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Delaware Group Equity Funds Iv

Filed: 8 Jun 18, 9:55am

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM N-CSR

CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT
INVESTMENT COMPANIES

Investment Company Act file number:      811-04413
 
Exact name of registrant as specified in charter:Delaware Group® Equity Funds IV
 
Address of principal executive offices:2005 Market Street
Philadelphia, PA 19103
 
Name and address of agent for service:David F. Connor, Esq.
2005 Market Street
Philadelphia, PA 19103
 
Registrant’s telephone number, including area code:(800) 523-1918
 
Date of fiscal year end:March 31
 
Date of reporting period:March 31, 2018


Item 1. Reports to Stockholders

Table of Contents

LOGO

Alternative / specialty mutual fund

Delaware Healthcare Fund

March 31, 2018

 

 

Carefully consider the Fund’s investment objectives, risk factors, charges, and expenses before investing. This and other information can be found in the Fund’s prospectus and its summary prospectus, which may be obtained by visiting delawarefunds.com/literature or calling 800 523-1918. Investors should read the prospectus and the summary prospectus carefully before investing.

You can obtain shareholder reports and prospectuses online instead of in the mail.

Visit delawarefunds.com/edelivery.

 

LOGO


Table of Contents

Experience Delaware Funds® by Macquarie

Macquarie Investment Management (MIM) is a global asset manager with offices throughout the United States, Europe, Asia, and Australia. We are active managers who prioritize autonomy and accountability at the investment team level in pursuit of opportunities that matter for our clients. Delaware Funds is one of the longest-standing mutual fund families, with more than 75 years in existence.

If you are interested in learning more about creating an investment plan, contact your financial advisor.

You can learn more about Delaware Funds or obtain a prospectus for Delaware Healthcare Fund at delawarefunds.com/literature.

 

Manage your account online

 

 Check your account balance and transactions
 View statements and tax forms
 Make purchases and redemptions

Visit delawarefunds.com/account-access.

Macquarie Asset Management (MAM) offers a diverse range of products including securities investment management, infrastructure and real asset management, and fund and equity-based structured products. Macquarie Investment Management (MIM) is the marketing name for certain companies comprising the asset management division of Macquarie Group. This includes the following registered investment advisers: Macquarie Investment Management Business Trust (MIMBT), Macquarie Funds Management Hong Kong Limited, Macquarie Investment Management Austria Kapitalanlage AG, Macquarie Investment Management Global Limited, Macquarie Investment Management Limited, Macquarie Investment Management Europe Limited, and Macquarie Capital Investment Management LLC.

The Fund is distributed by Delaware Distributors, L.P. (DDLP), an affiliate of MIMBT and Macquarie Group Limited. MIM is the marketing name for certain companies comprising the asset management division of Macquarie Group Limited and its subsidiaries and affiliates worldwide.

Other than Macquarie Bank Limited (MBL), none of the entities noted are authorized deposit-taking institutions for the purposes of the Banking Act 1959 (Commonwealth of Australia). The obligations of these entities do not represent deposits or other liabilities of MBL. MBL does not guarantee or otherwise provide assurance in respect of the obligations of these entities, unless noted otherwise. The Fund is governed by US laws and regulations.

Table of contents

 

Portfolio management review

   3 

Performance summary

   6 

Disclosure of Fund expenses

   10 

Security type / sector allocation and top 10 equity holdings

   12 

Schedule of investments

   13 

Statement of assets and liabilities

   18 

Statement of operations

   20 

Statements of changes in net assets

   22 

Financial highlights

   24 

Notes to financial statements

   32 

Report of independent registered public accounting firm

   45 

Other Fund information

   46 

Board of trustees / directors and officers addendum

   48 

About the organization

   54 

Unless otherwise noted, views expressed herein are current as of March 31, 2018, and subject to change for events occurring after such date.

The Fund is not FDIC insured and is not guaranteed. It is possible to lose the principal amount invested.

Advisory services provided by Delaware Management Company, a series of MIMBT, a US registered investment advisor.

All third-party marks cited are the property of their respective owners.

© 2018 Macquarie Management Holdings, Inc.

 


Table of Contents

Portfolio management review

Delaware Healthcare Fund  April 10, 2018 (Unaudited)

 

Performance preview (for the year ended March 31, 2018)

          

Delaware Healthcare Fund (Institutional Class shares)*

   1-year return    +21.90%   

Delaware Healthcare Fund (Class A shares)

   1-year return    +21.56%   

Russell 3000® Healthcare Index (benchmark)

   1-year return    +12.73%   

Past performance does not guarantee future results.

For complete, annualized performance for Delaware Healthcare Fund, please see the table on page 4.

Institutional Class shares are not subject to a sales charge and are offered for sale exclusively to certain eligible investors. In addition, Institutional Class shares pay no distribution and service fee.

The performance of Class A shares excludes the applicable sales charge. Both Institutional Class shares and Class A shares reflect the reinvestment of all distributions.

Please see page 6 for a description of the index. Index performance returns do not reflect any management fees, transaction costs, or expenses. Indices are unmanaged and one cannot invest directly in an index.

*Total return for the report period presented in the table differs from the return in “Financial highlights.” The total return presented in the above table is calculated based on the net asset value (NAV) at which shareholder transactions were processed. The total return presented in “Financial highlights” is calculated in the same manner, but also takes into account certain adjustments that are necessary under US generally accepted accounting principles (US GAAP) required in the annual report.

 

Market overview

The US healthcare sector continued to experience significant challenges during the Fund’s fiscal year ended March 31, 2018. Despite continued uncertainty surrounding the prospects of a repeal of the Affordable Care Act (ACA), which did not materialize, healthcare performed relatively well. New innovations in the market after the US Food and Drug Administration (FDA) approved a record number of new drugs in 2017 drove performance, while the election of Donald Trump seemed to alleviate some concerns over drug pricing and regulatory reforms.

Economic growth and the markets advanced steadily through the end of 2017, before a spate of volatility made a comeback in the final three months of the Fund’s fiscal year. January was marked by a swift run-up in the markets, likely, in our view, the result of investors’ enthusiasm for the corporate tax cuts that went into effect in 2018. With the Trump administration’s proposed tariffs on aluminum and steel, however, investors quickly backed off, fearing a potential trade war. The Federal Reserve’s implementation of a sixth rate increase since the end of the global financial crisis further roiled the markets.

Overall, however, the economy appeared sound at the end of the Fund’s fiscal year. Annual growth of gross domestic product (GDP) for the fiscal period was 2.6%, an increase over the 2.2% rate of

   

 

We continue to put a premium on disciplined, intensive research when analyzing investment opportunities for the Fund and favor companies that exhibit such traits as:

 

   proven competitiveness,

 

   seasoned management teams, and

 

   stock valuations that are discounted meaningfully from our estimates of intrinsic value.

 

These characteristics are part of our daily considerations as we follow our conservative, stock-by-stock approach to portfolio management.

 

 

  
 

 

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Table of Contents

Portfolio management review

Delaware Healthcare Fund

 

 

growth for the previous fiscal year. Personal consumption expenditures and wage growth were up while unemployment fell to 4.1%. Consumer confidence was also strong: the Conference Board Consumer Confidence Index®, which measures how optimistic or pessimistic consumers are with respect to the economy in the near future – posted its 20th straight 100 plus measure in March. (Source: Bloomberg.)

Within the Fund

For the fiscal year ended March 31, 2018, Delaware Healthcare Fund Institutional Class shares returned +21.90%. The Fund’s Class A shares returned +21.56% at net asset value and +14.57% at maximum offer price. These figures reflect all distributions reinvested. For the same period, the Fund’s benchmark, the Russell 3000 Healthcare Index, returned +12.73%. Complete annualized performance for Delaware Healthcare Fund is shown in the table on page 4.

Among sectors, the Fund’s holdings in the biotechnology sector contributed the most to relative performance versus its benchmark, primarily due to favorable stock selection and asset allocation. MorphoSys AG, a large overweight position in the Fund relative to the benchmark, outperformed during the fiscal year. MorphoSys remains one of the few antibody technology platforms that a large pharmaceutical company has not acquired, and shares have performed well due to the company’s continued progress on its proprietary cancer pipeline. The company also reported strong third quarter earnings results and subsequently raised its earnings guidance for the year.

Also in the biotechnology sector, the Fund’s overweight in ImmunoGen Inc. contributed to relative performance. In our view, ImmunoGen has made significant progress on its main pipeline candidate, mirvetuximab soravtansine, a treatment for platinum-resistant ovarian cancer.

Shares of Neurocrine Biosciences Inc. outperformed after the company won approval for and released its sole drug, Ingrezza®. Shares of uniQure NV, the market leader in gene therapy, also added to the Fund’s performance. We think recent clinical trials indicate potential success for uniQure’s gene therapy platform. Underperformance from Coherus Biosciences Inc. somewhat muted uniQure’s relative outperformance. Coherus Biosciences underperformed after it announced in June 2017 that the FDA issued a complete response letter to its biologics license application, delaying the release of its leading drug. Despite recent setbacks, we believe that Coherus Biosciences remains one of the strongest biosimilar franchises in the sector, and we continue to hold it in the Fund.

In the blue-chip medical products sector, the Fund’s large overweight in Chugai Pharmaceutical Co. contributed to relative performance after issuing positive earnings forecasts. Chugai Pharmaceutical is among the leading franchises in Japan and is also partnered with Roche. This partnership allows Chugai to benefit from the pipelines of both companies. The Fund’s underweight in Merck & Co. and lack of exposure in Celgene Corp. and Johnson & Johnson likewise contributed.

However, the Fund’s overweight position in Sanofi detracted from relative performance. Shares declined as the market remained focused on slow growth. However, in our view, Sanofi remains one of the preeminent blue-chip medical companies and is undervalued. We continue to hold Sanofi in the Fund.

In the small- to mid-cap medical products sector, the Fund’s underweight position in Allergan plc contributed to relative performance. Shares of the company declined after its reverse buyout deal with Pfizer Inc. was called off. In addition, Allergan delayed divesting its generic drug unit to Teva Pharmaceutical.

 

 

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Shares of Halozyme Therapeutics Inc. also added to performance during the fiscal year after the company announced that it had licensed its proprietary drug-delivery technology Enhanze to Roche Holding and announced a second collaboration with Bristol-Myers Squibb. Additionally, the Fund’s overweight in Perrigo Co. PLC contributed to performance. Shares of the company have recovered after becoming oversold. We continue to believe that Perrigo is fundamentally undervalued and the Fund holds a sizeable position.

The Fund’s underweight in healthcare services detracted from relative performance. Among other non-healthcare stocks, shares of Chinese Internet company Sohu.com Inc. reported mixed financial results as the company faced near-term headwinds within its mobile game business and continued to invest in traffic acquisition in its search business. We continue to hold Sohu.com – we believe that its shares remain undervalued and that it is well-positioned over the long term to potentially benefit from rising consumption and Internet engagement in China.

For global healthcare investors, there are risks, in our view, that short-term legislative and judicial action could overshadow the positive long-term fundamentals of the sector and of specific companies. Nevertheless, we continue to see significant long-term opportunities in the global healthcare asset class. The baby-boom generation in the United States is aging, implying expanding demand for healthcare products and

services for decades to come. At the same time, middle classes in countries with emerging economies (notably India and China) are growing rapidly, creating big appetites for Western-style medicine. We remain positive on the sector and its growth opportunities.

Despite some increased volatility last year due to uncertainty surrounding plans for a repeal and replace measure for the ACA, we believe that healthcare remains one of the economy’s few growth sectors. We continue to see many attractive opportunities in the healthcare sector, particularly in biotechnology, where we see potential for continued innovation in cancer treatments and gene therapy technology. We remain overweight in the biotechnology sector, particularly in small- to mid-cap companies, where we see potential for technological breakthroughs.

We continue to put a premium on disciplined, intensive research when analyzing investment opportunities for the Fund and favor companies that exhibit such traits as:

 

 proven competitiveness,

 

 seasoned management teams, and

 

 stock valuations that are discounted meaningfully from our estimates of intrinsic value.

These characteristics are part of our daily considerations as we follow our conservative, stock-by-stock approach to portfolio management.

 

 

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Table of Contents

Performance summary

Delaware Healthcare Fund  March 31, 2018 (Unaudited)

The performance quoted represents past performance and does not guarantee future results. Investment return and principal value of an investment will fluctuate so that shares, when redeemed, may be worth more or less than their original cost. Current performance may be lower or higher than the performance quoted. Performance data current to the most recent month end may be obtained by calling 800 523-1918 or visiting delawarefunds.com/performance.

Fund and benchmark performance1,2

 

   Average annual total returns through March 31, 2018 
    1 year    5 years    10 years    Lifetime 

Class A (Est. Sept. 28, 2007)

        

Excluding sales charge

   +21.56%     +16.36%    +18.30%    +16.83% 

Including sales charge

   +14.57%    +14.98%    +17.60%    +16.17% 

Class C (Est. Jan. 28, 2010)

        

Excluding sales charge

   +20.67%    +15.50%    n/a    +15.80% 

Including sales charge

   +19.67%    +15.50%    n/a    +15.80% 

Class R (Est. Jan. 28, 2010)

        

Excluding sales charge

   +21.26%    +16.07%    n/a    +16.37% 

Including sales charge

   +21.26%    +16.07%    n/a    +16.37% 

Institutional Class (Est. Sept. 28, 2007)

        

Excluding sales charge

   +21.90%*    +16.65%    +18.55%    +17.06% 

Including sales charge

   +21.90%*    +16.65%    +18.55%    +17.06% 

Russell 3000 Healthcare Index

   +12.73%    +14.49%     +12.84%     +10.97%** 

*Total return for the report period presented in the table differs from the return in “Financial highlights.” The total return presented in the above table is calculated based on the net asset value (NAV) at which shareholder transactions were processed. The total return presented in “Financial highlights” is calculated in the same manner, but also takes into account certain adjustments that are necessary under US generally accepted accounting principles (US GAAP) required in the annual report.

**The benchmark lifetime return is for Institutional Class share comparison only and is calculated using the last business day in the month of the Fund’s Institutional Class inception date.

1Returns 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 and benchmark performance” table. 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.

Institutional Class shares are not subject to a sales charge and are offered for sale exclusively to certain eligible investors. In addition, Institutional Class shares pay no distribution and service fee.

Class A shares are sold with a maximum front-end sales charge of 5.75%, and have an annual distribution and service fee of 0.25% of average daily net assets. Performance for Class A shares, excluding sales charges, assumes that no front-end sales charge applied.

 

 

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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.

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 0.50% of average daily net assets.

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.

 

International investments entail risks not ordinarily associated with US 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.

Investments in small and/or medium-sized companies typically exhibit greater risk and higher volatility than larger, more established companies.

“Non-diversified” 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.

 

2The Fund’s expense ratios, as described in the most recent prospectus, are disclosed in the following “Fund expense ratios” table. Please see the “Financial highlights” in this report for the most recent expense ratios.

 

Fund expense ratios          Class A                  Class C                  Class R              Institutional Class    

Total annual operating expenses

(without fee waivers)

  1.38%  2.13%  1.63%  1.13%

Net expenses

(including fee waivers, if any)

  1.38%  2.13%  1.63%  1.13%
Type of waiver  n/a   n/a   n/a   n/a 

 

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Performance summary

Delaware Healthcare Fund

 

 

Performance of a $10,000 Investment1

Average annual total returns from March 31, 2008 through March 31, 2018

 

LOGO

 

 

  For period beginning March 31, 2008 through March 31, 2018

 

   

 

Starting value

 

 

 

   

 

Ending value

 

 

 

LOGO  Delaware Healthcare Fund — Institutional Class shares

   $10,000    $54,823 

LOGO  Delaware Healthcare Fund — Class A shares

   $9,425    $50,603 

LOGO  Russell 3000 Healthcare Index

 

   

 

$10,000

 

 

 

   

 

$33,472

 

 

 

 

1The “Performance of a $10,000 investment” graph assumes $10,000 invested in Institutional Class and Class A shares of the Fund on March 31, 2008, and includes the effect of a 5.75% front-end sales charge (for Class A shares) 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. Expenses are listed in the “Fund expense ratios” table on page 5. Please note additional details on pages 4 through 7.

The graph also assumes $10,000 invested in the Russell 3000 Healthcare Index as of March 31, 2008. The Russell 3000 Healthcare Index measures the performance of all healthcare holdings included in the Russell 3000 Index, which represents the 3,000 largest US companies based on total market capitalization.

The Conference Board Consumer Confidence Index, mentioned on page 2, is a barometer of the health of the US economy from the perspective of the consumer. The index is based on consumers’ perceptions of current business and employment conditions, as well as their expectations for six months hence regarding business conditions, employment, and income.

Russell Investment Group is the source and owner of the trademarks, service marks, and copyrights related to the Russell Indexes. Russell® is a trademark of Russell Investment Group.

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.

 

 

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Nasdaq symbols

  CUSIPs

Class A

  DLHAX  24610E101

Class C

  DLHCX  24610E200

Class R

  DLRHX  24610E309

Institutional Class

 

  

DLHIX  

 

  

24610E408

 

 

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Disclosure of Fund expenses

For the six-month period from October 1, 2017 to March 31, 2018 (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 Oct. 1, 2017 to March 31, 2018.

Actual expenses

The first section of the table shown, “Actual Fund return,” provides information about actual account values and actual expenses. You may use the information in this section of the table, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first section under the heading entitled “Expenses Paid During Period” to estimate the expenses you paid on your account during this period.

Hypothetical example for comparison purposes

The second section of the table shown, “Hypothetical 5% return,” provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.

Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as sales charges (loads), redemption fees, or exchange fees. Therefore, the second section of the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher. The expenses shown in the table assume reinvestment of all dividends and distributions.

 

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Delaware Healthcare Fund

Expense analysis of an investment of $1,000

 

    Beginning
Account Value
10/1/17
  Ending
Account Value
3/31/18
  Annualized
Expense Ratio
 

  Expenses  

  Paid During Period  
  10/1/17 to 3/31/18*  

Actual Fund return

           

Class A

    $1,000.00    $1,023.60    1.30%   $6.56

Class C

    1,000.00    1,020.00    2.05%   10.32

Class R

    1,000.00    1,022.40    1.55%   7.82

Institutional Class

    1,000.00    1,025.40    1.05%   5.30

Hypothetical 5% Return (5% return before expenses)

 

     

Class A

    $1,000.00    $1,018.45    1.30%   $6.54

Class C

    1,000.00    1,014.71    2.05%   10.30

Class R

    1,000.00    1,017.20    1.55%   7.80

Institutional Class

    1,000.00    1,019.70    1.05%   5.29

 

*“Expenses Paid During Period” are equal to the Fund’s annualized expense ratio, multiplied by the average account value over the period, multiplied by 182/365 (to reflect the one-half year period).

 

 Because actual returns reflect only the most recent six-month period, the returns shown may differ significantly from fiscal year returns.

 

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Security type / sector allocation and top 10 equity holdings

 

Delaware Healthcare Fund  As of March 31, 2018 (Unaudited)

 

Sector designations may be different than the sector designations presented in other Fund materials. The sector designations may represent the investment manager’s internal sector classifications.

 

Security type / sector  Percentage of net assets     

Common Stock²

    99.22%       

Biotechnology

    36.54%       

Blue Chip Medical Products

    40.56%       

Healthcare Services.

    10.94%       

Other

    5.19%       

Small- / Mid-Cap Medical Products

    5.99%       

Rights

    0.01%       

Short-Term Investments

    0.28%       

Total Value of Securities

    99.51%       

Receivables and Other Assets Net of Liabilities

    0.49%       

Total Net Assets

    100.00%       

 

²Narrow 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     

MorphoSys

    7.52%      

Chugai Pharmaceutical

    5.26%      

Arena Pharmaceuticals

    3.21%      

Pfizer

    3.07%      

Sanofi

    2.99%      

Sanofi ADR

    2.99%      

Eli Lilly & Co.

    2.82%      

UnitedHealth Group

    2.60%      

Zimmer Biomet Holdings

    2.59%      

uniQure.

    2.40%      
       

 

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Schedule of investments

Delaware Healthcare Fund  March 31, 2018

 

   Number of shares   Value (US $) 

 

 

Common Stock – 99.22%²

    

 

 

Biotechnology – 36.54%

    

Active Biotech †

   9,691   $4,085 

Alder Biopharmaceuticals †

   75,000    952,500 

Alexion Pharmaceuticals †

   42,000    4,681,320 

Aralez Pharmaceuticals †

   69,667    104,502 

Arena Pharmaceuticals †

   469,100    18,529,450 

Array BioPharma †

   630,000    10,281,600 

Coherus Biosciences †

   420,000    4,641,000 

Epizyme †

   202,000    3,585,500 

Foundation Medicine †

   80,000    6,300,000 

Genomic Health †

   38,000    1,189,020 

ImmunoGen †

   1,130,000    11,887,600 

Incyte †

   60,000    4,999,800 

Ligand Pharmaceuticals Class B †

   65,000    10,735,400 

Loxo Oncology †

   68,000    7,845,160 

MacroGenics †

   80,000    2,012,800 

Mirati Therapeutics †

   223,630    6,865,441 

Momenta Pharmaceuticals †

   113,000    2,050,950 

MorphoSys †

   424,000    43,385,102 

Myriad Genetics †

   135,000    3,989,250 

Neurocrine Biosciences †

   90,000    7,463,700 

Regeneron Pharmaceuticals †

   30,000    10,330,800 

REGENXBIO †

   149,000    4,447,650 

Regulus Therapeutics †

   20,000    14,350 

Rigel Pharmaceuticals †

   900,000    3,186,000 

Sarepta Therapeutics †

   23,000    1,704,070 

Seattle Genetics †

   80,000    4,187,200 

Spark Therapeutics †

   90,000    5,993,100 

TESARO †

   110,000    6,285,400 

uniQure †

   590,000    13,865,000 

Vascular Biogenics †

   200,000    460,000 

Vertex Pharmaceuticals †

   25,000    4,074,500 

Xencor †

   129,191    3,873,146 

XOMA †

   46,410    938,874 
    

 

 

 
           210,864,270 
    

 

 

 

Blue Chip Medical Products – 40.56%

    

AbbVie

   130,000    12,304,500 

Amgen

   77,000    13,126,960 

AstraZeneca

   110,000    7,561,536 

AstraZeneca ADR

   60,000    2,098,200 

Bayer

   107,000    12,062,512 

Biogen †

   2,000    547,640 

Boston Scientific †

   500,000    13,660,000 

 

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Schedule of investments

Delaware Healthcare Fund

 

 

   Number of shares   Value (US $) 

 

 

Common Stock² (continued)

    

 

 

Blue Chip Medical Products (continued)

    

Bristol-Myers Squibb

   120,000   $7,590,000 

Chugai Pharmaceutical

   600,000    30,336,920 

Eli Lilly & Co.

   210,000    16,247,700 

Express Scripts Holding †

   12,000    828,960 

Gilead Sciences

   158,000    11,911,620 

GlaxoSmithKline ADR

   283,000    11,056,810 

Pfizer

   500,000    17,745,000 

Roche Holding

   43,000    9,864,076 

Sanofi

   215,000    17,251,620 

Sanofi ADR

   430,000    17,234,400 

Shire

   50,000    2,488,491 

Smith & Nephew

   380,000    7,108,658 

Stryker

   20,000    3,218,400 

UCB

   60,000    4,886,301 

Zimmer Biomet Holdings

   137,000    14,938,480 
    

 

 

 
           234,068,784 
    

 

 

 

Healthcare Services – 10.94%

    

Aetna

   43,000    7,267,000 

Anthem

   46,000    10,106,200 

CVS Health

   65,000    4,043,650 

DaVita †

   134,000    8,835,960 

McKesson

   93,000    13,100,910 

Quest Diagnostics

   48,000    4,814,400 

UnitedHealth Group

   70,000    14,980,000 
    

 

 

 
     63,148,120 
    

 

 

 

Other – 5.19%

    

Advanced Micro Devices †

   360,000    3,618,000 

Cia de Minas Buenaventura ADR

   115,300    1,756,019 

Dean Foods

   350,000    3,017,000 

Dyax =†

   400,000    444,000 

Fannie Mae †

   1,000,000    1,410,000 

Federal Home Loan Mortgage †

   1,030,000    1,390,500 

SINA †

   60,000    6,256,200 

Sohu.com †

   390,722    12,081,124 
    

 

 

 
     29,972,843 
    

 

 

 

Small- / Mid-Cap Medical Products – 5.99%

    

Aerie Pharmaceuticals †

   5,100    276,675 

Halozyme Therapeutics †

   500,000    9,795,000 

Mylan †

   308,000    12,680,360 

Perrigo

   142,000    11,834,280 
    

 

 

 
     34,586,315 
    

 

 

 

Total Common Stock (cost $438,152,737)

     572,640,332 
    

 

 

 

 

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Table of Contents

 

 

 

   Number of shares   Value (US $) 

 

 

Rights – 0.01%

    

 

 

Active Biotech †

   9,691   $1,370 

Ambit Bioscience =†

   76,500    45,900 
    

 

 

 

Total Rights (cost $0)

     47,270 
    

 

 

 
   Principal amount°     

 

 

Short-Term Investments – 0.28%

    

 

 

Repurchase Agreements – 0.28%

    

Bank of America Merrill Lynch
1.71%, dated 3/29/18, to be repurchased on 4/2/18, repurchase price $236,327 (collateralized by US government obligations 1.50%–3.75% 11/15/18–8/15/44; market value $241,008)

   236,282    236,282 

Bank of Montreal
1.60%, dated 3/29/18, to be repurchased on 4/2/18, repurchase price $708,971 (collateralized by US government obligations 0.00%–2.875% 8/16/18–8/15/47; market value $723,022)

   708,845    708,845 

BNP Paribas
1.75%, dated 3/29/18, to be repurchased on 4/2/18, repurchase price $697,011 (collateralized by US government obligations 0.00%–3.625% 5/31/18–11/15/45; market value $710,813)

   696,875    696,875 
    

 

 

 

Total Short-Term Investments (cost $1,642,002)

     1,642,002 
    

 

 

 

Total Value of Securities – 99.51%
(cost $439,794,739)

    $    574,329,604 
    

 

 

 

 

²Narrow industries are utilized for compliance purposes for diversification whereas broad sectors are used for financial reporting.

 

=The value of this security was determined using significant unobservable inputs and is reported as a Level 3 security in the disclosure table located in Note 3 in “Notes to financial statements.”

 

°Principal amount shown is stated in US dollars unless noted that the security is denominated in another currency.

 

Non-income producing security.

The following foreign currency exchange contracts were outstanding at March 31, 2018:1

Foreign Currency Exchange Contracts

 

Counterparty

  Contracts to
Receive (Deliver)
   In Exchange For   Settlement
Date
     Unrealized
Depreciation
 

BNYM

   GBP    4,633,914    USD    (6,528,741   4/3/18     $(26,002

BNYM

   GBP    (2,858,329   USD    4,010,516    4/4/18      (724
              

 

 

 

Total Foreign Currency Exchange Contracts

              $    (26,726) 
              

 

 

 

 

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Table of Contents

Schedule of investments

Delaware Healthcare Fund

 

 

The use of foreign currency exchange contracts involves elements of market risk and risks in excess of the amounts disclosed in the financial statements. The foreign currency exchange contracts presented above represents the Fund’s total exposure in such contracts, whereas only the net unrealized appreciation (depreciation) is reflected in the Fund’s net assets.

1See Note 8 in “Notes to financial statements.”

Summary of abbreviations:

ADR – American Depositary Receipt

BNYM – BNY Mellon

GBP – British Pound Sterling

USD– US Dollar

See accompanying notes, which are an integral part of the financial statements.

