N-CSR 1 n-csr.txt UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM N-CSR CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES Investment Company Act file number: 811-4997 Exact name of registrant as specified in charter: Delaware Group Equity Funds V Address of principal executive offices: 2005 Market Street Philadelphia, PA 19103 Name and address of agent for service: David F. Connor, Esq. 2005 Market Street Philadelphia, PA 19103 Registrant's telephone number, including area code: (800) 523-1918 Date of fiscal year end: November 30 Date of reporting period: November 30, 2005 Item 1. Reports to Stockholders VALUE-EQUITY Delaware Investments(R) ----------------------------------- A member of Lincoln Financial Group ANNUAL REPORT NOVEMBER 30, 2005 -------------------------------------------------------------------------------- DELAWARE DIVIDEND INCOME FUND [GRAPHIC] POWERED BY RESEARCH(R) TABLE OF CONTENTS -------------------------------------------------------------- PORTFOLIO MANAGEMENT REVIEW 1 -------------------------------------------------------------- PERFORMANCE SUMMARY 4 -------------------------------------------------------------- DISCLOSURE OF FUND EXPENSES 6 -------------------------------------------------------------- SECTOR ALLOCATION 7 -------------------------------------------------------------- FINANCIAL STATEMENTS: Statement of Net Assets 8 Statement of Operations 14 Statements of Changes in Net Assets 15 Financial Highlights 16 Notes to Financial Statements 20 -------------------------------------------------------------- REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM 23 -------------------------------------------------------------- BOARD OF TRUSTEES/DIRECTORS AND OFFICERS 24 -------------------------------------------------------------- ABOUT THE ORGANIZATION 26 -------------------------------------------------------------- Funds are not FDIC insured and are not guaranteed. It is possible to lose the principal amount invested. Mutual fund advisory services provided by Delaware Management Company, a series of Delaware Management Business Trust, which is a registered investment advisor. (C) 2006 Delaware Distributors, L.P. DELAWARE DIVIDEND INCOME FUND PORTFOLIO December 13, 2005 MANAGEMENT REVIEW FUND MANAGERS Ty Nutt, Jr. MANAGER Jordan L. Irving MANAGER Anthony A. Lombardi MANAGER Robert A. Vogel, Jr. MANAGER Timothy L. Rabe MANAGER Damon J. Andres MANAGER Q: CAN YOU PLEASE DISCUSS THE INVESTMENT ENVIRONMENT DURING THE PERIOD? A: During the 12-month period ended November 30, 2005, the Federal Reserve steadily increased short-term interest rates--a factor which has had a significant impact on both equity and fixed-income markets. Stock market returns were limited by investor concerns about rising energy prices and a string of intense hurricanes, which disrupted oil production on the Gulf Coast and increased federal borrowing to fund rebuilding. GDP and corporate earnings continue to grow, but we remain cautious about the economy and believe that the long-term trend may signal a gradual deceleration. Q: HOW DID THE FUND PERFORM RELATIVE TO ITS BENCHMARK FOR THE 12-MONTH PERIOD ENDED NOVEMBER 30, 2005? A: Delaware Dividend Income Fund posted a 4.89% return at net asset value and -1.10% at its maximum offer price (for Class A shares; both figures represent all distributions reinvested) for the 12-month period ended November 30, 2005. For complete, annualized performance for Delaware Dividend Income Fund, see the table on page 4. The Fund underperformed its benchmark, the Standard & Poor's (S&P) 500 Index, which returned 8.44% during the same period. Unlike the all-equity S&P 500 Index, the portfolio is diversified across four asset classes: large-cap value equities, high-yield bonds, REITs, and convertible securities. Each portion of the portfolio has a relatively low correlation with other asset classes in the Fund, providing it with an effective way to manage market volatility. Q: HOW DID THE FUND'S EQUITY ALLOCATION PERFORM? A: In March 2005, the Delaware Investments Large Cap Value Equity team of Ty Nutt, Jr., Jordan Irving, Anthony Lombardi, and Robert Vogel took over day-to-day operations of the equity investments within Delaware Investments Dividend Income Fund (Damon Andres remained as the portfolio manager responsible for both REITs and convertible securities in the Fund, while Tim Rabe continued to handle the Fund's allocation to high-yield fixed income). As stock investors, we consider ourselves long-term buy-and-hold investors. However, it is important to note that the transition of equities management this year resulted in a lower-than-average annual turnover rate for the Fund, as the equity allocation was adjusted shortly after the management change. We do expect the Fund's turnover level to be much lower going forward. During the 12-month period, the strongest equity returns came from the industrial, financial, and information technology sectors. In the financial sector, Aon, the world's second largest insurance broker, delivered exceptional performance. Careful analysis led us to believe that the stock was undervalued following a high-profile investigation by New York Attorney General Eliot Spitzer. Under the direction of a new CEO and a long-term restructuring plan, the company has exhibited renewed strength and we believe that it can benefit from rising volumes and improved pricing as a result of hurricanes Katrina and Rita. Another positive contributor to performance was Boeing, which has undergone a series of restructuring steps and implemented a new CEO in order to improve efficiency and productivity. The strong performance in Boeing's commercial aircraft division has been boosted by orders for its new 787 Dreamliner and increased travel in Asia. Conversely, individual security selection in the staples and health care sectors hurt performance. The stock performance of both Pfizer and Merck, in particular, proved disappointing during the fiscal year. Growing concern about the number of drugs coming off patent and the impact of generic competition was compounded by an unfavorable outlook for new product development. In addition, potential legal liabilities related to the withdrawal of Merck's Vioxx in 2004 and Pfizer's Bextra in April 2005, had a significant impact on valuations. We believe that these companies have suffered unfairly, and remain optimistic that they will benefit from strong franchises, healthy balance sheets, improving cash flow, and attractive dividend generation over the next three to five years. 1 Q: HOW DID THE FUND'S REIT INVESTMENTS PERFORM? A: Our REIT allocation underperformed the NAREIT Equity REIT Index, which returned 11.46%, during the fiscal year. REITs that delivered the strongest returns during the 12-month period were generally characterized by rich valuations--companies that we cautiously avoid. An example is Gables Residential Trust, which was acquired at a premium valuation, delivering outperformance this year despite a weak balance sheet and deteriorating cash flow. It is important to note that we did not own this security. The Fund also had exposure to mortgage REITs, which hurt our performance relative to the NAREIT Equity Index, as these securities underperformed due to concerns about consumer credit and the housing market. Q: CAN YOU GIVE SOME EXAMPLES OF KEY HOLDINGS? A: Among diversified REIT companies, Vornado Realty Trust posted strong returns. Successful business operations and diverse real estate exposure have contributed to Vornado's position as an industry leader. The Fund also benefited from a position in Simon Property Group, a regional mall company that experienced robust growth and solid operating performance this year, and also completed an acquisition. By contrast, our position in Great Wolf Resorts, in the consumer discretionary sector, did not meet performance expectations. The stock was adversely impacted by a variety of factors, including earnings misrepresentation and poor corporate management. We still hold the stock; we believe a buyout may be in the company's future, which we are hopeful could lead to brighter long-term prospects. Q: HOW DID THE PORTFOLIO'S FIXED INCOME INVESTMENTS FARE DURING THE YEAR? A: Corporate bond investors, in general, faced a number of challenges this year. Downgrades to General Motors and Ford Motor Company debt to non-investment grade had a negative impact on the market. The sector was further penalized by several high profile corporate bankruptcy filings by Northwest, Delta and Delphi, which occurred prior to sweeping bankruptcy reform. Our investments in high-yield corporate bonds performed favorably despite a difficult environment. The portfolio's fixed income allocation outperformed the Bear Stearns High Yield Index, which returned 2.59% during the 12-month period. Our investments in Georgia Pacific, which was acquired by Koch Industries and positions in wireless subsidiary Alamosa Holdings, which was acquired by Sprint/Nextel, delivered attractive returns. Conversely, we experienced disappointing performance from embattled power producer Calpine, which teetered on the verge of bankruptcy. Our position in Charter Communications, a highly leveraged broadband communications company, also suffered from weakening valuations. 2 This page intentionally left blank. 3 PERFORMANCE SUMMARY DELAWARE DIVIDEND INCOME FUND The performance data quoted represent past performance; past performance does not guarantee future results. Investment return and principal value will fluctuate so your shares, when redeemed, may be worth more or less than their original cost. Current performance may be lower or higher than the performance data quoted. Please obtain the performance data for the most recent month end by calling 800 523-1918 or visiting our Web site at www.delawareinvestments.com/performance. You should consider the investment objectives, risks, charges and expenses of the investment carefully before investing. The Delaware Dividend Income Fund prospectus contains this and other important information about the Fund. Please request a prospectus by calling 800 523-1918. Read it carefully before you invest or send money. Performance includes reinvestment of all distributions and is subject to change. FUND PERFORMANCE Average Annual Total Returns Through November 30, 2005 Lifetime Five Years One Year -------------------------------------------------------------------------------- Class A (Est. 12/2/96) Excluding Sales Charge +9.99% +8.45% +4.89% Including Sales Charge +9.27% +7.16% -1.10% -------------------------------------------------------------------------------- Class B (Est. 10/1/03) Excluding Sales Charge +8.37% +4.09% Including Sales Charge +7.20% +0.09% -------------------------------------------------------------------------------- Class C (Est. 10/1/03) Excluding Sales Charge +8.37% +4.09% Including Sales Charge +8.37% +3.09% -------------------------------------------------------------------------------- Returns reflect the reinvestment of all distributions and any applicable sales charges as noted below. Performance for Class B and C shares, excluding sales charges, assumes either that contingent deferred sales charges did not apply or the investment was not redeemed. The Fund offers Class A, B, C, R, and Institutional Class shares. Class A shares are sold with a front-end sales charge of up to 5.75% and have an annual distribution and service fee of up to 0.30%. The distributor has contracted to limit this amount to 0.25% through March 31, 2006. Performance prior to October 1, 2003 does not reflect the impact of distribution and service (12b-1) fees and the higher management and transfer fees currently borne by holders of Class A shares. Class B shares are sold with a contingent deferred sales charge that declines from 4% to zero depending upon the period of time the shares are held. Class B shares will automatically convert to Class A shares on a quarterly basis approximately eight years after purchase. They are also subject to an annual distribution and service fee of 1.00%. Class C shares are sold with a contingent deferred sales charge of 1.00% if redeemed during the first 12 months. They are also subject to an annual distribution and service fee of 1.00%. The average annual total return for the lifetime and one-year periods ended November 30, 2005 for Delaware Dividend Income Fund's Class R shares were +8.83% and +4.55%, respectively. Class R shares were first made available on October 1, 2003 and are available only for certain retirement plan products. They are sold without a sales charge and have an annual distribution and service fee of 0.60%. Effective August 1, 2005, the distributor has contracted to limit this amount to 0.50% through February 28, 2006. The average annual total returns for lifetime, five-year, and one-year periods ended November 30, 2005 for Delaware Dividend Income Fund's Institutional Class were +10.06%, +8.56%, and +5.16%, respectively. Institutional Class shares were first made available on December 2, 1996 and are available without sales or asset-based distribution charges only to certain eligible institutional accounts. Expense limitations were in effect for all classes of Delaware Dividend Income Fund during the periods shown. Performance would have been lower had the expense limitation not been in effect. The performance table does not reflect the deduction of taxes the shareholder would pay on Fund distributions or redemptions of Fund shares. Nasdaq Institutional Class symbol: DDIIX Nasdaq Class R symbol: DDDRX 4 FUND BASICS As of November 30, 2005 -------------------------------------------------------------------------------- FUND OBJECTIVE: The Fund seeks to provide high current income and an investment that has the potential for capital appreciation. -------------------------------------------------------------------------------- TOTAL FUND NET ASSETS: $511 million -------------------------------------------------------------------------------- NUMBER OF HOLDINGS: 303 -------------------------------------------------------------------------------- FUND START DATE: December 2, 1996 -------------------------------------------------------------------------------- YOUR FUND MANAGERS: Ty Nutt, Jr. joined Delaware Investments in 2004. Mr. Nutt began his investment career in 1983 at Dean Witter Reynolds where he advanced to Vice President, Investments. In 1988, he joined Van Deventer & Hoch (V&H). As a Senior Vice President at V&H, he was a member of the firm's Management Committee and directed new business development in addition to his portfolio management duties. Mr. Nutt moved to Merrill Lynch Investment Managers in 1994 and later served as leader of the U.S. Active Large Cap Value Team. He is a member of the New York Society of Security Analysts and the CFA Institute. Mr. Nutt graduated from Dartmouth College with a BA. Anthony A. Lombardi joined Delaware Investments in 2004. Mr. Lombardi's was an Investment Analyst with Crossland Savings, FSB, Brooklyn, NY from 1989-1990. He joined Dean Witter Reynolds, Inc. as a Research Assistant in 1990 and became Vice President, Research Analyst. He then moved to Merrill Lynch Investment Managers (MLIM) in 1998, and became a Portfolio Manager with the U.S. Active Large Cap Value Team in 2000. He departed MLIM as a Director. He is a Chartered Financial Analyst and a member of the New York Society of Security Analysts and the CFA Institute. Mr. Lombardi graduated from Hofstra University with a BBA and MBA in Finance. Robert A. Vogel, Jr. joined Delaware Investments in 2004. Mr. Vogel started as a Financial Consultant with Merrill Lynch in 1992. He then moved to Merrill Lynch Investment Managers (MLIM), as a Portfolio Manager. He departed MLIM as a Director. In 2004, Mr. Vogel joined Delaware Investments as Vice President, Senior Portfolio Manager. Mr. Vogel is a Chartered Financial Analyst and a member of the New York Society of Security Analysts and the CFA Institute. Mr. Vogel graduated from Loyola College in Maryland earning both his BBA and MS in Finance. He earned his MBA with a concentration in Finance at the Wharton School of Business at the University of Pennsylvania. Timothy L. Rabe received a bachelor's degree in finance from the University of Illinois. Prior to joining Delaware Investments in 2000, Mr. Rabe was a high-yield portfolio manager for Conseco Capital Management. Before that, he worked as a tax analyst for The Northern Trust Company. Mr. Rabe is a CFA charterholder. Damon J. Andres earned a bachelor's degree in business administration with an emphasis in finance and accounting from the University of Richmond. Prior to joining Delaware Investments in 1994, he performed investment consulting services as a Consulting Associate with Cambridge Associates, Inc. in Arlington, Virginia. Mr. Andres is a CFA charterholder. Jordan L. Irving joined Delaware Investments in 2004. He began his financial services career with the U.S. Active Large Cap Value Team at Merrill Lynch Investment Managers (MLIM) in 1998. He became a portfolio manager in 2000. In 2004, Mr. Jordan joined Delaware Investments as Vice President, Senior Portfolio Manager. Mr. Irving graduated from Yale University with a BA in American Studies and earned a Special Diploma in Social Studies at Oxford University the following year. -------------------------------------------------------------------------------- NASDAQ SYMBOLS: Class A DDIAX Class B DDDBX Class C DDICX -------------------------------------------------------------------------------- PERFORMANCE OF A $10,000 INVESTMENT December 2, 1996 through November 30, 2005 Delaware Dividend Income Fund - Class A Shares S&P 500 Index Dec. '96 $ 9,846.3 10,000 Nov. '97 $13,034 12,581 Nov. '98 $13,323 15,892 Nov. '99 $13,742 19,214 Nov. '00 $14,795 18,403 Nov. '01 $15,367.6 16,154 Nov. '02 $15,764 13,632.4 Nov. '03 $18,830.2 15,688.1 Nov. '04 $21,161.3 17,704 Nov. '05 $22,196.1 19,198.3 Chart assumes $10,000 invested on December 2, 1996 and includes the effect of a 5.75% front-end sales charge and the reinvestment of all distributions. Performance prior to October 1, 2003 does not reflect the impact of distribution and service (12b-1) fees currently borne by holders of Class A shares. Performance for other Fund classes will vary due to differing charges and expenses. The chart also assumes $10,000 invested in the S&P 500 Index at that month's end, December 31, 1996. After December 31, 1996, returns plotted on the chart were as of the last day of each month shown. The S&P 500 Index is an unmanaged composite of mostly large-capitalization U.S. companies. An index is unmanaged and does not reflect the costs of operating a mutual fund, such as the costs of buying, selling, and holding securities. You cannot invest directly in an index. Past performance is not a guarantee of future results. Expense limitations were in effect for the period shown. Performance would have been lower had the expense limitations not been in effect. The performance graph does not reflect the deduction of taxes the shareholder would pay on Fund distributions or redemptions of Fund shares. 5 DISCLOSURE For the Period June 1, 2005 to November 30, 2005 OF FUND EXPENSES As a shareholder of the Fund, you incur two types of costs: (1) transaction costs, including sales charges (loads) on purchase payments, reinvested dividends, or other distributions; redemption fees; and exchange fees; and (2) ongoing costs, including management fees; distribution and/or service (12b-1) fees; and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds. The example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period June 1, 2005 to November 30, 2005. ACTUAL EXPENSES The first section of the table shown, "Actual Fund Return," provides information about actual account values and actual expenses. You may use the information in this section of the table, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first section under the heading entitled "Expenses Paid During Period" to estimate the expenses you paid on your account during this period. HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES The second section of the table shown, "Hypothetical 5% Return," provides information about hypothetical account values and hypothetical expenses based on the Fund's actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund's actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds. Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as sales charges (loads), redemption fees, or exchange fees. Therefore, the second section of the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher. The Fund's actual expenses shown in the table reflect fee waivers in effect. The expenses shown in the table assume reinvestment of all dividends and distributions. DELAWARE DIVIDEND INCOME FUND EXPENSE ANALYSIS OF AN INVESTMENT OF $1,000 Expenses Beginning Ending Paid During Account Account Annualized Period Value Value Expense 6/1/05 to 6/1/05 11/30/05 Ratio 11/30/05 -------------------------------------------------------------------------------- ACTUAL FUND RETURN Class A $1,000.00 $1,037.20 1.00% $5.11 Class B 1,000.00 1,033.30 1.75% 8.92 Class C 1,000.00 1,032.40 1.75% 8.92 Class R 1,000.00 1,034.70 1.30% 6.63 Institutional Class 1,000.00 1,037.60 0.75% 3.83 -------------------------------------------------------------------------------- HYPOTHETICAL 5% RETURN (5% return before expenses) Class A $1,000.00 $1,020.20 1.00% $5.06 Class B 1,000.00 1,016.34 1.75% 8.85 Class C 1,000.00 1,016.34 1.75% 8.85 Class R 1,000.00 1,018.55 1.30% 6.58 Institutional Class 1,000.00 1,021.31 0.75% 3.80 -------------------------------------------------------------------------------- Expenses are equal to the Fund's annualized expense ratio, multiplied by the average account value over the period, multiplied by 183/365 (to reflect the one-half year period). 6 SECTOR ALLOCATION As of November 30, 2005 DELAWARE DIVIDEND INCOME FUND Sector designations may be different than the sector designations presented in other Fund materials. PERCENTAGE SECTOR OF NET ASSETS -------------------------------------------------------------------------------- COMMON STOCK 53.82% -------------------------------------------------------------------------------- Consumer Discretionary 3.42% Consumer Staples 4.19% Diversified REITs 0.84% Energy 3.37% Financials 10.18% Health Care 6.43% Health Care REITs 0.03% Industrial REITs 0.56% Industrials 3.83% Information Technology 3.76% Lodging/Resort REITs 0.73% Mall REITs 1.46% Materials 1.28% Mortgage REITs 4.12% Multifamily REITs 0.39% Office/Industrial REITs 0.56% Office REITs 3.18% Shopping Center REITs 1.78% Telecommunication Services 2.47% Utilities 1.24% -------------------------------------------------------------------------------- CORPORATE BONDS 23.01% -------------------------------------------------------------------------------- Banking 0.16% Basic Industries 3.63% Brokerage 0.67% Capital Goods 1.28% Consumer Cyclical 1.28% Consumer Non-Cyclical 2.07% Energy 0.98% Media 2.99% Real Estate 0.50% Services Cyclical 2.93% Services Non-cyclical 1.47% Technology & Electronics 0.61% Telecommunications 2.68% Utilities 1.76% -------------------------------------------------------------------------------- PERCENTAGE SECTOR OF NET ASSETS -------------------------------------------------------------------------------- CONVERTIBLE BONDS 10.66% -------------------------------------------------------------------------------- Aerospace & Defense 0.48% Banking, Finance & Insurance 0.56% Cable, Media & Publishing 1.68% Computers & Technology 1.41% Consumer Services 0.32% Electronics & Electrical Equipment 0.46% Energy 1.10% Health Care & Pharmaceuticals 2.30% Leisure, Lodging & Entertainment 0.09% Real Estate 0.14% Retail 1.42% Telecommunications 0.16% Transportation 0.12% Utilities 0.42% -------------------------------------------------------------------------------- CONVERTIBLE PREFERRED STOCK 5.19% -------------------------------------------------------------------------------- Automobiles & Automotive Parts 0.15% Banking, Finance & Insurance 2.08% Basic Materials 0.44% Cable, Media & Publishing 0.69% Consumer Products 0.12% Energy 0.66% Environmental Services 0.12% Food, Beverage & Tobacco 0.20% Telecommunications 0.19% Utilities 0.54% -------------------------------------------------------------------------------- PREFERRED STOCK 1.04% -------------------------------------------------------------------------------- Leisure, Lodging & Entertainment 0.12% Real Estate 0.88% Telecommunications 0.04% -------------------------------------------------------------------------------- EXCHANGE TRADED FUNDS 0.37% -------------------------------------------------------------------------------- WARRANT 0.00% -------------------------------------------------------------------------------- COMMERCIAL MORTGAGE-BACKED SECURITIES 0.15% -------------------------------------------------------------------------------- REPURCHASE AGREEMENTS 5.48% -------------------------------------------------------------------------------- TOTAL MARKET VALUE OF SECURITIES 99.72% -------------------------------------------------------------------------------- RECEIVABLES AND OTHER ASSETS NET OF LIABILITIES 0.28% -------------------------------------------------------------------------------- TOTAL NET ASSETS 100.00% -------------------------------------------------------------------------------- 7 DELAWARE DIVIDEND INCOME FUND STATEMENT November 30, 2005 OF NET ASSETS Number of Market Shares Value COMMON STOCK - 53.82% Consumer Discretionary - 3.42% +Great Wolf Resorts 141,900 $ 1,379,268 +Jameson Inns 2,011,300 4,203,617 Limited Brands 287,100 6,387,975 Mattel 332,600 5,537,790 ------------ 17,508,650 ------------ Consumer Staples - 4.19% Archer-Daniels-Midland 162,200 3,823,054 B&G Foods 11,000 160,050 ConAgra Foods 261,600 5,624,400 Kimberly-Clark 98,800 5,827,224 Safeway 258,500 6,010,125 ------------ 21,444,853 ------------ Diversified REITs - 0.84% Vornado Realty Trust 50,300 4,293,105 ------------ 4,293,105 ------------- Energy - 3.37% Chevron 98,700 5,656,497 ConocoPhillips 94,700 5,730,297 Exxon Mobil 100,300 5,820,409 ------------ 17,207,203 ------------ Financials - 10.18% Allstate 110,800 6,215,880 Aon 191,300 6,965,233 Chubb 70,600 6,836,904 Hartford Financial Services 80,200 7,007,074 Huntington Bancshares 257,400 6,167,304 Morgan Stanley 115,800 6,488,274 Wachovia 120,700 6,445,380 Washington Mutual 143,800 5,923,122 ------------ 52,049,171 ------------ Health Care - 6.43% Abbott Laboratories 133,300 5,026,743 Baxter International 150,700 5,860,723 Bristol-Myers Squibb 244,500 5,278,755 Merck 211,900 6,229,860 Pfizer 235,400 4,990,480 Wyeth 131,700 5,473,452 ------------ 32,860,013 ------------ Healthcare REITs - 0.03% Medical Properties Trust 19,700 180,058 ------------ 180,058 ------------ Industrial REITs - 0.56% First Potomac Realty Trust 87,000 2,405,550 ProLogis 10,000 453,600 ------------ 2,859,150 ------------ Industrials - 3.83% Boeing 93,600 6,382,584 +Foster Wheeler 3,656 127,338 Union Pacific 88,900 6,804,406 Waste Management 209,800 6,275,118 ------------ 19,589,446 ------------ Information Technology - 3.76% Hewlett-Packard 209,300 6,209,931 International Business Machines 74,900 6,658,610 Number of Market Shares Value COMMON STOCK (continued) Information Technology (continued) +Xerox 447,000 $ 6,347,400 ------------ 19,215,941 ------------ Lodging/Resort REITs - 0.73% Hersha Hospitality Trust 129,900 1,197,678 Strategic Hotel Capital 135,900 2,510,073 ------------ 3,707,751 ------------ Mall REITs - 1.46% CBL & Associates Properties 47,700 1,919,925 Mills 7,500 321,750 Simon Property Group 67,200 5,195,232 ------------ 7,436,907 ------------ Materials - 1.28% duPont (E.I.) deNemours 152,500 6,519,375 ------------ 6,519,375 ------------ Mortgage REITs - 4.12% American Home Mortgage Investment 84,200 2,499,898 Friedman Billings Ramsey Group Class A 163,325 1,737,778 Gramercy Capital 158,000 3,705,100 JER Investors Trust 210,900 3,395,490 KKR Financial 11,100 263,625 sKKR Financial 79,300 1,883,375 MortgageIT Holdings 223,000 2,948,060 sPeoples Choice 174,600 1,309,500 Saxon Capital 278,700 3,344,400 ------------ 21,087,226 ------------ Multifamily REITs - 0.39% AvalonBay Communities 10,000 914,500 Equity Lifestyle Properties 23,100 1,070,916 ------------ 1,985,416 ------------ Office/Industrial REITs - 0.56% Duke Realty 84,200 2,862,800 ------------ 2,862,800 ------------ Office REITs - 3.18% Brandywine Realty Trust 158,000 4,578,840 CarrAmerica Realty 26,500 935,450 Equity Office Properties Trust 121,500 3,788,370 Prentiss Properties Trust 82,400 3,378,400 Reckson Associates Realty 97,900 3,595,867 ------------ 16,276,927 ------------ Shopping Center REITs - 1.78% Developers Diversified Realty 100,900 4,570,770 Federal Realty Investment Trust 71,700 4,515,666 ------------ 9,086,436 ------------ Telecommunication Services - 2.47% AT&T 253,900 6,324,649 Verizon Communications 196,600 6,287,268 ------------ 12,611,917 ------------ Utilities - 1.24% Progress Energy 141,400 6,331,892 ------------ 6,331,892 ------------ TOTAL COMMON STOCK (cost $267,797,757) 275,114,237 ------------ 8 DELAWARE DIVIDEND INCOME FUND STATEMENT OF NET ASSETS (CONTINUED) Principal Market Amount (U.S.$) Value CORPORATE BONDS - 23.01% Banking - 0.16% Western Financial 9.625% 5/15/12 $ 735,000 $ 828,713 ----------- 828,713 ----------- Basic Industries - 3.63% Abitibi-Consolidated 6.95% 4/1/08 275,000 279,125 AK Steel 7.75% 6/15/12 250,000 226,875 7.875% 2/15/09 465,000 446,400 #Apex Silver Mines 144A 2.875% 3/15/24 1,000,000 787,500 Bowater 9.50% 10/15/12 1,315,000 1,361,024 Donohue Forest Products 7.625% 5/15/07 545,000 562,713 Fort James 7.75% 11/15/23 1,575,000 1,984,499 Georgia-Pacific 8.875% 5/15/31 385,000 386,925 9.50% 12/1/11 445,000 476,706 Gold Kist 10.25% 3/15/14 495,000 561,825 Huntsman International 9.875% 3/1/09 240,000 253,500 10.125% 7/1/09 205,000 212,175 #Huntsman International 144A 7.375% 1/1/15 460,000 446,775 Lyondell Chemical 10.50% 6/1/13 100,000 114,125 Nalco 7.75% 11/15/11 320,000 330,400 #Nell AF Sarl 144A 8.375% 8/15/15 650,000 640,250 NewPage 10.00% 5/1/12 675,000 668,250 Norske Skog 8.625% 6/15/11 1,272,000 1,249,740 #Novelis 144A 7.50% 2/15/15 275,000 258,500 #Port Townsend Paper 144A 12.00% 4/15/11 740,000 503,200 Potlatch 13.00% 12/1/09 635,000 762,120 Rhodia 8.875% 6/1/11 860,000 877,200 10.25% 6/1/10 465,000 512,663 Smurfit Capital Funding 7.50% 11/20/25 1,285,000 1,130,800 aSolutia 6.72% 10/15/37 1,070,000 770,400 Stone Container 9.75% 2/1/11 1,010,000 1,027,675 Tembec Industries 8.625% 6/30/09 1,875,000 1,246,875 Witco 6.875% 2/1/26 500,000 472,500 ------------ 18,550,740 ----------- Brokerage - 0.67% E Trade Financial 8.00% 6/15/11 1,260,000 1,294,649 #E Trade Financial 144A 8.00% 6/15/11 145,000 148,988 FINOVA Group 7.50% 11/15/09 1,406,500 513,373 LaBranche & Company 9.50% 5/15/09 560,000 590,800 11.00% 5/15/12 805,000 891,538 ----------- 3,439,348 ----------- Capital Goods - 1.28% aAnchor Glass 11.00% 2/15/13 350,000 255,500 Armor Holdings 8.25% 8/15/13 910,000 987,350 Graham Packaging 9.875% 10/15/14 965,000 938,463 Interface 10.375% 2/1/10 445,000 480,600 Interline Brands 11.50% 5/15/11 972,000 1,083,779 Intertape Polymer 8.50% 8/1/14 960,000 902,971 ~Mueller Holdings 14.75% 4/15/14 1,115,000 844,613 #Panolam Industrial 144A 10.75% 10/1/13 410,000 395,650 Trimas 9.875% 6/15/12 785,000 647,625 ----------- 6,536,551 ----------- Principal Market Amount (U.S.