N-CSR 1 delawaresmallcapcore_ncsr.txt CERTIFIED SHAREHOLDER REPORT 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, 2006 Item 1. Reports to Stockholders Annual Report Delaware Dividend Income Fund November 30, 2006 Value equity mutual fund [DELAWARE INVESTMENTS LOGO] [LOGO] POWERED BY RESEARCH(R) Table of contents > Portfolio management review .................................................1 > Performance summary. ........................................................6 > Disclosure of Fund expenses .................................................8 > Sector allocation and top 10 holdings .......................................9 > Statement of net assets ....................................................11 > Statement of operations ....................................................20 > Statements of changes in net assets ........................................21 > Financial highlights .......................................................22 > Notes to financial statements ..............................................27 > Report of independent registered public accounting firm ....................31 > Board of trustees/directors and officers addendum ..........................32 > About the organization .....................................................34 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) 2007 Delaware Distributors, L.P. Portfolio management review Delaware Dividend Income Fund November 30, 2006 The managers of Delaware Dividend Income Fund provided the answers to the questions below as a review of the Fund's activities for the fiscal year that ended November 30, 2006. Please see page 3 to learn more about the portfolio managers. Q: Can you please discuss the investment environment during the year ended November 30, 2006? A: On the whole, the U.S. stock market performed well and turned in higher returns than we anticipated at the outset of the year. Investors largely saw two different sets of conditions during the year. Roughly through June 2006, U.S. stocks faced headwinds. Energy costs continued to rise and put downward pressure on corporate earnings and consumer spending. Interest rates rose as well. Stronger-than-expected inflation reports in the spring made it more likely that the Federal Reserve Board (Fed) would continue to raise short-term rates. The threat of a weakening economy coupled with uncertainty about the inflation picture was a negative influence on equity prices, and market performance was particularly weak in May and June 2006. By July conditions had improved noticeably. Corporate earnings, though slowing, remained relatively solid, as did consumer spending in the face of a weakening housing market. In addition, oil prices began declining sharply from their historic highs and the Fed finally decided not to raise interest rates in August and beyond, boosting performance in both the stock and bond markets through the end of the year. Q: How did the Fund perform during the year ended November 30, 2006? A: Delaware Dividend Income Fund returned +18.34% at net asset value and +11.53% at its maximum offer price (both figures are for Class A shares and reflect all distributions reinvested). For complete annualized performance for Delaware Dividend Income Fund, please see the table on page 6. By comparison, the Fund's benchmark - the Standard and Poor's 500 Index - returned +14.22%, and its peer group, as measured by the Lipper Mixed Asset Target Allocation Moderate Funds Average, gained 11.16% (source: Lipper). Delaware Dividend Income Fund is invested primarily in four types of assets: large-cap value equities, real estate investment trusts (REITs), high-yield bonds, and convertible securities, the last of which have some features of both equity and fixed income securities. Each security type in the Fund produces a measure of income for investors, and each may perform differently from the others in different types of market environments. During the year, dividend-oriented equity investors generally fared well, and as the year progressed investors appeared to become increasingly risk averse. Also of note, REITs strongly outperformed the broad U.S. stock market during the year. For instance, the NAREIT Equity REIT Index, which tracks the performance of U.S. REITs, gained 36.93%. This strong performance by REITs as a group was generally advantageous to the Fund when comparing its returns against the S&P 500 Index, as that index includes just several of the largest U.S. REITs. Q: What factors influenced performance in the Fund? A: Expecting a slowdown in the economy, and a reduced rate of corporate earnings growth, we believed it was prudent to position the equity portion of the investment portfolio even more defensively than might be typical. As a result, we focused on less economically sensitive sectors, such as healthcare and consumer staples. The Fund was also underweight in more economically sensitive areas, such as consumer discretionary. We regularly look to invest in undervalued companies with good businesses that we believe are priced well below their intrinsic value. During the most recent period, we focused on companies that we believed to have particularly sound balance sheets, strong dividend yields, and the potential to continue generating relatively stable earnings, even in a weaker economy. The views expressed are current as of the date of this report and are subject to change. (continues) 1 Portfolio management review Delaware Dividend Income Fund This approach led us to hold small positions in the energy and industrial sectors, both of which tend to be relatively sensitive to economic changes. As the fiscal year progressed, however, we found an increasing number of opportunities among technology stocks that we believed to be attractively valued, adding a new position in Intel, for example. More technology stocks were passing our strict screening process, as a number of companies established shareholder-friendly policies in the midst of successful turnarounds. After several years of robust REIT performance, we continued to exercise caution in this portion of the Fund, emphasizing companies with strong or improving fundamentals and attractive valuations. We concentrated on several key areas of the REIT market, beginning with economically sensitive holdings such as industrial REITs. These cyclical companies generally benefit from steady gross domestic product growth during the year. We also were more heavily weighted than the NAREIT Equity REIT Index in REITs with exposure to office property markets. We felt higher construction costs would limit development in this category. In urban markets, certain office stocks benefited during the year as increased demand drove rental rates higher. Rising real estate prices in recent years forced many would-be homebuyers to rent, creating what we believed were attractive prospects for apartment REITs. We generally tried to capitalize on these and other trends. REIT valuations have been propelled to all-time highs. Although we remained optimistic at fiscal year end about the general long-term prospects for REITs, we also remained skeptical about whether valuations can be sustained. By fiscal year end, we had begun planning to focus on new opportunities only very selectively, especially in the apartment and office sectors. The Fund's various fixed income investments continued to provide another source of income for shareholders as well as a measure of diversification for the Fund. While stocks generally outperformed bonds for the year, total return performance from high yield bonds was competitive. High yield bonds are noninvestment grade securities issued by organizations with noninvestment grade credit ratings; as such, they offer investors higher yields but an increased risk of default by the issuer. Especially during the late-year rally, lower-rated bonds outperformed other types of fixed income investments, as a general search for yield could be detected in the marketplace. As always, our approach to high yield investing remained based on the selection of individual securities, analyzing the credits available to us in the marketplace one bond issue at a time. Although the economic climate and other big-picture factors were influential in the market this year, we believe that company-specific characteristics generally played a larger role in performance. We avoided making significant sector bets, preferring to focus our research efforts on uncovering securities that we thought offered value and yield advantages. Q: Could you provide an example of a high yield bond that influenced performance? A: Charter Communications is a major telecommunications company that provides broadband services to its customers. The company's bonds traded lower early in the fiscal year on concerns about its subscriber base that stemmed from Adelphia's bankruptcy proceedings. Later, the company posted stabilized earnings and the bonds bounced back. Charter remained in the Fund at year end and represented one of the larger fixed income positions. Q: Could you please name specific equity securities that influenced performance? A: Among large-cap value stocks, several consumer discretionary stocks were noteworthy for generating strong gains during the fiscal period. Toy manufacturer Mattel benefited from the success of key brands and better supply chain management, as well as from lower energy prices, which resulted in reduced production costs for the company. Limited Brands performed well, in part on a turnaround in its apparel businesses, as well as from its personal care segment, Bath and Body Works. In healthcare, the Fund gained from its holding in Merck. The pharmaceutical company's stock recovered off a low, as investors' concerns about legal liability surrounding its Vioxx pain medication abated. 2 Our holdings in the financial sector were often among our weakest equity performers. For example, one stock that gained modest ground but trailed the performance of the broad equity market was bank company Huntington Bancshares. As with other banks, Huntington encountered difficulty as the company's earnings suffered from less profitable lending activities, caused by a challenging interest rate environment. Insurance company Hartford Financial Services also underperformed relative to the overall stock market, hindered by increased competition and a slowdown in the growth of auto insurance premiums, among other factors. Fund managers D. Tysen Nutt Jr. Senior Vice President, Senior Portfolio Manager, Team Leader - Large-Cap Value Focus Equity Mr. Nutt joined Delaware Investments in 2004 as senior vice president and senior portfolio manager for the firm's Large-Cap Value Focus strategy. Before joining the firm, Mr. Nutt led the U.S. Active Large-Cap Value team within Merrill Lynch Investment Managers (MLIM), where he managed mutual funds and separate accounts for institutions and private clients. Mr. Nutt departed MLIM as a managing director. Prior to joining MLIM in 1994, Mr. Nutt was with Van Deventer & Hoch (V&H) where he managed large-cap value portfolios for institutions and private clients. He began his investment career at Dean Witter Reynolds, where he eventually became vice president, investments. Mr. Nutt earned his bachelor's degree from Dartmouth College, and he is a member of the New York Society of Security Analysts and the CFA Institute. Timothy L. Rabe, CFA Senior Vice President, Head of High Yield Investments, Senior Portfolio Manager Mr. Rabe joined Delaware Investments in 2000. He is head of the High Yield team, responsible for investing strategy for all high yield fixed income funds and strategies at the firm. Prior to joining Delaware Investments, Mr. Rabe was a high yield portfolio manager for Conseco Capital Management for five years. Prior to that, he worked as a tax analyst for the Northern Trust Company. Mr. Rabe received a bachelor's degree in finance from the University of Illinois. Babak (Bob) Zenouzi Senior Vice President, Senior Portfolio Manager Mr. Zenouzi rejoined Delaware Investments in May 2006. He left the firm in 1999 after seven years as an analyst and portfolio manager. Currently, he leads the firm's REIT group, including the team, its process, and its institutional and retail products, which he created during his prior time with the firm. He also serves as lead portfolio manager for the firm's Dividend Income products, which he helped create in the 1990s. Most recently, Mr. Zenouzi worked at Chartwell Investment Partners from 1999 to 2006, where he was a partner and senior portfolio manager on Chartwell's Small-Cap Value portfolio. He began his career with The Boston Company, where he held several positions in accounting and financial analysis. Mr. Zenouzi earned a master's degree in finance from Boston College and a bachelor's degree from Babson College. He is a member of the National Association of Real Estate Investment Trusts. Damon J. Andres, CFA Vice President, Senior Portfolio Manager Mr. Andres, who joined Delaware Investments in 1994, currently serves as a portfolio manager for REIT investments and convertibles. From 1991 to 1994, he performed investment-consulting services as a consulting associate with Cambridge Associates. Mr. Andres earned a bachelor's degree in business administration with an emphasis in finance and accounting from the University of Richmond. Jordan L. Irving Vice President, Senior Portfolio Manager Mr. Irving joined Delaware Investments in 2004 as a vice president, senior portfolio manager for the firm's Large-Cap Value Focus strategy. Previously, he worked for the U.S. Active Large-Cap Value team within Merrill Lynch Investment Managers for six years, where he managed mutual funds and separate accounts for institutions and private clients. Mr. Irving graduated from Yale University with a bachelor's degree in American studies and earned a special diploma in social studies at Oxford University in England. He competed for the United States National Rowing Team, winning a gold medal at the 1997 World Rowing Championships in Aiguebelette, France. (continues) 3 Portfolio management review Delaware Dividend Income Fund Anthony A. Lombardi, CFA Vice President, Senior Portfolio Manager Mr. Lombardi joined Delaware Investments in 2004 as a vice president and senior portfolio manager for the firm's Large-Cap Value Focus strategy. Previously, Mr. Lombardi worked at Merrill Lynch Investment Managers from 1998 to 2004, where he rose to the position of director and portfolio manager for the U.S. Active Large-Cap Value team, managing mutual funds and separate accounts for institutions and private clients. Prior to that he worked at Dean Witter Reynolds for seven years as a sell-side equity research analyst, and he began his career as an investment analyst with Crossland Savings in 1989. Mr. Lombardi graduated from Hofstra University, receiving a bachelor's degree in finance and an MBA with a concentration in finance. He is a member of the New York Society of Security Analysts and the CFA Institute. Robert A. Vogel Jr., CFA Vice President, Senior Portfolio Manager Mr. Vogel joined Delaware Investments in 2004 as a vice president, senior portfolio manager for the firm's Large-Cap Value Focus strategy. He previously worked at Merrill Lynch Investment Managers for more than seven years, where he rose to the position of director and portfolio manager within the U.S. Active Large-Cap Value team. He began his career in 1992 as a financial consultant at Merrill Lynch. Mr. Vogel graduated from Loyola College in Maryland, earning both bachelor's and master's degrees in finance. He also earned an MBA with a concentration in finance from The Wharton School of the University of Pennsylvania, and he is a member of the New York Society of Security Analysts and the CFA Society of Philadelphia. Nikhil G. Lalvani, CFA Vice President, Portfolio Manager Mr. Lalvani is a portfolio manager with the firm's Large-Cap Value Focus team. At Delaware Investments, Mr. Lalvani has served as both a fundamental and quantitative analyst. Prior to joining the firm in 1997, he was a research associate with Bloomberg. Mr. Lalvani holds a bachelor's degree in finance from Penn State University and is a member of the CFA Society of Philadelphia. Nashira S. Wynn Vice President, Portfolio Manager Ms. Wynn is a portfolio manager with the firm's Large-Cap Value Focus team. Prior to joining Delaware Investments in 2004, she was an equity research analyst for Merrill Lynch Investment Managers. Ms. Wynn earned a bachelor's degree in finance, with a minor in economics, from The College of New Jersey, and she attended England's Oxford University as a presidential scholar. Ms. Wynn is also a CFA Level I candidate. 4 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 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 through your financial advisor or by calling 800 523-1918 or visiting our Web site at www.delawareinvestments.com. Read the prospectus carefully before you invest or send money. Fund performance Average annual total returns Through November 30, 2006 1 year 5 years Lifetime ________________________________________________________________________________ Class A (Est. 12-2-96) Excluding sales charge +18.34% +11.32% +10.80% Including sales charge +11.53% +10.01% +10.14% ________________________________________________________________________________ Class B (Est. 10-1-03) Excluding sales charge +17.46% NA +11.16% Including sales charge +13.46% NA +10.59% ________________________________________________________________________________ Class C (Est. 10-1-03) Excluding sales charge +17.46% NA +11.16% Including sales charge +16.46% NA +11.16% ________________________________________________________________________________ High-yielding, noninvestment grade bonds (junk bonds) involve higher risk than investment grade bonds. Adverse conditions may affect the issuer's ability to pay interest and principal on these securities. The Fund may invest up to 45% of its assets in high yield, higher risk corporate bonds. Funds that invest in REITs are subject to the many risks associated with direct real estate ownership and, as such, may be adversely affected by declines in real estate values and general and local economic conditions. 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% of average daily net assets, but such fee is currently subject to a contractual cap of 0.25% of average daily net assets through March 31, 2007. Class B shares are sold with a contingent deferred sales charge that declines from 4% to zero depending on 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% of average daily net assets. 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% of average daily net assets. The average annual total returns for the 1-year and lifetime (since October 1, 2003) periods ended November 30, 2006 for the Delaware Dividend Income Fund Class R shares was +18.06% and +11.66%, 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%, but such fee is currently subject to a contractual cap of 0.50% of average daily net assets through March 31, 2007. The average annual total returns for the 1-year, 5-year, and lifetime (since December 2, 1996) periods ended November 30, 2006 for Delaware Dividend Income Fund Institutional Class shares were +18.72%, +11.50%, and +10.89%, respectively. Institutional Class shares were first made available on December 2, 1996 and are available without sales or asset-based distribution charges only to certain eligible institutional accounts. An expense limitation was in effect for all classes during the periods shown above and on the next page. Performance would have been lower had the expense limitation not been in effect. The performance table above and the graph on the next page do not reflect the deduction of taxes the shareholder would pay on Fund distributions or redemptions of Fund shares. 6 Fund basics As of November 30, 2006 ________________________________________________________________________________ Fund objective ________________________________________________________________________________ The Fund seeks to provide high current income and an investment that has the potential for capital appreciation. ________________________________________________________________________________ Total Fund net assets ________________________________________________________________________________ $752 million ________________________________________________________________________________ Number of holdings ________________________________________________________________________________ 340 ________________________________________________________________________________ Fund start date ________________________________________________________________________________ December 2, 1996 ________________________________________________________________________________ Nasdaq symbols CUSIPs ________________________________________________________________________________ Class A DDIAX 24610B107 Class B DDDBX 24610B206 Class C DDICX 24610B305 Class R DDDRX 24610B842 Institutional Class DDIIX 24610B404 Performance of a $10,000 Investment December 2, 1996 (Fund's inception) through November 30, 2006 [PERFORMANCE OF A $10,000 INVESTMENT LINE GRAPH] 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 of other Fund classes will vary due to different charges and expenses. The chart also assumes $10,000 invested in the S&P 500 Index on December 2, 1996. The S&P 500 Index is a 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. 7 Disclosure of Fund expenses For the period June 1, 2006 to November 30, 2006 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, 2006 to November 30, 2006. 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 6/1/06 to 6/1/06 11/30/06 Ratios 11/30/06 ________________________________________________________________________________ Actual Fund Return Class A $1,000.00 $1,125.20 1.02% $5.43 Class B 1,000.00 1,121.00 1.77% 9.41 Class C 1,000.00 1,120.00 1.77% 9.41 Class R 1,000.00 1,123.80 1.27% 6.76 Institutional Class 1,000.00 1,127.40 0.77% 4.11 ________________________________________________________________________________ Hypothetical 5% Return (5% return before expenses) Class A $1,000.00 $1,019.95 1.02% $5.16 Class B 1,000.00 1,016.19 1.77% 8.95 Class C 1,000.00 1,016.19 1.77% 8.95 Class R 1,000.00 1,018.70 1.27% 6.43 Institutional Class 1,000.00 1,021.21 0.77% 3.90 ________________________________________________________________________________ * "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). 