciation was $389,323 of which $596,163 related to unrealized appreciation of investments and $206,840 related to unrealized depreciation of investments. 4. DIVIDEND AND DISTRIBUTION INFORMATION Income and long-term capital gain distributions are determined in accordance with federal income tax regulations, which may differ from U.S. generally accepted accounting principles. The tax character of dividends and distributions paid during the six months ended May 31, 2005 and the year ended November 30, 2004 were as follows: 5/31/05* 11/30/04 --------------------------------- Ordinary income $ 250,664 $ 94,305 Long-term capital gain 1,150,757 204,683 --------------------------------- Total dividends and distributions $1,401,420 $298,988 --------------------------------- *Tax information for the period ended May 31, 2005 is an estimate and the tax character of dividends and distributions may be redesignated at fiscal year end. The components of net assets are estimated since final tax characteristics cannot be determined until fiscal year end. As of May 31, 2005, the estimated components of net assets on a tax basis were as follows: Shares of beneficial interest $4,352,511 Undistributed ordinary income 46,906 Undistributed long-term capital gains 20,307 Unrealized appreciation of investments 389,323 ----------- Net assets $4,809,047 ----------- The difference between book basis and tax basis components of net assets are primarily attributable to tax deferral of losses on wash. For financial reporting purposes, capital accounts are adjusted to reflect the tax character of permanent book/tax differences. For the six months ended May 31, 2005, the Fund recorded an estimate of these differences since the final tax characteristics cannot be determined until fiscal year end. Reclassifications are primarily due to tax treatment of distribution differences. Results of operations and net assets were not affected by these reclassifications. Undistributed net investment income Accumulated net realized gain (loss) ----------------------------------- ------------------------------------ $4,702 $(4,702) 5. CAPITAL SHARES Transactions in capital shares were as follows:
Six Months Ended Year Ended 5/31/05 11/30/04 ---------- ---------- Shares sold: Class A 199 312 Shares issued upon reinvestment of dividends and distributions: Class A 548 79 Institutional Class 130,182 24,347 ---------- ---------- 130,929 24,738 ---------- ---------- Shares repurchased: -- -- ---------- ---------- Class A -- -- ---------- ---------- Net increase 130,929 24,735 ========== ==========
6. LINE OF CREDIT The Fund, along with certain other funds in the Delaware Investments(R) Family of Funds (the "Participants"), participate in a $183,100,000 revolving line of credit facility to be used for temporary or emergency purposes as an additional source of liquidity to fund redemptions of investor shares. The Participants are charged an annual commitment fee, which is allocated across the Participants on the basis of each fund's allocation of the entire facility. The Participants may borrow up to a maximum of one third of their net assets under the agreement. The Fund had no amounts outstanding as of May 31, 2005, or at any time during the period. 7. CREDIT AND MARKET RISK The Fund may invest up to 15% of its total assets in illiquid securities, which may include securities with contractual restrictions on resale, securities exempt from registration under Rule 144A of the Securities Act of 1933, as amended, and other securities which may not be readily marketable. The relative illiquidity of these securities may impair each Fund from disposing of them in a timely manner and at a fair price when it is necessary or desirable to do so. As of May 31, 2005, this fund did not hold any illiquid securities. The Fund invests in real estate investment trusts (REITs) and is subject to some of the risks associated with that industry. If the Fund holds real estate directly as a result of defaults or receives rental income directly from real estate holdings, its tax status as a regulated investment company may be jeopardized. There were no direct holdings during the period ended May 31, 2005. The Fund's REIT holdings are also affected by interest rate changes, particularly if the REITs it holds use floating rate debt to finance their ongoing operations. The Fund invests a significant portion of its assets in small companies and may be subject to certain risks associated with ownership of securities of small companies. Investments in small-sized companies may be more volatile than investments in larger companies for a number of reasons, which include more limited financial resources or a dependence on narrow product lines. 8. CONTRACTUAL OBLIGATIONS The Fund enters into contracts in the normal course of business that contain a variety of indemnifications. The Fund's maximum exposure under these arrangements is unknown. However, the Fund has not had prior claims or losses pursuant to these contracts. Management has reviewed the Fund's existing contracts and expects the risk of loss to be remote. OTHER FUND INFORMATION PROXY VOTING RESULTS The shareholders of Delaware Group Equity Funds V (the "Trust") voted on the proposal at the special meeting of shareholders on March 23, 2005 or as adjourned. The description of each proposal and number of shares voted are as follows: 1. To elect the 9 nominees specified as Trustees.
SHARES VOTED FOR SHARES VOTED WITHHELD AUTHORITY --------------------------------------------------------------- Thomas L. Bennett 18,156,829 445,948 Jude T. Driscoll 18,162,841 439,936 John A. Fry 18,168,910 433,866 Anthony D. Knerr 18,156,910 445,867 Lucinda S. Landreth 18,162,718 440,059 Ann R. Leven 18,155,177 447,600 Thomas F. Madison 18,153,700 449,700 Janet L. Yeomans 18,172,872 429,905 J. Richard Zecher 18,163,732 439,044
2. To approve the use of a "manager of managers" structure whereby the investment manager of the funds of the Trust will be able to hire and replace subadvisors without shareholder approval. FOR AGAINST ABSTAIN BROKER ----------------------------------------- NON-VOTES Delaware Small Cap Core Fund 326,921 0 0 0 BOARD CONSIDERATION OF DELAWARE SMALL CAP CORE FUND INVESTMENT ADVISORY AGREEMENT At a meeting held on May 18-19, 2005 (the "Annual Meeting"), the Board of Trustees, including a majority of disinterested or independent Trustees, approved the renewal of the Investment Advisory Agreement for the Delaware Small Cap Core Fund (the "Fund"). In making its decision, the Board considered information furnished throughout the year at regular Board meetings, as well as information prepared specifically in connection with the Annual Meeting. Information furnished and discussed throughout the year included reports detailing Fund performance, investment strategies, expenses, compliance matters and other services provided by Delaware Management Company ("DMC"), the investment adviser. Information furnished specifically in connection with the Annual Meeting included materials provided by DMC and its affiliates ("Delaware Investments(R)") concerning, among other things, the level of services provided to the Fund, the costs of such services to the Fund, economies of scale and the financial condition and profitability of Delaware Investments. In addition, in connection with the Annual Meeting, the Board separately received and reviewed independent historical and comparative reports prepared by Lipper Inc. ("Lipper"), an independent statistical compilation organization. The Lipper reports compared the Fund's investment performance and expenses with those of other comparable mutual funds. The Board also requested and received certain supplemental information regarding management's policy with respect to advisory fee levels and its philosophy with respect to breakpoints; the structure of portfolio manager compensation; the investment manager's profitability organized by client type, including the Fund; and any constraints or limitations on the availability of securities in certain investment styles which might inhibit the adviser's ability to fully invest in accordance with the Fund's policies. In considering such materials, the independent Trustees received assistance and advice from and met separately with independent counsel and representatives from Lipper. At the meeting with representatives from Lipper, Jude Driscoll, Chairman of the Delaware Investments(R) Family of Funds, and Chairman and Chief Executive Officer of the investment adviser, was present to respond to questions raised by Lipper and the independent Trustees. While the Board considered the Investment Advisory Agreements for all of the funds in the Delaware Investments Family of Funds at the same Board meeting, information was provided and considered by the Board for each fund individually. In approving the continuance of the Investment Advisory Agreement for the Fund, the Board, including a majority of independent Trustees, determined that the existing advisory fee structure was fair and reasonable and that the continuance of the Investment Advisory Agreement was in the best interests of the Fund and its shareholders. While attention was given to all information furnished, the following discusses the primary factors relevant to the Board's deliberations and determination, including those relating to the selection of the investment adviser and the approval of the advisory fee. NATURE, EXTENT AND QUALITY OF SERVICE. Consideration was given to the services provided by Delaware Investments to the Fund and its shareholders. In reviewing the nature, extent and quality of services, the Board emphasized reports furnished to it throughout the year at regular Board meetings covering matters such as the compliance of portfolio managers with the investment policies, strategies and restrictions for the Fund, the compliance of management personnel with the Code of Ethics adopted throughout the Delaware Investments Family of Funds complex, the adherence to fair value pricing procedures as established by the Board, and the accuracy of net asset value calculations. The Board noted that it was pleased with the current staffing of the Fund's investment adviser during the past year, the emphasis on research and the compensation system for advisory personnel. Favorable consideration was given to DMC's efforts to maintain, and in some instances increase, financial and human resources committed to fund matters. Other factors taken into account by the Board were Delaware Investments' preparedness for, and response to, legal and regulatory matters. The Board also