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Delaware Group Equity Funds Iv

Filed: 5 Jun 20, 12:33pm

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, 2020


Item 1. Reports to Stockholders

Table of Contents

Delaware Funds*

by MACQUARIE

  LOGO

Annual report

Alternative / specialty mutual fund

Delaware Healthcare Fund

March 31, 2020

 

Beginning on or about June 1, 2021, as permitted by regulations adopted by the Securities and Exchange Commission, paper copies of your Fund’s shareholder reports will no longer be sent to you by mail, unless you specifically request them from the Fund or from your financial intermediary, such as a broker/dealer, bank, or insurance company. Instead, you will be notified by mail each time a report is posted on the website and provided with a link to access the report.

If you already elected to receive shareholder reports electronically, you will not be affected by this change and you do not need to take any action. You may elect to receive shareholder reports and other communications from the Fund electronically by signing up at delawarefunds.com/edelivery. If you own these shares through a financial intermediary, you may contact your financial intermediary.

You may elect to receive paper copies of all future shareholder reports free of charge. You can inform the Fund that you wish to continue receiving paper copies of your shareholder reports by contacting us at 800523-1918. If you own these shares through a financial intermediary, you may contact your financial intermediary to elect to continue to receive paper copies of your shareholder reports. Your election to receive reports in paper will apply to all funds held with the Delaware Funds® by Macquarie or your financial intermediary.

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 800523-1918. 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.

 

    


Table of Contents

Experience Delaware Funds®by Macquarie

Macquarie Investment Management (MIM) is a global asset manager with offices in the United States, Europe, Asia, and Australia. As active managers, we prioritize autonomy and accountability at the investment team level in pursuit of opportunities that matter for clients. Delaware Funds is one of the longest-standing mutual fund families, with more than 80 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. MIM is the marketing name for certain companies comprising the asset management division of Macquarie Group. This includes the following 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 Europe Limited, Macquarie Capital Investment Management LLC, and Macquarie Investment Management Europe S.A.

The Fund is distributed byDelaware Distributors, L.P. (DDLP), an affiliate of MIMBT and Macquarie Group Limited.

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

   16 

Statement of operations

   18 

Statements of changes in net assets

   20 

Financial highlights

   22 

Notes to financial statements

   30 

Report of independent registered public accounting firm

   43 

Other Fund information

   44 

Board of trustees / directors and officers addendum

   46 

About the organization

   56 

Unless otherwise noted, views expressed herein are current as of March 31, 2020, 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.

© 2020 Macquarie Management Holdings, Inc.

 


Table of Contents

Portfolio management review

Delaware Healthcare Fund   April 7, 2020 (Unaudited)

 

Performance preview (for the year ended March 31, 2020)

          

Delaware Healthcare Fund (Institutional Class shares)

   1-year return    -0.01%   

Delaware Healthcare Fund (Class A shares)*

   1-year return    -0.23%   

Russell 3000®Healthcare Index (benchmark)

   1-year return    -2.11%   

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.

 

 

Investment objective

The Fund seeks maximum long-term capital growth through capital appreciation.

Market review

The healthcare sector continued to experience significant challenges during the fiscal year ended March 31, 2020. Amplified discussions concerning drug-pricing reform and a single-payer medical insurance system in the United States once again made headlines and weighed on healthcare stocks as the 2020 presidential race progressed. Meanwhile, the sector saw continued drug innovation, easing regulatory concern, and a flurry of mergers and acquisitions that helped drive positive performance. Most recently, markets have been volatile as investors worry about the economic impact ofCOVID-19.

Within the Fund

For the fiscal period ended March 31, 2020, Delaware Healthcare Fund declined, although it outperformed its benchmark, the Russell 3000 Healthcare Index. The Fund’s Institutional Class shares declined-0.01%. The Fund’s Class A shares fell-0.23% at net asset value and declined

 

 

We continue putting a premium on disciplined, intensive research when analyzing investment opportunities for the Fund. We favor companies that, in our opinion, exhibit traits such as:

 

   proven competitiveness

 

   seasoned management teams

 

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

 

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

 

 

              
 

 

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Portfolio management review

Delaware Healthcare Fund

 

 

-5.96% at maximum offer price. These figures reflect all distributions reinvested. During the same period, the benchmark fell-2.11%. For complete, annualized performance of Delaware Healthcare Fund, please see the table on page 4.

Among sectors, the Fund’s holdings in the blue-chip medical products sector contributed the most to relative performance due to favorable stock selection. The Fund’s overweight position in Chugai Pharmaceutical Co. Ltd. outperformed as shares rebounded following positive earnings results in July. Chugai Pharmaceutical is among the strongest franchises in Japan and is also partnered with Roche Holding AG, which allows Chugai to benefit from both companies’ pipelines. The Fund’s overweight position in Roche also performed well. Shares of Roche rebounded after becoming oversold due to concern about biosimilars entering the market. The Fund’s underweight in Pfizer Inc. was positive in terms of asset allocation. In contrast, the Fund’s underweight position in Bristol-Myers Squibb Co. detracted from relative performance.

The biotechnology sector also contributed to relative performance due to favorable stock selection. The Fund’s large overweight position inArray BioPharma Inc.outperformed after Pfizer acquired the company in an $11.4 billion deal. Shares ofRegeneron Pharmaceuticals Inc.performed well as it is one of the most creativelarge-cap biotech firms in the sector. Current product sales continue to grow while Regeneron makes continued progress in its pipeline.MorphoSys AGalso contributed to relative performance in the sector. Shares of the company outperformed following positive quarterly results and continued progress in its pipeline. MorphoSys remains one of the few antibody technology platforms that has not been acquired by a large pharmaceutical company and has consistently demonstrated progress on its own proprietary cancer pipeline. The Fund’s position inArQule Inc.outperformed after Merck announced

in December that it planned to acquire ArQule. This outperformance was somewhat mitigated by the Fund’s overweight positions inAlkermes PLCanduniQure NV. In sympathy with other biotech companies in the sector, uniQure underperformed. Despite this near-term underperformance, uniQure remains the market leader in gene therapy, and recent clinical trials indicate promise for success in its gene therapy platform. Shares of Alkermes declined in sympathy with a broader selloff of biotech companies due to a lack of exciting clinical data. We continue to believe that both companies are undervalued and trade at a discount to their intrinsic values.

In the healthcare services sector, the Fund’s underweight stance was slightly favorable in terms of asset allocation, while stock selection was the main driver of performance. Shares ofCVS Health Corp.outperformed after it announced positive earnings results in August. CVS remains a dominant franchise in the sector and we continue to hold a positive long-term view of the company.

The Fund’s holdings in the small- andmid-cap medical-products sector detracted the most from relative performance due to unfavorable stock selection. The Fund’s overweight position inMylan NVwas the main detractor from performance in the sector. The company reported lackluster financial results and continues to face significant headwinds in the US generic market. There is also ongoing fallout following issues the US Food and Drug Administration (FDA) identified at one of Mylan’s manufacturing facilities. Despite these short-term setbacks, Mylan remains among the strongest franchises for generic pharmaceuticals in the industry and we believe the company is well-positioned for growth as demand for generics increases.

For global healthcare investors, there are risks that short-term legislative and judicial action could overshadow the positive long-term fundamentals of the sector and of specific companies. The

 

 

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severe effects ofCOVID-19 on the economy and the healthcare sector remains to be seen; however, we continue to see strong long-term opportunities in the global healthcare asset class. The baby-boom generation in the US 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 significant demand for Western-style medicine. We remain positive on the sector and its growth opportunities.

We believe that healthcare remains one of the few growth sectors in the economy. We continue to see many attractive opportunities in the healthcare sector, particularly in the biotechnology sector, where we see potential for continued innovation in cancer treatments and gene-therapy technology. We remain overweight in the biotechnology sector, particularly in small- tomid-cap companies, where we see potential for technological breakthroughs.

Despite some increased volatility last year due to investors’ uncertainty surrounding plans for a repeal and replace measure for the Affordable Care Act (ACA), we believe that healthcare has

remained one of the economy’s few growth sectors. We continue to see many attractive opportunities in the healthcare sector, particularly in the biotechnology sector, where we see potential for continued innovation in cancer treatments and gene therapy technology. The Fund remains overweight in the biotechnology sector, particularly in small- tomid-cap companies, where we see potential for technological breakthroughs.

We continue putting a premium on disciplined, intensive research when analyzing potential investment opportunities for the Fund and favor companies that, in our opinion, exhibit traits such as:

 

 proven competitiveness

 

 seasoned management teams

 

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

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

 

 

3


Table of Contents
Performance summary  
Delaware Healthcare Fund  March 31, 2020 (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 800523-1918 or visiting delawarefunds.com/performance.

 

Fund and benchmark performance1,2  Average annual total returns through March 31, 2020 
    1 year    5 year    10 year    Lifetime 

Class A (Est. Sept. 28, 2007)

        

Excluding sales charge

   -0.23%*    +8.02%    +13.77%    +14.87% 

Including sales charge

   -5.96%    +6.75%    +13.10%    +14.33% 

Class C (Est. Jan. 28, 2010)

        

Excluding sales charge

   -0.98%*    +7.22%    +12.93%    +13.44% 

Including sales charge

   -1.90%    +7.22%    +12.93%    +13.44% 

Class R (Est. Jan. 28, 2010)

        

Excluding sales charge

   -0.52%    +7.74%    +13.48%    +14.00% 

Including sales charge

   -0.52%    +7.74%    +13.48%    +14.00% 

Institutional Class (Est. Sept. 28, 2007)

        

Excluding sales charge

   -0.01%    +8.28%    +14.06%    +15.10% 

Including sales charge

   -0.01%    +8.28%    +14.06%    +15.10% 

Russell 3000 Healthcare Index

   -2.11%    +5.86%    +13.13%    +10.19%** 

*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(12b-1) fee.

Class A shares are sold with a maximumfront-end sales charge of 5.75%, and have an annual12b-1 fee of 0.25% of average daily net assets. Performance for Class A shares, excluding sales charges, assumes that nofront-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

 

 

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12b-1 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 annual12b-1 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/ormedium-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.

The disruptions caused by natural disasters, pandemics, or similar events could prevent the Fund from executing advantageous investment decisions in a timely manner and could negatively impact the Fund’s ability to achieve its investment objective and the value of the Fund’s investments.

 

 

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” 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)

  1.28% 2.03% 1.53% 1.03%

Net expenses

(including fee waivers, if any)

  1.28% 2.03% 1.53% 1.03%
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, 2010 through March 31, 2020

 

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, 2010, 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, 2010. 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.

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

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 thesix-month period from October 1, 2019 to March 31, 2020 (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 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 entiresix-month period from Oct. 1, 2019 to March 31, 2020.

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 and 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
10/1/19
  Ending
Account Value
3/31/20
  Annualized
Expense Ratio
   Expenses  
  Paid During Period  
  10/1/19 to 3/31/20*  

Actual Fund return

           

Class A

    $1,000.00    $1,033.00    1.26%   $6.40

Class C

    1,000.00    1,029.20    2.01%   10.20

Class R

    1,000.00    1,031.60    1.51%   7.67

Institutional Class

    1,000.00    1,034.20    1.01%   5.14

Hypothetical 5% Return(5% return before expenses)

 

     

Class A

    $1,000.00    $1,018.70    1.26%   $6.36

Class C

    1,000.00    1,014.95    2.01%   10.13

Class R

    1,000.00    1,017.45    1.51%   7.62
Institutional Class    1,000.00    1,019.95    1.01%   5.10

*“Expenses Paid During Period” are equal to the Fund’s annualized expense ratio, multiplied by the average account value over the period, multiplied by 183/366 (to reflect theone-half year period).

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

In addition to the Fund’s expenses reflected above, the Fund also indirectly bears its portion of the fees and expenses of the investment companies (Underlying Funds) in which it invests. The table above does not reflect the expenses of the Underlying Funds.

 

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Security type / sector allocation and top 10 equity holdings

 

Delaware Healthcare Fund  As of March 31, 2020 (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

    99.16%       

Biotechnology

    31.90%       

Blue Chip Medical Products

    45.69%       

Healthcare Services

    8.54%       

Other

    6.60%       

Small- /Mid-Cap Medical Products

    6.43%       

Rights

    0.03%       

Short-Term Investments

    0.02%       

Total Value of Securities

    99.21%       

Receivables and Other Assets Net of Liabilities

    0.79%       

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 Biotechnology and Blue Chip Medical Products sector (as disclosed herein for financial reporting purposes) are subdivided into a variety of “industries” (in accordance with the requirements of the Investment Company Act of 1940, as amended). The Biotechnology sector consisted of biotechnology and pharmaceuticals. As of March 31, 2020, such amounts, as a percentage of total net assets, were 24.41% and 7.49% respectively. The Blue Chip Medical Products sector consisted of biotechnology, healthcare-products and pharmaceuticals. As of March 31, 2020 such amounts, as a percentage of total net assets, were 9.10%, 2.57%, and 34.02% respectively. The percentage in any such single industry will comply with the Fund’s concentration policy even if the percentages in the Biotechnology and Blue Chip Medical Products 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      

Sanofi ADR

   6.59%        

Roche Holding

   6.47%        

Amgen

   5.59%        

Regeneron Pharmaceuticals

   4.36%        

uniQure

   3.69%        

Sanofi

   3.67%        

MorphoSys

   3.65%        

Chugai Pharmaceutical

   3.62%        

UnitedHealth Group

   3.34%        

Eli Lilly & Co.

   2.81%        
      

 

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Schedule of investments

Delaware Healthcare Fund  March 31, 2020

 

   Number of shares   Value (US $) 

 

 

Common Stock – 99.16%²

    

 

 

Biotechnology – 31.90%

    

ACADIA Pharmaceuticals †

   194,776   $8,229,286 

Alder Biopharmaceuticals =†

   75,000    66,000 

Alexion Pharmaceuticals †

   20,000    1,795,800 

Alkermes †

   370,000    5,335,400 

Allogene Therapeutics †

   146,779    2,853,384 

Alnylam Pharmaceuticals †

   41,000    4,462,850 

Arena Pharmaceuticals †

   525,000        22,050,000 

Axovant Gene Therapies †

   64,171    156,577 

BioMarin Pharmaceutical †

   112,000    9,464,000 

Cellectis ADR †

   219,675    2,021,010 

Clovis Oncology †

   100,200    637,272 

Coherus Biosciences †

   430,000    6,974,600 

Dynavax Technologies †

   760,000    2,682,800 

Epizyme †

   203,200    3,151,632 

Exact Sciences †

   17,116    992,728 

Five Prime Therapeutics †

   100,000    227,000 

Fortress Biotech †

   100,000    189,000 

Galmed Pharmaceuticals †

   306,010    1,058,795 

Immunomedics †

   147,862    1,993,180 

Incyte †

   60,000    4,393,800 

Intercept Pharmaceuticals †

   27,000    1,699,920 

Karyopharm Therapeutics †

   380,000    7,299,800 

Lexicon Pharmaceuticals †

   11,697    22,809 

MacroGenics †

   275,000    1,600,500 

Madrigal Pharmaceuticals †

   28,500    1,902,660 

MEI Pharma †

   600,000    966,000 

Mirati Therapeutics †

   165,000    12,683,550 

Momenta Pharmaceuticals †

   141,501    3,848,827 

MorphoSys †

   339,685    32,706,687 

Mustang Bio †

   120,000    321,600 

Myriad Genetics †

   135,000    1,931,850 

Nektar Therapeutics †

   256,385    4,576,472 

Neurocrine Biosciences †

   110,000    9,520,500 

NextCure †

   100,000    3,707,000 

Portola Pharmaceuticals †

   160,000    1,140,800 

Proteostasis Therapeutics †

   750,000    855,000 

Provention Bio †

   70,000    644,000 

Puma Biotechnology †

   61,255    516,992 

Regeneron Pharmaceuticals †

   80,000    39,063,200 

REGENXBIO †

   149,000    4,824,620 

Rigel Pharmaceuticals †

   1,600,000    2,496,000 

 

12


Table of Contents

    

    

 

 

 

   Number of shares   Value (US $) 

 

 

Common Stock² (continued)

    

 

 

Biotechnology (continued)

    

Rocket Pharmaceuticals †

   58,000   $809,100 

Sangamo Therapeutics †

   400,000    2,548,000 

Sarepta Therapeutics †

   23,000    2,249,860 

Seattle Genetics †

   95,000    10,961,100 

Syndax Pharmaceuticals †

   180,000    1,974,600 

Ultragenyx Pharmaceutical †

   70,000    3,110,100 

uniQure †

   696,000    33,025,200 

United Therapeutics †

   86,800    8,230,810 

Vascular Biogenics †

   200,000    270,000 

Vertex Pharmaceuticals †

   25,000    5,948,750 

Viking Therapeutics †

   330,100    1,544,868 

Voyager Therapeutics †

   5,700    52,155 

Xencor †

   129,191    3,860,227 

XOMA †

   3,466    70,533 
    

 

 

 
     285,719,204 
    

 

 

 

Blue Chip Medical Products – 45.69%

    

AbbVie

   130,000    9,904,700 

Amgen

   246,964    50,067,012 

AstraZeneca

   110,000    9,800,877 

AstraZeneca ADR

   60,000    2,679,600 

Biogen †

   45,000    14,237,100 

Boston Scientific †

   380,000    12,399,400 

Bristol-Myers Squibb

   200,000    11,148,000 

Chugai Pharmaceutical

   280,000    32,394,819 

Eli Lilly & Co.

   181,446    25,170,189 

Gilead Sciences

   230,000    17,194,800 

GlaxoSmithKline ADR

   280,000    10,609,200 

Johnson & Johnson

   100,000    13,113,000 

Merck & Co.

