<PAGE>
Delaware Diversified Growth Fund
- --------------------------------
1999 Annual Shareholder Report
November 22, 1999
Dear Shareholder:
A New Name and a New Strategy
As we mentioned in your semi-annual report on April 24, 1999, Capital
Appreciation Fund changed its name on April 16, 1999 to the Delaware Diversified
Growth Fund. Your Fund also changed its investment objective. Delaware
Diversified Growth Fund focuses on stocks of large cap growth companies, rather
than on a blend of small cap growth and large cap value companies. The Fund's
new investment objective is as follows:
Delaware Diversified Growth Fund seeks to achieve its objective by investing,
under normal market conditions, primarily in equity securities of large-sized
companies that the portfolio manager believes exhibit growth potential that
significantly exceeds the average anticipated growth rate of companies included
in the Standard & Poor's 500(R) Composite Stock Price Index. The Fund will
generally consider large-sized companies to include those in the Russell 1000
Growth Index.
The Fund management team is now headed by J. Paul Dokas and Robert Ginsberg
whose biographies are listed below.
J. Paul Dokas, CFA
Vice President, Portfolio Manager and Senior Research Analyst Mr. Dokas is
responsible for producing quantitative research used to develop new global
investment services, refine existing services and make asset-allocation
decisions. He joined Delaware in 1997. He previously was Director of Trust
Investment Management at Bell Atlantic Corporation. He earned a Bachelor's
Degree from Loyola College in Baltimore and an MBA degree at the University of
Maryland. He is a CFA Charterholder.
Robert E. Ginsberg
Assistant Vice President, Quantitative Analyst
Mr. Ginsberg graduated magna cum laude from the Wharton School of Business at
the University of Pennsylvania with a degree in Economics and a concentration in
Finance. Prior to joining Delaware in September of 1997, he was a Consultant at
Andersen Consulting working primarily with financial services companies. At
Delaware, Mr. Ginsberg handles diverse analytical responsibilities involving
large capitalization stocks.
AR-133[9/99]CC11/99
<PAGE>
A Disciplined Investment Strategy
Your Fund's management team now focuses primarily on equity securities of
large-sized companies believed to exhibit growth potential that significantly
exceeds the average anticipated growth rate of companies in the Standard &
Poor's 500 Composite Stock Price Index. According to Mr. Dokas and Mr. Ginsberg,
your Fund is broadly diversified, and held 105 stocks as of September 30, 1999.
Stylistically, the Fund falls in the upper right hand corner of the Morningstar
U.S. equity style box, which consists of large capitalization growth mutual
funds.
To achieve its objective, Delaware Diversified Growth Fund first employs
quantitative analysis and then fundamental analysis. From an initial investment
universe of 1,000 companies, we use proprietary quantitative models to distill
potential investments to 250 companies that then become candidates for
fundamental research. These 250 stocks are eventually weeded down to 100-125
stocks that are considered excellent candidates for your Fund.
Economic Overview
Stocks were at their lowest point of 1998, on October 8, just as your Fund began
its fiscal year. Then we saw the market rebound as three Federal Reserve
interest-rate cuts sent many investments bouncing back from the financial losses
suffered in the summer and fall of 1998.
Since that date, the stock market has recovered in dramatic fashion. The Dow
Jones Industrial Average closed above both the 10,000 and 11,000 marks for the
first time in the spring of 1999.
The success of the stock market in the spring and summer did, however, heighten
inflationary concerns. The Federal Reserve responded by raising interest rates
by 0.25% on June 30th, August 24th and November 16th. As of this writing, the
Federal funds target rate on overnight loans between banks, stands at 5.50%.
These three increases took back the last of three quarter-point reductions made
in the fall of 1998 in response to the global financial crisis and returned the
rate to its level 14 months ago.
Despite a strong 1999, the U.S. stock market suffered in the third quarter of
1999. Adding to the downturn were fears generated by consumer and manufacturing
reports that suggested our economy might be overheating. These reports were
enough to raise fears of inflation once again.
Your Fund's Performance
As of September 30, 1999, Delaware Diversified Growth Fund held 105 stocks, many
of them blue-chip, household names, as shown on the next page.