$) Value CORPORATE BONDS (continued) Consumer Cyclical - 1.28% Accuride 8.50% 2/1/15 $ 700,000 $ 689,500 Autonation 9.00% 8/1/08 360,000 387,900 General Motors Acceptance Corporation 6.875% 9/15/11 305,000 275,893 8.00% 11/1/31 320,000 314,646 Landry's Restaurant 7.50% 12/15/14 525,000 496,125 #Metaldyne 144A 11.00% 11/1/13 950,000 855,000 #Neiman Marcus 144A 10.375% 10/15/15 690,000 701,213 O'Charleys 9.00% 11/1/13 965,000 998,774 #Uno Restaurant 144A 10.00% 2/15/11 650,000 572,000 aVenture Holdings 12.00% 6/1/09 35,000 44 Visteon 7.00% 3/10/14 175,000 141,531 8.25% 8/1/10 470,000 411,250 Warnaco 8.875% 6/15/13 630,000 685,125 ----------- 6,529,001 ----------- Consumer Non-Cyclical - 2.07% Biovail 7.875% 4/1/10 1,250,000 1,303,125 #Commonwealth Brands 144A 9.75% 4/15/08 375,000 416,719 10.625% 9/1/08 700,000 802,375 Constellation Brands 8.125% 1/15/12 477,000 498,465 Cott Beverages 8.00% 12/15/11 995,000 1,024,850 #Doane Pet Care 144A 10.625% 11/15/15 375,000 382,969 #Le-Natures 144A 10.00% 6/15/13 915,000 947,025 National Beef Packing 10.50% 8/1/11 935,000 970,063 Pilgrim's Pride 9.625% 9/15/11 745,000 791,563 Playtex Products 9.375% 6/1/11 855,000 905,231 Rayovac 8.50% 10/1/13 390,000 355,388 True Temper Sports 8.375% 9/15/11 505,000 457,025 #Warner Chilcott 144A 8.75% 2/1/15 1,610,000 1,473,149 #Williams Scotsman 144A 8.50% 10/1/15 220,000 227,700 ----------- 10,555,647 ----------- Energy - 0.98% Bluewater Finance 10.25% 2/15/12 438,000 469,755 #Compton Petroleum 144A 7.625% 12/1/13 335,000 341,700 El Paso Natural Gas 7.625% 8/1/10 285,000 297,981 El Paso Production Holding 7.75% 6/1/13 835,000 860,049 #Hilcorp Energy 144A 7.75% 11/1/15 265,000 269,638 10.50% 9/1/10 584,000 649,700 Inergy Finance 6.875% 12/15/14 250,000 234,375 Plains Exploration & Production 7.125% 6/15/14 335,000 345,050 Pride International 7.375% 7/15/14 345,000 373,463 oSecunda International 12.15% 9/1/12 430,000 453,650 Tennessee Gas Pipeline 8.375% 6/15/32 355,000 398,882 Whiting Petroleum 7.25% 5/1/13 325,000 330,688 ----------- 5,024,931 ----------- Media - 2.99% JAdelphia Communications 8.125% 7/15/06 65,000 39,000 #CCH I Notes 144A 11.00% 10/1/15 1,810,000 1,561,124 Cenveo 9.625% 3/15/12 405,000 438,413 #Charter Communications 144A 5.875% 11/16/09 500,000 371,875 Charter Communications Holdings 11.125% 1/15/11 835,000 509,350 ~13.50% 1/15/11 1,040,000 722,800 9 DELAWARE DIVIDEND INCOME FUND STATEMENT OF NET ASSETS (CONTINUED) Principal Market Amount (U.S.$) Value CORPORATE BONDS (continued) Media (continued) #Charter Communications Operating 144A 8.375% 4/30/14 $ 665,000 $ 665,000 CSC Holdings 10.50% 5/15/16 915,000 981,338 Dex Media East 12.125% 11/15/12 640,000 748,800 #EchoStar Communications 144A 5.75% 5/15/08 500,000 489,375 Insight Midwest 10.50% 11/1/10 1,785,000 1,885,405 Lodgenet Entertainment 9.50% 6/15/13 1,215,000 1,330,424 Mediacom Capital 9.50% 1/15/13 1,310,000 1,293,625 Rogers Cablesystems 11.00% 12/1/15 820,000 867,150 Sheridan Acquisition Group 10.25% 8/15/11 215,000 224,675 #Sirius Satellite 144A 9.625% 8/1/13 935,000 918,638 Vertis 10.875% 6/15/09 445,000 434,988 Warner Music Group 7.375% 4/15/14 990,000 965,250 XM Satellite Radio 12.00% 6/15/10 757,000 855,410 ----------- 15,302,640 ----------- Real Estate - 0.50% American Real Estate Partners 8.125% 6/1/12 580,000 594,500 #American Real Estate Partners 144A 7.125% 2/15/13 250,000 246,875 BF Saul REIT 7.50% 3/1/14 975,000 1,001,812 Tanger Properties 9.125% 2/15/08 658,000 707,268 ----------- 2,550,455 ----------- Services Cyclical - 2.93% Adesa 7.625% 6/15/12 710,000 710,000 Ameristar Casinos 10.75% 2/15/09 125,000 133,438 #CCM Merger 144A 8.00% 8/1/13 650,000 632,125 Corrections Corporation of America 7.50% 5/1/11 575,000 600,875 Foster Wheeler 10.359% 9/15/11 159,000 179,670 #FTI Consulting 144A 7.625% 6/15/13 740,000 765,900 Gaylord Entertainment 6.75% 11/15/14 625,000 606,250 ~H-Lines Finance Holdings 11.00% 4/1/13 1,296,000 1,075,680 Horizon Lines 9.00% 11/1/12 437,000 462,674 Kansas City Southern Railway 9.50% 10/1/08 765,000 830,025 #Knowledge Learning 144A 7.75% 2/1/15 860,000 817,000 Mandalay Resort Group 10.25% 8/1/07 1,685,000 1,807,162 MGM MIRAGE 9.75% 6/1/07 15,000 15,863 OMI 7.625% 12/1/13 1,075,000 1,091,125 Penn National Gaming 8.875% 3/15/10 1,790,000 1,883,974 Royal Caribbean Cruises 7.25% 3/15/18 325,000 346,938 Seabulk International 9.50% 8/15/13 469,000 528,798 Stena 9.625% 12/1/12 820,000 897,900 ~Town Sports International 11.00% 2/1/14 505,000 338,350 United Air Lines 7.73% 7/1/10 224,828 221,082 Wheeling Island Gaming 10.125% 12/15/09 970,000 1,020,925 ----------- 14,965,754 ----------- Services Non-cyclical - 1.47% Aleris International 9.00% 11/15/14 635,000 665,163 Allied Waste North America 9.25% 9/1/12 790,000 863,075 Casella Waste Systems 9.75% 2/1/13 1,185,000 1,262,024 Geo Subordinate 11.00% 5/15/12 615,000 595,013 Healthsouth 10.75% 10/1/08 1,350,000 1,302,749 NDCHealth 10.50% 12/1/12 835,000 953,988 US Oncology 10.75% 8/15/14 1,065,000 1,184,813 ~Vanguard Health 11.25% 10/1/15 970,000 698,400 ----------- 7,525,225 ----------- Principal Market Amount (U.S.$) Value CORPORATE BONDS (continued) Technology & Electronics - 0.61% #Avago Technologies Finance 144A 10.125% 12/1/13 $ 340,000 $ 348,500 #Ikon Office Solutions 144A 7.75% 9/15/15 65,000 62,400 Magnachip Semiconductor 8.00% 12/15/14 850,000 790,500 Sanmina-SCI 10.375% 1/15/10 915,000 1,004,213 #Sunguard Data Systems 144A 9.125% 8/15/13 200,000 208,000 10.25% 8/15/15 705,000 715,575 ----------- 3,129,188 ----------- Telecommunications - 2.68% Alaska Communications Systems 9.875% 8/15/11 560,000 609,700 aAllegiance Telecom 11.75% 2/15/08 10,000 2,650 American Cellular 10.00% 8/1/11 480,000 522,000 American Tower 7.125% 10/15/12 575,000 596,563 Centennial Cellular Operating 10.125% 6/15/13 580,000 649,600 Cincinnati Bell 8.375% 1/15/14 1,015,000 999,775 #Digicel Limited 144A 9.25% 9/1/12 580,000 600,300 ~Inmarsat Finance 10.375% 11/15/12 1,275,000 1,045,500 iPCS 11.50% 5/1/12 10,000 11,575 ~Iwo Escrow Company 10.75% 1/15/15 225,000 162,563 MCI 6.908% 5/1/07 255,000 258,506 7.688% 5/1/09 800,000 831,000 PanAmSat 9.00% 8/15/14 175,000 184,625 Qwest 7.875% 9/1/11 620,000 668,050 o#Qwest 144A 7.12% 6/15/13 485,000 525,013 Rural Cellular 9.625% 5/15/08 600,000 612,750 9.875% 2/1/10 640,000 672,800 o#Rural Cellular 144A 10.041% 11/1/12 425,000 422,875 #Telcordia Technologies 144A 10.00% 3/15/13 1,350,000 1,181,249 Time Warner Telecommunications 9.75% 7/15/08 455,000 465,806 Triton Communications 9.375% 2/1/11 750,000 566,250 oUS LEC 12.716% 10/1/09 435,000 469,800 Valor Telecommunications Enterprises 7.75% 2/15/15 835,000 822,475 #Wind Acquisition 144A 10.75% 12/1/15 800,000 836,000 ----------- 13,717,425 ----------- Utilities - 1.76% Avista 9.75% 6/1/08 278,000 305,461 Calpine 7.625% 4/15/06 605,000 205,700 10.50% 5/15/06 415,000 141,100 o#Calpine 144A 9.90% 7/15/07 504,700 393,666 CMS Energy 9.875% 10/15/07 705,000 756,113 #Dynegy Holdings 144A 10.125% 7/15/13 1,183,000 1,330,874 Elwood Energy 8.159% 7/5/26 949,398 1,050,271 Midwest Generation 8.30% 7/2/09 945,000 982,800 8.75% 5/1/34 495,000 548,213 aMirant Americas 8.30% 5/1/11 605,000 754,738 Orion Power Holdings 12.00% 5/1/10 626,000 716,770 PSEG Energy Holdings 7.75% 4/16/07 259,000 265,475 Reliant Energy 9.50% 7/15/13 300,000 307,500 10 DELAWARE DIVIDEND INCOME FUND STATEMENT OF NET ASSETS (CONTINUED) Principal Market Amount (U.S.$) Value CORPORATE BONDS (continued) Utilities (continued) #Tenaska Alabama Partners 144A 7.00% 6/30/21 $ 797,314 $ 810,000 #Texas Genco 144A 6.875% 12/15/14 375,000 403,125 ------------ 8,971,806 ------------ TOTAL CORPORATE BONDS (cost $120,123,911) 117,627,424 ------------ CONVERTIBLE BONDS - 10.66% Aerospace & Defense - 0.48% EDO 4.00% 11/15/25 exercise price $34.19, expiration date 11/15/25 975,000 985,969 #L-3 Communications 144A 3.00% 8/1/35 exercise price $102.31, expiration date 8/1/35 1,500,000 1,466,250 ------------ 2,452,219 ------------ Banking, Finance & Insurance - 0.56% PMI Group 2.50% 7/15/21 exercise price $44.16, expiration date 7/15/21 2,750,000 2,842,813 ------------ 2,842,813 ------------ Cable, Media & Publishing - 1.68% EchoStar 5.75% 5/15/08 exercise price $43.29, expiration date 5/15/08 500,000 489,375 Liberty Media 3.25% 3/15/31 exercise price $53.86, expiration date 3/8/31 3,000,000 2,298,750 Mediacom Communications 5.25% 7/1/06 exercise price $18.72, expiration date 7/1/06 2,500,000 2,487,500 #Playboy Enterprises 144A 3.00% 3/15/25 exercise price $17.02, expiration date 3/15/25 3,240,000 3,316,950 ------------ 8,592,575 ------------ Computers & Technology - 1.41% Fairchild Semiconductor International 5.00% 11/1/08 exercise price $30.00, expiration date 11/1/08 2,500,000 2,437,500 ^#ON Semiconductor 144A 0.36% 4/15/24 exercise price $9.82, expiration date 4/15/24 3,500,000 2,795,625 #Sybase 144A 1.75% 2/22/25 exercise price $25.22, expiration date 2/22/25 1,875,000 1,957,031 ------------ 7,190,156 ------------ Consumer Services - 0.32% Fluor 1.50% 2/15/24 exercise price $55.94, expiration date 2/15/24 1,200,000 1,644,000 ------------ 1,644,000 ------------ Electronics & Electrical Equipment - 0.46% Fisher Scientific 3.25% 3/1/24 exercise price $80.40, expiration date 3/1/24 1,500,000 1,530,000 Solectron 0.50% 2/15/34 exercise price $9.67, expiration date 2/15/34 1,100,000 816,750 ------------ 2,346,750 ------------ Energy - 1.10% Halliburton 3.125% 7/15/23 exercise price $37.65, expiration date 7/15/23 1,250,000 2,200,000 Pride International 3.25% 5/1/33 exercise price $25.70, expiration date 5/1/33 1,140,000 1,477,725 Principal Market Amount (U.S.$) Value CONVERTIBLE BONDS (continued) Energy (continued) Schlumberger 2.125% 6/1/23 exercise price $116.89, expiration date 6/1/23 $1,500,000 $ 1,933,124 ------------ 5,610,849 ------------ Healthcare & Pharmaceuticals - 2.30% CV Therapeutics 3.25% 8/16/13 exercise price $27.00, expiration date 8/16/13 500,000 556,875 Encysive Pharmaceuticals 2.50% 3/15/12 exercise price $13.95, expiration date 3/15/12 625,000 622,656 #Encysive Pharmaceuticals 144A 2.50% 3/15/12 exercise price $13.95, expiration date 3/15/12 2,000,000 1,992,500 Medimmune 1.00% 7/15/23 exercise price $68.18, expiration date 7/15/23 3,250,000 3,180,937 #Nektar Therapeutics 144A 3.25% 9/28/12 exercise price $21.52, expiration date 9/28/12 2,250,000 2,283,750 oWyeth 3.32% 1/15/24 exercise price $60.39, expiration date 1/15/24 3,000,000 3,057,330 ------------ 11,694,048 ------------ Leisure, Lodging & Entertainment - 0.09% #Regal Entertainment Group 144A 3.75% 5/15/08 exercise price $15.30, expiration date 5/15/08 350,000 467,688 ------------ 467,688 ------------ Real Estate - 0.14% MeriStar Hospitality 9.50% 4/1/10 exercise price $10.18, expiration date 4/1/10 600,000 732,750 ------------ 732,750 ------------ Retail - 1.42% ~Dick's Sporting Goods 1.606% 2/18/24 exercise price $58.13, expiration date 2/18/24 1,480,000 1,063,750 oLowe's 0.861% 10/19/21 exercise price $50.03, expiration date 10/19/21 1,250,000 1,471,875 #Saks 144A 2.00% 3/15/24 exercise price $18.69, expiration date 3/15/24 2,200,000 2,180,750 Sonic Automotive 5.25% 5/7/09 exercise price $46.87, expiration date 5/7/09 1,000,000 981,250 ^TJX 1.75% 2/13/21 exercise price $20.56, expiration date 2/13/21 2,000,000 1,582,500 ------------ 7,280,125 ------------ Telecommunications - 0.16% Qwest Communications International 3.50% 11/15/25 exercise price $5.90, expiration date 11/15/25 750,000 821,250 ------------ 821,250 ------------ Transportation - 0.12% #ExpressJet Holdings 144A 4.25% 8/1/23 exercise price $18.20, expiration date 8/1/23 750,000 633,750 ------------ 633,750 ------------ Utilities - 0.42% CenterPoint Energy 3.75% 5/15/23 exercise price $11.58, expiration date 5/15/23 400,000 483,000 11 DELAWARE DIVIDEND INCOME FUND STATEMENT OF NET ASSETS (CONTINUED) Principal Market Amount (U.S.$) Value CONVERTIBLE BONDS (continued) Utilities (continued) #CenterPoint Energy 144A 3.75% 5/15/23 exercise price $11.58, expiration date 5/15/23 $1,030,000 $ 1,243,726 aMirant 2.50% 6/15/21 exercise price $67.95, expiration date 6/15/21 425,000 448,375 ------------ 2,175,101 ------------ TOTAL CONVERTIBLE BONDS (cost $52,858,668) 54,484,074 ------------ Number of Shares CONVERTIBLE PREFERRED STOCK - 5.19% Automobiles & Automotive Parts - 0.15% Ford Motor Capital Trust II 6.50% exercise price $17.70, expiration date 1/15/32 25,000 771,000 ------------ 771,000 ------------ Banking, Finance & Insurance - 2.08% Chubb 7.00% exercise price $71.40, expiration date 8/16/06 80,000 2,786,400 oCitigroup Funding 4.583% exercise price $29.50, expiration date 9/27/08 69,000 2,294,112 E Trade Financial 6.125% exercise price $21.82, expiration date 11/18/08 37,500 1,002,375 Lehman Brothers Holdings 6.25% exercise price $54.24, expiration date 10/15/07 66,750 1,752,188 Merrill Lynch 6.75% exercise price $40.80, expiration date 10/15/07 70,000 2,763,320 ------------ 10,598,395 ------------ Basic Materials - 0.44% Huntsman 5.00% exercise price $28.29, expiration date 2/16/08 52,500 2,270,625 ------------ 2,270,625 ------------ Cable, Media & Publishing - 0.69% Interpublic Group 5.375% exercise price $16.47, expiration date 12/15/06 59,000 2,128,130 #Interpublic Group 144A 5.25% exercise price $13.66, expiration date 12/31/49 1,500 1,373,625 ------------ 3,501,755 ------------ Consumer Products - 0.12% Newell Financial Trust I 5.25% exercise price $50.69, expiration date 12/1/27 15,000 630,000 ------------ 630,000 ------------ Energy - 0.66% Chesapeake 4.50% exercise price $44.17, expiration date 12/31/49 24,000 2,154,000 El Paso Energy Capital Trust 4.75% exercise price $41.59, expiration date 3/31/28 34,600 1,232,452 ------------ 3,386,452 ------------ Environmental Services - 0.12% Allied Waste Industries 6.25% exercise price $10.13, expiration date 4/1/06 13,100 629,062 ------------ 629,062 ------------ Food, Beverage & Tobacco - 0.20% Constellation Brands 5.75% exercise price $17.08, expiration date 9/1/06 28,200 1,001,100 ------------ 1,001,100 ------------ Number of Market Shares Value CONVERTIBLE PREFERRED STOCK (continued) Telecommunications - 0.19% Lucent Technologies Capital Trust I 7.75% exercise price $4.84, expiration date 3/15/17 1,000 $ 966,375 ------------ 966,375 ------------ Utilities - 0.54% oCenterPoint Energy 2.00% 9/15/29 exercise price $18.09, expiration date 9/15/29 26,000 897,286 #NRG Energy 144A 4.00% exercise price $40.00, expiration date 12/31/49 1,500 1,841,250 ------------ 2,738,536 ------------ TOTAL CONVERTIBLE PREFERRED STOCK (cost $28,311,941) 26,493,300 ------------ PREFERRED STOCK - 1.04% Leisure, Lodging & Entertainment - 0.12% Red Lion Hotels 9.50% 24,000 631,800 ------------ 631,800 ------------ Real Estate - 0.88% Equity Inns Series B 8.75% 18,300 479,460 LaSalle Hotel Properties 10.25% 36,500 956,300 Ramco-Gershenson Properties 9.50% 15,700 419,269 SL Green Realty 7.625% 103,000 2,607,187 ------------ 4,462,216 ------------ Telecommunications - 0.04% Alamosa Delaware 7.50% 150 206,588 ------------ 206,588 ------------ TOTAL PREFERRED STOCK (cost $5,242,104) 5,300,604 ------------ EXCHANGE TRADED FUNDS - 0.37% iShares Dow Jones U.S. Real Estate Index Fund 29,200 1,906,176 ------------ TOTAL EXCHANGE TRADED FUNDS (cost $1,550,582) 1,906,176 ------------ WARRANT - 0.00% #Solutia 144A, exercise price $7.59, expiration date 7/15/09 12 0 ------------ TOTAL WARRANT (cost $1,021) 0 ------------ Principal Amount (U.S.$) COMMERCIAL MORTGAGE-BACKED SECURITIES - 0.15% #First Union National Bank Commercial Mortgage Trust Series 2001-C2 L 144A 6.46% 1/12/43 $ 750,000 744,390 ------------ TOTAL COMMERCIAL MORTGAGE-BACKED SECURITIES (cost $761,221) 744,390 ------------ 12 DELAWARE DIVIDEND INCOME FUND STATEMENT OF NET ASSETS (CONTINUED) Principal Market Amount (U.S.$) Value REPURCHASE AGREEMENTS - 5.48% With BNP Paribas 3.92% 12/1/05 (dated 11/30/05, to be repurchased at $18,824,050, collateralized by $19,299,000 U.S. Treasury Bills due 1/19/06, market value $19,202,634) $18,822,000 $ 18,822,000 With UBS Warburg 3.93% 12/1/05 (dated 11/30/05, to be repurchased at $9,197,004, collateralized by $9,389,000 U.S. Treasury Bills due 12/8/05, market value $9,382,257) 9,196,000 9,196,000 ------------ TOTAL REPURCHASE AGREEMENTS (cost $28,018,000) 28,018,000 ------------ TOTAL MARKET VALUE OF SECURITIES - 99.72% (cost $504,665,205) 509,688,204 RECEIVABLES AND OTHER ASSETS NET OF LIABILITIES - 0.28% 1,407,472 ------------ NET ASSETS APPLICABLE TO 45,902,818 SHARES OUTSTANDING - 100.00% $511,095,676 ============ Net Asset Value - Delaware Dividend Income Fund Class A ($285,158,737 / 25,607,431 Shares) $11.14 ------ Net Asset Value - Delaware Dividend Income Fund Class B ($57,903,803 / 5,202,227 Shares) $11.13 ------ Net Asset Value - Delaware Dividend Income Fund Class C ($165,662,577/ 14,880,292 Shares) $11.13 ------ Net Asset Value - Delaware Dividend Income Fund Class R ($1,429,168 / 128,380 Shares) $11.13 ------ Net Asset Value - Delaware Dividend Income Fund Institutional Class ($941,391 / 84,488 Shares) $11.14 ------ COMPONENTS OF NET ASSETS AT NOVEMBER 30, 2005: Shares of beneficial interest (unlimited authorization - no par) $517,981,803 Undistributed net investment income 5,363,184 Accumulated net realized loss on investments (17,272,310) Net unrealized appreciation of investments 5,022,999 ------------ Total net assets $511,095,676 ============ JSecurity is currently in default. The issue has missed the maturity date. Bankruptcy proceedings are in process to determine distribution of assets. The date listed is the estimate of when proceedings will be finalized. + Non-income producing security for the year ended November 30, 2005. a Non-income producing security. Security is currently in default. o Variable rate securities. The interest rate shown is the rate as of November 30, 2005. ^ Zero coupon security. The interest rate shown is the yield at the time of purchase. ~ Step coupon bond. Indicates security that has a zero coupon that remains in effect until a predetermined date at which time the stated interest rate becomes effective. # Security exempt from registration under Rule 144A of the Securities Act of 1933. At November 30, 2005, the aggregate amount of Rule 144A securities equals $47,422,824, which represented 9.28% of the Fund's net assets. See Note 8 in "Notes to Financial Statements." s Restricted Security. Investment in a security not registered under the Securities Act of 1933. This security has certain restrictions on resale which may limit its liquidity. At November 30, 2005, the aggregate amount of the restricted securities equals $1,309,500, which represented 0.26% of the Fund's net assets. See Note 8 in "Notes to Financial Statements." SUMMARY OF ABBREVIATIONS: REIT - Real Estate Investment Trust NET ASSET VALUE AND OFFERING PRICE PER SHARE - DELAWARE DIVIDEND INCOME FUND Net asset value Class A (A) $11.14 Sales charge (5.75% of offering price) (B) 0.68 ------ Offering price $11.82 ====== (A) Net asset value per share, as illustrated, is the amount which would be paid upon redemption or repurchase of shares. (B) See the current prospectus for purchases of $50,000 or more. See accompanying notes 13
STATEMENT DELAWARE DIVIDEND INCOME FUND OF OPERATIONS Year Ended November 30, 2005 INVESTMENT INCOME: Dividends $9,525,642 Interest 9,029,244 Foreign tax withheld (12,774) $18,542,112 --------- ----------- EXPENSES: Management fees 2,463,270 Distribution expenses -- Class A 606,845 Distribution expenses -- Class B 459,326 Distribution expenses -- Class C 1,265,326 Distribution expenses -- Class R 4,775 Dividend disbursing and transfer agent fees and expenses 570,082 Registration fees 174,433 Reports and statements to shareholders 155,501 Accounting and administration expenses 139,555 Legal and professional fees 111,810 Custodian fees 30,460 Insurance fees 24,680 Trustees' fees 18,279 Pricing fees 7,702 Taxes (other than taxes on income) 2,832 Other 16,613 6,051,489 --------- Less expenses absorbed or waived (860,647) Less waiver of distribution expenses -- Class A (101,141) Less waiver of distribution expenses -- Class R (363) Less expense paid indirectly (23,475) ----------- Total expenses 5,065,863 ----------- NET INVESTMENT INCOME 13,476,249 ----------- NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND FOREIGN CURRENCIES: Net realized gain (loss) on: Investments 4,694,181 Foreign currencies (1,378) ----------- Net realized gain 4,692,803 Net change in unrealized appreciation/depreciation of investments (2,561,963) ----------- NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS AND FOREIGN CURRENCIES 2,130,840 ----------- NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $15,607,089 =========== See accompanying notes 14 STATEMENTS OF CHANGES IN NET ASSETS DELAWARE DIVIDEND INCOME FUND Year Ended 11/30/05 11/30/04 INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS: Net investment income $ 13,476,249 $ 3,161,142 Net realized gain on investments and foreign currencies 4,692,803 1,623,672 Net change in unrealized appreciation/depreciation of investments (2,561,963) 7,298,755 ------------ ------------ Net increase in net assets resulting from operations 15,607,089 12,083,569 ------------ ------------ DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM: Net investment income: Class A (6,111,307) (1,382,695) Class B (1,112,078) (334,815) Class C (3,064,142) (794,269) Class R (21,534) (4,793) Institutional Class (12,391) (119,652) Net realized gain on investments: Class A (829,375) (32,120) Class B (249,797) (11,519) Class C (644,998) (24,930) Class R (2,737) (10) Institutional Class (1,641) (13,041) ------------ ------------ (12,050,000) (2,717,844) ------------ ------------ CAPITAL SHARE TRANSACTIONS: Proceeds from shares sold: Class A 155,512,307 103,634,846 Class B 30,360,760 29,742,332 Class C 95,529,471 76,439,150 Class R 1,064,376 349,869 Institutional Class 919,948 92,571 Net asset value of shares issued upon reinvestment of dividends and distributions: Class A 5,175,642 1,067,277 Class B 1,092,408 274,814 Class C 2,975,103 603,599 Class R 24,272 4,803 Institutional Class 11,878 130,995 Net assets from reorganization1: Class A 85,145,873 -- ------------ ------------ 377,812,038 212,340,256 ------------ ------------ Cost of shares repurchased: Class A (68,079,584) (9,699,802) Class B (6,143,372) (1,349,886) Class C (15,879,276) (2,649,479) Class R (49,450) (3) Institutional Class (98,155) (4,198,164) ------------ ------------ (90,249,837) (17,897,334) ------------ ------------ Increase in net assets derived from capital share transactions 287,562,201 194,442,922 ------------ ------------ NET INCREASE IN NET ASSETS 291,119,290 203,808,647 NET ASSETS: Beginning of period 219,976,386 16,167,739 ------------ ------------ End of period (including undistributed net investment income of $4,815,839 and 1,046,063, respectively) $511,095,676 $219,976,386 ============ ============ (1) See Note 6 in "Notes to Financial Statements." See accompanying notes 15 FINANCIAL HIGHLIGHTS Selected data for each share of the Fund outstanding throughout each period were as follows: Delaware Dividend Income Fund Class A Year Ended 11/30/05 11/30/04 11/30/03 11/30/02(1) 11/30/01 NET ASSET VALUE, BEGINNING OF PERIOD $11.050 $10.210 $9.030 $9.230 $9.600 INCOME (LOSS) FROM INVESTMENT OPERATIONS: Net investment income(2) 0.450 0.345 0.450 0.429 0.405 Net realized and unrealized gain (loss) on investments and foreign currencies 0.081 0.891 1.213 (0.196) (0.041) -------- -------- -------- --------- ------ Total from investment operations 0.531 1.236 1.663 0.233 0.364 -------- -------- -------- --------- ------- LESS DIVIDENDS AND DISTRIBUTIONS FROM: Net investment income (0.360) (0.362) (0.483) (0.433) (0.400) Net realized gain on investments (0.081) (0.034) -- -- (0.334) -------- -------- -------- --------- ------- Total dividends and distributions (0.441) (0.396) (0.483) (0.433) (0.734) -------- -------- -------- --------- --------- NET ASSET VALUE, END OF PERIOD $11.140 $11.050 $10.210 $9.030 $9.230 ======== ======== ======== ========= ======== TOTAL RETURN(3) 4.89% 12.38% 19.45% 2.58% 3.87% RATIOS AND SUPPLEMENTAL DATA: Net assets, end of period (000 omitted) $285,159 $105,253 $5,821 $1 -- Ratio of expenses to average net assets 1.00% 1.00% 0.79% 0.75% 0.75% Ratio of expenses to average net assets prior to expense limitation and expense paid indirectly 1.27% 1.32% 2.05% 1.30% 1.05% Ratio of net investment income to average net assets 4.05% 3.26% 4.69% 4.71% 4.38% Ratio of net investment income to average net assets prior to expense limitation and expense paid indirectly 3.78% 2.94% 3.43% 4.16% 4.08% Portfolio turnover 85% 95% 212% 188% 89%
(1) As required, effective December 1, 2001, the Portfolio adopted the provisions of the AICPA Audit and Accounting Guide for Investment Companies that requires amortization of all premium and discounts on debt securities. The effect of this change for the year ended November 30, 2002 was a decrease in net investment income per share of $0.048, an increase in net realized and unrealized gain (loss) per share of $0.048, and a decrease in the ratio of net investment income to average net assets of 0.53%. Per share data and ratios for periods prior to December 1, 2001 have not been restated to reflect this change in accounting. (2) The average shares outstanding method has been applied for per share information. (3) Total investment return is based on the change in net asset value of a share during the period and assumes reinvestment of dividends and distributions at net asset value and does not reflect the impact of a sales charge. Total investment return reflects waiver and payment of fees by the manager and distributor. Performance would have been lower had the expense limitation not been in effect. See accompanying notes 16 FINANCIAL HIGHLIGHTS (CONTINUED) Selected data for each share of the Fund outstanding throughout each period were as follows:
Delaware Dividend Income Delaware Dividend Income Fund Class B Fund Class C Year 10/1/03(1) Year 10/1/03(1) Ended to Ended to 11/30/05 11/30/04 11/30/03 11/30/05 11/30/04 11/30/03 NET ASSET VALUE, BEGINNING OF PERIOD $11.040 $10.200 $9.950 $11.040 $10.200 $9.950 INCOME FROM INVESTMENT OPERATIONS: Net investment income(2) 0.367 0.267 0.051 0.367 0.267 0.051 Net realized and unrealized gain on investments and foreign currencies 0.079 0.889 0.199 0.079 0.889 0.199 ------- ------- ------- ------- ------- ------- Total from investment operations 0.446 1.156 0.250 0.446 1.156 0.250 ------- ------- ------- ------- ------- ------- LESS DIVIDENDS AND DISTRIBUTIONS FROM: Net investment income (0.275) (0.282) -- (0.275) (0.282) -- Net realized gain on investments (0.081) (0.034) -- (0.081) (0.034) -- ------- ------- ------- ------- ------- ------- Total dividends and distributions (0.356) (0.316) -- (0.356) (0.316) -- ------- ------- ------- ------- ------- ------- NET ASSET VALUE, END OF PERIOD $11.130 $11.040 $10.200 $11.130 $11.040 $10.200 ======= ======= ======= ======== ======= ======= TOTAL RETURN(3) 4.09% 11.54% 2.51% 4.09% 11.53% 2.51% RATIOS AND SUPPLEMENTAL DATA: Net assets, end of period (000 omitted) $57,904 $32,165 $2,125 $165,663 $82,083 $4,341 Ratio of expenses to average net assets 1.75% 1.75% 1.75% 1.75% 1.75% 1.75% Ratio of expenses to average net assets prior to expense limitation and expense paid indirectly 1.97% 2.02% 4.10% 1.97% 2.02% 4.10% Ratio of net investment income to average net assets 3.30% 2.51% 3.65% 3.30% 2.52% 3.65% Ratio of net investment income to average net assets prior to expense limitation and expense paid indirectly 3.08% 2.25% 1.30% 3.08% 2.25% 1.30% Portfolio turnover 85% 95% 212% 85% 95% 212%
(1) Date of commencement of operations; ratios have been annualized and total return has not been annualized. (2) The average shares outstanding method has been applied for per share information. (3) Total investment return is based on the change in net asset value of a share during the period and assumes reinvestment of dividends and distributions at net asset value and does not reflect the impact of a sales charge. Total investment return reflects a waiver and payment of fees by the manager. Performance would have been lower had the expense limitation not been in effect. See accompanying notes 17 FINANCIAL HIGHLIGHTS (CONTINUED) Selected data for each share of the Fund outstanding throughout each period were as follows:
Delaware Dividend Income Fund Class R Year 10/1/03(1) Ended to 11/30/05 11/30/04 11/30/03 NET ASSET VALUE, BEGINNING OF PERIOD $11.040 $10.220 $9.950 INCOME FROM INVESTMENT OPERATIONS: Net investment income(2) 0.416 0.308 0.056 Net realized and unrealized gain on investments and foreign currencies 0.078 0.879 0.214 ------- ------- ------- Total from investment operations 0.494 1.187 0.270 ------- ------- ------- LESS DIVIDENDS AND DISTRIBUTIONS FROM: Net investment income (0.323) (0.333) -- Net realized gain on investments (0.081) (0.034) -- ------- ------- ------- Total dividends and distributions (0.404) (0.367) -- ------- ------- ------- NET ASSET VALUE, END OF PERIOD $11.130 $11.040 $10.220 ======= ======= ======= TOTAL RETURN3 4.55% 11.86% 2.71% RATIOS AND SUPPLEMENTAL DATA: Net assets, end of period (000 omitted) $1,429 $373 $3 Ratio of expenses to average net assets 1.30% 1.35% 1.35% Ratio of expenses to average net assets prior to expense limitation and expense paid indirectly 1.57% 1.62% 3.70% Ratio of net investment income to average net assets 3.75% 2.89% 4.05% Ratio of net investment income to average net assets prior to expense limitation and expense paid indirectly 3.48% 2.62% 1.70% Portfolio turnover 85% 95% 212%
(1) Date of commencement of operations; ratios have been annualized and total return has not been annualized. (2) The average shares outstanding method has been applied for per share information. (3) Total investment return is based on the change in net asset value of a share during the period and assumes reinvestment of dividends and distributions at net asset value. Total investment return reflects a waiver and payment of fees by the manager and distributor, as applicable. Performance would have been lower had the expense limitation not been in effect. See accompanying notes 18 FINANCIAL HIGHLIGHTS (CONTINUED) Selected data for each share of the Fund outstanding throughout each period were as follows:
Delaware Dividend Income Fund Institutional Class Year Ended 11/30/05 11/30/04 11/30/03 11/30/02(1) 11/30/01 NET ASSET VALUE, BEGINNING OF PERIOD $11.050 $10.220 $9.030 $9.230 $9.600 INCOME (LOSS) FROM INVESTMENT OPERATIONS: Net investment income(2) 0.477 0.371 0.453 0.429 0.405 Net realized and unrealized gain (loss) on investments and foreign currencies 0.082 0.882 1.220 (0.196) (0.041) ------- ------- ------- ------ ------ Total from investment operations 0.559 1.253 1.673 0.233 0.364 ------- ------- ------- ------ ------ LESS DIVIDENDS AND DISTRIBUTIONS FROM: Net investment income (0.388) (0.389) (0.483) (0.433) (0.400) Net realized gain on investments (0.081) (0.034) -- -- (0.334) ------- ------- ------- ------ ------ Total dividends and distributions (0.469) (0.423) (0.483) (0.433) (0.734) ------- ------- ------- ------ ------ NET ASSET VALUE, END OF PERIOD $11.140 $11.050 $10.220 $9.030 $9.230 ======= ======= ======= ====== ====== TOTAL RETURN(3) 5.16% 12.55% 19.56% 2.58% 3.87% RATIOS AND SUPPLEMENTAL DATA: Net assets, end of period (000 omitted) $941 $102 $3,879 $3,233 $3,265 Ratio of expenses to average net assets 0.75% 0.75% 0.75% 0.75% 0.75% Ratio of expenses to average net assets prior to expense limitation and expense paid indirectly 0.97% 1.02% 1.75% 1.00% 0.75% Ratio of net investment income to average net assets 4.30% 3.49% 4.73% 4.71% 4.38% Ratio of net investment income to average net assets prior to expense limitation and expense paid indirectly 4.08% 3.22% 3.73% 4.46% 4.38% Portfolio turnover 85% 95% 212% 188% 89%
