<PAGE>
October 14, 1998
Dear Shareholder:
Fiscal 1998 was a difficult year for Capital Appreciation Fund.
Your Fund lost 6.91% of its net asset value for the 12 months ended
September 30, 1998, for both Class A and Institutional Class. Stocks of small
and mid-size companies were especially hard hit during this past summer's market
tumble.
Capital Appreciation Fund has a two-fold focus: nearly 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 exhibit growth investment characteristics.
This strategy helped preserve capital to a greater extent than comparable
mutual funds in Lipper's MidCap Fund Average, which fell 11.95% for the 12
months ended September 30, 1998. Capital Appreciation Fund's performance placed
it in the top quartile of its peer group for fiscal 1998.* However, the Fund
significantly underperformed the unmanaged Standard & Poor's 500 Index, which
rose +9.08% for the period.
A primary reason for the large difference between our results and that of
the Fund's benchmark is that the index' one-year return was driven by a very
narrow group of large-cap growth stocks. These equities were not in Capital
Appreciation's portfolio because they did not meet the Fund's investment
discipline for large company stocks.
Strategic Positioning & Outlook
Capital Appreciation Fund performed poorly during the initial months of
fiscal 1998, primarily because of positions held in managed care companies, such
as Phycor, telecommunications stocks and a large cash position. However, the
Fund did well during the spring and early summer. We benefited from holdings in
technology companies, capital goods companies, such as Pitney Bowes, and
domestic-oriented financial stocks, such as shares of Fannie Mae.
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. Frey seeks stocks that exhibit consistent earnings and
business growth while Arnold concentrates on large companies that have
above-average growth potential compared to stocks in the S&P 500 Index. As of
September 30, the Fund had $2.2 million in net assets.
We thank you for being Capital Appreciation Fund's charter shareholders.
Sincerely,
Wayne A. Stork Jeffrey J. Nick
Chairman President and Chief Executive Officer
Robert Arnold and Gerald S. Frey
Senior Portfolio Managers
*Capital Appreciation Fund ranked 74th of 298 mid-cap funds and 84th of 256
mid-cap funds for the one-year and lifetime periods ended 9/30/98,
respectively, according to Lipper Analytical Services. An expense limitation
was in effect for the periods shown. Returns would have been lower without the
limitation. Past performance does not guarantee future results.
AR-133[9/98] 11/98
<PAGE>
Capital Appreciation Fund Performance
Growth of a $10,000 Investment
December 2, 1996 to September 30, 1998
- --------------------------------------------------------------------------
Capital Appreciation Standard & Poor's
Fund A Class 500 Index
- --------------------------------------------------------------------------
12/2/96 $ 9,433 $10,000
12/31/96 $ 9,288 $ 9,802
1/31/97 $ 9,688 $10,414
2/28/97 $ 9,488 $10,496
3/31/97 $ 8,933 $10,065
4/30/97 $ 8,933 $10,666
5/31/97 $ 9,721 $11,315
6/30/97 $10,065 $11,822
7/31/97 $10,698 $12,762
8/31/97 $10,631 $12,047
9/30/97 $11,275 $12,707
10/31/97 $10,908 $12,283
11/30/97 $10,875 $12,851
12/31/97 $11,138 $13,072
1/31/98 $10,916 $13,217
2/28/98 $10,706 $14,170
3/31/98 $11,535 $14,896
4/30/98 $11,978 $15,045
5/31/98 $11,990 $14,787
6/30/98 $11,500 $15,387
7/31/98 $11,920 $15,224
8/31/98 $ 9,550 $13,023
9/30/98 $10,496 $13,859
Chart assumes $10,000 invested on December 2, 1996, a maximum 5.75% front-end
sales charge and reinvestment of all distributions. The maximum sales charge for
Class A shares was raised from 4.75% to 5.75% as of November 2, 1998. Shares may
be purchased at net asset value under certain circumstances. Class A shares have
a 12b-1 fee that has been waived since inception. A voluntary expense cap of
0.75% has been in effect.