Computers/technology and health care/pharmaceuticals were your Fund's two
largest sectors, respectively. The Fund intends to approximately match the
sector weightings of the Russell 1000 Growth Index. However, over the past six
months, we found healthcare stocks to be attractively priced and believed they
<PAGE>
offered excellent investment opportunities. Because of this, our sector
weighting in health care stocks was slightly higher than that of the Russell
1000 Growth Index. Our weighting in the technology sector was also slightly
higher than that of the Russell 1000 Growth Index.
We believe these two overweightings, in healthcare and technology, help to
explain your Fund's outperformance of both the Russell 1000 Growth Index and the
Standard & Poor's 500 Index for the six months starting April 30th and ending
September 30, 1999. April 30th is fourteen days after your Fund changed its
investment objective to its current focus on large cap growth companies.
For the one year ended September 30, 1999, Delaware Diversified Growth Fund
provided a return of +15.52% (for Class A Shares with distributions reinvested
at net asset value and not including sales charge). Over this longer time
period, your Fund underperformed both of its new benchmark indexes, the Russell
1000 Growth Index and the Standard and Poor's 500 Index. This can be explained
by the fact that under the Fund's prior investment objective it focused on small
cap growth companies and large cap value companies.
Portfolio Highlights
September 30, 1999
<TABLE>
<CAPTION>
Delaware Diversified Growth Russell 1000 Growth Index
<S> <C> <C>
Number of Holdings 105 526
P/E Ratio* 35.16 34.81
Median Market Capitalization $1.33 billion $1.32 billion
</TABLE>
*Price to earnings ratios are based on trailing earnings for the year ended
September 30, 1999.
Top Ten Holdings
September 30, 1999
Company Percent of Total Fund Assets
1. Microsoft 5.65%
2. General Electric 5.44%
3. Intel 4.84%
4. Cisco Systems 4.15%
5. Lucent Technologies 3.69%
6. Pfizer 3.43%
7. International Business Machines 3.23%
8. Merck 3.03%
9. America Online 2.67%
10. Wal Mart Stores 2.36%
<PAGE>
Delaware Diversified Growth Fund Performance*
Total Returns
<TABLE>
<CAPTION>
Six Months Ended One Year Ended Since Inception
September 30, 1999 September 30, 1999 12/02/96 - 9/30/99
(Annual Avg. Total Return)
<S> <C> <C> <C>
Delaware Diversified Growth Fund
(Institutional Class and A Class
Shares Excluding Sales Charge) +4.36% +15.52% +9.32%
A Class Shares Including Charge -1.62% +8.86% +7.05%
Russell 1000 Growth Index +0.04% +34.85% +25.15%
S&P 500 Index -0.29% +26.47% +21.85%
</TABLE>
* The performance figures above include Delaware Diversified Growth Fund's
change of investment objective on April 16, 1999 to a focus on large cap growth
companies.
All performance shown assumes reinvestment of distributions. Past performance
does not guarantee future results. No sales charge or 12b-1 fees were imposed on
A Class shares for the periods shown and no B or C Class shares were offered. A
fee waiver was in effect during this period. Performance would have been lower
without the fee waiver. Return and share value fluctuate so that shares, when
redeemed, may be worth more or less than their original cost. The unmanaged
Russell 1000 Growth Index is a measure of large capitalization company stocks
that exhibit growth characteristics as defined by Frank Russell Company. The
unmanaged Standard & Poor's 500 Index is a measure of 500 large capitalization
company stocks. You cannot invest directly in an index.
Delaware Diversified Growth Fund's Lifetime Performance Please see the next page
for a line graph on the Fund's performance since inception.
We believe a disciplined investment strategy can create a portfolio with very
attractive risk/return characteristics and that consistent performance can
result in superior long-term results. Thank you for your continued commitment to
Delaware Investments and the Delaware Diversified Growth Fund.