(1) As required, effective December 1, 2001, the Portfolio adopted the provisions of the AICPA Audit and Accounting Guide for Investment Companies that requires amortization of all premium and discounts on debt securities. The effect of this change for the year ended November 30, 2002 was a decrease in net investment income per share of $0.048, an increase in net realized and unrealized gain (loss) per share of $0.048, and a decrease in the ratio of net investment income to average net assets of 0.53%. Per share data and ratios for periods prior to December 1, 2001 have not been restated to reflect this change in accounting. (2) The average shares outstanding method has been applied for per share information. (3) Total investment return is based on the change in net asset value of a share during the period and assumes reinvestment of dividends and distributions at net asset value. Total investment return reflects waiver and payment of fees by the manager. Performance would have been lower had the expense limitation not been in effect. See accompanying notes 19 NOTES DELAWARE DIVIDEND INCOME FUND TO FINANCIAL STATEMENTS Delaware Group Equity Funds V (the "Trust") is organized as a Delaware statutory trust and offers three series: Delaware Dividend Income Fund, Delaware Small Cap Core Fund and Delaware Small Cap Value Fund. These financial statements and the related notes pertain to Delaware Dividend Income Fund (the "Fund"). The Trust is an open-end investment company. The Fund is considered diversified under the Investment Company Act of 1940, as amended, and offers Class A, Class B, Class C, Class R and Institutional Class shares. Class A shares are sold with a front-end sales charge of up to 5.75%. Class B shares are sold with a contingent deferred sales charge that declines from 4% to zero depending upon the period of time the shares were held. Class B shares will automatically convert to Class A shares on a quarterly basis approximately 8 years after purchase. Class C shares are sold with a contingent deferred sales charge of 1%, if redeemed during the first 12 months. Class R and Institutional Class shares are not subject to a sales charge and are offered for sale exclusively to a limited group of investors. The investment objective of the Fund is to seek to provide high current income and the potential for capital appreciation. 1. SIGNIFICANT ACCOUNTING POLICIES The following accounting policies are in accordance with U.S. generally accepted accounting principles and are consistently followed by the Fund. Security Valuation - Equity securities, except those traded on the Nasdaq Stock Market, Inc. (Nasdaq), are valued at the last quoted sales price as of the time of the regular close of the New York Stock Exchange (NYSE) on the valuation date. Securities traded on the Nasdaq are valued in accordance with the Nasdaq Official Closing Price, which may not be the last sales price. If on a particular day an equity security does not trade, then the mean between the bid and asked prices will be used. Long-term debt securities are valued by an independent pricing service and such prices are believed to reflect the fair value of such securities. Short-term debt securities having less than 60 days to maturity are valued at amortized cost, which approximates market value. Other securities and assets for which market quotations are not readily available are valued at fair value as determined in good faith under the direction of the Funds' Board of Trustees. In determining whether market quotations are readily available or fair valuation will be used, various factors will be taken into consideration, such as market closures, or with respect to foreign securities, aftermarket trading or significant events after local market trading (e.g., government actions or pronouncements, trading volume or volatility on markets, exchanges among dealers, or news events). Federal Income Taxes - The Fund intends to continue to qualify for federal income tax purposes as a regulated investment company and make the requisite distributions to shareholders. Accordingly, no provision for federal income taxes has been made in the financial statements. Class Accounting - Investment income, common expenses and realized and unrealized gain (loss) on investments are allocated to the various classes of each Fund on the basis of daily net assets of each class. Distribution expenses relating to a specific class are charged directly to that class. Repurchase Agreements - The Fund may invest in a pooled cash account along with other members of the Delaware Investments(R) Family of Funds pursuant to an exemptive order issued by the Securities and Exchange Commission. The aggregate daily balance of the pooled cash account is invested in repurchase agreements secured by obligations of the U.S. government. The respective collateral is held by the Fund's custodian bank until the maturity of the respective repurchase agreements. Each repurchase agreement is 102% collateralized. However, in the event of default or bankruptcy by the counterparty to the agreement, realization of the collateral may be subject to legal proceedings. Use of Estimates - The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Other - Expenses common to all funds within the Delaware Investments(R) Family of Funds are allocated amongst the funds on the basis of average net assets. Management fees and some other expenses are paid monthly. Security transactions are recorded on the date the securities are purchased or sold (trade date). Costs used in calculating realized gains and losses on the sale of investment securities are those of the specific securities sold. Dividend income is recorded on the ex-dividend date and interest income is recorded on the accrual basis. Distributions received from investments in Real Estate Investment Trusts are recorded as dividend income on ex-dividend date, subject to reclassification upon notice of character of such distributions by the issuer. Discounts and premiums are amortized to interest income over the lives of the respective securities. The Fund declares and pays dividends from net investment income quarterly and distributions from net realized gain on investments, if any, annually. Subject to best execution, the Fund may direct certain security trades to brokers who have agreed to rebate a portion of the related brokerage commission to the Fund in cash. Such commission rebates are included in realized gain on securities in the accompanying financial statements and totaled $6,542 for the year ended November 30, 2005. The Fund receives earnings credits from its custodian when positive cash balances are maintained, which are used to offset custody fees. The expense paid under the above arrangement is included in custodian fees on the Statement of Operations with the corresponding expense offset shown as "expense paid indirectly." 2. INVESTMENT MANAGEMENT, ADMINISTRATION AGREEMENTS AND OTHER TRANSACTIONS WITH AFFILIATES In accordance with the terms of its investment management agreement, the Fund pays Delaware Management Company (DMC), a series of Delaware Management Business Trust and the investment manager, an annual fee which is calculated daily at a rate of 0.65% on the first $500 million of average daily net assets of the Fund, 0.60% on the next $500 million, 0.55% on the next $1.5 billion, and 0.50% on daily average net assets in excess of $2.5 billion. DMC has contractually agreed to waive that portion, if any, of its management fee and reimburse the Fund to the extent necessary to ensure that annual operating expenses, exclusive of taxes, interest, brokerage commissions, distribution fees, certain insurance costs and extraordinary expenses, do not exceed 0.75% of average daily net assets through March 31, 2006. Delaware Service Company, Inc. (DSC), an affiliate of DMC, provides accounting, administration, dividend disbursing and transfer agent services. Effective May 19, 2005, the Fund pays DSC a monthly fee computed at the annual rate of 0.04% of the Fund's average daily net assets for accounting and administration services. Prior to May 19, 2005, the Fund paid DSC a monthly fee based on average net assets subject to certain minimums for accounting and administration services. The Fund pays DSC a monthly fee based on the number of shareholder accounts for dividend disbursing and transfer agent services. Pursuant to a distribution agreement and distribution plan, the Fund pays Delaware Distributors, L.P. (DDLP), the distributor and an affiliate of DMC, an annual distribution and service fee not to exceed 0.30% of the average daily net assets of the Class A shares, 1.00% of the average daily net assets of the Class B and C shares and 0.60% of the average daily net assets of Class R shares. DDLP has contracted to waive distribution and service fees through March 31, 2006 in order to prevent distribution and service fees of Class A shares from exceeding 0.25% of average daily net assets. Institutional Class shares pay no distribution and service expenses. Effective August 1, 2005, DDLP has contracted to limit distribution and service fees through February 28, 2006 for Class R shares to no more than 0.50% of average daily net assets. 20 NOTES DELAWARE DIVIDEND INCOME FUND TO FINANCIAL STATEMENTS (CONTINUED) 2. INVESTMENT MANAGEMENT, ADMINISTRATION AGREEMENTS AND OTHER TRANSACTIONS WITH AFFILIATES (CONTINUED) At November 30, 2005, the Fund had liabilities payable to affiliates as follows: Investment management fee payable to DMC $26,746 Dividend disbursing, transfer agent fees, accounting and administration fees and other expenses payable to DSC 86,336 Distribution fee payable to DDLP 478,156 Other expenses payable to DMC and affiliates 12,981 *DMC, as part of its administrative services, pays operating expenses on behalf of the Fund and is reimbursed on a periodic basis. Such expenses include items such as printing of shareholder reports, fees for audit, legal and tax services, registration fees and trustees' fees. As provided in the investment management agreement, the Fund bears the cost of certain legal services expenses, including in-house legal services provided to the Fund by DMC employees. For the year ended November 30, 2005, the Fund was charged $25,936 for internal legal services provided by DMC. For the year ended November 30, 2005, DDLP earned $518,066 for commissions on sales of the Fund's Class A shares. For the year ended November 30, 2005, DDLP received gross contingent deferred sales charge commissions of $1,480, $77,992, and $30,019 on redemption of the Fund's Class A, Class B, and Class C shares, respectively, and these commissions were entirely used to offset up-front commissions previously paid by DDLP to broker-dealers on sales of those shares. Certain officers of DMC, DSC and DDLP are officers and/or trustees of the Trust. These officers and trustees are paid no compensation by the Fund. 3. INVESTMENTS For the year ended November 30, 2005, the Fund made purchases of $514,055,764 and sales of $300,670,350 of investment securities other than short-term investments. At November 30, 2005, the cost of investments for federal income tax was $505,820,935. At November 30, 2005, the net unrealized appreciation was $3,867,269, of which $26,379,905 related to unrealized appreciation of investments and $22,512,636 related to unrealized depreciation of investments. 4. DIVIDEND AND DISTRIBUTION INFORMATION Income and long-term capital gain distributions are determined in accordance with federal income tax regulations, which may differ from U.S. generally accepted accounting principles. Additionally, gains (losses) on foreign currency transactions and net short-term gains on sales of investment securities are treated as ordinary income for federal income tax purposes. The tax character of dividends and distributions paid during the years ended November 30, 2005 and 2004 was as follows: 11/30/05 11/30/04 -------- -------- Ordinary income $11,900,620 $2,717,844 Long-term capital gain 149,380 -- ----------- ---------- Total $12,050,000 $2,717,844 =========== ========== As of November 30, 2005, the components of net assets on a tax basis were as follows: Shares of beneficial interest $517,981,803 Undistributed ordinary income 6,163,804 Undistributed long-term capital gain 1,814,890 Capital loss carryforwards (18,732,090) Unrealized appreciation of investments 3,867,269 ------------ Net assets $511,095,676 ============ The differences between book basis and tax basis components of net assets are primarily attributable to tax deferral of losses on wash sales, tax treatment of market discount and premium on debt instruments, tax treatment of contingent payment debt instruments and estimates of tax character of distributions from Real Estate Investment Trusts. The undistributed earnings for Delaware Dividend Income Fund may be subject to reclassification upon notice of the character of distributions received from investments in Real Estate Investment Trusts. For financial reporting purposes, capital accounts are adjusted to reflect the tax character of permanent book/tax differences. Reclassifications are primarily due to tax treatment of market discount and premium on certain debt instruments and contingent payment debt instruments, gain (loss) on foreign currency transactions and limitations on capital loss carryforwards due to the reorganization. Results of operations and net assets were not affected by these reclassifications. For the year ended November 30, 2005, the Fund recorded the following permanent reclassifications. Paid-in-Capital $(5,123,495) Undistributed net investment income 1,151,960 Accumulated net realized gain on investments 3,971,535 For federal income tax purposes, capital loss carryforwards may be carried forward and applied against future capital gains. The Fund utilized $1,632,001 of capital loss carryforwards in 2005. Such capital loss carryforwards expire as follows: $10,667,646 expires in 2009 and $8,064,444 expires in 2010. The use of these losses are subject to an annual limitation in accordance with the Internal Revenue Code. 5. CAPITAL SHARES Transactions in capital shares were as follows: Year Ended 11/30/05 11/30/04 Shares sold: Class A 14,033,811 9,774,324 Class B 2,744,286 2,806,174 Class C 8,613,965 7,203,243 Class R 96,885 33,044 Institutional Class 83,093 8,765 Shares issued upon reinvestment of dividends and distributions: Class A 467,873 101,364 Class B 98,641 26,108 Class C 268,682 57,292 Class R 2,197 455 Institutional Class 1,076 12,554 Shares issued from reorganization(1): Class A 7,705,509 -- ----------- ----------- 34,116,018 20,023,323 ----------- ----------- Shares repurchased: Class A (6,128,075) (917,417) Class B (554,170) (127,032) Class C (1,436,755) (251,612) Class R (4,499) -- Institutional Class (8,958) (391,674) ----------- ----------- (8,132,457) (1,687,735) ----------- ----------- Net increase 25,983,561 18,335,588 =========== =========== (1) See Note 6. 21 NOTES DELAWARE DIVIDEND INCOME FUND TO FINANCIAL STATEMENTS (CONTINUED) 5. CAPITAL SHARES (CONTINUED) For the years ended November 30, 2005 and 2004, 69,809 Class B shares were converted to 69,746 Class A shares valued at $779,637 and 24,503 Class B shares were converted to 24,480 Class A shares valued at $262,099, respectively. The respective amounts are included in Class B redemptions and Class A subscriptions in the table above and the Statements of Changes in Net Assets. 6. FUND REORGANIZATION On June 24, 2005, the Fund completed the acquisition of the net assets of Lincoln National Convertible Securities Fund, Inc. ("LNV Fund") pursuant to a plan of reorganization approved by the shareholders of LNV Fund at a reconvened Special Meeting of Shareholders held on June 16, 2005. The transaction, which was structured as a tax-free reorganization, entailed (i) the acquisition of all of the assets of LNV Fund by Dividend Income Fund in exchange for Class A shares of Dividend Income Fund and (ii) the pro rata distribution of such shares to LNV Fund's shareholders in exchange for their shares of LNV Fund. LNV Fund was a closed-end, diversified investment management company managed by Delaware Management Company. The net assets, net unrealized depreciation and accumulated realized losses of LNV Fund as of the close of business on June 24, 2005 were as follows: Net Accumulated Net Unrealized Net Realized Assets Depreciation Loss ----------- ------------ ------------ Lincoln National Convertible Securities Fund $85,145,873 $(100,624) $(25,487,586) The net assets of the Fund prior to the reorganization were $369,303,593. 7. LINE OF CREDIT The Fund, along with certain other funds in the Delaware Investments(R) Family of Funds (the "Participants"), participates in a $225,000,000 revolving line of credit facility to be used for temporary or emergency purposes as an additional source of liquidity to fund redemptions of investor shares. The Participants are charged an annual commitment fee, which is allocated across the Participants on the basis of each fund's allocation of the entire facility. The Participants may borrow up to a maximum of one third of their net assets under the agreement. The Fund had no amounts outstanding as of November 30, 2005, or at any time during the year ended November 30, 2005. 8. CREDIT AND MARKET RISKS The Fund may invest up to 15% of its total assets in illiquid securities, which may include securities with contractual restrictions on resale, securities exempt from registration under Rule 144A of the Securities Act of 1933, as amended, and other securities which may not be readily marketable. The relative illiquidity of these securities may impair the Fund from disposing of them in a timely manner and at a fair price when it is necessary or desirable to do so. While maintaining oversight, the Board of Trustees has delegated to the investment adviser the day-to-day functions of determining whether individual securities are liquid for purposes of a fund's limitation on investments in illiquid assets. No securities have been determined to be illiquid under the Fund's Liquidity Procedures. The Fund invests a portion of its assets in high-yield fixed-income securities, which carry ratings of BBB or lower by Standard & Poor's Ratings Group and/or Baa or lower by Moody's Investor Services, Inc. Investments in these higher- yielding securities are generally accompanied by a greater degree of credit risk than higher rated securities. Additionally, lower rated securities may be more susceptible to adverse economic and competitive industry conditions than investment grade securities. The Fund invests in real estate investment trusts (REITs) and is subject to some of the risks associated with that industry. If the Fund holds real estate directly as a result of defaults or receives rental income directly from real estate holdings, its tax status as a regulated investment company may be jeopardized. There were no direct holdings during the year ended November 30, 2005. The Fund's REIT holdings are also affected by interest rate changes, particularly if the REITs it holds use floating rate debt to finance ongoing operations. 9. CONTRACTUAL OBLIGATIONS The Fund enters into contracts that contain a variety of indemnifications. The Fund's maximum exposure under these arrangements is unknown. However, the Fund has not had prior claims or losses pursuant to these contracts. Management has reviewed the Fund's existing contracts and expects the risk of loss to be remote. 10. TAX INFORMATION (UNAUDITED) The information set forth below is for the Fund's fiscal year as required by federal laws. Shareholders, however, must report distributions on a calendar year basis for income tax purposes, which may include distributions for portions of two fiscal years of a fund. Accordingly, the information needed by shareholders for income tax purposes will be sent to them in January of each year. Please consult your tax advisor for proper treatment of this information. For the fiscal year ended November 30, 2005, the Fund designates distributions paid during the year as follows: (A) (B) Long-Term Ordinary Capital Gain Income Total (C) Distributions Distributions* Distributions Qualifying (Tax Basis) (Tax Basis) (Tax Basis) Dividends(1) ------------- ------------- ----------- ------------- 1% 99% 100% 36% (A) and (B) are based on a percentage of the Fund's total distributions. (C) is based on a percentage of ordinary income of the Fund. (1) Qualifying dividends represent dividends which qualify for the corporate dividends received deduction. * For the fiscal year ended November 30, 2005, certain dividends paid by the Fund may be subject to a maximum tax rate of 15%, as provided for by the Jobs and Growth Tax Relief Reconciliation Act of 2003. The Fund intends to designate up to a maximum amount of $11,900,620 to be taxed at a maximum rate of 15%. Complete information will be computed and reported in conjunction with your 2005 Form 1099-DIV. 22 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Shareholders and Board of Trustees Delaware Group Equity Funds V - Delaware Dividend Income Fund We have audited the accompanying statement of net assets of the Delaware Dividend Income Fund (one of the series constituting Delaware Group Equity Funds V) (the "Fund") as of November 30, 2005, and the related statement of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended, and the financial highlights for each of the periods indicated therein. These financial statements and financial highlights are the responsibility of the Fund's management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. We were not engaged to perform an audit of the Fund's internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Fund's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, supporting the amounts and disclosures in the financial statements and financial highlights, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our procedures included confirmation of securities owned as of November 30, 2005, by correspondence with the custodian and brokers or by other appropriate auditing procedures where replies from brokers were not received. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of the Delaware Dividend Income Fund of Delaware Group Equity Funds V at November 30, 2005, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended, and its financial highlights for each of the periods indicated therein, in conformity with U.S. generally accepted accounting principles. /s/ Ernst & Young LLP ---------------------- Ernst & Young LLP Philadelphia, Pennsylvania January 11, 2006 23 DELAWARE INVESTMENTS(R) FAMILY OF FUNDS BOARD OF TRUSTEES/DIRECTORS AND OFFICERS ADDENDUM A mutual fund is governed by a Board of Trustees/Directors ("Trustees"), which has oversight responsibility for the management of a fund's business affairs. Trustees establish procedures and oversee and review the performance of the investment manager, the distributor and others who perform services for the fund. The independent fund trustees, in particular, are advocates for shareholder interests. The following is a list of the Trustees and Officers with certain background and related information.
NUMBER OF OTHER PRINCIPAL PORTFOLIOS IN FUND DIRECTORSHIPS NAME, POSITION(S) OCCUPATION(S) COMPLEX OVERSEEN HELD BY ADDRESS HELD WITH LENGTH OF TIME DURING BY TRUSTEE TRUSTEE AND BIRTHDATE FUND(S) SERVED PAST 5 YEARS OR OFFICER OR OFFICER ------------------------------------------------------------------------------------------------------------------------------------ INTERESTED TRUSTEES JUDE T. DRISCOLL(2) Chairman, 5 Years - Since August 2000, 87 None 2005 Market Street President, Executive Officer Mr. Driscoll has served in Philadelphia, PA Chief Executive various executive capacities 19103 Officer and 2 Years - at different times at Trustee Trustee Delaware Investments(1) March 10, 1963 ------------------------------------------------------------------------------------------------------------------------------------ INDEPENDENT TRUSTEES THOMAS L. BENNETT Trustee Since Private Investor - 87 None 2005 Market Street March 23, 2005 (March 2004 - Present) Philadelphia, PA 19103 Investment Manager - Morgan Stanley & Co. October 4, 1947 (January 1984 - March 2004) ------------------------------------------------------------------------------------------------------------------------------------ JOHN A. FRY Trustee 4 Years President - 87 Director - 2005 Market Street Franklin & Marshall College Community Health Philadelphia, PA (June 2002 - Present) Systems 19103 Executive Vice President - May 28, 1960 University of Pennsylvania (April 1995 - June 2002) ------------------------------------------------------------------------------------------------------------------------------------ ANTHONY D. KNERR Trustee 12 Years Founder/Managing Director - 87 None 2005 Market Street Anthony Knerr & Associates Philadelphia, PA (Strategic Consulting) 19103 (1990 - Present) December 7, 1938 ------------------------------------------------------------------------------------------------------------------------------------ LUCINDA S. LANDRETH Trustee Since Chief Investment Officer - 87 None 2005 Market Street March 23, 2005 Assurant, Inc. Philadelphia, PA (Insurance) 19103 (2002 - 2004) June 24, 1947 ------------------------------------------------------------------------------------------------------------------------------------ ANN R. LEVEN Trustee 16 Years Treasurer/Chief Fiscal Officer - 87 Director and 2005 Market Street National Gallery of Art Audit Committee Philadelphia, PA (1994 - 1999) Chairperson - Andy 19103 Warhol Foundation November 1, 1940 Director and Audit Committee Member - Systemax Inc. ------------------------------------------------------------------------------------------------------------------------------------
24
NUMBER OF OTHER PRINCIPAL PORTFOLIOS IN FUND DIRECTORSHIPS NAME, POSITION(S) OCCUPATION(S) COMPLEX OVERSEEN HELD BY ADDRESS HELD WITH LENGTH OF TIME DURING BY TRUSTEE TRUSTEE AND BIRTHDATE FUND(S) SERVED PAST 5 YEARS OR OFFICER OR OFFICER ------------------------------------------------------------------------------------------------------------------------------------ INDEPENDENT TRUSTEES (continued) THOMAS F. MADISON Trustee 11 Years President/Chief Executive 87 Director - 2005 Market Street Officer - MLM Partners, Banner Health Philadelphia, PA Inc. (Small Business 19103 Investing and Consulting) Director - (January 1993 - Present) CenterPoint Energy February 25, 1936 Director and Audit Committee Member - Digital River Inc. Director and Audit Committee Member - Rimage Corporation Director - Valmont Industries Inc. ------------------------------------------------------------------------------------------------------------------------------------ JANET L. YEOMANS Trustee 6 Years Vice President/Mergers & 87 None 2005 Market Street Acquisitions - 3M Corporation Philadelphia, PA (January 2003 - Present) 19103 July 31, 1948 Ms. Yeomans has held various management positions at 3M Corporation since 1983. ------------------------------------------------------------------------------------------------------------------------------------ J. RICHARD ZECHER Trustee Since Founder - 87 Director and Audit 2005 Market Street March 23, 2005 Investor Analytics Committee Member - Philadelphia, PA (Risk Management) Investor Analytics 19103 (May 1999 - Present) Director and Audit July 3, 1940 Committee Member - Oxigene, Inc. ------------------------------------------------------------------------------------------------------------------------------------ OFFICERS MICHAEL P. BISHOF Senior Vice Chief Financial Mr. Bishof has served in 87 None(3) 2005 Market Street President and Officer since various executive capacities Philadelphia, PA Chief Financial February 17, 2005 at different times at 19103 Officer Delaware Investments. August 18, 1962 ------------------------------------------------------------------------------------------------------------------------------------ DAVID F. CONNOR Vice President, Vice President since Mr. Conner has served as 87 None(3) 2005 Market Street Deputy General September 21, 2000 Vice President and Deputy Philadelphia, PA Counsel and Secretary and Secretary General Counsel of Delaware 19103 since Investments since 2000. October 25, 2005 December 2, 1963 ------------------------------------------------------------------------------------------------------------------------------------ DAVID P. O'CONNOR Senior Vice Senior Vice President, Mr. O'Conner has served in 87 None(3) 2005 Market Street President, General Counsel and various executive and legal Philadelphia, PA General Counsel Chief Legal Officer capacities at different times 19103 and Chief since at Delware Investments. Legal Officer October 25, 2005 February 21, 1966 ------------------------------------------------------------------------------------------------------------------------------------ JOHN J. O'CONNOR Senior Vice Treasurer since Mr. O'Connor has served in 87 None(3) 2005 Market Street President and February 17, 2005 various executive capacities Philadelphia, PA Treasurer at different times at 19103 Delaware Investments. June 16, 1957 ------------------------------------------------------------------------------------------------------------------------------------
(1) Delaware Investments is the marketing name for Delaware Management Holdings, Inc. and its subsidiaries, including the Fund's(s') investment advisor, principal underwriter and its transfer agent. (2) Mr. Driscoll is considered to be an "Interested Trustee" because he is an executive officer of the Fund's(s') manager and distributor. (3) Mr. Bishof, Mr. Connor, Mr. David P. O'Connor and Mr. John J. O'Connor also serve in similar capacities for the six portfolios of the Optimum Fund Trust, which have the same investment advisor, principal underwriter, and transfer agent as the registrant. The Statement of Additional Information for the Fund(s) includes additional information about the Trustees/Directors and Officers and is available, without charge, upon request by calling 800 523-1918. 25 ABOUT THE ORGANIZATION This annual report is for the information of Delaware Dividend Income Fund shareholders, but it may be used with prospective investors when preceded or accompanied by a current prospectus for Delaware Dividend Income Fund and the Delaware Investments Performance Update for the most recently completed calendar quarter. The prospectus sets forth details about charges, expenses, investment objectives, and operating policies of the Fund. You should read the prospectus carefully before you invest. The figures in this report represent past results that are not a guarantee of future results. The return and principal value of an investment in the Fund will fluctuate so that shares, when redeemed, may be worth more or less than their original cost.