Capital Appreciation Fund Performance
Average Annual Total Returns Through September 30, 1998
Lifetime One Year
Class A (est. 12/2/96)
Excluding Sales Charge +6.07% -6.91%
Including Sales Charge +2.68% -12.26%
Institutional Class (est. 12/2/96) +6.07% -6.91%
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. An expense
limitation was in effect for the periods shown. Results would have been lower
without the limitation.
<PAGE>
Delaware Group Equity Funds IV, Inc. -
Capital Appreciation Fund
Statement of Net Assets
September 30, 1998
Number of Market
Shares Value
COMMON STOCK - 90.35%
Aerospace & Defense - 2.38%
* Micrel 2,000 $53,375
---------
53,375
---------
Automobiles & Auto Parts - 1.47%
General Motors 600 32,813
---------
32,813
---------
Banking, Finance & Insurance - 9.91%
Aon 700 45,150
BankAmerica 600 36,075
BankBoston 1,000 33,000
Fannie Mae 600 38,550
First American 1,000 38,375
First Union 600 30,713
---------
221,863
---------
Cable, Media & Publishing - 8.14%
* Chancellor Media 1,500 49,969
McGraw-Hill 500 39,625
* Snyder Communications 1,100 36,850
* World Color Press 1,800 55,800
---------
182,244
---------
Chemicals - 1.25%
E. I. du Pont de Nemours 500 28,063
---------
28,063
---------
Computers & Technology - 24.48%
* Aspect Development 1,200 47,438
* BMC Software 1,400 84,044
* Citrix Systems 1,000 71,125
* Compuware 1,200 70,650
* EMC 1,000 57,188
Hewlett-Packard 800 42,350
* J.D. Edwards 1,500 71,953
* PLATINUM technology 2,500 45,156
* VERITAS Software 1,050 57,980
---------
547,884
---------
Consumer Products - 1.43%
Fortune Brands 1,000 29,625
* Gemstar International 50 2,317
---------
31,942
---------
Electronics & Electrical - 7.19%
* American Tower 2,500 63,750
* Analog Devices 3,000 48,188
Pitney Bowes 900 49,106
---------
161,044
---------
Energy - 3.00%
USX-Marathon Group 1,000 35,438
Williams 1,100 31,625
---------
67,063
---------
Environmental Services - 3.58%
Browning Ferris 1,100 33,275
Waste Management 975 46,861
---------
80,136
---------
Top ten holdings, representing 30.2% of net assets, are in boldface.
<PAGE>
<TABLE>
<CAPTION>
Number of Market
Shares Value
<S> <C> <C>
Food, Beverage & Tobacco - 2.01%
Philip Morris 975 $44,910
-----------
44,910
-----------
Healthcare & Pharmaceuticals - 11.56%
American Home Products 1,000 52,375
Bausch & Lomb 600 23,625
Baxter International 600 35,700
* Coulter Pharmaceutical 2,500 62,030
* Health Management Associates 2,925 53,380
* HEALTHSOUTH 3,000 31,688
-----------
258,798
-----------
Leisure, Lodging & Entertainment - 1.47%
* Papa John's International 1,000 32,968
-----------
32,968
-----------
Retail - 1.38%
May Department Stores 600 30,900
-----------
30,900
-----------
Telecommunications - 11.10%
* Ascend Communications 800 36,425
* GeoTel Communications 3,000 81,000
GTE 600 33,000
* Pacific Gateway Exchange 1,500 54,938
* STAR Telecommunications 3,500 43,203
-----------
248,566
-----------
Total Common Stock (cost $1,893,520) 2,022,569
-----------
Principal
Amount
REPURCHASE AGREEMENTS - 10.36%
With Chase Manhattan 5.35% 10/1/98
(dated 9/30/98, collateralized by $11,000 U.S. Treasury Notes
5.875% due 8/31/99, market value $11,213 and $34,000 U.S.
