Item 1. Reports to Stockholders
Annual report
Delaware
Smid Cap Growth Fund
September 30, 2012
U.S. growth equity mutual fund
|
Carefully consider the Funds investment objectives, risk factors,
charges, and expenses before investing. This and other information can be
found in the Funds prospectus and, if available, its summary prospectus,
which may be obtained by visiting delawareinvestments.com or calling 800
523-1918. Investors should read the prospectus and, if available, the
summary prospectus carefully before
investing.
|
You
can obtain shareholder reports and prospectuses online instead of in the
mail.
Visit
delawareinvestments.com/edelivery.
|
Experience Delaware Investments
Delaware Investments is committed to the
pursuit of consistently superior asset management and unparalleled client
service. We believe in our investment processes, which seek to deliver
consistent results, and in convenient services that help add value for our
clients.
If you are interested in learning more
about creating an investment plan, contact your financial advisor.
You can learn more about Delaware
Investments or obtain a prospectus for Delaware Smid Cap Growth Fund at
delawareinvestments.com.
Manage your investments
online
|
-
24-hour access to
your account information
-
Obtain share
prices
-
Check your account
balance and recent transactions
-
Request statements
or literature
-
Make purchases and
redemptions
|
Delaware Management Holdings, Inc. and its
subsidiaries (collectively known by the marketing name of Delaware Investments)
are wholly owned subsidiaries of Macquarie Group Limited, a global provider of
banking, financial, advisory, investment and funds management
services.
Investments in Delaware Smid Cap Growth
Fund are not and will not be deposits with or liabilities of Macquarie Bank
Limited ABN 46 008 583 542 and its holding companies, including their
subsidiaries or related companies (Macquarie Group), and are subject to
investment risk, including possible delays in repayment and loss of income and
capital invested. No Macquarie Group company guarantees or will guarantee the
performance of the Fund, the repayment of capital from the Fund, or any
particular rate of return.
Table of
contents
|
|
Portfolio management
review
|
1
|
Performance summary
|
4
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Disclosure of Fund
expenses
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8
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Security type/sector allocation
and
|
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top 10 equity holdings
|
10
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Statement of net
assets
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11
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Statement of operations
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15
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Statements of changes
in net assets
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16
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Financial highlights
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18
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Notes to financial
statements
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28
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Report of independent
registered
|
|
public accounting firm
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40
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Other Fund
information
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41
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Board of trustees/directors
and
|
|
officers addendum
|
46
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About the
organization
|
56
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Unless otherwise noted, views expressed
herein are current as of Sept. 30, 2012, and subject to change.
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. Delaware Investments, a member of
Macquarie Group, refers to Delaware Management Holdings, Inc. and its
subsidiaries, including the Funds distributor,
Delaware Distributors, L.P.
Macquarie
Group refers to Macquarie Group Limited and its subsidiaries and affiliates
worldwide.
© 2012 Delaware Management Holdings,
Inc.
All third-party marks cited are the
property of their respective owners.
Portfolio
management
review
|
|
Delaware Smid Cap Growth Fund
|
|
October 9,
2012
|
Performance preview (for
the year ended September
30, 2012)
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|
|
|
|
Delaware Smid Cap Growth Fund (Class A
shares)
|
|
1-year return
|
|
+
|
22.54
|
%
|
Russell 2500 Growth Index (benchmark)
|
|
1-year return
|
|
+
|
29.52
|
%
|
Past
performance does not guarantee future results.
For complete, annualized
performance for Delaware Smid Cap Growth Fund, please see the table on page 4.
The performance of Class A shares excludes the applicable sales charge and
reflects the reinvestment of all distributions.
Index performance returns do not
reflect any management fees, transaction costs, or expenses. Indices are
unmanaged and one cannot invest directly in an index.
When the Funds fiscal year began in
October 2011, equity markets experienced significant volatility, generally
characterized by opposing up-down-up months. Strong equity returns in December
largely came on the back of optimistic economic indicators (in the United
States, at least) that emerged at the end of 2011. For example, jobless claims
recorded new lows, while manufacturing and consumer demand statistics firmed.
Housing reports continued to reflect generally stable conditions, though at very
weak levels. Amid the more optimistic news in the U.S., economic conditions in
Europe slowed toward the end of 2011, as the euro zone initiated additional
austerity measures. Investors waning confidence in a political solution for the
broader problems plaguing the euro zone also generally hurt global equity
returns.
As the Funds fiscal year progressed, major market indices continued to
notch healthy
returns as domestic investors were spared geopolitical or macroeconomic
shocks and economic activity showed reasonably positive signs U.S. consumer
confidence, employment, and manufacturing data, for example, all showed
considerable improvements.
In spring 2012, however, political and
economic uncertainty combined to halt the strong rally in U.S. equity markets.
This included speculation about a potential Greek exit from the euro, continuing
evidence of deterioration within Spains banking sector, and uncertainty
surrounding upcoming political policies and elections in countries across the
euro zone and in the U.S. Also affecting market sentiment was a slowing global
growth environment, along with persistently high rates of unemployment in the
U.S. and J.P. Morgans disclosure that a hedge position had gone awry, which
forced the company to sell a huge position it had amassed at a loss, and
reportedly cost the bank up to $9 billion.
Later in the Funds fiscal year equity markets
around the globe experienced a strong rally, helped in part by central bank
asset purchase programs.
Economic activity was generally a mixed
bag during the latter part of the Funds fiscal year. Within the U.S., for
example, employment reports and manufacturing and consumer-demand statistics
generally disappointed, though housing reports showed continued improvement,
providing some encouragement for the broad U.S. economic outlook.
1
Portfolio management
review
Delaware Smid Cap Growth
Fund
Within the Fund
For its fiscal year ended Sept. 30, 2012,
Delaware Smid Cap Growth Fund (Class A shares) returned +22.54% at net asset
value and +15.51% at maximum offer price (both figures reflect all distributions
reinvested). The Fund underperformed its benchmark, the Russell 2500 Growth Index,
which advanced 29.52% for the same period. For the complete annualized
performance of Delaware Smid Cap Growth Fund, please see the table on page
4.
Polycom
, a key player in the videoconferencing industry, detracted from
performance during the Funds fiscal year. The company continued to work through
key personnel changes in important roles, such as the head of sales and
distribution. These changes happened within a generally difficult environment in
technology spending, as well as within a specific industry transformation from
primarily hardware solutions in videoconferencing to an increasing portion of
systems driven by software.
VeriFone Systems
also lagged during the Funds
fiscal year. The stock was generally hampered by investor concerns that emerging
technologies in mobile payment solutions (for example, paying for goods and
services via smartphones) may threaten this industry leader in payment
terminals. In addition, the company released changes to past operating results
due to reclassification of certain accounting items, a practice with which many
investors seem to be growing impatient. Throughout the year, the company also
increased its capital investment in new business areas, which created unease
among some investors about the long-term growth trajectory and profitability of
the company.
Lastly,
Weight Watchers
International
was another detractor from performance. The stock has been
relatively unchanged for almost two quarters after struggling with economic
headwinds and a somewhat stale marketing program in the companys core meetings
attendance business. Additionally, the company has struggled relative to
expectations due to an increase in marketing spending. We are encouraged that
much of this increase was an incremental investment into the online business,
which has been one of the key drivers of the companys business in recent
years.
SBA Communications
was the strongest contributor to the Funds performance during
its fiscal year. The company reported strong earnings and growth projections
which were helped by its key position as an infrastructure provider for wireless
services. As owner of wireless towers in North America, SBA Communications
appears poised to benefit if the strong secular growth of wireless devices
(smartphones and tablets) continues.
Another strong contributor to Fund
performance was
VeriSign
. The company reported strong operating metrics and gave
investors confidence that its competitive position is less likely to be
threatened as it continues to hold its status as sole provider of internet
domain name registration services.
Finally,
ABIOMED
also contributed to
performance during the fiscal year, as the company released strong earnings and
also benefit ed from the release of healthcare guidelines on cardiac procedures
that, in our opinion, may lead to increased usage of the companys heart pump
device. We believe this development could potentially lead to broader device use
in hospitals and may positively impact market share.
2
Regardless of the economic outcome, we
remain consistent in our long-term investment philosophy: We seek to hold stocks
of strong secular-growth companies with solid business models and competitive
positions that have the potential to grow market share and deliver shareholder
value in a variety of market environments.
3
Performance summary
|
|
Delaware Smid Cap Growth Fund
|
September 30,
2012
|
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. Please obtain the performance data
current for the most recent month end by calling 800 523-1918 or visiting our
website at delawareinvestments.com/performance. Current performance may be lower
or higher than the performance data quoted.
Fund
performance
1,2
|
Average annual total
returns through September 30, 2012
|
|
|
1 year
|
|
5 years
|
|
10 years
|
|
Lifetime
|
|
Class A (Est. March
27, 1986)
|
|
|
|
|
|
|
|
|
|
Excluding sales charge
|
|
+22.54%
|
|
+5.97%
|
|
+11.42%
|
|
n/a
|
|
Including sales charge
|
|
+15.51%
|
|
+4.72%
|
|
+10.77%
|
|
n/a
|
|
Class B (Est. Sept. 6, 1994)
|
|
|
|
|
|
|
|
|
|
Excluding sales
charge
|
|
+21.65%
|
|
+5.26%
|
|
+10.81%
|
|
n/a
|
|
Including sales charge
|
|
+17.65%
|
|
+4.95%
|
|
+10.81%
|
|
n/a
|
|
Class C (Est. Nov.
29, 1995)
|
|
|
|
|
|
|
|
|
|
Excluding sales charge
|
|
+21.68%
|
|
+5.19%
|
|
+10.62%
|
|
n/a
|
|
Including sales charge
|
|
+20.68%
|
|
+5.19%
|
|
+10.62%
|
|
n/a
|
|
Class R (Est. June 2,
2003)
|
|
|
|
|
|
|
|
|
|
Excluding sales
charge
|
|
+22.29%
|
|
+5.74%
|
|
n/a
|
|
+9.78%
|
|
Including sales charge
|
|
+22.29%
|
|
+5.74%
|
|
n/a
|
|
+9.78%
|
|
Institutional Class
(Est. Nov. 9, 1992)
|
|
|
|
|
|
|
|
|
|
Excluding sales charge
|
|
+22.90%
|
|
+6.28%
|
|
+11.75%
|
|
n/a
|
|
Including sales charge
|
|
+22.90%
|
|
+6.28%
|
|
+11.75%
|
|
n/a
|
|
1
Returns reflect the
reinvestment of all distributions and are presented both with and without the
applicable sales charges described below. Returns do not reflect the deduction
of taxes the shareholder would pay on Fund distributions or redemptions of Fund
shares.
Expense limitations were in effect for
certain classes during some or all of the periods shown in the Fund
performance chart. The current expenses for each class are listed on the Fund
expense ratios table on page 5. Performance would have been lower had expense
limitations not been in effect.
Class A shares are sold with a maximum
front-end sales charge of 5.75%, and have an annual distribution and service fee
of 0.30% of average daily net assets. The fee has been
voluntarily limited to 0.25% of average daily net assets since February
27, 2012. Furthermore, the Board has adopted a formula for calculating 12b-1
plan fees for the Funds Class A shares that went into effect on June 1, 1992.
The Funds Class A shares are currently subject to a blended 12b-1 fee equal to
the sum of: (i) 0.10% of average daily net assets representing shares acquired
prior to June 1, 1992, and (ii) 0.30% (currently limited to 0.25%) of average
daily net assets representing shares acquired on or after June 1, 1992. All
Class A shares currently bear 12b-1 fees at the same rate, the blended rate,
currently 0.27% of average daily net assets, based on the formula described
above. This method of calculating Class A 12b-1 fees may be discontinued at the
sole discretion of
4
the Board. Performance for Class A shares,
excluding sales charges, assumes that no front-end sales-charge
applied.
Class B shares may be purchased only
through dividend reinvestment and certain permitted exchanges as described in
the prospectus. Please see the prospectus for additional information on Class B
shares. Class B shares have a contingent deferred sales charge that declines
from 4.00% to zero depending on the period of time the shares are held. They are
also subject to an annual distribution and service fee of 1.00% of average daily
net assets. Class B shares will automatically convert to Class A shares on a
quarterly basis approximately eight years after purchase. Ten-year and lifetime
performance figures for Class B shares reflect conversion to Class A shares
after approximately eight years.
Class C shares are sold with a contingent
deferred sales charge of 1.00% if redeemed during the first 12 months. They are
also subject to an annual distribution and service fee of 1.00% of average daily
net assets.
Performance for Class B and C shares,
excluding sales charges, assumes either that contingent deferred sales charges
did not apply or that the investment was not redeemed.
Class R shares are available only for
certain retirement plan products. They are sold without a sales charge and have
an annual distribution and service fee of 0.60% of average daily net assets,
which has been limited contractually to 0.50% from Jan. 27, 2012, through Jan.
28, 2013.
Institutional Class shares are available
without sales or asset-based distribution charges only to certain eligible
institutional accounts.
The Fund performance table and the
Performance of a $10,000 investment graph do not reflect the deduction of
taxes the shareholder would pay on Fund distributions or redemptions of Fund
shares.
Investments in small and/or medium-sized
companies typically exhibit greater risk and higher volatility than larger, more
established companies.
2
The Funds expense ratios, as
described in the most recent prospectus, are disclosed in the following Fund
expense ratios table.
Fund expense ratios
|
Class A
|
|
Class B
|
|
Class C
|
|
Class R
|
|
Institutional Class
|
Total annual
operating expenses
|
1.32%
|
|
2.02%
|
|
2.02%
|
|
1.62%
|
|
1.02%
|
(without fee
waivers)
|
|
|
|
|
|
|
|
|
|
Net expenses
|
1.27%
|
|
2.02%
|
|
2.02%
|
|
1.52%
|
|
1.02%
|
(including fee waivers, if
any)
|
|
|
|
|
|
|
|
|
|
Type of waiver
|
Voluntary
|
|
n/a
|
|
n/a
|
|
Contractual
|
|
n/a
|
5
Performance
summary
Delaware Smid Cap Growth
Fund
Performance of a $10,000
investment
1
Average annual
total returns from Sept. 30, 2002, through Sept. 30, 2012
For period
beginning Sept. 30, 2002, through Sept. 30, 2012
|
|
Starting
value
|
|
Ending
value
|
|
|
Russell 2500 Growth Index
|
|
$10,000
|
|
$28,999
|
|
|
Delaware Smid Cap Growth Fund Class A shares
|
|
$9,425
|
|
$27,797
|
1
The Performance of a $10,000
investment graph assumes $10,000 invested in Class A shares of the Fund on
Sept. 30, 2002, and includes the effect of a 5.75% front-end sales charge and
the reinvestment of all distributions. The graph does not reflect the deduction
of taxes the shareholders would pay on Fund distributions or redemptions of Fund
shares. Expense limitations were in effect for some or all of the periods shown.
Performance would have been lower had expense limitations not been in effect.
Current expenses are listed in the Fund expense ratios table on page 5. Please
note additional details on pages 4 through 6.
The chart also assumes $10,000 invested in
the Russell 2500 Growth Index as of Sept. 30, 2002. The Russell 2500 Growth
Index measures the performance of the small- to mid-cap growth segment of the
U.S. equity universe. It includes those Russell 2500 companies with higher
price-to-book ratios and higher forecasted growth values.
Index performance returns do not reflect
any management fees, transaction costs, or expenses. Indices are unmanaged and
one cannot invest directly in an index. Past performance is not a guarantee of
future results.
Performance of other Fund classes will
vary due to different charges and expenses.
|
|
Nasdaq symbols
|
|
CUSIPs
|
|
Class A
|
|
DFCIX
|
|
245906102
|
|
Class B
|
|
DFBIX
|
|
245906300
|
|
Class C
|
|
DEEVX
|
|
245906409
|
|
Class R
|
|
DFRIX
|
|
245906508
|
|
Institutional Class
|
|
DFDIX
|
|
245906201
|
|
6
Disclosure of Fund
expenses
For the six-month period from April
1, 2012 to September 30, 2012 (Unaudited)
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 six-month
period from April 1, 2012 to September 30, 2012.
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 Funds actual expense ratio and an
assumed rate of return of 5% per year before expenses, which is not the Funds
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 Funds expenses shown in the table reflect fee
waivers in effect. The expenses shown in the table assume reinvestment of all
dividends and distributions.
8
Delaware Smid Cap Growth
Fund
Expense analysis of an investment
of $1,000
|
|
Beginning
|
|
Ending
|
|
|
|
Expenses
|
|
|
Account Value
|
|
Account Value
|
|
Annualized
|
|
Paid During Period
|
|
|
4/1/12
|
|
9/30/12
|
|
Expense Ratio
|
|
4/1/12 to 9/30/12*
|
Actual Fund return
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Class A
|
|
|
$
|
1,000.00
|
|
|
|
$
|
962.90
|
|
|
1.21%
|
|
|
$
|
5.94
|
|
Class B
|
|
|
|
1,000.00
|
|
|
|
|
959.60
|
|
|
1.96%
|
|
|
|
9.60
|
|
Class C
|
|
|
|
1,000.00
|
|
|
|
|
959.60
|
|
|
1.96%
|
|
|
|
9.60
|
|
Class R
|
|
|
|
1,000.00
|
|
|
|
|
962.00
|
|
|
1.46%
|
|
|
|
7.16
|
|
Institutional Class
|
|
|
|
1,000.00
|
|
|
|
|
964.40
|
|
|
0.96%
|
|
|
|
4.71
|
|
Hypothetical 5% return
(5% return before
expenses)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Class A
|
|
|
$
|
1,000.00
|
|
|
|
$
|
1,018.95
|
|
|
1.21%
|
|
|
$
|
6.11
|
|
Class B
|
|
|
|
1,000.00
|
|
|
|
|
1,015.20
|
|
|
1.96%
|
|
|
|
9.87
|
|
Class C
|
|
|
|
1,000.00
|
|
|
|
|
1,015.20
|
|
|
1.96%
|
|
|
|
9.87
|
|
Class R
|
|
|
|
1,000.00
|
|
|
|
|
1,017.70
|
|
|
1.46%
|
|
|
|
7.36
|
|
Institutional Class
|
|
|
|
1,000.00
|
|
|
|
|
1,020.20
|
|
|
0.96%
|
|
|
|
4.85
|
|
*
Expenses
Paid During Period are equal to the Funds annualized expense ratio, multiplied
by the average account value over the period, multiplied by 183/366 (to reflect
the one-half year-period).
9
Security type/sector allocation and
top 10 equity holdings
Delaware Smid Cap Growth Fund
|
As of September 30, 2012
(Unaudited)
|
Sector designations may be different than
the sector designations presented in other Fund materials. The sector
designations may represent the investment managers internal sector
classifications, which may result in the sector designations for one fund being
different than another funds sector designations.
Security type/sector
|
Percentage of net assets
|
Common Stock
|
98.71
|
%
|
Consumer Discretionary
|
19.68
|
%
|
Consumer
Staples
|
3.23
|
%
|
Energy
|
5.28
|
%
|
Financial
Services
|
17.77
|
%
|
Healthcare
|
12.78
|
%
|
Producer
Durables
|
11.71
|
%
|
Technology
|
23.51
|
%
|
Utilities
|
4.75
|
%
|
Short-Term Investments
|
1.86
|
%
|
Securities Lending
Collateral
|
14.41
|
%
|
Total Value of Securities
|
114.98
|
%
|
Obligations to Return
Securities Lending Collateral
|
(14.52
|
%)
|
Other Liabilities Net of Receivables and Other
Assets
|
(0.46
|
%)
|
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.
Top 10 equity
holdings
|
Percentage of net assets
|
SBA Communications Class A
|
5.44
|
%
|
Weight Watchers International
|
5.34
|
%
|
Core Laboratories
|
5.28
|
%
|
Affiliated Managers Group
|
5.21
|
%
|
Graco
|
4.98
|
%
|
VeriSign
|
4.79
|
%
|
Techne
|
4.79
|
%
|
j2 Global
|
4.75
|
%
|
NeuStar Class A
|
4.58
|
%
|
Heartland Payment
Systems
|
4.34
|
%
|
10
Statement of net assets
Delaware Smid Cap Growth Fund
|
September 30,
2012
|
|
|
|
Number of shares
|
|
Value
|
Common
Stock 98.71%
|
|
|
|
|
|
|
Consumer Discretionary 19.68%
|
|
|
|
|
|
|
|
DineEquity
|
|
|
945,554
|
|
$
|
52,951,024
|
|
Gentex
|
|
|
1,844,925
|
|
|
31,382,174
|
|
Interval Leisure
Group
|
|
|
1,345,197
|
|
|
25,464,579
|
*
|
K12
|
|
|
1,996,052
|
|
|
40,320,250
|
*
|
Strayer
Education
|
|
|
464,050
|
|
|
29,861,618
|
|
Weight Watchers International
|
|
|
1,269,566
|
|
|
67,033,085
|
|
|
|
|
|
|
|
247,012,730
|
Consumer Staples 3.23%
|
|
|
|
|
|
|
*
|
Peets Coffee &
Tea
|
|
|
553,711
|
|
|
40,609,165
|
|
|
|
|
|
|
|
40,609,165
|
Energy 5.28%
|
|
|
|
|
|
|
|
Core Laboratories
|
|
|
545,939
|
|
|
66,320,670
|
|
|
|
|
|
|
|
66,320,670
|
Financial Services 17.77%
|
|
|
|
|
|
|
|
Affiliated Managers
Group
|
|
|
531,700
|
|
|
65,399,100
|
|
Heartland Payment Systems
|
|
|
1,720,729
|
|
|
54,512,695
|
|
IntercontinentalExchange
|
|
|
383,775
|
|
|
51,199,423
|
|
MSCI Class A
|
|
|
1,452,376
|
|
|
51,980,537
|
|
|
|
|
|
|
|
223,091,755
|
Healthcare 12.78%
|
|
|
|
|
|
|
*
|
ABIOMED
|
|
|
1,541,596
|
|
|
32,358,100
|
*
|
athenahealth
|
|
|
274,241
|
|
|
25,167,097
|
|
Perrigo
|
|
|
367,875
|
|
|
42,736,039
|
|
Techne
|
|
|
836,250
|
|
|
60,159,824
|
|
|
|
|
|
|
|
160,421,060
|
Producer Durables 11.71%
|
|
|
|
|
|
|
|
Expeditors
International of Washington
|
|
|
1,326,061
|
|
|
48,215,578
|
|
Graco
|
|
|
1,242,849
|
|
|
62,490,447
|
*
|
Ritchie Brothers
Auctioneers
|
|
|
1,885,577
|
|
|
36,259,646
|
|
|
|
|
|
|
|
146,965,671
|
Technology 23.51%
|
|
|
|
|
|
|
|
Blackbaud
|
|
|
1,586,901
|
|
|
37,958,672
|
|
NeuStar Class
A
|
|
|
1,436,668
|
|
|
57,509,820
|
|
Polycom
|
|
|
2,721,054
|
|
|
26,856,803
|
|
SBA Communications
Class A
|
|
|
1,086,100
|
|
|
68,315,689
|
11
Statement of net
assets
Delaware
Smid Cap Growth Fund
|
|
|
Number of shares
|
|
Value
|
Common
Stock
(continued)
|
|
|
|
|
|
|
|
Technology
(continued)
|
|
|
|
|
|
|
|
|
VeriFone
Systems
|
|
|
|
1,590,875
|
|
$
|
44,305,869
|
|
VeriSign
|
|
|
|
1,236,175
|
|
|
60,189,361
|
|
|
|
|
|
|
|
|
295,136,214
|
Utilities 4.75%
|
|
|
|
|
|
|
|
*
|
j2 Global
|
|
|
|
1,817,802
|
|
|
59,660,262
|
|
|
|
|
|
|
|
|
59,660,262
|
Total Common Stock
(cost $996,906,843)
|
|
|
|
|
|
|
1,239,217,527
|
|
|
|
|
|
Principal amount
|
|
|
|
Short-Term Investments 1.86%
|
|
|
|
|
|
|
|
≠
Discount Notes 0.44%
|
|
|
|
|
|
|
|
|
Federal Home Loan
Bank
|
|
|
|
|
|
|
|
|
0.05%
10/26/12
|
|
|
$
|
3,039,636
|
|
|
3,039,615
|
|
0.095%
11/28/12
|
|
|
|
2,436,184
|
|
|
2,436,106
|
|
|
|
|
|
|
|
|
5,475,721
|
Repurchase Agreements 0.68%
|
|
|
|
|
|
|
|
|
Bank of America 0.13%, dated
9/28/12,
|
|
|
|
|
|
|
|
|
to
be repurchased on 10/1/12, repurchase
|
|
|
|
|
|
|
|
|
price
$6,805,228 (collateralized by U.S.