   180,000    13,849,200 

Pfizer

   500,000    16,320,000 

Roche Holding

   180,000    57,913,564 

Sanofi

   380,000    32,898,469 

Sanofi ADR

   1,350,000    59,022,000 

Stryker

   15,000    2,497,350 

Teva Pharmaceutical Industries ADR †

   530,000    4,759,400 

UCB

   60,000    5,133,733 

Zimmer Biomet Holdings

   80,000    8,086,400 
    

 

 

 
         409,198,813 
    

 

 

 

Healthcare Services – 8.54%

    

Anthem

   50,000    11,352,000 

Change Healthcare †

   25,532    255,065 

Cigna

   75,000    13,288,500 

 

13


Table of Contents

Schedule of investments

Delaware Healthcare Fund

 

 

 

   Number of shares   Value (US $) 

 

 

Common Stock² (continued)

    

 

 

Healthcare Services (continued)

    

CVS Health

   250,000   $14,832,500 

McKesson

   12,862    1,739,714 

Quest Diagnostics

   48,000    3,854,400 

UnitedHealth Group

   120,000    29,925,600 

Walgreens Boots Alliance

   26,900    1,230,675 
    

 

 

 
         76,478,454 
    

 

 

 

Other – 6.60%

    

China Mobile ADR

   250,000    9,417,500 

Cia de Minas Buenaventura ADR

   115,300    840,537 

Compugen †

   150,000    1,089,000 

Dell Technologies Class C †

   102,600    4,057,830 

Fannie Mae †

   1,300,000    2,067,000 

Federal Home Loan Mortgage †

   1,050,000    1,467,638 

Micron Technology †

   580,000    24,394,800 

Opera ADR †

   184,700    991,839 

QUALCOMM

   50,000    3,382,500 

SINA †

   60,000    1,910,400 

SK Telecom ADR

   435,805    7,090,547 

Sohu.com ADR †

   390,722    2,434,198 
    

 

 

 
     59,143,789 
    

 

 

 

Small- /Mid-Cap Medical Products – 6.43%

    

ABIOMED †

   10,000    1,451,600 

Aerie Pharmaceuticals †

   5,100    68,850 

Akorn †

   501,000    281,161 

Allergan

   111,500    19,746,650 

Halozyme Therapeutics †

   230,000    4,137,700 

InnoCare Pharma 144A #†

   17,000    24,954 

Inspire Medical Systems †

   30,000    1,808,400 

Intra-Cellular Therapies †

   235,000    3,611,950 

Mylan †

   1,095,000    16,326,450 

Perrigo

   210,000    10,098,900 
    

 

 

 
     57,556,615 
    

 

 

 

Total Common Stock(cost $803,149,589)

         888,096,875 
    

 

 

 
    

 

 

Rights – 0.03%

    

 

 

Ambit Bioscience =†

   76,500    0 

Bristol-Myers Squibb †

   80,000    304,000 
    

 

 

 

Total Rights(cost $0)

     304,000 

 

14


Table of Contents

    

    

 

 

 

   Number of shares   Value (US $) 

 

 

Short-Term Investments – 0.02%

    

 

 

Money Market Mutual Funds – 0.02%

    

BlackRock FedFund – Institutional Shares(seven-day effective yield 0.33%)

   27,355   $27,355 

Fidelity Investments Money Market Government Portfolio – Class I(seven-day effective yield 0.30%)

   27,355    27,355 

GS Financial Square Government Fund – Institutional Shares(seven-day effective yield 0.34%)

   27,355    27,355 

Morgan Stanley Government Portfolio – Institutional Share Class(seven-day effective yield 0.22%)

   27,355    27,355 

State Street Institutional US Government Money Market Fund – Investor Class(seven-day effective yield 0.24%)

   27,355    27,355 
    

 

 

 
     136,775 
    

 

 

 

Total Short-Term Investments(cost $136,775)

     136,775 
    

 

 

 

Total Value of Securities – 99.21%
(cost $803,286,364)

    $    888,537,650 
    

 

 

 

 

#

Security exempt from registration under Rule 144A of the Securities Act of 1933, as amended. At March 31, 2020, the aggregate value of Rule 144A securities was $24,954, which represents less than 0.01% of the Fund’s net assets. See Note 10 in “Notes to financial statements.”

 

²

Narrow 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.”

 

Non-income producing security.

Summary of abbreviations:

ADR – American Depositary Receipt

GS – Goldman Sachs

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

 

15


Table of Contents

Statement of assets and liabilities

Delaware Healthcare Fund  March 31, 2020

 

 

Assets:

  

Investments, at value1

  $888,537,650 

Receivable for fund shares sold

   8,247,889 

Foreign tax reclaims receivable

   952,065 

Dividends and interest receivable

   314,643 

Receivable for securities sold

   116,837 
  

 

 

 

Total assets

   898,169,084 
  

 

 

 

Liabilities:

  

Cash due to custodian

   1,734 

Payable for fund shares redeemed

   1,371,123 

Investment management fees payable to affiliates

   617,472 

Dividend disbursing and transfer agent fees and expenses payable tonon-affiliates

   235,668 

Distribution fees payable to affiliates

   144,845 

Other accrued expenses

   124,185 

Dividend disbursing and transfer agent fees and expenses payable to affiliates

   7,391 

Trustees’ fees and expenses payable to affiliates

   6,332 

Audit and tax fees payable

   5,500 

Accounting and administration expenses payable to affiliates

   2,964 

Legal fees payable to affiliates

   1,691 

Reports and statements to shareholders expenses payable to affiliates

   1,128 
  

 

 

 

Total liabilities

   2,520,033 
  

 

 

 

Total Net Assets

  $895,649,051 
  

 

 

 

Net Assets Consist of:

  

Paid-in capital

  $790,298,470 

Total distributable earnings (loss)

   105,350,581 
  

 

 

 

Total Net Assets

  $895,649,051 
  

 

 

 

 

16


Table of Contents

    

    

 

 

 

Net Asset Value

  

Class A:

  

Net assets

  $272,910,802 

Shares of beneficial interest outstanding, unlimited authorization, no par

   11,997,846 

Net asset value per share

  $22.75 

Sales charge

   5.75

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

  $24.14 

Class C:

  

Net assets

  $99,376,492 

Shares of beneficial interest outstanding, unlimited authorization, no par

   4,640,280 

Net asset value per share

  $21.42 

Class R:

  

Net assets

  $5,268,556 

Shares of beneficial interest outstanding, unlimited authorization, no par

   235,181 

Net asset value per share

  $22.40 

Institutional Class:

  

Net assets

  $518,093,201 

Shares of beneficial interest outstanding, unlimited authorization, no par

   22,616,123 

Net asset value per share

  $22.91 

 

1Investments, at cost

  $803,286,364 

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, 2020

 

Investment Income:

  

Dividends

  $14,675,578 

Foreign tax withheld

   (877,206
  

 

 

 
   13,798,372 
  

 

 

 

Expenses:

  

Management fees

   8,120,036 

Distribution expenses – Class A

   757,966 

Distribution expenses – Class C

   1,116,112 

Distribution expenses – Class R

   31,219 

Dividend disbursing and transfer agent fees and expenses

   1,024,153 

Custodian fees

   293,979 

Accounting and administration expenses

   205,680 

Reports and statements to shareholders expenses

   144,638 

Registration fees

   99,854 

Trustees’ fees and expenses

   55,844 

Legal fees

   49,420 

Audit and tax fees

   38,437 

Other

   35,962 
  

 

 

 
   11,973,300 

Less expenses paid indirectly

   (1,203
  

 

 

 

Total operating expenses

   11,972,097 
  

 

 

 

Net Investment Income

   1,826,275 
  

 

 

 

Net Realized and Unrealized Gain (Loss):

  

Net realized gain (loss) on:

  

Investments

   79,899,306 

Foreign currencies

   (197,911

Foreign currency exchange contracts

   (15,809
  

 

 

 

Net realized gain

   79,685,586 
  

 

 

 

Net change in unrealized appreciation (depreciation) of:

  

Investments

   (79,439,987

Foreign currencies

   11,119 
  

 

 

 

Net change in unrealized appreciation (depreciation)

   (79,428,868
  

 

 

 

Net Realized and Unrealized Gain

   256,718 
  

 

 

 

Net Increase in Net Assets Resulting from Operations

  $2,082,993 
  

 

 

 

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

 

18


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Table of Contents

Statements of changes in net assets

Delaware Healthcare Fund

 

   Year ended 
   3/31/20  3/31/19 

Increase (Decrease) in Net Assets from Operations:

   

Net investment income (loss)

  $1,826,275  $(520,868

Net realized gain

   79,685,586   36,353,785 

Net change in unrealized appreciation (depreciation)

   (79,428,868  30,134,188 
  

 

 

  

 

 

 

Net increase in net assets resulting from operations

   2,082,993   65,967,105 
  

 

 

  

 

 

 

Dividends and Distributions to Shareholders from:

   

Distributable earnings:

   

Class A

   (23,247,550  (5,059,623

Class C

   (8,927,434  (1,268,684

Class R

   (442,120  (97,124

Institutional Class

   (43,754,405  (9,811,391
  

 

 

  

 

 

 
   (76,371,509  (16,236,822
  

 

 

  

 

 

 

Capital Share Transactions:

   

Proceeds from shares sold:

   

Class A

   51,114,758   155,136,237 

Class C

   17,068,454   52,100,874 

Class R

   2,037,618   2,685,459 

Institutional Class

   248,681,594   402,627,766 

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

   

Class A

   22,461,260   4,904,232 

Class C

   8,722,235   1,248,508 

Class R

   439,981   97,000 

Institutional Class

   39,559,439   9,061,635 
  

 

 

  

 

 

 
   390,085,339   627,861,711 
  

 

 

  

 

 

 

 

20


Table of Contents

    

    

 

 

 

   Year ended 
   3/31/20  3/31/19 

Capital Share Transactions (continued):

   

Cost of shares redeemed:

   

Class A

  $(97,367,467 $(71,524,105

Class C

   (32,342,093  (19,881,047

Class R

   (3,818,176  (1,947,049

Institutional Class

   (315,447,503  (132,551,152
  

 

 

  

 

 

 
   (448,975,239  (225,903,353
  

 

 

  

 

 

 

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

   (58,889,900  401,958,358 
  

 

 

  

 

 

 

Net Increase (Decrease) in Net Assets

   (133,178,416  451,688,641 

Net Assets:

   

Beginning of year

   1,028,827,467   577,138,826 
  

 

 

  

 

 

 

End of year

  $895,649,051  $1,028,827,467 
  

 

 

  

 

 

 

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)1

Net realized and unrealized gain (loss)

Total from investment operations

Less dividends and distributions from:

Net investment income

Net realized gain

Total dividends and distributions

Net asset value, end of period

Total return2

Ratios and supplemental data:

Net assets, end of period (000 omitted)

Ratio of expenses to average net assets

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

Portfolio turnover

 

1 

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

 

2 

Total return is based on the change in net asset value of a share during the period and assumes reinvestment of dividends and distributions at net asset value and does not reflect the impact of a sales charge.

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

 

22


Table of Contents

 

 

 

 

     Year ended 
    

 

 

 
     3/31/20     3/31/19     3/31/18     3/31/17     3/31/16 

 

 
    $    24.63     $    22.63     $    19.19     $    18.46     $    20.36 

 

    

                    
     0.03      (0.03     0.04      0.16      0.05 
     0.11      2.44      4.08      1.97      (0.44
    

 

 

     

 

 

     

 

 

     

 

 

     

 

 

 
     0.14      2.41      4.12      2.13      (0.39
    

 

 

     

 

 

     

 

 

     

 

 

     

 

 

 
                    
           (0.15     (0.68     (0.18     (0.17
     (2.02     (0.26           (1.22     (1.34
    

 

 

     

 

 

     

 

 

     

 

 

     

 

 

 
     (2.02     (0.41     (0.68     (1.40     (1.51
    

 

 

     

 

 

     

 

 

     

 

 

     

 

 

 
    $    22.75     $    24.63     $    22.63     $    19.19     $    18.46 
    

 

 

     

 

 

     

 

 

     

 

 

     

 

 

 
     (0.27%     10.74%      21.56%      12.30%      (2.45%
                    
    $272,911     $319,993     $212,838     $154,687     $197,138 
     1.27%      1.28%      1.31%      1.38%      1.37% 
     0.13%      (0.10%     0.18%      0.84%      0.25% 
     24%      33%      28%      29%      46% 

 

 

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)1

Net realized and unrealized gain (loss)

Total from investment operations

Less dividends and distributions from:

Net investment income

Net realized gain

Total dividends and distributions

Net asset value, end of period

Total return2

Ratios and supplemental data:

Net assets, end of period (000 omitted)

Ratio of expenses to average net assets

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

Portfolio turnover

 

1 

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

 

2 

Total return is based on the change in net asset value of a share during the period and assumes reinvestment of dividends and distributions at net asset value and does not reflect the impact of a sales charge.

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

 

24


Table of Contents

 

 

 

 

     Year ended 
    

 

 

 
     3/31/20     3/31/19     3/31/18     3/31/17     3/31/16 

 

 
    $23.47     $21.61     $18.36     $17.72     $19.60 

 

    

                    
     (0.15     (0.20     (0.12     0.02      (0.10
     0.12      2.33      3.90      1.88      (0.42
    

 

 

     

 

 

     

 

 

     

 

 

     

 

 

 
     (0.03     2.13      3.78      1.90      (0.52
    

 

 

     

 

 

     

 

 

     

 

 

     

 

 

 
                    
           (0.01     (0.53     (0.04     (0.02
     (2.02     (0.26           (1.22     (1.34
    

 

 

     

 

 

     

 

 

     

 

 

     

 

 

 
     (2.02     (0.27     (0.53     (1.26     (1.36
    

 

 

     

 

 

     

 

 

     

 

 

     

 

 

 
    $21.42     $23.47     $21.61     $18.36     $17.72 
    

 

 

     

 

 

     

 

 

     

 

 

     

 

 

 
     (1.02%     9.91%      20.67%      11.45%      (3.17%
                    
    $99,376     $115,843     $76,033     $57,814     $73,715 
     2.02%      2.03%      2.06%      2.13%      2.12% 
     (0.62%     (0.85%     (0.57%     0.09%      (0.50%
     24%      33%      28%      29%      46% 

 

 

 

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)1

Net realized and unrealized gain (loss)

Total from investment operations

Less dividends and distributions from:

Net investment income

Net realized gain

Total dividends and distributions

Net asset value, end of period

Total return3

Ratios and supplemental data:

Net assets, end of period (000 omitted)

Ratio of expenses to average net assets

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

Portfolio turnover

 

1 

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

 

2 

Amount is less than $0.005 per share.

 

3 

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

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

 

26


Table of Contents

 

 

 

 

     Year ended 
    

 

 

 
     3/31/20     3/31/19     3/31/18     3/31/17     3/31/16 

 

 
    $24.34     $22.37     $18.98     $18.27     $20.17 

 

    

                    
     (0.03     (0.08     (0.02     0.11      2 
     0.11      2.40      4.04      1.95      (0.44
    

 

 

     

 

 

     

 

 

     

 

 

     

 

 

 
     0.08      2.32      4.02      2.06      (0.44
    

 

 

     

 

 

     

 

 

     

 

 

     

 

 

 
                    
           (0.09     (0.63     (0.13     (0.12
     (2.02     (0.26           (1.22     (1.34
    

 

 

     

 

 

     

 

 

     

 

 

     

 

 

 
     (2.02     (0.35     (0.63     (1.35     (1.46
    

 

 

     

 

 

     

 

 

     

 

 

     

 

 

 
    $22.40     $24.34     $22.37     $18.98     $18.27 
    

 

 

     

 

 

     

 

 

     

 

 

     

 

 

 
     (0.52%     10.44%      21.26%      12.03%      (2.71%
                    
    $5,269     $7,080     $5,683     $5,169     $5,878 
     1.52%      1.53%      1.56%      1.63%      1.62% 
     (0.12%     (0.35%     (0.07%     0.59%      0.00% 
     24%      33%      28%      29%      46% 

 

 

 

27


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 income1

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 return2

Ratios and supplemental data:

Net assets, end of period (000 omitted)

Ratio of expenses to average net assets

Ratio of net investment income to average net assets

Portfolio turnover

 

1 

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

 

2 

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

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

 

28


Table of Contents

 

 

 

 

     Year ended 
    

 

 

 
     3/31/20     3/31/19     3/31/18     3/31/17     3/31/16 

 

 
    $    24.75     $    22.74     $    19.28     $    18.53     $    20.44 

 

    

                    
     0.09      0.04      0.09      0.21      0.10 
     0.12      2.43      4.10      1.98      (0.45
    

 

 

     

 

 

     

 

 

     

 

 

     

 

 

 
     0.21      2.47      4.19      2.19      (0.35
    

 

 

     

 

 

     

 

 

     

 

 

     

 

 

 
                    
     (0.03     (0.20     (0.73     (0.22     (0.22
     (2.02     (0.26           (1.22     (1.34
    

 

 

     

 

 

     

 

 

     

 

 

     

 

 

 
     (2.05     (0.46     (0.73     (1.44     (1.56
    

 

 

     

 

 

     

 

 

     

 

 

     

 

 

 
    $    22.91     $    24.75     $    22.74     $    19.28     $    18.53 
    

 

 

     

 

 

     

 

 

     

 

 

     

 

 

 
     (0.01%     10.98%      21.84%      12.53%      (2.20%
                    
    $518,093     $585,911     $282,585     $137,621     $156,600 
     1.02%      1.03%      1.06%      1.13%      1.12% 
     0.38%      0.14%      0.43%      1.09%      0.50% 
     24%      33%      28%      29%      46% 

 

 

 

29


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Notes to financial statements

Delaware Healthcare Fund

Delaware Group® Equity Funds IV (Trust) is organized as a Delaware statutory trust and offers 21 series. These financial statements and the related notes pertain to Delaware Healthcare Fund (Fund). The Fund is anopen-end investment company. The Fund is considerednon-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 maximumfront-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 afront-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.

1. Significant Accounting Policies

The Fund follows accounting and reporting guidance under Financial Accounting Standards Board (FASB) Accounting Standards Codification Topic 946, Financial Services – Investment Companies. 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.Open-end investment companies are valued at their published net asset 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 innon-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

 

30


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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 expected to be taken on the Fund’s federal income tax returns through the year ended March 31, 2020 and for all open tax years (years ended March 31, 2017–March 31, 2019), 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” on the “Statement of operations.” During the year ended March 31, 2020, 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.

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 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 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 theex-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. Foreign dividends are also recorded on the

 

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Notes to financial statements

Delaware Healthcare Fund

 

 

1. Significant Accounting Policies (continued)

 

ex-dividend date or as soon after theex-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 theex-dividend date.

The Fund receives earnings credits from its custodian when positive cash balances are maintained, which may be used to offset custody fees. The expenses paid under this arrangement are included on the “Statement of operations” under “Custodian fees” with the corresponding expenses offset included under “Less expenses paid indirectly.” For the year ended March 31, 2020, the Fund earned $83 under this arrangement.

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 expenses paid under this arrangement are included on the “Statement of operations” under “Dividend disbursing and transfer agent fees and expenses” with the corresponding expenses offset included under “Less expenses paid indirectly.” For the year ended March 31, 2020, the Fund earned $1,120 under this arrangement.

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 rates 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.

Effective May 30, 2019, DMC may permit its affiliates, Macquarie Investment Management Global Limited (MIMGL) and Macquarie Funds Management Hong Kong Limited (together, the “AffiliatedSub-Advisors”), to execute Fund equity security trades on behalf of the Manager. The Manager may also seek quantitative support from MIMGL. Although the AffiliatedSub-Advisors serve assub-advisors, DMC has ultimate responsibility for all investment advisory services. For these services, DMC, not the Fund, may pay each AffiliatedSub-Advisor a portion of its investment management fee.

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 all funds within the Delaware Funds at the following annual rates: 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 then pays its portion of the remainder of the remainder of the Total Fee on a relative NAV basis. This amount is included on the “Statement of operations” under “Accounting and administration expenses.” For the year ended March 31, 2020, the Fund was charged $39,108 for these services.

 

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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 rates: 0.014% of the first $20 billion; 0.011% of the next $5 billion; 0.007% of the next $5 billion; 0.005% of the next $20 billion; and 0.0025% of average daily net assets in excess of $50 billion. The fees payable to DIFSC under the shareholder services 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, 2020, the Fund was charged $91,981 for these services. Pursuant to asub-transfer agency agreement between DIFSC and BNY Mellon Investment Servicing (US) Inc. (BNYMIS), BNYMIS provides certainsub-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.” The fees that are calculated daily and paid as invoices are received on a monthly or quarterly basis.

