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, 2005
Item 1. Reports to Stockholders
DELAWARE
INVESTMENTS(R)
-----------------------------------
A member of Lincoln Financial Group
VALUE-EQUITY
SEMIANNUAL REPORT MAY 31, 2005
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DELAWARE LARGE CAP VALUE FUND
[LOGO]
POWERED BY RESEARCH.(SM)
TABLE
OF CONTENTS
- -------------------------------------------------------------------
DISCLOSURE OF FUND EXPENSES 1
- -------------------------------------------------------------------
SECTOR ALLOCATION 2
- -------------------------------------------------------------------
FINANCIAL STATEMENTS:
Statement of Net Assets 3
Statement of Operations 5
Statements of Changes in Net Assets 6
Financial Highlights 7
Notes to Financial Statements 12
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OTHER FUND INFORMATION 15
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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) 2005 Delaware Distributors, L.P.
DISCLOSURE For the Period December 1, 2004 to May 31, 2005
OF FUND EXPENSES
As a shareholder of the Fund, you incur two types of costs:
(1) transaction costs, including sales charges (loads) on purchase payments,
reinvested dividends or other distributions; redemption fees; and exchange fees;
and (2) ongoing costs, including management fees; distribution and/or service
(12b-1) fees; and other fund expenses. This example is intended to help you
understand your ongoing costs (in dollars) of investing in the Fund and to
compare these costs with the ongoing costs of investing in other mutual funds.
The example is based on an investment of $1,000 invested at the beginning of the
period and held for the entire period December 1, 2004 to May 31, 2005.
ACTUAL EXPENSES
The first section of the table shown, "Actual Fund Return," provides information
about actual account values and actual expenses. You may use the information in
this section of the table, together with the amount you invested, to estimate
the expenses that you paid over the period. Simply divide your account value by
$1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then
multiply the result by the number in the first section under the heading
entitled "Expenses Paid During Period" to estimate the expenses you paid on your
account during this period.
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The second section of the table shown, "Hypothetical 5% Return," provides
information about hypothetical account values and hypothetical expenses based on
the Fund's actual expense ratio and an assumed rate of return of 5% per year
before expenses, which is not the Fund's actual return. The hypothetical account
values and expenses may not be used to estimate the actual ending account
balance or expenses you paid for the period. You may use this information to
compare the ongoing costs of investing in the Fund and other funds. To do so,
compare this 5% hypothetical example with the 5% hypothetical examples that
appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your
ongoing costs only and do not reflect any transactional costs, such as sales
charges (loads), redemption fees, or exchange fees. Therefore, the second
section of the table is useful in comparing ongoing costs only, and will not
help you determine the relative total costs of owning different funds. In
addition, if these transactional costs were included, your costs would have been
higher. The expenses shown in the table assume reinvestment of all dividends and
distributions.
DELAWARE LARGE CAP VALUE FUND
EXPENSE ANALYSIS OF AN INVESTMENT OF $1,000
Expenses
Beginning Ending Paid During
Account Account Annualized Period
Value Value Expense 12/1/04 to
12/1/04 5/31/05 Ratio 5/31/05*
- ----------------------------------------------------------------------------------------------------------------
ACTUAL FUND RETURN
Class A $1,000.00 $1,018.10 1.12% $5.64
Class B 1,000.00 1,014.40 1.86% 9.34
Class C 1,000.00 1,014.30 1.86% 9.34
Class R 1,000.00 1,016.20 1.46% 7.34
Institutional Class 1,000.00 1,018.70 0.86% 4.33
- ----------------------------------------------------------------------------------------------------------------
HYPOTHETICAL 5% RETURN (5% return before expenses)
Class A $1,000.00 $1,019.35 1.12% $5.64
Class B 1,000.00 1,015.66 1.86% 9.35
Class C 1,000.00 1,015.66 1.86% 9.35
Class R 1,000.00 1,017.65 1.46% 7.34
Institutional Class 1,000.00 1,020.64 0.86% 4.33
- ----------------------------------------------------------------------------------------------------------------
* Expenses are equal to the Fund's annualized expense ratio, multiplied by the
average account value over the period, multiplied by 182/365 (to reflect the
one-half year period).
1
SECTOR ALLOCATION As of May 31, 2005
DELAWARE LARGE CAP VALUE FUND
The SEC adopted a requirement that all funds present their categories of
portfolio holdings in a table, chart, or graph format in their annual and
semiannual shareholder reports, whether or not a schedule of investments is
utilized. The following chart lists the Fund's categories of portfolio holdings
as a percentage of total net assets and is provided in compliance with such
requirement.
PERCENTAGE
SECTOR OF NET ASSETS
- ------------------------------------------------------------------------
COMMON STOCK 99.79%
- ------------------------------------------------------------------------
Consumer Discretionary 5.30%
Consumer Staples 11.52%
Energy 8.75%
Financials 25.29%
Health Care 18.23%
Industrials 6.34%
Information Technology 8.97%
Materials 2.79%
Telecommunications 6.22%
Utilities 6.38%
- ------------------------------------------------------------------------
REPURCHASE AGREEMENTS 0.28%
- ------------------------------------------------------------------------
TOTAL MARKET VALUE OF SECURITIES BEFORE
SECURITIES LENDING COLLATERAL 100.07%
- ------------------------------------------------------------------------
SECURITIES LENDING COLLATERAL 6.79%
- ------------------------------------------------------------------------
TOTAL MARKET VALUE OF SECURITIES 106.86%
- ------------------------------------------------------------------------
OBLIGATION TO RETURN SECURITIES LENDING COLLATERAL (6.79)%
- ------------------------------------------------------------------------
LIABILITIES NET OF RECEIVABLES AND OTHER ASSETS (0.07)%
- ------------------------------------------------------------------------
TOTAL NET ASSETS 100.00%
- ------------------------------------------------------------------------
2
DELAWARE LARGE CAP VALUE FUND
STATEMENT May 31, 2005 (Unaudited)
OF NET ASSETS
Number of Market
Shares Value
COMMON STOCK - 99.79%
Consumer Discretionary - 5.30%
*Limited Brands 1,862,800 $ 38,317,796
*Mattel 2,108,500 38,332,530
------------
76,650,326
------------
Consumer Staples - 11.52%
Archer-Daniels-Midland 1,814,000 36,007,900
*ConAgra Foods 1,678,500 43,892,775
Kimberly-Clark 680,200 43,757,266
*Safeway 1,951,400 42,950,314
------------
166,608,255
------------
Energy - 8.75%
*Chevron 759,600 40,851,288
ConocoPhillips 402,500 43,405,600
Exxon Mobil 751,880 42,255,656
------------
126,512,544
------------
Financials - 25.29%
Allstate 756,500 44,028,300
*Aon 1,941,200 48,394,116
Chubb 565,900 47,665,757
Hartford Financial Services 642,600 48,060,054
*Huntington Bancshares 1,934,400 45,110,208
Morgan Stanley 836,300 40,945,248
*Wachovia 881,200 44,720,900
*Washington Mutual 1,132,700 46,780,510
------------
365,705,093
------------
Health Care - 18.23%
Abbott Laboratories 930,100 44,868,024
Baxter International 1,140,400 42,080,760
*Bristol-Myers Squibb 1,767,600 44,826,336
*Merck 1,340,200 43,476,088
Pfizer 1,688,085 47,097,571
*Wyeth 954,200 41,383,654
------------
263,732,433
------------
Industrials - 6.34%
Boeing 762,100 48,698,190
*Union Pacific 643,300 43,075,368
------------
91,773,558
------------
Information Technology - 8.97%
*Hewlett-Packard 2,059,000 46,348,090
International Business Machines 577,300 43,615,015
*+Xerox 2,926,500 39,712,605
------------
129,675,710
------------
Materials - 2.79%
Weyerhaeuser 628,500 40,318,275
------------
40,318,275
------------
Telecommunications - 6.22%
SBC Communications 1,901,500 44,457,070
Verizon Communications 1,285,000 45,463,300
------------
89,920,370
------------
Number of Market
Shares Value
COMMON STOCK (continued)
Utilities - 6.38%
*Energy East 1,720,200 $ 48,165,600
*FPL Group 1,085,100 44,109,315
--------------
92,274,915
--------------
TOTAL COMMON STOCK (cost $1,415,317,216) 1,443,171,479
--------------
Principal
Amount
REPURCHASE AGREEMENTS - 0.28%
With BNP Paribas 2.95% 6/1/05
(dated 5/31/05, to be repurchased
at $2,323,190, collateralized by
$340,000 U.S. Treasury Bills due
9/29/05, market value $336,382,
$288,000 U.S. Treasury Bills due
10/20/05, market value $284,445,
$517,000 U.S. Treasury Bills due
11/17/05, market value $509,669,
$331,000 U.S. Treasury Notes 2.38%
due 8/15/06, market value $328,649,
$510,000 U.S. Treasury Notes 6.50%
due 8/15/05, market value $523,337,
and $364,000 U.S. Treasury Notes
7.00% due 7/15/06, market
value $387,454) $2,323,000 2,323,000
With UBS Warburg 2.95% 6/1/05
(dated 5/31/05, to be repurchased
at $1,669,137, collateralized by
$1,720,000 U.S. Treasury Notes
2.50% due 5/31/06, market value
$1,704,605) 1,669,000 1,669,000
--------------
TOTAL REPURCHASE AGREEMENTS
(cost $3,992,000) 3,992,000
--------------
TOTAL MARKET VALUE OF SECURITIES BEFORE
SECURITIES LENDING COLLATERAL - 100.07%
(cost $1,419,309,216) 1,447,163,479
--------------
SECURITIES LENDING COLLATERAL** - 6.79%
Short-Term Investments
Abbey National 3.13% 1/13/06 2,086,881 2,086,881
Australia New Zealand 3.08% 6/23/06 2,818,949 2,818,949
Bank of New York 3.06% 4/4/06 2,255,160 2,255,160
Bank of the West 3.06% 3/2/06 2,819,510 2,818,949
Barclays London 3.10% 7/21/05 2,819,031 2,818,985
Barclays New York 3.12% 6/1/05 281,848 281,848
Bayerische Landesbank
3.08% 6/30/06 2,818,338 2,818,949
Bear Stearns
3.14% 1/17/06 563,773 564,077
3.15% 11/30/05 2,817,529 2,818,950
Beta Finance 3.08% 4/18/06 2,819,188 2,818,668
Citigroup Global Markets
3.10% 6/1/05 22,582,838 22,582,838
3.13% 6/7/05 3,044,465 3,044,465
Credit Swiss First Boston New York
3.07% 4/18/06 3,044,465 3,044,465
3.10% 12/29/05 591,849 592,014
3
STATEMENT DELAWARE LARGE CAP VALUE FUND
OF NET ASSETS (CONTINUED)
Principal Market
Amount Value
SECURITIES LENDING COLLATERAL** (continued)
Short-Term Investments (continued)
Deutsche Bank 3.10% 7/11/05 $2,255,181 $ 2,255,160
Goldman Sachs 3.20% 5/31//06 3,100,534 3,100,844
Lehman Holdings 3.14% 12/23/05 2,819,439 2,821,488
Marshall & Ilsley Bank 3.05% 12/29/05 2,819,165 2,819,077
Merrill Lynch Mortgage Capital
3.16% 7/12/05 2,818,949 2,818,949
Morgan Stanley
3.21% 6/30/06 563,240 563,790
3.24% 5/1/06 281,726 281,895
National City Bank Cleveland
3.06% 1/23/06 3,213,998 3,213,776
Pfizer 3.05% 6/30/06 2,706,192 2,706,192
Proctor & Gamble 2.93% 6/30/06 2,818,950 2,818,950
Royal Bank of Canada 3.05% 6/27/05 2,818,873 2,818,873
Royal Bank of Scotland 3.06% 6/30/06 2,818,644 2,818,950
Sigma Finance 3.06% 9/30/05 2,649,838 2,649,540
Societe Generale New York
3.06% 6/14/05 2,546,309 2,546,205
Sun Trust Bank 3.08% 8/5/05 1,409,397 1,409,397
Wal Mart Stores 3.03% 6/21/05 3,370,834 3,365,204
Washington Mutual Bank
3.10% 7/8/05 2,818,898 2,818,950
Wells Fargo 3.06% 6/30/06 2,818,950 2,818,950
Wilmington Trust Company
2.96% 6/3/05 2,255,951 2,255,947
--------------
TOTAL SECURITIES LENDING COLLATERAL
(cost $98,267,335) 98,267,335
--------------
TOTAL MARKET VALUE OF SECURITIES - 106.86%
(cost $1,517,576,551) 1,545,430,814
OBLIGATION TO RETURN SECURITIES LENDING
COLLATERAL - (6.79%)** (98,267,335)
LIABILITIES NET OF RECEIVABLES AND OTHER
ASSETS - (0.07%) (941,785)
--------------
NET ASSETS APPLICABLE TO 79,491,572 SHARES
OUTSTANDING - 100.00% $1,446,221,694
==============
Net Asset Value - Delaware Large Cap Value Fund Class A
($1,201,484,132 / 65,991,060 Shares) $18.21
------
Net Asset Value - Delaware Large Cap Value Fund Class B
($159,611,518 / 8,823,946 Shares) $18.09
------
Net Asset Value - Delaware Large Cap Value Fund Class C
($38,587,702 / 2,120,102 Shares) $18.20
------
Net Asset Value - Delaware Large Cap Value Fund Class R
($1,307,344 / 71,878 Shares) $18.19
------
Net Asset Value - Delaware Large Cap Value Fund
Institutional Class
($45,230,998 / 2,484,586 Shares) $18.20
------
COMPONENTS OF NET ASSETS AT MAY 31, 2005:
Shares of beneficial interest
(unlimited authorization - no par) $1,369,322,277
Undistributed net investment income 5,806,196
Accumulated net realized gain on investments 43,238,958
Net unrealized appreciation of investments 27,854,263
--------------
Total net assets $1,446,221,694
==============
*Fully or partially on loan.