 

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Table of Contents

Statement of assets and liabilities

Delaware Healthcare Fund  March 31, 2018

 

 

Assets:

  

Investments, at value1

  $574,329,604 

Cash

   91,271 

Receivable for securities sold

   6,655,784 

Receivable for fund shares sold

   4,378,645 

Foreign tax reclaims receivable

   386,472 

Dividends and interest receivable

   245,640 
  

 

 

 

Total assets

   586,087,416 
  

 

 

 

Liabilities:

  

Payable for securities purchased

   7,722,334 

Payable for fund shares redeemed

   466,728 

Investment management fees payable to affiliates

   415,198 

Other accrued expenses

   181,630 

Distribution fees payable to affiliates

   114,208 

Unrealized depreciation on foreign currency exchange contracts

   26,726 

Dividend disbursing and transfer agent fees and expenses payable to affiliates

   9,597 

Audit and tax fees payable

   5,318 

Trustees’ fees and expenses payable

   3,323 

Accounting and administration expenses payable to affiliates

   2,204 

Legal fees payable to affiliates

   874 

Reports and statements to shareholders expenses payable to affiliates

   450 
  

 

 

 

Total liabilities

   8,948,590 
  

 

 

 

Total Net Assets

  $577,138,826 
  

 

 

 

Net Assets Consist of:

  

Paid-in capital

  $447,230,012 

Distributions in excess of net investment income

   (1,596,062

Accumulated net realized loss on investments

   (3,041,265

Net unrealized appreciation of investments

   134,534,865 

Net unrealized appreciation of foreign currencies

   38,002 

Net unrealized depreciation of foreign currency exchange contracts

   (26,726
  

 

 

 

Total Net Assets

  $577,138,826 
  

 

 

 

 

16


Table of Contents

 

 

 

Net Asset Value

  

Class A:

  

Net assets

  $212,837,884 

Shares of beneficial interest outstanding, unlimited authorization, no par

   9,405,578 

Net asset value per share

  $22.63 

Sales charge

   5.75

Offering price per share, equal to net asset value per share / (1 – sales charge)

  $24.01 

Class C:

  

Net assets

  $76,032,760 

Shares of beneficial interest outstanding, unlimited authorization, no par

   3,519,180 

Net asset value per share

  $21.61 

Class R:

  

Net assets

  $5,683,080 

Shares of beneficial interest outstanding, unlimited authorization, no par

   254,075 

Net asset value per share

  $22.37 

Institutional Class:

  

Net assets

  $282,585,102 

Shares of beneficial interest outstanding, unlimited authorization, no par

   12,429,493 

Net asset value per share

  $22.74 

 

1Investments, at cost

  $439,794,739 

See accompanying notes, which are an integral part of the financial statements.

  

 

17


Table of Contents
Statement of operations  
Delaware Healthcare Fund  Year ended March 31, 2018

 

Investment Income:

  

Dividends

  $6,618,550 

Interest

   54,469 

Foreign tax withheld

   (264,477
  

 

 

 
   6,408,542 
  

 

 

 

Expenses:

  

Management fees

   3,667,478 

Distribution expenses – Class A

   443,831 

Distribution expenses – Class C

   656,395 

Distribution expenses – Class R

   26,595 

Dividend disbursing and transfer agent fees and expenses

   466,869 

Accounting and administration expenses

   110,965 

Registration fees

   95,113 

Custodian fees

   55,067 

Reports and statements to shareholders expenses

   54,047 

Audit and tax fees

   36,618 

Legal fees

   35,075 

Trustees’ fees and expenses

   19,368 

Other

   22,038 
  

 

 

 
   5,689,459 

Less expense paid indirectly

   (963
  

 

 

 

Total operating expenses

   5,688,496 
  

 

 

 

Net Investment Income

   720,046 
  

 

 

 

 

18


Table of Contents

 

 

 

Net Realized and Unrealized Gain (Loss):

  

Net realized gain (loss) on:

  

Investments

  $8,227,991 

Foreign currencies

   15,855 

Foreign currency exchange contracts

   (29,532
  

 

 

 

Net realized gain

   8,214,314 
  

 

 

 

Net change in unrealized appreciation (depreciation) of:

  

Investments

   63,568,529 

Foreign currencies

   60,150 

Foreign currency exchange contracts

   (26,726
  

 

 

 

Net change in unrealized appreciation (depreciation)

   63,601,953 
  

 

 

 

Net Realized and Unrealized Gain

   71,816,267 
  

 

 

 

Net Increase in Net Assets Resulting from Operations

  $72,536,313 
  

 

 

 

See accompanying notes, which are an integral part of the financial statements.

 

19


Table of Contents

Statements of changes in net assets

Delaware Healthcare Fund

 

   Year ended 
   3/31/18  3/31/17 

Increase in Net Assets from Operations:

   

Net investment income

  $720,046  $3,272,406 

Net realized gain

   8,214,314   4,124,089 

Net change in unrealized appreciation (depreciation)

   63,601,953   36,606,943 
  

 

 

  

 

 

 

Net increase in net assets resulting from operations

   72,536,313   44,003,438 
  

 

 

  

 

 

 

Dividends and Distributions to Shareholders from:

   

Net investment income:

   

Class A

   (5,440,408  (1,657,791

Class C

   (1,634,988  (143,682

Class R

   (156,747  (35,340

Institutional Class

   (5,839,815  (1,458,416

Net realized gain:

   

Class A

      (11,453,829

Class C

      (4,159,937

Class R

      (330,563

Institutional Class

      (7,952,617
  

 

 

  

 

 

 
   (13,071,958  (27,192,175
  

 

 

  

 

 

 

Capital Share Transactions:

   

Proceeds from shares sold:

   

Class A

   67,889,655   42,032,234 

Class C

   19,607,458   6,361,191 

Class R

   1,772,812   2,208,625 

Institutional Class

   167,631,610   65,171,457 

Net asset value of shares issued upon reinvestment of dividends and distributions:

   

Class A

   5,274,384   12,440,137 

Class C

   1,603,945   4,185,575 

Class R

   156,746   365,901 

Institutional Class

   5,217,471   7,777,942 
  

 

 

  

 

 

 
   269,154,081   140,543,062 
  

 

 

  

 

 

 

 

20


Table of Contents

 

 

 

   Year ended 
   3/31/18  3/31/17 

Capital Share Transactions (continued):

   

Cost of shares redeemed:

   

Class A

  $(40,962,162 $(105,286,277

Class C

   (12,682,524  (29,139,856

Class R

   (2,232,192  (3,498,854

Institutional Class

   (50,893,788  (97,469,421
  

 

 

  

 

 

 
   (106,770,666  (235,394,408
  

 

 

  

 

 

 

Increase (decrease) in net assets derived from capital share transactions

   162,383,415   (94,851,346
  

 

 

  

 

 

 

Net Increase (Decrease) in Net Assets

   221,847,770   (78,040,083

Net Assets:

   

Beginning of year

   355,291,056   433,331,139 
  

 

 

  

 

 

 

End of year

  $577,138,826  $355,291,056 
  

 

 

  

 

 

 

Undistributed (distributions in excess of) net investment income

  $(1,596,062 $6,648,213 
  

 

 

  

 

 

 

See accompanying notes, which are an integral part of the financial statements.

 

21


Table of Contents

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 (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 return4

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 waived5

Ratio of net investment income (loss) to average net assets

Ratio of net investment income (loss) to average net assets prior to fees waived5

Portfolio turnover

 

1 During the period ended March 31, 2015, the Fund changed its fiscal year end from September to March. Ratios have been annualized and total return and portfolio turnover have not been annualized.

 

2 The average shares outstanding method has been applied for per share information.

 

3 Amount is less than $0.005 per share.

 

4 Total investment return is based on the change in net asset value of a share during the period and assumes reinvestment of dividends and distributions at net asset value and does not reflect the impact of a sales charge. Total investment return during some of the periods shown reflects waivers by the manager and/or distributor. Performance would have been lower had the waivers not been in effect.

 

5 Expenses paid indirectly were not material and had no impact on the ratios disclosed. Expenses paid indirectly for the year ended March 31, 2018 are reflected on the “Statement of operations.”

See accompanying notes, which are an integral part of the financial statements.

 

22


Table of Contents

 

 

 

                       10/1/14             
     Year ended     to     Year ended 
    

 

 

         

 

 

 
     3/31/18     3/31/17     3/31/16     3/31/151     9/30/14     9/30/13 

 

 
    $19.19     $18.46     $20.36     $20.61     $17.19     $11.94 

 

    

                        
     0.04      0.16      0.05      0.01      3       (0.01
     4.08      1.97      (0.44     1.82      3.84      5.30 
    

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

 
     4.12      2.13      (0.39     1.83      3.84      5.29 
    

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

 
                        
                        
     (0.68     (0.18     (0.17     (0.01           (0.04
           (1.22     (1.34     (2.07     (0.42      
    

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

 
     (0.68     (1.40     (1.51     (2.08     (0.42     (0.04
    

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

 
    $22.63     $19.19     $18.46     $20.36     $20.61     $17.19 
    

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

 
     21.56%      12.30%      (2.45%     9.31%      22.68%      44.50% 
                        
    $212,838     $154,687     $197,138     $218,427     $185,734     $165,780 
     1.31%      1.38%      1.37%      1.36%      1.35%      1.38% 
     1.31%      1.38%      1.37%      1.36%      1.35%      1.43% 
     0.18%      0.84%      0.25%      0.06%      0.01%      (0.05%
     0.18%      0.84%      0.25%      0.06%      0.01%      (0.10%
     28%      29%      46%      19%      60%      29% 

 

 

23


Table of Contents

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 income (loss)2

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 return3

Ratios and supplemental data:

Net assets, end of period (000 omitted)

Ratio of expenses to average net assets4

Ratio of net investment income (loss) to average net assets4

Portfolio turnover

 

1 During the period ended March 31, 2015, the Fund changed its fiscal year end from September to March. Ratios have been annualized and total return and portfolio turnover have 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.

 

4 Expenses paid indirectly were not material and had no impact on the ratios disclosed. Expenses paid indirectly for the year ended March 31, 2018 are reflected on the “Statement of operations.”

See accompanying notes, which are an integral part of the financial statements.

 

24


Table of Contents

 

 

 

                       10/1/14             
     Year ended     to     Year ended 
    

 

 

         

 

 

 
     3/31/18     3/31/17     3/31/16     3/31/151     9/30/14     9/30/13 

 

 
    $18.36     $17.72     $19.60     $19.97     $16.80     $11.71 

 

    

                        
     (0.12     0.02      (0.10     (0.07     (0.14     (0.12
     3.90      1.88      (0.42     1.77      3.73      5.21 
    

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

 
     3.78      1.90      (0.52     1.70      3.59      5.09 
    

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

 
                        
                        
     (0.53     (0.04     (0.02                  
           (1.22     (1.34     (2.07     (0.42      
    

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

 
     (0.53     (1.26     (1.36     (2.07     (0.42      
    

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

 
    $21.61     $18.36     $17.72     $19.60     $19.97     $16.80 
    

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

 
     20.67%      11.45%      (3.17%     8.92%      21.77%      43.47% 
                        
    $76,033     $57,814     $73,715     $76,558     $62,398     $28,557 
     2.06%      2.13%      2.12%      2.11%      2.10%      2.13% 
     (0.57%     0.09%      (0.50%     (0.69%     (0.74%     (0.80%
     28%      29%      46%      19%      60%      29% 

 

 

25


Table of Contents

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 (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 return4

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 waived5

Ratio of net investment income (loss) to average net assets

Ratio of net investment income (loss) to average net assets prior to fees waived5

Portfolio turnover

 

1 During the period ended March 31, 2015, the Fund changed its fiscal year end from September to March. Ratios have been annualized and total return and portfolio turnover have not been annualized.

 

2 The average shares outstanding method has been applied for per share information.

 

3 Amount is less than $0.005 per share.

 

4 Total investment return is based on the change in net asset value of a share during the period and assumes reinvestment of dividends and distributions at net asset value. Total investment return during some of the periods shown reflects waivers by the manager and/or distributor. Performance would have been lower had the waivers not been in effect.

 

5 Expenses paid indirectly were not material and had no impact on the ratios disclosed. Expenses paid indirectly for the year ended March 31, 2018 are reflected on the “Statement of operations.”

See accompanying notes, which are an integral part of the financial statements.

 

26


Table of Contents

 

 

 

                       10/1/14             
     Year ended     to     Year ended 
    

 

 

         

 

 

 
     3/31/18     3/31/17     3/31/16     3/31/151     9/30/14     9/30/13 

 

 
    $18.98     $18.27     $20.17     $20.45     $17.10     $11.87 

 

    

                        
     (0.02     0.11      3       (0.02     (0.05     (0.04
     4.04      1.95      (0.44     1.81      3.82      5.28 
    

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

 
     4.02      2.06      (0.44     1.79      3.77      5.24 
    

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

 
                        
                        
     (0.63     (0.13     (0.12                 (0.01
           (1.22     (1.34     (2.07     (0.42      
    

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

 
     (0.63     (1.35     (1.46     (2.07     (0.42     (0.01
    

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

 
    $22.37     $18.98     $18.27     $20.17     $20.45     $17.10 
    

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

 
     21.26%      12.03%      (2.71%     9.17%      22.46%      44.15% 
                        
    $5,683     $5,169     $5,878     $5,713     $4,506     $2,360 
     1.56%      1.63%      1.62%      1.61%      1.60%      1.63% 
     1.56%      1.63%      1.62%      1.61%      1.60%      1.73% 
     (0.07%     0.59%      0.00%      (0.19%     (0.24%     (0.30%
     (0.07%     0.59%      0.00%      (0.19%     (0.24%     (0.40%
     28%      29%      46%      19%      60%      29% 

 

 

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Table of Contents

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 income2

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 return3

Ratios and supplemental data:

Net assets, end of period (000 omitted)

Ratio of expenses to average net assets4

Ratio of net investment income to average net assets4

Portfolio turnover

 

1 During the period ended March 31, 2015, the Fund changed its fiscal year end from September to March. Ratios have been annualized and total return and portfolio turnover have 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 a net asset value of a share during the period and assumes reinvestment of dividends and distributions at net asset value.

 

4 Expenses paid indirectly were not material and had no impact on the ratios disclosed. Expenses paid indirectly for the year ended March 31, 2018 are reflected on the “Statement of operations.”

See accompanying notes, which are an integral part of the financial statements.

 

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                       10/1/14             
     Year ended     to     Year ended 
    

 

 

         

 

 

 
     3/31/18     3/31/17     3/31/16     3/31/151     9/30/14     9/30/13 

 

 
    $19.28     $18.53     $20.44     $20.70     $17.23     $11.96 

 

    

                        
     0.09      0.21      0.10      0.03      0.05      0.03 
     4.10      1.98      (0.45     1.84      3.84      5.31 
    

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

 
     4.19      2.19      (0.35     1.87      3.89      5.34 
    

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

 
                        
                        
     (0.73     (0.22     (0.22     (0.06           (0.07
           (1.22     (1.34     (2.07     (0.42      
    

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

 
     (0.73     (1.44     (1.56     (2.13     (0.42     (0.07
    

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

 
    $22.74     $19.28     $18.53     $20.44     $20.70     $17.23 
    

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

 
     21.84%      12.53%      (2.20%     9.49%      23.00%      44.86% 
                        
    $282,585     $137,621     $156,600     $179,357     $186,791     $85,535 
     1.06%      1.13%      1.12%      1.11%      1.10%      1.13% 
     0.43%      1.09%      0.50%      0.31%      0.26%      0.20% 
     28%      29%      46%      19%      60%      29% 

 

 

29


Table of Contents
Notes to financial statements  
Delaware Healthcare Fund  March 31, 2018

Delaware Group® Equity Funds IV (Trust) is organized as a Delaware statutory trust and offers three series: Delaware Healthcare Fund, Delaware Smid Cap Growth Fund, and Delaware Small Cap Growth Fund. These financial statements and the 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) instead of a front-end sales charge of 1.00% 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 1.00%, if redeemed during the first 12 months. Class R and Institutional Class shares are not subject to a sales charge and are offered for sale exclusively to certain eligible investors.

The investment objective of the Fund is to seek maximum long-term capital growth through appreciation.

1. Significant Accounting Policies

The following accounting policies are in accordance with US generally accepted accounting principles (US GAAP) and are consistently followed by the Fund.

Security Valuation – Equity securities, except those traded on the Nasdaq Stock Market LLC (Nasdaq), are valued at the last quoted sales price as of the time of the regular close of the New York Stock Exchange on the valuation date. Equity 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, the mean between the bid and ask prices will be used, which approximates fair value. Equity securities listed on a foreign exchange are normally valued at the last quoted sales price on the valuation date. US 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 Trust’s 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-US markets because, among other things, most foreign markets close well before the Fund values its securities, generally as of 4:00pm 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. Whenever such a significant event occurs, the Fund may value foreign securities using fair value prices based on third-party vendor modeling tools (international fair value pricing). Restricted securities are valued at fair value using methods approved by the Board.

Federal and Foreign 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

 

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distributions to shareholders. The Fund evaluates tax positions taken or expected to be taken in the course of preparing the Fund’s tax returns to determine whether the tax positions are “more-likely-than-not” of being sustained by the applicable tax authority. Tax positions not deemed to meet the “more-likely-than-not” threshold are recorded as a tax benefit or expense in the current year. Management has analyzed the Fund’s tax positions taken or to be taken on the Funds federal income tax returns through the year ended March 31, 2018 and for all open tax years (years ended Sept. 30, 2014–March 31, 2017), and has concluded that no provision for federal income tax is required in the Fund’s financial statements. If applicable, the Fund recognizes interest accrued on unrecognized tax benefits in interest expense and penalties in other expenses on the “Statement of operations.” During the year ended March 31, 2018, the Fund did not incur any interest or tax penalties. In regard to foreign taxes only, the Fund has open tax years in certain foreign countries in which it invests that may date back to the inception of the Fund.

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 US government securities subject to the counterparty’s 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 Fund’s 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 March 29, 2018 and will mature on the next business day.

Foreign Currency Transactions – Transactions denominated in foreign currencies are recorded at the prevailing exchange rates on the valuation date in accordance with the Fund’s prospectus. The value of all assets and liabilities denominated in foreign currencies is translated daily into US dollars at the exchange rate of such currencies against the US dollar. 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 bifurcate 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. These gains and losses are included on the “Statement of operations” under “Net realized and unrealized gain (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 Fund is an investment company, whose financial statements are prepared in conformity with US GAAP. Therefore, the Fund follows the accounting and reporting guidelines for investment companies. The preparation of financial statements in conformity with US 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

 

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Notes to financial statements

Delaware Healthcare Fund

 

 

1. Significant Accounting Policies (continued)

 

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 Funds® by Macquarie (Delaware Funds) are generally allocated among such funds on the basis of average net assets. Management fees and certain 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 tax withholdings, a portion of which may be reclaimable. Withholding taxes and reclaims on foreign dividends have been recorded in accordance with the Fund’s understanding of the applicable country’s 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. The Fund may distribute more frequently, if necessary for tax purposes. Dividends and distributions, if any, are recorded on the ex-dividend date.

The Fund may receive earnings credits from its custodian when positive cash balances are maintained, which may be used to offset custody fees. There were no such earnings credits for the year ended March 31, 2018.

The Fund receives earnings credits from its transfer agent when positive cash balances are maintained, which may be used to offset transfer agent fees. If the amount earned is greater than $1, the expense paid under this arrangement is included on the “Statement of operations” under “Dividend disbursing and transfer agent fees and expenses” with the corresponding expense offset included under “Less expense paid indirectly.” For the year ended March 31, 2018, the Fund earned $963 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 Macquarie Investment Management Business Trust and the investment manager, an annual fee which is calculated daily and paid monthly at the rate of 0.85% on the first $500 million of the 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.

Delaware Investments Fund Services Company (DIFSC), an affiliate of DMC, provides fund accounting and financial administration oversight services to the Fund. For these services, DIFSC’s fees were calculated daily and paid monthly based on the aggregate daily net assets of the Delaware Funds from April 1, 2017 through Aug. 31, 2017 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 DIFSC under the service agreement described above were allocated among all funds in the Delaware Funds on a relative net asset value (NAV) basis. Effective Sept. 1, 2017, the Fund as well as the other Delaware Funds entered into an

 

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amendment to the DIFSC agreement. Under the amendment to the DIFSC agreement, DIFSC’s fees are calculated daily and paid monthly based on the aggregate daily net assets of the Delaware Funds at the following annual rate: 0.00475% of the first $35 billion; 0.0040% of the next $10 billion; and 0.0025% of aggregate average daily net assets in excess of $45 billion (Total Fee). Each fund in the Delaware Funds pays a minimum of $4,000, which, in aggregate, is subtracted from the Total Fee. Each fund in the Delaware Funds then pays its relative portion of the remainder of the Total Fee on a relative NAV basis. For the year ended March 31, 2018, the Fund was charged $19,990 for these services. This amount is included on the “Statement of operations” under “Accounting and administration expenses.”

DIFSC is also the transfer agent and dividend disbursing agent of the Fund. For these services, DIFSC’s fees are calculated daily and paid monthly based on the aggregate daily net assets of the retail funds within the Delaware Funds at the following annual rate: 0.025% of the first $20 billion; 0.020% of the next $5 billion; 0.015% of the next $5 billion; and 0.013% of average daily net assets in excess of $30 billion. The fees payable to DIFSC under the service agreement described above are allocated among all retail funds in the Delaware Funds on a relative NAV basis. This amount is included on the “Statement of operations” under “Dividend disbursing and transfer agent fees and expenses.” For the year ended March 31, 2018, the Fund was charged $84,974 for these services. Pursuant to a sub-transfer agency agreement between DIFSC and BNY Mellon Investment Servicing (US) Inc. (BNYMIS), BNYMIS provides certain sub-transfer agency services to the Fund. Sub-transfer agency fees are paid by the Fund and are also included on the “Statement of operations” under “Dividend disbursing and transfer agent fees and expenses.”

Pursuant to a distribution agreement and distribution plan, the Fund pays DDLP, the distributor and an affiliate of DMC, an annual distribution and service (12b-1) fee of 0.25% 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 0.50% of the average daily net assets of the Class R shares. The fees are calculated daily and paid monthly. Institutional Class shares pay no 12b-1 fees.

As provided in the investment management agreement, the Fund bears a portion of the cost of certain resources shared with DMC, including the cost of internal personnel of DMC and/or its affiliates that provide legal, tax, and regulatory reporting services to the Fund. For the year ended March 31, 2018, the Fund was charged $8,468 for internal legal, tax, and regulatory reporting services provided by DMC and/or its affiliates’ employees. This amount is included on the “Statement of operations” under “Legal fees.”

For the year ended March 31, 2018, DDLP earned $139,934 for commissions on sales of the Fund’s Class A shares. For the year ended March 31, 2018, DDLP received gross CDSC commissions of $500 and $4,349 on redemptions of the Fund’s Class A and Class C shares, respectively, and these commissions were entirely used to offset upfront commissions previously paid by DDLP to broker/dealers on sales of those shares.

Trustees’ fees include expenses accrued by the Fund for each Trustee’s retainer and meeting fees. Certain officers of DMC, DIFSC, and DDLP are officers and/or Trustees of the Trust. These officers and Trustees are paid no compensation by the Fund.

 

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Notes to financial statements

Delaware Healthcare Fund

 

 

3. Investments

For the year ended March 31, 2018, the Fund made purchases and sales of investment securities other than short-term investments as follows:

 

Purchases

  $260,198,262 

Sales

   122,298,603 

The tax cost of investments includes adjustments to net unrealized appreciation (depreciation) which may not necessarily be final tax cost basis adjustments, but approximate the tax basis unrealized gains and losses that may be realized and distributed to shareholders. At March 31, 2018, the cost and unrealized appreciation (depreciation) of investments and derivatives in the Fund for federal income tax purposes were as follows:

 

Cost of investments and derivatives

  $449,660,327 
  

 

 

 

Aggregate unrealized appreciation of investments and derivatives

  $156,646,402 

Aggregate unrealized depreciation of investments and derivatives

   (32,003,851
  

 

 

 

Net unrealized appreciation of investments and derivatives

  $124,642,551 
  

 

 

 

US 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 entity’s own assumptions about the assumptions that market participants would use in pricing the asset or liability based on the best information available under the circumstances. The Fund’s 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 and on the next page.

 

Level 1  Inputs are quoted prices in active markets for identical investments. (Examples: 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. (Examples: 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  Significant unobservable inputs, including the Fund’s own assumptions used to determine the fair value of investments. (Examples: broker-quoted securities, fair valued securities)

Level 3 investments are valued using significant unobservable inputs. The Fund may also use an income-based valuation approach in which the anticipated future cash flows of the investment are

 

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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 Fund’s investments by fair value hierarchy levels as of March 31, 2018:

 

   

Level 1

   

Level 2

  

Level 3

   

Total

 

Securities

       

 

Assets:

       

Common Stock

       

Biotechnology

  $167,479,168   $43,385,102  $   $210,864,270 

Blue Chip Medical Products

   172,845,590    61,223,194       234,068,784 

Healthcare Services

   63,148,120           63,148,120 

Other

   29,528,843       444,000    29,972,843 

Small- / Mid-Cap Medical Products

   34,586,315           34,586,315 

Rights1

   1,370       45,900    47,270 

Short-Term Investments

       1,642,002       1,642,002 
  

 

 

   

 

 

  

 

 

   

 

 

 

Total Value of Securities

  $467,589,406   $106,250,298  $489,900   $574,329,604 
  

 

 

   

 

 

  

 

 

   

 

 

 

Derivatives*

       

 

Liabilities:

       

Foreign Currency Exchange Contracts

  $   $(26,726 $   $(26,726

*Foreign currency exchange contracts are valued at the unrealized appreciation (depreciation) on the instrument at the year end.

1Security type is valued across multiple levels. Level 1 investments represent exchange-traded investments, Level 2 investments represent investments with observable inputs or matrix-priced investments, and Level 3 investments represent investments without observable inputs. The amounts attributed to Level 1 investments, Level 2 investments, and Level 3 investments represent the following percentages of the total value of these security types:

 

   

Level 1

 

Level 2

  

Level 3

 

Total

Rights

  2.90%   97.10% 100.00%

During the year ended March 31, 2018, there were no transfers between Level 1 investments, Level 2 investments, or Level 3 investments that had a significant impact to the Fund. This does not include transfers between Level 1 investments and Level 2 investments due to the Fund utilizing international fair value pricing during the year. In accordance with the fair valuation procedures described in Note 1, international fair value pricing of securities in the Fund occurs when market volatility exceeds an established rolling threshold. If the threshold is exceeded on a given date, then prices of international securities (those that traded on exchanges that close at a different time than the time that the Fund’s

 

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Table of Contents

Notes to financial statements

Delaware Healthcare Fund

 

 

3. Investments (continued)

 

NAV is determined) are established using a separate pricing feed from a third party vendor designed to establish a price for each such security as of the time that the Fund’s NAV is determined. Further, 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, causing a change in classification between levels. The Fund’s policy is to recognize transfers between levels based on fair value at the beginning of the reporting period.

A reconciliation of Level 3 investments is presented when the Fund has a significant amount of Level 3 investments at the beginning, interim, or end of the period in relation to net assets. Management has determined not to provide a reconciliation of Level 3 investments as they are not considered significant to the Fund’s net assets at the beginning, interim, or end of the period. Management has determined not to provide additional disclosure on level 3 inputs since the Level 3 investments are not considered significant to the Fund’s net assets at the end of the year.

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 US 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 March 31, 2018 and 2017 was as follows:

 

   Year ended 
   3/31/18     3/31/17 

Ordinary income

  $13,071,958     $3,311,542 

Long-term capital gains

         23,880,633 
  

 

 

     

 

 

 

Total

  $13,071,958     $27,192,175 
  

 

 

     

 

 

 

The Fund paid capital gains on foreign securities. These gains were designated as long-term capital gain distributions.

5. Components of Net Assets on a Tax Basis

As of March 31, 2018, the components of net assets on a tax basis were as follows:

 

Shares of beneficial interest

  $447,230,012 

Undistributed ordinary income

   6,079,431 

Capital loss carryforwards

   (813,168

Net unrealized appreciation on investments, foreign currencies and derivatives

   124,642,551 
  

 

 

 

Net assets

  $577,138,826 
  

 

 

 

The differences between book basis and tax basis components of net assets are primarily attributable to tax deferral of losses on wash sales, mark-to-market of foreign currency exchange contracts and tax recognition of unrealized gain on passive foreign investment companies.

