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: 811-750
Exact name of registrant as specified in charter: Delaware Group Equity Funds II
Address of principal executive offices: 2005 Market Street
Philadelphia, PA 19103
Name and address of agent for service: Richelle S. Maestro, Esq.
2005 Market Street
Philadelphia, PA 19103
Registrant's telephone number,
including area code: (800) 523-1918
Date of fiscal year end: November 30
Date of reporting period: May 31, 2003
Item 1. Reports to Stockholders
Delaware
Investments(SM)
--------------------------------------
VALUE-EQUITY A member of Lincoln Financial Group(R)
Semiannual Report 2003
- --------------------------------------------------------------------------------
DELAWARE DECATUR EQUITY INCOME FUND
[Logo] POWERED BY RESEARCH.(SM)
Table
OF CONTENTS
- --------------------------------------------------
FINANCIAL STATEMENTS:
Statement of Net Assets 1
Statement of Operations 3
Statements of Changes in Net Assets 4
Financial Highlights 5
Notes to Financial Statements 9
- --------------------------------------------------
Funds are not FDIC insured and are not guaranteed. It is possible to lose the
principal amount invested.
Mutual fund advisory services provided by Delaware Management Company, a
series of Delaware Management Business Trust, which is a registered investment
advisor.
(C)2003 Delaware Distributors, L.P.
Statement Delaware Decatur Equity Income Fund
OF NET ASSETS May 31, 2003 (Unaudited)
Number of Market
Shares Value
- --------------------------------------------------------------------------------
Common Stock- 98.77%
- --------------------------------------------------------------------------------
Aerospace & Defense - 1.63%
Boeing 222,200 $ 6,814,874
Honeywell International 351,500 9,209,300
------------
16,024,174
------------
Automobiles & Automotive Parts - 0.98%
General Motors 273,500 9,662,755
------------
9,662,755
------------
Banking & Finance - 19.16%
Bank of America 275,082 20,411,084
Bank of New York 616,600 17,850,570
Citigroup 407,400 16,711,548
Comerica 274,600 12,705,742
FleetBoston Financial 495,700 14,657,849
Goldman Sachs Group 183,800 14,979,700
J.P. Morgan Chase 613,890 20,172,425
KeyCorp 358,000 9,451,200
MBNA 626,000 12,551,300
Mellon Financial 615,000 16,709,550
Morgan Stanley 254,400 11,638,800
U.S. Bancorp 864,100 20,479,171
------------
188,318,939
------------
Cable, Media & Publishing - 1.25%
Gannett 94,400 7,457,600
Knight-Ridder 68,900 4,853,316
------------
12,310,916
------------
Chemicals - 3.18%
Air Products & Chemicals 161,200 7,026,708
Dow Chemical 468,000 14,882,400
Du Pont (E.I.) de Nemours 222,400 9,371,936
------------
31,281,044
------------
Computers & Technology - 6.75%
+Cisco Systems 788,500 12,836,780
First Data 175,900 7,285,778
International Business Machines 119,900 10,555,996
Microsoft 532,700 13,109,747
+Oracle 1,111,800 14,464,518
Pitney Bowes 211,900 8,139,079
------------
66,391,898
------------
Consumer Products - 5.75%
3M 58,400 7,385,848
Gillette 346,600 11,649,226
Kimberly-Clark 375,800 19,515,294
Newell Rubbermaid 631,500 17,997,750
------------
56,548,118
------------
Electronics & Electrical Equipment - 5.78%
Eaton 101,300 8,502,109
Emerson Electric 183,200 9,581,360
General Electric 455,300 13,067,110
Intel 765,100 15,944,684
Raytheon 305,700 9,794,628
------------
56,889,891
------------
Number of Market
Shares Value
- --------------------------------------------------------------------------------
Common Stock (continued)
- --------------------------------------------------------------------------------
Energy - 8.80%
ChevronTexaco 354,900 $ 25,176,606
Exxon Mobil 534,326 19,449,466
Kerr-McGee 348,700 16,591,146
Occidental Petroleum 458,200 15,459,668
*Royal Dutch Petroleum ADR 217,300 9,898,015
------------
86,574,901
------------
Food, Beverage & Tobacco - 6.76%
Anheuser-Busch 195,200 10,273,376
Coca Cola 159,400 7,263,858
General Mills 274,400 12,836,432
Kellogg Company 341,000 12,003,200
Kraft Foods Class A 219,500 7,111,800
PepsiCo 172,600 7,628,920
Sysco 302,600 9,362,444
------------
66,480,030
------------
Healthcare & Pharmaceuticals - 8.16%
Abbott Laboratories 344,200 15,334,110
Baxter International 595,800 15,097,572
Bristol-Myers Squibb 578,000 14,796,800
Pfizer 485,800 15,069,516
Wyeth 456,300 20,008,755
------------
80,306,753
------------
Industrial Machinery - 0.97%
Caterpillar 183,500 9,569,525
------------
9,569,525
------------
Insurance - 10.38%
Allstate 392,900 14,140,471
Chubb 236,300 15,130,289
John Hancock Financial Services 526,700 15,932,675
*Marsh & McLennan 398,400 19,971,792
*MBIA 163,800 8,198,190
MGIC Investment 212,200 11,463,044
XL Capital Ltd. Class A 197,900 17,227,195
------------
102,063,656
------------
Leisure, Lodging & Entertainment - 3.07%
Darden Restaurants 387,600 7,678,356
+MGM Grand 259,000 7,316,750
Starwood Hotels & Resorts 289,600 8,392,608
Worldwide
+Westwood One 201,600 6,826,176
------------
30,213,890
------------
Metals & Mining - 0.80%
Alcoa 320,200 7,880,122
------------
7,880,122
------------
Paper & Forest Products - 1.75%
International Paper 468,918 17,195,223
------------
17,195,223
------------
Retail - 2.10%
+Federated Department Stores 229,400 7,455,500
Limited Brands 867,100 13,231,946
------------
20,687,446
------------
1
Statement Delaware Decatur Equity Income Fund
OF NET ASSETS (CONTINUED)
Number of Market
Shares Value
- --------------------------------------------------------------------------------
Common Stock (continued)
- --------------------------------------------------------------------------------
Telecommunications - 3.21%
*Alltel 131,100 $ 6,277,068
BellSouth 247,400 6,558,574
SBC Communications 377,864 9,620,427
Verizon Communications 241,736 9,149,708
------------
31,605,777
------------
Textiles, Apparel & Furniture - 0.72%
*Nike 127,200 7,121,928
------------
7,121,928
------------
Transportation & Shipping - 0.79%
Burlington Northern Santa Fe 263,400 7,772,934
------------
7,772,934
------------
Utilities - 6.78%
BCE 367,400 8,090,148
Dominion Resources 193,600 12,196,800
Exelon 123,300 7,065,090
FirstEnergy 294,400 10,836,864
FPL Group 192,800 12,815,416
*Public Service Enterprise Group 366,300 15,651,999
------------
66,656,317
------------
Total Common Stock (cost $895,428,391) 971,556,237
------------
Principal
Amount
- --------------------------------------------------------------------------------
Repurchase Agreements- 1.16%
- --------------------------------------------------------------------------------
With BNPParibas 1.24%
6/2/03 (dated 5/30/03,
collateralized by $3,918,000
U.S. Treasury Bills due 8/28/03,
market value $3,908,423) $3,831,000 3,831,000
With Cantor Fitzgerald 1.24%
6/2/03 (dated 5/30/03,
collateralized by $1,277,000
U.S. Treasury Notes 5.25% due
5/15/04, market value $1,329,929
and $589,000 U.S Treasury Notes
7.25% due 5/15/04,
market value $624,449) 1,916,000 1,916,000
With J. P. Morgan Securities 1.18%
6/2/03 (dated 5/30/03,
collateralized by $970,000
U.S. Treasury Notes 2.125% due
8/31/04, market value $985,892) 966,000 966,000
With UBS Warburg 1.24%
6/2/03 (dated 5/30/03,
collateralized by $4,387,000
U.S. Treasury Notes 7.875% due
11/15/04, market value $4,820,909) 4,725,000 4,725,000
------------
Total Repurchase Agreements
(cost $11,438,000) 11,438,000
------------
- --------------------------------------------------------------------------------
Total Market Value of Securities - 99.93%
(cost $906,866,391) $ 982,994,237
Receivables and Other Assets
Net of Liabilities - 0.07% 643,666
Short Term Investments Held as Collateral
for Loaned Securities - 1.70%
(cost $16,759,225)++ 16,759,225
Obligation to Return Securities
Lending Collateral - (1.70%) (16,759,225)
--------------
Net Assets Applicable to 65,400,676
Shares Outstanding - 100.00% $ 983,637,903
==============
Net Asset Value - Delaware Decatur Equity Income Fund
Class A ($864,911,062 / 57,482,145 Shares) $15.05
------
Net Asset Value - Delaware Decatur Equity Income Fund
Class B ($73,105,963 / 4,886,161 Shares) $14.96
------
Net Asset Value - Delaware Decatur Equity Income Fund
Class C ($11,653,082 / 774,103 Shares) $15.05
------
Net Asset Value - Delaware Decatur Equity Income Fund
Class R ($15.05 / 1 Share) $15.05
------
Net Asset Value - Delaware Decatur Equity Income Fund
Institutional Class ($33,967,781 / 2,258,266 Shares) $15.04
------
Components of Net Assets at May 31, 2003:
Shares of beneficial interest
(unlimited authorization - no par) $1,078,608,095
Undistributed net investment income** 3,670,719
Accumulated net realized loss on investments (174,768,757)
Net unrealized appreciation of investments 76,127,846
--------------
Total net assets $ 983,637,903
==============
*Security is fully or partially on loan.
**Undistributed net investment income includes net realized gains (losses) on
foreign currencies. Net realized gains (losses) on foreign currencies are
treated as net investment income in accordance with provisions of the Internal
Revenue Code.
+Non-income producing security for the period ended May 31, 2003.
++See Note 7 in "Notes to Financial Statements".
Summary of Abbreviations
ADR - American Depository Receipts
Net Asset Value and Offering Price per Share -
Delaware Decatur Equity Income Fund
Net asset value Class A (A) $15.05
Sales charge (5.75% of offering price, or 6.11% of
amount invested per share) (B) 0.92
------
Offering price $15.97
------
(A) Net asset value per share, as illustrated, is the estimated amount which
would be paid upon redemption or repurchase of shares.
(B) See the current prospectus for purchases of $50,000 or more.
See accompanying notes
2
Statement Delaware Decatur Equity Income Fund
OF OPERATIONS Six Months Ended May 31, 2003 (Unaudited)
Investment Income:
Dividends $ 12,393,376
Interest 114,917
Security lending income 19,690 $ 12,527,983
------------ ------------
Expenses:
Management fees 2,862,490
Distribution expenses - Class A 1,002,385
Distribution expenses - Class B 344,276
Distribution expenses - Class C 53,470
Dividend disbursing and transfer agent fees and expenses 795,511
Accounting and administration expenses 204,000
Reports and statements to shareholders 115,486
Registration fees 43,213
Professional fees 38,574
Trustees' fees 21,000
Custodian fees 19,576
Other 139,320 5,639,301
------------
Less expenses paid indirectly (11,186)
------------
Total expenses 5,628,115
------------
Net Investment Income 6,899,868
------------
Net Realized and Unrealized Gain (Loss) on Investments and Foreign Currencies:
Net realized gain (loss) on:
Investments (34,548,715)
Foreign currencies 1,160
------------
Net realized loss (34,547,555)
Net change in unrealized appreciation / depreciation of investments 75,805,972
------------
Net Realized and Unrealized Gain on Investments and Foreign Currencies 41,258,417
------------
Net Increase in Net Assets Resulting from Operations $ 48,158,285
============
See accompanying notes
3
Statements Delaware Decatur Equity Income Fund
OF CHANGES IN NET ASSETS
Six Months Year
Ended Ended
5/31/03 11/30/02
(Unaudited)
Increase (Decrease) in Net Assets from Operations:
Net investment income $ 6,899,868 $ 11,884,029
Net realized loss on investments and foreign currencies (34,547,555) (35,928,720)
Net change in unrealized appreciation / depreciation of investments 75,805,972 (141,882,600)
------------ --------------
Net increase (decrease) in net assets resulting from operations 48,158,285 (165,927,291)
------------ --------------
Dividends and Distributions to shareholders from:
Net investment income:
Class A (3,558,981) (13,092,548)
Class B (36,646) (483,057)
Class C (5,500) (63,835)
Class R -- --
Institutional Class (178,209) (669,240)
------------ --------------
(3,779,336) (14,308,680)
------------ --------------
Capital Share Transactions:
Proceeds from shares sold:
Class A 17,463,328 29,791,366
Class B 4,242,651 13,761,204
Class C 1,296,878 3,255,581
Class R 15 --
Institutional Class 2,478,770 6,359,391
Net asset value of shares issued upon reinvestment of dividends and
distributions:
Class A 3,028,927 11,078,372
Class B 32,222 421,246
Class C 5,093 58,791
Class R -- --
Institutional Class 178,209 669,240
------------ --------------
28,726,093 65,395,191
------------ --------------
Cost of shares repurchased:
Class A (64,875,026) (146,002,348)
Class B (9,954,772) (24,458,300)
Class C (1,326,335) (3,644,568)
Class R -- --
Institutional Class (3,176,474) (15,388,563)
------------ --------------
(79,332,607) (189,493,779)
------------ --------------
Decrease in net assets derived from capital share transactions (50,606,514) (124,098,588)
------------ --------------
Net Decrease in Net Assets (6,227,565) (304,334,559)
Net Assets:
Beginning of period 989,865,468 1,294,200,027
------------ --------------
End of period $983,637,903 $ 989,865,468
============ ==============
See accompanying notes
4
Financial
HIGHLIGHTS
Selected data for each share of the Fund outstanding
throughout each period were as follows:
- -----------------------------------------------------------------------------------------------------------------------------------
Delaware Decatur Equity Income Fund Class A
- -----------------------------------------------------------------------------------------------------------------------------------
Six Months
Ended Year Ended
5/31/03(3) 11/30/02 11/30/01 11/30/00 11/30/99 11/30/98
(Unaudited)
Net asset value, beginning of period $14.320 $16.730 $16.770 $17.200 $21.400 $22.580
Income (loss) from investment operations:
Net investment income(1) 0.107 0.170 0.182 0.370 0.476 0.569
Net realized and unrealized gain (loss) on investments 0.683 (2.381) (0.062) 0.050 (0.916) 1.811
------- ------- ------- ------- ------- -------
Total from investment operations 0.790 (2.211) 0.120 0.420 (0.440) 2.380
------- ------- ------- ------- ------- -------
Less dividends and distributions from:
Net investment income (0.060) (0.199) (0.160) (0.378) (0.540) (0.490)
Net realized gain on investments -- -- -- (0.472) (3.220) (3.070)
------- ------- ------- ------- ------- -------
Total dividends and distributions (0.060) (0.199) (0.160) (0.850) (3.760) (3.560)
------- ------- ------- ------- ------- -------
Net asset value, end of period $15.050 $14.320 $16.730 $16.770 $17.200 $21.400
======= ======= ======= ======= ======= =======
Total return(2) 5.56% (13.34%) 0.75% 2.72% (2.50%) 12.03%
Ratios and supplemental data:
Net assets, end of period (000 omitted) $864,911 $870,132 $1,132,147 $1,258,738 $1,658,696 $1,969,181
Ratio of expenses to average net assets 1.17% 1.11% 1.07% 1.12% 1.03% 0.90%
Ratio of net investment income to average net assets 1.58% 1.10% 1.06% 2.30% 2.59% 2.68%
Portfolio turnover 73% 99% 111% 77% 92% 94%
(1) The average shares outstanding method has been applied for per share
information for the six months ended May 31, 2003 and the years ended
November 30, 1999, 2000, 2001 and 2002.
(2) Total investment return is based on the change in net asset value of a
share during the period and assumes reinvestment of dividends and
distributions at net asset value and does not reflect the impact of a sales
charge.
(3) Ratios and portfolio turnover have been annualized and total return has not
been annualized.