**See Note 8 in "Notes to Financial Statements."
(C)Includes $96,233,151 of securities loaned.
+Non-income producing security for the period ended May 31, 2005.
NET ASSET VALUE AND OFFERING PRICE PER SHARE -
DELAWARE LARGE CAP VALUE FUND
Net asset value Class A (A) $18.21
Sales charge (5.75% of offering price) (B) 1.11
------
Offering price $19.32
------
(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
4
DELAWARE LARGE CAP VALUE FUND
STATEMENT Six Months Ended May 31, 2005 (Unaudited)
OF OPERATIONS
INVESTMENT INCOME:
Dividends $17,416,386
Interest 364,611
Securities lending income 84,121
Foreign tax withheld (91,015) $ 17,774,103
----------- -------------
EXPENSES:
Management fees 4,497,964
Distribution expenses -- Class A 1,639,777
Distribution expenses -- Class B 862,613
Distribution expenses -- Class C 204,089
Distribution expenses -- Class R 3,814
Dividend disbursing and transfer agent fees and expenses 1,201,123
Accounting and administration expenses 236,206
Legal and professional fees 104,783
Reports and statements to shareholders 93,573
Insurance fees 93,062
Registration fees 89,600
Tax 44,533
Trustees' fees 38,801
Custodian fees 25,504
Pricing fees 176
Other 8,054 9,143,672
-----------
Less expense paid indirectly (10,804)
-------------
Total expenses 9,132,868
-------------
NET INVESTMENT INCOME 8,641,235
-------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND FOREIGN CURRENCIES:
Net realized gain (loss) on:
Investments 192,654,701
Foreign currencies (6,790)
-------------
Net realized gain 192,647,911
Net change in unrealized appreciation/depreciation of investments (173,699,033)
-------------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS AND FOREIGN CURRENCIES 18,948,878
-------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 27,590,113
=============
See accompanying notes
5
STATEMENTS DELAWARE LARGE CAP VALUE FUND
OF CHANGES IN NET ASSETS
Six Months Year
Ended Ended
5/31/05 11/30/04
(Unaudited)
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS:
Net investment income $ 8,641,235 $ 15,810,553
Net realized gain on investments and foreign currencies 192,647,911 117,707,627
Net change in unrealized appreciation/depreciation of investments (173,699,033) 20,658,996
-------------- --------------
Net increase in net assets resulting from operations 27,590,113 154,177,176
-------------- --------------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income:
Class A (9,087,077) (12,973,202)
Class B (623,394) (469,649)
Class C (146,744) (89,784)
Class R (6,642) (7,991)
Institutional Class (372,473) (1,000,853)
Net realized gain on investments:
Class A (1,079,756) --
Class B (146,439) --
Class C (34,851) --
Class R (1,113) --
Institutional Class (39,263) --
-------------- --------------
(11,537,752) (14,541,479)
-------------- --------------
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares sold:
Class A 25,802,901 86,001,134
Class B 4,351,227 11,601,777
Class C 3,079,314 15,236,218
Class R 116,341 625,931
Institutional Class 5,336,308 29,018,913
Net assets from merger(1):
Class A -- 354,886,323
Class B -- 129,663,370
Class C -- 21,894,855
Institutional Class -- 35,905,405
Net asset value of shares issued upon reinvestment of dividends and distributions:
Class A 8,968,258 11,225,537
Class B 689,713 413,644
Class C 170,998 82,376
Class R 7,747 7,970
Institutional Class 411,735 1,000,814
-------------- --------------
48,934,542 697,564,267
-------------- --------------
Cost of shares repurchased:
Class A (99,707,706) (208,444,090)
Class B (31,694,994) (45,760,130)
Class C (7,501,531) (11,482,846)
Class R (62,994) (140,920)
Institutional Class (43,296,251) (36,609,549)
-------------- --------------
(182,263,476) (302,437,535)
-------------- --------------
Increase (Decrease) in net assets derived from capital share transactions (133,328,934) 395,126,732
-------------- --------------
NET INCREASE (DECREASE) IN NET ASSETS (117,276,573) 534,762,429
NET ASSETS:
Beginning of period 1,563,498,267 1,028,735,838
-------------- --------------
End of period (including undistributed net investment income of $5,806,196 and
$7,408,081, respectively) $1,446,221,694 $1,563,498,267
============== ==============
(1) See Note #6 in "Notes to Financial Statements."
See accompanying notes
6
FINANCIAL
HIGHLIGHTS
Selected data for each share of the Fund outstanding
throughout each period were as follows:
-----------------------------------------------------------------------
Delaware Large Cap Value Fund Class A
-----------------------------------------------------------------------
Six Months
Ended Year Ended
5/31/05(1) 11/30/04 11/30/03 11/30/02 11/30/01 11/30/00
(Unaudited)
NET ASSET VALUE, BEGINNING OF PERIOD $18.030 $16.240 $14.320 $16.730 $16.770 $17.200
INCOME (LOSS) FROM INVESTMENT OPERATIONS:
Net investment income(2) 0.114 0.204 0.205 0.170 0.182 0.370
Net realized and unrealized gain (loss) on investments
and foreign currencies 0.214 1.802 1.835 (2.381) (0.062) 0.050
------- ------- ------- ------- ------- -------
Total from investment operations 0.328 2.006 2.040 (2.211) 0.120 0.420
------- ------- ------- ------- ------- -------
LESS DIVIDENDS AND DISTRIBUTIONS FROM:
Net investment income (0.132) (0.216) (0.120) (0.199) (0.160) (0.378)
Net realized gain on investments (0.016) -- -- -- -- (0.472)
------- ------- ------- ------- ------- -------
Total dividends and distributions (0.148) (0.216) (0.120) (0.199) (0.160) (0.850)
------- ------- ------- ------- ------- -------
NET ASSET VALUE, END OF PERIOD $18.210 $18.030 $16.240 $14.320 $16.730 $16.770
======= ======= ======= ======= ======= =======
TOTAL RETURN(3) 1.81% 12.44% 14.34% (13.34%) 0.75% 2.72%
RATIOS AND SUPPLEMENTAL DATA:
Net assets, end of period (000 omitted) $1,201,484 $1,253,876 $895,108 $870,132 $1,132,147 $1,258,738
Ratio of expenses to average net assets 1.12% 1.15% 1.20% 1.11% 1.07% 1.12%
Ratio of expenses to average net assets prior to expense
limitation and expense paid indirectly 1.12% 1.16% 1.20% 1.11% 1.07% 1.12%
Ratio of net investment income to average net assets 1.25% 1.18% 1.40% 1.10% 1.06% 2.30%
Ratio of net investment income to average net assets prior
to expense limitation and expense paid indirectly 1.25% 1.17% 1.40% 1.10% 1.06% 2.30%
Portfolio turnover 192% 70% 77% 99% 111% 77%
(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 waivers and payment of fees by the manager and
distributor, as applicable. 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 Large Cap Value Fund Class B
----------------------------------------------------------------------
Six Months
Ended Year Ended
5/31/05(1) 11/30/04 11/30/03 11/30/02 11/30/01 11/30/00
(Unaudited)
NET ASSET VALUE, BEGINNING OF PERIOD $17.910 $16.150 $14.240 $16.630 $16.690 $17.120
INCOME (LOSS) FROM INVESTMENT OPERATIONS:
Net investment income(2) 0.047 0.077 0.096 0.054 0.054 0.248
Net realized and unrealized gain (loss) on investments
and foreign currencies 0.212 1.789 1.821 (2.364) (0.063) 0.059
------- ------- ------- ------- ------- -------
Total from investment operations 0.259 1.866 1.917 (2.310) (0.009) 0.307
------- ------- ------- ------- ------- -------
LESS DIVIDENDS AND DISTRIBUTIONS FROM:
Net investment income (0.063) (0.106) (0.007) (0.080) (0.051) (0.265)
Net realized gain on investments (0.016) -- -- -- -- (0.472)
------- ------- ------- ------- ------- -------
Total dividends and distributions (0.079) (0.106) (0.007) (0.080) (0.051) (0.737)
------- ------- ------- ------- ------- -------
NET ASSET VALUE, END OF PERIOD $18.090 $17.910 $16.150 $14.240 $16.630 $16.690
======= ======= ======= ======= ======= =======
TOTAL RETURN(3) 1.44% 11.60% 13.47% (13.96%) (0.05%) 2.01%
RATIOS AND SUPPLEMENTAL DATA:
Net assets, end of period (000 omitted) $159,612 $184,203 $74,019 $75,707 $100,419 $99,266
Ratio of expenses to average net assets 1.86% 1.89% 1.94% 1.86% 1.82% 1.88%
Ratio of net investment income to average net assets 0.51% 0.44% 0.66% 0.35% 0.31% 1.54%
Portfolio turnover 192% 70% 77% 99% 111% 77%
(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.
See accompanying notes
8
FINANCIAL
HIGHLIGHTS (CONTINUED)
Selected data for each share of the Fund outstanding
throughout each period were as follows:
-----------------------------------------------------------------------
Delaware Large Cap Value Fund Class C
-----------------------------------------------------------------------
Six Months
Ended Year Ended
5/31/05(1) 11/30/04 11/30/03 11/30/02 11/30/01 11/30/00
(Unaudited)
NET ASSET VALUE, BEGINNING OF PERIOD $18.020 $16.250 $14.320 $16.730 $16.780 $17.220
INCOME (LOSS) FROM INVESTMENT OPERATIONS:
Net investment income(2) 0.047 0.076 0.095 0.054 0.053 0.247
Net realized and unrealized gain (loss) on investments
and foreign currencies 0.212 1.800 1.842 (2.384) (0.052) 0.050
------- ------- ------- -------- ------- -------
Total from investment operations 0.259 1.876 1.937 (2.330) 0.001 0.297
------- ------- ------- -------- ------- -------
LESS DIVIDENDS AND DISTRIBUTIONS FROM:
Net investment income (0.063) (0.106) (0.007) (0.080) (0.051) (0.265)
Net realized gain on investments (0.016) -- -- -- -- (0.472)
Total dividends and distributions (0.079) (0.106) (0.007) (0.080) (0.051) (0.737)
------- ------- ------- -------- ------- -------
NET ASSET VALUE, END OF PERIOD $18.200 $18.020 $16.250 $14.320 $16.730 $16.780
======= ======= ======= ======= ======= =======
TOTAL RETURN(3) 1.43% 11.59% 13.53% (14.00%) 0.02% 1.94%
RATIOS AND SUPPLEMENTAL DATA:
Net assets, end of period (000 omitted) $38,588 $42,371 $13,764 $11,098 $13,442 $11,372
Ratio of expenses to average net assets 1.86% 1.89% 1.94% 1.86% 1.82% 1.88%
Ratio of net investment income to average net assets 0.51% 0.44% 0.66% 0.35% 0.31% 1.54%
Portfolio turnover 192% 70% 77% 99% 111% 77%
(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.