considered the transfer agent and shareholder services provided to Fund shareholders by Delaware Investments' affiliate, Delaware Service Company, Inc., noting the receipt by such affiliate of the DALBAR Pyramid Award in four of the last six years and the continuing expenditures by Delaware Investments to increase and improve the scope of shareholder services. Additionally, the Board noted the extent of benefits provided to Fund shareholders for being part of the Delaware Investments Family of Funds, including the privilege to exchange investments between the same class of funds without a sales charge, the ability to reinvest Fund dividends into other funds and the privilege to combine holdings in other funds to obtain a reduced sales charge. The Board was satisfied with the nature, extent and quality of the overall services provided by Delaware Investments. INVESTMENT PERFORMANCE. The Board considered the investment performance of DMC and the Fund. The Board was pleased by DMC's investment performance, noting Barron's ranking of the Delaware Investments Family of Funds in the top quartile of mutual fund families for 2002 - 2004. The Board placed significant emphasis on the investment performance of the Fund in view of its importance to shareholders. While consideration was given to performance reports and discussions with portfolio managers at Board meetings throughout the year, particular attention in assessing performance was given to the Lipper reports furnished for the Annual Meeting. The Lipper reports prepared for the Fund showed the investment performance of its Class A shares in comparison to a group of similar funds as selected by Lipper (the "Performance Universe"). A fund with the highest performance is ranked first, and a fund with the lowest is ranked last. The highest/best performing 25% of funds in the Performance Universe make up the first quartile; the next 25% - the second quartile; the next 25% - the third quartile; and the lowest/worst performing 25% of funds in the Performance Universe make up the fourth quartile. Comparative annualized performance for the Fund was shown for the past one, three and five year periods ended February 28, 2005. The Board noted its objective that the Fund's performance be at or above the median of its Performance Universe. The following summarizes the performance results for the Fund and the Board's view of such performance. The Performance Universe for this Fund consisted of the Fund and all retail and institutional small cap core funds as selected by Lipper. The Lipper report comparison showed that the Fund's total return for the one year period was in the second quartile of such Performance Universe. The report further showed that the Fund's total return for the three and five year periods was in highest quartile. The Board was satisfied with such performance. COMPARATIVE EXPENSES. The Board considered expense comparison data for the Delaware Investments(R) Family of Funds, Delaware Investments' institutional separate account business and other lines of business at Delaware Investments. The Board stated its belief that, given the differing level of service provided to Delaware Investments' various clients and other factors that related to the establishment of fee levels, variations in the levels of fees and expenses were justified. The Board placed significant emphasis on the comparative analysis of the management fees and total expense ratios of the Fund compared with those of a group of similar funds as selected by Lipper (the "Expense Group") and among the other Delaware Investments funds. In reviewing comparative costs, the Fund's contractual management fee and the actual management fee incurred by the Fund were compared with the contractual management fees (assuming all funds in the Expense Group were similar in site to the Fund) and actual management fees (as reported by each fund) of other funds within the Expense Group, taking into effect any applicable breakpoints and fee waivers. The Fund's total expenses were also compared with those of its Expense Group. The Lipper total expenses, for comparative consistency, were shown by Lipper for Class A shares and compared total expenses including 12b-1 and non-12b-1 service fees. The Board noted its objective to limit the Fund's total expense ratio to an acceptable range as compared to the median of the Expense Group. The following summarizes the expense results for the Fund and the Board's view of such expenses. Such expense comparisons for the Fund showed that its management fee and total expenses were in the quartile with the lowest expenses of its Expense Group. The Board was satisfied with the management fees and total expenses of the Fund in comparison to its Expense Group as shown in the Lipper report. MANAGEMENT PROFITABILITY. The Board considered the level of profits, if any, realized by Delaware Investments in connection with the operation of the Fund. In this respect, the Board reviewed the Investment Management Profitability Analysis that addressed the overall profitability of Delaware Investments' business in providing management and other services to each of the individual funds and the Delaware Investments Family of Funds as a whole. Specific attention was given to the methodology followed in allocating costs for the purpose of determining profitability. Management stated that the level of profits of Delaware Investments, to a certain extent, reflected operational cost savings and efficiencies initiated by Delaware Investments. The Board considered Delaware Investments' expenditures to improve services provided to fund shareholders and to meet additional regulatory and compliance requirements resulting from the Sarbanes-Oxley Act and recent SEC initiatives. The Board also considered the extent to which Delaware Investments might derive ancillary benefits from fund operations, including the potential for procuring additional business as a result of the prestige and visibility associated with their roles as service providers to the Delaware Investments Family of Funds, the benefits from allocation of fund brokerage to improve trading efficiencies and the use of "soft" commission dollars to pay for proprietary and non-proprietary research. At the Board's request, management also provided information relating to Delaware Investments' profitability by client type. The information provided set forth the revenue, expenses and pre-tax income/loss attributable to the Delaware Investments Family of Funds, Delaware Investments' separate account business and other lines of business at Delaware Investments. Emphasis was given to the level and type of service provided to the various clients. The Board was satisfied with the level of profits realized by Delaware Investments from its relationships with the Fund and the Delaware Investments Family of Funds. ECONOMIES OF SCALE. The Trustees considered whether economies of scale are realized by Delaware Investments as the Fund's assets increase and the extent to which any economies of scale are reflected in the level of management fees charged. The Trustees took into account the standardized advisory fee pricing and structure approved by the Board and shareholders as part of a complex-wide shareholder meeting conducted in 1998/1999. At that time, Delaware Investments(R) introduced breakpoints to account for management economies of scale. The Board noted that the fee under the Fund's management contract fell within the standard structure. Although the Fund has not reached a size at which it can take advantage of breakpoints, the Board recognized that the fee was structured so that when the Fund grows, economies of scale may be shared. Delaware Investments(R) ----------------------------------- A member of Lincoln Financial Group VALUE-EQUITY SEMIANNUAL REPORT MAY 31, 2005 ------------------------------------------------------------------------------- DELAWARE SMALL CAP VALUE FUND [LOGO] POWERED BY RESEARCH.(SM) TABLE OF CONTENTS ----------------------------------------------------------------- DISCLOSURE OF FUND EXPENSES 1 ----------------------------------------------------------------- SECTOR ALLOCATION 2 ----------------------------------------------------------------- FINANCIAL STATEMENTS: Statement of Net Assets 3 Statement of Operations 6 Statements of Changes in Net Assets 7 Financial Highlights 8 Notes to Financial Statements 13 ----------------------------------------------------------------- OTHER FUND INFORMATION 16 ----------------------------------------------------------------- Funds are not FDIC insured and are not guaranteed. It is possible to lose the principal amount invested. Mutual fund advisory services provided by Delaware Management Company, a series of Delaware Management Business Trust, which is a registered investment advisor. (c) 2005 Delaware Distributors, L.P. DISCLOSURE For the Period December 1, 2004 to May 31, 2005 OF FUND EXPENSES As a shareholder of the fund, you incur two types of costs: (1) transaction costs, including sales charges (loads) on purchase payments, reinvested dividends, or other distributions; redemption fees; and exchange fees; and (2) ongoing costs, including management fees; distribution and/or service (12b-1) fees; and other fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the fund and to compare these costs with the ongoing costs of investing in other mutual funds. The example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period December 1, 2004 to May 31, 2005. ACTUAL EXPENSES The first section of the table shown, "Actual Fund Return," provides information about actual account values and actual expenses. You may use the information in this section of the table, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first section under the heading entitled "Expenses Paid During Period" to estimate the expenses you paid on your account during this period. HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES The second section of the table shown, "Hypothetical 5% Return," provides information about hypothetical account values and hypothetical expenses based on the Fund's actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund's actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds. Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as sales charges (loads), redemption fees, or exchange fees. Therefore, the second section of the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher. The expenses shown in the table assume reinvestment of all dividends and distributions. DELAWARE SMALL CAP VALUE FUND EXPENSE ANALYSIS OF AN INVESTMENT OF $1,000