See accompanying notes
5
Financial
HIGHLIGHTS (CONTINUED)
Selected data for each share of the Fund outstanding
throughout each period were as follows:
- ----------------------------------------------------------------------------------------------------------------------------------
Delaware Decatur Equity Income Fund Class B
- ----------------------------------------------------------------------------------------------------------------------------------
Six Months
Ended Year Ended
5/31/03(3) 11/30/02 11/30/01 11/30/00 11/30/99 11/30/98
(Unaudited)
Net asset value, beginning of period $ 14.240 $16.630 $16.690 $17.120 $21.320 $22.480
Income (loss) from investment operations:
Net investment income(1) 0.056 0.054 0.054 0.248 0.333 0.403
Net realized and unrealized gain (loss) on investments 0.671 (2.364) (0.063) 0.059 (0.918) 1.797
-------- ------- ------- ------- ------- -------
Total from investment operations 0.727 (2.310) (0.009) 0.307 (0.585) 2.200
-------- ------- ------- ------- ------- -------
Less dividends and distributions from:
Net investment income (0.007) (0.080) (0.051) (0.265) (0.395) (0.290)
Net realized gain on investments -- -- -- (0.472) (3.220) (3.070)
-------- ------- ------- ------- ------- -------
Total dividends and distributions (0.007) (0.080) (0.051) (0.737) (3.615) (3.360)
-------- ------- ------- ------- ------- -------
Net asset value, end of period $ 14.960 $14.240 $16.630 $16.690 $17.120 $21.320
======== ======= ======= ======= ======= =======
Total return(2) 5.11% (13.96%) (0.05%) 2.01% (3.27%) 11.14%
Ratios and supplemental data:
Net assets, end of period (000 omitted) $ 73,106 $75,707 $100,41 $99,266 $151,33 $169,985
Ratio of expenses to average net assets 1.92% 1.86% 1.82% 1.88% 1.81% 1.70%
Ratio of net investment income to average net assets 0.83% 0.35% 0.31% 1.54% 1.81% 1.88%
Portfolio turnover 73% 99% 111% 77% 92% 94%
(1) The average shares outstanding method has been applied for per share
information for the six months ended May 31, 2003 and the years ended
November 30, 1999, 2000, 2001 and 2002.
(2) Total investment return is based on the change in net asset value of a
share during the period and assumes reinvestment of dividends and
distributions at net asset value and does not reflect the impact of a sales
charge.
(3) Ratios and portfolio turnover have been annualized and total return has not
been annualized.
See accompanying notes
6
Financial
HIGHLIGHTS (CONTINUED)
Selected data for each share of the Fund outstanding
throughout each period were as follows:
- ----------------------------------------------------------------------------------------------------------------------------------
Delaware Decatur Equity Income Fund Class C
- ----------------------------------------------------------------------------------------------------------------------------------
Six Months
Ended Year Ended
5/31/03(3) 11/30/02 11/30/01 11/30/00 11/30/99 11/30/98
(Unaudited)
Net asset value, beginning of period $14.320 $16.730 $16.780 $17.220 $21.420 $22.570
Income (loss) from investment operations:
Net investment income(1) 0.056 0.054 0.053 0.247 0.332 0.402
Net realized and unrealized gain (loss) on investments 0.681 (2.384) (0.052) 0.050 (0.917) 1.808
------- ------- ------- ------- ------- -------
Total from investment operations 0.737 (2.330) 0.001 0.297 (0.585) 2.210
------- ------- ------- ------- ------- -------
Less dividends and distributions from:
Net investment income (0.007) (0.080) (0.051) (0.265) (0.395) (0.290)
Net realized gain on investments -- -- -- (0.472) (3.220) (3.070)
------- ------- ------- ------- ------- -------
Total dividends and distributions (0.007) (0.080) (0.051) (0.737) (3.615) (3.360)
------- ------- ------- ------- ------- -------
Net asset value, end of period $15.050 $14.320 $16.730 $16.780 $17.220 $21.420
======= ======= ======= ======= ======= =======
Total return(2) 5.15% (14.00%) 0.02% 1.94% (3.25%) 11.14%
Ratios and supplemental data:
Net assets, end of period (000 omitted) $11,653 $11,098 $13,442 $11,372 $19,511 $23,076
Ratio of expenses to average net assets 1.92% 1.86% 1.82% 1.88% 1.81% 1.70%
Ratio of net investment income to average net assets 0.83% 0.35% 0.31% 1.54% 1.81% 1.88%
Portfolio turnover 73% 99% 111% 77% 92% 94%
(1) The average shares outstanding method has been applied for per share
information for the six months ended May 31, 2003 and the years ended
November 30, 1999, 2000, 2001 and 2002.
(2) Total investment return is based on the change in net asset value of a
share during the period and assumes reinvestment of dividends and
distributions at net asset value and does not reflect the impact of a sales
charge.
(3) Ratios and portfolio turnover have been annualized and total return has not
been annualized.
As of May 31, 2003, Delaware Decatur Equity Income Fund Class R had one share
outstanding, representing the initial seed purchase. Shareholder data for this
class is not disclosed because management does not believe it to be meaningful.
See accompanying notes
7
Financial
HIGHLIGHTS (CONTINUED)
Selected data for each share of the Fund outstanding
throughout each period were as follows:
- ----------------------------------------------------------------------------------------------------------------------------------
Delaware Decatur Equity Income Fund Institutional Class
- ----------------------------------------------------------------------------------------------------------------------------------
Six Months
Ended Year Ended
5/31/03(3) 11/30/02 11/30/01 11/30/00 11/30/99 11/30/98
(Unaudited)
Net asset value, beginning of period $14.320 $16.730 $16.770 $17.200 $21.400 $22.570
Income (loss) from investment operations:
Net investment income(1) 0.124 0.209 0.224 0.408 0.516 0.612
Net realized and unrealized gain (loss) on investments 0.675 (2.380) (0.065) 0.054 (0.913) 1.808
------- ------- ------- ------- ------- -------
Total from investment operations 0.799 (2.171) 0.159 0.462 (0.397) 2.420
------- ------- ------- ------- ------- -------
Less dividends and distributions from:
Net investment income (0.079) (0.239) (0.199) (0.420) (0.583) (0.520)
Net realized gain on investments -- -- -- (0.472) (3.220) (3.070)
------- ------- ------- ------- ------- -------
Total dividends and distributions (0.079) (0.239) (0.199) (0.892) (3.803) (3.590)
------- ------- ------- ------- ------- -------
Net asset value, end of period $15.040 $14.320 $16.730 $16.770 $17.200 $21.400
======= ======= ======= ======= ======= =======
Total return(2) 5.63% (13.11%) 1.00% 2.99% (2.27%) 12.25%
Ratios and supplemental data:
Net assets, end of period (000 omitted) $33,968 $32,928 $48,192 $52,020 $89,128 $243,245
Ratio of expenses to average net assets 0.92% 0.86% 0.82% 0.88% 0.81% 0.70%
Ratio of net investment income to average net assets 1.83% 1.35% 1.31% 2.54% 2.81% 2.88%
Portfolio turnover 73% 99% 111% 77% 92% 94%
(1) The average shares outstanding method has been applied for per share
information for the six months ended May 31, 2003 and the years ended
November 30, 1999, 2000, 2001 and 2002.
(2) Total investment return is based on the change in net asset value of a
share during the period and assumes reinvestment of dividends and
distributions at net asset value.
(3) Ratios and portfolio turnover have been annualized and total return has not
been annualized.
See accompanying notes
8
Notes Delaware Decatur Equity Income Fund
TO FINANCIAL STATEMENTS May 31, 2003 (Unaudited)
Delaware Group Equity Funds II (the "Trust") is organized as a Delaware business
trust and offers four series: Delaware Decatur Equity Income Fund, Delaware
Diversified Value Fund, Delaware Growth and Income Fund, and Delaware Social
Awareness Fund. These financial statements and related notes pertain to the
Delaware Decatur Equity Income Fund (the "Fund"). The Trust is an open-end
investment company. The Fund is considered diversified under the Investment
Company Act of 1940, as amended, and offers Class A, Class B, Class C, Class R
and Institutional Class shares. Class A shares are sold with a front-end sales
charge of up to 5.75%. Class B shares are sold with a contingent deferred sales
charge that declines from 4% to zero depending upon the period of time the
shares were held. Class B shares will automatically convert to Class A shares on
a quarterly basis approximately eight years after purchase. Class C shares are
sold with a contingent deferred sales charge of 1%, 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 a limited group of investors. As
of May 31, 2003, Class R has not commenced operations.
The investment objective of the Delaware Decatur Equity Income Fund is to seek
high current income and capital appreciation.
1. Significant Accounting Policies
The following accounting policies are in accordance with accounting principles
generally accepted in the United States and are consistently followed by the
Fund.
Security Valuation -- All equity securities are valued at the last quoted sales
price as of the time of the regular close of the New York Stock Exchange (NYSE)
on the valuation date. If on a particular day an equity security does not trade,
then the mean between the bid and asked prices will be used. Short-term debt
securities having less than 60 days to maturity are valued at amortized cost,
which approximates market value. 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 Fund's Board of Trustees. 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,
aftermarket trading or with respect to foreign securities or significant events
after local market trading (e.g., government actions or pronouncements, trading
volume or volatility on markets, exchanges among dealers, or news events).
Federal Income Taxes -- The Fund intends to continue to qualify for federal
income tax purposes 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.
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 102% 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.
Use of Estimates -- The preparation of financial statements in conformity with
accounting principles generally accepted in the United States 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 quarterly and distributions from net realized gain on
investments, if any, annually.
Certain expenses of the Fund are paid through commission arrangements with
brokers. These transactions are done subject to best execution. The amount of
these expenses was approximately $10,951 for the period ended May 31, 2003. In
addition, the Fund receives earnings credits from its custodian when positive
cash balances are maintained, which are used to offset custody fees. The
earnings credits for the period ended May 31, 2003 were approximately $235. 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, Administration Agreements and
Other Transactions with Affiliates
In accordance with the terms of the investment management agreement,
the Fund pays Delaware Management Company (DMC), a series of Delaware Management
Business Trust and the investment manager, an annual fee which is calculated
daily at the rate of 0.65% on the first $500 million of average daily net assets
of the Fund, 0.60% on the next $500 million, 0.55% on the next $1.5 billion and
0.50% on average daily net assets in excess of $2.5 billion.
The Fund has engaged Delaware Service Company, Inc. (DSC), an affiliate of DMC,
to provide dividend disbursing, transfer agent, accounting and administration
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.
Pursuant to a distribution agreement and distribution plan, 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 Class A
shares, 1.00% of the average daily net assets of the Class B and C shares and
0.60% of the average daily net assets of the Class R shares. No distribution
expenses are paid by Institutional Class shares.
At May 31, 2003, the Fund had liabilities payable to affiliates as follows:
Investment management fee payable to DMC $81,423
Dividend disbursing, transfer agent fees, accounting
and other expenses payable to DSC 67,362
Other expenses payable to DMC and affiliates 55,991
9
Notes Delaware Decatur Equity Income Fund
TO FINANCIAL STATEMENTS (CONTINUED)
2. Investment Management, Administration Agreements and
Other Transactions with Affiliates (continued)
For the period ended May 31, 2003, DDLP earned $30,896 for commissions on sales
of the Fund's Class A shares.
Certain officers of DMC, DSC and DDLP are officers and/or trustees of the Trust.
These officers and trustees are paid no compensation by the Fund.
3. Investments
For the period ended May 31, 2003, the Fund made purchases of $329,646,553 and
sales of $371,640,511 of investment securities other than short-term
investments.
At May 31, 2003, the cost of investments for federal income tax purposes has
been estimated since the final tax characteristics cannot be determined until
fiscal year end. At May 31, 2003, the cost of investments was $936,211,952. At
May 31, 2003, the net unrealized appreciation was $46,782,285 of which
$96,132,380 related to unrealized appreciation of investments and $49,350,095
related to unrealized depreciation of 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 accounting principles
generally accepted in the United States. The tax character of dividends and
distributions paid during the period ended May 31, 2003 and the year ended
November 30, 2002 were as follows:
Six Months Year
Ended Ended
5/31/03* 11/30/02
Ordinary income $3,779,336 $14,308,680
* Tax information for the period ended May 31, 2003 is an estimate and the tax
character of dividends and distributions may be redesignated at fiscal year
end.
The components of net assets are estimated since final tax characteristics
cannot be determined until fiscal year end. As of May 31, 2003, the estimated
components of net assets on a tax basis were as follows:
Shares of beneficial interest $1,078,608,095
Undistributed ordinary income 3,670,719
Capital loss carryforwards (110,874,481)
Net realized capital losses on investments (34,548,715)
Unrealized appreciation of investments 46,782,285
--------------
Net assets $ 983,637,903
--------------
For federal income tax purposes, capital loss carryforwards may be carried
forward and applied against future capital gains. Such capital loss
carryforwards expire as follows: $95,490,481 expires in 2008 and $15,384,000
expires in 2010.
5. Capital Shares
Transactions in capital shares were as follows:
Six Months Year
Ended Ended
5/31/03 11/30/02
Shares sold:
Class A 1,291,751 1,914,834
Class B 314,053 878,134
Class C 96,230 205,962
Class R 1 --
Institutional Class 181,639 400,717
Shares issued upon reinvestment of
dividends and distributions:
Class A 221,478 691,156
Class B 2,350 25,255
Class C 369 3,504
Class R -- --
Institutional Class 13,040 41,793
---------- ----------
2,120,911 4,161,355
---------- ----------
Shares repurchased:
Class A (4,802,227) (9,506,340)
Class B (748,191) (1,623,214)
Class C (97,402) (237,962)
Class R -- --
Institutional Class (236,576) (1,023,411)
---------- ----------
(5,884,396) (12,390,927)
---------- ----------
Net decrease (3,763,485) (8,229,572)
========== ==========
For the period ended May 31, 2003 and the year ended November 30, 2002, 87,164
Class B shares were converted to 86,611 Class A shares valued at $1,162,331 and
7,535 Class B shares were converted to 7,483 Class A shares valued at $104,424,
respectively. The respective amounts are included in Class B redemptions and
Class A subscriptions in the table above and the Statements of Changes in Net
Assets.
6. Line of Credit
The Fund, along with certain other funds in the Delaware Investments Family of
Funds (the "Participants"), participates in a $202,300,000 revolving line of
credit facility to be used for temporary or emergency purposes as an additional
source of liquidity to fund redemptions of investor shares. The Participants are
charged an annual commitment fee, which is allocated across the Participants on
the basis of each fund's allocation of the entire facility. The Participants may
borrow up to a maximum of one third of their net assets under the agreement. The
Fund had no amounts outstanding as of May 31, 2003, or at any time during the
period.
10
Notes Delaware Decatur Equity Income Fund
TO FINANCIAL STATEMENTS (CONTINUED)
7. Securities Lending
The Fund, along with other funds in the Delaware Investments Family of Funds,
may lend its securities pursuant to a security lending agreement (Lending
Agreement) with J.P. Morgan Chase. Initial security loans made pursuant to the
Lending Agreement are required to be secured by U.S. Treasury obligations and/or
cash collateral not less than 102% of the market value of the securities issued
in the United States and 105% of the market value of securities issued outside
the United States. With respect to each loan, if the aggregate market value of
the collateral held on any business day 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 not less than the applicable
collateral requirements. Cash collateral received is invested in fixed-income
securities, with a weighted average maturity not to exceed 90 days, rated in one
of the top two tiers by Standard & Poors Ratings Group or Moody's Investors
Service, Inc. or repurchase agreements collateralized by such securities.
However, 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. At May 31, 2003, the market
value of the securities on loan was $16,557,023.
The securities on loan were collateralized by the following:
Description Market Value
- -------------- ------------
UBS Warburg LLC 1.38% 6/2/03 $ 8,876,165
Fannie Mae 1.31% 1/29/04 4,748,435
Barclays London 1.27% 6/17/03 760,793
Goldman Sachs Group 1.52% 7/14/03 664,806
Wilmington Trust Company 1.26% 7/21/03 476,325
Merrill Lynch Mortgage Capital 1.48% 6/6/03 474,861
Racers Series 2002-35-C 1.61% 4/15/04 472,946
Morgan Stanley Dean Witter 1.41% 6/30/04 189,944
Canadian Imperial Bank NY 1.41% 10/9/03 94,950
-----------
$16,759,225
-----------
11
Delaware
Investments(SM)
- --------------------------------------
A member of Lincoln Financial Group(R)
This semiannual report is for the information of Delaware Decatur Equity Income
Fund shareholders, but it may be used with prospective investors when preceded
or accompanied by a current prospectus for Delaware Decatur Equity Income Fund
and the Delaware Investments Performance Update for the most recently completed
calendar quarter. The prospectus sets forth details about charges, expenses,
investment objectives, and operating policies of the Fund. You should read the
prospectus carefully before you invest. The figures in this report represent
past results which are not a guarantee of future results. The return and
principal value of an investment in the Fund will fluctuate so that shares, when
redeemed, may be worth more or less than their original cost.
Board of Trustees Affiliated Officers Contact Information
Jude T. Driscoll Michael P. Bishof Investment Manager
Chairman Senior Vice President and Treasurer Delaware Management Company
Delaware Investments Family of Funds Delaware Investments Family of Funds Philadelphia, PA
Philadelphia, PA Philadelphia, PA
International Affiliate
Walter P. Babich Richelle S. Maestro Delaware International Advisers Ltd.
Board Chairman Senior Vice President, London, England
Citadel Construction Corporation General Counsel and Secretary
King of Prussia, PA Delaware Investments Family of Funds National Distributor
Philadelphia, PA Delaware Distributors, L.P.
Philadelphia, PA
David K. Downes
President and Chief Executive Officer Shareholder Servicing, Dividend
Delaware Investments Family of Funds Disbursing and Transfer Agent
Philadelphia, PA Delaware Service Company, Inc.