BOARD OF TRUSTEES AFFILIATED OFFICERS CONTACT INFORMATION JUDE T. DRISCOLL MICHAEL P. BISHOF INVESTMENT MANAGER Chairman Senior Vice President and Delaware Management Company, Delaware Investments(R) Family of Funds Chief Financial Officer a Series of Delaware Management Business Trust Philadelphia, PA Delaware Investments Family of Funds Philadelphia, PA Philadelphia, PA THOMAS L. BENNETT NATIONAL DISTRIBUTOR Private Investor DAVID F. CONNOR Delaware Distributors, L.P. Rosemont, PA Vice President, Deputy General Counsel Philadelphia, PA and Secretary JOHN A. FRY Delaware Investments Family of Funds SHAREHOLDER SERVICING, DIVIDEND President Philadelphia, PA DISBURSING AND TRANSFER AGENT Franklin & Marshall College Delaware Service Company, Inc. Lancaster, PA DAVID P. O'CONNOR 2005 Market Street Senior Vice President, General Counsel Philadelphia, PA 19103-7094 ANTHONY D. KNERR and Chief Legal Officer Managing Director Delaware Investments Family of Funds FOR SHAREHOLDERS Anthony Knerr & Associates Philadelphia, PA 800 523-1918 New York, NY JOHN J. O'CONNOR FOR SECURITIES DEALERS AND FINANCIAL LUCINDA S. LANDRETH Senior Vice President and Treasurer INSTITUTIONS REPRESENTATIVES ONLY Former Chief Investment Officer Delaware Investments Family of Funds 800 362-7500 Assurant, Inc. Philadelphia, PA Philadelphia, PA WEB SITE www.delawareinvestments.com ANN R. LEVEN Former Treasurer/Chief Fiscal Officer Delaware Investments is the marketing name for National Gallery of Art Delaware Management Holdings, Inc. and Washington, DC its subsidiaries. THOMAS F. MADISON President and Chief Executive Officer MLM Partners, Inc. Minneapolis, MN JANET L. YEOMANS Vice President/Mergers & Acquisitions 3M Corporation St. Paul, MN J. RICHARD ZECHER Founder Investor Analytics Scottsdale, AZ ----------------------------------------------------------------------------------- The Fund files its complete schedule of portfolio holdings with the Securities and Exchange Commission for the first and third quarters of each fiscal year on Form N-Q. The Fund's Forms N-Q, as well as a description of the policies and procedures that the Fund uses to determine how to vote proxies (if any) relating to portfolio securities is available without charge (i) upon request, by calling 800 523-1918; (ii) on the Fund's Web site at http://www.delawareinvestments.com; and (iii) on the Commission's Web site at http://www.sec.gov. The Fund's Forms N-Q may be reviewed and copied at the Commission's Public Reference Room in Washington, DC; information on the operation of the Public Reference Room may be obtained by calling 1-800-SEC-0330. Information (if any) regarding how the Fund voted proxies relating to portfolio securities during the most recently disclosed 12-month period ended June 30 is available without charge (i) through the Fund's Web site at http://www.delawareinvestments.com; and (ii) on the Commission's Web site at http://www.sec.gov. -----------------------------------------------------------------------------------
26 Delaware Investments(R) ----------------------------------- A member of Lincoln Financial Group CONTACT INFORMATION WEB SITE www.delawareinvestments.com E-MAIL service@delinvest.com SHAREHOLDER SERVICE CENTER 800 523-1918 Call the Shareholder Service Center Monday to Friday, 8 a.m. to 7 p.m. Eastern Time: [_] For fund information, literature, price, yield and performance figures. [_] For information on existing regular investment accounts and retirement plan accounts including wire investments, wire redemptions, telephone redemptions and telephone exchanges. DELAPHONE SERVICE 800 362-FUND (800 362-3863) [_] For convenient access to account information or current performance information on all Delaware Investments Funds seven days a week, 24 hours a day, use this Touch-Tone(R) service. -------------------------------------------------------------------------------- Printed in the USA (9975) ANN-0512 DIVINC AR-129 [11/05] IVES 1/06 MF0512098 PO10669 Delaware Investments(R) ----------------------------------- A member of Lincoln Financial Group CORE-EQUITY ANNUAL REPORT NOVEMBER 30, 2005 -------------------------------------------------------------------------------- DELAWARE SMALL CAP CORE FUND (FORMERLY DELAWARE SMALL CAP CONTRARIAN FUND) [GRAPHIC] POWERED BY RESEARCH(R) TABLE OF CONTENTS -------------------------------------------------------------- PORTFOLIO MANAGEMENT REVIEW 1 -------------------------------------------------------------- PERFORMANCE SUMMARY 4 -------------------------------------------------------------- DISCLOSURE OF FUND EXPENSES 6 -------------------------------------------------------------- SECTOR ALLOCATION 7 -------------------------------------------------------------- FINANCIAL STATEMENTS: Statement of Net Assets 8 Statement of Assets and Liabilities 11 Statement of Operations 12 Statements of Changes in Net Assets 13 Financial Highlights 14 Notes to Financial Statements 17 -------------------------------------------------------------- REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM 20 -------------------------------------------------------------- BOARD OF TRUSTEES/DIRECTORS AND OFFICERS 21 -------------------------------------------------------------- ABOUT THE ORGANIZATION 23 -------------------------------------------------------------- Funds are not FDIC insured and are not guaranteed. It is possible to lose the principal amount invested. Mutual fund advisory services provided by Delaware Management Company, a series of Delaware Management Business Trust, which is a registered investment advisor. (C) 2006 Delaware Distributors, L.P. DELAWARE SMALL CAP CORE FUND PORTFOLIO December 13, 2005 MANAGEMENT REVIEW FUND MANAGERS Christopher S. Adams Co-manager Francis X. Morris Co-manager Michael S. Morris Co-manager Donald G. Padilla Co-manager Q: HOW DID THE FUND PERFORM OVER THE LAST YEAR? A: The Fund had a good year, returning 9.04% at net asset value and 2.78% at full offer (Class A shares; both figures represent all dividends reinvested). Its benchmark, the Russell 2000 Index, which advanced 8.14%. Please see page 4 for a complete performance summary and disclosure. Q: CAN YOU TELL US ABOUT THE INVESTMENT ENVIRONMENT OVER THE PAST YEAR? A: This year's Russell 2000 Index return of 8.14% continues a trend of strong small-up performance. True, it's a smaller absolute number, but the market faced substantial challenges this year, including a series of 25 basis point increases in interest rates, as the Federal Reserve acted to control both the risk of inflation and the possibility of stagflation, and worked to counter the effects of escalating prices for oil, natural gas, and other basic commodities, as the maturing global economy increased demand. The markets also adjusted with concerns over whether rising real estate prices constituted a "bubble" that could rapidly deflate due to higher interest rates and threaten the stability of the overall economy. The uncertainty over the economic and social impacts of devastating hurricanes in New Orleans, the Gulf region, and Florida also led to a downturn in consumer confidence. The market continued to be resilient, yet investors exercised caution, which limited gains. The economy performed well, with GDP advancing 4.3% in the third quarter of 2005. Corporations managed to increase their earnings, even in the second half when they were facing difficult year-over-year comparisons. Shareholder-friendly activity was broadly evident, including share buybacks, debt reductions, and other moves to strengthen balance sheets. Merger and acquisition activity was strong due to excess liquidity and a high level of private equity investment. Employment levels remained high and, at the end of our fiscal year, small cap companies' valuations appeared quite reasonable to us, relative to their recent history. Q: WHAT STRATEGIES DID THE FUND EMPLOY IN RESPONSE TO THIS MARKET ENVIRONMENT? A: Delaware Small Cap Core Fund follows a well-defined investment process that is a fusion of quantitative screening and fundamental security selection. Our proprietary quantitative model helps us identify and measure the relative attractiveness of stocks in each sector--and across the entire universe of companies in the small cap index. Over time, we've found that our disciplined quantitative screening tool has provided us with an attractive opportunity universe from which to generate investment ideas. Fundamental qualitative research allows us to scrutinize the model's results in more human terms. We look for companies with these characteristics: a competitive advantage relative to its peers; a leadership position in its industry; a product or service that has high barriers to entry. It's also very important that we can identify a catalyst that will cause the market to revalue the stock. The combination works well, as quantitative research basically focuses on historical numbers, whereas fundamental research is forward-looking. Our sell discipline is just as critical as our initial decisions to buy stocks. We automatically sell any security that grows and remains beyond $3 billion in capitalization, so our portfolio remains representative of the asset class. We also sell when stocks reach price targets that our model and research have identified; the company's fundamental outlook changes; or we find better opportunities. Q: CAN YOU GIVE EXAMPLES OF SOME OF THE STOCKS YOUR PROCESS SUCCESSFULLY IDENTIFIED THIS YEAR? A: Administaff is a professional employer organization that allows small-to-mid-sized companies to outsource non-core functions including personnel management and other HR functions such as payroll, workers compensation and medical insurance. The stock advanced 202.3% this fiscal year, as companies realized that Administaff could provide these services more cheaply than they could on their own. Holly is an independent petroleum refiner that produces gasoline, diesel, and jet fuel. The company benefited from the rise in energy prices to return 115.9%. Its primary operations are centered around the southwestern portion of the U.S.; as it is not heavily exposed to the Gulf region, the impact from Hurricane Katrina was migated. 1 Quality Systems markets health care information systems that automate medical and dental practices. The company has consistently beat consensus estimates due to a big surge in outsourcing by health care providers, who are finding it more cost effective to replace outdated systems than upgrade them. As a result, the stock price advanced 164.2%, and having met its target price, was sold during the fiscal year. Q: CAN YOU ALSO TALK ABOUT SOME INVESTMENTS THAT DETRACTED FROM THE FUND'S PERFORMANCE? A: RSA Security creates electronic security solutions for e-commerce companies. The stock declined -38.9%, mostly due to earnings disappointments early in the year. Investors were concerned about competing products, the CFO left, and RSA made an acquisition in an unrelated business. We sold our entire position, as we were worried about the lack of management focus, reflected in this non-core acquisition. Tempur-Pedic International is a vertically integrated manufacturer, marketer, and distributor of premium visco-elastic foam mattresses and pillows that are sold globally in 60 countries, primarily under the Tempur and Tempur-Pedic brands. When the company modestly lowered its earning guidance, the market seemed to overreact, in our view, with an immediate price decline of 30%. Research indicates that the beds are superior and people are willing to pay a premium price. Though disappointed in the year's -41.5% decline, we continue to own the stock. PolyOne is an international producer of polymers and plastics. It had a challenging year due to supply chain problems and the high cost of raw materials. The stock declined -37.5%. We met with management who presented what we think is a credible plan to bring down their high levels of debt and clean up their balance sheet. They also plan to get margins back to where they want them to be by expanding in fast-growing regions such as China and Eastern Europe. We are confident existing management can turn the company around and we still own the stock. 2 This page intentionally left blank. 3 PERFORMANCE SUMMARY DELAWARE SMALL CAP CORE FUND (FORMERLY DELAWARE SMALL CAP CONTRARIAN FUND) The performance data quoted represent past performance; past performance does not guarantee future results. Investment return and principal value will fluctuate so your shares, when redeemed, may be worth more or less than their original cost. Current performance may be lower or higher than the performance data quoted. Please obtain the performance data for the most recent month end by calling 800 523-1918 or visiting our Web site at www.delawareinvestments.com/performance. You should consider the investment objectives, risks, charges, and expenses of the investment carefully before investing. The Delaware Small Cap Core Fund prospectus contains this and other important information about the Fund. Please request a prospectus by calling 800 523-1918. Read it carefully before you invest or send money. Performance includes reinvestment of all distributions and is subject to change. Instances of high double-digit returns are highly unusual, and cannot be sustained, and were achieved primarily during favorable market conditions. FUND PERFORMANCE Average Annual Total Returns
Through November 30, 2005 Lifetime Five Years One Year -------------------------------------------------------------------------------------------------- Class A (Est. 12/29/98) Excluding Sales Charge +14.78% +17.46% +9.04% Including Sales Charge +13.80% +16.09% +2.78% -------------------------------------------------------------------------------------------------- Class C (Est. 8/1/05) Excluding Sales Charge -2.41% N/A N/A Including Sales Charge -3.41% N/A N/A --------------------------------------------------------------------------------------------------
Returns reflect the reinvestment of all distributions and any applicable sales charges as noted below. Returns and share value will fluctuate so that shares, when redeemed, may be worth more or less than the original share price. The Fund offers Class A, C, R, and Institutional Class shares. Class A shares are sold with a front-end sales charge of up to 5.75% and have an annual distribution and service fee of up to 0.30%. The distributor has contracted to limit this amount of 0.25% through March 31, 2007. Performance prior to August 1, 2005, does not reflect the impact of distribution or service (12b-1) fees currently borne by holders of Class A shares. Class C shares are sold with a contingent deferred sales charge of 1% if redeemed during the first 12 months. They are also subject to an annual distribution and service fee of 1%. Class R shares are available only for certain retirement plan products. They are sold without a sales charge and have an annual distribution and service fee of 0.60%. The distributor has contracted to limit this amount to 0.50% through March 31, 2007. Prior to August 1, 2005, the Fund had not engaged in a broad distribution effort of its shares and had been subject to limited redemption requests. The Fund's past performance does not necessarily indicate how it will perform in the future. The returns reflect waivers and expense caps in effect during the period, which was lower than the current expense caps. The returns would have been lower without the waivers and expense caps in effect. On November 1, 2004, the Fund's strategy and management changed. The new management team retained the Fund's small-cap focus by investing primarily in stocks of small companies hat are believed to have attractive valuations, growth prospects, and strong cash flow. The average annual total returns for the lifetime, five-year, and one-year periods ended November 30, 2005 for Delaware Small Cap Core Fund's Institutional Class were +14.80%, +17.48%, and +9.14%, respectively. The Institutional Class shares were first made available on December 29, 1998 and are available without sales charges or asset based distribution charges only to certain eligible institutional accounts. The performance table does not reflect the deduction of taxes the shareholder would pay on Fund distributions or redemptions of Fund shares. Nasdaq Institutional Class Symbol: DCCIX Nasdaq Class R Symbol: DCCRX 4 FUND BASICS As of November 30, 2005 -------------------------------------------------------------------------------- FUND OBJECTIVE: The Fund seeks long-term capital appreciation. -------------------------------------------------------------------------------- TOTAL FUND NET ASSETS: $11 million -------------------------------------------------------------------------------- NUMBER OF HOLDINGS: 215 -------------------------------------------------------------------------------- FUND START DATE: December 29, 1998 -------------------------------------------------------------------------------- YOUR FUND MANAGERS: Mr. Adams is a portfolio manager in the Core Equity Team at Delaware Investments. He also performs analysis and research to support the portfolio management function. He joined Delaware in 1995 after several years experience in the financial services industry in the U.S. and U.K. He holds both bachelor's and master's degrees in History and Economics from Oxford University, England and received a M.B.A. with dual majors in Finance & Insurance/Risk Management from the Wharton School of the University of Pennsylvania. He is a CFA Charterholder and member of the CFA Institute. M. Francis Morris joined Delaware Investments in 1997. He previously served as vice president and director of equity research at PNC Asset Management. Mr. Morris received a bachelor's degree at Providence College and an MBA degree at Widener University. He is a member of the Association for Investment Management and Research and the National Association of Petroleum Investment Analysts. Mr. Padilla is a member of the portfolio construction group within the Core Equity team. He also performs analysis and research to support the portfolio management function. Mr. Padilla joined Delaware Investments in 1994 as an assistant controller in the firm's treasury function, responsible for managing corporate cash investments, developing financial models, and the financial operations of the Lincoln Life 401(k) annuities segment. Prior to joining Delaware Investments, he held positions at The Vanguard Group. Mr. Padilla holds a bachelor's degree in accounting from Lehigh University and is a member of the Financial Analysts of Philadelphia, Inc. Mr. Michael Morris joined Delaware Investments in 1999, having previously Mr. Morris worked as a senior equity analyst at Pilgrim Baxter, covering financial stocks. Mr. Morris holds a bachelor's of science degree in Finance from Indiana University. Mr. Morris is a CFA Charterholder and a member of the Bank and Financial Analysts Association. He has been co-managing the Delaware Balanced Fund since November 2001. -------------------------------------------------------------------------------- NASDAQ SYMBOLS: Class A DCCAX Class C DCCCX -------------------------------------------------------------------------------- PERFORMANCE OF A $10,000 INVESTMENT December 29, 1998 (Fund's inception) through November 30, 2005 Delaware Small Cap Core Fund -- Class A Shares Russell 2000 Index 12/29/98 9,425 10,000 11/30/99 9,902.38 10,893 11/30/00 10,948.1 10,829 11/30/01 13,621.3 11,351 11/30/02 13,768.4 10,146.9 11/30/03 18,608 13,829.3 11/30/04 22,445 16,216.2 11/30/05 24,474 17,536.2 Chart assumes $10,000 invested on December 29, 1998 and includes the effect of a 5.75% front-end sales charge and the reinvestment of all distributions. Performance prior to August 1, 2005, does not reflect the impact of distribution and service (12b-1) fees currently borne by holders of Class A shares. Performance of other Fund classes will vary due to different charges and expenses. The chart also assumes $10,000 invested in the Russell 2000 Index at the month's end December 31, 1998. After December 31, 1998, returns plotted on the chart were as of the last day of each month shown. The Russell 2000 Index is an unmanaged composite of mostly large-capitalization U.S. companies. An index is unmanaged and does not reflect the costs of operating a mutual fund, such as the costs of buying, selling, and holding securities. You cannot invest directly in an index. Past performance is not a guarantee of future results. An expense limitation was in effect for the periods shown. Performance would have been lower had the expense limitation not been in effect. The performance graph does not reflect the deduction of taxes the shareholder would pay on Fund distributions or redemptions of Fund shares 5 DISCLOSURE For the Period June 1, 2005 to November 30, 2005 OF FUND EXPENSES As a shareholder of the Fund, you incur two types of costs: (1) transaction costs, including sales charges (loads) on purchase payments, reinvested dividends, or other distributions; redemption fees; and exchange fees; and (2) ongoing costs, including management fees; distribution and/or service (12b-1) fees; and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds. The example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period June 1, 2005 to November 30, 2005. ACTUAL EXPENSES The first section of the table shown, "Actual Fund Return," provides information about actual account values and actual expenses. You may use the information in this section of the table, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first section under the heading entitled "Expenses Paid During Period" to estimate the expenses you paid on your account during this period. HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES The second section of the table shown, "Hypothetical 5% Return," provides information about hypothetical account values and hypothetical expenses based on the Fund's actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund's actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds. Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as sales charges (loads), redemption fees, or exchange fees. Therefore, the second section of the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher. The Fund's actual expenses shown in the table reflect fee waivers in effect. The expenses shown in the table assume reinvestment of all dividends and distributions. DELAWARE SMALL CAP CORE FUND EXPENSE ANALYSIS OF AN INVESTMENT OF $1,000 Expenses Beginning Ending Paid During Account Account Annualized Period Value Value Expense 6/1/05 to 6/1/05 11/30/05 Ratio 11/30/05 ----------------------------------------------------------------------- ACTUAL FUND RETURN Class A $1,000.00 $1,084.80 1.17% $ 6.11 Class C(1) 1,000.00 975.90 2.00% 9.91 Class R(1) 1,000.00 975.90 1.50% 7.43 Institutional Class 1,000.00 1,085.80 1.00% 5.23 ----------------------------------------------------------------------- HYPOTHETICAL 5% RETURN (5% return before expenses) Class A $1,000.00 $1,019.20 1.17% $ 5.92 Class C(1) 1,000.00 1,015.04 2.00% 10.10 Class R(1) 1,000.00 1,017.55 1.50% 7.59 Institutional Class 1,000.00 1,020.05 1.00% 5.06 ----------------------------------------------------------------------- "Expenses Paid During Period" are equal to the Fund's annualized expense ratio, multiplied by the average account value over the period, multiplied by 183/365 (to reflect the one-half year period). (1) Commencement of operation was August 1, 2005. For purposes of this analysis, Class C and Class R shares' annualized expense ratio was applied to the period of June 1, 2005 to November 30, 2005. However, the ending account value for "Actual Fund Return" uses the performance since inception and is not annualized. 6 SECTOR ALLOCATION As of November 30, 2005 DELAWARE SMALL CAP CORE FUND Sector designations may be different than the sector designations presented in other Fund materials. PERCENTAGE SECTOR OF NET ASSETS ----------------------------------------------------------------- COMMON STOCK 96.59% ----------------------------------------------------------------- Basic Materials 5.44% Business Services 4.07% Capital Goods 8.97% Consumer Discretionary 6.02% Consumer Services 2.26% Consumer Staples 1.79% Credit Cyclicals 1.93% Energy 6.09% Finance 16.70% Health Care 12.83% Media 1.63% Real Estate 5.02% Technology 20.01% Transportation 2.17% Utilities 1.66% ----------------------------------------------------------------- REPURCHASE AGREEMENTS 1.75% ----------------------------------------------------------------- TOTAL MARKET VALUE OF SECURITIES 98.34% ----------------------------------------------------------------- RECEIVABLES AND OTHER ASSETS NET OF LIABILITIES 1.66% ----------------------------------------------------------------- TOTAL NET ASSETS 100.00% ----------------------------------------------------------------- 7 DELAWARE SMALL CAP CORE FUND STATEMENT November 30, 2005 OF NET ASSETS Number of Market Shares Value COMMON STOCK - 96.59% Basic Materials - 5.44% +AK Steel Holding 5,200 $ 43,108 Ameron International 800 35,960 +Century Aluminum 2,300 53,176 Chemtura 3,800 45,790 Chesapeake 2,300 40,480 Cytec Industries 1,200 54,348 Ferro 2,300 43,470 +FMC 1,000 53,170 +NS Group 1,750 71,820 +PolyOne 6,800 39,236 +USG 1,000 61,200 Wausau Paper 3,000 35,460 Worthington Industries 2,050 41,595 ---------- 618,813 ---------- Business Services - 4.07% Administaff 1,400 63,069 +Armor Holdings 1,250 54,863 Clark 3,350 47,336 Healthcare Services Group 2,550 54,188 +Labor Ready 2,650 58,512 McGrath RentCorp 1,500 42,885 +Sourcecorp 1,750 45,605 UniFirst 1,450 44,805 +United Stationers 1,050 51,450 ---------- 462,713 ---------- Capital Goods - 8.97% Acuity Brands 2,050 63,734 +AGCO 3,000 50,790 Applied Industrial Technologies 1,050 33,548 +Aviall 1,400 42,980 Barnes Group 1,650 56,876 Briggs & Stratton 1,050 38,000 Crane 1,400 44,366 DRS Technologies 1,150 56,810 +Flowserve 1,500 56,040 +Genlyte Group 1,400 73,779 Hughes Supply 1,750 67,794 +Innovative Solutions & Support 2,900 42,775 +Kadant 2,050 37,331 Lawson Products 1,200 45,300 Lincoln Electric Holdings 1,050 42,851 Lufkin Industries 1,100 49,225 +Orbital Sciences 4,850 58,491 +Rofin-Sinar Technologies 1,050 45,329 +Terex 900 55,458 +URS 1,400 58,968 ---------- 1,020,445 ---------- Consumer Discretionary - 6.02% +Aeropostale 1,750 43,523 +Charming Shoppes 6,350 74,612 +Children's Place Retail Stores 1,550 76,879 +Conn's 1,650 55,787 +Guitar Center 1,050 55,377 +Jos A Bank Clothiers 1,200 60,012 +Pacific Sunwear Of California 2,800 74,088 +Quiksilver 3,450 42,366 Number of Market Shares Value COMMON STOCK (continued) Consumer Discretionary (continued) Stage Stores 2,350 $ 70,289 Stride Rite 3,850 52,899 +Tempur-Pedic International 3,000 34,050 Yankee Candle 1,750 44,363 -------- 684,245 -------- Consumer Services - 2.26% CKE Restaurants 3,600 45,396 +ExpressJet Holdings 3,400 29,648 IHOP 1,200 57,360 Lone Star Steakhouse & Saloon 1,400 32,438 +Papa John's International 800 43,568 +Shuffle Master 1,750 49,018 -------- 257,428 -------- Consumer Staples - 1.79% Casey's General Stores 3,350 77,117 Chiquita Brands International 2,300 47,840 Longs Drug Stores 900 38,367 Nu Skin Enterprises Class A 2,350 40,843 -------- 204,167 -------- Credit Cyclicals - 1.93% +Jacuzzi Brands 4,900 39,543 M/I Homes 1,100 48,125 +Meritage Homes 800 53,176 Thor Industries 2,050 78,556 -------- 219,400 -------- Energy - 6.09% +Grey Wolf 7,650 57,452 +Hercules Offshore 1,900 51,072 Holly 1,250 76,025 +James River Coal 1,150 48,415 +Oceaneering International 1,200 61,200 +Offshore Logistics 1,200 36,780 +Oil States International 2,350 80,041 Penn Virginia 900 53,694 St Mary Land & Exploration 1,650 58,773 +Universal Compression Holdings 1,500 60,570 +Veritas DGC 2,050 67,035 World Fuel Services 1,200 41,220 -------- 692,277 -------- Finance - 16.70% ADVANTA 1,650 53,427 +Affiliated Managers Group 900 70,955 American Home Mortgage Investment 1,900 56,411 AmerUs Group 700 41,111 Bancfirst 700 55,797 Center Financial 2,450 61,495 City Holding 1,900 69,312 Commercial Capital Bancorp 3,600 60,048 +CompuCredit 1,200 46,884 Dime Community Bancshares 2,450 36,285 Direct General 3,700 63,233 FBL Financial Group Class A 1,500 47,025 First Marblehead 1,700 57,460 First Place Financial - Ohio 2,050 48,913 8 DELAWARE SMALL CAP CORE FUND STATEMENT OF NET ASSETS (CONTINUED) Number of Market Shares Value COMMON STOCK (continued) Finance (continued) +FirstFed Financial 1,050 $ 54,957 Flagstar Bancorp 2,800 42,196 Frontier Financial 2,350 76,092 Greater Bay Bancorp 1,750 46,620 Hanover Insurance Group 1,100 43,945 Independent Bank - Michigan 1,230 35,879 Kansas City Life Insurance 800 40,384 MainSource Financial Group 1,940 35,095 Ohio Casualty 2,800 82,879 PFF Bancorp 2,050 62,628 Presidential Life 2,350 45,332 Republic Bancorp 4,150 51,543 RLI 1,200 62,640 +Sierra Health Services 900 70,397 Sterling Bancshares 3,600 56,124 +Stifel Financial 1,200 44,928 TierOne 2,150 64,436 +Triad Guaranty 1,000 43,360 Trustmark 2,150 61,490 +United America Indemnity 2,400 45,480 West Coast Bancorp Oregon 2,450 64,558 ---------- 1,899,319 ---------- Health Care - 12.83% +Adolor 2,800 40,796 +Alkermes 3,000 54,540 +American Healthways 1,250 55,513 +Applera-Celera Genomics 3,000 37,260 +Apria Healthcare Group 1,350 33,021 +Bio-Rad Laboratories Class A 800 46,736 +Candela 4,900 70,559 +Digene 2,050 56,211 +First Horizon Pharmaceutical 3,000 52,860 +Gen-Probe 900 41,553 +Geron 4,900 44,002 +Immunogen 6,850 37,881 +Kensey Nash 1,750 40,058 +LifePoint Hospitals 1,050 39,953 +Medarex 4,800 50,208 Mentor 1,150 56,051 +MGI PHARMA 2,900 57,245 +Myogen 1,750 38,045 +Noven Pharmaceuticals 3,150 42,557 Owens & Minor 1,550 43,958 +Pharmion 2,500 43,425 PolyMedica 1,050 39,858 +Res-Care 3,850 66,643 +Serologicals 2,050 41,164 +Sybron Dental Specialties 1,650 72,170 +Techne 900 49,734 +Telik 2,700 45,306 +United Therapeutics 1,050 75,001 Vital Signs 700 33,411 West Pharmaceutical Services 2,150 53,686 ---------- 1,459,405 ---------- Number of Market Shares Value COMMON STOCK (continued) Media - 1.63% +4Kids Entertainment 2,450 $ 40,057 infoUSA 3,350 33,936 Journal Communications Class A 2,300 31,073 +Mediacom Communications 8,750 45,587 +Scholastic 1,050 34,934 -------- 185,587 -------- Real Estate - 5.02% Brandywine Realty Trust 2,450 71,000 Equity Inns 3,850 52,822 First Industrial Realty Trust 1,150 46,748 Glimcher Realty Trust 2,100 53,928 Home Properties 1,250 52,038 Maguire Properties 1,200 38,400 Nationwide Health Properties 2,500 56,875 Pennsylvania Real Estate Investment Trust 1,200 44,316 Prentiss Properties Trust 1,200 49,200 Senior Housing Properties Trust 2,800 52,668 Shurgard Storage Centers Class A 900 52,668 -------- 570,663 -------- Technology - 20.01% +AMIS Holdings 3,950 39,382 Anixter International 1,150 42,136 +Artesyn Technologies 3,600 35,928 +Axcelis Technologies 10,200 48,348 +Blackboard 1,750 54,145 +CACI International 1,000 55,360 +Catapult Communications 3,000 50,730 +Cymer 1,900 72,617 +Digital River 1,150 29,808 +Digitas 3,000 37,500 +Dionex 1,000 47,230 +Dobson Communications Class A 7,150 52,696 +EarthLink 4,350 49,764 FactSet Research Systems 1,200 46,464 +FileNet 2,150 57,921 +Internet Security Systems 2,050 46,863 +iPayment 800 32,016 +j2 Global Communications 1,150 54,890 +KEMET 4,600 36,800 +Kulicke & Soffa Industries 4,600 38,870 +Mercury Computer Systems 2,400 47,952 +MIPS Technologies 9,250 54,668 +MTC Technologies 1,050 34,409 +Multi-Fineline Electronix 1,700 62,899 +Netgear 2,800 54,040 +OmniVision Technologies 3,250 57,525 +ON Semiconductor 10,550 61,190 +Palm 2,050 58,179 +Photronics 3,250 51,610 Plantronics 1,200 33,144 +Progress Software 2,050 63,426 Quality Systems 600 48,672 +RadiSys 3,350 61,304 9 DELAWARE SMALL CAP CORE FUND STATEMENT OF NET ASSETS (CONTINUED) Number of Market Shares Value COMMON STOCK (continued) Technology (continued) +Secure Computing 4,350 $ 59,769 +SI International 1,650 44,798 +Skyworks Solutions 10,050 54,170 +Tekelec 3,400 44,200 +Tessera Technologies 2,100 57,750 +UbiquiTel 4,800 46,944 United Online 2,800 39,508 +Universal Electronics 1,750 30,345 +Varian Semiconductor Equipment 1,650 72,632 +Verint Systems 1,250 47,038 +Viasat 2,450 67,742 +WebEx Communications 2,150 51,192 +Wind River Systems 3,000 41,340 ----------- 2,275,914 ----------- Transportation - 2.17% Arkansas Best 1,050 43,302 +HUB Group 1,800 72,990 Pacer International 2,800 74,004 +SCS Transportation 2,900 57,159 ----------- 247,455 ----------- Utilities - 1.66% Black Hills 1,500 54,824 Cascade Natural Gas 2,050 41,595 Middlesex Water 2,150 40,958 Otter Tail 1,700 51,085 ----------- 188,462 ----------- TOTAL COMMON STOCK (cost $10,266,922) 10,986,293 ----------- Principal Amount REPURCHASE AGREEMENTS - 1.75% With BNP Paribas 3.92% 12/1/05 (dated 11/30/05, to be repurchased at $133,715, collateralized by $137,100 U.S. Treasury Bills due 1/19/06, market value $136,388) $133,700 133,700 With UBS Warburg 3.93% 12/1/05 (dated 11/30/05, to be repurchased at $65,307, collateralized by $66,700 U.S. Treasury Bills due 12/8/05, market value $66,638) 65,300 65,300 ----------- TOTAL REPURCHASE AGREEMENTS (cost $199,000) 199,000 ----------- TOTAL MARKET VALUE OF SECURITIES - 98.34% (cost $10,465,922) 11,185,293 RECEIVABLES AND OTHER ASSETS NET OF LIABILITIES - 1.66% 188,870 ----------- NET ASSETS APPLICABLE TO 999,090 SHARES OUTSTANDING - 100.00% $11,374,163 =========== Net Asset Value - Delaware Small Cap Core Fund Class A ($3,863,092 / 339,442 Shares) $11.38 ------ Net Asset Value - Delaware Small Cap Core Fund Class C ($865,971 / 76,257 Shares) $11.36 ------ Net Asset Value - Delaware Small Cap Core Fund Class R ($11.36 / 1 Share) $11.36 ------ Net Asset Value - Delaware Small Cap Core Fund Institutional Class ($6,645,089 / 583,390 Shares) $11.39 ------ COMPONENTS OF NET ASSETS AT NOVEMBER 30, 2005: Shares of beneficial interest (unlimited authorization -- no par) $10,398,158 Undistributed net investment income 17,534 Accumulated net realized gain on investments 239,100 Net unrealized appreciation of investments 719,371 ----------- Total net assets $11,374,163 =========== +Non-income producing security for the year ended November 30, 2005. SUMMARY OF ABBREVIATIONS: REIT - Real Estate Investment Trust NET ASSET VALUE AND OFFERING PRICE PER SHARE - DELAWARE SMALL CAP CORE FUND Net asset value Class A (A) $11.38 Sales charge (5.75% of offering price) (B) 0.69 ------ Offering price $12.07 ====== (A) Net asset value per share, as illustrated, is the amount which would be paid upon redemption or repurchase of shares. (B) See the current prospectus for purchases of $50,000 or more. See accompanying notes 10 DELAWARE SMALL CAP CORE FUND STATEMENT November 30, 2005 OF ASSETS AND LIABILITIES ASSETS: Investments at market $11,185,293 Cash 3,926 Dividends and interest receivable 8,640 Receivable for securities sold 811,788 Subscriptions receivable 256,621 Due from DMC 25,440 ----------- Total assets 12,291,708 ----------- LIABILITIES: Payable for securities purchased 894,733 Due to manager and affiliates 8,778 Other accrued expenses 14,034 ----------- Total liabilities 917,545 ----------- Total net assets $11,374,163 =========== Investments at cost $10,465,922 See accompanying notes 11