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 gain (loss) on foreign

 

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currency transactions and sale of passive foreign investment companies. Results of operations and net assets were not affected by these reclassifications. For the year ended March 31, 2018, the Fund recorded the following reclassifications:

 

Distributions in excess of net investment income

  $4,107,637 

Accumulated net realized loss

   (4,107,637

For federal income tax purposes, capital loss carryforwards may be carried forward and applied against future capital gains. At March 31, 2018, the Fund utilized $4,851,740 of capital loss carryforwards.

Under the Regulated Investment Company Modernization Act of 2010 (Act), net capital losses recognized for tax years beginning after Dec. 22, 2010 may be carried forward indefinitely, and their character is retained as short-term and/or long-term losses.

The Fund has capital loss carryforwards available to offset future realized capital gains as follows:

 

   Loss carryforward character       
   Short-term    Long-term     Total 
  $—     $813,168      $813,168 

6. Capital Shares

Transactions in capital shares were as follows:

 

   Year ended 
   3/31/18  3/31/17 

Shares sold:

   

Class A

   3,001,907   2,199,283 

Class C

   908,920   349,840 

Class R

   80,269   117,210 

Institutional Class

   7,349,837   3,416,806 

Shares issued upon reinvestment of dividends and distributions:

   

Class A

   240,511   711,678 

Class C

   76,415   249,736 

Class R

   7,223   21,150 

Institutional Class

   236,942   443,440 
  

 

 

  

 

 

 
   11,902,024   7,509,143 
  

 

 

  

 

 

 

Shares redeemed:

   

Class A

   (1,895,917  (5,531,937

Class C

   (614,383  (1,611,866

Class R

   (105,706  (187,807

Institutional Class

   (2,296,068  (5,170,818
  

 

 

  

 

 

 
   (4,912,074  (12,502,428
  

 

 

  

 

 

 

Net increase (decrease)

   6,989,950   (4,993,285
  

 

 

  

 

 

 

 

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Notes to financial statements

Delaware Healthcare Fund

 

 

6. Capital Shares (continued)

 

Certain shareholders may exchange shares of one class for shares of another class in the same Fund. For the years ended March 31, 2018 and 2017, the Fund had the following exchange transactions. These exchange transactions are included as subscriptions and redemptions in the table above and the “Statements of changes in net assets.”

 

     

Exchange Redemptions

     

Exchange Subscriptions

 
     Class A  
Shares  
     

 

Class C  

Shares  

     

Class A  

Shares  

     

 

Institutional

Class

Shares

     Value 

Year ended 3/31/18

     42,555      7,804      4,197      45,610     $1,067,395 

Year ended 3/31/17

     1,229,949      9,919            1,234,733     $    23,318,652 

7. Line of Credit

The Fund, along with certain other funds in the Delaware Funds (Participants), was a participant in a $155,000,000 revolving line of credit intended 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 of 0.15%, which was generally allocated across the Participants based on a weighted average of the respective net assets of each Participant. 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 available under the agreement expired on Nov. 6, 2017.

On Nov. 6, 2017, the Fund, along with the other Participants, entered into an amendment to the agreement for a $155,000,000 revolving line of credit. The line of credit is to be used as described above and operates in substantially the same manner as the original agreement. The line of credit available under the agreement expires on Nov. 5, 2018.

The Fund had no amounts outstanding as of March 31, 2018, or at any time during the year then ended.

8. Derivatives

US 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 entity’s 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 US 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 US dollar value of securities it already owns that are denominated in foreign currencies. In addition, the Fund may enter into these contracts to facilitate or expedite the settlement of portfolio transactions. 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.

 

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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 Fund’s 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 and the counterparty and by the posting of collateral by the counterparty to the Fund to cover the Fund’s exposure to the counterparty.

During the year ended March 31, 2018, the Fund used foreign currency exchange contracts to facilitate or expedite the settlement of portfolio transactions.

During the year ended March 31, 2018, the Fund experienced net realized gains or losses attributable to foreign currency holdings, which are disclosed as “Net realized gain (loss) on foreign currency exchange contracts” on the “Statement of operations.”

Derivatives Generally. The table below summarizes the average balance of derivative holdings by the Fund during the year ended March 31, 2018.

 

    

Long Derivative

Volume

     

Short Derivative

Volume

 

Foreign currency exchange contracts

  USD  

 

 

 

        209,720

 

 

    USD  

 

 

 

        58,915

 

 

9. Offsetting

The Fund entered into an International Swaps and Derivatives Association, Inc. Master Agreement (ISDA Master Agreement) or a similar agreement with certain of its derivative contract counterparties in order to better define its contractual rights and to secure rights that will help the Fund mitigate its counterparty risk. An ISDA Master Agreement is a bilateral agreement between the Fund and a counterparty that governs over-the-counter (OTC) derivatives and foreign exchange contracts and typically contains, among other things, collateral posting items and netting provisions in the event of a default and/or termination event. Under an ISDA Master Agreement, the Fund may, under certain circumstances, offset with the counterparty certain derivative financial instruments’ payables and/or receivables with collateral held and/or posted and create one single net payment. The provisions of the ISDA Master Agreement typically permit a single net payment in the event of default (close-out), including the bankruptcy or insolvency of the counterparty. However, bankruptcy or insolvency laws of a particular jurisdiction may impose restrictions on or prohibitions against the right of offset in bankruptcy, insolvency, or other events.

For financial reporting purposes, the Fund does not offset derivative assets and derivative liabilities that are subject to netting arrangements on the “Statement of assets and liabilities.”

 

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Notes to financial statements

Delaware Healthcare Fund

 

 

 

9. Offsetting (continued)

 

At March 31, 2018, the Fund had the following assets and liabilities subject to offsetting provisions:

Offsetting of Financial Assets and Liabilities and Derivatives Assets and Liabilities

 

Counterparty

  

Gross Value of

Derivative Asset

  

Gross Value of

Derivative Liability

  

Net Position

BNY Mellon

    $ —    $(26,726)    $(26,726)

 

Counterparty

  

Net Position

  

Fair Value of

Non-Cash

Collateral

Received

  

Cash

Collateral

Received

  

Fair Value of

Non-Cash

Collateral

Pledged

  

Cash

Collateral

Pledged

  

Net

Exposure(a)

BNY Mellon

    $(26,726)    $ —    $ —    $ —    $ —    $(26,726)

Master Repurchase Agreements

Repurchase agreements are entered into by the Fund under Master Repurchase Agreements (each, an “MRA”). The MRA permits the Fund, under certain circumstances including an event of default (such as bankruptcy or insolvency), to offset payables and/or receivables with collateral held by and/or posted to the counterparty. As a result, one single net payment is created. Bankruptcy or insolvency laws of a particular jurisdiction may impose restrictions on or prohibitions against such a right of offset in the event of the MRA counterparty’s bankruptcy or insolvency. Based on the terms of the MRA, the Fund receives securities as collateral with a market value in excess of the repurchase price at maturity. Upon a bankruptcy or insolvency of the MRA counterparty, the Fund would recognize a liability with respect to such excess collateral. The liability reflects the Fund’s obligation under bankruptcy law to return the excess to the counterparty. As of March 31, 2018, the following table is a summary of the Fund’s repurchase agreements by counterparty which are subject to offset under an MRA:

 

Counterparty

  

Repurchase

Agreements

  

Fair Value of

Non-Cash

Collateral  Received(b)

  

Cash Collateral

Received

  

Net Collateral

Received

  

Net

Exposure(a)

Bank of America Merrill Lynch

    $   236,282    $   (236,282)    $ —    $   (236,282)    $ —

Bank of Montreal

    708,845    (708,845)     —    (708,845)    

BNP Paribas

    696,875    (696,875)     —    (696,875)    
   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

    $1,642,002    $(1,642,002)    $ —    $(1,642,002)    $ —
   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

(a) Net exposure represents the receivable (payable) that would be due from (to) the counterparty in the event of default.

 

(b) The value of the related collateral received exceeded the value of the repurchase agreements as of March 29, 2018.

10. Securities Lending

The Fund, along with other funds in the Delaware 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: (1) 102% with respect to US securities and foreign securities that are denominated and payable in US dollars; and (2) 105% with respect to foreign securities. With respect to each loan, if on any business day the aggregate market

 

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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 on any particular day may be more or less than the value of the security on loan. The collateral percentage with respect to the market value of the loaned security is determined by the security lending agent.

Cash collateral received by each fund is generally invested in a series of individual separate accounts, each corresponding to a fund. The investment guidelines permit each separate account to hold certain securities that would be considered eligible securities for a money market fund. Cash collateral received is generally invested in government securities; certain obligations issued by government sponsored enterprises; repurchase agreements collateralized by US Treasury securities; obligations issued by the central government of any Organization for Economic Cooperation and Development (OECD) country or its agencies, instrumentalities, or establishments; obligations of supranational organizations; commercial paper, notes, bonds and other debt obligations; certificates of deposit, time deposits, and other bank obligations; and asset-backed securities. A Fund can also accept US 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 Fund may incur investment losses as a result of investing securities lending collateral. This could occur if an investment in the collateral investment account defaulted or became impaired. Under those circumstances, the value of a Fund’s cash collateral account may be less than the amount the Fund would be required to return to the borrowers of the securities and the Fund would be required to make up for this shortfall.

During the year ended March 31, 2018, the Fund had no securities out on loan.

 

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Notes to financial statements

Delaware Healthcare Fund

 

 

 

11. 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 country’s 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 US. 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.

The Fund is a nondiversified fund that concentrates its investments in the healthcare industry and is subject to the risks associated with that industry. The value of the Fund’s 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 promulgated under the Securities Act of 1933, as amended, and other securities which may not be readily marketable. The relative illiquidity of these securities may impair the Fund from disposing of them in a timely manner and at a fair price when it is necessary or desirable to do so. While maintaining oversight, the Fund’s Board has delegated to DMC, the day-to-day functions of determining whether individual securities are liquid for purposes of the Fund’s limitation on investments in illiquid securities. Securities eligible for resale pursuant to Rule 144A, which are determined to be liquid, are not subject to the Fund’s 15% limit on investments in illiquid securities. As of March 31, 2018, there were no Rule 144A securities held by the Fund.

12. Contractual Obligations

The Fund enters into contracts in the normal course of business that contain a variety of indemnifications. The Fund’s maximum exposure under these arrangements is unknown. However, the Fund has not had prior claims or losses pursuant to these contracts. Management has reviewed the Fund’s existing contracts and expects the risk of loss to be remote.

13. Subsequent Events

Management has determined that no material events or transactions occurred subsequent to March 31, 2018, that would require recognition or disclosure in the Fund’s financial statements.

 

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Report of independent

registered public accounting firm

To the Board of Trustees of Delaware Group® Equity Funds IV and Shareholders of Delaware Healthcare Fund

Opinion on the Financial Statements

We have audited the accompanying statement of assets and liabilities, including the schedule of investments, of Delaware Healthcare Fund (one of the funds constituting Delaware Group Equity Funds IV, referred to hereafter as the “Fund”) as of March 31, 2018, the related statement of operations for the year ended March 31, 2018, the statements of changes in net assets for each of the two years in the period ended March 31, 2018, including the related notes, and the financial highlights for each of the periods indicated therein (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Fund as of March 31, 2018, 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 ended March 31, 2018 and the financial highlights for each of the periods indicated therein in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

These financial statements are the responsibility of the Fund’s management. Our responsibility is to express an opinion on the Fund’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Fund in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits of these financial statements in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. Our procedures included confirmation of securities owned as of March 31, 2018 by correspondence with the custodian and brokers; when replies were not received from brokers, we performed other auditing procedures. We believe that our audits provide a reasonable basis for our opinion.

 

 

PricewaterhouseCoopers LLP

Philadelphia, Pennsylvania

May 18, 2018

We have served as the auditor of one or more investment companies in Delaware Funds® by Macquarie since 2010.

 

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Other Fund information (Unaudited)

Delaware Healthcare Fund

Tax Information

The information set forth below is for the Fund’s 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 disclosures 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 reporting, it is the intention of the Fund to report the maximum amount permitted under the Internal Revenue Code and the regulations thereunder.

For the year ended March 31, 2018, the Fund reports distributions paid during the year as follows:

 

(A) Ordinary Income Distributions1 (Tax Basis)

   100.00

Total Distributions (Tax Basis)

   100.00

(B) Qualifying Dividends2

   25.98

(A) is based on a percentage of the Fund’s total distributions.

(B) is based on a percentage of the Fund’s ordinary income distributions.

1For the fiscal year ended March 31, 2018, certain dividends paid by the Fund may be subject to a maximum tax rate of 20%. The percentage of dividends paid by the Fund from ordinary income reported as qualified income is 56.07%. Complete information will be computed and reported in conjunction with your 2018 Form 1099-DIV.

2Qualifying dividends represent dividends which qualify for the corporate dividends received deduction.

 

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Table of Contents

Board of trustees / directors and officers addendum

Delaware Funds® by Macquarie

A mutual fund is governed by a Board of Trustees/Directors (“Trustees”), which has oversight responsibility for the management of a fund’s business affairs. Trustees establish procedures and oversee and review the performance of the investment manager, the distributor, and others who perform services for the fund. The independent fund trustees, in particular, are advocates

 

Name, Address,

and Birth Date

  

Position(s)

Held with Fund(s)

  

    
Length of

Time Served

Interested Trustee

    

 

Shawn K. Lytle1, 2

  

 

President,

  

 

Trustee since

2005 Market Street

  Chief Executive Officer,  September 2015

Philadelphia, PA 19103

  and Trustee  

February 1970

    President and
    Chief Executive Officer
    since August 2015
    
    
    

Independent Trustees

    

 

Thomas L. Bennett

  

 

Chairman and Trustee

  

 

Trustee since

2005 Market Street

    March 2005

Philadelphia, PA 19103

    

October 1947

    Chairman since
      

March 2015

 

Ann D. Borowiec

  Trustee  Since March 2015

2005 Market Street

    

Philadelphia, PA 19103

    

November 1958

    
    
    
       

Joseph W. Chow

  Trustee  Since January 2013

2005 Market Street

    

Philadelphia, PA 19103

    

January 1953

    
       

 

1 Shawn K. Lytle is considered to be an “Interested Trustee” because he is an executive officer of the Fund’s(s’) investment advisor.
2 

Shawn K. Lytle, David F. Connor, Daniel V. Geatens, 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. Mr. Geatens also serves as the CFO and Treasurer for Macquarie Global Infrastructure Total Return Fund Inc., which shares an affiliated investment manager.

 

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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.

 

Principal Occupation(s)

During the Past Five Years

  

Number of Portfolios in

Fund Complex Overseen

by Trustee or Officer

  

Other Directorships

Held by Trustee or Officer

    

 

President — Macquarie

  

 

60

  

 

Trustee — UBS

Investment Management3

    Relationship Funds,

(June 2015–Present)

    SMA Relationship
    Trust, and UBS Funds

Regional Head of

    (May 2010–April 2015)

Americas — UBS Global

    

Asset Management

    

(April 2010–May 2015)

    
    
    

 

Private Investor

  

 

60

  

 

None

(March 2004–Present)

    
       

 

Chief Executive Officer

  

 

60

  

 

Director —

Private Wealth Management

    Banco Santander International

(2011–2013) and

    

Market Manager,

    Director —

New Jersey Private

    Santander Bank, N.A.

Bank (2005–2011) —

    

J.P. Morgan Chase & Co.

    

      

 

Executive Vice President

  

 

60

  

 

Director and Audit Committee

(Emerging Economies

    Member — Hercules

Strategies, Risks, and

    Technology Growth

Corporate Administration)

    Capital, Inc.

State Street Corporation

    (2004–2014)

(July 2004–March 2011)

 

      

 

3 Macquarie Investment Management is the marketing name for Macquarie Management Holdings, Inc. and its subsidiaries, including the Fund’s(s’) investment advisor, principal underwriter, and its transfer agent.

 

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Table of Contents

Board of trustees / directors and officers addendum

Delaware Funds® by Macquarie

 

 

Name, Address,

and Birth Date

  

Position(s)

Held with Fund(s)

  

    
Length of

Time Served

Independent Trustees (continued)

  

 

John A. Fry

  

 

Trustee

  

 

Since January 2001

2005 Market Street

    

Philadelphia, PA 19103

    

May 1960

 

 

      

 

Lucinda S. Landreth

  

 

Trustee

  

 

Since March 2005

2005 Market Street

    

Philadelphia, PA 19103

    

June 1947

 

      

Frances A. Sevilla-Sacasa

  Trustee  Since September 2011

2005 Market Street

    

Philadelphia, PA 19103

    

January 1956

 

 

 

      

 

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Table of Contents

 

 

 

Principal Occupation(s)

During the Past Five Years

  

Number of Portfolios in

Fund Complex Overseen

by Trustee or Officer

  

Other Directorships

Held by Trustee or Officer

    

 

President —

  

 

60

  

 

Director; Compensation

Drexel University

    Committee and

(August 2010–Present)

    Governance Committee
    Member — Community

President —

    Health System

Franklin & Marshall College

    

(July 2002–July 2010)

    Director — Drexel
    Morgan & Co.
    Director, Audit Committee
    Member — vTv
    Therapeutics LLC
    Director; Audit Committee
    Member — FS Credit Real
      Estate Income Trust, Inc.

 

Private Investor

  60  None

(2004–Present)

 

      

Chief Executive Officer —

  60  Trust Manager and

Banco Itaú

    Audit Committee

International

    Chair — Camden

(April 2012–December 2016)

    Property Trust

 

Executive Advisor to Dean

    

(August 2011–March 2012)

    

and Interim Dean

    

(January 2011–July 2011) —

    

University of Miami School of

    

Business Administration

    

 

President — U.S. Trust,

    

Bank of America Private

    

Wealth Management

    

(Private Banking)

    

(July 2007–December 2008)

 

      

 

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Table of Contents

Board of trustees / directors and officers addendum

Delaware Funds® by Macquarie

 

 

Name, Address,

and Birth Date

  

Position(s)

Held with Fund(s)

  

    
Length of

Time Served

Independent Trustees (continued)

 

Thomas K. Whitford

  

 

Trustee

  

 

Since January 2013

2005 Market Street

    

Philadelphia, PA 19103

    

March 1956

 

      

Janet L. Yeomans

  Trustee  Since April 1999

2005 Market Street

    

Philadelphia, PA 19103

    

July 1948

 

 

    

Officers

    

 

David F. Connor

  

 

Senior Vice President,

  

 

Senior Vice President

2005 Market Street

  General Counsel,  since May 2013;

Philadelphia, PA 19103

  and Secretary  General Counsel

December 1963

    since May 2015;
    Secretary since
      

October 2005

 

Daniel V. Geatens

  Vice President  Treasurer since October 2007

2005 Market Street

  and Treasurer  

Philadelphia, PA 19103

    

October 1972

 

      

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.

 

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Table of Contents

 

 

 

Principal Occupation(s)

During the Past Five Years

  

Number of Portfolios in

Fund Complex Overseen

by Trustee or Officer

  

Other Directorships

Held by Trustee or Officer

    

 

Vice Chairman

  

 

60

  

 

Director — HSBC Finance

(2010–April 2013) —

    Corporation and HSBC

PNC Financial

    North America Holdings Inc.

Services Group

    

 

Director —

      

HSBC USA Inc.

 

Vice President and Treasurer

  60  Director (2009–2017);

(January 2006–July 2012),

    Personnel and Compensation

Vice President —

    Committee Chair; Member of

Mergers & Acquisitions

    Nominating, Investments, and

(January 2003–January 2006),

    Audit Committees for various

and Vice President

    periods throughout

and Treasurer

    directorship —

(July 1995–January 2003) —

    Okabena Company

3M Company

 

    
    

 

David F. Connor has served

  

 

60

  

 

None2

in various capacities at

    

different times at

    

Macquarie Investment

    

Management.

 

      

Daniel V. Geatens has served

  60  None2

in various capacities at

    

different times at

    

Macquarie Investment

    

Management.

 

      

Richard Salus has served

  60  None2

in various executive capacities

    

at different times at

    

Macquarie Investment

    

Management.

 

      

 

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Table of Contents

About the organization

 

Board of trustees

 

Shawn K. Lytle

President and

Chief Executive Officer

Delaware Funds®

by Macquarie

Philadelphia, PA

 

Thomas L. Bennett

Chairman of the Board

Delaware Funds

by Macquarie

Private Investor

Rosemont, PA

  

Ann D. Borowiec

Former Chief Executive

Officer

Private Wealth Management

J.P. Morgan Chase & Co.

New York, NY

 

Joseph W. Chow

Former Executive Vice

President

State Street Corporation

Boston, MA

  

John A. Fry

President

Drexel University

Philadelphia, PA

 

Lucinda S. Landreth

Former Chief Investment

Officer

Assurant, Inc.

New York, NY

  

Frances A.

Sevilla-Sacasa

Former Chief Executive

Officer

Banco Itaú International

Miami, FL

 

Thomas K. Whitford

Former Vice Chairman

PNC Financial Services Group

Pittsburgh, PA

 

Janet L. Yeomans

Former Vice President and

Treasurer

3M Company

St. Paul, MN

Affiliated officers      
David F. Connor  Daniel V. Geatens  Richard Salus  

Senior Vice President,

General Counsel,

and Secretary

Delaware Funds

by Macquarie

Philadelphia, PA

  

Vice President and

Treasurer

Delaware Funds

by Macquarie

Philadelphia, PA

  

Senior Vice President and

Chief Financial Officer

Delaware Funds

by Macquarie

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 Fund fact sheet for the most recently completed calendar quarter. These documents are available at delawarefunds.com/literature.

 

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 Fund’s Forms N-Q, as well as a description of the policies and procedures that the Fund uses to determine how to vote proxies (if any) relating to portfolio securities are available without charge (i) upon request, by calling 800 523-1918; and (ii) on the SEC’s 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 Schedule of Investments included in the Fund’s most recent Form N-Q are available without charge on the Fund’s website at delawarefunds.com/literature. The Fund’s Forms N-Q may be reviewed and copied at the SEC’s Public Reference Room in Washington, D.C.; information on the operation of the Public Reference Room may be obtained by calling 800 SEC-0330.

Information (if any) regarding how the Fund voted proxies relating to portfolio securities during the most recently disclosed 12-month period ended June 30 is available without charge (i) through the Fund’s website at delawarefunds.com/proxy; and (ii) on the SEC’s website at sec.gov.

 

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LOGO

     US equity mutual fund

Delaware Small Cap Growth Fund

March 31, 2018

 

 

Carefully consider the Fund’s investment objectives, risk factors, charges, and expenses before investing. This and other information can be found in the Fund’s prospectus and its summary prospectuses, which may be obtained by visiting delawarefunds.com/literature or calling 800 523-1918. Investors should read the prospectus and the summary prospectus carefully before investing.

You can obtain shareholder reports and prospectuses online instead of in the mail. Visit delawarefunds.com/edelivery.

 

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Experience Delaware Funds® by Macquarie

Macquarie Investment Management (MIM) is a global asset manager with offices throughout the United States, Europe, Asia, and Australia. We are active managers who prioritize autonomy and accountability at the investment team level in pursuit of opportunities that matter for our clients. Delaware Funds is one of the longest-standing mutual fund families, with more than 75 years in existence.

If you are interested in learning more about creating an investment plan, contact your financial advisor.

You can learn more about Delaware Funds or obtain a prospectus for Delaware Small Cap Growth Fund at delawarefunds.com/literature.

 

Manage your account online

 

 Check your account balance and transactions

 

 View statements and tax forms

 

 Make purchases and redemptions

Visit delawarefunds.com/account-access.

Macquarie Asset Management (MAM) offers a diverse range of products including securities investment management, infrastructure and real asset management, and fund and equity-based structured products. Macquarie Investment Management (MIM) is the marketing name for certain companies comprising the asset management division of Macquarie Group. This includes the following registered investment advisers: Macquarie Investment Management Business Trust (MIMBT), Macquarie Funds Management Hong Kong Limited, Macquarie Investment Management Austria Kapitalanlage AG, Macquarie Investment Management Global Limited, Macquarie Investment Management Limited, Macquarie Investment Management Europe Limited, and Macquarie Capital Investment Management LLC.

The Fund is distributed by Delaware Distributors, L.P. (DDLP), an affiliate of MIMBT and Macquarie Group Limited. MIM is the marketing name for certain companies comprising the asset management division of Macquarie Group Limited and its subsidiaries and affiliates worldwide.

Other than Macquarie Bank Limited (MBL), none of the entities noted are authorized deposit-taking institutions for the purposes of the Banking Act 1959 (Commonwealth of Australia). The obligations of these entities do not represent deposits or other liabilities of MBL. MBL does not guarantee or otherwise provide assurance in respect of the obligations of these entities, unless noted otherwise. The Fund is governed by US laws and regulations.

Table of contents

  

Portfolio management review

   1 

Performance summary

   4 

Disclosure of Fund expenses

   8 

Security type / sector allocation and top 10 equity holdings

   10 

Schedule of investments

   12 

Statement of assets and liabilities

   14 

Statement of operations

   16 

Statements of changes in net assets

   18 

Financial highlights

   20 

Notes to financial statements

   24 

Report of independent registered public accounting firm

   34 

Other Fund information

   35 

Board of trustees / directors and officers addendum

   36 

About the organization

   42 

Unless otherwise noted, views expressed herein are current as of March 31, 2018, and subject to change for events occurring after such date.

The Fund is not FDIC insured and is not guaranteed. It is possible to lose the principal amount invested.

Advisory services provided by Delaware Management Company, a series of MIMBT, a US registered investment advisor.

All third-party marks cited are the property of their respective owners.

© 2018 Macquarie Management Holdings, Inc.

 


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Portfolio management review

Delaware Small Cap Growth Fund

April 10, 2018 (Unaudited)

 

Performance preview (for the year ended March 31, 2018)

          

Delaware Small Cap Growth Fund (Institutional Class shares)

   1-year return    +34.73%     

Delaware Small Cap Growth Fund (Class A shares)

   1-year return    +34.47%     

Russell 2000® Growth Index (benchmark)

   1-year return    +18.63%     

Past performance does not guarantee future results.

For complete, annualized performance for Delaware Small Cap Growth Fund, please see the table on page 4. Institutional Class shares are not subject to a sales charge and are offered for sale exclusively to certain eligible investors. In addition, Institutional Class shares pay no distribution and service fee.

The performance of Class A shares excludes the applicable sales charge. Both Institutional Class shares and Class A shares reflect the reinvestment of all distributions.

Please see page 6 for a description of the index. Index performance returns do not reflect any management fees, transaction costs, or expenses. Indices are unmanaged and one cannot invest directly in an index.

 

US equity markets advanced strongly throughout the Fund’s fiscal year ended March 31, 2018, maintaining a steady upward pace in the first three quarters of the period before turning volatile in the last quarter. The Russell 2000 Growth Index, the Fund’s benchmark, gained 18.63% during the fiscal year, while the Russell 2000® Value Index returned 5.13% and the overall Russell 2000® Index advanced 11.79%. It was a notable turnaround for the small growth segment of the market, which had lagged significantly in the Fund’s previous fiscal year.

Improving economic conditions, particularly continued labor market strengthening, contributed to a boost in consumer confidence that underpinned the markets. The unemployment rate declined from 4.5% to 4.1% during the fiscal year, accompanied by annual wage growth of about 3%. At the end of March, the Conference Board Consumer Confidence Index® – which measures how optimistic or pessimistic consumers are with respect to the economy in the near future – stood at 127.7, a small gain for the fiscal year and the 20th consecutive month above 100. Gross domestic product (GDP) growth was relatively robust, easing slightly in the final three months of 2017, but averaging just over 3% for the first nine months of the fiscal year. This period of US economic growth coincided with solid growth throughout most developed and emerging markets.