Sincerely,
/s/ Wayne A. Stork
- ------------------------------------
Wayne A. Stork
Chairman,
Delaware Investments Family of Funds
/s/ David K. Downes
- ------------------------------------
David K. Downes
President and Chief Executive Officer
Delaware Investments Family of Funds
<PAGE>
Delaware Diversified Growth Fund's Lifetime Performance
Growth of a $10,000 Investment
December 2, 1996 through September 30, 1999
<TABLE>
<CAPTION>
Period S&P 500 Russell 1000 Growth Delaware Diversified Growth Fund
<S> <C> <C> <C>
12/2/96 $10,000 $10,000 $ 9,425
12/31/96 $ 9,785 $ 9,804 $ 9,289
6/30/97 $11,692 $11,721 $10,065
11/30/97 $12,621 $12,651 $10,875
3/31/98 $14,554 $14,732 $11,979
9/30/98 $13,434 $14,001 $10,496
3/31/99 $16,993 $18,873 $11,619
9/30/99 $16,944 $18,880 $12,125
</TABLE>
Chart assumes $10,000 invested on December 2, 1996 and includes the effect of a
5.75% sales charge and the reinvestment of all distributions. Performance of
other Fund classes will vary due to differing charges and expenses. Past
performance does not guarantee future results. The unmanaged Russell 1000 Growth
Index is a measure of large capitalization company stocks that exhibit growth
characteristics as defined by Frank Russell Company. The unmanaged Standard &
Poor's 500 Index is a measure of 500 large capitalization company stocks. You
cannot invest directly in an index.
<PAGE>
Delaware Group Equity Funds IV, Inc. -
Delaware Diversified Growth Fund
Statement of Net Assets
September 30, 1999
Number of Market
Shares Value
---------- ----------
COMMON STOCK - 100.06%
Aerospace & Defense - 1.77%
Allied-Signal 800 $47,950
General Dynamics 800 49,950
United Technologies 1,600 94,900
---------
192,800
---------
Banking, Finance & Insurance - 3.61%
American Express 800 107,700
Citigroup 1,400 61,600
Federal Home Loan 2,100 109,200
J.P. Morgan 200 22,850
MBNA 2,100 47,906
Morgan Stanley Dean Witter 500 44,594
---------
393,850
---------
Cable, Entertainment, Media & Publishing - 5.29%
*AT&T-Liberty Media 1,600 59,400
*CBS 1,700 78,625
*Chris-Craft Industries 700 39,287
*Comcast 1,400 55,781
Walt Disney 1,600 41,400
Gannett 500 34,594
*MediaOne Group 700 47,819
Time Warner 3,200 194,400
*Viacom 600 25,350
---------
576,656
---------
Chemicals - 0.81%
Avery Dennison 800 42,200
Monsanto 1,300 46,394
---------
88,594
---------
Computers & Technology - 19.70%
*America Online 2,800 291,200
*At Home 1,600 66,300
*Cisco Systems 6,600 452,306
CMGI 700 71,750
Compaq Computer 1,800 41,287
*Dell Computer 5,400 225,787
*EMC 2,200 157,162
First Data 800 35,100
Hewlett-Packard 1,600 147,200
International Business Machine 2,900 351,988
Linear Technology 600 35,269
*Sun Microsystems 1,300 120,941
*3Com 2,100 60,309
Yahoo 500 89,609
-----------
2,146,208
-----------
Consumer Products - 4.04%
Colgate-Palmolive 1,200 54,900
Corning 800 54,850
Gillette 2,200 74,663
Kimberly-Clark 1,300 68,250
Procter & Gamble 2,000 187,500
-----------
440,163
-----------
<PAGE>
Number of Market
Shares Value
------------ -------------
Electronics & Electrical - 12.84%
General Electric 5,000 $592,812
Honeywell 500 55,656
Intel 7,100 527,841
*Solectron 800 57,450
Symbol Technologies 1,300 43,713
Texas Instruments 1,000 82,250
Xilinx 600 39,319
-----------
1,399,041
-----------
Energy - 0.84%
Halliburton 900 36,900
Transocean Offshore 800 24,500
Williams 800 29,950
-----------
91,350
-----------
Environmental Services - 0.23%
Waste Management 1,300 25,025
-----------
25,025
-----------
Food, Beverage & Tobacco - 4.19%
Anheuser Busch 800 56,050
Coca Cola 2,900 139,381
General Mills 300 24,338
McDonald's 800 34,400