DELAWARE SMALL CAP CORE FUND STATEMENT Year Ended November 30, 2005 OF OPERATIONS INVESTMENT INCOME: Dividends $65,809 Interest 4,730 $ 70,539 ------- -------- EXPENSES: Registration fees 60,818 Management fees 42,610 Reports and statements to shareholders 12,874 Legal and professional fees 10,825 Distribution expenses -- Class A 1,278 Distribution expenses-- Class C 854 Accounting and administration expenses 2,088 Pricing fees 1,798 Dividend disbursing and transfer agent fees and expenses 1,771 Custodian fees 1,227 Taxes (other than taxes on income) 506 Insurance fees 373 Trustees' fees 308 Other 3,211 140,541 ------- Less expenses absorbed or waived (84,101) Less waived distribution expenses -- Class A (249) Less expense paid indirectly (99) -------- Total expenses 56,092 -------- NET INVESTMENT INCOME 14,447 -------- NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS: Net realized gain on investments 244,228 Net change in unrealized appreciation/depreciation of investments 282,499 -------- NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS 526,727 -------- NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $541,174 ========
See accompanying notes 12
DELAWARE SMALL CAP CORE FUND STATEMENTS OF CHANGES IN NET ASSETS Year Ended 11/30/05 11/30/04 INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS: Net investment income $ 14,447 $ 8,533 Net realized gain on investments 244,228 1,393,660 Net change in unrealized appreciation/depreciation of investments 282,499 (582,199) ----------- ---------- Net increase in net assets resulting from operations 541,174 819,994 ----------- ---------- DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM: Net investment income: Class A (34) (43) Institutional Class (8,157) (13,285) Net realized gain on investments: Class A (5,845) (928) Institutional Class (1,387,384) (284,732) ----------- ---------- (1,401,420) (298,988) ----------- ---------- CAPITAL SHARE TRANSACTIONS: Proceeds from shares sold: Class A 3,781,560 3,904 Class C 844,303 -- Class R 12 -- Institutional Class 1,440,217 -- Net asset value of shares issued upon reinvestment of dividends and distributions: Class A 5,879 971 Institutional Class 1,395,541 298,017 ----------- ---------- 7,467,512 302,892 ----------- ---------- Cost of shares repurchased: Class A (9,325) -- Institutional Class (9,039) -- ----------- ---------- (18,364) -- ----------- ---------- Increase in net assets derived from capital share transactions 7,449,148 302,892 ----------- ---------- NET INCREASE IN NET ASSETS 6,588,902 823,898 NET ASSETS: Beginning of year 4,785,261 3,961,363 ----------- ---------- End of year (including undistributed net investment income of $17,534 and $6,576, respectively) $11,374,163 $4,785,261 =========== ==========
See accompanying notes 13 FINANCIAL HIGHLIGHTS Selected data for each share of the Fund outstanding throughout each period were as follows:
Delaware Small Cap Core Fund Class A Year Ended 11/30/05 11/30/04 11/30/03 11/30/02 11/30/01 NET ASSET VALUE, BEGINNING OF PERIOD $14.600 $13.080 $10.290 $11.130 $ 9.090 INCOME FROM INVESTMENT OPERATIONS: Net investment income(1) 0.022 0.026 0.036 0.079 0.111 Net realized and unrealized gain on investments 1.035 2.481 3.350 0.069 2.082 ------- ------- ------- ------- ------- Total from investment operations 1.057 2.507 3.386 0.148 2.193 ------- ------- ------- ------- ------- LESS DIVIDENDS AND DISTRIBUTIONS FROM: Net investment income (0.025) (0.044) (0.075) (0.108) (0.153) Net realized gain on investments (4.252) (0.943) (0.521) (0.880) -- ------- ------- ------- ------- ------- Total dividends and distributions (4.277) (0.987) (0.596) (0.988) (0.153) ------- ------- ------- ------- ------- NET ASSET VALUE, END OF PERIOD $11.380 $14.600 $13.080 $10.290 $11.130 ======= ======= ======= ======= ======= TOTAL RETURN(2) 9.04% 20.62% 35.19% 1.08% 24.42% RATIOS AND SUPPLEMENTAL DATA: Net assets, end of period (000 omitted) $ 3,863 $20 $13 $-- $-- Ratio of expenses to average net assets 1.02% 0.75% 0.75% 0.75% 0.75% Ratio of expenses to average net assets prior to expense limitation and expense paid indirectly 2.53% 1.30% 1.34% 1.34% 1.18% Ratio of net investment income to average net assets 0.20% 0.20% 0.33% 0.74% 1.07% Ratio of net investment income (loss) to average net assets prior to expense limitation and expense paid indirectly (1.31%) (0.35%) (0.26%) 0.15% 0.63% Portfolio turnover 104% 136% 44% 76% 82%
(1) The average shares outstanding method has been applied for per share information. (2) Total investment return is based on the change in net asset value of a share during the period and assumes reinvestment of dividends and distributions at net asset value and does not reflect the impact of a sales charge. Total investment return reflects waivers and payment of fees by the manager and distributor. Performance would have been lower had the expense limitation not been in effect. See accompanying notes 14 FINANCIAL HIGHLIGHTS (CONTINUED) Selected data for each share of the Fund outstanding throughout each period were as follows:
Delaware Small Cap Core Fund Class C 8/1/05(1) to 11/30/05 NET ASSET VALUE, BEGINNING OF PERIOD $11.640 LOSS FROM INVESTMENT OPERATIONS: Net investment loss(2) (0.021) Net realized and unrealized loss on investments (0.259) ------- Total from investment operations (0.280) ------- NET ASSET VALUE, END OF PERIOD $11.360 ======= TOTAL RETURN(3) (2.41%) RATIOS AND SUPPLEMENTAL DATA: Net assets, end of period (000 omitted) $866 Ratio of expenses to average net assets 2.00% Ratio of expenses to average net assets prior to expense limitation and expense paid indirectly 5.14% Ratio of net investment loss to average net assets (0.56%) Ratio of net investment loss to average net assets prior to expense limitation and expense paid indirectly (3.71%) Portfolio turnover 104%
(1) Date of commencement of operations; ratios have been annualized and total return has not been annualized. (2) The average shares outstanding method has been applied for per share information. (3) Total investment return is based on the change in net asset value of a share during the period and assumes reinvestment of dividends and distributions at net asset value and does not reflect the impact of a sales charge. Total investment return reflects a waiver and payment of fees by the manager. Performance would have been lower had the expense limitation not been in effect. See accompanying notes 15 FINANCIAL HIGHLIGHTS (CONTINUED) Selected data for each share of the Fund outstanding throughout each period were as follows:
Delaware Small Cap Core Fund Institutional Class Year Ended 11/30/05 11/30/04 11/30/03 11/30/02 11/30/01 NET ASSET VALUE, BEGINNING OF PERIOD $14.600 $13.080 $10.290 $11.130 $9.090 INCOME FROM INVESTMENT OPERATIONS: Net investment income(1) 0.031 0.026 0.036 0.079 0.111 Net realized and unrealized gain on investments 1.036 2.481 3.350 0.069 2.082 ------- ------- ------- ------- ------- Total from investment operations 1.067 2.507 3.386 0.148 2.193 ------- ------- ------- ------- ------- LESS DIVIDENDS AND DISTRIBUTIONS FROM: Net investment income (0.025) (0.044) (0.075) (0.108) (0.153) Net realized gain on investments (4.252) (0.943) (0.521) (0.880) -- ------- ------- ------- ------- ------- Total dividends and distributions (4.277) (0.987) (0.596) (0.988) (0.153) ------- ------- ------- ------- ------- NET ASSET VALUE, END OF PERIOD $11.390 $14.600 $13.080 $10.290 $11.130 ======= ======= ======= ======= ======= TOTAL RETURN(2) 9.14% 20.62% 35.19% 1.08% 24.42% RATIOS AND SUPPLEMENTAL DATA: Net assets, end of period (000 omitted) $6,645 $4,765 $3,948 $2,921 $2,890 Ratio of expenses to average net assets 0.94% 0.75% 0.75% 0.75% 0.75% Ratio of expenses to average net assets prior to expense limitation and expense paid indirectly 2.23% 1.00% 1.04% 1.04% 0.88% Ratio of net investment income to average net assets 0.28% 0.20% 0.33% 0.74% 1.07% Ratio of net investment income (loss) to average net assets prior to expense limitation and expense paid indirectly (1.01%) (0.05%) 0.04% 0.45% 0.93% Portfolio turnover 104% 136% 44% 76% 82%
(1) The average shares outstanding method has been applied for per share information. (2) Total investment return is based on the change in net asset value of a share during the period and assumes reinvestment of dividends and distributions at net asset value. Total investment return reflects waivers and payment of fees by the manager. Performance would have been lower had the expense limitation not been in effect. As of November 30, 2005, Class R had one share outstanding, representing the initial seed purchase. Shareholder data for this class is not disclosed because management does not believe it to be meaningful. See accompanying notes 16 DELAWARE SMALL CAP CORE FUND NOTES November 30, 2005 TO FINANCIAL STATEMENTS Delaware Group Equity Funds V (the "Trust") is organized as a Delaware statutory trust and offers three series: Delaware Dividend Income Fund, Delaware Small Cap Core Fund and Delaware Small Cap Value Fund. These financial statements and the related notes pertain to Delaware Small Cap Core Fund (the "Fund"). The Trust is an open-end investment company. The Fund is considered diversified under the Investment Company Act of 1940, as amended, and offers Class A, Class C, Class R and Institutional Class shares. Class A shares are sold with a front-end sales charge of up to 5.75%. Class C shares are sold with a contingent deferred sales charge of 1%, if redeemed during the first 12 months. Class R and Institutional Class shares are not subject to a sales charge and are offered for sale exclusively to a limited group of investors. The investment objective of the Fund is to seek long-term capital appreciation. 1. SIGNIFICANT ACCOUNTING POLICIES The following accounting policies are in accordance with U.S. generally accepted accounting principles and are consistently followed by the Fund. Security Valuation -- Equity securities, except those traded on the Nasdaq Stock Market, Inc. (Nasdaq), are valued at the last quoted sales price as of the time of the regular close of the New York Stock Exchange (NYSE) on the valuation date. Securities traded on the Nasdaq are valued in accordance with the Nasdaq Official Closing Price, which may not be the last sales price. If on a particular day an equity security does not trade, then the mean between the bid and asked prices will be used. Short-term debt securities having less than 60 days to maturity are valued at amortized cost, which approximates market value. Other securities and assets for which market quotations are not readily available are valued at fair value as determined in good faith under the direction of the Fund's Board of Trustees. In determining whether market quotations are readily available or fair valuation will be used, various factors will be taken into consideration, such as market closures, or with respect to foreign securities, aftermarket trading or significant events after local market trading (e.g., government actions or pronouncements, trading volume or volatility on markets, exchanges among dealers, or news events). Federal Income Taxes -- The Fund intends to continue to qualify for federal income tax purposes as a regulated investment company and make the requisite distributions to shareholders. Accordingly, no provision for federal income taxes has been made in the financial statements. Class Accounting -- Investment income, common expenses and realized and unrealized gain (loss) on investments are allocated to the various classes of the Fund on the basis of daily net assets of each class. Distribution expenses relating to a specific class are charged directly to that class. Repurchase Agreements -- The Fund may invest in a pooled cash account along with other members of the Delaware Investments(R) Family of Funds pursuant to an exemptive order issued by the Securities and Exchange Commission. The aggregate daily balance of the pooled cash account is invested in repurchase agreements secured by obligations of the U.S. government. The respective collateral is held by the Fund's custodian bank until the maturity of the respective repurchase agreements. Each repurchase agreement is 102% collateralized. However, in the event of default or bankruptcy by the counterparty to the agreement, realization of the collateral may be subject to legal proceedings. Use of Estimates -- The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Other -- Expenses common to all funds within the Delaware Investments(R) Family of Funds are allocated amongst the funds on the basis of average net assets. Management fees and some other expenses are paid monthly. Security transactions are recorded on the date the securities are purchased or sold (trade date). Costs used in calculating realized gains and losses on the sale of investment securities are those of the specific securities sold. Dividend income is recorded on the ex-dividend date and interest income is recorded on the accrual basis. Distributions received from investments in Real Estate Investment Trusts are recorded as dividend income on ex-dividend date, subject to reclassification upon notice of the character of such distributions by the issuer. The Fund declares and pays dividends from net investment income and distributions from net realized gain on investment, if any, annually. Subject to best execution, the Fund may direct certain security trades to brokers who have agreed to rebate a portion of the related brokerage commission to the Fund in cash. There were no commission rebates during the year ended November 30, 2005. The Fund receives earnings credits from its custodian when positive cash balances are maintained, which are used to offset custody fees. The expense paid under the above arrangement is included in the custodian fees and on the Statement of Operations with the corresponding expense offset shown as "expense paid indirectly." 2. INVESTMENT MANAGEMENT, ADMINISTRATION AGREEMENTS AND OTHER TRANSACTIONS WITH AFFILIATES In accordance with the terms of its investment management agreement, the Fund pays Delaware Management Company (DMC), a series of Delaware Management Business Trust and the investment manager, an annual fee which is calculated daily at the rate of 0.75% on the first $500 million of average daily net assets of the Fund, 0.70% on the next $500 million, 0.65% on the next $1.5 billion, and 0.60% on average daily net assets in excess of $2.5 billion. Effective June 1, 2005, DMC has contractually agreed to waive that portion, if any, of its management fee and reimburse the Fund to the extent necessary to ensure that annual operating expenses, exclusive of taxes, interest, brokerage commissions, distribution fees, certain insurance costs and extraordinary expenses, do not exceed 1.00% of average daily net assets of the Fund through March 31, 2007. Prior to June 1, 2005, DMC had contractually agreed to waive its fees in order to prevent such expenses from exceeding 0.75% of the average daily net assets of the Fund. Delaware Service Company, Inc. (DSC), an affiliate of DMC, provides accounting, administration, dividend disbursing and transfer agent services. Effective May 19, 2005, the Fund pays DSC a monthly fee computed at the annual rare of 0.04% of the Fund's average daily net assets, for accounting and administration services. Prior to May 19, 2005, the Fund paid DSC a monthly fee based on average net assets subject to certain minimums for accounting and administration services. The Fund pays DSC a monthly fee based on the number of shareholder accounts for dividend disbursing and transfer agent services. 17 DELAWARE SMALL CAP CORE FUND NOTES TO FINANCIAL STATEMENTS (CONTINUED) 2. INVESTMENT MANAGEMENT, ADMINISTRATION AGREEMENTS AND OTHER TRANSACTIONS WITH AFFILIATES (CONTINUED) Pursuant to a distribution agreement and distribution plan, the Fund pays Delaware Distributors, L.P. (DDLP), the distributor and an affiliate of DMC, an annual distribution and service fee not to exceed 0.30% of the average daily net assets of the Class A shares, 1.00% of the average daily net assets of the Class C shares and 0.60% of the average daily net assets of the Class R shares. DDLP has contracted to waive distribution and service fees through March 31, 2007 in order to prevent distribution and services fees of Class A shares from exceeding 0.25% of average daily net assets. Prior to August 1, 2005, the distributor waived the entire 0.30% Class A distribution and service fee. DDLP has contracted to limit distribution and service fees through March 31, 2007 for Class R shares to no more than 0.50% of average daily net assets. Institutional Class shares pay no distribution and services expenses. At November 30, 2005, the Fund had receivables due from or liabilities payable to affiliates as follows: Dividend disbursing, transfer agent, accounting and administration fees and other expenses payable to DSC $ (1,124) Distribution fee payable to DDLP (1,884) Other expenses payable to DMC and affiliates* (5,770) Receivable from DMC under expense limitation agreement 25,440 *DMC, as part of its administrative services, pays operating expenses on behalf of the Fund and is reimbursed on a periodic basis. Such expenses include items such as printing of shareholder reports, fees for audit, legal and tax services, registration fees and trustees' fees. As provided in the investment management agreement, the Fund bears the cost of certain legal services expenses, including internal legal services provided to the Fund by DMC employees. For the year ended November 30, 2005, the Fund was charged $442 for internal legal services provided by DMC. For the year ended November 30, 2005, DDLP earned $6,159 for commissions on sales of the Fund's Class A shares. Certain officers of DMC, DSC and DDLP are officers and/or trustees of the Trust. These officers and trustees are paid no compensation by the Fund. 3. INVESTMENTS For the year ended November 30, 2005, the Fund made purchases of $11,699,438 and sales of $5,984,900 of investment securities other than short-term investments. At November 30, 2005, the cost of investments for federal income tax purposes was $10,475,049. At November 30, 2005, net unrealized appreciation was $710,244 of which $972,602 related to unrealized appreciation of investments and $262,358 related to unrealized depreciation of investments. 4. DIVIDEND AND DISTRIBUTION INFORMATION Income and long-term capital gain distributions are determined in accordance with federal income tax regulations, which may differ from U.S. generally accepted accounting principles. Additionally, net short-term gains on sales of investment securities are treated as ordinary income for federal income tax purposes. The tax character of dividends and distributions paid during the years ended November 30, 2005 and 2004 was as follows: Year Ended 11/30/05 11/30/04 ---------- -------- Ordinary income $ 246,155 $ 94,305 Long-term capital gain 1,155,265 204,683 ---------- -------- Total $1,401,420 $298,988 ========== ======== As of November 30, 2005, the components of net assets on a tax basis were as follows: Shares of beneficial interest $10,398,158 Undistributed ordinary income 206,638 Undistributed long-term capital gain 59,123 Unrealized appreciation of investments 710,244 ----------- Net assets $11,374,163 =========== The difference between book basis and tax basis components of net assets are primarily attributable to tax deferral of losses on wash sales. For financial reporting purposes, capital accounts are adjusted to reflect the tax character of permanent book/tax differences. Reclassifications are primarily due to tax treatment of dividends and distributions. Results of operations and net assets were not affected by these reclassifications. For the year ended November 30, 2005, the Fund recorded the following reclassifications: Undistributed net investment income $4,702 Accumulated net realized gain (loss) (4,702) 5. CAPITAL SHARES Transactions in capital shares were as follows: Year Ended 11/30/05 11/30/04 Shares sold: Class A 338,367 312 Class C 76,257 -- Class R 1 -- Institutional Class 127,717 -- Shares issued upon reinvestment of dividends and distributions: Class A 548 79 Institutional Class 130,181 24,347 ------- ------ 673,071 24,738 ------- ------ Shares repurchased: Class A (848) -- Institutional Class (797) -- ------ ------ (1,645) -- ------ ------ Net increase 671,426 24,738 ======= ====== 18 DELAWARE SMALL CAP CORE FUND NOTES TO FINANCIAL STATEMENTS (CONTINUED) 6. LINE OF CREDIT The Fund, along with certain other funds in the Delaware Investments(R) Family of Funds (the "Participants"), participates in a $225,000,000 revolving line of credit facility to be used for temporary or emergency purposes as an additional source of liquidity to fund redemptions of investor shares. The Participants are charged an annual commitment fee, which is allocated across the Participants on the bases of each fund's allocation of the entire facility. The Participants may borrow up to a maximum of one third of their net assets under the agreement. The Fund had no amounts outstanding as of November 30, 2005, or at any time during the year. 7. CREDIT AND MARKET RISK The Fund invests a significant portion of its assets in small companies and may be subject to certain risks associated with ownership of securities of small companies. Investments in small-sized companies may be more volatile than investments in larger companies for a number of reasons, which include limited financial resources or a dependence on narrow product lines. The Fund invests in real estate investment trusts (REITs) and is subject to some of the risks associated with that industry. If the Fund holds real estate directly as a result of defaults or receives rental income directly from real estate holdings, its tax status as a regulated investment company may be jeopardized. There were no direct holdings during the year ended November 30, 2005. The Fund's REIT holdings are also affected by interest rate changes, particularly if the REITs it holds use floating rate debt to finance their ongoing operations. The Fund may invest up to 15% of its total assets in illiquid securities, which may include securities with contractual restrictions on resale, securities exempt from registration under Rule 144A of the Securities Act of 1933, as amended, and other securities which may not be readily marketable. The relative illiquidity of these securities may impair the Fund from disposing of them in a timely manner and at a fair price when it is necessary or desirable to do so. While maintaining oversight, the Board of Trustees has delegated to DMC the day-to-day functions of determining whether individual securities are liquid for purposes of the Fund's limitation on investments in illiquid assets. At November 30, 2005, no securities have been determined to be illiquid under the Fund's Liquidity Procedures. 8. CONTRACTUAL OBLIGATIONS The Fund enters into contracts in the normal course of business that contain a variety of indemnifications. The Fund's maximum exposure under these arrangements is unknown. However, the Fund has not had prior claims or losses pursuant to these contracts. Management has reviewed the Fund's existing contracts and expects the risk of loss to be remote. 9. TAX INFORMATION (UNAUDITED) The information set forth below is for the Fund's fiscal year as required by federal laws. Shareholders, however, must report distributions on a calendar year basis for income tax purposes, which may include distributions for portions of two fiscal years of a fund. Accordingly, the information needed by shareholders for income tax purposes will be sent to them in January of each year. Please consult your tax advisor for proper treatment of this information. For the fiscal year ended November 30, 2005, the Fund designates dividends and distributions paid during the year as follows: (A) (B) Long-Term Ordinary Capital Gain Income Total (C) Distributions Distribution* Distributions Qualifying (Tax Basis) (Tax Basis) (Tax Basis) Dividends(1) ------------ ------------- ------------- ------------ 82% 18% 100% 100% (A) and (B) are based on a percentage of the Fund's total distributions. (C) is based on a percentage of the Fund's ordinary income of the Fund. (1) Qualifying dividends represent dividends which qualify for the corporate dividends received deduction. *For the fiscal year ended November 30, 2005, certain dividends paid by the Fund may be subject to a maximum tax rate of 15%, as provided for by the Jobs and Growth Tax Relief Reconciliation Act of 2003. The Fund intends to designate up to a maximum amount of $246,155 to be taxed at a maximum rate of 15%. Complete information will be computed and reported in conjunction with your 2005 Form 1099-DIV. 19 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Shareholders and Board of Trustees Delaware Group Equity Funds V - Delaware Small Cap Core Fund We have audited the accompanying statement of net assets and statement of assets and liabilities of the Delaware Small Cap Core Fund (one of the series constituting Delaware Group Equity Funds V) (the "Fund") as of November 30, 2005, and the related statement of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended, and the financial highlights for each of the periods indicated therein. These financial statements and financial highlights are the responsibility of the Fund's management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. We were not engaged to perform an audit of the Fund's internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of an opinion on the effectiveness of the Fund's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements and financial highlights, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our procedures included confirmation of securities owned as of November 30, 2005, by correspondence with the custodian and brokers or by other appropriate auditing procedures where replies from brokers were not received. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of the Delaware Small Cap Core Fund of Delaware Group Equity Funds V at November 30, 2005, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended, and its financial highlights for each of the periods indicated therein, in conformity with U.S. generally accepted accounting principles. /s/ Ernst & Young Philadelphia, Pennsylvania January 11, 2006 20 DELAWARE INVESTMENTS(R) FAMILY OF FUNDS BOARD OF TRUSTEES/DIRECTORS AND OFFICERS ADDENDUM A mutual fund is governed by a Board of Trustees/Directors ("Trustees"), which has oversight responsibility for the management of a fund's business affairs. Trustees establish procedures and oversee and review the performance of the investment manager, the distributor and others who perform services for the fund. The independent fund trustees, in particular, are advocates for shareholder interests. The following is a list of the Trustees and Officers with certain background and related information.
NUMBER OF OTHER PRINCIPAL PORTFOLIOS IN FUND DIRECTORSHIPS NAME, POSITION(S) OCCUPATION(S) COMPLEX OVERSEEN HELD BY ADDRESS HELD WITH LENGTH OF TIME DURING BY TRUSTEE TRUSTEE AND BIRTHDATE FUND(S) SERVED PAST 5 YEARS OR OFFICER OR OFFICER ------------------------------------------------------------------------------------------------------------------------------------ INTERESTED TRUSTEES JUDE T. DRISCOLL(2) Chairman, 5 Years - Since August 2000, 87 None 2005 Market Street President, Executive Officer Mr. Driscoll has served in Philadelphia, PA Chief Executive various executive capacities 19103 Officer and 2 Years - at different times at Trustee Trustee Delaware Investments(1) March 10, 1963 ------------------------------------------------------------------------------------------------------------------------------------ INDEPENDENT TRUSTEES THOMAS L. BENNETT Trustee Since Private Investor - 87 None 2005 Market Street March 23, 2005 (March 2004 - Present) Philadelphia, PA 19103 Investment Manager - Morgan Stanley & Co. October 4, 1947 (January 1984 - March 2004) ------------------------------------------------------------------------------------------------------------------------------------ JOHN A. FRY Trustee 4 Years President - 87 Director - 2005 Market Street Franklin & Marshall College Community Health Philadelphia, PA (June 2002 - Present) Systems 19103 Executive Vice President - May 28, 1960 University of Pennsylvania (April 1995 - June 2002) ------------------------------------------------------------------------------------------------------------------------------------ ANTHONY D. KNERR Trustee 12 Years Founder/Managing Director - 87 None 2005 Market Street Anthony Knerr & Associates Philadelphia, PA (Strategic Consulting) 19103 (1990 - Present) December 7, 1938 ------------------------------------------------------------------------------------------------------------------------------------ LUCINDA S. LANDRETH Trustee Since Chief Investment Officer - 87 None 2005 Market Street March 23, 2005 Assurant, Inc. Philadelphia, PA (Insurance) 19103 (2002 - 2004) June 24, 1947 ------------------------------------------------------------------------------------------------------------------------------------ ANN R. LEVEN Trustee 16 Years Treasurer/Chief Fiscal Officer - 87 Director and 2005 Market Street National Gallery of Art Audit Committee Philadelphia, PA (1994 - 1999) Chairperson - Andy 19103 Warhol Foundation November 1, 1940 Director and Audit Committee Member - Systemax Inc.