Pursuant to a distribution agreement and distribution plan, the Fund pays DDLP, the distributor and an affiliate of DMC, annual12b-1 fees of 0.25%, 1.00%, and 0.50% of the average daily net assets of the Class A, Class C, and Class R shares, respectively. The fees are calculated daily and paid monthly. Institutional class shares do not pay12b-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, 2020, the Fund was charged $25,498 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, 2020, DDLP earned $193,507 for commissions on sales of the Fund’s Class A shares. For the year ended March 31, 2020, DDLP received gross CDSC commissions of $6,406 and $24,911 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.

In addition to the management fees and other expenses of the Fund, the Fund indirectly bears the investment management fees and other expenses of the investment companies (Underlying Funds) in which it invests. The amount of these fees and expenses incurred indirectly by the Fund will vary based upon the expense and fee levels of the Underlying Funds and the number of shares that are owned of the Underlying Funds at different times.

 

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Notes to financial statements

Delaware Healthcare Fund

 

 

3. Investments

For the year ended March 31, 2020, the Fund made purchases and sales of investment securities other than short-term investments as follows:

 

Purchases

  $232,102,781 

Sales

   339,738,043 

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, 2020, the cost and unrealized appreciation (depreciation) of investments for the Fund were as follows:

 

Cost of investments

  $815,754,179 
  

 

 

 

Aggregate unrealized appreciation of investments

  $213,695,150 

Aggregate unrealized depreciation of investments

   (140,911,679
  

 

 

 

Net unrealized appreciation of investments

  $72,783,471 
  

 

 

 

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.

 

Level 1 –  Inputs are quoted prices in active markets for identical investments. (Examples: equity securities,open-end investment companies, futures contracts, and 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, and 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 and 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

 

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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, 2020:

 

   

Level 1

   

Level 2

   

Level 3

   

Total

 

Securities

        

Assets:

        

Common Stock

  $717,182,726   $170,848,149   $66,000   $888,096,875 

Rights

   304,000            304,000 

Short-Term Investments

   136,775            136,775 
  

 

 

   

 

 

   

 

 

   

 

 

 

Total Value of Securities

  $717,623,501   $170,848,149   $66,000   $888,537,650 
  

 

 

   

 

 

   

 

 

   

 

 

 

The securities that have been valued at zero on the “Schedule of investments” are considered to be Level 3 investments in the above table.

During the year ended March 31, 2020, 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 period. 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. International fair value pricing was not utilized at March 31, 2020. 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 the Fund’s net assets. Management has determined not to provide a reconciliation of Level 3 investments as the Level 3 investments were 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.

 

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Notes to financial statements

Delaware Healthcare Fund

 

 

4. Dividend and Distribution Information

Income and long-term capital gain distributions are determined in accordance with federal income tax regulations, which may differ from 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, 2020 and 2019 was as follows:

 

   Year ended 
   3/31/20   3/31/19 

Ordinary income

  $8,985,354   $6,112,369 

Long-term capital gains

   67,386,155    10,124,453 
  

 

 

   

 

 

 

Total

  $76,371,509   $16,236,822 
  

 

 

   

 

 

 

5. Components of Net Assets on a Tax Basis

As of March 31, 2020, the components of net assets on a tax basis were as follows:

 

Shares of beneficial interest

  $790,298,470 

Undistributed ordinary income

   13,896,207 

Undistributed long-term capital gains

   18,670,903 

Net unrealized appreciation on investments and foreign currencies

   72,783,471 
  

 

 

 

Net assets

  $895,649,051 
  

 

 

 

The differences between book basis and tax basis components of net assets are primarily attributable to tax deferral of losses on wash sales and tax treatment of securities no longer considered passive foreign investment companies.

 

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6. Capital Shares

Transactions in capital shares were as follows:

 

   Year ended 
   3/31/20  3/31/19 

Shares sold:

   

Class A

   2,088,179   6,349,141 

Class C

   732,473   2,229,329 

Class R

   83,857   113,033 

Institutional Class

   10,187,681   16,412,656 

Shares issued upon reinvestment of dividends and distributions:

   

Class A

   888,851   208,868 

Class C

   365,712   55,663 

Class R

   17,663   4,175 

Institutional Class

   1,555,621   384,293 
  

 

 

  

 

 

 
   15,920,037   25,757,158 
  

 

 

  

 

 

 

Shares redeemed:

   

Class A

   (3,972,133  (2,970,638

Class C

   (1,394,743  (867,334

Class R

   (157,203  (80,419

Institutional Class

   (12,797,263  (5,556,358
  

 

 

  

 

 

 
   (18,321,342  (9,474,749
  

 

 

  

 

 

 

Net increase (decrease)

   (2,401,305  16,282,409 
  

 

 

  

 

 

 

 

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Table of Contents

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. These exchange transactions are included as subscriptions and redemptions in the table on the previous page and on the “Statements of changes in net assets.” For the years ended March 31, 2020 and 2019, the Fund had the following exchange transactions:

 

  

Exchange Redemptions

  

Exchange Subscriptions

     
           Institutional     
  Class A  Class C  Class A  Class     

Year ended

 Shares  Shares  Shares  Shares   Value 
3/31/20  236,831   13,382   4,240   243,920   $5,977,911 
3/31/19  66,065   37,808   8,488   93,145    2,487,154 

7. Line of Credit

The Fund, along with certain other funds in the Delaware Funds (Participants), was a participant in a $220,000,000 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 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 ofone-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. 4, 2019.

On Nov. 4, 2019, the Participants entered into an amendment to the agreement for a $250,000,000 revolving line of credit. The revolving 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. 2, 2020.

The Fund had no amounts outstanding as of March 31, 2020, 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 enter into 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. No foreign currency exchange contracts were outstanding at March 31, 2020.

During the year ended March 31, 2020, the Fund entered into foreign currency exchange contracts to facilitate or expedite the settlement of portfolio transactions.

During the year ended March 31, 2020, the Fund experienced net realized gains or losses attributable to foreign currency holdings, which is disclosed 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, 2020.

 

     Long Derivative      Short Derivative  
     Volume      Volume  

Foreign currency exchange contracts

  $127,825  $263,770

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.

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

 

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Notes to financial statements

Delaware Healthcare Fund

 

 

9. Securities Lending (continued)

 

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. The 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 bynon-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 the 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, 2020, the Fund had no securities out on loan.

10. Credit and Market Risk

The Fund invests a significant portion of its assets in small companies and may be subject to certain risks associated with ownership of securities of such companies. Investments insmall-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

 

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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, theday-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, 2020, there were no Rule 144A securities held by the Fund.

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. Recent Accounting Pronouncements

In August 2018, the FASB issued an Accounting Standards Update (ASU), ASU2018-13, which changes certain fair value measurement disclosure requirements. ASU2018-13, in addition to other modifications and additions, removes the requirement to disclose the amount and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy, the policy for the timing of transfers between levels and the valuation process for Level 3 fair value measurements. ASU2018-13 is effective for fiscal years, and interim periods within those fiscal years, beginning after Dec. 15, 2019. At this time, Management is evaluating the implications of these changes on the financial statements.

 

41


Table of Contents

Notes to financial statements

Delaware Healthcare Fund

 

 

13. Subsequent Events

On Nov. 4, 2019, the Fund, along with certain other funds in the Delaware Funds (Participants), entered into an amendment to the agreement for a $250,000,000 revolving line of credit. The revolving line of credit available was increased to $275,000,000 on May 6, 2020. The revolving line of credit is to be used as described above and operates in substantially the same manner as the original agreement.

Beginning in January 2020, global financial markets have experienced and may continue to experience significant volatility resulting from the spread of a novel coronavirus known asCOVID-19. The outbreak ofCOVID-19 has resulted in travel and border restrictions, quarantines, supply chain disruptions, lower consumer demand and general market uncertainty. The effects ofCOVID-19 have and may continue to adversely affect the global economy, the economies of certain nations and individual issuers, all of which may negatively impact the Fund’s performance.

Management has determined that no other material events or transactions occurred subsequent to March 31, 2020, that would require recognition or disclosure in the Fund’s financial statements.

 

42


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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 the Delaware Group® Equity Funds IV, referred to hereafter as the “Fund”) as of March 31, 2020, the related statement of operations for the year ended March 31, 2020, the statements of changes in net assets for each of the two years in the period ended March 31, 2020, including the related notes, and the financial highlights for each of the five years in the period ended March 31, 2020 (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, 2020, 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, 2020 and the financial highlights for each of the five years in the period ended March 31, 2020 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, 2020 by correspondence with the custodian and transfer agents. We believe that our audits provide a reasonable basis for our opinion.

/s/PricewaterhouseCoopers LLP

Philadelphia, Pennsylvania

May 26, 2020

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 the 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, 2020, the Fund reports distributions paid during the year as follows:

 

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

   88.23

(B) Ordinary Income Distributions (Tax Basis)*

   11.77

Total Distributions (Tax Basis)

   100.00

(C) Qualifying Dividends1

   78.30

(A) and (B) are based on a percentage of the Fund’s total distributions.

(C) is based on the Fund’s ordinary income distributions.

* For the fiscal year ended March 31, 2020, 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 dividend income is 100.00%. Complete information will be compiled and reported in conjunction with your 2020 Form1099-DIV.

1Qualifying dividends represent dividends which qualify for the corporate dividends received deduction.

For the fiscal year ended March 31, 2020, certain distributions paid by the Fund, determined to be from Qualified Short-Term Capital Gains, may be subject to relief from U.S. tax 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, 2020, the Fund has reported maximum distributions of Qualified Short-Term Capital Gains of $19,767,641.

 

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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

  President,  President and

2005 Market Street

  Chief Executive Officer,  Chief Executive Officer

Philadelphia, PA 19103

  and Trustee  since August 2015

February 1970

    
    Trustee since
    September 2015
    
    
    

Independent Trustees

 

    

Thomas L. Bennett

  Chair and Trustee  Trustee since

2005 Market Street

    March 2005

Philadelphia, PA 19103

    

October 1947

    Chair since
      March 2015

Jerome D. Abernathy

  Trustee  Since January 2019

2005 Market Street

    

Philadelphia, PA 19103

    

July 1959

    
    
    
       

Ann D. Borowiec

  Trustee  Since March 2015

2005 Market Street

    

Philadelphia, PA 19103

    

November 1958

    
       

 

1 

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

 

46


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  95  Trustee — UBS

Investment Management2

    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  95  None

(March 2004–Present)

    
       
Managing Member,  95  None

Stonebrook Capital

    

Management, LLC (financial

    

technology: macro factors

    

and databases)

    

(January 1993–Present)

    
       

 

Chief Executive Officer,

  

 

95

  

 

Director —

Private Wealth Management

    Banco Santander International

(2011–2013) and

    (October 2016–

Market Manager,

    December 2019)

New Jersey Private

    

Bank (2005–2011) —

    Director —

J.P. Morgan Chase & Co.

    Santander Bank, N.A.
    (December 2016–
    December 2019)
       

 

2 

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.

 

47


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)

 

  

 

Joseph W. Chow

  

 

Trustee

  

 

Since January 2013

2005 Market Street

    

Philadelphia, PA 19103

    

January 1953

 

      

 

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

      

 

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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

    

 

Private Investor

  

 

95

  

 

Director and Audit Committee

(April 2011–Present)

    Member — Hercules
    Technology Growth
    Capital, Inc.
      (July 2004–July 2014)

 

President —

  

 

95

  

 

Director; Compensation

Drexel University

    Committee and

(August 2010–Present)

    Governance Committee
    Member — Community
President —    Health Systems
Franklin & Marshall College    (May 2004–Present)
(July 2002–June 2010)    
    Director — Drexel
    Morgan & Co.
    (2015–2019)
    Director and Audit Committee
    Member — vTv
    Therapeutics Inc.
    (2017–Present)
    Director and Audit Committee
    Member — FS Credit Real
    Estate Income Trust, Inc.
    (2018–Present)
    Director — Federal Reserve
    Bank of Philadelphia
      (January 2020–Present)

 

Private Investor

  

 

95

  

 

None

(2004–Present)

      

 

 

49


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)

 

  
Frances A. Sevilla-Sacasa  Trustee  Since September 2011

2005 Market Street

    

Philadelphia, PA 19103

    

January 1956

 

 

 

      

 

Thomas K. Whitford

  

 

Trustee

  

 

Since January 2013

2005 Market Street

    

Philadelphia, PA 19103

    

March 1956

    
    
       

 

 

50


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

    

 

Private Investor

  

 

95

  

 

Trust Manager and

(January 2017–Present)

    Audit Committee
    Chair — Camden

Chief Executive Officer —

    Property Trust

Banco Itaú

    (August 2011–Present)

International

    

(April 2012–December 2016)

    Director; Strategic
    Planning and Reserves

Executive Advisor to Dean

    Committee and Nominating

(August 2011–March 2012)

    and Governance

and Interim Dean

    Committee Member —

(January 2011–July 2011) —

    Callon Petroleum Company

University of Miami School of

    (December 2019–Present)

Business Administration

    
    Director; Audit

President — U.S. Trust,

    Committee Member —

Bank of America Private

    Carrizo Oil & Gas, Inc.

Wealth Management

    (March 2018–December 2019)

(Private Banking)

    

(July 2007–December 2008)

      

 

Vice Chairman

  

 

95

  

 

Director — HSBC North

(2010–April 2013) —

    America Holdings Inc.

PNC Financial

Services Group

    (December 2013–Present)
    Director — HSBC USA Inc.
    (July 2014–Present)
    Director —
    HSBC Bank USA,
    National Association
    (July 2014–March 2017)
    Director — HSBC
    Finance Corporation
      

(December 2013–April 2018)

 

 

51


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)

 

  

 

Christianna Wood

  

 

Trustee

  

 

Since January 2019

2005 Market Street

    

Philadelphia, PA 19103

    

August 1959

 

 

 

      

 

52


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

    

 

Chief Executive Officer

  

 

95

  

 

Director; Finance Committee

and President —

    and Audit Committee

Gore Creek

    Member — H&R

Capital, Ltd.

    Block Corporation

(August 2009–Present)

    (July 2008–Present)
    Director; Investments
    Committee, Capital
    and Finance
    Committee, and Audit
    Committee Member —
    Grange Insurance
    (2013–Present)
    Trustee; Chair of
    Nominating and Governance
    Committee and Audit
    Committee Member —
    The Merger Fund
    (2013–Present),
    The Merger Fund VL
    (2013-Present),
    WCM Alternatives:
    Event-Driven Fund
    (2013–Present),
    and WCM Alternatives:
    Credit Event Fund
    (December 2017–Present)
    Director; Chair of
    Governance Committee
    and Audit Committee
    Member — International
    Securities Exchange
      

(2010–2016)

 

 

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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)

 

  
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 since

2005 Market Street

  General Counsel,  May 2013; General

Philadelphia, PA 19103

  and Secretary  Counsel since May 2015;

December 1963

    Secretary since
      

October 2005

 

 

Daniel V. Geatens

  

 

Vice President

  

 

Vice President and

2005 Market Street

  and Treasurer  Treasurer since October 2007

Philadelphia, PA 19103

    

October 1972

 

      

 

Richard Salus

  

 

Senior Vice President

  

 

Senior Vice President and

2005 Market Street

  and Chief Financial Officer  Chief Financial Officer

Philadelphia, PA 19103

    since November 2006

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 800523-1918.

 

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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 President and Treasurer

  

 

95

  

 

Director; Personnel and

(January 2006–July 2012),

    Compensation Committee

Vice President —

    Chair; Member of Nominating,

Mergers & Acquisitions

    Investments, and Audit

(January 2003–January 2006),

    Committees for various
and Vice President    periods throughout
and Treasurer    directorship —
(July 1995–January 2003) —    Okabena Company
3M Company    (2009–2017)
    

 

David F. Connor has served

  

 

95

  

 

None3

in various capacities at

    

different times at

    

Macquarie Investment

    

Management.

 

      
Daniel V. Geatens has served  95  None3

in various capacities at

    

different times at

    

Macquarie Investment

    

Management.

 

      
Richard Salus has served  95  None

in various capacities

    

at different times at

    

Macquarie Investment

    

Management.

      

 

 

3 

David F. Connor and Daniel V. Geatens 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 Chief Financial Officer of the Optimum Fund Trust, and he is the Chief Financial Officer and Treasurer for Macquarie Global Infrastructure Total Return Fund Inc.

 

55


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

 

Jerome D. Abernathy

Managing Member

Stonebrook Capital

Management, LLC

Jersey City, NJ

  

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

 

Christianna Wood

Chief Executive Officer

and President

Gore Creek Capital, Ltd.

Golden, CO

 

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 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 FormN-PORT. The Fund’s FormsN-PORT, 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 800523-1918; 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 FormN-PORT are available without charge on the Fund’s website at delawarefunds.com/literature. The Fund’s FormsN-PORT 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 800SEC-0330.

Information (if any) regarding how the Fund voted proxies relating to portfolio securities during the most recently disclosed12-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.

 

56

Table of Contents
LOGO  LOGO

Annual report

US equity mutual fund

Delaware Small Cap Growth Fund

March 31, 2020

 

Beginning on or about June 1, 2021, as permitted by regulations adopted by the Securities and Exchange Commission, paper copies of your Fund’s shareholder reports will no longer be sent to you by mail, unless you specifically request them from the Fund or from your financial intermediary, such as a broker/dealer, bank, or insurance company. Instead, you will be notified by mail each time a report is posted on the website and provided with a link to access the report.

If you already elected to receive shareholder reports electronically, you will not be affected by this change and you do not need to take any action. You may elect to receive shareholder reports and other communications from the Fund electronically by signing up at delawarefunds.com/edelivery. If you own these shares through a financial intermediary, you may contact your financial intermediary.

You may elect to receive paper copies of all future shareholder reports free of charge. You can inform the Fund that you wish to continue receiving paper copies of your shareholder reports by contacting us at 800 523-1918. If you own these shares through a financial intermediary, you may contact your financial intermediary to elect to continue to receive paper copies of your shareholder reports. Your election to receive reports in paper will apply to all funds held with the Delaware Funds® by Macquarie or your financial intermediary.

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.

 

    


Table of Contents

Experience Delaware Funds®by Macquarie

Macquarie Investment Management (MIM) is a global asset manager with offices in the United States, Europe, Asia, and Australia. As active managers, we prioritize autonomy and accountability at the investment team level in pursuit of opportunities that matter for clients. Delaware Funds is one of the longest-standing mutual fund families, with more than 80 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. MIM is the marketing name for certain companies comprising the asset management division of Macquarie Group. This includes the following 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 Europe Limited, Macquarie Capital Investment Management LLC, and Macquarie Investment Management Europe S.A.

The Fund is distributed byDelaware Distributors, L.P. (DDLP), an affiliate of MIMBT and Macquarie Group Limited.