PepsiCo 2,800 84,700
Philip Morris 2,400 82,050
Sara Lee 1,500 35,156
-----------
456,075
-----------
Healthcare & Pharmaceuticals - 17.08%
Abbott Laboratories 2,900 106,575
American Home Products 1,400 58,100
*Amgen 1,200 97,800
Baxter International 500 30,125
*Biogen 500 39,391
Bristol-Myers Squibb 2,400 162,000
Eli Lilly 2,500 160,000
*Guidant 1,300 69,713
Johnson & Johnson 1,600 147,000
Medtronic 1,400 49,700
Merck & Company 5,100 330,544
Pfizer 10,400 373,750
Schering-Plough 4,200 183,225
Warner-Lambert 800 53,100
-----------
1,861,023
-----------
Industrial Machinery - 0.71%
*Applied Materials 1,000 77,656
-----------
77,656
-----------
Paper & Forest Products - 0.26%
Georgia-Pacific 700 28,350
-----------
28,350
-----------
Retail - 8.89%
Amazon.com 400 31,962
*BJ's Wholesale Club 800 23,650
Circuit City Stores 1,100 46,406
CVS Corporation 1,600 65,300
Dayton Hudson 1,600 96,100
Gap 1,950 62,400
Home Depot 3,700 253,913
Safeway 1,600 60,900
Staples 1,600 34,900
TJX 1,300 36,481
Wal-Mart Stores 5,400 256,838
-----------
968,850
-----------
<PAGE>
<TABLE>
<CAPTION>
Number of Market
Shares Value
--------------- -------------
<S> <C> <C>
Shipping & Transportation - 0.25%
*FDX 700 $27,125
------------
27,125
------------
Software - 9.15%
*BMC Software 800 57,225
Citrix Systems 500 30,953
Computer Associates International 1,300 79,625
*Compuware 1,800 46,856
Microsoft 6,800 616,038
Oracle 2,900 132,041
*PeopleSoft 2,000 33,938
------------
996,676
------------
Telecommunications - 10.19%
ALLTEL 300 21,112
Exodus Communications 300 21,628
*General Instrument 2,900 139,562
*Level 3 Communications 900 46,997
Lucent Technologies 6,200 402,225
*MCI Worldcom 3,000 215,531
Nextel Communications 600 40,706
*QUALCOMM 300 56,747
*Qwest Communications International 2,100 62,081
SBC Communications 600 30,638
*Tellabs 800 45,575
*Winstar Communications 700 27,453
------------
1,110,255
------------
Miscellaneous - 0.21%
*Cendant 1,300 23,075
------------
23,075
------------
Total Common Stock (cost $10,590,736) 10,902,772
------------
Principal
Amount
---------------
Repurchase Agreements - 0.09%
With J.P. Morgan Securities 5.20% 10/01/99
(dated 09/30/99, collateralized by $1,200
U.S. Treasury Notes 6.25% due 10/31/01,
market value $1,191, and $700 U.S. Treasury
Notes 6.375% due 08/15/02, market value $745,
and $800 U.S. Treasury Notes 6.50% due
08/31/01, market value $849) $2,730 2,730
With PaineWebber 5.25% 10/01/99
(dated 09/30/99, collateralized by $1,400 U.S. Treasury Bills 5.25% due
12/09/99, market value $1,424 and $300 U.S. Treasury Notes 6.25% due
01/31/02, market value $334 and $1,400 U.S. Treasury Notes 6.375% due
03/31/01, market value $1,451 and $1,400 U.S. Treasury Notes 6.625% due
11/30/00, market value $1,424) 4,540 4,540
With Prudential Securities 5.21% 10/01/99
(dated 09/30/99, collateralized by $2,800
U.S. Treasury Notes 6.375% due 09/30/01,
market value $2,785). 2,730 2,730
------------
Total Repurchase Agreements (cost $10,000) 10,000
------------
TOTAL MARKET VALUE OF SECURITIES - 100.15%
(cost $10,600,736) $10,912,772
LIABILITIES NET OF RECEIVABLES AND OTHER ASSETS - (0.15%) (16,780)
NET ASSETS APPLICABLE TO 1,057,762 SHARES
------------
($0.01 Par Value) OUTSTANDING - 100.00% $10,895,992
============
NET ASSET VALUE - DELAWARE DIVERSIFIED GROWTH FUND A CLASS
($10,090 / 980 SHARES) $10.30
============
NET ASSET VALUE - DELAWARE DIVERSIFIED GROWTH FUND INSTITUTIONAL CLASS
($10,885,902 / 1,056,782 SHARES) $10.30
============
</TABLE>
- -------------------------------
* Non-income producing security for the year ended September 30, 1999.