8 Sector allocation and top 10 holdings Delaware Dividend Income Fund As of November 30, 2006 Sector designations may be different than the sector designations presented in other Fund materials. Percentage Sector of Net Assets ________________________________________________________________________________ Common Stock 59.08% Consumer Discretionary 3.91% Consumer Staples 5.02% Diversified REITs 2.71% Energy 2.65% Financials 9.91% Health Care 7.42% Health Care REITs 1.08% Industrial REITs 1.73% Industrials 3.19% Information Technology 4.84% Lodging/Resorts REITs 0.51% Mall REITs 2.59% Manufactured Housing REITs 0.24% Materials 1.22% Mortgage REITs 0.54% Multifamily REITs 0.98% Office/Industrial REITs 1.31% Office REITs 2.42% Self-Storage REITs 0.73% Shopping Center REITs 1.77% Specialty REITs 0.51% Telecommunications 2.49% Utilities 1.31% ________________________________________________________________________________ Corporate Bonds 21.76% Basic Industries 2.75% Brokerage 0.48% Capital Goods 1.56% Consumer Cyclical 1.73% Consumer Non-Cyclical 1.70% Energy 1.33% Finance & Investments 0.08% Media 1.79% Real Estate 0.32% Services Cyclical 3.96% Services Non-cyclical 1.75% Technology & Electronics 0.94% Telecommunications 2.36% Utilities 1.01% ________________________________________________________________________________ Convertible Bonds 8.84% Aerospace & Defense 0.50% Basic Industries 0.12% Cable, Media & Publishing 0.80% Computers & Technology 2.06% Electronics & Electrical Equipment 0.37% Energy 0.85% Health Care & Pharmaceuticals 1.81% Leisure, Lodging & Entertainment 0.07% Media 0.07% Real Estate 0.08% Retail 1.22% Telecommunications 0.15% Transportation 0.47% Utilities 0.27% ________________________________________________________________________________ Convertible Preferred Stock 3.80% Banking, Finance & Insurance 2.02% Basic Materials 0.39% Cable, Media & Publishing 0.22% Energy 0.41% Telecommunications 0.14% Utilities 0.62% ________________________________________________________________________________ Preferred Stock 0.91% Leisure, Lodging & Entertainment 0.05% Real Estate 0.86% ________________________________________________________________________________ Senior Secured Loans 0.14% ________________________________________________________________________________ Exchange Traded Funds 0.33% ________________________________________________________________________________ Warrants 0.00% ________________________________________________________________________________ Commercial Mortgage-Backed Securities 0.10% ________________________________________________________________________________ Repurchase Agreements 4.62% ________________________________________________________________________________ Total Market Value of Securities 99.58% ________________________________________________________________________________ Receivables and Other Assets Net of Liabilities 0.42% ________________________________________________________________________________ Total Net Assets 100.00% (continues) 9 Sector allocation and top 10 holdings Delaware Dividend Income Fund ________________________________________________________________________________ Holdings are for informational purposes only and are subject to change at any time. They are not a recommendation to buy, sell, or hold any security. Percentage Top 10 Holdings of Net Assets ________________________________________________________________________________ ConocoPhillips 1.34% Chevron 1.31% Pfizer 1.29% Limited Brands 1.29% Simon Properties Group 1.28% Heinz (H.J.) 1.28% ConAgra Foods 1.27% Safeway 1.26% Washington Mutual 1.26% AT&T 1.25% 10 Statement of net assets Delaware Dividend Income Fund November 30, 2006 Number of Market Shares Value ________________________________________________________________________________ Common Stock - 59.08% ________________________________________________________________________________ Consumer Discretionary - 3.91% + Charter Communications Class A 5,800 $ 17,110 Gap 478,200 8,951,904 + Idearc 12,705 349,896 Limited Brands 305,100 9,668,619 Mattel 393,300 8,632,935 Starwood Hotels & Resorts Worldwide 27,200 1,745,424 ___________ 29,365,888 ___________ Consumer Staples - 5.02% ConAgra Foods 371,600 9,550,120 Heinz (H.J.) 215,900 9,596,755 Kimberly-Clark 137,900 9,166,213 Safeway 307,200 9,464,832 ___________ 37,777,920 ___________ Diversified REITs - 2.71% CentraCore Properties Trust 106,400 3,417,568 iStar Financial 127,300 5,956,367 Spirit Finance 114,700 1,400,487 Vornado Realty Trust 56,000 7,062,160 Washington Real Estate Investment Trust 58,700 2,516,469 ___________ 20,353,051 ___________ Energy - 2.65% Chevron 135,800 9,821,056 ConocoPhillips 149,800 10,081,540 ___________ 19,902,596 ___________ Financials - 9.91% Allstate 145,300 9,223,644 American Campus Communities 47,000 1,395,900 Aon 255,600 9,119,808 Chubb 177,600 9,192,576 Hartford Financial Services 106,000 9,090,560 Huntington Bancshares 368,000 8,946,080 Morgan Stanley 118,100 8,994,496 Wachovia 168,900 9,152,691 Washington Mutual 216,100 9,439,248 ___________ 74,555,003 ___________ Health Care - 7.42% Abbott Laboratories 200,100 9,336,666 Baxter International 202,900 9,077,746 Bristol-Myers Squibb 374,200 9,291,386 Merck 210,200 9,356,002 Pfizer 352,800 9,698,472 Wyeth 187,000 9,028,360 ___________ 55,788,632 ___________ Health Care REITs - 1.08% Health Care Property Investors 89,100 3,231,657 Medical Properties Trust 19,700 292,545 Nationwide Health Properties 72,600 2,148,234 Ventas 63,500 2,473,325 ___________ 8,145,761 ___________ Industrial REITs - 1.73% AMB Property 59,600 3,651,692 First Potomac Realty Trust 87,000 2,671,770 ProLogis 102,300 6,666,891 ___________ 12,990,353 ___________ Industrials - 3.19% Donnelley (R.R.) & Sons 265,400 9,360,658 + Foster Wheeler 3,656 197,424 + Grupo Aeroportuario del Centro Norte ADR 37,400 805,970 Macquarie Infrastructure 154,400 5,002,560 Waste Management 236,500 8,658,265 ___________ 24,024,877 ___________ Information Technology - 4.84% Hewlett-Packard 231,500 9,134,990 Intel 434,900 9,285,115 International Business Machines 98,100 9,017,352 + Xerox 541,400 8,933,100 ___________ 36,370,557 ___________ Lodging/Resort REITs - 0.51% Hersha Hospitality Trust 279,600 3,226,584 Highland Hospitality 43,500 616,830 ___________ 3,843,414 ___________ Mall REITs - 2.59% General Growth Properties 91,000 4,999,540 Macerich 56,600 4,837,602 Simon Property Group 94,500 9,637,110 ___________ 19,474,252 ___________ Manufactured Housing REITs - 0.24% Equity Lifestyle Properties 34,300 1,782,571 ___________ 1,782,571 ___________ Materials - 1.22% duPont (E.I.) deNemours 196,200 9,207,666 ___________ 9,207,666 ___________ Mortgage REITs - 0.54% Gramercy Capital 97,100 2,719,771 JER Investors Trust 68,900 1,363,531 ___________ 4,083,302 ___________ Multifamily REITs - 0.98% AvalonBay Communities 16,500 2,195,820 Equity Residential 78,000 4,154,280 United Dominion Realty Trust 29,700 997,326 ___________ 7,347,426 ___________ Office/Industrial REITs - 1.31% Duke Realty 120,100 5,226,752 Liberty Property Trust 49,700 2,545,137 PS Business Parks 29,600 2,109,000 ___________ 9,880,889 ___________ Office REITs - 2.42% Alexandria Real Estate Equities 29,000 2,989,320 Brandywine Realty Trust 119,356 4,195,363 Equity Office Properties Trust 91,500 4,410,300 Highwoods Properties 50,600 2,064,480 (continues) 11 Statement of net assets Delaware Dividend Income Fund Number of Market Shares Value ________________________________________________________________________________ Common Stock (continued) ________________________________________________________________________________ Office REITs (continued) Mack-Cali Realty 30,100 $ 1,644,664 Parkway Properties 36,700 1,903,996 Reckson Associates Realty 20,200 977,276 ____________ 18,185,399 ____________ Self-Storage REITs - 0.73% Public Storage 36,400 3,504,592 U-Store-It Trust 91,900 2,010,772 ____________ 5,515,364 Shopping Center REITs - 1.77% Cedar Shopping Centers 107,700 1,964,448 Developers Diversified Realty 88,600 5,739,508 Federal Realty Investment Trust 36,900 3,143,142 New Plan Excel Realty Trust 85,200 2,427,348 ____________ 13,274,446 ____________ Specialty REITs - 0.51% Entertainment Properties Trust 63,500 3,854,450 ____________ 3,854,450 ____________ Telecommunications - 2.49% AT&T 276,300 9,369,333 Verizon Communications 267,700 9,353,438 ____________ 18,722,771 ____________ Utilities - 1.31% + Mirant 19,417 590,665 Progress Energy 194,500 9,291,265 ____________ 9,881,930 ____________ Total Common Stock (cost $373,409,951) 444,328,518 ____________ Principal Amount ________________________________________________________________________________ Corporate Bonds - 21.76% ________________________________________________________________________________ Basic Industries - 2.75% Abitibi-Consolidated 6.95% 12/15/06 $ 50,000 50,000 Abitibi-Consolidated Finance 7.875% 8/1/09 515,000 504,700 AK Steel 7.875% 2/15/09 875,000 879,375 Bowater 9.00% 8/1/09 550,000 575,438 9.50% 10/15/12 1,050,000 1,068,375 Donohue Forest Products 7.625% 5/15/07 740,000 743,700 Georgia-Pacific 9.50% 12/1/11 800,000 884,000 Gold Kist 10.25% 3/15/14 750,000 864,375 Huntsman International 9.875% 3/1/09 148,000 153,550 10.125% 7/1/09 235,000 239,700 Lyondell Chemical 8.00% 9/15/14 835,000 865,269 8.25% 9/15/16 850,000 888,250 10.50% 6/1/13 100,000 110,500 # Momentive Performance Materials 144A 9.75% 12/1/14 1,400,000 1,410,500 # Nell AF Sarl 144A 8.375% 8/15/15 840,000 864,150 NewPage 10.00% 5/1/12 1,075,000 1,136,813 12.00% 5/1/13 735,000 779,100 Norske Skog Canada 8.625% 6/15/11 1,705,000 1,730,574 # Port Townsend Paper 144A 11.00% 4/15/11 1,110,000 976,800 Potlatch 13.00% 12/1/09 1,075,000 1,256,777 # Sappi Papier Holding 144A 7.50% 6/15/32 1,400,000 1,304,795 ++ Solutia 6.72% 10/15/37 1,215,000 1,081,350 Tembec Industries 8.625% 6/30/09 2,635,000 1,706,162 Witco 6.875% 2/1/26 695,000 622,025 ____________ 20,696,278 ____________ Brokerage - 0.48% E Trade Financial 8.00% 6/15/11 1,125,000 1,172,813 LaBranche 9.50% 5/15/09 935,000 988,763 11.00% 5/15/12 1,350,000 1,464,749 3,626,325 Capital Goods - 1.56% Armor Holdings 8.25% 8/15/13 860,000 896,550 # Berry Plastics 144A 8.875% 9/15/14 775,000 785,656 # Bombardier 144A 8.00% 11/15/14 925,000 934,250 Building Materials 8.00% 10/15/07 1,050,000 1,061,813 CPG International I 10.50% 7/1/13 520,000 531,700 Graham Packaging 9.875% 10/15/14 1,600,000 1,591,999 # Hexion Finance 144A 9.75% 11/15/14 975,000 994,500 Interface 10.375% 2/1/10 1,200,000 1,317,000 Intertape Polymer 8.50% 8/1/14 960,000 888,000 { Mueller Holdings 14.75% 4/15/14 654,000 578,790 { NTK Holdings 10.75% 3/1/14 950,000 660,250 # RBS Global & Rexnord 144A 11.75% 8/1/16 675,000 713,813 Trimas 9.875% 6/15/12 825,000 796,125 ____________ 11,750,446 ____________ 12 Principal Market Amount Value ________________________________________________________________________________ Corporate Bonds (continued) ________________________________________________________________________________ Consumer Cyclical - 1.73% Accuride 8.50% 2/1/15 $ 655,000 $ 630,438 # Baker & Taylor 144A 11.50% 7/1/13 600,000 603,750 Carrols 9.00% 1/15/13 700,000 710,500 Denny's 10.00% 10/1/12 850,000 895,688 Ford Motor Credit 7.375% 10/28/09 775,000 774,200 9.875% 8/10/11 805,000 862,041 General Motors 8.375% 7/15/33 825,000 755,906 General Motors Acceptance Corporation 6.875% 9/15/11 995,000 1,025,455 8.00% 11/1/31 630,000 708,159 Landry's Restaurant 7.50% 12/15/14 600,000 586,500 # Micheals Stores 144A 11.375% 11/1/16 800,000 824,000 # Mobile Services Group 144A 9.75% 8/1/14 650,000 679,250 Neiman Marcus 9.00% 10/15/15 625,000 680,469 10.375% 10/15/15 225,000 250,031 # NPC International 144A 9.50% 5/1/14 790,000 797,900 O'Charleys 9.00% 11/1/13 715,000 754,325 # United Auto Group 144A 7.75% 12/15/16 1,000,000 1,000,000 Visteon 8.25% 8/1/10 450,000 439,875 ____________ 12,978,487 ____________ Consumer Non-Cyclical - 1.70% Biovail 7.875% 4/1/10 2,075,000 2,100,937 Constellation Brands 8.125% 1/15/12 1,000,000 1,047,500 Cott Beverages 8.00% 12/15/11 1,050,000 1,076,250 # Elan Finance 144A 8.875% 12/1/13 675,000 675,844 Ingles Markets 8.875% 12/1/11 1,200,000 1,257,000 ++ # Le-Natures 144A 9.00% 6/15/13 260,000 35,100 National Beef Packing 10.50% 8/1/11 1,350,000 1,417,499 Pilgrim's Pride 9.625% 9/15/11 815,000 859,825 Pinnacle Foods 8.25% 12/1/13 935,000 958,375 Playtex Products 9.375% 6/1/11 1,215,000 1,272,713 Swift 12.50% 1/1/10 675,000 695,250 True Temper Sports 8.375% 9/15/11 475,000 426,313 Warner Chilcott 8.75% 2/1/15 910,000 937,300 ____________ 12,759,906 ____________ Energy - 1.33% Bluewater Finance 10.25% 2/15/12 518,000 546,490 Chesapeake Energy 6.625% 1/15/16 250,000 248,125 # Complete Product 144A 8.00% 12/15/16 440,000 446,600 Compton Petroleum Finance 7.625% 12/1/13 1,260,000 1,203,299 El Paso Natural Gas 7.625% 8/1/10 390,000 405,600 # El Paso Performance-Linked Trust 144A 7.75% 7/15/11 525,000 546,000 El Paso Production 7.75% 6/1/13 450,000 468,563 # Hilcorp Energy I 144A 7.75% 11/1/15 225,000 222,750 9.00% 6/1/16 775,000 819,563 Inergy Finance 6.875% 12/15/14 350,000 341,250 8.25% 3/1/16 200,000 209,500 Mariner Energy 7.50% 4/15/13 675,000 658,125 # MarkWest Energy 144A 8.50% 7/15/16 425,000 431,375 PetroHawk Energy 9.125% 7/15/13 1,550,000 1,621,687 Pride International 7.375% 7/15/14 345,000 359,663 ~ Secunda International 13.374% 9/1/12 655,000 679,563 Whiting Petroleum 7.00% 2/1/14 261,000 262,305 7.25% 5/1/13 505,000 507,525 ____________ 9,977,983 ____________ Finance & Investments - 0.08% # iPayment 144A 9.75% 5/15/14 600,000 616,500 ____________ 616,500 ____________ Media - 1.79% { Adelphia Communications 8.125% 2/1/07 615,000 528,900 CCH I Holdings 13.50% 1/15/14 1,150,000 1,086,750 { Century Communications 9.50% 2/1/07 1,625,000 1,950,000 Charter Communications Holdings 10.25% 9/15/10 1,000 1,050 13.50% 1/15/11 2,350,000 2,279,499 ~ # Cleveland Unlimited 144A 13.64% 12/15/10 150,000 162,000 # CMP Susquehanna 144A 9.875% 5/15/14 375,000 370,313 Dex Media East 12.125% 11/15/12 505,000 560,550 # Idearc 144A 8.00% 11/15/16 550,000 561,688 Insight Communications 12.25% 2/15/11 200,000 210,750 (continues) 13 Statement of net assets Delaware Dividend Income Fund Principal Market Amount Value ________________________________________________________________________________ Corporate Bonds (continued) ________________________________________________________________________________ Media (continued) Insight Midwest 9.75% 10/1/09 $ 169,000 $ 171,746 Lodgenet Entertainment 9.50% 6/15/13 1,525,000 1,639,375 Mediacom Broadband 8.50% 10/15/15 590,000 593,688 Mediacom Capital 9.50% 1/15/13 1,975,000 2,039,188 Vertis 10.875% 6/15/09 320,000 320,000 WMG Acquisition 7.375% 4/15/14 1,025,000 1,019,875 ____________ 13,495,372 ____________ Real Estate - 0.32% American Real Estate Partners 8.125% 6/1/12 835,000 865,269 BF Saul REIT 7.50% 3/1/14 975,000 994,500 Rouse 7.20% 9/15/12 550,000 572,282 ____________ 2,432,051 ____________ Services Cyclical - 3.96% Adesa 7.625% 6/15/12 1,250,000 1,246,875 American Airlines 7.377% 5/23/19 382,016 372,944 Boyd Gaming 8.75% 4/15/12 1,365,000 1,436,662 Brickman Group 11.75% 12/15/09 315,000 336,263 Continental Airlines 8.75% 12/1/11 575,000 581,469 Corrections Corporation of America 7.50% 5/1/11 875,000 903,438 FTI Consulting 7.625% 6/15/13 1,300,000 1,348,749 # Galaxy Entertainment Finance 144A 9.875% 12/15/12 1,750,000 1,876,874 Gaylord Entertainment 8.00% 11/15/13 875,000 899,063 Grupo Transportacion Ferroviaria Mexicana 9.375% 5/1/12 750,000 806,250 12.50% 6/15/12 425,000 464,313 Harrah's Operating 6.50% 6/1/16 1,175,000 1,051,070 # Hertz 144A 8.875% 1/1/14 775,000 807,938 { H-Lines Finance Holdings 11.00% 4/1/13 1,301,000 1,208,304 Horizon Lines 9.00% 11/1/12 457,000 480,993 # Kansas City Southern de Mexico 144A 7.625% 12/1/13 950,000 952,375 Kansas City Southern Railway 9.50% 10/1/08 600,000 630,750 # Knowledge Learning 144A 7.75% 2/1/15 860,000 817,000 Majestic Star Casino 9.50% 10/15/10 900,000 933,750 Mandalay Resort Group 9.375% 2/15/10 1,425,000 1,521,187 9.50% 8/1/08 1,250,000 1,326,563 OMI 7.625% 12/1/13 1,345,000 1,380,305 # Penhall International 144A 12.00% 8/1/14 575,000 623,875 Penn National Gaming 6.75% 3/1/15 350,000 345,625 # Pokagon Gaming Authority 144A 10.375% 6/15/14 1,425,000 1,553,249 # Rental Service 144A 9.50% 12/1/14 1,275,000 1,297,313 Seabulk International 9.50% 8/15/13 469,000 510,624 Stena AB 9.625% 12/1/12 975,000 1,046,906 { Town Sports International 11.00% 2/1/14 701,000 587,088 # Turning Stone Resort Casino 144A 9.125% 9/15/14 645,000 662,738 Wheeling Island Gaming 10.125% 12/15/09 1,755,000 1,794,487 ____________ 29,805,040 ____________ Services Non-cyclical - 1.75% Casella Waste Systems 9.75% 2/1/13 1,870,000 1,963,500 CRC Health 10.75% 2/1/16 1,175,000 1,260,188 Geo Subordinate 11.00% 5/15/12 975,000 945,750 HCA 6.50% 2/15/16 1,250,000 1,040,625 # 144A 9.625% 11/15/16 900,000 947,250 # HealthSouth 144A 10.75% 6/15/16 2,325,000 2,487,750 US Oncology 10.75% 8/15/14 1,250,000 1,387,500 { Vanguard Health 11.25% 10/1/15 2,375,000 1,816,875 WCA Waste 9.25% 6/15/14 200,000 209,000 # 144A 9.25% 6/15/14 1,045,000 1,092,025 ____________ 13,150,463 ____________ Technology & Electronics - 0.94% # Freescale Semiconductor 144A 9.125% 12/15/14 675,000 678,375 10.125% 12/15/16 2,635,000 2,677,819 MagnaChip Semiconductor 8.00% 12/15/14 2,250,000 1,507,500 # NXP Funding 144A 9.50% 10/15/15 500,000 515,625 Solectron Global Finance 8.00% 3/15/16 450,000 459,000 Sungard Data Systems 10.25% 8/15/15 720,000 766,800 ~# UGS Capital II PIK 144A 10.38% 6/1/11 467,660 473,506 ____________ 7,078,625 ____________ 14 Principal Market Amount Value ________________________________________________________________________________ Corporate Bonds (continued) ________________________________________________________________________________ Telecommunications - 2.36% ++ Allegiance Telecom 11.75% 2/15/08 $ 10,000 $ 4,550 American Tower 7.125% 10/15/12 950,000 976,125 American Towers 7.25% 12/1/11 300,000 312,000 # Broadview Networks 144A 11.375% 9/1/12 725,000 757,625 Cincinnati Bell 8.375% 1/15/14 535,000 549,713 # Cricket Communications 144A 9.375% 11/1/14 890,000 914,475 # Digicel Limited 144A 9.25% 9/1/12 855,000 910,575 # Hughes Network Systems 144A 9.50% 4/15/14 1,990,000 2,074,574 { Inmarsat Finance 10.375% 11/15/12 1,865,000 1,713,468 ~ IWO Holdings 9.124% 1/15/12 100,000 102,500 # Level 3 Financing 144A 9.25% 11/1/14 850,000 863,813 # MetroPCS Wireless 144A 9.25% 11/1/14 460,000 469,775 Qwest ~ 8.64% 6/15/13 610,000 664,138 # 144A 7.50% 10/1/14 1,650,000 1,761,374 Rural Cellular 9.875% 2/1/10 915,000 972,188 ~ 11.121% 11/1/12 425,000 444,125 # Telcordia Technologies 144A 10.00% 3/15/13 950,000 821,750 Triton PCS 8.50% 6/1/13 500,000 485,000 9.375% 2/1/11 935,000 846,175 ~ US LEC 13.87% 10/1/09 535,000 570,444 # Wind Acquisition 144A 10.75% 12/1/15 1,340,000 1,517,550 ____________ 17,731,937 ____________ Utilities - 1.01% Avista 9.75% 6/1/08 753,000 797,229 #++ Calpine 144A 8.496% 7/15/07 503,413 552,495 Elwood Energy 8.159% 7/5/26 981,394 1,037,466 Midwest Generation 8.30% 7/2/09 1,185,146 1,205,886 8.75% 5/1/34 725,000 790,250 Mirant Americas 8.30% 5/1/11 1,125,000 1,147,500 Mirant North America 7.375% 12/31/13 200,000 203,500 Orion Power Holdings 12.00% 5/1/10 956,000 1,087,450 # Tenaska Alabama Partners 144A 7.00% 6/30/21 775,368 773,783 ____________ 7,595,559 ____________ Total Corporate Bonds (cost $160,939,552) 163,694,972 ____________ ________________________________________________________________________________ Convertible Bonds - 8.84% ________________________________________________________________________________ Aerospace & Defense - 0.50% # AAR 144A 1.75% 2/1/26 exercise price $29.43, expiration date 2/1/26 $1,150,000 $ 1,260,688 EDO 4.00% 11/15/25 exercise price $34.19, expiration date 11/15/25 975,000 925,031 # L-3 Communications 144A 3.00% 8/1/35 exercise price $102.16, expiration date 8/1/35 1,500,000 1,565,625 ____________ 3,751,344 ____________ Basic Industries - 0.12% # Apex Silver Mines 144A ____________ 2.875% 3/15/24 1,000,000 885,000 ____________ Cable, Media & Publishing - 0.80% EchoStar 5.75% 5/15/08 exercise price $43.29, expiration date 5/15/08 500,000 510,000 Liberty Media 3.25% 3/15/31 exercise price $53.86, expiration date 3/8/31 3,000,000 2,418,750 # Playboy Enterprises 144A 3.00% 3/15/25 exercise price $17.02, expiration date 3/15/25 3,240,000 3,082,050 ____________ 6,010,800 ____________ Computers & Technology - 2.06% Fairchild Semiconductor 5.00% 11/1/08 exercise price $30.00, expiration date 11/1/08 1,950,000 1,942,688 Hutchinson Technology 3.25% 1/15/26 exercise price $36.43, expiration date 1/15/26 1,540,000 1,441,825 # Informatica 144A 3.00% 3/15/26 exercise price $20.00, expiration date 3/15/26 2,315,000 2,294,743 Intel 2.95% 12/15/35 exercise price $31.53, expiration date 12/15/35 500,000 465,625 # 144A 2.95% 12/15/35 exercise price $31.53, expiration date 12/15/35 1,140,000 1,061,625 Mercury Interactive 4.75% 7/1/07 exercise price $111.25, expiration date 7/1/07 3,000,000 3,041,250 ^ ON Semiconductor Series B 0.499% 4/15/24 expiration price $9.82, expiration date 4/15/24 2,725,000 2,469,530 SanDisk 1.00% 5/15/13 exercise price $82.36, expiration date 5/15/13 775,000 691,688 (continues) 15 Statement of net assets Delaware Dividend Income Fund Principal Market Amount Value ________________________________________________________________________________ Convertible Bonds (continued) ________________________________________________________________________________ Computers & Technology (continued) # Sybase 144A 1.75% 2/22/25 exercise price $25.22, expiration date 2/22/25 $1,875,000 $ 2,071,875 ____________ 15,480,849 ____________ Electronics & Electrical Equipment - 0.37% Fisher Scientific International 3.25% 3/1/24 exercise price $40.20, expiration date 3/1/24 1,500,000 1,899,375 Solectron 0.50% 2/15/34 exercise price $9.67, expiration date 2/15/34 1,100,000 900,625 ____________ 2,800,000 ____________ Energy - 0.85% Halliburton 3.125% 7/15/23 exercise price $18.81, expiration date 7/15/23 1,250,000 2,312,500 Pride International 3.25% 5/1/33 exercise price $25.70, expiration date 5/1/33 1,080,000 1,448,550 Schlumberger 2.125% 6/1/23 exercise price $40.00, expiration date 6/1/23 1,500,000 2,668,125 ____________ 6,429,175 ____________ Health Care & Pharmaceuticals - 1.81% Allergan 1.50% 4/1/26 exercise price $126.66, expiration date 4/1/26 600,000 646,500 # 144A 1.50% 4/1/26 exercise price $126.66, expiration date 4/1/26 1,935,000 2,084,962 # Amgen 144A 0.375% 2/1/13 exercise price $79.48, expiration date 2/1/13 775,000 778,875 ~ Bristol-Myers Squibb 4.89% 9/15/23 exercise price $41.28, expiration date 9/15/23 1,600,000 1,608,000 CV Therapeutics 3.25% 8/16/13 exercise price $27.00, expiration date 8/16/13 530,000 447,188 Encysive Pharmaceuticals 2.50% 3/15/12 exercise price $13.95, expiration date 3/15/12 200,000 161,500 # 144A 2.50% 3/15/12 exercise price $13.95, expiration date 3/15/12 2,000,000 1,615,000 # Nektar Therapeutics 144A 3.25% 9/28/12 exercise price $21.52, expiration date 9/28/12 1,525,000 1,587,906 Teva Pharmaceutical Finance 0.25% 2/1/26 exercise price $47.16, expiration date 2/1/26 1,535,000 1,477,438 ~ Wyeth 5.109% 1/15/24 exercise price $60.39, expiration date 1/15/24 3,000,000 3,191,999 ____________ 13,599,368 ____________ Leisure, Lodging & Entertainment - 0.07% # Regal Entertainment Group 144A 3.75% 5/15/08 exercise price $14.65, expiration date 5/15/08 350,000 498,313 ____________ 498,313 ____________ Media - 0.07% # EchoStar Communications 144A ____________ 5.75% 5/15/08 500,000 510,000 ____________ Real Estate - 0.08% MeriStar Hospitality 9.50% 4/1/10 exercise price $10.18, expiration date 4/1/10 600,000 615,900 ____________ 615,900 ____________ Retail - 1.22% ; Dick's Sporting Goods 1.606% 2/18/24 exercise price $58.13, expiration date 2/18/24 2,480,000 2,430,400 ~ Lowe's Companies 0.861% 10/19/21 exercise price $29.05, expiration date 10/19/21 1,250,000 1,323,438 # Saks 144A 2.00% 3/15/24 exercise price $11.97, expiration date 3/15/24 2,200,000 3,107,500 Sonic Automotive 5.25% 5/7/09 exercise price $46.87, expiration date 5/7/09 1,000,000 952,500 # United Auto Group 144A 3.50% 4/1/26 exercise price $23.69, expiration date 4/1/26 1,150,000 1,334,000 ____________ 9,147,838 ____________ Telecommunications - 0.15% Qwest Communications International 3.50% 11/15/25 exercise price $5.90, expiration date 11/15/25 750,000 1,110,000 ____________ 1,110,000 ____________ Transportation - 0.47% # ExpressJet 144A 4.25% 8/1/23 exercise price $18.20, expiration date 8/1/23 750,000 705,938 16 Principal Market Amount Value ________________________________________________________________________________ Convertible Bonds (continued) ________________________________________________________________________________ Transportation (continued) JetBlue Airways 3.50% 7/15/33 exercise price $28.33, expiration date 8/1/23 $1,625,000 $ 1,560,000 3.75% 3/15/35 exercise price $17.10, expration date 3/15/35 1,195,000 1,260,725 ____________ 3,526,663 ____________ Utilities - 0.27% CenterPoint Energy 3.75% 5/15/23 exercise price $11.31, expiration date 5/15/23 400,000 577,500 # 144A 3.75% 5/15/23 exercise price $11.31, expiration date 5/15/23 1,030,000 1,487,063 ____________ 2,064,563 ____________ Total Convertible Bonds (cost $61,935,962) 66,429,813 ____________ Number of Shares ________________________________________________________________________________ Convertible Preferred Stock - 3.80% ________________________________________________________________________________ Banking, Finance & Insurance - 2.02% Aspen Insurance 5.625% exercise price $29.28, expiration date 12/31/49 37,800 2,083,725 ~ Citigroup Funding 5.02% exercise price $29.50, expiration date 9/27/08 69,000 2,173,500 E Trade Group 6.125% exercise price $21.82, expiration date 11/18/08 75,500 2,340,500 Lehman Brothers Holdings 6.25% exercise price $54.24, expiration date 10/15/07 66,750 1,835,625 Marshall & Ilsley 6.50% exercise price $ 46.28, expiration date 8/15/07 70,500 1,859,790 Merrill Lynch 6.75% exercise price $40.80, expiration date 10/15/07 70,000 3,101,874 Sovereign Capital Trust IV 4.375% exercise price $ 29.07, expiration date 3/1/34 35,700 1,771,613 ____________ 15,166,627 ____________ Basic Materials - 0.39% Freeport-McMoRan Copper & Gold 5.50% exercise price $48.55 expiration date 12/31/49 545 761,638 Huntsman 5.00% exercise price $28.29, expiration date 2/16/08 56,100 $ 2,215,950 ____________ 2,977,588 ____________ Cable, Media & Publishing - 0.22% # Interpublic Group 5.25% 144A exercise price $13.66, expiration date 12/31/49 1,500 1,655,625 ____________ 1,655,625 ____________ Energy - 0.41% Chesapeake 4.50% exercise price $44.17, expiration date 12/31/49 17,075 1,741,650 El Paso Energy Capital Trust I 4.75% exercise price $41.59, expiration date 3/31/28 34,600 1,337,290 ____________ 3,078,940 ____________ Telecommunications - 0.14% Lucent Technologies Capital Trust I 7.75% exercise price $24.80, expiration date 3/15/17 1,000 1,026,500 ____________ 1,026,500 ____________ Utilities - 0.62% ~ CenterPoint Energy 2.00% exercise price $18.09, expiration date 9/15/29 26,000 959,920 Entergy 7.625% exercise price $87.64, expiration date 2/17/09 37,500 2,226,562 NRG Energy 5.75% exercise price $60.45, expiration date 3/16/09 5,335 1,457,789 ____________ 4,644,271 ____________ Total Convertible Preferred Stock (cost $28,096,853) 28,549,551 ____________ ________________________________________________________________________________ Preferred Stock - 0.91% ________________________________________________________________________________ Leisure, Lodging & Entertainment - 0.05% Red Lion Hotels Capital Trust 9.50% 15,579 421,100 ____________ 421,100 ____________ Real Estate - 0.86% Equity Inns Series B 8.75% 18,300 478,545 LaSalle Hotel Properties 10.25% 111,500 2,870,010 Ramco-Gershenson Properties 9.50% 15,700 422,409 SL Green Realty 7.625% 103,000 2,666,670 ____________ 6,437,634 ____________ Total Preferred Stock (cost $6,825,579) 6,858,734 ____________ (continues) 17 Statement of net assets Delaware Dividend Income Fund Principal Market Amount Value ________________________________________________________________________________ << Senior Secured Loans - 0.14% ________________________________________________________________________________ General Motors 7.745% 11/17/13 $ 500,000 $ 500,625 HCA 8.086% 11/17/13 500,000 503,594 ____________ Total Senior Secured Loans (cost $1,001,875) 1,004,219 ____________ Number of Shares ________________________________________________________________________________ Exchange Traded Funds - 0.33% ________________________________________________________________________________ iShares Dow Jones U.S. Real Estate Index Fund 29,200 2,505,360 ____________ Total Exchange Traded Funds (cost $1,550,582) 2,505,360 ____________ ________________________________________________________________________________ Warrants - 0.00% ________________________________________________________________________________ +# Solutia 144A, exercise price $7.59, expiration date 7/15/09 12 0 ____________ Total Warrants (cost $1,021) 0 ____________ Principal Amount ________________________________________________________________________________ Commercial Mortgage-Backed Securities - 0.10% ________________________________________________________________________________ # First Union National Bank Commercial Mortgage Trust Series 2001-C2 L 144A 6.46% 1/12/43 $ 750,000 765,522 ____________ Total Commercial Mortgage- Backed Securities (cost $761,221) 765,522 ____________ ________________________________________________________________________________ Repurchase Agreements - 4.62% ________________________________________________________________________________ With BNP Paribas 5.26% 12/1/06 (dated 11/30/06, to be repurchased at $15,325,239, collateralized by $15,747,000 U.S. Treasury Notes 2.75% due 8/15/07, market value $15,640,613) 15,323,000 15,323,000 With Cantor Fitzgerald 5.26% 12/1/06 (dated 11/30/06, to be repurchased at $9,346,365, collateralized by $7,577,000 U.S. Treasury Bills due 12/28/06, market value $7,549,871 and $1,945,000 U.S. Treasury Notes 6.25% due 2/15/07, market value $1,984,758) 9,345,000 9,345,000 With UBS Warburg 5.26% 12/1/06 (dated 11/30/06, to be repurchased at $10,104,476, collateralized by $10,559,000 U.S. Treasury Bills due 5/24/07, market value $10,311,513) 10,103,000 10,103,000 ____________ Total Repurchase Agreements (cost $34,771,000) 34,771,000 ____________ Market Value ________________________________________________________________________________ ________________________________________________________________________________ Total Market Value of Securities - 99.58% (cost $669,293,596) $748,907,689 Receivables and Other Assets Net of Liabilities - 0.42% 3,178,633 ____________ Net Assets Applicable to 59,759,754 Shares Outstanding - 100.00% $752,086,322 ____________ Net Asset Value - Delaware Dividend Income Fund Class A ($398,124,258 / 31,630,206 Shares) $12.59 ______ Net Asset Value - Delaware Dividend Income Fund Class B ($77,757,604 / 6,180,623 Shares) $12.58 ______ Net Asset Value - Delaware Dividend Income Fund Class C ($269,273,658 / 21,398,311 Shares) $12.58 ______ Net Asset Value - Delaware Dividend Income Fund Class R ($4,275,192 / 339,769 Shares) $12.58 ______ Net Asset Value - Delaware Dividend Income Fund Institutional Class ($2,655,610 / 210,845 Shares) $12.60 ______ Components of Net Assets at November 30, 2006: Shares of beneficial interest (unlimited authorization - no par) $680,871,527 Undistributed net investment income 3,893,574 Accumulated net realized loss on investments (12,292,872) Net unrealized appreciation of investments 79,614,093 _____________ Total net assets $752,086,322 _____________ } Security 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, 2006. ++ Non-income producing security. Security is currently in default. ~ Variable rate security. The rate shown is the rate as of November 30, 2006. ^ 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. ; Step coupon bond. Coupon increases periodically based on a predetermined schedule. Stated interest rate in effect at November 30, 2006. # Security exempt from registration under Rule 144A of the Securities Act of 1933, as amended. At November 30, 2006, the aggregate amount of Rule 144A securi- ties equaled $74,010,908, which represented 9.84% of the Fund's net assets. See Note 9 in "Notes to Financial Statements." << Senior Secured Loans generally pay interest at rates which are periodically redetermined by reference to a base lending rate plus a premium. These base lending rates are generally (i) the prime rate offered by one or more United States banks, (ii) the lending rate offered by one or more European banks such as the London Inter-Bank Offered Rate ('LIBOR') and (iii) the certificate of deposit rate. Senior Secured Loans may be subject to restrictions on resale. 