See accompanying notes
9
FINANCIAL
HIGHLIGHTS (CONTINUED)
Selected data for each share of the Fund outstanding
throughout each period were as follows:
--------------------------------------
Delaware Large Cap Value Fund Class R
--------------------------------------
Six Months Year 6/02/03(1)
Ended Ended to
5/31/05(2) 11/30/04 11/30/03
(Unaudited)
NET ASSET VALUE, BEGINNING OF PERIOD $18.010 $16.230 $15.150
INCOME FROM INVESTMENT OPERATIONS:
Net investment income(3) 0.083 0.145 0.072
Net realized and unrealized gain on investments and
foreign currencies 0.210 1.809 1.063
------- ------- -------
Total from investment operations 0.293 1.954 1.135
------- ------- -------
LESS DIVIDENDS AND DISTRIBUTIONS FROM:
Net investment income (0.097) (0.174) (0.055)
Net realized gain on investments (0.016) -- --
------- ------- -------
Total dividends and distributions (0.113) (0.174) (0.055)
------- ------- -------
NET ASSET VALUE, END OF PERIOD $18.190 $18.010 $16.230
======= ======= =======
TOTAL RETURN(4) 1.62% 12.11% 7.51%
RATIOS AND SUPPLEMENTAL DATA:
Net assets, end of period (000 omitted) $1,307 $1,234 $654
Ratio of expenses to average net assets 1.46% 1.49% 1.54%
Ratio of net investment income to average net assets 0.91% 0.84% 0.91%
Portfolio turnover 192% 70% 77%
(1) Date of commencement of operations; ratios have been annualized and total
return has not been annualized.
(2) 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.
See accompanying notes
10
FINANCIAL
HIGHLIGHTS (CONTINUED)
Selected data for each share of the Fund outstanding
throughout each period were as follows:
-----------------------------------------------------------------------
Delaware Large Cap Value Fund Institutional Class
-----------------------------------------------------------------------
Six Months
Ended Year Ended
5/31/05(1) 11/30/04 11/30/03 11/30/02 11/30/01 11/30/00
(Unaudited)
NET ASSET VALUE, BEGINNING OF PERIOD $18.030 $16.240 $14.320 $16.730 $16.770 $17.200
INCOME (LOSS) FROM INVESTMENT OPERATIONS:
Net investment income(2) 0.138 0.248 0.242 0.209 0.224 0.408
Net realized and unrealized gain (loss) on investments
and foreign currencies 0.201 1.805 1.835 (2.380) (0.065) 0.054
------- ------- ------- ------- ------- -------
Total from investment operations 0.339 2.053 2.077 (2.171) 0.159 0.462
------- ------- ------- ------- ------- -------
LESS DIVIDENDS AND DISTRIBUTIONS FROM:
Net investment income (0.153) (0.263) (0.157) (0.239) (0.199) (0.420)
Net realized gain on investments (0.016) -- -- -- -- (0.472)
------- ------- ------- ------- ------- -------
Total dividends and distributions (0.169) (0.263) (0.157) (0.239) (0.199) (0.892)
------- ------- ------- ------- ------- -------
NET ASSET VALUE, END OF PERIOD $18.200 $18.030 $16.240 $14.320 $16.730 $16.770
======= ======= ======= ======= ======= =======
TOTAL RETURN(3) 1.87% 12.75% 14.64% (13.11%) 1.00% 2.99%
RATIOS AND SUPPLEMENTAL DATA:
Net assets, end of period (000 omitted) $45,231 $81,814 $45,191 $32,928 $48,192 $52,020
Ratio of expenses to average net assets 0.86% 0.89% 0.94% 0.86% 0.82% 0.88%
Ratio of net investment income to average net assets 1.51% 1.44% 1.66% 1.35% 1.31% 2.54%
Portfolio turnover 192% 70% 77% 99% 111% 77%
(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.
See accompanying notes
11
NOTES DELAWARE LARGE CAP VALUE FUND
TO FINANCIAL STATEMENTS May 31, 2005 (Unaudited)
Delaware Group Equity Funds II (the "Trust") is organized as a Delaware
statutory trust and offers two series: Delaware Value Fund (formerly Delaware
Diversified Value Fund) and Delaware Large Cap Value Fund (formerly Delaware
Decatur Equity Income Fund). These financial statements and related notes
pertain to the Delaware Large Cap 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 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.
The investment objective of the Fund is to seek total return.
1. SIGNIFICANT ACCOUNTING POLICIES
The following accounting policies are in accordance with U.S. generally accepted
accounting principles and are consistently followed by the Fund.
Security Valuation -- Equity securities, except those traded on the Nasdaq Stock
Market, Inc. (NASDAQ), 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. Securities traded on the NASDAQ are valued in accordance with the NASDAQ
Official Closing Price, which may not be the last sales price. If on a
particular day an equity security does not trade, 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 pursuant to an
exemptive order issued by the Securities and Exchange Commission. 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
U.S. generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets
and liabilities at the date of the financial statements and the reported amounts
of revenues and expenses during the reporting period. Actual results could
differ from those estimates.
Other -- Expenses common to all funds within the Delaware Investments Family of
Funds are allocated amongst the funds on the basis of average net assets.
Management fees and some other expenses are paid monthly. 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.
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, 2005 were approximately $10,804. The
expense paid under the above arrangement is included in custodian fees on the
Statement of Operations with the corresponding expense offset shown as "expense
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 0.65% 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.
For the period March 27, 2004 through March 26, 2005, DMC had contractually
agreed 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, certain insurance
costs and extraordinary expenses, did not exceed 0.91% of average daily net
assets of the Fund.
Delaware Service Company, Inc. (DSC), an affiliate of DMC, provides accounting,
administration, dividend disbursing and transfer agent services. The Fund pays
DSC a monthly fee based on average net assets subject to certain minimums for
accounting and administration services. The Fund pays DSC a monthly fee based on
the number of shareholder accounts for dividend disbursing and transfer agent
services.
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 distribution and service 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.
Institutional class shares pay no distribution and service expenses. The Board
of Trustees has adopted a formula for calculating 12b-1 plan fees for the Fund's
Class A shares that went into effect on May 2, 1994. The total 12b-1 fees to be
paid by Class A shareholders of the Fund will be the sum of 0.10% of the average
daily net assets representing shares that were acquired prior to May 2, 1994 and
0.30% of the average daily net assets representing share that were acquired on
or after May 2, 1994. All Class A shareholders will bear 12b-1 fee at the same
rate, the blended rate based upon the allocation of the 0.10% and 0.30% rates
describes above. For the period March 27, 2004 through March 26, 2005, DDLP had
contracted to waive distribution and service fees in order to prevent
distribution and service fees of Class A shares from exceeding 0.26% of average
daily net assets. This contractual waiver is applied to the shares of the Fund
that were acquired on or after May 2, 1994 in calculating the applicable 12b-1
fee rate.
12
NOTES DELAWARE LARGE CAP VALUE FUND
TO FINANCIAL STATEMENTS (CONTINUED)
2. INVESTMENT MANAGEMENT, ADMINISTRATION AGREEMENTS AND OTHER
TRANSACTIONS WITH AFFILIATES (CONTINUED)
At May 31, 2005, the Fund had liabilities payable to affiliates as follows:
Investment management fee payable to DMC $740,628
Dividend disbursing, transfer agent, accounting
and administration fees and other expenses
payable to DSC 825,193
Other expenses payable to DMC and affiliates* 336,307
*DMC, as part of its administrative services, pays operating expenses on behalf
of the Fund and is reimbursed on a periodic basis. Such expenses include items
such as printing of shareholder reports, fees for audit, legal and tax
services, registration fees and trustees' fees.
As provided in the investment management agreement, the Fund bears the cost of
certain legal services expenses, including internal legal services provided to
the Fund by DMC employees. For the six months ended May 31, 2005, the Delaware
Large Cap Value Fund was charged $40,616 for internal legal services provided by
DMC.
For the six months ended May 31, 2005, DDLP earned $47,730 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 six months ended May 31, 2005, the Fund made purchases of $1,412,098,345
and sales of $1,467,132,202 of investment securities other than short-term
investments.
At May 31, 2005, 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, 2005, the cost of investments was $1,421,604,669. At
May 31, 2005, net unrealized appreciation was $25,558,810 of which $71,420,133
related to unrealized appreciation of investments and $45,861,323 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 U.S. generally
accepted accounting principles. Additionally, gains (losses) on foreign currency
transactions and net short-term gains on sales of investment securities are
treated as ordinary income for federal income tax purposes. The tax character of
dividends and distributions paid during the six months ended May 31, 2005 and
the year ended November 30, 2004 was as follows:
Six Months Year
Ended Ended
5/31/05* 11/31/04
----------- -----------
Ordinary income $10,236,330 $14,541,479
Long-term capital gain 1,301,422 --
----------- -----------
Total $11,537,752 $14,541,479
=========== ===========
*Tax information for the six months ended May 31, 2005 is estimated and the tax
character of dividends and distributions may be redesignated at the fiscal year
end.
The components of net assets are estimated since the final tax characteristics
cannot be determined until fiscal year end. As of May 31, 2005, the estimated
components of net assets on a tax basis were as follows:
Shares of beneficial interest $1,369,322,277
Undistributed net investment income 5,806,196
Undistributed long-term capital gain 180,279,780
*Capital Loss carryforwards (134,745,369)
Unrealized appreciation of investments 25,558,810
--------------
Net assets $1,466,221,694
==============
*The amount of this loss which can be utilized in subsequent years is subject to
an annual limitation in accordance with the Internal Revenue Code due to the
fund merger with Delaware Core Equity Fund, Delaware Devon Fund and Delaware
Growth and Income Fund.
For federal income tax purposes, capital loss carryforwards may be carried
forward and applied against future capital gains. Capital loss carryforwards
expire as follows: $20,170,293 expires in 2007, $20,496,938 expires in 2008,
$40,482,074 expires in 2009 and $38,177,581 expires in 2010 and $15,418,483
expires in 2011.
For the six months ended May 31, 2005, the Fund had capital gains of
$180,279,780 which may reduce the capital loss carryforwards.
For financial reporting purposes, capital accounts are adjusted to reflect the
tax character of permanent book/tax differences. For the six months ended May
31, 2005, the Fund recorded an estimate of these differences since the final tax
characteristics cannot be determined until fiscal year end. Reclassifications
are primarily due to tax treatment of gain (loss) on foreign currency
transactions. Results of operations and net assets were not affected by these
reclassifications.
Undistributed net investment income $(6,790)
Accumulated net realized gain (loss) 6,790
5. CAPITAL SHARES
Transactions in capital shares were as follows:
Six Months Year
Ended Ended
5/31/05 11/30/04
Shares sold:
Class A 1,405,003 4,964,886
Class B 238,957 678,008
Class C 168,128 877,784
Class R 6,363 35,956
Institutional Class 291,168 1,681,375
Shares issued from merger(1):
Class A -- 20,875,666
Class B -- 7,663,320
Class C -- 1,286,419
Institutional Class -- 2,113,326
Shares issued upon reinvestment of
dividends and distributions:
Class A 485,861 660,691
Class B 37,467 24,710
Class C 9,229 4,891
Class R 419 471
Institutional Class 22,345 58,725
--------- ----------
2,664,940 40,926,228
--------- ----------
(1)See Note #6
13
NOTES DELAWARE LARGE CAP VALUE FUND
TO FINANCIAL STATEMENTS (CONTINUED)
5. CAPITAL SHARES (CONTINUED)
Shares repurchased:
Class A (5,439,383) (12,086,933)
Class B (1,735,342) (2,666,885)
Class C (408,028) (665,430)
Class R (3,430) (8,211)
Institutional Class (2,367,584) (2,098,242)
---------- -----------
(9,953,767) (17,525,701)
---------- -----------
Net increase (decrease) (7,288,827) 23,400,527
========== ===========
(1)See Note #6
For the six months ended May 31, 2005 and the year ended November 30, 2004,
556,969 Class B shares were converted to 553,197 Class A shares valued at
$10,211,863 and 647,252 Class B shares were converted to 643,183 Class A shares
valued at $11,138,820, respectively. The respective amounts are included in
Class B redemptions and Class A subscriptions in the table on the prior page and
above and the Statements of Changes in Net Assets.
