<PAGE>
October 17, 1997
Dear Shareholder:
We are pleased to present the inaugural annual report for Delaware
Group's Capital Appreciation Fund.
Your Fund provided a total return of +19.64% (capital change plus
reinvested dividends at net asset value) from its inception on December 2,
1996 to September 30, 1997 for both Class A and Institutional Classes. With
continuous reinvestment, a $10,000 investment at inception would have grown to
$11,964 as of the fiscal year end, excluding sales charges described on the
next page.
Capital Appreciation Fund has a two-fold focus: approximately
two-thirds of the Fund's net assets are invested in stocks of rapidly growing
small to medium-size companies. The balance is allocated to stocks of large,
established companies that the portfolio managers believe exhibit value
characteristics.
Weakness in some of the Fund's small and mid-cap stock selections in
1997 resulted in performance that, while attractive by historical market
standards, was not as robust as either the Fund's unmanaged benchmark -- the
Standard & Poor's 500 Index -- or the average of its peers in the Lipper
Capital Appreciation Fund Average, as shown on the next page. The average fund
in Lipper's capital appreciation category provided a return of +23.69% during
your Fund's initial fiscal period.
Since the Fund's inception, investors have generally enjoyed
exceptional returns from stocks amid a favorable U.S. economic climate.
Consumer and producer price increases have been benign while the nation's
output of goods and services has surged ahead at what many economists believe
to be a sustainable pace, leading to lower interest rates and higher corporate
profits.
Strategic Positioning & Outlook
As of September 30, health care stocks -- primarily a mixture of
pharmaceutical and managed care companies -- represented the largest share of
your Fund's net assets (13.9%). This was followed by energy, technology and
financial stocks, many of which performed well. Returns were less than we
would have liked in the telecommunications and food sectors.
Cash represented about 21.7% of net assets at year's end. As we
continue to build a long-term portfolio and as market conditions warrant, we
will seek to reduce that amount.
We believe the Fund's multicap combination of a growth and value
approach could potentially make it attractive to many investors. Gerald S.
Frey manages the small and mid-cap portion of the Fund while Robert Arnold
manages the large cap portion. Mr. Frey seeks stocks that exhibit consistent
earnings and business growth while Mr. Arnold concentrates on large companies
that have above-average dividend yields compared to most stocks in the S&P 500
Index.
As of September 30, the Fund had $2.4 million in net assets and 12
shareholders. On behalf of Delaware, we would like to thank you for being
among the Fund's charter shareholders.
Sincerely,
Wayne A. Stork
Chairman
Robert Arnold and Gerald S. Frey
Senior Portfolio Managers
298
AR-133[--]11/97
<PAGE>
Capital Appreciation Fund Performance
Growth of a $10,000 Investment
December 2, 1996, to September 30, 1997
Cumulative total Return (December 2, 1996, to September 30, 1997)
<TABLE>
<CAPTION>
Capital Capital Lipper Capital Appreciation S&P 500 Index
Appreciation Fund Appreciation Fund Fund Average
(A & Institutional Classes, (A Class, including
excluding sales charge) sales charge) (216 Funds)
<S> <C> <C> <C> <C>
12/2/96 $10,000 $9,529 $10,000 $10,000
12/31/96 9,856 9,392 9,966 9,802
1/31/97 10,280 9,796 10,400 10,414
2/28/97 10,068 9,594 10,127 10,496
3/31/97 9,480 9,033 9,646 10,066
4/30/97 9,480 9,033 9,761 10,665
5/31/97 10,316 9,830 10,575 11,317
6/30/97 10,681 10,178 10,997 11,821
7/31/97 11,352 10,818 11,847 12,761
8/31/97 11,281 10,750 11,708 12,046
9/30/97 11,964 11,401 12,444 12,705
</TABLE>
Chart assumes $10,000 invested on December 2, 1996, at net asset value and
reinvestment of all distributions. The maximum sales charge for Class A shares
is 4.75%. Shares may be purchased at net asset value under certain
circumstances. Class A shares have a 12b-1 fee of 0.30% that has been waived
since inception. A voluntary expense cap of 0.75% has been in effect.
Performance would have been lower had the waiver and cap not been in effect.
Capital Appreciation Fund Performance
Cumulative Total Return (December 2, 1996, To September 30, 1997)
Lifetime
Class A
Excluding Sales Charge +19.64%
Including Sales Charge +14.01%
Institutional Class +19.64%
Return and share value will fluctuate so that shares, when redeemed, may be
worth more or less than the original cost. All results include reinvestment of
distributions. Past performance is not a guarantee of future results.