18 ________________________________________________________________________________ ________________________________________________________________________________ Summary of Abbreviations: ADR - American Depositary Receipts REIT - Real Estate Investment Trust Net Asset Value and Offering Price Per Share - Delaware Dividend Income Fund Net asset value Class A (A) $12.59 Sales charge (5.75% of offering price) (B) 0.77 ______ Offering price $13.36 ______ (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 19 Statement of operations Delaware Dividend Income Fund Year Ended November 30, 2006 Investment Income: Dividends $12,617,485 Interest 14,920,952 $ 27,538,437 ___________ ____________ Expenses: Management fees 3,801,735 Distribution expenses - Class A 972,189 Distribution expenses - Class B 649,583 Distribution expenses - Class C 2,012,661 Distribution expenses - Class R 20,154 Dividend disbursing and transfer agent fees and expenses 972,317 Accounting and administration expenses 236,783 Reports and statements to shareholders 121,571 Trustees' fees and benefits 114,627 Registration fees 106,017 Legal fees 62,110 Audit and taxes 29,917 Insurance fees 26,898 Custodian fees 18,467 Consulting fees 16,499 Pricing fees 9,306 Dues and services 6,417 Trustees' expenses 3,598 Taxes (other than taxes on income) 2,466 9,183,315 ___________ Less expenses absorbed or waived (1,026,166) Less waiver of distribution expenses - Class A (160,482) Less waiver of distribution expenses - Class R (3,352) Less expense paid indirectly (7,146) ____________ Total expenses 7,986,169 ____________ Net Investment Income 19,552,268 ____________ Net Realized and Unrealized Gain on Investments: Net realized gain on investments 7,715,241 Net change in unrealized appreciation/depreciation of investments 74,465,702 ____________ Net Realized and Unrealized Gain on Investments 82,180,943 ____________ Net Increase in Net Assets Resulting from Operations $101,733,211 ____________ See accompanying notes
20 Statements of changes in net assets Delaware Dividend Income Fund Year Ended 11/30/06 11/30/05 Increase (Decrease) in Net Assets from Operations: Net investment income $ 19,552,268 $ 13,476,249 Net realized gain on investments 7,715,241 4,692,803 Net change in unrealized appreciation/depreciation of investments 74,465,702 (2,561,963) ____________ ____________ Net increase in net assets resulting from operations 101,733,211 15,607,089 ____________ ____________ Dividends and Distributions to Shareholders from: Net investment income: Class A (12,346,220) (6,111,307) Class B (2,012,242) (1,112,078) Class C (6,099,994) (3,064,142) Class R (102,054) (21,534) Institutional Class (51,228) (12,391) Net realized gain on investments: Class A (1,682,444) (829,375) Class B (342,772) (249,797) Class C (981,242) (644,998) Class R (8,517) (2,737) Institutional Class (5,576) (1,641) ____________ ____________ (23,632,289) (12,050,000) ____________ ____________ Capital Share Transactions: Proceeds from shares sold: Class A 133,284,524 155,512,307 Class B 21,478,794 30,360,760 Class C 105,550,977 95,529,471 Class R 2,559,798 1,064,376 Institutional Class 1,573,726 919,948 Net asset value of shares issued upon reinvestment of dividends and distributions: Class A 10,288,514 5,175,642 Class B 1,934,390 1,092,408 Class C 5,828,929 2,975,103 Class R 110,569 24,272 Institutional Class 52,127 11,878 Net assets from reorganization (1): Class A - 85,145,873 ____________ ____________ 282,662,348 377,812,038 ____________ ____________ Cost of shares repurchased: Class A (72,655,974) (68,079,584) Class B (11,934,293) (6,143,372) Class C (34,751,604) (15,879,276) Class R (307,016) (49,450) Institutional Class (123,737) (98,155) ____________ ____________ (119,772,624) (90,249,837) ____________ ____________ Increase in net assets derived from capital share transactions 162,889,724 287,562,201 ____________ ____________ Net Increase in Net Assets 240,990,646 291,119,290 Net Assets: Beginning of year 511,095,676 219,976,386 ____________ ____________ End of year (including undistributed net investment income $ 752,086,322 $511,095,676 of $3,893,574 and $5,363,184, respectively) ____________ ____________ (1) See Note 7 in "Notes to Financial Statements." See accompanying notes
21 Financial highlights Delaware Dividend Income Fund Class A Selected data for each share of the Fund outstanding throughout each period were as follows: Year Ended ______________________________________________________________ 11/30/06 11/30/05 11/30/04 11/30/03 11/30/02 ___________________________________________________________________________________________________________________________________ Net asset value, beginning of period $11.140 $11.050 $10.210 $ 9.030 $9.230 Income (loss) from investment operations: Net investment income (1) 0.422 0.450 0.345 0.450 0.429 Net realized and unrealized gain (loss) on investments 1.551 0.081 0.891 1.213 (0.196) _______ _______ _______ _______ ______ Total from investment operations 1.973 0.531 1.236 1.663 0.233 _______ _______ _______ _______ ______ Less dividends and distributions from: Net investment income (0.457) (0.360) (0.362) (0.483) (0.433) Net realized gain on investments (0.066) (0.081) (0.034) - - _______ _______ _______ _______ ______ Total dividends and distributions (0.523) (0.441) (0.396) (0.483) (0.433) _______ _______ _______ _______ ______ Net asset value, end of period $12.590 $11.140 $11.050 $10.210 $9.030 _______ _______ _______ _______ ______ Total return (2) 18.34% 4.89% 12.38% 19.45% 2.58% Ratios and supplemental data: Net assets, end of period (000 omitted) $398,124 $285,159 $105,253 $5,821 $1 Ratio of expenses to average net assets 1.01% 1.00% 1.00% 0.79% 0.75% Ratio of expenses to average net assets prior to expense limitation and expense paid indirectly 1.23% 1.27% 1.32% 2.05% 1.30% Ratio of net investment income to average net assets 3.64% 4.05% 3.26% 4.69% 4.71% Ratio of net investment income to average net assets prior to expense limitation and expense paid indirectly 3.42% 3.78% 2.94% 3.43% 4.16% Portfolio turnover 51% 85% 95% 212% 188% __________________________________________________________________________________________________________________________________ (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
22 Delaware Dividend Income Fund Class B Selected data for each share of the Fund outstanding throughout each period were as follows: Year Ended __________________________________ 10/1/03 (1) to 11/30/06 11/30/05 11/30/04 11/30/03 __________________________________________________________________________________________________________________________ Net asset value, beginning of period $11.130 $11.040 $10.200 $9.950 Income from investment operations: Net investment income (2) 0.335 0.367 0.267 0.051 Net realized and unrealized gain on investments 1.552 0.079 0.889 0.199 _______ _______ _______ _______ Total from investment operations 1.887 0.446 1.156 0.250 _______ _______ _______ _______ Less dividends and distributions from: Net investment income (0.371) (0.275) (0.282) - Net realized gain on investments (0.066) (0.081) (0.034) - _______ _______ _______ _______ Total dividends and distributions (0.437) (0.356) (0.316) - _______ _______ _______ _______ Net asset value, end of period $12.580 $11.130 $11.040 $10.200 _______ _______ _______ _______ Total return (3) 17.46% 4.09% 11.54% 2.51% Ratios and supplemental data: Net assets, end of period (000 omitted) $77,757 $57,904 $32,165 $2,125 Ratio of expenses to average net assets 1.76% 1.75% 1.75% 1.75% Ratio of expenses to average net assets prior to expense limitation and expense paid indirectly 1.93% 1.97% 2.02% 4.10% Ratio of net investment income to average net assets 2.89% 3.30% 2.51% 3.65% Ratio of net investment income to average net assets prior to expense limitation and expense paid indirectly 2.72% 3.08% 2.25% 1.30% Portfolio turnover 51% 85% 95% 212% (4) ___________________________________________________________________________________________________________________________________ (1) Date of commencement of operations; ratios have been annualized and total return has not been annualized. (2) The average shares outstanding method has been applied for per share information. (3) Total investment return is based on the change in net asset value of a share during the period and assumes reinvestment of dividends and distributions at net asset value and does not reflect the impact of a sales charge. Total investment return reflects waivers and payment of fees by the manager. Performance would have been lower had the expense limitation not been in effect. (4) Portfolio turnover is representative of the Fund for the entire year. See accompanying notes
(continues) 23 Selected data for each share of the Fund outstanding throughout each period were as follows: Year Ended _____________________________________ 10/1/03 (1) to 11/30/06 11/30/05 11/30/04 11/30/03 ____________________________________________________________________________________________________________________________________ Net asset value, beginning of period $11.130 $11.040 $10.200 $ 9.950 Income from investment operations: Net investment income (2) 0.335 0.367 0.267 0.051 Net realized and unrealized gain on investments 1.552 0.079 0.889 0.199 _______ _______ _______ _______ Total from investment operations 1.887 0.446 1.156 0.250 _______ _______ _______ _______ Less dividends and distributions from: Net investment income (0.371) (0.275) (0.282) - Net realized gain on investments (0.066) (0.081) (0.034) - _______ _______ _______ _______ Total dividends and distributions (0.437) (0.356) (0.316) - _______ _______ _______ _______ Net asset value, end of period $12.580 $11.130 $11.040 $10.200 _______ _______ _______ _______ Total return (3) 17.46% 4.09% 11.53% 2.51% Ratios and supplemental data: Net assets, end of period (000 omitted) $269,274 $165,663 $82,083 $4,341 Ratio of expenses to average net assets 1.76% 1.75% 1.75% 1.75% Ratio of expenses to average net assets prior to expense limitation and expense paid indirectly 1.93% 1.97% 2.02% 4.10% Ratio of net investment income to average net assets 2.89% 3.30% 2.52% 3.65% Ratio of net investment income to average net assets prior to expense limitation and expense paid indirectly 2.72% 3.08% 2.25% 1.30% Portfolio turnover 51% 85% 95% 212% (4) ____________________________________________________________________________________________________________________________________ (1) Date of commencement of operations; ratios have been annualized and total return has not been annualized. (2) The average shares outstanding method has been applied for per share information. (3) Total investment return is based on the change in net asset value of a share during the period and assumes reinvestment of dividends and distributions at net asset value and does not reflect the impact of a sales charge. Total investment return reflects waivers and payment of fees by the manager. Performance would have been lower had the expense limitation not been in effect. (4) Portfolio turnover is representative of the Fund for the entire year. See accompanying notes
24 Delaware Dividend Income Fund Class R Selected data for each share of the Fund outstanding throughout each period were as follows: Year Ended _____________________________________ 10/1/03 (1) to 11/30/06 11/30/05 11/30/04 11/30/03 ____________________________________________________________________________________________________________________________________ Net asset value, beginning of period $11.130 $11.040 $10.220 $9.950 Income from investment operations: Net investment income (2) 0.394 0.416 0.308 0.056 Net realized and unrealized gain on investments 1.551 0.078 0.879 0.214 _______ _______ _______ _______ Total from investment operations 1.945 0.494 1.187 0.270 _______ _______ _______ _______ Less dividends and distributions from: Net investment income (0.429) (0.323) (0.333) - Net realized gain on investments (0.066) (0.081) (0.034) - _______ _______ _______ _______ Total dividends and distributions (0.495) (0.404) (0.367) - _______ _______ _______ _______ Net asset value, end of period $12.580 $11.130 $11.040 $10.220 _______ _______ _______ _______ Total return (3) 18.06% 4.55% 11.86% 2.71% Ratios and supplemental data: Net assets, end of period (000 omitted) $4,275 $1,429 $373 $3 Ratio of expenses to average net assets 1.26% 1.30% 1.35% 1.35% Ratio of expenses to average net assets prior to expense limitation and expense paid indirectly 1.53% 1.57% 1.62% 3.70% Ratio of net investment income to average net assets 3.39% 3.75% 2.89% 4.05% Ratio of net investment income to average net assets prior to expense limitation and expense paid indirectly 3.12% 3.48% 2.62% 1.70% Portfolio turnover 51% 85% 95% 212% (4) ____________________________________________________________________________________________________________________________________ (1) Date of commencement of operations; ratios have been annualized and total return has not been annualized. (2) The average shares outstanding method has been applied for per share information. (3) Total investment return is based on the change in net asset value of a share during the period and assumes reinvestment of dividends and distributions at net asset value. Total investment return reflects waivers and payment of fees by the manager and distributor. Performance would have been lower had the expense limitation not been in effect. (4) Portfolio turnover is representative of the Fund for the entire year. See accompanying notes
(continues) 25 Financial highlights Delaware Dividend Income Fund Institutional Class Selected data for each share of the Fund outstanding throughout each period were as follows: Year Ended ______________________________________________________________ 11/30/06 11/30/05 11/30/04 11/30/03 11/30/02 ___________________________________________________________________________________________________________________________________ Net asset value, beginning of period $11.140 $11.050 $10.220 $9.030 $9.230 Income (loss) from investment operations: Net investment income (1) 0.452 0.477 0.371 0.453 0.429 Net realized and unrealized gain (loss) on investments 1.559 0.082 0.882 1.220 (0.196) _______ _______ _______ _______ ______ Total from investment operations 2.011 0.559 1.253 1.673 0.233 _______ _______ _______ _______ ______ Less dividends and distributions from: Net investment income (0.485) (0.388) (0.389) (0.483) (0.433) Net realized gain on investments (0.066) (0.081) (0.034) - - _______ _______ _______ _______ ______ Total dividends and distributions (0.551) (0.469) (0.423) (0.483) (0.433) _______ _______ _______ _______ ______ Net asset value, end of period $12.600 $11.140 $11.050 $10.220 $9.030 _______ _______ _______ _______ ______ Total return (2) 18.72% 5.16% 12.55% 19.56% 2.58% Ratios and supplemental data: Net assets, end of period (000 omitted) $2,656 $941 $102 $3,879 $3,233 Ratio of expenses to average net assets 0.76% 0.75% 0.75% 0.75% 0.75% Ratio of expenses to average net assets prior to expense limitation and expense paid indirectly 0.93% 0.97% 1.02% 1.75% 1.00% Ratio of net investment income to average net assets 3.89% 4.30% 3.49% 4.73% 4.71% Ratio of net investment income to average net assets prior to expense limitation and expense paid indirectly 3.72% 4.08% 3.22% 3.73% 4.46% Portfolio turnover 51% 85% 95% 212% 188% ___________________________________________________________________________________________________________________________________ (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. See accompanying notes
26 Notes to financial statements Delaware Dividend Income Fund November 30, 2006 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 A share purchases of $1,000,000 or more will incur a contingent deferred sales charge of 1% if redeemed during the first year and 0.50% during the second year, provided that Delaware Distributors, L.P. (DDLP) paid a financial advisor commission on the purchase of those 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 were held. Class B shares will automatically convert to Class A shares on a quarterly basis approximately eight years after purchase. Class C shares are sold with a contingent deferred sales charge of 1%, if redeemed during the first 12 months. Class R and Institutional Class shares are not subject to a sales charge and are offered for sale exclusively to certain eligible 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 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). In September 2006, the Financial Accounting Standards Board (FASB) issued FASB Statement No. 157, Fair Value Measurements, (Statement 157). Statement 157 establishes a framework for measuring fair value in generally accepted accounting principles, clarifies the definition of fair value within that framework, and expands disclosures about the use of fair value measurements. Statement 157 is intended to increase consistency and comparability among fair value estimates used in financial reporting. Statement 157 is effective for fiscal years beginning after November 15, 2007. Management does not expect the adoption of Statement 157 to have an impact on the amounts reported in the financial statements. 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. On July 13, 2006, FASB released FASB Interpretation No. 48 "Accounting for Uncertainty in Income Taxes" (FIN 48). FIN 48 provides guidance for how uncertain tax positions should be recognized, measured, presented, and disclosed in the financial statements. FIN 48 requires the evaluation of tax positions taken or expected to be taken in the course of preparing the Fund's tax returns to determine whether the tax positions are "more-likely-than-not" of being sustained by the applicable tax authority. Tax positions not deemed to meet the more-likely-than-not threshold would be recorded as a tax benefit or expense in the current year. Adoption of FIN 48 is required for fiscal years beginning after December 15, 2006 and is to be applied to all open tax years as of the effective date. Although the Fund's tax positions are currently being evaluated, management does not expect the adoption of FIN 48 to have a material impact on the Fund's 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 at least 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 directly attributable to the Fund are charged directly to the Fund. Other expenses common to various funds within the Delaware Investments(R) Family of Funds are generally allocated amongst such 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) for financial reporting purposes. Costs used in calculating realized gains and losses on the sale of investment securities are those of the specific securities sold. (continues) 27 Notes to financial statements Delaware Dividend Income Fund 1. Significant Accounting Policies (continued) Dividend income is recorded on the ex-dividend date and interest income is recorded on the accrual basis. Discounts and premiums are amortized to interest income over the lives of the respective securities. Distributions received from investments in Real Estate Investment Trusts are recorded as dividend income on ex-dividend date, subject to reclassification upon notice of character of such distributions by the issuer. The financial statements reflect an estimate of the reclassification of the distribution character. The Fund declares and pays dividends from net investment income quarterly and distributions from net realized gain on investments, if any, annually. Subject to seeking 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 $13,611 for the year ended November 30, 2006. In general, best execution refers to many factors, including the price paid or received for a security, the commission charged, the promptness and reliability of execution, the confidentiality and placement accorded the order, and other factors affecting the overall benefit obtained by the Fund on the transaction. 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 average daily net assets in excess of $2.5 billion. DMC has contractually agreed to waive that portion, if any, of its management fee and reimburse the Fund to the extent necessary to ensure that annual operating expenses, exclusive of taxes, interest, brokerage commissions, distribution fees, certain insurance costs and extraordinary expenses, do not exceed 0.75% of average daily net assets through March 31, 2007. Delaware Service Company, Inc. (DSC), an affiliate of DMC, provides accounting, administration, dividend disbursing and transfer agent services. The Fund pays DSC a monthly fee computed at the annual rate of 0.04% of such Fund's average daily net assets 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 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, 2007 in order to prevent distribution and service fees of Class A and Class R shares from exceeding 0.25% and 0.50%, respectively, of average daily net assets. Institutional Class shares pay no distribution and service expenses. At November 30, 2006, the Fund had liabilities payable to affiliates as follows: Investment management fee payable to DMC $241,905 Dividend disbursing, transfer agent fees, accounting and administration fees and other expenses payable to DSC 119,576 Distribution fee payable to DDLP 357,620 Other expenses payable to DMC and affiliates * 14,547 * 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 and tax services, including internal, legal and tax services provided to the Fund by DMC and/or its affiliates' employees. For the year ended November 30, 2006, the Fund was charged $26,351 for internal legal and tax services provided by DMC and or its affiliates' employees. For the year ended November 30, 2006, DDLP earned $357,104 for commissions on sales of the Fund's Class A shares. For the year ended November 30, 2006, DDLP received gross contingent deferred sales charge commissions of $108, $122,443, and $23,120 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. Trustees' Fees and Benefits include expenses accrued by the Fund for each Trustee's retainer, per meeting fees and retirement benefits. Independent Trustees with over five years of uninterrupted service are eligible to participate in a retirement plan that provides for the payment of benefits upon retirement. The amount of the retirement benefit is determined based on factors set forth in the plan including the number of years of service. On November 16, 2006, the Board of Trustees of the Fund unanimously voted to terminate the retirement plan. Payments equal to the net present value of the earned benefits will be made in 2007 to those independent Trustees so entitled. The retirement benefit payout for the Fund is $82,474. 