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

   5 

Disclosure of Fund expenses

   9 

Security type / sector allocation and top 10 equity holdings

   11 

Schedule of investments

   13 

Statement of assets and liabilities

   15 

Statement of operations

   17 

Statements of changes in net assets

   18 

Financial highlights

   20 

Notes to financial statements

   28 

Report of independent registered public accounting firm

   38 

Other Fund information

   39 

Board of trustees / directors and officers addendum

   40 

About the organization

   50 

Unless otherwise noted, views expressed herein are current as of March 31, 2020, 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.

© 2020 Macquarie Management Holdings, Inc.

 


Table of Contents
Portfolio management review  
Delaware Small Cap Growth Fund  April 7, 2020 (Unaudited)

 

Performance preview (for the year ended March 31, 2020)

        

Delaware Small Cap Growth Fund (Institutional Class shares)*

   1-year return   -9.65%    

Delaware Small Cap Growth Fund (Class A shares)*

   1-year return   -9.74%    

Russell 2000® Growth Index (benchmark)

   1-year return                   -18.58%    

Past performance does not guarantee future results.

For complete, annualized performance for Delaware Small Cap Growth Fund, please see the table on page 5.

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 7 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.

 

Investment objective

The Fund seeks long-term capital appreciation.

Market review

Both the economy and the markets enjoyed sustained growth through the first 10 months of the Fund’s fiscal year ended March 31, 2020, as major market indices achieved new highs through mid-January. Lower interest rates and the apparent resolution of the US-China trade war were largely responsible.

When the fiscal year began, the US Federal Reserve was setting the stage for lower interest rates, an acknowledgement that its last increase, in December 2018, might have been overdone. In July 2019, the Fed implemented the first of three 0.25% cuts that brought its target rate down to 1.50%-1.75% by the end of October. In January 2020, the signing of a Phase 1 trade agreement brought some clarity to the often-acrimonious trade dispute with China.

Investors were not the only winners, however. Consumers, who account for 70% of gross domestic product (GDP), had achieved generational highs for savings rates while reaping

 

At the end of the fiscal year, we’ve taken a two-pronged approach to positioning the Fund by focusing on those companies that we think can either maintain business or recover quickly:

  First, as we recover from the pandemic, we believe there are certain industries and companies, such as streaming media, telecommunications software, and consumer staples, that should do well throughout. 
  Second, there are other areas, such as digital currency, online dating, and fast-casual restaurants, that we think should do well once social-distancing measures are relaxed and people have the opportunity to get back out and meet with friends, family, and new people again. The businesses that have the potential to meet the pent-up demand for normalcy look attractive to us. 

 

 

 

 

 

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Table of Contents

Portfolio management review

Delaware Small Cap Growth Fund

 

the benefit of a cyclical high for wage growth. And thanks to a highly regulated banking system that was not extending credit easily, consumer credit scores were also at all-time highs.

Then the pandemic took hold. From its late 2019 start in China’s Wuhan province, the virus spread in January throughout Asia, Australia, Europe, and the United States. In February, markets reacted suddenly and swiftly, sinking more than 30% in just a few weeks.

Following in the footsteps of other countries, governments in the US, both at the state and municipal level, took action to slow the spread of the disease. The social-distancing measures, which included banning large groups and closing non essential businesses, had an immediate impact on the economy. Global economies that had enjoyed a sustained period of moderate growth swiftly plunged into recessions, with GDPs likely cut nearly in half. In the last week of the 12-month period, initial jobless claims jumped to 3.3 million, more than 10 times the previous week and more than four times the previous record set in 1982.

The Fed responded to the crisis by reducing interest rates twice in March, taking the target range down to 0.0%-0.25%. Additionally, the Fed renewed its asset-purchasing program, this time including commercial paper, to shore up distressed credit markets. On the fiscal side, Congress enacted three relief bills in March, the last of which provides $2 trillion to be used for direct payments to individuals, enhanced unemployment benefits, aid to small business, and relief for certain large industries.

For the entire fiscal year, the broad equity market, represented by the Russell 3000® Index, declined 9.13%. Small-cap stocks performed significantly weaker, with the Russell 2000® Index and the Russell 2000 Growth Index dropping 23.99% and 18.58%, respectively. All the losses resulted from the pandemic as the Russell 3000 Index lost 20.90%, the Russell 2000 Index lost 30.61%,

and the Russell 2000 Growth Index lost 25.76% in the first quarter of 2020. In contrast, those same indices posted positive returns of 14.76%, 6.03%, and 8.47%, respectively, from the beginning of the fiscal period on April 1, 2019, through Jan. 31, 2020.

Within the Fund

For the fiscal year ended March 31, 2020, Delaware Small Cap Growth Fund declined, although it outperformed its benchmark, the Russell 2000 Growth Index. The Fund’s Institutional Class shares declined 9.65%. The Fund’s Class A shares fell 9.74% at net asset value and declined 14.90% at maximum offer price (both returns reflect all distributions reinvested). For the same period, the benchmark fell 18.58%. Complete annualized performance for Delaware Small Cap Growth Fund is shown in the table on page 5.

While we focus mainly on individual stock selection, advantageous stock selection on a sector level contributed to strong relative performance in the industrials, consumer staples, and financials sectors. The consumer discretionary sector detracted the most from performance, also due to stock selection. The Fund did not have any positions in energy, materials, real estate, or utilities, the absence of which contributed to performance relative to the benchmark.

The Fund pursues a pure growth strategy, which has benefited performance given that growth stocks have outperformed value stocks over the past decade. We believe that as technological adoption rates accelerate, disruption is caused throughout major industries and enables new secular growth patterns to take hold.

Virtual healthcare is a notable example of disruptive technology. Even before the pandemic, virtual healthcare had increased as people realized this was a better, cheaper, and faster way to get a diagnosis and treatment plan for many routine

 

 

2


Table of Contents

    

    

 

 

health issues. Until the pandemic, the biggest impediment to this industry was getting people to try virtual care for the first time. Once they did, however, there was no turning back.

The pandemic changed that dramatically. Now, no one wants to go to a doctor’s office and sit in a waiting room surrounded by other patients. Virtual care is now growing rapidly and one of the biggest beneficiaries of this isTeladoc Health Inc., which has experienced a large upturn in its business with the onset of the coronavirus. Teladoc was the Fund’s leading contributor to performance for the 12-month period. It has teamed up with both large employers and insurers to make its services available. Teladoc now has more than 35 million members and operates in more than 175 countries.

Financial services has been home to some of the disruptive technology that has greatly impacted our lives. Digital currency and payment systems, for example, have largely replaced cash; indeed, ours may be the last generation that uses paper money. Another example iseHealth Inc., a provider of an online marketplace for comparison and enrollment in health insurance plans and a strong contributor to Fund performance. The company benefited from consumers’ increasing acceptance of the online environment as more Americans become eligible for Medicare at age 65 (estimated to be approximately 10,000 people every day). With more baby boomers applying, the average age of Medicare beneficiaries declines with a consequent increase in the online proficiency of Medicare recipients. We think this trend represents a strong tailwind for eHealth’s preferred method of acquisition.

Yet another disruptive trend that has played a large role in the Fund’s stock selection is the development of software as a service (SaaS). Software solutions built around a SaaS model offer significant advantages to both the developer and the customer. Rather than sell a software package that each customer must install on its

own system, SaaS products are hosted, maintained, and upgraded by the developer and accessed through the cloud. Instead of paying a large fee upfront and maintenance fees thereafter, customers buy a subscription that is often tied to how many users are accessing the software. This reduces customer costs while it provides developers with a steady income stream. A wide variety of applications are available via SaaS, including customer relationship management, human resources, and communications. The onset of the pandemic focused attention on a few SaaS-based opportunities, including the need for remote-working and enhanced network capabilities.

One such company isEverbridge Inc., a developer of SaaS-based systems to manage critical events and notifications and another contributor to the Fund’s performance. The company received several new contracts at the end of the period as states and municipalities signed on to distribute information about the coronavirus and their countermeasures to the public and other large groups.

Not all SaaS companies did well, however.Pluralsight Inc.provides online education and development primarily aimed at the information technology (IT) community. The goal is to keep IT people up to date and prepared for new projects. Although we think it is a good idea, one that has the added benefit of helping to retain employees in a field notorious for fleeting employment, Pluralsight has not been able to execute well and its growth prospects have diminished. Pluralsight detracted from Fund performance during the period and we exited position.

The stay-at-home restrictions imposed to curb the spread of the virus severely affected the retail business. One of the Fund’s holdings, AtHome Group Inc., was no exception. Even before the pandemic struck, the operator of big-ticket, big-box, home-décor stores had experienced a slowdown in traffic across its chains as it opened

 

 

3


Table of Contents

Portfolio management review

Delaware Small Cap Growth Fund

 

in more locations. Business was down and growth prospects diminished. Although this happens occasionally when a small successful chain begins to expand and growth slows, we realized our losses and sold the position in At Home Group.

One financial services firm that underperformed wasLendingTree Inc., an online marketplace that matches lenders with borrowers seeking a variety of loans, including mortgages and home-equity, personal, and business loans. LendingTree was attractive to us because it was an innovative financial services firm that was also positioned to take advantage of the home-building trend. In the last quarter of the fiscal year, as stocks sold off and credit markets went into disarray, the volume of mortgages written at LendingTree plummeted. Given that it will take the economy some time to recover, and that there will likely be less home building during that time, we think the home-building trend has gone away. We exited the position.

At the end of the fiscal year, we’ve taken a two-pronged approach to positioning the Fund by focusing on those companies that we think can either maintain business or recover quickly. First, as we recover from the pandemic, we believe there are certain industries and companies, such as streaming media, telecommunications software, and consumer staples, that should do well throughout.

Second, there are other areas, such as digital currency, online dating, and fast-casual restaurants, that we think should do well once social-distancing measures are relaxed and people have the opportunity to get back out and meet with friends, family, and new people again. The businesses that have the potential to meet the pent-up demand for normalcy look attractive to us.

 

 

4


Table of Contents
Performance summary  
Delaware Small Cap Growth Fund  March 31, 2020 (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, 2020

 

    1 year                3 year                Lifetime      

Class A (Est. June 30, 2016)

            

Excluding sales charge

   -9.74%*       +14.13%      +14.75%   

Including sales charge

   -14.90%*         +11.91%         +12.95%      

Class C (Est. June 30, 2016)

            

Excluding sales charge

   -10.53%*      +13.21%      +13.85%   

Including sales charge

   -11.41%*         +13.21%         +13.85%      

Class R (Est. June 30, 2016)

            

Excluding sales charge

   -10.04%*      +13.76%      +14.42%   

Including sales charge

   -10.04%*         +13.76%         +14.42%      

Institutional Class (Est. June 30, 2016)

            

Excluding sales charge

   -9.65%*      +14.34%      +14.98%   

Including sales charge

   -9.65%*         +14.34%         +14.98%      

Russell 2000 Growth Index

   -18.58%         +0.10%         +4.87%**      

*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 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 6. 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 (12b-1) fee.

Class A shares are sold with a maximum front-end sales charge of 5.75%, and have an annual 12b-1 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 12 months. They are also subject to an annual

 

 

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Table of Contents

Performance summary

Delaware Small Cap Growth Fund

 

12b-1 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 12b-1 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.

The disruptions caused by natural disasters, pandemics, or similar events could prevent the Fund from executing advantageous investment decisions in a timely manner and could negatively impact the Fund’s ability to achieve its investment objective and the value of the Fund’s investments.

 

 

2The 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 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 (collectively, nonroutine expenses)) from exceeding 1.05% of the Fund’s average daily net assets from April 1, 2019 to March 31, 2020.* 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)

  2.68% 3.43% 2.93% 2.43%

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 July 30, 2018 through July 29, 2020.

 

6


Table of Contents

Performance of a $10,000 Investment1

Average annual total returns from June 30, 2016 (Fund’s inception)

through March 31, 2020

 

LOGO

 

For period beginning June 30, 2016 (Fund’s inception)

through March 31, 2020

      Starting value   Ending value 

LOGO Delaware Small Cap Growth Fund — Institutional Class shares

   $10,000    $16,879 

LOGO Delaware Small Cap Growth Fund — Class A shares

   $9,425    $15,787 

LOGO Russell 2000 Growth Index

   $10,000    $11,955 

 

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 6. Please note additional details on pages 5 through 8.

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 3000 Index, mentioned on page 2, measures the performance of the largest 3,000 US companies, representing approximately 98% of the investable US equity market.

The Russell 2000 Index, mentioned on page 2, measures the performance of the small-cap segment of the US equity universe.

Gross domestic product, mentioned on page 2, is a measure of all goods and services produced by a nation in a year.

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

Index performance returns do not reflect any management fees, transaction costs, or expenses. Indices are unmanaged and one cannot invest

 

 

7


Table of Contents

Performance summary

Delaware Small Cap Growth Fund

 

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      

 

8


Table of Contents

Disclosure of Fund expenses

For the six-month period from October 1, 2019 to March 31, 2020 (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 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, 2019 to March 31, 2020.

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 and assume reinvestment of all dividends and distributions.

 

9


Table of Contents

Disclosure of Fund expenses

For the six-month period from October 1, 2019 to March 31, 2020 (Unaudited)

Delaware Small Cap Growth Fund

Expense analysis of an investment of $1,000

 

   Beginning   Ending      Expenses 
   Account Value   Account Value   Annualized  Paid During Period 
    10/1/19   3/31/20   Expense Ratio  10/1/19 to 3/31/20* 

Actual Fund return

       

Class A

   $1,000.00    $937.70    1.30%   $6.30 

Class C

     1,000.00      933.40    2.05%     9.91 

Class R

     1,000.00      935.90    1.55%     7.50 

Institutional Class

     1,000.00      939.20    1.05%     5.09 

Hypothetical 5% return(5% return before expenses)

       

Class A

   $1,000.00    $1,018.50    1.30%   $6.56 

Class C

     1,000.00      1,014.75    2.05%   10.33 

Class R

     1,000.00      1,017.25    1.55%     7.82 

Institutional Class

     1,000.00      1,019.75    1.05%     5.30 

*“Expenses Paid During Period” are equal to the Fund’s annualized expense ratio, multiplied by the average account value over the period, multiplied by 183/366 (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.

In addition to the Fund’s expenses reflected above, the Fund also indirectly bears its portion of the fees and expenses of the investment companies (Underlying Funds) in which it invests. The table above does not reflect the expenses of the Underlying Funds.

 

10


Table of Contents

Security type / sector allocation and top 10

equity holdings

Delaware Small Cap Growth Fund  As of March 31, 2020 (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

    100.17%

Communication Services

    8.40%

Consumer Discretionary

    7.03%

Consumer Staples

    16.84%

Financials

    6.67%

Healthcare

    27.66%

Industrials

    8.64%

Information Technology

    24.93%

Total Value of Securities

    100.17%

Liabilities Net of Receivables and Other Assets

    (0.17%)

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 Healthcare 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, as amended). The Healthcare sector consisted of biotechnology, commercial services, healthcare products, healthcare services, pharmaceuticals, retail and software. As of March 31, 2020, such amounts, as percentage of total net assets, were 0.45%, 4.40%, 12.63%, 4.68%, 3.61%, 0.35%, and 1.54% respectively. The percentage in any such single industry will comply with the Fund’s concentration policy even if the percentages in the Healthcare sector for financial reporting purposes may exceed 25%.

 

11


Table of Contents

Security type / sector allocation and top 10

equity holdings

Delaware Small Cap Growth Fund

Holdings are for informational purposes only and are subject to change at any time. They are not a recommendation to buy, sell, or hold any security.

 

Top 10 equity holdings            Percentage of net assets          

eHealth

  5.15%

Boston Beer Class A

  5.01%

Simply Good Foods

  4.70%

Novocure

  4.56%

Progyny

  4.40%

Trex

  4.36%

Bandwidth Class A

  4.32%

iRhythm Technologies

  4.28%

SiteOne Landscape Supply

  4.28%

Everbridge

  4.03%

 

12


Table of Contents
Schedule of investments  
Delaware Small Cap Growth Fund  March 31, 2020

 

    Number of shares   Value (US $) 

Common Stock – 100.17%²

          

Communication Services – 8.40%

    

Bandwidth Class A †

   40,325   $2,713,469 

EverQuote Class A †

   30,835    809,419 

Live Nation Entertainment †

   38,695    1,759,075 
    

 

 

 
     5,281,963 
    

 

 

 

Consumer Discretionary – 7.03%

    

Etsy †

   16,380    629,647 

Shake Shack Class A †

   13,089    493,979 

TopBuild †

   4,640    332,410 

Wingstop

   7,840    624,848 

YETI Holdings †

   119,748    2,337,481 
    

 

 

 
     4,418,365 

Consumer Staples – 16.84%

    

Boston Beer Class A †

   8,571    3,150,357 

Freshpet †

   38,630    2,467,298 

Performance Food Group †

   81,495    2,014,556 

Simply Good Foods †

   153,475    2,955,929 
    

 

 

 
     10,588,140 
    

 

 

 

Financials – 6.67%

    

eHealth †

   22,976    3,235,480 

LendingTree †

   5,203    954,178 
    

 

 

 
     4,189,658 
    

 

 

 

Healthcare – 27.66%

    

1Life Healthcare †

   53,170    965,036 

Blueprint Medicines †

   4,803    280,879 

Invitae †

   57,651    788,089 

iRhythm Technologies †

   33,086    2,691,546 

Novocure †

   42,536    2,864,374 

Pacira BioSciences †

   67,734    2,271,121 

PetIQ †

   9,405    218,478 

Progyny †

   130,635    2,768,156 

Quanterix †

   77,311    1,420,203 

Repligen †

   10,020    967,331 

Teladoc Health †

   13,906    2,155,569 
    

 

 

 
         17,390,782 
    

 

 

 

Industrials – 8.64%

    

SiteOne Landscape Supply †

   36,545    2,690,443 

Trex †

   34,179    2,739,105 
    

 

 

 
     5,429,548 
    

 

 

 

Information Technology – 24.93%

    

Avalara †

   33,575    2,504,695 

Bill.Com Holdings †

   56,405    1,929,051 

Everbridge †

   23,809    2,532,325 

 

13


Table of Contents

Schedule of investments

Delaware Small Cap Growth Fund

 

 

    Number of shares   Value (US $) 

Common Stock²(continued)

          

Information Technology (continued)

    

Lattice Semiconductor †

   105,730   $1,884,109 

Medallia †

   73,380    1,470,535 

Monolithic Power Systems

   6,900    1,155,474 

Rapid7 †

   50,031    2,167,843 

Silicon Laboratories †

   23,773    2,030,452 
    

 

 

 
     15,674,484 
    

 

 

 

Total Common Stock(cost $66,539,570)

        62,972,940 

Total Value of Securities – 100.17%

(cost $66,539,570)

    $62,972,940 
    

 

 

 

 

²

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

 

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, 2020

 

Assets:

  

Investments, at value1

  $62,972,940 

Receivable for fund shares sold

   5,886,926 

Receivable for securities sold

   306,462 

Dividends Receivable

   3,654 
  

 

 

 

Total assets

   69,169,982 
  

 

 

 

Liabilities:

  