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
COMPONENTS OF NET ASSETS AT SEPTEMBER 30, 1999:
Common stock, $0.01 par value, 200,000,000 shares authorized
to the Fund with 100,000,000 shares allocated to Delaware Diversified
Growth Fund A Class, 25,000,000 shares allocated to Delaware Diversified
Growth Fund B Class, 25,000,000 shares allocated to Delaware Diversified
Growth Fund C Class and 50,000,000 shares
allocated to Delaware Diversified Growth Fund Institutional Class $10,121,660
Undistributed net investment income 12,399
Accumulated net realized gain on investments 449,897
Net unrealized appreciation of investments 312,036
-----------
Total net assets $10,895,992
===========
NET ASSET VALUE AND OFFERING PRICE PER SHARE -
DELAWARE DIVERSIFIED GROWTH FUND
Net asset value A Class (A) $10.30
Sales charge (5.75% of offering price or 6.12% of the amount invested
per share) (B) 0.63
-----------
Offering price $10.93
===========
</TABLE>
- -------------------------------
(A) Net asset value per share, as illustrated, is the estimated amount which
would be paid upon the redemption or repurchase of shares.
(B) See How to Buy Shares in the current Prospectus for purchases of $50,000 or
more.
See accompanying notes
<PAGE>
DELAWARE GROUP EQUITY FUNDS IV, INC. -
DELAWARE DIVERSIFIED GROWTH FUND
STATEMENT OF OPERATIONS
YEAR ENDED SEPTEMBER 30, 1999
<TABLE>
<CAPTION>
<S> <C> <C>
INVESTMENT INCOME:
Dividends $32,202
Interest 18,800 $51,002
-------------
EXPENSES:
Management fees 35,016
Professional fees 2,645
Dividend disbursing and transfer agent fees and expenses 2,558
Directors' fees 1,854
Accounting and administration 1,590
Registration fees 1,436
Reports and statements to shareholders 293
Custodian fees 105
Distribution expenses 33
Other 114
-------------
45,644
Less expenses absorbed or waived (10,799)
Less expenses paid indirectly (216)
-------------
Total expenses 34,629
--------------
NET INVESTMENT INCOME 16,373
--------------
NET REALIZED AND UNREALIZED GAIN
ON INVESTMENTS:
Net realized gain on investments 486,713
Net change in unrealized appreciation/depreciation of investments 182,987
--------------
NET REALIZED AND UNREALIZED GAIN
ON INVESTMENTS 669,700
--------------
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS $686,073
==============
</TABLE>
See accompanying notes
<PAGE>
DELAWARE GROUP EQUITY FUNDS IV, INC. -
DELAWARE DIVERSIFIED GROWTH FUND
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
9/30/1999 9/30/1998
--------------------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS:
Net investment income $16,373 $20,074
Net realized gain on investments 486,713 44,489
Net change in unrealized appreciation/depreciation of investments 182,987 (231,381)
--------------------------------
Net increase (decrease) in net assets resulting from operations 686,073 (166,818)
--------------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income:
A Class (107) (64)
Institutional Class (19,823) (17,899)
Net realized gain on investments:
A Class - (354)
Institutional Class - (99,154)
--------------------------------
(19,930) (117,471)
--------------------------------
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares sold:
A Class - 5,336
Institutional Class 7,975,000 151,001
Netasset value of shares issued upon reinvestment of distributions from net
investment income and net realized gain on investments:
A Class 107 418
Institutional Class 19,823 117,053
--------------------------------
7,994,930 273,808
--------------------------------
Cost of shares repurchased:
A Class (3,643) (1,222)
Institutional Class - (151,003)
--------------------------------
(3,643) (152,225)
--------------------------------
Increase in net assets derived from capital
share transactions 7,991,287 121,583
--------------------------------
NET INCREASE (DECREASE) IN NET ASSETS 8,657,430 (162,706)
NET ASSETS:
Beginning of year 2,238,562 2,401,268
--------------------------------
End of year $10,895,992 $2,238,562
================================
</TABLE>
See accompanying notes
<PAGE>
DELAWARE GROUP EQUITY FUNDS IV, INC. -
DELAWARE DIVERSIFIED GROWTH FUND
FINANCIAL HIGHLIGHTS
Selected data for each share of the Fund outstanding throughout the period were
as follows:
<TABLE>
<CAPTION>
A Class
-------------------------------------------
Period
12/02/96(1)
Year Ended Year Ended to
09/30/99 09/30/98 09/30/97