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Portfolio management review

Delaware Small Cap Growth Fund

 

Energy prices were strong – West Texas Intermediate (WTI) crude oil drifted above $60 a barrel by fiscal year-end – and are not likely to have much economic impact in the near term. Domestic supply can respond to price changes by cutting or increasing production as needed. Of the three Federal Reserve rate hikes that were implemented during the Fund’s fiscal year, only the latest increase in March appeared to roil the market, which by then also seemed to have trouble digesting the Trump administration’s proposal to implement tariffs on aluminum and steel imports.

Housing data, though weak overall, confirmed a long-term migration from large urban areas that have high taxes and a high cost of living to smaller urban areas in the Southern and Western portions of the United States that offer a good quality of life at more reasonable prices. In those areas, housing starts are rising 10% a year, accompanied by price increases of 10%, reflecting a robust housing market.

Manufacturing data were also strong throughout the first three quarters of the fiscal year, tapering off somewhat in the last quarter. Nonetheless, manufacturing and other corporate activity mirrored the optimism of US consumers. With improving economic conditions, individuals are more likely to feel confident that their jobs are secure and are more willing to purchase new homes or cars, take vacations, or engage in other activities that they may have put off during more times of financial hardship. Corporate executives have likewise become more confident in their businesses, and appear willing to make necessary investments that they, too, might have previously delayed.

The outsized return of growth companies during this period was largely the result of this increase in confidence. Investors who previously may have been fearful of paying 10 times current earnings for a company are now feeling optimistic about paying 25 times next year’s earnings. While there

are potential market risks for investors – including the geopolitical threats posed by Iran and North Korea or the possibility that further interest rate hikes will dampen enthusiasm for equities – the economy and markets appeared strong at the end of the fiscal year.

Source: Bloomberg

Within the Fund

For the fiscal year ended March 31, 2018, Delaware Small Cap Growth Fund Institutional Class shares returned +34.73%. The Fund’s Class A shares returned +34.47% at net asset value and +26.77% at maximum offer price. These figures reflect all distributions reinvested. During the same period, the Fund’s benchmark, the Russell 2000 Growth Index, returned +18.63%. For complete, annualized performance of Delaware Small Cap Growth Fund, please see the table on page 4.

We primarily focus on individual stock selection, but on a sector level, weak relative performance in the energy, materials, and telecommunication services sectors offset strong relative performance in the consumer discretionary, information technology, and healthcare sectors. The Fund pursues a pure growth strategy, focusing on what we view as the highest levels of growth or secular opportunities across the economy. Throughout the fiscal year, that focus on pure growth companies aided the Fund’s performance relative to the benchmark.

Weight Watchers International Inc., was the leading contributor to the Fund’s performance for the fiscal year. Once featuring in-person group meetings to monitor weight loss, the company has rebranded and shifted its focus to overall wellness. In December 2017, it launched its WW Freestyle™ program, which resulted in a strong finish to the fiscal year.

Collegium Pharmaceutical Inc., the maker of an abuse-deterrent version of oxycodone, was

 

 

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another strong contributor to performance as its Xtampza® product has gained traction in the marketplace. Containing the same active drug that is in oxycodone, Xtampza is formulated so that the drug is released over an extended period of time. Its efficacy as a pain-reliever is maintained, but it is far less likely to lead to addiction than standard forms of the drug. As concern over the opioid epidemic grows, we believe Collegium could benefit.

LGI Homes Inc., a home builder that is benefiting as people in the US migrate to the Southern and Western states, was another significant contributor to the Fund’s performance. The company’s business improved throughout the fiscal year as cities like Austin, Denver, and Nashville received waves of new residents. Specializing in starter homes, we believe LGI is positioned to take advantage of the growth in consumer confidence that is enabling more first-time home buyers. Additionally, by providing tax breaks, the government has been supportive of first-time loans. Banks are also eager to lend; the default rate for entry-level homes is relatively low.

Pacira Pharmaceuticals Inc. was the leading detractor from the Fund’s performance during the fiscal year. The company produces Exparel®, a local analgesic administered at the time of surgery. An alternative to the opioids that are routinely used, Exparel is expected to gain share as the opioid crisis deepens. Injected into the surgical site, the effects of the drug last for up to 96 hours; afterwards, additional relief can often be obtained from over-the-counter pain relievers. Though we think the drug is likely to be successful, its adoption has been slower than originally anticipated, largely due, in our view, to inertia in the healthcare system. We believe that

pending legislation and a new partnership with Johnson & Johnson may change that, and we therefore maintained the Fund’s position.

Pharmaceutical manufacturer Dermira Inc. also detracted from performance after it announced in early March 2018 that it was abandoning development of a new acne drug that failed two late-stage clinical trials. Although we think the company has other promising drugs in its pipeline, we sold the position during the fiscal year.

Another significant detractor during the fiscal year was U.S. Silica Holdings Inc. It is one of the largest producers of fracking sands, used to enhance production from oil wells. We bought the company when it appeared that energy markets had recovered from a slump in the price and production of oil. While oil has recovered somewhat, it is still hampered by the perception that additional capacity will come online, obviating the need for fracking sands. For that reason, we sold the position.

The Fund’s turnover was relatively low during the fiscal year. We believe the Fund has been and is well positioned to take advantage of continued economic growth.

We consistently apply our long-term investment philosophy without regard for short-term economic or market events. We identify trends that are driving the economy and then seek the companies that we think are leading those trends. We want to own what we view as strong secular growth companies with solid business models and competitive positions that we believe can grow market share and have the potential to deliver shareholder value in a variety of market environments.

 

 

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Performance summary

Delaware Small Cap Growth Fund

March 31, 2018 (Unaudited)

 

The performance quoted represents past performance and does not guarantee future results. Investment return and principal value of an investment will fluctuate so that shares, when redeemed, may be worth more or less than their original cost. Current performance may be lower or higher than the performance quoted. Performance data current to the most recent month end may be obtained by calling 800 523-1918 or visiting delawarefunds.com/performance.

Fund and benchmark performance1,2

 

         Average annual total returns through March 31, 2018 
       1 year Lifetime 

Class A (Est. June 30, 2016)

    

Excluding sales charge

   +34.47%  +26.80% 

Including sales charge

    +26.77%  +22.57% 

Class C (Est. June 30, 2016)

    

Excluding sales charge

   +33.44%  +25.86% 

Including sales charge

    +32.44%  +25.86% 

Class R (Est. June 30, 2016)

    

Excluding sales charge

   +33.96%*  +26.45% 

Including sales charge

    +33.96%*  +26.45% 

Institutional Class

    

(Est. June 30, 2016)

    

Excluding sales charge

   +34.73%  +27.09% 

Including sales charge

    +34.73%  +27.09% 

Russell 2000 Growth Index

    +18.63%  +21.87%** 

*Total returns for the report period presented in the table differ from the returns in “Financial highlights.” The total returns presented in the above table are calculated based on the net asset value (NAV) at which shareholder transactions were processed. The total returns presented in “Financial highlights” are calculated in the same manner, but also take into account certain adjustments that are necessary under US generally accepted accounting principles (US GAAP) required in the annual report.

**The benchmark lifetime return is for Class A share comparison only and is calculated using the last business day in the month of the Fund’s Class A inception date.

 

1Returns 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 and benchmark performance” table. 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.

Institutional Class shares are not subject to a sales charge and are offered for sale exclusively to certain eligible investors. In addition, Institutional Class shares pay no distribution and service fee.

Class A shares are sold with a maximum front-end sales charge of 5.75%, and have an annual distribution and service fee of 0.25% of average daily net assets. 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

 

 

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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.

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 0.50% of average daily net assets.

Investments in small and/or medium-sized companies typically exhibit greater risk and higher volatility than larger, more established companies.

Risk is increased in a concentrated portfolio since it holds a limited number of securities with each investment having a greater effect on the overall performance.

 

 

2 The Fund’s expense ratios, as described in the most recent prospectus, are disclosed in the following “Fund expense ratios” table. Delaware Management Company has agreed to reimburse certain expenses and/or waive certain fees in order to prevent total annual fund operating expenses (excluding any 12b-1 fees, acquired fund fees and expenses, taxes, interest, 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 (collectively, nonroutine expenses)) from exceeding 1.05% of the Fund’s average daily net assets during the period from April 1, 2017 to March 31, 2018.* Please see the most recent prospectus and any applicable supplement(s) for additional information on these fee waivers and/or reimbursements. Please see the “Financial highlights” section in this report for the most recent expense ratios.

 

Fund expense ratios  Class A  Class C  Class R  Institutional Class    

Total annual operating expenses

(without fee waivers)

  4.87%  5.62%  5.12%  4.62%  

Net expenses

(including fee waivers, if any)

  1.30%  2.05%  1.55%  1.05%  

Type of waiver

  Contractual  Contractual  Contractual  Contractual   

*The aggregate contractual waiver period covering this report is from June 30, 2016, through July 30, 2018.

 

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Performance summary

Delaware Small Cap Growth Fund

 

Performance of a $10,000 Investment1

Average annual total returns from June 30, 2016 (Fund’s inception), through March 31, 2018

 

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1The “Performance of a $10,000 investment” graph assumes $10,000 invested in Institutional Class and Class A shares of the Fund on June 30, 2016, and includes the effect of a 5.75% front-end sales charge (for Class A shares) 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. Expenses are listed in the “Fund expense ratios” table on page 5. Please note additional details on pages 4 through 7.

The graph also assumes $10,000 invested in the Russell 2000 Growth Index as of June 30, 2016. The Russell 2000 Growth Index measures the performance of the small-cap growth segment of the US equity universe. It includes those Russell 2000 companies with higher price-to-book ratios and higher forecasted growth values.

The Russell 2000 Index, mentioned on page 1, measures the performance of the small-cap segment of the US equity universe.

The Russell 2000 Value Index, mentioned on page 1, measures the performance of the small-cap value segment of the US equity universe. It includes those Russell 2000 companies with lower price-to-book ratios and lower forecasted growth values.

The Conference Board Consumer Confidence Index, mentioned on page 1, is a barometer of the health of the US economy from the perspective of the consumer. The index is based on consumers’ perceptions of current business and employment conditions, as well as their expectations for six months hence regarding business conditions, employment, and income.

Russell Investment Group is the source and owner of the trademarks, service marks, and copyrights

 

 

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related to the Russell Indexes. Russell® is a trademark of Russell Investment Group.

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

  DSGDX  24610A604  

Class C

  DSGEX  24610A703  

Class R

  DSGFX  24610A885  

Institutional Class

 

  

DSGGX

 

  

24610A802

 

   

 

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Disclosure of Fund expenses

For the six-month period from October 1, 2017 to March 31, 2018 (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 Oct. 1, 2017 to March 31, 2018.

Actual expenses

The first section of the table shown, “Actual Fund return,” provides information about actual account values and actual expenses. You may use the information in this section of the table, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first section under the heading entitled “Expenses Paid During Period” to estimate the expenses you paid on your account during this period.

Hypothetical example for comparison purposes

The second section of the table shown, “Hypothetical 5% return,” provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.

Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as sales charges (loads), redemption fees, or exchange fees. Therefore, the second section of the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher. The Fund’s expenses shown in the table reflect fee waivers in effect. The expenses shown in the table assume reinvestment of all dividends and distributions.

 

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Delaware Small Cap Growth Fund

Expense analysis of an investment of $1,000

 

    Beginning
Account Value
10/1/17
   Ending
Account Value
3/31/18
   Annualized
Expense Ratio
  Expenses
Paid During Period
10/1/17 to 3/31/18*
 

Actual Fund return

       

Class A

   $1,000.00    $1,241.10    1.30%   $7.26 

Class C

     1,000.00      1,237.30    2.05%   11.43 

Class R

     1,000.00      1,240.00    1.55%     8.66 

Institutional Class

     1,000.00      1,242.40    1.05%     5.87 

Hypothetical 5% return (5% return before expenses)

 

   

Class A

   $1,000.00    $1,018.45    1.30%   $6.54 

Class C

     1,000.00      1,014.71    2.05%   10.30 

Class R

     1,000.00      1,017.20    1.55%     7.80 

Institutional Class

     1,000.00      1,019.70    1.05%     5.29 

*“Expenses Paid During Period” are equal to the Fund’s annualized expense ratio, multiplied by the average account value over the period, multiplied by 182/365 (to reflect the one-half year period).

Because actual returns reflect only the most recent six-month period, the returns shown may differ significantly from fiscal year returns.

 

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Security type / sector allocation and top 10 equity holdings

Delaware Small Cap Growth Fund  As of March 31, 2018 (Unaudited)

 

Sector designations may be different than the sector designations presented in other fund materials. The sector designations may represent the investment manager’s internal sector classifications.

 

Security type / sector  Percentage of net assets     

Common Stock²

   100.31 

Consumer Discretionary

   31.26 

Financials

   2.51 

Healthcare

   27.29 

Industrials

   7.97 

Information Technology

   31.28    

Short-Term Investments

   0.16    

Total Value of Securities

   100.47    

Liabilities Net of Receivables and Other Assets

   (0.47%)     

Total Net Assets

   100.00    

 

²Narrow industries are utilized for compliance purposes for diversification whereas broad sectors are used for financial reporting.

*To monitor compliance with the Fund’s concentration guidelines as described in the Fund’s prospectus and statement of additional information, the Consumer Discretionary, Healthcare, and Information Technology sectors (as disclosed herein for financial reporting purposes) is subdivided into a variety of “industries” (in accordance with the requirements of the Investment Company Act of 1940, as amended). The Consumer Discretionary sector consisted of Diversified Consumer Services; Hotels, Restaurants, and Leisure; Household Durables; Leisure Products; Specialty Retail; and Textile, Apparel, and Luxury Goods. As of March 31, 2018, such amounts, as percentage of total net assets, were 5.15%; 1.79%; 9.93%; 3.03%; 10.81%; and 0.55%, respectively. The Healthcare sector consisted of Biotechnology; Healthcare Providers and Services; and Pharmaceuticals. As of March 31, 2018, such amounts, as percentage of total net assets, were 10.78%; 5.78%; and 10.73%, respectively. The Information Technology sector consisted of Electric Equipment, Instruments, and Components; Internet Software and Services; IT Services; Semiconductors and Semiconductor Equipment; and Software. As of March 31, 2018, such amounts, as percentage of total net assets, were 3.61%; 13.71%; 2.95%; 4.19%; and 6.82%, respectively. The percentage in any such single industry will comply with the Fund’s concentration policy even if the percentages in the Consumer Discretionary, Healthcare, and Information Technology sectors for financial reporting purposes may exceed 25%.

 

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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        

Collegium Pharmaceutical

  6.22%

Weight Watchers International

  5.15%

Pacira Pharmaceuticals

  4.50%

Exelixis

  4.40%

Neurocrine Biosciences

  4.39%

Burlington Stores

  4.35%

American Woodmark

  4.20%

MKS Instruments

  4.19%

Match Group

  4.16%

RingCentral Class A

 

  4.13%

 

 

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Schedule of investments

Delaware Small Cap Growth Fund  March 31, 2018

 

    Number of shares   Value (US $) 

Common Stock – 100.31%²

          

Consumer Discretionary – 31.26%

    

Burlington Stores †

   2,650   $352,847 

Canada Goose Holdings †

   1,330    44,449 

Century Communities †

   7,055    211,297 

Five Below †

   3,665    268,791 

LGI Homes †

   4,310    304,157 

Malibu Boats Class A †

   7,395    245,588 

MarineMax †

   13,080    254,406 

Shake Shack Class A †

   3,480    144,872 

TopBuild †

   3,790    290,011 

Weight Watchers International †

   6,550    417,366 
    

 

 

 
     2,533,784 
    

 

 

 

Financials – 2.51%

    

LendingTree †

   620    203,453 
    

 

 

 
     203,453 
    

 

 

 

Healthcare – 27.29%

    

AMN Healthcare Services †

   2,420    137,335 

BioTelemetry †

   10,680    331,614 

Collegium Pharmaceutical †

   19,745    504,485 

Exelixis †

   16,095    356,504 

Loxo Oncology †

   115    13,267 

Neurocrine Biosciences †

   4,295    356,184 

Pacira Pharmaceuticals †

   11,715    364,922 

Sarepta Therapeutics †

   2,000    148,180 
    

 

 

 
     2,212,491 
    

 

 

 

Industrials – 7.97%

    

American Woodmark †

   3,460    340,637 

Patrick Industries †

   1,855    114,732 

SiteOne Landscape Supply †

   105    8,089 

Trex †

   1,680    182,734 
    

 

 

 
     646,192 
    

 

 

 

Information Technology – 31.28%

    

Care.com †

   11,385    185,234 

EPAM Systems †

   2,090    239,347 

Littelfuse

   1,405    292,493 

LogMeIn

   2,320    268,076 

Match Group †

   7,590    337,300 

MKS Instruments

   2,935    339,433 

Proofpoint †

   1,920    218,208 

RingCentral Class A †

   5,270    334,645 

 

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    Number of shares   Value (US $) 

Common Stock² (continued)

          

Information Technology (continued)

    

Trade Desk Class A †

   6,460   $320,545 
    

 

 

 
       2,535,281 
    

 

 

 

Total Common Stock (cost $6,712,908)

     8,131,201 
    

 

 

 
    Principal amount°      

Short-Term Investments – 0.16%

          

Repurchase Agreements – 0.16%

    

Bank of America Merrill Lynch
1.71%, dated 3/29/18, to be repurchased on 4/2/18, repurchase price $1,871 (collateralized by US government obligations 1.50%–3.75% 11/15/18–8/15/44; market value $1,908)

   1,871    1,871 

Bank of Montreal
1.60%, dated 3/29/18, to be repurchased on 4/2/18, repurchase price $5,613 (collateralized by US government obligations 0.00%–2.875% 8/16/18–8/15/47; market value $5,724)

   5,612    5,612 

BNP Paribas
1.75%, dated 3/29/18, to be repurchased on 4/2/18, repurchase price $5,518 (collateralized by US government obligations 0.00%–3.625% 5/31/18–11/15/45; market value $5,628)

   5,517    5,517 
    

 

 

 

Total Short-Term Investments (cost $13,000)

     13,000 
    

 

 

 

Total Value of Securities – 100.47%
(cost $6,725,908)

    $    8,144,201 
    

 

 

 

 

²Narrow industries are utilized for compliance purposes for diversification whereas broad sectors are used for financial reporting.

 

°Principal amount shown is stated in US dollars unless noted that the security is denominated in another currency.

 

Non-income producing security.

See accompanying notes, which are an integral part of financial statements.

 

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Table of Contents
Statement of assets and liabilities  

Delaware Small Cap Growth Fund

  March 31, 2018

 

Assets:

  

Investments, at value1

  $8,144,201 

Receivable for securities sold

   285,503 

Receivable for fund shares sold

   37 

Dividends and interest receivable

   2 
  

 

 

 

Total assets

   8,429,743 
  

 

 

 

Liabilities:

  

Cash due to custodian

   4,016 

Payable for securities purchased

   286,165 

Other accrued expenses payable

   24,065 

Audit and tax fees payable

   5,318 

Investment management fees payable to affiliates

   3,145 

Accounting and administration expenses payable to affiliates

   367 

Legal fees payable to affiliates

   232 

Distribution fees payable to affiliates

   148 

Dividend disbursing and transfer agent fees and expenses payable to affiliates

   138 

Trustees’ fees and expenses payable to affiliates

   48 

Reports and statements to shareholders expenses payable to affiliates

   6 
  

 

 

 

Total liabilities

   323,648 
  

 

 

 

Total Net Assets

  $8,106,095 
  

 

 

 

Net Assets Consist of:

  

Paid-in capital

  $6,087,284 

Accumulated net realized gain on investments

   600,518 

Net unrealized appreciation of investments

   1,418,293 
  

 

 

 

Total Net Assets

  $8,106,095 
  

 

 

 

 

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Net Asset Value

  

Class A:

  

Net assets

  $431,791 

Shares of beneficial interest outstanding, unlimited authorization, no par

   37,250 

Net asset value per share

  $11.59 

Sales charge

   5.75

Offering price per share, equal to net asset value per share / (1 – sales charge)

  $12.30 

Class C:

  

Net assets

  $61,432 

Shares of beneficial interest outstanding, unlimited authorization, no par

   5,375 

Net asset value per share

  $11.43 

Class R:

  

Net assets

  $7,463 

Shares of beneficial interest outstanding, unlimited authorization, no par

   647 

Net asset value per share

  $11.53 

Institutional Class:

  

Net assets

  $7,605,409 

Shares of beneficial interest outstanding, unlimited authorization, no par

   653,154 

Net asset value per share

  $11.64 

 

1Investments, at cost

  $6,725,908 

See accompanying notes, which are an integral part of the financial statements.

 

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Statement of operations  

Delaware Small Cap Growth Fund

  Year ended March 31, 2018

 

Investment Income:

  

Dividends

  $6,429 

Interest

   272 
  

 

 

 
   6,701 
  

 

 

 

Expenses:

  

Registration fees

   67,420 

Management fees

   51,211 

Audit and tax fees

   30,289 

Accounting and administration expenses

   22,515 

Reports and statements to shareholders expenses

   16,873 

Legal fees

   5,790 

Dividend disbursing and transfer agent fees and expenses

   2,583 

Custodian fees

   2,554 

Distribution expenses – Class A

   741 

Distribution expenses – Class C

   411 

Distribution expenses – Class R

   32 

Trustees’ fees and expenses

   311 

Other

   10,782 
  

 

 

 
   211,512 

Less expenses waived

   (138,766

Less expenses paid indirectly

   (5
  

 

 

 

Total operating expenses

   72,741 
  

 

 

 

Net Investment Loss

   (66,040
  

 

 

 

Net Realized and Unrealized Gain:

  

Net realized gain on investments

   879,700 

Net change in unrealized appreciation (depreciation) of investments

   1,225,585 
  

 

 

 

Net Realized and Unrealized Gain

   2,105,285 
  

 

 

 

Net Increase in Net Assets Resulting from Operations

  $2,039,245 
  

 

 

 

See accompanying notes, which are an integral part of the financial statements.

 

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Statements of changes in net assets

Delaware Small Cap Growth Fund

 

   

Year ended

3/31/18

  

6/30/16*

to

3/31/17

 

Increase (Decrease) in Net Assets from Operations:

   

Net investment loss

  $(66,040 $(22,255

Net realized gain

   879,700   475,426 

Net change in unrealized appreciation (depreciation)

   1,225,585   192,708 
  

 

 

  

 

 

 

Net increase in net assets resulting from operations

   2,039,245   645,879 
  

 

 

  

 

 

 

Dividends and Distributions to Shareholders from:

   

Net realized gain:

   

Class A

   (20,906  (2,595

Class C

   (2,127  (504

Class R

   (437  (206

Institutional Class

   (434,866  (204,679
  

 

 

  

 

 

 
   (458,336  (207,984
  

 

 

  

 

 

 

Capital Share Transactions:

   

Proceeds from shares sold:

   

Class A

   226,557   183,733 

Class C

   39,754   30,231 

Class R

   1   5,027 

Institutional Class

   110,131   5,008,824 

Net asset value of shares issued upon reinvestment of dividends and distributions:

   

Class A

   20,840   2,563 

Class C

   2,061   473 

Class R

   371   175 

Institutional Class

   369,888   173,977 
  

 

 

  

 

 

 
   769,603   5,405,003 
  

 

 

  

 

 

 

 

18


Table of Contents
   

Year ended

3/31/18

  

6/30/16*

to

3/31/17

 

Capital Share Transactions(continued):

   

Cost of shares redeemed:

   

Class A

  $(66,279 $(467

Class C

   (18,169   

Institutional Class

   (2,400   
  

 

 

  

 

 

 
   (86,848  (467
  

 

 

  

 

 

 

Increase in net assets derived from capital share transactions

   682,755   5,404,536 
  

 

 

  

 

 

 

Net Increase in Net Assets

   2,263,664   5,842,431 
  

 

 

  

 

 

 

Net Assets:

   

Beginning of year

   5,842,431    
  

 

 

  

 

 

 

End of year

  $8,106,095  $5,842,431 
  

 

 

  

 

 

 

Accumulated net investment loss

  $  $ 
  

 

 

  

 

 

 

*Date of commencement of operations.

See accompanying notes, which are an integral part of the financial statements.

 

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Financial highlights

Delaware Small Cap Growth Fund Class A

Selected data for each share of the Fund outstanding throughout each period were as follows:

 

    

Year ended

3/31/18

  

6/30/161

to

3/31/17

 

Net asset value, beginning of period

  $9.22  $8.50 

Income (loss) from investment operations:

   

Net investment loss2

   (0.13  (0.05

Net realized and unrealized gain

   3.22   1.12 
  

 

 

  

 

 

 

Total from investment operations

   3.09   1.07 
  

 

 

  

 

 

 

Less dividends and distributions from:

   

Net realized gain

   (0.72  (0.35
  

 

 

  

 

 

 

Total dividends and distributions

   (0.72  (0.35
  

 

 

  

 

 

 

Net asset value, end of period

  $11.59  $9.22 
  

 

 

  

 

 

 

Total return3

   34.47%   12.69% 

Ratios and supplemental data:

   

Net assets, end of period (000 omitted)

  $432  $184 

Ratio of expenses to average net assets

   1.30%   1.30% 

Ratio of expenses to average net assets prior to fees waived4

   3.33%   4.87% 

Ratio of net investment loss to average net assets

   (1.20%  (0.77%

Ratio of net investment loss to average net assets prior to fees waived4

   (3.23%  (4.34%

Portfolio turnover

   151%   145% 

 

1 Date of commencement of operations; ratios have been annualized and total return and portfolio turnover have 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 Expenses paid indirectly were not material and had no impact on the ratios disclosed. Expenses paid indirectly for the year ended March 31, 2018 are reflected on the “Statement of operations.”

See accompanying notes, which are an integral part of the financial statements.

 

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Financial highlights

Delaware Small Cap Growth Fund Class C

 

 

Selected data for each share of the Fund outstanding throughout each period were as follows:

 

    

Year ended

3/31/18

  

6/30/161

to

3/31/17

 

Net asset value, beginning of period

  $9.17  $8.50 

Income (loss) from investment operations:

   

Net investment loss2

   (0.20  (0.11

Net realized and unrealized gain

   3.18   1.13 
  

 

 

  

 

 

 

Total from investment operations

   2.98   1.02 
  

 

 

  

 

 

 

Less dividends and distributions from:

   

Net realized gain

   (0.72  (0.35
  

 

 

  

 

 

 

Total dividends and distributions

   (0.72  (0.35
  

 

 

  

 

 

 

Net asset value, end of period

  $11.43  $9.17 
  

 

 

  

 

 

 

Total return3

   33.44%   12.09% 

Ratios and supplemental data:

   

Net assets, end of period (000 omitted)

  $61  $31 

Ratio of expenses to average net assets

   2.05%   2.05% 

Ratio of expenses to average net assets prior to fees waived4

   4.08%   5.62% 

Ratio of net investment loss to average net assets

   (1.95%  (1.52%

Ratio of net investment loss to average net assets prior to fees waived4

   (3.98%  (5.09%

Portfolio turnover

   151%   145% 

 

1 Date of commencement of operations; ratios have been annualized and total return and portfolio turnover have 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 Expenses paid indirectly were not material and had no impact on the ratios disclosed. Expenses paid indirectly for the year ended March 31, 2018 are reflected on the “Statement of operations.”

See accompanying notes, which are an integral part of the financial statements.

 

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Financial highlights

Delaware Small Cap Growth Fund Class R

 

Selected data for each share of the Fund outstanding throughout each period were as follows:

 

    

Year ended

3/31/18

  

6/30/161

to

3/31/17

 

Net asset value, beginning of period

  $9.20  $8.50 

Income (loss) from investment operations:

   

Net investment loss2

 �� (0.15  (0.07

Net realized and unrealized gain

   3.20   1.12 
  

 

 

  

 

 

 

Total from investment operations

   3.05   1.05 
  

 

 

  

 

 

 

Less dividends and distributions from:

   

Net realized gain

   (0.72  (0.35
  

 

 

  

 

 

 

Total dividends and distributions

   (0.72  (0.35
  

 

 

  

 

 

 

Net asset value, end of period

  $11.53  $9.20 
  

 

 

  

 

 

 

Total return3

   34.10%   12.57% 

Ratios and supplemental data:

   

Net assets, end of period (000 omitted)

  $8  $6 

Ratio of expenses to average net assets

   1.55%   1.55% 

Ratio of expenses to average net assets prior to fees waived4

   3.58%   5.12% 

Ratio of net investment loss to average net assets

   (1.45%  (1.02%

Ratio of net investment loss to average net assets prior to fees waived4

   (3.48%  (4.59%

Portfolio turnover

   151%   145% 

 

1 Date of commencement of operations; ratios have been annualized and total return and portfolio turnover have 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 a waiver by the manager. Performance would have been lower had the waiver not been in effect.