Treasury Notes 6.75% due 4/30/00, market value $35,674 and
$39,000 U.S. Treasury Notes 5.375% due 1/31/00, market value
$39,535) 85,000 85,000
With J.P. Morgan 5.25% 10/1/98
(dated 9/30/98, collateralized by $7,000 U.S.
Treasury Notes 6.250% due 4/30/01, market value
$7,468 and $26,000 U.S. Treasury Notes 6.00% due 8/15/00,
market value $26,781 and $39,000 U.S. Treasury Notes 6.25%
due 5/31/99, market value $39,701) 72,000 72,000
With PaineWebber 5.30% 10/1/98
(dated 9/30/98, collateralized by $76,000 U.S. Treasury Notes
4.50% due 9/30/00, market value $76,554) 75,000 75,000
-----------
Total Repurchase Agreements (cost $232,000) 232,000
-----------
TOTAL MARKET VALUE OF SECURITIES - 100.71%
(cost $2,125,520) $2,254,569
LIABILITIES NET OF RECEIVABLES AND
OTHER ASSETS - (0.71%) (16,007)
NET ASSETS APPLICABLE TO 249,127 SHARES ----------
($0.01 Par Value) OUTSTANDING - 100.00% $2,238,562
==========
NET ASSET VALUE - CAPITAL APPRECIATION FUND A CLASS
($12,018 / 1,337 shares) $8.99
=====
NET ASSET VALUE - CAPITAL APPRECIATION FUND INSTITUTIONAL CLASS
($2,226,544 / 247,790 shares) $8.99
=====
</TABLE>
-------------------------------
* Non-income producing security for the year ended September 30, 1998.
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
COMPONENTS OF NET ASSETS AT SEPTEMBER 30, 1998:
Common stock, $0.01 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 $2,130,373
Undistributed net investment income 15,956
Accumulated net realized loss on investments (36,816)
Net unrealized appreciation of investments 129,049
----------
Total net assets $2,238,562
==========
NET ASSET VALUE AND OFFERING PRICE PER SHARE -
CAPITAL APPRECIATION FUND
Net Asset Value A Class (A) $8.99
Sales Charge (4.75% of offering price or 5.01% of the amount invested
per share) (B) 0.45
------
Offering price $9.44
======
</TABLE>
-------------------------------
(A) Net asset value per share, as illustrated, is the estimated amount
which would be paid upon redemption or repurchase of shares.
(B) See How to Buy Shares in the current Prospectus for purchases of
$50,000 or more. See Notes to Financial Statements for change in
front-end sales charge effective November 2, 1998.
See accompanying notes
<PAGE>
DELAWARE GROUP EQUITY FUNDS IV, INC. -
CAPITAL APPRECIATION FUND
STATEMENT OF OPERATIONS
YEAR ENDED SEPTEMBER 30, 1998
<TABLE>
<CAPTION>
<S> <C> <C>
INVESTMENT INCOME:
Dividends $24,083
Interest 13,996 $38,079
--------------
EXPENSES:
Management fees 18,019
Professional fees 7,230
Registration fees 5,350
Dividend disbursing and transfer agent fees and expenses 4,498
Custodian fees 3,975
Directors' fees 2,628
Reports and statements to shareholders 2,490
Accounting and administration 940
Taxes (other than taxes on income) 355
Other 1,964 47,449
--------------
Expenses absorbed by Delaware Management Company (29,444)
--------------
Total expenses 18,005
--------------
NET INVESTMENT INCOME 20,074
--------------
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS:
Net realized gain on investments 44,489
Net change in unrealized appreciation/depreciation of investments (231,381)
--------------
NET REALIZED AND UNREALIZED LOSS
ON INVESTMENTS (186,892)
--------------
NET DECREASE IN NET ASSETS RESULTING
FROM OPERATIONS ($166,818)
==============
</TABLE>
See accompanying notes
<PAGE>
DELAWARE GROUP EQUITY FUNDS IV, INC. -
CAPITAL APPRECIATION FUND
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
12/2/96 *
YEAR ENDED to
9/30/98 9/30/97
------------------------------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS:
Net investment income $20,074 $15,728
Net realized gain on investments 44,489 18,203
Net change in unrealized appreciation/depreciation of investments (231,381) 360,430