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, 2006, the Fund made purchases of $433,658,948 and sales of $285,696,928 of investment securities other than short-term investments. At November 30, 2006, the cost of investments for federal income tax purposes was $671,115,810. At November 30, 2006, net unrealized appreciation was $77,791,879 of which $84,046,270 related to unrealized appreciation of investments and $6,254,391 related to unrealized depreciation of investments. 28 4. Dividends 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, 2006 and 2005 was as follows: Year Ended 11/30/06 11/30/05 Ordinary income $21,284,131 $11,900,620 Long-term capital gain 2,348,158 149,380 ___________ ___________ Total $23,632,289 $12,050,000 ___________ ___________ 5. Components of Net Assets on a Tax Basis As of November 30, 2006, the components of net assets on a tax basis were as follows: Shares of beneficial interest $680,871,527 Undistributed ordinary income 4,713,130 Undistributed long-term capital gain 3,695,458 Capital loss carryforwards as of 11/30/06 * (14,985,672) Unrealized appreciation of investments 77,791,879 ____________ Net assets $752,086,322 ____________ The differences between book basis and tax basis components of net assets are primarily attributable to tax deferral of losses on wash sales and tax treatment of market discount and premium on debt instruments and contingent payment debt instruments. The undistributed earnings for Delaware Dividend Income Fund are estimated pending final notification of tax 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 market discount and premium on certain debt instruments and contingent payment debt instruments. Results of operations and net assets were not affected by these reclassifications. For the year ended November 30, 2006, the Fund recorded the following reclassifications: Undistributed net investment income (410,140) Accumulated net realized gain 284,748 Unrealized appreciation of investments ** $125,392 * The amount of this loss which can be utilized in subsequent years is subject to an annual limitation in accordance with the Internal Revenue Code due to the Fund merger with Lincoln Convertible Securities Fund in 2005. ** Adjustment to cost basis of securities. For federal income tax purposes, capital loss carryforwards may be carried forward and applied against future capital gains. The Fund utilized $3,746,418 of capital loss carryforwards in 2006. Such capital loss carryforwards expire as follows: $6,921,228 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. 6. Capital Shares Transactions in capital shares were as follows: Year Ended 11/30/06 11/30/05 Shares sold: Class A 11,418,053 14,033,811 Class B 1,845,212 2,744,286 Class C 9,016,333 8,613,965 Class R 228,242 96,885 Institutional Class 132,589 83,093 Shares issued upon reinvestment of dividends and distributions: Class A 909,798 467,873 Class B 171,290 98,641 Class C 515,139 268,682 Class R 9,703 2,197 Institutional Class 4,596 1,076 Shares issued from reorganization (1): - 7,705,509 __________ __________ 24,250,955 34,116,018 __________ __________ Shares repurchased: Class A (6,305,076) (6,128,075) Class B (1,038,106) (554,170) Class C (3,013,453) (1,436,755) Class R (26,556) (4,499) Institutional Class (10,828) (8,958) __________ __________ (10,394,019) (8,132,457) __________ __________ Net increase 13,856,936 25,983,561 __________ __________ (1) See Note 7. For the years ended November 30, 2006 and 2005, 136,491 Class B shares were converted to 136,372 Class A shares valued at $1,573,078 and 69,809 Class B shares were converted to 69,746 Class A shares valued at $779,637, respectively. The respective amounts are included in Class B redemptions and Class A subscriptions in the table above and in the Statements of Changes in Net Assets. (continues) 29 Notes to financial statements Delaware Dividend Income Fund 7. 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 Delaware Dividend Income Fund in exchange for Class A shares of Delaware 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 Unrealized Accumulated Net Assets Depreciation Net Realized 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. 8. 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 Participant'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, 2006, or at any time during the year then ended. 9. Credit and Market Risk The Fund may invest up to 15% of its total assets in illiquid securities, which may include securities with contractual restrictions on resale, securities exempt from registration under Rule 144A of the Securities Act of 1933, as amended, and other securities which may not be readily marketable. The relative illiquidity of these securities may impair the Fund from disposing of them in a timely manner and at a fair price when it is necessary or desirable to do so. While maintaining oversight, the Fund's 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, 2006, no securities have been determined to be illiquid under the Fund's Liquidity Procedures. Rule 144A securities have been identified on the Statement of Net Assets. The Fund invests a portion of its assets in high yield fixed income securities, which carry ratings of BBB or lower by Standard & Poor's Ratings Group and/or Baa or lower by Moody's Investor Services, Inc. Investments in these higher-yielding securities are generally accompanied by a greater degree of credit risk than higher rated securities. Additionally, lower rated securities may be more susceptible to adverse economic and competitive industry conditions than investment grade securities. The Fund invests in real estate investment trusts (REITs) and is subject to some of the risks associated with that industry. If the Fund holds real estate directly as a result of defaults or receives rental income directly from real estate holdings, its tax status as a regulated investment company may be jeopardized. There were no direct holdings during the year ended November 30, 2006. 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. 10. 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. 11. 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, 2006, 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) _____________ ______________ _____________ _____________ 10% 90% 100% 36% (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 distributions. (1) Qualifying dividends represent dividends, which qualify for the corporate dividends received deduction. * For the fiscal year ended November 30, 2006, certain dividends paid by the Fund may be subject to a maximum tax rate of 15%, as provided by the Jobs and Growth Tax Relief Reconciliation Act of 2003. The Fund intends to designate up to a maximum amount of $21,284,131 to be taxed at a maximum rate of 15%. Complete information will be computed and reported in conjunction with your 2006 Form 1099-DIV. 30 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 Delaware Dividend Income Fund (one of the series constituting Delaware Group Equity Funds V) (the "Fund") as of November 30, 2006, 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, 2006, 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, 2006, 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 16, 2007 31 Board of trustees/directors and officers addendum Delaware Investments(R) Family of Funds 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. Each trustee has served in that capacity since he or she was elected to or appointed to the Board of Trustees, and will continue to serve until his or her retirement or the election of a new trustee in his or her place. The following is a list of the Trustees and Officers with certain background and related information. Number of Portfolios in Fund Other Name, Complex Overseen Directorships Address, Position(s) Length of Principal Occupation(s) by Trustee Held by and Birth Date Held with Fund(s) Time Served During Past 5 Years or Officer Trustee or Officer ____________________________________________________________________________________________________________________________________ Interested Trustees ____________________________________________________________________________________________________________________________________ Patrick P. Coyne (1) Chairman, Chairman and Trustee Patrick P. Coyne has served in 83 None 2005 Market Street President, since August 16, 2006 various executive capacities Philadelphia, PA Chief Executive at different times at 19103 Officer, and President and Delaware Investments. (2) Trustee Chief Executive Officer April 14, 1963 since August 1, 2006 ____________________________________________________________________________________________________________________________________ Independent Trustees ____________________________________________________________________________________________________________________________________ Thomas L. Bennett Trustee Since Private Investor - 83 None 2005 Market Street March 2005 (March 2004-Present) Philadelphia, PA 19103 Investment Manager - Morgan Stanley & Co. October 4, 1947 (January 1984-March 2004) ____________________________________________________________________________________________________________________________________ John A. Fry Trustee Since President - 83 Director - 2005 Market Street January 2001 Franklin & Marshall College Community Health Philadelphia, PA (June 2002-Present) Systems 19103 Executive Vice President - Director - May 28, 1960 University of Pennsylvania Allied Barton (April 1995-June 2002) Security Holdings ____________________________________________________________________________________________________________________________________ Anthony D. Knerr Trustee Since Founder and Managing Director - 83 None 2005 Market Street April 1990 Anthony Knerr & Associates Philadelphia, PA (Strategic Consulting) 19103 (1990-Present) December 7, 1938 ____________________________________________________________________________________________________________________________________ Lucinda S. Landreth Trustee Since Chief Investment Officer - 83 None 2005 Market Street March 2005 Assurant, Inc. Philadelphia, PA (Insurance) 19103 (2002-2004) June 24, 1947 ____________________________________________________________________________________________________________________________________ Ann R. Leven Trustee Since Consultant - 83 Director and 2005 Market Street September 1989 ARL Associates Audit Committee Philadelphia, PA (1983-Present) Chairperson - Andy 19103 Warhol Foundation November 1, 1940 Director and Audit Committee Member - Systemax, Inc. ____________________________________________________________________________________________________________________________________
32 Number of Portfolios in Fund Other Name, Complex Overseen Directorships Address, Position(s) Length of Principal Occupation(s) by Trustee Held by and Birth Date Held with Fund(s) Time Served During Past 5 Years or Officer Trustee or Officer ____________________________________________________________________________________________________________________________________ Independent Trustees (continued) ____________________________________________________________________________________________________________________________________ Thomas F. Madison Trustee Since President and Chief 83 Director - 2005 Market Street May 1999 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 Since Vice President 83 None 2005 Market Street April 1999 (January 2003-Present) Philadelphia, PA and Treasurer 19103 (January 2006-Present) 3M Corporation July 31, 1948 Ms. Yeomans has held various management positions at 3M Corporation since 1983. ____________________________________________________________________________________________________________________________________ J. Richard Zecher Trustee Since Founder - 83 Director and Audit 2005 Market Street March 2005 Investor Analytics Committee Member - Philadelphia, PA (Risk Management) Investor Analytics 19103 (May 1999-Present) Director and Audit July 3, 1940 Founder - Committee Member - Sutton Asset Management Oxigene, Inc. (Hedge Fund) (September 1998-Present) ____________________________________________________________________________________________________________________________________ Officers ____________________________________________________________________________________________________________________________________ David F. Connor Vice President, Vice President since David F. Connor has served as 83 None (3) 2005 Market Street Deputy General September 21, 2000 Vice President and Deputy Philadelphia, PA Counsel, and Secretary General Counsel of 19103 and Secretary since Delaware Investments October 2005 since 2000. December 2, 1963 ____________________________________________________________________________________________________________________________________ David P. O'Connor Senior Vice Senior Vice President, David P. O'Connor has served in 83 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 2005 February 21, 1966 ____________________________________________________________________________________________________________________________________ John J. O'Connor Senior Vice President Treasurer John J. O'Connor has served in 83 None (3) 2005 Market Street and Treasurer since various executive capacities Philadelphia, PA February 2005 at different times at 19103 Delaware Investments. June 16, 1957 ____________________________________________________________________________________________________________________________________ Richard Salus Senior Chief Financial Richard Salus has served in 83 None (3) 2005 Market Street Vice President Officer since various executive capacities Philadelphia, PA and November 1, 2006 at different times at 19103 Chief Financial Delaware Investments. Officer October 4, 1963 ____________________________________________________________________________________________________________________________________ (1) Patrick P. Coyne is considered to be an "Interested Trustee" because he is an executive officer of the Fund's(s') investment advisor. (2) 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. (3) David F. Connor, David P. O'Connor, John J. O'Connor, and Richard Salus 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. John J. O'Connor also serves in a similar capacity for Lincoln Variable Insurance Products Trust, which has the same investment advisor 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. 33 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(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 Patrick P. Coyne Chairman, President, and Chief Executive Officer Delaware Investments Family of Funds Philadelphia, PA Thomas L. Bennett Private Investor Rosemont, PA John A. Fry President Franklin & Marshall College Lancaster, PA Anthony D. Knerr Founder and Managing Director Anthony Knerr & Associates New York, NY Lucinda S. Landreth Former Chief Investment Officer Assurant, Inc. Philadelphia, PA Ann R. Leven Consultant ARL Associates New York, NY Thomas F. Madison President and Chief Executive Officer MLM Partners, Inc. Minneapolis, MN Janet L. Yeomans Vice President and Treasurer 3M Corporation St. Paul, MN J. Richard Zecher Founder Investor Analytics Scottsdale, AZ Affiliated officers David F. Connor Vice President, Deputy General Counsel, and Secretary Delaware Investments Family of Funds Philadelphia, PA David P. O'Connor Senior Vice President, General Counsel, and Chief Legal Officer Delaware Investments Family of Funds Philadelphia, PA John J. O'Connor Senior Vice President and Treasurer Delaware Investments Family of Funds Philadelphia, PA Richard Salus Senior Vice President and Chief Financial Officer Delaware Investments Family of Funds Philadelphia, PA Contact information Investment manager Delaware Management Company, a series of Delaware Management Business Trust Philadelphia, PA National distributor Delaware Distributors, L.P. Philadelphia, PA Shareholder servicing, dividend disbursing, and transfer agent Delaware Service Company, Inc. 2005 Market Street Philadelphia, PA 19103-7094 For shareholders 800 523-1918 For securities dealers and financial institutions representatives only 800 362-7500 Web site www.delawareinvestments.com Delaware Investments is the marketing name of Delaware Management Holdings, Inc. and its subsidiaries. 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 are 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, D.C.; information on the operation of the Public Reference Room may be obtained by calling 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. 34 Get shareholder reports and prospectuses online instead of in the mail. > Visit www.delawareinvestments.com/edelivery Simplify your life. Manage your investments online! Get Account Access, the Delaware Investments(R) secure Web site that allows you to conduct your business online. Gain 24-hour access to your account and one of the highest levels of Web security available. You also get: o Hassle-free investing - Make online purchases and redemptions at any time. o Simplified tax processing - Automatically retrieve your Delaware Investments accounts' 1099 information and import it directly into your 1040 tax return. Available only with Turbo Tax(R) Online(SM) and Desktop software - www.turbotax.com. o Less mail clutter - Get instant access to your fund materials online with Delaware eDelivery. Register for Account Access today! Please visit us at www.delawareinvestments.com, select Individual Investors, and click Account Access. Please call our Shareholder Service Center at 800 523-1918 Monday through Friday from 8:00 a.m. to 7:00 p.m., Eastern Time, for assistance with any questions. [DELAWARE INVESTMENTS LOGO] (1184) Printed in the USA AR-129 [11/06] CGI 1/07 MF-06-12-013 PO11491 Annual Report Delaware Small Cap Value Fund November 30, 2006 Value equity fund [DELAWARE INVESTMENTS LOGO] [LOGO] POWERED BY RESEARCH(R) Table of contents > Portfolio management review .................................................1 > Performance summary .........................................................4 > Disclosure of Fund expenses .................................................6 > Sector allocation & top 10 holdings .........................................7 > 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 ....................22 > Board of trustees/directors and officers addendum ..........................23 > About the organization .....................................................25 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) 2007 Delaware Distributors, L.P. Portfolio management review Delaware Small Cap Value Fund November 30, 2006 The managers of Delaware Small Cap Value Fund provided the answers to the questions below as a review of the Fund's activities for the fiscal year that ended November 30, 2006. Please see pages 2 and 3 to learn more about the investment management team. Q: Please discuss the investment environment during the year ended November 30, 2006. A: The market climate was generally favorable for value investors during the year. Performance was led by more economically sensitive areas of the market, including basic industries and capital spending, as well as real estate investment trusts (REITs), whose strong performance was enhanced by their above-average yields (source: Russell Investment Company). The combined effects of higher energy prices and rising interest rates early in the period resulted in some volatility among consumer cyclical stocks, including auto parts and homebuilders. As a group, these were some of the weakest performers in the market. In June, the U.S. Federal Reserve (Fed) raised short-term interest rates for the 17th consecutive time. This increase was part of the Fed's prolonged strategy to manage inflationary pressures. Following a very strong first quarter, pessimism gripped the markets through July as investors grappled with weakening economic data, interest rate uncertainty, and recessionary concerns. Despite these headwinds, there was plenty of positive economic news, including reports of solid corporate profits and strong spending in the consumer, technology, utilities, and capital goods sectors. At its August meeting, the Fed decided to leave interest rates unchanged. The move was welcomed by investors, and coupled with falling gas prices contributed to a more favorable outlook and stronger stock market performance for the remainder of the period. Although it appears that U.S. economic growth is indeed slowing, we believe that economic activity will remain relatively healthy and stable. At the same time, we expect a deceleration in the rate of corporate profit growth. Q: How did the Fund perform relative to its benchmark index and peer group for the year ended November 30, 2006? A: Class A shares of Delaware Small Cap Value Fund returned +16.26% at net asset value and +9.56% at their maximum offer price (both figures reflect all distributions reinvested). During the same year, the Fund's benchmark, the Russell 2000 Value Index, gained 21.47% and its peer group, as measured by the Lipper Small Cap Value Funds Average, returned +15.58% (source: Lipper, Inc.). Q: What factors influenced performance? A: It was a challenging year overall for small-cap value managers, as lower-quality companies and REITs were often among the market's top performers. The Fund held a smaller weighting than the benchmark index in REITs, based on our belief that the sector remains overpriced. Our underweight position relative to the benchmark had a negative impact on overall Fund performance. We believe the general outperformance of companies with lower-quality financial health also contributed to the Fund's underperformance. We remain committed to investing in high-quality, undervalued companies that are generating strong cash flows and which we believe offer the potential for long-term appreciation. During the year, we maintained overweight positions versus the index in basic industry and capital spending stocks, as well as the energy, technology, and healthcare sectors. However, we trimmed exposure to capital spending and energy during the period due to economic and valuation concerns. We also increased consumer services to a slightly heavier weighting than the index and maintained an underweight position in financial services and real estate. Although sector weightings do influence performance, we are committed to conducting bottom-up research (in which we seek attractive companies first, with lesser emphasis on particular industries) and choosing investments one stock at a time. The small-cap universe is comprised of more than 2,000 companies, many of The views expressed are current as of the date of this report and are subject to change. (continues) 1 Portfolio management review Delaware Small Cap Value Fund these relatively new and unknown businesses. Therefore, uncovering quality investment opportunities requires a highly disciplined strategy. In order to identify those companies with the most attractive growth prospects, we employ exhaustive fundamental research. We look for high-quality companies that generate sustainable revenues, maintain healthy balance sheets, and realize excess cash flow. We also evaluate each company's management, its product pipeline, and its competition. We also aim to avoid large positions in any single company, thereby minimizing the effects of an underperformer on the portfolio. Q: What holdings contributed positively to performance? A: Chaparral Steel, a manufacturer of steel beams used in non-residential construction, generated strong performance for the Fund during the period. Previously a division of Texas Industries, the company was spun off in 2005. Chaparral has generated significant cash and may have the ability to lower debt levels substantially. The company has also recently initiated a dividend, authorized a share repurchase, and is benefiting from increased demand for steel. Another strong performer was Brocade Communications Systems, a company that provides sophisticated systems for storing and managing large amounts of electronic data. In our opinion, the stock reached a valuation at which it was appropriate to realize profits by selling a portion of our holdings. We sold some of our Brocade position late in the fiscal year. Albemarle Corporation, a leading producer of bromine-based flame retardants, was also a noteworthy contributor. The company benefited from an increase in prices for its products, which contributed to higher profits during the period. The company is paying down debt and currently benefiting from strong free cash flow. Merger and acquisition activity was robust during the fiscal year, a trend that is expected to continue. Delaware Small Cap Value Fund gained from several such transactions, including Motorola's acquisition of Symbol Technologies. The Fund sold its Symbol position shortly after Motorola announced the acquisition. Q: What issues detracted from performance? A: The Fund's position in specialty retailer Pier 1 Imports suffered considerably during the year. Anticipated improvement in customer traffic failed to materialize and we sold our position in Pier 1 Imports. Par Pharmaceuticals, a generic drug maker, also hurt Fund performance and we eliminated our position in July as our outlook for the company changed. Challenged by legal issues, the company posted weaker than expected financials. Despite negative returns, we held our position in Alpha Natural Resources, a leading coal producer in central Appalachia. Although coal prices have risen substantially, production costs have also increased considerably. The company's margins were therefore not as strong as expected, although we think the stock remains attractive, keeping in mind the general increase in energy consumption in the U.S. We remain optimistic that production improvements and cost-management measures have the potential to lead the stock to higher valuations over time. Investment Management Team Christopher S. Beck, CFA Senior Vice President, Senior Portfolio Manager Mr. Beck, who joined Delaware Investments in 1997, leads the firm's Small/Mid-Cap Value team. Previously, he served as a vice president at Pitcairn Trust from 1995 to 1997, where he managed small-capitalization stocks and analyzed equity sectors. Before that he was chief investment officer of the University of Delaware from 1992 to 1995 and held management positions during his seven years at Cypress Capital Management and four years at Wilmington Trust. Mr. Beck earned a bachelor's degree at the University of Delaware and an MBA from Lehigh University, and he is a member of the CFA Society of Philadelphia. 2 Michael E. Hughes, CFA Vice President, Senior Equity Analyst Mr. Hughes is responsible for the analysis, purchase, and sale recommendations of consumer staples, healthcare, and technology securities for the firm's Small-Cap Value and Mid-Cap Value portfolios. Prior to joining Delaware Investments in 2002, Mr. Hughes was a vice president of equity research at Raymond James & Associates and a limited partner of equity research at J.C. Bradford. He received a bachelor's degree in finance from Siena College and an MBA from Vanderbilt University. Kent P. Madden, CFA Equity Analyst Mr. Madden is responsible for equity research of consumer services, consumer cyclicals, transportation, and business services stocks for the firm's Small-Cap Value and Mid-Cap Value portfolios. Prior to joining Delaware Investments in 2004, he was an equity analyst at Gartmore Global Investments, where he specialized in technology and telecommunications. He has also worked as an equity analyst for Federated Investors, where he gained experience covering small-capitalization consumer stocks, and Lehman Brothers as a corporate finance analyst. Mr. Madden holds a bachelor's degree in economics from DePauw University and an MBA from the University of Chicago. Kelley A. McKee, CFA Equity Analyst Ms. McKee joined Delaware Investments in July 2005 as an equity analyst for the firm's Small-Cap Value and Mid-Cap Value portfolios, where she assists the portfolio manager with financial modeling and coverage of various sectors. For the three years prior, she participated in Lincoln Financial Group's rotational Professional Development Program. Ms. McKee earned a bachelor's degree in finance from Georgetown University. 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 www.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 through your financial advisor or by calling 800 523-1918 or visiting our Web site at www.delawareinvestments.com. Read the prospectus carefully before you invest or send money. Fund performance Average annual total returns Through November 30, 2006 1 year 5 years 10 years Lifetime ________________________________________________________________________________ Class A (Est. 6-24-87) Excluding sales charge +16.26% +16.31% +12.67% +13.65% Including sales charge +9.56% +14.94% +12.01% +13.30% ________________________________________________________________________________ Class B (Est. 9-6-94) Excluding sales charge +15.38% +15.49% +12.04% +12.57% Including sales charge +11.38% +15.24% +12.04% +12.57% ________________________________________________________________________________ Class C (Est. 11-29-95) Excluding sales charge +15.39% +15.49% +11.89% +12.56% Including sales charge +14.39% +15.49% +11.89% +12.56% ________________________________________________________________________________ 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% of average daily net assets, but such fee is currently subject to a contractual cap of 0.25% of average daily net assets through March 31, 2007. Class B shares are sold with a contingent deferred sales charge that declines from 4% to zero depending on 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% of average daily net assets. Ten-year and lifetime 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% if redeemed during the first 12 months. They are also subject to an annual distribution and service fee of 1% of average daily net assets. The average annual returns for the one-year and lifetime (since June 2, 2003) periods ended November 30, 2006 for the Delaware Small Cap Value Fund Class R shares were 15.97% and 19.76%, 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% of average daily net assets, but such fee is currently subject to a contractual cap of 0.50% of average daily net assets through March 31, 2007. The average annual total returns for the 1-year, 5-year, 10-year, and lifetime (since June 24, 1987) periods ended November 30, 2006 for Delaware Small Cap Value Fund Institutional Class shares were +16.56%, +16.64%, +13.01%, and +13.90%, respectively. 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 above and the graph on the next page do not reflect the deduction of taxes the shareholder would pay on Fund distributions or redemptions of Fund shares. 4 Fund basics As of November 30, 2006 ________________________________________________________________________________ Fund objective ________________________________________________________________________________ The Fund seeks capital appreciation. ________________________________________________________________________________ Total Fund net assets ________________________________________________________________________________ $791 million ________________________________________________________________________________ Number of holdings ________________________________________________________________________________ 121 ________________________________________________________________________________ Fund start date ________________________________________________________________________________ June 24, 1987 ________________________________________________________________________________ Nasdaq symbols CUSIPs ________________________________________________________________________________ Class A DEVLX 246097109 Class B DEVBX 246097307 Class C DEVCX 246097406 Class R DVLRX 246097505 Institutional Class DEVIX 246097208 Performance of a $10,000 Investment November 30, 1996 through November 30, 2006 [PERFORMANCE OF A $10,000 INVESTMENT LINE GRAPH] Chart assumes $10,000 invested on November 30, 1996 and includes the effect of a 5.75% front-end sales charge and the reinvestment of all distributions. The chart also assumes $10,000 invested in the Russell 2000 Value Index on November 30, 1996. Funds that invest in small and/or medium-sized company stocks typically involve greater risk, particularly in the short term, than those investing in larger, more established companies. Performance of other Fund classes will vary due to different charges and expenses. The Russell 2000 Value Index generally measures the performance of those Russell 2000 companies with higher price-to-book ratios and higher forecasted growth values. 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. 5 Disclosure of Fund expenses For the period June 1, 2006 to November 30, 2006 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, 2006 to November 30, 2006. 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, as applicable. 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 6/1/06 to 6/1/06 11/30/06 Ratios 11/30/06 * ________________________________________________________________________________ Actual Fund Return Class A $1,000.00 $1,066.80 1.43% $ 7.41 Class B 1,000.00 1,062.90 2.18% 11.27 Class C 1,000.00 1,062.70 2.18% 11.27 Class R 1,000.00 1,065.40 1.68% 8.70 Institutional Class 1,000.00 1,068.10 1.18% 6.12 ________________________________________________________________________________ Hypothetical 5% Return (5% return before expenses) Class A $1,000.00 $1,017.90 1.43% $ 7.23 Class B 1,000.00 1,014.14 2.18% 11.01 Class C 1,000.00 1,014.14 2.18% 11.01 Class R 1,000.00 1,016.65 1.68% 8.49 Institutional Class 1,000.00 1,019.15 1.18% 5.97 ________________________________________________________________________________ * "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 & top 10 holdings Delaware Small Cap Value Fund As of November 30, 2006 Sector designations may be different than the sector designations presented in other Fund materials. Percentage Sector of Net Assets ________________________________________________________________________________ Common Stock 97.77% Basic Industry 13.22% Business Services 1.83% Capital Spending 6.24% Consumer Cyclical 2.70% Consumer Services 13.36% Consumer Staples 3.00% Energy 6.10% Financial Services 18.68% Health Care 6.30% Real Estate 5.07% Technology 14.22% Transportation 3.49% Utilities 3.56% ________________________________________________________________________________ Repurchase Agreements 2.89% ________________________________________________________________________________ Securities Lending Collateral 8.44% Fixed Rate Notes 0.87% Variable Rate Notes 7.57% ________________________________________________________________________________ Total Market Value of Securities 109.10% ________________________________________________________________________________ Obligation to Return Securities Lending Collateral (8.44%) ________________________________________________________________________________ Liabilities Net of Receivables and Other Assets (0.66%) ________________________________________________________________________________ Total Net Assets 100.00% ________________________________________________________________________________ Holdings are for informational purposes only and are subject to change at any time. They are not a recommendation to buy, sell, or hold any security. Percentage Top 10 Holdings of Net Assets ________________________________________________________________________________ Colonial BancGroup 1.48% Brandywine Realty Trust 1.42% Whiting Petroleum 1.42% Berkley (W.R.) 1.37% Emulex 1.37% Wabtec 1.33% Bank of Hawaii 1.32% Newfield Exploration 1.25% W-H Energy Services 1.24% Crown Holdings 1.21% ________________________________________________________________________________ 7 Statement of net assets Delaware Small Cap Value Fund November 30, 2006 Number of Market Shares Value ________________________________________________________________________________ Common Stock - 97.77% ________________________________________________________________________________ Basic Industry - 13.22% Albemarle 129,000 $ 8,996,460 + Alpha Natural Resources 250,500 3,945,375 Arch Coal 160,200 5,751,180 Bowater 253,400 5,524,120 Chaparral Steel 155,800 7,244,700 Crane 167,600 6,385,560 + Crown Holdings 465,700 9,593,420 FMC 104,500 7,406,960 + Griffon 202,860 4,836,182 IPSCO 88,800 9,086,904 * MacDermid 235,900 7,702,135 *+ PolyOne 614,000 4,715,520 Spartech 212,700 6,363,984 * Texas Industries 86,700 5,917,275 Valspar 213,900 5,984,922 Westlake Chemical 155,100 5,079,525 _____________ 104,534,222 _____________ Business Services - 1.83% Brink's 162,300 9,111,522 *+ United Stationers 115,859 5,373,540 _____________ 14,485,062 _____________ Capital Spending - 6.24% + Casella Waste Systems 345,700 3,771,587 Gibraltar Industries 203,314 4,454,610 Harsco 98,800 7,709,364 + Insituform Technologies Class A 119,000 3,060,680 * Mueller Industries 187,900 6,407,390 Mueller Water Products Class A 213,700 3,312,350 Timken 171,900 5,112,306 * Wabtec 319,000 10,479,150 Walter Industries 103,900 4,996,551 _____________ 49,303,988 _____________ Consumer Cyclical - 2.70% * Beazer Homes USA 139,100 6,351,306 Furniture Brands International 153,800 2,648,436 * KB HOME 72,800 3,763,032 * MDC Holdings 97,400 5,564,462 + WCI Communities 163,600 3,039,688 _____________ 21,366,924 _____________ Consumer Services - 13.36% Applebee's International 322,800 7,343,700 * Belo Class A 237,300 4,318,860 Borders Group 325,700 7,458,530 * Cato Class A 326,300 7,746,362 *+ CEC Entertainment 201,500 8,021,715 + Dollar Tree Stores 245,000 7,352,450 * Kenneth Cole Productions Class A 126,900 3,032,910 *+ Lenox Group 92,600 564,860 * Men's Wearhouse 143,100 5,480,730 Meredith 128,700 6,962,670 PETsMART 170,300 5,037,474 Ross Stores 238,100 7,378,719 * Stage Stores 224,500 7,417,480 * Thor Industries 111,800 5,060,068 + Timberland 83,000 2,593,750 Tuesday Morning 233,900 4,116,640 * Wolverine World Wide 224,350 6,519,611 + Zale 298,300 9,178,691 _____________ 105,585,220 _____________ Consumer Staples - 3.00% American Greetings Class A 227,200 5,409,632 Bunge Limited 65,700 4,631,850 + Constellation Brands 244,200 6,832,716 Del Monte Foods 607,200 6,855,288 _____________ 23,729,486 _____________ Energy - 6.10% + Grey Wolf 745,100 5,275,308 + Newfield Exploration 198,700 9,889,299 Southwest Gas 195,600 7,342,824 *+ TODCO 118,800 4,753,188 *+ W-H Energy Services 204,900 9,783,975 + Whiting Petroleum 233,500 11,208,000 _____________ 48,252,594 _____________ Financial Services - 18.68% * Bank of Hawaii 202,200 10,439,586 BankUnited Financial Class A 283,600 7,231,800 Berkley (W.R.) 309,200 10,843,644 * Boston Private Financial Holdings 289,300 7,854,495 Colonial BancGroup 479,100 11,690,041 * First Midwest Bancorp 131,400 4,894,650 First Republic Bank 230,400 9,243,648 * Greater Bay Bancorp 298,200 7,675,668 * Harleysville Group 124,300 4,420,108 * Independent Bank 87,300 2,999,628 * Infinity Property & Casualty 143,500 6,479,025 *+ KBW 13,500 359,505 MAF Bancorp 150,000 6,598,500 NBT Bancorp 143,600 3,554,100 * Ohio Casualty 263,200 7,688,072 Platinum Underwriters Holdings 266,200 8,100,466 Protective Life 137,900 6,511,638 Provident Bankshares 233,000 8,590,710 StanCorp Financial Group 148,500 6,743,385 Sterling Financial 229,868 7,712,070 + Triad Guaranty 150,400 8,091,520 _____________ 147,722,259 _____________ Health Care - 6.30% Arrow International 188,700 6,593,178 + Community Health Systems 164,500 5,757,500 * Owens & Minor 223,600 6,938,308 + Pediatrix Medical Group 190,900 9,191,835 Service Corp International 831,200 8,203,944 STERIS 267,100 6,875,154 Universal Health Services Class B 112,900 6,233,209 _____________ 49,793,128 _____________ 8 Number of Market Shares Value ________________________________________________________________________________ Common Stock (continued) ________________________________________________________________________________ Real Estate - 5.07% * Ashford Hospitality Trust 400,200 $ 5,250,624 Brandywine Realty Trust 318,937 11,210,636 Camden Property Trust 108,600 8,658,678 * Education Realty Trust 184,900 2,908,477 * Highland Hospitality 401,300 5,690,434 * Washington Real Estate Investment Trust 149,100 6,391,917 _____________ 40,110,766 _____________ Technology - 14.22% Acxiom 321,400 8,009,288 + BEA Systems 636,400 8,763,228 + Bell Microproducts 387,000 2,662,560 + Brocade Communications Systems 498,200 4,608,350 *+ Checkpoint Systems 265,600 5,094,208 + CommScope 291,200 8,785,504 + Compuware 1,130,300 9,483,217 + Emulex 517,900 10,808,573 + Entegris 454,800 4,848,168 *+ Insight Enterprises 230,400 4,631,040 + NETGEAR 188,300 4,895,800 *+ Parametric Technology 482,400 9,339,264 *+ Premiere Global Services 665,100 5,420,565 * QAD 242,800 1,990,960 *+ Sybase 319,800 7,656,012 + Synopsys 310,100 7,923,055 Technitrol 274,000 7,529,520 _____________ 112,449,312 _____________ Transportation - 3.49% Alexander & Baldwin 192,200 8,485,630 + Kirby 225,200 8,116,208 *+ Saia 88,000 2,181,520 SkyWest 197,400 4,982,376 + YRC Worldwide 97,800 3,789,750 _____________ 27,555,484 _____________ Utilities - 3.56% Black Hills 110,100 3,931,671 *+ El Paso Electric 275,600 6,845,904 * FairPoint Communications 227,200 4,196,384 * Otter Tail 181,700 5,585,458 PNM Resources 247,000 7,582,900 _____________ 28,142,317 _____________ Total Common Stock (cost $577,329,225) 773,030,762 _____________ Principal Amount ________________________________________________________________________________ Repurchase Agreements - 2.89% ________________________________________________________________________________ With BNP Paribas 5.26% 12/1/06 (dated 11/30/06, to be repurchased at $10,085,473, collateralized by $10,363,000 U.S. Treasury Notes 2.75% due 8/15/07, market value $10,293,179) $10,084,000 10,084,000 With Cantor Fitzgerald 5.26% 12/1/06 (dated 11/30/06, to be repurchased at $6,150,899, collateralized by $4,987,000 U.S. Treasury Bills due 12/28/06, market value $4,968,615 and $1,280,000 U.S. Treasury Notes 6.25% due 2/15/07, market value $1,306,181) 6,150,000 6,150,000 With UBS Warburg 5.26% 12/1/06 (dated 11/30/06, to be repurchased at $6,649,971, collateralized by $6,949,000 U.S. Treasury Bills due 5/24/07, market value $6,786,068) 6,649,000 6,649,000 _____________ Total Repurchase Agreements (cost $22,883,000) 22,883,000 _____________ Total Market Value of Securities Before Securities Lending Collateral - 100.66% (cost $600,212,225) 795,913,762 _____________ ________________________________________________________________________________ Securities Lending Collateral ** - 8.44% ________________________________________________________________________________ Short-Term Investments - 8.44% Fixed Rate Notes - 0.87% Citigroup Global Markets 5.32% 12/1/06 4,071,800 4,071,800 Credit Suisse First Boston 5.29% 12/13/06 2,827,957 2,827,957 _____________ 6,899,757 _____________ ~ Variable Rate Notes - 7.57% American Honda Finance 5.32% 2/21/07 1,817,972 1,817,972 ANZ National 5.32% 12/31/07 403,994 403,994 Australia New Zealand 5.32% 12/31/07 2,019,969 2,019,969 Bank of America 5.32% 2/23/07 2,625,960 2,625,960 Bank of New York 5.31% 12/31/07 1,615,976 1,615,976 Barclays New York 5.31% 5/18/07 2,625,960 2,625,960 Bayerische Landesbank 5.37% 12/31/07 2,019,969 2,019,969 (continues) 9 Statement of net assets Delaware Small Cap Value Fund Principal Market Amount Value ________________________________________________________________________________ Securities Lending Collateral (continued) ________________________________________________________________________________ ~ Variable Rate Notes (continued) Bear Stearns 5.38% 5/31/07 $2,423,963 $ 2,423,963 BNP Paribas 5.35% 12/31/07 2,019,969 2,019,969 Canadian Imperial Bank 5.30% 12/31/07 1,009,985 1,009,985 CDC Financial Products 5.36% 1/2/07 2,625,960 2,625,960 Citigroup Global Markets 5.38% 12/7/06 2,625,960 2,625,960 Commonwealth Bank 5.32% 12/31/07 2,019,969 2,019,969 Deutsche Bank London 5.34% 2/23/07 2,423,963 2,423,963 Dexia Bank 5.33% 9/28/07 2,827,860 2,827,402 Goldman Sachs 5.45% 11/30/07 2,625,960 2,625,960 Marshall & Ilsley Bank 5.30% 12/31/07 2,221,966 2,221,966 Merrill Lynch Mortgage Capital 5.41% 1/8/07 2,625,960 2,625,960 Morgan Stanley 5.49% 12/31/07 2,625,960 2,625,960 National Australia Bank 5.29% 3/7/07 2,504,762 2,504,762 National City Bank 5.32% 3/2/07 2,424,179 2,424,405 National Rural Utilities 5.31% 12/31/07 3,191,551 3,191,551 Nordea Bank New York 5.31% 5/16/07 1,009,960 1,009,960 Nordea Bank Norge 5.33% 12/31/07 2,020,015 2,019,969 Royal Bank of Scotland 5.31% 12/31/07 2,019,969 2,019,969 Societe Generale 5.29% 12/31/07 1,009,985 1,009,985 Toronto Dominion 5.32% 5/29/07 2,423,963 2,423,963 Wells Fargo 5.33% 12/31/07 2,019,969 2,019,969 ____________ 59,831,350 ____________ Total Securities Lending Collateral (cost $66,731,107) 66,731,107 _____________ Total Market Value of Securities - 109.10% (cost $666,943,332) 862,644,869 ! Obligation to Return Securities Lending Collateral ** - (8.44%) (66,731,107) Liabilities Net of Receivables and Other Assets - (0.66%) (5,243,454) _____________ Net Assets Applicable to 19,280,361 Shares Outstanding - 100.00% $790,670,308 ____________ Net Asset Value - Delaware Small Cap Value Fund Class A ($493,192,785 / 11,752,383 Shares) $41.97 ______ Net Asset Value - Delaware Small Cap Value Fund Class B ($94,494,976 / 2,431,687 Shares) $38.86 ______ Net Asset Value - Delaware Small Cap Value Fund Class C ($145,385,501 / 3,742,947 Shares) $38.84 ______ Net Asset Value - Delaware Small Cap Value Fund Class R ($20,563,588 / 494,926 Shares) $41.55 ______ Net Asset Value - Delaware Small Cap Value Fund Institutional Class ($37,033,458 / 858,418 Shares) $43.14 ______ Components of Net Assets at November 30, 2006: Shares of beneficial interest (unlimited authorization - no par) $532,284,056 Accumulated net realized gain on investments 62,684,715 Net unrealized appreciation of investments 195,701,537 ____________ Total net assets $790,670,308 ____________ + Non-income producing security for the year ended November 30, 2006. * Fully or partially on loan. ~ Variable rate security. The interest rate shown is the rate as of November 30, 2006. ** See Note 8 in "Notes to Financial Statements." ! Includes $66,528,821 of securities loaned. Net Asset Value and Offering Price per Share - Delaware Small Cap Value Fund Net asset value Class A (A) $41.97 Sales charge (5.75% of offering price) (B) 2.56 ______ Offering price $44.53 ______ (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 of operations Delaware Small Cap Value Fund Year Ended November 30, 2006 Investment Income: Dividends $7,802,159 Interest 1,835,818 Securities lending income 185,550 Foreign tax withheld (6,100) $ 9,817,427 __________ ____________ Expenses: Management fees 5,593,161 Distribution expenses - Class A 1,400,483 Distribution expenses - Class B 1,031,056 Distribution expenses - Class C 1,406,397 Distribution expenses - Class R 97,607 Dividend disbursing and transfer agent fees and expenses 2,126,852 Accounting and administration expenses 305,324 Reports and statements to shareholders 175,791 Trustees' fees and benefits 138,733 Registration fees 100,276 Legal fees 90,837 Audit and tax 43,343 Custodian fees 29,443 Insurance fees 28,875 Consulting fees 23,645 Dues and services 9,274 Pricing fees 2,752 Trustees expenses 2,548 12,606,397 __________ Less waiver of distribution expenses - Class A (161,878) Less waiver of distribution expenses - Class R (16,188) Less expenses paid indirectly (3,051) ____________ Total expenses 12,425,280 ____________ Net Investment Loss (2,607,853) ____________ Net Realized and Unrealized Gain (Loss) on Investments and Foreign Currencies: Net realized gain (loss) on: Investments 65,387,973 Foreign currencies (301) ____________ Net realized gain 65,387,672 Net change in unrealized appreciation/depreciation of investments 48,589,690 ____________ Net Realized and Unrealized Gain on Investments 113,977,362 ____________ Net Increase in Net Assets Resulting from Operations $111,369,509 ____________ See accompanying notes
11 Statements of changes in net assets Delaware Small Cap Value Fund Year Ended 11/30/06 11/30/05 Increase (Decrease) in Net Assets from Operations: Net investment loss $ (2,607,853) $ (2,407,279) Net realized gain on investments and foreign currencies 65,387,672 57,318,859 Net change in unrealized appreciation/depreciation of investments 48,589,690 5,620,978 _____________ _____________ Net increase in net assets resulting from operations 111,369,509 60,532,558 _____________ _____________ Dividends and Distributions to Shareholders from: Net realized gain on investments: Class A (32,439,821) (31,763,824) Class B (8,943,393) (13,514,764) Class C (10,293,335) (8,240,031) Class R (867,999) (548,342) Institutional Class (2,440,490) (2,698,187) _____________ _____________ (54,985,038) (56,765,148) _____________ _____________ Capital Share Transactions: Proceeds from shares sold: Class A 125,942,610 169,715,275 Class B 6,039,544 14,236,482 Class C 32,923,286 63,480,297 Class R 12,295,960 8,843,862 Institutional Class 13,937,387 14,240,093 Net asset value of shares issued upon reinvestment of dividends and distributions: Class A 30,500,487 29,903,497 Class B 8,309,204 12,427,282 Class C 9,675,322 7,549,508 Class R 865,472 548,342 Institutional Class 2,425,287 2,698,187 _____________ _____________ 242,914,559 323,642,825 _____________ _____________ Cost of shares repurchased: Class A (109,663,657) (65,214,888) Class B (36,107,010) (24,899,314) Class C (26,385,778) (18,127,279) Class R (4,587,529) (3,578,256) Institutional Class (13,595,454) (10,142,609) _____________ _____________ (190,339,428) (121,962,346) _____________ _____________ Increase in net assets derived from capital share transactions 52,575,131 201,680,479 _____________ _____________ Net Increase in Net Assets 108,959,602 205,447,889 Net Assets: Beginning of year 681,710,706 476,262,817 _____________ _____________ End of year (there was no undistributed net investment income at either year end) $ 790,670,308 $ 681,710,706 _____________ _____________ See accompanying notes
12 Financial highlights Delaware Small Cap Value Fund Class A Selected data for each share of the Fund outstanding throughout each period were as follows: Year Ended ____________________________________________________________________ 11/30/06 11/30/05 11/30/04 11/30/03 11/30/02 ___________________________________________________________________________________________________________________________________ Net asset value, beginning of period $39.110 $39.640 $35.220 $27.120 $29.350 Income (loss) from investment operations: Net investment loss (1) (0.047) (0.075) (0.105) (0.136) (0.060) Net realized and unrealized gain on investments 5.960 4.170 6.879 9.079 0.574 _______ _______ _______ _______ _______ Total from investment operations 5.913 4.095 6.774 8.943 0.514 _______ _______ _______ _______ _______ Less dividends and distributions: From net realized gain on investments (3.053) (4.625) (2.354) (0.843) (2.744) _______ _______ _______ _______ _______ Total dividends and distributions (3.053) (4.625) (2.354) (0.843) (2.744) _______ _______ _______ _______ _______ Net asset value, end of period $41.970 $39.110 $39.640 $35.220 $27.120 _______ _______ _______ _______ _______ Total return (2) 16.26% 11.42% 20.52% 34.17% 1.60% Ratios and supplemental data: Net assets, end of period (000 omitted) $493,193 $409,567 $270,332 $240,322 $180,696 Ratio of expenses to average net assets 1.41% 1.44% 1.54% 1.63% 1.63% Ratio of expenses to average net assets prior to expense limitation and expenses paid indirectly 1.44% 1.44% 1.54% 1.63% 1.63% Ratio of net investment loss to average net assets (0.12%) (0.20%) (0.30%) (0.47%) (0.21%) Ratio of net investment loss to average net assets prior to expense limitation and expenses paid indirectly (0.15%) (0.20%) (0.30%) (0.47%) (0.21%) Portfolio turnover 36% 33% 35% 42% 47% ___________________________________________________________________________________________________________________________________ (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 distributor, as applicable. Performance would have been lower had the expense limitation not been in effect. See accompanying notes
(continues) 13 Financial highlights Delaware Small Cap Value Fund Class B Selected data for each share of the Fund outstanding throughout each period were as follows: Year Ended ____________________________________________________________________ 11/30/06 11/30/05 11/30/04 11/30/03 11/30/02 ___________________________________________________________________________________________________________________________________ Net asset value, beginning of period $36.690 $37.690 $33.820 $26.260 $28.680 Income (loss) from investment operations: Net investment loss (1) (0.306) (0.311) (0.334) (0.327) (0.252) Net realized and unrealized gain on investments 5.529 3.936 6.558 8.730 0.576 _______ _______ _______ _______ _______ Total from investment operations 5.223 3.625 6.224 8.403 0.324 _______ _______ _______ _______ _______ Less dividends and distributions from: Net realized gain on investments (3.053) (4.625) (2.354) (0.843) (2.744) _______ _______ _______ _______ _______ Total dividends and distributions (3.053) (4.625) (2.354) (0.843) (2.744) _______ _______ _______ _______ _______ Net asset value, end of period $38.860 $36.690 $37.690 $33.820 $26.260 _______ _______ _______ _______ _______ Total return (2) 15.38% 10.68% 19.69% 33.21% 0.91% Ratios and supplemental data: Net assets, end of period (000 omitted) $94,495 $110,684 $111,348 $107,136 $86,641 Ratio of expenses to average net assets 2.14% 2.14% 2.24% 2.33% 2.33% Ratio of net investment loss to average net assets (0.85%) (0.90%) (1.00%) (1.17%) (0.91%) Portfolio turnover 36% 33% 35% 42% 47% ___________________________________________________________________________________________________________________________________ (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 Delaware Small Cap Value Fund Class C Selected data for each share of the Fund outstanding throughout each period were as follows: Year Ended ____________________________________________________________________ 11/30/06 11/30/05 11/30/04 11/30/03 11/30/02 ___________________________________________________________________________________________________________________________________ Net asset value, beginning of period $36.670 $37.680 $33.810 $26.250 $28.670 Income (loss) from investment operations: Net investment loss (1) (0.306) (0.313) (0.333) (0.326) (0.251) Net realized and unrealized gain on investments 5.529 3.928 6.557 8.729 0.575 _______ _______ _______ _______ _______ Total from investment operations 5.223 3.615 6.224 8.403 0.324 _______ _______ _______ _______ _______ Less dividends and distributions from: Net realized gain on investments (3.053) (4.625) (2.354) (0.843) (2.744) _______ _______ _______ _______ _______ Total dividends and distributions (3.053) (4.625) (2.354) (0.843) (2.744) _______ _______ _______ _______ _______ Net asset value, end of period $38.840 $36.670 $37.680 $33.810 $26.250 _______ _______ _______ _______ _______ Total return (2) 15.39% 10.65% 19.69% 33.22% 0.91% Ratios and supplemental data: Net assets, end of period (000 omitted) $145,385 $119,968 $66,313 $48,453 $34,140 Ratio of expenses to average net assets 2.14% 2.14% 2.24% 2.33% 2.33% Ratio of net investment loss to average net assets (0.85%) (0.90%) (1.00%) (1.17%) (0.91%) Portfolio turnover 36% 33% 35% 42% 47% ___________________________________________________________________________________________________________________________________ (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
(continues) 15 Financial highlights Delaware Small Cap Value Fund Class R Selected data for each share of the Fund outstanding throughout each period were as follows: Year Ended 6/2/03 (1) ______________________________________ to 11/30/06 11/30/05 11/30/04 11/30/03 ____________________________________________________________________________________________________________________________________ Net asset value, beginning of period $38.840 $39.480 $35.190 $29.000 Income (loss) from investment operations: Net investment loss (2) (0.138) (0.169) (0.209) (0.160) Net realized and unrealized gain on investments 5.901 4.154 6.853 6.350 _______ _______ _______ _______ Total from investment operations 5.763 3.985 6.644 6.190 _______ _______ _______ _______ Less dividends and distributions from: Net realized gain on investments (3.053) (4.625) (2.354) - _______ _______ _______ _______ Total dividends and distributions (3.053) (4.625) (2.354) - _______ _______ _______ _______ Net asset value, end of period $41.550 $38.840 $39.480 $35.190 _______ _______ _______ _______ Total return (3) 15.97% 11.15% 20.15% 21.35% Ratios and supplemental data: Net assets, end of period (000 omitted) $20,564 $10,574 $4,539 $1,740 Ratio of expenses to average net assets 1.64% 1.70% 1.84% 1.97% Ratio of expenses to average net assets prior to expense limitation and expenses paid indirectly 1.74% 1.74% 1.84% 1.97% Ratio of net investment loss to average net assets (0.35%) (0.46%) (0.60%) (0.97%) Ratio of net investment loss to average net assets prior to expense limitation and expenses paid indirectly (0.45%) (0.50%) (0.60%) (0.97%) Portfolio turnover 36% 33% 35% 42% (4) ____________________________________________________________________________________________________________________________________ (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 have been lower had the expense limitation not been in effect. (4) The portfolio turnover is representative for the entire fund for the year ended November 30, 2003. See accompanying notes
16 Delaware Small Cap Value Fund Institutional Class Selected data for each share of the Fund outstanding throughout each period were as follows: Year Ended ____________________________________________________________________ 11/30/06 11/30/05 11/30/04 11/30/03 11/30/02 ___________________________________________________________________________________________________________________________________ Net asset value, beginning of period $40.020 $40.350 $35.700 $27.400 $29.540 Income (loss) from investment operations: Net investment income (loss) (1) 0.058 0.036 - (0.050) 0.026 Net realized and unrealized gain on investments 6.115 4.259 7.004 9.193 0.578 _______ _______ _______ _______ _______ Total from investment operations 6.173 4.295 7.004 9.143 0.604 _______ _______ _______ _______ _______ Less dividends and distributions: From net realized gain on investments (3.053) (4.625) (2.354) (0.843) (2.744) _______ _______ _______ _______ _______ Total dividends and distributions (3.053) (4.625) (2.354) (0.843) (2.744) _______ _______ _______ _______ _______ Net asset value, end of period $43.140 $40.020 $40.350 $35.700 $27.400 _______ _______ _______ _______ _______ Total return (2) 16.56% 11.77% 20.88% 34.57% 1.88% Ratios and supplemental data: Net assets, end of period (000 omitted) $37,033 $30,918 $23,731 $33,387 $19,459 Ratio of expenses to average net assets 1.14% 1.14% 1.24% 1.33% 1.33% Ratio of net investment income (loss) to average net assets 0.15% 0.10% - (0.17%) 0.09% Portfolio turnover 36% 33% 35% 42% 47% ___________________________________________________________________________________________________________________________________ (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 to financial statements Delaware Small Cap Value Fund November 30, 2006 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 A share purchases of $1,000,000 or more will incur a contingent deferred sales charge of 1% if redeemed during the first year and 0.50% during the second year, provided that Delaware Distributors, L.P. (DDLP) paid a financial advisor a commission on the purchase of those 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. 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 certain eligible 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 the 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). In September 2006, the Financial Accounting Standards Board (FASB) issued FASB Statement No. 157, Fair Value Measurements, (Statement 157). Statement 157 establishes a framework for measuring fair value in generally accepted accounting principles, clarifies the definition of fair value within that framework, and expands disclosures about the use of fair value measurements. Statement 157 is intended to increase consistency and comparability among fair value estimates used in financial reporting. Statement 157 is effective for fiscal years beginning after November 15, 2007. Management does not expect the adoption of Statement 157 to have an impact on the amounts reported in the financial statements. 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. On July 13, 2006, FASB released FASB Interpretation No. 48 "Accounting for Uncertainty in Income Taxes" (FIN 48). FIN 48 provides guidance for how uncertain tax positions should be recognized, measured, presented, and disclosed in the financial statements. FIN 48 requires the evaluation of tax positions taken or expected to be taken in the course of preparing the Fund's tax returns to determine whether the tax positions are "more-likely-than-not" of being sustained by the applicable tax authority. Tax positions not deemed to meet the more-likely-than-not threshold would be recorded as a tax benefit or expense in the current year. Adoption of FIN 48 is required for fiscal years beginning after December 15, 2006 and is to be applied to all open tax years as of the effective date. Although the Fund's tax positions are currently being evaluated, management does not expect the adoption of FIN 48 to have a material impact on the Fund's 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 at least 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 directly attributable to the Fund are charged directly to the Fund. Other expenses common to various funds within the Delaware Investments Family of Funds are generally allocated amongst such 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) for financial reporting purposes. Costs used in calculating realized gains and losses on the sale of investment securities are those of the specific securities sold. Dividend income is recorded on the ex-dividend date and interest income is recorded on the accrual basis. Distributions received from investments in Real Estate Investment Trusts (REITs) are recorded as dividend income on the ex-dividend date, subject to reclassification upon notice of the character of such distributions by the issuer. The Fund declares and pays dividends from net investment income and distributions from net realized gains on investments, if any, annually. 18 1. Significant Accounting Policies (continued) Subject to seeking 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 investments in the accompanying financial statements and totaled $40,168 for the year ended November 30, 2006. In general, best execution refers to many factors, including the price paid or received for a security, the commission charged, the promptness and reliability of execution, the confidentiality and placement accorded the order, and other factors affecting the overall benefit obtained by the Fund on the transaction. 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. Delaware Service Company, Inc. (DSC), an affiliate of DMC, provides accounting, administration, dividend disbursing and transfer agent services. The Fund pays DSC a monthly fee computed at the annual rate of 0.04% of the Fund's average daily net assets 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 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. Institutional Class shares pay no distribution and service expenses. DDLP has contracted to waive distribution and service fees through March 31, 2007, in order to prevent distribution and service fees of Class A and Class R shares from exceeding 0.25% and 0.50%, respectively, of average daily net assets. Prior to March 27, 2006, there was no waiver on Class A distribution and service fees. At November 30, 2006, the Fund had liabilities payable to affiliates as follows: Investment management fee payable to DMC $471,685 Dividend disbursing, transfer agent, accounting and administration fees and other expenses payable to DSC 214,279 Distribution fees payable to DDLP 303,190 Other expenses payable to DMC and affiliates* 18,140 * 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 and tax services, including internal legal and tax services provided to the Fund by DMC and/or its affiliates' employees. For the year ended November 30, 2006, the Fund was charged $35,742 for internal legal and tax services provided by DMC and/or its affiliates' employees. For the year ended November 30, 2006, DDLP earned $68,291 for commissions on sales of the Fund's Class A shares. For the year ended November 30, 2006, DDLP received gross contingent deferred sales charge commissions of $432, $84,109 and $20,081 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. Trustees' fees and benefits include expenses accrued by the Fund for each Trustee's retainer, per meeting fees and retirement benefits. Independent Trustees with over five years of uninterrupted service are eligible to participate in a retirement plan that provides for the payment of benefits upon retirement. The amount of the retirement benefit is determined based on factors set forth in the plan, including the number of years of service. On November 16, 2006, the Board of Trustees of the Fund unanimously voted to terminate the retirement plan. Payments equal to the net present value of the earned benefits will be made in 2007 to those independent Trustees so entitled. The retirement benefit payout for the Fund is $96,525. 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, 2006, the Fund made purchases of $273,133,116 and sales of $262,661,519 of investment securities other than short-term investments. At November 30, 2006, the cost of investments for federal income tax purposes was $667,034,483. At November 30, 2006, the net unrealized appreciation was $195,610,386 of which $206,847,259 related to unrealized appreciation of investments and $11,236,873 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, 2006 and 2005 was as follows: Year Ended 11/30/06 11/30/05 Ordinary Income $ 5,424,775 $12,396,508 Long-term capital gain 49,560,263 44,368,640 ___________ ___________ Total $54,985,038 $56,765,148 ___________ ___________ (continues) 19 Notes to financial statements Delaware Small Cap Value Fund 5. Components of Net Assets on a Tax Basis As of November 30, 2006, the components of net assets on a tax basis were as follows: Shares of beneficial interest $532,284,056 Undistributed ordinary income 15,350,008 Undistributed long-term capital gains 47,425,858 Unrealized appreciation of investments 195,610,386 ____________ Net assets $790,670,308 ____________ 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 are estimated pending final notification of the tax character of distributions received from investments in REITs. 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, REIT dividend reclasses, and tax treatment of gain (loss) on foreign currency transactions. Results of operations and net assets were not affected by these reclassifications. For the year ended November 30, 2006, the Fund recorded the following reclassifications: Accumulated net investment loss $2,607,853 Accumulated net realized gain (2,607,853) 6. Capital Shares Transactions in capital shares were as follows: Year Ended 11/30/06 11/30/05 Shares sold: Class A 3,248,371 4,580,248 Class B 167,238 410,074 Class C 913,427 1,810,137 Class R 317,280 238,720 Institutional Class 352,145 375,009 Shares issued upon reinvestment of dividends and distributions: Class A 832,528 835,591 Class B 243,243 367,867 Class C 283,381 223,532 Class R 23,806 15,416 Institutional Class 64,569 73,902 __________ __________ 6,445,988 8,930,496 __________ __________ Shares repurchased: Class A (2,799,853) (1,764,729) Class B (995,799) (715,069) Class C (725,220) (522,361) Class R (118,418) (96,840) Institutional Class (330,803) (264,582) __________ __________ (4,970,093) (3,363,581) __________ __________ Net increase 1,475,895 5,566,915 __________ __________ For the years ended November 30, 2006 and 2005, 413,129 Class B shares were converted to 384,420 Class A shares valued at $14,931,874 and 116,955 Class B shares were converted to 110,188 Class A shares valued at $4,191,667, 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. 7. Line of Credit The Fund, along with certain other funds in the Delaware Investments 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 Participant'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, 2006, or at any time during the year. 8. Securities Lending The Fund, along with other funds in the Delaware Investments Family of Funds, may lend its securities pursuant to a security lending agreement (Lending Agreement) with JP 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. 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, 2006, the market value of the securities on loan was $66,528,821, for which cash collateral was received and invested in accordance with the Lending Agreement. Such investments are presented on the Statement of Net Assets under the caption "Securities Lending Collateral." 20 9. 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 such 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 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, 2006. 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 Fund's 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, 2006, there were no Rule 144A securities and no securities have been determined to be illiquid under the Fund's Liquidity Procedures. 10. 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. 11. 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, 2006, the Fund designates distributions paid during the year as follows: (A) (B) Long-Term Capital Ordinary Income Total (C) Gain Distributions Distributions * Distributions Qualifying (Tax Basis) (Tax Basis) (Tax Basis) Dividends (1) __________________ _______________ _____________ _____________ 90% 10% 100% 7% (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, 2006, 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 $5,424,775 to be taxed at a maximum rate of 15%. Complete information will be computed and reported in conjunction with your 2006 Form 1099-DIV. 21 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 Delaware Small Cap Value Fund (one of the series constituting Delaware Group Equity Funds V) (the "Fund") as of November 30, 2006, 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, 2006, 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, 2006, 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 16, 2007 22 Board of trustees/directors and officers addendum Delaware Investments(R) Family of Funds 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. Each trustee has served in that capacity since he or she was elected to or appointed to the Board of Trustees, and will continue to serve until his or her retirement or the election of a new trustee in his or her place. The following is a list of the Trustees and Officers with certain background and related information. Number of Portfolios in Fund Other Name, Complex Overseen Directorships Address, Position(s) Length of Principal Occupation(s) by Trustee Held by and Birth Date Held with Fund(s) Time Served During Past 5 Years or Officer Trustee or Officer ____________________________________________________________________________________________________________________________________ Interested Trustees ____________________________________________________________________________________________________________________________________ Patrick P. Coyne (1) Chairman, Chairman and Trustee Patrick P. Coyne has served in 83 None 2005 Market Street President, since August 16, 2006 various executive capacities Philadelphia, PA Chief Executive at different times at 19103 Officer, and President and Delaware Investments. (2) Trustee Chief Executive Officer April 14, 1963 since August 1, 2006 ____________________________________________________________________________________________________________________________________ Independent Trustees ____________________________________________________________________________________________________________________________________ Thomas L. Bennett Trustee Since Private Investor - 83 None 2005 Market Street March 2005 (March 2004-Present) Philadelphia, PA 19103 Investment Manager - Morgan Stanley & Co. October 4, 1947 (January 1984-March 2004) ____________________________________________________________________________________________________________________________________ John A. Fry Trustee Since President - 83 Director - 2005 Market Street January 2001 Franklin & Marshall College Community Health Philadelphia, PA (June 2002-Present) Systems 19103 Executive Vice President - Director - May 28, 1960 University of Pennsylvania Allied Barton (April 1995-June 2002) Security Holdings ____________________________________________________________________________________________________________________________________ Anthony D. Knerr Trustee Since Founder and Managing Director - 83 None 2005 Market Street April 1990 Anthony Knerr & Associates Philadelphia, PA (Strategic Consulting) 19103 (1990-Present) December 7, 1938 ____________________________________________________________________________________________________________________________________ Lucinda S. Landreth Trustee Since Chief Investment Officer - 83 None 2005 Market Street March 2005 Assurant, Inc. Philadelphia, PA (Insurance) 19103 (2002-2004) June 24, 1947 ____________________________________________________________________________________________________________________________________ Ann R. Leven Trustee Since Consultant - 83 Director and 2005 Market Street September 1989 ARL Associates Audit Committee Philadelphia, PA (Financial Planning) Chairperson - Andy 19103 (1983-Present) Warhol Foundation November 1, 1940 Director and Audit Committee Member - Systemax, Inc. ____________________________________________________________________________________________________________________________________
23 Number of Portfolios in Fund Other Name, Complex Overseen Directorships Address, Position(s) Length of Principal Occupation(s) by Trustee Held by and Birth Date Held with Fund(s) Time Served During Past 5 Years or Officer Trustee or Officer ____________________________________________________________________________________________________________________________________ Independent Trustees (continued) ____________________________________________________________________________________________________________________________________ Thomas F. Madison Trustee Since President and Chief 83 Director - 2005 Market Street May 1997 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 Since Vice President 83 None 2005 Market Street April 1999 (January 2003-Present) Philadelphia, PA and Treasurer 19103 (January 2006-Present) 3M Corporation July 31, 1948 Ms. Yeomans has held various management positions at 3M Corporation since 1983. ____________________________________________________________________________________________________________________________________ J. Richard Zecher Trustee Since Founder - 83 Director and Audit 2005 Market Street March 2005 Investor Analytics Committee Member - Philadelphia, PA (Risk Management) Investor Analytics 19103 (May 1999-Present) Director and Audit July 3, 1940 Founder - Committee Member - Sutton Asset Management Oxigene, Inc. (Hedge Fund) (September 1998-Present) ____________________________________________________________________________________________________________________________________ Officers ____________________________________________________________________________________________________________________________________ David F. Connor Vice President, Vice President since David F. Connor has served as 83 None (3) 2005 Market Street Deputy General September 21, 2000 Vice President and Deputy Philadelphia, PA Counsel, and Secretary and Secretary General Counsel of 19103 since Delaware Investments October 2005 since 2000. December 2, 1963 ____________________________________________________________________________________________________________________________________ David P. O'Connor Senior Vice Senior Vice President, David P. O'Connor has served in 83 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 2005 February 21, 1966 ____________________________________________________________________________________________________________________________________ John J. O'Connor Senior Vice President Treasurer John J. O'Connor has served in 83 None (3) 2005 Market Street and Treasurer since various executive capacities Philadelphia, PA February 2005 at different times at 19103 Delaware Investments. June 16, 1957 ____________________________________________________________________________________________________________________________________ Richard Salus Senior Chief Financial Richard Salus has served in 83 None (3) 2005 Market Street Vice President Officer since various executive capacities Philadelphia, PA and November 1, 2006 at different times at 19103 Chief Financial Delaware Investments. Officer October 4, 1963 ____________________________________________________________________________________________________________________________________ (1) Patrick P. Coyne is considered to be an "Interested Trustee" because he is an executive officer of the Fund's(s') investment advisor. (2) 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. (3) David F. Connor, David P. O'Connor, John J. O'Connor, and Richard Salus 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. John J. O'Connor also serves in a similar capacity for Lincoln Variable Insurance Products Trust, which has the same investment advisor 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.
24 About the organization This annual report is for the information of Delaware Small Cap Value Fund shareholders, but it may be used with prospective investors when preceded or accompanied by a current prospectus for Delaware Small Cap Value Fund and the Delaware Investments(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 Patrick P. Coyne Chairman, President, and Chief Executive Officer Delaware Investments Family of Funds Philadelphia, PA Thomas L. Bennett Private Investor Rosemont, PA John A. Fry President Franklin & Marshall College Lancaster, PA Anthony D. Knerr Founder and Managing Director Anthony Knerr & Associates New York, NY Lucinda S. Landreth Former Chief Investment Officer Assurant, Inc. Philadelphia, PA Ann R. Leven Consultant - ARL Associates, New York, NY Thomas F. Madison President and Chief Executive Officer MLM Partners, Inc. Minneapolis, MN Janet L. Yeomans Vice President and Treasurer 3M Corporation St. Paul, MN J. Richard Zecher Founder Investor Analytics Scottsdale, AZ Affiliated officers David F. Connor Vice President, Deputy General Counsel, and Secretary Delaware Investments Family of Funds Philadelphia, PA David P. O'Connor Senior Vice President, General Counsel, and Chief Legal Officer Delaware Investments Family of Funds Philadelphia, PA John J. O'Connor Senior Vice President and Treasurer Delaware Investments Family of Funds Philadelphia, PA Richard Salus Senior Vice President and Chief Financial Officer Delaware Investments Family of Funds Philadelphia, PA Contact information Investment manager Delaware Management Company, a series of Delaware Management Business Trust Philadelphia, PA National distributor Delaware Distributors, L.P. Philadelphia, PA Shareholder servicing, dividend disbursing, and transfer agent Delaware Service Company, Inc. 2005 Market Street Philadelphia, PA 19103-7094 For shareholders 800 523-1918 For securities dealers and financial institutions representatives only 800 362-7500 Web site www.delawareinvestments.com Delaware Investments is the marketing name of Delaware Management Holdings, Inc. and its subsidiaries. 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 are 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, D.C.; information on the operation of the Public Reference Room may be obtained by calling 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. 25 Simplify your life. Manage your investments online! Get Account Access, the Delaware Investments(R) secure Web site that allows you to conduct your business online. Gain 24-hour access to your account and one of the highest levels of Web security available. You also get: o Hassle-free investing - Make online purchases and redemptions at any time. o Simplified tax processing - Automatically retrieve your Delaware Investments accounts' 1099 information and import it directly into your 1040 tax return. Available only with Turbo Tax(R) Online(SM) and Desktop software - www.turbotax.com. o Less mail clutter - Get instant access to your fund materials online with Delaware eDelivery. Register for Account Access today! Please visit us at www.delawareinvestments.com, select Individual Investors, and click Account Access. Please call our Shareholder Service Center at 800 523-1918 Monday through Friday from 8:00 a.m. to 7:00 p.m., Eastern Time, for assistance with any questions. [DELAWARE INVESTMENTS LOGO] (1191) Printed in the USA AR-021 [11/06] CGI 1/07 MF-06-11-020 PO11486 Annual Report Delaware Small Cap Core Fund November 30, 2006 Core equity mutual fund [DELAWARE INVESTMENTS LOGO] [LOGO] POWERED BY RESEARCH(R) Table of contents > Portfolio management review ............................................1 > Performance summary ....................................................4 > Disclosure of Fund expenses ............................................6 > Sector allocation and top 10 holdings ..................................7 > Statement of net assets ................................................8 > Statement of operations ...............................................11 > Statements of changes in net assets ...................................12 > Financial highlights ..................................................13 > Notes to financial statements .........................................17 > Report of independent registered public accounting firm ...............21 > Board of trustees/directors and officers addendum .....................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) 2007 Delaware Distributors, L.P. Portfolio management review Delaware Small Cap Core Fund November 30, 2006 The managers of Delaware Small Cap Core Fund provided the answers to the questions below as a review of the Fund's activities for the fiscal year that ended November 30, 2006. Please see pages 2 and 3 to learn more about the portfolio managers. Q: How did the Fund perform over the year ended November 30, 2006? A: Class A shares of Delaware Small Cap Core Fund returned +16.83% at net asset value and +10.15% at its maximum offer price. Both figures reflect all distributions reinvested. The Fund's benchmark, the Russell 2000 Index, advanced 17.43%. Please see page 4 for a complete performance summary and disclosure. Q: Please discuss the investment environment during the period. A: Overall, 2006 was a healthy year for the economy. In the first calendar quarter of 2006, the growth rate for gross domestic product was 5.1%. By May, however, the market was rattled by signs that growth was slowing. Concerns about a weakening housing market, the potential for rising interest rates, and higher energy prices led to a sell off in late spring and early summer. The market's subsequent recovery was prompted by the long-awaited pause in the U.S. Federal Reserve's (Fed) campaign of interest rate increases, which took place when the central bank elected not to raise rates in August. This contributed to a more favorable environment as investors became increasingly confident that the economy would settle into a period of slow growth with lowered inflation. Overall, continued economic expansion, high employment, and strong corporate profits helped to support the market during the year. The rise in merger and acquisition activity also provided strength as many businesses were sold at healthy premiums by private equity buyers and larger companies. Q: What factors influenced investments during the period? A: Throughout the year, we sought to identify companies with strong balance sheets and healthy cash flow. Because companies in the capital goods sector tend to benefit from global economic development, we maintained an overweight position relative to our benchmark index. We also held a sector overweight in healthcare, which continues to benefit from aging populations. As the year progressed, we anticipated that the economy would continue to slow and remained cautious through the end of the period. The Fund's underweight position in consumer discretionary stocks as compared to the benchmark reflects our view that discretionary spending generally declines in a slowing economy where energy prices, although down from highs, remain elevated. Q: Which holdings lent strength to the portfolio during the 12-month period? A: Companies with high cash flow often helped the Fund's performance. One of the Fund's stronger performers was TeleTech Holdings, a company that provides outsourcing of customer support and marketing services via worldwide call centers. These types of businesses historically do well in the mid-to-latter part of the economic cycle. The company benefited from a variety of initiatives and from new clients that allowed for increased productivity, pricing, and usage of its call centers and office space. The stock delivered strong gains and we trimmed our position to realize some profits. The Fund also benefited from its position in Myogen, a biopharmaceutical company that focuses on the discovery and development of small molecule therapeutics for cardiovascular disorders. The company was preparing to launch two promising hypertension drugs to the marketplace - a situation we believed would offer value. In November, Gilead Sciences acquired Myogen at a sizeable premium, benefiting our stock position at that time. We subsequently sold the stock. The views expressed are current as of the date of this report and are subject to change. (continues) 1 Portfolio management review Delaware Small Cap Core Fund Another strong performer was Veritas DCG. The company is a leading provider of geophysical services, helping oil and gas exploration companies manage the risks involved in exploration and enhancing their drilling and production success. Veritas met our investment criteria - strong business prospects, compelling valuations, excess cash on balance sheet, and low cost structure. The stock was sold during the period after it was acquired by Compagnie Generale de Geophysique. Q: What holdings failed to meet your expectations? A: The Fund's position in James River Coal Company was among the most disappointing performers. The coal company mines, processes, and sells industrial-grade coal through various subsidiaries. During the year, excess coal inventory prompted a reduction in prices despite a higher cost environment. This move had an adverse effect on profit margins. Because we no longer anticipated a significant upside for the stock, we sold our position in favor of other opportunities. Secure Computing was another stock that failed to meet expectations. The company develops network security solutions that allow businesses to exchange critical information safely with customers. The stock was negatively impacted by lack of earnings visibility after two encouraging acquisitions were hampered by integration problems and delays. Despite these issues, we continue to own the stock based on our belief that it offers solid long-term prospects and attractive valuations. The Fund was also negatively affected by its holdings in Adolor, a healthcare company that specializes in the discovery and development of prescription pain management products. Adolor had two promising drugs that we believed were poised for FDA approval. The stock's price tumbled after the FDA requested additional safety information and new competition emerged, which we believe further reduced Adolor's visibility. We exited the stock as our long-term view of this company had changed. Fund managers Francis X. Morris Senior Vice President, Chief Investment Officer - Core Equity Mr. Morris joined Delaware Investments in 1997 and is currently the chief investment officer for Core Equity investments. Prior to joining the firm, Mr. Morris served as vice president and director of equity research at PNC Asset Management. He received a bachelor's degree from Providence College and holds an MBA from Widener University. Mr. Morris is a past president of the CFA Society of Philadelphia and is a member of the CFA Institute. In addition, he is a former officer of the National Association of Petroleum Investment Analysts. Christopher S. Adams, CFA Vice President, Portfolio Manager, Senior Equity Analyst Mr. Adams, who joined Delaware Investments in 1995, is a portfolio manager on the firm's Core Equity team. He also performs analysis and research to support the portfolio management function. From 1995 to 1998, he served as the firm's vice president, strategic planning. Prior to joining Delaware Investments, Mr. Adams had approximately 10 years of experience in the financial services industry in the U.S. and U.K., including positions with Coopers & Lybrand, The Sumitomo Bank, Bank of America, and Lloyds Bank. Mr. Adams holds both bachelor's and master's degrees in history and economics from Oxford University, England, and received an MBA with dual concentrations in finance and insurance/risk management from The Wharton School of the University of Pennsylvania. Mr. Adams is a director and past president of the CFA Society of Philadelphia. Donald G. Padilla, CFA Vice President, Portfolio Manager, Senior Equity Analyst Mr. Padilla joined Delaware Investments in 1994 and is a member of the portfolio construction group within the firm's Core Equity team. He also performs analysis and research to support the portfolio management function. Mr. Padilla joined Delaware Investments as an assistant controller in the firm's treasury function, responsible for managing corporate cash investments, developing financial models, and overseeing the financial operations of the Lincoln Life 401(k) annuities 2 segment. Prior to joining Delaware Investments, he held various positions at The Vanguard Group. Mr. Padilla holds a bachelor's degree in accounting from Lehigh University, and he is a member of the CFA Society of Philadelphia. Michael S. Morris, CFA Vice President, Portfolio Manager, Senior Equity Analyst Mr. Morris, who joined Delaware Investments in 1999, is a portfolio manager on the firm's Core Equity team. He also performs analysis and research to support the portfolio management function. Prior to joining the firm, he worked as a senior equity analyst at Newbold's Asset Management, covering financial stocks. Mr. Morris began his investment career in 1993 at Ohio Casualty. He earned his bachelor's degree in finance from Indiana University and an MBA with a concentration in finance from The Wharton School of the University of Pennsylvania. He is a member of the Bank and Financial Analysts Association. 3 Performance summary Delaware Small Cap Core 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 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 through your financial advisor or by calling 800 523-1918 or visiting our Web site at www.delawareinvestments.com. Read the prospectus carefully before you invest or send money. Fund performance Average annual total returns Through November 30, 2006 1 year 5 years Lifetime ________________________________________________________________________________ Class A (Est. 12-29-98) Excluding sales charge +16.83% +15.99% +15.04% Including sales charge +10.15% +14.63% +14.18% ________________________________________________________________________________ Class C (Est. 8-1-05) Excluding sales charge +15.97% NA +10.10% Including sales charge +14.97% NA +10.10% ________________________________________________________________________________ Returns reflect the reinvestment of all distributions and any applicable sales charges as noted below. Performance for Class 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, 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% of average daily net assets, although it is subject to a contractual cap of 0.25% through March 31, 2007. 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% of average daily net assets. The average annual total returns for the 1-year and lifetime (since August 1, 2005) period ended November 30, 2006 for the Delaware Small Cap Core Fund Class R shares were +16.78% and +10.67%, respectively. Class R shares were first made available on August 1, 2005 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%, but such fee is currently subject to a contractual cap of 0.50% of average daily net assets through March 31, 2007. The average annual total returns for the 1-year, 5-year, and lifetime (since December 29, 1998) periods ended November 30, 2006 for Delaware Small Cap Core Fund Institutional Class shares were +17.13%, +16.07%, and +15.09%, respectively. Institutional Class shares were first made available on December 29, 1998 and are available without sales or asset-based distribution charges only to certain eligible institutional accounts. 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 were lower than the current expense caps. The returns would have been lower without the waivers and expense caps in effect. An expense limitation was in effect for all classes during the periods shown above and on the next page. Performance would have been lower had the expense limitation not been in effect. The performance table above and the graph on the next page do not reflect the deduction of taxes the shareholder would pay on Fund distributions or redemptions of Fund shares. 4 Fund basics As of November 30, 2006 ________________________________________________________________________________ Fund objective ________________________________________________________________________________ The Fund seeks long-term capital appreciation. ________________________________________________________________________________ Total Fund net assets ________________________________________________________________________________ $53 million ________________________________________________________________________________ Number of holdings ________________________________________________________________________________ 180 ________________________________________________________________________________ Fund start date ________________________________________________________________________________ December 29, 1998 ________________________________________________________________________________ Nasdaq symbols CUSIPs ________________________________________________________________________________ Class A DCCAX 24610B883 Class C DCCCX 24610B867 Class R DCCRX 24610B834 Institutional Class DCCIX 24610B859 Performance of a $10,000 Investment December 29, 1998 through November 30, 2006 [PERFORMANCE OF A $10,000 INVESTMENT LINE GRAPH] Chart assumes $10,000 invested on December 29, 1998 and includes the effect of a 5.75% front-end sales charge and the reinvestment of all distributions. Performance of other Fund classes will vary due to different charges and expenses. Funds that invest in small and/or medium-sized company stocks typically involve greater risk, particularly in the short term, than those investing in larger, more established companies. The chart also assumes $10,000 invested in the Russell 2000 Index on December 29, 1998. Russell 2000 Index measures the performance of the 2,000 smallest companies in the Russell 3000 Index, which represents approximately 8% of the total market capitalization of the Russell 3000 Index. 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. 5 Disclosure of Fund expenses For the period June 1, 2006 to November 30, 2006 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, 2006 to November 30, 2006. 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 expense shown in the table reflects 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 6/1/06 to 6/1/06 11/30/06 Ratio 11/30/06 * ________________________________________________________________________________ Actual Fund Return Class A $1,000.00 $1,074.20 1.27% $ 6.60 Class C 1,000.00 1,070.50 2.02% 10.48 Class R 1,000.00 1,072.60 1.52% 7.90 Institutional Class 1,000.00 1,075.00 1.02% 5.31 ________________________________________________________________________________ Hypothetical 5% Return (5% return before expenses) Class A $1,000.00 $1,018.70 1.27% $ 6.43 Class C 1,000.00 1,014.94 2.02% 10.20 Class R 1,000.00 1,017.45 1.52% 7.69 Institutional Class 1,000.00 1,019.95 1.02% 5.16 ________________________________________________________________________________ * "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 and top 10 holdings Delaware Small Cap Core Fund As of November 30, 2006 Sector designations may be different than the sector designations presented in other Fund materials. Percentage Sector of Net Assets ________________________________________________________________________________ Common Stock 92.31% Basic Materials 5.91% Business Services 6.02% Capital Goods 9.10% Communication Services 0.57% Consumer Discretionary 5.91% Consumer Services 2.85% Consumer Staples 1.68% Credit Cyclicals 0.77% Energy 4.80% Financials 15.16% Health Care 12.19% Media 0.85% Real Estate 5.36% Technology 18.14% Transportation 1.95% Utilities 1.05% ________________________________________________________________________________ Exchange Traded Funds 3.40% ________________________________________________________________________________ Repurchase Agreements 2.37% ________________________________________________________________________________ Total Market Value of Securities 98.08% ________________________________________________________________________________ Receivables and Other Assets Net of Liabilities 1.92% ________________________________________________________________________________ Total Net Assets 100.00% ________________________________________________________________________________ Holdings are for informational purposes only and are subject to change at any time. They are not a recommendation to buy, sell, or hold any security. Percentage Top 10 Holdings of Net Assets ________________________________________________________________________________ Ishares Russell 2000 Index Fund 3.40% HUB Group 0.80% Genlyte Group 0.79% Casey's General Stores 0.79% Phillips-Van Heusen 0.78% Pacer International 0.77% Stage Stores 0.75% First Industrial Realty Trust 0.74% ADVANTA 0.71% Barnes Group 0.71% ________________________________________________________________________________ 7 Statement of net assets Delaware Small Cap Core Fund November 30, 2006 Number of Market Shares Value ________________________________________________________________________________ Common Stock - 92.31% ________________________________________________________________________________ Basic Materials - 5.91% + AK Steel Holding 12,100 $ 199,529 + Century Aluminum 8,500 362,524 Chaparral Steel 2,500 116,250 Chesapeake 11,450 186,406 Cytec Industries 6,550 349,312 Ferro 17,100 356,706 FMC 4,950 350,856 Georgia Gulf 7,850 159,905 + Lone Star Technologies 3,550 186,233 + Oregon Steel Mills 1,850 116,439 + PolyOne 41,050 315,264 Wausau Paper 15,050 225,148 Worthington Industries 10,300 190,550 __________ 3,115,122 __________ Business Services - 6.02% Administaff 8,300 349,264 + Armor Holdings 6,600 373,229 + Harris Interactive 43,150 206,689 Healthcare Services Group 11,250 281,250 + Kforce 19,250 256,218 + Labor Ready 12,700 240,284 McGrath RentCorp 10,250 322,875 + TeleTech Holdings 15,200 343,216 UniFirst 6,950 288,425 + United Stationers 5,550 257,409 + Williams Scotsman International 12,650 252,368 __________ 3,171,227 __________ Capital Goods - 9.10% Acuity Brands 7,050 371,324 + AGCO 11,650 363,830 Applied Industrial Technologies 8,250 234,795 Barnes Group 17,850 373,957 + Columbus McKinnon 10,850 252,046 Crane 5,050 192,405 DRS Technologies 3,200 159,168 + Genlyte Group 4,900 415,813 + Innovative Solutions & Support 15,450 243,492 Insteel Industries 9,750 187,590 + Kadant 10,000 236,400 Lawson Products 5,900 296,357 Lincoln Electric Holdings 5,500 334,675 LSI Industries 12,100 206,789 Lufkin Industries 5,650 330,525 + Rofin-Sinar Technologies 5,050 293,506 + URS 6,900 304,704 __________ 4,797,376 __________ Communications Services - 0.57% + Dobson Communications Class A 34,750 300,587 __________ 300,587 __________ Consumer Discretionary - 5.91% + Aeropostale 8,850 $ 267,624 + Charming Shoppes 24,450 330,809 + Children's Place Retail Stores 5,400 348,408 + Guitar Center 6,750 296,460 + Jos A Bank Clothiers 8,200 245,918 Phillips-Van Heusen 8,300 409,439 + Quiksilver 23,300 339,015 Stage Stores 11,900 393,176 Stride Rite 20,100 314,163 + True Religion Apparel 11,250 171,000 __________ 3,116,012 __________ Consumer Services - 2.85% + Buffalo Wild Wings 5,350 285,637 CKE Restaurants 16,200 298,728 IHOP 6,600 347,226 + Papa John's International 10,000 310,000 + Shuffle Master 8,300 258,462 __________ 1,500,053 __________ Consumer Staples - 1.68% Casey's General Stores 16,650 414,419 Longs Drug Stores 5,900 242,431 Nu Skin Enterprises Class A 11,900 228,242 __________ 885,092 __________ Credit Cyclicals - 0.77% M/I Homes 5,500 205,040 + Meritage Homes 4,100 199,096 __________ 404,136 __________ Energy - 4.80% + Bristow Group 6,600 234,762 + Grey Wolf 37,150 263,022 + Hercules Offshore 9,250 315,148 + Oil States International 7,800 271,518 Penn Virginia 4,250 320,408 + Petroquest Energy 26,900 337,325 St. Mary Land & Exploration 4,900 196,392 + Universal Compression Holdings 5,300 333,635 World Fuel Services 5,250 254,625 __________ 2,526,835 __________ Financials - 15.16% ADVANTA 8,200 374,083 American Home Mortgage Investment 9,650 341,321 Bancfirst 5,500 292,985 BankUnited Financial Class A 13,200 336,600 Center Financial 12,300 275,889 City Holding 8,550 337,725 + CompuCredit 8,700 327,642 + Cowen Group 16,150 273,420 Dime Community Bancshares 17,000 239,190 Direct General 15,650 256,660 FBL Financial Group Class A 7,600 299,440 8 Number of Market Shares Value ________________________________________________________________________________ Common Stock (continued) ________________________________________________________________________________ Financials (continued) First Place Financial - Ohio 12,350 $ 300,723 + FirstFed Financial 5,300 344,606 Greater Bay Bancorp 11,050 284,427 Kansas City Life Insurance 4,100 211,314 MainSource Financial Group 10,040 183,330 Ohio Casualty 11,700 341,757 PFF Bancorp 10,000 330,000 Presidential Life 11,900 266,441 Republic Bancorp 24,500 334,670 RLI 6,550 362,280 South Financial Group 7,750 201,423 TierOne 11,400 355,565 + Triad Guaranty 4,950 266,310 Trustmark 8,150 265,853 + United America Indemnity 10,200 255,918 Waddell & Reed Financial Class A 13,300 331,569 __________ 7,991,141 __________ Health Care - 12.19% + Alkermes 13,600 206,448 + Applera-Celera Genomics 20,450 293,458 + Bio-Rad Laboratories Class A 4,100 323,694 + Candela 16,150 213,180 + Digene 3,050 155,855 + Gen-Probe 4,950 241,263 + Geron 25,050 198,647 + Healthways 7,600 349,371 + LifePoint Hospitals 6,550 227,351 + Medarex 25,550 344,669 Mentor 5,900 294,705 + MGI PHARMA 14,150 268,426 + Neurometrix 9,450 172,463 + Noven Pharmaceuticals 8,700 206,277 Owens & Minor 7,950 246,689 + Panacos Pharmaceutic 22,850 148,068 + Pharmion 12,650 313,214 PolyMedica 6,700 265,119 + Res-Care 14,750 271,253 + Sciele Pharma 15,050 340,280 + Techne 4,500 241,965 + Telik 12,750 216,878 + United Therapeutics 5,500 320,209 Vital Signs 4,500 248,355 West Pharmaceutical Services 6,400 314,239 __________ 6,422,076 __________ Media - 0.85% infoUSA 23,150 281,041 + Scholastic 5,050 168,266 __________ 449,307 __________ Real Estate - 5.36% Equity Inns 20,450 332,926 First Industrial Realty Trust 7,800 391,949 First Potomac Realty Trust 9,050 277,926 Home Properties 4,800 $ 296,688 Maguire Properties 5,850 250,673 Nationwide Health Properties 12,350 365,437 Pennsylvania Real Estate Investment Trust 7,950 314,025 Senior Housing Properties Trust 13,600 297,568 Sovran Self Storage 5,050 295,425 __________ 2,822,617 __________ Technology - 18.14% + Anixter International 5,300 310,685 + Aspen Technology 19,600 191,100 + Blackboard 8,300 236,550 + CACI International 4,950 296,208 + Cymer 6,450 304,762 + Digital River 3,800 223,858 + Digitas 15,150 163,923 + Dionex 4,600 264,546 + EarthLink 21,250 138,338 + FormFactor 5,800 216,688 + j2 Global Communications 12,050 336,556 + Kulicke & Soffa Industries 22,450 183,866 + Lawson Software 27,300 203,112 + MIPS Technologies 29,950 256,073 + MTC Technologies 7,950 207,416 + Netgear 12,050 313,299 + OmniVision Technologies 16,150 263,084 + ON Semiconductor 47,350 304,933 + Palm 20,950 293,510 + Photronics 16,000 252,320 + Progress Software 10,000 271,100 + Quality Systems 4,400 168,124 + RadiSys 13,950 235,616 + Secure Computing 22,200 144,078 + SI International 7,800 268,554 + Smith Micro Software 18,400 294,400 + Spansion Class A 12,350 180,434 + SPSS 6,900 194,649 + Stratex Networks 40,150 171,842 + Synaptics 10,300 295,301 + Tekelec 19,650 316,364 + Tessera Technologies 7,950 301,066 + TTM Technologies 14,300 180,323 United Online 14,600 196,078 + Universal Electronics 8,300 174,300 + Varian Semiconductor Equipment 7,350 292,016 + Verint Systems 7,000 238,840 + Viasat 9,750 259,643 + WebEx Communications 7,100 254,890 + Wind River Systems 15,050 161,186 __________ 9,559,631 __________ (continues) 9 Statement of net assets Delaware Small Cap Core Fund Number of Market Shares Value ________________________________________________________________________________ Common Stock (continued) ________________________________________________________________________________ Transportation - 1.95% Arkansas Best 5,250 $ 198,975 + HUB Group 14,750 420,965 Pacer International 13,600 407,320 ___________ 1,027,260 ___________ Utilities - 1.05% Black Hills 7,000 249,970 Otter Tail 9,900 304,326 ___________ 554,296 ___________ Total Common Stock (cost $44,995,794) 48,642,768 ___________ ________________________________________________________________________________ Exchange Traded Funds - 3.40% ________________________________________________________________________________ Ishares Russell 2000 Index Fund 22,900 1,790,322 ___________ Total Exchange Traded Funds (cost $1,797,890) 1,790,322 ___________ Principal Amount ______________________________________________________________________________ Repurchase Agreements - 2.37% ______________________________________________________________________________ With BNP Paribas 5.26% 12/1/06 (dated 11/30/06, to be repurchased at $550,480, collateralized by $565,700 U.S. Treasury Notes 2.75% due 8/15/07, market value $561,822) $550,400 550,400 With Cantor Fitzgerald 5.26% 12/1/06 (dated 11/30/06, to be repurchased at $335,749, collateralized by $272,200 U.S. Treasury Bills due 12/28/06, market value $271,197 and $69,900 U.S. Treasury Notes 6.25% due 2/15/07, market value $71,294) 335,700 335,700 With UBS Warburg 5.26% 12/1/06 (dated 11/30/06, to be repurchased at $362,953, collateralized by $379,300 U.S. Treasury Bills due 5/24/07, market value $370,397) 362,900 362,900 ___________ Total Repurchase Agreements (cost $1,249,000) 1,249,000 ___________ Total Market Value of Securities - 98.08% (cost $48,042,684) $51,682,090 Receivables and Other Assets Net of Liabilities - 1.92% 1,012,368 ___________ Net Assets Applicable to 4,050,606 Shares Outstanding - 100.00% $52,694,458 ___________ Net Asset Value - Delaware Small Cap Core Fund Class A ($25,219,527 / 1,934,915 Shares) $13.03 ______ Net Asset Value - Delaware Small Cap Core Fund Class C ($11,777,469 / 912,284 Shares) $12.91 ______ Net Asset Value - Delaware Small Cap Core Fund Class R ($214,986 / 16,534 Shares) $13.00 ______ Net Asset Value - Delaware Small Cap Core Fund Institutional Class ($15,482,476 / 1,186,873 Shares) $13.04 ______ Components of Net Assets at November 30, 2006: Shares of beneficial interest (unlimited authorization - no par) $47,301,899 Accumulated net realized gain on investments 1,753,153 Net unrealized appreciation of investments 3,639,406 ___________ Total net assets $52,694,458 ___________ + Non-income producing security for the year ended November 30, 2006. Net Asset Value and Offering Price Per Share - Delaware Small Cap Core Fund Net asset value Class A (A) $13.03 Sales charge (5.75% of offering price) (B) 0.79 ______ Offering price $13.82 ______ (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 purchase of $50,000 or more. See accompanying notes 10 Statement of operations Delaware Small Cap Core Fund Year Ended November 30, 2006 Investment Income: Dividends $279,890 Interest 44,580 $ 324,470 ________ __________ Expenses: Management fees 214,463 Distribution expenses - Class A 38,212 Distribution expenses - Class C 50,119 Distribution expenses - Class R 437 Registration fees 58,322 Dividend disbursing and transfer agent fees and expenses 48,352 Reports and statements to shareholders 26,349 Dues and services 11,880 Audit and tax 11,757 Accounting and administration expenses 11,438 Custodian fees 8,281 Legal fees 7,068 Trustees' fees and benefits 6,565 Pricing fees 2,808 Insurance fees 1,955 Consulting fees 796 Trustees' expenses 130 498,932 ________ Less expenses absorbed or waived (121,036) Less waived distribution expenses - Class A (6,256) Less waived distribution expenses - Class R (72) Less expense paid indirectly (428) __________ Total operating expenses 371,140 __________ Net Investment Loss (46,670) __________ Net Realized and Unrealized Gain on Investments: Net realized gain on investments 1,809,516 Net change in unrealized appreciation/depreciation of investments 2,920,035 __________ Net Realized and Unrealized Gain on Investments 4,729,551 __________ Net Increase in Net Assets Resulting from Operations $4,682,881 __________ See accompanying notes
11 Statements of changes in net assets Delaware Small Cap Core Fund Year Ended 11/30/06 11/30/05 Increase (Decrease) in Net Assets from Operations: Net investment income (loss) $ (46,670) $ 14,447 Net realized gain on investments 1,809,516 244,228 Net change in unrealized appreciation/depreciation of investments 2,920,035 282,499 ___________ ___________ Net increase in net assets resulting from operations 4,682,881 541,174 ___________ ___________ Dividends and Distributions to Shareholders from: Net investment income: Class A - (34) Institutional Class (17,577) (8,157) Net realized gain on investments: Class A (87,278) (5,845) Class C (26,712) - Institutional Class (134,760) (1,387,384) ___________ ___________ (266,327) (1,401,420) ___________ ___________ Capital Share Transactions: Proceeds from shares sold: Class A 21,560,413 3,781,560 Class C 10,578,306 844,303 Class R 258,219 12 Institutional Class 7,820,895 1,440,217 Net asset value of shares issued upon reinvestment of dividends and distributions: Class A 70,540 5,879 Class C 24,266 - Institutional Class 152,337 1,395,541 ___________ ___________ 40,464,976 7,467,512 ___________ ___________ Cost of shares repurchased: Class A (2,172,311) (9,325) Class C (472,381) - Class R (51,844) - Institutional Class (864,699) (9,039) ___________ ___________ (3,561,235) (18,364) ___________ ___________ Increase in net assets derived from capital share transactions 36,903,741 7,449,148 ___________ ___________ Net Increase in Net Assets 41,320,295 6,588,902 Net Assets: Beginning of year 11,374,163 4,785,261 ___________ ___________ End of year (including undistributed net investment income of $- and $17,534, respectively) $52,694,458 $11,374,163 ___________ ___________ See accompanying notes
12 Financial highlights Delaware Small Cap Core Fund Class A Selected data for each share of the Fund outstanding throughout each period were as follows: Year Ended ______________________________________________________________ 11/30/06 11/30/05 11/30/04 11/30/03 11/30/02 ___________________________________________________________________________________________________________________________________ Net asset value, beginning of period $11.380 $14.600 $13.080 $10.290 $11.130 Income (loss) from investment operations: Net investment income (loss) (1) (0.015) 0.022 0.026 0.036 0.079 Net realized and unrealized gain on investments 1.895 1.035 2.481 3.350 0.069 _______ _______ _______ _______ _______ Total from investment operations 1.880 1.057 2.507 3.386 0.148 _______ _______ _______ _______ _______ Less dividends and distributions from: Net investment income - (0.025) (0.044) (0.075) (0.108) Net realized gain on investments (0.230) (4.252) (0.943) (0.521) (0.880) _______ _______ _______ _______ _______ Total dividends and distributions (0.230) (4.277) (0.987) (0.596) (0.988) _______ _______ _______ _______ _______ Net asset value, end of period $13.030 $11.380 $14.600 $13.080 $10.290 _______ _______ _______ _______ _______ Total return (2) 16.83% 9.04% 20.62% 35.19% 1.08% Ratios and supplemental data: Net assets, end of period (000 omitted) $25,220 $3,863 $20 $13 $- Ratio of expenses to average net assets 1.26% 1.02% 0.75% 0.75% 0.75% Ratio of expenses to average net assets prior to expense limitation and expense paid indirectly 1.73% 2.53% 1.30% 1.34% 1.34% Ratio of net investment income (loss) to average net assets (0.13%) 0.20% 0.20% 0.33% 0.74% Ratio of net investment income (loss) to average net assets prior to expense limitation and expense paid indirectly (0.60%) (1.31%) (0.35%) (0.26%) 0.15% Portfolio turnover 121% 104% 136% 44% 76% ___________________________________________________________________________________________________________________________________ (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 limitations not been in effect. See accompanying notes
(continues) 13 Financial highlights Delaware Small Cap Core Fund Class C Selected data for each share of the Fund outstanding throughout each period were as follows: Year 8/1/05 (1) Ended to 11/30/06 11/30/05 ___________________________________________________________________________________________________________________________________ Net asset value, beginning of period $11.360 $11.590 Income (loss) from investment operations: Net investment loss (2) (0.106) (0.021) Net realized and unrealized gain (loss) on investments 1.886 (0.209) _______ _______ Total from investment operations 1.780 (0.230) _______ _______ Less dividends and distributions from: Net realized gain on investments (0.230) - _______ _______ Total dividends and distributions (0.230) - _______ _______ Net asset value, end of period $12.910 $11.360 _______ _______ Total return (3) 15.97% (1.98%) Ratios and supplemental data: Net assets, end of period (000 omitted) $11,777 $866 Ratio of expenses to average net assets 2.01% 2.00% Ratio of expenses to average net assets prior to expense limitation and expense paid indirectly 2.43% 5.14% Ratio of net investment loss to average net assets (0.88%) (0.56%) Ratio of net investment loss to average net assets prior to expense limitation and expense paid indirectly (1.30%) (3.71%) Portfolio turnover 121% 104% (4) ___________________________________________________________________________________________________________________________________ (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. (4) The portfolio turnover is representative for the entire Fund for the year ended November 30, 2005.