 

4 Expenses paid indirectly were not material and had no impact on the ratios disclosed. Expenses paid indirectly for the year ended March 31, 2018 are reflected on the “Statement of operations.”

See accompanying notes, which are an integral part of the financial statements.

 

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Financial highlights

Delaware Small Cap Growth Fund Institutional Class

 

Selected data for each share of the Fund outstanding throughout each period were as follows:

 

    

Year ended

3/31/18

  

6/30/161

to

3/31/17

 

Net asset value, beginning of period

  $9.24  $8.50 

Income (loss) from investment operations:

   

Net investment loss2

   (0.10  (0.04

Net realized and unrealized gain

   3.22   1.13 
  

 

 

  

 

 

 

Total from investment operations

   3.12   1.09 
  

 

 

  

 

 

 

Less dividends and distributions from:

   

Net realized gain

   (0.72  (0.35
  

 

 

  

 

 

 

Total dividends and distributions

   (0.72  (0.35
  

 

 

  

 

 

 

Net asset value, end of period

  $11.64  $9.24 
  

 

 

  

 

 

 

Total return3

   34.73%   12.93% 

Ratios and supplemental data:

   

Net assets, end of period (000 omitted)

  $7,605  $5,621 

Ratio of expenses to average net assets

   1.05%   1.05% 

Ratio of expenses to average net assets prior to fees waived4

   3.08%   4.62% 

Ratio of net investment loss to average net assets

   (0.95%  (0.52%

Ratio of net investment loss to average net assets prior to fees waived4

   (2.98%  (4.09%

Portfolio turnover

   151%   145% 

 

1 Date of commencement of operations; ratios have been annualized and total return and portfolio turnover have 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 a waiver by the manager. Performance would have been lower had the waiver not been in effect.

 

4 Expenses paid indirectly were not material and had no impact on the ratios disclosed. Expenses paid indirectly for the year ended March 31, 2018 are reflected on the “Statement of operations.”

See accompanying notes, which are an integral part of the financial statements.

 

23


Table of Contents

Notes to financial statements

Delaware Small Cap Growth Fund

   March 31, 2018 

Delaware Group® Equity Funds IV (Trust) is organized as a Delaware statutory trust and offers three series: Delaware Healthcare Fund, Delaware Small Cap Growth Fund, and Delaware Smid Cap Growth Fund. These financial statements and the related notes pertain to Delaware Small 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 (1940 Act), 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) instead of a front-end sales charge of 1.00% 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 1.00%, if redeemed during the first 12 months. Class R and Institutional Class shares are not subject to a sales charge and are offered for sale exclusively to certain eligible investors.

The investment objective of the Fund is to seek long-term capital appreciation.

1. Significant Accounting Policies

The following accounting policies are in accordance with US generally accepted accounting principles (US GAAP) and are consistently followed by the Fund.

Security Valuation – Equity securities, except those traded on the Nasdaq Stock Market LLC (Nasdaq) are valued at the last quoted sales price as of the time of the regular close of the New York Stock Exchange on the valuation date. Equity 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, the mean between the bid and ask prices will be used, which approximates fair value. US government and agency securities are valued at the mean between the bid and ask prices, which approximates fair value. 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 Trust’s 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. Restricted securities are valued at fair value using methods approved by the Board.

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 Fund’s tax returns to determine whether the tax positions are “more-likely-than-not” of being sustained by the applicable tax authority. Tax positions not deemed to meet the “more-likely-than-not” threshold are recorded as a tax benefit or expense in the current year. Management has analyzed the Fund’s tax positions taken or to be taken on the Fund’s federal income tax returns through the year ended March 31, 2018 and for the open tax year ended March 31, 2017, and has concluded that no provision for federal income tax is required in the Fund’s financial statements. If applicable, the Fund recognizes interest accrued on unrecognized tax benefits in interest expense and penalties in other expenses on the “Statement of operations.” During the year ended March 31, 2018, the Fund did not incur any interest or tax penalties.

 

24


Table of Contents

    

 

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 US government securities subject to the counterparty’s 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 Fund’s 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 March 29, 2018 and matured on the next business day.

Use of Estimates – The Fund is an investment company, whose financial statements are prepared in conformity with US GAAP. Therefore, the Fund follows the accounting and reporting guidelines for investment companies. The preparation of financial statements in conformity with US 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 Funds® by Macquarie (Delaware Funds) are generally allocated among such funds on the basis of average net assets. Management fees and certain 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. Discounts and premiums on debt securities are accreted or amortized to interest income, respectively, over the lives of the respective securities using the effective interest method. Distributions received from investments in real estate investment trusts (REITs) are recorded as dividend income on the ex-dividend date, subject to reclassification upon notice of the character of such distributions by the issuer. The Fund declares and pays dividends from net investment income and distributions from net realized gain on investments, if any, annually. The Fund may distribute more frequently, if necessary for tax purposes. Dividends and distributions, if any, are recorded on the ex-dividend date.

Each Fund receives earnings credits from its custodian when positive cash balances are maintained, which may be used to offset custody fees. There were no such earnings credits for the year ended March 31, 2018.

The Fund receives earnings credits from its transfer agent when positive cash balances are maintained, which may be used to offset transfer agent fees. If the amount earned is greater than $1, the expense paid under this arrangement is included on the “Statement of operations” under “Dividend disbursing and transfer agent fees and expenses” with the corresponding expense offset included under “Less expenses paid indirectly.” For the year ended March 31, 2018, the Fund earned $5 under this agreement.

 

25


Table of Contents

Notes to financial statements

Delaware Small Cap Growth Fund

 

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 Macquarie Investment Management Business Trust and the investment manager, an annual fee which is calculated daily and paid monthly at the rate of 0.75% on the first $500 million of average daily net assets of the Fund; 0.70% on the next $500 million; 0.65% on the next $1.5 billion; and 0.60% on average daily net assets in excess of $2.5 billion.

DMC has contractually agreed to waive all or a portion of its investment advisory fees and/or pay/reimburse expenses (excluding any distribution and service (12b-1) fees, acquired fund fees and expenses, taxes, interest, short sale, dividend and 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) in order to prevent total annual fund operating expenses from exceeding 1.05% of the Fund’s average daily net assets from April 1, 2017 through March 31, 2018.* These waivers and reimbursements may only be terminated by agreement of DMC and the Fund.

Delaware Investments Fund Services Company (DIFSC), an affiliate of DMC, provides fund accounting and financial administrative oversight services to the Fund. For these services, DIFSC’s fees are calculated daily and paid monthly based on the aggregate daily net assets of the Delaware Funds from April 1, 2017 through Aug. 31, 2017 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 DIFSC under the service agreement described above are allocated among all Funds in the Delaware Funds on a relative net asset value (NAV) basis. Effective Sept. 1, 2017, the Fund as well as other Delaware Funds entered into an amendment to the DIFSC agreement. Under the amendment to the DIFSC agreement, DIFSC’s fees are calculated daily and paid monthly based on the aggregate daily net assets of the Delaware Funds at the following annual rate: 0.00475% of the first $35 billion; 0.0040% of the next $10 billion; and 0.0025% of aggregate average daily net assets in excess of $45 billion (Total Fee). The Fund pays a minimum of $4,000, which, in aggregate, is subtracted from the Total Fee. Each fund in the Delaware Funds then pays its portion of the remainder of the Total Fee on a relative NAV basis. For the year ended March 31, 2018, the Fund was charged $2,603 for these services. This amount is included on the “Statement of operations” under “Accounting and administration expenses.”

DIFSC is also the transfer agent and dividend disbursing agent of the Fund. For these services, DIFSC’s fees are calculated daily and paid monthly based on the aggregate daily net assets of the retail funds within the Delaware Funds at the following annual rate: 0.025% of the first $20 billion; 0.020% of the next $5 billion; 0.015% of the next $5 billion; and 0.013% on average daily net assets in excess of $30 billion. The fees payable to DIFSC under the service agreement described above are allocated among all retail funds in the Delaware Funds on a relative NAV basis. For the year ended March 31, 2018, the Fund was charged $1,343 for these services. This amount is included on the “Statement of operations” under “Dividend disbursing and transfer agent fees and expenses.” Pursuant to a sub-transfer agency agreement between DIFSC and BNY Mellon Investment Servicing (US) Inc. (BNYMIS), BNYMIS provides certain sub-transfer agency services to the Fund. Sub-transfer agency fees are paid by the Fund and are also included on the “Statement of operations” under “Dividend disbursing and transfer agent fees and expenses.”

 

26


Table of Contents

Pursuant to a distribution agreement and distribution plan, the Fund pays DDLP, the distributor and an affiliate of DMC, an annual 12b-1 fee of 0.25% 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 0.50% of the average daily net assets of Class R shares. The fees are calculated daily and paid monthly. Institutional Class shares pay no 12b-1 fees.

As provided in the investment management agreement, the Fund bears a portion of the cost of certain resources shared with DMC, including the cost of internal personnel of DMC and/or its affiliates that provide legal, tax, and regulatory reporting services to the Fund. For the year ended March 31, 2018, the Fund was charged $538 for internal legal, tax, and regulatory reporting services provided by DMC and/or its affiliates’ employees. This amount is included on the “Statement of operations” under “Legal fees.”

For the year ended March 31, 2018, DDLP earned $767 for commissions on sales of the Fund’s Class A shares.

Trustees’ fees include expenses accrued by the Fund for each Trustee’s retainer and meeting fees. Certain officers of DMC, DIFSC, and DDLP are officers and/or Trustees of the Trust. These officers and Trustees are paid no compensation by the Fund.

 

 

*The aggregate contractual waiver period covering this report is from June 30, 2016 through July 30, 2018.

3. Investments

For the year ended March 31, 2018, the Fund made purchases and sales of investment securities other than short-term investments as follows:

 

Purchases

  $10,519,292 

Sales

   10,311,915 

The tax cost of investments includes adjustments to net unrealized appreciation (depreciation) which may not necessarily be final tax cost basis adjustments, but approximate the tax basis unrealized gains and losses that may be realized and distributed to shareholders. At March 31, 2018, the cost and unrealized appreciation (depreciation) of investments for federal income tax purposes for the Fund were as follows:

 

Cost of investments

  $ 6,855,249 
  

 

 

 

Aggregate unrealized appreciation of investments

  $1,607,985 

Aggregate unrealized depreciation of investments

   (319,033
  

 

 

 

Net unrealized appreciation of investments

  $1,288,952 
  

 

 

 

US 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.

 

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Notes to financial statements

Delaware Small Cap Growth Fund

3. Investments (continued)

 

Unobservable inputs reflect the reporting entity’s own assumptions about the assumptions that market participants would use in pricing the asset or liability based on the best information available under the circumstances. The Fund’s 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. (Examples: 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. (Examples: 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 – Significant unobservable inputs, including the Fund’s own assumptions used to determine the fair value of investments. (Examples: broker-quoted securities, fair valued securities)

Level 3 investments are valued using significant unobservable inputs. 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 Fund’s investments by fair value hierarchy levels as of March 31, 2018:

 

   Level 1   Level 2   Total 

Securities

      

Assets:

      

Common Stock

  $8,131,201   $   $8,131,201 

Short-Term Investments

       13,000    13,000 
  

 

 

   

 

 

   

 

 

 

Total Value of Securities

  $8,131,201   $13,000   $8,144,201 
  

 

 

   

 

 

   

 

 

 

During the year ended March 31, 2018, there were no transfers between Level 1 investments, Level 2 investments, or Level 3 investments that had a significant impact to the Fund. The Fund’s policy is to recognize transfers between levels based on fair value at the beginning of the reporting period April 1, 2017.

 

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A reconciliation of Level 3 investments is presented when the Fund has a significant amount of Level 3 investments at the beginning, interim, or end of the period in relation to net assets. During the year ended March 31, 2018, there were no Level 3 investments.

4. Dividend and Distribution Information

Income and long-term capital gain distributions are determined in accordance with federal income tax regulations, which may differ from US 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 year ended March 31, 2018 and the period June 30, 2016* through March 31, 2017 was as follows:

 

   

Year ended

3/31/18

   

6/30/16*

to

3/31/17

 

Ordinary income

  $458,336   $207,984 

 

* Date of commencement of operations.

5. Components of Net Assets on a Tax Basis

As of March 31, 2018, the components of net assets on a tax basis were as follows:

 

Shares of beneficial interest

  $ 6,087,284 

Undistributed ordinary income

   690,858 

Undistributed long-term capital gains

   39,001 

Net unrealized appreciation on investments

   1,288,952 
  

 

 

 

Net assets

  $8,106,095 
  

 

 

 

The differences between book basis and tax basis components of net assets are primarily attributable to tax deferral of losses on wash sales.

For financial reporting purposes, capital accounts are adjusted to reflect the tax character of permanent book/tax differences. Reclassifications are primarily due to tax treatment of net operating loss. Results of operations and net assets were not affected by these reclassifications. For the year ended March 31, 2018, the Fund recorded the following reclassifications:

 

Accumulated net investment loss

  $66,040 

Accumulated net realized gain on investments

   (66,040

 

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Notes to financial statements

Delaware Small Cap Growth Fund

 

6. Capital Shares

Transactions in capital shares were as follows:

 

   

Year ended

3/31/18

  

6/30/16*

to

3/31/17

 

Shares sold:

   

Class A

   21,400   19,765 

Class C

   3,615   3,295 

Class R

      591 

Institutional Class

   9,067   589,013 

Shares issued upon reinvestment of dividends and distributions:

   

Class A

   2,033   286 

Class C

   204   53 

Class R

   36   20 

Institutional Class

   35,946   19,374 
  

 

 

  

 

 

 
   72,301   632,397 
  

 

 

  

 

 

 

Shares redeemed:

   

Class A

   (6,183  (51

Class C

   (1,792   

Institutional Class

   (246   
  

 

 

  

 

 

 
   (8,221  (51
  

 

 

  

 

 

 

Net increase

   64,080   632,346 
  

 

 

  

 

 

 

 

* Date of commencement of operations.

7. Line of Credit

The Fund, along with certain other funds in the Delaware Funds (Participants), was a participant in a $155,000,000 revolving line of credit intended 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 of 0.15%, which was generally allocated across the Participants based on a weighted average of the respective net assets of each Participant. 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 available under the agreement expired on Nov. 6, 2017.

On Nov. 6, 2017, the Fund, along with the other Participants, entered into an amendment to the agreement for a $155,000,000 revolving line of credit. The line of credit is to be used as described above and operates in substantially the same manner as the original agreement. The line of credit available under the agreement expires on Nov. 5, 2018.

The Fund had no amounts outstanding as of March 31, 2018, or at any time during the year then ended.

 

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8. Offsetting

Repurchase agreements are entered into by the Fund under Master Repurchase Agreements (each, an “MRA”). The MRA permits the Fund, under certain circumstances including an event of default (such as bankruptcy or insolvency), to offset payables and/or receivables with collateral held by and/or posted to the counterparty. As a result, one single net payment is created. Bankruptcy or insolvency laws of a particular jurisdiction may impose restrictions on or prohibitions against such a right of offset in the event of the MRA counterparty’s bankruptcy or insolvency. Based on the terms of the MRA, the Fund receives securities as collateral with a market value in excess of the repurchase price at maturity. Upon a bankruptcy or insolvency of the MRA counterparty, the Fund would recognize a liability with respect to such excess collateral. The liability reflects the Fund’s obligation under bankruptcy law to return the excess to the counterparty. As of March 31, 2018, the following table is a summary of the Fund’s repurchase agreements by counterparty which are subject to offset under an MRA:

Master Repurchase Agreements

 

Counterparty

  Repurchase
Agreements
  Fair Value of
Non-Cash
Collateral Received(a)
 Cash
Collateral
Received
  Net
Collateral
Received
 Net Exposure(b)

Bank of America

             

Merrill Lynch

   $1,871   $(1,871)  $ —   $(1,871)  $ —

Bank of Montreal

    5,612    (5,612)       (5,612)   

BNP Paribas

    5,517    (5,517)       (5,517)   
   

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

Total

   $13,000   $(13,000)  $ —   $(13,000)  $ —
   

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

(a)The value of the related collateral received exceeded the value of the repurchase agreements as of March 31, 2018.

(b)Net exposure represents the receivable (payable) that would be due from (to) the counterparty in the event of default.

9. Securities Lending

The Fund, along with other funds in the Delaware 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: (1) 102% with respect to US securities and foreign securities that are denominated and payable in US dollars; and (2) 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 on any particular day may be more or less than the value of the security on loan. The collateral percentage with respect to the market value of the loaned security is determined by the security lending agent.

 

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Notes to financial statements

Delaware Small Cap Growth Fund

9. Securities Lending (continued)

 

Cash collateral received by each fund of the Trust is generally invested in a series of individual separate accounts, each corresponding to a fund. The investment guidelines permit each separate account to hold certain securities that would be considered eligible securities for a money market fund. Cash collateral received is generally invested in government securities; certain obligations issued by government sponsored enterprises; repurchase agreements collateralized by US Treasury securities; obligations issued by the central government of any Organization for Economic Cooperation and Development (OECD) country or its agencies, instrumentalities, or establishments; obligations of supranational organizations; commercial paper, notes, bonds, and other debt obligations; certificates of deposit, time deposits, and other bank obligations; and asset-backed securities. A fund can also accept US 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 Fund may incur investment losses as a result of investing securities lending collateral. This could occur if an investment in the collateral investment account defaulted or became impaired. Under those circumstances, the value of a Fund’s cash collateral account may be less than the amount the Fund would be required to return to the borrowers of the securities and the Fund would be required to make up for this shortfall.

During the year ended March 31, 2018, the Fund had no securities out on loan.

10. Credit and Market Risk

The Fund invested in growth stocks (such as those in the technology sector), which reflect projections of future earnings and revenue. These prices may rise or fall dramatically depending on whether those projections are met. These companies’ stock prices may be more volatile, particularly over the short-term.

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.

 

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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, promulgated under the Securities Act of 1933, as amended, and other securities which may not be readily marketable. The relative illiquidity of these securities may impair the Fund from disposing of them in a timely manner and at a fair price when it is necessary or desirable to do so. While maintaining oversight, the Board has delegated to DMC, the day-to-day functions of determining whether individual securities are liquid for purposes of the Fund’s limitation on investments in illiquid securities. Securities eligible for resale pursuant to Rule 144A, which are determined to be liquid, are not subject to the Fund’s 15% limit on investments in illiquid securities. As of March 31, 2018, there were no Rule 144A securities held by the Fund. Restricted securities are valued pursuant to the security valuation procedures noted in Note 1.

11. Contractual Obligations

The Fund enters into contracts in the normal course of business that contain a variety of indemnifications. The Fund’s maximum exposure under these arrangements is unknown. However, the Fund has not had prior claims or losses pursuant to these contracts. Management has reviewed the Fund’s existing contracts and expects the risk of loss to be remote.

12. Subsequent Events

Management has determined that no material events or transactions occurred subsequent to March 31, 2018, that would require recognition or disclosure in the Fund’s financial statements.

 

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Report of independent

registered public accounting firm

To the Board of Trustees of Delaware Group® Equity Funds IV and Shareholders of Delaware Small Cap Growth Fund

Opinion on the Financial Statements

We have audited the accompanying statement of assets and liabilities, including the schedule of investments, of Delaware Small Cap Growth Fund (one of the funds constituting Delaware Group Equity Funds IV, referred to hereafter as the “Fund”) as of March 31, 2018, the related statement of operations for the year ended March 31, 2018 and the statements of changes in net assets and financial highlights for the year ended March 31, 2018 and for the period June 30, 2016 (commencement of operations) through March 31, 2017, including the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Fund as of March 31, 2018, the results of its operations for the year then ended, and the changes in its net assets and the financial highlights for the year ended March 31, 2018 and for the period June 30, 2016 (commencement of operations) through March 31, 2017 in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

These financial statements are the responsibility of the Fund’s management. Our responsibility is to express an opinion on the Fund’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Fund in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits of these financial statements in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. Our procedures included confirmation of securities owned as of March 31, 2018 by correspondence with the custodian and brokers; when replies were not received from brokers, we performed other auditing procedures. We believe that our audits provide a reasonable basis for our opinion.

PricewaterhouseCoopers LLP

Philadelphia, Pennsylvania

May 18, 2018

We have served as the auditor of one or more investment companies in Delaware Funds® by Macquarie since 2010.

 

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Other Fund information (Unaudited)

Delaware Small Cap Growth Fund

Tax Information

The information set forth below is for the Fund’s 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 disclosures 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 reporting, it is the intention of the Fund to report the maximum amount permitted under the Internal Revenue Code and the regulations thereunder.

For the fiscal year ended March 31, 2018, the Fund reports distributions paid during the year as follows:

 

(A) Ordinary Income Distribution (Tax Basis)1

   100.00

Total Distributions (Tax Basis)

   100.00

(B) Qualifying dividends2

   1.91

(A) is based on a percentage of the Fund’s total distributions.

(B) is based on a percentage of the Fund’s ordinary income distributions.

1For the year ended March 31, 2018, certain dividends paid by the Fund may be subject to a maximum tax rate of 20%. The percentage of dividends paid by the Fund from ordinary income reported as qualified income is 1.89%. Complete information will be computed and reported in conjunction with your 2018 Form 1099-DIV.

2Qualifying dividends represent dividends which qualify for the corporate dividends received deduction.

For the fiscal year ended March 31, 2018, certain interest income paid by the Fund, has been determined to be Short-Term Capital Gains, and may be subject to relief from US withholding for foreign shareholders, as provided by the American Jobs Creation Act of 2004; the Tax Relief, Unemployment Insurance Reauthorization, and Job Creations Act of 2010; and as extended by the American Taxpayer Relief Act of 2012. For the fiscal year ended March 31, 2018, the Fund has reported maximum distributions of Short-Term Capital Gains of $784,266.

 

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Board of trustees / directors and officers addendum

Delaware Funds® by Macquarie

 

A mutual fund is governed by a Board of Trustees/Directors (“Trustees”), which has oversight responsibility for the management of a fund’s business affairs. Trustees establish procedures and oversee and review the performance of the investment manager, the distributor, and others who perform services for the fund. The independent fund trustees, in particular, are advocates

 

  

Name, Address,

and Birth Date

     

Position(s)

Held with Fund(s)

     

Length of

Time Served

 

 

    Interested Trustee

 

        
 Shawn K. Lytle1, 2    President,    Trustee since
 2005 Market Street    Chief Executive Officer,    September 2015
 Philadelphia, PA 19103    and Trustee    
 February 1970        President and
         Chief Executive Officer
         since August 2015
         
 

 

    Independent Trustees

 

        
 Thomas L. Bennett    Chairman and Trustee    Trustee since
 2005 Market Street        March 2005
 Philadelphia, PA 19103        
 October 1947        Chairman since
              March 2015
 Ann D. Borowiec    Trustee    Since March 2015
 2005 Market Street        
 Philadelphia, PA 19103        
 November 1958        
               
 Joseph W. Chow    Trustee    Since January 2013
 2005 Market Street        
 Philadelphia, PA 19103        
 January 1953        
               

 

1 Shawn K. Lytle is considered to be an “Interested Trustee” because he is an executive officer of the Fund’s(s’) investment advisor.
2 

Shawn K. Lytle, David F. Connor, Daniel V. Geatens, 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. Mr. Geatens also serves as the CFO and Treasurer for Macquarie Global Infrastructure Total Return Fund Inc., which shares an affiliated investment manager.

 

36


Table of Contents

 

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.

 

  

Principal Occupation(s)

During the Past Five Years

     

Number of Portfolios in

Fund Complex Overseen

by Trustee or Officer

     

Other Directorships

Held by Trustee or Officer

 

    

        
 President — Macquarie    60    Trustee — UBS
 Investment Management3        Relationship Funds,
 (June 2015–Present)        SMA Relationship
         Trust, and UBS Funds
 Regional Head of        (May 2010–April 2015)
 Americas — UBS Global        
 Asset Management        
 (April 2010–May 2015)        
         
 

    

        
 Private Investor    60    None
 (March 2004–Present)        
               
 Chief Executive Officer,    60    Director —
 Private Wealth Management        Banco Santander International
 (2011–2013) and        
 Market Manager,        Director —
 New Jersey Private        Santander Bank, N.A.
 Bank (2005–2011) —        
  

J.P. Morgan Chase & Co.

 

            
 Executive Vice President    60    Director and Audit Committee
 (Emerging Economies        Member — Hercules
 Strategies, Risks, and        Technology Growth
 Corporate Administration)        Capital, Inc.
 State Street Corporation        (2004–2014)
  

(July 2004–March 2011)

 

            

 

3 Macquarie Investment Management is the marketing name for Macquarie Management Holdings, Inc. and its subsidiaries, including the Fund’s(s’) investment advisor, principal underwriter, and its transfer agent.

 

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Table of Contents

Board of trustees / directors and officers addendum

Delaware Funds® by Macquarie

 

  

Name, Address,

and Birth Date

     

Position(s)

Held with Fund(s)

     

Length of

Time Served

 

 

    Independent Trustees (continued)

 

    
 John A. Fry    Trustee    Since January 2001
 2005 Market Street        
 Philadelphia, PA 19103        
 May 1960        
                  
 Lucinda S. Landreth    Trustee    Since March 2005
 2005 Market Street        
 Philadelphia, PA 19103        
  June 1947            
 Frances A. Sevilla-Sacasa    Trustee    Since September 2011
 2005 Market Street        
 Philadelphia, PA 19103        
 January 1956        
                  

 

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Table of Contents

    

    

 

  

Principal Occupation(s)

During the Past Five Years

     

Number of Portfolios in

Fund Complex Overseen

by Trustee or Officer

     

Other Directorships

Held by Trustee or Officer

 

 

    

 

        
 President —    60    Director; Compensation
 Drexel University        Committee and
 (August 2010–Present)        Governance Committee
         Member — Community
 President —        Health Systems
 Franklin & Marshall College        
 (July 2002–July 2010)        Director — Drexel
         Morgan & Co.
             
         Director, Audit Committee
         Member — vTv
         Therapeutics LLC
             
         Director; Audit Committee
         Member — FS Credit Real
              

Estate Income Trust, Inc.

 

 Private Investor    60    None
 (2004–Present)        
               
 Chief Executive Officer —    60    Trust Manager and
 Banco Itaú        Audit Committee
 International        Chair — Camden
 (April 2012–December 2016)        Property Trust
             
 Executive Advisor to Dean        
 (August 2011–March 2012) and Interim Dean        
 (January 2011–July 2011) —        
 University of Miami School of        
 Business Administration        
             
 President — U.S. Trust,        
 Bank of America Private        
 Wealth Management        
 (Private Banking)        
  

(July 2007–December 2008)

 

            

 

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Board of trustees / directors and officers addendum

Delaware Funds® by Macquarie

 

  

Name, Address,

and Birth Date

     

Position(s)

Held with Fund(s)

     

Length of

Time Served

 

 

Independent Trustees (continued)

 

    
 Thomas K. Whitford    Trustee    Since January 2013
 2005 Market Street        
 Philadelphia, PA 19103        
 March 1956        
               
 Janet L. Yeomans    Trustee    Since April 1999
 2005 Market Street        
 Philadelphia, PA 19103        
 July 1948        
             
 

 

Officers

 

        
 David F. Connor    Senior Vice President,    Senior Vice President
 2005 Market Street    General Counsel,    since May 2013;
 Philadelphia, PA 19103    and Secretary    General Counsel
 December 1963        since May 2015;
         Secretary since
              

October 2005

 

 Daniel V. Geatens    Vice President    Treasurer since October 2007
 2005 Market Street    and Treasurer    
 Philadelphia, PA 19103        
 October 1972        
               
 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.