|
|
|
|
|
|
|
|
|
government
obligations 0.625%-0.75%
|
|
|
|
|
|
|
|
|
12/15/13-6/30/17;
market value $6,941,258)
|
|
|
|
6,805,154
|
|
|
6,805,154
|
|
BNP Paribas 0.17%, dated 9/28/12,
|
|
|
|
|
|
|
|
|
to
be repurchased on 10/1/12, repurchase
|
|
|
|
|
|
|
|
|
price
$1,779,056 (collateralized by U.S.
|
|
|
|
|
|
|
|
|
government
obligations 0.875% 2/28/17;
|
|
|
|
|
|
|
|
|
market
value $1,814,612)
|
|
|
|
1,779,031
|
|
|
1,779,031
|
|
|
|
|
|
|
|
|
8,584,185
|
≠U.S. Treasury Obligations 0.74%
|
|
|
|
|
|
|
|
|
U.S. Treasury Bills
|
|
|
|
|
|
|
|
|
0.042%
10/25/12
|
|
|
|
3,629,416
|
|
|
3,629,281
|
|
0.05%
11/15/12
|
|
|
|
2,093,802
|
|
|
2,093,620
|
|
0.10%
10/4/12
|
|
|
|
3,557,997
|
|
|
3,557,983
|
|
|
|
|
|
|
|
|
9,280,884
|
Total Short-Term Investments
(cost
$23,340,479)
|
|
|
|
|
|
|
23,340,790
|
|
|
Total Value of Securities Before
Securities
|
|
|
|
|
|
|
|
|
Lending Collateral 100.57%
(cost
$1,020,247,322)
|
|
|
1,262,558,317
|
12
|
|
|
Number of shares
|
|
Value
|
|
**Securities Lending Collateral 14.41%
|
|
|
|
|
|
|
|
|
Investment Companies
|
|
|
|
|
|
|
|
|
Delaware
Investments Collateral Fund No. 1
|
|
|
180,915,424
|
|
$
|
180,915,424
|
|
|
@Mellon GSL Reinvestment Trust
II
|
|
|
1,427,165
|
|
|
0
|
|
Total Securities Lending
Collateral
|
|
|
|
|
|
|
|
|
(cost $182,342,589)
|
|
|
|
|
|
180,915,424
|
|
|
|
Total Value of Securities
114.98%
|
|
|
|
|
|
|
|
|
(cost $1,202,589,911)
|
|
|
|
|
|
1,443,473,741
|
©
|
**Obligation to Return
Securities
|
|
|
|
|
|
|
|
|
Lending Collateral (14.52%)
|
|
|
|
|
|
(182,342,589
|
)
|
Other Liabilities Net of
Receivables
|
|
|
|
|
|
|
|
|
and Other Assets (0.46%)
|
|
|
|
|
|
(5,779,255
|
)
|
Net Assets Applicable to
50,227,742
|
|
|
|
|
|
|
|
|
Shares Outstanding 100.00%
|
|
|
|
|
$
|
1,255,351,897
|
|
|
|
Net Asset Value Delaware Smid Cap Growth
Fund
|
|
|
|
|
|
|
|
|
Class A ($931,398,303 / 37,359,834
Shares)
|
|
|
|
|
|
|
$24.93
|
|
Net Asset Value Delaware Smid Cap Growth Fund
|
|
|
|
|
|
|
|
|
Class B ($5,927,450 / 307,777 Shares)
|
|
|
|
|
|
|
$19.26
|
|
Net Asset Value Delaware Smid Cap Growth
Fund
|
|
|
|
|
|
|
|
|
Class C ($88,316,320 / 4,422,292
Shares)
|
|
|
|
|
|
|
$19.97
|
|
Net Asset Value Delaware Smid Cap Growth Fund
|
|
|
|
|
|
|
|
|
Class R ($11,763,712 / 484,284 Shares)
|
|
|
|
|
|
|
$24.29
|
|
Net Asset Value Delaware Smid Cap Growth
Fund
|
|
|
|
|
|
|
|
|
Institutional Class ($217,946,112 /
7,653,555 Shares)
|
|
|
|
|
|
|
$28.48
|
|
|
|
Components of Net Assets at September 30,
2012:
|
|
|
|
|
|
|
|
Shares of beneficial interest (unlimited authorization no
par)
|
|
|
|
|
$
|
944,633,779
|
|
Accumulated net realized gain on
investments
|
|
|
|
|
|
69,834,288
|
|
Net unrealized appreciation of investments
|
|
|
|
|
|
240,883,830
|
|
Total net assets
|
|
|
|
|
$
|
1,255,351,897
|
|
13
Statement of net
assets
Delaware
Smid Cap Growth Fund
|
|
|
Non income producing
security.
|
*
|
Fully or partially on
loan.
|
≠
|
The rate shown is the effective
yield at the time of purchase.
|
**
|
See Note 10 in Notes to
financial statements for additional information on securities lending
collateral.
|
@
|
Illiquid security. At September
30, 2012, the aggregate value of illiquid securities was $0, which
represented 0.00% of the Funds net assets. See Note 11 in Notes to
financial statements.
|
©
|
Includes $175,675,289 of securities
loaned.
|
Net Asset Value and Offering Price Per
Share
|
|
|
|
Delaware Smid Cap
Growth Fund
|
|
|
|
Net asset value Class A (A)
|
|
$
|
24.93
|
Sales charge (5.75%
of offering price) (B)
|
|
|
1.52
|
Offering price
|
|
$
|
26.45
|
(A)
|
Net asset value per share, as
illustrated, is the amount that would be paid upon redemption or
repurchase of shares.
|
(B)
|
See the current prospectus for
purchases of $50,000 or more.
|
See accompanying notes, which are an
integral part of the financial statements.
14
Statement of operations
Delaware Smid Cap Growth Fund
|
Year Ended September 30,
2012
|
Investment Income:
|
|
|
|
|
|
|
|
|
Dividends
|
|
$
|
9,605,347
|
|
|
|
|
|
Securities lending
income
|
|
|
1,972,375
|
|
|
|
|
|
Interest
|
|
|
83,322
|
|
|
|
|
|
Foreign tax
withheld
|
|
|
(168,045
|
)
|
|
$
|
11,492,999
|
|
|
Expenses:
|
|
|
|
|
|
|
|
|
Management
fees
|
|
|
8,782,428
|
|
|
|
|
|
Distribution
expense Class A
|
|
|
2,708,698
|
|
|
|
|
|
Distribution
expense Class B
|
|
|
86,447
|
|
|
|
|
|
Distribution
expense Class C
|
|
|
839,408
|
|
|
|
|
|
Distribution
expense Class R
|
|
|
75,905
|
|
|
|
|
|
Dividend disbursing
and transfer agent fees and expenses
|
|
|
1,840,046
|
|
|
|
|
|
Accounting and
administration expenses
|
|
|
483,540
|
|
|
|
|
|
Registration
fees
|
|
|
175,742
|
|
|
|
|
|
Reports and
statements to shareholders
|
|
|
171,602
|
|
|
|
|
|
Legal
fees
|
|
|
111,224
|
|
|
|
|
|
Audit and
tax
|
|
|
77,981
|
|
|
|
|
|
Trustees
fees
|
|
|
57,895
|
|
|
|
|
|
Custodian
fees
|
|
|
21,860
|
|
|
|
|
|
Insurance
fees
|
|
|
19,076
|
|
|
|
|
|
Dues and
services
|
|
|
13,899
|
|
|
|
|
|
Consulting
fees
|
|
|
10,317
|
|
|
|
|
|
Trustees
expenses
|
|
|
3,160
|
|
|
|
|
|
Pricing
fees
|
|
|
2,728
|
|
|
|
15,481,956
|
|
Less waived
distribution expenses Class A
|
|
|
|
|
|
|
(279,353
|
)
|
Less waived
distribution expenses Class R
|
|
|
|
|
|
|
(12,651
|
)
|
Less expense paid
indirectly
|
|
|
|
|
|
|
(1,288
|
)
|
Total operating
expenses
|
|
|
|
|
|
|
15,188,664
|
|
Net Investment
Loss
|
|
|
|
|
|
|
(3,695,665
|
)
|
|
Net Realized and Unrealized Gain:
|
|
|
|
|
|
|
|
|
Net realized gain
on investments
|
|
|
|
|
|
|
80,190,842
|
|
Net change in
unrealized appreciation (depreciation) of investments
|
|
|
|
140,142,997
|
|
Net Realized and
Unrealized Gain
|
|
|
|
|
|
|
220,333,839
|
|
|
Net Increase in Net Assets Resulting from
Operations
|
|
|
|
|
|
$
|
216,638,174
|
|
See accompanying notes, which are an
integral part of the financial statements.
15
Statements of changes in net
assets
Delaware Smid Cap Growth
Fund
|
|
Year
Ended
|
|
|
9/30/12
|
|
9/30/11
|
Increase (Decrease) in Net Assets from
Operations:
|
|
|
|
|
|
|
|
|
Net investment
income (loss)
|
|
$
|
(3,695,665
|
)
|
|
$
|
5,875,082
|
|
Net realized
gain
|
|
|
80,190,842
|
|
|
|
51,756,935
|
|
Net change in
unrealized appreciation (depreciation)
|
|
|
140,142,997
|
|
|
|
12,184,050
|
|
Net increase in net
assets resulting from operations
|
|
|
216,638,174
|
|
|
|
69,816,067
|
|
|
Dividends and Distributions to Shareholders
from:
|
|
|
|
|
|
|
|
|
Net investment
income:
|
|
|
|
|
|
|
|
|
Class
A
|
|
|
|
|
|
|
(6,292,738
|
)
|
Class
B
|
|
|
|
|
|
|
(91,503
|
)
|
Class
C
|
|
|
|
|
|
|
(283,227
|
)
|
Class
R
|
|
|
|
|
|
|
(28,282
|
)
|
Institutional
Class
|
|
|
|
|
|
|
(781,713
|
)
|
|
Net realized gain
on investments:
|
|
|
|
|
|
|
|
|
Class
A
|
|
|
(33,933,675
|
)
|
|
|
(27,689,857
|
)
|
Class
B
|
|
|
(547,623
|
)
|
|
|
(875,491
|
)
|
Class
C
|
|
|
(3,465,559
|
)
|
|
|
(2,494,268
|
)
|
Class
R
|
|
|
(441,120
|
)
|
|
|
(156,511
|
)
|
Institutional
Class
|
|
|
(6,143,095
|
)
|
|
|
(2,666,948
|
)
|
|
|
|
(44,531,072
|
)
|
|
|
(41,360,538
|
)
|
|
Capital Share Transactions:
|
|
|
|
|
|
|
|
|
Proceeds from
shares sold:
|
|
|
|
|
|
|
|
|
Class
A
|
|
|
274,633,779
|
|
|
|
221,148,702
|
|
Class
B
|
|
|
167,866
|
|
|
|
320,888
|
|
Class
C
|
|
|
31,490,531
|
|
|
|
24,153,643
|
|
Class
R
|
|
|
13,806,887
|
|
|
|
4,065,346
|
|
Institutional
Class
|
|
|
197,572,438
|
|
|
|
118,773,572
|
|
|
Net asset value of
shares issued upon reinvestment
|
|
|
|
|
|
|
|
|
of
dividends and distributions:
|
|
|
|
|
|
|
|
|
Class
A
|
|
|
32,503,153
|
|
|
|
32,240,961
|
|
Class
B
|
|
|
531,681
|
|
|
|
926,848
|
|
Class
C
|
|
|
3,303,587
|
|
|
|
2,654,947
|
|
Class
R
|
|
|
266,723
|
|
|
|
184,789
|
|
Institutional
Class
|
|
|
4,834,252
|
|
|
|
2,950,042
|
|
16
|
|
Year
Ended
|
|
|
9/30/12
|
|
9/30/11
|
Capital Share Transactions
(continued):
|
|
|
|
|
|
|
|
|
Net assets from
merger*
|
|
|
|
|
|
|
|
|
Class
A
|
|
$
|
|
|
|
$
|
332,752,015
|
|
Class
B
|
|
|
|
|
|
|
11,688,184
|
|
Class
C
|
|
|
|
|
|
|
37,930,093
|
|
Class
R
|
|
|
|
|
|
|
2,263,649
|
|
Institutional
Class
|
|
|
|
|
|
|
21,241,986
|
|
|
|
|
559,110,897
|
|
|
|
813,295,665
|
|
|
Cost of shares
redeemed:
|
|
|
|
|
|
|
|
|
Class
A
|
|
|
(214,077,438
|
)
|
|
|
(167,464,754
|
)
|
Class
B
|
|
|
(6,153,140
|
)
|
|
|
(7,791,162
|
)
|
Class
C
|
|
|
(16,411,949
|
)
|
|
|
(12,207,681
|
)
|
Class
R
|
|
|
(8,617,732
|
)
|
|
|
(2,771,753
|
)
|
Institutional
Class
|
|
|
(146,228,336
|
)
|
|
|
(39,698,112
|
)
|
|
|
|
(391,488,595
|
)
|
|
|
(229,933,462
|
)
|
Increase in net assets derived from
capital share transactions
|
|
|
167,622,302
|
|
|
|
583,362,203
|
|
Net Increase in Net Assets
|
|
|
339,729,404
|
|
|
|
611,817,732
|
|
|
Net Assets:
|
|
|
|
|
|
|
|
|
Beginning of
year
|
|
|
915,622,493
|
|
|
|
303,804,761
|
|
End of year (there
was no undistributed
|
|
|
|
|
|
|
|
|
net
investment income at either year end)
|
|
$
|
1,255,351,897
|
|
|
$
|
915,622,493
|
|
*See Note 7 in Notes to financial
statements.
See accompanying notes, which are an
integral part of the financial statements.
17
Financial highlights
Delaware Smid Cap Growth Fund Class A
Selected data for each share of the Fund
outstanding throughout each period were as follows:
|
Net asset value, beginning of
period
|
|
Income (loss) from investment
operations:
|
Net investment income
(loss)
1
|
Net realized and
unrealized gain (loss)
|
Total from investment
operations
|
|
Less dividends and distributions
from:
|
Net investment
income
|
Net realized
gain
|
Total dividends and
distributions
|
|
Net asset value, end of period
|
|
Total return
2
|
|
Ratios and supplemental data:
|
Net assets, end of period (000
omitted)
|
Ratio of expenses to
average net assets
|
Ratio of expenses to average net
assets prior to fees waived
|
Ratio of net
investment income (loss) to average net assets
|
Ratio of net investment income
(loss) to average net assets
|
prior to fees
waived
|
Portfolio turnover
|
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 during some of the periods shown reflects a waiver by
the manager and/or distributor. Performance would have been lower had the
waiver not been in effect.
|
See accompanying notes, which are an
integral part of the financial statements.
18
|
|
Year Ended
|
|
|
|
9/30/12
|
|
9/30/11
|
|
9/30/10
|
|
9/30/09
|
|
9/30/08
|
|
|
|
$21.180
|
|
|
$19.650
|
|
|
$15.560
|
|
|
$17.860
|
|
|
$26.290
|
|
|
|
|
|
|
|
|
(0.070
|
)
|
|
0.158
|
|
|
(0.094
|
)
|
|
(0.078
|
)
|
|
(0.125
|
)
|
|
|
|
4.766
|
|
|
2.515
|
|
|
4.184
|
|
|
(0.530
|
)
|
|
(5.553
|
)
|
|
|
|
4.696
|
|
|
2.673
|
|
|
4.090
|
|
|
(0.608
|
)
|
|
(5.678
|
)
|
|
|
|
|
|
|
|
|
|
|
(0.205
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
(0.946
|
)
|
|
(0.938
|
)
|
|
|
|
|
(1.692
|
)
|
|
(2.752
|
)
|
|
|
|
(0.946
|
)
|
|
(1.143
|
)
|
|
|
|
|
(1.692
|
)
|
|
(2.752
|
)
|
|
|
|
|
|
$24.930
|
|
|
$21.180
|
|
|
$19.650
|
|
|
$15.560
|
|
|
$17.860
|
|
|
|
|
|
|
22.54%
|
|
|
13.57%
|
|
|
26.29%
|
|
|
0.06%
|
|
|
(24.03%
|
)
|
|
|
|
|
|
|
|
$931,398
|
|
|
$706,442
|
|
|
$256,981
|
|
|
$226,575
|
|
|
$261,003
|
|
|
|
|
1.22%
|
|
|
1.32%
|
|
|
1.50%
|
|
|
1.44%
|
|
|
1.42%
|
|
|
|
|
1.25%
|
|
|
1.32%
|
|
|
1.53%
|
|
|
1.76%
|
|
|
1.52%
|
|
|
|
|
(0.29%
|
)
|
|
0.68%
|
|
|
(0.54%
|
)
|
|
(0.61%
|
)
|
|
(0.58%
|
)
|
|
|
|
|
|
(0.32%
|
)
|
|
0.68%
|
|
|
(0.57%
|
)
|
|
(0.93%
|
)
|
|
(0.68%
|
)
|
|
|
|
20%
|
|
|
21%
|
|
|
139%
|
|
|
106%
|
|
|
101%
|
|
|
19
Financial
highlights
Delaware Smid Cap Growth Fund Class
B
Selected data for each share of the Fund
outstanding throughout each period were as follows:
|
Net asset value, beginning of
period
|
|
Income (loss) from investment
operations:
|
Net investment
loss
1
|
Net realized and
unrealized gain (loss)
|
Total from investment
operations
|
|
Less dividends and distributions
from:
|
Net investment
income
|
Net realized
gain
|
Total dividends and
distributions
|
|
Net asset value, end of period
|
|
Total return
2
|
|
Ratios and supplemental data:
|
Net assets, end of period (000
omitted)
|
Ratio of expenses to
average net assets
|
Ratio of expenses to average net
assets prior to fees waived
|
Ratio of net
investment loss to average net assets
|
Ratio of net investment loss to
average net assets
|
prior to fees
waived
|
Portfolio
turnover
|
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 during some of the periods shown reflects a waiver by
the manager. Performance would have been lower had the waiver not been in
effect.
|
See accompanying notes, which are an
integral part of the financial statements.
20
|
|
Year
Ended
|
|
|
|
9/30/12
|
|
9/30/11
|
|
9/30/10
|
|
9/30/09
|
|
9/30/08
|
|
|
|
$16.670
|
|
|
$15.700
|
|
|
$12.520
|
|
|
$14.880
|
|
|
$22.510
|
|
|
|
|
|
|
|
|
(0.191
|
)
|
|
(0.003
|
)
|
|
(0.171
|
)
|
|
(0.143
|
)
|
|
(0.241
|
)
|
|
|
|
3.727
|
|
|
2.013
|
|
|
3.351
|
|
|
(0.525
|
)
|
|
(4.637
|
)
|
|
|
|
3.536
|
|
|
2.010
|
|
|
3.180
|
|
|
(0.668
|
)
|
|
(4.878
|
)
|
|
|
|
|
|
|
|
|
|
|
(0.102
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
(0.946
|
)
|
|
(0.938
|
)
|
|
|
|
|
(1.692
|
)
|
|
(2.752
|
)
|
|
|
|
(0.946
|
)
|
|
(1.040
|
)
|
|
|
|
|
(1.692
|
)
|
|
(2.752
|
)
|
|
|
|
|
|
$19.260
|
|
|
$16.670
|
|
|
$15.700
|
|
|
$12.520
|
|
|
$14.880
|
|
|
|
|
|
|
21.65%
|
|
|
12.82%
|
|
|
25.40%
|
|
|
(0.40%
|
)
|
|
(24.56%
|
)
|
|
|
|
|
|
|
|
$5,928
|
|
|
$9,956
|
|
|
$3,394
|
|
|
$4,007
|
|
|
$6,800
|
|
|
|
|
1.95%
|
|
|
2.02%
|
|
|
2.20%
|
|
|
2.14%
|
|
|
2.12%
|
|
|
|
|
1.95%
|
|
|
2.02%
|
|
|
2.23%
|
|
|
2.46%
|
|
|
2.22%
|
|
|
|
|
(1.02%
|
)
|
|
(0.02%
|
)
|
|
(1.24%
|
)
|
|
(1.31%
|
)
|
|
(1.28%
|
)
|
|
|
|
|
|
(1.02%
|
)
|
|
(0.02%
|
)
|
|
(1.27%
|
)
|
|
(1.63%
|
)
|
|
(1.38%
|
)
|
|
|
|
20%
|
|
|
21%
|
|
|
139%
|
|
|
106%
|
|
|
101%
|
|
|
21
Financial
highlights
Delaware Smid Cap Growth Fund Class
C
Selected data for each share of the Fund
outstanding throughout each period were as follows:
|
Net asset value, beginning of
period
|
|
Income (loss) from investment
operations:
|
Net investment
loss
1
|
Net realized and
unrealized gain (loss)
|
Total from investment
operations
|
|
Less dividends and distributions
from:
|
Net investment
income
|
Net realized
gain
|
Total dividends and
distributions
|
|
Net asset value, end of period
|
|
Total return
2
|
|
Ratios and supplemental data:
|
Net assets, end of period (000
omitted)
|
Ratio of expenses to
average net assets
|
Ratio of expenses to average net
assets prior to fees waived
|
Ratio of net
investment loss to average net assets
|
Ratio of net investment loss to
average net assets
|
prior to fees
waived
|
Portfolio
turnover
|
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 during some of the periods shown reflects a waiver by
the manager. Performance would have been lower had the waiver not been in
effect.
|
See accompanying notes, which are an
integral part of the financial statements.
22
|
|
Year
Ended
|
|
|
|
9/30/12
|
|
9/30/11
|
|
9/30/10
|
|
9/30/09
|
|
9/30/08
|
|
|
|
$17.250
|
|
|
$16.210
|
|
|
$12.930
|
|
|
$15.350
|
|
|
$23.130
|
|
|
|
|
|
|
|
|
|
|
(0.198
|
)
|
|
(0.003
|
)
|
|
(0.177
|
)
|
|
(0.147
|
)
|
|
(0.246
|
)
|
|
|
|
3.864
|
|
|
2.083
|
|
|
3.457
|
|
|
(0.581
|
)
|
|
(4.782
|
)
|
|
|
|
3.666
|
|
|
2.080
|
|
|
3.280
|
|
|
(0.728
|
)
|
|
(5.028
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
(0.102
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
(0.946
|
)
|
|
(0.938
|
)
|
|
|
|
|
(1.692
|
)
|
|
(2.752
|
)
|
|
|
|
(0.946
|
)
|
|
(1.040
|
)
|
|
|
|
|
(1.692
|
)
|
|
(2.752
|
)
|
|
|
|
|
|
|
$19.970
|
|
|
$17.250
|
|
|
$16.210
|
|
|
$12.930
|
|
|
$15.350
|
|
|
|
|
|
|
|
21.68%
|
|
|
12.77%
|
|
|
25.37%
|
|
|
(0.79%
|
)
|
|
(24.55%
|
)
|
|
|
|
|
|
|
|
|
|
$88,316
|
|
|
$59,513
|
|
|
$6,329
|
|
|
$5,534
|
|
|
$6,445
|
|
|
|
|
1.95%
|
|
|
2.02%
|
|
|
2.20%
|
|
|
2.14%
|
|
|
2.12%
|
|
|
|
|
1.95%
|
|
|
2.02%
|
|
|
2.23%
|
|
|
2.46%
|
|
|
2.22%
|
|
|
|
|
(1.02%
|
)
|
|
(0.02%
|
)
|
|
(1.24%
|
)
|
|
(1.31%
|
)
|
|
(1.28%
|
)
|
|
|
|
|
|
|
(1.02%
|
)
|
|
(0.02%
|
)
|
|
(1.27%
|
)
|
|
(1.63%
|
)
|
|
(1.38%
|
)
|
|
|
|
20%
|
|
|
21%
|
|
|
139%
|
|
|
106%
|
|
|
101%
|
|
|
23
Financial
highlights
Delaware Smid Cap Growth Fund Class
R
Selected data for each share of the Fund
outstanding throughout each period were as follows:
|
Net asset value, beginning of
period
|
|
Income (loss) from investment
operations:
|
Net investment income
(loss)
1
|
Net realized and
unrealized gain (loss)
|
Total from investment
operations
|
|
Less dividends and distributions
from:
|
Net investment
income
|
Net realized
gain
|
Total dividends and
distributions
|
|
Net asset value, end of period
|
|
Total return
2
|
|
Ratios and supplemental data:
|
Net assets, end of period (000
omitted)
|
Ratio of expenses to
average net assets
|
Ratio of expenses to average net
assets prior to fees waived
|
Ratio of net
investment income (loss) to average net assets
|
Ratio of net investment income
(loss) to average net assets
|
prior to fees
waived
|
Portfolio turnover
|
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 during all of the periods shown
reflects waivers by the manager and/or distributor. Performance would have
been lower had the waivers not been in
effect.
|
See accompanying notes, which are an
integral part of the financial statements.