Due to custodian

   223,364 

Payable for securities purchased

   5,873,153 

Payable for fund shares redeemed

   125,462 

Investment management fees payable to affiliates

   15,309 

Other accrued expenses

   60,767 

Distribution fees payable to affiliates

   1,582 

Accounting and administration expenses payable to affiliates

   518 

Dividend disbursing and transfer agent fees and expenses payable to affiliates

   506 

Trustees’ fees and expenses payable to affiliates

   478 

Legal fees payable to affiliates

   128 

Reports and statements to shareholders expenses payable to affiliates

   80 
  

 

 

 

Total liabilities

   6,301,347 
  

 

 

 

Total Net Assets

  $62,868,635 
  

 

 

 

Net Assets Consist of:

  

Paid-in capital

  $67,881,348 

Total distributable earnings (loss)

   (5,012,713
  

 

 

 

Total Net Assets

  $62,868,635 
  

 

 

 

 

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Table of Contents

Statement of assets and liabilities

Delaware Small Cap Growth Fund

 

    

 

Net Asset Value

  

Class A:

  

Net assets

  $2,052,952 

Shares of beneficial interest outstanding, unlimited authorization, no par

   222,405 

Net asset value per share

  $9.23 

Sales charge

   5.75

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

  $9.79 

Class C:

  

Net assets

  $772,613 

Shares of beneficial interest outstanding, unlimited authorization, no par

   86,968 

Net asset value per share

  $8.88 

Class R:

  

Net assets

  $1,120,176 

Shares of beneficial interest outstanding, unlimited authorization, no par

   123,075 

Net asset value per share

  $9.10 

Institutional Class:

  

Net assets

  $58,922,894 

Shares of beneficial interest outstanding, unlimited authorization, no par

   6,317,866 

Net asset value per share

  $9.33 

 

1Investments, at cost

  $66,539,570 

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

 

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Table of Contents
Statement of operations  
Delaware Small Cap Growth Fund  Year ended March 31, 2020

 

Investment Income:

  

Dividends

  $12,738 
  

 

 

 
   12,738 
  

 

 

 

Expenses:

  

Management fees

   270,394 

Distribution expenses — Class A

   6,361 

Distribution expenses — Class C

   6,997 

Distribution expenses — Class R

   7,164 

Registration fees

   77,319 

Accounting and administration expenses

   44,930 

Dividend disbursing and transfer agent fees and expenses

   39,200 

Audit and tax fees

   32,030 

Reports and statements to shareholders expenses

   25,258 

Custodian fees

   2,344 

Trustees’ fees and expenses

   1,738 

Legal fees

   1,325 

Other

   11,294 
  

 

 

 
   526,354 

Less expenses waived

   (126,880

Less expenses paid indirectly

   (18
  

 

 

 

Total operating expenses

   399,456 
  

 

 

 

Net Investment Loss

   (386,718
  

 

 

 

Net Realized and Unrealized Loss:

  

Net realized gain (loss) on investments

   (289,780

Net change in unrealized appreciation (depreciation) of investments

   (5,156,079
  

 

 

 

Net Realized and Unrealized Loss

   (5,445,859
  

 

 

 

Net Decrease in Net Assets Resulting from Operations

  $(5,832,577
  

 

 

 

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

 

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Table of Contents

Statements of changes in net assets

Delaware Small Cap Growth Fund

 

   Year ended 
   3/31/20  3/31/19 

Increase (Decrease) in Net Assets from Operations:

   

Net investment loss

  $(386,718 $(112,923

Net realized gain (loss)

   (289,780  2,169,041 

Net change in unrealized appreciation (depreciation)

   (5,156,079  171,156 
  

 

 

  

 

 

 

Net increase (decrease) in net assets resulting from operations

   (5,832,577  2,227,274 
  

 

 

  

 

 

 

Dividends and Distributions to Shareholders from:

   

Distributable earnings:

   

Class A

   (35,531  (404,794

Class C

   (10,143  (78,290

Class R

   (17,951  (400,639

Institutional Class

   (962,541  (1,752,445
  

 

 

  

 

 

 
   (1,026,166  (2,636,168
  

 

 

  

 

 

 

Capital Share Transactions:

   

Proceeds from shares sold:

   

Class A

   838,980   2,960,480 

Class C

   816,398   579,958 

Class R

   19,603   1,426,311 

Institutional Class

   71,586,170   3,190,208 

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

   

Class A

   35,531   390,911 

Class C

   10,143   78,286 

Class R

   17,951   400,635 

Institutional Class

   961,677   1,752,442 
  

 

 

  

 

 

 
   74,286,453   10,779,231 
  

 

 

  

 

 

 

 

18


Table of Contents

 

   Year ended
   3/31/20  3/31/19

Capital Share Transactions (continued):

      

Cost of shares redeemed:

      

Class A

   $(883,963)   $(1,340,062)

Class C

    (405,501)    (184,332)

Class R

    (337,498)    (199,831)

Institutional Class

    (16,247,738)    (3,436,582)
   

 

 

    

 

 

 
    (17,874,700)    (5,160,807)
   

 

 

    

 

 

 

Increase in net assets derived from capital share transactions

    56,411,753    5,618,424
   

 

 

    

 

 

 

Net Increase in Net Assets

    49,553,010    5,209,530
   

 

 

    

 

 

 

Net Assets:

      

Beginning of year

    13,315,625    8,106,095
   

 

 

    

 

 

 

End of year

   $62,868,635   $13,315,625
   

 

 

    

 

 

 

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

 

19


Table of Contents

Financial highlights

Delaware Small 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 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 assets

Ratio of expenses to average net assets prior to fees waived

Ratio of net investment loss to average net assets.

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

Portfolio turnover

 

 

1 

Date of commencement of operations; ratios have been annualized and total return and portfolio turnover have not been annualized.

 

2 

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

 

3 

Total 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 return during all of the periods shown reflects a waiver by the manager. Performance would have been lower had the waiver not been in effect.

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

 

20


Table of Contents

    

    

 

 

    

                     6/30/161 
Year ended  to 

 

  
   3/31/20     3/31/19     3/31/18     3/31/17 

 

 
  $10.39    $11.59    $9.22    $8.50 
   (0.13    (0.14    (0.13    (0.05
   (0.88    2.33     3.22     1.12 
  

 

 

    

 

 

    

 

 

    

 

 

 
   (1.01    2.19     3.09     1.07 
  

 

 

    

 

 

    

 

 

    

 

 

 
   (0.15    (3.39    (0.72    (0.35
  

 

 

    

 

 

    

 

 

    

 

 

 
   (0.15    (3.39    (0.72    (0.35
  

 

 

    

 

 

    

 

 

    

 

 

 
  $9.23    $10.39    $11.59    $9.22 
  

 

 

    

 

 

    

 

 

    

 

 

 
   (9.93%    22.47%     34.47%     12.69% 
                 
  $2,053    $2,330    $432    $184 
   1.30%     1.30%     1.30%     1.30% 
   1.65%     2.68%     3.33%     4.87% 
   (1.26%    (1.19%    (1.20%    (0.77%
   (1.61%    (2.57%    (3.23%    (4.34%
   139%     158%     151%     145% 

 

 

 

21


Table of Contents

Financial highlights

Delaware Small 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 assets

Ratio of expenses to average net assets prior to fees waived

Ratio of net investment loss to average net assets.

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

Portfolio turnover

 

 

1 

Date of commencement of operations; ratios have been annualized and total return and portfolio turnover have not been annualized.

 

2 

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

 

3 

Total 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 return during all of the periods shown reflects a waiver by the manager. Performance would have been lower had the waiver not been in effect.

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

 

22


Table of Contents

    

    

 

 

    

 

                     6/30/161 
Year ended  to 

 

  
   3/31/20     3/31/19     3/31/18     3/31/17 

 

 
  $10.08    $11.43    $9.17    $8.50 
   (0.20    (0.21    (0.20    (0.11
   (0.85    2.25     3.18     1.13 
  

 

 

    

 

 

    

 

 

    

 

 

 
   (1.05    2.04     2.98     1.02 
  

 

 

    

 

 

    

 

 

    

 

 

 
   (0.15    (3.39    (0.72    (0.35
  

 

 

    

 

 

    

 

 

    

 

 

 
   (0.15    (3.39    (0.72    (0.35
  

 

 

    

 

 

    

 

 

    

 

 

 
  $8.88    $10.08    $11.43    $9.17 
  

 

 

    

 

 

    

 

 

    

 

 

 
   (10.64%    21.42%     33.44%     12.09% 

    

     
  $773    $478    $61    $31 
   2.05%     2.05%     2.05%     2.05% 
   2.40%     3.43%     4.08%     5.62% 
   (2.01%    (1.94%    (1.95%    (1.52%
   (2.36%    (3.32%    (3.98%    (5.09%
   139%     158%     151%     145% 

 

 

 

23


Table of Contents

Financial highlights

Delaware Small 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 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 assets

Ratio of expenses to average net assets prior to fees waived

Ratio of net investment loss to average net assets

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

Portfolio turnover

 

 

1 

Date of commencement of operations; ratios have been annualized and total return and portfolio turnover have not been annualized.

 

2 

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

 

3 

Total 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 return during all of the periods shown reflects a waiver by the manager. Performance would have been lower had the waiver not been in effect.

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

 

24


Table of Contents

    

    

 

 

    

 

                     6/30/161 
Year ended  to 

 

  
   3/31/20     3/31/19     3/31/18     3/31/17 

 

 
  $10.27    $11.53    $9.20    $8.50 
   (0.16    (0.17    (0.15    (0.07
   (0.86    2.30     3.20     1.12 
  

 

 

    

 

 

    

 

 

    

 

 

 
   (1.02    2.13     3.05     1.05 
  

 

 

    

 

 

    

 

 

    

 

 

 
   (0.15    (3.39    (0.72    (0.35
  

 

 

    

 

 

    

 

 

    

 

 

 
   (0.15    (3.39    (0.72    (0.35
  

 

 

    

 

 

    

 

 

    

 

 

 
  $9.10    $10.27    $11.53    $9.20 
  

 

 

    

 

 

    

 

 

    

 

 

 
   (10.15%    22.05%     34.10%     12.57% 

    

           
  $1,120    $1,577    $8    $6 
   1.55%     1.55%     1.55%     1.55% 
   1.90%     2.93%     3.58%     5.12% 
   (1.51%    (1.44%    (1.45%    (1.02%
   (1.86%    (2.82%    (3.48%    (4.59%
   139%     158%     151%     145% 

 

 

 

25


Table of Contents

Financial highlights

Delaware Small 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 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 assets

Ratio of expenses to average net assets prior to fees waived

Ratio of net investment loss to average net assets.

Ratio of net investment loss to average net assets prior to fees waived .

Portfolio turnover

 

 

1 

Date of commencement of operations; ratios have been annualized and total return and portfolio turnover have not been annualized.

 

2 

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

 

3 

Total 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 return during all of the periods shown reflects a waiver by the manager. Performance would have been lower had the waiver not been in effect.

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

 

26


Table of Contents

    

    

 

 

    

 

                     6/30/161 
Year ended  to 

 

  
   3/31/20     3/31/19     3/31/18     3/31/17 

 

 
  $10.47    $11.64    $9.24    $8.50 
   (0.11    (0.11    (0.10    (0.04
   (0.88    2.33     3.22     1.13 
  

 

 

    

 

 

    

 

 

    

 

 

 
   (0.99    2.22     3.12     1.09 
  

 

 

    

 

 

    

 

 

    

 

 

 
   (0.15    (3.39    (0.72    (0.35
  

 

 

    

 

 

    

 

 

    

 

 

 
   (0.15    (3.39    (0.72    (0.35
  

 

 

    

 

 

    

 

 

    

 

 

 
  $9.33    $10.47    $11.64    $9.24 
  

 

 

    

 

 

    

 

 

    

 

 

 
   (9.66%    22.68%     34.73%     12.93% 
  $58,923    $8,931    $7,605    $5,621 

    

           
   1.05%     1.05%     1.05%     1.05% 
   1.40%     2.43%     3.08%     4.62% 
   (1.01%    (0.94%    (0.95%    (0.52%
   (1.36%    (2.32%    (2.98%    (4.09%
   139%     158%     151%     145% 

 

 

 

27


Table of Contents
Notes to financial statements  
Delaware Small Cap Growth Fund  March 31, 2020

Delaware Group® Equity Funds IV (Trust) is organized as a Delaware statutory trust and offers 21 series. These financial statements and the related notes pertain to Delaware Small Cap Growth Fund (Fund). The Fund 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.

1. Significant Accounting Policies

The Fund follows accounting and reporting guidance under Financial Accounting Standards Board (FASB) Accounting Standards Codification Topic 946, Financial Services – Investment Companies. 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. Open-end investment companies are valued at their published net asset value (NAV). 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 expected to be taken on the Fund’s federal income tax returns through the year ended March 31, 2020 and for all open tax years (years ended March 31, 2017–March 31, 2019), 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

 

28


Table of Contents

    

    

    

 

interest expense and penalties in “Other” on the “Statement of operations.” During the year ended March 31, 2020, the Fund did not incur any interest or tax penalties.

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.

Use of Estimates— 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.

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, 2020.

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 expenses paid under this arrangement are included on the “Statement of operations” under “Dividend disbursing and transfer agent fees and expenses” with the corresponding expenses offset included under “Less expenses paid indirectly.” For the year ended March 31, 2020, the Fund earned $18 under this arrangement.

 

29


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 rates 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, if any, of its management fee and/or pay/reimburse the Fund to the extent necessary to ensure total annual operating 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. This waiver was in effect from April 1, 2019 through March 31, 2020.* This waiver and reimbursement may only be terminated by agreement of DMC and the Fund. The waiver and reimbursement are accrued daily and received monthly.

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 are calculated daily and paid monthly based on the aggregate daily net assets of all funds within the Delaware Funds at the following annual rates: 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 then pays its portion of the remainder of the Total Fee on a relative NAV basis. This amount is included on the “Statement of operations” under “Accounting and administration expenses.” For the year ended March 31, 2020, the Fund was charged $5,246 for these services.

Effective May 30, 2019, DMC may permit its affiliates, Macquarie Investment Management Global Limited (MIMGL) and Macquarie Funds Management Hong Kong Limited (together, the “Affiliated Sub-Advisors”), to execute Fund equity security trades on behalf of the Manager. The Manager may also seek quantitative support from MIMGL. Although the Affiliated Sub-Advisors serve as sub-advisors, DMC has ultimate responsibility for all investment advisory services. For these services, DMC, not the Fund, may pay each Affiliated Sub-Advisor a portion of its investment management fee.

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 rates: 0.014% of the first $20 billion; 0.011% of the next $5 billion; 0.007% of the next $5 billion; 0.005% of the next $20 billion; and 0.0025% of average daily net assets in excess of $50 billion. The fees payable to DIFSC under the shareholder services 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, 2020, the Fund was charged $3,254 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”

 

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under “Dividend disbursing and transfer agent fees and expenses.” The fees that are calculated daily and paid as invoices are received on a monthly or quarterly basis.

Pursuant to a distribution agreement and distribution plan, the Fund pays DDLP, the distributor and an affiliate of DMC, annual 12b-1 fees of 0.25%, 1.00%, and 0.50% of the average daily net assets of the Class A, Class C, and Class R shares, respectively. These fees are calculated daily and paid monthly. Institutional Class shares do not pay 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, 2020, the Fund was charged $897 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, 2020, DDLP earned $1,448 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.

In addition to the management fees and other expenses of the Fund, the Fund indirectly bears the investment management fees and other expenses of the investment companies (Underlying Funds) in which it invests. The amount of these fees and expenses incurred indirectly by the Fund will vary based upon the expense and fee levels of the Underlying Funds and the number of shares that are owned of the Underlying Funds at different times.

Cross trades for the year ended March 31, 2020, 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, 2020, the Fund engaged in securities purchases of $45,341,781.

 

*The aggregate contractual waiver period covering this report is from July 30, 2018 through July 29, 2020.

3. Investments

For the year ended March 31, 2020, the Fund made purchases and sales of investment securities other than short-term investments as follows:

 

Purchases

   $104,959,665 

Sales

   49,768,046 

 

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Notes to financial statements

Delaware Small Cap Growth Fund

    

 

3. Investments (continued)

    

 

The tax cost of investments includes adjustments to net unrealized appreciation (depreciation) which may not necessarily be the 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, 2020, the cost and unrealized appreciation (depreciation) of investments for federal income tax purposes for the Fund were as follows:

 

Cost of investments

  $67,346,382 
  

 

 

 

Aggregate unrealized appreciation of investments

  $4,562,909 

Aggregate unrealized depreciation of investments

   (8,936,351
  

 

 

 

Net unrealized depreciation of investments

  $(4,373,442
  

 

 

 

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.

 

Level 1  Inputs are quoted prices in active markets for identical investments. (Examples: equity securities, open-end investment companies, futures contracts, and 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, and 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 and 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

 

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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, 2020:

 

   Level 1 

Securities

  

Assets:

  

Common Stock

   $62,972,940 

During the year ended March 31, 2020, 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.

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 the Fund’s net assets. During the year ended March 31, 2020, 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 years ended March 31, 2020 and 2019 were as follows:

 

   Year ended 
   3/31/20       3/31/19 

Ordinary income

  $               $1,733,592 

Long-term capital gains

   1,026,166      902,576 
  

 

 

     

 

 

 

Total

  $1,026,166     $2,636,168 
  

 

 

     

 

 

 

5. Components of Net Assets on a Tax Basis

As of March 31, 2020, the components of net assets on a tax basis were as follows:

 

Shares of beneficial interest

  $67,881,348 

Qualified late year loss deferrals

   (639,271

Net unrealized depreciation on investments, foreign currencies, and derivatives

   (4,373,442
  

 

 

 

Net assets

  $62,868,635 
  

 

 

 

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

Qualified late year losses represent ordinary losses realized from Jan. 1, 2020 through March 31, 2020 and capital losses realized from Nov. 1, 2019 through March 31, 2020, that in accordance with federal income tax regulations, the Fund has elected to defer and treat as having arisen in the following fiscal year.

 

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Notes to financial statements

Delaware Small Cap Growth Fund

    

 

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

 

For financial reporting purposes, capital accounts are adjusted to reflect the tax character of permanent book/tax differences. Reclassifications are primarily due to tax treatment of net operating losses. Results of operations and net assets were not affected by these reclassifications. For the year ended March 31, 2020, the Funds recorded the following reclassifications:

 

Total distributable earnings (loss)

  $236,113 

Total paid in capital

  $(236,113

6. Capital Shares

Transactions in capital shares were as follows:

 

   Year ended 
   3/31/20      3/31/19 

Shares sold:

     

Class A

   79,439            248,349 

Class C

   81,725     49,195 

Class R

   1,871     126,784 

Institutional Class

   6,930,241     270,993 

Shares issued upon reinvestment of dividends and distributions:

     

Class A

   3,377     42,215 

Class C

   999     8,698 

Class R

   1,729     43,737 

Institutional Class

   90,553     188,030 
  

 

 

    

 

 

 
   7,189,934     978,001 
  

 

 

    

 

 

 

Shares redeemed:

     

Class A

   (84,596    (103,629

Class C

   (43,101    (15,923

Class R

   (34,051    (17,642

Institutional Class

   (1,555,682    (259,423
  

 

 

    

 

 

 
   (1,717,430    (396,617
  

 

 

    

 

 

 

Net increase

   5,472,504     581,384 
  

 

 

    

 

 

 

 

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Certain shareholders may exchange shares of one class for shares of another class in the same Fund. These exchange transactions are included as subscriptions and redemptions in the table above and on the “Statements of changes in net assets.” For the years ended March 31, 2020 and 2019, the Fund had the following exchange transactions:

 

           Exchange Redemptions                  Exchange Subscriptions           
   Class C  Class A   
Year ended  Shares  Shares  Value

3/31/20

  89  86  $918

3/31/19

  69  67  752

7. Line of Credit

The Fund, along with certain other funds in the Delaware Funds (Participants), was a participant in a $220,000,000 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 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. 4, 2019.