6. FUND MERGER
Effective March 29, 2004, the Fund acquired all of the assets and assumed all of
the liabilities of Delaware Core Equity Fund, Delaware Devon Fund and Delaware
Growth and Income Fund respectively, each an open-end investment company,
pursuant to a Plan and Agreement of Reorganization (the "Reorganization"). The
shareholders of Delaware Core Equity Fund, Delaware Devon Fund and Delaware
Growth and Income Fund received shares of the respective classes of the Fund
equal to the aggregate net asset value of their shares prior to the
Reorganization based on the net asset value per share of the respective classes
of the Fund.
The Reorganization was treated as a non-taxable event and, accordingly, the
Fund's basis in the securities acquired reflected the historical cost basis as
of the date of transfer. The net assets, net unrealized appreciation and
accumulated net realized losses of Delaware Core Equity Fund, Delaware Devon
Fund and Delaware Growth and Income Fund as of the close of business on March
26, 2004 were as follows:
Accumulated
Net Unrealized Net Realized
Net Assets Appreciation Losses
------------ -------------- ------------
Delaware Core Equity Fund $ 24,162,687 $ 3,890,995 $ (2,438,179)
Delaware Devon Fund 85,017,709 6,162,170 (64,550,847)
Delaware Growth and
Income Fund 433,169,557 46,754,264 (88,845,597)
------------ ----------- ------------
$542,349,953 $56,807,429 $155,834,623
============ =========== ============
The net assets of the Fund prior to the Reorganization were $1,110,631,768.
7. LINE OF CREDIT
The Fund, along with certain other funds in the Delaware Investments Family of
Funds (the "Participants"), participates in a $183,100,000 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, 2005, or at any time during the
six month period ended May 31, 2005.
8. 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. Government obligations
and/or cash collateral not less than 102% of the market value of the securities
issued in 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. The Fund continues to
record dividends on the securities loaned and is subject to change in value of
the securities loaned that may occur during the term of the loan. The Fund has
the right under the Lending Agreement to recover the securities from the
borrower on demand. The security lending agent and the borrower retain a portion
of the earnings from the collateral investments. The Fund records security
lending income net of such allocation.
At May 31, 2005, the market value of securities on loan was $96,233,151, for
which cash collateral was received and invested in accordance with the Lending
Agreement. Such investments are presented on the Statement of Net Assets under
the caption "Securities Lending Collateral."
9. CREDIT AND MARKET RISKS
The Fund may invest a portion of its total assets in illiquid securities, which
may include securities with contractual restrictions on resale, securities
exempt from registration under Rule 144A of the Securities Act of 1933, as
amended, and other securities which may not be readily marketable. The relative
illiquidity of these securities may impair the Fund from disposing of them in a
timely manner and at a fair price when it is necessary or desirable to do so. At
May 31, 2005, there were no Rule 144A securities. While maintaining oversight,
the Board of Trustees has delegated to the investment adviser the day-to-day
functions of determining whether individual Rule 144A securities are liquid for
purposes of the Fund's limitation on investments in illiquid assets. Illiquid
securities, if any, have been denoted on the Statement of Net Assets.
10. CONTRACTUAL OBLIGATIONS
The Fund enters into contracts in the normal course of business that contain a
variety of indemnifications. The Fund's maximum exposure under these
arrangements is unknown. However, the Fund has not had prior claims or losses
pursuant to these contracts. Management has reviewed the Fund's existing
contracts and expects the risk of loss to be remote.
14
OTHER DELAWARE LARGE CAP VALUE FUND
FUND INFORMATION
The shareholders of Delaware Group Equity Funds II (the "Trust") approved the
following proposals at the special meeting of shareholders on March 23, 2005 or
as adjourned. The description of each proposal and number of shares voted are as
follows:
1. To elect a Board of Trustees for the Trust (shareholders of all series of the
Trust voting together).
Shares Voted
Shares Voted For Withhold Authority
---------------- ------------------
Thomas L. Bennett 61,726,087 1,540,982
Jude T. Driscoll 61,721,137 1,545,931
John A. Fry 61,728,327 1,538,741
Anthony D. Knerr 61,732,464 1,534,604
Lucinda S. Landreth 61,720,855 1,546,213
Ann R. Leven 61,703,127 1,563,941
Thomas F. Madison 61,701,159 1,565,910
Janet L. Yeomans 61,727,110 1,539,958
J. Richard Zecher 61,714,500 1,552,569
2. To approve the use of a "manager of managers" structure whereby the
investment manager of the Fund will be able to hire and replace subadvisers
without shareholder approval.
For Against Abstain Broker Non-Votes
--- ------- ------- ----------------
Delaware Large Cap Value Fund 38,497,897 2,898,798 2,200,524 6,048,814
BOARD CONSIDERATION OF LARGE CAP VALUE FUND INVESTMENT ADVISORY AGREEMENT
At a meeting held on May 18-19, 2005 (the "Annual Meeting"), the Board of
Trustees, including a majority of disinterested or independent Trustees,
approved the renewal of the Investment Advisory Agreement for the Delaware Large
Cap Value Fund (the "Fund"). In making its decision, the Board considered
information furnished throughout the year at regular Board meetings, as well as
information prepared specifically in connection with the Annual Meeting.
Information furnished and discussed throughout the year included reports
detailing Fund performance, investment strategies, expenses, compliance matters
and other services provided by Delaware Management Company ("DMC"), the
investment adviser. Information furnished specifically in connection with the
Annual Meeting included materials provided by DMC and its affiliates ("Delaware
Investments(R)") concerning, among other things, the level of services provided
to the Fund, the costs of such services to the Fund, economies of scale and the
financial condition and profitability of Delaware Investments. In addition, in
connection with the Annual Meeting, the Board separately received and reviewed
independent historical and comparative reports prepared by Lipper Inc.
("Lipper"), an independent statistical compilation organization. The Lipper
reports compared the Fund's investment performance and expenses with those of
other comparable mutual funds. The Board also requested and received certain
supplemental information regarding management's policy with respect to advisory
fee levels and its philosophy with respect to breakpoints; the structure of
portfolio manager compensation; the investment manager's profitability organized
by client type, including the Fund; and any constraints or limitations on the
availability of securities in certain investment styles which might inhibit the
adviser's ability to fully invest in accordance with the Fund's policies.
In considering such materials, the independent Trustees received assistance and
advice from and met separately with independent counsel and representatives from
Lipper. At the meeting with representatives from Lipper, Jude Driscoll, Chairman
of the Delaware Investments Family of Funds, and Chairman and Chief Executive
Officer of the investment adviser, was present to respond to questions raised by
Lipper and the independent Trustees. While the Board considered the Investment
Advisory Agreements for all of the funds in the Delaware Investments Family of
Funds at the same Board meeting, information was provided and considered by the
Board for each fund individually. In approving the continuance of the Investment
Advisory Agreement for the Fund, the Board, including a majority of independent
Trustees, determined that the existing advisory fee structure was fair and
reasonable and that the continuance of the Investment Advisory Agreement was in
the best interests of the Fund and its shareholders. While attention was given
to all information furnished, the following discusses the primary factors
relevant to the Board's deliberations and determination, including those
relating to the selection of the investment adviser and the approval of the
advisory fee.
15
OTHER DELAWARE LARGE CAP VALUE FUND
FUND INFORMATION (CONTINUED)
BOARD CONSIDERATION OF LARGE CAP VALUE FUND INVESTMENT ADVISORY AGREEMENT
(CONTINUED)
NATURE, EXTENT AND QUALITY OF SERVICE. Consideration was given to the services
provided by Delaware Investments(R) to the Fund and its shareholders. In
reviewing the nature, extent and quality of services, the Board emphasized
reports furnished to it throughout the year at regular Board meetings covering
matters such as the compliance of portfolio managers with the investment
policies, strategies and restrictions for the Fund, the compliance of management
personnel with the Code of Ethics adopted throughout the Delaware Investments
Family of Funds complex, the adherence to fair value pricing procedures as
established by the Board, and the accuracy of net asset value calculations. The
Board noted that it was pleased with the current staffing of the Fund's
investment adviser during the past year, the emphasis on research and the
compensation system for advisory personnel. Favorable consideration was given to
DMC's efforts to maintain, and in some instances increase, financial and human
resources committed to fund matters. Other factors taken into account by the
Board were Delaware Investments' preparedness for, and response to, legal and
regulatory matters. The Board also considered the transfer agent and shareholder
services provided to Fund shareholders by Delaware Investments' affiliate,
Delaware Service Company, Inc., noting the receipt by such affiliate of the
DALBAR Pyramid Award in four of the last six years and the continuing
expenditures by Delaware Investments to increase and improve the scope of
shareholder services. Additionally, the Board noted the extent of benefits
provided to Fund shareholders for being part of the Delaware Investments Family
of Funds, including the privilege to exchange investments between the same class
of funds without a sales charge, the ability to reinvest Fund dividends into
other funds and the privilege to combine holdings in other funds to obtain a
reduced sales charge. The Board was satisfied with the nature, extent and
quality of the overall services provided by Delaware Investments.
INVESTMENT PERFORMANCE. The Board considered the investment performance of DMC
and the Fund. The Board was pleased by DMC's investment performance, noting
Barron's ranking of the Delaware Investments Family of Funds in the top quartile
of mutual fund families for 2002 - 2004. The Board placed significant emphasis
on the investment performance of the Fund in view of its importance to
shareholders. While consideration was given to performance reports and
discussions with portfolio managers at Board meetings throughout the year,
particular attention in assessing performance was given to the Lipper reports
furnished for the Annual Meeting. The Lipper reports prepared for the Fund
showed the investment performance of its Class A shares in comparison to a group
of similar funds as selected by Lipper (the "Performance Universe"). A fund with
the highest performance is ranked first, and a fund with the lowest is ranked
last. The highest/best performing 25% of funds in the Performance Universe make
up the first quartile; the next 25% - the second quartile; the next 25% - the
third quartile; and the lowest/worst performing 25% of funds in the Performance
Universe make up the fourth quartile. Comparative annualized performance for the
Fund was shown for the past one, three, five and 10 year periods ended February
28, 2005. The Board noted its objective that the Fund's performance be at or
above the median of its Performance Universe. The following paragraph summarizes
the performance results for the Fund and the Board's view of such performance.
Lipper currently classifies the Fund as a large cap core fund, although
management believes that the Fund's objective is more closely aligned with those
funds in the large cap value category. Accordingly, the Lipper report prepared
for this Fund compares the Fund's performance to two separate Performance
Universes consisting of the Fund and all retail and institutional large cap
value funds and all retail and institutional large cap core funds, respectively,
as selected by Lipper. When compared to other large cap value funds, the Lipper
report comparison showed that the Fund's total return for the one and three year
periods was in the third quartile of such Performance Universe. The report
further showed that the Fund's total return for the five and 10 year periods was
in the second quartile. When compared to other large cap core funds, the Lipper
report comparison showed that the Fund's total return for the one, three and
five year periods was in the first quartile. The report further showed that the
Fund's total return for the 10 year period was in the third quartile. The Board
noted that the Fund's performance results were mixed. In evaluating the Fund's
performance, the Board considered the new investment team assigned to the Fund
in early 2005. At that time management proposed, and the Board approved,
modifications to the Fund's objective, policies and strategies in order to take
advantage of the new team's investment approach. The Board was pleased with
management's efforts to enhance Fund performance and expressed confidence in the
new team and its philosophy and processes.
COMPARATIVE EXPENSES. The Board considered expense comparison data for the
Delaware Investments Family of Funds, Delaware Investments' institutional
separate account business and other lines of business at Delaware Investments.