Expenses Beginning Ending Paid During Account Account Annualized Period Value Value Expense 12/1/04 to 12/1/04 5/31/05 Ratio 5/31/05* ------------------------------------------------------------------------------------------------------------- ACTUAL FUND RETURN Class A $1,000.00 $1,020.20 1.42% $7.15 Class B 1,000.00 1,016.90 2.12% 10.66 Class C 1,000.00 1,016.60 2.12% 10.66 Class R 1,000.00 1,018.80 1.72% 8.66 Institutional Class 1,000.00 1,021.90 1.12% 5.65 ------------------------------------------------------------------------------------------------------------- HYPOTHETICAL 5% RETURN (5% return before expenses) Class A $1,000.00 $1,017.85 1.42% $7.14 Class B 1,000.00 1,014.36 2.12% 10.65 Class C 1,000.00 1,014.36 2.12% 10.65 Class R 1,000.00 1,016.36 1.72% 8.65 Institutional Class 1,000.00 1,019.35 1.12% 5.64 -------------------------------------------------------------------------------------------------------------
* Expenses are equal to the Fund's annualized expense ratio, multiplied by the average account value over the period, multiplied by 182/365 (to reflect the one-half year period). 1 SECTOR ALLOCATION As of May 31, 2005 DELAWARE SMALL CAP VALUE FUND The SEC adopted a requirement that all funds present their categories of portfolio holdings in a table, chart, or graph format in their annual and semiannual shareholder reports, whether or not a schedule of investments is utilized. The following chart lists the Fund's categories of portfolio holdings as a percentage of total net assets and is provided in compliance with such requirement. PERCENTAGE SECTOR OF NET ASSETS ------------------------------------------------------------------------- COMMON STOCK 92.72% ------------------------------------------------------------------------- Basic Industry 12.63% Business Services 1.92% Capital Spending 6.77% Consumer Cyclical 2.47% Consumer Services 12.34% Consumer Staples 2.92% Energy 8.04% Financial Services 14.64% Healthcare 8.09% Real Estate 4.59% Technology 10.37% Transportation 4.21% Utilities 3.73% ------------------------------------------------------------------------- REPURCHASE AGREEMENTS 7.00% ------------------------------------------------------------------------- TOTAL MARKET VALUE OF SECURITIES BEFORE SECURITIES LENDING COLLATERAL 99.72% ------------------------------------------------------------------------- SECURITIES LENDING COLLATERAL 19.55% ------------------------------------------------------------------------- TOTAL MARKET VALUE OF SECURITIES 119.27% ------------------------------------------------------------------------- OBLIGATION TO RETURN SECURITIES LENDING COLLATERAL (19.55%) ------------------------------------------------------------------------- RECEIVABLES AND OTHER ASSETS NET OF LIABILITIES 0.28% ------------------------------------------------------------------------- TOTAL NET ASSETS 100.00% ------------------------------------------------------------------------- 2 STATEMENT DELAWARE SMALL CAP VALUE FUND OF NET ASSETS May 31, 2005 (Unaudited) Number of Market Shares Value COMMON STOCK - 92.72% Basic Industry - 12.63% +Alpha Natural Resources 163,700 $ 3,912,430 *Arch Coal 150,700 7,301,415 Crane 140,300 3,685,681 +Crown Holdings 313,000 4,660,570 *Federal Signal 75,800 1,184,754 *Fuller (H.B.) 127,500 4,131,000 *+Griffon 247,060 4,923,906 Louisiana-Pacific 162,300 4,086,714 *MacDermid 175,400 5,105,894 *+Meridian Gold 232,000 3,832,640 +Pactiv 187,100 4,275,235 +PolyOne 432,600 2,907,072 *Smith (A.O.) 79,600 2,496,256 *Spartech 178,500 3,611,055 Texas Industries 105,200 4,841,304 *Wausau-Mosinee Paper 175,400 2,192,500 *Westlake Chemical 147,200 3,529,856 ------------ 66,678,282 ------------ Business Services - 1.92% Brink's 177,200 5,530,412 +United Stationers 93,559 4,587,198 ------------ 10,117,610 ------------ Capital Spending - 6.77% *+Casella Waste Systems 295,100 3,367,091 *Gibraltar Industries 231,814 4,534,282 Harsco 93,500 5,425,805 *+Insituform Technologies Class A 129,300 1,918,812 *Kaydon 159,100 4,540,714 *Mueller Industries 117,000 3,159,000 *Wabtec 281,700 5,831,190 *Walter Industries 163,700 6,940,880 ------------ 35,717,774 ------------ Consumer Cyclical - 2.47% *Furniture Brands International 128,600 2,586,146 KB HOME 113,600 7,672,544 *+WCI Communities 93,500 2,795,650 ------------ 13,054,340 ------------ Consumer Services - 12.34% +AnnTaylor Stores 204,650 5,271,784 Belo Class A 85,300 2,096,674 Borders Group 152,000 3,844,080 *+Carter's 48,500 2,262,525 *Cato Class A 214,500 6,190,470 *+Department 56 100,300 1,119,348 *K Swiss 176,700 5,672,070 *Kellwood 152,000 3,824,320 *Kenneth Cole Productions Class A 107,900 3,247,790 *Oakley 185,500 2,726,850 Pier 1 Imports 280,600 4,711,274 Reebok International 118,600 4,828,206 *+Sports Authority 117,743 3,767,776 *Thor Industries 167,100 5,073,156 *Wolverine World Wide 211,350 4,856,823 *+Zale 180,000 5,612,400 ------------ 65,105,546 ------------ Number of Market Shares Value COMMON STOCK (continued) Consumer Staples - 2.92% *American Greetings Class A 210,500 $ 5,468,790 Bunge Limited 69,600 4,317,984 +Constellation Brands 202,200 5,623,182 ------------ 15,409,956 ------------ Energy - 8.04% *+Energy Partners 356,500 8,146,025 +Grey Wolf 765,100 5,026,707 +Newfield Exploration 204,200 7,851,490 *+Newpark Resources 689,800 4,207,780 *Southwest Gas 163,700 4,089,226 *+W-H Energy Services 243,400 5,274,478 *+Whiting Petroleum 226,200 7,821,996 ------------ 42,417,702 ------------ Financial Services - 14.64% *AmerUs Group 139,100 6,619,769 Berkley (W.R.) 204,300 7,244,478 *Boston Private Financial Holdings 217,700 5,329,296 Colonial BancGroup 382,000 8,514,780 *Commercial Federal 179,800 4,496,798 Compass Bancshares 63,500 2,830,195 *First Republic Bank 175,400 5,626,832 *Greater Bay Bancorp 228,400 5,739,692 *Harleysville Group 128,600 2,611,866 Infinity Property & Casualty 18,898 604,736 *MAF Bancorp 115,200 4,902,912 *NBT Bancorp 14,500 343,650 Platinum Underwriters Holdings 152,700 4,642,080 *Provident Bankshares 186,200 5,891,368 *Republic Bancorp 274,624 3,791,184 +Sterling Financial 114,312 4,040,929 *+Triad Guaranty 74,900 4,059,580 ------------ 77,290,145 ------------ Healthcare - 8.09% *+Alderwoods Group 362,500 5,020,625 *Arrow International 93,800 3,170,440 +Bio-Rad Laboratories Class A 87,300 4,703,724 *Diagnostic Products 70,800 3,082,632 *+Kindred Healthcare 134,400 5,185,152 *Owens & Minor 185,500 5,750,500 +Par Pharmaceuticals 119,700 3,830,400 +Pediatrix Medical Group 70,200 5,168,826 *+RehabCare Group 115,900 3,220,861 Service Corp International 467,700 3,545,166 ------------ 42,678,326 ------------ Real Estate - 4.59% Ashford Hospitality Trust 233,800 2,328,648 Camden Property Trust 115,900 5,981,599 Education Realty Trust 192,500 3,305,225 *Highland Hospitality 292,300 3,098,380 Prentiss Properties Trust 128,600 4,436,700 Reckson Associates Realty 161,400 5,098,626 ------------ 24,249,178 ------------ 3 STATEMENT DELAWARE SMALL CAP VALUE FUND OF NET ASSETS (CONTINUED) Number of Market Shares Value COMMON STOCK (continued) Technology - 10.37% *+Bell Microproducts 351,300 $ 2,880,660 *+Checkpoint Systems 222,100 3,913,402 +Datastream Systems 330,100 1,957,493 *+Entegris 385,800 3,742,260 *+Herley Industries 142,900 2,502,179 +Insight Enterprises 210,500 4,121,590 +International Rectifier 105,200 5,026,456 +NETGEAR 248,800 4,893,896 *+Overland Storage 223,500 2,165,715 *+Plexus 209,600 2,882,000 *QAD 207,200 1,454,544 +Storage Technology 177,100 5,716,788 Symbol Technologies 268,900 3,095,039 *+SYNNEX 175,700 2,779,574 +Tech Data 95,100 3,414,090 *Technitrol 320,500 4,208,165 ------------ 54,753,851 ------------ Transportation - 4.21% *Alexander & Baldwin 168,900 7,507,605 *+Continental Airlines Class B 152,000 2,106,720 +Kirby 116,900 4,986,954 +SCS Transportation 82,300 1,501,975 *SkyWest 99,600 1,816,704 *+Yellow Roadway 81,800 4,317,404 ------------ 22,237,362 ------------ Utilities - 3.73% *Black Hills 58,500 2,142,270 +El Paso Electric 198,900 3,991,923 +Fairpoint Communications 264,900 4,124,493 *Otter Tail 152,000 3,869,920 *PNM Resources 191,300 5,574,482 ------------ 19,703,088 ------------ Total Common Stock (cost $374,564,771) 489,413,160 ------------ Principal Amount REPURCHASE AGREEMENTS - 7.00% With BNP Paribas 2.95% 6/1/05 (dated 5/31/05, to be repurchased at $21,515,763, collateralized by $3,146,000 U.S. Treasury Bills due 9/29/05, market value $3,115,413, $2,665,000 U.S. Treasury Bills due 10/20/05, market value $2,634,395, $4,788,000 U.S. Treasury Bills due 11/17/05, market value $4,720,310, $3,063,000 U.S. Treasury Notes 2.38% due 8/15/06, market value $3,043,794, $4,722,000 U.S. Treasury Notes 6.50% due 8/15/05, market value $4,846,902, and $3,370,000 U.S. Treasury Notes 7.00% due 7/15/06, market value $3,588,417) 21,514,00 21,514,000 Principal Market Amount Value REPURCHASE AGREEMENTS - 7.00% With UBS Warburg 2.95% 6/1/05 (dated 5/31/05, to be repurchased at $15,459,267, collateralized by $15,927,000 U.S. Treasury Notes 2.50% due 5/31/06, market value $15,787,236) $15,458,00 $ 15,458,000 ------------ Total Repurchase Agreements (cost $36,972,000) 36,972,000 ------------ TOTAL MARKET VALUE OF SECURITIES BEFORE SECURITIES LENDING COLLATERAL - 99.72% (cost $411,536,771) 526,385,160 ------------ SECURITIES LENDING COLLATERAL** - 19.55% Short-Term Investments Abbey National 3.13% 1/13/06 2,191,786 2,191,786 Australia New Zealand 3.08% 6/23/06 2,960,654 2,960,654 Bank of New York 3.06% 4/4/06 2,368,524 2,368,524 Bank of the West 3.06% 3/2/06 2,961,242 2,960,654 Barclays London 3.10% 7/21/05 2,960,739 2,960,691 Barclays New York 3.12% 6/1/05 296,017 296,017 Bayerische Landesbank 3.08% 6/30/06 2,960,012 2,960,654 Bear Stearns 3.14% 1/17/06 592,113 592,432 3.15% 11/30/05 2,959,162 2,960,654 Beta Finance 3.08% 4/18/06 2,960,905 2,960,358 Citigroup Global Markets 3.10% 6/1/05 23,718,046 23,718,046 3.13% 6/7/05 3,197,507 3,197,507 Credit Swiss First Boston New York 3.07% 4/18/06 3,197,507 3,197,507 3.10% 12/29/05 621,600 621,774 Deutsche Bank 3.10% 7/11/05 2,368,546 2,368,523 Goldman Sachs 3.20% 5/31/06 3,256,394 3,256,720 Lehman Holdings 3.14% 12/23/05 2,961,168 2,963,320 Marshall & Ilsley Bank 3.05% 12/29/05 2,960,880 2,960,788 Merrill Lynch Mortgage Capital 3.16% 7/12/05 2,960,654 2,960,654 Morgan Stanley 3.21% 6/30/06 591,553 592,131 3.24% 5/31/06 295,888 296,066 National City Bank Cleveland 3.06% 1/23/06 3,375,561 3,375,328 Pfizer 3.05% 6/30/06 2,842,228 2,842,228 Proctor & Gamble 2.93% 6/30/06 2,960,654 2,960,654 Royal Bank of Canada 3.05% 6/27/05 2,960,574 2,960,574 Royal Bank of Scotland 3.06% 6/30/06 2,960,333 2,960,654 Sigma