2005 Market Street
John H. Durham Philadelphia, PA 19103-7094
Private Investor
Gwynedd Valley, PA For Shareholders
800 523-1918
John A. Fry
President For Securities Dealers and Financial
Franklin & Marshall College Institutions Representatives Only
Lancaster, PA 800 362-7500
Anthony D. Knerr Web site
Managing Director www.delawareinvestments.com
Anthony Knerr & Associates
New York, NY
Ann R. Leven
Former Treasurer/Chief Fiscal Officer
National Gallery of Art
Washington, DC
Thomas F. Madison
President and Chief Executive Officer
MLM Partners, Inc.
Minneapolis, MN
Janet L. Yeomans
Vice President/Mergers & Acquisitions
3M Corporation
St. Paul, MN
(7900) Printed in the USA
SA-001 [6/03] IVES 7/03 J9267
Delaware
Investments(SM)
--------------------------------------
STRUCTURED EQUITY A member of Lincoln Financial Group(R)
SemiAnnual Report 2003
- --------------------------------------------------------------------------------
DELAWARE DIVERSIFIED VALUE FUND
[Logo] POWERED BY RESEARCH.(SM)
Table
OF CONTENTS
- -----------------------------------------------------------------
FINANCIAL STATEMENTS:
Statement of Net Assets 1
Statement of Operations 4
Statements of Changes in Net Assets 5
Financial Highlights 6
Notes to Financial Statements 9
- -----------------------------------------------------------------
Funds are not FDIC insured and are not guaranteed. It is possible to lose
the principal amount invested.
Mutual fund advisory services provided by Delaware Management Company, a
series of Delaware Management Business Trust, which is a registered
investment advisor.
(C) 2003 Delaware Distributors, L.P.
Statement Delaware Diversified Value Fund
OF NET ASSETS May 31, 2003 (Unaudited)
Number of Market
Shares Value
- -----------------------------------------------------------------------------
Common Stock - 98.75%
- -----------------------------------------------------------------------------
Aerospace & Defense - 2.77%
General Dynamics 2,300 $ 153,686
+L-3 Communications 2,800 121,380
Northrop Grumman 1,800 158,310
Raytheon 4,800 153,792
United Technologies 5,200 354,900
-----------
942,068
-----------
Automobiles & Automotive Parts - 0.81%
General Motors 7,800 275,574
-----------
275,574
-----------
Banking - 14.88%
Bank of America 13,100 972,020
Bank One 8,700 325,032
Banknorth Group 3,300 84,546
Comerica 4,500 208,215
FleetBoston Financial 8,500 251,345
Golden West Financial 1,700 132,243
GreenPoint Financial 2,100 106,449
Hibernia Class A 3,100 59,861
Mellon Financial 6,900 187,473
National City 10,100 341,582
State Street Bank 5,500 210,705
US Bancorp 16,400 388,680
Wachovia 14,700 590,646
Washington Mutual 10,700 436,346
Wells Fargo 15,900 767,970
-----------
5,063,113
-----------
Basic Industry/Capital Goods - 2.14%
General Electric 5,900 169,330
Hillenbrand Industries 3,500 179,025
Johnson Controls 2,400 199,800
Pentair 4,600 178,756
-----------
726,911
-----------
Building & Materials - 0.70%
D.R. Horton 4,800 126,192
KB Home 1,800 112,500
-----------
238,692
-----------
Business Services - 1.49%
+Cendant 15,000 252,000
Eastman Kodak 8,300 254,312
-----------
506,312
-----------
Cable, Media & Publishing - 8.39%
+AOL Time Warner 36,400 554,008
+Clear Channel Communications 5,900 240,130
+Comcast Class A 15,300 460,683
+Comcast Special Class A 5,900 170,038
Disney (Walt) 13,400 263,310
+General Motors - Hughes Electronics 14,000 170,800
+Liberty Media Class A 14,400 168,480
McGraw-Hill 2,000 126,420
Number of Market
Shares Value
- -----------------------------------------------------------------------------
Common Stock (continued)
- -----------------------------------------------------------------------------
Cable, Media & Publishing (continued)
+USA Interactive 4,400 $ 169,180
+Viacom 11,700 532,584
-----------
2,855,633
-----------
Chemicals - 3.01%
Air Products & Chemicals 3,700 161,283
duPont (E.I.) deNemours 6,600 278,124
IMC Global 10,800 94,392
Lubrizol 2,500 79,750
Praxair 3,000 179,970
Rohm & Haas 3,300 107,019
Sigma-Aldrich 2,400 125,544
-----------
1,026,082
-----------
Computers & Technology - 5.82%
+Emulex 4,800 118,560
Hewlett-Packard 14,400 280,800
International Business Machines 7,500 660,300
+Intuit 3,000 138,270
Microchip Technology 6,600 157,146
Microsoft 13,100 322,391
+Oracle 11,800 153,518
+Veritas Software 5,400 149,850
-----------
1,980,835
-----------
Consumer Products - 3.78%
3M 2,800 354,116
Colgate-Palmolive 1,900 113,278
Fortune Brands 1,800 94,320
Newell Rubbermaid 7,000 199,500
Procter & Gamble 5,700 523,374
-----------
1,284,588
-----------
Electronics & Electrical Equipment - 0.72%
Emerson Electric 4,700 245,810
-----------
245,810
-----------
Energy - 10.35%
Amerada Hess 3,200 156,800
Anadarko Petroleum 3,600 177,408
Apache 1,400 92,288
ChevronTexaco 7,600 539,144
ConocoPhillips 5,000 269,850
Devon Energy 3,800 197,600
Exxon Mobil 44,700 1,627,080
Marathon Oil 6,300 162,099
Occidental Petroleum 6,300 212,562
Unocal 3,000 90,270
-----------
3,525,101
-----------
Environmental Services - 0.99%
Waste Management 13,200 336,204
-----------
336,204
-----------
1
Statement Delaware Diversified Value Fund
OF NET ASSETS (CONTINUED)
Number of Market
Shares Value
- -----------------------------------------------------------------------------
Common Stock (continued)
- -----------------------------------------------------------------------------
Finance - 11.17%
American Express 5,300 $ 220,798
Bear Stearns 2,900 224,083
Block (H&R) 3,300 135,102
Citigroup 35,000 1,435,700
Countrywide Credit Industries 2,400 176,760
Freddie Mac 4,300 257,183
Goldman Sachs Group 1,800 146,700
J.P. Morgan Chase & Company 11,500 377,890
Merrill Lynch & Company 6,400 277,120
Morgan Stanley & Company 12,000 549,000
-----------
3,800,336
-----------
Food, Beverage & Tobacco - 2.31%
Anheuser-Busch 1,400 73,682
Archer-Daniels-Midland 10,800 129,276
Coca-Cola 4,500 205,065
Kraft Foods - Class A 6,400 207,360
McDonald's 9,200 172,316
-----------
787,699
-----------
Healthcare & Pharmaceuticals - 5.27%
Aetna 3,300 189,486
Baxter International 5,700 144,438
+Guidant 2,300 97,244
HCA - The Healthcare Company 5,000 165,000
Merck & Company 9,200 511,336
Pfizer 8,800 272,976
Schering-Plough 12,400 228,780
+Steris 4,600 103,730
+Tenet Healthcare 4,900 81,781
-----------
1,794,771
-----------
Industrial Machinery - 0.31%
Deere & Co. 2,400 104,808
-----------
104,808
-----------
Insurance - 5.38%
Aflac 2,200 72,402
Allstate 9,300 334,707
American International Group 9,500 549,860
John Hancock Financial Services 5,300 160,325
Met Life 8,100 226,557
Nationwide Financial Services 2,900 93,554
Old Republic International 2,200 75,548
Principal Financial Group 2,900 92,104
Prudential Financial 6,800 227,936
-----------
1,832,993
-----------
Leisure, Lodging & Entertainment - 0.35%
Harley-Davidson 2,800 118,048
-----------
118,048
-----------
Packaging & Containers - 0.74%
Bemis 1,900 86,982
+Pactiv 4,200 82,110
Number of Market
Shares Value
- -----------------------------------------------------------------------------
Common Stock (continued)
- -----------------------------------------------------------------------------
Packaging & Containers (continued)
Sonoco Products 3,700 $ 83,139
-----------
252,231
-----------
Paper & Forest Products - 1.48%
International Paper 9,100 333,697
Kimberly-Clark 3,300 171,369
-----------
505,066
-----------
REITs - 0.72%
Duke-Weeks Realty 3,100 87,978
Equity Office Properties Trust 5,900 158,769
-----------
246,747
-----------
Retail - 3.31%
+Best Buy 2,300 89,010
CVS 6,300 164,430
Home Depot 5,700 185,193
Nordstrom 6,600 123,090
+Office Depot 9,800 131,320
Penney (J.C.) 11,200 193,984
V F Corporation 2,200 83,754
+Yum! Brands 5,600 156,576
-----------
1,127,357
-----------
Telecommunications - 6.61%
+AT&T Wireless Services 21,500 167,055
BellSouth 10,000 265,100
+Cisco Systems 8,000 130,240
+JDS Uniphase 11,700 45,279
Qualcomm 5,300 177,974
SBC Communications 31,100 791,806
Verizon Communications 17,800 673,730
-----------
2,251,184
-----------
Transportation & Shipping - 1.11%
CSX 7,400 242,350
FedEx 2,100 134,358
-----------
376,708
-----------
Utilities - 4.14%
American Electric Power 6,500 188,760
Dominion Resources 1,700 107,100
DTE Energy 2,400 103,992
Duke Energy 9,700 187,986
+Edison International 8,000 130,240
Exelon 3,400 194,820
FirstEnergy 3,900 143,559
FPL Group 2,000 132,940
KeySpan 2,900 102,138
TXU 5,900 119,416
-----------
1,410,951
-----------
Total Common Stock (cost $31,375,717) 33,615,822
-----------
2
Statement Delaware Diversified Value Fund
OF NET ASSETS (CONTINUED)
Principal Market
Amount Value
- -----------------------------------------------------------------------------
Repurchase Agreements - 1.14%
- -----------------------------------------------------------------------------
With BNP Paribas 1.24% 6/2/03
(dated 5/30/03, collateralized by
$133,300 U.S. Treasury Bills due
8/28/03, market value $132,923) $ 130,300 $ 130,300
With Cantor Fitzgerald 1.24% 6/2/03
(dated 5/30/03, collateralized
by $43,450 U.S. Treasury Notes
5.25% due 5/15/04, market value
$45,230 and $20,050 U.S Treasury
Notes 7.25% due 5/15/04,
market value $21,237) 65,150 65,150
With J. P. Morgan Securities 1.18%
6/2/03 (dated 5/30/03,
collateralized by $32,950 U.S.
Treasury Notes 2.125% due
8/31/04, market value $33,530) 32,850 32,850
With UBS Warburg 1.24% 6/2/03
(dated 5/30/03, collateralized
by $149,200 U.S. Treasury Notes
7.875% due 11/15/04,
market value $163,956) 160,700 160,700
-----------
Total Repurchase Agreements
(cost $389,000) 389,000
-----------
Total Market Value of Securities - 99.89%
(cost $31,764,717) 34,004,822
Receivables and Other Assets
Net of Liabilities - 0.11% 38,784
-----------
Net Assets Applicable to 3,926,041
Shares Outstanding - 100.00% $34,043,606
===========
Net Asset Value - Delaware Diversified
Value Fund Class A
($200,298 / 23,114 Shares) $8.67
-----
Net Asset Value - Delaware Diversified
Value Fund Class B
($162,992 / 18,858 Shares) $8.64
-----
Net Asset Value - Delaware Diversified
Value Fund Class C
($64,379 / 7,449 Shares) $8.64
-----
Net Asset Value - Delaware Diversified
Value Fund Institutional Class
($33,615,937 / 3,876,620 Shares) $8.67
-----
- -----------------------------------------------------------------------------
Components of Net Assets at May 31, 2003:
Shares of beneficial interest
(unlimited authorization - no par) $34,931,126
Undistributed net investment income 187,840
Accumulated net realized loss on investments (3,315,465)
Net unrealized appreciation of investments 2,240,105
-----------
Total net assets $34,043,606
===========
+Non-income producing security for the period ended May 31, 2003.
Summary of Abbreviations:
REIT - Real Estate Investment Trust
Net Asset Value and Offering Price per Share -
Delaware Diversified Value Fund
Net asset value Class A (A) $8.67
Sales charge (5.75% of offering price, or 6.11%
of the amount invested per share) (B) 0.53
-----
Offering price $9.20
=====
(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 the current prospectus for purchases of $50,000 or more.
See accompanying notes
3
Statement Delaware Diversified Value Fund
OF OPERATIONS Six Months Ended May 31, 2003 (Unaudited)
Investment Income:
Dividends $322,646
Interest 2,501 $ 325,147
--------
Expenses:
Management fees 88,133
Registration fees 29,000
Reports and statements to shareholders 9,834
Dividend disbursing and transfer agent fees and expenses 9,430
Accounting and administration expenses 5,400
Custodian fees 2,330
Trustees' fees 1,481
Professional fees 960
Distribution expenses-- Class A 135
Distribution expenses-- Class B 468
Distribution expenses-- Class C 173
Other 3,763 151,107
--------
Less expenses absorbed or waived (48,709)
Less waived distribution expenses-- Class A (22)
Less expenses paid indirectly (326)
----------
Total expenses 102,050
----------
Net Investment Income 223,097
----------
Net Realized and Unrealized Gain (Loss) on Investments:
Net realized loss on investments (1,195,241)
Net change in unrealized appreciation/depreciation of investments 3,085,219
----------
Net Realized and Unrealized Gain on Investments 1,889,978
----------
Net Increase in Net Assets Resulting from Operations $2,113,075
==========
See accompanying notes
4
Statements Delaware Diversified Value Fund
OF CHANGES IN NET ASSETS
Six Months Year
Ended Ended
5/31/03 11/30/02
(Unaudited)
Increase (Decrease) in Net Assets from Operations:
Net investment income $223,097 $264,412
Net realized loss on investments (1,195,241) (1,754,945)
Net change in unrealized appreciation/depreciation of investments 3,085,219 (697,909)
----------- -----------
Net increase (decrease) in net assets resulting from operations 2,113,075 (2,188,442)
----------- -----------
Dividends and Distributions to Shareholders from:
Net investment income:
Class A (664) (169)
Class B (495) --
Class C (60) --
Institutional Class (280,307) (106,073)
----------- -----------
(281,526) (106,242)
----------- -----------
Capital Share Transactions:
Proceeds from shares sold:
Class A 159,306 22,304
Class B 138,360 12,071
Class C 51,647 27,103
Institutional Class 10,942,032 11,505,844
Net asset value of shares issued upon reinvestment of dividends and distributions:
Class A 590 169
Class B 400 --
Class C -- --
Institutional Class 280,307 106,073
----------- -----------
11,572,642 11,673,564
----------- -----------
Cost of shares repurchased:
Class A (12,453) (15)
Class B -- --
Class C (18,524) --
Institutional Class (2,687,354) (23,912)
----------- -----------
(2,718,331) (23,927)
----------- -----------
Increase in net assets derived from capital share transactions 8,854,311 11,649,637
----------- -----------
Net Increase in Net Assets 10,685,860 9,354,953
Net Assets:
Beginning of period 23,357,746 14,002,793
----------- -----------
End of period $34,043,606 $23,357,746
=========== ===========
See accompanying notes
5
Financial
HIGHLIGHTS
Selected data for each share of the Fund outstanding
throughout each period were as follows:
- ----------------------------------------------------------------------------------------------------------
Delaware Diversified Value Fund Class A
- ----------------------------------------------------------------------------------------------------------
Six Months
Ended Year Ended
5/31/03(1) 11/30/02 11/30/01 11/30/00(2)
(Unaudited)
Net asset value, beginning of period $8.300 $9.490 $10.150 $10.690
Income (loss) from investment operations:
Net investment income(3) 0.055 0.113 0.116 0.125
Net realized and unrealized gain (loss) on investments 0.396 (1.231) (0.309) 0.092
------ ------ ------- -------
Total from investment operations 0.451 (1.118) (0.193) 0.217
------ ------ ------- -------
Less dividends and distributions:
From net investment income (0.081) (0.072) (0.103) (0.070)
From net realized gain on investments -- -- (0.147) (0.687)
In excess of net realized gain on investments -- -- (0.217) --
------ ------ ------- -------
Total dividends and distributions (0.081) (0.072) (0.467) (0.757)
------ ------ ------- -------
Net asset value, end of period $8.670 $8.300 $9.490 $10.150
====== ====== ======= =======
Total return(4) 5.51% (11.88%) (2.11%) 2.32%
Ratios and supplemental data:
Net assets, end of period (000 omitted) $200 $42 $22 $23
Ratio of expenses to average net assets 1.00% 1.03% 0.75% 0.75%
Ratio of expenses to average net assets prior
to expense limitation and expenses paid indirectly 1.40% 1.60% 1.08% 1.10%
Ratio of net investment income to average net assets 1.41% 1.27% 1.18% 1.23%
Ratio of net investment income to average net assets prior
to expense limitation and expenses paid indirectly 1.01% 0.70% 0.85% 0.88%
Portfolio turnover 120% 61% 101% 130%
(1) Ratios and portfolio turnover have been annualized and total return has not
been annualized.