On Nov. 4, 2019, the Participants entered into an amendment to the agreement for a $250,000,000 revolving line of credit. The revolving 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. 2, 2020.

The Fund had no amounts outstanding as of March 31, 2020, 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 the collateral held with respect to a loaned security on any particular day, may be

 

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Notes to financial statements

Delaware Small Cap Growth Fund

    

 

8. Securities Lending (continued)

    

 

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 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. The 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 the 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, 2020, the Fund had no securities out on loan.

9. Credit and Market Risk

The Fund invests 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

 

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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 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, 2020, 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. Recent Accounting Pronouncements

In August 2018, the FASB issued an Accounting Standards Update (ASU), ASU 2018-13, which changes certain fair value measurement disclosure requirements. ASU 2018-13, in addition to other modifications and additions, removes the requirement to disclose the amount and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy, the policy for the timing of transfers between levels and the valuation process for Level 3 fair value measurements. ASU 2018-13 is effective for fiscal years, and interim periods within those fiscal years, beginning after Dec. 15, 2019. At this time, Management is evaluating the implications of these changes on the financial statements.

12. Subsequent Events

On Nov. 4, 2019, the Fund, along with certain other funds in the Delaware Funds (Participants), entered into an amendment to the agreement for a $250,000,000 revolving line of credit. The revolving line of credit available was increased to $275,000,000 on May 6, 2020. The revolving line of credit is to be used as described above and operates in substantially the same manner as the original agreement.

Beginning in January 2020, global financial markets have experienced and may continue to experience significant volatility resulting from the spread of a novel coronavirus known as COVID-19. The outbreak of COVID-19 has resulted in travel and border restrictions, quarantines, supply chain disruptions, lower consumer demand and general market uncertainty. The effects of COVID-19 have and may continue to adversely affect the global economy, the economies of certain nations and individual issuers, all of which may negatively impact the Fund’s performance.

Management has determined that no other material events or transactions occurred subsequent to March 31, 2020, 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 the Delaware Group® Equity Funds IV, referred to hereafter as the “Fund”) as of March 31, 2020, the related statement of operations for the year ended March 31, 2020, the statements of changes in net assets for each of the two years in the period ended March 31, 2020, 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, 2020, 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, 2020 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, 2020 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.

/s/PricewaterhouseCoopers LLP

Philadelphia, Pennsylvania

May 26, 2020

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 the 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, 2020, the Fund reports distributions paid during the year as follows:

 

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

   100.00

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

  

 

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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  President,  President and
2005 Market Street  Chief Executive Officer,  Chief Executive Officer
Philadelphia, PA 19103  and Trustee  since August 2015
February 1970    
    Trustee since
    September 2015
    

 

Independent Trustees

 

  
Thomas L. Bennett  Chair and Trustee  Trustee since
2005 Market Street    March 2005
Philadelphia, PA 19103    
October 1947    Chair since
      

March 2015

 

Jerome D. Abernathy  Trustee  Since January 2019
2005 Market Street    
Philadelphia, PA 19103    
July 1959      
Ann D. Borowiec  Trustee  Since March 2015
2005 Market Street    
Philadelphia, PA 19103    
November 1958    
          

 

1 

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

 

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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  95  Trustee — UBS
Investment Management2    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  95  None
(March 2004–Present)    
       
Managing Member,  95  None
Stonebrook Capital    

Management, LLC (financial

technology: macro factors

and databases)

    
(January 1993–Present)      
Chief Executive Officer,  95  Director —
Private Wealth Management    Banco Santander International
(2011–2013) and    (October 2016–
Market Manager,    December 2019)
New Jersey Private    
Bank (2005–2011) —    Director —
J.P. Morgan Chase & Co.    Santander Bank, N.A.
    (December 2016–
      December 2019)

 

2 

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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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)

 

Joseph W. Chow  Trustee  Since January 2013
2005 Market Street    
Philadelphia, PA 19103    
January 1953    
          
    
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      

 

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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

 

    

 

    
Private Investor  95  Director and Audit Committee
(April 2011–Present)    Member — Hercules
    Technology Growth
    Capital, Inc.
      

(July 2004–July 2014)

 

President —  95  

 

Director; Compensation

Drexel University    Committee and
(August 2010–Present)    Governance Committee
    Member — Community
President —    Health Systems
Franklin & Marshall College    (May 2004–Present)
(July 2002–June 2010)    
    Director — Drexel
    Morgan & Co.
    (2015–2019)
    Director and Audit Committee
    Member — vTv
    Therapeutics Inc.
    (2017–Present)
    Director and Audit Committee
    Member — FS Credit Real
    Estate Income Trust, Inc.
    (2018–Present)
    Director — Federal Reserve
    Bank of Philadelphia
      (January 2020–Present)
Private Investor  95  None

(2004–Present)

 

      

 

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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)

 

Frances A. Sevilla-Sacasa  Trustee  Since September 2011
2005 Market Street    
Philadelphia, PA 19103    
January 1956    
       
Thomas K. Whitford  Trustee  Since January 2013
2005 Market Street    
Philadelphia, PA 19103    
March 1956    
       

 

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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

 

    

 

    
Private Investor  95  Trust Manager and
(January 2017–Present)    Audit Committee
    Chair — Camden
Chief Executive Officer —    Property Trust
Banco Itaú    (August 2011–Present)
International    
(April 2012–December 2016)    Director; Strategic
    Planning and Reserves
Executive Advisor to Dean    Committee and Nominating
(August 2011–March 2012)    and Governance
and Interim Dean    Committee Member —
(January 2011–July 2011) —    Callon Petroleum Company
University of Miami School of    (December 2019–Present)
Business Administration    
    Director; Audit
President — U.S. Trust,    Committee Member —
Bank of America Private    Carrizo Oil & Gas, Inc.
Wealth Management    (March 2018–December 2019)
(Private Banking)    
(July 2007–December 2008)    
Vice Chairman  95  Director — HSBC North
(2010–April 2013) —    America Holdings Inc.
PNC Financial    (December 2013–Present)
Services Group    
    Director — HSBC USA Inc.
    (July 2014–Present)
    Director —
    HSBC Bank USA,
    National Association
    (July 2014–March 2017)
    Director — HSBC
    Finance Corporation
      

(December 2013–April 2018)

 

 

45


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)

 

    
Christianna Wood  Trustee  Since January 2019
2005 Market Street    
Philadelphia, PA 19103    
August 1959    
       

 

46


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

    

    
Chief Executive Officer  95  Director; Finance Committee
and President —    and Audit Committee
Gore Creek    Member — H&R
Capital, Ltd.    Block Corporation
(August 2009–Present)    (July 2008–Present)
    Director; Investments
    Committee, Capital
    and Finance
    Committee, and Audit
    Committee Member —
    Grange Insurance
    (2013–Present)
    Trustee; Chair of
    Nominating and Governance
    Committee and Audit
    Committee Member —
    The Merger Fund
    (2013–Present),
    The Merger Fund VL
    (2013-Present),
    WCM Alternatives:
    Event-Driven Fund
    (2013–Present),
    and WCM Alternatives:
    Credit Event Fund
    (December 2017–Present)
    Director; Chair of
    Governance Committee
    and Audit Committee
    Member — International
    Securities Exchange
      (2010–2016)

 

47


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)

 

    
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 since
2005 Market Street  General Counsel,  May 2013; General
Philadelphia, PA 19103  and Secretary  Counsel since May 2015;
December 1963    Secretary since
      October 2005
Daniel V. Geatens  Vice President  Vice President and
2005 Market Street  and Treasurer  Treasurer since October 2007
Philadelphia, PA 19103    
October 1972    
       
Richard Salus  Senior Vice President  Senior Vice President and
2005 Market Street  and Chief Financial Officer  Chief Financial Officer
Philadelphia, PA 19103    since November 2006
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.

 

48


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 President and Treasurer  95  Director; Personnel and
(January 2006–July 2012),    Compensation Committee
Vice President —    Chair; Member of Nominating,
Mergers & Acquisitions    Investments, and Audit
(January 2003–January 2006),    Committees for various
and Vice President    periods throughout
and Treasurer    directorship —
(July 1995–January 2003) —    Okabena Company
3M Company    (2009–2017)

 

    

 

    
David F. Connor has served  95  None3

in various capacities at

different times at

    
Macquarie Investment    
Management.      
Daniel V. Geatens has served  95  None3

in various capacities at

different times at

    
Macquarie Investment    
Management.      
Richard Salus has served  95  None

in various capacities

at different times at

    
Macquarie Investment    
Management.      

3 David F. Connor and Daniel V. Geatens 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 Chief Financial Officer of the Optimum Fund Trust, and he is the Chief Financial Officer and Treasurer for Macquarie Global Infrastructure Total Return Fund Inc.

 

49


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

 

Jerome D. Abernathy

Managing Member

Stonebrook Capital

Management, LLC

Jersey City, NJ

  

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

 

Christianna Wood

Chief Executive Officer

and President

Gore Creek Capital, Ltd.

Golden, CO

 

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 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-PORT. The Fund’s Forms N-PORT, 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-PORT are available without charge on the Fund’s website at delawarefunds.com/literature. The Fund’s Forms N-PORT 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.

 

50

Table of Contents
LOGO  LOGO

Annual report

US equity mutual fund

Delaware Smid Cap Growth Fund

March 31, 2020

 

   

 

Beginning on or about June 1, 2021, as permitted by regulations adopted by the Securities and Exchange Commission, paper copies of your Fund’s shareholder reports will no longer be sent to you by mail, unless you specifically request them from the Fund or from your financial intermediary, such as a broker/dealer, bank, or insurance company. Instead, you will be notified by mail each time a report is posted on the website and provided with a link to access the report.

 

If you already elected to receive shareholder reports electronically, you will not be affected by this change and you do not need to take any action. You may elect to receive shareholder reports and other communications from the Fund electronically by signing up at delawarefunds.com/edelivery. If you own these shares through a financial intermediary, you may contact your financial intermediary.

 

You may elect to receive paper copies of all future shareholder reports free of charge. You can inform the Fund that you wish to continue receiving paper copies of your shareholder reports by contacting us at 800 523-1918. If you own these shares through a financial intermediary, you may contact your financial intermediary to elect to continue to receive paper copies of your shareholder reports. Your election to receive reports in paper will apply to all funds held with the Delaware Funds® by Macquarie or your financial intermediary.

 

 

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.

 

    


Table of Contents

Experience Delaware Funds®by Macquarie

Macquarie Investment Management (MIM) is a global asset manager with offices in the United States, Europe, Asia, and Australia. As active managers, we prioritize autonomy and accountability at the investment team level in pursuit of opportunities that matter for clients. Delaware Funds is one of the longest-standing mutual fund families, with more than 80 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. MIM is the marketing name for certain companies comprising the asset management division of Macquarie Group. This includes the following 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 Europe Limited, Macquarie Capital Investment Management LLC, and Macquarie Investment Management Europe S.A.

The Fund is distributed byDelaware Distributors, L.P. (DDLP), an affiliate of MIMBT and Macquarie Group Limited.

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

   5 

Disclosure of Fund expenses

   9 

Security type / sector allocation and top 10 equity holdings

   11 

Schedule of investments

   13 

Statement of assets and liabilities

   15 

Statement of operations

   17 

Statements of changes in net assets

   18 

Financial highlights

   20 

Notes to financial statements

   30 

Report of independent registered public accounting firm

   42 

Other Fund information

   43 

Board of trustees / directors and officers addendum

   44 

About the organization

   54 

Unless otherwise noted, views expressed herein are current as of March 31, 2020, 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 are 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.

© 2020 Macquarie Management Holdings, Inc.

 


Table of Contents

Portfolio management review

Delaware Smid Cap Growth Fund  April 7, 2020 (Unaudited)

 

Performance preview (for the year ended March 31, 2020)

            

Delaware Smid Cap Growth Fund (Institutional Class shares)*

   1-year return              -3.72%     

Delaware Smid Cap Growth Fund (Class A shares)

   1-year return              -3.96%     

Russell 2500™ Growth Index (benchmark)

   1-year return              -14.40%     

Past performance does not guarantee future results.

For complete, annualized performance for Delaware Smid Cap Growth Fund, please see the table on page 5. 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 7 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.

 

Investment objective

The Fund seeks long-term capital appreciation.

Market review

Both the economy and the markets enjoyed sustained growth through the first 10 months of the Fund’s fiscal year ended March 31, 2020, as major market indices achieved new highs through mid-January. Lower interest rates and the apparent resolution of the US-China trade war were largely responsible.

When the fiscal year began, the US Federal Reserve was setting the stage for lower interest rates, an acknowledgement that its last increase, in December 2018, might have been overdone. In July 2019, the Fed implemented the first of three 0.25-percentage-point cuts that brought its target rate down to 1.50%-1.75% by the end of October. In January 2020, the signing of a Phase 1 trade agreement brought some clarity to the often-acrimonious trade dispute with China.

Investors were not the only winners, however. Consumers, who account for 70% of gross domestic product (GDP), had achieved generational highs for savings rates while reaping

 

At the end of the fiscal year, we’ve taken a two-pronged approach to positioning the Fund by focusing on those companies that we think can either maintain business or recover quickly:

•  First, as we recover from the pandemic, we believe there are certain industries and companies, such as streaming media, telecommunications software, and consumer staples, that should do well throughout.

•  Second, there are other areas, such as digital currency, online dating, and fast-casual restaurants, that we think should do well once social-distancing measures are relaxed and people have the opportunity to get back out and meet with friends, family, and new people again. The businesses that have the potential to meet the pent-up demand for normalcy look attractive to us.

 

 

 

 

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Table of Contents

Portfolio management review

Delaware Smid Cap Growth Fund

 

the benefit of a cyclical high for wage growth. And thanks to a highly regulated banking system that was not extending credit easily, consumer credit scores were also at all-time highs.

Then the pandemic took hold. From its late 2019 start in China’s Wuhan province, the virus spread in January throughout Asia, Australia, Europe, and the United States. In February, markets reacted suddenly and swiftly, sinking more than 30% in just a few weeks.

Following in the footsteps of other countries, governments in the US, both at the state and municipal level, took action to slow the spread of the disease. The social-distancing measures, which included banning large groups and closing nonessential businesses, had an immediate impact on the economy. Global economies that had enjoyed a sustained period of moderate growth swiftly plunged into recessions, with GDPs likely cut nearly in half. In the last week of the 12-month period, initial jobless claims jumped to 3.3 million, more than 10 times the previous week and more than four times the previous record set in 1982.

The Fed responded to the crisis by reducing interest rates twice in March, taking the target range down to 0.0%-0.25%. Additionally, the Fed renewed its asset-purchasing program, this time including commercial paper, to shore up distressed credit markets. On the fiscal side, Congress enacted three relief bills in March, the last of which provides $2 trillion to be used for direct payments to individuals, enhanced unemployment benefits, aid to small business, and relief for certain large industries.

For the entire fiscal year, the broad equity market, represented by the Russell 3000® Index, declined 9.13%. Small and mid-cap stocks performed significantly more poorly, with the Russell 2500™ Index and the Russell 2500 Growth Index losing 22.47% and 14.40%, respectively. All the losses resulted from the pandemic as the Russell 3000 Index lost 20.90%, the Russell 2500 Index lost

29.72%, and the Russell 2500 Growth Index lost 23.22% in the first quarter of 2020. In contrast, those same indices posted positive returns of 14.76%, 8.08%, and 11.61%, respectively, from the beginning of the fiscal period on April 1, 2019, through Jan. 31, 2020.

Within the Fund

For the fiscal year ended March 31, 2020, Delaware Smid Cap Growth Fund declined, although it outperformed its benchmark, the Russell 2500 Growth Index. The Fund’s Institutional Class shares declined 3.72%. The Fund’s Class A shares fell 3.96% at net asset value and declined 9.50% at maximum offer price (both returns reflect all distributions reinvested). For the same period, the Fund’s benchmark fell 14.40%. Complete annualized performance for Delaware Smid Cap Growth Fund is shown in the table on page 5.

While we focus mainly on individual stock selection, advantageous stock selection on a sector level contributed to strong relative performance in the information technology, industrials, and consumer staples sectors. The consumer discretionary sector detracted the most from performance, also due to stock selection. The Fund did not have any positions in energy, materials, real estate, or utilities, the absence of which contributed to performance relative to the benchmark.

The Fund pursues a pure growth strategy, which has benefited performance given that growth stocks have outperformed value stocks over the past decade. We believe that as technological adoption rates accelerate, disruption is caused throughout major industries and enables new secular growth patterns to take hold.

Virtual healthcare is a notable example of disruptive technology. Even before the pandemic, virtual healthcare had increased as people realized this was a better, cheaper, and faster way to get a diagnosis and treatment plan for many routine

 

 

2


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health issues. Until the pandemic, the biggest impediment to this industry was getting people to try virtual care for the first time. Once they did, however, there was no turning back.

The pandemic changed that dramatically. Now, no one wants to go to a doctor’s office and sit in a waiting room surrounded by other patients. Virtual care is now growing rapidly and one of the biggest beneficiaries of this isTeladoc Health Inc., which has experienced a large upturn in its business with the onset of the coronavirus. Teladoc was the Fund’s leading contributor to performance for the 12-month period. It has teamed up with both large employers and insurers to make its services available. Teladoc now has more than 35 million members and operates in more than 175 countries.

Financial services has been home to some of the disruptive technology that has greatly impacted our lives. Digital currency and payment systems, for example, have largely replaced cash; indeed, ours may be the last generation that uses paper money. Another example iseHealth Inc., a provider of an online marketplace for comparison and enrollment in health insurance plans and a strong contributor to Fund performance. The company benefited from consumers’ increasing acceptance of the online environment as more Americans become eligible for Medicare at age 65 (estimated to be approximately 10,000 people every day). With more baby boomers applying, the average age of Medicare beneficiaries declines with a consequent increase in the online proficiency of Medicare recipients. We think this trend represents a strong tailwind for eHealth’s preferred method of acquisition.

Yet another disruptive trend that has played a large role in the Fund’s stock selection is the development of software as a service (SaaS). Software solutions built around a SaaS model offer significant advantages to both the developer and the customer. Rather than sell a software package that each customer must install

on its own system, SaaS products are hosted, maintained, and upgraded by the developer and accessed through the cloud. Instead of paying a large fee upfront and maintenance fees thereafter, customers buy a subscription that is often tied to how many users are accessing the software. This reduces customer costs while it provides developers with a steady income stream. A wide variety of applications are available via SaaS, including customer relationship management, human resources, and communications. The onset of the pandemic focused attention on a few SaaS-based opportunities, including the need for remote-working and enhanced network capabilities.