The Board stated its belief that, given the differing level of service provided
to Delaware Investments' various clients and other factors that related to the
establishment of fee levels, variations in the levels of fees and expenses were
justified. The Board placed significant emphasis on the comparative analysis of
the management fees and total expense ratios of the Fund compared with those of
a group of similar funds as selected by Lipper (the "Expense Group") and among
the other Delaware Investments funds. In reviewing comparative costs, the Fund's
contractual management fee and the actual management fee incurred by the Fund
were compared with the contractual management fees (assuming all funds in the
Expense Group were similar in size to the Fund) and actual management fees (as
reported by each fund) of other funds within the Expense Group, taking into
effect any applicable breakpoints and fee waivers. The Fund's total expenses
were also compared with those of its Expense Group. The Lipper total expenses,
for comparative consistency, were shown by Lipper for Class A shares and
compared total expenses including 12b-1 and non-12b-1 service fees. The Board
noted its objective to limit the Fund's total expense ratio to an acceptable
range as compared to the median of the Expense Group. The following paragraph
summarizes the expense results for the Fund and the Board's view of such
expenses.
16
OTHER DELAWARE LARGE CAP VALUE FUND
FUND INFORMATION (CONTINUED)
BOARD CONSIDERATION OF LARGE CAP VALUE FUND INVESTMENT ADVISORY AGREEMENT
(CONTINUED)
When compared to other large cap value funds, such expense comparisons for the
Fund showed that its management fee was in the quartile with the second lowest
expenses of its Expense Group and its total expenses were in the quartile with
the second highest expenses of its Expense Group. When compared to other large
cap core funds, the expense comparisons for the Fund showed that both its
management fee and total expenses were in the quartile with the second highest
expenses of its Expense Group. The Board noted that the Fund's total expenses
were not in line with the Board's stated objective. In evaluating total
expenses, the Board considered recent initiatives implemented by management,
such as changes to the record-keeping platform for retirement accounts, creating
an opportunity for a reduction in expenses. The Board was satisfied with
management's efforts to improve the Fund's total expense ratio and bring it in
line with the Board's objective.
MANAGEMENT PROFITABILITY. The Board considered the level of profits, if any,
realized by Delaware Investments(R) in connection with the operation of the
Fund. In this respect, the Board reviewed the Investment Management
Profitability Analysis that addressed the overall profitability of Delaware
Investments' business in providing management and other services to each of the
individual funds and the Delaware Investments Family of Funds as a whole.
Specific attention was given to the methodology followed in allocating costs for
the purpose of determining profitability. Management stated that the level of
profits of Delaware Investments, to a certain extent, reflected operational cost
savings and efficiencies initiated by Delaware Investments. The Board considered
Delaware Investments' expenditures to improve services provided to fund
shareholders and to meet additional regulatory and compliance requirements
resulting from the Sarbanes-Oxley Act and recent SEC initiatives. The Board also
considered the extent to which Delaware Investments might derive ancillary
benefits from fund operations, including the potential for procuring additional
business as a result of the prestige and visibility associated with its role as
service provider to the Delaware Investments Family of Funds, the benefits from
allocation of fund brokerage to improve trading efficiencies and the use of
"soft" commission dollars to pay for proprietary and non-proprietary research.
At the Board's request, management also provided information relating to
Delaware Investments' profitability by client type. The information provided set
forth the revenue, expenses and pre-tax income/loss attributable to the Delaware
Investments Family of Funds, Delaware Investments' separate account business and
other lines of business at Delaware Investments. Emphasis was given to the level
and type of service provided to the various clients. The Board was satisfied
with the level of profits realized by Delaware Investments from the
relationships with the Fund and the Delaware Investments Family of Funds.
ECONOMIES OF SCALE. The Trustees considered whether economies of scale are
realized by Delaware Investments as the Fund's assets increase and the extent to
which any economies of scale are reflected in the level of management fees
charged. The Trustees took into account the standardized advisory fee pricing
and structure approved by the Board and shareholders as part of a complex-wide
shareholder meeting conducted in 1998/1999. At that time, Delaware Investments
introduced breakpoints to account for management economies of scale. The Board
noted that the fee under the Fund's management contract fell within the standard
structure. The Board also noted that the Fund's assets exceeded the highest
breakpoint level. In discussing the prospect of adding additional breakpoints,
management expressed its view that the existing fee schedule reflected
anticipated economies of scale. While intending to monitor future growth and
continue discussions with management on this topic, the Board believed that to
the extent economies of scale may be realized by the manager and its affiliates,
the schedule of fees under the Investment Advisory Agreement provides a sharing
of benefits with the Fund and its shareholders.
17
DELAWARE
INVESTMENTS(R)
- -----------------------------------
A member of Lincoln Financial Group
This semiannual report is for the information of Delaware Large Cap Value Fund
shareholders, but it may be used with prospective investors when preceded or
accompanied by a current prospectus for Delaware Large Cap 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
that 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 Delaware Management Company,
Delaware Investments Family of Funds Chief Financial Officer a Series of Delaware Management Business Trust
Philadelphia, PA Delaware Investments Family of Funds Philadelphia, PA
Philadelphia, PA
THOMAS L. BENNETT NATIONAL DISTRIBUTOR
Private Investor RICHELLE S. MAESTRO Delaware Distributors, L.P.
Rosemont, PA Executive Vice President, Philadelphia, PA
Chief Legal Officer and Secretary
JOHN A. FRY Delaware Investments Family of Funds SHAREHOLDER SERVICING, DIVIDEND
President Philadelphia, PA DISBURSING AND TRANSFER AGENT
Franklin & Marshall College Delaware Service Company, Inc.
Lancaster, PA JOHN J. O'CONNOR 2005 Market Street
Senior Vice President and Treasurer Philadelphia, PA 19103-7094
ANTHONY D. KNERR Delaware Investments Family of Funds
Managing Director Philadelphia, PA FOR SHAREHOLDERS
Anthony Knerr & Associates 800 523-1918
New York, NY
FOR SECURITIES DEALERS AND FINANCIAL
LUCINDA S. LANDRETH INSTITUTIONS REPRESENTATIVES ONLY
Former Chief Investment Officer 800 362-7500
Assurant, Inc.
Philadelphia, PA WEB SITE
www.delawareinvestments.com
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
J. RICHARD ZECHER
Founder
Investor Analytics
Scottsdale, AZ
- --------------------------------------------------------------------------------
The Fund files its complete schedule of portfolio holdings with the Securities
and Exchange Commission for the first and third quarters of each fiscal year on
Form N-Q. The Fund's Forms N-Q, as well as a description of the policies and
procedures that the Fund uses to determine how to vote proxies (if any) relating
to portfolio securities is available without charge (i) upon request, by calling
800 523-1918; (ii) on the Fund's Web site at http://www.delawareinvestments.com;
and (iii) on the Commission's Web site at http://www.sec.gov. The Fund's Forms
N-Q may be reviewed and copied at the Commission's Public Reference Room in
Washington, DC; information on the operation of the Public Reference Room may be
obtained by calling 1-800-SEC-0330.
Information (if any) regarding how the Fund voted proxies relating to portfolio
securities during the most recently disclosed 12-month period ended June 30 is
available without charge (i) through the Fund's Web site at
http://www.delawareinvestments.com; and (ii) on the Commission's Web site at
http://www.sec.gov.
- --------------------------------------------------------------------------------
(9479) Printed in the USA
SA-001 [5/05] IVES 7/05 MF05-06-087 PO10241
Delaware
Investments(R)
-----------------------------------
A member of Lincoln Funancial Group
VALUE-EQUITY
SEMIANNUAL REPORT MAY 31, 2005
- --------------------------------------------------------------------------------
DELAWARE VALUE FUND
[LOGO] POWERED BY RESEARCH.(SM)
TABLE
OF CONTENTS
- -----------------------------------------------------------------
DISCLOSURE OF FUND EXPENSES 1
- -----------------------------------------------------------------
SECTOR ALLOCATION 2
- -----------------------------------------------------------------
FINANCIAL STATEMENTS:
Statement of Net Assets 3
Statement of Operations 4
Statements of Changes in Net Assets 5
Financial Highlights 6
Notes to Financial Statements 10
- -----------------------------------------------------------------
OTHER FUND INFORMATION 12
- -----------------------------------------------------------------
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)2005 Delaware Distributors, L.P.
DISCLOSURE For the Period December 1, 2004 to May 31, 2005
OF FUND EXPENSES
As a shareholder of the Fund, you incur two types of costs:
(1) transaction costs, including sales charges (loads) on purchase payments,
reinvested dividends or other distributions; redemption fees; and exchange fees;
and (2) ongoing costs, including management fees; distribution and/or service
(12b-1) fees; and other fund expenses. This example is intended to help you
understand your ongoing costs (in dollars) of investing in the Fund and to
compare these costs with the ongoing costs of investing in other mutual funds.
The example is based on an investment of $1,000 invested at
the beginning of the period and held for the entire period December 1, 2004 to
May 31, 2005.
ACTUAL EXPENSES
The first section of the table shown, "Actual Fund Return," provides information
about actual account values and actual expenses. You may use the information in
this section of the table, together with the amount you invested, to estimate
the expenses that you paid over the period. Simply divide your account value by
$1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then
multiply the result by the number in the first section under the heading
entitled "Expenses Paid During Period" to estimate the expenses you paid on your
account during this period.
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The second section of the table shown, "Hypothetical 5% Return," provides
information about hypothetical account values and hypothetical expenses based on
the Fund's actual expense ratio and an assumed rate of return of 5% per year
before expenses, which is not the Fund's actual return. The hypothetical account
values and expenses may not be used to estimate the actual ending account
balance or expenses you paid for the period. You may use this information to
compare the ongoing costs of investing in the Fund and other funds. To do so,
compare this 5% hypothetical example with the 5% hypothetical examples that
appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your
ongoing costs only and do not reflect any transactional costs, such as sales
charges (loads), redemption fees, or exchange fees. Therefore, the second
section of the table is useful in comparing ongoing costs only, and will not
help you determine the relative total costs of owning different funds. In
addition, if these transactional costs were included, your costs would have been
higher. The expenses shown in the table assume reinvestment of all dividends and
distributions.
DELAWARE VALUE FUND
EXPENSE ANALYSIS OF AN INVESTMENT OF $1,000
Expenses
Beginning Ending Paid During
Account Account Annualized Period
Value Value Expense 12/1/04 to
12/1/04 5/31/05 Ratio 5/31/05*
- --------------------------------------------------------------------------------------------------------------------
ACTUAL FUND RETURN
Class A $1,000.00 $1,053.60 1.02% $5.22
Class B 1,000.00 1,049.90 1.77% 9.05
Class C 1,000.00 1,049.90 1.77% 9.05
Institutional Class 1,000.00 1,055.20 0.77% 3.95
- --------------------------------------------------------------------------------------------------------------------
HYPOTHETICAL 5% RETURN (5% return before expenses)
Class A $1,000.00 $1,019.85 1.02% $5.14
Class B 1,000.00 1,016.11 1.77% 8.90
Class C 1,000.00 1,016.11 1.77% 8.90
Institutional Class 1,000.00 1,021.09 0.77% 3.88
- --------------------------------------------------------------------------------------------------------------------
*Expenses are equal to the Fund's annualized expense ratio, multiplied by the
average account value over the period, multiplied by 182/365 (to reflect the
one-half year period).
1
SECTOR ALLOCATION As of May 31, 2005
DELAWARE VALUE FUND
The SEC adopted a requirement that all funds present their categories of
portfolio holdings in a table, chart, or graph format in their annual and
semiannual shareholder reports. The following chart lists the Fund's categories
of portfolio holdings as a percentage of total net assets and is provided in
compliance with such requirement.