(2) Shares of the Delaware Diversified Value Fund Class A were initially offered
on September 15, 1998. Prior to the fiscal year ended November 30, 2000,
there was a balance of 1 share representing the initial seed purchase.
Financial Highlights for the periods ended November 30, 1998 and 1999 are
not presented because the data is not believed to be meaningful.
(3) The average shares outstanding method has been applied for per share
information.
(4) Total investment return is based on the change in net asset value of a share
during the period and assumes reinvestment of dividends and distributions at
net asset value and does not reflect the impact of a sales charge. Total
investment return reflects a waiver and payment of fees by the manager and
the distributor, as applicable. Performance would have been lower had the
expense limitation not been in effect.
See accompanying notes
6
Financial
HIGHLIGHTS (CONTINUED)
Selected data for each share of the Fund outstanding
throughout each period were as follows:
- ----------------------------------------------------------------------------------------------------------------------
Delaware Diversified Delaware Diversified
Value Fund Class B Value Fund Class C
- ----------------------------------------------------------------------------------------------------------------------
Six Months 4/30/02(2) Six Months 4/30/02(2)
Ended to Ended to
5/31/03(1) 11/30/02 5/31/03(1) 11/30/02
(Unaudited) (Unaudited)
Net asset value, beginning of period $8.310 $9.480 $8.280 $9.480
Income (loss) from investment operations:
Net investment income(3) 0.026 0.030 0.026 0.032
Net realized and unrealized gain (loss) on investments 0.385 (1.200) 0.393 (1.232)
------ ------ ------ ------
Total from investment operations 0.411 (1.170) 0.419 (1.200)
------ ------ ------ ------
Less dividends and distributions from:
Net investment income (0.081) -- (0.059) --
Net realized gain on investments -- -- -- --
------ ------ ------ ------
Total dividends and distributions (0.081) -- (0.059) --
------ ------ ------ ------
Net asset value, end of period $8.640 $8.310 $8.640 $8.280
====== ====== ====== ======
Total return(4) 5.02% (12.34%) 5.11% (12.66%)
Ratios and supplemental data:
Net assets, end of period (000 omitted) $163 $13 $64 $27
Ratio of expenses to average net assets 1.75% 1.93% 1.75% 1.93%
Ratio of expenses to average net assets prior
to expense limitation and expenses paid indirectly 2.10% 2.62% 2.10% 2.62%
Ratio of net investment income to average net assets 0.66% 0.59% 0.66% 0.59%
Ratio of net investment income (loss) to average net assets prior
to expense limitation and expenses paid indirectly 0.31% (0.10%) 0.31% (0.10%)
Portfolio turnover 120% 61% 120% 61%
(1) Ratios and portfolio turnover have been annualized and total return has not
been annualized.
(2) Date of commencement of operations; ratios and portfolio turnover have been
annualized and total return has not been annualized.
(3) The average shares outstanding method has been applied for per share
information.
(4) Total investment return is based on the change in net asset value of a share
during the period and assumes reinvestment of dividends and distributions at
net asset value and does not reflect the impact of a sales charge. Total
investment return reflects a waiver and payment of fees by the manager.
Performance would have been lower had the expense limitation not been in
effect.
See accompanying notes
7
Financial
HIGHLIGHTS (CONTINUED)
Selected data for each share of the Fund outstanding
throughout each period were as follows:
- -----------------------------------------------------------------------------------------------------------------------------------
Delaware Diversified Value Fund Institutional Class
- -----------------------------------------------------------------------------------------------------------------------------------
Six Months 9/15/98(2)
Ended Year Ended to
5/31/03(1) 11/30/02 11/30/01 11/30/00 11/30/99 11/30/98
(Unaudited)
Net asset value, beginning of period $8.310 $9.490 $10.150 $10.690 $9.540 $8.500
Income (loss) from investment operations:
Net investment income(3) 0.065 0.126 0.116 0.125 0.129 0.026
Net realized and unrealized gain (loss) on investments 0.392 (1.234) (0.309) 0.092 1.108 1.014
------ ------ ------ ------- ------- ------
Total from investment operations 0.457 (1.108) (0.193) 0.217 1.237 1.040
------ ------ ------ ------- ------- ------
Less dividends and distributions:
From net investment income (0.097) (0.072) (0.103) (0.070) (0.037) --
From net realized gain on investments -- -- (0.147) (0.687) (0.050) --
In excess of net realized gain on investments -- -- (0.217) -- -- --
------ ------ ------ ------- ------- ------
Total dividends and distributions (0.097) (0.072) (0.467) (0.757) (0.087) --
------ ------ ------ ------- ------- ------
Net asset value, end of period $8.670 $8.310 $9.490 $10.150 $10.690 $9.540
====== ====== ====== ======= ======= ======
Total return(4) 5.59% (11.77%) (2.11%) 2.32% 13.05% 12.24%
Ratios and supplemental data:
Net assets, end of period (000 omitted) $33,616 $23,276 $13,980 $15,327 $5,143 $2,244
Ratio of expenses to average net assets 0.75% 0.87% 0.75% 0.75% 0.75% 0.75%
Ratio of expenses to average net assets prior
to expense limitation and expenses paid indirectly 1.10% 1.30% 0.78% 0.80% 1.24% 1.24%
Ratio of net investment income to average net assets 1.66% 1.43% 1.18% 1.23% 1.25% 1.41%
Ratio of net investment income to average net assets prior
to expense limitation and expenses paid indirectly 1.31% 1.00% 1.15% 1.18% 0.76% 0.92%
Portfolio turnover 120% 61% 101% 130% 111% 74%
(1) Ratios and portfolio turnover have been annualized and total return has not
been annualized.
(2) Date of commencement of operations; ratios and portfolio turnover have been
annualized and total return has not been annualized.
(3) The average shares outstanding method has been applied for per share
information.
(4) Total investment return is based on the change in net asset value of a share
during the period and assumes reinvestment of dividends and distributions at
net asset value. Total investment return reflects a waiver and payment of
fees by the manager. Performance would have been lower had the expense
limitation not been in effect.
See accompanying notes
8
Notes Delaware Diversified Value Fund
TO FINANCIAL STATEMENTS May 31, 2003 (Unaudited)
Delaware Group Equity Funds II (the "Trust") is organized as a Delaware business
trust and offers four series: Delaware Decatur Equity Income Fund, Delaware
Diversified Value Fund, Delaware Growth and Income Fund and Delaware Social
Awareness Fund. These financial statements and the related notes pertain to
Delaware Diversified Value Fund (the "Fund"). The Trust is an open-end
investment company. The Fund is considered diversified under the Investment
Company Act of 1940, as amended, and offers Class A, Class B, Class C, Class R,
and Institutional Class shares. Class A shares are sold with a front-end sales
charge of up to 5.75%. Class B shares are sold with a contingent deferred sales
charge that declines from 4% to zero depending upon the period of time the
shares are held. Class B shares will automatically convert to Class A shares on
a quarterly basis approximately eight years after purchase. Class C shares are
sold with a contingent deferred sales charge of 1%, if redeemed during the first
twelve months. Class R and Institutional Class shares are not subject to a sales
charge and are offered for sale exclusively to a limited group of investors.
Class R shares have not commenced operations.
The investment objective of the Fund is to achieve capital appreciation with
current income as a secondary objective.
1. Significant Accounting Policies
The following accounting policies are in accordance with accounting principles
generally accepted in the United States and are consistently followed by the
Fund.
Security Valuation -- All equity securities are valued at the last quoted sales
price as of the time of the regular close of the New York Stock Exchange (NYSE)
on the valuation date. If on a particular day an equity security does not trade,
then the mean between the bid and asked prices will normally be used. Short-term
debt securities having less than 60 days to maturity are valued at amortized
cost, which approximates market value. 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 Fund's Board of Trustees. 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 with respect to foreign securities, after market trading or
significant events after local market trading (e.g., government actions or
pronouncements, trading volume or volatility on markets, exchanges among
dealers, or news events).
Federal Income Taxes -- The Fund intends to continue to qualify for federal
income tax purposes 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.
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 102% 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.
Use of Estimates -- The preparation of financial statements in conformity with
accounting principles generally accepted in the United States 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 distributions from net realized gain from investments, if
any, annually.
Certain expenses of the Fund are paid through commission arrangements with
brokers. These transactions are done subject to best execution. The amount of
these expenses was approximately $325 for the period ended May 31, 2003. In
addition, the Fund receives earnings credits from its custodian when positive
cash balances are maintained, which are used to offset custody fees. The
earnings credits for the period ended May 31, 2003, was approximately $1. 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, Administration Agreement and
Other Transactions with Affiliates
In accordance with the terms of the investment management agreement, the Fund
pays Delaware Management Company (DMC), a series of Delaware Management Business
Trust and the investment manager, an annual fee which is calculated daily at the
rate of 0.65% on the first $500 million of average daily net assets of the Fund,
0.60% on the next $500 million, 0.55% on the next $1.5 billion and 0.50% on
average daily net assets in excess of $2.5 billion.
DMC has contracted to waive that portion, if any, of its management fee and
reimburse the Fund to the extent necessary to ensure that annual operating
expenses, exclusive of taxes, interest, brokerage commissions, distribution
fees, and extraordinary expenses, do not exceed 0.75% of average daily net
assets of the Fund through January 31, 2004.
The Fund has engaged Delaware Service Company, Inc. (DSC), an affiliate of DMC,
to provide dividend disbursing, transfer agent, accounting and administration
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.
Pursuant to a distribution agreement and distribution plan, 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 Class A
shares, 1.00% of the average daily net assets of the Class B and C shares and
0.60% of the average daily net assets of Class R shares. DDLP has elected to
waive its fees through January 31, 2004 in order to prevent distribution fees of
Class A shares from exceeding 0.25% of average daily net assets. No distribution
expenses are paid by Institutional Class shares.
9
Notes Delaware Diversified Value Fund
TO FINANCIAL STATEMENTS (CONTINUED)
2. Investment Management, Administration Agreement and
Other Transactions with Affiliates (continued)
At May 31, 2003, the Fund had liabilities payable to affiliates as follows:
Investment management fee payable to DMC $10,940
Dividend disbursing, transfer agent fees,
accounting and other expenses payable to DSC 3,012
Other expenses payable to DMC and affiliates 890
For the period ended May 31, 2003, DDLP earned $86 for commissions on sales of
the Fund's Class A shares.
Certain officers of DMC, DSC and DDLP are officers and/or trustees of the Trust.
These officers and trustees are paid no compensation by the Fund.
3. Investments
For the period ended May 31, 2003, the Fund made purchases of $24,572,943 and
sales of $16,089,575 of investment securities other than short-term investments.
At May 31, 2003, the cost of investments for federal income tax purposes has
been estimated since the tax characteristics cannot be determined until fiscal
year end. At May 31, 2003, the cost of investments was $32,190,753. At May 31,
2003, the unrealized appreciation was $1,814,069 of which $2,398,773 related to
unrealized appreciation of investments and $584,704 related to unrealized
depreciation of 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 accounting principles
generally accepted in the United States. The tax character of dividends and
distributions paid during the period ended May 31, 2003 and the year ended
November 30, 2002 were as follows:
2003* 2002
Ordinary income $281,526 $106,242
*Tax information for the period ended May 31, 2003, is an estimate and the tax
character of dividends and distributions may be redesignated at fiscal year
end.
The components of net assets are estimated since final tax characteristics
cannot be determined until fiscal year end. As of May 31, 2003, the components
of net assets on a tax basis were as follows:
Shares of beneficial interest $34,931,126
Undistributed ordinary income 187,840
Net realized capital loss on investments (1,202,564)
Capital loss carryforwards (1,686,865)
Unrealized appreciation of investments 1,814,069
-----------
Net assets $34,043,606
===========
For federal income tax purposes, capital loss carryforwards may be carried
forward and applied against future capital gains. Such capital loss
carryforwards expire as follows: $48,010 expires in 2009 and $1,638,855 expires
in 2010.
5. Capital Shares
Transactions in capital shares were as follows:
Six Months Year
Ended Ended
5/31/03 11/30/02
Shares sold:
Class A 19,642 2,649
Class B 17,290 1,518
Class C 6,423 3,282
Institutional Class 1,385,477 1,318,970
Shares issued upon reinvestment of dividends and distributions:
Class A 73 18
Class B 50 --
Class C -- --
Institutional Class 34,907 11,166
---------- ----------
1,463,862 1,337,603
---------- ----------
Shares repurchased:
Class A (1,619) (2)
Class B -- --
Class C (2,256) --
Institutional Class (344,123) (3,013)
---------- ----------
(347,998) (3,015)
---------- ----------
Net increase 1,115,864 1,334,588
========= =========
6. Line of Credit
The Fund, along with certain other funds in the Delaware Investments Family of
Funds (the "Participants"), participates in a $202,300,000 revolving line of
credit facility to be used for temporary or emergency purposes as an additional
source of liquidity to fund redemptions of investor shares. The Participants are
charged an annual commitment fee, which is allocated across the Participants on
the basis of each fund's allocation of the entire facility. The Participants may
borrow up to a maximum of one-third of their net assets under the agreement. The
Fund had no amount outstanding at May 31, 2003, or at any time during the
period.
10
Delaware
Investments(SM)
- --------------------------------------
A member of Lincoln Financial Group(R)
This semiannual report is for the information of Delaware Diversified Value Fund
shareholders, but it may be used with prospective investors when preceded or
accompanied by a current prospectus for Delaware Diversified Value Fund and the
Delaware Investments Performance Update for the most recently completed calendar
quarter. The prospectus sets forth details about charges, expenses, investment
objectives, and operating policies of the Fund. You should read the prospectus
carefully before you invest. The figures in this report represent past results
which are not a guarantee of future results. The return and principal value of
an investment in the Fund will fluctuate so that shares, when redeemed, may be
worth more or less than their original cost.
Board of Trustees Affiliated Officers Contact Information
Jude T. Driscoll Michael P. Bishof Investment Manager
Chairman Senior Vice President and Treasurer Delaware Management Company
Delaware Investments Family of Funds Delaware Investments Family of Funds Philadelphia, PA
Philadelphia, PA Philadelphia, PA
International Affiliate
Walter P. Babich Richelle S. Maestro Delaware International Advisers Ltd.
Board Chairman Senior Vice President, London, England
Citadel Construction Corporation General Counsel and Secretary
King of Prussia, PA Delaware Investments Family of Funds National Distributor
Philadelphia, PA Delaware Distributors, L.P.
David K. Downes Philadelphia, PA
President and Chief Executive Officer
Delaware Investments Family of Funds Shareholder Servicing, Dividend
Philadelphia, PA Disbursing and Transfer Agent
Delaware Service Company, Inc.
John H. Durham 2005 Market Street
Private Investor Philadelphia, PA 19103-7094
Gwynedd Valley, PA
For Shareholders
John A. Fry 800 523-1918
President
Franklin & Marshall College For Securities Dealers and Financial
Lancaster, PA Institutions Representatives Only
800 362-7500
Anthony D. Knerr
Managing Director Web site
Anthony Knerr & Associates www.delawareinvestments.com
New York, NY
Ann R. Leven
Former Treasurer/Chief Fiscal Officer
National Gallery of Art
Washington, DC
Thomas F. Madison
President and Chief Executive Officer
MLM Partners, Inc.
Minneapolis, MN
Janet L. Yeomans
Vice President/Mergers & Acquisitions
3M Corporation
St. Paul, MN
(7912) Printed in the USA
SA-456 [5/03] IVES 7/03 J9277
Delaware
Investments(SM)
--------------------------------------
VALUE-EQUITY A member of Lincoln Financial Group(R)
Semiannual Report 2003
- --------------------------------------------------------------------------------
DELAWARE GROWTH AND INCOME FUND
[Logo] POWERED BY RESEARCH.(SM)
Table
OF CONTENTS
- --------------------------------------------------
FINANCIAL STATEMENTS:
Statement of Net Assets 1
Statement of Operations 3
Statements of Changes in Net Assets 4
Financial Highlights 5
Notes to Financial Statements 9
- --------------------------------------------------
Funds are not FDIC insured and are not guaranteed. It is possible to lose the
principal amount invested.
Mutual fund advisory services provided by Delaware
Management Company, a series of Delaware Management Business Trust, which is a
registered investment advisor.
(C) 2003 Delaware Distributors, L.P.