<PAGE>
Delaware Group Equity Funds IV, Inc. -
Capital Appreciation Fund
Statement of Net Assets
September 30, 1997
Number of Market
Shares Value
COMMON STOCK - 78.73%
Aerospace & Defense - 2.67%
AAR 1,400 $46,725
General Dynamics 200 17,425
-------
64,150
-------
Automobiles & Auto Parts - 1.39%
General Motors 300 20,081
ITT 400 13,275
-------
33,356
-------
Banking, Finance & Insurance - 8.17%
Aon 400 21,150
CIGNA 150 27,937
Chase Manhattan 300 35,400
Crestar Financial 600 28,125
Medallion Financial 300 6,487
Mellon Bank 800 43,800
Summit Bancorp 750 33,328
-------
196,227
-------
Cable, Media & Publishing - 1.13%
McGraw-Hill 400 27,075
-------
27,075
-------
Chemicals - 1.20%
Rhone-Poulenc-ADR 712 28,792
-------
28,792
-------
Computers & Technology - 9.42%
Adobe Systems 700 35,219
* BISYS Group 900 28,884
* BMC Software 700 45,303
* Compuware 400 24,150
* Cypress Semiconductor 1,800 27,900
* EMC 500 29,187
* Peerless Systems 1,000 13,938
* Rational Software 1,350 21,558
-------
226,139
-------
Electronics & Electrical - 4.05%
* Sipex 1,400 44,713
Thomas & Betts 500 27,312
* Xilinx 500 25,281
-------
97,306
-------
Energy - 9.35%
British Petroleum ADR 200 18,162
Mobil 200 14,800
* Patterson Energy 1,800 94,613
* Precision Drilling 800 51,100
Texaco 200 12,288
USX-Marathon Group 900 33,469
-------
224,432
-------
Environmental Services - 5.96%
* Philip Services 1,500 27,375
* Republic Industries 1,000 32,938
<PAGE>
* USA Waste Services 2,075 82,741
---------
143,054
---------
Food, Beverage & Tobacco - 2.13%
Heinz (H.J.) 500 23,094
Philip Morris 675 28,055
---------
51,149
---------
Healthcare & Pharmaceuticals - 13.92%
BOC Group plc 600 21,600
Bausch & Lomb 300 12,150
Baxter International 500 26,125
* Capstone Pharmacy 2,600 31,200
* DepoTech 200 2,687
* Dura Pharmaceuticals 900 39,431
* Health Management Associates Class A 1,300 41,113
* Healthsouth 1,600 42,700
* MedPartners 1,400 30,013
Pharmacia & Upjohn 700 25,550
* Phycor 1,000 29,094
* Vencor 700 28,875
* Vertex Pharmaceuticals 100 3,778
---------
334,316
---------
Industrial Machinery - 1.46%
* PRI Automation 600 35,175
---------
35,175
---------
Leisure, Lodging & Entertainment - 3.62%
* Equity Marketing 500 15,156
* Extended Stay America 1,800 27,000
* HFS 600 44,662
---------
86,818
---------
Metal & Mining - 0.84%
Freeport-McMoRan Copper & Gold Class B 700 20,169
---------
20,169
---------
Retail - 2.90%
Eastman Kodak 400 25,975
* General Nutrition 1,500 43,594
---------
69,569
---------
Telecommunications - 6.02%
* Ascend Communications 500 16,172
Frontier 800 18,400
* PageMart Wireless 900 9,675
SBC Communications 300 18,413
* Telco Systems 1,700 28,103
* Teleport Communications Group 1,200 53,888
---------
144,651
---------
Transportation & Shipping - 1.64%
Norfolk Southern 200 20,650
Union Pacific 300 18,787
---------
39,437
---------
Miscellaneous - 2.86%
* KLA Instruments 400 27,011
Pitney Bowes 500 41,594
---------
68,605
---------
Total Common Stock (cost $1,529,990) 1,890,420
---------
<PAGE>
Principal Market
Amount Value
REPURCHASE AGREEMENTS - 21.65%
With JP Morgan 6.00% 10/1/97 (dated
9/30/97, collateralized by $171,000
U.S. Treasury Notes 6.625% due
6/30/01, market value $177,766) 174,000 $174,000
With Prudential Securities 6.05% 10/1/97
(dated 9/30/97, collateralized by
$104,000 U.S. Treasury Notes 5.875%
due 2/28/99, market value $104,238
and $73,000 U.S. Treasury Notes
5.875% due 3/31/99, market value $73,325) 174,000 174,000
With PaineWebber 6.00% 10/1/97 (dated
9/30/97, collateralized by $106,000
U.S. Treasury Notes 5.875% due
9/30/02, market value $106,052 and
$68,000 U.S. Treasury Notes 5.375%
due 5/31/98, market value $69,528) 172,000 172,000
Total Repurchase Agreements (cost ----------
$520,000) 520,000
----------
TOTAL MARKET VALUE OF SECURITIES OWNED - 100.38% $2,410,420
(cost $2,049,990)
----------
LIABILITIES NET OF RECEIVABLES AND
OTHER ASSETS - (0.38%) (9,152)
==========
NET ASSETS APPLICABLE TO 236,319 SHARES
($.01 Par Value) OUTSTANDING - 100.00% $2,401,268
==========
NET ASSET VALUE - CAPITAL APPRECIATION FUND A CLASS
($8,119 / 799 shares) $10.16
==========
NET ASSET VALUE - CAPITAL APPRECIATION FUND INSTITUTIONAL CLASS