PERCENTAGE
SECTOR OF NET ASSETS
- ------------------------------------------------------------------------
COMMON STOCK 98.47%
- ------------------------------------------------------------------------
Consumer Discretionary 5.96%
Consumer Staples 11.63%
Energy 9.07%
Financials 24.12%
Health Care 17.74%
Industrials 6.19%
Information Technology 8.91%
Materials 2.98%
Telecommunications 5.92%
Utilities 5.95%
- ------------------------------------------------------------------------
REPURCHASE AGREEMENTS 2.72%
- ------------------------------------------------------------------------
TOTAL MARKET VALUE OF SECURITIES 101.19%
- ------------------------------------------------------------------------
LIABILITIES NET OF RECEIVABLES AND OTHER ASSETS (1.19)%
- ------------------------------------------------------------------------
TOTAL NET ASSETS 100.00%
- ------------------------------------------------------------------------
2
STATEMENT DELAWARE VALUE FUND
OF NET ASSETS May 31, 2005 (Unaudited)
Number of Market
Shares Value
COMMON STOCK - 98.47%
Consumer Discretionary - 5.96%
Limited Brands 229,600 $ 4,722,872
Mattel 257,500 4,681,350
-----------
9,404,222
-----------
Consumer Staples - 11.63%
Archer-Daniels-Midland 231,900 4,603,215
ConAgra Foods 175,500 4,589,325
Kimberly-Clark 72,200 4,644,626
Safeway 205,600 4,525,256
-----------
18,362,422
-----------
Energy - 9.07%
Chevron 87,500 4,705,750
ConocoPhillips 45,600 4,917,504
Exxon Mobil 83,600 4,698,320
-----------
14,321,574
-----------
Financials - 24.12%
Allstate 81,200 4,725,840
Aon 208,900 5,207,877
Chubb 56,700 4,775,841
Hartford Financial Services 64,800 4,846,392
Huntington Bancshares 197,900 4,615,028
Morgan Stanley 94,900 4,646,304
Wachovia 90,500 4,592,875
Washington Mutual 113,000 4,666,900
-----------
38,077,057
-----------
Health Care - 17.74%
Abbott Laboratories 97,300 4,693,752
Baxter International 127,400 4,701,060
Bristol-Myers Squibb 183,400 4,651,024
Merck 144,300 4,681,092
Pfizer 164,800 4,597,920
Wyeth 107,900 4,679,623
-----------
28,004,471
-----------
Industrials - 6.19%
Boeing 76,100 4,862,790
Union Pacific 73,300 4,908,168
-----------
9,770,958
-----------
Information Technology - 8.91%
Hewlett-Packard 216,700 4,877,917
International Business Machines 61,300 4,631,215
+Xerox 335,600 4,554,092
-----------
14,063,224
-----------
Materials - 2.98%
Weyerhaeuser 73,400 4,708,610
-----------
4,708,610
-----------
Telecommunications - 5.92%
SBC Communications 199,400 4,661,972
Verizon Communications 132,600 4,691,388
-----------
9,353,360
-----------
Utilities - 5.95%
Energy East 166,600 4,664,800
FPL Group 116,500 4,735,725
-----------
9,400,525
-----------
TOTAL COMMON STOCK
(cost $146,439,611) 155,466,423
-----------
REPURCHASE AGREEMENTS- 2.72%
With BNP Paribas 2.95% 6/1/05 (dated
5/31/05, to be repurchased at
$2,500,205, collateralized by
$366,000 U.S. Treasury Bills due
9/29/05, market value $362,083,
$310,000 U.S. Treasury Bills due
10/20/05, market value $306,177,
$556,000 U.S. Treasury Bills due
11/17/05, market value $548,609,
$356,000 U.S. Treasury Notes 2.38%
due 8/15/06, market value $353,759,
$549,000 U.S. Treasury Notes 6.50%
due 8/15/05, market value $563,322
and $392,000 U.S. Treasury Notes
7.00% due 7/15/06, market value
$417,057) $2,500,000 $ 2,500,000
With UBS Warburg 2.95% 6/1/05 (dated
5/31/05, to be repurchased at
$1,797,147, collateralized by
$1,851,000 U.S. Treasury Notes 2.50%
due 5/31/06, market value $1,834,841) 1,797,000 1,797,000
------------
TOTAL REPURCHASE AGREEMENTS
(cost $4,297,000) 4,297,000
------------
TOTAL MARKET VALUE OF SECURITIES - 101.19%
(cost $150,736,611) 159,763,423
LIABILITIES NET OF RECEIVABLES AND
OTHER ASSETS - (1.19%) (1,884,833)
------------
NET ASSETS APPLICABLE TO 14,502,850 SHARES
OUTSTANDING - 100.00% $157,878,590
------------
Net Asset Value - Delaware Value Fund
Class A ($17,553,389 / 1,612,682 Shares) $10.88
------
Net Asset Value - Delaware Value Fund
Class B ($4,776,445 / 440,531 Shares) $10.84
------
Net Asset Value - Delaware Value Fund
Class C ($9,866,770 / 909,484 Shares) $10.85
------
Net Asset Value - Delaware Value Fund
Institutional Class ($125,681,986 / 11,540,153 Shares) $10.89
------
COMPONENTS OF NET ASSETS AT MAY 31, 2005:
Shares of beneficial interest
(unlimited authorization - no par) $146,762,262
Undistributed net investment income 1,049,806
Accumulated net realized gain on investments 1,039,710
Net unrealized appreciation of investments 9,026,812
------------
Total net assets $157,878,590
============
+Non-income producing security for the period ended May 31, 2005.
NET ASSET VALUE AND OFFERING PRICE PER SHARE -
DELAWARE VALUE FUND
Net asset value Class A (A) $10.88
Sales charge (5.75% of offering) (B) 0.66
------
Offering price $11.54
------
(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 VALUE FUND
OF OPERATIONS Six Months Ended May 31, 2005 (Unaudited)
INVESTMENT INCOME:
Dividends $1,916,511
Interest 71,669 $1,988,180
---------- ----------
EXPENSES:
Management fees 442,259
Distribution expenses -- Class A 16,856
Distribution expenses -- Class B 15,025
Distribution expenses -- Class C 25,950
Registration fees 27,257
Accounting and administration expenses 21,374
Dividend disbursing and transfer agent fees and expenses 15,749
Legal and professional fees 14,914
Insurance fees 7,097
Reports and statements to shareholders 5,310
Trustees' fees 3,858
Custodian fees 1,863
Taxes (other than taxes on income) 321
Pricing fees 104
Other 3,808 601,745
----------
Less expenses absorbed or waived (23,486)
Less waiver of distribution expenses -- Class A (2,809)
Less expenses paid indirectly (119)
----------
Total expenses 575,331
----------
NET INVESTMENT INCOME 1,412,849
----------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Net realized gain on investments 1,520,996
Net change in unrealized appreciation/depreciation of investments 3,349,581
----------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS 4,870,577
----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $6,283,426
==========
See accompanying notes
4
STATEMENTS DELAWARE VALUE FUND
OF CHANGES IN NET ASSETS
Six Months Year
Ended Ended
5/31/05 11/30/04
(Unaudited)
INCREASE IN NET ASSETS FROM OPERATIONS:
Net investment income $ 1,412,849 $ 917,026
Net realized gain on investments 1,520,996 5,922,995
Net change in unrealized appreciation/depreciation of investments 3,349,581 1,099,847
------------ -----------
Net increase in net assets resulting from operations 6,283,426 7,939,868
------------ -----------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income:
Class A (60,408) (7,656)
Class B (1,173) (1,151)
Class C (1,852) (360)
Institutional Class (1,154,816) (520,206)
Net realized gain on investments:
Class A (246,384) --
Class B (60,851) --
Class C (96,014) --
Institutional Class (3,613,777) --
------------ -----------
(5,235,275) (529,373)
------------ -----------
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares sold:
Class A 11,186,470 7,159,439
Class B 3,302,185 1,228,442
Class C 7,432,648 2,262,305
Institutional Class 55,507,543 23,979,557
Net asset value of shares issued upon reinvestment of
dividends and distributions:
Class A 277,187 7,395
Class B 58,141 1,013
Class C 81,678 360
Institutional Class 4,766,157 520,206
------------ -----------
82,612,009 35,158,717
------------ -----------
Cost of shares repurchased:
Class A (928,642) (1,355,689)
Class B (140,500) (191,695)
Class C (203,060) (13,165)
Institutional Class (4,299,051) (3,499,381)
------------ -----------
(5,571,253) (5,059,930)
------------ -----------
Increase in net assets derived from capital share transactions 77,040,756 30,098,787
------------ -----------
NET INCREASE IN NET ASSETS 78,088,907 37,509,282
NET ASSETS:
Beginning of period 79,789,683 42,280,401
------------ -----------
End of period (including undistributed net investment income
of $1,049,806 and $855,206, respectively) $157,878,590 $79,789,683
============ ===========
See accompanying notes
5
FINANCIAL
HIGHLIGHTS
Selected data for each share of the Fund outstanding
throughout each period were as follows:
- ------------------------------------------------------------------------------------------------------------------------------------
Delaware Value Fund Class A
- ------------------------------------------------------------------------------------------------------------------------------------
Six Months
Ended Year Ended
5/31/05(1) 11/30/04 11/30/03 11/30/02 11/30/01 11/30/00
(Unaudited)
NET ASSET VALUE, BEGINNING OF PERIOD $10.760 $9.480 $8.300 $9.490 $10.150 $10.690
INCOME FROM INVESTMENT OPERATIONS:
Net investment income(2) 0.103 0.134 0.110 0.113 0.116 0.125
Net realized and unrealized gain (loss) on investments 0.469 1.240 1.151 (1.231) (0.309) 0.092
------- ------- ------ ------ ------- -------
Total from investment operations 0.572 1.374 1.261 (1.118) (0.193) 0.217
------- ------- ------ ------ ------- -------
LESS DIVIDENDS AND DISTRIBUTIONS FROM:
Net investment income (0.089) (0.094) (0.081) (0.072) (0.103) (0.070)
Net realized gain on investments (0.363) -- -- -- (0.364) (0.687)
------- ------- ------ ------ ------- -------
Total dividends and distributions (0.452) (0.094) (0.081) (0.072) (0.467) (0.757)
------- ------- ------ ------ ------- -------
NET ASSET VALUE, END OF PERIOD $10.880 $10.760 $9.480 $8.300 $9.490 $10.150
======= ======= ====== ====== ======= =======
TOTAL RETURN(3) 5.36% 14.59% 15.37% (11.88%) (2.11%) 1.32%
RATIOS AND SUPPLEMENTAL DATA:
Net assets, end of period (000 omitted) $17,553 $6,846 $717 $42 $22 $23
Ratio of expenses to average net assets 1.02% 1.00% 1.00% 1.03% 0.75% 0.75%
Ratio of expenses to average net assets prior to expense
limitation and expenses paid indirectly 1.10% 1.17% 1.26% 1.60% 1.08% 1.10%
Ratio of net investment income to average net assets 1.90% 1.32% 1.29% 1.27% 1.18% 1.23%
Ratio of net investment income to average net assets prior
to expense limitation and expenses paid indirectly 1.82% 1.15% 1.03% 0.70% 0.85% 0.88%
Portfolio turnover 21% 128% 101% 61% 101% 130%
(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 waivers 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 Value Fund Class B
- ------------------------------------------------------------------------------------------------------------------------------------
Six Months 5/1/02(2)
Ended Year Ended to
5/31/05(1) 11/30/04 11/30/03 11/30/02
(Unaudited)
NET ASSET VALUE, BEGINNING OF PERIOD $10.680 $9.420 $8.310 $9.700
INCOME FROM INVESTMENT OPERATIONS:
Net investment income(3) 0.063 0.058 0.044 0.030
Net realized and unrealized gain (loss) on investments 0.467 1.229 1.147 (1.420)
------- ------- ------ ------
Total from investment operations 0.530 1.287 1.191 (1.390)
------- ------- ------ ------
LESS DIVIDENDS AND DISTRIBUTIONS FROM:
Net investment income (0.007) (0.027) (0.081) --
Net realized gain on investments (0.363) -- -- --
------- ------- ------ ------
Total dividends and distributions (0.370) (0.027) (0.081) --
------- ------- ------ ------
NET ASSET VALUE, END OF PERIOD $10.840 $10.680 $9.420 $8.310
======= ======= ====== ======
TOTAL RETURN(4) 4.99% 13.69% 14.50% (14.33%)
RATIOS AND SUPPLEMENTAL DATA:
Net assets, end of period (000 omitted) $4,777 $1,518 $383 $13
Ratio of expenses to average net assets 1.77% 1.75% 1.75% 1.93%
Ratio of expenses to average net assets prior to expense
limitation and expenses paid indirectly 1.80% 1.87% 1.96% 2.62%
Ratio of net investment income to average net assets 1.15% 0.57% 0.54% 0.59%
Ratio of net investment income (loss) to average net assets prior
to expense limitation and expenses paid indirectly 1.12% 0.45% 0.33% (0.10%)
Portfolio turnover 21% 128% 101% 61%
(1) Ratios and portfolio turnover have been annualized and total return has not
been annualized.