21
NUMBER OF OTHER PRINCIPAL PORTFOLIOS IN FUND DIRECTORSHIPS NAME, POSITION(S) OCCUPATION(S) COMPLEX OVERSEEN HELD BY ADDRESS HELD WITH LENGTH OF TIME DURING BY TRUSTEE TRUSTEE AND BIRTHDATE FUND(S) SERVED PAST 5 YEARS OR OFFICER OR OFFICER ------------------------------------------------------------------------------------------------------------------------------------ INDEPENDENT TRUSTEES (CONTINUED) THOMAS F. MADISON Trustee 11 Years President/Chief Executive 87 Director - 2005 Market Street Officer - MLM Partners, Banner Health Philadelphia, PA Inc. (Small Business 19103 Investing and Consulting) Director - (January 1993 - Present) CenterPoint Energy February 25, 1936 Director and Audit Committee Member - Digital River Inc. Director and Audit Committee Member - Rimage Corporation Director - Valmont Industries, Inc. ------------------------------------------------------------------------------------------------------------------------------------ JANET L. YEOMANS Trustee 6 Years Vice President/Mergers & 87 None 2005 Market Street Acquisitions - Philadelphia, PA 3M Corporation 19103 (January 2003 - Present) July 31, 1948 Ms. Yeomans has held various management positions at 3M Corporation since 1983. ------------------------------------------------------------------------------------------------------------------------------------ J. RICHARD ZECHER Trustee Since Founder - 87 Director and Audit 2005 Market Street March 23, 2005 Investor Analytics Committee Member - Philadelphia, PA (Risk Management) Investor Analytics 19103 (May 1999 - Present) Director and Audit July 3, 1940 Committee Member - Oxigene, Inc. ------------------------------------------------------------------------------------------------------------------------------------ OFFICERS MICHAEL P. BISHOF Senior Vice Chief Financial Mr. Bishof has served in 87 None(3) 2005 Market Street President and Officer since various executive capacities Philadelphia, PA Chief Financial February 17, 2005 at different times at 19103 Officer Delaware Investments. August 18, 1962 ------------------------------------------------------------------------------------------------------------------------------------ DAVID F. CONNOR Vice President, Vice President since Mr. Connor has served as 87 None(3) 2005 Market Street Deputy General September 21, 2000 Vice President and Deputy Philadelphia, PA Counsel and Secretary and Secretary General Counsel of Delaware 19103 since Investments since 2000. October 25, 2005 December 2, 1963 ------------------------------------------------------------------------------------------------------------------------------------ DAVID P. O'CONNOR Senior Vice Senior Vice President, Mr. O'Connor has served in 87 None(3) 2005 Market Street President, General Counsel and various executive and legal Philadelphia, PA General Counsel Chief Legal Officer capacities at different times 19103 and Chief since at Delaware Investments. Legal Officer October 25, 2005 February 21, 1966 ------------------------------------------------------------------------------------------------------------------------------------ JOHN J. O'CONNOR Senior Vice President Treasurer Mr. O'Connor has served in 87 None(3) 2005 Market Street and Treasurer since various executive capacities Philadelphia, PA February 17, 2005 at different times at 19103 Delaware Investments. June 16, 1957 ------------------------------------------------------------------------------------------------------------------------------------
(1) Delaware Investments is the marketing name for Delaware Management Holdings, Inc. and its subsidiaries, including the Fund's(s') investment advisor, principal underwriter and its transfer agent. (2) Mr. Driscoll is considered to be an "Interested Trustee" because he is an executive officer of the Fund's(s') manager and distributor. (3) Mr. Bishof, Mr. Connor, Mr. David P. O'Connor and Mr. John J. O'Connor also serve in similar capacities for the six portfolios of the Optimum Fund Trust, which have the same investment advisor, principal underwriter, and transfer agent as the registrant. The Statement of Additional Information for the Fund(s) includes additional information about the Trustees and Officers and is available, without charge, upon request by calling 800 523-1918. 22 ABOUT THE ORGANIZATION This annual report is for the information of Delaware Small Cap Core Fund shareholders, but it may be used with prospective investors when preceded or accompanied by a current prospectus for Delaware Small Cap Core Fund and the Delaware Investments(R) Performance Update for the most recently completed calendar quarter. The prospectus sets forth details about charges, expenses, investment objectives, and operating policies of the Fund. You should read the prospectus carefully before you invest. The figures in this report represent past results that are not a guarantee of future results. The return and principal value of an investment in the Fund will fluctuate so that shares, when redeemed, may be worth more or less than their original cost.
BOARD OF TRUSTEES AFFILIATED OFFICERS CONTACT INFORMATION JUDE T. DRISCOLL MICHAEL P. BISHOF INVESTMENT MANAGER Chairman Senior Vice President and Delaware Management Company, Delaware Investments(R) Family of Funds Chief Financial Officer a Series of Delaware Management Philadelphia, PA Delaware Investments(R) Family of Funds Business Trust Philadelphia, PA Philadelphia, PA THOMAS L. BENNETT NATIONAL DISTRIBUTOR Private Investor DAVID F. CONNOR Delaware Distributors, L.P. Rosemont, PA Vice President, Deputy General Counsel Philadelphia, PA and Secretary JOHN A. FRY Delaware Investments(R) Family of Funds SHAREHOLDER SERVICING, DIVIDEND President Philadelphia, PA DISBURSING AND TRANSFER AGENT Franklin & Marshall College Delaware Service Company, Inc. Lancaster, PA DAVID P. O'CONNOR 2005 Market Street Senior Vice President, General Counsel Philadelphia, PA 19103-7094 ANTHONY D. KNERR and Chief Legal Officer Managing Director Delaware Investments(R) Family of Funds FOR SHAREHOLDERS Anthony Knerr & Associates Philadelphia, PA 800 523-1918 New York, NY JOHN J. O'CONNOR FOR SECURITIES DEALERS AND FINANCIAL LUCINDA S. LANDRETH Senior Vice President and Treasurer INSTITUTIONS REPRESENTATIVES ONLY Former Chief Investment Officer Delaware Investments(R) Family of Funds 800 362-7500 Assurant, Inc. Philadelphia, PA Philadelphia, PA WEB SITE www.delawareinvestments.com ANN R. LEVEN Former Treasurer/Chief Fiscal Officer Delaware Investments is the marketing National Gallery of Art name for Delaware Management Washington, DC Holdings, Inc. and its subsidiaries. THOMAS F. MADISON President and Chief Executive Officer MLM Partners, Inc. Minneapolis, MN JANET L. YEOMANS Vice President/Mergers & Acquisitions 3M Corporation St. Paul, MN J. RICHARD ZECHER Founder Investor Analytics Scottsdale, AZ
The Fund files its complete schedule of portfolio holdings with the Securities and Exchange Commission for the first and third quarters of each fiscal year on Form N-Q. The Fund's Forms N-Q, as well as a description of the policies and procedures that the Fund uses to determine how to vote proxies (if any) relating to portfolio securities is available without charge (i) upon request, by calling 800 523-1918; (ii) on the Fund's Web site at http://www.delawareinvestments.com; and (iii) on the Commission's Web site at http://www.sec.gov. The Fund's Forms N-Q may be reviewed and copied at the Commission's Public Reference Room in Washington, DC; information on the operation of the Public Reference Room may be obtained by calling 1-800-SEC-0330. Information (if any) regarding how the Fund voted proxies relating to portfolio securities during the most recently disclosed 12-month period ended June 30 is available without charge (i) through the Fund's Web site at http://www.delawareinvestments.com; and (ii) on the Commission's Web site at http://www.sec.gov. 23 This page intentionally left blank. 24 Delaware Investments(R) ----------------------------------- A member of Lincoln Financial Group CONTACT INFORMATION WEB SITE www.delawareinvestments.com E-MAIL service@delinvest.com SHAREHOLDER SERVICE CENTER 800 523-1918 Call the Shareholder Service Center Monday to Friday, 8 a.m. to 7 p.m. Eastern Time: [_] For fund information, literature, price, yield and performance figures. [_] For information on existing regular investment accounts and retirement plan accounts including wire investments, wire redemptions, telephone redemptions and telephone exchanges. DELAPHONE SERVICE 800 362-FUND (800 362-3863) [_] For convenient access to account information or current performance information on all Delaware Investments(R) Funds seven days a week, 24 hours a day, use this Touch-Tone(R) service. -------------------------------------------------------------------------------- Printed in the USA (9980) ANN-0512 SCC AR-480 [11/05] IVES 1/06 MF0512094 PO10678 Delaware Investments(R) ----------------------------------- A member of Lincoln Financial Group VALUE-EQUITY ANNUAL REPORT NOVEMBER 30, 2005 -------------------------------------------------------------------------------- DELAWARE SMALL CAP VALUE FUND [GRAPHIC OMITTED] POWERED BY RESEARCH(R) TABLE OF CONTENTS -------------------------------------------------------------- PORTFOLIO MANAGEMENT REVIEW 1 -------------------------------------------------------------- PERFORMANCE SUMMARY 4 -------------------------------------------------------------- DISCLOSURE OF FUND EXPENSES 6 -------------------------------------------------------------- SECTOR ALLOCATION 7 -------------------------------------------------------------- FINANCIAL STATEMENTS: Statement of Net Assets 8 Statement of Operations 11 Statements of Changes in Net Assets 12 Financial Highlights 13 Notes to Financial Statements 18 -------------------------------------------------------------- REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM 21 -------------------------------------------------------------- BOARD OF TRUSTEES/DIRECTORS AND OFFICERS 22 -------------------------------------------------------------- ABOUT THE ORGANIZATION 24 -------------------------------------------------------------- Funds are not FDIC insured and are not guaranteed. It is possible to lose the principal amount invested. Mutual fund advisory services provided by Delaware Management Company, a series of Delaware Management Business Trust, which is a registered investment advisor. (C)2006 Delaware Distributors, L.P. PORTFOLIO DELAWARE SMALL CAP VALUE FUND MANAGEMENT REVIEW December 13, 2005 FUND MANAGER Christopher S. Beck Senior Portfolio Manager Q: HOW DID THE FUND PERFORM VERSUS ITS BENCHMARK INDEX AND PEER GROUP FOR THE ONE-YEAR PERIOD ENDED NOVEMBER 30, 2005? A: Class A shares of Delaware Small Cap Value Fund returned +11.42% at net asset value and +5.01% at their maximum offer price for Class A shares (both figures reflect all distributions reinvested). For complete, annualized performance of Delaware Small Cap Value Fund, please see the performance table on page 4. During the same 12-month period, the Fund's benchmark, the Russell 2000 Value Index, gained +8.04%, and its peer group, as measured by the Lipper Small Cap Value Funds Average, returned +9.16% (source: Lipper Inc.). Q: HOW WOULD YOU CHARACTERIZE THE MARKET ENVIRONMENT FOR THE FUND OVER THE LAST YEAR? A: Small caps continued to perform well compared to the U.S. stock market as a whole, but stock investors faced an array of challenges and concerns over the course of the last fiscal year. These included high oil prices, the continuation of "measured" interest rate increases by the Federal Reserve, and two severe hurricanes that devastated the Gulf Coast region of the U.S. late in the fiscal period. Damage from the hurricanes, an associated loss of jobs in the Gulf Coast region, and rising oil prices in particular had equity investors worried about effects on the economy this past autumn. Despite all this, the year was marked by sound economic growth on the whole, and by the time the Fund's fiscal year ended on November 30, 2005, economic news had turned more positive. The U.S. Department of Commerce reported that the sales of new homes rose sharply this autumn, as did factory orders for "big-ticket" manufactured items. The Conference Board noted that its Consumer Confidence Index, which dropped precipitously in September after Hurricane Katrina, rebounded well in November. The index climbed to 98.9 after registering 85.2 in October. Gasoline prices also dropped late in our fiscal year as some Gulf Coast refineries came back on line, and many analysts expected the Labor Department to report job gains for November. With the economy robust, the Fed was generally expected to raise interest rates again in December, as it continued to do throughout the year. Q: WHAT STRATEGIES DID YOU EMPLOY IN MANAGING THE FUND GIVEN THIS ENVIRONMENT? A: In general, we strive to identify small companies that we believe offer above-average opportunities for long-term price appreciation because their current stock price does not appear to accurately reflect the companies' underlying value or future earning potential. Small caps did lead the broad market once again, but the year included periods of both positive and negative performance for small cap stocks, and the environment was one in which valuation-conscious investors might prosper. That said, index results suggest that there was no real advantage to employing either a growth or value focus during the period, as returns for the two were practically even, based on the Russell 2000 style-based indexes. As always, we carefully evaluated the financial strength of the companies we follow, the nature of management, and any developments affecting the company or its industry. We also look at factors such as anticipated new products or services, possible management changes, and projected takeovers or technological breakthroughs. Using extensive analysis, our goal is to identify companies within the universe of undervalued small cap stocks, where true value is likely to be recognized and rewarded with a rising stock price in the future. Because there is added risk when investing in smaller companies, we take care to maintain a well-diversified portfolio, and at fiscal year end held 128 individual stocks across a wide array of industries. Q: WHAT OTHER STRATEGIES DID YOU USE TO MANAGE RISKS IN THIS SMALL-CAP FUND? A: We generally maintain a long-term investment approach and focus on securities that we believe may appreciate over an extended period of time, regardless of interim market fluctuations. We don't typically try to predict overall stock market movements and generally do not trade for short-term purposes. We also limit the amount of assets invested in any one industry or in any individual security, and continuously monitor the portfolio. Because we focus on stocks that are already selling at relatively low prices, we believe that the Fund will typically be positioned to experience less price volatility than peer funds that do not use a value-oriented strategy. 1 Q: WHAT PARTICULAR HOLDINGS INFLUENCED PERFORMANCE SIGNIFICANTLY? A: Carter's, Arch Coal, and financial services firm W.R Berkeley, were among the biggest contributors to performance. Our two most disappointing performers were FairPoint Communications and transportation company Yellow Roadway. Q: WHAT WERE SOME OF THE FACTORS THAT AFFECTED FUND PERFORMANCE DURING THE FISCAL YEAR? A: By the first calendar quarter of 2005, the environment for small cap investors turned challenging as the market slowed. Regardless of growth or value orientation, small caps were generally in decline at that point, with one exception being the energy sector and energy-related holdings. Energy prices were a big influence on markets during the year in general, and throughout the 22 months we closely monitored energy prices and their direct effects on some of our holdings. For instance, we elected to sell our position in Continental Airlines during the year, which was a result of increased expenses that the company incurred due to an enormous upsurge in fuel costs. During the first half of the fiscal year, we also sold several energy-related holdings given a general belief that the energy sector was nearing the end of a run of strong performance. At fiscal year end, the Fund's largest holdings included Colonial BancGroup, Brink's and Alexander & Baldwin - a company with diversified business lines that include transportation, food products, and property management. The Fund did retain several energy holdings - including W-H Energy Services and Whiting Petroleum - where we remained positive about their outlooks. Another key shift during the year was with regard our general approach to cyclical stocks. For several years, Delaware Small Cap Value Fund held larger positions in economically sensitive sectors than the benchmark index. During the fiscal year, we moderated this positioning, as we saw that the Federal Reserve remained committed to increasing interest rates and believed the change was in order. Small cap stocks have now posted a long run in which they have outperformed the broad market over several years. It is possible that continued rising interest rates will have more of a negative impact on small caps over time, but we believe that our focus on companies that generate significant cash flows may provide a cushion during a potentially difficult market environment. From a valuation standpoint, we are not convinced that small caps appeared overvalued versus large cap equities at fiscal year end. We do intend to proceed with caution, however, seeking stocks with attractive valuations that are generating those strong cash flows. 2 This page intentionally left blank. 3 PERFORMANCE SUMMARY DELAWARE SMALL CAP VALUE FUND The performance data quoted represent past performance; past performance does not guarantee future results. Investment return and principal value will fluctuate so your shares, when redeemed, may be worth more or less than their original cost. Current performance may be lower or higher than the performance data quoted. Please obtain the performance data for the most recent month end by calling 800 523-1918 or visiting our Web site at ww.delawareinvestments.com/performance. You should consider the investment objectives, risks, charges, and expenses of the investment carefully before investing. The Delaware Small Cap Value Fund prospectus contains this and other important information about the Fund. Please request a prospectus by calling 800 523-1918. Read it carefully before you invest or send money. Instances of high double-digit returns are highly unusual and cannot be sustained and were achieved primarily during favorable market conditions.
FUND PERFORMANCE Average Annual Total Returns Through November 30, 2005 Lifetime 10 Years Five Year One Year ---------------------------------------------------------------------------------------------------- Class A (Est. 6/24/87) Excluding Sales Charge +13.51% +12.94% +16.58% +11.42% Including Sales Charge +13.14% +12.27% +15.21% +5.01% ---------------------------------------------------------------------------------------------------- Class B (Est. 9/6/94) Excluding Sales Charge +12.25% +12.31% +15.78% +10.68% Including Sales Charge +12.25% +12.31% +15.53% +6.78% ---------------------------------------------------------------------------------------------------- Class C (Est. 11/29/95) Excluding Sales Charge +12.28% +12.16% +15.79% +10.65% Including Sales Charge +12.28% +12.16% +15.79% +9.67% ----------------------------------------------------------------------------------------------------
Returns reflect the reinvestment of all distributions and any applicable sales charges as noted below. Performance for Class B and C shares, excluding sales charges, assumes either that contingent deferred sales charges did not apply or the investment was not redeemed. The Fund offers Class A, B, C, R, and Institutional Class shares. Class A shares are sold with a front-end sales charge of up to 5.75% and have an annual distribution and service fee of up to 0.30%. Class B shares are sold with a contingent deferred sales charge that declines from 4% to zero depending upon the period of time the shares are held. Class B shares will automatically convert to Class A shares on a quarterly basis approximately eight years after purchase. They are also subject to an annual distribution and service fee of 1.00%. Lifetime and 10-year performance figures for Class B shares reflect conversion to Class A shares after eight years. Class C shares are sold with a contingent deferred sales charge of 1.00% if redeemed during the first 12 months. They are also subject to an annual distribution and service fee of 1.00%. The average annual total return for the lifetime and one-year periods ended November 30, 2005 for Delaware Small Cap Value Fund's Class R shares were +21.31% and +11.15%, respectively. Class R shares were first made available on June 2, 2003 and are available only for certain retirement plan products. They are sold without a sales charge and have an annual distribution and service fee of 0.60%. Effective August 1, 2005, the distributor has contracted to limit distribution and service fees through March 31, 2006 to 0.50% of average daily net assets. The average annual total returns for the lifetime (since 6/24/87), 10-year, five-year, and one-year periods ended November 30, 2005 for Delaware Small Cap Value Fund's Institutional Class were +13.75%, +13.28%, +16.95%, and +11.77%, respectively. The Institutional Class shares were first made available on November 9, 1992 and are available without sales or asset-based distribution charges only to certain eligible institutional accounts. Institutional Class performance prior to November 9, 1992 is based on Class A performance and was adjusted to eliminate the sales charges, but not the asset-based distribution charge of Class A shares. The performance table does not reflect the deduction of taxes the shareholder would pay on Fund distributions or redemptions of Fund shares. Nasdaq Institutional Class symbol: DEVIX Nasdaq Class R symbol: DEVRX 4 FUND BASICS As of November 30, 2005
--------------------------------------------- -------------------------------------------------------------------------------- FUND OBJECTIVE: YOUR FUND MANAGER: The Fund seeks capital appreciation. Christopher S. Beck has 24 years of experience in the investment industry. Before joining Delaware Investments in 1997, he was director of research at --------------------------------------------- Cypress Capital Management, chief investment officer of the University of TOTAL FUND NET ASSETS: Delaware Endowment Fund, and manager of a small-cap fund at Pitcairn Trust $682 million Company. He holds a bachelor's degree from the University of Delaware and an MBA from Lehigh University. He is also a CFA charterholder. --------------------------------------------- NUMBER OF HOLDINGS: -------------------------------------------------------------------------------- 128 NASDAQ SYMBOLS: Class A DEVLX --------------------------------------------- Class B DEVBX FUND START DATE: Class C DEVCX June 24, 1987 -------------------------------------------------------------------------------- ---------------------------------------------
PERFORMANCE OF A $10,000 INVESTMENT November 30, 1995 through November 30, 2005 Delaware Small Cap Value Fund - Russell 2000 Class A Shares Value Index --------------- ------------- 30-Nov-95 9425 10000 30-Nov-96 11223 12119 30-Nov-97 15306 15949 30-Nov-98 14162 14957 30-Nov-99 13806 14743 30-Nov-00 14777 16854 30-Nov-01 17387 20054 30-Nov-02 17665 19691 30-Nov-03 23707 26566 30-Nov-04 28571 32864 30-Nov-05 31834 35507 Chart assumes $10,000 invested on November 30, 1995 and includes the effect of a 5.75% front-end sales charge and the reinvestment of all distributions. Performance of other Fund classes will vary due to different charges and expenses. Returns plotted on the chart were as of the last day of each month shown. The Russell 2000 Value Index is an unmanaged composite that measures the stocks of small, value-oriented companies. An index is unmanaged and does not reflect the costs of operating a mutual fund, such as the costs of buying, selling, and holding securities. You cannot invest directly in an index. Past performance is not a guarantee of future results. The performance graph does not reflect the deduction of taxes the shareholder would pay on Fund distributions or redemptions of Fund shares. 5 DISCLOSURE For the Period June 1, 2005 to November 30, 2005 OF FUND EXPENSES As a shareholder of the Fund, you incur two types of costs: (1) transaction costs, including sales charges (loads) on purchase payments, reinvested dividends, or other distributions; redemption fees; and exchange fees; and (2) ongoing costs, including management fees; distribution and/or service (12b-1) fees; and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds. The example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period June 1, 2005 to November 30, 2005. ACTUAL EXPENSES The first section of the table shown, "Actual Fund Return," provides information about actual account values and actual expenses. You may use the information in this section of the table, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first section under the heading entitled "Expenses Paid During Period" to estimate the expenses you paid on your account during this period. HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES The second section of the table shown, "Hypothetical 5% Return," provides information about hypothetical account values and hypothetical expenses based on the Fund's actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund's actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds. Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as sales charges (loads), redemption fees, or exchange fees. Therefore, the second section of the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher. The Fund's actual expenses shown in the table reflect fee waivers in effect for Class R shares. The expenses shown in the table assume reinvestment of all dividends and distributions. DELAWARE SMALL CAP VALUE FUND EXPENSE ANALYSIS OF AN INVESTMENT OF $1,000 Expenses Beginning Ending Paid During Account Account Annualized Period Value Value Expense 6/1/05 to 6/1/05 11/30/05 Ratio 11/30/05 ------------------------------------------------------------------------------- ACTUAL FUND RETURN Class A $1,000.00 $1,092.10 1.46% $ 7.66 Class B 1,000.00 1,088.40 2.16% 11.31 Class C 1,000.00 1,088.40 2.16% 11.31 Class R 1,000.00 1,091.00 1.68% 8.81 Institutional Class 1,000.00 1,093.70 1.16% 6.09 ------------------------------------------------------------------------------- HYPOTHETICAL 5% RETURN (5% return before expenses) Class A $1,000.00 $1,017.75 1.46% $ 7.38 Class B 1,000.00 1,014.24 2.16% 10.91 Class C 1,000.00 1,014.24 2.16% 10.91 Class R 1,000.00 1,016.65 1.68% 8.49 Institutional Class 1,000.00 1,019.25 1.16% 5.87 ------------------------------------------------------------------------------- "Expenses Paid During Period" are equal to the Fund's annualized expense ratio, multiplied by the average account value over the period, multiplied by 183/365 (to reflect the one-half year period). 6 SECTOR ALLOCATION As of November 30, 2005 DELAWARE SMALL CAP VALUE FUND Sector designations may be different than the sector designations presented in other Fund materials. PERCENTAGE SECTOR OF NET ASSETS ----------------------------------------------------------------- COMMON STOCK 93.23% ----------------------------------------------------------------- Basic Industry 11.15% Business Services 2.02% Capital Spending 6.36% Consumer Cyclical 1.87% Consumer Services 12.61% Consumer Staples 3.17% Energy 8.46% Financial Services 16.84% Health Care 6.78% Real Estate 4.92% Technology 12.18% Transportation 3.67% Utilities 3.20% ----------------------------------------------------------------- EXCHANGE TRADED FUNDS 2.06% ----------------------------------------------------------------- REPURCHASE AGREEMENTS 4.96% ----------------------------------------------------------------- SECURITIES LENDING COLLATERAL 18.99% ----------------------------------------------------------------- TOTAL MARKET VALUE OF SECURITIES 119.24% ----------------------------------------------------------------- OBLIGATION TO RETURN SECURITIES LENDING COLLATERAL (18.99%) ----------------------------------------------------------------- LIABILITIES NET OF RECEIVABLES AND OTHER ASSETS (0.25%) ----------------------------------------------------------------- TOTAL NET ASSETS 100.00% ----------------------------------------------------------------- 7 STATEMENT DELAWARE SMALL CAP VALUE FUND OF NET ASSETS November 30, 2005 Number of Market Shares Value ------------------------------------------------------------- COMMON STOCK - 93.23% Basic Industry - 11.15% *Albemarle 123,000 $ 4,526,400 *+Alpha Natural Resources 238,800 5,735,976 Arch Coal 106,200 8,181,648 *+Chaparral Steel 84,200 2,105,000 Crane 159,800 5,064,062 +Crown Holdings 371,800 6,893,172 *Federal Signal 75,800 1,238,572 *Fuller (H.B.) 174,300 5,399,814 +Griffon 199,360 4,856,410 IPSCO 60,100 4,650,538 *MacDermid 208,400 5,920,644 +Pactiv 156,800 3,173,632 *+PolyOne 457,500 2,639,775 *Smith (A.O.) 90,300 3,275,181 Spartech 202,700 4,299,267 *Texas Industries 84,200 4,199,896 *Westlake Chemical 138,200 3,872,364 ----------- 76,032,351 ----------- Business Services - 2.02% Brink's 180,400 8,327,264 *+United Stationers 110,359 5,407,591 ----------- 13,734,855 ----------- Capital Spending - 6.36% *+Casella Waste Systems 320,800 3,926,592 *Gibraltar Industries 216,714 4,765,541 Harsco 101,600 6,751,320 +Insituform Technologies Class A 142,100 2,823,527 *Kaydon 188,700 6,106,332 *Mueller Industries 145,700 3,944,099 *Wabtec 281,700 7,276,311 Walter Industries 154,800 7,794,180 ----------- 43,387,902 ----------- Consumer Cyclical - 1.87% Furniture Brands International 146,600 2,924,670 KB HOME 102,000 7,116,540 *+WCI Communities 106,600 2,737,488 ----------- 12,778,698 ----------- Consumer Services - 12.61% +AnnTaylor Stores 233,150 7,071,440 Belo Class A 146,100 3,184,980 Borders Group 225,400 4,595,906 *+Carter's 31,300 1,913,995 *Cato Class A 333,400 7,201,440 CBRL Group 66,000 2,441,340 *+CEC Entertainment 155,600 5,570,480 +Dollar Tree Stores 233,500 5,361,160 *K Swiss 159,300 4,974,939 Kellwood 165,100 3,817,112 *Kenneth Cole Productions Class A 123,300 3,462,264 *+Lenox Group 92,600 1,144,536 Meredith 79,000 4,029,000 Pier 1 Imports 299,500 3,803,650 *+Sports Authority 166,443 5,237,961 *Stage Stores 127,500 3,813,525 *Thor Industries 191,000 7,319,120 Wolverine World Wide 243,650 5,292,078 *+Zale 204,300 5,699,970 ----------- 85,934,896 ----------- Number of Market Shares Value ------------------------------------------------------------- COMMON STOCK (CONTINUED) Consumer Staples - 3.17% American Greetings Class A 239,800 $ 6,282,760 Bunge Limited 76,300 4,082,050 +Constellation Brands 232,800 5,498,736 +Del Monte Foods 578,700 5,717,556 ----------- 21,581,102 ----------- Energy - 8.46% *+Energy Partners 269,900 6,245,486 +Grey Wolf 808,900 6,074,839 +Newfield Exploration 152,800 7,068,528 *+Newpark Resources 710,900 5,210,897 Southwest Gas 186,500 4,945,980 Tesoro 68,100 3,750,267 TODCO 113,300 4,700,817 *+W-H Energy Services 279,700 9,322,401 *+Whiting Petroleum 248,900 10,316,905 ----------- 57,636,120 ----------- Financial Services - 16.84% *AmerUs Group 159,800 9,385,054 Bank of Hawaii 140,500 7,251,205 *Bankunited Financial Class A 243,500 6,206,815 Berkley (W.R.) 223,900 10,438,218 *Boston Private Financial Holdings 231,600 7,179,600 Colonial BancGroup 437,900 10,908,088 Compass Bancshares 63,500 3,077,210 *First Republic Bank 199,800 7,746,246 *Greater Bay Bancorp 233,000 6,207,120 *Harleysville Group 137,300 3,749,663 *Independent Bank 67,600 1,975,948 *Infinity Property & Casualty 136,800 5,054,760 *MAF Bancorp 142,900 6,083,253 *NBT Bancorp 99,600 2,277,852 Platinum Underwriters Holdings 176,100 5,364,006 *Provident Bankshares 222,100 7,915,644 *Republic Bancorp 322,436 4,004,660 *Sterling Financial 210,668 5,498,435 *+Triad Guaranty 103,400 4,483,424 ----------- 114,807,201 ----------- Health Care - 6.78% +Alderwoods Group 413,000 6,203,260 *Arrow International 107,200 3,197,776 *+Bio-Rad Laboratories Class A 99,100 5,789,422 *Diagnostic Products 81,200 3,698,660 *Owens & Minor 213,100 6,043,516 +Par Pharmaceuticals 129,000 3,432,690 +Pediatrix Medical Group 80,200 6,781,712 *+PRA International 156,500 4,341,310 +RehabCare Group 133,200 2,578,752 Service Corp International 508,100 4,171,501 ----------- 46,238,599 ----------- Real Estate - 4.92% *Ashford Hospitality Trust 266,400 2,842,488 Brandywine Realty Trust 138,000 3,999,240 Camden Property Trust 133,200 7,858,800 Education Realty Trust 179,700 2,244,453 Highland Hospitality 394,000 4,259,140 Prentiss Properties Trust 137,300 5,629,300 Reckson Associates Realty 183,000 6,721,590 ----------- 33,555,011 ----------- 8 STATEMENT DELAWARE SMALL CAP VALUE FUND OF NET ASSETS (CONTINUED) Number of Market Shares Value ------------------------------------------------------------- COMMON STOCK (CONTINUED) Technology - 12.18% Acxiom 268,000 $ 5,944,240 *+Bell Microproducts 383,000 3,293,800 +Brocade Communications Systems 1,064,764 4,653,019 *+Checkpoint Systems 253,100 6,061,745 *+CommScope 277,500 5,691,525 +Datastream Systems 330,100 2,673,810 +Emulex 258,000 5,141,940 +Entegris 413,300 4,174,330 +Ingram Micro Class A 379,200 7,121,376 *+Insight Enterprises 239,800 4,995,034 +International Rectifier 119,900 4,251,654 +NETGEAR 154,200 2,976,060 *+Overland Storage 46,100 366,956 * Plexus 282,000 6,063,000 *QAD 207,200 1,616,160 Symbol Technologies 292,200 3,339,846 *+Synnex 200,900 3,144,085 +Synopsys 295,600 5,770,112 *Technitrol 326,300 5,775,510 ----------- 83,054,202 ----------- Transportation - 3.67% Alexander & Baldwin 168,900 8,448,378 +Kirby 133,200 7,086,240 *+SCS Transportation 85,500 1,685,205 *SkyWest 114,300 3,394,710 +Yellow Roadway 93,200 4,390,652 ----------- 25,005,185 ----------- Utilities - 3.20% *Black Hills 66,600 2,434,230 +El Paso Electric 243,700 5,271,231 FairPoint Communications 232,600 2,779,570 *Otter Tail 173,200 5,204,660 PNM Resources 235,400 6,113,338 ----------- 21,803,029 ----------- TOTAL COMMON STOCK (cost $488,822,206) 635,549,151 ----------- EXCHANGE TRADED FUNDS - 2.06% *iShares Russell 2000 Value Index Fund 210,400 14,035,783 ----------- TOTAL EXCHANGE TRADED FUNDS (cost $13,650,881) 14,035,783 ----------- Principal Market Amounts Value ------------------------------------------------------------- REPURCHASE AGREEMENTS - 4.96% With BNP Paribas 3.92% 12/1/05 (dated 11/30/05, to be repurchased at $22,733,475, collateralized by $23,307,000 U.S. Treasury Bills due 1/19/06, market value $23,190,103) $22,731,000 $ 22,731,000 With UBS Warburg 3.93% 12/1/05 (dated 11/30/05, to be repurchased at $11,106,212, collateralized by $11,339,000 U.S. Treasury Bills due 12/8/05, market value $11,330,504) 11,105,000 11,105,000 ------------ TOTAL REPURCHASE AGREEMENTS (cost $33,836,000) 33,836,000 ------------ TOTAL MARKET VALUE OF SECURITIES BEFORE SECURITIES LENDING COLLATERAL - 100.25% (cost $536,309,087) 683,420,934 ------------ SECURITIES LENDING COLLATERAL** - 18.99% Short-Term Investments oAbbey National 4.14% 1/13/06 3,176,478 3,176,904 oAustralia New Zealand 4.15% 1/2/07 4,292,538 4,292,538 oBank of New York 4.07% 4/4/06 3,434,030 3,434,030 oBank of the West 4.07% 3/2/06 4,292,538 4,292,538 oBayerische Landesbank 4.21% 8/25/06 4,292,538 4,292,538 oBear Stearns 4.14% 1/17/06 858,508 858,654 4.15% 5/31/06 5,151,045 5,151,045 oBeta Finance 4.08% 4/18/06 4,292,538 4,292,322 oCalyon London 3.77% 12/30/05 3,004,776 3,015,486 oCDC Financial Products 4.16% 1/3/06 5,580,299 5,580,299 oCitigroup Global Markets 4.10% 12/1/05 10,952,541 10,952,541 4.13% 12/7/05 5,580,299 5,580,299 oCommonwealth Bank Australia 4.16% 1/2/07 4,292,538 4,292,538 oCredit Suisse First Boston New York 4.02% 12/29/05 901,433 901,450 4.12% 4/18/06 4,635,940 4,635,940 Deutsche Bank London 3.76% 12/27/05 1,287,761 1,287,921 oGoldman Sachs 4.20% 11/30/06 5,580,299 5,580,299 oLehman Holdings 4.14% 12/23/05 4,292,538 4,293,816 oManufacturers & Traders 4.18% 9/26/06 4,292,538 4,291,668 oMarshall & Ilsley Bank 3.97% 12/29/05 4,292,538 4,292,602 oMerrill Lynch Mortgage Capital 4.16% 1/12/06 5,580,299 5,580,299 oMorgan Stanley 4.24% 11/30/06 5,322,746 5,322,746 oNational City Bank 4.06% 1/23/06 4,893,493 4,893,581 oNordea Bank Norge ASA 4.10% 1/2/07 4,292,538 4,292,538 oProcter & Gamble 3.77% 1/2/07 4,292,538 4,292,538 oRoyal Bank of Scotland 4.13% 1/2/07 4,292,538 4,292,538 oSigma Finance 4.08% 3/16/06 1,287,761 1,287,848 oSociete Generale NY 4.06% 1/2/07 2,146,269 2,146,269 oToyota Motor Credit 4.05% 6/23/06 4,292,538 4,292,754 oWells Fargo 4.11% 1/2/07 4,292,538 4,292,538 Wilmington Trust Company 4.05% 1/5/06 4,292,538 4,292,538 ------------ TOTAL SECURITIES LENDING COLLATERAL (cost $129,481,615) 129,481,615 ------------ 9 STATEMENT DELAWARE SMALL CAP VALUE FUND OF NET ASSETS (CONTINUED) TOTAL MARKET VALUE OF SECURITIES - 119.24% (cost $665,790,702) $812,902,549o OBLIGATION TO RETURN SECURITIES LENDING COLLATERAL - (18.99%)** (129,481,615) LIABILITIES NET OF RECEIVABLES AND OTHER ASSETS - (0.25%) (1,710,228) --------------- NET ASSETS APPLICABLE TO 17,804,466 SHARES OUTSTANDING - 100.00% $ 681,710,706 =============== Net Asset Value - Delaware Small Cap Value Fund Class A ($409,567,030 / 10,471,337 Shares) $ 39.11 ------- Net Asset Value - Delaware Small Cap Value Fund Class B ($110,684,006 / 3,017,005 Shares) $ 36.69 ------- Net Asset Value - Delaware Small Cap Value Fund Class C ($119,967,861 / 3,271,359 Shares) $ 36.67 ------- Net Asset Value - Delaware Small Cap Value Fund Class R ($10,574,029 / 272,258 Shares) $ 38.84 ------- Net Asset Value - Delaware Small Cap Value Fund Institutional Class ($30,917,780 / 772,507 Shares) $ 40.02 ------- COMPONENTS OF NET ASSETS AT NOVEMBER 30, 2005: Shares of beneficial interest (unlimited authorization -- no par) $479,708,925 Accumulated net realized gain on investments 54,889,934 Net unrealized appreciation of investments 147,111,847 ------------ Total net assets $681,710,706 ============ oVariable rate securities. The interest rate shown is the rate as of December 31, 2005. +Non-income producing security for the year ended November 30, 2005. *Fully or partially on loan. **See Note 7 in "Notes to Financial Statements." oIncludes $127,678,635 of securities loaned. NET ASSET VALUE AND OFFERING PRICE PER SHARE - DELAWARE SMALL CAP VALUE FUND Net asset value Class A (A) $ 39.11 Sales charge (5.75% of offering price) (B) 2.39 ======== Offering price $ 41.50 ======== (A) Net asset value per share, as illustrated, is the amount which would be paid upon redemption or repurchase of shares. (B) See the current prospectus for purchases of $50,000 or more. See accompanying notes 10 STATEMENT DELAWARE SMALL CAP VALUE FUND OF OPERATIONS Year Ended November 30, 2005