($2,393,149 / 235,520 shares) $10.16
==========
- -------------------------------
* Non-income producing security for the year ended September 30, 1997
COMPONENTS OF NET ASSETS AT SEPTEMBER 30, 1997:
Common stock $.01 par value 200,000,000 shares authorized to
the Fund with 100,000,000 shares allocated to Capital
Appreciation Fund A Class, 25,000,000 shares allocated
to Capital Appreciation Fund B Class, 25,000,000 shares
allocated to Capital Appreciation Fund C Class and
50,000,000 shares allocated to Capital Appreciation Fund
Institutional Class $2,008,790
Accumulated net investment income 13,845
Accumulated net realized gain on investments 18,203
Net unrealized appreciation of investments 360,430
----------
Total net assets $2,401,268
==========
NET ASSET VALUE AND OFFERING PRICE PER SHARE -
CAPITAL APPRECIATION FUND A CLASS
Net asset value A Class (A) $10.16
Sales Charge (4.75% of offering or 5.02% of the amount
invested per share) (B) 0.51
----------
Offering price $10.67
==========
- -----------------------------------
(A) Net asset value per share, as illustrated, is the estimated amount
which would be paid upon redemption or repurchase of shares.
(B) See Buying Shares in the current Prospectus for purchases of
$100,000 or more.
See accompanying notes
<PAGE>
DELAWARE GROUP EQUITY FUNDS IV, INC.-
CAPITAL APPRECIATION FUND
STATEMENT OF OPERATIONS
FOR THE PERIOD DECEMEBER 2,1996 (COMMENCEMENT OF OPERATIONS)
THROUGH SEPTEMBER 30, 1997
INVESTMENT INCOME:
Interest $12,001
Dividends 16,707 $28,708
--------
EXPENSES:
Management fees 12,953
Custodian fees 2,196
Directors' fees 1,844
Professional fees 1,427
Registration fees 1,322
Dividend disbursing and transfer agent fees and expenses 1,196
Reports and statements to shareholders 1,174
Accounting fees and salaries 789
Taxes (other than taxes on income) 400
Other 835 24,136
--------
Expenses absorbed by Delaware Management Company, Inc. (11,156)
--------
Total Expenses 12,980
--------
NET INVESTMENT INCOME 15,728
--------
NET REALIZED AND UNREALIZED GAIN
ON INVESTMENTS:
Net realized gain from investment transactions 18,203
Net unrealized appreciation
on investments 360,430
--------
NET REALIZED AND UNREALIZED GAIN
ON INVESTMENTS: 378,633
--------
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS $394,361
========
See accompanying notes
<PAGE>
DELAWARE GROUP EQUITY FUNDS IV, INC.-
CAPITAL APPRECIATION FUND
STATEMENT OF CHANGES IN NET ASSETS
12/2/1996 *
to
09/30/97
----------
INCREASE IN NET ASSETS FROM OPERATIONS:
Net investment income $15,728
Net realized gain on investments 18,203
Net unrealized appreciation 360,430
----------
Net increase in net assets resulting from operations 394,361
----------
DISTRIBUTION TO SHAREHOLDERS FROM:
Net investment income:
Capital Appreciation Fund A Class (1)
Capital Appreciation Fund Institutional Class (1,882)
----------
(1,883)
----------
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares sold:
Capital Appreciation Fund A Class 7,120
Capital Appreciation Fund Institutional Class 2,000,010
Net asset value of shares issued upon reinvestment
of dividends from net investment income and net
realized gain on security transactions:
Capital Appreciation Fund A Class 1
Capital Appreciation Fund Institutional Class 1,882
----------
2,009,013
----------
Cost of shares repurchased:
Capital Appreciation Fund A Class (223)
Capital Appreciation Fund Institutional Class --
(223)
----------
Increase in net assets derived from capital
share transactions 2,008,790
----------
NET INCREASE IN NET ASSETS 2,401,268
NET ASSETS:
Beginning of period --
End of period $2,401,268
==========
* Commencement of operations
See accompanying notes
<PAGE>
DELAWARE GROUP EQUITY FUNDS IV, INC.-
CAPITAL APPRECIATION FUND
Financial Highlights
Selected data for each share of the Fund outstanding throughout the period was
as follows:
<TABLE>
<CAPTION>
Capital Capital
Appreciation Fund Appreciation Fund
A Class Institutional Class
------------------ -------------------
Period Period
12/2/1996 (1) 12/2/1996 (1)
to to
09/30/97 09/30/97
------------------ -------------------
<S> <C> <C>