24
|
|
Year
Ended
|
|
|
|
9/30/12
|
|
|
9/30/11
|
|
|
9/30/10
|
|
|
9/30/09
|
|
|
9/30/08
|
|
|
|
|
$20.700
|
|
|
$19.240
|
|
|
$15.270
|
|
|
$17.590
|
|
|
$25.990
|
|
|
|
|
|
|
|
|
|
|
(0.123
|
)
|
|
0.109
|
|
|
(0.125
|
)
|
|
(0.103
|
)
|
|
(0.166
|
)
|
|
|
|
4.659
|
|
|
2.455
|
|
|
4.095
|
|
|
(0.525
|
)
|
|
(5.482
|
)
|
|
|
|
4.536
|
|
|
2.564
|
|
|
3.970
|
|
|
(0.628
|
)
|
|
(5.648
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
(0.166
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
(0.946
|
)
|
|
(0.938
|
)
|
|
|
|
|
(1.692
|
)
|
|
(2.752
|
)
|
|
|
|
(0.946
|
)
|
|
(1.104
|
)
|
|
|
|
|
(1.692
|
)
|
|
(2.752
|
)
|
|
|
|
|
|
|
$24.290
|
|
|
$20.700
|
|
|
$19.240
|
|
|
$15.270
|
|
|
$17.590
|
|
|
|
|
|
|
|
22.29%
|
|
|
13.29%
|
|
|
26.00%
|
|
|
(0.12%
|
)
|
|
(24.16%
|
)
|
|
|
|
|
|
|
|
|
|
$11,764
|
|
|
$4,737
|
|
|
$889
|
|
|
$783
|
|
|
$601
|
|
|
|
|
1.45%
|
|
|
1.52%
|
|
|
1.70%
|
|
|
1.64%
|
|
|
1.62%
|
|
|
|
|
1.55%
|
|
|
1.62%
|
|
|
1.83%
|
|
|
2.06%
|
|
|
1.82%
|
|
|
|
|
(0.52%
|
)
|
|
0.48%
|
|
|
(0.74%
|
)
|
|
(0.81%
|
)
|
|
(0.78%
|
)
|
|
|
|
|
|
|
(0.62%
|
)
|
|
0.38%
|
|
|
(0.87%
|
)
|
|
(1.23%
|
)
|
|
(0.98%
|
)
|
|
|
|
20%
|
|
|
21%
|
|
|
139%
|
|
|
106%
|
|
|
101%
|
|
|
25
Financial highlights
Delaware Smid Cap Growth Fund Institutional Class
Selected data for each share of the Fund
outstanding throughout each period were as follows:
|
Net asset value, beginning of
period
|
|
Income (loss) from investment
operations:
|
Net investment income
(loss)
1
|
Net realized and
unrealized gain (loss)
|
Total from investment
operations
|
|
Less dividends and distributions
from:
|
Net investment
income
|
Net realized
gain
|
Total dividends and
distributions
|
|
Net asset value, end of period
|
|
Total return
2
|
|
Ratios and supplemental data:
|
Net assets, end of period (000
omitted)
|
Ratio of expenses to
average net assets
|
Ratio of expenses to average net
assets prior to fees waived
|
Ratio of net
investment income (loss) to average net assets
|
Ratio of net investment income
(loss) to average net assets
|
prior to fees
waived
|
Portfolio turnover
|
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 during some of the periods shown
reflects a waiver by the manager. Performance would have been lower had
the waiver not been in effect.
|
See accompanying notes, which are an
integral part of the financial statements.
26
|
|
Year
Ended
|
|
|
|
9/30/12
|
|
9/30/11
|
|
9/30/10
|
|
9/30/09
|
|
9/30/08
|
|
|
|
$24.010
|
|
|
$22.130
|
|
|
$17.470
|
|
|
$19.710
|
|
|
$28.650
|
|
|
|
|
|
|
|
|
|
|
(0.006
|
)
|
|
0.257
|
|
|
(0.049
|
)
|
|
(0.039
|
)
|
|
(0.060
|
)
|
|
|
|
5.422
|
|
|
2.824
|
|
|
4.709
|
|
|
(0.509
|
)
|
|
(6.128
|
)
|
|
|
|
5.416
|
|
|
3.081
|
|
|
4.660
|
|
|
(0.548
|
)
|
|
(6.188
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
(0.263
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
(0.946
|
)
|
|
(0.938
|
)
|
|
|
|
|
(1.692
|
)
|
|
(2.752
|
)
|
|
|
|
(0.946
|
)
|
|
(1.201
|
)
|
|
|
|
|
(1.692
|
)
|
|
(2.752
|
)
|
|
|
|
|
|
|
$28.480
|
|
|
$24.010
|
|
|
$22.130
|
|
|
$17.470
|
|
|
$19.710
|
|
|
|
|
|
|
|
22.90%
|
|
|
13.90%
|
|
|
26.67%
|
|
|
0.39%
|
|
|
(23.81%
|
)
|
|
|
|
|
|
|
|
|
|
$217,946
|
|
|
$134,974
|
|
|
$36,212
|
|
|
$4,649
|
|
|
$4,697
|
|
|
|
|
0.95%
|
|
|
1.02%
|
|
|
1.20%
|
|
|
1.14%
|
|
|
1.12%
|
|
|
|
|
0.95%
|
|
|
1.02%
|
|
|
1.23%
|
|
|
1.46%
|
|
|
1.22%
|
|
|
|
|
(0.02%
|
)
|
|
0.98%
|
|
|
(0.24%
|
)
|
|
(0.31%
|
)
|
|
(0.28%
|
)
|
|
|
|
|
|
|
(0.02%
|
)
|
|
0.98%
|
|
|
(0.27%
|
)
|
|
(0.63%
|
)
|
|
(0.38%
|
)
|
|
|
|
20%
|
|
|
21%
|
|
|
139%
|
|
|
106%
|
|
|
101%
|
|
|
27
Notes to financial statements
|
|
Delaware Smid Cap Growth Fund
|
September 30,
2012
|
Delaware Group
®
Equity Funds IV (Trust) is organized as
a Delaware statutory trust and offers two series: Delaware Healthcare Fund and
Delaware Smid Cap Growth Fund. These financial statements and the related notes
pertain to Delaware Smid Cap Growth Fund (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 maximum front-end
sales charge of 5.75%. Class A share purchases of $1,000,000 or more will incur
a contingent deferred sales charge (CDSC) 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 may be purchased only through dividend reinvestment and certain
permitted exchanges. Prior to June 1, 2007, Class B shares were sold with a CDSC
that declined 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
CDSC 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 long-term capital appreciation.
1. Significant Accounting
Policies
The following accounting policies are in
accordance with U.S. generally accepted accounting principles (U.S. GAAP) 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 ask prices will be used, which approximates fair value. U.S. government and
agency securities are valued at the mean between the bid and ask prices, which
approximates fair value. Investment company securities are valued at net asset
value per share, as reported by the underlying investment company. Generally,
other securities and assets for which market quotations are not readily
available are valued at fair value as determined in good faith under the
direction of the Funds Board of Trustees (Board). 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 suspension of
trading in a security. The Fund may use fair value pricing more frequently for
securities traded primarily in non-U.S. markets because, among other things,
most foreign markets close well before the Fund values its securities, generally
as of 4:00 p.m. Eastern time. The earlier close of these foreign markets gives
rise to the possibility that significant events, including broad market moves,
government actions or pronouncements, aftermarket trading, or news events may
have occurred in the interim. To account for this, the Fund may frequently value
foreign securities using fair value prices based on third-party vendor modeling
tools (international fair value pricing).
28
Federal Income Taxes
No provision for federal income taxes has been made as the
Fund intends to continue to qualify for federal income tax purposes as a
regulated investment company under Subchapter M of the Internal Revenue Code of
1986, as amended, and make the requisite distributions to shareholders. The Fund
evaluates tax positions taken or expected to be taken in the course of preparing
the Funds 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 are recorded as
a tax benefit or expense in the current year. Management has analyzed the Funds
tax positions taken for all open federal income tax years and has concluded that
no provision for federal income tax is required in the Funds 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 purchase certain U.S. government securities
subject to the counterpartys agreement to repurchase them at an agreed upon
date and price. The counterparty will be required on a daily basis to maintain
the value of the collateral subject to the agreement at not less than the
repurchase price (including accrued interest). The agreements are conditioned
upon the collateral being deposited under the Federal Reserve book-entry system
with the Funds custodian or a third-party sub-custodian. In the event of
default or bankruptcy by the other party to the agreement, retention of the
collateral may be subject to legal proceedings. All open repurchase agreements
as of the date of this report were entered into on September 28, 2012.
Use of Estimates
The preparation of financial statements in conformity with
U.S. GAAP requires management to make estimates and assumptions that affect the
fair value of investments, the reported amounts of assets and liabilities and
disclosure of contingent 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 and the
differences could be material.
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 among 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. Taxable non-cash dividends
are recorded as dividend income. Foreign dividends are also recorded on the
ex-dividend date or as soon after the ex-dividend date that the Fund is aware of
such dividends, net of all non-rebatable tax withholdings. Withholding taxes on
foreign dividends have been recorded in accordance with the Funds understanding
of the applicable countrys tax rules and rates. The Fund declares and pays
dividends from net
29
Notes to financial
statements
Delaware Smid Cap
Growth Fund
1. Significant Accounting Policies
(continued)
investment income and
distributions from net realized gain on investments, if any, annually. The Fund
may distribute income dividends and capital gains more frequently, if necessary
for tax purposes. Dividends and distributions, if any, are recorded on the
ex-dividend date.
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. 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. There
were no commission rebates for the year ended September 30, 2012.
The Fund may receive earnings credits from
its custodian when positive cash balances are maintained, which are used to
offset custody fees. There were no earnings credits for the year ended September
30, 2012.
The Fund receives earnings credits from
its transfer agent when positive cash balances are maintained, which are used to
offset transfer agent fees. The expense paid under this arrangement is included
in dividend disbursing and transfer agent fees and expenses on the statement of
operations with the corresponding expense offset shown as expense paid
indirectly. For the year ended September 30, 2012, the Fund earned $1,288 under
this agreement.
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 the average daily net
assets in excess of $2.5 billion.
Prior to January 31, 2012, DMC had
contractually agreed to waive that portion, if any, of its management fee and
reimburse the Fund to the extent necessary to ensure that total annual operating
expenses (excluding any 12b-1 plan expenses and certain other expenses) did not
exceed 1.12% of average daily net assets of the Fund. For purposes of this
waiver and reimbursement, nonroutine expenses may also include such additional
costs and expenses as may be agreed upon from time to time by the Funds Board
and DMC. This expense waiver and reimbursement applied only to expenses paid
directly by the Fund.
Delaware Service Company, Inc. (DSC), an
affiliate of DMC, provides fund accounting and financial administration
oversight services to the Fund. For these services, the Fund pays DSC fees based
on the aggregate daily net assets of the Delaware Investments
®
Family of Funds at the
following annual rate: 0.0050% of the first $30 billion; 0.0045% of the next $10
billion; 0.0040% of the next $10 billion; and 0.0025% of aggregate average daily
net assets in excess of $50 billion. The
30
fees payable to DSC under the service
agreement described above are allocated among all Funds in the Delaware
Investments
®
Family of Funds on a relative net asset value
basis. For the year ended September 30, 2012, the Fund was charged $60,682 for
these services.
DSC also provides dividend disbursing and
transfer agency services. The Fund pays DSC a monthly asset-based fee for these
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 of 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
Class C shares, and 0.60% of the average daily net assets of the Class R shares.
Institutional Class shares pay no distribution and service expenses. DDLP has
contracted to limit distribution and service fees through January 28, 2013 for
Class R shares 12b-1 fees to 0.50% of average daily net assets.
In connection with the merger of Delaware
Trend Fund, effective October 11, 2010, the Fund assumed the blended rate 12b-1
fee for the Class A shares that Delaware Trend Fund had in place. The total
12b-1 fees to be paid by Class A shareholders of the Fund is the sum of: (i)
0.10% of the average daily net assets representing shares that were acquired
prior to June 1, 1992 and (ii) 0.30% of the average daily net assets
representing shares that were acquired on or after June 1, 1992. All Class A
shareholders bear 12b-1 fees at the same rate, the blended rate, currently 0.27% of average daily net assets, based upon the
allocation of the rates described above. This method of calculating Class A
12b-1 fees may be discontinued at the sole discretion of the Board. Effective
February 27, 2012, 12b-1 fees for Class A shares of the Fund are voluntarily
capped at 0.25% of average daily net assets.
At September 30, 2012, the Fund had
liabilities payable to affiliates as follows:
Investment management
fees payable to DMC
|
$
|
743,199
|
Dividend disbursing, transfer agent and
fund accounting
|
|
|
oversight fees
and other expenses payable to DSC
|
|
28,771
|
Distribution fees
payable to DDLP
|
|
276,622
|
Other expenses payable to DMC and
affiliates*
|
|
41,842
|
*DMC, as part of its administrative services, pays operating expenses on
behalf of the Fund and is reimbursed on a periodic basis. 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 September 30, 2012, the Fund was
charged $33,351 for internal legal and tax services provided by DMC and/or its
affiliates employees.
For the year ended September 30, 2012,
DDLP earned $114,771 for commissions on sales of the Funds Class A shares. For
the year ended September 30, 2012, DDLP received gross CDSC commissions of
$68,946, $1,951 and $18,380 on redemption of the Funds 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.
31
Notes to financial
statements
Delaware Smid Cap
Growth Fund
2. Investment Management,
Administration Agreements and Other Transactions with Affiliates
(continued)
Trustees fees include expenses accrued by
the Fund for each Trustees retainer and meeting fees. Certain officers of DMC,
DSC and DDLP are officers and/or Trustees of the Trust. These officers and
Trustees are paid no compensation by the Fund.
3. Investments
For the year ended September 30, 2012, the
Fund made purchases of $389,115,949 and sales of $231,909,050 of investment
securities other than short-term investments.
At September 30, 2012, the cost of
investments for federal income tax purposes was $1,204,002,615. At September 30,
2012, the net unrealized appreciation was $239,471,126, of which $313,628,094
related to unrealized appreciation of investments and $74,156,968 related to
unrealized depreciation of investments.
U.S. GAAP defines fair value as the price
that the Fund would receive to sell an asset or pay to transfer a liability in
an orderly transaction between market participants at the measurement date under
current market conditions. A three level hierarchy for fair value measurements
has been established based upon the transparency of inputs to the valuation of
an asset or liability. Inputs may be observable or unobservable and refer
broadly to the assumptions that market participants would use in pricing the
asset or liability. Observable inputs reflect the assumptions market
participants would use in pricing the asset or liability based on market data
obtained from sources independent of the reporting entity. Unobservable inputs
reflect the reporting entitys own assumptions about the assumptions that market
participants would use in pricing the asset or liability developed based on the
best information available under the circumstances. The Funds investment in its
entirety is assigned a level based upon the observability of the inputs which
are significant to the overall valuation. The three level hierarchy of inputs is
summarized below.
Level 1
|
inputs are quoted prices in active
markets for identical investments (e.g., equity securities, open-end
investment companies, futures contracts, exchange-traded options
contracts)
|
|
|
Level 2
|
other observable inputs (including,
but not limited to: quoted prices for similar assets or liabilities in
markets that are active, quoted prices for identical or similar assets or
liabilities in markets that are not active, inputs other than quoted
prices that are observable for the assets or liabilities (such as interest
rates, yield curves, volatilities, prepayment speeds, loss severities,
credit risks and default rates) or other market-corroborated inputs)
(e.g., debt securities, government securities, swap contracts, foreign
currency exchange contracts, foreign securities utilizing international
fair value pricing, broker-quoted securities, fair valued
securities)
|
32
Level 3
|
inputs are significant unobservable
inputs (including the Funds own assumptions used to determine the fair
value of investments) (e.g., broker-quoted securities, fair valued
securities)
|
Level 3 investments are valued using
significant unobservable inputs, which may include prior transaction prices
(acquisition cost) that did not occur during the period, financial or news
information released by the company, and other relevant information for the
investment to determine the fair value of the investment. The Fund may also use
an income-based valuation approach in which the anticipated future cash flows of
the investment are discounted to calculate fair value. Discounts may also be
applied due to the nature or duration of any restrictions on the disposition of
the investments. Valuations may also be based upon current market prices of
securities that are comparable in coupon, rating, maturity and industry. The
derived value of a Level 3 investment may not represent the value which is
received upon disposition and this could impact the results of
operations.
The following table summarizes the
valuation of the Funds investments by fair value hierarchy levels as of
September 30, 2012:
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
Common Stock
|
|
$
|
1,239,217,527
|
|
$
|
|
|
|
$
|
|
|
|
$
|
1,239,217,527
|
Short-Term Investments
|
|
|
|
|
|
23,340,790
|
|
|
|
|
|
|
|
23,340,790
|
Securities Lending Collateral
|
|
|
|
|
|
180,915,424
|
|
|
|
|
|
|
|
180,915,424
|
Total
|
|
$
|
1,239,217,527
|
|
$
|
204,256,214
|
|
|
$
|
|
|
|
$
|
1,443,473,741
|
A reconciliation of Level 3 investments is
presented when the Fund had a significant amount of Level 3 investments at the
beginning, interim or end of period in relation to net assets.
During the year ended September 30, 2012,
there were no transfers between Level 1 investments, Level 2 investments or
Level 3 investments that had a material impact to the Fund. The Funds policy is
to recognize transfers between levels at the beginning of the reporting
period.
Management has determined not to provide
additional disclosure under ASU No. 2011-04 since the Level 3 investments are
not considered material to the Funds net assets at the end of the
period.
33
Notes to financial
statements
Delaware Smid Cap
Growth Fund
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. GAAP. Additionally, distributions from 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 September 30, 2012 and 2011 was as
follows:
|
Year
Ended
|
|
9/30/12
|
|
9/30/11
|
Ordinary
income
|
$
|
23,346,442
|
|
$
|
31,751,905
|
Long-term capital gain
|
|
21,184,630
|
|
|
9,608,633
|
Total
|
$
|
44,531,072
|
|
$
|
41,360,538
|
5. Components of Net Assets on a Tax
Basis
As of September 30, 2012, the components
of net assets on a tax basis were as follows:
Shares of beneficial
interest
|
$
|
944,633,779
|
Undistributed ordinary income
|
|
10,377,155
|
Undistributed
long-term capital gains
|
|
60,869,837
|
Unrealized appreciation
|
|
239,471,126
|
Net assets
|
$
|
1,255,351,897
|
The differences between book basis and tax
basis components of net assets are primarily attributable to tax deferral of
losses on wash sales.
Qualified late year losses represent
losses realized on investment transactions from November 1, 2011 through
September 30, 2012 that, in accordance with federal income tax regulations, the
Fund has elected to defer and treat as having arisen in the following fiscal
year.
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. Results of operations and net assets were not affected by
these reclassifications. For the year ended September 30, 2012, the Fund
recorded the following reclassifications.
Accumulated net
investment loss
|
$
|
3,695,665
|
|
Undistributed net realized
gain
|
|
(3,695,665
|
)
|
34
6. Capital Shares
Transactions in capital shares were as
follows:
|
|
Year
Ended
|
|
|
9/30/12
|
|
9/30/11
|
Shares
sold:
|
|
|
|
|
|
|
Class A
|
|
11,517,924
|
|
|
9,304,746
|
|
Class
B
|
|
8,856
|
|
|
18,238
|
|
Class C
|
|
1,645,953
|
|
|
1,240,934
|
|
Class
R
|
|
604,956
|
|
|
178,439
|
|
Institutional Class
|
|
7,217,291
|
|
|
4,453,317
|
|
|
Shares issued upon
reinvestment of dividends and distributions:
|
|
|
|
|
|
|
Class A
|
|
1,412,565
|
|
|
1,502,346
|
|
Class
B
|
|
29,736
|
|
|
54,809
|
|
Class C
|
|
178,186
|
|
|
151,678
|
|
Class
R
|
|
11,875
|
|
|
8,809
|
|
Institutional Class
|
|
184,373
|
|
|
121,363
|
|
|
Shares from
merger:*
|
|
|
|
|
|
|
Class A
|
|
|
|
|
16,799,718
|
|
Class
B
|
|
|
|
|
739,010
|
|
Class C
|
|
|
|
|
2,321,303
|
|
Class
R
|
|
|
|
|
116,719
|
|
Institutional Class
|
|
|
|
|
952,128
|
|
|
|
22,811,715
|
|
|
37,963,557
|
|
|
Shares
redeemed:
|
|
|
|
|
|
|
Class A
|
|
(8,931,778
|
)
|
|
(7,322,632
|
)
|
Class
B
|
|
(328,188
|
)
|
|
(430,952
|
)
|
Class C
|
|
(852,068
|
)
|
|
(654,022
|
)
|
Class
R
|
|
(361,362
|
)
|
|
(121,344
|
)
|
Institutional Class
|
|
(5,370,795
|
)
|
|
(1,540,170
|
)
|
|
|
(15,844,191
|
)
|
|
(10,069,120
|
)
|
Net increase
|
|
6,967,524
|
|
|
27,894,437
|
|
*See Note 7.
For the years ended September 30, 2012 and
2011, 160,986 Class B shares were converted to 124,831 Class A shares valued at
$3,009,631 and 246,764 Class B shares were converted to 194,571 Class A shares
valued at $4,480,797, 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.
35
Notes to financial
statements
Delaware Smid Cap
Growth Fund
7. Fund Merger
On October 11, 2010, the Fund acquired all
of the assets of Delaware Trend Fund (Acquired Fund), an open-end investment
company, in exchange for the shares of the Fund (Acquiring Fund) pursuant to a
Plan and Agreement of Reorganization (Reorganization). The shareholders of the
Acquired Fund received shares of the respective class of the Acquiring Fund
equal to the aggregate net asset value of their share in the Acquired Fund prior
to the Reorganization, shown as in the following table:
|
|
Acquiring
|
|
Acquired
|
|
|
|
|
|
Fund
|
|
Fund
|
|
|
|
|
|
Shares
|
|
Shares
|
|
Value
|
Class A
|
|
16,799,718
|
|
20,273,559
|
|
$
|
332,752,015
|
Class B
|
|
739,010
|
|
878,979
|
|
|
11,688,184
|
Class C
|
|
2,321,303
|
|
2,770,976
|
|
|
37,930,093
|
Class R
|
|
116,719
|
|
141,203
|
|
|
2,263,649
|
Institutional
Class
|
|
952,128
|
|
1,182,789
|
|
|
21,241,986
|
The Reorganization was treated as a
non-taxable event and, accordingly, the Acquired Funds basis in securities
acquired reflected historical cost basis as of the date of transfer. The net
assets, accumulated net realized loss and net unrealized appreciation of the
Acquired Fund as of the close of business on October 8, 2010, were as
follows:
Net assets
|
|
$
|
405,875,927
|
|
Accumulated net realized loss
|
|
|
(271,403
|
)
|
Net unrealized
appreciation
|
|
|
54,615,730
|
|
The net assets of the Acquiring Fund
before the acquisition were $306,191,952. The net assets of the Acquiring Fund
immediately following the acquisition were $712,067,879.
Assuming that the acquisition had been
completed on October 1, 2010, the beginning of the Acquiring Funds reporting
period, the Acquiring Funds pro forma results of operations for the year ended
September 30, 2011, are as follows:
Net investment
income
|
|
$
|
5,838,525
|
Net realized gain on
investments
|
|
|
51,756,958
|
Change in unrealized
appreciation
|
|
|
15,441,882
|
Net increase in net assets resulting
from operations
|
|
|
73,037,365
|
Because the combined investment portfolios
have been managed as a single integrated portfolio since the acquisition was
completed, it is not practicable to separate the amounts of revenue and earnings
of the Acquired Fund that have been included in the Funds statement of
operations since October 11, 2010.
36
8. Fund Closed to New
Investors
The Fund closed to new investors after the
close of business on February 24, 2012. Existing shareholders of the Fund and
certain eligible investors, as set forth below, may continue to purchase
additional shares in existing or new accounts, including purchases through
reinvestment of dividends or capital gains distributions and exchanges. Eligible
investors include shareholders of the Fund as of the closing date; certain
retirement plans and IRA transfers and rollovers from these plans; and certain
advisory or fee based programs sponsored by and/or controlled by financial
intermediaries where the financial intermediary has entered into an arrangement
with the Funds distributor or transfer agent (mutual fund wrap
accounts).