Finance 3.06% 9/30/05 2,783,042 2,782,728 Societe Generale New York 3.06% 6/14/05 2,674,305 2,674,199 Sun Trust Bank 3.08% 8/5/05 1,480,246 1,480,246 Wal Mart Stores 3.03% 6/21/05 3,540,282 3,534,368 Washington Mutual Bank 3.10% 7/8/05 2,960,601 2,960,654 Wells Fargo 3.06% 6/30/06 2,960,654 2,960,654 Wilmington Trust Company 2.96% 6/3/05 2,369,354 2,369,351 ------------ TOTAL SECURITIES LENDING COLLATERAL** (cost $103,207,098) 103,207,098 ------------ 4 STATEMENT DELAWARE SMALL CAP VALUE FUND OF NET ASSETS (CONTINUED) TOTAL MARKET VALUE OF SECURITIES - 119.27% (cost $514,743,869) $629,592,258^ OBLIGATION TO RETURN SECURITIES LENDING COLLATERAL - (19.55%)** (103,207,098) RECEIVABLES AND OTHER ASSETS NET OF LIABILITIES - 0.28% 1,496,640 ------------- NET ASSETS APPLICABLE TO 15,047,608 SHARES OUTSTANDING - 100.00% $527,881,800 ============= Net Asset Value -- Delaware Small Cap Value Fund Class A ($311,624,086 / 8,701,930 Shares) $35.81 ------ Net Asset Value -- Delaware Small Cap Value Fund Class B ($106,534,605 / 3,160,614 Shares) $33.71 ------ Net Asset Value -- Delaware Small Cap Value Fund Class C ($77,240,057 / 2,292,431 Shares) $33.69 ------ Net Asset Value -- Delaware Small Cap Value Fund Class R ($6,395,937 / 179,654 Shares) $35.60 ------ Net Asset Value -- Delaware Small Cap Value Fund Institutional Class ($26,087,115 / 712,979 Shares) $36.59 ------ COMPONENTS OF NET ASSETS AT MAY 31, 2005: Shares of beneficial interest (unlimited authorization -- no par) $376,762,773 Accumulated net realized gain on investments 36,270,638 Net unrealized appreciation of investments 114,848,389 ------------ Total net assets $527,881,800 ============ +Non-income producing security for the period ended May 31, 2005. *Fully or partially on loan. **See Note 7 in "Notes to Financial Statements." ^Includes $101,220,188 of securities loaned. NET ASSET VALUE AND OFFERING PRICE PER SHARE - DELAWARE SMALL CAP VALUE FUND Net asset value Class A (A) $35.81 Sales charge (5.75% of offering price) (B) 2.18 ------ Offering price $37.99 ====== (A) Net asset value per share, as illustrated, is the estimated amount which would be paid upon redemption or repurchase of shares. (B) See the current prospectus for purchases of $50,000 or more. See accompanying notes 5 STATEMENT DELAWARE SMALL CAP VALUE FUND OF OPERATIONS Six Months Ended May 31, 2005 (Unaudited) INVESTMENT INCOME: Dividends $2,072,785 Interest 338,091 Securities lending income 61,484 $ 2,472,360 ------------ EXPENSES: Management fees 1,840,285 Distribution expenses -- Class A 424,496 Distribution expenses -- Class B 539,034 Distribution expenses -- Class C 347,831 Distribution expenses -- Class R 16,864 Dividend disbursing and transfer agent fees and expenses 583,437 Accounting and administration expenses 77,229 Reports and statements to shareholders 74,603 Registration fees 54,252 Legal and professional fees 37,131 Insurance fees 31,622 Trustees' fees 13,121 Taxes (other than taxes on income) 11,647 Custodian fees 7,476 Pricing fees 362 Other 12,033 4,071,423 ---------- Less expenses paid indirectly (458) ------------ Total expenses 4,070,965 ------------ NET INVESTMENT LOSS (1,598,605) ------------ NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS: Net realized gain on investments 37,890,890 Net change in unrealized appreciation/depreciation of investments (26,642,480) ------------ NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS 11,248,410 ------------ NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $9,649,805 ============
See accompanying notes 6 STATEMENTS OF CHANGES IN NET ASSETS DELAWARE SMALL CAP VALUE FUND
Six Months Year Ended Ended 5/31/05 11/30/04 (Unaudited) INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS: Net investment loss $ (1,598,605) $ (2,385,975) Net realized gain on investments 37,890,890 59,163,709 Net change in unrealized appreciation/depreciation of investments (26,642,480) 26,597,601 ------------ ------------ Net increase in net assets resulting from operations 9,649,805 83,375,335 ------------ ------------ DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM: Net realized gain on investments: Class A (31,763,825) (16,080,554) Class B (13,514,764) (7,388,227) Class C (8,240,031) (3,426,454) Class R (548,342) (133,545) Institutional Class (2,698,187) (2,199,840) ------------ ------------ (56,765,149) (29,228,620) ------------ ------------ CAPITAL SHARE TRANSACTIONS: Proceeds from shares sold: Class A 65,719,635 56,360,643 Class B 7,124,231 12,292,857 Class C 19,204,358 20,538,825 Class R 2,814,767 3,470,893 Institutional Class 5,297,272 11,602,459 Net asset value of shares issued upon reinvestment of dividends and distributions: Class A 29,902,456 15,140,871 Class B 12,427,282 6,672,916 Class C 7,549,508 3,179,515 Class R 549,180 130,217 Institutional Class 2,698,467 2,199,835 ------------ ------------ 153,287,156 131,589,031 ------------ ------------ Cost of shares repurchased: Class A (28,453,811) (72,260,823) Class B (12,686,521) (26,208,562) Class C (8,841,304) (12,909,856) Class R (1,067,916) (1,329,592) Institutional Class (3,503,277) (27,801,757) ------------ ------------ (54,552,829) (140,510,590) ------------ ------------ Increase (decrease) in net assets derived from capital share transactions 98,734,327 (8,921,559) ------------ ------------ NET INCREASE IN NET ASSETS 51,618,983 45,225,156 NET ASSETS: Beginning of period 476,262,817 431,037,661 ------------ ------------ End of period (there was no undistributed net investment income at either period end) $527,881,800 $476,262,817 ============ ============
See accompanying notes 7 FINANCIAL HIGHLIGHTS Selected data for each share of the Fund outstanding throughout each period were as follows:
Delaware Small Cap Value Class A ----------------------------------------------------------------------------------------------------------------------------------- Six Months Year Ended Ended 5/31/05(1) 11/30/04 11/30/03 11/30/02 11/30/01 11/30/00 (Unaudited) NET ASSET VALUE, BEGINNING OF PERIOD $39.640 $35.220 $27.120 $29.350 $25.980 $24.680 INCOME (LOSS) FROM INVESTMENT OPERATIONS: Net investment income (loss)(2) (0.073) (0.105) (0.136) (0.060) 0.059 0.091 Net realized and unrealized gain on investments 0.868 6.879 9.079 0.574 4.429 1.594 ------- ------- ------- ------- ------- ------- Total from investment operations 0.795 6.774 8.943 0.514 4.488 1.685 ------- ------- ------- ------- ------- ------- LESS DIVIDENDS AND DISTRIBUTIONS FROM: Net investment income -- -- -- -- (0.026) (0.080) Net realized gain on investments (4.625) (2.354) (0.843) (2.744) (1.047) (0.305) In excess of net realized gain on investments -- -- -- -- (0.045) -- ------- ------- ------- ------- ------- ------- Total dividends and distributions (4.625) (2.354) (0.843) (2.744) (1.118) (0.385) ------- ------- ------- ------- ------- ------- NET ASSET VALUE, END OF PERIOD $35.810 $39.640 $35.220 $27.120 $29.350 $25.980 ======= ======= ======= ======= ======= ======= TOTAL RETURN(3) 2.02% 20.52% 34.17% 1.60% 17.66% 7.04% RATIOS AND SUPPLEMENTAL DATA: Net assets, end of period (000 omitted) $311,624 $270,332 $240,322 $180,696 $182,925 $151,044 Ratio of expenses to average net assets 1.42% 1.54% 1.63% 1.63% 1.58% 1.68% Ratio of net investment income (loss) to average net assets (0.41%) (0.30%) (0.47%) (0.21%) 0.21% 0.37% Portfolio turnover 37% 35% 42% 47% 72% 56%
(1) Ratios and portfolio turnover have been annualized and total return has not been annualized. (2) The average shares outstanding method has been applied for per share information. (3) Total investment return is based on the change in net asset value of a share during the period and assumes reinvestment of dividends and distributions at net asset value and does not reflect the impact of a sales charge. See accompanying notes 8 FINANCIAL HIGHLIGHTS (CONTINUED) Selected data for each share of the Fund outstanding throughout each period were as follows:
Delaware Small Cap Value Class B ----------------------------------------------------------------------------------------------------------------------------------- Six Months Year Ended Ended 5/31/05(1) 11/30/04 11/30/03 11/30/02 11/30/01 11/30/00 (Unaudited) NET ASSET VALUE, BEGINNING OF PERIOD $37.690 $33.820 $26.260 $28.680 $25.520 $24.340 INCOME (LOSS) FROM INVESTMENT OPERATIONS: Net investment loss(2) (0.188) (0.334) (0.327) (0.252) (0.138) (0.079) Net realized and unrealized gain on investments 0.833 6.558 8.730 0.576 4.345 1.564 ------- ------- ------- ------- ------- ------- Total from investment operations 0.645 6.224 8.403 0.324 4.207 1.485 ------- ------- ------- ------- ------- ------- LESS DIVIDENDS AND DISTRIBUTIONS FROM: Net realized gain on investments (4.625) (2.354) (0.843) (2.744) (1.047) (0.305) ------- ------- ------- ------- ------- ------- Total dividends and distributions (4.625) (2.354) (0.843) (2.744) (1.047) (0.305) ------- ------- ------- ------- ------- ------- NET ASSET VALUE, END OF PERIOD $33.710 $37.690 $33.820 $26.260 $28.680 $25.520 ======= ======= ======= ======= ======= ======= TOTAL RETURN(3) 1.69% 19.69% 33.21% 0.91% 16.83% 6.27% RATIOS AND SUPPLEMENTAL DATA: Net assets, end of period (000 omitted) $106,535 $111,348 $107,136 $86,641 $83,648 $58,156 Ratio of expenses to average net assets 2.12% 2.24% 2.33% 2.33% 2.28% 2.38% Ratio of net investment loss to average net assets (1.11%) (1.00%) (1.17%) (0.91%) (0.49%) (0.33%) Portfolio turnover 37% 35% 42% 47% 72% 56%
(1) Ratios and portfolio turnover have been annualized and total return has not been annualized. (2) The average shares outstanding method has been applied for per share information. (3) Total investment return is based on the change in net asset value of a share during the period and assumes reinvestment of dividends and distributions at net asset value and does not reflect the impact of a sales charge. See accompanying notes 9 FINANCIAL HIGHLIGHTS Selected data for each share of the Fund outstanding throughout each period were as follows:
Delaware Small Cap Value Class C ----------------------------------------------------------------------------------------------------------------------------------- Six Months Year Ended Ended 5/31/05(1) 11/30/04 11/30/03 11/30/02 11/30/01 11/30/00 (Unaudited) NET ASSET VALUE, BEGINNING OF PERIOD $37.680 $33.810 $26.250 $28.670 $25.510 $24.320 INCOME (LOSS) FROM INVESTMENT OPERATIONS: Net investment loss(2) (0.187) (0.333) (0.326) (0.251) (0.135) (0.079) Net realized and unrealized gain on investments 0.822 6.557 8.729 0.575 4.342 1.574 ------- ------- ------- ------- ------- ------- Total from investment operations 0.635 6.224 8.403 0.324 4.207 1.495 ------- ------- ------- ------- ------- ------- LESS DIVIDENDS AND DISTRIBUTIONS FROM: Net realized gain on investments (4.625) (2.354) (0.843) (2.744) (1.047) (0.305) ------- ------- ------- ------- ------- ------- Total dividends and distributions (4.625) (2.354) (0.843) (2.744) (1.047) (0.305) ------- ------- ------- ------- ------- ------- NET ASSET VALUE, END OF PERIOD $33.690 $37.680 $33.810 $26.250 $28.670 $25.510 ======= ======= ======= ======= ======= ======= TOTAL RETURN(3) 1.66% 19.69% 33.22% 0.91% 16.88% 6.27% RATIOS AND SUPPLEMENTAL DATA: Net assets, end of period (000 omitted) $77,240 $66,313 $48,453 $34,140 $31,823 $20,822 Ratio of expenses to average net assets 2.12% 2.24% 2.33% 2.33% 2.28% 2.38% Ratio of net investment loss to average net assets (1.11%) (1.00%) (1.17%) (0.91%) (0.49%) (0.33%) Portfolio turnover 37% 35% 42% 47% 72% 56%
(1) Ratios and portfolio turnover have been annualized and total return has not been annualized. (2) The average shares outstanding method has been applied for per share information. (3) Total investment return is based on the change in net asset value of a share during the period and assumes reinvestment of dividends and distributions at net asset value and does not reflect the impact of a sales charge. See accompanying notes 10 FINANCIAL HIGHLIGHTS (CONTINUED) Selected data for each share of the Fund outstanding throughout each period were as follows:
Delaware Small Cap Value Class R ---------------------------------------------------------------------------------------------- Six Months 6/2/03(2) Ended to 5/31/05(1) 11/30/04 11/30/03 (Unaudited) NET ASSET VALUE, BEGINNING OF PERIOD $39.480 $35.190 $29.000 INCOME (LOSS) FROM INVESTMENT OPERATIONS: Net investment loss(3) (0.126) (0.209) (0.160) Net realized and unrealized gain on investments 0.871 6.853 6.350 ------- ------- ------- Total from investment operations 0.745 6.644 6.190 ------- ------- ------- LESS DIVIDENDS AND DISTRIBUTIONS FROM: Net realized gain on investments (4.625) (2.354) -- ------- ------- ------- Total dividends and distributions (4.625) (2.354) -- ------- ------- ------- NET ASSET VALUE, END OF PERIOD $35.600 $39.480 $35.190 ======= ======= ======= TOTAL RETURN(4) 1.88% 20.15% 21.35% RATIOS AND SUPPLEMENTAL DATA: Net assets, end of period (000 omitted) $6,396 $4,539 $1,740 Ratio of expenses to average net assets 1.72% 1.84% 1.97% Ratio of net investment loss to average net assets (0.71%) (0.60%) (0.97%) Portfolio turnover 37% 35% 42%
(1) Ratios and portfolio turnover have been annualized and total return has not been annualized. (2) Date of commencement of operations, ratios have been annualized and total return has not been annualized. (3) The average shares outstanding method has been applied for per share information. (4) Total investment return is based on the change in net asset value of a share during the period and assumes reinvestment of dividends and distributions at net asset value. See accompanying notes 11 FINANCIAL HIGHLIGHTS Selected data for each share of the Fund outstanding throughout each period were as follows:
Delaware Small Cap Value Institutional Class ----------------------------------------------------------------------------------------------------------------------------------- Six Months Year Ended Ended 5/31/05(1) 11/30/04 11/30/03 11/30/02 11/30/01 11/30/00 (Unaudited) NET ASSET VALUE, BEGINNING OF PERIOD $40.350 $35.700 $27.400 $29.540 $26.130 $24.830 INCOME (LOSS) FROM INVESTMENT OPERATIONS: Net investment income (loss)(2) (0.019) 0.000 (0.050) 0.026 0.144 0.165 Net realized and unrealized gain on investments 0.884 7.004 9.193 0.578 4.458 1.600 ------- ------- ------- ------- ------- ------- Total from investment operations 0.865 7.004 9.143 0.604 4.602 1.765 ------- ------- ------- ------- ------- ------- LESS DIVIDENDS AND DISTRIBUTIONS FROM: Net investment income -- -- -- -- (0.100) (0.160) Net realized gain on investments (4.625) (2.354) (0.843) (2.744) (1.047) (0.305) In excess of net realized gain on investments -- -- -- -- (0.045) -- ------- ------- ------- ------- ------- ------- Total dividends and distributions (4.625) (2.354) (0.843) (2.744) (1.192) (0.465) ------- ------- ------- ------- ------- ------- NET ASSET VALUE, END OF PERIOD $36.590 $40.350 $35.700 $27.400 $29.540 $26.130 ======= ======= ======= ======= ======= ======= TOTAL RETURN(3) 2.19% 20.88% 34.57% 1.88% 18.09% 7.35% RATIOS AND SUPPLEMENTAL DATA: Net assets, end of period (000 omitted) $26,087 $23,731 $33,387 $19,459 $18,224 $10,992 Ratio of expenses to average net assets 1.12% 1.24% 1.33% 1.33% 1.28% 1.38% Ratio of net investment income (loss) to average net assets (0.11%) 0.00% (0.17%) 0.09% 0.51% 0.67% Portfolio turnover 37% 35% 42% 47% 72% 56%
(1) Ratios and portfolio turnover have been annualized and total return has not been annualized. (2) The average shares outstanding method has been applied for per share information. (3) Total investment return is based on the change in net asset value of a share during the period and assumes reinvestment of dividends and distributions at net asset value. See accompanying notes 12 NOTES DELAWARE SMALL CAP VALUE FUND TO FINANCIAL STATEMENTS May 31, 2005 (Unaudited) Delaware Group Equity Funds V (the "Trust") is organized as a Delaware statutory trust and offers three series: Delaware Dividend Income Fund, Delaware Small-Cap Core Fund (formerly Small-Cap Contrarian Fund), and Delaware Small Cap Value Fund. These financial statements and the related notes pertain to Delaware Small Cap Value Fund (the "Fund"). The Trust is an open-end investment company. The Fund is considered diversified under the Investment Company Act of 1940, as amended and offers Class A, Class B, Class C, Class R, and Institutional Class shares. Class A shares are sold with a front-end sales charge of up to 5.75%. Class B shares are sold with a contingent deferred sales charge that declines from 4% to zero depending upon the period of time the shares are held. Class B shares will automatically convert to Class A shares on a quarterly basis approximately eight years after purchase. Class C shares are sold with a contingent deferred sales charge of 1%, if redeemed during the first twelve months. Class R and Institutional Class shares are not subject to a sales charge and are offered for sale exclusively to a limited group of investors. The investment objective of the Fund is to seek capital appreciation. 1. SIGNIFICANT ACCOUNTING POLICIES The following accounting policies are in accordance with U.S. generally accepted accounting principles and are consistently followed by the Fund. Security Valuation -- Equity securities, except those traded on the Nasdaq Stock Market, Inc. (NASDAQ), are valued at the last quoted sales price as of the time of the regular close of the New York Stock Exchange (NYSE) on the valuation date. Securities traded on the NASDAQ are valued in accordance with the NASDAQ Official Closing Price, which may not be the last sales price. If on a particular day an equity security does not trade, then the mean between the bid and asked prices will be used. Short-term debt securities having less than 60 days to maturity are valued at amortized cost, which approximates market value. Other securities and assets for which market quotations are readily available are valued at fair value as determined in good faith under the direction of the Fund's Board of Trustees. Federal Income Taxes -- The Fund intends to continue to qualify for federal income tax purposes as a regulated investment company and make the requisite distributions to shareholders. Accordingly, no provision for federal income taxes have been made in the financial statements. Class Accounting -- Investment income, common expenses and realized and unrealized gain (loss) on investments are allocated to the various classes of the Fund on the basis of daily net assets of each class. Distribution expenses relating to a specific class are charged directly to that class. Repurchase Agreements -- The Fund may invest in a pooled cash account along with other members of the Delaware Investments Family of Funds pursuant to an exemptive order issued by the Securities and Exchange Commission. The aggregate daily balance of the pooled cash account is invested in repurchase agreements secured by obligations of the U.S. government. The respective collateral is held by the Fund's custodian bank until the maturity of the respective repurchase agreements. Each repurchase agreement is 102% collateralized. However, in the event of default or bankruptcy by the counterparty to the agreement, realization of the collateral may be subject to legal proceedings. Use of Estimates -- The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Other -- Expenses common to all funds within the Delaware Investments Family of Funds are allocated amongst the funds on the basis of average net assets. Management fees and some other expenses are paid monthly. Security transactions are recorded on the date the securities are purchased or sold (trade date). Costs used in calculating realized gains and losses on the sale of investment securities are those of the specific securities sold. Dividend income is recorded on the ex-dividend date and interest income is recorded on the accrual basis. Distributions received from investments in Real Estate Investment Trusts are recorded as dividend income on ex-dividend date, subject to reclassification upon notice of the character of such distribution by the issuer. The Fund declares and pays dividends from net investment income and distributions from net realized gain on investments, if any, annually. The Fund receives earnings credits from it's custodian when positive cash balances are maintained, which are used to offset custody fees. The earnings credit for the period ended May 31, 2005 was approximately $458. The expense paid under the above arrangement is included in custodian fees on the Statement of Operations with the corresponding expense offset shown as "expense paid indirectly." 