Net asset value, beginning of period $8.500 8.500
Income from investment operations:
Net investment income 0.067 0.067
Net realized and unrealized gain from investments 1.601 1.601
------- -------
Net increase in net assets from investment operations 1.668 1.668
------- -------
Less dividends and distributions:
Dividends from net investment income (0.008) (0.008)
------- -------
Total dividends and distributions (0.008) (0.008)
------- -------
Net asset value, end of period $10.160 $10.160
======= =======
Total Return (2) 19.64% 19.64%
Ratios and supplemental data:
Net assets, end of period (000 omitted) $ 8 $ 2,393
Ratio of expenses to average net assets 0.75% 0.75%
Ratio of expenses to average net assets prior to
expense limitation 1.70% 1.40%
Ratio of net investment income to average net assets 0.91% 0.91%
Ratio of net investment income to average net assets
prior to expense limitation (0.03%) 0.27%
Portfolio turnover 84% 84%
Average commission rate paid (3) $0.0594 $0.0594
</TABLE>
- ----------
(1) Date of initial public offering; ratios have been annualized and total
return has not been annualized.
(2) Does not include maximum sales charge of 4.75% nor the 1% limited
contingent deferred sales charge that would apply in the event of certain
redemptions within 12 months of purchase for A Class shares.
(3) Computed by dividing the total amount of commissions paid by the total
number of shares purchased and sold during the period for which there was
a commission charged.
<PAGE>
DELAWARE GROUP EQUITY FUNDS IV, INC. -
CAPITAL APPRECIATION FUND
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1997
Delaware Group Equity Funds IV, Inc. - Capital Appreciation Fund (the "Fund")
is registered as a diversified open-end investment company under the
Investment Company Act of 1940, as amended. The Fund is organized as a
Maryland Corporation and offers four classes of shares. The Capital
Appreciation Fund A Class carries a front-end sales charge of 4.75%. The
Capital Appreciation Fund B Class carries a back-end sales charge. The Capital
Appreciation Fund C Class carries a level load deferred sales charge and
Capital Appreciation Fund Institutional Class has no sales charge. As of
September 30, 1997, only the Capital Appreciation Fund A Class and the Capital
Appreciation Fund Institutional Class have commenced operations. The Fund's
objective is to provide investors with an investment that has the potential
for capital appreciation.
1. Significant Accounting Policies
The following accounting policies are in accordance with generally accepted
accounting principles and are consistently followed by the Fund.
Security Valuation- Securities listed on an exchange are valued at the last
quoted sales price as of the close of the NYSE on the valuation date.
Securities not traded or securities not listed on an exchange are valued at
the mean of the last quoted bid and asked prices. Money market instruments
having less than 60 days to maturity are valued at amortized cost which
approximates market value.
Federal Income Taxes- The Fund intends to qualify as a regulated investment
company and make the requisite distributions to shareholders. Accordingly, no
provision for federal income taxes has been made in the financial statements.
Income and capital gain distributions are determined in accordance with
federal income tax regulations which may differ from generally accepted
accounting principles.
Class Accounting- Investment income, common expenses and realized and
unrealized gain (loss) on investments are allocated to the various classes of
the Fund on the basis of daily net assets of each class. Distribution expenses
relating to a specific class are charged directly to that class.
Repurchase Agreements- The Fund may invest in a pooled cash account along with
other members of the Delaware Group of Funds. The aggregate daily balance of
the pooled cash account is invested in repurchase agreements secured by
obligations of the U.S. Government. The respective collateral is held by the
Fund's custodian bank until the maturity of the respective repurchase
agreements. Each repurchase agreement is at least 100% collateralized.