INVESTMENT INCOME: Dividends $5,747,793 Interest 967,565 Securities lending income 150,702 Foreign tax withheld (1,007) $6,865,053 ----------- ----------- EXPENSES: Management fees 4,120,481 Distribution expenses -- Class A 980,598 Distribution expenses -- Class B 1,089,065 Distribution expenses -- Class C 849,639 Distribution expenses -- Class R 42,845 Dividend disbursing and transfer agent fees and expenses 1,453,270 Accounting and administration expenses 202,217 Reports and statements to shareholders 198,662 Registration fees 130,873 Legal and professional fees 85,117 Insurance 40,016 Trustees' fees 28,290 Custodian fees 17,705 Taxes (other than taxes on income) 15,927 Pricing fees 809 Other 21,071 9,276,585 ----------- Less waiver of distribution expenses -- Class R (3,115) Less expenses paid indirectly (1,138) ----------- Total expenses 9,272,332 ----------- NET INVESTMENT LOSS (2,407,279) ----------- NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS AND FOREIGN CURRENCIES: Net realized gain on: Investments 57,318,760 Foreign currencies 99 ----------- Net realized gain 57,318,859 Net change in unrealized appreciation/depreciation of investments 5,620,978 ----------- NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS 62,939,837 ----------- NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $60,532,558 ===========
See accompanying notes 11 STATEMENTS DELAWARE SMALL CAP VALUE FUND OF CHANGES IN NET ASSETS
Year Ended 11/30/05 11/30/04 INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS: Net investment loss $ (2,407,279) $ (2,385,975) Net realized gain on investments 57,318,859 59,163,709 Net change in unrealized appreciation/depreciation of investments 5,620,978 26,597,601 -------------- -------------- Net increase in net assets resulting from operations 60,532,558 83,375,335 -------------- -------------- DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM: Net realized gain on investments: Class A (31,763,824) (16,080,554) Class B (13,514,764) (7,388,227) Class C (8,240,031) (3,426,454) Class R (548,342) (133,545) Institutional Class (2,698,187) (2,199,840) -------------- -------------- (56,765,148) (29,228,620) -------------- -------------- CAPITAL SHARE TRANSACTIONS: Proceeds from shares sold: Class A 169,715,275 56,360,643 Class B 14,236,482 12,292,857 Class C 63,480,297 20,538,825 Class R 8,843,862 3,470,893 Institutional Class 14,240,093 11,602,459 Net asset value of shares issued upon reinvestment of dividends and distributions: Class A 29,903,497 15,140,871 Class B 12,427,282 6,672,916 Class C 7,549,508 3,179,515 Class R 548,342 130,217 Institutional Class 2,698,187 2,199,835 -------------- -------------- 323,642,825 131,589,031 -------------- -------------- Cost of shares repurchased: Class A (65,214,888) (72,260,823) Class B (24,899,314) (26,208,562) Class C (18,127,279) (12,909,856) Class R (3,578,256) (1,329,592) Institutional Class (10,142,609) (27,801,757) -------------- -------------- (121,962,346) (140,510,590) -------------- -------------- Increase (decrease) in net assets derived from capital share transactions 201,680,479 (8,921,559) -------------- -------------- NET INCREASE IN NET ASSETS 205,447,889 45,225,156 NET ASSETS: Beginning of year 476,262,817 431,037,661 -------------- -------------- End of year (there was no undistributed net investment income at either year end) $681,710,706 $476,262,817 ============== ==============
See accompanying notes 12 FINANCIAL HIGHLIGHTS Selected data for each share of the Fund outstanding throughout each period were as follows:
Delaware Small Cap Value Fund Class A ------------------------------------------------------------------------------------------------------------------------------ Year Ended 11/30/05 11/30/04 11/30/03 11/30/02 11/30/01 NET ASSET VALUE, BEGINNING OF PERIOD $39.640 $35.220 $27.120 $29.350 $25.980 INCOME (LOSS) FROM INVESTMENT OPERATIONS: Net investment income (loss)(1) (0.075) (0.105) (0.136) (0.060) 0.059 Net realized and unrealized gain on investments 4.170 6.879 9.079 0.574 4.429 -------- -------- -------- -------- -------- Total from investment operations 4.095 6.774 8.943 0.514 4.488 -------- -------- -------- -------- -------- LESS DIVIDENDS AND DISTRIBUTIONS: From net investment income -- -- -- -- (0.026) From net realized gain on investments (4.625) (2.354) (0.843) (2.744) (1.047) In excess of net realized gain on investments -- -- -- -- (0.045) -------- -------- -------- -------- -------- Total dividends and distributions (4.625) (2.354) (0.843) (2.744) (1.118) -------- -------- -------- -------- -------- NET ASSET VALUE, END OF PERIOD $39.110 $39.640 $35.220 $27.120 $29.350 ======== ======== ======== ======== ======== TOTAL RETURN(2) 11.42% 20.52% 34.17% 1.60% 17.66% RATIOS AND SUPPLEMENTAL DATA: Net assets, end of period (000 omitted) $409,567 $270,332 $240,322 $180,696 $182,925 Ratio of expenses to average net assets 1.44% 1.54% 1.63% 1.63% 1.58% Ratio of net investment income (loss) to average net assets (0.20%) (0.30%) (0.47%) (0.21%) 0.21% Portfolio turnover 33% 35% 42% 47% 72%
(1) The average shares outstanding method has been applied for per share information. (2) Total investment return is based on the change in net asset value of a share during the period and assumes reinvestment of dividends and distributions at net asset value and does not reflect the impact of a sales charge. See accompanying notes 13 FINANCIAL HIGHLIGHTS (CONTINUED) Selected data for each share of the Fund outstanding throughout each period were as follows:
Delaware Small Cap Value Fund Class B ----------------------------------------------------------------------------------------------------------------------------- Year Ended 11/30/05 11/30/04 11/30/03 11/30/02 11/30/01 NET ASSET VALUE, BEGINNING OF PERIOD $37.690 $33.820 $26.260 $28.680 $25.520 INCOME (LOSS) FROM INVESTMENT OPERATIONS: Net investment loss(1) (0.311) (0.334) (0.327) (0.252) (0.138) Net realized and unrealized gain on investments 3.936 6.558 8.730 0.576 4.345 -------- -------- -------- -------- -------- Total from investment operations 3.625 6.224 8.403 0.324 4.207 -------- -------- -------- -------- -------- LESS DIVIDENDS AND DISTRIBUTIONS FROM: Net realized gain on investments (4.625) (2.354) (0.843) (2.744) (1.047) -------- -------- -------- -------- -------- Total dividends and distributions (4.625) (2.354) (0.843) (2.744) (1.047) -------- -------- -------- -------- -------- NET ASSET VALUE, END OF PERIOD $36.690 $37.690 $33.820 $26.260 $28.680 ======== ======= ======= ======= ======= TOTAL RETURN(2) 10.68% 19.69% 33.21% 0.91% 16.83% RATIOS AND SUPPLEMENTAL DATA: Net assets, end of period (000 omitted) $110,684 $111,348 $107,136 $86,641 $83,648 Ratio of expenses to average net assets 2.14% 2.24% 2.33% 2.33% 2.28% Ratio of net investment loss to average net assets (0.90%) (1.00%) (1.17%) (0.91%) (0.49%) Portfolio turnover 33% 35% 42% 47% 72%
(1) The average shares outstanding method has been applied for per share information. (2) Total investment return is based on the change in net asset value of a share during the period and assumes reinvestment of dividends and distributions at net asset value and does not reflect the impact of a sales charge. See accompanying notes 14 FINANCIAL HIGHLIGHTS (CONTINUED) Selected data for each share of the Fund outstanding throughout each period were as follows:
Delaware Small Cap Value Fund Class C ----------------------------------------------------------------------------------------------------------------------------- Year Ended 11/30/05 11/30/04 11/30/03 11/30/02 11/30/01 NET ASSET VALUE, BEGINNING OF PERIOD $37.680 $33.810 $26.250 $28.670 $25.510 INCOME (LOSS) FROM INVESTMENT OPERATIONS: Net investment loss(1) (0.313) (0.333) (0.326) (0.251) (0.135) Net realized and unrealized gain on investments 3.928 6.557 8.729 0.575 4.342 -------- -------- -------- -------- -------- Total from investment operations 3.615 6.224 8.403 0.324 4.207 -------- -------- -------- -------- -------- LESS DIVIDENDS AND DISTRIBUTIONS FROM: Net realized gain on investments (4.625) (2.354) (0.843) (2.744) (1.047) -------- -------- -------- -------- -------- Total dividends and distributions (4.625) (2.354) (0.843) (2.744) (1.047) -------- -------- -------- -------- -------- NET ASSET VALUE, END OF PERIOD $36.670 $37.680 $33.810 $26.250 $28.670 ======== ======= ======= ======= ======= TOTAL RETURN(2) 10.65% 19.69% 33.22% 0.91% 16.88% RATIOS AND SUPPLEMENTAL DATA: Net assets, end of period (000 omitted) $119,968 $66,313 $48,453 $34,140 $31,823 Ratio of expenses to average net assets 2.14% 2.24% 2.33% 2.33% 2.28% Ratio of net investment loss to average net assets (0.90%) (1.00%) (1.17%) (0.91%) (0.49%) Portfolio turnover 33% 35% 42% 47% 72%
(1) The average shares outstanding method has been applied for per share information. (2) Total investment return is based on the change in net asset value of a share during the period and assumes reinvestment of dividends and distributions at net asset value and does not reflect the impact of a sales charge. See accompanying notes 15 FINANCIAL HIGHLIGHTS (CONTINUED) Selected data for each share of the Fund outstanding throughout each period were as follows:
Delaware Small Cap Value Fund Class R ------------------------------------------------------------------------------------------------------------------------- 6/2/03(1) Year Ended to 11/30/05 11/30/04 11/30/03 NET ASSET VALUE, BEGINNING OF PERIOD $39.480 $35.190 $29.000 INCOME (LOSS) FROM INVESTMENT OPERATIONS: Net investment loss(2) (0.169) (0.209) (0.160) Net realized and unrealized gain on investments 4.154 6.853 6.350 -------- -------- ------- Total from investment operations 3.985 6.644 6.190 -------- -------- ------- LESS DIVIDENDS AND DISTRIBUTIONS FROM: Net realized gain on investments (4.625) (2.354) -- -------- -------- ------- Total dividends and distributions (4.625) (2.354) -- -------- -------- ------- NET ASSET VALUE, END OF PERIOD $38.840 $39.480 $35.190 ======== ======== ======== TOTAL RETURN(3) 11.15% 20.15% 21.35% RATIOS AND SUPPLEMENTAL DATA: Net assets, end of period (000 omitted) $10,574 $4,539 $1,740 Ratio of expenses to average net assets 1.70% 1.84% 1.97% Ratio of expenses to average net assets prior to expense limitation and expenses paid indirectly 1.74% 1.84% 1.97% Ratio of net investment loss to average net assets (0.46%) (0.60%) (0.97%) Ratio of net investment loss to average net assets prior to expense limitation and expenses paid indirectly (0.50%) (0.60%) (0.97%) Portfolio turnover 33% 35% 42%
(1) Date of commencement of operations, ratios have been annualized and total return has not been annualized. (2) The average shares outstanding method has been applied for per share information. (3) Total investment return is based on the change in net asset value of a share during the period and assumes reinvestment of dividends and distributions at net asset value. Total investment return reflects waivers and payment of fees by the distributor, as applicable. Performance would be lower had the expenses limitation not been in effect. See accompanying notes 16 FINANCIAL HIGHLIGHTS (CONTINUED) Selected data for each share of the Fund outstanding throughout each period were as follows:
Delaware Small Cap Value Fund Institutional Class ------------------------------------------------------------------------------------------------------------------------------ Year Ended 11/30/05 11/30/04 11/30/03 11/30/02 11/30/01 NET ASSET VALUE, BEGINNING OF PERIOD $40.350 $35.700 $27.400 $29.540 $26.130 INCOME (LOSS) FROM INVESTMENT OPERATIONS: Net investment income (loss)(1) 0.036 -- (0.050) 0.026 0.144 Net realized and unrealized gain on investments 4.259 7.004 9.193 0.578 4.458 -------- ------- ------- ------- ------- Total from investment operations 4.295 7.004 9.143 0.604 4.602 -------- ------- ------- ------- ------- LESS DIVIDENDS AND DISTRIBUTIONS: From net investment income -- -- -- -- (0.100) From net realized gain on investments (4.625) (2.354) (0.843) (2.744) (1.047) In excess of net realized gain on investments -- -- -- -- (0.045) -------- ------- ------- ------- ------- Total dividends and distributions (4.625) (2.354) (0.843) (2.744) (1.192) -------- ------- ------- ------- ------- NET ASSET VALUE, END OF PERIOD $40.020 $40.350 $35.700 $27.400 $29.540 ======== ======= ======= ======= ======== TOTAL RETURN(2) 11.77% 20.88% 34.57% 1.88% 18.09% RATIOS AND SUPPLEMENTAL DATA: Net assets, end of period (000 omitted) $30,918 $23,731 $33,387 $19,459 $18,224 Ratio of expenses to average net assets 1.14% 1.24% 1.33% 1.33% 1.28% Ratio of net investment income (loss) to average net assets 0.10% -- (0.17%) 0.09 0.51 Portfolio turnover 33% 35% 42% 47% 72%
(1) The average shares outstanding method has been applied for per share information. (2) Total investment return is based on the change in net asset value of a share during the period and assumes reinvestment of dividends and distributions at net asset value. See accompanying notes 17 NOTES DELAWARE SMALL CAP VALUE FUND TO FINANCIAL STATEMENTS November 30, 2005 Delaware Group Equity Funds V (the "Trust") is organized as a Delaware statutory trust and offers three series: Delaware Dividend Income Fund, Delaware Small-Cap Core Fund and Delaware Small Cap Value Fund. These financial statements and the related notes pertain to Delaware Small Cap Value Fund (the "Fund"). The Trust is an open-end investment company. The Fund is considered diversified under the Investment Company Act of 1940, as amended, and offers Class A, Class B, Class C, Class R, and Institutional Class shares. Class A shares are sold with a front-end sales charge of up to 5.75%. Class B shares are sold with a contingent deferred sales charge that declines from 4% to zero depending upon the period of time the shares are held. Class B shares will automatically convert to Class A shares on a quarterly basis approximately eight years after purchase. Class C shares are sold with a contingent deferred sales charge of 1%, if redeemed during the first twelve months. Class R and Institutional Class shares are not subject to a sales charge and are offered for sale exclusively to a limited group of investors. The investment objective of the Fund is to seek capital appreciation. 1. SIGNIFICANT ACCOUNTING POLICIES The following accounting policies are in accordance with U.S. generally accepted accounting principles and are consistently followed by the Fund. Security Valuation -- Equity securities, except those traded on the Nasdaq Stock Market, Inc. (Nasdaq), are valued at the last quoted sales price as of the time of the regular close of the New York Stock Exchange (NYSE) on the valuation date. Securities traded on the Nasdaq are valued in accordance with the Nasdaq Official Closing Price, which may not be the last sales price. If on a particular day an equity security does not trade, then the mean between the bid and asked prices will be used. Short-term debt securities having less than 60 days to maturity are valued at amortized cost, which approximates market value. Securities lending collateral is valued at amortized cost, which approximates market value. Other securities and assets for which market quotations are not readily available are valued at fair value as determined in good faith under the direction of the Fund's Board of Trustees. In determining whether market quotations are readily available or fair valuation will be used, various factors will be taken into consideration, such as market closures, or with respect to foreign securities, aftermarket trading or significant events after local market trading (e.g., government actions or pronouncements, trading volume or volatility on markets, exchanges among dealers, or news events). Federal Income Taxes -- The Fund intends to continue to qualify for federal income tax purposes as a regulated investment company and make the requisite distributions to shareholders. Accordingly, no provision for federal income taxes has been made in the financial statements. Class Accounting -- Investment income, common expenses and realized and unrealized gain (loss) on investments are allocated to the various classes of the Fund on the basis of daily net assets of each class. Distribution expenses relating to a specific class are charged directly to that class. Repurchase Agreements -- The Fund may invest in a pooled cash account along with other members of the Delaware Investments(R) Family of Funds pursuant to an exemptive order issued by the Securities and Exchange Commission. The aggregate daily balance of the pooled cash account is invested in repurchase agreements secured by obligations of the U.S. government. The respective collateral is held by the Fund's custodian bank until the maturity of the respective repurchase agreements. Each repurchase agreement is 102% collateralized. However, in the event of default or bankruptcy by the counterparty to the agreement, realization of the collateral may be subject to legal proceedings. Use of Estimates -- The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that may affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Other -- Expenses common to all funds within the Delaware Investments(R) Family of Funds are allocated amongst the funds on the basis of average net assets. Management fees and some other expenses are paid monthly. Security transactions are recorded on the date the securities are purchased or sold (trade date). Costs used in calculating realized gains and losses on the sale of investment securities are those of the specific securities sold. Dividend Income is recorded on the ex-dividend date and interest income is recorded on the accrual basis. Distributions received from investments in Real Estate Investment Trusts are recorded as dividend income on the ex-dividend date, subject to reclassification upon notice of the character of such distributions by the issuer. The Fund declares and pays dividends from net investment income and distribution from net realized gains on investments, if any, annually. Subject to best execution, the Fund may direct certain security trades to brokers who have agreed to rebate a portion of the related brokerage commission to the Fund in cash. Such commission rebates are included in realized gain on securities in the accompanying financial statements and totaled $37,851 for the year ended November 30, 2005. The Fund receives earnings credits from its custodian when positive cash balances are maintained, which are used to offset custody fees. The expense paid under the above arrangement is included in custodian fees on the Statement of Operations with the corresponding expense offset shown as "expense paid indirectly." 2. INVESTMENT MANAGEMENT, ADMINISTRATION AGREEMENTS AND OTHER TRANSACTIONS WITH AFFILIATES In accordance with the terms of its investment management agreement, the Fund pays Delaware Management Company (DMC), a series of Delaware Management Business Trust and the investment manager, an annual fee which is calculated daily at the rate of 0.75% on the first $500 million of average daily net assets of the Fund, 0.70% on the next $500 million, 0.65% on the next $1.5 billion, and 0.60% on average daily net assets in excess of $2.5 billion. DMC has contractually agreed to waive that portion, if any, of its management fee and reimburse the Fund to the extent necessary to ensure that annual operating expenses, exclusive of taxes, interest, brokerage commissions, distribution fees, certain insurance costs and extraordinary expenses, do not exceed 1.45% of average daily net assets of the Fund through February 28, 2006. Delaware Service Company, Inc. (DSC), an affiliate of DMC, provides accounting, administration, dividend disbursing and transfer agent services. Effective May 19, 2005, the Fund pays DSC a monthly fee computed at the annual rate of 0.04% of the Fund's average daily net assets for accounting and administration services. Prior to May 19, 2005, the Fund paid DSC a monthly fee based on average net assets subject to certain minimums for accounting and administration services. The Fund pays DSC a monthly fee based on the number of shareholder accounts for dividend disbursing and transfer agent services. Pursuant to a distribution agreement and distribution plan, the Fund pays Delaware Distributors, L.P. (DDLP), the distributor and an affiliate of DMC, an annual distribution and service fee not to exceed 0.30% of the average daily net assets of the Class A shares, 1.00% of the average daily net assets of the Class B and C shares and 0.60% of the average daily net assets of the Class R shares. Institutional Class shares pay no distribution and service expenses. Effective August 1, 2005, DDLP has contracted to limit distribution and service fees through March 31, 2006 for Class R shares to no more than 0.50% of average daily net assets. 18 NOTES DELAWARE SMALL CAP VALUE FUND TO FINANCIAL STATEMENTS (CONTINUED) 2. INVESTMENT MANAGEMENT, ADMINISTRATION AGREEMENTS AND OTHER TRANSACTIONS WITH AFFILIATES (CONTINUED) At November 30, 2005, the Fund had liabilities payable to affiliates as follows: Investment management fee payable to DMC $406,683 Dividend disbursing, transfer agent fees, accounting and administration fees and other expenses payable to DSC 182,148 Distribution fee payable to DDLP 286,348 Other expenses payable to DMC and affiliates* 24,600 *DMC, as part of its administrative services, pays operating expenses on behalf of the Fund and is reimbursed on a periodic basis. Such expenses include items such as printing of shareholder reports, fees for audit, legal, and tax services, registration fees and trustees' fees. As provided in the investment management agreement, the Fund bears the cost of certain legal services expenses, including in-house legal services provided to the Fund by DMC employees. For the year ended November 30, 2005, the Fund was charged $36,777 for internal legal services provided by DMC. For the year ended November 30, 2005, DDLP earned $169,234 for commissions on sales of the Fund's Class A shares. For the year ended November 30, 2005, DDLP received gross contingent deferred sales charge commissions of $232, $130,351, and $13,338 on redemption of the Fund's Class A, Class B, and Class C shares, respectively, and these commissions were entirely used to offset up-front commissions previously paid by DDLP to broker-dealers on sales of those shares. Certain officers of DMC, DSC and DDLP are officers and/or trustees of the Trust. These officers and trustees are paid no compensation by the Fund. 3. INVESTMENTS For the year ended November 30, 2005, the Fund made purchases of $292,457,101 and sales of $171,534,817 of investment securities other than short-term investments. At November 30, 2005, the cost of investments for federal income tax purposes was $665,881,853. At November 30, 2005, net unrealized appreciation was $147,020,696, of which $160,809,251 related to unrealized appreciation of investments and $13,788,555 related to unrealized depreciation of investments. 4. DIVIDEND AND DISTRIBUTION INFORMATION Income and long-term capital gain distributions are determined in accordance with federal income tax regulations, which may differ from U.S. generally accepted accounting principles. Additionally, net short term gains on sales of investment securities are treated as ordinary income for federal income tax purposes. The tax characters of dividends and distributions paid during the years ended November 30, 2005 and 2004 were as follows: 11/30/05 11/30/04 ----------- ------------ Ordinary Income $12,396,508 $ 2,051,867 Long-term capital gain 44,368,640 27,176,753 ------------ ------------- Total Distribution $56,765,148 $29,228,620 ============ ============= As of November 30, 2005, the components of net assets on a tax basis were as follows: Shares of beneficial interest $479,708,925 Undistributed ordinary income 5,982,465 Undistributed long-term capital gain 48,998,620 Unrealized appreciation of investments 147,020,696 ------------ Net assets $681,710,706 ============ The differences between book basis and tax basis components of net assets are primarily attributable to tax deferral of losses on wash sales. The undistributed earnings for Delaware Small Cap Value Fund may be subject to reclassification upon notice of the character of distributions received from investments in Real Estate Investment Trusts. For financial reporting purposes, capital accounts are adjusted to reflect the tax character of permanent book/tax differences. Reclassifications are primarily due to tax treatment of net operating losses and recharacterization of Real Estate Investment Trust dividends. Results of operations and net assets were not affected by these reclassifications. For the year ended November 30, 2005, the Fund recorded the following permanent reclassifications. Undistributed net investment loss $2,407,279 Accumulated net realized gain (loss) on investments $(2,407,279) 5. CAPITAL SHARES Transactions in capital shares were as follows: Year Ended 11/30/05 11/30/04 Shares sold: Class A 4,580,248 1,612,277 Class B 410,074 368,241 Class C 1,810,137 616,133 Class R 238,720 99,598 Institutional Class 375,009 327,242 Shares issued upon reinvestment of dividends and distributions: Class A 835,591 455,639 Class B 367,867 209,774 Class C 223,532 99,985 Class R 15,416 3,923 Institutional Class 73,902 65,219 ---------- ---------- 8,930,496 3,858,031 ---------- ---------- Shares repurchased: Class A (1,764,729) (2,071,582) Class B (715,069) (791,357) Class C (522,361) (389,122) Class R (96,840) (38,022) Institutional Class (264,582) (739,401) ---------- ---------- (3,363,581) (4,029,484) ---------- ---------- Net increase (decrease) 5,566,915 (171,453) ========== ========== For the years ended November 30, 2005 and 2004, 116,955 Class B shares were converted to 110,188 Class A shares valued at $4,191,667 and 119,383 Class B shares were converted to 113,988 Class A shares valued at $3,975,630, respectively. The respective amounts are included in Class B redemptions and Class A subscriptions in the table above and the Statements of Changes in Net Assets. 19 6. LINE OF CREDIT The Fund, along with certain other funds in the Delaware Investments(R) Family of Funds (the "Participants"), participates in a $225,000,000 revolving line of credit facility to be used for temporary or emergency purposes as an additional source of liquidity to fund redemptions of investor shares. The Participants are charged an annual commitment fee, which is allocated across the Participants on the basis of each fund's allocation of the entire facility. The Participants may borrow up to a maximum of one third of their net assets under the agreement. The Fund had no amounts outstanding as of November 30, 2005, or at any time during the year ended November 30, 2005. 7. SECURITIES LENDING The Fund, along with other funds in the Delaware Investments(R) Family of Funds, may lend its securities pursuant to a security lending agreement ("Lending Agreement") with J.P. Morgan Chase. Initial security loans made pursuant to the Lending Agreement are required to be secured by U.S. government obligations and/or cash collateral not less than 102% of the market value of the securities issued in the United States and 105% of the market value of securities issued outside the United States. With respect to each loan, if the aggregate market value of the collateral held on any business day is less than the aggregate market value of the securities which are the subject of such loan, the borrower will be notified to provide additional collateral not less than the applicable collateral requirements. Cash collateral received is invested in fixed-income securities, with a weighted average maturity not to exceed 90 days, rated in one of the top two tiers by Standard & Poor's Ratings Group or Moody's Investors Service, Inc. or repurchase agreements collateralized by such securities. However, in the event of default or bankruptcy by the lending agent, realization and/or retention of the collateral may be subject to legal proceedings. In the event the borrower fails to return loaned securities and the collateral received is insufficient to cover the value of the loaned securities and provided such collateral shortfall is not the result of investment losses, the lending agent has agreed to pay the amount of the shortfall to the Fund, or at the discretion of the lending agent, replace the loaned securities. The Fund continues to record dividends on the securities loaned and is subject to changes in value of the securities loaned that may occur during the term of the loan. The Fund has the right under the Lending Agreement to recover the securities from the borrower on demand. The security lending agent and the borrower retain a portion of the earnings from the collateral investments. The Fund records security lending income net of such allocation. At November 30, 2005, the market value of securities on loan was $127,678,635, for which cash collateral was received and invested in accordance with the Lending Agreement. Such investments are presented on the Statement of Net Assets under the caption Lending Collateral." 8. CREDIT AND MARKET RISK The Fund invests a significant portion of its assets in small companies and may be subject to certain risks associated with ownership of securities of small- and mid-sized companies. Investments in small- and mid- sized companies may be more volatile than investments in larger companies for a number of reasons, which include limited financial resources or a dependence on narrow product lines. The Fund invests in Real Estate Investment Trusts (REITs) and is subject to some of the risks associated with that industry. If the Fund holds real estate directly as a result of defaults or receives rental income directly from real estate holdings, its tax status as a regulated investment company may be jeopardized. There were no direct holdings during the year ended November 30, 2005. The Fund's REIT holdings are also affected by interest rate changes, particularly if the REITs it holds use floating rate debt to finance their ongoing operations. The Fund may invest up to 10% of its total assets in illiquid securities, which may include securities with contractual restrictions on resale, securities exempt from registration under Rule 144A of the Securities Act of 1933, as amended, and other securities which may not be readily marketable. The relative illiquidity of these securities may impair the Fund from disposing of them in a timely manner and at a fair price when it is necessary or desirable to do so. While maintaining oversight, the Board of Trustees has delegated to the investment advisor the day-to-day functions of determining whether individual securities are liquid for purposes of the Fund's limitation on investments in illiquid assets. At November 30, 2005, none of the securities have been deemed to be illiquid under the Fund's Liquidity Procedures. 9. CONTRACTUAL OBLIGATIONS The Fund enters into contracts in the normal course of business that contain a variety of indemnifications. The Fund's maximum exposure under these arrangements is unknown. However, the Fund has not had prior claims or losses pursuant to these contracts. Management has reviewed the Fund's existing contracts and expects the risk of loss to be remote. 10. TAX INFORMATION (UNAUDITED) The information set forth below is for the Fund's fiscal year as required by federal laws. Shareholders, however, must report distributions on a calendar year basis for income tax purposes, which may include distributions for portions of two fiscal years of a fund. Accordingly, the information needed by shareholders for income tax purposes will be sent to them in January of each year. Please consult your tax advisor for proper treatment of this information. For the fiscal year ended November 30, 2005, the Fund designates distributions paid during the year as follows: (A) (B) Long-Term Ordinary Capital Gain Income Total (C) Distributions Distributions* Distributions Qualifying (Tax Basis) (Tax Basis) (Tax Basis) Dividends(1) ------------- --------------- ------------- ------------ 78% 22% 100% 5% (A) and (B) are based on a percentage of the Fund's total distributions. (C) is based on a percentage of ordinary income of the Fund. (1) Qualifying dividends represent dividends which qualify for the corporate dividends received deduction. *For the fiscal year ended November 30, 2005 certain dividends paid by the Fund may be subject to a maximum tax rate of 15%, as provided for by the Jobs and Growth Tax Relief Reconciliation Act of 2003. The Fund intends to designate up to a maximum amount of $12,396,508 to be taxed at a maximum rate of 15%. Complete information will be computed and reported in conjunction with your 2005 Form 1099-DIV. 20 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Shareholders and Board of Trustees Delaware Group Equity Funds V - Delaware Small Cap Value Fund We have audited the accompanying statement of net assets of the Delaware Small Cap Value Fund (one of the series constituting Delaware Group Equity Funds V) (the "Fund") as of November 30, 2005, and the related statement of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended, and the financial highlights for each of the periods indicated therein. These financial statements and financial highlights are the responsibility of the Fund's management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. We were not engaged to perform an audit of the Fund's internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Fund's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements and financial highlights, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our procedures included confirmation of securities owned as of November 30, 2005, by correspondence with the custodian and brokers or by other appropriate auditing procedures where replies from brokers were not received. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of the Delaware Small Cap Value Fund of Delaware Group Equity Funds V at November 30, 2005, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended, and its financial highlights for each of the periods indicated therein, in conformity with U.S. generally accepted accounting principles. /s/ Ernst & Young LLP Philadelphia, Pennsylvania January 11, 2006 21 DELAWARE INVESTMENTS(R) FAMILY OF FUNDS BOARD OF TRUSTEES/DIRECTORS AND OFFICERS ADDENDUM A mutual fund is governed by a Board of Trustees/Directors ("Trustees"), which has oversight responsibility for the management of a fund's business affairs. Trustees establish procedures and oversee and review the performance of the investment manager, the distributor and others who perform services for the fund. The independent fund trustees, in particular, are advocates for shareholder interests. The following is a list of the Trustees and Officers with certain background and related information.