2. INVESTMENT MANAGEMENT, ADMINISTRATION AGREEMENTS AND OTHER TRANSACTIONS WITH AFFILIATES In accordance with the terms of its investment management agreement, the Fund pays Delaware Management Company (DMC), a series of Delaware Management Business Trust and the investment manager, an annual fee which is calculated daily at the rate of 0.75% on the first $500 million of average daily net assets of the Fund, 0.70% on the next $500 million, 0.65% on the next $1.5 billion, and 0.60% on average daily net assets in excess of $2.5 billion. DMC has contractually agreed to waive that portion, if any, of its management fee and reimburse the Fund to the extent necessary to ensure that annual operating expenses, exclusive of taxes, interest, brokerage commissions, distribution fees, certain insurance costs and extraordinary expenses, do not exceed 1.45% of average daily net assets of the Fund through February 28, 2006. Delaware Service Company, Inc. (DSC), an affiliate of DMC, provides accounting, administration, dividend disbursing and transfer agent services. The Fund pays DSC a monthly fee based on average net assets subject to certain minimums for accounting and administration services. The Fund pays DSC a monthly fee based on the number of shareholder accounts for dividend disbursing and transfer agent services. Pursuant to a distribution agreement and distribution plan, the Fund pays Delaware Distributors, L.P. (DDLP), the distributor and an affiliate of DMC, an annual distribution and service fee not to exceed 0.30% of the average daily net assets of the Class A shares, 1.00% of the average daily net assets of the Class B and C shares and 0.60% of the average daily net assets of the Class R shares. Institutional Class shares pay no distribution and service expenses. At May 31, 2005, the Fund had liabilities payable to affiliates as follows: Investment management fee payable to DMC $322,778 Dividend disbursing, transfer agent, accounting and administration fees and other expenses payable to DSC 379,121 Other expenses payable to DMC and affiliates* 160,986 * DMC, as part of its administrative services, pays operating expenses on behalf of the Fund and is reimbursed on a periodic basis. Such expenses include items such as printing of shareholder reports, fees for audit, legal, and tax services, registration fees and trustees' fees. 13 NOTES DELAWARE SMALL CAP VALUE FUND TO FINANCIAL STATEMENTS (CONTINUED) 2. INVESTMENT MANAGEMENT, ADMINISTRATION AGREEMENTS AND OTHER TRANSACTIONS WITH AFFILIATES (CONTINUED) As provided in the investment management agreement the Fund bears the cost of certain legal services expenses, including internal legal services provided to the Fund by DMC employees. For the six months ended May 31, 2005, the Fund was charged $13,509 for internal legal services provided by DMC. For the six months ended May 31, 2005, DDLP earned $70,830 for commissions on sales of the Fund's Class A shares. Certain officers of DMC, DSC and DDLP are officers and/or trustees of the Trust. These officers and trustees are paid no compensation by the Fund. 3. INVESTMENTS For the six months ended May 31, 2005, the Fund made purchases of $99,684,568 and sales of $87,334,182 of investment securities other than short-term investments. At May 31, 2005, the cost of investments for federal income tax purposes has been estimated since the final tax characteristics cannot be determined until fiscal year end. At May 31, 2005, the cost of investments was $514,765,233. At May 31, 2005, the net unrealized appreciation was $114,827,025 of which $126,301,498 related to unrealized appreciation of investments and $11,474,473 related to unrealized depreciation of investments. 4. DIVIDEND AND DISTRIBUTION INFORMATION Income and long-term capital gain distributions are determined in accordance with federal income tax regulations, which may differ from U.S. generally accepted accounting principles. The tax character of dividends and distributions paid during the six months ended May 31, 2005 and year ended November 30, 2004, were as follows: Six Months Year Ended Ended 5/31/05* 11/30/04 ----------- ----------- Ordinary income $12,614,183 $ 2,051,867 Long-term capital gain 44,150,966 27,176,753 ----------- ----------- Total $56,765,149 $29,228,620 =========== =========== * Tax information for the period ended May 31, 2005 is an estimate and the tax character of dividends and distributions may be redesignated at fiscal year end. The components of net assets are estimated since final tax characteristics cannot be determined until fiscal year end. As of May 31, 2005, the estimated components of net assets on a tax basis were as follows: Shares of beneficial interest $376,762,773 Undistributed ordinary income 5,771,158 Undistributed long-term capital gain 30,520,844 Unrealized appreciation of investments 114,827,025 ------------ Net assets $527,881,800 ============ The differences between book basis and tax basis components of net assets are primarily attributable to tax defferal of losses on wash sales and estimates of tax character of distributions from Real Estate Investment Trusts. The undistributed earnings for Delaware Small Cap Value Fund may be subject to reclassification upon notice of the character of distributions received from investments in Real Estate Investment Trusts. For financial reporting purposes, capital accounts are adjusted to reflect the tax character of permanent book/tax differences. For the six months ended May 31, 2005, the Fund recorded an estimate of these differences. Since the final tax characteristics cannot be determined until fiscal year end. Reclassifications are primarily due to tax treatment of net operating losses. Results of operations and net assets were not affected by these reclassifications. Accumulated net investment loss $ 1,598,605 Accumulated realized gain on investments $(1,598,605) 5. CAPITAL SHARES Transactions in capital shares were as follows: Six Months Year Ended Ended 5/31/05 11/30/04 --------- ---------- Shares sold: Class A 1,842,599 1,612,277 Class B 210,735 368,241 Class C 571,241 616,133 Class R 79,418 99,598 Institutional Class 146,254 327,242 Shares issued upon reinvestment of dividends and distributions: Class A 835,593 455,639 Class B 367,867 209,774 Class C 223,532 99,985 Class R 15,416 3,923 Institutional Class 73,902 65,219 --------- ---------- 4,366,557 3,858,031 --------- ---------- Shares repurchased: Class A (796,489) (2,071,582) Class B (372,121) (791,357) Class C (262,393) (389,122) Class R (30,142) (38,022) Institutional Class (95,355) (739,401) --------- ---------- (1,556,500) (4,029,484) --------- ---------- Net increase (decrease) 2,810,057 (171,453) ========= ======== For the six months ended May 31, 2005, and the year ended November 30, 2004, 40,363 Class B shares were converted to 38,201 Class A shares valued at $1,506,576 and 119,383 Class B shares were converted to 113,988 Class A shares valued at $3,975,630, respectively. The respective amounts are included in Class B redemptions and Class A subscriptions in the table above and the Statements of Changes in Net Assets. 6. LINE OF CREDIT The Fund, along with certain other funds in the Delaware Investments Family of Funds (the "Participants"), participates in a $183,100,000 revolving line of credit facility to be used for temporary or emergency purposes as an additional source of liquidity to fund redemptions of investor shares. The Participants are charged an annual commitment fee, which is allocated across the Participants on the basis of each fund's allocation of the entire facility. The Participants may borrow up to a maximum of one third of their net assets under the agreement. The Fund had no amounts outstanding as of May 31, 2005, or at any time during the six months period ended May 31, 2005. 14 NOTES DELAWARE SMALL CAP VALUE FUND TO FINANCIAL STATEMENTS (CONTINUED) 7. SECURITIES LENDING The Fund, along with other funds in the Delaware Investments Family of Funds, may lend its securities pursuant to a security lending agreement (Lending Agreement) with J.P. Morgan Chase. Initial security loans made pursuant to the Lending Agreement are required to be secured by U.S. government obligations and/or cash collateral not less than 102% of the market value of the securities issued in the United States and 105% of the market value of securities issued outside the United States. With respect to each loan, if the aggregate market value of the collateral held on any business day is less than the aggregate market value of the securities which are the subject of such loan, the borrower will be notified to provide additional collateral not less than the applicable collateral requirements. Cash collateral received is invested in fixed income securities, with a weighted average maturity not to exceed 90 days, rated in one of the top two tiers by Standard & Poor's Ratings Group or Moody's Investors Service, Inc. or repurchase agreements collateralized by such securities. However, in the event of default or bankruptcy by the lending agent, realization and/or retention of the collateral may be subject to legal proceedings. In the event the borrower fails to return loaned securities and the collateral received is insufficient to cover the value of the loaned securities and provided such collateral shortfall is not the result of investment losses, the lending agent has agreed to pay the amount of the shortfall to the Fund, or at the discretion of the lending agent, replace the loaned securities. The Fund continues to record dividends on the securities loaned and is subject to change in fair value of the securities loaned that may occur during the term of the loan. The Fund has the right under the Lending Agreement to recover the securities from the borrower on demand. The security lending agent and the borrower retain a portion of the earnings from the collateral investments. The Fund records security lending income net of such allocation. At May 31, 2005, the market value of securities on loan was $101,220,188, for which cash collateral was received and invested in accordance with the Lending Agreement. Such investments are presented on the Statement of Net Assets under the caption "Securities Lending Collateral." 8. CREDIT AND MARKET RISKS The Fund invests a significant portion of its assets in small- and mid- sized companies and may be subject to certain risks associated with ownership of securities of small- and mid- sized companies. Investments in small-or mid- sized companies may be more volatile than investments in larger companies for a number of reasons, which include more limited financial resources or a dependence on narrow product lines. The Fund invests in real estate investment trusts (REITs) and is subject to some of the risk associated with that industry. If the Fund holds real estate directly as a result of defaults or receives rental income directly form real estate holdings, its tax status as a regulated investment company may be jeopardized. There were no direct holdings during the six months ended May 31, 2005. The Funds holdings are also affected by interest rate changes, particularly if the REITs it holds use floating rate debt to finance their ongoing operations. The Fund may invest a portion of its total assets in illiquid securities, which may include securities with contractual restrictions on resale, securities exempt from registration under Rule 144A of the Securities Act of 1933, as amended, and other securities which may not be readily marketable. The relative illiquidity of these securities may impair the Fund from disposing of them in a timely manner and at a fair price when it is necessary or desirable to do so. At May 31, 2005, there were no Rule 144A securities. While maintaining oversight, the Board of Trustees has delegated to the investment adviser the day-to-day functions of determining whether individual Rule 144A securities are liquid for purposes of the Fund's limitation on investments in illiquid assets. Illiquid securities, if any, have been denoted on the Statement of Net Assets. 