(2) Date of commencement of operations; ratios 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 waivers 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 Value Fund Class C
- ------------------------------------------------------------------------------------------------------------------------------------
Six Months 5/1/02(2)
Ended Year Ended to
5/31/05(1) 11/30/04 11/30/03 11/30/02
(Unaudited)
NET ASSET VALUE, BEGINNING OF PERIOD $10.690 $9.420 $8.280 $9.700
INCOME FROM INVESTMENT OPERATIONS:
Net investment income(3) 0.064 0.062 0.044 0.032
Net realized and unrealized gain (loss) on investments 0.466 1.235 1.155 (1.452)
------- ------- ------- -------
Total from investment operations 0.530 1.297 1.199 (1.420)
------- ------- ------- -------
LESS DIVIDENDS AND DISTRIBUTIONS FROM:
Net investment income (0.007) (0.027) (0.059) --
Net realized gain on investments (0.363) -- -- --
------- ------- ------- -------
Total dividends and distributions (0.370) (0.027) (0.059) --
------- ------- ------- -------
NET ASSET VALUE, END OF PERIOD $10.850 $10.690 $9.420 $8.280
======= ======= ======= =======
TOTAL RETURN(4) 4.99% 13.80% 14.60% (14.64%)
RATIOS AND SUPPLEMENTAL DATA:
Net assets, end of period (000 omitted) $9,867 $2,477 $133 $27
Ratio of expenses to average net assets 1.77% 1.75% 1.75% 1.93%
Ratio of expenses to average net assets prior to expense
limitation and expenses paid indirectly 1.80% 1.87% 1.96% 2.62%
Ratio of net investment income to average net assets 1.15% 0.57% 0.54% 0.59%
Ratio of net investment income (loss) to average net assets prior
to expense limitation and expenses paid indirectly 1.12% 0.45% 0.33% (0.10%)
Portfolio turnover 21% 128% 101% 61%
(1) Ratios and portfolio turnover have been annualized and total return has not
been annualized.
(2) Date of commencement of operations; ratios 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 waivers 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 Value Fund Institutional Class
- ------------------------------------------------------------------------------------------------------------------------------------
Six Months
Ended Year Ended
5/31/05(1) 11/30/04 11/30/03 11/30/02 11/30/01 11/30/00
(Unaudited)
NET ASSET VALUE, BEGINNING OF PERIOD $10.780 $9.500 $8.310 $9.490 $10.150 $10.690
INCOME (LOSS) FROM INVESTMENT OPERATIONS:
Net investment income(2) 0.116 0.160 0.132 0.126 0.116 0.125
Net realized and unrealized gain (loss) on investments 0.473 1.237 1.155 (1.234) (0.309) 0.092
------- ------ ------ ------ ------- -------
Total from investment operations 0.589 1.397 1.287 (1.108) (0.193) 0.217
------- ------ ------ ------ ------- -------
LESS DIVIDENDS AND DISTRIBUTIONS FROM:
Net investment income (0.116) (0.117) (0.097) (0.072) (0.103) (0.070)
Net realized gain on investments (0.363) -- -- -- (0.364) (0.687)
------- ------ ------ ------ ------- -------
Total dividends and distributions (0.479) (0.117) (0.097) (0.072) (0.467) (0.757)
------- ------ ------ ------ ------- -------
NET ASSET VALUE, END OF PERIOD $10.890 $10.780 $9.500 $8.310 $9.490 $10.150
======= ======= ====== ====== ====== =======
TOTAL RETURN(3) 5.52% 14.83% 15.70% (11.77%) (2.11%) 2.32%
RATIOS AND SUPPLEMENTAL DATA:
Net assets, end of period (000 omitted) $125,682 $68,949 $41,047 $23,276 $13,980 $15,327
Ratio of expenses to average net assets 0.77% 0.75% 0.75% 0.87% 0.75% 0.75%
Ratio of expenses to average net assets prior to expense
limitation and expenses paid indirectly 0.80% 0.87% 0.96% 1.30% 0.78% 0.80%
Ratio of net investment income to average net assets 2.15% 1.57% 1.54% 1.43% 1.18% 1.23%
Ratio of net investment income to average net assets prior
to expense limitation and expenses paid indirectly 2.12% 1.45% 1.33% 1.00% 1.15% 1.18%
Portfolio turnover 21% 128% 101% 61% 101% 130%
(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 waivers 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 Value Fund
TO FINANCIAL STATEMENTS May 31, 2005 (Unaudited)
Delaware Group Equity Funds II (the "Trust") is organized as a Delaware
statutory trust and offers two series: Delaware Large Cap Value Fund and
Delaware Value Fund. These financial statements and the related notes pertain to
Delaware 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 8 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. As of May 31, 2005, Class
R shares have 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 U.S. generally accepted
accounting principles and are consistently followed by the Fund.
Security Valuation -- Equity securities, except those traded on the Nasdaq Stock
Market, Inc. (NASDAQ), 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. Securities traded on the NASDAQ are valued in accordance with the NASDAQ
Official Closing Price, which may not be the last sales price. If on a
particular day an equity security does not trade, 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
U.S. generally accepted accounting principles requires management to make
estimates and assumptions that may 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.
Management fees and some other expenses are paid monthly. 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.
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 six months ended May 31, 2005 were approximately $119. The
expense paid under the above arrangement is included in custodian fees on the
Statement of Operations with the corresponding expense offset shown as "expense
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 0.65% 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 contractually agreed 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, certain insurance cost and extraordinary expenses, do not
exceed 0.75% of average daily net assets of the Fund through March 31, 2006.
Delaware Service Company, Inc. (DSC), an affiliate of DMC, provides accounting,
administration, dividend disbursing and transfer agent services. The Fund pays
DSC a monthly fee based on average net assets subject to certain minimums for
accounting and administration services. The Fund pays DSC a monthly fee based on
the number of shareholder accounts for dividend disbursing and transfer agent
services.
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. DDLP has contracted
to waive distribution and service fees through March 31, 2006 in order to
prevent distribution and service fees of Class A shares from exceeding 0.25% of
average daily net assets. Institutional Class shares pay no distribution and
service expenses.
At May 31, 2005, the Fund had liabilities payable to affiliates as follows:
Investment management fee payable to DMC $83,908
Dividend disbursing, transfer agent,
accounting, and administration fees and other
expenses payable to DSC 23,819
Other expenses payable to DMC and affiliates* 46,180
*DMC, as part of its administrative services, pays operating expenses on behalf
of the Fund and is reimbursed on a periodic basis. Such expenses include items
such as printing of shareholder reports, fees for audit, legal and tax
services, registration fees and trustees' fees.
10
NOTES DELAWARE VALUE FUND
TO FINANCIAL STATEMENTS (CONTINUED)
2. INVESTMENT MANAGEMENT, ADMINISTRATION AGREEMENTS AND OTHER TRANSACTIONS WITH
AFFILIATES (CONTINUED)
As provided in the investment management agreement the Fund bears the cost of
certain legal services expenses, including internal legal services provided to
the Fund by DMC employees. For the six months ended May 31, 2005, the Fund was
charged $4,277 for internal legal services provided by DMC.
For the six months ended May 31, 2005, DDLP earned $15,849 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 six months ended May 31, 2005, the Fund made purchases of $86,687,791
and sales of $13,353,736 of investment securities other than short-term
investments.
At May 31, 2005, 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, 2005, the cost of investments was $151,212,409. At
May 31, 2005, the net unrealized appreciation was $8,551,014 of which
$11,799,332 related to unrealized appreciation of investments and $3,248,318
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 U.S. generally
accepted accounting principles. The tax character of dividends and distributions
paid during the six months ended May 31, 2005 and the year ended November 30,
2004 were as follows:
Six Months Year
Ended Ended
5/31/05* 11/30/04
---------- --------
Ordinary income $1,218,249 $529,373
Long-term capital gain 4,017,026 --
---------- --------
Total $5,235,275 $529,373
========== ========
*Tax information for the period ended May 31, 2005 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, 2005, the estimated
components of net assets on a tax basis were as follows:
Shares of beneficial interest $146,762,262
Undistributed ordinary income 2,565,314
Unrealized appreciation of investments 8,551,014
------------
Net assets $157,878,590
============
The differences between book basis and tax basis components of net assets are
primarily attributable to tax deferral of losses on wash sales.
5. CAPITAL SHARES
Transactions in capital shares were as follows:
Six Months Year
Ended Ended
5/31/05 11/30/04
Shares sold:
Class A 1,036,891 692,628
Class B 305,975 120,113
Class C 688,903 218,997
Institutional Class 5,100,169 2,367,959
Shares issued upon reinvestment
of dividends and distributions:
Class A 25,761 755
Class B 5,409 103
Class C 7,598 37
Institutional Class 443,363 53,137
--------- ---------
7,614,069 3,453,729
--------- ---------
Shares repurchased:
Class A (86,094) (132,921)
Class B (12,953) (18,794)
Class C (18,794) (1,343)
Institutional Class (398,151) (347,644)
--------- ---------
(515,992) (500,702)
--------- ---------
Net increase 7,098,077 2,953,027
========= =========
For the six months ended May 31, 2005 and the year ended
November 30, 2004, 2,986 Class B shares were converted to 2,976
Class A shares valued at $32,429 and 4,820 Class B shares were converted to
4,798 Class A shares valued at $48,374, respectively. The respective amounts are
included in Class B redemptions and Class A subscriptions in the table above and
the Statements of Changes in the 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 $183,100,000 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, 2005, or at any time during the six
month period ended May 31, 2005.
7. CONTRACTUAL OBLIGATIONS
The Fund enters into contracts in the normal course of business that contain a
variety of indemnifications. The Fund's maximum exposure under these
arrangements is unknown. However, the Fund has not had prior claims or losses
pursuant to these contracts. Management has reviewed the Fund's existing
contracts and expects the risk of loss to be remote.
11
OTHER DELAWARE VALUE FUND
FUND INFORMATION
The shareholders of Delaware Group Equity Funds II (the "Trust") approved the
following proposals at the special meeting of shareholders on March 23, 2005 or
as adjourned. The description of each proposal and number of shares voted are as
follows:
1. To elect a Board of Trustees for the trust (shareholders of all series of the
Trust voting together).
Shares Voted
Shares Voted For Withhold Authority
---------------- ------------------
Thomas L. Bennett 61,726,086 1,540,982
Jude T. Driscoll 61,721,137 1,545,931
John A. Fry 61,728,327 1,538,741
Anthony D. Knerr 61,732,464 1,534,604
Lucinda S. Landreth 61,720,855 1,546,213
Ann R. Leven 61,703,127 1,563,941
Thomas F. Madison 61,701,158 1,565,910
Janet L. Yeomans 61,727,110 1,539,958
J. Richard Zecher 61,714,500 1,552,568
2. To approve the use of a "manager of managers" structure whereby the
investment manager of the Fund will be able to hire and replace subadvisers
without shareholder approval.
For Against Abstain Broker Non-Votes
--- ------- ------- ----------------
Delaware Value Fund 10,265,181 14,097 3,825 291,389
BOARD CONSIDERATION OF DELAWARE NAME OF FUND INVESTMENT ADVISORY AGREEMENT
At a meeting held on May 18-19, 2005 (the "Annual Meeting"), the Board of
Trustees, including a majority of disinterested or independent Trustees,
approved the renewal of the Investment Advisory Agreement for the Delaware Value
Fund (the "Fund"). In making its decision, the Board considered information
furnished throughout the year at regular Board meetings, as well as information
prepared specifically in connection with the Annual Meeting. Information
furnished and discussed throughout the year included reports detailing Fund
performance, investment strategies, expenses, compliance matters and other
services provided by Delaware Management Company ("DMC"), the investment
adviser. Information furnished specifically in connection with the Annual
Meeting included materials provided by DMC and its affiliates ("Delaware
Investments(R)") concerning, among other things, the level of services provided
to the Fund, the costs of such services to the Fund, economies of scale and the
financial condition and profitability of Delaware Investments. In addition, in
connection with the Annual Meeting, the Board separately received and reviewed
independent historical and comparative reports prepared by Lipper Inc.
("Lipper"), an independent statistical compilation organization. The Lipper
reports compared the Fund's investment performance and expenses with those of
other comparable mutual funds. The Board also requested and received certain
supplemental information regarding management's policy with respect to advisory
fee levels and its philosophy with respect to breakpoints; the structure of
portfolio manager compensation; the investment manager's profitability organized
by client type, including the Fund; and any constraints or limitations on the
availability of securities in certain investment styles which might inhibit the
adviser's ability to fully invest in accordance with the Fund's policies.