However, in the event of default or bankruptcy by the counter party to the
agreement, realization of the collateral may be subject to legal proceedings.
<PAGE>
Other- Expenses common to all Funds within the Delaware Group of Funds are
allocated amongst the funds on the basis of average net assets. Security
transactions are recorded on the date the securities are purchased or sold
(trade date). Costs used in calculating realized gains and losses on the sale
of investment securities are those of the specific securities sold. Dividend
income is recorded on the ex-dividend date and interest income is recorded on
the accrual basis. The Fund declares and pays dividends from net investment
income and capital gains annually.
Certain Fund expenses are paid through "soft dollar" arrangements with
brokers. The amount of these expenses is less than 0.01% of the Fund's average
daily net assets.
Use of Estimates- The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
2. Investment Management and Other Transactions with Affiliates In accordance
with the terms of the Investment Management Agreement, the Fund pays Delaware
Management Company, Inc. (DMC), the Investment Manager of the Fund, an annual
fee which is calculated daily at the rate of 0.75% on the average daily net
assets of the Fund less the fees paid to the unaffiliated directors. Total
expenses absorbed by DMC for the period ended September 30, 1997 were $11,156.
At September 30, 1997, the Fund had a liability for Investment Management fees
and other expenses payable to DMC for $5,932.
The Fund has engaged Delaware Service Company, Inc. (DSC), an affiliate of
DMC, to serve as dividend disbursing, transfer agent and accounting agent for
the Fund. For the period ended September 30, 1997, the Fund expensed $1,196
for dividend disbursing and transfer agent services and $577 for accounting
services. At September 30, 1997, the Fund had a liability for such fees and
other expenses payable to DSC for $2,105.
Pursuant to the Distribution Agreement, the Fund pays Delaware Distributors,
L.P. (DDLP), the Distributor and an affiliate of DMC, an annual fee not to
exceed 0.30% of the average daily net assets of the A Class and 1.00% of the
average daily net assets of the B and C Class. No distribution expenses are
paid by the Institutional Class. DDLP has elected voluntarily to waive 12B-1
plan fees through November 30, 1997.
Certain officers of DMC, DSC and DDLP are officers, directors and/or employees
of the Fund. These officers, directors and employees are paid no compensation
by the Fund.
<PAGE>
3. Investments
During the year ended September 30, 1997, the Fund made purchases of
$2,815,963 and sales of $1,304,177 of investment securities other than U.S.
government securities and temporary cash investments.
At September 30, 1997, the aggregate cost of securities for federal income tax
purposes was $2,049,990.
At September 30, 1997, net unrealized appreciation for federal income tax
purposes aggregated $360,430 of which $405,363 related to unrealized
appreciation of securities and $44,933 related to unrealized depreciation of
securities.
4. Capital Stock
Transactions in capital stock were as follows:
12/02/96
to
09/30/97
--------
Shares sold:
Capital Appreciation Fund A Class. . . . . . . . . . . 823
Capital Appreciation Fund Institutional Class. . . . . 235,295
Shares issued upon reinvestment of dividends
from net investment income:
Capital Appreciation Fund A Class. . . . . . . . . . . --
Capital Appreciation Fund Institutional Class. . . 225
-------
236,343
Shares repurchased:
Capital Appreciation Fund A Class. . . . . . . . . . . (24)
Capital Appreciation Fund Institutional Class. . . --
-------
(24)
Net Increase. . . . . . . . . . . . . . . . . . . . 236,319
-------
<PAGE>
Report of Independent Auditors
To the Shareholders and Board of Directors
Delaware Group Equity Funds IV, Inc. - Capital Appreciation Fund
We have audited the accompanying statement of net assets of Delaware Group
Equity Funds IV, Inc. - Capital Appreciation Fund as of September 30, 1997,
and the related statement of operations, the statement of changes in net
assets, and the financial highlights for the period December 2, 1996
(commencement of operations) to September 30, 1997. These financial statements
and financial highlights are the responsibility of the Fund's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements and financial highlights. Our procedures included
confirmation of securities owned as of September 30, 1997, by correspondence
with the Fund's custodian and brokers. An audit also includes assessing the
accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We believe
that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Delaware Group Equity Funds IV, Inc. - Capital Appreciation Fund at September
30, 1997, the results of its operations, the changes in its net assets, and
the financial highlights for the period December 2, 1996 (commencement of
operations) to September 30, 1997, in conformity with generally accepted
accounting principles.
/s/ Ernst & Young LLP
Philadelphia, Pennsylvania
October 24, 1997