------------------------------------------
Net increase (decrease) in net assets resulting from operations (166,818) 394,361
------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income:
A Class (64) (1)
Institutional Class (17,899) (1,882)
Net realized gain on investments:
A Class (354) --
Institutional Class (99,154) --
------------------------------------------
(117,471) (1,883)
------------------------------------------
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares sold:
A Class 5,336 7,120
Institutional Class 151,001 2,000,010
Net asset value of shares issued upon reinvestment of dividends from net
investment income and net realized gain on investments:
A Class 418 1
Institutional Class 117,053 1,882
------------------------------------------
273,808 2,009,013
------------------------------------------
Cost of shares repurchased:
A Class (1,222) (223)
Institutional Class (151,003) --
------------------------------------------
(152,225) (223)
------------------------------------------
Increase in net assets derived from capital
share transactions 121,583 2,008,790
------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS (162,706) 2,401,268
NET ASSETS:
Beginning of period 2,401,268 --
------------------------------------------
End of period $2,238,562 $2,401,268
==========================================
</TABLE>
* 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 were
as follows:
<TABLE>
<CAPTION>
A Class Institutional Class
-------------------------------- ----------------------------------
Period Period
12/2/96(1) 12/2/96(1)
Year Ended to Year Ended to
9/30/98 9/30/97 9/30/98 9/30/97
--------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period $10.160 $8.500 $10.160 $8.500
Income from investment operations:
Net investment income 0.082(2) 0.067 0.082(2) 0.067
Net realized and unrealized gain (loss) on investments (0.755) 1.601 (0.755) 1.601
--------------------------------------------------------------------
Total from investment operations (0.673) 1.668 (0.673) 1.668
--------------------------------------------------------------------
Less dividends and distributions:
Dividends from net investment income (0.076) (0.008) (0.076) (0.008)
Distributions from net realized gain on investments (0.421) -- (0.421) --
--------------------------------------------------------------------
Total dividends and distributions (0.497) (0.008) (0.497) (0.008)
--------------------------------------------------------------------
Net asset value, end of period $8.990 $10.160 $8.990 $10.160
====================================================================
Total return(3) (6.91%) 19.64% (6.91%) 19.64%
Ratios and supplemental data:
Net assets, end of period (000 omitted) $12 $8 $2,227 $2,393
Ratio of expenses to average net assets 0.75% 0.75% 0.75% 0.75%
Ratio of expenses to average net assets prior to expense
limitation 2.28% 1.70% 1.98% 1.40%
Ratio of net investment income to average net assets 0.83% 0.91% 0.83% 0.91%
Ratio of net investment income (loss) to average net assets prior
to expense limitation (0.70%) (0.03%) (0.40%) 0.27%
Portfolio turnover 163% 84% 163% 84%
Average commission rate paid(4) $0.0495 $0.0594 $0.0495 $0.0594
</TABLE>
- --------------------------------------------------------------------------------
(1) Date of initial public offering; ratios have been annualized and total
return has not been annualized.
(2) Computed based on the average shares outstanding method.
(3) Total investment return is based on the change in net asset value of a
share during the period and assumes reinvestment of distributions at net
asset value and does not reflect the impact of a sales charge.
(4) 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.