In considering such materials, the independent Trustees received assistance and
advice from and met separately with independent counsel and representatives from
Lipper. At the meeting with representatives from Lipper, Jude Driscoll, Chairman
of the Delaware Investments Family of Funds, and Chairman and Chief Executive
Officer of the investment adviser, was present to respond to questions raised by
Lipper and the independent Trustees. While the Board considered the Investment
Advisory Agreements for all of the funds in the Delaware Investments Family of
Funds at the same Board meeting, information was provided and considered by the
Board for each fund individually. In approving the continuance of the Investment
Advisory Agreement for the Fund, the Board, including a majority of independent
Trustees, determined that the existing advisory fee structure was fair and
reasonable and that the continuance of the Investment Advisory Agreement was in
the best interests of the Fund and its shareholders. While attention was given
to all information furnished, the following discusses the primary factors
relevant to the Board's deliberations and determination, including those
relating to the selection of the investment adviser and the approval of the
advisory fee.
NATURE, EXTENT AND QUALITY OF SERVICE. Consideration was given to
the services provided by Delaware Investments to the Fund and its shareholders.
In reviewing the nature, extent and quality of services, the Board emphasized
reports furnished to it throughout the year at regular Board meetings covering
matters such as the compliance of portfolio managers with the investment
policies, strategies and restrictions for the Fund, the compliance of management
personnel with the Code of Ethics adopted throughout the Delaware Investments
Family of Funds complex, the adherence to fair value pricing procedures as
established by the Board, and the accuracy of net asset value calculations. The
Board noted that it was pleased with the current staffing of the Fund's
investment adviser during the past year, the emphasis on research and the
compensation system for advisory personnel. Favorable consideration was given to
DMC's efforts to maintain, and in some instances increase, financial and human
12
OTHER DELAWARE VALUE FUND
FUND INFORMATION (CONTINUED)
resources committed to fund matters. Other factors taken into account by the
Board were Delaware Investments' preparedness for, and response to, legal and
regulatory matters. The Board also considered the transfer agent and shareholder
services provided to Fund shareholders by Delaware Investments' affiliate,
Delaware Service Company, Inc., noting the receipt by such affiliate of the
DALBAR Pyramid Award in four of the last six years and the continuing
expenditures by Delaware Investments to increase and improve the scope of
shareholder services. Additionally, the Board noted the extent of benefits
provided to Fund shareholders for being part of the Delaware Investments(R)
Family of Funds, including the privilege to exchange investments between the
same class of funds without a sales charge, the ability to reinvest Fund
dividends into other funds and the privilege to combine holdings in other funds
to obtain a reduced sales charge. The Board was satisfied with the nature,
extent and quality of the overall services provided by Delaware Investments.
INVESTMENT PERFORMANCE. The Board considered the investment performance of DMC
and the Fund. The Board was pleased by DMC's investment performance, noting
Barron's ranking of the Delaware Investments Family of Funds in the top quartile
of mutual fund families for 2002 - 2004. The Board placed significant emphasis
on the investment performance of the Fund in view of its importance to
shareholders. While consideration was given to performance reports and
discussions with portfolio managers at Board meetings throughout the year,
particular attention in assessing performance was given to the Lipper reports
furnished for the Annual Meeting. The Lipper reports prepared for the Fund
showed the investment performance of its Class A shares in comparison to a group
of similar funds as selected by Lipper (the "Performance Universe"). A fund with
the highest performance is ranked first, and a fund with the lowest is ranked
last. The highest/best performing 25% of funds in the Performance Universe make
up the first quartile; the next 25% - the second quartile; the next 25% - the
third quartile; and the lowest/worst performing 25% of funds in the Performance
Universe make up the fourth quartile. Comparative annualized performance for the
Fund was shown for the past one, three and five year periods ended February 28,
2005. The Board noted its objective that the Fund's performance be at or above
the median of its Performance Universe. The following paragraph summarizes the
performance results for the Fund and the Board's view of such performance.
The Performance Universe for this Fund consisted of the Fund and all retail and
institutional large cap value funds as selected by Lipper. The Lipper report
comparison showed that the Fund's total return for the one, three and five year
periods was in the second quartile of such Performance Universe. The Board was
satisfied with such performance.
COMPARATIVE EXPENSES. The Board considered expense comparison data for the
Delaware Investments Family of Funds, Delaware Investments' institutional
separate account business and other lines of business at Delaware Investments.
The Board stated its belief that, given the differing level of service provided
to Delaware Investments' various clients and other factors that related to the
establishment of fee levels, variations in the levels of fees and expenses were
justified. The Board placed significant emphasis on the comparative analysis of
the management fees and total expense ratios of the Fund compared with those of
a group of similar funds as selected by Lipper (the "Expense Group") and among
the other Delaware Investments funds. In reviewing comparative costs, the Fund's
contractual management fee and the actual management fee incurred by the Fund
were compared with the contractual management fees (assuming all funds in the
Expense Group were similar in size to the Fund) and actual management fees (as
reported by each fund) of other funds within the Expense Group, taking into
effect any applicable breakpoints and fee waivers. The Fund's total expenses
were also compared with those of its Expense Group. The Lipper total expenses,
for comparative consistency, were shown by Lipper for Class A shares and
compared total expenses including 12b-1 and non-12b-1 service fees. The Board
noted its objective to limit the Fund's total expense ratio to an acceptable
range as compared to the median of the Expense Group. The following paragraph
summarizes the expense results for the Fund and the Board's view of such
expenses.
These expense comparisons for the Fund showed that its management fee and total
expenses were in the quartile with the lowest expenses of its Expense Group. The
Board was satisfied with the management fees and total expenses of the Fund in
comparison to its Expense Group as shown in the Lipper report.
MANAGEMENT PROFITABILITY. The Board considered the level of profits, if any,
realized by Delaware Investments in connection with the operation of the Fund.
In this respect, the Board reviewed the Investment Management Profitability
Analysis that addressed the overall profitability of Delaware Investments'
business in providing management and other services to each of the individual
funds and the Delaware Investments Family of Funds as a whole. Specific
attention was given to the methodology followed in allocating costs for the
purpose of determining profitability. Management stated that the level of
profits of Delaware Investments, to a certain extent, reflected operational cost
savings and efficiencies initiated by Delaware Investments. The Board considered
Delaware Investments' expenditures to improve services provided to fund
shareholders and to meet additional regulatory and compliance requirements
resulting from the Sarbanes-Oxley Act and recent SEC initiatives. The Board also
considered the extent to which Delaware Investments might derive ancillary
benefits from fund operations, including the potential for procuring additional
business as a result of the prestige and visibility associated with its role as
service provider to the Delaware Investments Family of Funds, the benefits from
allocation of fund brokerage to improve trading efficiencies and the use of
"soft" commission dollars to pay for proprietary and non-proprietary research.
At the Board's request, management also provided information relating to
Delaware Investments' profitability by client type. The information provided set
forth the revenue, expenses and pre-tax income/loss attributable to the Delaware
Investments Family of Funds, Delaware Investments' separate account business and
other lines of business at Delaware Investments. Emphasis was given to the level
and type of service provided to the various clients. The Board was satisfied
with the level of profits realized by Delaware Investments from the
relationships with the Fund and the Delaware Investments Family of Funds.
ECONOMIES OF SCALE. The Trustees considered whether economies of scale are
realized by Delaware Investments as the Fund's assets increase and the extent to
which any economies of scale are reflected in the level of management fees
charged. The Trustees took into account the standardized advisory fee pricing
and structure approved by the Board and shareholders as part of a complex-wide
shareholder meeting conducted in 1998/1999. At that time, Delaware Investments
introduced breakpoints to account for management economies of scale. The Board
noted that the fee under the Fund's management contract fell within the standard
structure. Although the Fund has not reached a size at which it can take
advantage of breakpoints, the Board recognized that the fee was structured so
that when the Fund grows, economies of scale may be shared.
13
Delaware
Investments(R)
- -----------------------------------
A member of Lincoln Financial Group
This semiannual report is for the information of Delaware Value Fund
shareholders, but it may be used with prospective investors when preceded or
accompanied by a current prospectus for Delaware 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
that 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 Delaware Management Company,
Delaware Investments Family of Funds Chief Financial Officer a Series of Delaware Management Business Trust
Philadelphia, PA Delaware Investments Family of Funds Philadelphia, PA
Philadelphia, PA
THOMAS L. BENNETT NATIONAL DISTRIBUTOR
Private Investor RICHELLE S. MAESTRO Delaware Distributors, L.P.
Rosemont, PA Executive Vice President, Philadelphia, PA
Chief Legal Officer and Secretary
JOHN A. FRY Delaware Investments Family of Funds SHAREHOLDER SERVICING, DIVIDEND
President Philadelphia, PA DISBURSING AND TRANSFER AGENT
Franklin & Marshall College Delaware Service Company, Inc.
Lancaster, PA JOHN J. O'CONNOR 2005 Market Street
Senior Vice President and Treasurer Philadelphia, PA 19103-7094
ANTHONY D. KNERR Delaware Investments Family of Funds
Managing Director Philadelphia, PA FOR SHAREHOLDERS
Anthony Knerr & Associates 800 523-1918
New York, NY
FOR SECURITIES DEALERS AND FINANCIAL
LUCINDA S. LANDRETH INSTITUTIONS REPRESENTATIVES ONLY
Former Chief Investment Officer 800 362-7500
Assurant, Inc.
Philadelphia, PA WEB SITE
www.delawareinvestments.com
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
J. RICHARD ZECHER
Founder
Investor Analytics
Scottsdale, AZ
- --------------------------------------------------------------------------------
The Fund files its complete schedule of portfolio holdings with the Securities
and Exchange Commission for the first and third quarters of each fiscal year on
Form N-Q. The Fund's Forms N-Q, as well as a description of the policies and
procedures that the Fund uses to determine how to vote proxies (if any) relating
to portfolio securities is available without charge (i) upon request, by calling
800 523-1918; (ii) on the Fund's Web site at http://www.delawareinvestments.com;
and (iii) on the Commission's Web site at http://www.sec.gov. The Fund's Forms
N-Q may be reviewed and copied at the Commission's Public Reference Room in
Washington, DC; information on the operation of the Public Reference Room may be
obtained by calling 1-800-SEC-0330.
Information (if any) regarding how the Fund voted proxies relating to portfolio
securities during the most recently disclosed 12-month period ended June 30 is
available without charge (i) through the Fund's Web site at
http://www.delawareinvestments.com; and (ii) on the Commission's Web site at
http://www.sec.gov.
- --------------------------------------------------------------------------------
(9487) Printed in the USA
SA-456 [5/05] IVES 7/05 MF05-06-088 PO10254
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. Schedule of Investments
Included as part of report to shareholders filed under Item 1 of this
Form N-CSR.
Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End
Management Investment Companies
Not applicable.
Item 8. Portfolio Managers of Closed-End Management Investment Companies
Not applicable.
Item 9. Purchases of Equity Securities by Closed-End Management Investment
Companies and Affiliated Purchasers
Not applicable.
Item 10. Submission of Matters to a Vote of Security Holders
Not applicable.
Item 11. 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 providing reasonable assurance 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 control
over financial reporting that occurred during the second fiscal quarter of the
period covered by the report to stockholders included herein (i.e., the
registrant's second fiscal quarter) that have materially affected, or are
reasonably likely to materially affect, the registrant's internal control over
financial reporting.
Item 12. Exhibits
(a) (1) Code of Ethics
Not applicable.
(2) 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.
(3) Written solicitations to purchase securities pursuant to Rule 23c-1
under the Securities Exchange Act of 1934.
Not applicable.
(b) Certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 are
furnished herewith 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.
DELAWARE GROUP EQUITY FUNDS II
/s/ Jude T. Driscoll
- --------------------------------
By: Jude T. Driscoll
Title: Chief Executive Officer
Date: July 22, 2005
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.
/s/ Jude T. Driscoll
- --------------------------------
By: Jude T. Driscoll
Title: Chief Executive Officer
Date: July 22, 2005
/s/ Michael P. Bishof
- --------------------------------
By: Michael P. Bishof
Title: Chief Financial Officer
Date: July 22, 2005