One such company isRingCentral, Inc., a developer of SaaS-based unified communications systems and another contributor to the Fund’s performance. The company provides a broad array of telecommunications features and options, including detailed reporting on both incoming and outgoing calls. RingCentral benefited from the sudden surge in remote working the pandemic caused.

Not all technology companies performed strongly, however.Arista Networks Inc.provides cloud networking solutions that use software solutions to address the needs of data centers and cloud-service providers. Midway through the fiscal year, Arista’s shares dropped sharply when a major cloud customer significantly reduced orders, severely curtailing Arista’s growth prospects. We exited the Fund’s position.

The stay-at-home restrictions imposed to curb the spread of the virus severely affected the retail business. One of the Fund’s holdings,At Home Group Inc., was no exception. Even before the pandemic struck, the operator of big-ticket, big-box, home-décor stores had experienced a slowdown in traffic across its chains as it opened in more locations. Business was down and growth prospects diminished.

 

 

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Table of Contents
Portfolio management review
Delaware Smid Cap Growth Fund  

 

Although this happens occasionally when a small successful chain begins to expand and growth slows, we realized our losses and sold the position in At Home Group.

One financial services firm that underperformed wasLendingTree Inc., an online marketplace that matches lenders with borrowers seeking a variety of loans, including mortgages and home-equity, personal, and business loans. LendingTree was attractive to us because it was an innovative financial services firm that was also positioned to take advantage of the home-building trend. In the last quarter of the fiscal year, as stocks sold off and credit markets went into disarray, the volume of mortgages written at LendingTree plummeted. Given that it will take the economy some time to recover, and that there will likely be less home building during that time, we think the home-building trend has gone away. We exited the position.

At the end of the fiscal year, we’ve taken a two-pronged approach to positioning the Fund by focusing on those companies that we think can either maintain business or recover quickly. First, as we recover from the pandemic, we believe there are certain industries and companies, such as streaming media, telecommunications software, and consumer staples, that should do well throughout.

Second, there are other areas, such as digital currency, online dating, and fast-casual restaurants, that we think should do well once social-distancing measures are relaxed and people have the opportunity to get back out and meet with friends, family, and new people again. The businesses that have the potential to meet the pent-up demand for normalcy look attractive to us.

 

 

4


Table of Contents
Performance summary
Delaware Smid Cap Growth Fund  March 31, 2020 (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, 2020 
    1 year  5 year  10 year  Lifetime 

Class A (Est. March 27, 1986)

     

Excluding sales charge

   -3.96%   +9.38%   +13.94%   +13.11% 

Including sales charge

   -9.50%   +8.09%   +13.27%   +12.92% 

Class C (Est. Nov. 29, 1995)

     

Excluding sales charge

   -4.63%   +8.57%   +13.10%   +8.88% 

Including sales charge

   -5.48%   +8.57%   +13.10%   +8.88% 

Class R (Est. June 2, 2003)

     

Excluding sales charge

   -4.18%   +9.11%   +13.66%   +10.68% 

Including sales charge

   -4.18%   +9.11%   +13.66%   +10.68% 

Institutional Class (Est. Nov. 9, 1992)

     

Excluding sales charge

   -3.72%*   +9.65%   +14.23%   +10.38% 

Including sales charge

   -3.72%*   +9.65%   +14.23%   +10.38% 

Class R6 (Est. May 2, 2016)

     

Excluding sales charge

   -3.63%         +11.71% 

Including sales charge

   -3.63%         +11.71% 

Russell 2500 Growth Index

   -14.40%   +3.64%   +10.10%   +8.38%** 

*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 6. 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 (12b-1) fee.

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

 

 

5


Table of Contents

Performance summary

Delaware Smid Cap Growth Fund

 

 

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 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 12b-1 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 12b-1 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 12b-1 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.

Real estate investment trust (REIT) investments are subject to many of the risks associated with direct real estate ownership, including changes in economic conditions, credit risk, and interest rate fluctuations.

The disruptions caused by natural disasters, pandemics, or similar events could prevent the Fund from executing advantageous investment decisions in a timely manner and could negatively impact the Fund’s ability to achieve its investment objective and the value of the Fund’s investments.

 

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” section in this report for the most recent expense ratios.

 

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

Total annual operating expenses

(without fee waivers)

  1.12%
  1.87%
  1.37%
  0.87%
  0.80%    

Net expenses

(including fee waivers, if any)

  1.12%
  1.87%
  1.37%
  0.87%
  0.80%    

Type of waiver

  n/a  n/a  n/a  n/a  n/a    

 

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Performance of a $10,000 Investment1

Average annual total returns from March 31, 2010 through March 31, 2020

 

LOGO

 

For period beginning March 31, 2010 through March 31, 2020  Starting value   Ending value 

LOGO Delaware Smid Cap Growth Fund — Institutional Class shares

   $10,000    $37,816 

LOGO Delaware Smid Cap Growth Fund — Class A shares

   $9,425    $34,762 

LOGO Russell 2500 Growth Index

   $10,000    $26,184 

 

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, 2010, 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 6. Please note additional details on pages 5 through 8.

The graph also assumes $10,000 invested in the Russell 2500 Growth Index as of March 31, 2010. 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 3000 Index, mentioned on page 2, measures the performance of the largest 3,000 US companies, representing approximately 98% of the investable US equity market.

The Russell 2500 Index, mentioned on page 2, 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.

Gross domestic product is a measure of all goods and services produced by a nation in a year.

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

Index performance returns do not reflect any management fees, transaction costs, or expenses.

 

 

7


Table of Contents

Performance summary

Delaware Smid Cap Growth Fund

 

 

 

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         

 

8


Table of Contents

Disclosure of Fund expenses

For the six-month period from October 1, 2019 to March 31, 2020 (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 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, 2019 to March 31, 2020.

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 assume reinvestment of all dividends and distributions.

 

9


Table of Contents

Disclosure of Fund expenses

For the six-month period from October 1, 2019 to March 31, 2020 (Unaudited)

 

 

Delaware Smid Cap Growth Fund

Expense analysis of an investment of $1,000

 

 

Beginning

 

Account Value

 

10/1/19

Ending

 

Account Value

 

3/31/20

Annualized  

 

Expense Ratio  

Expenses

 

Paid During Period

 

10/1/19 to 3/31/20*

Actual Fund return

Class A

 $1,000.00 $955.60 1.10%  $5.38

Class C

 1,000.00 952.80 1.85%  9.03

Class R

 1,000.00 954.70 1.35%  6.60

Institutional Class

 1,000.00 956.70 0.85%  4.16

Class R6

 1,000.00 957.10 0.76%  3.72

Hypothetical 5% return(5% return before expenses)

 

Class A

 $1,000.00 $1,019.50 1.10%  $5.55

Class C

 1,000.00 1,015.75 1.85%  9.32

Class R

 1,000.00 1,018.25 1.35%  6.81

Institutional Class

 1,000.00 1,020.75 0.85%  4.29

Class R6

 1,000.00 1,021.20 0.76%  3.84

*“Expenses Paid During Period” are equal to the Fund’s annualized expense ratio, multiplied by the average account value over the period, multiplied by 183/366 (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.

In addition to the Fund’s expenses reflected above, the Fund also indirectly bears its portion of the fees and expenses of the investment companies (Underlying Funds) in which it invests. The table above does not reflect the expenses of the Underlying Funds.

 

10


Table of Contents

Security type / sector allocation and top 10 equity holdings

 

Delaware Smid Cap Growth Fund  As of March 31, 2020 (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

   99.95           

Communication Services

   6.53 

Consumer Discretionary

   11.16 

Consumer Staples

   8.29 

Financials

   6.63 

Healthcare

   27.03 

Industrials

   8.40 

Technology

   31.91    

Total Value of Securities

   99.95    

Receivables and Other Assets Net of Liabilities

   0.05    

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 Healthcare and Technology sector (as disclosed herein for financial reporting purposes) are subdivided into a variety of “industries” (in accordance with the requirements of the Investment Company Act of 1940, as amended). The Healthcare sector consisted of biotechnology, commercial services, healthcare-products, healthcare-services, and pharmaceuticals. As of March 31, 2020, such amounts, as a percentage of total net assets, were 2.75%, 3.60%, 11.28%, 5.56%, and 3.84% respectively. The Technology sector consisted of advertising, commercial services, computers, Internet, semiconductors, and software. As of March 31, 2020 such amounts, as a percentage of total net assets, were 3.38%, 2.66%, 3.10%, 5.55%, 6.15%, and 11.07% respectively. The percentage in any such single industry will comply with the Fund’s concentration policy even if the percentages in the Healthcare and Technology sectors for financial reporting purposes may exceed 25%.

 

11


Table of Contents

Security type / sector allocation and top 10 equity holdings

Delaware Smid Cap Growth Fund

 

 

Holdings are for informational purposes only and are subject to change at any time. They are not a recommendation to buy, sell, or hold any security.

 

Top 10 equity holdings  Percentage of net assets           

RingCentral Class A

   5.30         

Boston Beer Class A

   5.29 

eHealth

   5.21 

Novocure

   5.16 

iRhythm Technologies

   4.63 

Okta

   4.47 

SiteOne Landscape Supply

   4.43 

YETI Holdings

   4.05 

Everbridge

   4.05 

Teladoc Health

 

   

 

4.03

 

 

    

 

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Table of Contents
Schedule of investments  
Delaware Smid Cap Growth Fund  March 31, 2020

 

 

    Number of shares   Value (US $) 

Common Stock – 99.95%²

          

Communication Services – 6.53%

    

Live Nation Entertainment †

   679,090   $30,871,431 

Match Group †

   963,411    63,623,662 

Take-Two Interactive Software †

   84,775    10,055,163 
    

 

 

 
     104,550,256 
    

 

 

 

Consumer Discretionary – 11.16%

    

Chewy Class A †

   887,625    33,277,061 

Chipotle Mexican Grill †

   69,105    45,222,312 

Lululemon Athletica †

   79,900    15,145,045 

Pool

   102,138    20,097,694 

Shake Shack Class A †

   4,291    161,942 

YETI Holdings †

   3,321,739    64,840,345 
    

 

 

 
     178,744,399 
    

 

 

 

Consumer Staples – 8.29%

    

Boston Beer Class A †

   230,681    84,789,108 

Simply Good Foods †

   2,496,520    48,082,975 
    

 

 

 
     132,872,083 
    

 

 

 

Financials – 6.63%

    

eHealth †

   593,107    83,521,328 

LendingTree †

   123,294    22,610,887 
    

 

 

 
     106,132,215 
    

 

 

 

Healthcare – 27.03%

    

DexCom †

   42,465    11,434,551 

Exact Sciences †

   759,273    44,037,834 

Invitae †

   1,788,852    24,453,607 

iRhythm Technologies †

   911,185    74,124,900 

Novocure †

   1,228,008    82,694,059 

Pacira BioSciences †

   1,494,165    50,099,353 

Progyny †

   2,722,801    57,696,153 

Quanterix †

   1,302,095    23,919,485 

Teladoc Health †

   416,394    64,545,234 
    

 

 

 
     433,005,176 
    

 

 

 

Industrials – 8.40%

    

SiteOne Landscape Supply †

   963,839    70,957,827 

Trex †

   793,199    63,566,968 
    

 

 

 
         134,524,795 
    

 

 

 

Technology – 31.91%

    

Avalara †

   570,915    42,590,259 

EPAM Systems †

   267,803    49,720,305 

Everbridge †

   609,621    64,839,290 

Marvell Technology Group

   2,456,804    55,597,475 

Monolithic Power Systems

   172,840    28,943,786 

Okta †

   586,144    71,661,966 

 

13


Table of Contents

Schedule of investments

Delaware Smid Cap Growth Fund

 

 

    Number of shares   Value (US $) 

  Common Stock²(continued)

          

Technology(continued)

    

Proofpoint †

   167,360   $17,169,462 

RingCentral Class A †

   400,512    84,872,498 

Silicon Laboratories †

   164,581    14,056,863 

Splunk †

   218,369    27,564,719 

Trade Desk Class A †

   280,457    54,128,201 
    

 

 

 
     511,144,824 
    

 

 

 

  Total Common Stock(cost $1,364,522,473)

     1,600,973,748 
    

 

 

 

  Total Value of Securities – 99.95%
  (cost $1,364,522,473)

    $1,600,973,748 
    

 

 

 

 

²

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

 

Non-income producing security.

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

 

14


Table of Contents
Statement of assets and liabilities  
Delaware Smid Cap Growth Fund  March 31, 2020

 

 

Assets:

  

Investments, at value1

  $1,600,973,748 

Receivable for securities sold

   11,165,828 

Receivable for fund shares sold

   10,652,455 

Dividends and interest receivable

   143,378 
  

 

 

 

Total assets

   1,622,935,409 
  

 

 

 

Liabilities:

  

Due to custodian

   1,093,339 

Payable for securities purchased

   16,444,275 

Payable for fund shares redeemed

   1,785,042 

Investment management fees payable to affiliates

   940,246 

Other accrued expenses

   618,883 

Distribution fees payable to affiliates

   230,552 

Dividend disbursing and transfer agent fees and expenses payable to affiliates

   13,374 

Trustees’ fees and expenses payable to affiliates

   12,327 

Accounting and administration expenses payable to affiliates

   5,089 

Legal fees payable to affiliates

   3,295 

Reports and statements to shareholders expenses payable to affiliates

   2,076 
  

 

 

 

Total liabilities

   21,148,498 
  

 

 

 

Total Net Assets

  $1,601,786,911 
  

 

 

 

Net Assets Consist of:

  

Paid-in capital

  $1,368,871,851 

Total distributable earnings (loss)

   232,915,060 
  

 

 

 

Total Net Assets

  $1,601,786,911 
  

 

 

 

 

15


Table of Contents

Statement of assets and liabilities

Delaware Smid Cap Growth Fund

 

 

Net Asset Value

  

Class A:

  

Net assets

  $805,989,247 

Shares of beneficial interest outstanding, unlimited authorization, no par

   36,746,715 

Net asset value per share

  $21.93 

Sales charge

   5.75

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

  $23.27 

Class C:

  

Net assets

  $63,090,345 

Shares of beneficial interest outstanding, unlimited authorization, no par

   7,164,845 

Net asset value per share

  $8.81 

Class R:

  

Net assets

  $8,476,816 

Shares of beneficial interest outstanding, unlimited authorization, no par

   429,500 

Net asset value per share

  $19.74 

Institutional Class:

  

Net assets

  $706,784,517 

Shares of beneficial interest outstanding, unlimited authorization, no par

   22,696,939 

Net asset value per share

  $31.14 

Class R6:

  

Net assets

  $17,445,986 

Shares of beneficial interest outstanding, unlimited authorization, no par

   559,001 

Net asset value per share

  $31.21 

___________________

  

1Investments, at cost

  $1,364,522,473 

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

 

16


Table of Contents
Statement of operations  
Delaware Smid Cap Growth Fund  Year ended March 31, 2020

 

Investment Income:

  

Dividends

  $1,038,582 
  

 

 

 

Expenses:

  

Management fees

   11,993,987 

Distribution expenses — Class A

   2,332,591 

Distribution expenses — Class C

   665,158 

Distribution expenses — Class R

   60,997 

Dividend disbursing and transfer agent fees and expenses

   1,691,205 

Accounting and administration expenses

   330,975 

Reports and statements to shareholders expenses

   154,041 

Registration fees

   147,580 

Trustees’ fees and expenses

   98,931 

Legal fees

   85,261 

Custodian fees

   76,371 

Audit and tax fees

   37,765 

Other

   50,935 
  

 

 

 
   17,725,797 

Less expenses paid indirectly

   (2,464
  

 

 

 

Total operating expenses

   17,723,333 
  

 

 

 

Net Investment Loss

   (16,684,751
  

 

 

 

Net Realized and Unrealized Gain (Loss):

  

Net realized gain on Investment

   79,007,296 

Net change in unrealized appreciation (depreciation) of:

  

Investments

   (144,543,340

Foreign currencies

   11,274 
  

 

 

 

Net change in unrealized appreciation (depreciation)

   (144,532,066
  

 

 

 

Net Realized and Unrealized Loss

   (65,524,770
  

 

 

 

Net Decrease in Net Assets Resulting from Operations

  $(82,209,521
  

 

 

 

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

 

17


Table of Contents

Statements of changes in net assets

Delaware Smid Cap Growth Fund

 

   Year ended 
   3/31/20     3/31/19 

Increase (Decrease) in Net Assets from Operations:

      

Net investment loss

  $(16,684,751    $(10,468,090

Net realized gain

   79,007,296      80,895,784 

Net change in unrealized appreciation (depreciation)

   (144,532,066     143,155,032 
  

 

 

     

 

 

 

Net increase (decrease) in net assets resulting from operations

   (82,209,521     213,582,726 
  

 

 

     

 

 

 

Dividends and Distributions to Shareholders from:

      

Distributable earnings:

      

Class A

   (40,069,400     (108,630,804

Class C

   (6,825,843     (11,614,109

Class R

   (558,548     (1,937,879

Institutional Class

   (21,276,178     (41,863,624

Class R6

   (572,224     (584,121
  

 

 

     

 

 

 
   (69,302,193     (164,630,537
  

 

 

     

 

 

 

Capital Share Transactions:

      

Proceeds from shares sold:

      

Class A

   97,149,147      164,834,821 

Class C

   30,055,854      38,915,055 

Class R

   3,238,198      5,209,500 

Institutional Class

   557,241,244      503,937,429 

Class R6

   17,242,856      9,378,770 

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

      

Class A

   38,911,458      105,728,675 

Class C

   6,717,827      11,502,275 

Class R

   557,364      1,936,635 

Institutional Class

   19,348,530      40,785,405 

Class R6

   513,058      354,219 
  

 

 

     

 

 

 
   770,975,536      882,582,784 
  

 

 

     

 

 

 

 

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Table of Contents

 

 

 

   Year ended 
   3/31/20     3/31/19 

Capital Share Transactions (continued):

      

Cost of shares redeemed:

      

Class A

  $(160,158,725    $(178,190,370

Class C

   (19,287,809     (38,318,977

Class R

   (8,753,630     (6,540,676

Institutional Class

   (387,679,303     (209,906,097

Class R6

   (7,525,632     (1,733,427
  

 

 

     

 

 

 
   (583,405,099     (434,689,547
  

 

 

     

 

 

 

Increase in net assets derived from capital share transactions

   187,570,437      447,893,237 
  

 

 

     

 

 

 

Net Increase in Net Assets

   36,058,723      496,845,426 
  

 

 

     

 

 

 

Net Assets:

      

Beginning of year

   1,565,728,188      1,068,882,762 
  

 

 

     

 

 

 

End of year

  $1,601,786,911     $1,565,728,188 
  

 

 

     

 

 

 

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

 

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Table of Contents

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 loss1

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 return2

Ratios and supplemental data:

Net assets, end of period (000 omitted)

Ratio of expenses to average net assets

Ratio of net investment loss to average net assets

Portfolio turnover

 

 

1 

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

2 

Total return is based on the change in net asset value of a share during the period and assumes reinvestment of dividends and distributions at net asset value and does not reflect the impact of a sales charge.