 

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Table of Contents

    

    

 

  

Principal Occupation(s)

During the Past Five Years

     

Number of Portfolios in

Fund Complex Overseen

by Trustee or Officer

     

Other Directorships

Held by Trustee or Officer

 

 

    

 

        
 Vice Chairman    60    Director — HSBC Finance
 (2010–April 2013) —        Corporation and HSBC
 PNC Financial        North America Holdings Inc.
 Services Group        
         Director —
              

HSBC USA Inc.

 

 Vice President and Treasurer    60    Director (2009–2017);
 (January 2006–July 2012),        Personnel and Compensation
 Vice President —        Committee Chair; Member of
 Mergers & Acquisitions        Nominating, Investments, and
 (January 2003–January 2006),        Audit Committees for various
 and Vice President        periods throughout
 and Treasurer        directorship —
 (July 1995–January 2003) —        Okabena Company
 3M Company        
         
 

 

    

 

        
 David F. Connor has served    60    None2
 

in various capacities

at different times at

        
 Macquarie Investment        
 Management.        
               
 Daniel V. Geatens has served    60    None2
 

in various capacities

at different times at

        
 Macquarie Investment        
 Management.        
               
 Richard Salus has served    60    None2
 

in various executive capacities

at different times at

        
 Macquarie Investment        
 Management.        
               

 

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About the organization

Board of trustees

 

Shawn K. Lytle

  Ann D. Borowiec  John A. Fry  Frances A.

President and

  Former Chief Executive  President  Sevilla-Sacasa

Chief Executive Officer

  Officer  Drexel University  Former Chief Executive

Delaware Funds®

  Private Wealth Management  Philadelphia, PA  Officer

by Macquarie

Philadelphia, PA

  

J.P. Morgan Chase & Co.

New York, NY

  

 

Lucinda S. Landreth

Former Chief Investment

  

Banco Itaú International

Miami, FL

      

Thomas L. Bennett

  Joseph W. Chow  Officer  Thomas K. Whitford

Chairman of the Board

  Former Executive Vice  Assurant, Inc.  Former Vice Chairman

Delaware Funds

  President  New York, NY  PNC Financial Services Group

by Macquarie

  State Street Corporation    Pittsburgh, PA

Private Investor

Rosemont, PA

  Boston, MA    

 

Janet L. Yeomans

      

Former Vice President and

Treasurer

3M Company

St. Paul, MN

Affiliated officers      
David F. Connor  Daniel V. Geatens  Richard Salus  

Senior Vice President,

  Vice President and  Senior Vice President and  

General Counsel,

  Treasurer  Chief Financial Officer  

and Secretary

  Delaware Funds  Delaware Funds  

Delaware Funds

  by Macquarie  by Macquarie  

by Macquarie

  Philadelphia, PA  Philadelphia, PA  

Philadelphia, PA

      

This annual report is for the information of Delaware Small Cap Growth Fund shareholders, but it may be used with prospective investors when preceded or accompanied by the Delaware Fund fact sheet for the most recently completed calendar quarter. These documents are available at delawarefunds.com/literature.

 

 

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 Fund’s Forms N-Q, as well as a description of the policies and procedures that the Fund uses to determine how to vote proxies (if any) relating to portfolio securities are available without charge (i) upon request, by calling 800 523-1918; and (ii) on the SEC’s 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 Schedules of Investments included in the Fund’s most recent Forms N-Q are available without charge on the Fund’s website at delawarefunds.com/literature. The Fund’s Forms N-Q may be reviewed and copied at the SEC’s Public Reference Room in Washington, D.C.; information on the operation of the Public Reference Room may be obtained by calling 800 SEC-0330.

Information (if any) regarding how the Fund voted proxies relating to portfolio securities during the most recently disclosed 12-month period ended June 30 is available without charge (i) through the Fund’s website at delawarefunds.com/proxy; and (ii) on the SEC’s website at sec.gov.

 

42



 

LOGO

 US equity mutual fund

Delaware Smid Cap Growth Fund

March 31, 2018

 

Carefully consider the Fund’s investment objectives, risk factors, charges, and expenses before investing. This and other information can be found in the Fund’s prospectus and its summary prospectus, which may be obtained by visiting delawarefunds.com/literature or calling 800 523-1918. Investors should read the prospectus and the summary prospectus carefully before investing.

You can obtain shareholder reports and prospectuses online instead of in the mail. Visit delawarefunds.com/edelivery.

 

    

 


Experience Delaware Funds® by Macquarie

Macquarie Investment Management (MIM) is a global asset manager with offices throughout the United States, Europe, Asia, and Australia. We are active managers who prioritize autonomy and accountability at the investment team level in pursuit of opportunities that matter for our clients. Delaware Funds is one of the longest-standing mutual fund families, with more than 75 years in existence.

If you are interested in learning more about creating an investment plan, contact your financial advisor.

You can learn more about Delaware Funds or obtain a prospectus for Delaware Smid Cap Growth Fund at delawarefunds.com/literature.

 

Manage your account online

 

 Check your account balance and transactions
 View statements and tax forms
 Make purchases and redemptions

Visit delawarefunds.com/account-access.

Macquarie Asset Management (MAM) offers a diverse range of products including securities investment management, infrastructure and real asset management, and fund and equity-based structured products. Macquarie Investment Management (MIM) is the marketing name for certain companies comprising the asset management division of Macquarie Group. This includes the following registered investment advisers: Macquarie Investment Management Business Trust (MIMBT), Macquarie Funds Management Hong Kong Limited, Macquarie Investment Management Austria Kapitalanlage AG, Macquarie Investment Management Global Limited, Macquarie Investment Management Limited, Macquarie Investment Management Europe Limited, and Macquarie Capital Investment Management LLC.

The Fund is distributed by Delaware Distributors, L.P.

(DDLP), an affiliate of MIMBT and Macquarie Group Limited. MIM is the marketing name for certain companies comprising the asset management division of Macquarie Group Limited and its subsidiaries and affiliates worldwide.

Other than Macquarie Bank Limited (MBL), none of the entities noted are authorized deposit-taking institutions for the purposes of the Banking Act 1959 (Commonwealth of Australia). The obligations of these entities do not represent deposits or other liabilities of MBL. MBL does not guarantee or otherwise provide assurance in respect of the obligations of these entities, unless noted otherwise. The Fund is governed by US laws and regulations.

Table of contents

 

Portfolio management review

   1 

Performance summary

   4 

Disclosure of Fund expenses

   8 

Security type / sector allocation and top 10 equity holdings

   10 

Schedule of investments

   12 

Statement of assets and liabilities

   14 

Statement of operations

   16 

Statements of changes in net assets

   18 

Financial highlights

   20 

Notes to financial statements

   29 

Report of independent registered public accounting firm

   40 

Other Fund information

   41 

Board of trustees / directors and officers addendum

   42 

About the organization

   48 

Unless otherwise noted, views expressed herein are current as of March 31, 2018, and subject to change for events occurring after such date.

The Fund is not FDIC insured and is not guaranteed. It is possible to lose the principal amount invested.

Advisory services provided by Delaware Management Company, a series of MIMBT, a US registered investment advisor.

All third-party marks cited are the property of their respective owners.

© 2018 Macquarie Management Holdings, Inc.

 

 


Portfolio management review
Delaware Smid Cap Growth Fund  April 10, 2018 (Unaudited)

 

Performance preview (for the year ended March 31, 2018)          

Delaware Smid Cap Growth Fund (Institutional Class shares)

   1-year return    +32.01%     

Delaware Smid Cap Growth Fund (Class A shares)

   1-year return    +31.68%     

Russell 2500™ Growth Index (benchmark)

   1-year return    +19.92%     

Past performance does not guarantee future results.

For complete, annualized performance for Delaware Smid Cap Growth Fund, please see the table on page 4.

Institutional Class shares are not subject to a sales charge and are offered for sale exclusively to certain eligible investors. In addition, Institutional Class shares pay no distribution and service fee.

The performance of Class A shares excludes the applicable sales charge. Both Institutional Class shares and Class A shares reflect the reinvestment of all distributions.

Please see page 6 for a description of the index. Index performance returns do not reflect any management fees, transaction costs, or expenses. Indices are unmanaged and one cannot invest directly in an index.

 

US equity markets advanced strongly throughout the Fund’s fiscal year ended March 31, 2018, maintaining a steady upward pace in the first three quarters of the period, before turning volatile in the last quarter. The Russell 2500 Growth Index, the Fund’s benchmark, gained 19.92% during the fiscal year, while the Russell 2500™ Value Index returned 5.72% and the overall Russell 2500™ Index rose 12.31%. It was a notable turnaround for the small growth segment of the market, which had lagged significantly in the Fund’s previous fiscal year.

Improving economic conditions, particularly continued labor market strengthening, contributed to a boost in consumer confidence that underpinned the markets. The unemployment rate declined from 4.5% to 4.1% during the fiscal year, accompanied by annual wage growth of about 3%. At the end of March, the Conference Board Consumer Confidence Index® – which measures how optimistic or pessimistic consumers are with respect to the economy in the near future – stood at 127.7, a small gain for the fiscal year and the 20th consecutive month above 100. Gross domestic product (GDP) growth was relatively robust, easing slightly in the final three months of 2017, but averaging just over 3% for the first nine months of the fiscal year. This period of US economic growth coincided with solid growth throughout most developed and emerging markets.

 

 

We consistently apply our long-term investment philosophy without regard for short-term economic or market events. We identify trends that are driving the economy and then seek the companies that we think are leading those trends. We want to own what we view as strong secular growth companies with solid business models and competitive positions that we believe can grow market share and have the potential to deliver shareholder value in a variety of market environments.

 

 

 
 

 

1


Portfolio management review

Delaware Smid Cap Growth Fund

 

 

Energy prices were strong – the price of a barrel of West Texas Intermediate (WTI) crude oil drifted above $60 a barrel by fiscal year-end – and are not likely to have much economic impact in the near term. Domestic supply can respond to price changes by cutting or increasing production as needed. Of the three Federal Reserve rate hikes implemented during the Fund’s fiscal year, only the latest increase in March appeared to roil the market, which by then also seemed to have trouble digesting the Trump administration’s proposal to implement tariffs on aluminum and steel imports.

Housing data, though weak overall, confirmed a long-term migration from large urban areas that have high taxes and a high cost of living to smaller urban areas in the Southern and Western portions of the United States that offer a good quality of life at more reasonable prices. In those areas, housing starts are rising 10% a year, accompanied by price increases of 10%, reflecting a robust housing market.

Manufacturing data were also strong throughout the first three quarters of the fiscal year, tapering off somewhat in the last quarter. Nonetheless, manufacturing and other corporate activity mirrored the optimism of US consumers. With improving economic conditions, individuals are more likely to feel confident that their jobs are secure and are more willing to purchase new homes or cars, take vacations, or engage in other activities that they may have put off during times of financial hardship. Corporate executives have likewise become more confident in their businesses as well, and appear willing to make necessary investments that they, too, might have previously delayed.

The outsized return of growth companies during this period was largely the result of this increase in confidence. Investors who previously may have been fearful of paying 10 times current earnings for a company are now feeling optimistic about paying 25 times next year’s earnings. While

there are potential market risks for investors – including the geopolitical threats posed by Iran and North Korea or the possibility that further interest rate hikes will dampen enthusiasm for equities – the economy and markets appeared strong at the end of the fiscal year.

Source: Bloomberg

Within the Fund

For the fiscal year ended March 31, 2018, Delaware Smid Cap Growth Fund Institutional Class shares returned +32.01%. The Fund’s Class A shares returned +31.68% at net asset value and +24.13% at maximum offer price. These figures reflect all distributions reinvested. During the same period, the Fund’s benchmark, the Russell 2500 Growth Index, returned +19.92%. For complete, annualized performance of Delaware Smid Cap Growth Fund, please see the table on page 4.

We primarily focus on individual stock selection, but on a sector level, weak relative performance in energy and industrials offset strong relative performance in consumer discretionary, information technology, and healthcare. The Fund pursues a pure growth strategy, focusing on what we view as the highest levels of growth or secular opportunities across the economy. Throughout the fiscal year, that focus on pure growth companies aided the Fund’s performance relative to the benchmark.

Weight Watchers International Inc. was the leading contributor to the Fund’s performance for the fiscal year. Once featuring in-person group meetings to monitor weight loss, the company has rebranded and shifted its focus to overall wellness. In December 2017, it launched its WW Freestyle™ program, which resulted in a strong finish to the fiscal year.

LGI Homes Inc., a homebuilder that is benefiting as people in the US migrate to the Southern and Western states, was another significant contributor to performance. The company’s

 

 

2


 

 

 

business improved throughout the year as cities like Austin, Denver, and Nashville received waves of new residents. Specializing in starter homes, we believe LGI is positioned to take advantage of the growth in consumer confidence that is enabling more first-time homebuyers. Additionally, by providing tax breaks, the government has been supportive of first-time loans. Banks are also eager to lend; the default rate for entry-level homes is relatively low.

Align Technology Inc., the maker of the Invisalign® teeth straightening system, was also a leading contributor to the Fund’s performance. In the US, the company has achieved 35% market penetration with adults and 9% with teenagers. We believe Align has significant growth potential outside of the US, particularly in emerging markets such as India and China, where the growing middle class represents a large market. With its 3D printing technology, the company can easily serve customers at a distance.

Pacira Pharmaceuticals Inc. was the leading detractor from the Fund’s performance during the fiscal year. The company produces Exparel®,a local analgesic administered at the time of surgery. An alternative to the opioids that are routinely used, Exparel is expected to gain share as the opioid crisis deepens. Injected into the surgical site, the effects of the drug last for up to 96 hours; afterwards, additional relief can often be obtained from over-the-counter pain relievers. Though we think the drug is likely to be successful, its adoption has been slower than originally anticipated, largely due, in our view, to inertia in the healthcare system. We believe that pending legislation and a new partnership with Johnson & Johnson may change that, and we therefore maintained the Fund’s position.

Pharmaceutical manufacturer Dermira Inc. also detracted from performance after it announced in early March 2018 that it was abandoning development of a new acne drug that failed two late-stage clinical trials. Although we think the company has other promising drugs in its pipeline, we sold the position during the fiscal year.

Another significant detractor during the fiscal year was U.S. Silica Holdings Inc. It is one of the largest producers of fracking sands, used to enhance production from oil wells. We bought the company when it appeared that energy markets had recovered from a slump in the price and production of oil. While oil has recovered somewhat, it is still hampered by the perception that additional capacity will come online, obviating the need for fracking sands. For that reason, we sold the position.

The Fund’s turnover was relatively low during the fiscal year. We believe the Fund has been and is well positioned to take advantage of continued economic growth.

We consistently apply our long-term investment philosophy without regard for short-term economic or market events. We identify trends that are driving the economy and then seek the companies that we think are leading those trends. We want to own what we view as strong secular growth companies with solid business models and competitive positions that we believe can grow market share and have the potential to deliver shareholder value in a variety of market environments.

 

 

3


Performance summary

Delaware Smid Cap Growth Fund

March 31, 2018 (Unaudited)

The performance quoted represents past performance and does not guarantee future results. Investment return and principal value of an investment will fluctuate so that shares, when redeemed, may be worth more or less than their original cost. Current performance may be lower or higher than the performance quoted. Performance data current to the most recent month end may be obtained by calling 800 523-1918 or visiting delawarefunds.com/performance.

Fund and benchmark performance1,2

 

     Average annual total returns through March 31, 2018
    1 year 5 years 10 years Lifetime
Class A (Est. March 27, 1986)     
Excluding sales charge  +31.68% +13.61% +12.66% +13.49%
Including sales charge  +24.13% +12.27% +11.99% +13.28%
Class C (Est. Nov. 29, 1995)     
Excluding sales charge  +30.71% +12.75% +11.81% +9.10%
Including sales charge  +29.71% +12.75% +11.81% +9.10%
Class R (Est. June 2, 2003)     
Excluding sales charge  +31.34% +13.31% +12.39% +11.19%
Including sales charge  +31.34% +13.31% +12.39% +11.19%
Institutional Class     
(Est. Nov. 9, 1992)     
Excluding sales charge  +32.01% +13.88% +12.95% +10.61%
Including sales charge  +32.01% +13.88% +12.95% +10.61%
Class R6 (Est. May 2, 2016)     
Excluding sales charge  +32.10% n/a n/a +16.20%
Including sales charge  +32.10% n/a n/a +16.20%
Russell 2500 Growth Index  +19.92% +13.37% +11.17% +9.42%*

*The benchmark lifetime return is for Institutional Class share comparison only and is calculated using the last business day in the month of the Fund’s Institutional Class inception date.

1Returns 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 and benchmark performance” table. 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.

Institutional Class shares are not subject to a sales charge and are offered for sale exclusively to certain eligible investors. In addition, Institutional Class shares pay no distribution and service fee.

Class A shares are sold with a maximum front-end sales charge of 5.75%, and have an annual distribution and service fee of 0.25% of average daily net assets. The Board has adopted a formula for calculating 12b-1 plan fees for the Fund’s Class A shares. The Fund’s 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) 0.25% of average daily net

 

 

4


 

 

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 0.25% 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 the Board. 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.

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 0.50% of average daily net assets.

Class R6 shares are available only to certain investors. In addition, Class R6 shares do not pay any service fees, sub-accounting fees, and/or sub-transfer agency fees to any brokers, dealers, or other financial intermediaries. Class R6 shares pay no distribution and service fee.

Investments in small and/or medium-sized companies typically exhibit greater risk and higher volatility than larger, more established companies.

Risk is increased in a concentrated portfolio since it holds a limited number of securities with each investment having a greater effect on the overall performance.

 

2The Fund’s expense ratios, as described in the most recent prospectus, are disclosed in the following “Fund expense ratios” table. Please see the “Financial highlights” in this report for the most recent expense ratios.

 

Fund expense ratios  Class A Class C Class R Institutional
Class
     Class R6    

Total annual operating expenses

  1.21% 1.96% 1.46% 0.96% 0.84%

(without fee waivers)

      

Net expenses

  1.21% 1.96% 1.46% 0.96% 0.84%

(including fee waivers, if any)

      

Type of waiver

  n/a n/a n/a n/a n/a

 

5


Performance summary

Delaware Smid Cap Growth Fund

Performance of a $10,000 Investment1

Average annual total returns from March 31, 2008 through March 31, 2018

 

LOGO

 

 

1The “Performance of a $10,000 investment” graph assumes $10,000 invested in Institutional Class and Class A shares of the Fund on March 31, 2008, and includes the effect of a 5.75% front-end sales charge (for Class A shares) 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. Expenses are listed in the “Fund expense ratios” table on page 5. Please note additional details on pages 4 through 7.

The graph also assumes $10,000 invested in the Russell 2500 Growth Index as of March 31, 2008. The Russell 2500 Growth Index measures the performance of the small- to mid-cap growth segment of the US equity universe. It includes those Russell 2500 companies with higher

 

price-to-book ratios and higher forecasted growth values.

The Russell 2500 Index, mentioned on page 1, measures the performance of the small- to mid-cap segment of the US equity universe. The Russell 2500 Index is a subset of the Russell 3000® Index, representing approximately 2,500 of the smallest securities based on a combination of their market cap and current index membership.

The Russell 2500 Value Index, mentioned on page 1, measures the performance of the small- to mid-cap value segment of the US equity universe. It includes those Russell 2500 companies with lower price-to-book ratios and lower forecasted growth values.

The Conference Board Consumer Confidence Index, mentioned on page 1, is a barometer of the health of the US economy from the perspective of the consumer. The index is based on consumers’ perceptions of current business and employment conditions, as well as their expectations for

 

 

6


six months hence regarding business conditions, employment, and income.

Russell Investment Group is the source and owner of the trademarks, service marks, and copyrights related to the Russell Indexes. Russell® is a trademark of Russell Investment Group.

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 C

  DEEVX  245906409  

Class R

  DFRIX   245906508  

Institutional Class

  DFDIX   245906201  

Class R6

  DFZRX  24610A505  

 

 

7


Disclosure of Fund expenses

For the six-month period from October 1, 2017 to March 31, 2018 (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 Oct. 1, 2017 to March 31, 2018.

Actual expenses

The first section of the table shown, “Actual Fund return,” provides information about actual account values and actual expenses. You may use the information in this section of the table, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first section under the heading entitled “Expenses Paid During Period” to estimate the expenses you paid on your account during this period.

Hypothetical example for comparison purposes

The second section of the table shown, “Hypothetical 5% return,” provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.

Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as sales charges (loads), redemption fees, or exchange fees. Therefore, the second section of the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher. The expenses shown in the table assume reinvestment of all dividends and distributions.

 

8


 

 

Delaware Smid Cap Growth Fund

Expense analysis of an investment of $1,000

 

    Beginning
Account Value
10/1/17
  Ending
Account Value
3/31/18
  Annualized
Expense Ratio
   Expenses 
 Paid During Period 
 10/1/17 to 3/31/18* 

Actual Fund return

           

Class A

   $1,000.00   $1,228.80  1.12%    $6.22

Class C

    1,000.00    1,223.70  1.87%    10.37

Class R

    1,000.00    1,226.60  1.37%    7.61

Institutional Class

    1,000.00    1,230.10  0.87%    4.84

Class R6

    1,000.00    1,230.40  0.82%    4.56

Hypothetical 5% return (5% return before expenses)

   

Class A

   $1,000.00   $1,019.35  1.12%    $5.64

Class C

    1,000.00    1,015.61  1.87%    9.40

Class R

    1,000.00    1,018.10  1.37%    6.89

Institutional Class

    1,000.00    1,020.59  0.87%    4.38

Class R6

    1,000.00    1,020.84  0.82%    4.13

*“Expenses Paid During Period” are equal to the Fund’s annualized expense ratio, multiplied by the average account value over the period, multiplied by 182/365 (to reflect the one-half year period).

Because actual returns reflect only the most recent six-month period, the returns shown may differ significantly from fiscal year returns.

 

9


Security type / sector allocation and top 10 equity holdings
Delaware Smid Cap Growth Fund  As of March 31, 2018 (Unaudited)

Sector designations may be different than the sector designations presented in other Fund materials. The sector designations may represent the investment manager’s internal sector classifications.

 

Security type / sector            Percentage of net assets          

Common Stock²

    100.02%

Consumer Discretionary

    23.74%

Financials

    5.36%

Healthcare

    24.94%

Industrials

    8.00%

Technology

    37.98%

Short-Term Investment

    0.01%

Total Value of Securities

    100.03%

Liabilities Net of Receivables and Other Assets

    (0.03%)

Total Net Assets

    100.00%

 

² Narrow industries are utilized for compliance purposes for diversification whereas broad sectors are used for financial reporting.

To monitor compliance with the Fund’s concentration guidelines as described in the Fund’s prospectus and Statement of Additional Information, the Technology sector (as disclosed herein for financial reporting purposes) is subdivided into a variety of “industries” (in accordance with the requirements of the Investment Company Act of 1940). The Technology sector consisted of commercial services, computers, Internet, semiconductors, software, and telecommunications. As of March 31, 2018 such amounts, as a percentage of total net assets, were 4.64%, 3.87%, 11.38%, 5.38%, 8.14% and 4.57%, respectively. The percentage in any such single industry will comply with the Fund’s concentration policy even if the percentage in the Technology sector for financial reporting purposes may exceed 25%.

 

10


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          

Weight Watchers International

    5.78%

Collegium Pharmaceutical

    5.39%

Match Group

    4.90%

LGI Homes

    4.50%

Neurocrine Biosciences

    4.43%

Burlington Stores

    4.38%

Pacira Pharmaceuticals

    4.27%

Splunk

    4.20%

American Woodmark

    4.14%

Exelixis

    

 

4.00

 

%

 

 

11


Schedule of investments  
Delaware Smid Cap Growth Fund  March 31, 2018

 

    Number of shares   Value (US $) 

Common Stock – 100.02%²

          

Consumer Discretionary – 23.74%

    

Bright Horizons Family Solutions †

   148,575   $14,815,899 

Burlington Stores †

   351,250    46,768,937 

Canada Goose Holdings †

   692,925    23,157,553 

LGI Homes †

   681,800    48,114,626 

MarineMax †

   1,644,150    31,978,717 

Shake Shack Class A †

   587,125    24,442,014 

Thor Industries

   23,175    2,669,065 

Weight Watchers International †

   970,025    61,809,993 
    

 

 

 
     253,756,804 
    

 

 

 

Financials – 5.36%

    

E*TRADE Financial †

   521,850    28,915,709 

LendingTree †

   86,325    28,327,548 
    

 

 

 
     57,243,257 
    

 

 

 

Healthcare – 24.94%

    

ABIOMED †

   6,768    1,969,420 

Align Technology †

   600    150,678 

AMN Healthcare Services †

   519,825    29,500,068 

BioTelemetry †

   1,232,975    38,283,874 

Collegium Pharmaceutical †

   2,253,824    57,585,203 

Exelixis †

   1,931,000    42,771,650 

Neurocrine Biosciences †

   571,100    47,361,323 

Pacira Pharmaceuticals †

   1,465,950    45,664,343 

Sarepta Therapeutics †

   44,900    3,326,641 
    

 

 

 
     266,613,200 
    

 

 

 

Industrials – 8.00%

    

American Woodmark †

   449,300    44,233,585 

Lennox International

   47,250    9,656,483 

Trex †

   210,200    22,863,454 

United Rentals †

   50,525    8,727,183 
    

 

 

 
     85,480,705 
    

 

 

 

Technology – 37.98%

    

Arista Networks †

   117,277    29,940,818 

Broadridge Financial Solutions

   164,250    18,016,583 

EPAM Systems †

   361,300    41,376,076 

Gartner †

   93,825    11,035,697 

LogMeIn

   163,425    18,883,758 

Match Group †

   1,179,250    52,405,870 

MKS Instruments

   305,650    35,348,423 

Monolithic Power Systems

   191,300    22,146,801 

Proofpoint †

   271,575    30,864,499 

Splunk †

   456,600    44,924,874 

Square Class A †

   784,750    38,609,700 

 

12


    Number of shares   Value (US $) 

Common Stock² (continued)

          

Technology (continued)

    

Take-Two Interactive Software †

   246,400   $24,092,992 

Trade Desk Class A †

   772,525    38,332,691 
    

 

 

 
     405,978,782 
    

 

 

 

Total Common Stock (cost $831,251,094)

     1,069,072,748 
    

 

 

 
    Principal amount°      

Short-Term Investment – 0.01%

          

US Treasury Obligation – 0.01%

    

US Treasury Bill 1.35% 4/12/18

   107,901    107,852 
    

 

 

 

Total Short-Term Investment (cost $107,848)

     107,852 
    

 

 

 

Total Value of Securities – 100.03%
(cost $831,358,942)

    $1,069,180,600 
    

 

 

 

 

²Narrow industries are utilized for compliance purposes for diversification whereas broad sectors are used for financial reporting.

 

The rate shown is the effective yield at the time of purchase.

 

°Principal amount shown is stated in US dollars unless noted that the security is denominated in another currency.

 

Non-income producing security.

See accompanying notes, which are an integral part of the financial statements.