Statement Delaware Growth and Income Fund
OF NET ASSETS May 31, 2003 (Unaudited)
Number of Market
Shares Value
- --------------------------------------------------------------------------------
Common Stock - 99.42%
- --------------------------------------------------------------------------------
Aerospace & Defense - 1.76%
Boeing 108,800 $ 3,336,896
Honeywell International 189,400 4,962,280
------------
8,299,176
------------
Automobiles & Automotive Parts - 0.81%
General Motors 108,700 3,840,371
------------
3,840,371
------------
Banking & Finance - 22.09%
Bank of America 132,548 9,835,062
Bank of New York 215,700 6,244,515
Charter One Financial 152,900 4,657,334
Citigroup 248,400 10,189,368
*Comerica 134,300 6,214,061
FleetBoston Financial 147,400 4,358,618
Goldman Sachs Group 123,600 10,073,400
J.P. Morgan Chase 326,150 10,717,289
KeyCorp 81,100 2,141,040
MBNA 341,000 6,837,050
Mellon Financial 303,600 8,248,812
Morgan Stanley 229,400 10,495,050
U.S. Bancorp 417,300 9,890,010
Wells Fargo 93,200 4,501,560
------------
104,403,169
------------
Cable, Media & Publishing - 1.23%
Gannett 45,200 3,570,800
*Knight-Ridder 31,900 2,247,036
------------
5,817,836
------------
Chemicals - 4.35%
Air Products & Chemicals 101,300 4,415,667
Dow Chemical 252,000 8,013,600
duPont (E.I.) deNemours 107,800 4,542,692
Rohm & Haas 110,800 3,593,244
------------
20,565,203
------------
Computers & Technology - 7.08%
+Cisco Systems 384,500 6,259,660
First Data 122,500 5,073,950
Hewlett-Packard 197,100 3,843,450
International Business Machines 51,300 4,516,452
Microsoft 271,400 6,679,154
+Oracle 544,200 7,080,042
------------
33,452,708
------------
Consumer Products - 4.92%
Gillette 149,700 5,031,417
Kimberly-Clark 181,000 9,399,330
Newell Rubbermaid 309,300 8,815,050
------------
23,245,797
------------
Electronics & Electrical Equipment - 6.72%
Emerson Electric 90,000 4,707,000
General Electric 274,400 7,875,280
Intel 359,600 7,494,064
Number of Market
Shares Value
- --------------------------------------------------------------------------------
Common Stock (continued)
- --------------------------------------------------------------------------------
Electronics & Electrical Equipment (continued)
+National Semiconductor 96,100 $ 2,398,656
Raytheon 150,600 4,825,224
Texas Instruments 218,000 4,469,000
------------
31,769,224
------------
Energy - 7.25%
ChevronTexaco 86,500 6,136,310
Exxon Mobil 299,254 10,892,846
Kerr-McGee 138,500 6,589,830
Occidental Petroleum 172,500 5,820,150
Royal Dutch Petroleum - ADR 105,800 4,819,190
------------
34,258,326
------------
Food, Beverage & Tobacco - 4.53%
Anheuser-Busch 95,900 5,047,217
General Mills 70,600 3,302,668
Kraft Foods - Class A 107,200 3,473,280
PepsiCo 110,600 4,888,520
Sysco 152,200 4,709,068
------------
21,420,753
------------
Healthcare & Pharmaceuticals - 8.15%
Abbott Laboratories 189,600 8,446,680
Baxter International 291,400 7,384,076
Bristol-Myers Squibb 211,900 5,424,640
Pfizer 212,020 6,576,860
Wyeth 243,600 10,681,860
------------
38,514,116
------------
Industrial Machinery - 2.31%
Caterpillar 101,700 5,303,655
Deere 128,300 5,602,861
------------
10,906,516
------------
Insurance - 11.32%
Allstate 132,900 4,783,071
American International Group 88,900 5,145,532
Chubb 114,600 7,337,838
John Hancock Financial Services 255,000 7,713,750
Marsh & McLennan 188,800 9,464,544
*MBIA 79,600 3,983,980
MGIC Investment 133,800 7,227,876
XL Capital Ltd. - Class A 90,100 7,843,205
------------
53,499,796
------------
Leisure, Lodging & Entertainment - 4.16%
Darden Restaurants 248,100 4,914,861
+MGM Grand 127,400 3,599,050
Starwood Hotels & Resorts Worldwide 141,400 4,097,772
*Walt Disney 188,400 3,702,060
+Westwood One 98,300 3,328,438
------------
19,642,181
------------
Metals & Mining - 1.00%
Alcoa 192,200 4,730,042
------------
4,730,042
------------
1
Statement Delaware Growth and Income Fund
OF NET ASSETS (CONTINUED)
Number of Market
Shares Value
- --------------------------------------------------------------------------------
Common Stock (continued)
- --------------------------------------------------------------------------------
Paper & Forest Products - 1.78%
International Paper 229,990 $ 8,433,733
-----------
8,433,733
-----------
Retail - 1.23%
Target 158,500 5,805,855
-----------
5,805,855
-----------
Telecommunications - 3.14%
Alltel 92,600 4,433,688
SBC Communications 183,711 4,677,282
Verizon Communications 151,672 5,740,785
-----------
14,851,755
-----------
Textiles, Apparel & Furniture - 1.14%
Nike 96,700 5,414,233
-----------
5,414,233
-----------
Utilities - 4.45%
BCE 258,500 5,692,170
Dominion Resources 78,500 4,945,500
FirstEnergy 138,100 5,083,461
FPL Group 79,600 5,291,012
-----------
21,012,143
-----------
Total Common Stock (cost $446,847,979) 469,882,933
-----------
Principal
Amount
- --------------------------------------------------------------------------------
Repurchase Agreements - 0.72%
- --------------------------------------------------------------------------------
With BNP Paribas 1.24% 6/2/03
(dated 5/30/03, collateralized
by $1,167,000 U.S. Treasury
Bills due 8/28/03, market
value $1,164,531) $1,141,000 1,141,000
With Cantor Fitzgerald 1.24% 6/2/03
(dated 5/30/03, collateralized
by $381,000 U.S. Treasury Notes
5.25% due 5/15/04, market
value $396,258 and $175,000
U.S Treasury Notes 7.25% due
5/15/04, market value $186,057) 571,000 571,000
With J. P. Morgan Securities
1.18% 6/2/03 (dated 5/30/03,
collateralized by $289,000
U.S. Treasury Notes 2.125% due
8/31/04, market value $293,751) 288,000 288,000
With UBS Warburg 1.24% 6/2/03
(dated 5/30/03, collateralized
by $1,307,000 U.S. Treasury Notes
7.875% due 11/15/04, market
value $1,436,410) 1,408,000 1,408,000
----------
Total Repurchase Agreements
(cost $3,408,000) 3,408,000
----------
- --------------------------------------------------------------------------------
Total Market Value of Securities - 100.14%
(cost $450,255,979) $473,290,933
Liabilities Net of Receivables and
Other Assets - (0.14%) (653,083)
Short Term Investment Held as Collateral for
Loaned Securities - 1.17% (cost $5,530,425)++ 5,530,425
Obligation to Return Securities Lending
Collateral - (1.17%)++ (5,530,425)
------------
Net Assets Applicable to 37,846,666 Shares
Outstanding - 100.00% $472,637,850
============
Net Asset Value - Delaware Growth and Income Fund
Class A ($326,274,636 / 26,079,216 Shares) $12.51
------
Net Asset Value - Delaware Growth and Income Fund
Class B ($81,936,995 / 6,605,676 Shares) $12.40
------
Net Asset Value - Delaware Growth and Income Fund
Class C ($18,670,481 / 1,508,341 Shares) $12.38
------
Net Asset Value - Delaware Growth and Income Fund
Class R ($12.51 / 1 Share) $12.51
------
Net Asset Value - Delaware Growth and Income Fund
Institutional Class ($45,755,725 / 3,653,432 Shares) $12.52
------
Components of Net Assets at May 31, 2003:
Shares of beneficial interest
(unlimited authorization - no par) $575,183,355
Undistributed net investment income** 1,562,744
Accumulated net realized loss on investments (127,143,203)
Net unrealized appreciation of investments 23,034,954
------------
Total net assets $472,637,850
============
*Security is fully or partially on loan.
**Undistributed net investment income includes net realized gains (losses) on
foreign currencies. Net realized gains (losses) on foreign currencies are
treated as net investment income in accordance with provisions of the Internal
Revenue Code.
+Non-income producing security for the period ended May 31, 2003.
++See Note 7 in "Notes to Financial Statements".
Summary of Abbreviations
ADR -- American Depositary Receipts
Net Asset Value and Offering Price per Share -
Delaware Growth and Income Fund
Net asset value Class A (A) $12.51
Sales charge (5.75% of offering price, or 6.08% of
amount invested per share) (B) 0.76
------
Offering price $13.27
------
(A) Net asset value per share, as illustrated, is the estimated amount which
would be paid upon redemption or repurchase of shares.
(B) See the current prospectus for purchases of $50,000 or more.
See accompanying notes
2
Statement Delaware Growth and Income Fund
OF OPERATIONS Six Months Ended May 31, 2003 (Unaudited)
Investment Income:
Dividends $ 5,601,789
Interest 49,300
Security lending income 12,128 $ 5,663,217
------------ ------------
Expenses:
Management fees 1,444,032
Distribution expenses - Class A 461,866
Distribution expenses - Class B 391,931
Distribution expenses - Class C 87,239
Dividend disbursing and transfer agent fees and expenses 825,062
Accounting and administration expenses 101,900
Reports and statements to shareholders 83,362
Registration fees 32,200
Professional fees 19,170
Trustees' fees 12,000
Custodian fees 7,867
Other 88,014 3,554,643
Less expenses paid indirectly (5,576)
------------
Total expenses 3,549,067
------------
Net Investment Income 2,114,150
------------
Net Realized and Unrealized Gain (Loss) on Investments and Foreign Currencies:
Net realized gain (loss) on:
Investments (22,579,869)
Foreign currencies 816
------------
Net realized loss (22,579,053)
Net change in unrealized appreciation/depreciation of investments 38,618,094
------------
Net Realized and Unrealized Gain on Investments and Foreign Currencies 16,039,041
------------
Net Increase in Net Assets Resulting from Operations $ 18,153,191
============
See accompanying notes
3
Statements Delaware Growth and Income Fund
OF CHANGES IN NET ASSETS
Six Months Year
Ended Ended
5/31/03 11/30/02
(Unaudited)
Increase (Decrease) in Net Assets from Operations:
Net investment income $ 2,114,150 $ 2,220,698
Net realized loss on investments and foreign currencies (22,579,053) (29,306,106)
Net change in unrealized appreciation/depreciation of investments 38,618,094 (101,044,899)
------------ -------------
Net increase (decrease) in net assets resulting from operations 18,153,191 (128,130,307)
------------ -------------
Dividends and Distributions to Shareholders from:
Net investment income:
Class A (2,292,140) (1,870,784)
Institutional Class (414,962) (345,204)
------------ -------------
(2,707,102) (2,215,988)
------------ -------------
Capital Share Transactions:
Proceeds from shares sold:
Class A 9,243,770 28,930,298
Class B 2,182,261 9,269,882
Class C 1,404,138 4,638,930
Class R 13 --
Institutional Class 4,228,225 9,136,337
Net asset value of shares issued upon reinvestment of dividends and distributions:
Class A 2,126,309 1,731,179
Institutional Class 414,960 345,204
------------ -------------
19,599,676 54,051,830
------------ -------------
Cost of shares repurchased:
Class A (34,737,656) (94,095,839)
Class B (11,050,862) (31,859,254)
Class C (2,538,944) (7,766,315)
Institutional Class (2,464,148) (26,845,202)
------------ -------------
(50,791,610) (160,566,610)
------------ -------------
Decrease in net assets derived from capital share transactions (31,191,934) (106,514,780)
------------ -------------
Net Decrease in Net Assets (15,745,845) (236,861,075)
Net Assets:
Beginning of period 488,383,695 725,244,770
------------ -------------
End of period $472,637,850 $ 488,383,695
============ =============
See accompanying notes
4
Financial
HIGHLIGHTS
Selected data for each share of the Fund outstanding
throughout each period were as follows:
- ------------------------------------------------------------------------------------------------------------------------------------
Delaware Growth and Income Fund Class A
- ------------------------------------------------------------------------------------------------------------------------------------
Six Months
Ended Year Ended
5/31/03(1) 11/30/02 11/30/01 11/30/00 11/30/99 11/30/98
(Unaudited)
Net asset value, beginning of period $12.060 $14.920 $15.290 $16.350 $19.120 $19.230
Income (loss) from investment operations:
Net investment income(2) 0.061 0.068 0.062 0.151 0.221 0.280
Net realized and unrealized gain (loss) on investments 0.471 (2.871) (0.421) (0.230) (0.556) 1.930
------- ------- ------- ------- ------- -------
Total from investment operations 0.532 (2.803) (0.359) (0.079) (0.335) 2.210
------- ------- ------- ------- ------- -------
Less dividends and distributions from:
Net investment income (0.082) (0.057) (0.011) (0.213) (0.235) (0.240)
Net realized gain on investments -- -- -- (0.768) (2.200) (2.080)
------- ------- ------- ------- ------- -------
Total dividends and distributions (0.082) (0.057) (0.011) (0.981) (2.435) (2.320)
------- ------- ------- ------- ------- -------
Net asset value, end of period $12.510 $12.060 $14.920 $15.290 $16.350 $19.120
======= ======= ======= ======= ======= =======
Total return(3) 4.47% (18.86%) (2.29%) (0.39%) (2.00%) 12.70%
Ratios and supplemental data:
Net assets, end of period (000 omitted) $326,275 $339,318 $493,459 $577,400 $871,409 $1,006,642
Ratio of expenses to average net assets 1.48% 1.40% 1.30% 1.35% 1.20% 1.13%
Ratio of net investment income to average net assets 1.06% 0.51% 0.40% 1.02% 1.28% 1.52%
Portfolio turnover 59% 83% 98% 87% 94% 87%
(1) Ratios and portfolio turnover have been annualized and total return has not
been annualized.
(2) The average shares outstanding method has been applied for per share
information for the six months ended May 31, 2003 and the years ended
November 30, 1999, 2000, 2001 and 2002.
(3) Total investment return is based on the change in net asset value of a
share during the period and assumes reinvestment of dividends and
distributions at net asset value and does not reflect the impact of a sales
charge.
See accompanying notes
5
Financial
HIGHLIGHTS (CONTINUED)
Selected data for each share of the Fund outstanding
throughout each period were as follows:
- ------------------------------------------------------------------------------------------------------------------------------------
Delaware Growth and Income Fund Class B
- ------------------------------------------------------------------------------------------------------------------------------------
Six Months
Ended Year Ended
5/31/03(1) 11/30/02 11/30/01 11/30/00 11/30/99 11/30/98
(Unaudited)
Net asset value, beginning of period $11.910 $14.790 $15.250 $16.300 $19.090 $19.200
Income (loss) from investment operations:
Net investment income (loss)(2) 0.022 (0.025) (0.045) 0.047 0.100 0.151
Net realized and unrealized gain (loss) on investments 0.468 (2.855) (0.415) (0.224) (0.560) 1.917
------- ------- ------- ------- ------- -------
Total from investment operations 0.490 (2.880) (0.460) (0.177) (0.460) 2.068
------- ------- ------- ------- ------- -------
Less dividends and distributions from:
Net investment income -- -- -- (0.105) (0.130) (0.098)
Net realized gain on investments -- -- -- (0.768) (2.200) (2.080)
------- ------- ------- ------- ------- -------
Total dividends and distributions -- -- -- (0.873) (2.330) (2.178)
------- ------- ------- ------- ------- -------
Net asset value, end of period $12.400 $11.910 $14.790 $15.250 $16.300 $19.090
======= ======= ======= ======= ======= =======
Total return(3) 4.11% (19.47%) (2.95%) (1.05%) (2.72%) 11.92%
Ratios and supplemental data:
Net assets, end of period (000 omitted) $81,937 $88,109 $135,565 $141,911 $213,533 $218,584
Ratio of expenses to average net assets 2.18% 2.10% 2.00% 2.05% 1.90% 1.83%
Ratio of net investment income (loss) to average net assets 0.36% (0.19%) (0.30%) 0.32% 0.58% 0.82%
Portfolio turnover 59% 83% 98% 87% 94% 87%
(1) Ratios and portfolio turnover have been annualized and total return has not
been annualized.
(2) The average shares outstanding method has been applied for per share
information for the six months ended May 31, 2003 and the years ended
November 30, 1999, 2000, 2001 and 2002.
(3) Total investment return is based on the change in net asset value of a
share during the period and assumes reinvestment of dividends and
distributions at net asset value and does not reflect the impact of a sales
charge.