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

 

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Table of Contents

 

 

 

  Year ended 
 

 

 

 
  3/31/20     3/31/19     3/31/18     3/31/17     3/31/16 

 

 
             $23.85    $22.83    $17.59    $27.04    $29.41 
                 
  (0.26    (0.20    (0.20    (0.14    (0.01
  (0.58    4.35     5.74     (0.08    0.65 
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
  (0.84    4.15     5.54     (0.22    0.64 
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
                 
  (1.08    (3.13    (0.30    (9.23    (3.01
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
  (1.08    (3.13    (0.30    (9.23    (3.01
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
 $21.93    $23.85    $22.83    $17.59    $27.04 
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
  (3.96%    19.68%     31.68%     1.13%     2.26% 
                 
 $805,989    $901,171    $776,647    $653,453    $787,583 
  1.10%     1.12%     1.17%     1.21%     1.20% 
  (1.04%    (0.82%    (1.00%    (0.60%    (0.03%
  113%     96%     101%     159%     24% 

 

 

 

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Table of Contents

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 loss1

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 return2

Ratios and supplemental data:

Net assets, end of period (000 omitted)

Ratio of expenses to average net assets

Ratio of net investment loss to average net assets

Portfolio turnover

 

 

1 

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

2 

Total return is based on the change in net asset value of a share during the period and assumes reinvestment of dividends and distributions at net asset value and does not reflect the impact of a sales charge.

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

 

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Table of Contents

 

 

 

  Year ended 
 

 

 

 
  3/31/20     3/31/19     3/31/18     3/31/17     3/31/16 

 

 
 $10.26    $11.55    $9.09    $18.76    $21.46 
                 
              (0.19    (0.18    (0.18    (0.20    (0.16
  (0.18    2.02     2.94     (0.24    0.47 
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
  (0.37    1.84     2.76     (0.44    0.31 
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
                 
  (1.08    (3.13    (0.30    (9.23    (3.01
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
  (1.08    (3.13    (0.30    (9.23    (3.01
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
 $8.81    $10.26    $11.55    $9.09    $18.76 
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
  (4.63%    18.83%     30.71%     0.30%     1.53% 
                 
 $63,090    $56,065    $46,508    $49,266    $67,633 
  1.85%     1.87%     1.92%     1.96%     1.95% 
  (1.79%    (1.57%    (1.75%    (1.35%    (0.78%
  113%     96%     101%     159%     24% 

 

 

 

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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 loss1
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 return2
Ratios and supplemental data:
Net assets, end of period (000 omitted)
Ratio of expenses to average net assets
Ratio of net investment loss to average net assets
Portfolio turnover

 

 

1 

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

2 

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

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

 

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  Year ended 
 

 

 

 
  3/31/20     3/31/19     3/31/18     3/31/17     3/31/16 

 

 
             $21.62    $21.01    $16.25    $25.77    $28.24 
                 
  (0.29    (0.24    (0.23    (0.19    (0.08
  (0.51    3.98     5.29     (0.10    0.62 
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
  (0.80    3.74     5.06     (0.29    0.54 
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
                 
  (1.08    (3.13    (0.30    (9.23    (3.01
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
  (1.08    (3.13    (0.30    (9.23    (3.01
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
 $19.74    $21.62    $21.01    $16.25    $25.77 
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
  (4.18%    19.42%     31.34%     0.87%     1.99% 
                 
 $8,477    $14,143    $13,068    $16,731    $18,768 
  1.35%     1.37%     1.42%     1.46%     1.45% 
  (1.29%    (1.07%    (1.25%    (0.85%    (0.28%
  113%     96%     101%     159%     24% 

 

 

 

25


Table of Contents

Financial highlights

Delaware Smid Cap Growth Fund Institutional Class

 

 

 

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

 

 

Net asset value, beginning of period
Income (loss) from investment operations:
Net investment income (loss)1
Net realized and unrealized gain (loss)
Total from investment operations
Less dividends and distributions from:
Net investment income
Net realized gain
Total dividends and distributions
Net asset value, end of period
Total return2
Ratios and supplemental data:
Net assets, end of period (000 omitted)
Ratio of expenses to average net assets
Ratio of net investment income (loss) to average net assets
Portfolio turnover

 

 

1 

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

2 

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

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

 

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  Year ended 
 

 

 

 
  3/31/20     3/31/19     3/31/18     3/31/17     3/31/16 

 

 
             $33.35    $30.69    $23.50    $32.83    $34.98 
                 
  (0.28    (0.19    (0.20    (0.11    0.08 
  (0.85    5.98     7.69     0.02     0.78 
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
  (1.13    5.79     7.49     (0.09    0.86 
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
                 
                 (0.01     
  (1.08    (3.13    (0.30    (9.23    (3.01
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
  (1.08    (3.13    (0.30    (9.24    (3.01
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
 $31.14    $33.35    $30.69    $23.50    $32.83 
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
  (3.70%    19.99%     32.01%     1.33%     2.54% 
                 
 $706,785    $585,344    $231,474    $226,724    $432,915 
  0.85%     0.87%     0.92%     0.96%     0.95% 
  (0.79%    (0.57%    (0.75%    (0.35%    0.22% 
  113%     96%     101%     159%     24% 

 

 

 

27


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Financial highlights

Delaware Smid Cap Growth Fund Class R6

 

 

 

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 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 assets

Ratio of net investment loss to average net assets

Portfolio turnover

 

 

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 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 

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

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

 

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                        5/2/161 
      

Year ended

  to 
    

 

 

  
      3/31/20     3/31/19     3/31/18     3/31/17 

 

 
  

            

  $33.40    $30.71    $23.50    $33.01 
  

    

           
     (0.25    (0.16    (0.19    (0.05
     (0.86    5.98     7.70     (0.19
    

 

 

    

 

 

    

 

 

    

 

 

 
     (1.11    5.82     7.51     (0.24
    

 

 

    

 

 

    

 

 

    

 

 

 
  

    

           
                    (0.04
     (1.08    (3.13    (0.30    (9.23
    

 

 

    

 

 

    

 

 

    

 

 

 
     (1.08    (3.13    (0.30    (9.27
    

 

 

    

 

 

    

 

 

    

 

 

 
    $31.21    $33.40    $30.71     23.50 
    

 

 

    

 

 

    

 

 

    

 

 

 
     (3.63%    20.08%     32.10%     0.88% 
  

    

           
    $17,446    $9,005    $1,186    $2 
     0.77%     0.80%     0.84%     0.84% 
     (0.71%    (0.50%    (0.67%    (0.21%
     113%     96%     101%     159% 

 

 

 

29


Table of Contents
Notes to financial statements  
Delaware Smid Cap Growth Fund  March 31, 2020

Delaware Group® Equity Funds IV (Trust) is organized as a Delaware statutory trust and offers 21 series. These financial statements and the related notes pertain to Delaware Smid Cap Growth Fund (Fund). The Fund is anopen-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 maximumfront-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 afront-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/orsub-transfer agency fees to any brokers, dealers, or other financial intermediaries.

1. Significant Accounting Policies

The Fund follows accounting and reporting guidance under Financial Accounting Standards Board (FASB) Accounting Standards Codification Topic 946, Financial Services – Investment Companies. 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.Open-end investment companies are valued at their published net asset value (NAV). 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 innon-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

 

30


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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 expected to be taken on the Fund’s federal income tax returns through the year ended March 31, 2020 and for all open tax years (years ended March 31, 2017–March 31, 2019), 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” on the “Statement of operations.” 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. During the year ended March 31, 2020, the Fund did not incur any interest or tax penalties.

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/orsub-transfer agency fees paid to brokers, dealers, or other financial intermediaries.

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 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 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 theex-dividend date and interest income is recorded on the accrual basis. Taxablenon-cash

 

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Notes to financial statements

Delaware Smid Cap Growth Fund

1. Significant Accounting Policies (continued)

 

dividends are recorded as dividend income. Distributions received from investments in real estate investment trusts (REITs) are recorded as dividend income on theex-dividend date, subject to reclassification upon notice of the character of such distributions by the issuer. Foreign dividends are also recorded on theex-dividend date or as soon after theex-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 theex-dividend date.

The Fund receives earnings credits from its custodian when positive cash balances are maintained, which may be used to offset custody fees. The expenses paid under this arrangement are included on the “Statement of operations” under “Custodian fees” with the corresponding expenses offset included under “Less expenses paid indirectly.” For the year ended March 31, 2020, the Fund earned $533 under this arrangement.

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 expenses paid under this arrangement are included on the “Statement of operations” under “Dividend disbursing and transfer agent fees and expenses” with the corresponding expenses offset included under “Less expenses paid indirectly.” For the year ended March 31, 2020, the Fund earned $1,931 under this arrangement.

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.

Effective May 30, 2019, DMC may permit its affiliates, Macquarie Investment Management Global Limited (MIMGL) and Macquarie Funds Management Hong Kong Limited (together, the “AffiliatedSub-Advisors”), to execute Fund security trades on behalf of the Manager. The Manager may also seek quantitative support from MIMGL. Although the AffiliatedSub-Advisors serve assub-advisors, DMC has ultimate responsibility for all investment advisory services. For these services, DMC, not the Fund, may pay each AffiliatedSub-Advisor a portion of its investment management fee.

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 are calculated daily and paid monthly based on the aggregate daily net assets of all funds within 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

 

32


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Fee. Each fund then pays its portion of the remainder of the Total Fee on a relative NAV basis. This amount is included on the “Statement of operations” under “Accounting and administration expenses.” For the year ended March 31, 2020, the Fund was charged $65,623 for these services.

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 rates: 0.014% of the first $20 billion; 0.011% of the next $5 billion; 0.007% of the next $5 billion; 0.005% of the next $20 billion; and 0.0025% of average daily net assets in excess of $50 billion. The fees payable to DIFSC under the shareholder services 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, 2020, the Fund was charged $161,504 for these services. Pursuant to asub-transfer agency agreement between DIFSC and BNY Mellon Investment Servicing (US) Inc. (BNYMIS), BNYMIS provides certainsub-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.” The fees are calculated daily and paid as invoices are received on a monthly or quarterly basis.

Pursuant to a distribution agreement and distribution plan, the Fund pays DDLP, the distributor and an affiliate of DMC, annual12b-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 Board has adopted a formula for calculating12b-1 fees for the Fund’s Class A shares that went into effect on Oct. 11, 2010. The total12b-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 bear12b-1 fees at the same rate, the blended rate based on the formula described above. This method of calculating Class A12b-1 fees may be discontinued at the sole discretion of the Board. The fees that are calculated daily and paid monthly. Institutional Class and Class R6 shares do not pay12b-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, 2020, the Fund was charged $45,079 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, 2020, DDLP earned $180,706 for commissions on sales of the Fund’s Class A shares. For the year ended March 31, 2020, DDLP received gross CDSC commissions of $9,554 and $12,456 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.

 

33


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Notes to financial statements

Delaware Smid Cap Growth Fund

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

 

In addition to the management fees and other expenses of the Fund, the Fund indirectly bears the investment management fees and other expenses of the investment companies (Underlying Funds) in which it invests. The amount of these fees and expenses incurred indirectly by the Fund will vary based upon the expense and fee levels of the Underlying Funds and the number of shares that are owned of the Underlying Funds at different times.

Cross trades for the year ended March 31, 2020 were executed by the Fund pursuant to procedures adopted by the Board designed to ensure compliance with Rule17a-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, 2020, the Fund engaged in securities sales of $45,341,781 which resulted in net realized loss of $(1,785,398).

3. Investments

For the year ended March 31, 2020, the Fund made purchases and sales of investment securities other than short-term investments as follows:

 

Purchases

  $2,047,268,001 

Sales

   1,946,444,158 

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 shareholder. At March 31, 2020, the cost and unrealized appreciation (depreciation) of investments for federal income tax purposes for the Fund were as follows:

 

Cost of investments

  $1,419,363,152 
  

 

 

 

Aggregate unrealized appreciation of investments

  $353,275,019 

Aggregate unrealized depreciation of investments

   (171,664,423
  

 

 

 

Net unrealized appreciation of investments

  $181,610,596 
  

 

 

 

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

 

34


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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, and 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, and 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 and 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, 2020:

 

   

Level 1

 

Securities

  

Assets:

  

Common Stock

  $1,600,973,748 

During the year ended March 31, 2020, 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. International fair value

 

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Notes to financial statements

Delaware Smid Cap Growth Fund

3. Investments (continued)

 

pricing was not utilized at March 31, 2020. 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, 2020, 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, 2020 and 2019 were as follows:

 

   Year ended 
   3/31/20     3/31/19 

Ordinary income

  $     $23,954,875 

Long-term capital gains

   69,302,193      140,675,662 
  

 

 

     

 

 

 

Total

  $69,302,193     $164,630,537 
  

 

 

     

 

 

 

5. Components of Net Assets on a Tax Basis

As of March 31, 2020, the components of net assets on a tax basis were as follows:

 

Shares of beneficial interest

  $1,368,871,851 

Undistributed long-term capital gains

   55,612,259 

Qualified late year loss deferrals

   (4,307,795

Net unrealized appreciation on investments and foreign currencies

   181,610,596 
  

 

 

 

Net assets

  $1,601,786,911 
  

 

 

 

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

Qualified late year losses represent ordinary losses realized from Jan. 1, 2020 through March 31, 2020 and capital losses realized from Nov. 1, 2019 through March 31, 2020, that in accordance with federal income tax regulations, the Fund has elected to defer and treat as having arisen in the following fiscal year.

 

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For financial reporting purposes, capital accounts are adjusted to reflect the tax character of permanent book/tax differences. Reclassifications are primarily due to tax treatment of net operating losses. Results of operations and net assets were not affected by these reclassifications. For the year ended March 31, 2020, the Fund recorded the following reclassifications:

 

Total distributable earnings (loss)

  $15,819,234 

Paid-in capital

   (15,819,234

6. Capital Shares

Transactions in capital shares were as follows:

 

   Year ended 
   3/31/20     3/31/19 

Shares sold:

      

Class A

   3,916,893      6,510,875 

Class C

   2,914,364      3,368,899 

Class R

   145,012      230,536 

Institutional Class

   16,060,080      15,286,247 

Class R6

   494,340      272,887 

Shares issued upon reinvestment of dividends and distributions:

      

Class A

   1,598,663      4,924,461 

Class C

   686,193      1,242,146 

Class R

   25,427      99,416 

Institutional Class

   560,340      1,359,045 

Class R6

   14,833      11,792 
  

 

 

     

 

 

 
   26,416,145      33,306,304 
  

 

 

     

 

 

 

Shares redeemed:

      

Class A

   (6,550,747     (7,675,690

Class C

   (1,900,558     (3,172,584

Class R

   (395,179     (297,634

Institutional Class

   (11,472,483     (6,638,042

Class R6

   (219,767     (53,693
  

 

 

     

 

 

 
   (20,538,734     (17,837,643
  

 

 

     

 

 

 

Net Increase

   5,877,411      15,468,661 
  

 

 

     

 

 

 

 

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Notes to financial statements

Delaware Smid Cap Growth Fund

6. Capital Shares (continued)

 

Certain shareholders may exchange shares of one class for shares of another class in the same Fund. These exchange transactions are included as subscriptions and redemptions in the table on the previous page and the “Statements of changes in net assets.” For the years ended March 31, 2020 and 2019, the Fund had the following exchange transactions:

 

     

Exchange Redemptions

    

Exchange Subscriptions

     
                    Institutional     
     Class A    Class C    Class A    Class     
     Shares    Shares    Shares    Shares    Value

Year ended 3/31/20

    32,353    58,675    11,691    32,019    1,418,403

Year ended 3/31/19

    68,887    394,464    192,914    54,666    7,079,422

7. Line of Credit

The Fund, along with certain other funds in the Delaware Funds (Participants), was a participant in a $220,000,000 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 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 ofone-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. 4, 2019.

On Nov. 4, 2019, the Participants entered into an amendment to the agreement for a $250,000,000 revolving line of credit. The revolving 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. 2, 2020.

The Fund had no amounts outstanding as of March 31, 2020, 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 the request of the borrower, BNY Mellon must return

 

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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 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. The 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 bynon-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 the 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, 2020, 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.

 

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Notes to financial statements

Delaware Smid Cap Growth Fund

9. Credit and Market Risk (continued)

 

The Fund invests a significant portion of its assets in small- andmid-sized companies and may be subject to certain risks associated with ownership of securities of such companies. Investments in small- ormid-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 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, 2020. 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 Board has delegated to DMC, theday-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, 2020, 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. Recent Accounting Pronouncements

In August 2018, the FASB issued an Accounting Standards Update (ASU), ASU2018-13, which changes certain fair value measurement disclosure requirements. ASU2018-13, in addition to other modifications and additions, removes the requirement to disclose the amount and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy, the policy for the timing of transfers between levels and the valuation process for Level 3 fair value measurements. ASU2018-13 is effective for fiscal years, and interim periods within those fiscal years, beginning after Dec. 15, 2019. At this time, Management is evaluating the implications of these changes on the financial statements.

12. Subsequent Events

On Nov. 4, 2019, the Fund, along with certain other funds in the Delaware Funds (Participants), entered into an amendment to the agreement for a $250,000,000 revolving line of credit. The revolving line of credit available was increased to $275,000,000 on May 6, 2020. The revolving line of credit is to be used as described above and operates in substantially the same manner as the original agreement.

 

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Beginning in January 2020, global financial markets have experienced and may continue to experience significant volatility resulting from the spread of a novel coronavirus known asCOVID-19. The outbreak ofCOVID-19 has resulted in travel and border restrictions, quarantines, supply chain disruptions, lower consumer demand and general market uncertainty. The effects ofCOVID-19 have and may continue to adversely affect the global economy, the economies of certain nations and individual issuers, all of which may negatively impact the Fund’s performance.

Management has determined that no other material events or transactions occurred subsequent to March 31, 2020, 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 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 the Delaware Group® Equity Funds IV, referred to hereafter as the “Fund”) as of March 31, 2020, the related statement of operations for the year ended March 31, 2020, the statements of changes in net assets for each of the two years in the period ended March 31, 2020, 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, 2020, 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, 2020 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, 2020 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.

/s/PricewaterhouseCoopers LLP

Philadelphia, Pennsylvania

May 26, 2020

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 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, 2020, the Fund reports distributions paid during the period as follows:

 

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

   100.00%     

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

 

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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  President,  President and
2005 Market Street  Chief Executive Officer,  Chief Executive Officer
Philadelphia, PA 19103  and Trustee  since August 2015
February 1970    
    Trustee since
    September 2015
    
    
    

 

Independent Trustees

 

    
Thomas L. Bennett  Chair and Trustee  Trustee since
2005 Market Street    March 2005
Philadelphia, PA 19103    
October 1947    Chair since
      March 2015
Jerome D. Abernathy  Trustee  Since January 2019
2005 Market Street    
Philadelphi