NUMBER OF OTHER PRINCIPAL PORTFOLIOS IN FUND DIRECTORSHIPS NAME, POSITION(S) OCCUPATION(S) COMPLEX OVERSEEN HELD BY ADDRESS HELD WITH LENGTH OF TIME DURING BY TRUSTEE TRUSTEE AND BIRTHDATE FUND(S) SERVED PAST 5 YEARS OR OFFICER OR OFFICER ----------------------------------------------------------------------------------------------------------------------------------- INTERESTED TRUSTEES JUDE T. DRISCOLL(2) Chairman, 5 Years - Since August 2000, 87 None 2005 Market Street President, Executive Officer Mr. Driscoll has served in Philadelphia, PA Chief Executive various executive capacities 19103 Officer and 2 Years - at different times at Trustee Trustee Delaware Investments(1) March 10, 1963 ----------------------------------------------------------------------------------------------------------------------------------- INDEPENDENT TRUSTEES THOMAS L. BENNETT Trustee Since Private Investor - 87 None 2005 Market Street March 23, 2005 (March 2004 - Present) Philadelphia, PA 19103 Investment Manager - Morgan Stanley & Co. October 4, 1947 (January 1984 - March 2004) ----------------------------------------------------------------------------------------------------------------------------------- JOHN A. FRY Trustee 4 Years President - 87 Director - 2005 Market Street Franklin & Marshall College Community Health Philadelphia, PA (June 2002 - Present) Systems 19103 Executive Vice President - May 28, 1960 University of Pennsylvania (April 1995 - June 2002) ----------------------------------------------------------------------------------------------------------------------------------- ANTHONY D. KNERR Trustee 12 Years Founder/Managing Director - 87 None 2005 Market Street Anthony Knerr & Associates Philadelphia, PA (Strategic Consulting) 19103 (1990 - Present) December 7, 1938 ----------------------------------------------------------------------------------------------------------------------------------- LUCINDA S. LANDRETH Trustee Since Chief Investment Officer - 87 None 2005 Market Street March 23, 2005 Assurant, Inc. Philadelphia, PA (Insurance) 19103 (2002 - 2004) June 24, 1947 ----------------------------------------------------------------------------------------------------------------------------------- ANN R. LEVEN Trustee 16 Years Treasurer/Chief Fiscal Officer - 87 Director and 2005 Market Street National Gallery of Art Audit Committee Philadelphia, PA (1994 - 1999) Chairperson - Andy 19103 Warhol Foundation November 1, 1940 Director and Audit Committee Member - Systemax Inc. -----------------------------------------------------------------------------------------------------------------------------------
22
NUMBER OF OTHER PRINCIPAL PORTFOLIOS IN FUND DIRECTORSHIPS NAME, POSITION(S) OCCUPATION(S) COMPLEX OVERSEEN HELD BY ADDRESS HELD WITH LENGTH OF TIME DURING BY TRUSTEE TRUSTEE AND BIRTHDATE FUND(S) SERVED PAST 5 YEARS OR OFFICER OR OFFICER ----------------------------------------------------------------------------------------------------------------------------------- INDEPENDENT TRUSTEES (CONTINUED) THOMAS F. MADISON Trustee 11 Years President/Chief 87 Director - 2005 Market Street Executive Officer - Banner Health Philadelphia, PA MLM Partners, Inc. 19103 (Small Business Investing Director - and Consulting) CenterPoint Energy February 25, 1936 (January 1993 - Present) Director and Audit Committee Member - Digital River Inc. Director and Audit Committee Member - Rimage Corporation Director - Valmont Industries, Inc. ----------------------------------------------------------------------------------------------------------------------------------- JANET L. YEOMANS Trustee 6 Years Vice President/Mergers & 87 None 2005 Market Street Acquisitions - 3M Corporation Philadelphia, PA (January 2003 - Present) 19103 Ms. Yeomans has held various management positions July 31, 1948 at 3M Corporation since 1983. ----------------------------------------------------------------------------------------------------------------------------------- J. RICHARD ZECHER Trustee Since Founder - 87 Director and Audit 2005 Market Street March 23, 2005 Investor Analytics Committee Member - Philadelphia, PA (Risk Management) Investor Analytics 19103 (May 1999 - Present) Director and Audit July 3, 1940 Committee Member - Oxigene, Inc. ----------------------------------------------------------------------------------------------------------------------------------- OFFICERS MICHAEL P. BISHOF Senior Chief Financial Mr. Bishof has served in 87 None(3) 2005 Market Street Vice President Officer since various executive capacities Philadelphia, PA and February 17, 2005 at different times at 19103 Chief Financial Delaware Investments. Officer August 18, 1962 ----------------------------------------------------------------------------------------------------------------------------------- DAVID F. CONNOR Vice President, Vice President since Mr. Connor has served as 87 None(3) 2005 Market Street Deputy General September 21, 2000 Vice President and Deputy Philadelphia, PA Counsel and and Secretary General Counsel of Delaware 19103 Secretary since Investments since 2000. October 25, 2005 December 2, 1963 ----------------------------------------------------------------------------------------------------------------------------------- DAVID P. O'CONNOR Senior Vice Senior Vice President, Mr. O'Connor has served in 87 None(3) 2005 Market Street President, General Counsel and various executive and legal Philadelphia, PA General Counsel Chief Legal Officer capacities at different times 19103 and Chief since at Delaware Investments. Legal Officer October 25, 2005 February 21, 1966 ----------------------------------------------------------------------------------------------------------------------------------- JOHN J. O'CONNOR Senior Vice President Treasurer Mr. O'Connor has served in 87 None(3) 2005 Market Street and Treasurer since various executive capacities Philadelphia, PA February 17, 2005 at different times at 19103 Delaware Investments. June 16, 1957 -----------------------------------------------------------------------------------------------------------------------------------
(1) Delaware Investments is the marketing name for Delaware Management Holdings, Inc. and its subsidiaries, including the Fund's(s') investment advisor, principal underwriter and its transfer agent. (2) Mr. Driscoll is considered to be an "Interested Trustee" because he is an executive officer of the Fund's(s') manager and distributor. (3) Mr. Bishof, Mr. Connor, Mr. David P. O'Connor and Mr. John J. O'Connor also serve in similar capacities for the six portfolios of the Optimum Fund Trust, which have the same investment advisor, principal underwriter, and transfer agent as the registrant. The Statement of Additional Information for the Fund(s) includes additional information about the Trustees and Officers and is available, without charge, upon request by calling 800 523-1918. 23 ABOUT THE ORGANIZATION This annual report is for the information of Delaware Small Cap Value Fund, but may be used with prospective investors when preceded or accompanied by a current prospectus for Delaware Small Cap Value Fund and the Delaware Investments(R) Performance Update for the most recently completed calendar quarter. The prospectus sets forth details about charges, expenses, investment objectives, and operating policies of the Fund. You should read the prospectus carefully before you invest. The figures in this report represent past results which are not a guarantee of future results. The return and principal value of an investment in the Fund will fluctuate so that shares, when redeemed, may be worth more or less than their original cost.
BOARD OF TRUSTEES AFFILIATED OFFICERS CONTACT INFORMATION JUDE T. DRISCOLL MICHAEL P. BISHOF INVESTMENT MANAGER Chairman Senior Vice President and Delaware Management Company, Delaware Investments(R) Family of Funds Chief Financial Officer a Series of Delaware Management Business Trust Philadelphia, PA Delaware Investments(R) Family of Funds Philadelphia, PA Philadelphia, PA THOMAS L. BENNETT NATIONAL DISTRIBUTOR Private Investor DAVID F. CONNOR Delaware Distributors, L.P. Rosemont, PA Vice President, Deputy General Counsel Philadelphia, PA and Secretary JOHN A. FRY Delaware Investments(R) Family of Funds SHAREHOLDER SERVICING, DIVIDEND President Philadelphia, PA DISBURSING AND TRANSFER AGENT Franklin & Marshall College Delaware Service Company, Inc. Lancaster, PA DAVID P. O'CONNOR 2005 Market Street Senior Vice President, General Counsel Philadelphia, PA 19103-7094 ANTHONY D. KNERR and Chief Legal Officer Managing Director Delaware Investments(R) Family of Funds FOR SHAREHOLDERS Anthony Knerr & Associates Philadelphia, PA 800 523-1918 New York, NY JOHN J. O'CONNOR FOR SECURITIES DEALERS AND FINANCIAL LUCINDA S. LANDRETH Senior Vice President and Treasurer INSTITUTIONS REPRESENTATIVES ONLY Former Chief Investment Officer Delaware Investments(R) Family of Funds 800 362-7500 Assurant, Inc. Philadelphia, PA WEB SITE Philadelphia, PA www.delawareinvestments.com ANN R. LEVEN Delaware Investments is the marketing name Former Treasurer/Chief Fiscal Officer for Delaware Management Holdings, Inc. and National Gallery of Art its subsidiaries. Washington, DC THOMAS F. MADISON President and Chief Executive Officer MLM Partners, Inc. Minneapolis, MN JANET L. YEOMANS Vice President/Mergers & Acquisitions 3M Corporation St. Paul, MN J. RICHARD ZECHER Founder Investor Analytics Scottsdale, AZ
-------------------------------------------------------------------------------- The Fund files its complete schedule of portfolio holdings with the Securities and Exchange Commission for the first and third quarters of each fiscal year on Form N-Q. The Fund's Forms N-Q, as well as a description of the policies and procedures that the Fund uses to determine how to vote proxies (if any) relating to portfolio securities is available without charge (i) upon request, by calling 800 523-1918; (ii) on the Fund's Web site at http://www.delawareinvestments.com; and (iii) on the Commission's Web site at http://www.sec.gov. The Fund's Forms N-Q may be reviewed and copied at the Commission's Public Reference Room in Washington, DC; information on the operation of the Public Reference Room may be obtained by calling 1-800-SEC-0330. Information (if any) regarding how the Fund voted proxies relating to portfolio securities during the most recently disclosed 12-month period ended June 30 is available without charge (i) through the Fund's Web site at http://www.delawareinvestments.com; and (ii) on the Commission's Web site at http://www.sec.gov. -------------------------------------------------------------------------------- 24 Delaware Investments(R) ----------------------------------- A member of Lincoln Financial Group CONTACT INFORMATION WEB SITE www.delawareinvestments.com E-MAIL service@delinvest.com SHAREHOLDER SERVICE CENTER 800 523-1918 Call the Shareholder Service Center Monday to Friday, 8 a.m. to 7 p.m. Eastern Time: o For fund information, literature, price, yield and performance figures. o For information on existing regular investment accounts and retirement plan accounts including wire investments, wire redemptions, telephone redemptions and telephone exchanges. DELAPHONE SERVICE 800 362-FUND (800 362-3863) o For convenient access to account information or current performance information on all Delaware Investments(R) Funds seven days a week, 24 hours a day, use this Touch-Tone(R) service. -------------------------------------------------------------------------------- Printed in the USA (9979) ANN-0512 SCV AR-021 [11/05] IVES 1/06 MF0512086 PO10665 Item 2. Code of Ethics The registrant has adopted a code of ethics that applies to the registrant's principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions, regardless of whether these individuals are employed by the registrant or a third party. A copy of the registrant's Code of Business Ethics has been posted on Delaware Investments' internet website at www.delawareinvestments.com. Any amendments to the Code of Business Ethics, and information on any waiver from its provisions granted by the registrant, will also be posted on this website within five business days of such amendment or waiver and will remain on the website for at least 12 months. Item 3. Audit Committee Financial Expert The registrant's Board of Trustees/Directors has determined that each member of the registrant's Audit Committee is an audit committee financial expert, as defined below. For purposes of this item, an "audit committee financial expert" is a person who has the following attributes: a. An understanding of generally accepted accounting principles and financial statements; b. The ability to assess the general application of such principles in connection with the accounting for estimates, accruals, and reserves; c. Experience preparing, auditing, analyzing, or evaluating financial statements that present a breadth and level of complexity of accounting issues that are generally comparable to the breadth and complexity of issues that can reasonably be expected to be raised by the registrant's financial statements, or experience actively supervising one or more persons engaged in such activities; d. An understanding of internal controls and procedures for financial reporting; and 2 e. An understanding of audit committee functions. An "audit committee financial expert" shall have acquired such attributes through: a. Education and experience as a principal financial officer, principal accounting officer, controller, public accountant, or auditor or experience in one or more positions that involve the performance of similar functions; b. Experience actively supervising a principal financial officer, principal accounting officer, controller, public accountant, auditor, or person performing similar functions; c. Experience overseeing or assessing the performance of companies or public accountants with respect to the preparation, auditing, or evaluation of financial statements; or d. Other relevant experience. The registrant's Board of Trustees/Directors has also determined that each member of the registrant's Audit Committee is independent. In order to be "independent" for purposes of this item, the Audit Committee member may not: (i) other than in his or her capacity as a member of the Board of Trustees/Directors or any committee thereof, accept directly or indirectly any consulting, advisory or other compensatory fee from the issuer; or (ii) be an "interested person" of the registrant as defined in Section 2(a)(19) of the Investment Company Act of 1940. The names of the audit committee financial experts on the registrant's Audit Committee are set forth below: Thomas L. Bennett (1) Thomas F. Madison Janet L. Yeomans (1) J. Richard Zecher Item 4. Principal Accountant Fees and Services (a) Audit fees. The aggregate fees billed for services provided to the registrant by its independent auditors for the audit of the registrant's annual financial statements and for services normally provided by the independent auditors in connection with statutory and regulatory filings or engagements were $66,000 for the fiscal year ended November 30, 2005. The aggregate fees billed for services provided to the registrant by its independent auditors for the audit of the registrant's annual financial statements and for services normally provided by the independent auditors in connection with statutory and regulatory filings or engagements were $59,550 for the fiscal year ended November 30, 2004. ------------------ (1) The instructions to Form N-CSR require disclosure on the relevant experience of persons who qualify as audit committee financial experts based on "other relevant experience." The Board of Trustees/Directors has determined that Mr. Bennett qualifies as an audit committee financial expert by virtue of his education, Chartered Financial Analyst designation, and his experience as a credit analyst, portfolio manager and the manager of other credit analysts and portfolio managers. The Board of Trustees/Directors has determined that Ms. Yeomans qualifies as an audit committee financial expert by virtue of her education and experience as the Treasurer of a large global corporation. 3 (b) Audit-related fees. The aggregate fees billed by the registrant's independent auditors for services relating to the performance of the audit of the registrant's financial statements and not reported under paragraph (a) of this Item were $0 for the fiscal year ended November 30, 2005. The aggregate fees billed by the registrant's independent auditors for services relating to the performance of the audit of the financial statements of the registrant's investment adviser and other service providers under common control with the adviser and that relate directly to the operations or financial reporting of the registrant were $159,700 for the registrant's fiscal year ended November 30, 2005. The percentage of these fees relating to services approved by the registrant's Audit Committee pursuant to the de minimis exception from the pre-approval requirement in Rule 2-01(c)(7)(i)(C) of Regulation S-X was 0%. These audit-related services were as follows: issuance of reports concerning transfer agent's system of internal accounting control pursuant to Rule 17Ad-13 of the Securities Exchange Act; issuance of agreed upon procedures reports to the registrant's Board in connection with the annual transfer agent and fund accounting service agent contract renewals and the pass-through of internal legal cost relating to the operations of the registrant; and preparation of Report on Controls Placed in Operation and Tests of Operating Effectiveness Relating to the Retirement Plan Services Division ("SAS 70 report"). The aggregate fees billed by the registrant's independent auditors for services relating to the performance of the audit of the registrant's financial statements and not reported under paragraph (a) of this Item were $0 for the fiscal year ended November 30, 2004. The aggregate fees billed by the registrant's independent auditors for services relating to the performance of the audit of the financial statements of the registrant's investment adviser and other service providers under common control with the adviser and that relate directly to the operations or financial reporting of the registrant were $164,700 for the registrant's fiscal year ended November 30, 2004. The percentage of these fees relating to services approved by the registrant's Audit Committee pursuant to the de minimis exception from the pre-approval requirement in Rule 2-01(c)(7)(i)(C) of Regulation S-X was 0%. These audit-related services were as follows: issuance of reports concerning transfer agent's system of internal accounting control pursuant to Rule 17Ad-13 of the Securities Exchange Act; issuance of agreed upon procedures reports to the registrant's Board in connection with the annual transfer agent and fund accounting service agent contract renewals and the pass-through of internal legal cost relating to the operations of the registrant; and preparation of Report on Controls Placed in Operation and Tests of Operating Effectiveness Relating to the Retirement Plan Services Division ("SAS 70 report"). 4 (c) Tax fees. The aggregate fees billed by the registrant's independent auditors for tax-related services provided to the registrant were $10,900 for the fiscal year ended November 30, 2005. The percentage of these fees relating to services approved by the registrant's Audit Committee pursuant to the de minimis exception from the pre-approval requirement in Rule 2-01(c)(7)(i)(C) of Regulation S-X was 0%. These tax-related services were as follows: review of income tax returns and review of annual excise distribution calculations. The aggregate fees billed by the registrant's independent auditors for tax-related services provided to the registrant's investment adviser and other service providers under common control with the adviser and that relate directly to the operations or financial reporting of the registrant were $0 for the registrant's fiscal year ended November 30, 2005. The aggregate fees billed by the registrant's independent auditors for tax-related services provided to the registrant were $5,250 for the fiscal year ended November 30, 2004. The percentage of these fees relating to services approved by the registrant's Audit Committee pursuant to the de minimis exception from the pre-approval requirement in Rule 2-01(c)(7)(i)(C) of Regulation S-X was 0%. These tax-related services were as follows: review of income tax returns and review of annual excise distribution calculations. The aggregate fees billed by the registrant's independent auditors for tax-related services provided to the registrant's adviser and other service providers under common control with the adviser and that relate directly to the operations or financial reporting of the registrant were $0 for the registrant's fiscal year ended November 30, 2004. (d) All other fees. The aggregate fees billed for all services provided by the independent auditors to the registrant other than those set forth in paragraphs (a), (b) and (c) of this Item were $0 for the fiscal year ended November 30, 2005. The aggregate fees billed for all services other than those set forth in paragraphs (b) and (c) of this Item provided by the registrant's independent auditors to the registrant's adviser and other service providers under common control with the adviser and that relate directly to the operations or financial reporting of the registrant were $0 for the registrant's fiscal year ended November 30, 2005. The aggregate fees billed for all services provided by the independent auditors to the registrant other than those set forth in paragraphs (a), (b) and (c) of this Item were $0 for the fiscal year ended November 30, 2004. The aggregate fees billed for all services other than those set forth in paragraphs (b) and (c) of this Item provided by the registrant's independent auditors to the registrant's adviser and other service providers under common control with the adviser and that relate directly to the operations or financial reporting of the registrant were $0 for the registrant's fiscal year ended November 30, 2004. 5 (e) The registrant's Audit Committee has established pre-approval policies and procedures as permitted by Rule 2-01(c)(7)(i)(B) of Regulation S-X (the "Pre-Approval Policy") with respect to services provided by the registrant's independent auditors. Pursuant to the Pre-Approval Policy, the Audit Committee has pre-approved the services set forth in the table below with respect to the registrant up to the specified fee limits. Certain fee limits are based on aggregate fees to the registrant and other registrants within the Delaware Investments Family of Funds.
-------------------------------------------------------------------------------------------------------------------- SERVICE RANGE OF FEES -------------------------------------------------------------------------------------------------------------------- AUDIT SERVICES -------------------------------------------------------------------------------------------------------------------- Statutory audits or financial audits for new Funds up to $25,000 per Fund -------------------------------------------------------------------------------------------------------------------- Services associated with SEC registration statements (e.g., Form N-1A, Form N-14, etc.), periodic reports and other documents filed with the SEC or other documents issued in connection with securities offerings (e.g., comfort letters up to $10,000 per Fund for closed-end Fund offerings, consents), and assistance in responding to SEC comment letters -------------------------------------------------------------------------------------------------------------------- Consultations by Fund management as to the accounting or disclosure treatment of transactions or events and/or the actual or potential impact of final or proposed rules, standards or interpretations by the SEC, FASB, or other up to $25,000 in the aggregate regulatory or standard-setting bodies (Note: Under SEC rules, some consultations may be considered "audit-related services" rather than "audit services") -------------------------------------------------------------------------------------------------------------------- AUDIT-RELATED SERVICES -------------------------------------------------------------------------------------------------------------------- Consultations by Fund management as to the accounting or disclosure treatment of transactions or events and /or the actual or potential impact of final or proposed rules, standards or interpretations by the SEC, FASB, or other up to $25,000 in the aggregate regulatory or standard-setting bodies (Note: Under SEC rules, some consultations may be considered "audit services" rather than "audit-related services") -------------------------------------------------------------------------------------------------------------------- TAX SERVICES -------------------------------------------------------------------------------------------------------------------- U.S. federal, state and local and international tax planning and advice (e.g., consulting on statutory, regulatory or administrative developments, evaluation up to $25,000 in the aggregate of Funds' tax compliance function, etc.) -------------------------------------------------------------------------------------------------------------------- U.S. federal, state and local tax compliance (e.g., excise distribution up to $5,000 per Fund reviews, etc.) -------------------------------------------------------------------------------------------------------------------- Review of federal, state, local and international income, franchise and other up to $5,000 per Fund tax returns --------------------------------------------------------------------------------------------------------------------
Under the Pre-Approval Policy, the Audit Committee has also pre-approved the services set forth in the table below with respect to the registrant's investment adviser and other entities controlling, controlled by or under common control with the investment adviser that provide ongoing services to the registrant (the "Control Affiliates") up to the specified fee limit. This fee limit is based on aggregate fees to the investment adviser and its Control Affiliates.
-------------------------------------------------------------------------------------------------------------------- SERVICE RANGE OF FEES -------------------------------------------------------------------------------------------------------------------- NON-AUDIT SERVICES -------------------------------------------------------------------------------------------------------------------- Services associated with periodic reports and other documents filed with the up to $10,000 in the aggregate SEC and assistance in responding to SEC comment letters --------------------------------------------------------------------------------------------------------------------
The Pre-Approval Policy requires the registrant's independent auditors to report to the Audit Committee at each of its regular meetings regarding all services initiated since the last such report was rendered, including those services authorized by the Pre-Approval Policy. (f) Not applicable. 6 (g) The aggregate non-audit fees billed by the registrant's independent auditors for services rendered to the registrant and to its investment adviser and other service providers under common control with the adviser were $341,960 and $357,709 for the registrant's fiscal years ended November 30, 2005 and November 30, 2004, respectively. (h) In connection with its selection of the independent auditors, the registrant's Audit Committee has considered the independent auditors' provision of non-audit services to the registrant's investment adviser and other service providers under common control with the adviser that were not required to be pre-approved pursuant to Rule 2-01(c)(7)(ii) of Regulation S-X. The Audit Committee has determined that the independent auditors' provision of these services is compatible with maintaining the auditors' independence. Item 5. Audit Committee of Listed Registrants Not applicable. Item 6. Schedule of Investments Included as part of report to shareholders filed under Item 1 of this Form N-CSR. Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End Management Investment Companies Not applicable. Item 8. Portfolio Managers of Closed-End Management Investment Companies Not applicable. Item 9. Purchases of Equity Securities by Closed-End Management Investment Company and Affiliated Purchasers Not applicable. Item 10. Submission of Matters to a Vote of Security Holders Not applicable. Item 11. Controls and Procedures The registrant's principal executive officer and principal financial officer have evaluated the registrant's disclosure controls and procedures within 90 days of the filing of this report and have concluded that they are effective in providing reasonable assurance that the information required to be disclosed by the registrant in its reports or statements filed under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission. There were no significant changes in the registrant's internal control over financial reporting that occurred during the second fiscal quarter of the period covered by the report to stockholders included herein (i.e., the registrant's fourth fiscal quarter) that have materially affected, or are reasonably likely to materially affect, the registrant's internal control over financial reporting. 7 Item 12. Exhibits (a) (1) Code of Ethics Not applicable. (2) Certifications of Principal Executive Officer and Principal Financial Officer pursuant to Rule 30a-2 under the Investment Company Act of 1940 are attached hereto as Exhibit 99.CERT. (3) Written solicitations to purchase securities pursuant to Rule 23c-1 under the Securities Exchange Act of 1934. Not applicable. (b) Certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 are furnished herewith as Exhibit 99.906CERT. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf, by the undersigned, thereunto duly authorized. DELAWARE GROUP EQUITY FUNDS V JUDE T. DRISCOLL ------------------------------------ By: Jude T. Driscoll Title: Chief Executive Officer Date: February 1, 2006 Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. JUDE T. DRISCOLL ------------------------------------ By: Jude T. Driscoll Title: Chief Executive Officer Date: February 1, 2006 MICHAEL P. BISHOF ------------------------------------ By: Michael P. Bishof Title: Chief Financial Officer Date: February 1, 2006 8