---------------------------------------------
<S> <C> <C> <C>
Net asset value, beginning of period $8.990 $10.160 $8.500
Income (loss) from investment operations:
Net investment income 0.036(2) 0.082 (2) 0.067
Net realized and unrealized gain (loss) on investments 1.354 (0.755) 1.601
---------------------------------------------
Total from investment operations 1.390 (0.673) 1.668
---------------------------------------------
Less dividends and distributions:
Dividends from net investment income (0.080) (0.076) (0.008)
Distributions from net realized gain on investments - (0.421) -
---------------------------------------------
Total dividends and distributions (0.080) (0.497) (0.008)
---------------------------------------------
Net asset value, end of period $10.300 $8.990 $10.160
=============================================
Total return (3) 15.52% (6.91%) 19.64%
Ratios and supplemental data:
Net assets, end of period (000 omitted) $10 $12 $8
Ratio of expenses to average net assets 0.75% 0.75% 0.75%
Ratio of expenses to average net assets prior to
expense limitation
and expenses paid indirectly 1.28% 2.28% 1.70%
Ratio of net investment income to average net assets 0.36% 0.83% 0.91%
Ratio of net investment income (loss) to average net
assets prior to expense limitation
and expenses paid indirectly (0.17%) (0.70%) (0.03%)
Portfolio turnover 120% 163% 84%
</TABLE>
[RESTUBBED TABLE]
<PAGE>
<TABLE>
<CAPTION>
Institutional Class
---------------------------------------
Period
12/02/96(1)
Year Ended Year Ended to
09/30/99 09/30/98 09/30/97
---------------------------------------
<S> <C> <C> <C>
Net asset value, beginning of period $8.990 $10.160 $8.500
Income (loss) from investment operations:
Net investment income 0.036(2) 0.082(2) 0.067
Net realized and unrealized gain (loss) on investments 1.354 (0.755) 1.601
---------------------------------------
Total from investment operations 1.390 (0.673) 1.668
---------------------------------------
Less dividends and distributions:
Dividends from net investment income (0.080) (0.076) (0.008)
Distributions from net realized gain on investments - (0.421) -
---------------------------------------
Total dividends and distributions (0.080) (0.497) (0.008)
---------------------------------------
Net asset value, end of period $10.300 $8.990 $10.160
=======================================
Total return (3) 15.52% (6.91%) 19.64%
Ratios and supplemental data:
Net assets, end of period (000 omitted) $10,886 $2,227 $2,393
Ratio of expenses to average net assets 0.75% 0.75% 0.75%
Ratio of expenses to average net assets prior to
expense limitation
and expenses paid indirectly 0.98% 1.98% 1.40%
Ratio of net investment income to average net assets 0.36% 0.83% 0.91%
Ratio of net investment income (loss) to average net
assets prior to expense limitation
and expenses paid indirectly 0.13% (0.40%) 0.27%
Portfolio turnover 120% 163% 84%
</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.
See accompanying notes
<PAGE>
DELAWARE GROUP EQUITY FUNDS IV, INC. -
DELAWARE DIVERSIFIED GROWTH FUND
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
Delaware Group Equity Funds IV, Inc. - (the "Company") is registered as a
diversified open-end investment company under the Investment Company Act of
1940, as amended. The Company is organized as a Maryland Corporation and offers
two series, the Delaware DelCap Fund and the Delaware Diversified Growth Fund.
These financial statements and related notes pertain to the Delaware Diversified
Growth Fund (the "Fund"). The Fund offers four classes of shares. The Delaware
Diversified Growth Fund A Class carries a front-end sales charge of 5.75%. The
Delaware Diversified Growth Fund B Class carries a back-end sales charge. The
Delaware Diversified Growth Fund C Class carries a level load deferred sales
charge and Delaware Diversified Growth Fund Institutional Class has no sales
charge. As of September 30, 1999, only the Delaware Diversified Growth Fund A
Class and the Delaware Diversified Growth 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. These transactions are done subject to best price and execution. The
amount of these expenses was approximately $111 for the year ended September
30,1999. In addition, the Fund receives earnings credits from its custodian when
positive cash balances are maintained, which are used to offset custody fees.