9. CONTRACTUAL OBLIGATIONS The Fund enters into contracts in the normal course of business that contain a variety of indemnifications. The Fund's maximum exposure under these arrangements is unknown . However, the Fund has not had prior claims or losses pursuant to these contracts. Management has reviewed the Fund's existing contracts and expects the risk of loss to be remote. 15 OTHER DELAWARE SMALL CAP VALUE FUND FUND INFORMATION The shareholders of Delaware Group Equity V (the "Trust") voted on the following proposals at the special meeting of shareholders on March 23, 2005 or as adjourned. The description of each proposal and number of shares voted are as follows: 1. To elect the 9 nominees specified as Trustees. Shares Voted Shares Voted For Withheld Authority ---------------- ------------------ Thomas L. Bennett 18,156,829 445,948 Jude T. Driscoll 18,162,841 439,936 John A. Fry 18,168,911 433,866 Anthony D. Knerr 18,156,910 445,867 Lucinda S. Landreth 18,162,718 440,059 Ann R. Leven 18,155,177 447,600 Thomas F. Madison 18,153,700 449,077 Janet L. Yeomans 18,172,872 429,905 J. Richard Zecher 18,163,733 439,044 2. To approve the use of a "manager of managers" structure whereby the investment manager of the funds of the Trust will be able to hire and replace subadvisers without shareholder approval.
For Against Abstain Broker Non-Votes -------- -------- ------- ---------------- Delaware Small Cap Value Fund 5,124,802 426,477 165,917 1,205,215
BOARD CONSIDERATION OF DELAWARE SMALL CAP VALUE FUND INVESTMENT ADVISORY AGREEMENT At a meeting held on May 18-19, 2005 (the "Annual Meeting"), the Board of Trustees, including a majority of disinterested or independent Trustees, approved the renewal of the Investment Advisory Agreement for the Delaware Small Cap Value Fund (the "Fund"). In making its decision, the Board considered information furnished throughout the year at regular Board meetings, as well as information prepared specifically in connection with the Annual Meeting. Information furnished and discussed throughout the year included reports detailing Fund performance, investment strategies, expenses, compliance matters and other services provided by the investment adviser. Information furnished specifically in connection with the Annual Meeting included materials provided by Delaware Investments concerning, among other things, the level of services provided to the Fund, the costs of such services to the Fund, economies of scale and the financial condition and profitability of Delaware Investments. In addition, in connection with the Annual Meeting, the Board separately received and reviewed independent historical and comparative reports prepared by Lipper Inc. ("Lipper"), an independent statistical compilation organization. The Lipper reports compared the Fund's investment performance and expenses with those of other comparable mutual funds. The Board also requested and received certain supplemental information regarding management's policy with respect to advisory fee levels and its philosophy with respect to breakpoints; the structure of portfolio manager compensation; the investment manager's profitability organized by client type, including the Fund; and any constraints or limitations on the availability of securities in certain investment styles which might inhibit the adviser's ability to fully invest in accordance with the Fund's policies. In considering such materials, the independent Trustees received assistance and advice from and met separately with independent counsel and representatives from Lipper. At the meeting with representatives from Lipper, Jude Driscoll, Chairman of the funds, and Chairman and Chief Executive Officer of the investment adviser, was present to respond to questions raised by Lipper and the independent Trustees. While the Board considered the Investment Advisory Agreements for all of the funds in the Delaware Investments Family of Funds at the same Board meeting, information was provided and considered by the Board for each fund individually. In approving the continuance of the Investment Advisory Agreement for the Fund, the Board, including a majority of independent Trustees, determined that the existing advisory fee structure was fair and reasonable and that the continuance of the Investment Advisory Agreement was in the best interests of the Fund and its shareholders. While attention was given to all information furnished, the following discusses the primary factors relevant to the Board's discussion and determination, including those relating to the selection of the investment adviser and the approval of the advisory fee. NATURE, EXTENT AND QUALITY OF SERVICE. Consideration was given to the services provided by Delaware Investments and its affiliates to the Fund and its shareholders. In reviewing the nature, extent and quality of services, the Board emphasized reports periodically furnished to it covering matters such as the compliance of portfolio managers with the investment policies and restrictions for the Fund, the compliance of management personnel with the Code of Ethics adopted throughout the Delaware Investments Family of Funds complex, the adherence to fair value pricing procedures as established by the Board, and the accuracy of net asset value calculations. The Board noted that it was pleased with the current staffing of the Fund's investment adviser during the past year, the emphasis on research and the compensation system for advisory personnel. Favorable consideration was given to Delaware Investments' efforts to maintain, and in some instances increase, financial and human resources committed to fund matters. Other factors taken into account by the Board were Delaware Investments' preparedness for, and response to, legal and regulatory matters. The Board also considered the transfer agent and shareholder services provided to Fund shareholders by Delaware Investments' affiliate, Delaware Service Company, Inc., noting the receipt by such affiliate of the DALBAR Pyramid Award in four of the last six years and the 16 OTHER DELAWARE SMALL CAP VALUE FUND FUND INFORMATION (CONTINUED) BOARD CONSIDERATION OF DELAWARE SMALL CAP VALUE FUND INVESTMENT ADVISORY AGREEMENT (CONTINUED) continuing expenditures by Delaware Investments to increase and improve the scope of shareholder services. Additionally, the Board noted the extent of benefits provided to Fund shareholders from being part of the Delaware Investments Family of Funds, including the privilege to exchange investments between the same class of funds without a sales charge, the ability to reinvest Fund dividends into other funds and the privilege to combine holdings in other funds to obtain a reduced sales charge. The Board was satisfied with the nature and quality of the overall services provided by Delaware Investments and its affiliates. INVESTMENT PERFORMANCE. The Board considered the investment performance of Delaware Investments and the Fund. The Board was pleased by Delaware Investments' performance, noting Barron's ranking of the Delaware Investments Family of Funds in the top quartile of mutual fund families for 2002 - 2004. The Board placed significant emphasis on the investment performance of the Fund in view of its importance to shareholders. While consideration was given to performance reports and discussions with portfolio managers at Board meetings throughout the year, particular attention in assessing performance was given to the Lipper reports furnished for the Annual Meeting. The Lipper reports prepared for the Fund showed the investment performance of its Class A shares in comparison to a group of similar funds as selected by Lipper (the "Performance Universe"). A fund with the highest performance is ranked first, and a fund with the lowest is ranked last. The highest/best performing 25% of funds in the Performance Universe make up the first quartile; the next 25% - the second quartile; the next 25% - the third quartile; and the lowest/worst performing 25% of funds in the Performance Universe make up the fourth quartile. Comparative annualized performance for the Fund was shown for the past one, three, five and 10 year periods ended February 28, 2005. The Board noted its objective that the Fund's performance be at or above the median of its Performance Universe. The following paragraph summarizes the performance results for the Fund and the Board's view of such performance. The Performance Universe for this Fund consisted of the Fund and all retail and institutional small cap value funds as selected by Lipper. The Lipper report comparison showed that the Fund's total return for the one, three, five and 10 year periods was in the second highest quartile of such Performance Universe. The Board was satisfied with such performance. COMPARATIVE EXPENSES. The Board considered expense comparison data for the Delaware Investments Family of Funds, Delaware Investments' institutional separate account business and other lines of business at Delaware Investments. The Board stated its belief that, given the differing level of service provided to Delaware Investments' various clients and other factors that related to the establishment of feel levels, variations in the levels of fees and expenses were justified. The Board placed significant emphasis on the comparative analysis of the management fees and total expense ratios of the Fund compared with those of a group of similar funds as selected by Lipper (the "Expense Group") and among the other Delaware Investments funds. In reviewing comparative costs, the Fund's management fee schedule and the actual management fee incurred by the Fund after taking breakpoints and fee waivers into effect were compared with the