See accompanying notes
6
Financial
HIGHLIGHTS (CONTINUED)
Selected data for each share of the Fund outstanding
throughout each period were as follows:
- ------------------------------------------------------------------------------------------------------------------------------------
Delaware Growth and Income Fund Class C
- ------------------------------------------------------------------------------------------------------------------------------------
Six Months
Ended Year Ended
5/31/03(1) 11/30/02 11/30/01 11/30/00 11/30/99 11/30/98
(Unaudited)
Net asset value, beginning of period $11.880 $14.760 $15.210 $16.270 $19.050 $19.160
Income (loss) from investment operations:
Net investment income (loss)2 0.022 (0.025) (0.045) 0.047 0.100 0.153
Net realized and unrealized gain (loss) on investments 0.478 (2.855) (0.405) (0.234) (0.550) 1.915
------- ------- ------- ------- ------- -------
Total from investment operations 0.500 (2.880) (0.450) (0.187) (0.450) 2.068
------- ------- ------- ------- ------- -------
Less dividends and distributions from:
Net investment income -- -- -- (0.105) (0.130) (0.098)
Net realized gain on investments -- -- -- (0.768) (2.200) (2.080)
------- ------- ------- ------- ------- -------
Total dividends and distributions -- -- -- (0.873) (2.330) (2.178)
------- ------- ------- ------- ------- -------
Net asset value, end of period $12.380 $11.880 $14.760 $15.210 $16.270 $19.050
======= ======= ======= ======= ======= =======
Total return3 4.21% (19.51%) (2.96%) (1.05%) (2.71%) 12.00%
Ratios and supplemental data:
Net assets, end of period (000 omitted) $18,670 $19,132 $27,576 $28,350 $45,026 $48,683
Ratio of expenses to average net assets 2.18% 2.10% 2.00% 2.05% 1.90% 1.83%
Ratio of net investment income (loss) to average net assets 0.36% (0.19%) (0.30%) 0.32% 0.58% 0.82%
Portfolio turnover 59% 83% 98% 87% 94% 87%
(1) Ratios and portfolio turnover have been annualized and total return has not
been annualized.
(2) The average shares outstanding method has been applied for per share
information for the six months ended May 31, 2003 and the years ended
November 30, 1999, 2000, 2001 and 2002.
(3) Total investment return is based on the change in net asset value of a
share during the period and assumes reinvestment of dividends and
distributions at net asset value and does not reflect the impact of a sales
charge.
As of May 31, 2003, the Delaware Growth and Income Fund Class R had one share
outstanding, representing the initial share purchase. Shareholder data for this
class is not disclosed because management does not believe it to be meaningful.
See accompanying notes
7
Financial
HIGHLIGHTS (CONTINUED)
Selected data for each share of the Fund outstanding
throughout each period were as follows:
- ------------------------------------------------------------------------------------------------------------------------------------
Delaware Growth and Income Fund Institutional Class
- ------------------------------------------------------------------------------------------------------------------------------------
Six Months
Ended Year Ended
5/31/03(1) 11/30/02 11/30/01 11/30/00 11/30/99 11/30/98
(Unaudited)
Net asset value, beginning of period $12.090 $14.960 $15.300 $16.370 $19.150 $19.260
Income (loss) from investment operations:
Net investment income(2) 0.078 0.108 0.108 0.196 0.273 0.346
Net realized and unrealized gain (loss) on investments 0.472 (2.875) (0.423) (0.235) (0.553) 1.917
------- ------- ------- ------- ------- -------
Total from investment operations 0.550 (2.767) (0.315) (0.039) (0.280) 2.263
------- ------- ------- ------- ------- -------
Less dividends and distributions from:
Net investment income (0.120) (0.103) (0.025) (0.263) (0.300) (0.293)
Net realized gain on investments -- -- -- (0.768) (2.200) (2.080)
------- ------- ------- ------- ------- -------
Total dividends and distributions (0.120) (0.103) (0.025) (1.031) (2.500) (2.373)
------- ------- ------- ------- ------- -------
Net asset value, end of period $12.520 $12.090 $14.960 $15.300 $16.370 $19.150
======= ======= ======= ======= ======= =======
Total return(3) 4.64% (18.63%) (2.07%) (0.05%) (1.68%) 13.07%
Ratios and supplemental data:
Net assets, end of period (000 omitted) $45,756 $41,824 $68,645 $69,906 $117,377 $112,381
Ratio of expenses to average net assets 1.18% 1.10% 1.00% 1.05% 0.90% 0.83%
Ratio of net investment income to average net assets 1.36% 0.81% 0.70% 1.32% 1.58% 1.82%
Portfolio turnover 59% 83% 98% 87% 94% 87%
(1) Ratios and portfolio turnover have been annualized and total return has not
been annualized.
(2) The average shares outstanding method has been applied for per share
information for the six months ended May 31, 2003 and the years ended
November 30, 1999, 2000, 2001 and 2002.
(3) Total investment return is based on the change in net asset value of a
share during the period and assumes reinvestment of dividends and
distributions at net asset value.
See accompanying notes
8
Notes Delaware Growth and Income Fund
TO FINANCIAL STATEMENTS May 31, 2003 (Unaudited)
Delaware Group Equity Funds II (the "Trust") is organized as a Delaware business
trust and offers four series: Delaware Decatur Equity Income Fund, Delaware
Diversified Value Fund, Delaware Growth and Income Fund, and Delaware Social
Awareness Fund. These financial statements and related notes pertain to the
Delaware Growth and Income Fund (the "Fund"). The Trust is an open-end
investment company. The Fund is considered diversified under the Investment
Company Act of 1940, as amended, and offers Class A, Class B, Class C, Class R
and Institutional Class shares. Class A shares are sold with a front-end sales
charge of up to 5.75%. Class B shares are sold with a contingent deferred sales
charge that declines from 4% to zero depending upon the period of time the
shares are held. Class B shares will automatically convert to Class A shares on
a quarterly basis approximately eight years after purchase. Class C shares are
sold with a contingent deferred sales charge of 1%, 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 a limited group of investors. As
of May 31, 2003 Class R has not commenced operations.
The investment objective of the Delaware Growth and Income Fund is to seek
capital appreciation with current income as a secondary objective.
1. Significant Accounting Policies
The following accounting policies are in accordance with accounting principles
generally accepted in the United States and are consistently followed by the
Fund.
Security Valuation -- All equity securities are valued at the last quoted sales
price as of the time of the regular close of the New York Stock Exchange (NYSE)
on the valuation date. If on a particular day an equity security does not trade,
then the mean between the bid and asked prices will be used. Short-term debt
securities having less than 60 days to maturity are valued at amortized cost,
which approximates market value. 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 Fund's Board of Trustees. 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
with respect to foreign securities, aftermarket trading or significant events
after local market trading (e.g., government actions or pronouncements, trading
volume or volatility on markets, exchanges among dealers or news events).
Federal Income Taxes -- The Fund intends to continue to qualify for federal
income tax purposes 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.
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 102% 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.
Use of Estimates -- The preparation of financial statements in conformity with
accounting principles generally accepted in the United States 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 distributions from net realized gain on investments, if
any, annually.
Certain expenses of the Fund are paid through commission arrangements with
brokers. These transactions are done subject to best execution. The amount of
these expenses was approximately $5,332 for the period ended May 31, 2003. In
addition, the Fund receives earnings credits from its custodian when positive
cash balances are maintained, which are used to offset custody fees. The
earnings credits for the period ended May 31, 2003 were approximately $244. 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, Administration Agreements and
Other Transactions with Affiliates
In accordance with the terms of the investment management agreement, the Fund
pays Delaware Management Company (DMC), a series of Delaware Management Business
Trust and the investment manager, an annual fee which is calculated daily at a
rate of 0.65% on the first $500 million of average daily net assets of the Fund,
0.60% on the next $500 million, 0.55% on the next $1.5 billion and 0.50% on
average daily net assets in excess of $2.5 billion.
The Fund has engaged Delaware Service Company, Inc. (DSC), an affiliate of DMC,
to provide dividend disbursing, transfer agent, accounting and administration
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.
Pursuant to the distribution agreement and distribution plan, 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 Class A
shares, 1.00% of the average daily net assets of Class B and C shares and 0.60%
of the average daily net assets of Class R shares. No distribution expenses are
paid by Institutional Class shares.
At May 31, 2003, the Fund had liabilities payables to affiliates as follows:
Investment management fee payable to DMC $43,679
Dividend disbursing, transfer agent fees, accounting
and other expenses payable to DSC 94,542
Other expenses payable to DMC and affiliates 32,623
For the period ended May 31, 2003, DDLP earned $20,880 for commissions on sales
of the Fund's Class A shares.
Certain officers of DMC, DSC and DDLP are officers and/or trustees of the Trust.
These officers and trustees are paid no compensation by the Fund.
9
Notes Delaware Growth and Income Fund
TO FINANCIAL STATEMENTS (CONTINUED)
3. Investments
For the period ended May 31, 2003, the Fund made purchases of $129,060,466 and
sales of $156,370,389 of investment securities other than U.S. government
securities and short-term investments.
At May 31, 2003, the cost of investments for federal income tax purposes has
been estimated since the final tax characteristics cannot be determined until
fiscal year end. At May 31, 2003, the cost of investments was $461,031,719. At
May 31, 2003, net unrealized appreciation was $12,259,214 of which $45,865,918
related to unrealized appreciation of investments and $33,606,704 related to
unrealized depreciation of 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 accounting principles
generally accepted in the United States. The tax character of dividends and
distributions paid during the period ended May 31, 2003 and year ended November
31, 2002 were as follows:
Six Months Year
Ended Ended
5/31/03* 10/31/02
Ordinary Income $2,707,102 $2,215,988
*Tax information for the period ended May 31, 2003 is an estimate and the tax
character of dividends and distributions may be redesignated at fiscal year
end.
The components of net assets are estimated since final tax characteristics
cannot be determined until fiscal year end. As of May 31, 2003, the estimated
components of net assets on a tax basis were as follows:
Shares of beneficial interest $575,183,355
Undistributed ordinary income 1,562,744
Net realized capital losses on investments (22,579,053)
Capital loss carryforwards (93,788,410)
Unrealized appreciation of investments 12,259,214
------------
Net assets $472,637,850
============
For federal income tax purposes, capital loss carryforwards may be carried
forward and applied against future capital gains. Such capital loss
carryforwards expire as follows: $69,792,803 expires in 2008 and $23,995,607
expires in 2010.
5. Capital Shares
Transactions in capital shares were as follows:
Six Months Year
Ended Ended
5/31/03 11/30/02
Shares sold:
Class A 813,428 2,140,778
Class B 193,606 682,031
Class C 125,417 345,768
Class R 1 --
Institutional Class 374,211 679,327
Shares issued upon reinvestment of
dividends and distributions:
Class A 185,057 115,953
Institutional Class 36,115 23,122
---------- ----------
1,727,835 3,986,979
---------- ----------
Shares repurchased:
Class A (3,064,978) (7,183,563)
Class B (986,081) (2,451,814)
Class C (226,919) (604,713)
Institutional Class (216,222) (1,830,479)
---------- ----------
(4,494,200) (12,070,569)
---------- ----------
Net decrease (2,766,365) (8,083,590)
========== ==========
For the period ended May 31, 2003 and the year ended November 30, 2002, 81,993
Class B shares were converted to 81,158 Class A shares valued at $915,771 and
14,752 Class B shares were converted to 14,589 Class A shares valued at
$170,563, respectively. The respective amounts are included in Class B
redemptions and Class A subscriptions in the table above and the Statements of
Changes in Net Assets.
6. Line of Credit
The Fund, along with certain other funds in the Delaware Investment Family of
Funds (the "Participants"), participates in a $202,300,000 revolving line of
credit facility to be used for temporary or emergency purposes as an additional
source of liquidity to fund redemptions of investor shares. The Participants are
charged an annual commitment fee, which is allocated across the Participants on
the basis of each fund's allocation of the entire facility. The Participants may
borrow up to a maximum of one third of their net assets under the agreement. The
Fund had no amounts outstanding as of May 31, 2003, or at any time during the
period.
10
Notes Delaware Growth and Income Fund
TO FINANCIAL STATEMENTS (CONTINUED)
7. Securities Lending
The Fund, along with other funds in the Delaware Investments Family of Funds,
may lend its securities pursuant to a security lending agreement (Lending
Agreement) with J.P. Morgan Chase. Initial security loans made pursuant to the
Lending Agreement are required to be secured by U.S. Treasury obligations and/or
cash collateral not less than 102% of the market value of the securities issued
in the United States and 105% of the market value of securities issued outside
the United States. With respect to each loan, if the aggregate market value of
the collateral held on any business day 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 not less than the applicable
collateral requirements. Cash collateral received is invested in fixed-income
securities, with a weighted average maturity not to exceed 90 days, rated in one
of the top two tiers by Standard & Poors Ratings Group or Moody's Investors
Service, Inc. or repurchase agreements collateralized by such securities.
However, 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. At May 31, 2003, the market
value of the securities on loan was $5,519,461.
The securities on loan were collateralized by the following:
Description Market Value
- -------------- ------------
UBS Warburg LLC 1.38% 6/2/03 $2,929,071
Fannie Mae 1.31% 1/29/04 1,566,950
Barclays London 1.27% 6/17/03 251,056
Goldman Sachs Group 1.52% 7/14/03 219,381
Wilmington Trust Company 1.26% 7/21/03 157,184
Merrill Lynch Mortgage Capital 1.48% 6/6/03 156,701
Racers Series 2002-35-C 1.61% 4/15/04 156,069
Morgan Stanley Dean Witter 1.41% 6/30/04 62,680
Canadian Imperial Bank NY 1.41% 10/9/03 31,333
----------
$5,530,425
==========
11
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12
Delaware
Investments(SM)
- --------------------------------------
A member of Lincoln Financial Group(R)
This semiannual report is for the information of Delaware Growth and Income Fund
shareholders, but it may be used with prospective investors when preceded or
accompanied by a current prospectus for Delaware Growth and Income Fund and the
Delaware Investments Performance Update for the most recently completed calendar
quarter. The prospectus sets forth details about charges, expenses, investment
objectives, and operating policies of the Fund. You should read the prospectus
carefully before you invest. The figures in this report represent past results
which are not a guarantee of future results. The return and principal value of
an investment in the Fund will fluctuate so that shares, when redeemed, may be
worth more or less than their original cost.
Board of Trustees Affiliated Officers Contact Information
Jude T. Driscoll Michael P. Bishof Investment Manager
Chairman Senior Vice President and Treasurer Delaware Management Company
Delaware Investments Family of Funds Delaware Investments Family of Funds Philadelphia, PA
Philadelphia, PA Philadelphia, PA
International Affiliate
Walter P. Babich Richelle S. Maestro Delaware International Advisers Ltd.
Board Chairman Senior Vice President, London, England
Citadel Construction Corporation General Counsel and Secretary
King of Prussia, PA Delaware Investments Family of Funds National Distributor
Philadelphia, PA Delaware Distributors, L.P.
David K. Downes Philadelphia, PA
President and Chief Executive Officer
Delaware Investments Family of Funds Shareholder Servicing, Dividend
Philadelphia, PA Disbursing and Transfer Agent
Delaware Service Company, Inc.
John H. Durham 2005 Market Street
Private Investor Philadelphia, PA 19103-7094
Gwynedd Valley, PA
For Shareholders
John A. Fry 800 523-1918
President
Franklin & Marshall College For Securities Dealers and Financial
Lancaster, PA Institutions Representatives Only
800 362-7500
Anthony D. Knerr
Managing Director Web site
Anthony Knerr & Associates www.delawareinvestments.com
New York, NY
Ann R. Leven
Former Treasurer/Chief Fiscal Officer
National Gallery of Art
Washington, DC
Thomas F. Madison
President and Chief Executive Officer
MLM Partners, Inc.
Minneapolis, MN
Janet L. Yeomans
Vice President/Mergers & Acquisitions
3M Corporation
St. Paul, MN
(7901) Printed in the USA
SA-018 [6/03] IVES 7/03 J9268
Delaware
Investments (SM)
----------------
BLEND A member of Lincoln Financial Group(R)
Semiannual Report 2003
- --------------------------------------------------------------------------------
DELAWARE SOCIAL AWARENESS FUND
[Logo] POWERED BY RESEARCH.(SM)
Table
OF CONTENTS
- -----------------------------------------------------------
FINANCIAL STATEMENTS:
Statement of Net Assets 1
Statement of Operations 4
Statements of Changes in Net Assets 5
Financial Highlights 6
Notes to Financial Statements 10
- -----------------------------------------------------------
Funds are not FDIC insured and are not guaranteed. It is possible to lose the
principal amount invested.
Mutual fund advisory services provided by Delaware Management Company, a series
of Delaware Management Business Trust, which is a registered investment advisor.
(C)2003 Delaware Distributors, L.P.