9. Line of Credit
The Fund, along with certain other funds
in the Delaware Investments
®
Family of Funds
(Participants), was a participant in a $100,000,000 revolving line of
credit to be used for temporary or emergency purposes as an additional source of
liquidity to fund redemptions of investor shares. Under the agreement, the
Participants were charged an annual commitment fee, which was allocated across
the Participants on the basis of each Participants allocation of the entire
facility. The Participants were permitted to borrow up to a maximum of one third
of their net assets under the agreement. Each Participant was individually, and
not jointly, liable for its particular advances, if any, under the line of
credit. The line of credit under the agreement expired on November 15,
2011.
On November 15, 2011, the Fund, along with
the other Participants, entered into an amendment to the agreement for a
$125,000,000 revolving line of credit. The agreement is to be used as described
above and operates in substantially the same manner as the original agreement.
The agreement expired on November 13, 2012.
On November 13, 2012, the Fund, along with
the other Participants, entered into an amendment to the agreement for a
$125,000,000 revolving line of credit. The agreement is to be used as described
above and operates in substantially the same manner as the original agreement.
The agreement expires on November 12, 2013. The Fund had no amounts outstanding
as of September 30, 2012 or at any time during the year then ended.
10. 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 The Bank of New York Mellon
(BNY Mellon). At the time a security is loaned, the borrower must post
collateral equal to the required percentage of the market value of the loaned
security, including any accrued interest. The required percentage is: (i) 102%
with respect to U.S. securities and foreign securities that are denominated and
payable in U.S. dollars; and (ii) 105% with respect to foreign securities. With
respect to each loan, if on any business day the aggregate market value of
securities collateral plus cash collateral held 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 by the end of the following
business day which, together with the collateral already held, will be not less
than the applicable initial collateral requirements for such security loan. If
the aggregate market value of
37
Notes to financial
statements
Delaware Smid Cap
Growth Fund
10. Securities Lending (continued)
securities collateral and cash collateral
held with respect to a security loan exceeds the applicable initial collateral
requirement, upon the request of the borrower BNY Mellon must return enough
collateral to the borrower by the end of the following business day to reduce
the value of the remaining collateral to the applicable initial collateral
requirement for such security loan. As a result of the foregoing, the value of
the collateral held with respect to a loaned security may be temporarily more or
less than the value of the security on loan.
Cash collateral received is generally
invested in the Delaware Investments Collateral Fund No. 1 (Collective Trust)
established by BNY Mellon for the purpose of investment on behalf of funds
managed by DMC that participate in BNY Mellons securities lending program. The
Collective Trust may invest in U.S. government securities and high quality
corporate debt, asset-backed and other money market securities and in repurchase
agreements collateralized by such securities, provided that the Collective Trust
will generally have a dollar-weighted average portfolio maturity of 60 days or
less. In October 2008, BNY Mellon transferred certain distressed securities from
the previous collateral investment pool into the Mellon GSL Reinvestment Trust
II. The Fund can also accept U.S. government securities and letters of credit
(non-cash collateral) in connection with securities loans. 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 or interest, as
applicable, 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. With respect to security loans collateralized by non-cash collateral,
the Fund receives loan premiums paid by the borrower. With respect to security
loans collateralized by cash collateral, the earnings from the collateral
investments are shared among the Fund, the security lending agent and the
borrower. The Fund records security lending income net of allocations to the
security lending agent and the borrower.
The Collective Trust used for the
investment of cash collateral received from borrowers of securities seeks to
maintain a net asset value per unit of $1.00, but there can be no assurance that
it will always be able to do so. The Fund may incur investment losses as a
result of investing securities lending collateral in the Collective Trust or
another collateral investment pool. This could occur if an investment in a
collateral investment pool defaulted or if it were necessary to liquidate assets
in the collateral investment pool to meet returns on outstanding security loans
at a time when the collateral investment pools net asset value per unit was
less than $1.00. Under those circumstances, the Fund may not receive an amount
from the collateral investment pool that is equal in amount to the collateral
the Fund would be required to return to the borrower of the securities and the
Fund would be required to make up for this shortfall.
38
At September 30, 2012, the value of
securities on loan was $175,675,289, for which cash collateral was received and
invested in accordance with the Lending Agreement. At September 30, 2012, the
value of invested collateral was $180,915,424. These investments are presented
on the statement of net assets under the caption Securities Lending
Collateral.
11. Credit and Market
Risk
The Fund invests a significant portion of
its assets in small- and mid-sized companies and may be subject to certain risks
associated with ownership of securities of such companies. Investments in small-
or mid-sized companies may be more volatile than investments in larger companies
for a number of reasons, which include more limited financial resources or a
dependence on narrow product lines.
The Fund may invest up to 15% of its net
assets in illiquid securities, which may include securities with contractual
restrictions on resale, securities exempt from registration under Rule 144A of
the Securities Act of 1933, as amended, and other securities which may not be
readily marketable. The relative illiquidity of these securities may impair the
Fund from disposing of them in a timely manner and at a fair price when it is
necessary or desirable to do so. While maintaining oversight, the Funds Board
has delegated to DMC the day-to-day functions of determining whether individual
securities are liquid for purposes of the Funds limitation on investments in
illiquid securities. Securities eligible for resale pursuant to Rule 144A, which
are determined to be liquid, are not subject to the Funds 15% limit on
investments in illiquid securities. As of September 30, 2012, there were no Rule
144A securities. Illiquid securities have been identified on the statement of
net assets.
12. Contractual
Obligations
The Fund enters into contracts in the
normal course of business that contain a variety of indemnifications. The Funds
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 Funds existing contracts and expects the risk of loss to be
remote.
13. Subsequent Events
Except as described in Note 9, management
has determined that no material events or transactions occurred subsequent to
September 30, 2012 that would require recognition or disclosure in the Funds
financial statements.
39
Report of independent
registered public
accounting firm
To the Board of Trustees of Delaware
Group
®
Equity
Funds IV
and the Shareholders of Delaware Smid Cap Growth Fund:
In our opinion, the accompanying statement
of net assets and the related statements of operations and of changes in net
assets and the financial highlights present fairly, in all material respects,
the financial position of Delaware Smid Cap Growth Fund (one of the series
constituting Delaware Group Equity Funds IV, hereafter referred to as the
Fund) at September 30, 2012, 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 the financial highlights for each of the three years in the
period then ended, in conformity with accounting principles generally accepted
in the United States of America. These financial statements and financial
highlights (hereafter referred to as financial statements) are the
responsibility of the Funds management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements 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 are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits, which included
confirmation of securities at September 30, 2012 by correspondence with the
custodian, provide a reasonable basis for our opinion. The financial highlights
for each of the two years in the period ended September 30, 2009 were audited by
other independent accountants whose report dated November 19, 2009 expressed an
unqualified opinion on those statements.
PricewaterhouseCoopers
LLP
Philadelphia, Pennsylvania
November 21, 2012
40
Other Fund information
(Unaudited)
Delaware Smid
Cap Growth Fund
Board consideration of Delaware Smid
Cap Growth Fund Investment Advisory Agreement
At a meeting held on August 2123, 2012
(the Annual Meeting), the Board of Trustees (the Board), including a
majority of disinterested or independent Trustees, approved the renewal of the
Investment Advisory Agreement for the Delaware Smid Cap Growth Fund (the
Fund). In making its decision, the Board considered information furnished at
regular quarterly Board meetings, including reports detailing Fund performance,
investment strategies and expenses, as well as information prepared specifically
in connection with the renewal of the investment advisory and sub-advisory
contracts. Information furnished specifically in connection with the renewal of
the Investment Advisory Agreement with Delaware Management Company (DMC)
included materials provided by DMC and its affiliates (Delaware Investments)
concerning, among other things, the nature, extent and quality of services
provided to the Fund, the costs of such services to the Fund, economies of scale
and the financial condition and profitability of Delaware Investments. In
addition, in connection with the Annual Meeting, reports were provided in May
2012 and included independent historical and comparative reports provided by
Lipper, Inc., an independent statistical compilation organization (Lipper).
The Lipper reports compared the Funds investment performance and expenses with
those of other comparable mutual funds. The Independent Trustees reviewed and
discussed the Lipper reports with independent legal counsel to the Independent
Trustees. The Board requested and received information regarding DMCs policy
with respect to advisory fee levels and its breakpoint philosophy; the structure
of portfolio manager compensation; the investment managers profitability;
comparative client fee information; and any constraints or limitations on the
availability of securities in certain investment styles, which had in the past
year inhibited, or which were likely in the future to inhibit, DMCs ability to
invest fully in accordance with Fund policies.
In considering information relating to the
approval of the Funds advisory agreement, the
Independent Trustees received assistance and advice from and met
separately with independent legal counsel to the Independent Trustees. Although
the Board gave attention to all information furnished, the following discussion
identifies, under separate headings, the primary factors taken into account by
the Board during its contract renewal considerations.
Nature, Extent and Quality of
Service.
The Board considered the services
provided by Delaware Investments to the Fund and its shareholders. In reviewing
the nature, extent and quality of services, the Board considered reports
furnished to it throughout the year, which covered matters such as the relative
performance of the Fund, compliance of portfolio managers with the investment
policies, strategies and restrictions for the Fund, compliance by DMC and
Delaware Distributors, L.P. (together, Management) personnel with the Code of
Ethics adopted throughout the Delaware Investments
®
Family of Funds complex and adherence to
fair value pricing procedures as established by the Board. The Board was pleased
with the current staffing of the Funds investment advisor and the emphasis
placed on research in the investment process. The Board recognized DMCs receipt
of several industry distinctions. The Board gave favorable consideration to
DMCs efforts to control expenditures while maintaining service levels committed
to fund matters. The Board noted
41
Other Fund
information
(Unaudited)
Delaware Smid
Cap Growth Fund
Board consideration of Delaware Smid
Cap Growth Fund Investment Advisory Agreement (continued)
that in July 2011 Management implemented
measures to reduce overall costs and improve transfer agent and shareholder
servicing functions through outsourcing. The Board noted the benefits provided
to Fund shareholders through each shareholders ability to exchange an
investment in one Delaware Investments
®
fund for the same class of shares in
another Delaware Investments fund without a sales charge, to reinvest Fund
dividends into additional shares of the Fund or into additional shares of other
Delaware Investments funds and the privilege to combine holdings in other
Delaware Investments funds to obtain a reduced sales charge. The Board was
satisfied with the nature, extent and quality of the overall services provided
by Delaware Investments.
Investment Performance.
The Board placed significant emphasis on the investment
performance of the Fund in view of the importance of investment performance to
shareholders. Although the Board gave appropriate consideration to performance
reports and discussions with portfolio managers at Investment Committee meetings
throughout the year, the Board gave particular weight to the Lipper reports
furnished for the Annual Meeting. The Lipper reports prepared for the Fund
showed the investment performance of its Class A shares in comparison to a group
of similar funds as selected by Lipper (the Performance Universe). A fund with
the best performance ranked first, and a fund with the poorest performance
ranked last. The highest/best performing 25% of funds in the Performance
Universe make up the first quartile; the next 25%, the second quartile; the next
25%, the third quartile; and the poorest/worst performing 25% of funds in the
Performance Universe make up the fourth quartile. Comparative annualized
performance for the Fund was shown for the past one-, three-, five- and ten-year
periods, as applicable, ended March 31, 2012. The Boards objective is that the
Funds performance for the periods considered be at or above the median of its
Performance Universe. The following paragraph summarizes the performance results
for the Fund and the Boards view of such performance.
The Performance Universe for the Fund
consisted of the Fund and all retail and institutional mid-cap growth funds as
selected by Lipper. The Lipper comparison showed that the Funds total return
for the one-, three-, five- and ten-year periods was in the first quartile of
its Performance Universe. The Board was satisfied with performance.
Comparative Expenses.
The Board considered expense comparison data for the Delaware
Investments Family of Funds. Management provided the Board with information on
pricing levels and fee structures for the Fund as of its most recently completed
fiscal year. The Board also focused on the comparative analysis of effective
management fees and total expense ratios of the Fund versus effective management
fees and expense ratios of a group of similar funds as selected by Lipper (the
Expense Group). In reviewing comparative costs, the Funds contractual
management fee and the actual management fee incurred by the Fund were compared
with the contractual management fees (assuming all funds in the Expense Group
were similar in size to the Fund) and actual management fees (as reported by
each fund) within the Expense Group, taking into account any applicable
breakpoints and fee waivers. The Funds total expenses were also compared with
those of its Expense Group. The Lipper total expenses, for comparative
consistency, were shown by
42
Lipper for Class A shares and comparative
total expenses including 12b-1 and non 12b-1 service fees. The Board considered
fees paid to Delaware Investments for non-management services. The Boards
objective is to limit the Funds total expense ratio to be competitive with that
of the Expense Group. The following paragraph summarizes the expense results for
the Fund and the Boards view of such expenses.
The expense comparisons for the Fund
showed that its actual management fee was in the quartile with the second lowest
expenses of its Expense Group and its total expenses were in the quartile with
the second highest expenses of its Expense Group. The Board gave favorable
consideration to the Funds management fee, but noted that the Funds total
expenses were not in line with the Boards objective. In evaluating the total
expenses, the Board considered various initiatives implemented by Management,
such as the outsourcing of certain transfer agency services, creating an
opportunity for a reduction in expenses. The Board was satisfied with
Managements efforts to improve the Funds total expense ratio and bring it in
line with the Boards objective.
Management
Profitability.
The Board considered the level
of profits realized by Delaware Investments in connection with the operation of
the Fund. In this respect, the Board reviewed the Investment Management
Profitability Analysis that addressed the overall profitability of Delaware
Investments business in providing management and other services to each of the
individual funds and the Delaware Investments
®
Family of Funds as a whole. Specific
attention was given to the methodology followed in allocating costs for the
purpose of determining profitability. Management stated that the level of
profits of Delaware Investments, to a certain extent, reflect recent operational
cost savings and efficiencies initiated by Delaware Investments. The Board
considered Delaware Investments efforts to improve services provided to fund
shareholders and to meet additional regulatory and compliance requirements
resulting from recent industry-wide Securities and Exchange Commission
initiatives. The Board also considered the extent to which Delaware Investments
might derive ancillary benefits from fund operations, including the potential
for procuring additional business as a result of the prestige and visibility
associated with its role as service provider to the Delaware Investments Family
of Funds and the benefits from allocation of fund brokerage to improve trading
efficiencies. The Board found that the management fees were reasonable in light
of the services rendered and the level of profitability of Delaware
Investments.
Economies of Scale.
The Trustees considered whether economies of scale are
realized by Delaware Investments as the Funds assets increase and the extent to
which any economies of scale are reflected in the level of management fees
charged. The Trustees reviewed the standardized advisory fee pricing and
structure, approved by the Board and shareholders, which includes breakpoints.
Breakpoints in the advisory fee occur when the advisory fee rate is reduced on
assets in excess of specified levels. Breakpoints result in a lower advisory fee
than would otherwise be the case on all assets when the asset levels specified
are exceeded. The Board noted that the fee under the Funds management contract
fell within the standard structure. The Board also noted that the Funds assets
exceeded the second breakpoint level. The Board believed that, given the extent
to which economies of scale might be realized by the advisor and its affiliates,
the schedule of fees under the Investment Advisory Agreement provides a sharing
of benefits with the Fund and its shareholders.
43
Other Fund
information
(Unaudited)
Delaware Smid
Cap Growth Fund
Tax Information
The information set forth below is for the
Funds fiscal year as required by federal income tax 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.
All designations are based on financial
information available as of the date of this annual report and, accordingly are
subject to change. For any and all items requiring designation, it is the
intention of the Fund to designate the maximum amount permitted under the
Internal Revenue Code and the regulations thereunder.
For the fiscal year ended September 30,
2012, the Fund designates distributions paid during the year as
follows:
(A) Long-Term Capital
Gains Distributions (Tax Basis)
|
|
47.57
|
%
|
(B) Ordinary Income Distributions* (Tax
Basis)
|
|
52.43
|
%
|
Total Distributions (Tax
Basis)
|
|
100.00
|
%
|
(C) Qualifying
Dividends
1
|
|
24.27
|
%
|
(A) and (B) are based on a percentage of the
Funds total distributions.
|
(C) is based on a percentage of the Funds
ordinary income distributions.
|
1
Qualifying dividends represent
dividends which qualify for the corporate dividends received
deduction.
|
*For the fiscal year ended September 30,
2012 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 and as extended by Tax Relief, Unemployment
Insurance Reauthorization and Jobs Creation Act of 2010. The Fund intends
to designate up to 25.01% to be taxed at maximum rate of 15%. Complete
information will be computed and reported in conjunction with your 2012
Form 1099-DIV.
|
For the fiscal year ended September 30,
2012, certain interest income paid by the Fund, determined to be Qualified
Interest Income and Short-Term Capital Gains, may be subject to relief from U.S.
withholding for foreign shareholders, as provided by the American Jobs Creation
Act of 2004 and as extended by the Tax Relief, Unemployment Insurance
Reauthorization and Jobs Creation Act of 2010. For the fiscal year ended
September 30, 2012, the Fund designated maximum distributions of Qualified
Short-Term Capital Gain of $23,346,442.
44
Board of trustees/directors and officers
addendum
Delaware Investments
®
Family of Funds
A mutual fund is governed by a Board of
Trustees/Directors (Trustees), which has oversight responsibility for the
management of a funds 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
Name, Address,
|
Position(s)
|
Length of
|
and Birth Date
|
Held with Fund(s)
|
Time Served
|
Interested Trustees
|
|
|
|
|
|
Patrick P.
Coyne
1
|
Chairman, President,
|
Chairman and
Trustee
|
2005 Market Street
|
Chief Executive
Officer,
|
since August 16,
2006
|
Philadelphia, PA 19103
|
and Trustee
|
|
April 1963
|
|
President and
|
|
|
Chief Executive
Officer
|
|
|
since August 1,
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1
Patrick P. Coyne is
considered to be an Interested Trustee because he is an executive officer of
the Funds(s) investment advisor.
46
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
|
|
|
Principal
Occupation(s)
|
|
Fund Complex Overseen
|
|
Other Directorships
|
During Past 5 Years
|
|
by Trustee or Officer
|
|
Held by Trustee or
Officer
|
|
|
|
|
|
|
Patrick P. Coyne has served
in
|
|
71
|
|
Director and Audit
|
various executive
capacities
|
|
|
|
Committee Member
|
at different times at
|
|
|
|
Kaydon Corp.
|
Delaware
Investments.
2
|
|
|
|
|
|
|
|
|
Board of Governors
Member
|
|
|
|
|
Investment Company
|
|
|
|
|
Institute (ICI)
|
|
|
|
|
|
|
|
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|
|
|
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|
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|
|
2
Delaware Investments is the marketing name for Delaware
Management Holdings, Inc. and its subsidiaries, including the Funds(s)
investment advisor, principal underwriter, and its transfer agent.
47
Board of trustees/directors
and officers addendum
Delaware
Investments
®
Family of Funds
Name, Address,
|
|
Position(s)
|
|
Length of
|
and Birth Date
|
|
Held with Fund(s)
|
|
Time Served
|
Independent Trustees
|
|
|
|
|
|
|
|
|
|
Thomas L. Bennett
|
|
Trustee
|
|
Since March 2005
|
2005 Market Street
|
|
|
|
|
Philadelphia, PA 19103
|
|
|
|
|
October 1947
|
|
|
|
|
|
|
|
|
|
John A. Fry
|
|
Trustee
|
|
Since January 2001
|
2005 Market Street
|
|
|
|
|
Philadelphia, PA 19103
|
|
|
|
|
May 1960
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Anthony D. Knerr
|
|
Trustee
|
|
Since April 1990
|
2005 Market Street
|
|
|
|
|
Philadelphia, PA 19103
|
|
|
|
|
December 1938
|
|
|
|
|
|
|
|
|
|
Lucinda S. Landreth
|
|
Trustee
|
|
Since March 2005
|
2005 Market Street
|
|
|
|
|
Philadelphia, PA 19103
|
|
|
|
|
June 1947
|
|
|
|
|
|
|
|
|
|
48
|
|
Number of Portfolios
in
|
|
|
Principal
Occupation(s)
|
|
Fund Complex Overseen
|
|
Other Directorships
|
During Past 5 Years
|
|
by Trustee or Officer
|
|
Held by Trustee or
Officer
|
|
|
Private Investor
|
|
71
|
|
Director
|
(March 2004Present)
|
|
|
|
Bryn Mawr Bank Corp.
(BMTC)
|
|
|
|
|
(20072011)
|
|
|
|
|
|
|
President
|
|
71
|
|
Board of Governors Member
|
Drexel University
|
|
|
|
NASDAQ OMX PHLX LLC
|
(August 2010Present)
|
|
|
|
|
|
|
|
|
Director and Audit
|
President
|
|
|
|
Committee Member
|
Franklin & Marshall
College
|
|
|
|
Community Health
Systems
|
(July 2002July 2010)
|
|
|
|
|
|
|
|
|
Director Ecore
|
|
|
|
|
International
|
|
|
|
|
(20092010)
|
|
|
|
|
|
Director Allied
|
|
|
|
|
Barton Securities
Holdings
|
|
|
|
|
(20052008)
|
|
|
|
|
|
Managing Director
|
|
71
|
|
None
|
Anthony Knerr &
Associates
|
|
|
|
|
(Strategic Consulting)
|
|
|
|
|
(1990Present)
|
|
|
|
|
|
|
|
|
|
Private Investor
|
|
71
|
|
None
|
(2004Present)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
49
Board of trustees/directors
and officers addendum
Delaware
Investments
®
Family of Funds
Name, Address,
|
|
Position(s)
|
|
Length of
|
and Birth Date
|
|
Held with Fund(s)
|
|
Time Served
|
Independent Trustees (continued)
|
|
|
|
|
|
|
|
|
|
Frances A.
Sevilla-Sacasa
|
|
Trustee
|
|
Since September
2011
|
2005 Market Street
|
|
|
|
|
Philadelphia, PA 19103
|
|
|
|
|
January 1956
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
50
|
|
Number of Portfolios
in
|
|
|
Principal
Occupation(s)
|
|
Fund Complex Overseen
|
|
Other Directorships
|
During Past 5 Years
|
|
by Trustee or Officer
|
|
Held by Trustee or
Officer
|
|
|
Chief Executive Officer
|
|
71
|
|
Trust Manager
Camden
|
Banco Itaú Europa
|
|
|
|
Property Trust
|
International
|
|
|
|
(since August 2011)
|
(since April 2012)
|
|
|
|
|
|
Executive Advisor to
Dean
|
|
|
|
|
(August 2011March
2012)
|
|
|
|
|
and Interim Dean
|
|
|
|
|
(January 2011July 2011)
|
|
|
|
|
University of Miami School
of
|
|
|
|
|
Business
Administration
|
|
|
|
|
|
President U.S.