See accompanying notes
<PAGE>
DELAWARE GROUP EQUITY FUNDS IV, INC. -
CAPITAL APPRECIATION FUND
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1998
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 which was raised from 4.75% to 5.75% effective November
2, 1998. 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, 1998, only the Capital Appreciation Fund A Class and the Capital
Appreciation Fund Institutional Class have commenced operations. The Fund's
objective is to seek 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 continue 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 Investments Family 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 counterparty to the agreement,
realization of the collateral may be subject to legal proceedings.
<PAGE>
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.
Other- Expenses common to all funds within the Delaware Investments Family 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, if any, annually.
Certain expenses of the Fund 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.
2. Investment Management and Other Transactions with Affiliates
In accordance with the terms of the Investment Management Agreement, the Fund
pays Delaware Management Company (DMC), the Investment Manager of the Fund, an
annual fee which is calculated daily at the rate of 0.75% on the first $500
million of the average daily net assets of the Fund less the fees paid to the
unaffiliated directors, 0.725% on the next $500 million and 0.70% on the average
daily net assets in excess of $1 billion. At September 30, 1998, the Fund had a
liability for Investment Management fees and other expenses payable to DMC of
$10,060.
DMC has elected to waive the portion, if any, of the management fee and
reimburse the Fund to the extent that annual operating expenses exclusive of
distribution expenses exceed 0.75% of average daily net assets of the Fund
through September 30, 1998.
The Fund has engaged Delaware Service Company, Inc. (DSC), an affiliate of DMC,
to provide dividend disbursing, transfer agent and accounting services. The Fund
pays DSC a monthly fee based on the number of shareholder accounts, shareholder
transactions and average net assets, subject to certain minimums. At September
30, 1998, the Fund had a liability for such fees and other expenses payable to
DSC of $7,577.
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 such fees
through November 30, 1998. At September 30, 1998, the Fund had a liability for
expenses payable to DDLP of $1,166.
<PAGE>
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.
3. Investments
During the year ended September 30, 1998, the Fund made purchases of $3,839,889
and sales of $3,520,841 of investment securities other than U.S. government
securities and temporary cash investments.
At September 30, 1998, the aggregate cost of securities for federal income tax
purposes was $2,125,520.
At September 30, 1998, net unrealized appreciation for federal income tax
purposes aggregated $129,049 of which $328,635 related to unrealized
appreciation of securities and $199,586 related to unrealized depreciation of
securities.
4. Capital Stock
Transactions in capital stock shares were as follows:
<TABLE>
<CAPTION>
Year 12/02/96*
Ended to
9/30/98 9/30/97
------- ---------
<S> <C> <C>
Shares sold:
A Class........................................ 619 823
Institutional Class............................ 14,862 235,295
Shares issued upon reinvestment of dividends
from net investment income and net realized
gain on investments:
A Class......................................... 44 --
Institutional Class............................. 12,270 225
-------- --------
27,795 236,343
Shares repurchased:
A Class......................................... (125) (24)
Institutional Class............................. (14,862) --
--------- --------
(14,987) (24)
--------- --------
Net increase........................................... 12,808 236,319
========= ========
</TABLE>
* Commencement of operations
5. Line of Credit
The Fund has a committed line of credit for $100,000. No amount was outstanding
at September 30, 1998, or at any time during the fiscal year.
<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 (the "Fund") as of September
30, 1998, and the related statement of operations for the year then ended, and
the statements of changes in net assets and financial highlights for each of the
periods indicated therein. These financial statements and financial highlights
are the responsibility of the Fund's management. Our responsibility is to
express an opinion on these financial statements and financial highlights based
on our audits.
We conducted our audits in accordance with 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, 1998, 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
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Delaware Group Equity Funds IV, Inc. - Capital Appreciation Fund at September
30, 1998, the results of its operations for the year then ended, and the
changes in its net assets and its financial highlights for each of the periods
indicated therein, in conformity with generally accepted accounting principles.
/s/ Ernst & Young
------------------
Philadelphia, Pennsylvania Ernst & Young
October 30, 1998