Statement Delaware Social Awareness Fund
OF NET ASSETS May 31, 2003 (Unaudited)
Number of Market
Shares Value
- --------------------------------------------------------------------------------
Common Stock- 98.96%
- --------------------------------------------------------------------------------
Automobiles & Automotive Parts - 0.87%
Arvinmeritor 5,800 $ 103,182
Delphi Automotive Systems 9,600 84,672
+Gentex 4,000 124,560
+Lear 2,200 87,516
----------
399,930
----------
Banking & Finance - 16.42%
American Express 12,400 516,584
AmSouth Bancorp 6,900 154,008
Bank of America 12,400 920,080
Bank One 1,200 44,832
Bear Stearns 1,900 146,813
Block (H&R) 6,500 266,110
Citigroup 32,700 1,341,354
Comerica 5,700 263,739
Countrywide Credit Industries 2,100 154,665
FleetBoston Financial 3,800 112,366
Freddie Mac 11,500 687,815
J.P. Morgan Chase 8,300 272,738
MBNA 6,100 122,305
Mellon Financial 7,800 211,926
Merrill Lynch & Company 4,100 177,530
Morgan Stanley 8,600 393,450
SEI Investments 3,300 95,865
US Bancorp 14,395 341,162
Wachovia 4,100 164,738
Washington Mutual 12,100 493,438
Wells Fargo 13,700 661,710
----------
7,543,228
----------
Basic Industry/Capital Goods - 4.59%
+American Standard 3,700 273,763
Avery Dennison 4,600 255,208
Federal Signal 12,800 231,424
Hillenbrand Industries 6,200 317,130
Ingersoll-Rand 5,800 254,040
Pentair 7,600 295,336
Teleflex 5,900 254,467
York International 8,700 225,243
----------
2,106,611
----------
Building & Materials - 0.54%
KB Home 4,000 250,000
----------
250,000
----------
Business Services - 1.72%
Pitney Bowes 6,600 253,506
+Republic Services 12,600 301,266
ServiceMaster 22,300 237,049
----------
791,821
----------
Cable, Media & Publishing - 7.32%
+AOL Time Warner 55,700 847,754
+Clear Channel Communications 11,200 455,840
+Comcast Special Class A 26,800 772,376
Number of Market
Shares Value
- --------------------------------------------------------------------------------
Common Stock (continued)
- --------------------------------------------------------------------------------
Cable, Media & Publishing (continued)
+Liberty Media Class A 25,200 $ 294,840
McGraw-Hill 2,500 158,025
+USA Interactive 6,700 257,615
Walt Disney 29,300 575,745
----------
3,362,195
----------
Chemicals - 2.52%
Ecolab 7,200 387,000
Lubrizol 3,000 95,700
Praxair 4,400 263,956
RPM International 8,300 103,169
Sigma-Aldrich 5,900 308,629
----------
1,158,454
----------
Consumer Non-Durable/Other - 8.89%
Clorox 5,300 236,698
+Coach 3,700 181,781
Coca-Cola Enterprises 11,600 217,500
Deluxe 4,600 216,062
+Energizer Holdings 8,000 254,240
General Mills 3,400 159,052
Gillette 12,900 433,569
Heinz (H.J.) 8,400 277,788
Kellogg Company 9,100 320,320
McDonald's 18,700 350,251
Newell Rubbermaid 13,596 387,486
Nike 4,100 229,559
Pepsi Bottling Group 10,100 205,939
Wrigley, (WM) Jr. 4,800 271,200
+Yum! Brands 12,200 341,112
----------
4,082,557
----------
Consumer Services/Other - 0.58%
+Cendant 16,000 268,800
----------
268,800
----------
Electronics & Electrical Equipment - 2.17%
Emerson Electric 12,300 643,290
+JDS Uniphase 14,400 55,728
Matsushita Electric ADR 8,400 77,700
Sony ADR 8,000 218,720
----------
995,438
----------
Energy - 5.63%
Apache 4,672 307,978
+BJ Services 6,600 268,686
Burlington Resources 6,400 341,056
EOG Resources 6,700 288,770
Equitable Resources 9,200 370,392
+Noble 6,400 228,224
Noble Energy 7,700 280,511
Questar 7,800 251,784
+Smith International 6,100 249,429
----------
2,586,830
----------
1
Statement Delaware Social Awareness Fund
OF NET ASSETS (CONTINUED)
Number of Market
Shares Value
- --------------------------------------------------------------------------------
Common Stock (continued)
- --------------------------------------------------------------------------------
Healthcare & Pharmaceuticals - 14.52%
Abbott Laboratories 29,600 $ 1,318,680
Allergan 2,400 173,064
+Amgen 6,800 440,028
Baxter International 9,400 238,196
Becton Dickinson 7,000 280,000
C.R. Bard 2,100 147,315
Cardinal Health 4,600 265,466
+Cytyc 8,700 90,393
Eli Lilly 23,300 1,392,640
+Forest Laboratories 6,000 303,000
+Genentech 4,800 300,528
+Guidant 6,400 270,592
HCA - The Healthcare Company 11,000 363,000
McKesson 8,859 268,605
PerkinElmer 16,000 204,640
+Steris 6,400 144,320
+Tenet Healthcare 12,950 216,136
+Wellpoint Health Networks 3,000 256,020
----------
6,672,623
----------
Insurance - 4.43%
Aflac 3,400 111,894
Allstate 9,800 352,702
American International Group 14,662 848,637
John Hancock Financial Services 4,100 124,025
Marsh & McLennan 3,100 155,403
Nationwide Financial Services 4,200 135,492
Old Republic International 2,300 78,982
UnitedHealth Group 2,400 230,256
----------
2,037,391
----------
Packaging & Containers - 0.91%
Bemis 3,000 137,340
+Pactiv 7,500 146,625
Sonoco Products 5,900 132,573
----------
416,538
----------
Retail - 6.63%
+Best Buy 6,100 236,070
CVS 10,200 266,220
Home Depot 21,600 701,784
J.C. Penney 17,300 299,636
+Kohl's 8,900 465,915
Nordstrom 17,600 328,240
+Office Depot 12,200 163,480
Ross Stores 4,000 168,840
+Safeway 6,300 118,692
+Saks 19,400 181,972
V F Corporation 3,000 114,210
----------
3,045,059
----------
Number of Market
Shares Value
- --------------------------------------------------------------------------------
Common Stock (continued)
- --------------------------------------------------------------------------------
Technology/Communications - 3.78%
+Ciena 13,900 $ 79,925
+Cisco Systems 52,000 846,560
Nokia ADR 17,300 312,092
Qualcomm 14,800 496,984
----------
1,735,561
----------
Technology/Hardware - 2.79%
+Dell Computer 26,000 813,540
+Emulex 6,200 153,140
Hewlett-Packard 16,132 314,574
----------
1,281,254
----------
Technology/Semiconductors - 4.60%
+Altera 15,100 291,128
+Applied Materials 5,200 80,912
Intel 54,100 1,127,444
Microchip Technology 10,300 245,243
Texas Instruments 18,100 371,050
----------
2,115,777
----------
Technology/Software - 5.63%
Adobe Systems 5,200 183,508
+Intuit 6,500 299,585
Microsoft 70,800 1,742,388
+Oracle 27,600 359,076
----------
2,584,557
----------
Telecommunications - 3.38%
+AT&T Wireless Services 24,100 187,257
BellSouth 17,000 450,670
SBC Communications 35,900 914,014
----------
1,551,941
----------
Transportation & Shipping - 1.04%
FedEx 7,500 479,850
-----------
479,850
-----------
Total Common Stock (cost $43,111,288) 45,466,415
-----------
Principal
Amount
- --------------------------------------------------------------------------------
Repurchase Agreements - 1.10%
- --------------------------------------------------------------------------------
With BNP Paribas 1.24% 6/2/03
(dated 5/30/03, collateralized by
$173,010 U.S. Treasury Bills
due 8/28/03, market value $172,561) $169,160 169,160
With Cantor Fitzgerald 1.24% 6/2/03
(dated 5/30/03, collateralized by
$56,390 U.S. Treasury Notes 5.25%
due 5/15/04, market value $58,718
and $26,000 U.S. Treasury Notes 7.25%
due 5/15/04, market value $27,570) 84,570 84,570
With J. P. Morgan Securities 1.18% 6/2/03
(dated 5/30/03, collateralized by
$42,820 U.S. Treasury Notes 2.125%
due 8/31/04, market value $43,528) 42,640 42,640
2
Statement Delaware Social Awareness Fund
OF NET ASSETS (CONTINUED)
Principal Market
Amount Value
- --------------------------------------------------------------------------------
Repurchase Agreements (continued)
- --------------------------------------------------------------------------------
With UBS Warburg 1.24% 6/2/03
(dated 5/30/03, collateralized by
$193,680 U.S. Treasury Notes 7.875%
due 11/15/04, market value $212,848) $208,630 $ 208,630
------------
Total Repurchase Agreements
(cost $505,000) 505,000
------------
Total Market Value of Securities - 100.06%
(cost $43,616,288) 45,971,415
Liabilities Net of Receivables
and Other Assets - (0.06%) (27,513)
------------
Net Assets Applicable to 5,575,895
Shares Outstanding - 100.00% $45,943,902
============
Net Asset Value - Delaware Social Awareness
Fund Class A ($18,082,531 / 2,129,865 Shares) $8.49
--------
Net Asset Value - Delaware Social Awareness
Fund Class B ($21,651,583 / 2,681,985 Shares) $8.07
--------
Net Asset Value - Delaware Social Awareness
Fund Class C ($5,604,658 / 693,963 Shares) $8.08
--------
Net Asset Value - Delaware Social Awareness
Fund Institutional Class ($605,130 / 70,082 Shares) $8.63
--------
Components of Net Assets at May 31, 2003:
Shares of beneficial interest
(unlimited authorization - no par) $61,930,299
Accumulated net investment loss (64,037)
Accumulated net realized loss on investments (18,277,487)
Net unrealized appreciation of investments 2,355,127
-------------
Total net assets $45,943,902
=============
+Non-income producing security for the period ended May 31, 2003.
Summary of Abbreviation:
ADR - American Depositary Receipts
Net Asset Value and Offering Price per Share--
Delaware Social Awareness Fund
Net assets value Class A (A) $8.49
Sales charge (5.75% of offering price, or 6.12%
of the amount invested per share) (B) 0.52
--------
Offering price $9.01
--------
(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 the current prospectus for purchases of $50,000 or more.
See accompanying notes
3
Statement Delaware Social Awareness Fund
OF OPERATIONS Six Months Ended May 31, 2003
Investment Income:
Dividends $344,765
Interest 3,576 $ 348,341
--------- -----------
Expenses:
Management fees 159,986
Distribution expenses - Class A 25,395
Distribution expenses - Class B 100,732
Distribution expenses - Class C 25,123
Dividend disbursing and transfer agent fees and expenses 126,850
Reports and statements to shareholders 24,000
Registration fees 17,857
Accounting and administration expenses 9,650
Trustees' fees 1,500
Professional fees 1,437
Custodian fees 1,200
Other 3,561 497,291
---------
Less expenses absorbed or waived by investment manager (80,168)
Less waived distribution expenses - Class A (4,233)
Less expenses paid indirectly (512)
-----------
Total expenses 412,378
-----------
Net Investment Loss (64,037)
-----------
Net Realized and Unrealized Gain (Loss) on Investments:
Net realized loss on investments (2,938,081)
Net change in unrealized appreciation/depreciation of investments 5,236,444
-----------
Net Realized and Unrealized Gain on Investments 2,298,363
-----------
Net Increase in Net Assets Resulting from Operations $2,234,326
===========
See accompanying notes
4
Statements Delaware Social Awareness Fund
OF CHANGES IN NET ASSETS
Six Months Year
Ended Ended
5/31/03 11/30/02
(Unaudited)
Increase (Decrease) in Net Assets from Operations:
Net investment loss $ (64,037) $ (284,511)
Net realized loss on investments (2,938,081) (13,018,962)
Net change in unrealized appreciation/depreciation of investments 5,236,444 2,719,938
------------ ------------
Net increase (decrease) in net assets resulting from operations 2,234,326 (10,583,535)
------------ ------------
Capital Share Transactions:
Proceeds from shares sold:
Class A 1,053,924 3,239,827
Class B 726,606 1,988,926
Class C 396,401 945,055
Institutional Class 97,046 216,769
------------ ------------
2,273,977 6,390,577
------------ ------------
Cost of shares repurchased:
Class A (2,263,977) (6,735,428)
Class B (1,841,840) (5,619,923)
Class C (476,250) (3,316,929)
Institutional Class (78,723) (106,108)
------------ ------------
(4,660,790) (15,778,388)
------------ ------------
Decrease in net assets derived from capital share transactions (2,386,813) (9,387,811)
------------ ------------
Net Decrease in Net Assets (152,487) (19,971,346)
Net Assets:
Beginning of period 46,096,389 66,067,735
------------ ------------
End of period $45,943,902 $46,096,389
============ ============
See accompanying notes
5
Financial
HIGHLIGHTS
Selected data for each share of the Fund outstanding
throughout each period were as follows:
- ------------------------------------------------------------------------------------------------------------------------------------
Delaware Social Awareness Fund Class A
- ------------------------------------------------------------------------------------------------------------------------------------
Six Months
Ended Year Ended
05/31/03(1) 11/30/02 11/30/01 11/30/00 11/30/99 11/30/98
(Unaudited)
Net asset value, beginning of period $8.030 $9.620 $11.820 $13.010 $11.260 $10.330
Income (loss) from investment operations:
Net investment income (loss)(2) 0.005 (0.007) (0.039) (0.064) (0.043) 0.015
Net realized and unrealized gain (loss) on investments 0.455 (1.583) (0.991) (0.981) 1.793 0.955
------- ------- ------- ------- ------- -------
Total from investment operations 0.460 (1.590) (1.030) (1.045) 1.750 0.970
------- ------- ------- ------- ------- -------
Less dividends and distributions from:
Net realized gain on investments -- -- (1.170) (0.145) -- (0.040)
------- ------- ------- ------- ------- -------
Total dividends and distributions -- -- (1.170) (0.145) -- (0.040)
------- ------- ------- ------- ------- -------
Net asset value, end of period $8.490 $8.030 $9.620 $11.820 $13.010 $11.260
======= ======= ======= ======= ======= =======
Total return(3) 5.73% (16.53%) (9.80%) (8.15%) 15.44% 9.52%
Ratios and supplemental data:
Net assets, end of period (000 omitted) $18,083 $18,391 $26,043 $36,206 $46,354 $38,858
Ratio of expenses to average net assets 1.50% 1.50% 1.50% 1.50% 1.49% 1.45%
Ratio of expenses to average net assets prior to expense
limitation and expenses paid indirectly 1.92% 1.90% 1.75% 1.63% 1.69% 1.56%
Ratio of net investment income (loss) to average net assets 0.13% (0.08%) (0.39%) (0.45%) (0.35%) 0.14%
Ratio of net investment income (loss) to average net assets
prior to expense limitation and expenses paid indirectly (0.29%) (0.48%) (0.64%) (0.58%) (0.55%) 0.03%
Portfolio turnover 61% 34% 50% 68% 28% 22%
(1) Ratios and portfolio turnover have been annualized and total return has not
been annualized.
(2) The average shares outstanding method has been applied for
per share information.
(3) Total investment return is based on the change in net asset value of a share
during the period and assumes reinvestment of dividends and distributions at
net asset value and does not reflect the impact of a sales charge. Total
investment return reflects a waiver and payment of fees by the manager and
distributor. Performance would have been lower had the expense limitation
not been in effect.
See accompanying notes
6
Financial
HIGHLIGHTS (CONTINUED)
Selected data for each share of the Fund outstanding
throughout each period were as follows:
- -----------------------------------------------------------------------------------------------------------------------------------
Delaware Social Awareness Fund Class B
- -----------------------------------------------------------------------------------------------------------------------------------
Six Months
Ended Year Ended
05/31/03(1) 11/30/02 11/30/01 11/30/00 11/30/99 11/30/98
(Unaudited)
Net asset value, beginning of period $7.670 $9.250 $11.490 $12.740 $11.120 $10.280
Income (loss) from investment operations:
Net investment loss(2) (0.022) (0.069) (0.113) (0.155) (0.133) (0.066)
Net realized and unrealized gain (loss) on investments 0.422 (1.511) (0.957) (0.950) 1.753 0.946
------ ------ ------- ------- ------- -------
Total from investment operations 0.400 (1.580) (1.070) (1.105) 1.620 0.880
------ ------ ------- ------- ------- -------
Less dividends and distributions from:
Net realized gain on investments -- -- (1.170) (0.145) -- (0.040)
------ ------ ------- ------- ------- -------
Total dividends and distributions -- -- (1.170) (0.145) -- (0.040)
------ ------ ------- ------- ------- -------
Net asset value, end of period $8.070 $7.670 $9.250 $11.490 $12.740 $11.120
====== ====== ======= ======= ======= =======
Total return(3) 5.22% (17.08%) (10.49%) (8.80%) 14.57% 8.60%
Ratios and supplemental data:
Net assets, end of period (000 omitted) $21,651 $21,737 $30,376 $36,301 $41,091 $30,172
Ratio of expenses to average net assets 2.25% 2.25% 2.25% 2.25% 2.24% 2.20%
Ratio of expenses to average net assets prior to expense
limitation and expenses paid indirectly 2.62% 2.60% 2.45% 2.33% 2.39% 2.26%
Ratio of net investment loss to average net assets (0.62%) (0.83%) (1.14%) (1.20%) (1.10%) (0.61%)
Ratio of net investment loss to average net assets prior
to expense limitation and expenses paid indirectly (0.99%) (1.18%) (1.34%) (1.28%) (1.25%) (0.67%)
Portfolio turnover 61% 34% 50% 68% 28% 22%
(1) Ratios and portfolio turnover have been annualized and total return has not
been annualized.