These credits were $105 for the year ended September 30, 1999. The expenses paid
under the above arrangements are included in their respective expense captions
on the Statement of Operations with the corresponding expense offset shown as
"expenses paid indirectly".
2. Investment Management and Other Transactions with Affiliates
Commencing April 16, 1999, and 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 0.65% on the first $500 million of the average daily net assets, 0.60%
on the next $500 million, 0.55% on the next $1,500 million and 0.50% in excess
of $2,500 million. During the period April 1, 1999 to April 15, 1999 the Fund
paid DMC an annual fee which was calculated at the rate of 0.75% on the first
$500 million of the average daily net assets, 0.70% on the next $500 million,
0.65% on the next $1,500 million and 0.60% in excess of $2,500 million. Prior to
April 1, 1999, the Fund paid DMC an annual fee which was calculated at the rate
of 0.75% on the first $500 million, 0.725% on the next $500 million and 0.70% in
excess of $1,000 million. At September 30, 1999, the Fund had a liability for
Investment Management fees and other expenses payable to DMC of $5,451.
DMC has elected to waive that portion, if any, of the management fee and
reimburse the Fund to the extent that annual operating expenses, exclusive of
taxes, interest, brokerage commissions, extraordinary expenses and distribution
expenses, exceed 0.75% of average daily net assets of the Fund.
<PAGE>
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, 1999, the Fund had a liability for such fees and other expenses payable to
DSC of $801.
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.
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
For the year ended September 30, 1999, the Fund made purchases of $13,533,885
and sales of $5,323,382 of investment securities other than U.S. government
securities and temporary cash investments.
At September 30, 1999, net unrealized appreciation for federal income tax
purposes aggregated $287,919 of which $751,938 related to unrealized
appreciation of securities and $464,019 related to unrealized depreciation of
securities. At September 30, 1999, the aggregate cost of securities for federal
income tax purposes was $10,624,853.
4. Capital Stock
Transactions in capital stock shares were as follows:
<TABLE>
<CAPTION>
Year Year
Ended Ended
9/30/99 9/30/98
-----------------------------
<S> <C> <C>
Shares sold:
A Class......................................... -- 619
Institutional Class............................. 806,946 14,862
Shares issued upon reinvestment of distributions
from net investment income and
net realized gain on investments:
A Class.......................................... 12 44
Institutional Class.............................. 2,046 12,270
-----------------------------
809,004 27,795
-----------------------------
Shares repurchased:
A Class........................................... (369) (125)
Institutional Class............................... -- (14,862)
-----------------------------
(369) (14,987)
-----------------------------
Net increase............................................ 808,635 12,808
=============================
</TABLE>
<PAGE>
5. Line of Credit
The Fund has a committed line of credit for $400,000. No amount was outstanding
at September 30, 1999, or at any time during the fiscal year.
6. Tax Information (unaudited)
The information set forth below is for the Fund's fiscal year as required by
federal 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 early 2000. Please
consult your tax advisor for proper treatment of this information.
For the fiscal year ended September 30, 1999, the Fund designates as long term
capital gains, ordinary income, and tax-exempt income distributions paid during
the year as follows:
Long Term Ordinary Tax Total
Capital Gains Income Exempt Distributions
Distributions Distributions Interest (Tax Basis)
- ------------------------------------------------------------------------------
- 100.00% - 100.00%
<PAGE>
Report of Independent Auditors
To the Shareholders and Board of Directors
Delaware Group Equity Funds IV, Inc. - Delaware Diversified Growth Fund
We have audited the accompanying statement of net assets of Delaware Group
Equity Funds IV, Inc. - Delaware Diversified Growth Fund (the "Fund") as of
September 30, 1999, and the related statement of operations for the year then
ended, the statements of changes in net assets for each of the two years in the
period then ended, and the 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, 1999, by correspondence with the 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. - Delaware Diversified Growth Fund at
September 30, 1999, and the results of its operations for the year then ended,
the changes in its net assets for each of the two years in the period then
ended, and its financial highlights for each of the periods indicated therein,
in conformity with generally accepted accounting principles.
/s/ Ernst & Young LLP
Philadelphia, Pennsylvania
November 8, 1999