See accompanying notes 14 Delaware Small Cap Core Fund Class R Selected data for each share of the Fund outstanding throughout the period was as follows: Year Ended 11/30/06 (1) ___________________________________________________________________________________________________________________________________ Net asset value, beginning of period $11.360 Income (loss) from investment operations: Net investment loss (2) (0.047) Net realized and unrealized gain on investments 1.917 _______ Total from investment operations 1.870 _______ Less dividends and distributions from: Net realized gain on investments (0.230) _______ Total dividends and distributions (0.230) _______ Net asset value, end of period $13.000 _______ Total return (3) 16.78% Ratios and supplemental data: Net assets, end of period (000 omitted) $215 Ratio of expenses to average net assets 1.51% Ratio of expenses to average net assets prior to expense limitation and expense paid indirectly 2.03% Ratio of net investment loss to average net assets (0.38%) Ratio of net investment loss to average net assets prior to expense limitation and expense paid indirectly (0.90%) Portfolio turnover 121% ___________________________________________________________________________________________________________________________________ (1) As of November 30, 2005, the Delaware Small Cap Core Fund Class R had one share outstanding, representing the initial seed purchase. Shareholder data for this class prior to December 1, 2005 is not disclosed because management does not believe it to be meaningful. (2) The average shares outstanding method has been applied for per share information. (3) Total investment return is based on the change in net asset value of a share during the period and assumes reinvestment of dividends and distributions at net asset value. Total investment return reflects waivers and payment of fees by the manager and distributor. Performance would have been lower had the expense limitations not been in effect. See accompanying notes
(continues) 15 Financial highlights Delaware Small Cap Core Fund Institutional Class Selected data for each share of the Fund outstanding throughout each period were as follows: Year Ended ______________________________________________________________ 11/30/06 11/30/05 11/30/04 11/30/03 11/30/02 ___________________________________________________________________________________________________________________________________ Net asset value, beginning of period $11.390 $14.600 $13.080 $10.290 $11.130 Income from investment operations: Net investment income (1) 0.015 0.031 0.026 0.036 0.079 Net realized and unrealized gain on investments 1.895 1.036 2.481 3.350 0.069 _______ _______ _______ _______ _______ Total from investment operations 1.910 1.067 2.507 3.386 0.148 _______ _______ _______ _______ _______ Less dividends and distributions from: Net investment income (0.030) (0.025) (0.044) (0.075) (0.108) Net realized gain on investments (0.230) (4.252) (0.943) (0.521) (0.880) _______ _______ _______ _______ _______ Total dividends and distributions (0.260) (4.277) (0.987) (0.596) (0.988) _______ _______ _______ _______ _______ Net asset value, end of period $13.040 $11.390 $14.600 $13.080 $10.290 _______ _______ _______ _______ _______ Total return (2) 17.13% 9.14% 20.62% 35.19% 1.08% Ratios and supplemental data: Net assets, end of period (000 omitted) $15,482 $6,645 $4,765 $3,948 $2,921 Ratio of expenses to average net assets 1.01% 0.94% 0.75% 0.75% 0.75% Ratio of expenses to average net assets prior to expense limitation and expense paid indirectly 1.43% 2.23% 1.00% 1.04% 1.04% Ratio of net investment income to average net assets 0.12% 0.28% 0.20% 0.33% 0.74% Ratio of net investment income (loss) to average net assets prior to expense limitation and expense paid indirectly (0.30%) (1.01%) (0.05%) 0.04% 0.45% Portfolio turnover 121% 104% 136% 44% 76% ___________________________________________________________________________________________________________________________________ (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. See accompanying notes
16 Notes to financial statements Delaware Small Cap Core Fund November 30, 2006 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 A share purchases of $1,000,000 or more will incur a contingent deferred sales charge of 1% if redeemed during the first year and 0.50% during the second year, provided that Delaware Distributors, L.P. (DDLP) paid a financial advisor a commission on the purchase of those shares. 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 certain eligible 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). In September 2006, the Financial Accounting Standards Board (FASB) issued FASB Statement No. 157, Fair Value Measurements, (Statement 157). Statement 157 establishes a framework for measuring fair value in generally accepted accounting principles, clarifies the definition of fair value within that framework, and expands disclosures about the use of fair value measurements. Statement 157 is intended to increase consistency and comparability among fair value estimates used in financial reporting. Statement 157 is effective for fiscal years beginning after November 15, 2007. Management does not expect the adoption of Statement 157 to have an impact on the amounts reported in the financial statements. 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. On July 13, 2006, FASB released FASB Interpretation No. 48 "Accounting for Uncertainty in Income Taxes" (FIN 48). FIN 48 provides guidance for how uncertain tax positions should be recognized, measured, presented, and disclosed in the financial statements. FIN 48 requires the evaluation of tax positions taken or expected to be taken in the course of preparing the Fund's tax returns to determine whether the tax positions are "more-likely-than-not" of being sustained by the applicable tax authority. Tax positions not deemed to meet the more-likely-than-not threshold would be recorded as a tax benefit or expense in the current year. Adoption of FIN 48 is required for fiscal years beginning after December 15, 2006 and is to be applied to all open tax years as of the effective date. Although the Fund's tax positions are currently being evaluated, management does not expect the adoption of FIN 48 to have a material impact on the Fund's 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 directly attributable to the Fund are charged directly to the Fund. Other expenses common to various funds within the Delaware Investments(R) Family of Funds are generally 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) for financial reporting purposes. 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. (continues) 17 Notes to financial statements Delaware Small Cap Core Fund 1. Significant Accounting Policies (continued) Subject to seeking 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 investments in the accompanying financial statements and totaled $1,152 for the year ended November 30, 2006. In general, best execution refers to many factors, including the price paid or received for a security, the commission charged, the promptness and reliability of execution, the confidentiality and placement accorded the order, and other factors affecting the overall benefit obtained by the Fund on the transaction. 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 1.00% of average daily net assets of the Fund through March 31, 2007. Delaware Service Company, Inc. (DSC), an affiliate of DMC, provides accounting, administration, dividend disbursing and transfer agent services. The Fund pays DSC a monthly fee computed at the annual rate of 0.04% of the Fund's average daily net assets 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 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. 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, 2006, the Fund had liabilities payable to affiliates as follows: Investment management fee payable to DMC $ 14,210 Dividend disbursing, transfer agent, accounting and administration fees and other expenses payable to DSC 9,982 Distribution fees payable to DDLP 14,025 Other expenses payable to DMC and affiliates* 3,417 * 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 and tax services, including internal legal and tax services provided to the Fund by DMC and/or its affiliates' employees. For the year ended November 30, 2006, the Fund was charged $1,470 for internal legal and tax services provided by DMC and/or its affiliates' employees. For the year ended November 30, 2006, DDLP earned $42,201 for commissions on sales of the Fund's Class A shares. For the year ended November 30, 2006, DDLP received gross contingent deferred sales charge commissions of $4 and $1,768 on redemption of the Fund's Class A 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. Trustees' Fees and Benefits include expenses accrued by the Fund for each Trustee's retainer, per meeting fees and retirement benefits. Independent Trustees with over five years of uninterrupted service are eligible to participate in a retirement plan that provides for the payments of benefits upon retirement. The amount of the retirement benefit is determined based on factors set forth in the plan, including the number of years of service. On November 16, 2006, the Board of Trustees of the Fund unanimously voted to terminate the retirement plan. Payments equal to the net present value of the earned benefits will be made in 2007 to those independent Trustees so entitled. The retirement benefit payout for the Fund is $5,151. 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, 2006, the Fund made purchases of $68,887,760 and sales of $34,159,376 of investment securities other than short-term investments. At November 30, 2006, the cost of investments for federal income tax purposes was $48,060,729. At November 30, 2006, net unrealized appreciation was $3,621,361 of which $4,546,196 related to unrealized appreciation of investments and $924,835 related to unrealized depreciation of investments. 18 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, 2006 and 2005 were as follows: Year Ended 11/30/06 11/30/05 Ordinary income $204,444 $ 246,155 Long-term capital gain 61,883 1,155,265 ________ __________ Total $266,327 $1,401,420 ________ __________ 5. Components of Net Assets on a Tax Basis As of November 30, 2006, the components of net assets on a tax basis were as follows: Shares of beneficial interest $47,301,899 Undistributed ordinary income 1,021,374 Undistributed long-term capital gain 749,824 Unrealized appreciation of investments 3,621,361 ___________ Net assets $52,694,458 ___________ 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 net operating losses and dividends and distributions. Results of operations and net assets were not affected by these reclassifications. For the year ended November 30, 2006, the Fund recorded the following reclassifications. Accumulated net investment loss $ 46,713 Accumulated net realized gain (loss) (46,713) 6. Capital Shares Transactions in capital shares were as follows: Year Ended 11/30/06 11/30/05 Shares sold: Class A 1,767,689 338,367 Class C 872,680 76,257 Class R 20,770 1 Institutional Class 658,523 127,717 Shares issued upon reinvestment of dividends and distributions: Class A 6,253 548 Class C 2,157 - Institutional Class 13,517 130,181 _________ _______ 3,341,589 673,071 _________ _______ Shares repurchased: Class A (178,469) (848) Class C (38,810) - Class R (4,237) - Institutional Class (68,557) (797) _________ _______ (290,073) (1,645) _________ _______ Net increase 3,051,516 671,426 _________ _______ 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 Participant'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, 2006, or at any time during the year then ended. (continues) 19 Notes to financial statements Delaware Small Cap Core Fund 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 such 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, 2006. 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 Fund's 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, 2006, there were no Rule 144A securities and no securities have been determined 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, 2006, the Fund designates dividends and 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) _____________ _______________ _____________ _____________ 23% 77% 100% 98% (A) and (B) are based on a percentage of the Fund's total distributions. (C) is based on a percentage of ordinary income distributions. (1) Qualifying dividends represent dividends which qualify for the corporate dividends received deduction. * For the fiscal year ended November 30, 2006 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 $204,444 to be taxed at a maximum rate of 15%. Complete information will be computed and reported in conjunction with your 2006 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 Core Fund We have audited the accompanying statement of net assets of Delaware Small Cap Core Fund (one of the series constituting Delaware Group Equity Funds V) (the "Fund") as of November 30, 2006, 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, 2006, 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, 2006, 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 16, 2007 21 Board of trustees/directors and officers addendum Delaware Investments(R) Family of Funds 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. Each trustee has served in that capacity since he or she was elected to or appointed to the Board of Trustees, and will continue to serve until his or her retirement or the election of a new trustee in his or her place. The following is a list of the Trustees and Officers with certain background and related information. Number of Portfolios in Fund Other Name, Complex Overseen Directorships Address, Position(s) Length of Principal Occupation(s) by Trustee Held by and Birth Date Held with Fund(s) Time Served During Past 5 Years or Officer Trustee or Officer ____________________________________________________________________________________________________________________________________ Interested Trustees ____________________________________________________________________________________________________________________________________ Patrick P. Coyne (1) Chairman, Chairman and Trustee Patrick P. Coyne has served in 83 None 2005 Market Street President, since August 16, 2006 various executive capacities Philadelphia, PA Chief Executive at different times at 19103 Officer, and President and Delaware Investments. (2) Trustee Chief Executive Officer April 14, 1963 since August 1, 2006 ____________________________________________________________________________________________________________________________________ Independent Trustees ____________________________________________________________________________________________________________________________________ Thomas L. Bennett Trustee Since Private Investor - 83 None 2005 Market Street March 2005 (March 2004-Present) Philadelphia, PA 19103 Investment Manager - Morgan Stanley & Co. October 4, 1947 (January 1984-March 2004) ____________________________________________________________________________________________________________________________________ John A. Fry Trustee Since President - 83 Director - 2005 Market Street January 2001 Franklin & Marshall College Community Health Philadelphia, PA (June 2002-Present) Systems 19103 Executive Vice President - Director - May 28, 1960 University of Pennsylvania Allied Barton (April 1995-June 2002) Security Holdings ____________________________________________________________________________________________________________________________________ Anthony D. Knerr Trustee Since Founder and Managing Director - 83 None 2005 Market Street April 1990 Anthony Knerr & Associates Philadelphia, PA (Strategic Consulting) 19103 (1990-Present) December 7, 1938 ____________________________________________________________________________________________________________________________________ Lucinda S. Landreth Trustee Since Chief Investment Officer - 83 None 2005 Market Street March 2005 Assurant, Inc. Philadelphia, PA (Insurance) 19103 (2002-2004) June 24, 1947 ____________________________________________________________________________________________________________________________________ Ann R. Leven Trustee Since Consultant - 83 Director and 2005 Market Street September 1989 ARL Associates, Audit Committee Philadelphia, PA (Financial Planning) Chairperson - Andy 19103 (1983-Present) Warhol Foundation November 1, 1940 Director and Audit Committee Member - Systemax, Inc. ____________________________________________________________________________________________________________________________________
22 Number of Portfolios in Fund Other Name, Complex Overseen Directorships Address, Position(s) Length of Principal Occupation(s) by Trustee Held by and Birth Date Held with Fund(s) Time Served During Past 5 Years or Officer Trustee or Officer ____________________________________________________________________________________________________________________________________ Independent Trustees (continued) ____________________________________________________________________________________________________________________________________ Thomas F. Madison Trustee Since President and Chief 83 Director - 2005 Market Street May 1997 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 Since Vice President 83 None 2005 Market Street April 1999 (January 2003-Present) Philadelphia, PA and Treasurer 19103 (January 2006-Present) 3M Corporation July 31, 1948 Ms. Yeomans has held various management positions at 3M Corporation since 1983. ____________________________________________________________________________________________________________________________________ J. Richard Zecher Trustee Since Founder - 83 Director and Audit 2005 Market Street March 2005 Investor Analytics Committee Member - Philadelphia, PA (Risk Management) Investor Analytics 19103 (May 1999-Present) Director and Audit July 3, 1940 Founder - Committee Member - Sutton Asset Management Oxigene, Inc. (Hedge Fund) (September 1998-Present) ____________________________________________________________________________________________________________________________________ Officers ____________________________________________________________________________________________________________________________________ David F. Connor Vice President, Vice President since David F. Connor has served as 83 None (3) 2005 Market Street Deputy General September 21, 2000 Vice President and Deputy Philadelphia, PA Counsel, and Secretary and Secretary General Counsel of 19103 since Delaware Investments October 2005 since 2000. December 2, 1963 ____________________________________________________________________________________________________________________________________ David P. O'Connor Senior Vice Senior Vice President, David P. O'Connor has served in 83 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 2005 February 21, 1966 ____________________________________________________________________________________________________________________________________ John J. O'Connor Senior Vice President Treasurer John J. O'Connor has served in 83 None (3) 2005 Market Street and Treasurer since various executive capacities Philadelphia, PA February 2005 at different times at 19103 Delaware Investments. June 16, 1957 ____________________________________________________________________________________________________________________________________ Richard Salus Senior Chief Financial Richard Salus has served in 83 None (3) 2005 Market Street Vice President Officer since various executive capacities Philadelphia, PA and November 1, 2006 at different times at 19103 Chief Financial Delaware Investments. Officer October 4, 1963 ____________________________________________________________________________________________________________________________________ (1) Patrick P. Coyne is considered to be an "Interested Trustee" because he is an executive officer of the Fund's(s') investment advisor. (2) 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. (3) David F. Connor, David P. O'Connor, John J. O'Connor, and Richard Salus 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. John J. O'Connor also serves in a similar capacity for Lincoln Variable Insurance Products Trust, which has the same investment advisor 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 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 Patrick P. Coyne Chairman, President, and Chief Executive Officer Delaware Investments Family of Funds Philadelphia, PA Thomas L. Bennett Private Investor Rosemont, PA John A. Fry President Franklin & Marshall College Lancaster, PA Anthony D. Knerr Founder and Managing Director Anthony Knerr & Associates New York, NY Lucinda S. Landreth Former Chief Investment Officer Assurant, Inc. Philadelphia, PA Ann R. Leven Consultant ARL Associates New York, NY Thomas F. Madison President and Chief Executive Officer MLM Partners, Inc. Minneapolis, MN Janet L. Yeomans Vice President and Treasurer 3M Corporation St. Paul, MN J. Richard Zecher Founder Investor Analytics Scottsdale, AZ Affiliated officers David F. Connor Vice President, Deputy General Counsel, and Secretary Delaware Investments Family of Funds Philadelphia, PA David P. O'Connor Senior Vice President, General Counsel, and Chief Legal Officer Delaware Investments Family of Funds Philadelphia, PA John J. O'Connor Senior Vice President and Treasurer Delaware Investments Family of Funds Philadelphia, PA Richard Salus Senior Vice President and Chief Financial Officer Delaware Investments Family of Funds Philadelphia, PA Contact information Investment manager Delaware Management Company, a series of Delaware Management Business Trust Philadelphia, PA National distributor Delaware Distributors, L.P. Philadelphia, PA Shareholder servicing, dividend disbursing, and transfer agent Delaware Service Company, Inc. 2005 Market Street Philadelphia, PA 19103-7094 For shareholders 800 523-1918 For securities dealers and financial institutions representatives only 800 362-7500 Web site www.delawareinvestments.com Delaware Investments is the marketing name of Delaware Management Holdings, Inc. and its subsidiaries. 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 are 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, D.C.; information on the operation of the Public Reference Room may be obtained by calling 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 Get shareholder reports and prospectuses online instead of in the mail. > Visit www.delawareinvestments.com/edelivery Simplify your life. Manage your investments online! Get Account Access, the Delaware Investments(R) secure Web site that allows you to conduct your business online. Gain 24-hour access to your account and one of the highest levels of Web security available. You also get: o Hassle-free investing - Make online purchases and redemptions at any time. o Simplified tax processing - Automatically retrieve your Delaware Investments accounts' 1099 information and import it directly into your 1040 tax return. Available only with Turbo Tax(R) Online(SM) and Desktop software - www.turbotax.com. o Less mail clutter - Get instant access to your fund materials online with Delaware eDelivery. Register for Account Access today! Please visit us at www.delawareinvestments.com, select Individual Investors, and click Account Access. Please call our Shareholder Service Center at 800 523-1918 Monday through Friday from 8:00 a.m. to 7:00 p.m., Eastern Time, for assistance with any questions. [DELAWARE INVESTMENTS LOGO] (1212) Printed in the USA AR-480 [11/06] CGI 1/07 MF-06-12-016 PO11494 Item 2. Code of Ethics The registrant has adopted a code of ethics that applies to the registrant's principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions, regardless of whether these individuals are employed by the registrant or a third party. A copy of the registrant's Code of Business Ethics has been posted on Delaware Investments' internet website at www.delawareinvestments.com. Any amendments to the Code of Business Ethics, and information on any waiver from its provisions granted by the registrant, will also be posted on this website within five business days of such amendment or waiver and will remain on the website for at least 12 months. Item 3. Audit Committee Financial Expert The registrant's Board of Trustees/Directors has determined that each member of the registrant's Audit Committee is an audit committee financial expert, as defined below. For purposes of this item, an "audit committee financial expert" is a person who has the following attributes: a. An understanding of generally accepted accounting principles and financial statements; b. The ability to assess the general application of such principles in connection with the accounting for estimates, accruals, and reserves; c. Experience preparing, auditing, analyzing, or evaluating financial statements that present a breadth and level of complexity of accounting issues that are generally comparable to the breadth and complexity of issues that can reasonably be expected to be raised by the registrant's financial statements, or experience actively supervising one or more persons engaged in such activities; d. An understanding of internal controls and procedures for financial reporting; and e. An understanding of audit committee functions. An "audit committee financial expert" shall have acquired such attributes through: a. Education and experience as a principal financial officer, principal accounting officer, controller, public accountant, or auditor or experience in one or more positions that involve the performance of similar functions; b. Experience actively supervising a principal financial officer, principal accounting officer, controller, public accountant, auditor, or person performing similar functions; c. Experience overseeing or assessing the performance of companies or public accountants with respect to the preparation, auditing, or evaluation of financial statements; or d. Other relevant experience. The registrant's Board of Trustees/Directors has also determined that each member of the registrant's Audit Committee is independent. In order to be "independent" for purposes of this item, the Audit Committee member may not: (i) other than in his or her capacity as a member of the Board of Trustees/Directors or any committee thereof, accept directly or indirectly any consulting, advisory or other compensatory fee from the issuer; or (ii) be an "interested person" of the registrant as defined in Section 2(a)(19) of the Investment Company Act of 1940. The names of the audit committee financial experts on the registrant's Audit Committee are set forth below: 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 $70,200 for the fiscal year ended November 30, 2006. ____________________ (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. 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. (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, 2006. 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 $33,700 for the registrant's fiscal year ended November 30, 2006. 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 report concerning transfer agent's system of internal accounting control pursuant to Rule 17Ad-13 of the Securities Exchange Act; and issuance of agreed upon procedures report to the registrant's Board in connection with the pass-through of internal legal cost relating to the operations of the registrant. 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 report 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"). (c) Tax fees. ________ The aggregate fees billed by the registrant's independent auditors for tax-related services provided to the registrant were $13,700 for the fiscal year ended November 30, 2006. 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, 2006. 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 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. (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, 2006. 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, 2006. 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. (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 SEC up to $10,000 in the aggregate 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. (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 $272,920 and $341,960 for the registrant's fiscal years ended November 30, 2006 and November 30, 2005, 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 (a) 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. (b) Management has made changes that have materially affected, or are reasonably likely to materially affect, registrant's internal controls over financial reporting. To seek to increase the controls' effectiveness, these changes provide for enhanced review of contracts relating to complex trnsactions and the applicability of generally accepted accounting principles to such transactions, including enhanced consultation with registrant's independent public accountants in connection with such reviews. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. 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. Name of Registrant: Delaware Group Equity Funds V PATRICK P. COYNE _____________________________ By: Patrick P. Coyne Title: Chief Executive Officer Date: February 6, 2007 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. PATRICK P. COYNE _____________________________ By: Patrick P. Coyne Title: Chief Executive Officer Date: February 6, 2007 RICHARD SALUS _____________________________ By: Richard Salus Title: Chief Financial Officer Date: February 6, 2007