 

13


Statement of assets anxd liabilities

Delaware Smid Cap Growth Fund March 31, 2018

 

Assets:

  

Investments, at value1

  $1,069,180,600 

Receivable for securities sold

   13,411,244 

Receivable for fund shares sold

   919,527 

Foreign tax reclaims receivable

   478,585 

Dividends and interest receivable

   147,216 
  

 

 

 

Total assets

   1,084,137,172 
  

 

 

 

Liabilities:

  

Cash overdraft

   484,767 

Payable for securities purchased

   12,885,176 

Payable for fund shares redeemed

   668,280 

Audit and tax fees payable

   5,318 

Investment management fees payable to affiliates

   669,957 

Other accrued expenses payable

   294,865 

Distribution fees payable to affiliates

   214,977 

Dividend disbursing and transfer agent fees and expenses payable to affiliates

   18,177 

Trustees’ fees and expenses payable

   6,314 

Accounting and administration expenses payable to affiliates

   3,871 

Legal fees payable to affiliates

   1,872 

Reports and statements to shareholders expenses payable to affiliates

   836 
  

 

 

 

Total liabilities

   15,254,410 
  

 

 

 

Total Net Assets

  $1,068,882,762 
  

 

 

 

Net Assets Consist of:

  

Paid-in capital

  $749,227,411 

Distributions in excess of net investment income

   (1,842,004

Accumulated net realized gain on investments

   83,669,046 

Net unrealized appreciation of investments

   237,821,658 

Net unrealized appreciation of foreign currencies

   6,651 
  

 

 

 

Total Net Assets

  $1,068,882,762 
  

 

 

 

 

14


 

 

 

Net Asset Value

  

Class A:

  

Net assets

  $776,646,739 

Shares of beneficial interest outstanding, unlimited authorization, no par

   34,022,260 

Net asset value per share

  $22.83 

Sales charge

   5.75

Offering price per share, equal to net asset value per share / (1 – sales charge)

  $24.22 

Class C:

  

Net assets

  $46,508,602 

Shares of beneficial interest outstanding, unlimited authorization, no par

   4,026,385 

Net asset value per share

  $11.55 

Class R:

  

Net assets

  $13,067,658 

Shares of beneficial interest outstanding, unlimited authorization, no par

   621,922 

Net asset value per share

  $21.01 

Institutional Class:

  

Net assets

  $231,474,092 

Shares of beneficial interest outstanding, unlimited authorization, no par

   7,541,752 

Net asset value per share

  $30.69 

Class R6:

  

Net assets

  $1,185,671 

Shares of beneficial interest outstanding, unlimited authorization, no par

   38,609 

Net asset value per share

  $30.71 

 

  

1Investments, at cost

  $831,358,942 

See accompanying notes, which are an integral part of the financial statements.

 

15


Statement of operations
Delaware Smid Cap Growth Fund  Year ended March 31, 2018

 

Investment Income:

  

Dividends

  $1,599,043 

Interest

   14,386 
  

 

 

 
   1,613,429 
  

 

 

 

Expenses:

  

Management fees

   6,917,779 

Distribution expenses – Class A

   1,706,918 

Distribution expenses – Class C

   436,630 

Distribution expenses – Class R

   71,048 

Dividend disbursing and transfer agent fees and expenses

   1,220,655 

Accounting and administration expenses

   223,301 

Reports and statements to shareholders expenses

   101,088 

Legal fees

   81,456 

Registration fees

   78,925 

Trustees’ fees and expenses

   43,286 

Custodian fees

   38,640 

Audit and tax fees

   35,858 

Other

   38,337 
  

 

 

 
   10,993,921 

Less expense paid indirectly

   (1,580
  

 

 

 

Total operating expenses

   10,992,341 
  

 

 

 

Net Investment Loss

   (9,378,912
  

 

 

 

 

16


 

 

 

Net Realized and Unrealized Gain:

  

Net realized gain

  $95,836,102 

Net change in unrealized appreciation (depreciation) of:

  

Investments

   169,638,839 

Foreign currencies

   21,811 
  

 

 

 

Net change in unrealized appreciation (depreciation)

   169,660,650 
  

 

 

 

Net Realized and Unrealized Gain

   265,496,752 
  

 

 

 

Net Increase in Net Assets Resulting from Operations

  $256,117,840 
  

 

 

 

See accompanying notes, which are an integral part of the financial statements.

 

17


Statements of changes in net assets

Delaware Smid Cap Growth Fund

 

   Year ended 
   3/31/18  3/31/17 

Increase (Decrease) in Net Assets from Operations:

   

Net investment loss

  $(9,378,912 $(6,455,380

Net realized gain

   95,836,102   281,186,452 

Net change in unrealized appreciation (depreciation)

   169,660,650   (264,381,720
  

 

 

  

 

 

 

Net increase in net assets resulting from operations

   256,117,840   10,349,352 
  

 

 

  

 

 

 

Dividends and Distributions to Shareholders from:

   

Net investment income:

   

Institutional Class

      (65,496

Class R6

      (2

Net realized gain:

   

Class A

   (9,864,882  (247,793,070

Class C

   (1,171,015  (29,094,420

Class R

   (196,411  (6,307,944

Institutional Class

   (2,125,977  (75,598,086

Class R6

   (10,859  (560
  

 

 

  

 

 

 
   (13,369,144  (358,859,578
  

 

 

  

 

 

 

Capital Share Transactions:

   

Proceeds from shares sold:

   

Class A

   67,718,476   34,261,987 

Class C

   4,828,959   4,985,200 

Class R

   2,940,000   5,448,678 

Institutional Class

   81,703,833   116,337,047 

Class R6

   1,222,034   2,000 

Net asset value of shares issued upon reinvestment of dividends and distributions:

   

Class A

   9,626,938   239,467,233 

Class C

   1,164,730   28,027,489 

Class R

   196,206   6,304,290 

Institutional Class

   2,098,066   74,454,526 

Class R6

   10,859   562 
  

 

 

  

 

 

 
   171,510,101   509,289,012 
  

 

 

  

 

 

 

 

18


 

 

   Year ended 
   3/31/18  3/31/17 

Capital Share Transactions (continued):

   

Cost of shares redeemed:

   

Class A

  $(130,517,453 $(165,873,224

Class C

   (18,755,780  (22,105,902

Class R

   (10,268,311  (7,616,868

Institutional Class

   (131,794,110  (325,905,673

Class R6

   (216,304   
  

 

 

  

 

 

 
   (291,551,958  (521,501,667
  

 

 

  

 

 

 

Decrease in net assets derived from capital share transactions

   (120,041,857  (12,212,655
  

 

 

  

 

 

 

Net Increase (Decrease) in Net Assets

   122,706,839   (360,722,881
  

 

 

  

 

 

 

Net Assets:

   

Beginning of year

   946,175,923   1,306,898,804 
  

 

 

  

 

 

 

End of year

  $1,068,882,762  $946,175,923 
  

 

 

  

 

 

 

Distributions in excess of net investment income

  $(1,842,004 $(2,093,964
  

 

 

  

 

 

 

See accompanying notes, which are an integral part of the financial statements.

 

19


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)2

Net realized and unrealized gain (loss)

Total from investment operations

Less dividends and distributions from:

Net realized gain

Total dividends and distributions

Net asset value, end of period

Total return3

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 waived4

Ratio of net investment income (loss) to average net assets

Ratio of net investment income (loss) to average net assets prior to fees waived4

Portfolio turnover

 

 

1 During the period ended March 31, 2015, the Fund changed its fiscal year end from September to March. Ratios have been annualized and total return and portfolio turnover have 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 some of the periods shown reflects waivers by the manager and/or distributor. Performance would have been lower had the waivers not been in effect.

 

4 Expenses paid indirectly were not material and had no impact on the ratios disclosed. Expenses paid indirectly for the year ended March 31, 2018 are reflected on the “Statement of operations.”

See accompanying notes, which are an integral part of the financial statements.

 

20


 

 

 

 

 

           

10/1/14

to

       
  Year ended   Year ended 
       3/31/18  3/31/17  3/31/16  3/31/151  9/30/14  9/30/13 
  $    17.59   $    27.04   $    29.41   $    29.12   $    28.96   $    24.93 
      
  (0.20  (0.14  (0.01  0.08   (0.11  (0.06
          5.74         (0.08          0.65           4.33           1.35           5.67 
          5.54         (0.22          0.64           4.41           1.24           5.61 
      
        (0.30)         (9.23        (3.01          (4.12         (1.08         (1.58
        (0.30)         (9.23        (3.01          (4.12         (1.08         (1.58
  $    22.83   $    17.59   $    27.04   $    29.41   $    29.12   $    28.96 
  31.68%   1.13%   2.26%   16.02%   4.19%   24.34% 
      
  $776,647   $653,453   $787,583   $838,620   $779,507   $956,010 
  1.17%   1.21%   1.20%   1.22%   1.19%   1.19% 
  1.17%   1.21%   1.20%   1.22%   1.19%   1.24% 
  (1.00%  (0.60%  (0.03%  0.53%   (0.36%  (0.25%
  (1.00%  (0.60%  (0.03%  0.53%   (0.36%  (0.30%
   101%   159%   24%   8%   26%   14% 

 

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 loss2

Net realized and unrealized gain (loss)

Total from investment operations

Less dividends and distributions from:

Net realized gain

Total dividends and distributions

Net asset value, end of period

Total return3

Ratios and supplemental data:

Net assets, end of period (000 omitted)

Ratio of expenses to average net assets4

Ratio of net investment loss to average net assets4

Portfolio turnover

 

 

1 During the period ended March 31, 2015, the Fund changed its fiscal year end from September to March. Ratios have been annualized and total return and portfolio turnover have 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.

 

4 Expenses paid indirectly were not material and had no impact on the ratios disclosed. Expenses paid indirectly for the year ended March 31, 2018 are reflected on the “Statement of operations.”

See accompanying notes, which are an integral part of the financial statements.

 

22


 

 

 

 

 

           

10/1/14

to

       
  Year ended   Year ended 
   3/31/18  3/31/17  3/31/16  3/31/151  9/30/14  9/30/13 
  $      9.09   $  18.76   $    21.46   $    22.34   $    22.62   $    19.97 
      
  (0.18  (0.20  (0.16  (0.02  (0.25  (0.20
          2.94        (0.24        0.47           3.26         1.05           4.43 
          2.76        (0.44        0.31           3.24         0.80           4.23 
      
         (0.30       (9.23       (3.01         (4.12       (1.08         (1.58
         (0.30       (9.23       (3.01         (4.12       (1.08         (1.58
  $    11.55   $    9.09   $  18.76   $    21.46   $  22.34   $    22.62 
  30.71%   0.30%   1.53%   15.60%   3.39%   23.42% 
      
  $  46,508   $49,266   $67,633   $  79,901   $77,021   $  88,886 
  1.92%   1.96%   1.95%   1.97%   1.94%   1.94% 
  (1.75%  (1.35%  (0.78%  (0.22%  (1.11%  (1.00%
  101%   159%   24%   8%   26%   14% 

 

 

 

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)2

Net realized and unrealized gain (loss)

Total from investment operations

Less dividends and distributions from:

Net realized gain

Total dividends and distributions

Net asset value, end of period

Total return3

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 waived4

Ratio of net investment income (loss) to average net assets

Ratio of net investment income (loss) to average net assets prior to fees waived4

Portfolio turnover

 

 

1 During the period ended March 31, 2015, the Fund changed its fiscal year end from September to March. Ratios have been annualized and total return and portfolio turnover have 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 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.

 

4 Expenses paid indirectly were not material and had no impact on the ratios disclosed. Expenses paid indirectly for the year ended March 31, 2018 are reflected on the “Statement of operations.”

See accompanying notes, which are an integral part of the financial statements.

 

24


 

 

 

 

 

           

10/1/14

to

       
  Year ended   Year ended 
       3/31/18  3/31/17  3/31/16  3/31/151  9/30/14  9/30/13 
  $     16.25   $  25.77   $  28.24   $     28.15   $  28.10   $     24.29 
      
  (0.23  (0.19  (0.08  0.04   (0.18  (0.13
          5.29        (0.10       0.62           4.17        1.31           5.52 
          5.06        (0.29       0.54           4.21        1.13           5.39 
      
         (0.30       (9.23       (3.01         (4.12       (1.08         (1.58
         (0.30       (9.23       (3.01         (4.12       (1.08         (1.58
  $    21.01   $  16.25   $  25.77   $    28.24   $  28.15   $    28.10 
  31.34%   0.87%   1.99%   15.85%   3.92%   24.06% 
      
  $  13,068   $16,731   $18,768   $  17,416   $16,936   $  17,428 
  1.42%   1.46%   1.45%   1.47%   1.44%   1.44% 
  1.42%   1.46%   1.45%   1.47%   1.44%   1.54% 
  (1.25%  (0.85%  (0.28%  0.28%   (0.61%  (0.50%
  (1.25%  (0.85%  (0.28%  0.28%   (0.61%  (0.60%
   101%   159%   24%   8%   26%   14% 

 

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)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 return4

Ratios and supplemental data:

Net assets, end of period (000 omitted)

Ratio of expenses to average net assets5

Ratio of net investment income (loss) to average net assets5

Portfolio turnover

 

 

1 During the period ended March 31, 2015, the Fund changed its fiscal year end from September to March. Ratios have been annualized and total return and portfolio turnover have not been annualized.

 

2 The average shares outstanding method has been applied for per share information.

 

3 Amount is less than $0.005 per share.

 

4 Total investment return is based on the change in net asset value of a share during the period and assumes reinvestment of dividends and distributions at net asset value.

 

5 Expenses paid indirectly were not material and had no impact on the ratios disclosed. Expenses paid indirectly for the year ended March 31, 2018 are reflected on the “Statement of operations.”

See accompanying notes, which are an integral part of the financial statements.

 

26


 

 

 

 

 

           

10/1/14

to

       
  Year ended   Year ended 
       3/31/18  3/31/17  3/31/16  3/31/151  9/30/14  9/30/13 
  $    23.50   $    32.83   $    34.98   $    33.89   $    33.46   $  28.48 
      
  (0.20  (0.11  0.08   0.13   (0.04  3 
          7.69           0.02           0.78           5.08           1.55         6.56 
          7.49         (0.09          0.86           5.21           1.51         6.56 
      
     (0.01            
         (0.30         (9.23         (3.01         (4.12         (1.08       (1.58
         (0.30         (9.24         (3.01         (4.12         (1.08       (1.58
  $    30.69   $    23.50   $    32.83   $    34.98   $    33.89   $   33.46 
  32.01%   1.33%   2.54%   16.13%   4.44%   24.66% 
      
  $231,474   $226,724   $432,915   $364,740   $337,183   $224,829 
  0.92%   0.96%   0.95%   0.97%   0.94%   0.94% 
  (0.75%  (0.35%  0.22%   0.78%   (0.11%  0.00% 
   101%   159%   24%   8%   26%   14% 

 

27


Financial highlights

Delaware Smid Cap Growth Fund Class R6

Selected data for each share of the Fund outstanding throughout each period were as follows:

 

    Year ended
3/31/18
  

5/2/161

to

3/31/17

 

Net asset value, beginning of period

  $23.50  $33.01 

Income (loss) from investment operations:

   

Net investment loss2

   (0.19  (0.05

Net realized and unrealized gain (loss)

   7.70   (0.19
  

 

 

  

 

 

 

Total from investment operations

   7.51   (0.24
  

 

 

  

 

 

 

Less dividends and distributions from:

   

Net investment income

      (0.04

Net realized gain

   (0.30  (9.23
  

 

 

  

 

 

 

Total dividends and distributions

   (0.30  (9.27
  

 

 

  

 

 

 

Net asset value, end of period

  $30.71  $23.50 
  

 

 

  

 

 

 

Total return3

   32.10%   0.88% 

Ratios and supplemental data:

   

Net assets, end of period (000 omitted)

  $1,186  $2 

Ratio of expenses to average net assets4

   0.84%   0.84% 

Ratio of net investment loss to average net assets4

   (0.67%  (0.21%

Portfolio turnover

   101%   159%5 

 

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.

 

4 Expenses paid indirectly were not material and had no impact on the ratios disclosed. Expenses paid indirectly for the year ended March 31, 2018 are reflected on the “Statement of operations.”

 

5 Portfolio turnover is representative of the Fund for the entire year ended March 31, 2017.

See accompanying notes, which are an integral part of the financial statements.

 

28


Notes to financial statements 
Delaware Smid Cap Growth Fund March 31, 2018

Delaware Group® Equity Funds IV (Trust) is organized as a Delaware statutory trust and offers three series: Delaware Healthcare Fund, Delaware Smid Cap Growth Fund, and Delaware Small 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 (1940 Act), and offers Class A, Class C, Class R, Institutional Class, and Class R6 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) instead of a front-end sales charge of 1.00% 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 1.00%, if redeemed during the first 12 months. Class R, Institutional Class, and Class R6 shares are not subject to a sales charge and are offered for sale exclusively to certain eligible investors. In addition, Class R6 shares do not pay any service fees, sub-accounting fees, and/or sub-transfer agency fees to any brokers, dealers, or other financial intermediaries.

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 US generally accepted accounting principles (US GAAP) and are consistently followed by the Fund.

Security Valuation  –  Equity securities, except those traded on the Nasdaq Stock Market LLC (Nasdaq), are valued at the last quoted sales price as of the time of the regular close of the New York Stock Exchange on the valuation date. Equity 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, the mean between the bid and ask prices will be used, which approximates fair value. Equity securities listed on a foreign exchange are normally valued at the last quoted sales price on the valuation date. US 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 Trust’s 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-US markets because, among other things, most foreign markets close well before the Fund values its securities, generally as of 4:00pm 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. Whenever such a significant event occurs, the Fund may value foreign securities using fair value prices based on third-party vendor modeling tools (international fair value pricing). Restricted securities are valued at fair value using methods approved by the Board.

 

29


Notes to financial statements

Delaware Smid Cap Growth Fund

1. Significant Accounting Policies (continued)

Federal and Foreign 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 Fund’s tax returns to determine whether the tax positions are “more-likely-than-not” of being sustained by the applicable tax authority. Tax positions not deemed to meet the “more-likely-than-not” threshold are recorded as a tax benefit or expense in the current year. Management has analyzed the Fund’s tax positions taken or to be taken on the Fund’s federal income tax returns through the year ended March 31, 2018 and for all open tax years (years ended Sept. 30, 2014–March 31, 2017), and has concluded that no provision for federal income tax is required in the Fund’s financial statements. If applicable, the Fund recognizes interest accrued on unrecognized tax benefits in interest expense and penalties in other expenses on the “Statement of operations.” During the year ended March 31, 2018, the Fund did not incur any interest or tax penalties. In regard to foreign taxes only, the Fund has open tax years in certain foreign countries in which it invests that may date back to the inception of the Fund.

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. Class R6 shares will not be allocated any expenses related to service fees, sub-accounting fees, and/or sub-transfer agency fees paid to brokers, dealers, or other financial intermediaries.

Repurchase Agreements  –  The Fund may purchase certain US government securities subject to the counterparty’s 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 Fund’s 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 March 31, 2018, 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 Fund’s prospectus. The value of all assets and liabilities denominated in foreign currencies is translated daily into US dollars at the exchange rate of such currencies against the US dollar. 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 bifurcate 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. These gains and losses are included on the “Statement of operations” under “Net realized and unrealized gain (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.

 

30


Use of Estimates  –  The Fund is an investment company, whose financial statements are prepared in conformity with US GAAP. Therefore, the Fund follows the accounting and reporting guidelines for investment companies. The preparation of financial statements in conformity with US 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 Funds® by Macquarie (Delaware Funds) are generally allocated among such funds on the basis of average net assets. Management fees and certain 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. Distributions received from investments in real estate investment trusts (REITs) are recorded as dividend income on the ex-dividend date, subject to reclassification upon notice of the character of such distributions by the issuer. 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 tax withholdings, a portion of which may be reclaimable. Withholding taxes and reclaims on foreign dividends have been recorded in accordance with the Fund’s understanding of the applicable country’s 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. The Fund may distribute more frequently, if necessary for tax purposes. Dividends and distributions, if any, are recorded on the ex-dividend date.

The Fund receives earnings credits from its custodian when positive cash balances are maintained, which may be used to offset custody fees. There were no such earnings credits for the year ended March 31, 2018.

The Fund receives earnings credits from its transfer agent when positive cash balances are maintained, which may be used to offset transfer agent fees. If the amount earned is greater than $1, the expense paid under this arrangement is included on the “Statement of operations” under “Dividend disbursing and transfer agent fees and expenses” with the corresponding expense offset included under “Less expense paid indirectly.” For the year ended March 31, 2018, the Fund earned $1,580 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 Macquarie Investment Management Business Trust and the investment manager, an annual fee which is calculated daily and paid monthly at the rate of 0.75% on the first $500 million of the average daily net assets of the Fund; 0.70% on the next $500 million; 0.65% on the next $1.5 billion; and 0.60% on average daily net assets in excess of $2.5 billion.

 

31


Notes to financial statements

Delaware Smid Cap Growth Fund

2. Investment Management, Administration Agreements and Other Transactions with Affiliates (continued)

Delaware Investments Fund Services Company (DIFSC), an affiliate of DMC, provides fund accounting and financial administration oversight services to the Fund. For these services, DIFSC’s fees were calculated daily and paid monthly based on the aggregate daily net assets of the Delaware Funds from April 1, 2017 through Aug. 31, 2017 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 DIFSC under the service agreement described above were allocated among all funds in the Delaware Funds on a relative net asset value (NAV) basis. Effective Sept. 1, 2017, the Fund as well as the other Delaware Funds entered into an amendment to the DIFSC agreement. Under the amendment to the DIFSC agreement, DIFSC’s fees are calculated daily and paid monthly based on the aggregate daily net assets of the Delaware Funds at the following annual rate: 0.00475% of the first $35 billion; 0.0040% of the next $10 billion; and 0.0025% of aggregate average daily net assets in excess of $45 billion (Total Fee). Each fund in Delaware Funds pays a minimum of $4,000, which in aggregate, is subtracted from the Total Fee. Each fund in the Delaware Funds then pays its relative portion of the remainder of the Total Fee on a relative NAV basis. For the year ended March 31, 2018, the Fund was charged $41,650 for these services. This amount is included on the “Statement of operations” under “Accounting and administration expenses.”

DIFSC is also the transfer agent and dividend disbursing agent of the Fund. For these services, DIFSC’s fees are calculated daily and paid monthly based on the aggregate daily net assets of the retail funds within the Delaware Funds at the following annual rate: 0.025% of the first $20 billion; 0.020% of the next $5 billion; 0.015% of the next $5 billion; and 0.013% of average daily net assets in excess of $30 billion. The fees payable to DIFSC under the service agreement described above are allocated among all retail funds in the Delaware Funds on a relative NAV basis. This amount is included on the “Statement of operations” under “Dividend disbursing and transfer agent fees and expenses.” For the year ended March 31, 2018, the Fund was charged $187,730 for these services. Pursuant to a sub-transfer agency agreement between DIFSC and BNY Mellon Investment Servicing (US) Inc. (BNYMIS), BNYMIS provides certain sub-transfer agency services to the Fund. Sub-transfer agency fees are paid by the Fund and are also included on the “Statement of operations” under “Dividend disbursing and transfer agent fees and expenses.”

Pursuant to a distribution agreement and distribution plan, the Fund pays DDLP, the distributor and an affiliate of DMC, an annual distribution and service (12b-1) fees of 0.25% 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 0.50% of the average daily net assets of Class R shares. The Board has adopted a formula for calculating 12b-1 fees for the Fund’s Class A shares that went into effect on Oct. 11, 2010. The total 12b-1 fees to be paid by Class A shareholders of the Fund will be the sum of: (i) 0.10% of the average daily net assets representing shares that were acquired prior to June 1, 1992, and (ii) 0.25% of the average daily net assets representing shares that were acquired on or after June 1, 1992. All Class A shareholders currently bear 12b-1 fees at the same rate, the blended rate based on the formula described above. This method of calculating Class A 12b-1 fees may be discontinued at the sole discretion of the Board. The fees are calculated daily and paid monthly. Institutional Class and Class R6 shares pay no 12b-1 fees.

 

32


As provided in the investment management agreement, the Fund bears a portion of the cost of certain resources shared with DMC, including the cost of internal personnel of DMC and/or its affiliates that provide legal, tax, and regulatory reporting services to the Fund. For the year ended March 31, 2018, the Fund was charged $19,460 for internal legal, tax, and regulatory reporting services provided by DMC and/or its affiliates’ employees. This amount is included on the “Statement of operations” under “Legal fees.”

For the year ended March 31, 2018, DDLP earned $66,906 for commissions on sales of the Fund’s Class A shares. For the year ended March 31, 2018, DDLP received gross CDSC commissions of $41 and $1,661 on redemptions of the Fund’s Class A and Class C shares, respectively, and these commissions were entirely used to offset upfront commissions previously paid by DDLP to broker/dealers on sales of those shares.

Trustees’ fees include expenses accrued by the Fund for each Trustee’s retainer and meeting fees. Certain officers of DMC, DIFSC, and DDLP are officers and/or Trustees of the Trust. These officers and Trustees are paid no compensation by the Fund.

Cross trades for the year ended March 31, 2018 were executed by the Fund pursuant to procedures adopted by the Board designed to ensure compliance with Rule 17a-7 under the 1940 Act. Cross trading is the buying or selling of portfolio securities between funds of investment companies, or between a fund of an investment company and another entity, that are or could be considered affiliates by virtue of having a common investment advisor (or affiliated investment advisors), common directors/trustees and/or common officers. At its regularly scheduled meetings, the Board reviews such transactions for compliance with the procedures adopted by the Board. Pursuant to these procedures, for the year ended March 31, 2018, the Fund engaged in securities sales of $3,017,376, which resulted in net realized loss of $39.

3. Investments

For the year ended March 31, 2018, the Fund made purchases and sales of investment securities other than short-term investments as follows:

 

Purchases

  $962,439,892 

Sales

   1,100,143,900 

The tax cost of investments includes adjustments to net unrealized appreciation (depreciation) which may not necessarily be final tax cost basis adjustments, but approximate the tax basis unrealized gains and losses that may be realized and distributed to shareholders. At March 31, 2018, the cost and unrealized appreciation (depreciation) of investments in the Fund for federal income tax purposes were as follows:

 

Cost of investments

   $833,306,475 

Aggregate unrealized appreciation of investments

   $259,702,372 

Aggregate unrealized depreciation of investments

   (23,828,247

Net unrealized appreciation of investments

   $235,874,125 

US 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

 

33


Notes to financial statements

Delaware Smid Cap Growth Fund

 

3. Investments (continued)

 

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 entity’s own assumptions about the assumptions that market participants would use in pricing the asset or liability based on the best information available under the circumstances. The Fund’s 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. (Examples: 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. (Examples: 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 – Significant unobservable inputs, including the Fund’s own assumptions used to determine the fair value of investments. (Examples: broker-quoted securities, fair valued securities)

Level 3 investments are valued using significant unobservable inputs. 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 Fund’s investments by fair value hierarchy levels as of March 31, 2018:

 

    

Level 1

   

Level 2

   

Total

 

Securities

            

 

Assets:

            

Common Stock

  $1,069,072,748   $   $1,069,072,748 

Short-Term Investments

       107,852    107,852 
  

 

 

   

 

 

   

 

 

 

Total Value of Securities

  $1,069,072,748   $107,852   $1,069,180,600 
  

 

 

   

 

 

   

 

 

 

 

34


 

During the year ended March 31, 2018, there were no transfers between Level 1 investments, Level 2 investments, or Level 3 investments that had a significant impact to the Fund. This does not include transfers between Level 1 investments and Level 2 investments due to the Fund utilizing international fair value pricing during the year. In accordance with the fair valuation procedures described in Note 1, international fair value pricing of securities in the Fund occurs when market volatility exceeds an established rolling threshold. If the threshold is exceeded on a given date, then prices of international securities (those that traded on exchanges that close at a different time than the time that the Fund’s NAV is determined) are established using a separate pricing feed from a third party vendor designed to establish a price for each such security as of the time that the Fund’s NAV is determined. Further, 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, causing a change in classification between levels. The Fund’s policy is to recognize transfers between levels based on fair value at the beginning of the reporting period.

A reconciliation of Level 3 investments is presented when the Fund has a significant amount of Level 3 investments at the beginning, interim, or end of the period in relation to net assets. During the year ended March 31, 2018, there were no Level 3 investments.

4. Dividend and Distribution Information

Income and long-term capital gain distributions are determined in accordance with federal income tax regulations, which may differ from US 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 March 31, 2018 and 2017 were as follows:

 

   

Year ended

 

 
   3/31/18   3/31/17 

Ordinary income

  $   $303,398 

Long-term capital gains

   13,369,144    358,556,180 
  

 

 

   

 

 

 

Total

  $13,369,144   $358,859,578 
  

 

 

   

 

 

 

The Fund paid capital gains on foreign securities. These gains were designated as long-term capital gain distributions.