management fees of other funds within its Expense Group. The Fund's total expenses were also compared with those of its Lipper Expense Group. The Lipper total expenses, for comparative consistency, were shown by Lipper for Class A shares and compared total expenses including 12b-1 and non-12b-1 service fees. The Board noted its objective to limit the Fund's total expense ratio to an acceptable range as compared to the median of the Expense Group. The following paragraph summarizes the expense results for the Fund and the Board's view of such expenses. Such expense comparisons for the Fund showed that its management fee was in the quartile with the lowest expenses and its total expenses were in the quartile with the second highest expenses of its Lipper Expense Group. The Board gave favorable consideration to the Fund's management fee, but noted that the Fund's total expenses were not in line with the Board's stated objective. In evaluating the total expenses, the Board considered recent cost saving initiatives implemented by management, including a reduction in sub-transfer agency expenses as a result of Delaware Investments' outsourcing of its retirement administration services. The Board was encouraged by management's efforts to minimize costs and improve the Fund's total expense ratio. MANAGEMENT PROFITABILITY. The Board considered the level of profits, if any, realized by Delaware Investments, including its affiliates in connection with the operation of the Fund. In this respect, the Board reviewed the Investment Management Profitability Analysis that addressed the overall profitability of Delaware Investments' business in providing management and other services to each of the individual funds. Specific attention was given to the methodology followed in allocating costs for the purpose of determining profitability. Management stated that the level of profits of Delaware Investments and its affiliates, to a certain extent, reflected operational cost savings and efficiencies initiated by Delaware Investments. The Board considered Delaware Investments' expenditures to improve services provided to the Fund's shareholders and to meet additional regulatory and compliance requirements resulting from Sarbanes-Oxley and recent SEC initiatives. The Board also considered the extent to which Delaware Investments and its affiliates might derive ancillary benefits from fund operations, including the potential for procuring additional business as a result of the prestige and visibility associated with their role as service providers to the Delaware Investments Family of Funds, the benefits from allocation of fund brokerage to improve trading efficiencies and the use of "soft" commission dollars to pay for proprietary and non-proprietary research. At the Board's request, management also provided information relating to Delaware Investments' profitability by client type, including the Fund. The information provided set forth the revenue, expenses and pre-tax income/loss attributable to the Delaware Investments Family of Funds, Delaware Investments' separate account business and other lines of business at Delaware Investments. Emphasis was given to the level and type of service provided to the various clients. The Board was satisfied with the level of profits realized by Delaware Investments and its affiliates. ECONOMIES OF SCALE. The Trustees considered whether economies of scale are realized by Delaware Investments as the Fund's assets increase and the extent to which any economies of scale are reflected in the level of management fees charged. The Trustees took into account the standardized advisory fee pricing and structure approved by the Board and shareholders as part of a complex wide proxy conducted in 1998/1999. At that time, Delaware Investments introduced breakpoints to account for management economies of scale. The Board noted that the fee under the Fund's management contract fell within the standard structure. The Board also noted that the Fund's assets exceeded the first breakpoint level. The Board believed that, given the extent to which economies of scale might be realized by the manager and its affiliates, the schedule of fees under the Investment Advisory Agreement provides a sharing of benefits with the Fund and its shareholders. 17 Delaware Investments(R) ----------------------------------- A member of Lincoln Financial Group This semiannual report is for the information of Delaware Small Cap Value Fund shareholders, but it may be used with prospective investors when preceded or accompanied by a current prospectus for Delaware Small Cap Value Fund and the Delaware Investments Performance Update for the most recently completed calendar quarter. The prospectus sets forth details about charges, expenses, investment objectives, and operating policies of the Fund. You should read the prospectus carefully before you invest. The figures in this report represent past results that are not a guarantee of future results. The return and principal value of an investment in the Fund will fluctuate so that shares, when redeemed, may be worth more or less than their original cost.
BOARD OF TRUSTEES AFFILIATED OFFICERS CONTACT INFORMATION JUDE T. DRISCOLL MICHAEL P. BISHOF INVESTMENT MANAGER Chairman Senior Vice President and Delaware Management Company, Delaware Investments Family of Funds Chief Financial Officer a Series of Delaware Management Business Trust Philadelphia, PA Delaware Investments Family of Funds Philadelphia, PA Philadelphia, PA THOMAS L. BENNETT NATIONAL DISTRIBUTOR Private Investor RICHELLE S. MAESTRO Delaware Distributors, L.P. Rosemont, PA Executive Vice President, Philadelphia, PA Chief Legal Officer and Secretary JOHN A. FRY Delaware Investments Family of Funds SHAREHOLDER SERVICING, DIVIDEND President Philadelphia, PA DISBURSING AND TRANSFER AGENT Franklin & Marshall College Delaware Service Company, Inc. Lancaster, PA JOHN J. O'CONNOR 2005 Market Street Senior Vice President and Treasurer Philadelphia, PA 19103-7094 ANTHONY D. KNERR Delaware Investments Family of Funds Managing Director Philadelphia, PA FOR SHAREHOLDERS Anthony Knerr & Associates 800 523-1918 New York, NY FOR SECURITIES DEALERS AND FINANCIAL LUCINDA S. LANDRETH INSTITUTIONS REPRESENTATIVES ONLY Former Chief Investment Officer 800 362-7500 Assurant, Inc. Philadelphia, PA WEB SITE www.delawareinvestments.com ANN R. LEVEN Former Treasurer/Chief Fiscal Officer National Gallery of Art Washington, DC THOMAS F. MADISON President and Chief Executive Officer MLM Partners, Inc. Minneapolis, MN JANET L. YEOMANS Vice President/Mergers & Acquisitions 3M Corporation St. Paul, MN J. RICHARD ZECHER Founder Investor Analytics Scottsdale, AZ
-------------------------------------------------------------------------------- The Fund files its complete schedule of portfolio holdings with the Securities and Exchange Commission for the first and third quarters of each fiscal year on Form N-Q. The Fund's Forms N-Q, as well as a description of the policies and procedures that the Fund uses to determine how to vote proxies (if any) relating to portfolio securities is available without charge (i) upon request, by calling 800 523-1918; (ii) on the Fund's Web site at http://www.delawareinvestments.com; and (iii) on the Commission's Web site at http://www.sec.gov. The Fund's Forms N-Q may be reviewed and copied at the Commission's Public Reference Room in Washington, DC; information on the operation of the Public Reference Room may be obtained by calling 1-800-SEC-0330. Information (if any) regarding how the Fund voted proxies relating to portfolio securities during the most recently disclosed 12-month period ended June 30 is available without charge (i) through the Fund's Web site at http://www.delawareinvestments.com; and (ii) on the Commission's Web site at http://www.sec.gov. -------------------------------------------------------------------------------- (9483) Printed in the USA SA-021-[5/05]IVES 7/05 MF-05-06-092 PO 10242 Item 2. Code of Ethics Not applicable. Item 3. Audit Committee Financial Expert Not applicable. Item 4. Principal Accountant Fees and Services Not applicable. Item 5. Audit Committee of Listed Registrants Not applicable. Item 6. Schedule of Investments Included as part of report to shareholders filed under Item 1 of this Form N-CSR. Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End Management Investment Companies Not applicable. Item 8. Portfolio Managers of Closed-End Management Investment Companies Not applicable. Item 9. Purchases of Equity Securities by Closed-End Management Investment Companies and Affiliated Purchasers Not applicable. Item 10. Submission of Matters to a Vote of Security Holders Not applicable. Item 11. Controls and Procedures The registrant's principal executive officer and principal financial officer have evaluated the registrant's disclosure controls and procedures within 90 days of the filing of this report and have concluded that they are effective in providing reasonable assurance that the information required to be disclosed by the registrant in its reports or statements filed under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission. There were no significant changes in the registrant's internal control over financial reporting that occurred during the second fiscal quarter of the period covered by the report to stockholders included herein (i.e., the registrant's second fiscal quarter) that have materially affected, or are reasonably likely to materially affect, the registrant's internal control over financial reporting. Item 12. Exhibits (a)(1) Code of Ethics Not applicable. (2) Certifications of Principal Executive Officer and Principal Financial Officer pursuant to Rule 30a-2 under the Investment Company Act of 1940 are attached hereto as Exhibit 99.CERT. (3) Written solicitations to purchase securities pursuant to Rule 23c-1 under the Securities Exchange Act of 1934. Not applicable. (b) Certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 are furnished herewith as Exhibit 99.906CERT. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf, by the undersigned, thereunto duly authorized. DELAWARE GROUP EQUITY FUNDS V /s/ Jude T. Driscoll -------------------------------- By: Jude T. Driscoll Title: Chief Executive Officer Date: July 22, 2005 Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. /s/ Jude T. Driscoll ------------------------------- By: Jude T. Driscoll Title: Chief Executive Officer Date: July 22, 2005 /s/ Michael P. Bishof ------------------------------- By: Michael P. Bishof Title: Chief Financial Officer Date: July 22, 2005