Trust,
|
|
|
|
|
Bank of America
Private
|
|
|
|
|
Wealth Management
|
|
|
|
|
(Private Banking)
|
|
|
|
|
(July 2007December
2008)
|
|
|
|
|
|
|
|
|
|
51
Board of trustees/directors and officers
addendum
Delaware Investments
®
Family of Funds
Name, Address,
|
|
Position(s)
|
|
Length of
|
and Birth Date
|
|
Held with Fund(s)
|
|
Time Served
|
Independent Trustees
(continued)
|
|
|
|
|
|
|
|
|
|
Janet L. Yeomans
|
|
Trustee
|
|
Since April 1999
|
2005 Market Street
|
|
|
|
|
Philadelphia, PA 19103
|
|
|
|
|
July 1948
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
J. Richard Zecher
|
|
Trustee
|
|
Since March 2005
|
2005 Market Street
|
|
|
|
|
Philadelphia, PA 19103
|
|
|
|
|
July 1940
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
52
|
Number of Portfolios
in
|
|
|
Principal
Occupation(s)
|
Fund Complex Overseen
|
Other Directorships
|
|
During Past 5 Years
|
by Trustee or Officer
|
Held by Trustee or
Officer
|
|
|
|
Vice President and
Treasurer
|
71
|
Director, Audit
|
|
(January 2006July
2012)
|
|
Committee Member and
|
|
Vice President Mergers &
Acquisitions
|
|
Investment Committee
|
|
(January 2003January 2006),
and
|
|
Member
|
|
Vice President and
Treasurer
|
|
Okabena Company
|
|
(July 1995January
2003)
|
|
|
|
3M Corporation
|
|
Chair 3M
|
|
|
|
Investment Management
|
|
|
|
Company
|
|
|
|
(January 2005July
2012)
|
|
|
|
|
|
Founder
|
71
|
Director and
Compensation
|
|
Investor Analytics
|
|
Committee Member
|
|
(Risk Management)
|
|
Investor Analytics
|
|
(May 1999Present)
|
|
|
|
|
|
Director
|
|
Founder
|
|
Oxigene, Inc.
|
|
P/E Investments
|
|
(20032008)
|
|
(Hedge Fund)
|
|
|
|
(September
1996Present)
|
|
|
|
53
Board of trustees/directors
and officers addendum
Delaware
Investments
®
Family of Funds
Name, Address,
|
|
Position(s)
|
|
Length of
|
and Birth Date
|
|
Held with Fund(s)
|
|
Time Served
|
Officers
|
|
|
|
|
|
|
|
|
|
David F. Connor
|
|
Vice President,
|
|
Vice President
since
|
2005 Market Street
|
|
Deputy General
|
|
September 2000
|
Philadelphia, PA 19103
|
|
Counsel, and Secretary
|
|
and Secretary since
|
December 1963
|
|
|
|
October 2005
|
|
|
|
|
|
|
Daniel V. Geatens
|
|
Vice President
|
|
Treasurer
|
2005 Market Street
|
|
and Treasurer
|
|
since October 2007
|
Philadelphia, PA 19103
|
|
|
|
|
October 1972
|
|
|
|
|
|
|
|
|
|
David P. OConnor
|
|
Executive Vice
President,
|
|
Executive Vice
President
|
2005 Market Street
|
|
General Counsel
|
|
since February
2012;
|
Philadelphia, PA 19103
|
|
and Chief Legal
Officer
|
|
Senior Vice
President
|
February 1966
|
|
|
|
October 2005
|
|
|
|
|
February 2012;
|
|
|
|
|
General Counsel and
|
|
|
|
|
Chief Legal Officer
|
|
|
|
|
since October 2005
|
|
|
|
|
|
Richard Salus
|
|
Senior Vice President
|
|
Chief Financial
Officer
|
2005 Market Street
|
|
and Chief Financial
Officer
|
|
since November 2006
|
Philadelphia, PA 19103
|
|
|
|
|
October 1963
|
|
|
|
|
|
|
|
|
|
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.
54
|
|
Number of Portfolios
in
|
|
|
Principal
Occupation(s)
|
|
Fund Complex Overseen
|
|
Other Directorships
|
During Past 5 Years
|
|
by Trustee or Officer
|
|
Held by Trustee or
Officer
|
|
|
David F. Connor has served
as
|
|
71
|
|
None
3
|
Vice President and
Deputy
|
|
|
|
|
General Counsel of
|
|
|
|
|
Delaware Investments
|
|
|
|
|
since 2000.
|
|
|
|
|
|
|
|
|
|
Daniel V. Geatens has
served
|
|
71
|
|
None
3
|
in various capacities
at
|
|
|
|
|
different times at
|
|
|
|
|
Delaware Investments.
|
|
|
|
|
|
|
|
|
|
David P. OConnor has served
in
|
|
71
|
|
None
3
|
various executive and
legal
|
|
|
|
|
capacities at different
times
|
|
|
|
|
at Delaware
Investments.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Richard Salus has served
in
|
|
71
|
|
None
3
|
various executive
capacities
|
|
|
|
|
at different times at
|
|
|
|
|
Delaware Investments.
|
|
|
|
|
|
|
|
|
|
3
David F. Connor, Daniel V. Geatens, David P. OConnor, 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.
55
About the
organization
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
Drexel University
Philadelphia, 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
Frances A.
Sevilla-Sacasa
Chief Executive Officer
Banco Itaú
Europa
International
Miami, FL
|
Janet L.
Yeomans
Former 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
|
Daniel V.
Geatens
Vice
President and
Treasurer
Delaware Investments
Family of Funds
Philadelphia, PA
|
David P.
OConnor
Executive
Vice President,
General Counsel,
and Chief Legal Officer
Delaware Investments
Family of Funds
Philadelphia,
PA
|
Richard
Salus
Senior Vice
President and
Chief Financial Officer
Delaware Investments
Family of Funds
Philadelphia,
PA
|
This annual report is for the
information of Delaware Smid Cap Growth Fund shareholders, but it may be used
with prospective investors when preceded or accompanied by the Delaware
Investments Fund fact sheet for the most recently completed calendar
quarter. These documents are available at
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 (SEC) for the first and third quarters of each fiscal
year on Form N-Q. The Funds 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; and (ii) on the SECs
website at sec.gov. In addition, a description of the policies and
procedures that the Fund uses to determine how to vote proxies (if any)
relating to portfolio securities and the Funds Schedule of Investments
are available without charge on the Funds website at
delawareinvestments.com. The Funds Forms N-Q may be reviewed and copied
at the SECs 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 Funds website at
delawareinvestments.com; and (ii) on the SECs website at
sec.gov.
|
56
Annual report
Delaware
Healthcare Fund
September 30, 2012
Alternative / specialty mutual fund
|
Carefully consider the Funds
investment objectives, risk factors, charges, and expenses before
investing. This and other information can be found in the Funds
prospectus and, if available, its summary prospectus, which may be
obtained by visiting delawareinvestments.com or calling 800 523-1918.
Investors should read the prospectus and, if available, the summary
prospectus carefully before investing.
|
You
can obtain shareholder reports and prospectuses online instead of in the
mail.
Visit
delawareinvestments.com/edelivery.
|
Experience Delaware Investments
Delaware Investments is committed to the
pursuit of consistently superior asset management and unparalleled client
service. We believe in our investment processes, which seek to deliver
consistent results, and in convenient services that help add value for our
clients.
If you are interested in learning more
about creating an investment plan, contact your financial advisor.
You can learn more about Delaware
Investments or obtain a prospectus for Delaware Healthcare Fund at
delawareinvestments.com.
Manage your investments
online
-
24-hour access to your account information
-
Obtain share prices
-
Check your account balance and recent
transactions
-
Request statements or literature
-
Make purchases and redemptions
Delaware Management Holdings, Inc. and its
subsidiaries (collectively known by the marketing name of Delaware Investments)
are wholly owned subsidiaries of Macquarie Group Limited, a global provider of
banking, financial, advisory, investment and funds management
services.
Investments in Delaware Healthcare Fund
are not and will not be deposits with or liabilities of Macquarie Bank Limited
ABN 46 008 583 542 and its holding companies, including their subsidiaries or
related companies (Macquarie Group), and are subject to investment risk,
including possible delays in repayment and loss of income and capital invested.
No Macquarie Group company guarantees or will guarantee the performance of the
Fund, the repayment of capital from the Fund, or any particular rate of
return.
Table of contents
|
|
|
Portfolio management
review
|
|
1
|
Performance summary
|
|
4
|
Disclosure of Fund
expenses
|
|
7
|
Security type/sector allocation
and
|
|
|
top 10 equity holdings
|
|
9
|
Statement of net
assets
|
|
10
|
Statement of operations
|
|
14
|
Statements of changes
in net assets
|
|
16
|
Financial highlights
|
|
18
|
Notes to financial
statements
|
|
26
|
Report of independent
registered
|
|
|
public accounting firm
|
|
37
|
Other Fund
information
|
|
38
|
Board of trustees/directors
and
|
|
|
officers addendum
|
|
42
|
About the
organization
|
|
52
|
Unless otherwise noted, views expressed
herein are current as of Sept. 30, 2012, and subject to change.
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. Delaware Investments, a member of
Macquarie Group, refers to Delaware Management Holdings, Inc. and its
subsidiaries, including the Funds distributor,
Delaware Distributors, L.P.
Macquarie
Group refers to Macquarie Group Limited and its subsidiaries and affiliates
worldwide.
© 2012 Delaware Management Holdings, Inc.
All third-party marks cited are the property of their respective
owners.
Portfolio management review
Delaware Healthcare Fund
|
October 9,
2012
|
Performance preview
(for the year ended September 30,
2012)
|
|
|
Delaware Healthcare
Fund (Class A shares)
|
1-year
return
|
|
+23.96%
|
Russell 3000
®
Healthcare
Index (benchmark)
|
1-year return
|
|
+32.02%
|
Past performance does not guarantee future
results.
For complete, annualized performance
for Delaware Healthcare Fund, please see the table on page 4.
The performance of Class A shares excludes the applicable
sales charge and reflects the reinvestment of all distributions.
Index
performance returns do not reflect any management fees, transaction costs, or
expenses. Indices are unmanaged and one cannot invest directly in an
index.
Market overview
Momentum for domestic healthcare stocks
was positive during the Funds fiscal year ended Sept. 30, 2012, generally in
sync with equity markets at large. Despite some stretches during which
healthcare stocks trailed broad equity markets (as measured by well-known
indices such as the S&P 500
®
Index), healthcare stocks generally
trended along the same lines as wider markets. Healthcare stocks, for example,
joined broad market rallies in late 2011 and early 2012, followed by another
upswing that stretched from summer 2012 into the final days of the Funds fiscal
year.
We believe markets responded positively to
big-picture factors that included perhaps first and foremost substantial
jolts of accommodative monetary policy across the globe. These policy
initiatives were implemented by various central banks throughout the fiscal
year. Aggressive moves by central banks in the United States, the United
Kingdom, Brazil, and China were among those that embodied the trend of monetary
policy easing.
The U.S. Supreme Courts June 2012
decision to uphold the so-called Obamacare healthcare program also affected
markets, as aftershocks were felt throughout the healthcare equity universe. As
might be expected, some
healthcare-related
industries were affected more than others; providers of insurance benefits, for
instance, generally came under more pressure than producers of medical products
(pharmaceutical companies and device makers, as two examples). Details about the
implementation of the new healthcare program are not clear, and it will likely
be some time before we get a good sense of the plans actual infrastructure.
While we acknowledge the legislations potential to generate additional fallout,
we believe that it is important to continue focusing on our global approach to
healthcare investing. Namely, we cover healthcare-related opportunities around
the world, seeking to avoid too much dependence on developments that occur
strictly within the U.S.
Fund performance
For its fiscal year ended Sept. 30, 2012,
Delaware Healthcare Fund generated positive returns but trailed its benchmark,
the Russell 3000 Healthcare Index. The Fund returned +23.96% for Class A shares
at net asset value and +16.85% at maximum offer price. (Both figures reflect all
distributions reinvested.) During the same period, the benchmark returned
+32.02%. For complete, annualized performance of the Fund, please the table on
page 4.
1
Portfolio management
review
Delaware Healthcare Fund
Overall, the Funds performance versus the
benchmark was hindered by the negative effects of security selection. While the
Funds relative performance benefited from its sector allocations, the gains
were not enough to compensate for the downward pull of stock
selection.
Sectors in which the Funds securities
trailed the benchmark included healthcare services and smaller providers of
medical products. Within the healthcare services sector, the Funds holdings
declined mildly, putting them well behind the strong advance posted by index
constituents. Notable detractors included
WebMD Health
, the publisher of
healthcare-related content for physicians, other healthcare professionals, and
consumers. After advancing during the latter portion of 2011, the companys
shares felt pressure in 2012, partly due to an unsuccessful search for a
suitable buyer for the company. We still believe in the companys fundamentals
it is profitable and it remains one of the best healthcare portals on the
internet, in our opinion. Furthermore, the stock trades at a discount to our
estimate of the companys intrinsic value.
The Funds holdings in the medical
providers group fared much the same relative to the benchmark index.
Avon Products
was among the significant underperformers, as its shares retreated amid
earnings disappointments and relatively weakening sales figures. Nonetheless, we
believe Avon remains a premier direct-sales franchise, with extensive
infrastructure in all major emerging markets. Despite management missteps
Our long-standing approach
to managing the Fund remains unchanged: We seek to follow a disciplined,
research-intensive process when analyzing investment opportunities for the
Funds portfolio. We focus on identifying what we view as competitive,
well-managed healthcare businesses whose stocks trade at meaningful
discounts to our determination of their intrinsic value. This
conservative, bottom-up approach to stock selection remains a central part
of our strategy.
|
2
in recent years, we believe the companys
fundamentals are intact and the company is inherently defensive. With the
potential for growth ahead, we estimate that the shares are currently trading at
a significant discount to the companys intrinsic value.
On the positive side, the Funds holdings
in the biotechnology sector advanced strongly during the fiscal year, leading
benchmark constituents by a prominently wide margin.
Regeneron Pharmaceuticals
was among
the leading contributors, building momentum after it received government
approval for Eylea, a drug to treat an eye disease known as age-related macular
degeneration. Eyleas sales prospects appear strong, and it has gained
regulatory approval by governments globally, most recently in Japan. Another
notable contributor in the biotechnology sector included
Onyx Pharmaceuticals
, a
developer of therapies to treat cancer. The companys shares received notable
support toward the latter months of the fiscal year as the Food and Drug
Administration issued a favorable opinion on one of the companys leading cancer
treatments.
Healthcare reform in the
spotlight
As noted earlier, U.S. healthcare reform
legislation continues to be an important topic for healthcare investment. We
believe that it is fair to assume that the debate about the state of the U.S.
healthcare system is far from over. Now that the Supreme Court has upheld the
law, the implementation details will have to be sorted out, bringing to light a
host of questions about the plans ultimate structure and oversight
responsibilities.
Overall, we believe there is a risk that
headlines about U.S. healthcare reform could overshadow some of the positive
forces at work within the broader and indeed global healthcare sector. Two
positive developments stand out to us; they were mentioned in this space last
year, and we believe they bear repeating:
-
The aging of the baby-boom
generation
in the U.S. implies
expanding demand
for healthcare
products and services for
decades
to come.
-
The rapid growth of middle classes
in
countries with emerging
economies
(notably India and China)
could
likely create expanded
appetites for
Western-style
medicine.
Our long-standing approach to managing the
Fund remains unchanged: We seek to follow a disciplined, research-intensive
process when analyzing investment opportunities for the Funds portfolio. We
focus on identifying what we view as competitive, well-managed healthcare
businesses whose stocks trade at meaningful discounts to our determination of
their intrinsic value. This conservative, bottom-up approach to stock selection
remains a central part of our strategy.
3
Performance summary
Delaware Healthcare Fund
|
September 30,
2012
|
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. Please obtain the performance data
current for the most recent month end by calling 800 523-1918 or visiting our
website at delawareinvestments.com/performance. Current performance may be lower
or higher than the performance data quoted.
Fund performance
1,2
|
|
Average annual total returns
through September 30, 2012
|
|
|
1 year
|
|
3 years
|
|
5 years
|
|
Lifetime
|
Class A (Est. Sept. 28, 2007)
|
|
|
|
|
|
|
|
|
|
|
|
|
Excluding sales charge
|
|
+23.96
|
%
|
|
+15.50
|
%
|
|
+14.72
|
%
|
|
+14.69
|
%
|
Including sales charge
|
|
+16.85
|
%
|
|
+13.26
|
%
|
|
+13.36
|
%
|
|
+13.34
|
%
|
Class C (Est. Jan. 28, 2010)
|
|
|
|
|
|
|
|
|
|
|
|
|
Excluding sales charge
|
|
+22.96
|
%
|
|
n/a
|
|
|
n/a
|
|
|
+11.49
|
%
|
Including sales
charge
|
|
+21.96
|
%
|
|
n/a
|
|
|
n/a
|
|
|
+11.49
|
%
|
Class R (Est. Jan. 28, 2010)
|
|
|
|
|
|
|
|
|
|
|
|
|
Excluding sales charge
|
|
+23.60
|
%
|
|
n/a
|
|
|
n/a
|
|
|
+12.02
|
%
|
Including sales charge
|
|
+23.60
|
%
|
|
n/a
|
|
|
n/a
|
|
|
+12.02
|
%
|
Institutional Class (Est. Sept. 28, 2007)
|
|
|
|
|
|
|
|
|
|
|
Excluding sales charge
|
|
+24.26
|
%
|
|
+15.76
|
%
|
|
+14.87
|
%
|
|
+14.84
|
%
|
Including sales
charge
|
|
+24.26
|
%
|
|
+15.76
|
%
|
|
+14.87
|
%
|
|
+14.84
|
%
|
1
Returns reflect the
reinvestment of all distributions and are presented both with and without the
applicable sales charges described below. Returns do not reflect the deduction
of taxes the shareholder would pay on Fund distributions or redemptions of Fund
shares.
Expense limitations were in effect for
certain classes during some or all of the periods shown in the Fund
performance chart. The current expenses for each class are listed on the Fund
expense ratios table on page 5. Performance would have been lower had expense
limitations not been in effect.
Class A shares are sold with a maximum
front-end sales charge of 5.75%, and have an annual distribution and service fee
of 0.30%
of average daily net assets. This fee
has been contractually limited to 0.25% of average daily net assets from Jan.
27, 2012, through Jan. 28, 2013. Performance for Class A shares, excluding sales
charges, assumes that no front-end sales charge applied.
Class C shares are sold with a contingent
deferred sales charge of 1.00% if redeemed during the first 12 months. They are
also subject to an annual distribution and service fee of 1.00% of average daily
net assets.
Performance for Class C shares, excluding
sales charges, assumes either that contingent deferred sales charges did not
apply or that the investment was not redeemed.
4
Class R shares are available only for
certain retirement plan products. They are sold without a sales charge and have
an annual distribution and service fee of 0.60% of average daily net assets,
which has been limited contractually to 0.50% from Jan. 27, 2012, through
Jan. 28, 2013.
Institutional Class shares are available
without sales or asset-based distribution charges only to certain eligible
institutional accounts.
The Fund performance table and the
Performance of a $10,000 investment graph do not reflect the deduction of
taxes the shareholder would pay on Fund distributions or redemptions of Fund
shares.
Investments in small and/or medium-sized
companies typically exhibit greater risk and higher volatility than larger, more
established companies.
Narrowly focused investments may exhibit
higher volatility than investments in multiple industry sectors.
Healthcare companies are subject to
extensive government regulation and their profitability can be affected by
restrictions on government reimbursement for medical expenses, rising costs of
medical products and services, pricing pressure, and malpractice or other
litigation.
Nondiversified Funds may allocate more
of their net assets to investments in single securities than diversified
Funds. Resulting adverse effects may subject these Funds to greater risks and
volatility.
International investments entail risks not
ordinarily associated with U.S. investments including fluctuation in currency
values, differences in accounting principles, or economic or political
instability in other nations.
Investing in emerging markets can be
riskier than investing in established foreign markets due to increased
volatility and lower trading volume.
2
The Funds
expense ratios, as described in the most recent prospectus, are disclosed in the
following Fund expense ratios table. Delaware Investments has agreed to
reimburse certain expenses and/or waive certain fees in order to prevent total
fund operating expenses (excluding certain fees and expenses) from exceeding
1.35% of the Funds average daily net assets from Jan. 27, 2012, through Jan.
28, 2013. Please see the most recent prospectus and any applicable supplement(s)
for additional information on these fee waivers and/or
reimbursements.
Fund expense ratios
|
|
Class A
|
|
Class C
|
|
Class R
|
|
Institutional Class
|
Total annual
operating expenses
|
|
1.85%
|
|
2.55%
|
|
2.15%
|
|
1.55%
|
(without fee
waivers)
|
|
|
|
|
|
|
|
|
Net expenses
|
|
1.60%
|
|
2.35%
|
|
1.85%
|
|
1.35%
|
(including fee waivers, if
any)
|
|
|
|
|
|
|
|
|
Type of waiver
|
|
Contractual
|
|
Contractual
|
|
Contractual
|
|
Contractual
|
5
Performance
summary
Delaware Healthcare
Fund
Performance of a $10,000
investment
1
Average annual
total returns from Sept. 28, 2007 (Funds inception) through Sept. 30,
2012
For period beginning Sept. 28, 2007, through Sept. 30,
2012
|
Starting value
|
Ending value
|
|
|
Delaware Healthcare Fund Class A shares
|
$9,425
|
$18,726
|
|
|
Russell 3000 Healthcare Index
|
$10,000
|
$13,174
|
1
The
Performance of a $10,000 investment graph assumes $10,000 invested in Class A
shares of the Fund on Sept. 28, 2007, and includes the effect of a 5.75%
front-end sales charge and the reinvestment of all distributions. The graph does
not reflect the deduction of taxes the shareholders would pay on Fund
distributions or redemptions of Fund shares. Expense limitations were in effect
for some or all of the periods shown. Performance would have been lower had
expense limitations not been in effect. Current expenses are listed in the Fund
expense ratios table on page 5. Please note additional details on pages 4
through 6.
The chart also assumes
$10,000 invested in the Russell 3000 Healthcare Index as of Sept. 28, 2007. The
Russell 3000 Healthcare Index measures the performance of all healthcare
holdings included in the Russell 3000 Index, which represents the 3,000 largest
U.S. companies based on total market capitalization.
Index performance returns do
not reflect any management fees, transaction costs, or expenses. Indices are
unmanaged and one cannot invest directly in an index. Past performance is not a
guarantee of future results.
Performance of other Fund
classes will vary due to different charges and expenses.
|
|
Nasdaq
symbols
|
|
CUSIPs
|
|
Class A
|
|
|
DLHAX
|
|
|
24610E101
|
|
Class
C
|
|
|
DLHCX
|
|
|
24610E200
|
|
Class R
|
|
|
DLRHX
|
|
|
24610E309
|
|
Institutional
Class
|
|
|
DLHIX
|
|
|
24610E408
|
|
6
Disclosure of Fund
expenses
For the six-month period from April
1, 2012 to September 30, 2012 (Unaudited)
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 six-month
period from April 1, 2012 to September 30, 2012.
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 Funds actual expense ratio and an
assumed rate of return of 5% per year before expenses, which is not the Funds
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 Funds expenses shown in the table reflect fee
waivers in effect. The expenses shown in the table assume reinvestment of all
dividends and distributions.
7
Disclosure of Fund
expenses
Delaware Healthcare
Fund
Expense analysis of an investment
of $1,000
|
|
Beginning
|
|
Ending
|
|
|
|
Expenses
|
|
|
Account Value
|
|
Account Value
|
|
Annualized
|
|
Paid During Period
|
|
|
4/1/12
|
|
9/30/12
|
|
Expense Ratio
|
|
4/1/12 to 9/30/12*
|
Actual Fund return
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Class A
|
|
|
$
|
1,000.00
|
|
|
|
$
|
974.70
|
|
|
1.51%
|
|
|
$
|
7.45
|
|
Class C
|
|
|
|
1,000.00
|
|
|
|
|
971.00
|
|
|
2.26%
|
|
|
|
11.14
|
|
Class R
|
|
|
|
1,000.00
|
|
|
|
|
973.70
|
|
|
1.76%
|
|
|
|
8.68
|
|
Institutional Class
|
|
|
|
1,000.00
|
|
|
|
|
976.30
|
|
|
1.26%
|
|
|
|
6.23
|
|
Hypothetical 5% return
(5% return before expenses)
|
|
|
|
|
|
|
|
|
Class A
|
|
|
$
|
1,000.00
|
|
|
|
$
|
1,017.45
|
|
|
1.51%
|
|
|
$
|
7.62
|
|
Class C
|
|
|
|
1,000.00
|
|
|
|
|
1,013.70
|
|
|
2.26%
|
|
|
|
11.38
|
|
Class R
|
|
|
|
1,000.00
|
|
|
|
|
1,016.20
|
|
|
1.76%
|
|
|
|
8.87
|
|
Institutional Class
|
|
|
|
1,000.00
|
|
|
|
|
1,018.70
|
|
|
1.26%
|
|
|
|
6.36
|
|
*
Expenses Paid During Period are equal to the Funds annualized expense
ratio, multiplied by the average account value over the period, multiplied by
183/366 (to reflect the one-half year period).
8
Security
type/sector allocation and
top 10 equity holdings
|
Delaware Healthcare Fund
|
As of September 30, 2012
(Unaudited)
|
Sector designations may be different than
the sector designations presented in other Fund materials. The sector
designations may represent the investment managers internal sector
classifications, which may result in the sector designations for one fund being
different than another funds sector designations.
Security type/sector
|
|
Percentage of net assets
|
²
Common Stock
|
|
|
106.27
|
%
|
|
Biotechnology
|
|
|
12.52
|
%
|
|
Blue Chip Medical
Products
|
|
|
44.89
|
%
|
|
Healthcare Services
|
|
|
16.37
|
%
|
|
Medical
Distributors
|
|
|
1.70
|
%
|
|
Others
|
|
|
17.41
|
%
|
|
Small/Mid-Cap Medical Products
|
|
|
13.38
|
%
|
|
Total Value of Securities
|
|
|
106.27
|
%
|
|
Liabilities Net of Receivables and
Other Assets
|
|
|
(6.27
|
%)
|
|
Total Net Assets
|
|
|
100.00
|
%
|
|
²
|
Narrow industries are utilized for
compliance purposes for diversification whereas broad sectors are used for
financial reporting.
|
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.
Top 10 equity holdings
|
|
Percentage of net assets
|
Sohu.com
|
|
|
7.49
|
%
|
|
WellPoint
|
|
|
6.50
|
%
|
|
Avon
Products
|
|
|
6.38
|
%
|
|
Pfizer
|
|
|
5.55
|
%
|
|
Boston
Scientific
|
|
|
5.11
|
%
|
|
Medtronic
|
|
|
4.90
|
%
|
|
Abbott
Laboratories
|
|
|
4.63
|
%
|
|
Yahoo
|
|
|
3.85
|
%
|
|
Lilly (Eli)
|
|
|
3.80
|
%
|
|
Zimmer Holdings
|
|
|
3.37
|
%
|
|
9
Statement of net
assets
|
Delaware Healthcare Fund
|
September 30,
2012
|
|
|
|
Number of shares
|
|
Value
|
²
Common
Stock 106.27%
|
|
|
|
|
|
Biotechnology 12.52%
|
|
|
|
|
|
|
Dendreon
|
|
110,000
|
|
$
|
531,300
|
|
Ligand Pharmaceuticals Class
B
|
|
70,000
|
|
|
1,200,500
|
|
Myriad
Genetics
|
|
16,000
|
|
|
431,840
|
|
ONYX Pharmaceuticals
|
|
18,000
|
|
|
1,521,000
|
|
Questcor
Pharmaceuticals
|
|
23,000
|
|
|
425,500
|
|
Regeneron Pharmaceuticals
|
|
10,000
|
|
|
1,526,600
|
|
Vertex
Pharmaceuticals
|
|
25,000
|
|
|
1,398,750
|
|
|
|
|
|
|
7,035,490
|
Blue Chip Medical Products 44.89%
|
|
|
|
|
|
|
Abbott Laboratories
|
|
38,000
|
|
|
2,605,280
|
|
Baxter
International
|
|
5,000
|
|
|
301,300
|
|
Boston Scientific
|
|
500,000
|
|
|
2,870,000
|
|
Bristol-Myers
Squibb
|
|
50,000
|
|
|
1,687,500
|
|
Forest Laboratories
|
|
40,400
|
|
|
1,438,644
|
|
Ipsen
|
|
25,000
|
|
|
609,435
|
|
Johnson & Johnson
|
|
25,300
|
|
|
1,743,423
|
|
Lilly (Eli)
|
|
45,000
|
|
|
2,133,450
|
|
Medtronic
|
|
63,900
|
|
|
2,755,368
|
|
Merck
|
|
41,200
|
|
|
1,858,120
|
|
Pfizer
|
|
125,500
|
|
|
3,118,675
|
|
Smith &
Nephew
|
|
100,000
|
|
|
1,103,784
|
|
Stryker
|
|
20,000
|
|
|
1,113,200
|
|
Zimmer
Holdings
|
|
28,000
|
|
|
1,893,360
|
|
|
|
|
|
|
25,231,539
|
Healthcare Services 16.37%
|
|
|
|
|
|
|
Aetna
|
|
42,300
|
|
|
1,675,080
|
|
AMEDISYS
|
|
60,000
|
|
|
828,600
|
|
China Nepstar Chain Drugstore
ADR
|
|
90,000
|
|
|
155,700
|
|
Humana
|
|
10,000
|
|
|
701,500
|
|
Quest Diagnostics
|
|
10,000
|
|
|
634,300
|
|
Tenet
Healthcare
|
|
180,000
|
|
|
1,128,600
|
|
WebMD Health
|
|
30,000
|
|
|
420,900
|
|
WellPoint
|
|
63,000
|
|
|
3,654,630
|
|
|
|
|
|
|
9,199,310
|
Medical Distributors 1.70%
|
|
|
|
|
|
|
Chindex International
|
|
37,500
|
|
|
387,375
|
|
PSS World
Medical
|
|
25,000
|
|
|
569,500
|
|
|
|
|
|
|
956,875
|
10
|
|
|
Number of shares
|
|
Value
|
|
²
Common Stock
(continued
)
|
|
|
|
|
|
|
Others 17.41%
|
|
|
|
|
|
|
|
AirMedia Group ADR
|
|
70,000
|
|
$
|
133,000
|
|
|
Bank
of America
|
|
130,000
|
|
|
1,147,900
|
|
|
eLong ADR
|
|
40,000
|
|
|
708,400
|
|
|
Green Mountain Coffee Roasters
|
|
20,000
|
|
|
475,000
|
|
|
Kinross Gold
|
|
40,000
|
|
|
408,400
|
|
|
Perfect World ADR
|
|
50,000
|
|
|
543,000
|
|
|
Sohu.com
|
|
100,000
|
|
|
4,209,000
|
|
|
Yahoo
|
|
135,500
|
|
|
2,164,613
|
|
|
|
|
|
|
|
9,789,313
|
|
Small/Mid-Cap Medical Products 13.38%
|
|
|
|
|
|
|
|
Avon Products
|
|
225,000
|
|
|
3,588,750
|
|
@
|
Cangene
|
|
220,000
|
|
|
371,459
|
|
|
CareFusion
|
|
60,000
|
|
|
1,703,400
|
|
|
Illumina
|
|
15,000
|
|
|
723,000
|
|
|
NuVasive
|
|
45,000
|
|
|
1,030,950
|
|
|
TranS1
|
|
39,700
|
|
|
104,808
|
|
|
|
|
|
|
|
7,522,367
|
|
Total Common Stock
(cost $55,441,795)
|
|
|
|
|
59,734,894
|
|
|
|
Total Value of Securities
106.27%
|
|
|
|
|
|
|
|
(cost $55,441,795)
|
|
|
|
|
59,734,894
|
|
Liabilities Net of Receivables
and
|
|
|
|
|
|
|
|
Other Assets (6.27%)
|
|
|
|
|
(3,525,149
|
)
z
|
Net Assets Applicable to
4,716,089
|
|
|
|
|
|
|
|
Shares Outstanding 100.00%
|
|
|
|
$
|
56,209,745
|
|
|
|
Net Asset Value Delaware Healthcare
Fund
|
|
|
|
|
|
|
|
Class A ($41,424,981 / 3,469,948
Shares)
|
|
|
|
|
|
$11.94
|
|
Net Asset Value Delaware Healthcare Fund
|
|
|
|
|
|
|
|
Class C ($5,445,689 / 464,865 Shares)
|
|
|
|
|
|
$11.71
|
|
Net Asset Value Delaware Healthcare
Fund
|
|
|
|
|
|
|
|
Class R ($772,934 / 65,090 Shares)
|
|
|
|
|
|
$11.87
|
|
Net Asset Value Delaware Healthcare Fund
|
|
|
|
|
|
|
|
Institutional Class ($8,566,141 / 716,186 Shares)
|
|
|
|
|
|
$11.96
|
|
11
Statement of net
assets
Delaware Healthcare Fund
|
|
|
|
|
Components of Net Assets at September 30,
2012:
|
|
|
|
|
Shares of beneficial interest
(unlimited authorization no par)
|
|
$
|
55,430,520
|
|
Undistributed net
investment income
|
|
|
173,081
|
|
Accumulated net realized loss on
investments
|
|
|
(3,686,918
|
)
|
Net unrealized
appreciation of investments and foreign currencies
|
|
|
4,293,062
|
|
Total net assets
|
|
$
|
56,209,745
|
|
²
|
Narrow industries are utilized for
compliance purposes for diversification whereas broad sectors are used for
financial reporting.
|
|
Non income producing
security.
|
@
|
Illiquid security. At September 30,
2012, the aggregate value of illiquid securities was $371,459, which
represented 0.66% of the Funds net assets. See Note 10 in Notes to
financial statements.
|
z
|
Of this amount, $3,756,072
represents cash overdraft.
|
Net Asset Value and Offering Price Per Share
Delaware Healthcare
Fund
|
|
|
|
Net asset value Class A (A)
|
|
$
|
11.94
|
Sales charge (5.75%
of offering price) (B)
|
|
|
0.73
|
Offering price
|
|
$
|
12.67
|
(A)
|
Net asset value per share, as
illustrated, is the amount that would be paid upon redemption or
repurchase of shares.
|
(B)
|
See the current prospectus for
purchases of $50,000 or more.
|
ADR American Depositary
Receipt
See accompanying notes, which are an
integral part of the financial statements.
12
Statement of
operations
|
Delaware Healthcare Fund
|
Year Ended September 30,
2012
|
Investment Income:
|
|
|
|
|
|
Dividends
|
|
$
|
1,052,716
|
|
|
Interest
|
|
|
187
|
|
|
|
|
|
1,052,903
|
|
|
|
Expenses:
|
|
|
|
|
|
Management fees
|
|
|
432,938
|
|
|
Distribution expenses
Class A
|
|
|
115,628
|
|
|
Distribution expenses Class
C
|
|
|
52,300
|
|
|
Distribution expenses
Class R
|
|
|
3,356
|
|
|
Dividend disbursing and transfer
agent fees and expenses
|
|
|
79,376
|
|
|
Registration
fees
|
|
|
62,445
|
|
|
Reports and statements to
shareholders
|
|
|
29,698
|
|
|
Accounting and
administration expenses
|
|
|
19,932
|
|
|
Custodian fees
|
|
|
17,292
|
|
|
Audit and
tax
|
|
|
14,896
|
|
|
Dues and services
|
|
|
8,601
|
|
|
Legal fees
|
|
|
5,107
|
|
|
Trustees fees
|
|
|
2,439
|
|
|
Pricing
fees
|
|
|
2,243
|
|
|
Insurance fees
|
|
|
800
|
|
|
Consulting
fees
|
|
|
520
|
|
|
Trustees expenses
|
|
|
132
|
|
|
|
|
|
847,703
|
|
|
Less fees waived
|
|
|
(14,774
|
)
|
|
Less waived
distribution expenses Class A
|
|
|
(19,271
|
)
|
|
Less waived distribution
expenses Class R
|
|
|
(560
|
)
|
|
Less expense paid
indirectly
|
|
|
(101
|
)
|
|
Total operating
expenses
|
|
|
812,997
|
|
Net Investment Income
|
|
|
239,906
|
|
14
Net Realized and Unrealized Gain
(Loss):
|
|
|
|
|
|
Net realized gain (loss) on:
|
|
|
|
|
|
|
Investments
|
|
$
|
(2,685,444
|
)
|
|
|
Foreign currencies
|
|
|
4,213
|
|
|
|
Foreign currency
exchange contracts
|
|
|
(6,355
|
)
|
|
Net realized loss
|
|
|
(2,687,586
|
)
|
|
Net change in unrealized appreciation (depreciation)
of:
|
|
|
|
|
|
|
Investments
|
|
|
12,251,491
|
|
|
|
Foreign
currencies
|
|
|
(57
|
)
|
|
Net change in unrealized appreciation
(depreciation)
|
|
|
12,251,434
|
|
Net Realized and Unrealized Gain
|
|
|
9,563,848
|
|
|
|
|
Net Increase in Net Assets Resulting from
Operations
|
|
$
|
9,803,754
|
|
See accompanying notes, which are an
integral part of the financial statements.
15
Statements of changes in net
assets
Delaware Healthcare Fund
|
|
Year
Ended
|
|
|
9/30/12
|
|
9/30/11
|
Increase (Decrease) in Net Assets from
Operations:
|
|
|
|
|
|
|
|
|
Net investment
income (loss)
|
|
$
|
239,906
|
|
|
$
|
(19,553
|
)
|
Net realized gain
(loss)
|
|
|
(2,687,586
|
)
|
|
|
2,357,301
|
|
Net change in
unrealized appreciation (depreciation)
|
|
|
12,251,434
|
|
|
|
(8,389,160
|
)
|
Net increase
(decrease) in net assets resulting from operations
|
|
|
9,803,754
|
|
|
|
(6,051,412
|
)
|
|
Dividends and Distributions to Shareholders
from:
|
|
|
|
|
|
|
|
|
Net investment
income:
|
|
|
|
|
|
|
|
|
Class
A
|
|
|
(7,528
|
)
|
|
|
(7,790
|
)
|
Institutional
Class
|
|
|
(21,952
|
)
|
|
|
(9,839
|
)
|
|
Net realized
gain:
|
|
|
|
|
|
|
|
|
Class
A
|
|
|
(2,311,891
|
)
|
|
|
(563,488
|
)
|
Class
C
|
|
|
(315,499
|
)
|
|
|
(39,133
|
)
|
Class
R
|
|
|
(24,243
|
)
|
|
|
(403
|
)
|
Institutional
Class
|
|
|
(546,274
|
)
|
|
|
(194,094
|
)
|
|
|
|
(3,227,387
|
)
|
|
|
(814,747
|
)
|
|
Capital Share Transactions:
|
|
|
|
|
|
|
|
|
Proceeds from
shares sold:
|
|
|
|
|
|
|
|
|
Class
A
|
|
|
21,377,852
|
|
|
|
48,646,842
|
|
Class
C
|
|
|
2,347,195
|
|
|
|
5,895,339
|
|
Class
R
|
|
|
536,221
|
|
|
|
345,137
|
|
Institutional
Class
|
|
|
7,211,686
|
|
|
|
10,368,554
|
|
|
Net asset value of
shares issued upon reinvestment
of
dividends and distributions:
|
|
|
|
|
|
|
|
|
Class
A
|
|
|
2,220,361
|
|
|
|
555,292
|
|
Class
C
|
|
|
288,519
|
|
|
|
20,458
|
|
Class
R
|
|
|
24,243
|
|
|
|
401
|
|
Institutional
Class
|
|
|
456,385
|
|
|
|
202,582
|
|
|
|
|
34,462,462
|
|
|
|
66,034,605
|
|
16
|
|
Year
Ended
|
|
|
9/30/12
|
|
9/30/11
|
Capital Share Transactions
(continued):
|
|
|
|
|
|
|
|
|
Cost of shares
redeemed:
|
|
|
|
|
|
|
|
|
Class
A
|
|
$
|
(23,713,963
|
)
|
|
$
|
(15,324,607
|
)
|
Class
C
|
|
|
(2,783,556
|
)
|
|
|
(719,501
|
)
|
Class
R
|
|
|
(149,126
|
)
|
|
|
(30,119
|
)
|
Institutional
Class
|
|
|
(8,632,790
|
)
|
|
|
(3,920,613
|
)
|
|
|
|
(35,279,435
|
)
|
|
|
(19,994,840
|
)
|
Increase (decrease) in net assets
derived from capital
|
|
|
|
|
|
|
|
|
share
transactions
|
|
|
(816,973
|
)
|
|
|
46,039,765
|
|
Net Increase in Net Assets
|
|
|
5,759,394
|
|
|
|
39,173,606
|
|
|
Net Assets:
|
|
|
|
|
|
|
|
|
Beginning of
year
|
|
|
50,450,351
|
|
|
|
11,276,745
|
|
End of year
(including undistributed (distributions in
|
|
|
|
|
|
|
|
|
excess
of) net investment income of $173,081 and
|
|
|
|
|
|
|
|
|
$(7,608),
respectively)
|
|
$
|
56,209,745
|
|
|
$
|
50,450,351
|
|
See accompanying notes, which are an
integral part of the financial statements.
17
Financial highlights
Delaware Healthcare Fund Class A
Selected data for each share of the Fund
outstanding throughout each period were as follows:
Net asset value, beginning of
period
|
|
|
|
Income (loss) from investment
operations:
|
|
Net investment income
(loss)
2
|
|
Net realized and
unrealized gain
|
|
Total from investment
operations
|
|
|
|
Less dividends and distributions from:
|
|
Net investment income
|
|
Net realized
gain
|
|
Total dividends and
distributions
|
|
|
|
Net asset value, end of period
|
|
|
|
Total return
3
|
|
|
|
Ratios and supplemental data:
|
|
Net assets, end of period (000
omitted)
|
|
Ratio of expenses to
average net assets
|
|
Ratio of expenses to
average net assets
prior to fees
waived
|
|
Ratio of net
investment income (loss) to average net assets
|
|
Ratio of net
investment income (loss) to average net
assets
prior to fees
waived
|
|
Portfolio turnover
|
|
1
Fund commenced
operations on September 28, 2007.
|
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
during all of the periods shown reflects waivers by the manager and
distributor. Performance would have been lower had the waivers not been in
effect.
|
See accompanying notes, which are an
integral part of the financial statements.
18
|
|
Year Ended
|
|
|
|
9/30/12
|
|
9/30/11
|
|
9/30/10
|
|
9/30/09
|
|
9/30/08
1
|
|
|
|
$10.350
|
|
|
$10.410
|
|
|
$10.070
|
|
|
$8.360
|
|
|
$8.500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.059
|
|
|
(0.006
|
)
|
|
0.027
|
|
|
0.029
|
|
|
(0.002
|
)
|
|
|
|
2.288
|
|
|
0.606
|
|
|
1.615
|
|
|
2.028
|
|
|
0.163
|
|
|
|
|
2.347
|
|
|
0.600
|
|
|
1.642
|
|
|
2.057
|
|
|
0.161
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(0.002
|
)
|
|
(0.009
|
)
|
|
(0.022
|
)
|
|
(0.007
|
)
|
|
|
|
|
|
|
(0.755
|
)
|
|
(0.651
|
)
|
|
(1.280
|
)
|
|
(0.340
|
)
|
|
(0.301
|
)
|
|
|
|
(0.757
|
)
|
|
(0.660
|
)
|
|
(1.302
|
)
|
|
(0.347
|
)
|
|
(0.301
|
)
|
|
|
|
|
|
|
|
|
$11.940
|
|
|
$10.350
|
|
|
$10.410
|
|
|
$10.070
|
|
|
$8.360
|
|
|
|
|
|
|
|
|
|
23.96%
|
|
|
5.89%
|
|
|
17.38%
|
|
|
26.66%
|
|
|
1.80%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$41,425
|
|
|
$36,584
|
|
|
$7,610
|
|
|
$1,221
|
|
|
$788
|
|
|
|
|
1.55%
|
|
|
1.60%
|
|
|
1.52%
|
|
|
1.35%
|
|
|
1.35%
|
|
|
|
|
|
|
|
|
|
1.63%
|
|
|
1.85%
|
|
|
2.59%
|
|
|
2.11%
|
|
|
3.75%
|
|
|
|
|
0.52%
|
|
|
(0.06%
|
)
|
|
0.17%
|
|
|
0.37%
|
|
|
(0.03%
|
)
|
|
|
|
|
|
|
|
|
0.44%
|
|
|
(0.31%
|
)
|
|
(0.90%
|
)
|
|
(0.39%
|
)
|
|
(2.43%
|
)
|
|
|
|
88%
|
|
|
101%
|
|
|
199%
|
|
|
240%
|
|
|
154%
|
|
|
19
Financial
highlights
Delaware Healthcare
Fund Class C
Selected data for each share of the Fund
outstanding throughout each period were as follows:
Net asset value, beginning
of period
|
|
Income (loss) from investment
operations:
|
Net investment
loss
2
|
Net realized and
unrealized gain
|
Total from investment
operations
|
|
Less distributions from:
|
Net realized gain
|
Total dividends and
distributions
|
|
Net asset value, end of period
|
|
Total return
3
|
|
Ratios and supplemental data:
|
Net assets, end of period (000
omitted)
|
Ratio of expenses to
average net assets
|
Ratio of expenses to average net
assets
|
prior to fees
waived
|
Ratio of net
investment loss to average net assets
|
Ratio of net investment loss to
average net assets
|
prior to fees
waived
|
Portfolio
turnover
|
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 during all of the periods shown reflects a
waiver by the manager. Performance would have been lower had the waiver not been
in effect.
4
Portfolio turnover is representative of the Fund for the
entire annual period.
See accompanying notes, which are an
integral part of the financial statements.
20
|
|
|
|
|
|
|
|
|
1/28/10
1
|
|
|
Year Ended
|
|
to
|
|
|
|
9/30/12
|
|
9/30/11
|
|
|
9/30/10
|
|
|
|
$10.240
|
|
|
$10.370
|
|
|
|
$10.020
|
|
|
|
|
|
|
|
|
|
|
|
|
(0.026
|
)
|
|
(0.089
|
)
|
|
|
(0.026
|
)
|
|
|
|
2.251
|
|
|
0.610
|
|
|
|
0.376
|
|
|
|
|
2.225
|
|
|
0.521
|
|
|
|
0.350
|
|
|
|
|
|
|
|
|
|
|
|
|
(0.755
|
)
|
|
(0.651
|
)
|
|
|
|
|
|
|
|
(0.755
|
)
|
|
(0.651
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$11.710
|
|
|
$10.240
|
|
|
|
$10.370
|
|
|
|
|
|
|
|
|
22.96%
|
|
|
5.11%
|
|
|
|
3.49%
|
|
|
|
|
|
|
|
|
|
|
|
|
$5,446
|
|
|
$4,930
|
|
|
|
$529
|
|
|
|
|
2.30%
|
|
|
2.35%
|
|
|
|
2.35%
|
|
|
|
|
|
|
|
|
2.33%
|
|
|
2.55%
|
|
|
|
3.29%
|
|
|
|
|
(0.23%
|
)
|
|
(0.81%
|
)
|
|
|
(0.66%
|
)
|
|
|
|
|
|
|
|
(0.26%
|
)
|
|
(1.01%
|
)
|
|
|
(1.60%
|
)
|
|
|
|
88%
|
|
|
101%
|
|
|
|
199%
|
4
|
|
21
Financial highlights
Delaware Healthcare Fund Class R
Selected data for each share of the Fund
outstanding throughout each period were as follows:
Net asset value, beginning of
period
|
|
Income (loss) from investment
operations:
|
Net investment income
(loss)
2
|
Net realized and
unrealized gain
|
Total from investment
operations
|
|
Less distributions from:
|
Net realized gain
|
Total dividends and
distributions
|
|
Net asset value, end of period
|
|
Total return
3
|
|
Ratios and supplemental data:
|
Net assets, end of
period (000 omitted)
|
Ratio of expenses to
average net assets
|
Ratio of expenses to average net
assets
|
prior to fees
waived
|
Ratio of net
investment income (loss) to average net assets
|
Ratio of net investment income
(loss) to average net assets
|
prior to fees
waived
|
Portfolio turnover
|
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 during
all of the periods shown reflects waivers by the manager and distributor.
Performance would have been lower had the waivers not been in
effect.
4
Portfolio turnover is
representative of the Fund for the entire annual period.
See accompanying notes, which are an
integral part of the financial statements.
22
|
|
|
|
|
|
|
|
|
1/28/10
1
|
|
|
Year Ended
|
|
to
|
|
|
|
9/30/12
|
|
9/30/11
|
|
|
9/30/10
|
|
|
|
$10.320
|
|
|
$10.400
|
|
|
|
$10.020
|
|
|
|
|
|
|
|
|
|
|
|
|
0.030
|
|
|
(0.036
|
)
|
|
|
0.006
|
|
|
|
|
2.275
|
|
|
0.607
|
|
|
|
0.374
|
|
|
|
|
2.305
|
|
|
0.571
|
|
|
|
0.380
|
|
|
|
|
|
|
|
|
|
|
|
|
(0.755
|
)
|
|
(0.651
|
)
|
|
|
|
|
|
|
|
(0.755
|
)
|
|
(0.651
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$11.870
|
|
|
$10.320
|
|
|
|
$10.400
|
|
|
|
|
|
|
|
|
23.60%
|
|
|
5.60%
|
|
|
|
3.79%
|
|
|
|
|
|
|
|
|
|
|
|
|
$773
|
|
|
$293
|
|
|
|
$5
|
|
|
|
|
1.80%
|
|
|
1.85%
|
|
|
|
1.85%
|
|
|
|
|
|
|
|
|
1.93%
|
|
|
2.15%
|
|
|
|
2.89%
|
|
|
|
|
0.27%
|
|
|
(0.31%
|
)
|
|
|
(0.16%
|
)
|
|
|
|
|
|
|
|
0.14%
|
|
|
(0.61%
|
)
|
|
|
(1.20%
|
)
|
|
|
|
88%
|
|
|
101%
|
|
|
|
199%
|
4
|
|
23
Financial highlights
Delaware Healthcare Fund Institutional Class
Selected data for each share of the Fund
outstanding throughout each period were as follows:
Net asset value, beginning of
period
|
|
Income (loss) from
investment operations:
|
Net investment income
(loss)
2
|
Net realized and unrealized
gain
|
Total from investment
operations
|
|
Less dividends and
distributions from:
|
Net investment income
|
Net realized gain
|
Total dividends and
distributions
|
|
Net asset value, end of
period
|
|
Total
return
3
|
|
Ratios and supplemental
data:
|
Net assets, end of period (000
omitted)
|
Ratio of expenses to average net
assets
|
Ratio of expenses to average net
assets
|
prior to fees waived
|
Ratio of net investment income (loss)
to average net assets
|
Ratio of net investment income (loss)
to average net assets
|
prior to fees waived
|
Portfolio turnover
|
1
Fund commenced operations
on September 28, 2007.
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 during all of the periods shown reflects a waiver by the
manager. Performance would have been lower had the waiver not been in effect.
See accompanying notes, which are an
integral part of the financial statements.
24
|
Year Ended
|
|
|
9/30/12
|
|
9/30/11
|
|
9/30/10
|
|
9/30/09
|
|
9/30/08
1
|
|
|
|
$10.370
|
|
|
$10.430
|
|
|
$10.070
|
|
|
$8.360
|
|
|
$8.500
|
|
|
|
|
|
|
|
|
|
|
|
|
0.086
|
|
|
0.022
|
|
|
0.034
|
|
|
0.029
|
|
|
(0.002
|
)
|
|
|
|
2.290
|
|
|
0.602
|
|
|
1.628
|
|
|
2.028
|
|
|
0.163
|
|
|
|
|
2.376
|
|
|
0.624
|
|
|
1.662
|
|
|
2.057
|
|
|
0.161
|
|
|
|
|
|
|
|
|
|
|
|
|
(0.031
|
)
|
|
(0.033
|
)
|
|
(0.022
|
)
|
|
(0.007
|
)
|
|
|
|
|
|
|
(0.755
|
)
|
|
(0.651
|
)
|
|
(1.280
|
)
|
|
(0.340
|
)
|
|
(0.301
|
)
|
|
|
|
(0.786
|
)
|
|
(0.684
|
)
|
|
(1.302
|
)
|
|
(0.347
|
)
|
|
(0.301
|
)
|
|
|
|
|
|
|
|
$11.960
|
|
|
$10.370
|
|
|
$10.430
|
|
|
$10.070
|
|
|
$8.360
|
|
|
|
|
|
|
|
|
24.26%
|
|
|
6.13%
|
|
|
17.61%
|
|
|
26.66%
|
|
|
1.80%
|
|
|
|
|
|
|
|
|
|
|
|
|
$8,566
|
|
|
$8,643
|
|
|
$3,133
|
|
|
$2,579
|
|
|
$2,036
|
|
|
|
|
1.30%
|
|
|
1.35%
|
|
|
1.35%
|
|
|
1.35%
|
|
|
1.35%
|
|
|
|
|
|
|
|
|
1.33%
|
|
|
1.55%
|
|
|
2.29%
|
|
|
1.81%
|
|
|
3.45%
|
|
|
|
|
0.77%
|
|
|
0.19%
|
|
|
0.34%
|
|
|
0.37%
|
|
|
(0.03%
|
)
|
|
|
|
|
|
|
|
0.74%
|
|
|
(0.01%
|
)
|
|
(0.60%
|
)
|
|
(0.09%
|
)
|
|
(2.13%
|
)
|
|
|
|
88%
|
|
|
101%
|
|
|
199%
|
|
|
240%
|
|
|
154%
|
|
|
25
Notes to financial statements
|
|
|
Delaware Healthcare Fund
|
|
September 30,
2012
|
Delaware Group
®
Equity Funds IV (Trust) is organized as
a Delaware statutory trust and offers two series: Delaware Healthcare Fund and
Delaware Smid Cap Growth Fund. These financial statements and related notes
pertain to Delaware Healthcare Fund (Fund). The Trust is an open-end investment
company. The Fund is considered non-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 maximum front-end sales charge of
5.75%. Class A share purchases of $1,000,000 or more will incur a contingent
deferred sales charge (CDSC) 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 CDSC 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 maximum long-term capital growth through capital appreciation.
1. Significant Accounting
Policies
The following accounting policies are in
accordance with U.S. generally accepted accounting principles (U.S. GAAP) 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 ask prices will be used, which approximates fair value. Securities listed on
a foreign exchange are normally valued at the last quoted sales price on the
valuation date. U.S. government and agency securities are valued at the mean
between the bid and ask prices, which approximates fair value. Foreign currency
exchange contracts are valued at the mean between the bid and ask prices, which
approximates fair value. Interpolated values are derived when the settlement
date of the contract is an interim date for which quotations are not available.
Generally, other securities and assets for which market quotations are not
readily available are valued at fair value as determined in good faith under the
direction of the Funds Board of Trustees (Board). 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 suspension of
trading in a security. The Fund may use fair value pricing more frequently for
securities traded primarily in non-U.S. markets because, among other things,
most foreign markets close well before the Fund values its securities, generally
as of 4:00 p.m. Eastern time. The earlier close of these foreign markets gives
rise to the possibility that significant events, including broad market moves,
government actions or pronouncements, aftermarket trading or news events may
have occurred in the interim. To account for this, the Fund may frequently value
foreign securities using fair value prices based on third-party vendor modeling
tools (international fair value pricing).
26
Federal Income Taxes
No provision for federal income taxes has been made as the
Fund intends to continue to qualify for federal income tax purposes as a
regulated investment company under Subchapter M of the Internal Revenue Code of
1986, as amended, and make the requisite distributions to shareholders. The Fund
evaluates tax positions taken or expected to be taken in the course of preparing
the Funds 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 are recorded as
a tax benefit or expense in the current year. Management has analyzed the Funds
tax positions taken for all open federal income tax years, and has concluded
that no provision for federal income tax is required in the Funds 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 purchase certain U.S. government securities subject to the
counterpartys agreement to repurchase them at an agreed upon date and price.
The counterparty will be required on a daily basis to maintain the value of the
collateral subject to the agreement at not less than the repurchase price
(including accrued interest). The agreements are conditioned upon the collateral
being deposited under the Federal Reserve book-entry system with the Funds
custodian or a third-party sub-custodian. In the event of default or bankruptcy
by the other party to the agreement, retention of the collateral may be subject
to legal proceedings. At September 30, 2012 the Fund held no investments in
repurchase agreements.
Foreign Currency Transactions
Transactions denominated in foreign
currencies are recorded at the prevailing exchange rates on the valuation date
in accordance with the Funds prospectus. The value of all assets and
liabilities denominated in foreign currencies is translated into U.S. dollars at
the exchange rate of such currencies against the U.S. dollar daily. Transaction
gains or losses resulting from changes in exchange rates during the reporting
period or upon settlement of the foreign currency transaction are reported in
operations for the current period. The Fund generally does not isolate that
portion of realized gains and losses on investments which is due to changes in
foreign exchange rates from that which is due to changes in market prices. The
changes are included with the net realized and unrealized gain or loss on
investments. The Fund reports certain foreign currency related transactions as
components of realized gains (losses) for financial reporting purposes, whereas
such components are treated as ordinary income (loss) for federal income tax
purposes.
Use of Estimates
The preparation of financial statements in conformity with
U.S. GAAP requires management to make estimates and assumptions that affect the
fair value of investments, the reported amounts of assets and liabilities and
disclosure of contingent 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 and the
differences could be material.
27
Notes to financial
statements
Delaware Healthcare Fund
1. Significant Accounting Policies
(continued)
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 among 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. Foreign dividends are also
recorded on the ex-dividend date or as soon after the ex-dividend date that the
Fund is aware of such dividends, net of all non-rebatable tax withholdings.
Withholding taxes on foreign dividends have been recorded in accordance with the
Funds understanding of the applicable countrys tax rules and rates. The Fund
declares and pays dividends from net investment income and distributions from
net realized gain on investments, if any, annually. Dividends and distributions,
if any, are recorded on the ex-dividend date. The Fund may distribute income
dividends and capital gains more frequently, if necessary for tax
purposes.
The Fund may receive earnings credits from
its custodian when positive cash balances are maintained, which are used to
offset custody fees. There were no earnings credits for the year ended September
30, 2012.
The Fund receives earnings credits from
its transfer agent when positive cash balances are maintained, which are used to
offset transfer agent fees. The expense paid under this arrangement is included
in dividend disbursing and transfer agent fees and expenses on the statement of
operations with the corresponding expense offset shown as expense paid
indirectly. For the year ended September 30, 2012, the Fund earned $101 under
this agreement.
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 0.85% on the
first $500 million of average daily net assets of the Fund, 0.80% on the next
$500 million, 0.75% on the next $1.5 billion and 0.70% 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 total annual operating expenses (excluding any 12b-1
plan, taxes, interest, inverse floater program expenses, short sale and dividend
interest expenses, brokerage fees, certain insurance costs, and nonroutine
expenses or costs, including, but not limited to those relating to
reorganizations, litigation, conducting shareholder meetings, and liquidations)
do not exceed 1.35% of average daily net assets of the Fund through January 28,
2013. For purposes of this waiver and reimbursement, nonroutine expenses may
also include such additional costs and expenses as may be agreed upon from time
28
to time by the Funds Board and DMC. This
expense waiver and reimbursement applies only to expenses paid directly by the
Fund and may only be terminated by agreement of DMC and the Fund.
Delaware Service Company, Inc. (DSC), an
affiliate of DMC, provides fund accounting and financial administration
oversight services to the Fund. For these services, the Fund pays DSC fees based
on the aggregate daily net assets of the Delaware Investments
®
Family of Funds at the
following annual rate: 0.0050% of the first $30 billion; 0.0045% of the next $10
billion; 0.0040% of the next $10 billion; and 0.0025% of aggregate average daily
net assets in excess of $50 billion. The fees payable to DSC under the service
agreement described above are allocated among all Funds in the Delaware
Investments Family of Funds on a relative net asset value basis. For the year
ended September 30, 2012, the Fund was charged $2,502 for these
services.
DSC also provides dividend disbursing and
transfer agency services. The Fund pays DSC a monthly asset-based fee for these
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 of 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.
Institutional Class shares pay no distribution and service expenses. DDLP has
contracted to waive distribution and service fees of Class A and Class R shares
from exceeding 0.25% and 0.50%, respectively, of average daily net assets
through January 28, 2013.
At September 30, 2012, the Fund had
liabilities payable to affiliates as follows:
Investment management
fee payable to DMC
|
|
$
|
38,864
|
Dividend disbursing, transfer
agent and fund accounting
|
|
|
|
oversight fees
and other expenses payable to DSC
|
|
|
1,254
|
Distribution fees
payable to DDLP
|
|
|
13,317
|
Other expenses payable to DMC
and affiliates*
|
|
|
2,829
|
*DMC, as part of its administrative
services, pays operating expenses on behalf of the Fund and is reimbursed on a
periodic basis. 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 September 30, 2012, the Fund was
charged $1,399 for internal legal and tax services provided by DMC and/or its
affiliates employees.
For the year ended September 30, 2012,
DDLP earned $38,073 for commissions on sales of the Funds Class A shares. For
the year ended September 30, 2012, DDLP received gross CDSC commissions of $2
and $12,151 on redemption of the Funds 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.
29
Notes to financial
statements
Delaware Healthcare Fund
2. Investment Management,
Administration Agreements and Other Transactions with Affiliates
(continued)
Trustees fees include expenses accrued by
the Fund for each Trustees retainer and meeting fees. Certain officers of DMC,
DSC and DDLP are officers and/or Trustees of the Trust. These officers and
Trustees are paid no compensation by the Fund.
3. Investments
For the year ended September 30, 2012, the
Fund made purchases of $46,440,167 and sales of $50,092,401 of investment
securities other than short-term investments.
At September 30, 2012, the cost of
investments for federal income tax purposes was $57,203,799. At September 30,
2012, net unrealized appreciation was $2,531,095 of which $8,164,771 related to
unrealized appreciation of investments and $5,633,676 related to unrealized
depreciation of investments.
U.S. GAAP defines fair value as the price
that the Fund would receive to sell an asset or pay to transfer a liability in
an orderly transaction between market participants at the measurement date under
current market conditions. A three level hierarchy for fair value measurements
has been established based upon the transparency of inputs to the valuation of
an asset or liability. Inputs may be observable or unobservable and refer
broadly to the assumptions that market participants would use in pricing the
asset or liability. Observable inputs reflect the assumptions market
participants would use in pricing the asset or liability based on market data
obtained from sources independent of the reporting entity. Unobservable inputs
reflect the reporting entitys own assumptions about the assumptions that market
participants would use in pricing the asset or liability developed based on the
best information available under the circumstances. The Funds investment in its
entirety is assigned a level based upon the observability of the inputs which
are significant to the overall valuation. The three level hierarchy of inputs is
summarized below.
Level 1
|
inputs are quoted prices in active
markets for identical investments (e.g., equity securities, open-end
investment companies, futures contracts, exchange-traded options
contracts)
|
|
|
Level 2
|
other observable inputs (including,
but not limited to: quoted prices for similar assets or liabilities in
markets that are active, quoted prices for identical or similar assets or
liabilities in markets that are not active, inputs other than quoted
prices that are observable for the assets or liabilities (such as interest
rates, yield curves, volatilities, prepayment speeds, loss severities,
credit risks and default rates) or other market-corroborated inputs)
(e.g., debt securities, government securities, swap contracts, foreign
currency exchange contracts, foreign securities utilizing international
fair value pricing, broker-quoted securities, fair valued
securities)
|
|
|
Level 3
|
inputs are significant unobservable
inputs (including the Funds own assumptions used to determine the fair
value of investments) (e.g., broker-quoted securities, fair valued
securities)
|
30
Level 3 investments are valued using
significant unobservable inputs, which may include prior transaction prices
(acquisition cost) that did not occur during the period, financial or news
information released by the company, and other relevant information for the
investment to determine the fair value of the investment. The Fund may also use
an income-based valuation approach in which the anticipated future cash flows of
the investment are discounted to calculate fair value. Discounts may also be
applied due to the nature or duration of any restrictions on the disposition of
the investments. Valuations may also be based upon current market prices of
securities that are comparable in coupon, rating, maturity and industry. The
derived value of a Level 3 investment may not represent the value which is
received upon disposition and this could impact the results of
operations.
The following table summarizes the
valuation of the Funds investments by fair value hierarchy levels as of
September 30, 2012:
|
Level 1
|
Common
Stock
|
$59,734,894
|
During the period ended September 30,
2012, there were transfers between levels that had a material impact to the
Fund. $2,698,272 transferred from Level 2 investments into Level 1 investments
as a result of the Fund utilizing international fair value pricing at the
beginning of the period. International fair value pricing uses other observable
market-based inputs in place of the closing exchange price due to the events
occurring after the close of the exchange or market on which the investment is
principally traded in accordance with the Fair Valuation Procedures described in
Note 1, causing a change in classification between levels. There were no
transfers into or out of Level 3 investments that had a material impact to the
Fund. The Funds policy is to recognize transfers between levels at the
beginning of the reporting period.
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. GAAP. Additionally, distributions from net gains 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
September 30, 2012 and 2011 was as follows:
|
Year
Ended
|
|
9/30/12
|
|
9/30/11
|
Ordinary
income
|
$
|
2,674,275
|
|
$
|
771,891
|
Long-term capital gain
|
|
553,112
|
|
|
42,856
|
Total
|
$
|
3,227,387
|
|
$
|
814,747
|
31
Notes to financial
statements
Delaware Healthcare
Fund
5. Components of Net Assets on a Tax
Basis
As of September 30, 2012, the components
of net assets on a tax basis were as follows:
Shares of beneficial
interest
|
$
|
55,430,520
|
|
Undistributed ordinary income
|
|
173,081
|
|
Qualified late year
losses deferred
|
|
(1,924,914
|
)
|
Unrealized appreciation
|
|
2,531,058
|
|
Net assets
|
$
|
56,209,745
|
|
The differences between book basis and tax
basis components of net assets are primarily attributable to tax deferral of
losses on wash sales.
Qualified late year losses represent
losses realized on investment and foreign currency transactions from November 1,
2011 through September 30, 2012 that, in accordance with federal income tax
regulations, the Fund has elected to defer and treat as having arisen in the
following fiscal year.
For financial reporting purposes, capital
accounts are adjusted to reflect the tax character of permanent book/tax
differences. Reclassifications are primarily due to tax treatment of dividends
and distributions and gain (loss) on foreign currency transactions. Results of
operations and net assets were not affected by these reclassifications. For the
year ended September 30, 2012, the Fund recorded the following
reclassifications.
Undistributed net
investment income
|
$
|
(29,737
|
)
|
Accumulated net realized loss
|
|
29,737
|
|
6. Capital Shares
Transactions in capital shares were as
follows:
|
Year
Ended
|
|
9/30/12
|
|
9/30/11
|
Shares
sold:
|
|
|
|
|
|
Class A
|
1,836,043
|
|
|
4,098,635
|
|
Class
C
|
209,698
|
|
|
493,824
|
|
Class R
|
47,087
|
|
|
30,334
|
|
Institutional
Class
|
635,750
|
|
|
869,890
|
|
Shares issued upon reinvestment of
dividends and distributions:
|
|
|
|
|
|
Class
A
|
218,540
|
|
|
54,763
|
|
Class C
|
28,766
|
|
|
2,026
|
|
Class
R
|
2,395
|
|
|
40
|
|
Institutional
Class
|
45,011
|
|
|
19,978
|
|
|
3,023,290
|
|
|
5,569,490
|
|
Shares redeemed:
|
|
|
|
|
|
Class
A
|
(2,118,700
|
)
|
|
(1,350,322
|
)
|
Class C
|
(254,968
|
)
|
|
(65,486
|
)
|
Class
R
|
(12,766
|
)
|
|
(2,501
|
)
|
Institutional Class
|
(797,798
|
)
|
|
(357,014
|
)
|
|
(3,184,232
|
)
|
|
(1,775,323
|
)
|
Net increase (decrease)
|
(160,942
|
)
|
|
3,794,167
|
|
32
7. Line of Credit
The Fund, along with certain other funds
in the Delaware Investments
®
Family of Funds
(Participants), was a participant in a $100,000,000 revolving line of
credit to be used for temporary or emergency purposes as an additional source of
liquidity to fund redemptions of investor shares. Under the agreement, the
Participants were charged an annual commitment fee, which was allocated across
the Participants on the basis of each Participants allocation of the entire
facility. The Participants were permitted to borrow up to a maximum of one third
of their net assets under the agreement. Each Participant was individually, and
not jointly, liable for its particular advances, if any, under the line of
credit. The line of credit under the agreement expired on November 15,
2011.
On November 15, 2011, the Fund, along with
the other Participants entered into an amendment to the agreement for a
$125,000,000 revolving line of credit. The agreement is to be used as described
above and operates in substantially the same manner as the original agreement.
The agreement expired on November 13, 2012.
On November 13, 2012, the Fund, along with
the other Participants, entered into an amendment to the agreement for a
$125,000,000 revolving line of credit. The agreement is to be used as described
above and operates in substantially the same manner as the original agreement.
The agreement expires on November 12, 2013. The Fund had no amounts outstanding
as of September 30, 2012 or at any time during the year then ended.
8. Derivatives
U.S. GAAP requires disclosures that enable
investors to understand: 1) how and why an entity uses derivatives; 2) how they
are accounted for; and 3) how they affect an entitys results of operations and
financial position.
Foreign Currency Exchange Contracts
The Fund may enter into foreign currency
exchange contracts as a way of managing foreign exchange rate risk. The Fund may
enter into these contracts to fix the U.S. dollar value of a security that it
has agreed to buy or sell for the period between the date the trade was entered
into and the date the security is delivered and paid for. The Fund may also use
these contracts to hedge the U.S. dollar value of securities it already owns
that are denominated in foreign currencies. The change in value is recorded as
an unrealized gain or loss. When the contract is closed, a realized gain or loss
is recorded equal to the difference between the value of the contract at the
time it was opened and the value at the time it was closed.
The use of foreign currency exchange
contracts does not eliminate fluctuations in the underlying prices of the
securities, but does establish a rate of exchange that can be achieved in the
future. Although foreign currency exchange contracts limit the risk of loss due
to an unfavorable change in the value of the hedged currency, they also limit
any potential gain that might result should the value of the currency change
favorably. In addition, the Fund could be exposed to risks if the counterparties
to the contracts are unable to meet the terms of their contracts. The Funds
maximum risk of loss from counterparty credit risk is the value of its currency
exchanged with the counterparty. The risk is generally mitigated by having a
netting arrangement between the Fund
33
Notes to financial
statements
Delaware Healthcare
Fund
8. Derivatives (continued)
and the counterparty and by the posting
of collateral by the counterparty to the Fund to cover the Funds exposure to the counterparty. No foreign currency exchange
contracts were outstanding at September 30, 2012.
See the Statement of operations on page 15
for the realized and unrealized gain or loss on derivatives.
Derivatives Generally.
The table below summarizes the average daily balance of
derivative holdings by the Fund during the year ended September 30, 2012. The
average balance of derivatives held is generally similar to the volume of
derivative activity for the year ended September 30, 2012.
Long Derivative
Volume
|
|
|
Foreign currency
exchange contracts (average cost)
|
$
|
8,587
|
Short Derivative Volume
|
|
|
Foreign currency exchange contracts (average cost)
|
|
19,972
|
9. 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 The Bank of New York Mellon (BNY Mellon). At the time a security
is loaned, the borrower must post collateral equal to the required percentage of
the market value of the loaned security, including any accrued interest. The
required percentage is: (i) 102% with respect to U.S. securities and foreign
securities that are denominated and payable in U.S. dollars; and (ii) 105% with
respect to foreign securities. With respect to each loan, if on any business day
the aggregate market value of securities collateral plus cash collateral held 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 by the
end of the following business day which, together with the collateral already
held, will be not less than the applicable initial collateral requirements for
such security loan. If the aggregate market value of securities collateral and
cash collateral held with respect to a security loan exceeds the applicable
initial collateral requirement, upon request of the borrower BNY Mellon must
return enough collateral to the borrower by the end of the following business
day to reduce the value of the remaining collateral to the applicable initial
collateral requirement for such security loan. As a result of the foregoing, the
value of the collateral held with respect to a loaned security may be
temporarily more or less than the value of security on loan.
Cash collateral received is generally
invested in the Delaware Investments Collateral Fund No. 1 (Collective Trust)
established by BNY Mellon for the purpose of investment on behalf of funds
managed by DMC that participate in BNY Mellons securities lending program. The
Collective Trust may invest in U.S. government securities and high quality
corporate debt, asset-backed and other money market securities and in repurchase
agreements collateralized by such securities, provided that the Collective Trust
will generally have a dollar-weighted average portfolio maturity of 60 days or
less. The Fund can also accept U.S. government securities and letters of credit
(non-cash collateral) in connection with securities loans. In the event of
default
34
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 or interest, as applicable, 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. With respect to
security loans collateralized by non-cash collateral, the Fund receives loan
premiums paid by the borrower. With respect to security loans collateralized by
cash collateral, the earnings from the collateral investments are shared among
the Fund, the security lending agent and the borrower. The Fund records security
lending income net of allocations to the security lending agent and the
borrower.
The Collective Trust used for the
investment of cash collateral received from borrowers of securities seeks to
maintain a net asset value per unit of $1.00, but there can be no assurance that
it will always be able to do so. The Fund may incur investment losses as a
result of investing securities lending collateral in the Collective Trust. This
could occur if an investment in the Collective Trust defaulted or if it were
necessary to liquidate assets in the Collective Trust to meet returns on
outstanding security loans at a time when the Collective Trusts net asset value
per unit was less than $1.00. Under those circumstances, the Fund may not
receive an amount from the Collective Trust that is equal in amount to the
collateral the Fund would be required to return to the borrower of the
securities and the Fund would be required to make up for this shortfall.
During the year ended September 30, 2012,
the Fund had no securities out on loan.
10. 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.
Some countries in which the Fund may
invest require governmental approval for the repatriation of investment income,
capital or the proceeds of sales of securities by foreign investors. In
addition, if there is deterioration in a countrys balance of payments or for
other reasons, a country may impose temporary restrictions on foreign capital
remittances abroad.
The securities exchanges of certain
foreign markets are substantially smaller, less liquid, and more volatile than
the major securities markets in the United States. Consequently, acquisition and
disposition of securities by the Fund may be inhibited. In addition, a
significant portion of the aggregate market value of equity securities listed on
the major securities exchanges in emerging markets is held by a smaller number
of investors. This may limit the number of shares available for acquisition or
disposition by the Fund.
35
Notes to financial
statements
Delaware Healthcare
Fund
10. Credit and Market Risk
(continued)
The Fund concentrates its investments in
the healthcare industry and is subject to the risks associated with that
industry. The value of the Funds shares will be affected by factors particular
to the healthcare and related sectors (such as government regulation) and may
fluctuate more widely than that of a fund that invests in a broad range of
industries.
The Fund may invest up to 15% of its net
assets in illiquid securities, which may include securities with contractual
restrictions on resale, securities exempt from registration under Rule 144A of
the Securities Act of 1933, as amended, and other securities which may not be
readily marketable. The relative illiquidity of these securities may impair the
Fund from disposing of them in a timely manner and at a fair price when it is
necessary or desirable to do so. While maintaining oversight, the Funds Board
has delegated to DMC the day-to-day functions of determining whether individual
securities are liquid for purposes of the Funds limitation on investments in
illiquid securities. Securities eligible for resale pursuant to Rule 144A, which
are determined to be liquid, are not subject to the Funds 15% limit on
investments in illiquid securities. As of September 30, 2012, there were no Rule
144A securities. Illiquid securities have been identified on the statement of
net assets.
11. Contractual
Obligations
The Fund enters into contracts in the
normal course of business that contain a variety of indemnifications. The Funds
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 Funds existing contracts and expects the risk of loss to be
remote.
12. Subsequent Events
Except as described in Note 7, management
has determined that no material events or transactions occurred subsequent to
September 30, 2012 that would require recognition or disclosure in the Funds
financial statements.
36
Report of independent
registered
public accounting firm
To the Board of Trustees of Delaware
Group
®
Equity
Funds IV
and the Shareholders of Delaware Healthcare Fund:
In our opinion, the accompanying statement
of net assets and the related statements of operations and changes in net assets
and the financial highlights present fairly, in all material respects, the
financial position of Delaware Healthcare Fund (one of the series constituting
Delaware Group Equity Funds IV, hereafter referred to as the Fund) at
September 30, 2012, 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
the financial highlights for each the two years in the period then ended and
each of the periods ended September 30, 2010, in conformity with accounting
principles generally accepted in the United States of America. These financial
statements and financial highlights (hereafter referred to as financial
statements) are the responsibility of the Funds management; our responsibility
is to express an opinion on these financial statements based on our audits. We
conducted our audits of these financial statements 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 are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at September 30, 2012 by
correspondence with the custodian, provide a reasonable basis for our opinion.
The financial highlights for the year ended September 30, 2009 and for all prior
periods were audited by other independent accountants whose report dated
November 19, 2009 expressed an unqualified opinion on those
statements.
PricewaterhouseCoopers LLP
Philadelphia, Pennsylvania
November 21, 2012
37
Other Fund information
(Unaudited)
Delaware
Healthcare Fund
Board Consideration of Delaware
Healthcare Fund Investment Advisory Agreement
At a meeting held on August 2123, 2012
(the Annual Meeting), the Board of Trustees (the Board), including a
majority of disinterested or independent Trustees, approved the renewal of the
Investment Advisory Agreement for the Delaware Healthcare Fund (the Fund). In
making its decision, the Board considered information furnished at regular
quarterly Board meetings, including reports detailing Fund performance,
investment strategies and expenses, as well as information prepared specifically
in connection with the renewal of the investment advisory and sub-advisory
contracts. Information furnished specifically in connection with the renewal of
the Investment Advisory Agreement with Delaware Management Company (DMC)
included materials provided by DMC and its affiliates (Delaware Investments)
concerning, among other things, the nature, extent and quality of services
provided to the Fund, the costs of such services to the Fund, economies of scale
and the financial condition and profitability of Delaware Investments. In
addition, in connection with the Annual Meeting, reports were provided in May
2012 and included independent historical and comparative reports provided by
Lipper, Inc., an independent statistical compilation organization (Lipper).
The Lipper reports compared the Funds investment performance and expenses with
those of other comparable mutual funds. The Independent Trustees reviewed and
discussed the Lipper reports with independent legal counsel to the Independent
Trustees. The Board requested and received information regarding DMCs policy
with respect to advisory fee levels and its breakpoint philosophy; the structure
of portfolio manager compensation; the investment managers profitability;
comparative client fee information; and any constraints or limitations on the
availability of securities in certain investment styles, which had in the past
year inhibited, or which were likely in the future to inhibit, DMCs ability to
invest fully in accordance with Fund policies.
In considering information relating to the
approval of the Funds advisory agreement, the Independent Trustees received
assistance and advice from and met separately with independent legal counsel to
the Independent Trustees. Although the Board gave attention to all information
furnished, the following discussion identifies, under separate headings, the
primary factors taken into account by the Board during its contract renewal
considerations.
Nature, Extent and Quality of
Service.
The Board considered the services
provided by Delaware Investments to the Fund and its shareholders. In reviewing
the nature, extent and quality of services, the Board considered reports
furnished to it throughout the year, which covered matters such as the relative
performance of the Fund, compliance of portfolio managers with the investment
policies, strategies and restrictions for the Fund, compliance by DMC and
Delaware Distributors, L.P. (together, Management) personnel with the Code of
Ethics adopted throughout the Delaware Investments
®
Family of Funds complex and adherence to
fair value pricing procedures as established by the Board. The Board was pleased
with the current staffing of the Funds investment advisor and the emphasis
placed on research in the investment process. The Board recognized DMCs receipt
of several industry distinctions. The Board gave favorable consideration to DMCs efforts to control expenditures while maintaining service levels committed to fund matters. The Board noted that in July 2011 Management implemented measures to reduce
38
overall costs and improve transfer agent and shareholder
servicing functions through outsourcing. The Board noted the benefits provided
to Fund shareholders through each shareholders ability to exchange an
investment in one Delaware Investments fund for the same class of shares in
another Delaware Investments
®
fund without a sales charge, to reinvest Fund dividends into
additional shares of the Fund or into additional shares of other Delaware
Investments funds and the privilege to combine holdings in other Delaware
Investments funds to obtain a reduced sales charge. The Board was satisfied with
the nature, extent and quality of the overall services provided by Delaware
Investments.
Investment Performance.
The Board placed significant emphasis on the investment
performance of the Fund in view of the importance of investment performance to
shareholders. Although the Board gave appropriate consideration to performance
reports and discussions with portfolio managers at Investment Committee meetings
throughout the year, the Board gave particular weight to the Lipper reports
furnished for the Annual Meeting. The Lipper reports prepared for the Fund
showed the investment performance of its Class A shares in comparison to a group
of similar funds as selected by Lipper (the Performance Universe). A fund with
the best performance ranked first, and a fund with the poorest performance
ranked last. The highest/best performing 25% of funds in the Performance
Universe make up the first quartile; the next 25%, the second quartile; the next
25%, the third quartile; and the poorest/worst performing 25% of funds in the
Performance Universe make up the fourth quartile. Comparative annualized
performance for the Fund was shown for the past one-, three-, five- and ten-year
periods, as applicable, ended March 31, 2012. The Boards objective is that the
Funds performance for the periods considered be at or above the median of its
Performance Universe. The following paragraph summarizes the performance results
for the Fund and the Boards view of such performance.
The Performance Universe for the Fund
consisted of the Fund and all retail and institutional health/biotechnology
funds as selected by Lipper. The Lipper report comparison showed that the Funds
total return for the one-year period was in the third quartile. The report
further showed that the Funds total return for the three-year period was in the
first quartile. The Board determined that the Funds performance results were
mixed, but tended toward above median, which was acceptable.
Comparative Expenses.
The Board considered expense comparison data for the Delaware
Investments Family of Funds. Management provided the Board with information on
pricing levels and fee structures for the Fund as of its most recently completed
fiscal year. The Board also focused on the comparative analysis of effective
management fees and total expense ratios of the Fund versus effective management
fees and expense ratios of a group of similar funds as selected by Lipper (the
Expense Group). In reviewing comparative costs, the Funds contractual
management fee and the actual management fee incurred by the Fund were compared
with the contractual management fees (assuming all funds in the Expense Group
were similar in size to the Fund) and actual management fees (as reported by
each fund) within the Expense Group, taking into account any applicable breakpoints and fee waivers. The Funds total expenses were also
39
Other Fund information
(Unaudited)
Delaware Healthcare Fund
Board Consideration of Delaware
Healthcare Fund Investment Advisory Agreement (continued)
compared with those of its Expense Group. The Lipper total expenses, for comparative consistency, were
shown by Lipper for Class A shares and comparative total expenses including
12b-1 and non 12b-1 service fees. The Board considered fees paid to Delaware
Investments for non-management services. The Boards objective is to limit the
Funds total expense ratio to be competitive with that of the Expense Group. The
following paragraph summarizes the expense results for the Fund and the Boards
view of such expenses.
The expense comparisons for the Fund
showed that its actual management fee was in the quartile with the lowest
expenses of its Expense Group and its total expenses were in the quartile with
the second highest expenses of its Expense Group. The Board gave favorable
consideration to the Funds management fee, but noted that the Funds total
expenses were not in line with the Boards objective. In evaluating total
expenses, the Board considered fee waivers in place through January 2013 and
various initiatives implemented by Management, such as the outsourcing of
certain transfer agency services, creating an opportunity for a reduction in
expenses. The Board was satisfied with Managements efforts to improve the
Funds total expense ratio and bring it in line with the Boards
objective.
Management
Profitability
. The Board considered the level
of profits realized by
Delaware Investments in
connection with the operation of the Fund. In this respect, the Board reviewed
the Investment Management Profitability Analysis that addressed the overall
profitability of Delaware Investments business in providing management and
other services to each of the individual funds and the Delaware
Investments
®
Family of Funds as a whole. Specific attention was given to the methodology
followed in allocating costs for the purpose of determining profitability.
Management stated that the level of profits of Delaware Investments, to a
certain extent, reflect recent operational cost savings and efficiencies
initiated by Delaware Investments. The Board considered Delaware Investments
efforts to improve services provided to fund shareholders and to meet additional
regulatory and compliance requirements resulting from recent industry-wide
Securities and Exchange Commission initiatives. The Board also considered the
extent to which Delaware Investments might derive ancillary benefits from fund
operations, including the potential for procuring additional business as a
result of the prestige and visibility associated with its role as service
provider to the Delaware Investments Family of Funds and the benefits from
allocation of fund brokerage to improve trading efficiencies. The Board found
that the management fees were reasonable in light of the services rendered and
the level of profitability of Delaware Investments.
Economies of Scale.
The Trustees considered whether economies of scale are
realized by Delaware Investments as the Funds assets increase and the extent to
which any economies of scale are reflected in the level of management fees
charged. The Trustees reviewed the standardized advisory fee pricing and
structure, approved by the Board and shareholders, which includes breakpoints.
Breakpoints in the advisory fee occur when the advisory fee rate is reduced on
assets in excess of specified levels. Breakpoints result in a lower advisory fee than would otherwise be the
40
case on all assets when the asset levels specified are exceeded. The Board noted that the fee under
the Funds management contract fell within the standard
structure.
Although the Fund has not reached a size at which it can take advantage
of breakpoints, the Board recognized that the fee was structured so that when
the Fund grows, economies of scale may be shared.
Tax Information
The information set forth below is for the
Funds fiscal year as required by federal income tax 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.
All designations are based on financial
information available as of the date of this annual report and, accordingly are
subject to change. For any and all items requiring designation, it is the
intention of the Fund to designate the maximum amount permitted under the
Internal Revenue Code and the regulations thereunder.
For the fiscal year ended September 30,
2012, the Fund designates distributions paid during the year as
follows:
(A)
|
Long-Term Capital
Gains Distributions (Tax Basis)
|
17.14%
|
(B)
|
Ordinary Income Distributions* (Tax
Basis)
|
82.86%
|
|
Total Distributions
(Tax Basis)
|
100.00%
|
(C)
|
Qualifying
Dividends
1
|
4.45%
|
(A)
|
and (B) are based on a
percentage of the Funds total distributions.
|
(C)
|
is based on a
percentage of the Funds ordinary income
distributions.
|
1
Qualifying dividends
represent dividends which qualify for the corporate dividends received
deduction.
|
* For the fiscal year ended September 30, 2012 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
and as extended by the Tax Relief, Unemployment Insurance Reauthorization
and Jobs Creation Act of 2010. The Fund intends to designate up to 9.06%
to be taxed at maximum rate of 15%. Complete information will be computed
and reported in conjunction with your 2012 Form
1099-DIV.
|
41
Board of trustees/directors and officers
addendum
Delaware Investments
®
Family of Funds
A mutual fund is governed by a Board of
Trustees/Directors (Trustees), which has oversight responsibility for the
management of a funds 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
Name, Address,
|
|
Position(s)
|
|
Length of
|
and Birth Date
|
|
Held with Fund(s)
|
|
Time Served
|
Interested Trustees
|
|
|
|
|
|
|
|
|
|
Patrick P.
Coyne
1
|
|
Chairman, President,
|
|
Chairman and
Trustee
|
2005 Market Street
|
|
Chief Executive
Officer,
|
|
since August 16,
2006
|
Philadelphia, PA 19103
|
|
and Trustee
|
|
|
April 1963
|
|
|
|
President and
|
|
|
|
|
Chief Executive
Officer
|
|
|
|
|
since August 1,
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1
Patrick P. Coyne is considered to be an Interested Trustee
because he is an executive officer of the Funds(s) investment
advisor.
42
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
|
|
|
Principal
Occupation(s)
|
|
Fund Complex Overseen
|
|
Other Directorships
|
During Past 5 Years
|
|
by Trustee or Officer
|
|
Held by Trustee or
Officer
|
|
|
|
|
|
|
Patrick P. Coyne has served
in
|
|
71
|
|
Director and Audit
|
various executive
capacities
|
|
|
|
Committee Member
|
at different times at
|
|
|
|
Kaydon Corp.
|
Delaware
Investments.
2
|
|
|
|
|
|
|
|
|
Board of Governors
Member
|
|
|
|
|
Investment Company
|
|
|
|
|
Institute (ICI)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2
Delaware Investments is the marketing name for Delaware
Management Holdings, Inc. and its subsidiaries, including the Funds(s)
investment advisor, principal underwriter, and its transfer agent.
43
Board of trustees/directors
and officers addendum
Delaware
Investments
®
Family of Funds
Name, Address,
|
|
Position(s)
|
|
Length of
|
and Birth Date
|
|
Held with Fund(s)
|
|
Time Served
|
Independent Trustees
|
|
|
|
|
|
|
|
|
|
Thomas L. Bennett
|
|
Trustee
|
|
Since March 2005
|
2005 Market Street
|
|
|
|
|
Philadelphia, PA 19103
|
|
|
|
|
October 1947
|
|
|
|
|
|
|
|
|
|
John A. Fry
|
|
Trustee
|
|
Since January 2001
|
2005 Market Street
|
|
|
|
|
Philadelphia, PA 19103
|
|
|
|
|
May 1960
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Anthony D. Knerr
|
|
Trustee
|
|
Since April 1990
|
2005 Market Street
|
|
|
|
|
Philadelphia, PA 19103
|
|
|
|
|
December 1938
|
|
|
|
|
|
|
|
|
|
Lucinda S. Landreth
|
|
Trustee
|
|
Since March 2005
|
2005 Market Street
|
|
|
|
|
Philadelphia, PA 19103
|
|
|
|
|
June 1947
|
|
|
|
|
|
|
|
|
|
44
|
|
Number of Portfolios
in
|
|
|
Principal
Occupation(s)
|
|
Fund Complex Overseen
|
|
Other Directorships
|
During Past 5 Years
|
|
by Trustee or Officer
|
|
Held by Trustee or
Officer
|
|
|
Private Investor
|
|
71
|
|
Director
|
(March 2004Present)
|
|
|
|
Bryn Mawr Bank Corp.
(BMTC)
|
|
|
|
|
(20072011)
|
|
|
|
|
|
|
President
|
|
71
|
|
Board of Governors Member
|
Drexel University
|
|
|
|
NASDAQ OMX PHLX LLC
|
(August 2010Present)
|
|
|
|
|
|
|
|
|
Director and Audit
|
President
|
|
|
|
Committee Member
|
Franklin & Marshall
College
|
|
|
|
Community Health
Systems
|
(July 2002July 2010)
|
|
|
|
|
|
|
|
|
Director Ecore
|
|
|
|
|
International
|
|
|
|
|
(20092010)
|
|
|
|
|
|
Director Allied
|
|
|
|
|
Barton Securities
Holdings
|
|
|
|
|
(20052008)
|
|
|
|
|
|
Managing Director
|
|
71
|
|
None
|
Anthony Knerr &
Associates
|
|
|
|
|
(Strategic Consulting)
|
|
|
|
|
(1990Present)
|
|
|
|
|
|
|
|
|
|
Private Investor
|
|
71
|
|
None
|
(2004Present)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
45
Board of trustees/directors
and officers addendum
Delaware
Investments
®
Family of Funds
Name, Address,
|
|
Position(s)
|
|
Length of
|
and Birth Date
|
|
Held with Fund(s)
|
|
Time Served
|
Independent Trustees (continued)
|
|
|
|
|
|
|
|
|
|
Frances A.
Sevilla-Sacasa
|
|
Trustee
|
|
Since September
2011
|
2005 Market Street
|
|
|
|
|
Philadelphia, PA 19103
|
|
|
|
|
January 1956
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
46
|
|
Number of Portfolios
in
|
|
|
Principal
Occupation(s)
|
|
Fund Complex Overseen
|
|
Other Directorships
|
During Past 5 Years
|
|
by Trustee or Officer
|
|
Held by Trustee or
Officer
|
|
|
Chief Executive Officer
|
|
71
|
|
Trust Manager
Camden
|
Banco Itaú Europa
|
|
|
|
Property Trust
|
International
|
|
|
|
(since August 2011)
|
(since April 2012)
|
|
|
|
|
|
Executive Advisor to
Dean
|
|
|
|
|
(August 2011March
2012)
|
|
|
|
|
and Interim Dean
|
|
|
|
|
(January 2011July 2011)
|
|
|
|
|
University of Miami School
of
|
|
|
|
|
Business
Administration
|
|
|
|
|
|
President U.S.
Trust,
|
|
|
|
|
Bank of America
Private
|
|
|
|
|
Wealth Management
|
|
|
|
|
(Private Banking)
|
|
|
|
|
(July 2007December
2008)
|
|
|
|
|
|
|
|
|
|
47
Board of trustees/directors and officers
addendum
Delaware Investments
®
Family of Funds
Name, Address,
|
|
Position(s)
|
|
Length of
|
and Birth Date
|
|
Held with Fund(s)
|
|
Time Served
|
Independent Trustees
(continued)
|
|
|
|
|
|
|
|
|
|
Janet L. Yeomans
|
|
Trustee
|
|
Since April 1999
|
2005 Market Street
|
|
|
|
|
Philadelphia, PA 19103
|
|
|
|
|
July 1948
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
J. Richard Zecher
|
|
Trustee
|
|
Since March 2005
|
2005 Market Street
|
|
|
|
|
Philadelphia, PA 19103
|
|
|
|
|
July 1940
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
48
|
Number of Portfolios
in
|
|
|
Principal
Occupation(s)
|
Fund Complex Overseen
|
Other Directorships
|
|
During Past 5 Years
|
by Trustee or Officer
|
Held by Trustee or
Officer
|
|
|
|
Vice President and
Treasurer
|
71
|
Director, Audit
|
|
(January 2006July
2012)
|
|
Committee Member and
|
|
Vice President Mergers &
Acquisitions
|
|
Investment Committee
|
|
(January 2003January 2006),
and
|
|
Member
|
|
Vice President and
Treasurer
|
|
Okabena Company
|
|
(July 1995January
2003)
|
|
|
|
3M Corporation
|
|
Chair 3M
|
|
|
|
Investment Management
|
|
|
|
Company
|
|
|
|
(January 2005July
2012)
|
|
|
|
|
|
Founder
|
71
|
Director and
Compensation
|
|
Investor Analytics
|
|
Committee Member
|
|
(Risk Management)
|
|
Investor Analytics
|
|
(May 1999Present)
|
|
|
|
|
|
Director
|
|
Founder
|
|
Oxigene, Inc.
|
|
P/E Investments
|
|
(20032008)
|
|
(Hedge Fund)
|
|
|
|
(September
1996Present)
|
|
|
|
49
Board of trustees/directors
and officers addendum
Delaware
Investments
®
Family of Funds
Name, Address,
|
|
Position(s)
|
|
Length of
|
and Birth Date
|
|
Held with Fund(s)
|
|
Time Served
|
Officers
|
|
|
|
|
|
|
|
|
|
David F. Connor
|
|
Vice President,
|
|
Vice President
since
|
2005 Market Street
|
|
Deputy General
|
|
September 2000
|
Philadelphia, PA 19103
|
|
Counsel, and Secretary
|
|
and Secretary since
|
December 1963
|
|
|
|
October 2005
|
|
|
|
|
|
|
Daniel V. Geatens
|
|
Vice President
|
|
Treasurer
|
2005 Market Street
|
|
and Treasurer
|
|
since October 2007
|
Philadelphia, PA 19103
|
|
|
|
|
October 1972
|
|
|
|
|
|
|
|
|
|
David P. OConnor
|
|
Executive Vice
President,
|
|
Executive Vice
President
|
2005 Market Street
|
|
General Counsel
|
|
since February
2012;
|
Philadelphia, PA 19103
|
|
and Chief Legal
Officer
|
|
Senior Vice
President
|
February 1966
|
|
|
|
October 2005
|
|
|
|
|
February 2012;
|
|
|
|
|
General Counsel and
|
|
|
|
|
Chief Legal Officer
|
|
|
|
|
since October 2005
|
|
|
|
|
|
Richard Salus
|
|
Senior Vice President
|
|
Chief Financial
Officer
|
2005 Market Street
|
|
and Chief Financial
Officer
|
|
since November 2006
|
Philadelphia, PA 19103
|
|
|
|
|
October 1963
|
|
|
|
|
|
|
|
|
|
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.
50
|
|
Number of Portfolios
in
|
|
|
Principal
Occupation(s)
|
|
Fund Complex Overseen
|
|
Other Directorships
|
During Past 5 Years
|
|
by Trustee or Officer
|
|
Held by Trustee or
Officer
|
|
|
David F. Connor has served
as
|
|
71
|
|
None
3
|
Vice President and
Deputy
|
|
|
|
|
General Counsel of
|
|
|
|
|
Delaware Investments
|
|
|
|
|
since 2000.
|
|
|
|
|
|
|
|
|
|
Daniel V. Geatens has
served
|
|
71
|
|
None
3
|
in various capacities
at
|
|
|
|
|
different times at
|
|
|
|
|
Delaware Investments.
|
|
|
|
|
|
|
|
|
|
David P. OConnor has served
in
|
|
71
|
|
None
3
|
various executive and
legal
|
|
|
|
|
capacities at different
times
|
|
|
|
|
at Delaware
Investments.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Richard Salus has served
in
|
|
71
|
|
None
3
|
various executive
capacities
|
|
|
|
|
at different times at
|
|
|
|
|
Delaware Investments.
|
|
|
|
|
|
|
|
|
|
3
David F. Connor, Daniel V. Geatens, David P. OConnor, 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.
51
About the
organization
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
Drexel University
Philadelphia, 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
Frances A.
Sevilla-Sacasa
Chief Executive Officer
Banco Itaú
Europa
International
Miami, FL
|
Janet L.
Yeomans
Former 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
|
Daniel V.
Geatens
Vice
President and
Treasurer
Delaware Investments
Family of Funds
Philadelphia, PA
|
David P.
OConnor
Executive
Vice President,
General Counsel,
and Chief Legal Officer
Delaware Investments
Family of Funds
Philadelphia,
PA
|
Richard
Salus
Senior Vice
President and
Chief Financial Officer
Delaware Investments
Family of Funds
Philadelphia,
PA
|
This annual report is for the
information of Delaware Healthcare Fund shareholders, but it may be used
with prospective investors when preceded or accompanied by the Delaware
Investments Fund fact sheet for the most recently completed calendar
quarter. These documents are available at
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 (SEC) for the first and third quarters of each fiscal
year on Form N-Q. The Funds 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; and (ii) on the SECs
website at sec.gov. In addition, a description of the policies and
procedures that the Fund uses to determine how to vote proxies (if any)
relating to portfolio securities and the Funds Schedule of Investments
are available without charge on the Funds website at
delawareinvestments.com. The Funds Forms N-Q may be reviewed and copied
at the SECs 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 Funds website at
delawareinvestments.com; and (ii) on the SECs website at
sec.gov.
|
52