5. Components of Net Assets on a Tax Basis

As of March 31, 2018, the components of net assets on a tax basis were as follows:

 

Shares of beneficial interest

  $749,227,411 

Undistributed long-term capital gains

   85,623,230 

Qualified late year loss deferrals

   (1,842,004

Net unrealized appreciation on investments and foreign currencies

   235,874,125 
  

 

 

 

Net assets

  $1,068,882,762 
  

 

 

 

The differences between book basis and tax basis components of net assets are primarily attributable to tax deferral of losses on wash sales.

 

35


Notes to financial statements

Delaware Smid Cap Growth Fund

 

5. Components of Net Assets on a Tax Basis (continued)

Qualified late year losses represent losses realized from Jan. 1, 2018 through March 31, 2018, 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 loss. Results of operations and net assets were not affected by these reclassifications. For the year ended March 31, 2018, the Fund recorded the following reclassifications:

 

Distributions in excess of net investment income

  $9,630,872 

Accumulated net realized gain

   (9,630,872

6. Capital Shares

Transactions in capital shares were as follows:

 

   Year ended 
   3/31/18  3/31/17 

Shares sold:

   

Class A

   3,098,971   1,537,467 

Class C

   432,991   388,478 

Class R

   159,823   252,667 

Institutional Class

   2,881,746   4,034,439 

Class R6

   45,942   61 

Shares issued upon reinvestment of dividends and distributions:

   

Class A

   468,918   14,382,418 

Class C

   111,886   3,247,681 

Class R

   10,376   409,369 

Institutional Class

   76,072   3,347,776 

Class R6

   394   25 
  

 

 

  

 

 

 
   7,287,119   27,600,381 
  

 

 

  

 

 

 

Shares redeemed:

   

Class A

   (6,699,908  (7,892,305

Class C

   (1,937,316  (1,823,380

Class R

   (577,921  (360,589

Institutional Class

   (5,062,847  (10,923,654

Class R6

   (7,813   
  

 

 

  

 

 

 
   (14,285,805  (20,999,928
  

 

 

  

 

 

 

Net Increase (Decrease)

   (6,998,686  6,600,453 
  

 

 

  

 

 

 

 

36


 

 

 

Certain shareholders may exchange shares of one class for shares of another class in the same Fund. For the years ended March 31, 2018 and 2017, the Fund had the following exchange transactions. These exchange transactions are included as subscriptions and redemptions in the table above and the “Statements of changes in net assets.”

 

    

Exchange Redemptions

   

Exchange Subscriptions

     
         Class A      
Shares
         Class C      
Shares
         Class A      
Shares
   

 

    Institutional    
Class

Shares

         Value       

Year ended 3/31/18

   26,578    26,988    3,389    27,700   $765,754 

Year ended 3/31/17

   440,698    20,732        338,770    8,036,478 

7. Line of Credit

The Fund, along with certain other funds in the Delaware Funds (Participants), was a participant in a $155,000,000 revolving line of credit intended 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 of 0.15%, which was generally allocated across the Participants based on a weighted average of the respective net assets of each Participant. 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 available under the agreement expired on Nov. 6, 2017.

On Nov. 6, 2017, the Fund, along with the other Participants, entered into an amendment to the agreement for a $155,000,000 revolving line of credit. The line of credit is to be used as described above and operates in substantially the same manner as the original agreement. The line of credit available under the agreement expires on Nov. 5, 2018.

The Fund had no amounts outstanding as of March 31, 2018, or at any time during the year then ended.

8. Securities Lending

The Fund, along with other funds in the Delaware 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: (1) 102% with respect to US securities and foreign securities that are denominated and payable in US dollars; and (2) 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

 

37


Notes to financial statements

Delaware Smid Cap Growth Fund

 

8. Securities Lending (continued)

 

the collateral held with respect to a loaned security on any particular day may be more or less than the value of the security on loan. The collateral percentage with respect to the market value of the loaned security is determined by the security lending agent.

Cash collateral received by each fund is generally invested in a series of individual separate accounts, each corresponding to a fund. The investment guidelines permit each separate account to hold certain securities that would be considered eligible securities for a money market fund. Cash collateral received is generally invested in government securities; certain obligations issued by government sponsored enterprises; repurchase agreements collateralized by US Treasury securities; obligations issued by the central government of any Organization for Economic Cooperation and Development (OECD) country or its agencies, instrumentalities or establishments; obligations of supranational organizations; commercial paper, notes, bonds, and other debt obligations; certificates of deposit, time deposits, and other bank obligations; and asset-backed securities. A Fund can also accept US 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 Fund may incur investment losses as a result of investing securities lending collateral. This could occur if an investment in the collateral investment account defaulted or became impaired. Under those circumstances, the value of a Fund’s cash collateral account may be less than the amount the Fund would be required to return to the borrowers of the securities and the Fund would be required to make up for this shortfall.

During the year ended March 31, 2018, the Fund had no securities out on loan.

9. Credit and Market Risk

The Fund invested in growth stocks (such as those in the technology sector), which reflect projections of future earnings and revenue. These prices may rise or fall dramatically depending on whether those projections are met. These companies’ stock prices may be more volatile, particularly over the short-term.

 

38


 

 

 

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 limited financial resources or a dependence on narrow product lines.

The Fund invests in REITs and is subject to the risks associated with that industry. If the Fund holds real estate directly as a result of defaults or receives rental income directly from real estate holdings, its tax status as a regulated investment company may be jeopardized. There were no direct real estate holdings during the year ended March 31, 2018. The Fund’s REIT holdings are also affected by interest rate changes, particularly if the REITs it holds use floating rate debt to finance their ongoing operations.

The Fund may invest up to 15% of its net assets in illiquid securities, which may include securities with contractual restrictions on resale, securities exempt from registration under Rule 144A promulgated under the Securities Act of 1933, as amended, and other securities which may not be readily marketable. The relative illiquidity of these securities may impair the Fund from disposing of them in a timely manner and at a fair price when it is necessary or desirable to do so. While maintaining oversight, the Fund’s Board has delegated to DMC, the day-to-day functions of determining whether individual securities are liquid for purposes of the Fund’s limitation on investments in illiquid securities. Securities eligible for resale pursuant to Rule 144A, which are determined to be liquid, are not subject to the Fund’s 15% limit on investments in illiquid securities. As of March 31, 2018, there were no Rule 144A securities held by the Fund.

10. Contractual Obligations

The Fund enters into contracts in the normal course of business that contain a variety of indemnifications. The Fund’s maximum exposure under these arrangements is unknown. However, the Fund has not had prior claims or losses pursuant to these contracts. Management has reviewed the Fund’s existing contracts and expects the risk of loss to be remote.

11. Subsequent Events

Management has determined that no material events or transactions occurred subsequent to March 31, 2018, that would require recognition or disclosure in the Fund’s financial statements.

 

39


Report of independent

registered public accounting firm

To the Board of Trustees of Delaware Group® Equity Funds IV and Shareholders of Delaware Smid Cap Growth Fund

Opinion on the Financial Statements

We have audited the accompanying statement of assets and liabilities, including the schedule of investments, of Delaware Smid Cap Growth Fund (one of the funds constituting Delaware Group Equity Funds IV, referred to hereafter as the “Fund”) as of March 31, 2018, the related statement of operations for the year ended March 31, 2018, the statements of changes in net assets for each of the two years in the period ended March 31, 2018, including the related notes, and the financial highlights for each of the periods indicated therein (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Fund as of March 31, 2018, 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 ended March 31, 2018 and the financial highlights for each of the periods indicated therein in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

These financial statements are the responsibility of the Fund’s management. Our responsibility is to express an opinion on the Fund’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Fund in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits of these financial statements in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. Our procedures included confirmation of securities owned as of March 31, 2018 by correspondence with the custodian and brokers; when replies were not received from brokers, we performed other auditing procedures. We believe that our audits provide a reasonable basis for our opinion.

PricewaterhouseCoopers LLP

Philadelphia, Pennsylvania

May 18, 2018

We have served as the auditor of one or more investment companies in Delaware Funds® by Macquarie since 2010.

 

40


Other Fund information (Unaudited)

Delaware Smid Cap Growth Fund

Tax Information

The information set forth below is for the Fund’s 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 disclosures 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 reporting, it is the intention of the Fund to report the maximum amount permitted under the Internal Revenue Code and the regulations thereunder.

For the fiscal year ended March 31, 2018, the Fund reports distributions paid during the period as follows:

 

(A) Long-Term Capital Gain Distributions (Tax Basis)

   100.00% 

Total Distributions (Tax Basis)

   100.00% 

(A) is based on a percentage of the Fund’s total distributions.

 

41


Board of trustees / directors and officers addendum

Delaware Funds® by Macquarie

A mutual fund is governed by a Board of Trustees/Directors (“Trustees”), which has oversight responsibility for the management of a fund’s business affairs. Trustees establish procedures and oversee and review the performance of the investment manager, the distributor, and others who perform services for the fund. The independent fund trustees, in particular, are advocates

 

Name, Address,  Position(s)  Length of
and Birth Date  Held with Fund(s)  Time Served

     Interested Trustee

    

Shawn K. Lytle1, 2

  President,  Trustee since

2005 Market Street

  Chief Executive Officer,  September 2015

Philadelphia, PA 19103

  and Trustee  

February 1970

    President and
    Chief Executive Officer
    since August 2015

    

    

     Independent Trustees

    

Thomas L. Bennett

  Chairman and Trustee  Trustee since

2005 Market Street

    March 2005

Philadelphia, PA 19103

    

October 1947

    Chairman since
      

March 2015

 

Ann D. Borowiec

  Trustee  Since March 2015

2005 Market Street

    

Philadelphia, PA 19103

    

November 1958

    

    

      

Joseph W. Chow

  Trustee  Since January 2013

2005 Market Street

    

Philadelphia, PA 19103

    

January 1953

    
          

 

1 Shawn K. Lytle is considered to be an “Interested Trustee” because he is an executive officer of the Fund’s(s’) investment advisor.
2 Shawn K. Lytle, David F. Connor, Daniel V. Geatens, 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. Mr. Geatens also serves as the CFO and Treasurer for Macquarie Global Infrastructure Total Return Fund Inc., which shares an affiliated investment manager.

 

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 the Past Five Years  by Trustee or Officer  Held by Trustee or Officer
    

 

President — Macquarie

  

 

60

  

 

Trustee — UBS

Investment Management3

    Relationship Funds,

(June 2015–Present)

    SMA Relationship
    Trust, and UBS Funds

Regional Head of

    (May 2010–April 2015)

Americas — UBS Global

    

Asset Management

    

(April 2010–May 2015)

 

    
    

Private Investor

  60  None

(March 2004–Present)

    
          

Chief Executive Officer,

  60  Director —

Private Wealth Management

    Banco Santander International

(2011–2013) and

    

Market Manager,

    Director —

New Jersey Private

    Santander Bank, N.A.

Bank (2005–2011) —

    

J.P. Morgan Chase & Co.

 

      

Executive Vice President

  60  Director and Audit Committee

(Emerging Economies

    Member — Hercules

Strategies, Risks, and

    Technology Growth

Corporate Administration)

    Capital, Inc.

State Street Corporation

    (2004–2014)

(July 2004–March 2011)

 

      

 

 3 Macquarie Investment Management is the marketing name for Macquarie Management Holdings, Inc. and its subsidiaries, including the Fund’s(s’) investment advisor, principal underwriter, and its transfer agent. 

 

43


Board of trustees / directors and officers addendum

Delaware Funds® by Macquarie

 

Name, Address,  Position(s)  Length of
and Birth Date  Held with Fund(s)  Time Served

    Independent Trustees (continued)

  

John A. Fry

  Trustee  Since January 2001

2005 Market Street

    

Philadelphia, PA 19103

    

May 1960

    
        
          

 

Lucinda S. Landreth

  

 

Trustee

  

 

Since March 2005

2005 Market Street

    

Philadelphia, PA 19103

    

June 1947

      

Frances A. Sevilla-Sacasa

  Trustee  Since September 2011

2005 Market Street

    

Philadelphia, PA 19103

    

January 1956

    
          

 

44


   Number of Portfolios in   
Principal Occupation(s)  Fund Complex Overseen  Other Directorships
During the Past Five Years  by Trustee or Officer  Held by Trustee or Officer
    

President —

  60  Director; Compensation

Drexel University

    Committee and

(August 2010–Present)

    Governance Committee
    Member — Community

President —

    Health Systems

Franklin & Marshall College

    

(July 2002–July 2010)

    Director — Drexel
    Morgan & Co.
    
    Director, Audit Committee
    Member — vTv
    Therapeutics LLC
    
    Director; Audit Committee
    Member — FS Credit Real
      Estate Income Trust, Inc.

Private Investor

  60  None

(2004–Present)

    
          

Chief Executive Officer —

  60  Trust Manager and

Banco Itaú

    Audit Committee

International

    Chair — Camden

(April 2012–December 2016)

    Property Trust
    

Executive Advisor to Dean

    

(August 2011–March 2012)

and Interim Dean

    

(January 2011–July 2011) —

    

University of Miami School of

    

Business Administration

    
    

President — U.S. Trust,

    

Bank of America Private

    

Wealth Management

    

(Private Banking)

    

(July 2007–December 2008)

 

      

 

45


Board of trustees / directors and officers addendum

Delaware Funds® by Macquarie

 

Name, Address,  Position(s)  Length of
and Birth Date  Held with Fund(s)  Time Served

     Independent Trustees (continued)

  

Thomas K. Whitford

  Trustee  Since January 2013

2005 Market Street

    

Philadelphia, PA 19103

    

March 1956

    
          

Janet L. Yeomans

  Trustee  Since April 1999

2005 Market Street

    

Philadelphia, PA 19103

    

July 1948

    
        

     Officers

    

David F. Connor

  Senior Vice President,  Senior Vice President

2005 Market Street

  General Counsel,  since May 2013;

Philadelphia, PA 19103

  and Secretary  General Counsel

December 1963

    since May 2015;
    Secretary since
      

October 2005

 

Daniel V. Geatens

  Vice President  Treasurer since October 2007

2005 Market Street

  and Treasurer  

Philadelphia, PA 19103

    

October 1972

    
          

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.

 

46


   Number of Portfolios in   
Principal Occupation(s)  Fund Complex Overseen  Other Directorships
During the Past Five Years  by Trustee or Officer  Held by Trustee or Officer
    

Vice Chairman

  60  Director — HSBC Finance

(2010–April 2013) —

    Corporation and HSBC

PNC Financial

    North America Holdings Inc.

Services Group

    
    Director —
      

HSBC USA Inc.

 

Vice President and Treasurer

  60  Director (2009–2017);

(January 2006–July 2012),

    Personnel and Compensation

Vice President —

    Committee Chair; Member of

Mergers & Acquisitions

    Nominating, Investments, and

(January 2003–January 2006),

    Audit Committees for various

and Vice President

    periods throughout

and Treasurer

    directorship —

(July 1995–January 2003) —

    Okabena Company

3M Company

 

    
    

David F. Connor has served

  60  None2

in various capacities at

different times at

    

Macquarie Investment

    

Management.

    
          

Daniel V. Geatens has served

  60  None2

in various capacities at

different times at

    

Macquarie Investment

    

Management.

 

      

Richard Salus has served

  60  None2

in various executive capacities at different times at

    

Macquarie Investment

    

Management.

 

      

 

47


About the organization

 

Board of trustees      

Shawn K. Lytle

President and

Chief Executive Officer

Delaware Funds®

by Macquarie

Philadelphia, PA

 

Thomas L. Bennett

Chairman of the Board

Delaware Funds

by Macquarie

Private Investor

Rosemont, PA

  

Ann D. Borowiec

Former Chief Executive

Officer

Private Wealth Management

J.P. Morgan Chase & Co.

New York, NY

 

Joseph W. Chow

Former Executive Vice

President

State Street Corporation

Boston, MA

  

John A. Fry

President

Drexel University

Philadelphia, PA

 

Lucinda S. Landreth

Former Chief Investment

Officer

Assurant, Inc.

New York, NY

  

Frances A.

Sevilla-Sacasa

Former Chief Executive

Officer

Banco Itaú International

Miami, FL

 

Thomas K. Whitford

Former Vice Chairman

PNC Financial Services Group

Pittsburgh, PA

 

Janet L. Yeomans

Former Vice President and

Treasurer

3M Company

St. Paul, MN

Affiliated officers      

David F. Connor

Senior Vice President,

General Counsel,

and Secretary

Delaware Funds

by Macquarie

Philadelphia, PA

  

Daniel V. Geatens

Vice President and

Treasurer

Delaware Funds

by Macquarie

Philadelphia, PA

  

Richard Salus

Senior Vice President and

Chief Financial Officer

Delaware Funds

by Macquarie

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 Fund fact sheet for the most recently completed calendar quarter. These documents are available at delawarefunds.com/literature.

 

 

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 Fund’s Forms N-Q, as well as a description of the policies and procedures that the Fund uses to determine how to vote proxies (if any) relating to portfolio securities are available without charge (i) upon request, by calling 800 523-1918; and (ii) on the SEC’s 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 Schedule of Investments included in the Fund’s most recent Form N-Q are available without charge on the Fund’s website at delawarefunds.com/literature. The Fund’s Forms N-Q may be reviewed and copied at the SEC’s Public Reference Room in Washington, D.C.; information on the operation of the Public Reference Room may be obtained by calling 800 SEC-0330.

Information (if any) regarding how the Fund voted proxies relating to portfolio securities during the most recently disclosed 12-month period ended June 30 is available without charge (i) through the Fund’s website at delawarefunds.com/proxy; and (ii) on the SEC’s website at sec.gov.

 

48



Item 2. Code of Ethics

The registrant has adopted a code of ethics that applies to the registrant’s principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions, regardless of whether these individuals are employed by the registrant or a third party. A copy of the registrant’s Code of Business Ethics has been posted on the Delaware FundsSM by Macquarie Internet Web site at www.delawarefunds.com. Any amendments to the Code of Business Ethics, and information on any waiver from its provisions granted by the registrant, will also be posted on this Web site within five business days of such amendment or waiver and will remain on the Web site for at least 12 months.

Item 3. Audit Committee Financial Expert

The registrant’s Board of Trustees has determined that certain members of the registrant’s Audit Committee are audit committee financial experts, as defined below. For purposes of this item, an “audit committee financial expert” is a person who has the following attributes:

a. An understanding of generally accepted accounting principles and financial statements;

b. The ability to assess the general application of such principles in connection with the accounting for estimates, accruals, and reserves;

c. Experience preparing, auditing, analyzing, or evaluating financial statements that present a breadth and level of complexity of accounting issues that are generally comparable to the breadth and complexity of issues that can reasonably be expected to be raised by the registrant’s financial statements, or experience actively supervising one or more persons engaged in such activities;

d. An understanding of internal controls and procedures for financial reporting; and

e. An understanding of audit committee functions.

An “audit committee financial expert” shall have acquired such attributes through:

a. Education and experience as a principal financial officer, principal accounting officer, controller, public accountant, or auditor or experience in one or more positions that involve the performance of similar functions;

b. Experience actively supervising a principal financial officer, principal accounting officer, controller, public accountant, auditor, or person performing similar functions;

c. Experience overseeing or assessing the performance of companies or public accountants with respect to the preparation, auditing, or evaluation of financial statements; or

d. Other relevant experience.

The registrant’s Board of Trustees has also determined that each member of the registrant’s Audit Committee is independent. In order to be “independent” for purposes of this item, the Audit Committee member may not: (i) other than in his or her capacity as a member of the Board of Trustees or any committee thereof, accept directly or indirectly any consulting, advisory or other compensatory fee from the issuer; or (ii) be an “interested person” of the registrant as defined in Section 2(a)(19) of the Investment Company Act of 1940.


The names of the audit committee financial experts on the registrant’s Audit Committee are set forth below:

       Joseph W. Chow
John A. Fry
Lucinda S. Landreth
Thomas K. Whitford
Janet L. Yeomans

Item 4. Principal Accountant Fees and Services

(a) Audit fees.

The aggregate fees billed for services provided to the registrant by its independent auditors for the audit of the registrant’s annual financial statements and for services normally provided by the independent auditors in connection with statutory and regulatory filings or engagements were $85,829 for the fiscal year ended March 31, 2018.

The aggregate fees billed for services provided to the registrant by its independent auditors for the audit of the registrant’s annual financial statements and for services normally provided by the independent auditors in connection with statutory and regulatory filings or engagements were $85,829 for the fiscal year ended March 31, 2017.

(b) Audit-related fees.

The aggregate fees billed by the registrant’s independent auditors for services relating to the performance of the audit of the registrant’s financial statements and not reported under paragraph (a) of this Item were $0 for the fiscal year ended March 31, 2018.

The aggregate fees billed by the registrant’s independent auditors for services relating to the performance of the audit of the financial statements of the registrant’s investment adviser and other service providers under common control with the adviser and that relate directly to the operations or financial reporting of the registrant were $640,000 for the registrant’s fiscal year ended March 31, 2018. The percentage of these fees relating to services approved by the registrant’s Audit Committee pursuant to the de minimis exception from the pre-approval requirement in Rule 2-01(c)(7)(i)(C) of Regulation S-X was 0%. These audit-related services were as follows: year-end audit procedures; group reporting and subsidiary statutory audits.

The aggregate fees billed by the registrant’s independent auditors for services relating to the performance of the audit of the registrant’s financial statements and not reported under paragraph (a) of this Item were $0 for the fiscal year ended March 31, 2017.

The aggregate fees billed by the registrant’s independent auditors for services relating to the performance of the audit of the financial statements of the registrant’s investment adviser and other service providers under common control with the adviser and that relate directly to the operations or financial reporting of the registrant were $640,000 for the registrant’s fiscal year ended March 31, 2017. The percentage of these fees relating to services approved by the registrant’s Audit Committee pursuant to the de minimis exception from the pre-approval requirement in Rule 2-01(c)(7)(i)(C) of Regulation S-X was 0%. These audit-related services were as follows: year end audit procedures; group reporting and subsidiary statutory audits.


(c) Tax fees.

The aggregate fees billed by the registrant’s independent auditors for tax-related services provided to the registrant were $15,954 for the fiscal year ended March 31, 2018. The percentage of these fees relating to services approved by the registrant’s Audit Committee pursuant to the de minimis exception from the pre-approval requirement in Rule 2-01(c)(7)(i)(C) of Regulation S-X was 0%. These tax-related services were as follows: review of income tax returns and review of annual excise distribution calculations.

The aggregate fees billed by the registrant’s independent auditors for tax-related services provided to the registrant’s investment adviser and other service providers under common control with the adviser and that relate directly to the operations or financial reporting of the registrant were $0 for the registrant’s fiscal year ended March 31, 2018.

The aggregate fees billed by the registrant’s independent auditors for tax-related services provided to the registrant were $15,471 for the fiscal year ended March 31, 2017. The percentage of these fees relating to services approved by the registrant’s Audit Committee pursuant to the de minimis exception from the pre-approval requirement in Rule 2-01(c)(7)(i)(C) of Regulation S-X was 0%. These tax-related services were as follows: review of income tax returns and review of annual excise distribution calculations.

The aggregate fees billed by the registrant’s independent auditors for tax-related services provided to the registrant’s investment adviser and other service providers under common control with the adviser and that relate directly to the operations or financial reporting of the registrant were $0 for the registrant’s fiscal year ended March 31, 2017.

(d) All other fees.

The aggregate fees billed for all services provided by the independent auditors to the registrant other than those set forth in paragraphs (a), (b) and (c) of this Item were $0 for the fiscal year ended March 31, 2018.

The aggregate fees billed for all services other than those set forth in paragraphs (b) and (c) of this Item provided by the registrant’s independent auditors to the registrant’s adviser and other service providers under common control with the adviser and that relate directly to the operations or financial reporting of the registrant were $0 for the registrant’s fiscal year ended March 31, 2018. The percentage of these fees relating to services approved by the registrant’s Audit Committee pursuant to the de minimis exception from the pre-approval requirement in Rule 2-01(c)(7)(i)(C) of Regulation S-X was 0%.

The aggregate fees billed for all services provided by the independent auditors to the registrant other than those set forth in paragraphs (a), (b) and (c) of this Item were $0 for the fiscal year ended March 31, 2017.

The aggregate fees billed for all services other than those set forth in paragraphs (b) and (c) of this Item provided by the registrant’s independent auditors to the registrant’s adviser and other service providers under common control with the adviser and that relate directly to the operations or financial reporting of the registrant were $0 for the registrant’s fiscal year ended March 31, 2017. The percentage of these fees relating to services approved by the registrant’s Audit Committee pursuant to the de minimis exception from the pre-approval requirement in Rule 2-01(c)(7)(i)(C) of Regulation S-X was 0%.


(e) The registrant’s Audit Committee has established pre-approval policies and procedures as permitted by Rule 2-01(c)(7)(i)(B) of Regulation S-X (the “Pre-Approval Policy”) with respect to services provided by the registrant’s independent auditors. Pursuant to the Pre-Approval Policy, the Audit Committee has pre-approved the services set forth in the table below with respect to the registrant up to the specified fee limits. Certain fee limits are based on aggregate fees to the registrant and other registrants within the Delaware FundsSM by Macquarie.

ServiceRange of Fees
Audit Services

Statutory audits or financial audits for new Funds

up to $40,000 per Fund

Services associated with SEC registration statements (e.g., Form N-1A, Form N-14, etc.), periodic reports and other documents filed with the SEC or other documents issued in connection with securities offerings (e.g., comfort letters for closed-end Fund offerings, consents), and assistance in responding to SEC comment letters

up to $10,000 per Fund

Consultations by Fund management as to the accounting or disclosure treatment of transactions or events and/or the actual or potential impact of final or proposed rules, standards or interpretations by the SEC, FASB, or other regulatory or standard-setting bodies (Note: Under SEC rules, some consultations may be considered “audit-related services” rather than “audit services”)

up to $25,000 in the aggregate

Audit-Related Services

Consultations by Fund management as to the accounting or disclosure treatment of transactions or events and /or the actual or potential impact of final or proposed rules, standards or interpretations by the SEC, FASB, or other regulatory or standard-setting bodies (Note: Under SEC rules, some consultations may be considered “audit services” rather than “audit-related services”)

up to $25,000 in the aggregate

Tax Services

U.S. federal, state and local and international tax planning and advice (e.g., consulting on statutory, regulatory or administrative developments, evaluation of Funds’ tax compliance function, etc.)

up to $25,000 in the aggregate

U.S. federal, state and local tax compliance (e.g., excise distribution reviews, etc.)

up to $5,000 per Fund

Review of federal, state, local and international income, franchise and other tax returns

up to $5,000 per Fund

Under the Pre-Approval Policy, the Audit Committee has also pre-approved the services set forth in the table below with respect to the registrant’s investment adviser and other entities controlling, controlled by or under common control with the investment adviser that provide ongoing services to the registrant (the “Control Affiliates”) up to the specified fee limit. This fee limit is based on aggregate fees to the investment adviser and its Control Affiliates.



ServiceRange of Fees
Non-Audit Services
Services associated with periodic reports and other documents filed with the SEC and assistance in responding to SEC comment lettersup to $10,000 in the aggregate

The Pre-Approval Policy requires the registrant’s independent auditors to report to the Audit Committee at each of its regular meetings regarding all services initiated since the last such report was rendered, including those services authorized by the Pre-Approval Policy.

(f) Not applicable.

(g) The aggregate non-audit fees billed by the registrant’s independent auditors for services rendered to the registrant and to its investment adviser and other service providers under common control with the adviser were $11,748,000 and $11,180,000 for the registrant’s fiscal years ended March 31, 2018 and March 31, 2017, respectively.

(h) In connection with its selection of the independent auditors, the registrant’s Audit Committee has considered the independent auditors’ provision of non-audit services to the registrant’s