(2) The average shares outstanding method has been applied for per share
information.
(3) Total investment return is based on the change in net asset value of a share
during the period and assumes reinvestment of dividends and distributions at
net asset value and does not reflect the impact of a sales charge. Total
investment return reflects a waiver and payment of fees by the manager.
Performance would have been lower had the expense limitation not been in
effect.
See accompanying notes
7
Financial
HIGHLIGHTS (CONTINUED)
Selected data for each share of the Fund outstanding
throughout each period were as follows:
- -----------------------------------------------------------------------------------------------------------------------------------
Delaware Social Awareness Fund Class C
- -----------------------------------------------------------------------------------------------------------------------------------
Six Months
Ended Year Ended
05/31/03(1) 11/30/02 11/30/01 11/30/00 11/30/99 11/30/98
(Unaudited)
Net asset value, beginning of period $7.670 $9.260 $11.490 $12.740 $11.120 $10.280
Income (loss) from investment operations:
Net investment loss(2) (0.022) (0.069) (0.113) (0.154) (0.133) (0.068)
Net realized and unrealized gain (loss) on investments 0.432 (1.521) (0.947) (0.951) 1.753 0.948
------ ------ ------- ------- ------- -------
Total from investment operations 0.410 (1.590) (1.060) (1.105) 1.620 0.880
------ ------ ------- ------- ------- -------
Less dividends and distributions from:
Net realized gain on investments -- -- (1.170) (0.145) -- (0.040)
------ ------ ------- ------- ------- -------
Total dividends and distributions -- -- (1.170) (0.145) -- (0.040)
------ ------ ------- ------- ------- -------
Net asset value, end of period $8.080 $7.670 $9.260 $11.490 $12.740 $11.120
====== ====== ======= ======= ======= =======
Total return(3) 5.35% (17.17%) (10.39%) (8.80%) 14.57% 8.60%
Ratios and supplemental data:
Net assets, end of period (000 omitted) $5,605 $5,418 $9,115 $10,459 $9,673 $8,683
Ratio of expenses to average net assets 2.25% 2.25% 2.25% 2.25% 2.24% 2.20%
Ratio of expenses to average net assets prior to expense
limitation and expenses paid indirectly 2.62% 2.60% 2.45% 2.33% 2.39% 2.26%
Ratio of net investment loss to average net assets (0.62%) (0.83%) (1.14%) (1.20%) (1.10%) (0.61%)
Ratio of net investment loss to average net assets prior
to expense limitation and expenses paid indirectly (0.99%) (1.18%) (1.34%) (1.28%) (1.25%) (0.67%)
Portfolio turnover 61% 34% 50% 68% 28% 22%
(1) Ratios and portfolio turnover have been annualized and total return has not
been annualized.
(2) The average shares outstanding method has been applied for per share
information.
(3) Total investment return is based on the change in net asset value of a share
during the period and assumes reinvestment of dividends and distributions at
net asset value and does not reflect the impact of a sales charge. Total
investment return reflects a waiver and payment of fees by the manager.
Performance would have been lower had the expense limitation not been in
effect.
See accompanying notes
8
Financial
HIGHLIGHTS (CONTINUED)
Selected data for each share of the Fund outstanding
throughout each period were as follows:
- -----------------------------------------------------------------------------------------------------------------------------------
Delaware Social Awareness Fund Institutional Class
- -----------------------------------------------------------------------------------------------------------------------------------
Six Months
Ended Year Ended
05/31/03(1) 11/30/02 11/30/01 11/30/00 11/30/99 11/30/98
(Unaudited)
Net asset value, beginning of period $8.160 $9.750 $11.930 $13.090 $11.310 $10.350
Income (loss) from investment operations:
Net investment income (loss)(2) 0.014 0.015 (0.014) (0.024) (0.012) 0.043
Net realized and unrealized gain (loss) on investments 0.456 (1.605) (0.996) (0.991) 1.792 0.957
------ ------ ------- ------- ------- -------
Total from investment operations 0.470 (1.590) (1.010) (1.015) 1.780 1.000
------ ------ ------- ------- ------- -------
Less dividends and distributions from:
Net realized gain on investments -- -- (1.170) (0.145) -- (0.040)
------ ------ ------- ------- ------- -------
Total dividends and distributions -- -- (1.170) (0.145) -- (0.040
------ ------ ------- ------- ------- -------
Net asset value, end of period $8.630 $8.160 $9.750 $11.930 $13.090 $11.310
====== ====== ======= ======= ======= =======
Total return(3) 5.76% (16.31%) (9.52%) (7.87%) 15.74% 9.70%
Ratios and supplemental data:
Net assets, end of period (000 omitted) $605 $550 $533 $337 $329 $379
Ratio of expenses to average net assets 1.25% 1.25% 1.25% 1.25% 1.24% 1.20%
Ratio of expenses to average net assets prior to expense
limitation and expenses paid indirectly 1.62% 1.60% 1.45% 1.33% 1.39% 1.26%
Ratio of net investment income (loss) to average net assets 0.38% 0.17% (0.14%) (0.20%) (0.10%) 0.39%
Ratio of net investment income (loss) to average net assets
prior to expense limitation and expenses paid indirectly 0.01% (0.18%) (0.34%) (0.28%) (0.25%) 0.33%
Portfolio turnover 61% 34% 50% 68% 28% 22%
(1) Ratios and portfolio turnover have been annualized and total return has not
been annualized.
(2) The average shares outstanding method has been applied for per share
information.
(3) Total investment return is based on the change in net asset value of a share
during the period and assumes reinvestment of dividends and distributions at
net asset value. Total investment return reflects a waiver and payment of
fees by the manager. Performance would have been lower had the expense
limitation not been in effect.
See accompanying notes
9
Notes Delaware Social Awareness Fund
TO FINANCIAL STATEMENTS May 31, 2003 (Unaudited)
Delaware Group Equity Funds II (the "Trust") is organized as a Delaware business
trust and offers four series: Delaware Decatur Equity Income Fund, Delaware
Diversified Value Fund, Delaware Growth and Income Fund and Delaware Social
Awareness Fund. These financial statements and related notes pertain to Delaware
Social Awareness Fund (the "Fund"). The Trust is an open-end investment company.
The Fund is considered diversified under the Investment Company Act of 1940, as
amended, and offers Class A, Class B, Class C, Class R and Institutional Class
shares. Class A shares are sold with a front-end sales charge of up to 5.75%.
Class B shares are sold with a contingent deferred sales charge that declines
from 4% to zero depending upon the period of time the shares are held. Class B
shares will automatically convert to Class A shares on a quarterly basis
approximately eight years after purchase. Class C shares are sold with a
contingent deferred sales charge of 1%, 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 a limited group of investors. As of May 31,
2003, Class R had not commenced operations.
The investment objective of the Fund is to seek long-term capital appreciation.
1. Significant Accounting Policies
The following accounting policies are in accordance with accounting principles
generally accepted in the United States and are consistently followed by the
Fund.
Security Valuation - All equity securities are valued at the last quoted sales
price as of the time of the regular close of the New York Stock Exchange (NYSE)
on the valuation date. If on a particular day an equity security does not trade,
then the mean between the bid and asked prices will be used. Short-term debt
securities having less than 60 days to maturity are valued at amortized cost,
which approximates market value. 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 Fund's Board of Trustees.
Federal Income Taxes -- The Fund intends to continue to qualify for federal
income tax purposes 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.
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 102% 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.
Use of Estimates -- The preparation of financial statements in conformity with
accounting principles generally accepted in the United States 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 distributions from net realized gain on investments, if
any, annually.
Certain expenses of the Fund are paid through commission arrangements with
brokers. These transactions are done subject to best execution. The amount of
these expenses was approximately $512 for the period ended May 31, 2003. In
addition, the Fund may receive earnings credits from its custodian when positive
cash balances are maintained, which are used to offset custody fees. There were
no earnings credits for the period ended May 31, 2003. 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, 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 Delaware Management Business
Trust and the investment manager, an annual fee which is calculated daily at the
rate of 0.75% on the first $500 million of average daily net assets of the Fund,
0.70% on the next $500 million, 0.65% on the next $1.5 billion, and 0.60% on
average daily net assets in excess of $2.5 billion.
DMC has contracted to waive that portion, if any, of its management fee and
reimburse the Fund to the extent necessary to ensure that annual operating
expenses, exclusive of taxes, interest, brokerage commissions, distribution fees
and extraordinary expenses, do not exceed 1.25% of average daily net assets of
the Fund through January 31, 2004.
The Fund has engaged Delaware Service Company, Inc. (DSC), an affiliate of DMC,
to provide dividend disbursing, transfer agent, accounting and administration
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.
Pursuant to a distribution agreement and distribution plan, 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
Class A shares and 1.00% of the average daily net assets of the Class B and C
shares and 0.60% of the average daily net assets of the Class R shares. DDLP has
elected to waive its fees through January 31, 2004 in order to prevent
distribution fees of Class A shares from exceeding 0.25% of average daily net
assets. No distribution expenses are paid by Institutional Class shares.
10
Notes Delaware Social Awareness Fund
TO FINANCIAL STATEMENTS (CONTINUED)
2. Investment Management, Administration Agreements and Other Transactions with
Affiliates (continued)
At May 31, 2003, the Fund had liabilities payable to affiliates as follows:
Investment management fee payable to DMC $10,433
Dividend disbursing, transfer agent fees, accounting
and other expenses payable to DSC 18,571
Other expenses payable to DMC and affiliates 6,376
For the period ended May 31, 2003, DDLP earned $2,097 commissions on sales of
the Fund's Class A shares.
Certain officers of DMC, DSC and DDLP are officers and/or trustees of the Trust.
These officers and trustees are paid no compensation by the Fund.
3. Investments
For the period ended May 31, 2003, the Fund made purchases of $12,923,935 and
sales of $15,374,604 of investment securities other than U.S. government
securities and short-term investments.
At May 31, 2003, the cost of investments for federal income tax purposes has
been estimated since the final tax characteristics cannot be determined until
fiscal year end. At May 31, 2003, the cost of investments was $43,715,457. At
May 31, 2003, the net unrealized appreciation was $2,255,958, of which
$6,035,896 relate to unrealized appreciation of investments and $3,779,938
related to unrealized depreciation of 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 accounting principles
generally accepted in the United States. There were no dividends and
distributions paid during the period ended May 31, 2003 and year ended November
30, 2002.
The components of net assets are estimated since final tax characteristics
cannot be determined until fiscal year end. As of May 31, 2003, the estimated
components of net assets on a tax basis were as follows:
Shares of beneficial interest $61,930,299
Accumulated net investment loss (64,037)
Net realized capital losses on investments (2,938,081)
Capital loss carryforwards (15,240,237)
Unrealized appreciation/depreciation of investments 2,255,958
-----------
Net assets $45,943,902
-----------
For federal income tax purposes, capital loss carryforwards may be carried
forward and applied against future capital gains. Such capital loss
carryforwards expire as follows: $2,183,250 expires in 2009 and $13,056,987
expires in 2010.
5. Capital Shares
Transactions in capital shares were as follows:
Six Months
Ended Year Ended
5/31/03 11/30/02
Shares sold:
Class A 138,518 364,724
Class B 100,387 238,553
Class C 53,966 111,567
Institutional Class 12,664 25,590
---------- ----------
305,535 740,434
---------- ----------
Shares repurchased
Class A (297,629) (782,057)
Class B (252,878) (686,610)
Class C (66,290) (390,034)
Institutional Class (10,003) (12,890)
---------- ----------
(626,800) (1,871,591)
---------- ----------
Net decrease (321,265) (1,131,157)
---------- ----------
For the period ended May 31, 2003 and the year ended November 30, 2002, 1,484
Class B shares were converted to 1,416 Class A shares valued at $10,790 and 247
Class B shares were converted to 237 Class A shares valued at $2,068,
respectively. The respective amounts are included in Class B redemptions and
Class A subscriptions in the table above and the Statements of Changes in Net
Assets.
6. Line of Credit
The Fund, along with certain other funds in the Delaware Investments Family of
Funds (the "Participants"), participate in a $202,300,000 revolving line of
credit facility to be used for temporary or emergency purposes as an additional
source of liquidity to fund redemptions of investor shares. The Participants are
charged an annual commitment fee, which is allocated across the Participants on
the basis of each fund's allocation of the entire facility. The Participants may
borrow up to a maximum of one third of their net assets under the agreement. The
Fund had no amounts outstanding as of May 31, 2003, or at any time during the
period.
7. Credit & Market Risk
The Fund only invests in companies that meet its definition of "socially
responsible" and may be subject to certain risks as a result of investing
exclusively in socially responsible companies. By avoiding certain companies
not considered socially responsible, it could miss out on strong performance
from those companies.
11
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12
Delaware
Investments(SM)
- --------------------------------------
A member of Lincoln Financial Group(R)
This semiannual report is for the information of Delaware Social Awareness Fund
shareholders, but it may be used with prospective investors when preceded or
accompanied by a current prospectus for Delaware Social Awareness Fund and the
Delaware Investments Performance Update for the most recently completed calendar
quarter. The prospectus sets forth details about charges, expenses, investment
objectives, and operating policies of the Fund. You should read the prospectus
carefully before you invest. The figures in this report represent past results
which are not a guarantee of future results. The return and principal value of
an investment in the Fund will fluctuate so that shares, when redeemed, may be
worth more or less than their original cost.
Board of Trustees Affiliated Officers Contact Information
Jude T. Driscoll Michael P. Bishof Investment Manager
Chairman Senior Vice President and Treasurer Delaware Management Company
Delaware Investments Family of Funds Delaware Investments Family of Funds Philadelphia, PA
Philadelphia, PA Philadelphia, PA
International Affiliate
Walter P. Babich Richelle S. Maestro Delaware International Advisers Ltd.
Board Chairman Senior Vice President, London, England
Citadel Construction Corporation General Counsel and Secretary
King of Prussia, PA Delaware Investments Family of Funds National Distributor
Philadelphia, PA Delaware Distributors, L.P.
David K. Downes Philadelphia, PA
President and Chief Executive Officer
Delaware Investments Family of Funds Shareholder Servicing, Dividend
Philadelphia, PA Disbursing and Transfer Agent
Delaware Service Company, Inc.
John H. Durham 2005 Market Street
Private Investor Philadelphia, PA 19103-7094
Gwynedd Valley, PA
For Shareholders
John A. Fry 800 523-1918
President
Franklin & Marshall College For Securities Dealers and Financial
Lancaster, PA Institutions Representatives Only
800 362-7500
Anthony D. Knerr
Managing Director Web site
Anthony Knerr & Associates www.delawareinvestments.com
New York, NY
Ann R. Leven
Former Treasurer/Chief Fiscal Officer
National Gallery of Art
Washington, DC
Thomas F. Madison
President and Chief Executive Officer
MLM Partners, Inc.
Minneapolis, MN
Janet L. Yeomans
Vice President/Mergers & Acquisitions
3M Corporation
St. Paul, MN
(7919) Printed in the USA
SA-147 [5/03] IVES 7/03 J9276
Item 2. Code of Ethics
Not applicable.
Item 3. Audit Committee Financial Expert
Not applicable.
Item 4. Principal Accountant Fees and Services
Not applicable.
Item 5. Audit Committee of Listed Registrants
Not applicable.
Item 6. [Reserved]
Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End
Management Investment Companies
Not applicable.
Item 8. [Reserved]
Item 9. Controls and Procedures
The registrant's principal executive officer and principal financial
officer have evaluated the registrant's disclosure controls and procedures
within 90 days of the filing of this report and have concluded that they are
effective in ensuring that the information required to be disclosed by the
registrant in its reports or statements filed under the Securities Exchange Act
of 1934 is recorded, processed, summarized and reported within the time periods
specified in the rules and forms of the Securities and Exchange Commission.
There were no significant changes in the registrant's internal controls
or in other factors that could significantly affect these controls subsequent to
the date of their last evaluation, including any corrective actions with regard
to significant deficiencies and material weaknesses.
Exhibits
(a) Code of Ethics
Not applicable.
(b) (1) Certifications of Principal Executive Officer and Principal Financial
Officer pursuant to Rule 30a-2 under the Investment Company Act of 1940 are
attached hereto as Exhibit 99.CERT.
(2) Certifications pursuant to Section 906 of the Sarbanes-Oxley Act of
2002 are attached hereto as Exhibit 99.906CERT.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and
the Investment Company Act of 1940, the registrant has duly caused this report
to be signed on its behalf, by the undersigned, thereunto duly authorized.
Name of Registrant: Delaware Group Equity Funds II
Jude T. Driscoll
- -------------------------------
By: Jude T. Driscoll
Title: Chairman
Date:
Pursuant to the requirements of the Securities Exchange Act of 1934 and
the Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
Jude T. Driscoll Michael P. Bishof
- ------------------------------- ----------------------------------
By: Jude T. Driscoll By: Michael P. Bishof
Title: Chairman Title: Treasurer
Date: Date: