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:
David F. Connor, 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: November 30, 2005
Item 1.
Delaware Investments(R)
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A member of Lincoln Financial Group
VALUE-EQUITY
ANNUAL REPORT NOVEMBER 30, 2005
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DELAWARE LARGE CAP VALUE FUND
[LOGO] POWERED BY RESEARCH(R)
TABLE
OF CONTENTS
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PORTFOLIO MANAGEMENT REVIEW 1
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PERFORMANCE SUMMARY 4
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DISCLOSURE OF FUND EXPENSES 6
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SECTOR ALLOCATION 7
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FINANCIAL STATEMENTS:
Statement of Net Assets 8
Statement of Operations 10
Statements of Changes in Net Assets 11
Financial Highlights 12
Notes to Financial Statements 17
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REPORT OF INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM 21
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BOARD OF TRUSTEES/DIRECTORS AND OFFICERS 22
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ABOUT THE ORGANIZATION 24
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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) 2006 Delaware Distributors, L.P.
PORTFOLIO DELAWARE LARGE CAP VALUE FUND
MANAGEMENT REVIEW December 13, 2005
FUND MANAGERS
Ty Nutt, Jr.
Senior Portfolio Manager
Anthony A. Lombardi
Senior Portfolio Manager
Robert A. Vogel, Jr.
Senior Portfolio Manager
Jordan L. Irving
Senior Portfolio Manager
Q: CAN YOU DISCUSS THE FUND'S PERFORMANCE AND THE INVESTMENT ENVIRONMENT DURING
THE PERIOD?
A: Class A shares of Delaware Large Cap Value Fund returned 6.62% at net asset
value and 0.49% at the maximum offer price (both figures represent all
distributions reinvested) for the 12-month period ended November 30, 2005. For
complete, annualized performance for Delaware Large Cap Value Fund, please see
the table on page 4. The Fund underperformed its benchmark, the S&P 500 Index,
which returned 8.44% for the same period.
Economic expansion in the U.S. this year was slowed at times by a number of
headwinds, including a run-up in energy and commodity prices, geopolitical
concerns, and a steady increase in short-term interest rates. While hurricane
damage to Gulf Coast oil refineries fueled concerns about inflation, the
long-term effects appear to be minimal. The economy's sustainability can be
attributed to relatively solid corporate earnings, strong employment figures and
a still-attractive housing market. U.S. equity markets posted positive returns,
with value stocks outpacing growth stocks and mid-cap stocks leading large caps.
Q: CAN YOU ELABORATE ON EVENTS OR STRATEGIES THAT AFFECTED FUND PERFORMANCE
DURING THE YEAR?
A: In March 2005, our new management team took over day-to-day operations of
Delaware Large Cap Value Fund, replacing long-time manager John Fields, who
steered the Fund capably for many years.
We are long-term, buy-and-hold investors, but it is important to note that the
transition this year resulted in a higher-than-average annual turnover rate for
the Fund, as the portfolio's equity allocation was adjusted shortly after the
management change. We do expect the Fund's turnover level to be lower going
forward.
We are committed to a research-driven, team-based investment approach in which
stocks are selected by consensus. Our style is to hold relatively equal-weighted
portfolios, with our allocation to each of 10 sectors falling generally within
50% of the current S&P 500 Index weightings. We emphasize large-cap companies
with attractive valuations, favorable earnings prospects, and strong cash flows.
We are bottom-up investors first and foremost. The fundamental research we
conduct includes developing valuation cases, analyzing past financial
statements, and contacting companies directly. We then use this information to
develop price targets.
Delaware Large Cap Value Fund's underperformance versus the S&P 500 Index during
the fiscal year can be partially attributable to sector positioning, both before
and after the management change. Sectors in the Fund that underperformed the
benchmark for the year included consumer staples and health care. Conversely,
the Fund's strongest performing sectors were financials, industrials, and
technology.
The Fund is positioned such that it has overweight allocations to health care,
consumer staples, and telecommunications--areas that we believe offer somewhat
more predictable earnings and are less economically cyclical should the market
undergo a slowdown.
1
Q: CAN YOU DISCUSS SOME HOLDINGS THAT INFLUENCED PERFORMANCE IN THE FUND?
A: In financial services, AON, the world's second largest insurance broker,
delivered strong performance this year. Careful analysis led us to believe that
the stock was undervalued following an investigation by New York Attorney
General Eliot Spitzer. Under the direction of a new CEO and a long-term
restructuring plan, the company exhibited renewed strength and is poised to
benefit from rising volumes and improved pricing in the wake of Hurricanes
Katrina and Rita.
A noteworthy contributor in the strong-performing industrial sector was Boeing,
a company that has undergone a series of restructuring steps and put in place a
new CEO, resulting in improved efficiency and productivity. Revenues from
Boeing's commercial aircraft division were boosted by orders for its new 787
Dreamliner and increased demand for air travel throughout Asia.
Hewlett Packard was also the beneficiary of a successful corporate restructuring
that included management changes. The company has benefited in particular from
its imaging business. Overall, we remain confident about HP's long-term
prospects. The company offers investors a fairly diversified line of businesses,
and we believe that its improved efficiency and earnings were reflected in
attractive valuations at the close of the period.
Q: WHICH SECURITIES FAILED TO MEET PERFORMANCE EXPECTATIONS?
A: In the staples sector, the Fund experienced disappointing performance from
ConAgra, one of the country's largest food service suppliers and producers,
known for brand names such as Banquet, Chef Boyardee, and Healthy Choice.
ConAgra detracted from performance this year as concerns about weak earnings and
the sustainability of its dividend led to the stock's weakening. Despite its
earnings shortfalls, we remain long-term investors based on our conviction that
ConAgra offers solid underlying fundamentals. Under the leadership of a new CEO,
the company appears better positioned to turn itself around. Through its pursuit
of private label relationships and focused marketing of leading brands, we are
confident that ConAgra will successfully transition from a commodity-based
operation to a branded products franchise.
Large pharmaceutical companies, in general, continued to struggle. Our position
in Abbott Laboratories is one that proved disappointing on the year. Growing
concern about the number of drugs coming off patent and the impact of generic
competition was compounded by an unfavorable outlook for new-product development
at Abbott Labs. In addition, potential legal liabilities related to the recall
of Meridia, an anti-obesity drug, put negative pressure on the stock's
valuation. As with ConAgra, we believe that the company offers positive
long-term prospects. We believe it is poised to benefit from its strong brand, a
healthy balance sheet, improving cash flows, and attractive dividend generation
over the next three to five years.
2
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3
PERFORMANCE SUMMARY
DELAWARE LARGE CAP VALUE FUND
The performance data quoted represent past performance; past performance does
not guarantee future results. Investment return and principal value will
fluctuate so your shares, when redeemed, may be worth more or less than their
original cost. Current performance may be lower or higher than the performance
data quoted. Please obtain the performance data for the most recent month end by
calling 800 523-1918 or visiting our Web site at www.delawareinvestments.com/
performance. You should consider the investment objectives, risks, charges, and
expenses of the investment carefully before investing. The Delaware Large Cap
Value Fund prospectus contains this and other important information about the
Fund. Please request a prospectus by calling 800 523-1918. Read it carefully
before you invest or send money.
FUND PERFORMANCE
Average Annual Total Returns
Through November 30, 2005
Lifetime 10 Years Five Years One Year
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Class A (Est. 3/18/57)
Excluding Sales Charge +11.11% +7.63% +3.66% +6.62%
Including Sales Charge +10.97% +7.00% +2.44% +0.49%
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Class B (Est. 9/6/94)
Excluding Sales Charge +8.23% +6.95% +2.89% +5.87%
Including Sales Charge +8.23% +6.95% +2.48% +1.87%
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Class C (Est. 11/29/95)
Excluding Sales Charge +6.80% +6.81% +2.90% +5.89%
Including Sales Charge +6.80% +6.81% +2.90% +4.89%
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Returns reflect the reinvestment of all distributions and any applicable sales
charges as noted below. Performance for Class B and C shares, excluding sales
charges, assumes either that contingent deferred sales charges did not apply or
the investment was not redeemed.
The Fund offers Class A, B, C, R, and Institutional Class shares. Class A shares
are sold with a front-end sales charge of up to 5.75% and have an annual
distribution and service fee of up to 0.30%.
Class B shares are sold with a contingent deferred sales charge that declines
from 4% to zero depending upon the period of time the shares are held. Class B
shares will automatically convert to Class A shares on a quarterly basis
approximately eight years after purchase. They are also subject to an annual
distribution and service fee of 1.00%. Lifetime and 10-year performance figures
for Class Bshares reflect conversion to Class A shares after eight years.
Class C shares are sold with a contingent deferred sales charge of 1.00% if
redeemed during the first 12 months. They are also subject to an annual
distribution and service fee of 1.00%.
The average annual total return for the lifetime and one-year periods ended
November 30, 2005 for Delaware Large Cap Value Fund's Class R shares were
+10.43% and +6.30%, respectively. Class R shares were first made available on
June 2, 2003 and are available only for certain retirement plan products. They
are sold without a sales charge and have an annual distribution and service fee
of 0.60%. Effective August 1, 2005, the Distributor has contracted to limit the
amount to 0.50% through March 31, 2007.
The average annual total returns for the lifetime (since 3/18/57), 10-year,
five-year, and one-year periods ended November 30, 2005 for Delaware Large Cap
Value Fund's Institutional Class shares were +11.17%, +7.88%, +3.93%, and
+6.88%, respectively. Institutional Class shares were first made available on
January 13, 1994 and are available without sales or asset-based distribution
charges only to certain eligible institutional accounts. Institutional Class
performance prior to January 13, 1994 is based on Class A performance and was
adjusted to eliminate the sales charges, but not the asset-based distribution
charge of Class A shares.
The performance table does not reflect the deduction of taxes the shareholder
would pay on Fund distributions or redemptions of Fund shares.
SEC 30-day yields for A, B, C, R, and Institutional Class shares were +1.33%,
+0.71%, +0.69%, +1.19%, and +1.68%, respectively, as of November 30, 2005.
Nasdaq Institutional Class symbol: DEDIX
Nasdaq Class R symbol: DECRX
4
FUND BASICS
As of November 30, 2005
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FUND OBJECTIVE:
The Fund seeks long-term capital appreciation.
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TOTAL FUND NET ASSETS:
$1.4 billion
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NUMBER OF HOLDINGS:
33
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FUND START DATE:
March 18, 1957
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YOUR FUND MANAGERS:
Ty Nutt joined Delaware Investments in 2004. Mr. Nutt began his investment
career in 1983 at Dean Witter Reynolds where he advanced to Vice President,
Investments. In 1988, he joined investment advisor Van Deventer & Hoch (V&H),
where he managed large cap value portfolios for both institutions and private
clients. As a Senior Vice President at V&H, he was a member of the firm's
Management Committee and directed new business development in addition to his
portfolio management duties. Mr. Nutt moved to Merrill Lynch Investment Managers
in 1994 and later served as leader of the U.S. Active Large Cap Value Team,
managing mutual funds and separate accounts for institutions and private
clients. He is a member of the New York Society of Security Analysts and the CFA
Institute. Mr. Nutt graduated from Dartmouth College with a BA.
Anthony A. Lombardi joined Delaware Investments in 2004. Mr. Lombardi's first
financial services position was as an Investment Analyst with Crossland Savings,
FSB, Brooklyn, NY from 1989-1990. He joined at Dean Witter Reynolds, Inc. as a
Research Assistant in 1990 and rose to the position of Vice President, Research
Analyst, which he held from 1993-1997. He then moved to Merrill Lynch Investment
Managers (MLIM) in 1998, and became a Portfolio Manager with the U.S. Active
Large Cap Value Team in 2000. He departed MLIM as a Director. He is a Chartered
Financial Analyst and a member of the New York Society of Security Analysts and
the CFA Institute. Mr. Lombardi graduated from Hofstra University with a BBA and
MBA in Finance.
Robert A. Vogel, Jr. joined Delaware Investments in 2004. Prior to that, Mr.
Vogel started his financial services career as a Financial Consultant with
Merrill Lynch in 1992. He then moved to Merrill Lynch Investment Managers (MLIM)
in 1997, and became a Portfolio Manager with the U.S. Active Large Cap Value
Team in 1998. He departed MLIM as a Director. In 2004, Mr. Vogel joined Delaware
Investments as Vice President, Senior Portfolio Manager. Mr. Vogel is a
Chartered Financial Analyst and a member of the New York Society of Security
Analysts and the CFA Institute. Mr. Vogel graduated from Loyola College in
Maryland earning both his BBA and MS in Finance. He earned his MBA with a
concentration in Finance at the Wharton School of Business at the University of
Pennsylvania.
Jordan L. Irving joined Delaware Investments in 2004. He began his financial
services career with the U.S. Active Large Cap Value team at Merrill Lynch
Investment Managers (MLIM) in 1998. He became a portfolio manager in 2000. In
2004, Mr. Jordan joined Delaware Investments as Vice President, Senior Portfolio
Manager. Mr. Irving graduated from Yale University with a BA in American Studies
and earned a Special Diploma in Social Studies at Oxford University the
following year.
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NASDAQ SYMBOLS:
Class A DELDX
Class B DEIBX
Class C DECCX
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PERFORMANCE OF A $10,000 INVESTMENT
November 30, 1995 through November 30, 2005
Delaware
Large Cap
Value Fund -
Class A Shares S&P 500 Index
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30-Nov-95 9425 10000
30-Nov-96 11731 11651
30-Nov-97 14638 14378
30-Nov-98 16399 13427
30-Nov-99 15991 15531
30-Nov-00 16426 15441
30-Nov-01 16549 16185
30-Nov-02 14341 14469
30-Nov-03 16399 19720
30-Nov-04 18440 23124
30-Nov-05 19660 25006
Chart assumes $10,000 invested on November 30, 1995 and includes the effect of a
5.75% front-end sales charge and the reinvestment of all distributions.
Performance of other Fund classes will vary due to different charges and
expenses. Returns plotted on the chart were as of the last day of each month
shown. The S&P 500 Index is an unmanaged composite of mostly
large-capitalization U.S. companies. An index is unmanaged and does not reflect
the costs of operating a mutual fund, such as the costs of buying, selling, and
holding securities. You cannot invest directly in an index.
The performance graph does not reflect the deduction of taxes the shareholder
would pay on Fund distributions or redemptions of Fund shares. Past performance
is not a guarantee of future results.
5
DISCLOSURE For the Period June 1, 2005 to November 30, 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 June 1, 2005 to November 30, 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 Fund's actual expenses shown in the table reflect fee waivers in
effect. 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 6/1/05 to
6/1/05 11/30/05 Ratio 11/30/05
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ACTUAL FUND RETURN
Class A $1,000.00 $1,047.30 1.15% $5.90
Class B 1,000.00 1,043.70 1.88% 9.63
Class C 1,000.00 1,044.00 1.88% 9.63
Class R 1,000.00 1,046.10 1.45% 7.44
Institutional Class 1,000.00 1,049.20 0.88% 4.52
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HYPOTHETICAL 5% RETURN (5% return before expenses)
Class A $1,000.00 $1,019.30 1.15% $5.82
Class B 1,000.00 1,015.64 1.88% 9.50
Class C 1,000.00 1,015.64 1.88% 9.50
Class R 1,000.00 1,018.00 1.45% 7.33
Institutional Class 1,000.00 1,020.66 0.88% 4.46
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"Expenses Paid During Period" are equal to the Fund's annualized expense ratio,
multiplied by the average account value over the period, multiplied by 183/365
(to reflect the one-half year period).
6
SECTOR ALLOCATION As of November 30, 2005
DELAWARE LARGE CAP VALUE FUND
Sector designations may be different than the sector designations presented in
other Fund materials.
PERCENTAGE
SECTOR OF NET ASSETS
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COMMON STOCK 99.44%
- ----------------------------------------------------------------
Consumer Discretionary 5.79%
Consumer Staples 11.05%
Energy 8.12%
Financials 26.70%
Health Care 16.22%
Industrials 9.70%
Information Technology 9.36%
Materials 3.28%
Telecommunications 6.12%
Utilities 3.10%
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REPURCHASE AGREEMENTS 1.92%
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SECURITIES LENDING COLLATERAL (4.85%)
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TOTAL MARKET VALUE OF SECURITIES 106.21%
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OBLIGATION TO RETURN SECURITIES LENDING COLLATERAL 4.85%
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LIABILITIES NET OF RECEIVABLES AND OTHER ASSETS (1.36%)
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TOTAL NET ASSETS 100.00%
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7
STATEMENT DELAWARE LARGE CAP VALUE FUND
OF NET ASSETS November 30, 2005
Number of Market
Shares Value
COMMON STOCK - 99.44%
Consumer Discretionary - 5.79%
*Limited Brands 1,862,800 $ 41,447,300
Mattel 2,359,900 39,292,335
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80,739,635
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Consumer Staples - 11.05%
Archer-Daniels-Midland 1,157,500 27,282,275
ConAgra Foods 1,927,600 41,443,400
Kimberly-Clark 680,200 40,118,196
*Safeway 1,951,400 45,370,050
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154,213,921
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Energy - 8.12%
Chevron 660,200 37,836,062
*ConocoPhillips 610,700 36,953,457
Exxon Mobil 664,380 38,553,971
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113,343,490
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@Financials - 26.70%
Allstate 756,500 42,439,650
*Aon 1,296,400 47,201,924
*Chubb 516,400 50,008,176
*Hartford Financial Services 575,900 50,316,383
*Huntington Bancshares 1,759,900 42,167,204
Morgan Stanley 836,300 46,857,889
*Wachovia 881,200 47,056,080
*Washington Mutual 1,132,700 46,655,913
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372,703,219
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Health Care - 16.22%
Abbott Laboratories 930,100 35,074,071
Baxter International 1,069,600 41,596,744
*Bristol-Myers Squibb 1,767,600 38,162,484
Merck 1,340,200 39,401,880
Pfizer 1,529,185 32,418,722
Wyeth 954,200 39,656,552
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226,310,453
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Industrials - 9.70%
Boeing 603,200 41,132,208
Union Pacific 643,300 49,238,182
Waste Management 1,506,000 45,044,460
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135,414,850
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Information Technology - 9.36%
Hewlett-Packard 1,548,500 45,943,995
International Business Machines 485,000 43,116,500
*+Xerox 2,926,500 41,556,300
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130,616,795
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Materials - 3.28%
duPont (E.I.) deNemours 1,070,300 45,755,325
-------------
45,755,325
-------------
Telecommunications - 6.12%
AT&T 1,719,500 42,832,745
Verizon Communications 1,331,800 42,590,964
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85,423,709
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Number of Market
Shares Value
COMMON STOCK (continued)
Utilities - 3.10%
*Progress Energy 965,200 $ 43,221,656
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43,221,656
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TOTAL COMMON STOCK (cost $1,317,704,559) 1,387,743,053
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Principal
Amount
REPURCHASE AGREEMENTS - 1.92%
With BNP Paribas 3.92% 12/1/05
(dated 11/30/05, to be repurchased
at $17,959,955, collateralized by
$18,413,000 U.S. Treasury
Bills due 1/19/06, market
value $18,321,251) $17,958,000 17,958,000
With UBS Warburg 3.93% 12/1/05
(dated 11/30/05, to be repurchased
at $8,774,958, collateralized by
$8,958,000 U.S. Treasury
Bills due 12/8/05, market
value $8,951,620) 8,774,000 8,774,000
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TOTAL REPURCHASE AGREEMENTS
(cost $26,732,000) 26,732,000
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TOTAL MARKET VALUE OF SECURITIES BEFORE
SECURITIES LENDING - 101.36%
(cost $1,344,436,559) 1,414,475,053
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SECURITIES LENDING COLLATERAL** - 4.85%
Short-Term Investments
Abbey National 4.14% 1/13/06 1,661,866 1,662,089
Australia New Zealand 4.15% 1/2/07 2,245,765 2,245,765
Bank of New York 4.07% 4/4/06 1,796,612 1,796,612
Bank of the West 4.07% 3/2/06 2,245,765 2,245,765
Bayerische Landesbank 4.21% 8/25/06 2,245,765 2,245,765
Bear Stearns
4.14% 1/17/06 449,153 449,230
4.15% 5/31/06 2,694,918 2,694,918
Beta Finance 4.08% 4/18/06 2,245,765 2,245,653
Calyon London 3.77% 12/30/05 1,572,035 1,577,638
CDC Financial Products 4.16% 1/3/06 2,919,494 2,919,494
Citigroup Global Markets
4.10% 12/1/05 5,730,138 5,730,138
4.13% 12/7/05 2,919,494 2,919,494
Commonwealth Bank Australia
4.16% 1/2/07 2,245,765 2,245,765
Credit Swiss First Boston New York
4.02% 12/29/05 471,611 471,620
4.12% 4/18/06 2,425,426 2,425,426
Deutsche Bank London 3.76% 12/27/05 673,729 673,813
Goldman Sachs 4.20% 11/30/06 2,919,494 2,919,494
Lehman Holdings 4.14% 12/23/05 2,245,765 2,246,434
Manufacturers & Traders 4.18% 9/26/06 2,245,764 2,245,309
Marshall & Ilsley Bank 3.97% 12/29/05 2,245,764 2,245,798
Merrill Lynch Mortgage Capital
4.16% 1/12/06 2,919,494 2,919,494
Morgan Stanley 4.24% 11/30/06 2,784,748 2,784,748
8
STATEMENT DELAWARE LARGE CAP VALUE FUND
OF NET ASSETS (CONTINUED)
Principal Market
Amount Value
SECURITIES LENDING COLLATERAL** (continued)
Short-Term Investments (continued)
o National City Bank 4.06% 1/23/06 $2,560,172 $ 2,560,218
o Nordea Bank Norge ASA 4.10% 1/2/07 2,245,765 2,245,765
o Proctor & Gamble 3.77% 1/2/07 2,245,765 2,245,765
o Royal Bank of Scotland 4.13% 1/2/07 2,245,765 2,245,765
o Sigma Finance 4.08% 3/16/06 673,730 673,775
o Societe Generale New York
4.06% 1/2/07 1,122,882 1,122,882
o Toyota Motor Credit 4.05% 6/23/06 2,245,764 2,245,878
o Wells Fargo 4.11% 1/2/07 2,245,965 2,245,765
Wilmington Trust Company
4.05% 1/5/06 2,245,765 2,245,765
--------------
TOTAL SECURITIES LENDING COLLATERAL
(cost $67,742,040) 67,742,040
--------------
TOTAL MARKET VALUE OF SECURITIES - 106.21%
(cost $1,412,178,599) 1,482,217,093^
OBLIGATION TO RETURN SECURITIES
LENDING COLLATERAL** - (4.85%) (67,742,040)
LIABILITIES NET OF RECEIVABLES AND
OTHER ASSETS - (1.36%) (19,045,050)
--------------
NET ASSETS APPLICABLE TO 73,458,021 SHARES
OUTSTANDING - 100.00% $1,395,430,003
==============
Net Asset Value - Delaware Large Cap Value Fund
Class A ($1,177,317,612 / 61,932,621 Shares) $19.01
------
Net Asset Value - Delaware Large Cap Value Fund
Class B ($136,049,922 / 7,206,928 Shares) $18.88
------
Net Asset Value - Delaware Large Cap Value Fund
Class C ($36,147,954 / 1,903,022 Shares) $19.00
------
Net Asset Value - Delaware Large Cap Value Fund
Class R ($1,077,742 / 56,729 Shares) $19.00
------
Net Asset Value - Delaware Large Cap Value Fund
Institutional Class ($44,836,773 / 2,358,721 Shares) $19.01
------
COMPONENTS OF NET ASSETS AT NOVEMBER 30, 2005:
Shares of beneficial interest
(unlimited authorization -- no par) $1,256,830,284
Undistributed net investment income 13,245,379
Accumulated net realized gain on investments 55,315,846
Net unrealized appreciation of investments 70,038,494
--------------
Total net assets $1,395,430,003
==============
*Fully or partially on loan.
**See Note 8 in "Notes to Financial Statements."
oVariabe Rate Securities. The interest rate shown is the rate as of
November 30, 2005.
^Includes $65,511,974 of securities loaned.
+Non-income producing security for the year ended November 30, 2005.
@Narrow industries are utilized for compliance purposes for
diversification whereas broad sectors are used for financial reporting.
NET ASSET VALUE AND OFFERING PRICE PER SHARE -
DELAWARE LARGE CAP VALUE FUND
Net asset value Class A (A) $19.01
Sales charge (5.75% of offering price) (B) 1.16
------
Offering price $20.17
======
(A) Net asset value per share, as illustrated, is the amount which would be
paid upon redemption or repurchase of shares.
(B) See the current prospectus for purchase of $50,000 or more.
See accompanying notes
9
STATEMENT DELAWARE LARGE CAP VALUE FUND
OF OPERATIONS Year Ended November 30, 2005
INVESTMENT INCOME:
Dividends $37,563,628
Interest 754,136
Securities lending income 147,935
Foreign tax withheld (91,015) $ 38,374,684
----------- ------------
EXPENSES:
Management fees 8,803,471
Distribution expenses -- Class A 3,315,801
Distribution expenses -- Class B 1,595,460
Distribution expenses -- Class C 391,855
Distribution expenses -- Class R 7,533
Dividend disbursing and transfer agent fees and expenses 2,621,010
Accounting and administration expenses 527,283
Reports and statements to shareholders 352,066
Legal and professional fees 216,434
Insurance fees 117,768
Registration fees 91,103
Trustees' fees 73,285
Taxes (other than taxes on income) 58,016
Custodian fees 38,275
Pricing fees 257
Other 67,686 18,277,303
-----------
Less expense paid indirectly (13,473)
Less waived distribution expenses - Class A (47,559)
Less waived distribution expenses - Class R (404)
------------
Total operating expenses 18,215,867
------------
NET INVESTMENT INCOME 20,158,817
------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND FOREIGN CURRENCIES:
Net realized gain (loss) on:
Investments 204,731,589
Foreign currencies (6,790)
------------
Net realized gain 204,724,799
Net change in unrealized appreciation/depreciation of investments (131,514,802)
------------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS AND FOREIGN CURRENCIES 73,209,997
------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 93,368,814
============
See accompanying notes
10
STATEMENTS DELAWARE LARGE CAP VALUE FUND
OF CHANGES IN NET ASSETS
Year Ended
11/30/05 11/30/04
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS:
Net investment income $ 20,158,817 $ 15,810,553
Net realized gain on investments and foreign currencies 204,724,799 117,707,627
Net change in unrealized appreciation/depreciation of investments (131,514,802) 20,658,996
-------------- --------------
Net increase in net assets resulting from operations 93,368,814 154,177,176
-------------- --------------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income:
Class A (12,957,246) (12,973,202)
Class B (623,394) (469,649)
Class C (146,744) (89,784)
Class R (8,599) (7,991)
Institutional Class (578,746) (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) --
-------------- --------------
(15,616,151) (14,541,479)
-------------- --------------
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares sold:
Class A 51,101,762 86,001,134
Class B 6,405,453 11,601,777
Class C 4,855,770 15,236,218
Class R 248,793 625,931
Institutional Class 7,295,919 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 12,399,266 11,225,537
Class B 689,716 413,644
Class C 170,998 82,376
Class R 9,702 7,970
Institutional Class 618,030 1,000,814
-------------- --------------
83,795,409 697,564,267
-------------- --------------
Cost of shares repurchased:
Class A (204,123,054) (208,444,090)
Class B (63,861,325) (45,760,130)
Class C (13,338,432) (11,482,846)
Class R (476,613) (140,920)
Institutional Class (47,816,912) (36,609,549)
-------------- --------------
(329,616,336) (302,437,535)
-------------- --------------
Increase (decrease) in net assets derived from capital share transactions (245,820,927) 395,126,732
-------------- --------------
NET INCREASE (DECREASE) IN NET ASSETS (168,068,264) 534,762,429
NET ASSETS:
Beginning of year 1,563,498,267 1,028,735,838
-------------- --------------
End of year (including undistributed net investment income of $13,245,379 and $7,408,081,
respectively) $1,395,430,003 $1,563,498,267
============== ==============
(1) See Note 6 in "Notes to Financial Statements."
See accompanying notes
11
FINANCIAL
HIGHLIGHTS
Selected data for each share of the Fund outstanding
throughout each period were as follows:
- ------------------------------------------------------------------------------------------------------------------------------------
Delaware Large Cap Value Fund Class A
- ------------------------------------------------------------------------------------------------------------------------------------
Year Ended
11/30/05 11/30/04 11/30/03 11/30/02 11/30/01
NET ASSET VALUE, BEGINNING OF PERIOD $18.030 $16.240 $14.320 $16.730 $16.770
INCOME (LOSS) FROM INVESTMENT OPERATIONS:
Net investment income(1) 0.271 0.204 0.205 0.170 0.182
Net realized and unrealized gain (loss) on investments
and foreign currencies 0.917 1.802 1.835 (2.381) (0.062)
------- ------- ------- ------- -------
Total from investment operations 1.188 2.006 2.040 (2.211) 0.120
------- ------- ------- ------- -------
LESS DIVIDENDS AND DISTRIBUTIONS FROM:
Net investment income (0.192) (0.216) (0.120) (0.199) (0.160)
Net realized gain on investments (0.016) -- -- -- --
------- ------- ------- ------- -------
Total dividends and distributions (0.208) (0.216) (0.120) (0.199) (0.160)
------- ------- ------- ------- -------
NET ASSET VALUE, END OF PERIOD $19.010 $18.030 $16.240 $14.320 $16.730
======= ======= ======= ======= =======
TOTAL RETURN(2) 6.62% 12.44% 14.34% (13.34%) 0.75%
RATIOS AND SUPPLEMENTAL DATA:
Net assets, end of period (000 omitted) $1,177,317 $1,253,876 $895,108 $870,132 $1,132,147
Ratio of expenses to average net assets 1.15% 1.15% 1.20% 1.11% 1.07%
Ratio of expenses to average net assets prior to expense limitation and
expenses paid indirectly 1.15% 1.16% 1.20% 1.11% 1.07%
Ratio of net investment income to average net assets 1.47% 1.18% 1.40% 1.10% 1.06%
Ratio of net investment income to average net assets prior to expense
limitation and expenses paid indirectly 1.47% 1.17% 1.40% 1.10% 1.06%
Portfolio turnover 114% 70% 77% 99% 111%
(1) The average shares outstanding method has been applied for per share
information.
(2) Total investment return is based on the change in net asset value of a
share during the period and assumes reinvestment of dividends and
distributions at net asset value and does not reflect the impact of a sales
charge. Total investment return reflects a waiver and payment of fees by
the distributor, as applicable. Performance would have been lower had the
expense limitation not been in effect.
See accompanying notes
12
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
- ------------------------------------------------------------------------------------------------------------------------------------
Year Ended
11/30/05 11/30/04 11/30/03 11/30/02 11/30/01
NET ASSET VALUE, BEGINNING OF PERIOD $17.910 $16.150 $14.240 $16.630 $16.690
INCOME (LOSS) FROM INVESTMENT OPERATIONS:
Net investment income(1) 0.137 0.077 0.096 0.054 0.054
Net realized and unrealized gain (loss) on investments
and foreign currencies 0.912 1.789 1.821 (2.364) (0.063)
------- ------- ------- ------- -------
Total from investment operations 1.049 1.866 1.917 (2.310) (0.009)
------- ------- ------- ------- -------
LESS DIVIDENDS AND DISTRIBUTIONS FROM:
Net investment income (0.063) (0.106) (0.007) (0.080) (0.051)
Net realized gain on investments (0.016) -- -- -- --
------- ------- ------- ------- -------
Total dividends and distributions (0.079) (0.106) (0.007) (0.080) (0.051)
------- ------- ------- ------- -------
NET ASSET VALUE, END OF PERIOD $18.880 $17.910 $16.150 $14.240 $16.630
======= ======= ======= ======= =======
TOTAL RETURN(2) 5.87% 11.60% 13.47% (13.96%) (0.05%)
RATIOS AND SUPPLEMENTAL DATA:
Net assets, end of period (000 omitted) $136,050 $184,203 $74,019 $75,707 $100,419
Ratio of expenses to average net assets 1.88% 1.89% 1.94% 1.86% 1.82%
Ratio of net investment income to average net assets 0.74% 0.44% 0.66% 0.35% 0.31%
Portfolio turnover 114% 70% 77% 99% 111%
(1) The average shares outstanding method has been applied for per share
information.
(2) Total investment return is based on the change in net asset value of a
share during the period and assumes reinvestment of dividends and
distributions at net asset value and does not reflect the impact of a sales
charge.
See accompanying notes
13
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
- ------------------------------------------------------------------------------------------------------------------------------------
Year Ended
11/30/05 11/30/04 11/30/03 11/30/02 11/30/01
NET ASSET VALUE, BEGINNING OF PERIOD $18.020 $16.250 $14.320 $16.730 $16.780
INCOME (LOSS) FROM INVESTMENT OPERATIONS:
Net investment income(1) 0.136 0.076 0.095 0.054 0.053
Net realized and unrealized gain (loss) on investments
and foreign currencies 0.923 1.800 1.842 (2.384) (0.052)
------- ------- ------- ------- -------
Total from investment operations 1.059 1.876 1.937 (2.330) 0.001
------- ------- ------- ------- -------
LESS DIVIDENDS AND DISTRIBUTIONS FROM:
Net investment income (0.063) (0.106) (0.007) (0.080) (0.051)
Net realized gain on investments (0.016) -- -- -- --
------- ------- ------- ------- -------
Total dividends and distributions (0.079) (0.106) (0.007) (0.080) (0.051)
------- ------- ------- ------- -------
NET ASSET VALUE, END OF PERIOD $19.000 $18.020 $16.250 $14.320 $16.730
======= ======= ======= ======= =======
TOTAL RETURN(2) 5.89% 11.59% 13.53% (14.00%) 0.02%
RATIOS AND SUPPLEMENTAL DATA:
Net assets, end of period (000 omitted) $36,148 $42,371 $13,764 $11,098 $13,442
Ratio of expenses to average net assets 1.88% 1.89% 1.94% 1.86% 1.82%
Ratio of net investment income to average net assets 0.74% 0.44% 0.66% 0.35% 0.31%
Portfolio turnover 114% 70% 77% 99% 111%
(1) The average shares outstanding method has been applied for per share
information.
(2) Total investment return is based on the change in net asset value of a
share during the period and assumes reinvestment of dividends and
distributions at net asset value and does not reflect the impact of a sales
charge.
See accompanying notes
14
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
- ------------------------------------------------------------------------------------------------------------------------------------
6/02/03(1)
Year Ended to
11/30/05 11/30/04 11/30/03
NET ASSET VALUE, BEGINNING OF PERIOD $18.010 $16.230 $15.150
INCOME FROM INVESTMENT OPERATIONS:
Net investment income(2) 0.216 0.145 0.072
Net realized and unrealized gain on investments and foreign currencies 0.915 1.809 1.063
------- ------- -------
Total from investment operations 1.131 1.954 1.135
------- ------- -------
LESS DIVIDENDS AND DISTRIBUTIONS FROM:
Net investment income (0.125) (0.174) (0.055)
Net realized gain on investments (0.016) -- --
------- ------- -------
Total dividends and distributions (0.141) (0.174) (0.055)
------- ------- -------
NET ASSET VALUE, END OF PERIOD $19.000 $18.010 $16.230
======= ======= =======
TOTAL RETURN(3) 6.30% 12.11% 7.51%
RATIOS AND SUPPLEMENTAL DATA:
Net assets, end of period (000 omitted) $1,078 $1,234 $654
Ratio of expenses to average net assets 1.45% 1.49% 1.54%
Ratio of expenses to average net assets prior to expense limitation and
expenses paid indirectly 1.48% 1.49% 1.54%
Ratio of net investment income to average net assets 1.17% 0.84% 0.91%
Ratio of net investment income to average net assets prior to expense
limitation and expenses paid indirectly 1.14% 0.84% 0.91%
Portfolio turnover 114% 70% 77%
(1) Date of commencement of operations; ratios have been annualized and total
return has not been annualized.
(2) The average shares outstanding method has been applied for per share
information.
(3) Total investment return is based on the change in net asset value of a
share during the period and assumes reinvestment of dividends and
distributions at net asset value. Total investment return reflects a waiver
and payment of fees by the distributor, as applicable. Performance would
have been lower had the expense limitation not been in effect.
See accompanying notes
15
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
- ------------------------------------------------------------------------------------------------------------------------------------
Year Ended
11/30/05 11/30/04 11/30/03 11/30/02 11/30/01
NET ASSET VALUE, BEGINNING OF PERIOD $18.030 $16.240 $14.320 $16.730 $16.770
INCOME (LOSS) FROM INVESTMENT OPERATIONS:
Net investment income(1) 0.321 0.248 0.242 0.209 0.224
Net realized and unrealized gain (loss) on investments
and foreign currencies 0.912 1.805 1.835 (2.380) (0.065)
------- ------- ------- ------- -------
Total from investment operations 1.233 2.053 2.077 (2.171) 0.159
------- ------- ------- ------- -------
LESS DIVIDENDS AND DISTRIBUTIONS FROM:
Net investment income (0.237) (0.263) (0.157) (0.239) (0.199)
Net realized gain on investments (0.016) -- -- -- --
------- ------- ------- ------- -------
Total dividends and distributions (0.253) (0.263) (0.157) (0.239) (0.199)
------- ------- ------- ------- -------
NET ASSET VALUE, END OF PERIOD $19.010 $18.030 $16.240 $14.320 $16.730
======= ======= ======= ======= =======
TOTAL RETURN(2) 6.88% 12.75% 14.64% (13.11%) 1.00%
RATIOS AND SUPPLEMENTAL DATA:
Net assets, end of period (000 omitted) $44,837 $81,814 $45,191 $32,928 $48,192
Ratio of expenses to average net assets 0.88% 0.89% 0.94% 0.86% 0.82%
Ratio of net investment income to average net assets 1.74% 1.44% 1.66% 1.35% 1.31%
Portfolio turnover 114% 70% 77% 99% 111%
(1) The average shares outstanding method has been applied for per share
information.
(2) Total investment return is based on the change in net asset value of a
share during the period and assumes reinvestment of dividends and
distributions at net asset value.
See accompanying notes
16
NOTES DELAWARE LARGE CAP VALUE FUND
TO FINANCIAL STATEMENTS November 30, 2005
Delaware Group Equity Funds II (the "Trust") is organized as a Delaware
statutory trust and offers two series: Delaware Value Fund and Delaware Large
Cap Value 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 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.
Securities lending collateral is 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(R) 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(R) 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 investment, if any, annually.
Subject to best execution, the Fund may direct certain security trades to
brokers who have agreed to rebate a portion of the related brokerage commission
to the Fund in cash. There were no commission rebates during the year ended
November 30, 2005. The Fund receives earnings credits from its custodian when
positive cash balances are maintained, which are used to offset custody fees.
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 the investment management agreement, the Fund
pays Delaware Management Company (DMC), a series of Delaware Management Business
Trust and the investment manager, an annual fee which is calculated daily at the
rate of 0.65% on the first $500 million of average daily net assets of the Fund,
0.60% on the next $500 million, 0.55% on the next $1.5 billion, and 0.50% on
average daily net assets in excess of $2.5 billion.
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. Effective May
19, 2005, the Fund pays DSC a monthly fee computed at the annual rate of 0.04%
of the Fund's average daily net assets for accounting and administration
services. Prior to May 19, 2005, the Fund paid 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 the 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 shares that were
acquired on or after May 2, 1994. All Class A shareholders will bear 12b-1 fees
at the same rate, the blended rate based upon the allocation of the rates
described above.
17
NOTES DELAWARE LARGE CAP VALUE FUND
TO FINANCIAL STATEMENTS (CONTINUED)
2. INVESTMENT MANAGEMENT, ADMINISTRATION AGREEMENTS AND OTHER TRANSACTIONS WITH
AFFILIATES (CONTINUED)
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 was applied to the shares of the Fund that were acquired on
or after May 2, 1994 in calculating the applicable 12b-1 fee rate. Effective
August 1, 2005, DDLP has contracted to limit distribution and service fees
through March 31, 2007 in order to prevent distribution and service fees of
Class R shares from exceeding 0.50% of average daily net assets.
At November 30, 2005, the Fund had liabilities payable to affiliates as follows:
Investment management fee payable to DMC $694,761
Dividend disbursing, transfer agent, accounting
and administration fees and other expenses
payable to DSC 269,448
Distribution fee payable to DDLP 413,778
Other expenses payable to DMC and affiliates* 35,140
*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 year ended November 30, 2005, the Fund was
charged $91,991 for internal legal services provided by DMC.
For the year ended November 30, 2005, DDLP earned $82,329 for commissions on
sales of the Fund's Class A shares. For the year ended November 30, 2005, DDLP
received gross contingent deferred sales charge commissions of $151, $259,610
and $2,896 on redemption of the Fund's Class A, Class B and Class C shares,
respectively, and these commissions were entirely used to offset up-front
commissions previously paid by DDLP to broker-dealers on sales of those 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 year ended November 30, 2005, the Fund made purchases of $1,633,474,966
and sales of $1,798,075,313 of investment securities other than short-term
investments.
At November 30, 2005, the cost of investments for federal income tax purposes
was $1,415,562,726. At November 30, 2005, net unrealized appreciation was
$66,654,367, of which $122,904,487, related to unrealized appreciation of
investments and $56,250,120 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) from 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 years ended November
30, 2005 and 2004 was as follows:
Year Ended
11/30/05 11/30/04
----------- -----------
Ordinary Income $14,314,729 $14,451,479
Long-term capital gain 1,301,422 --
----------- -----------
Total $15,616,151 $14,451,479
=========== ===========
As of November 30, 2005, the components of net assets on a tax basis were as
follows:
Shares of beneficial interest $1,256,830,284
Undistributed ordinary income 13,245,379
Undistributed long-term capital gain 87,767,399
*Capital loss carryforwards (29,067,426)
Unrealized appreciation of investments 66,654,367
--------------
Net assets $1,395,430,003
==============
*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. $105,677,943 was utilized in
2005. Capital loss carryforwards remaining at November 30, 2005 will expire as
follows: $11,712,603 expires in 2010 and $17,354,823 expires in 2011.
The differences between book basis and tax basis components of net assets are
primarily attributable to tax deferral of losses on wash sales.
For financial reporting purposes, capital accounts are adjusted to reflect the
tax character of permanent book/tax differences. 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. For the
year ended November 30, 2005, the Fund recorded the following permanent
reclassifications:
Undistributed net investment income (loss) $(6,790)
Accumulated net realized gain (loss) 6,790
18
NOTES DELAWARE LARGE CAP VALUE FUND
TO FINANCIAL STATEMENTS (CONTINUED)
5. CAPITAL SHARES
Transactions in capital shares were as follows:
Year Ended
11/30/05 11/30/04
---------- ----------
Shares sold:
Class A 2,755,413 4,964,886
Class B 349,639 678,008
Class C 263,187 877,784
Class R 13,486 35,956
Institutional Class 396,129 1,681,375
Shares issued from merger1:
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 669,440 660,691
Class B 37,467 24,710
Class C 9,230 4,891
Class R 524 471
Institutional Class 33,389 58,725
----------- -----------
4,527,904 40,926,228
----------- -----------
Shares repurchased:
Class A (11,031,811) (12,086,933)
Class B (3,463,042) (2,666,885)
Class C (720,168) (665,430)
Class R (25,807) (8,211)
Institutional Class (2,609,454) (2,098,242)
----------- -----------
(17,850,282) (17,525,701)
----------- -----------
Net increase (decrease) (13,322,378) 23,400,527
=========== ===========
(1) See Note #6
For the years ended November 30, 2005 and 2004, 1,213,157 Class B shares were
converted to 1,204,855 Class A shares valued at $22,483,395 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 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 class 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 loss 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(R) Family
of Funds (the "Participants"), participates in a $225,000,000 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 November 30, 2005, or at any time during
the year.
8. SECURITIES LENDING
The Fund, along with other funds in the Delaware Investments(R) Family of Funds,
may lend its securities pursuant to a security lending agreement (Lending
Agreement) with J.P. Morgan Chase. Initial security loans made pursuant to the
Lending Agreement are required to be secured by U.S. Treasury obligations and/or
cash collateral not less than 102% of the market value of the securities issued
in the United States. 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 November 30, 2005, the market value of the securities on loan was
$65,511,974, 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."
19
NOTES DELAWARE LARGE CAP VALUE FUND
TO FINANCIAL STATEMENTS (CONTINUED)
9. CREDIT AND MARKET RISK
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
November 30, 2005, there were no Rule 144A securities. While maintaining
oversight, the Board of Trustees has delegated to DMC the day-to-day functions
of determining whether individual securities are liquid for purposes of the
Fund's limitation on investments in illiquid 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.
11. TAX INFORMATION (UNAUDITED)
The information set forth below is for the Fund's fiscal year as required by
federal laws. Shareholders, however, must report distributions on a calendar
year basis for income tax purposes, which may include distributions for portions
of two fiscal years of a fund. Accordingly, the information needed by
shareholders for income tax purposes will be sent to them in January of each
year. Please consult your tax advisor for proper treatment of this information.
For the fiscal year ended November 30, 2005, the Fund designates dividends and
distributions paid during the year as follows:
(A) (B)
Long-Term Ordinary
Capital Gains Income Total (C)
Distributions Distributions* Distributions Qualifying
(Tax Basis) (Tax Basis) (Tax Basis) Dividends(1)
------------- -------------- ------------- ------------
8% 92% 100% 100%
(A) and (B) are based on a percentage of the Fund's total distributions.
(C) is based on a percentage of ordinary income distributions.
(1) Qualifying dividends represent dividends which qualify for the corporate
dividends received deduction.
* For the fiscal year ended November 30, 2005, certain dividends paid by the
Fund may be subject to a maximum tax rate of 15%, as provided for by the
Jobs and Growth Tax Relief Reconciliation Act of 2003. The Fund intends to
designate up to a maximum amount of $14,314,729 to be taxed at a maximum
rate of 15%. Complete information will be computed and reported in
conjunction with your 2005 Form 1099-DIV.
20
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and Board of Trustees
Delaware Group Equity Funds II - Delaware Large Cap Value Fund
We have audited the accompanying statement of net assets of the Delaware Large
Cap Value Fund (one of the series
constituting Delaware Group Equity Funds II) (the "Fund") as of November 30,
2005, and the related statement of operations for the year then ended, the
statements of changes in net assets for each of the two years in the period then
ended, and the financial highlights for each of the periods indicated therein.
These financial statements and financial highlights are the responsibility of
the Fund's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements and financial highlights are free of material misstatement. We were
not engaged to perform an audit of the Fund's internal control over financial
reporting. Our audits included consideration of internal control over financial
reporting as a basis for designing audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion on the
effectiveness of the Fund's internal control over financial reporting.
Accordingly, we express no such opinion. An audit also includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements and financial highlights, assessing the accounting principles used
and significant estimates made by management, and evaluating the overall
financial statement presentation. Our procedures included confirmation of
securities owned as of November 30, 2005, by correspondence with the custodian
and brokers or by other appropriate auditing procedures where replies from
brokers were not received.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of the
Delaware Large Cap Value Fund of Delaware Group Equity Funds II at November 30,
2005, the results of its operations for the year then ended, the changes in its
net assets for each of the two years in the period then ended, and its financial
highlights for each of the periods indicated therein, in conformity with U.S.
generally accepted accounting principles.
/s/ Ernst & Young LLP
Philadelphia, Pennsylvania
January 11, 2006
21
DELAWARE INVESTMENTS(R) FAMILY OF FUNDS
BOARD OF TRUSTEES/DIRECTORS AND OFFICERS ADDENDUM
A mutual fund is governed by a Board of Trustees/Directors ("Trustees"), which
has oversight responsibility for the management of a fund's business affairs.
Trustees establish procedures and oversee and review the performance of the
investment manager, the distributor and others who perform services for the
fund. The independent fund trustees, in particular, are advocates for
shareholder interests. The following is a list of the Trustees and Officers with
certain background and related information.
NUMBER OF OTHER
PRINCIPAL PORTFOLIOS IN FUND DIRECTORSHIPS
NAME, POSITION(S) OCCUPATION(S) COMPLEX OVERSEEN HELD BY
ADDRESS HELD WITH LENGTH OF TIME DURING BY TRUSTEE TRUSTEE
AND BIRTHDATE FUND(S) SERVED PAST 5 YEARS OR OFFICER OR OFFICER
- ------------------------------------------------------------------------------------------------------------------------------------
INTERESTED TRUSTEES
JUDE T. DRISCOLL(2) Chairman, 5 Years - Since August 2000, 87 None
2005 Market Street President, Executive Officer Mr. Driscoll has served in
Philadelphia, PA Chief Executive various executive capacities
19103 Officer and 2 Years - at different times at
Trustee Trustee Delaware Investments(1)
March 10, 1963
- ------------------------------------------------------------------------------------------------------------------------------------
INDEPENDENT TRUSTEES
THOMAS L. BENNETT Trustee Since Private Investor - 87 None
2005 Market Street March 23, 2005 (March 2004 - Present)
Philadelphia, PA
19103 Investment Manager -
Morgan Stanley & Co.
October 4, 1947 (January 1984 - March 2004)
- ------------------------------------------------------------------------------------------------------------------------------------
JOHN A. FRY Trustee 4 Years President - 87 Director -
2005 Market Street Franklin & Marshall College Community Health
Philadelphia, PA (June 2002 - Present) Systems
19103
Executive Vice President -
May 28, 1960 University of Pennsylvania
(April 1995 - June 2002)
- ------------------------------------------------------------------------------------------------------------------------------------
ANTHONY D. KNERR Trustee 12 Years Founder/Managing Director - 87 None
2005 Market Street Anthony Knerr & Associates
Philadelphia, PA (Strategic Consulting)
19103 (1990 - Present)
December 7, 1938
- ------------------------------------------------------------------------------------------------------------------------------------
LUCINDA S. LANDRETH Trustee Since Chief Investment Officer - 87 None
2005 Market Street March 23, 2005 Assurant, Inc.
Philadelphia, PA (Insurance)
19103 (2002 - 2004)
June 24, 1947
- ------------------------------------------------------------------------------------------------------------------------------------
ANN R. LEVEN Trustee 16 Years Treasurer/Chief Fiscal Officer - 87 Director and
2005 Market Street National Gallery of Art Audit Committee
Philadelphia, PA (1994 - 1999) Chairperson - Andy
19103 Warhol Foundation
November 1, 1940 Director and Audit
Committee Member -
Systemax Inc.
- ------------------------------------------------------------------------------------------------------------------------------------
22
NUMBER OF OTHER
PRINCIPAL PORTFOLIOS IN FUND DIRECTORSHIPS
NAME, POSITION(S) OCCUPATION(S) COMPLEX OVERSEEN HELD BY
ADDRESS HELD WITH LENGTH OF TIME DURING BY TRUSTEE TRUSTEE
AND BIRTHDATE FUND(S) SERVED PAST 5 YEARS OR OFFICER OR OFFICER
- ------------------------------------------------------------------------------------------------------------------------------------
INDEPENDENT TRUSTEES (CONTINUED)
THOMAS F. MADISON Trustee 11 Years President/Chief 87 Director -
2005 Market Street Executive Officer - Banner Health
Philadelphia, PA MLM Partners, Inc.
19103 (Small Business Investing Director -
and Consulting) CenterPoint Energy
February 25, 1936 (January 1993 - Present)
Director and Audit
Committee Member -
Digital River Inc.
Director and Audit
Committee Member -
Rimage
Corporation
Director - Valmont
Industries, Inc.
- ------------------------------------------------------------------------------------------------------------------------------------
JANET L. YEOMANS Trustee 6 Years Vice President/Mergers & 87 None
2005 Market Street Acquisitions - 3M Corporation
Philadelphia, PA (January 2003 - Present)
19103
Ms. Yeomans has held
July 31, 1948 various management positions
at 3M Corporation since 1983.
- ------------------------------------------------------------------------------------------------------------------------------------
J. RICHARD ZECHER Trustee Since Founder - 87 Director and Audit
2005 Market Street March 23, 2005 Investor Analytics Committee Member -
Philadelphia, PA (Risk Management) Investor Analytics
19103 (May 1999 - Present)
Director and Audit
July 3, 1940 Committee Member -
Oxigene, Inc.
- ------------------------------------------------------------------------------------------------------------------------------------
OFFICERS
MICHAEL P. BISHOF Senior Chief Financial Mr. Bishof has served 87 None(3)
2005 Market Street Vice President Officer since in various executive
Philadelphia, PA and February 17, 2005 capacities at different
19103 Chief Financial times at Delaware
Officer Investments.
August 18, 1962
- ------------------------------------------------------------------------------------------------------------------------------------
DAVID F. CONNOR Vice President, Vice President since Mr. Connor has served as 87 None(3)
2005 Market Street Deputy General September 21, 2000 Vice President and Deputy
Philadelphia, PA Counsel and Secretary and Secretary General Counsel of
19103 since Delaware Investments
October 25, 2005 since 2000.
December 2, 1963
- ------------------------------------------------------------------------------------------------------------------------------------
DAVID P. O' CONNOR Senior Vice Senior Vice President, Mr. O'Connor has served 87 None(3)
2005 Market Street President, General Counsel and in various executive
Philadelphia, PA General Counsel Chief Legal Officer and legal capacities at
19103 and Chief since different times at
Legal Officer October 25, 2005 Delaware Investments.
February 21, 1966
- ------------------------------------------------------------------------------------------------------------------------------------
JOHN J. O'CONNOR Senior Vice President Treasurer Mr. O'Connor has served in 87 None(3)
2005 Market Street and Treasurer since various executive capacities
Philadelphia, PA February 17, 2005 at different times at
19103 Delaware Investments.
June 16, 1957
- ------------------------------------------------------------------------------------------------------------------------------------
(1) Delaware Investments is the marketing name for Delaware Management
Holdings, Inc. and its subsidiaries, including the Fund's(s') investment
advisor, principal underwriter and its transfer agent.
(2) Mr. Driscoll is considered to be an "Interested Trustee" because he is an
executive officer of the Fund's(s') manager and distributor.
(3) Mr. Bishof, Mr. Connor, Mr. David P. O'Connor and Mr. John J. O'Connor also
serve in similar capacities for the six portfolios of the Optimum Fund
Trust, which have the same investment advisor, principal underwriter, and
transfer agent as the registrant.
The Statement of Additional Information for the Fund(s) includes additional
information about the Trustees and Officers and is available, without charge,
upon request by calling 800 523-1918.
23
ABOUT
THE ORGANIZATION
This annual report is for the information of Delaware Large Cap Value Fund, but
may be used with prospective investors when preceded or accompanied by a current
prospectus for Delaware Large Cap Value Fund and the Delaware Investments(R)
Performance Update for the most recently completed calendar quarter. The
prospectus sets forth details about charges, expenses, investment objectives,
and operating policies of the Fund. You should read the prospectus carefully
before you invest. The figures in this report represent past results which are
not a guarantee of future results. The return and principal value of an
investment in the Fund will fluctuate so that shares, when redeemed, may be
worth more or less than their original cost.
BOARD OF TRUSTEES AFFILIATED OFFICERS CONTACT INFORMATION
JUDE T. DRISCOLL MICHAEL P. BISHOF INVESTMENT MANAGER
Chairman Senior Vice President and Delaware Management Company,
Delaware Investments(R) Family of Funds Chief Financial Officer a Series of Delaware Management
Philadelphia, PA Delaware Investments(R) Family of Funds Business Trust
Philadelphia, PA Philadelphia, PA
THOMAS L. BENNETT
Private Investor DAVID F. CONNOR NATIONAL DISTRIBUTOR
Rosemont, PA Vice President, Deputy General Counsel Delaware Distributors, L.P.
and Secretary Philadelphia, PA
JOHN A. FRY Delaware Investments(R) Family of Funds
President Philadelphia, PA SHAREHOLDER SERVICING, DIVIDEND
Franklin & Marshall College DISBURSING AND TRANSFER AGENT
Lancaster, PA DAVID P. O'CONNOR Delaware Service Company, Inc.
Senior Vice President, General Counsel 2005 Market Street
ANTHONY D. KNERR and Chief Legal Officer Philadelphia, PA 19103-7094
Managing Director Delaware Investments(R) Family of Funds
Anthony Knerr & Associates Philadelphia, PA FOR SHAREHOLDERS
New York, NY 800 523-1918
JOHN J. O'CONNOR
LUCINDA S. LANDRETH Senior Vice President and Treasurer FOR SECURITIES DEALERS AND FINANCIAL
Former Chief Investment Officer Delaware Investments(R) Family of Funds INSTITUTIONS REPRESENTATIVES ONLY
Assurant, Inc. Philadelphia, PA 800 362-7500
Philadelphia, PA
WEB SITE
ANN R. LEVEN www.delawareinvestments.com
Former Treasurer/Chief Fiscal Officer
National Gallery of Art Delaware Investments is the marketing
Washington, DC name for Delaware Management Holdings,
Inc. and its subsidiaries.
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.
24
Delaware Investments(R)
- -----------------------------------
A member of Lincoln Financial Group
CONTACT INFORMATION
WEB SITE
www.delawareinvestments.com
E-MAIL
service@delinvest.com
SHAREHOLDER SERVICE CENTER
800 523-1918
Call the Shareholder Service Center Monday to Friday, 8 a.m. to 7 p.m. Eastern
Time:
[_] For fund information, literature, price, yield and performance figures.
[_] For information on existing regular investment accounts and retirement plan
accounts including wire investments, wire redemptions, telephone redemptions
and telephone exchanges.
DELAPHONE SERVICE
800 362-FUND (800 362-3863)
[_] For convenient access to account information or current performance
information on all Delaware Investments(R) Funds seven days a week, 24 hours
a day, use this Touch-Tone(R) service.
(9971) Printed in the USA
AR-001 [11/05] IVES 1/06 ANN-0512 LCV PO10664
Delaware Investments(R)
- -----------------------------------
A member of Lincoln Financial Group
VALUE-EQUITY
ANNUAL REPORT NOVEMBER 30, 2005
- --------------------------------------------------------------------------------
DELAWARE VALUE FUND
[LOGO] POWERED BY RESEARCH(R)
TABLE
OF CONTENTS
- ---------------------------------------------------------------
PORTFOLIO MANAGEMENT REVIEW 1
- ---------------------------------------------------------------
PERFORMANCE SUMMARY 4
- ---------------------------------------------------------------
DISCLOSURE OF FUND EXPENSES 6
- ---------------------------------------------------------------
SECTOR ALLOCATION 7
- ---------------------------------------------------------------
FINANCIAL STATEMENTS:
Statement of Net Assets 8
Statement of Operations 9
Statements of Changes in Net Assets 10
Financial Highlights 11
Notes to Financial Statements 15
- ---------------------------------------------------------------
REPORT OF INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM 18
- ---------------------------------------------------------------
BOARD OF TRUSTEES/DIRECTORS AND OFFICERS 19
- ---------------------------------------------------------------
ABOUT THE ORGANIZATION 21
- ---------------------------------------------------------------
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) 2006 Delaware Distributors, L.P.
PORTFOLIO DELAWARE VALUE FUND
MANAGEMENT REVIEW December 13, 2005
FUND MANAGERS
Ty Nutt, Jr.
Senior Portfolio Manager
Jordan L. Irving
Senior Portfolio Manager
Anthony A. Lombardi
Senior Portfolio Manager
Robert A. Vogel, Jr.
Senior Portfolio Manager
Q: CAN YOU PLEASE DISCUSS THE FUND'S PERFORMANCE IN LIGHT OF THE INVESTMENT
ENVIRONMENT DURING THE PERIOD?
A: Class A shares of Delaware Value Fund returned 10.11% at net asset value and
3.74% at the maximum offer price (both figures represent all distributions
reinvested) for the 12-month period ended November 30, 2005. For complete,
annualized performance for Delaware Value Fund, please see the table on page 4.
The Fund outperformed its benchmark, the Russell 1000 Value Index, which gained
9.98% for the same period. Economic expansion in the U.S. this year was slowed
at times by a number of headwinds, including a run-up in energy and commodity
prices, geopolitical concerns, and a steady increase in short-term interest
rates. While hurricane damage to Gulf Coast oil refineries fueled concerns about
inflation, the long-term effects appear to be minimal. The economy's
sustainability can be attributed to relatively solid corporate earnings, strong
employment figures and a still-attractive housing market. U.S. equity markets
posted positive returns, with value stocks outpacing growth stocks and mid-cap
stocks leading large caps.
Q: CAN YOU DESCRIBE THE FUND'S STRATEGY AND ITS IMPACT ON PERFORMANCE?
A: Our strategy continues to emphasize large, financially strong companies that
we believe to be undervalued in the market. Our fundamental, research-driven
approach is one that seeks to identify securities with below-market valuations,
strong sales, favorable earnings prospects, and the potential for above-average
dividend growth. The Fund's positive performance compared to its benchmark can
be attributed primarily to favorable security selection. While financial and
regional bank stocks generally suffered from rising interest rates, the Fund's
positions in this sector -- in which the Fund had a weighting less than the
benchmark's -- did better. The Fund's relative returns were also boosted by
strong stock selection in the industrial sector. Unfavorable sector decisions
had the largest negative impact on fund performance. A heavier allocation than
the benchmark to health care resulted in lackluster returns, as large
pharmaceutical companies continued to struggle amid growing litigation risk and
patent expirations. Some of those situations are described below.
Our position in energy stocks dampened returns. Energy stocks, which were among
the market's strongest performers during the year, benefited from the
skyrocketing price of crude oil and rebuilding on the hurricane-ravaged Gulf
Coast. We have generally been cautious with regard to the sector, and have
focused on larger, integrated companies whose stocks this year lagged behind the
robust gains made by energy service providers. Our strategy includes continual
monitoring of this currently volatile sector.
Concerns about the sustainability of the current bull market, which began in the
autumn of 2002, prompted us to position the portfolio more defensively late in
the period, due to concerns over rising interest rates. As a result, we
emphasized companies with more predictable earnings and less sensitivity to a
potential economic slowdown.
Q: CAN YOU DISCUSS SOME HOLDINGS THAT INFLUENCED PERFORMANCE FOR THE FUND?
A: In financial services, Aon, the world's second largest insurance broker,
delivered strong performance this year. Careful analysis led us to believe that
the stock was undervalued following a high-profile investigation by New York
Attorney General Eliot Spitzer. Under the direction of a new CEO and a long-term
restructuring plan, the company exhibited renewed strength and appears poised to
benefit from rising volumes and improved pricing in the wake of Hurricanes
Katrina and Rita. Hewlett-Packard, our strongest holding in the information
technology sector, was the beneficiary of a successful corporate restructuring,
including new management. The company offers a broad-based business and has
benefited in particular, from its imaging business. Overall, we remain confident
about HP's long-term prospects. The firm's improved efficiency and earnings were
reflected in attractive valuations at the close of the period.
1
The Fund also benefited from strong stock selection in the industrial sector. A
noteworthy contributor in this group was Boeing, which has undergone a series of
restructuring steps and a new CEO, resulting in improved efficiency and
productivity. Commercial aerospace companies, such as Boeing, have benefited
from pent-up demand for new aircraft. The firm's strong performance in its
commercial aircraft division has been boosted by orders for Boeing's new 787
Dreamliner and increased demand for air travel throughout Asia.
Q: WHICH SECURITIES FAILED TO MEET PERFORMANCE EXPECTATIONS?
A: The health care sector proved disappointing, and our holdings in Abbott
Laboratories and Pfizer in particular were poor performers for the fiscal year.
The industry continues to endure well-publicized reports of product recalls.
These included Pfizer's Bextra, an arthritis medicine, and Abbott's Meridia, an
anti-obesity drug, both of which put negative pressure on the respective stocks.
Growing concern about the number of drugs coming off patent and the threat of
generic competition was compounded by an unfavorable outlook for new product
development. However, we believe that both Abbott Labs and Pfizer have suffered
unfairly and remain strong companies. As investors, we believe their long-term
value rests on strong franchises, healthy balance sheets, improving cash flows,
and attractive dividend generation.
2
This page intentionally left blank.
3
PERFORMANCE SUMMARY
DELAWARE VALUE FUND
The performance data quoted represent past performance; past performance does
not guarantee future results. Investment return and principal value will
fluctuate, so your shares, when redeemed, may be worth more or less than their
original cost. Current performance may be lower or higher than the performance
data quoted. Please obtain the performance data for the most recent month end by
calling 800 523-1918 or visiting our Web site at www.delawareinvestments.com/
performance. You should consider the investment objectives, risks, charges, and
expenses of the investment carefully before investing. The Delaware Value Fund
prospectus contains this and other important information about the Fund. Please
request a prospectus by calling 800 523-1918. Read it carefully before you
invest or send money.
FUND PERFORMANCE
Average Annual Total Returns
Through November 30, 2005 Lifetime Five Years One Year
- --------------------------------------------------------------------------------
Class A (Est. 9/15/98)
Excluding Sales Charge +7.01% +4.66% +10.11%
Including Sales Charge +6.13% +3.43% +3.74%
- --------------------------------------------------------------------------------
Class B (Est. 5/1/02)
Excluding Sales Charge +5.69% +9.35%
Including Sales Charge +5.14% +5.35%
- --------------------------------------------------------------------------------
Class C (Est. 5/1/02)
Excluding Sales Charge +5.61% +9.25%
Including Sales Charge +5.61% +8.25%
- --------------------------------------------------------------------------------
Returns reflect the reinvestment of all distributions and any applicable sales
charges as noted below. Performance for Class B and C shares, excluding sales
charges, assumes either that contingent deferred sales charges did not apply or
the investment was not redeemed.
The Fund offers Class A, B, C, R, and Institutional Class shares. Class A shares
are sold with a front-end sales charge of up to 5.75% and have an annual
distribution and service fee of up to 0.30%. The Distributor has contracted to
limit this amount to 0.25% through March 31, 2006.
Class B shares are sold with a contingent deferred sales charge that declines
from 4% to zero depending upon the period of time the shares are held. Class B
shares will automatically convert to Class A shares on a quarterly basis
approximately eight years after purchase. They are also subject to an annual
distribution and service fee of 1%.
Class C shares are sold with a contingent deferred sales charge of 1% if
redeemed during the first 12 months. They are also subject to an annual
distribution and service fee of 1%.
Class R shares are available only for certain retirement plan products. They are
sold without a sales charge and have an annual distribution and service fee of
0.60%. Effective August 1, 2005, the Distributor has contracted to limit the
amount to 0.50% through March 31, 2006.
The average annual total returns for the lifetime, five-year, and one-year
periods ended November 30, 2005 for Delaware Value Fund's Institutional Class
shares were +7.14%, +4.84%, and +10.37%, respectively. Institutional Class
shares were first made available on September 15, 1998 and are available without
sales or asset-based distribution charges only to certain eligible institutional
accounts.
An expense limitation was in effect for all classes of Delaware Value Fund
during the periods shown. Performance would have been lower had the expense
limitation not been in effect. The performance table does not reflect the
deduction of taxes the shareholder would pay on Fund distributions or
redemptions of Fund shares.
Nasdaq Institutional Class symbol: DDVIX
4
FUND BASICS
As of November 30, 2005
- --------------------------------------------------------------------------------
FUND OBJECTIVE
The Fund seeks long-term capital appreciation.
- --------------------------------------------------------------------------------
TOTAL FUND NET ASSETS
$277 million
- --------------------------------------------------------------------------------
NUMBER OF HOLDINGS
33
- --------------------------------------------------------------------------------
FUND START DATE
September 15, 1998
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
YOUR FUND MANAGERS
Ty Nutt, Jr. graduated from Dartmouth College with a BA degree. Before joining
Delaware Investments in 2004, he managed large-cap value portfolios for both
institutions and private clients at Van Deventer & Hoch (V&H), after which he
moved to Merrill Lynch Investment Managers in 1994 and served as leader of the
U.S. Active Large Cap Value Team, managing mutual funds and separate accounts
for institutions and private clients.
Jordan L. Irving graduated from Yale University with a BA in American studies
and earned a Special Diploma in social studies at Oxford University the
following year. Before joining Delaware Investments in 2004, he served as a
portfolio manager at Merrill Lynch Investment Managers (MLIM).
Anthony A. Lombardi graduated from Hofstra University with a BBA and an MBA in
finance. Before joining Delaware Investments in 2004, he served as a portfolio
manager with the U.S. Active Large Cap Value Team of Merrill Lynch Investment
Managers (MLIM). Mr. Lombardi is a CFA charterholder.
Robert A. Vogel, Jr. graduated from Loyola College in Maryland, earning both his
BBA and MS in finance. He earned his MBA with a concentration in finance at the
Wharton School of Business at the University of Pennsylvania. Before joining
Delaware Investments in 2004, he served as a portfolio manager with the U.S.
Large Cap Value team at Merrill Lynch Investment Managers (MLIM).
- --------------------------------------------------------------------------------
NASDAQ SYMBOLS
Class A DDVAX
Class B DDVBX
Class C DDVCX
- --------------------------------------------------------------------------------
PERFORMANCE OF A $10,000 INVESTMENT
September 15, 1998 (Fund's inception) through November 30, 2005
Delaware Value Fund
Class A Shares Russell 1000 Value Index
Sep-98 9303.42 10000
Nov-98 10578.6 11467
Nov-99 11959.1 14408.3
Nov-00 12236.6 15284.3
Nov-01 11978.4 11480
Nov-02 10555.4 9746.56
Nov-03 12177.7 11772.9
Nov-04 13954.4 12880.7
Nov-05 15365.2 14003.9
Chart assumes $10,000 invested on September 15, 1998 and includes the effect of
a 5.75% front-end sales charge and the reinvestment of all distributions.
Performance of other Fund classes will vary due to different charges and
expenses. Returns plotted on the chart were as of the last day of each month
shown. The Russell 1000 Value Index measures the performance of those Russell
1000 companies with lower price-to-book ratios and lower forecasted growth
values. An index is unmanaged and does not reflect the costs of operating a
mutual fund, such as the costs of buying, selling, and holding securities. You
cannot invest directly in an index. The performance graph does not reflect the
deduction of taxes the shareholder would pay on Fund distributions or
redemptions of Fund shares. An expense limitation was in effect for the period
shown. Past performance is not a guarantee of future results. Performance would
have been lower had the expense limitation not been in effect.
5
DISCLOSURE For the Period June 1, 2005 to November 30, 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 June 1, 2005 to November 30, 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 Fund's actual expenses shown in the table reflect fee waivers in
effect. 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 6/1/05 to
6/1/05 11/30/05 Ratio 11/30/05
- --------------------------------------------------------------------------------
ACTUAL FUND RETURN
Class A $1,000.00 $1,045.00 1.00% $5.13
Class B 1,000.00 1,041.50 1.75% 8.96
Class C 1,000.00 1,040.60 1.75% 8.96
Class R(1) 1,000.00 1,008.90 1.25% 6.30
Institutional Class 1,000.00 1,045.90 0.75% 3.85
- --------------------------------------------------------------------------------
HYPOTHETICAL 5% RETURN (5% return before expenses)
Class A $1,000.00 $1,020.05 1.00% $5.06
Class B 1,000.00 1,016.29 1.75% 8.85
Class C 1,000.00 1,016.29 1.75% 8.85
Class R(1) 1,000.00 1,018.80 1.25% 6.33
Institutional Class 1,000.00 1,021.31 0.75% 3.80
- --------------------------------------------------------------------------------
"Expenses Paid During Period" are equal to the Fund's annualized expense ratio,
multiplied by the average account value over the period, multiplied by 183/365
(to reflect the one-half year period).
(1) Commencement of operations was August 31, 2005. For purposes of this
analysis, Class R share's annualized expense ratio was applied to the
period of June 1, 2005 to November 30, 2005. However, the ending account
value for "Actual Fund Return" uses the performance since inception and is
not annualized.
6
SECTOR ALLOCATION As of November 30, 2005
DELAWARE VALUE FUND
Sector designations may be different than the sector designations presented in
other Fund materials.
PERCENTAGE
SECTOR OF NET ASSETS
- ----------------------------------------------------------------
COMMON STOCK 94.39%
- ----------------------------------------------------------------
Consumer Discretionary 5.85%
Consumer Staples 10.22%
Energy 8.77%
Financials 23.29%
Health Care 17.38%
Industrials 8.80%
Information Technology 8.87%
Materials 2.93%
Telecommunications 5.92%
Utilities 2.36%
- ----------------------------------------------------------------
REPURCHASE AGREEMENTS 17.74%
- ----------------------------------------------------------------
TOTAL MARKET VALUE OF SECURITIES 112.13%
- ----------------------------------------------------------------
LIABILITIES NET OF RECEIVABLES AND OTHER ASSETS (12.13%)
- ----------------------------------------------------------------
TOTAL NET ASSETS 100.00%
- ----------------------------------------------------------------
7
STATEMENT DELAWARE VALUE FUND
OF NET ASSETS November 30, 2005
Number of Market
Shares Value
COMMON STOCK - 94.39%
Consumer Discretionary - 5.85%
Limited Brands 363,800 $ 8,094,550
Mattel 487,000 8,108,550
------------
16,203,100
------------
Consumer Staples - 10.22%
Archer-Daniels-Midland 164,000 3,865,480
ConAgra Foods 375,300 8,068,950
Kimberly-Clark 139,400 8,221,812
Safeway 350,900 8,158,425
------------
28,314,667
------------
Energy - 8.77%
Chevron 143,100 8,201,061
ConocoPhillips 132,500 8,017,575
Exxon Mobil 139,300 8,083,579
------------
24,302,215
------------
Financials - 23.29%
Allstate 144,100 8,084,010
Aon 224,300 8,166,763
Chubb 83,900 8,124,876
Hartford Financial Services 93,000 8,125,410
Huntington Bancshares 336,100 8,052,956
Morgan Stanley 144,400 8,090,732
Wachovia 149,700 7,993,980
Washington Mutual 190,900 7,863,171
------------
64,501,898
------------
Health Care - 17.38%
Abbott Laboratories 210,100 7,922,871
Baxter International 209,300 8,139,677
Bristol-Myers Squibb 370,100 7,990,459
Merck 276,800 8,137,920
Pfizer 379,000 8,034,800
Wyeth 190,600 7,921,336
------------
48,147,063
------------
Industrials - 8.80%
Boeing 119,200 8,128,248
Union Pacific 106,600 8,159,164
Waste Management 270,900 8,102,619
------------
24,390,031
------------
Information Technology - 8.87%
Hewlett-Packard 273,100 8,102,877
International Business Machines 91,800 8,161,020
+ Xerox 584,800 8,304,160
------------
24,568,057
------------
Materials - 2.93%
duPont (E.I.) deNemours 189,800 8,113,950
------------
8,113,950
------------
Telecommunications - 5.92%
AT&T 330,200 8,225,282
Verizon Communications 255,800 8,180,484
------------
16,405,766
------------
Utilities - 2.36%
Progress Energy 146,000 6,537,880
------------
6,537,880
------------
TOTAL COMMON STOCK (cost $247,475,997) 261,484,627
------------
REPURCHASE AGREEMENTS - 17.74%
With BNP Paribas 3.92% 12/1/05
(dated 11/30/05, to be repurchased
at $33,009,594, collateralized by
$33,843,000 U.S. Treasury Bills due
1/19/06, market value $33,673,488) $33,006,000 $ 33,006,000
With UBS Warburg 3.93% 12/1/05
(dated 11/30/05, to be
repurchased at $16,127,760,
collateralized by $16,465,000 U.S.
due 12/8/05, Treasury Bills
market value $16,452,604) 16,126,000 16,126,000
--------------
TOTAL REPURCHASE AGREEMENTS
(cost $49,132,000) 49,132,000
--------------
TOTAL MARKET VALUE OF SECURITIES - 112.13%
(cost $296,607,997) 310,616,627
LIABILITIES NET OF RECEIVABLES AND
OTHER ASSETS - (12.13%) (33,602,820)(cent)
--------------
NET ASSETS APPLICABLE TO 24,349,298 SHARES
OUTSTANDING - 100.00% $277,013,807
==============
Net Asset Value - Delaware Value Fund
Class A ($104,139,573 / 9,156,548 Shares) $11.37
------
Net Asset Value - Delaware Value Fund
Class B ($6,515,764 / 577,254 Shares) $11.29
------
Net Asset Value - Delaware Value Fund
Class C ($19,596,502 / 1,735,112 Shares) $11.29
------
Net Asset Value - Delaware Value Fund
Class R ($11.35 / 1 Share) $11.35
------
Net Asset Value - Delaware Value Fund
Institutional Class
($146,761,957 / 12,880,383 Shares) $11.39
------
COMPONENTS OF NET ASSETS AT NOVEMBER 30, 2005:
Shares of beneficial interest
(unlimited authorization - no par) $258,632,807
Undistributed net investment income 3,011,696
Accumulated net realized gain on investments 1,360,674
Net unrealized appreciation of investments 14,008,630
------------
Total net assets $277,013,807
============
+ Non-income producing security for the year ended November 30, 2005.
(cent) Of this amount, $43,868,357 represents payable for securities purchased
as of November 30, 2005.
NET ASSET VALUE AND OFFERING PRICE PER SHARE -
DELAWARE VALUE FUND
Net asset value Class A (A) $11.37
Sales charge (5.75% of offering price) (B) 0.69
------
Offering Price $12.06
======
(A) Net asset value per share, as illustrated, is the 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
8
STATEMENT DELAWARE VALUE FUND
OF OPERATIONS Year Ended November 30, 2005
INVESTMENT INCOME:
Dividends $4,554,663
Interest 215,710 $ 4,770,373
---------- -----------
EXPENSES:
Management fees 1,037,325
Distribution expenses -- Class A 54,253
Distribution expenses -- Class B 43,482
Distribution expenses -- Class C 99,803
Registration fees 65,427
Accounting and administration expenses 57,462
Dividend disbursing and transfer agent fees and expenses 48,888
Legal and professional fees 32,180
Reports and statements to shareholders 26,558
Insurance fees 11,530
Trustees' fees 7,680
Custodian fees 4,848
Taxes (other than taxes on income) 459
Pricing fees 225
Other 6,542 1,496,662
----------
Less expenses absorbed or waived (91,546)
Less waiver of distribution expenses--Class A (9,042)
Less expense paid indirectly (440)
-----------
Total operating expenses 1,395,634
-----------
NET INVESTMENT INCOME 3,374,739
-----------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Net realized gain on investments 1,841,960
Net change in unrealized appreciation/depreciation of investments 8,331,399
-----------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS 10,173,359
-----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $13,548,098
===========
See accompanying notes
9
STATEMENTS DELAWARE VALUE FUND
OF CHANGES IN NET ASSETS
Year Ended
11/30/05 11/30/04
INCREASE IN NET ASSETS FROM OPERATIONS:
Net investment income $ 3,374,739 $ 917,026
Net realized gain on investments 1,841,960 5,922,995
Net change in unrealized appreciation/depreciation of investments 8,331,399 1,099,847
-------------- --------------
Net increase in net assets resulting from operations 13,548,098 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 101,212,046 7,159,439
Class B 5,274,458 1,228,442
Class C 16,892,749 2,262,305
Class R 11 -
Institutional Class 76,194,727 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
-------------- --------------
204,757,154 35,158,717
-------------- --------------
Cost of shares repurchased:
Class A (4,742,223) (1,355,689)
Class B (591,848) (191,695)
Class C (466,091) (13,165)
Institutional Class (10,045,691) (3,499,381)
-------------- --------------
(15,845,853) (5,059,930)
-------------- --------------
Increase in net assets derived from capital share transactions 188,911,301 30,098,787
-------------- --------------
NET INCREASE IN NET ASSETS 197,224,124 37,509,282
NET ASSETS:
Beginning of year 79,789,683 42,280,401
-------------- --------------
End of year (including undistributed net investment income of $3,011,696
and $855,206, respectively) $ 277,013,807 $ 79,789,683
============== ==============
See accompanying notes
10
FINANCIAL
HIGHLIGHTS
Selected data for each share of the Fund outstanding
throughout each period were as follows:
- ------------------------------------------------------------------------------------------------------------------------------------
Delaware Value Fund Class A
- ------------------------------------------------------------------------------------------------------------------------------------
Year Ended
11/30/05 11/30/04 11/30/03 11/30/02 11/30/01
NET ASSET VALUE, BEGINNING OF PERIOD $10.760 $9.480 $8.300 $9.490 $10.150
INCOME (LOSS) FROM INVESTMENT OPERATIONS:
Net investment income(1) 0.220 0.134 0.110 0.113 0.116
Net realized and unrealized gain (loss) on investments 0.842 1.240 1.151 (1.231) (0.309)
------- ------- ------ ------ ------
Total from investment operations 1.062 1.374 1.261 (1.118) (0.193)
------- ------- ------ ------ ------
LESS DIVIDENDS AND DISTRIBUTIONS FROM:
Net investment income (0.089) (0.094) (0.081) (0.072) (0.103)
Net realized gain on investments (0.363) -- -- -- (0.364)
------- ------- ------ ------ ------
Total dividends and distributions (0.452) (0.094) (0.081) (0.072) (0.467)
------- ------- ------ ------ ------
NET ASSET VALUE, END OF PERIOD $11.370 $10.760 $9.480 $8.300 $9.490
======= ======= ====== ====== ======
TOTAL RETURN(2) 10.11% 14.59% 15.37% (11.88%) (2.11%)
RATIOS AND SUPPLEMENTAL DATA:
Net assets, end of period (000 omitted) $104,140 $6,846 $717 $42 $22
Ratio of expenses to average net assets 1.01% 1.00% 1.00% 1.03% 0.75%
Ratio of expenses to average net assets prior to expense
limitation and expenses paid indirectly 1.11% 1.17% 1.26% 1.60% 1.08%
Ratio of net investment income to average net assets 1.98% 1.32% 1.29% 1.27% 1.18%
Ratio of net investment income to average net assets prior
to expense limitation and expenses paid indirectly 1.88% 1.15% 1.03% 0.70% 0.85%
Portfolio turnover 26% 128% 101% 61% 101%
(1) The average shares outstanding method has been applied for per share
information.
(2) Total investment return is based on the change in net asset value of a
share during the period and assumes reinvestment of dividends and
distributions at net asset value and does not reflect the impact of a sales
charge. 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
11
FINANCIAL
HIGHLIGHTS (CONTINUED)
Selected data for each share of the Fund outstanding
throughout each period were as follows:
- ------------------------------------------------------------------------------------------------------------------------------------
Delaware Value Fund Class B
- ------------------------------------------------------------------------------------------------------------------------------------
5/1/02(1)
Year Ended to
11/30/05 11/30/04 11/30/03 11/30/02
NET ASSET VALUE, BEGINNING OF PERIOD $10.680 $ 9.420 $8.310 $9.700
INCOME (LOSS) FROM INVESTMENT OPERATIONS:
Net investment income(2) 0.137 0.058 0.044 0.030
Net realized and unrealized gain (loss) on investments 0.843 1.229 1.147 (1.420)
------- ------- ------ ------
Total from investment operations 0.980 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 $11.290 $10.680 $9.420 $8.310
======= ======= ====== ======
TOTAL RETURN(3) 9.35% 13.69% 14.50% (14.33%)
RATIOS AND SUPPLEMENTAL DATA:
Net assets, end of period (000 omitted) $6,516 $1,518 $383 $13
Ratio of expenses to average net assets 1.76% 1.75% 1.75% 1.93%
Ratio of expenses to average net assets prior to expense
limitation and expenses paid indirectly 1.81% 1.87% 1.96% 2.62%
Ratio of net investment income to average net assets 1.23% 0.57% 0.54% 0.59%
Ratio of net investment income (loss) to average net assets prior
to expense limitation and expenses paid indirectly 1.18% 0.45% 0.33% (0.10%)
Portfolio turnover 26% 128% 101% 61%
(1) Date of commencement of operations; ratios 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. Performance would have been lower had the expense limitation not
been in effect.
See accompanying notes
12
FINANCIAL
HIGHLIGHTS (CONTINUED)
Selected data for each share of the Fund outstanding
throughout each period were as follows:
- ------------------------------------------------------------------------------------------------------------------------------------
Delaware Value Fund Class C
- ------------------------------------------------------------------------------------------------------------------------------------
5/1/02(1)
Year Ended to
11/30/05 11/30/04 11/30/03 11/30/02
NET ASSET VALUE, BEGINNING OF PERIOD $10.690 $ 9.420 $8.280 $9.700
INCOME (LOSS) FROM INVESTMENT OPERATIONS:
Net investment income(2) 0.138 0.062 0.044 0.032
Net realized and unrealized gain (loss) on investments 0.832 1.235 1.155 (1.452)
------- ------- ------ ------
Total from investment operations 0.970 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 $11.290 $10.690 $9.420 $8.280
======= ======= ====== ======
TOTAL RETURN(3) 9.25% 13.80% 14.60% (14.64%)
RATIOS AND SUPPLEMENTAL DATA:
Net assets, end of period (000 omitted) $19,597 $2,477 $133 $27
Ratio of expenses to average net assets 1.76% 1.75% 1.75% 1.93%
Ratio of expenses to average net assets prior to expense
limitation and expenses paid indirectly 1.81% 1.87% 1.96% 2.62%
Ratio of net investment income to average net assets 1.23% 0.57% 0.54% 0.59%
Ratio of net investment income (loss) to average net assets prior
to expense limitation and expenses paid indirectly 1.18% 0.45% 0.33% (0.10%)
Portfolio turnover 26% 128% 101% 61%
(1) Date of commencement of operations; ratios have been annulaized 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. Performance would have been lower had the expense limitation not
been in effect.
See accompanying notes
13
FINANCIAL
HIGHLIGHTS (CONTINUED)
Selected data for each share of the Fund outstanding
throughout each period were as follows:
- ------------------------------------------------------------------------------------------------------------------------------------
Delaware Value Fund Institutional Class
- ------------------------------------------------------------------------------------------------------------------------------------
Year Ended
11/30/05 11/30/04 11/30/03 11/30/02 11/30/01
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.780 $9.500 $8.310 $9.490 $10.150
INCOME (LOSS) FROM INVESTMENT OPERATIONS:
Net investment income(1) 0.243 0.160 0.132 0.126 0.116
Net realized and unrealized gain (loss) on investments 0.846 1.237 1.155 (1.234) (0.309)
------- ------- ------ ------ ------
Total from investment operations 1.089 1.397 1.287 (1.108) (0.193)
------- ------- ------ ------ ------
LESS DIVIDENDS AND DISTRIBUTIONS FROM:
Net investment income (0.116) (0.117) (0.097) (0.072) (0.103)
Net realized gain on investments (0.363) -- -- -- (0.364)
------- ------- ------ ------ ------
Total dividends and distributions (0.479) (0.117) (0.097) (0.072) (0.467)
------- ------- ------ ------ ------
NET ASSET VALUE, END OF PERIOD $11.390 $10.780 $9.500 $8.310 $9.490
======= ======= ====== ====== ======
TOTAL RETURN(2) 10.37% 14.83% 15.70% (11.77%) (2.11%)
RATIOS AND SUPPLEMENTAL DATA:
Net assets, end of period (000 omitted) $146,761 $68,949 $41,047 $23,276 $13,980
Ratio of expenses to average net assets 0.76% 0.75% 0.75% 0.87% 0.75%
Ratio of expenses to average net assets prior to expense
limitation and expenses paid indirectly 0.81% 0.87% 0.96% 1.30% 0.78%
Ratio of net investment income to average net assets 2.23% 1.57% 1.54% 1.43% 1.18%
Ratio of net investment income to average net assets prior
to expense limitation and expenses paid indirectly 2.18% 1.45% 1.33% 1.00% 1.15%
Portfolio turnover 26% 128% 101% 61% 101%
(1) The average shares outstanding method has been applied for per share
information.
(2) Total investment return is based on the change in net asset value of a
share during the period and assumes reinvestment of dividends and
distributions at net asset value. 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. As of November 30, 2005,
Delaware Value Fund Class R had one share outstanding, representing the
initial share purchase. Shareholder data for this class is not disclosed
because management does not believe it to be meaningful.
See accompanying notes
14
NOTES DELAWARE VALUE FUND
TO FINANCIAL STATEMENTS November 30, 2005
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 eight years after purchase. Class C shares are sold with a
contingent deferred sales charge of 1%, if redeemed during the first twelve
months. Class R and Institutional Class shares are not subject to a sales charge
and are offered for sale exclusively to a limited group of investors.
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(R) 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 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.
Subject to best execution, the Fund may direct certain security trades to
brokers who have agreed to rebate a portion of the related brokerage commission
to the Fund in cash. Such commission rebates are included in realized gain on
securities in the accompanying financial statements and totaled $1,082 for the
year ended November 30, 2005. The Fund receives earnings credits from its
custodian when positive cash balances are maintained, which are used to offset
custody fees. 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 it's 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 costs 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. Effective May
19, 2005, the Fund pays DSC a monthly fee computed at the annual rate of 0.04%
of the Fund's average daily net assets for accounting and administration
services. Prior to May 19, 2005, the Fund paid 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 average net assets 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. Effective August 1, 2005, DDLP has contracted to limit
distribution and service fees through March 31, 2007 in order to prevent
distribution and service fees of Class R shares to no more than 0.50% of average
daily net assets.
15
NOTES DELAWARE VALUE FUND
TO FINANCIAL STATEMENTS (CONTINUED)
2. INVESTMENT MANAGEMENT, ADMINISTRATION AGREEMENTS AND OTHER TRANSACTIONS WITH
AFFILIATES (CONTINUED)
At November 30, 2005, the Fund had liabilities payable to affiliates as follows:
Investment management fee payable to DMC $91,265
Dividend disbursing, transfer agent, accounting,
and administration fees and other expenses
payable to DSC 24,570
Other expenses payable to DMC and affiliates* 15,977
Distribution fee payable to DDLP 56,098
*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 year ended November 30, 2005, the Fund was
charged $10,739 for internal legal services provided by DMC.
For the year ended November 30, 2005, DDLP earned $39,450 for commissions on
sales of the Fund's Class A shares. For the year ended November 30, 2005, DDLP
received gross contingent deferred sales charge commissions of $42, $4,661 and
$647 on redemption of the Fund's Class A, Class B and Class C shares,
respectively, and these commissions were entirely used to offset up-front
commissions previously paid by DDLP to broker-dealers on sales of those 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 year ended November 30, 2005, the Fund made purchases of $214,230,661
and sales of $40,179,215 of investment securities other than short-term
investments.
At November 30, 2005, the cost of investments for federal income purposes was
$297,024,902. At November 30, 2005, the net unrealized appreciation was
$13,591,725, of which $19,023,181 related to unrealized appreciation of
investments and $5,431,456 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, 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 years
ended November 30, 2005 and 2004 was as follows:
11/30/05 11/30/04
---------- --------
Ordinary income $1,218,249 $529,373
Long-term capital gain 4,017,026 --
---------- --------
Total $5,235,275 $529,373
========== ========
As of November 30, 2005, the components of net assets on a tax basis were as
follows:
Shares of beneficial interest $258,632,807
Undistributed ordinary income 4,500,650
Undistributed long-term capital gain 288,625
Unrealized appreciation of investments 13,591,725
------------
Net assets $277,013,807
============
The differences between book basis and tax basis components of net assets are
primarily attributable to tax deferral of wash sales.
5. CAPITAL SHARES
Transactions in capital shares were as follows:
Year Ended
11/30/05 11/30/04
----------- -----------
Shares sold:
Class A 8,921,855 692,628
Class B 482,954 120,113
Class C 1,538,055 218,997
Class R 1 --
Institutional Class 6,952,097 2,367,959
Shares issued upon reinvestment of and
distributions:
Class A 25,761 755
Class B 5,409 103
Class C 7,598 37
Institutional Class 443,363 53,137
----------- -----------
18,377,093 3,453,729
----------- -----------
Shares repurchased:
Class A (427,192) (132,921)
Class B (53,209) (18,794)
Class C (42,318) --
Institutional Class (909,849) (347,644)
----------- -----------
(1,432,568) (500,702)
----------- -----------
Net increase 16,944,524 2,953,027
=========== ===========
For the years ended November 30, 2005 and 2004, 6,517 Class B shares were
converted to 6,489 Class A shares valued at $71,984 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 $225,000,000 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 at November 30, 2005, or at any time during the
year.
7. CREDIT AND MARKET RISK
The Fund invests in real estate investment trusts (REITs) and is subject to some
of the risks associated with that industry. If the Fund holds real estate
directly as a result of defaults or receives rental income directly from real
estate holdings, its tax status as a regulated investment company may be
jeopardized. There were no direct holdings during the year ended November 30,
2005. The Fund's REIT holdings are also affected by interest rate changes,
particularly if the REITs it holds use floating rate debt to finance their
ongoing operations.
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.
16
NOTES DELAWARE VALUE FUND
TO FINANCIAL STATEMENTS (CONTINUED)
7. CREDIT AND MARKET RISK (CONTINUED)
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. While maintaining oversight, the Board of Trustees has delegated to
DMC the day-to-day functions of determining whether individual securities are
liquid for purposes of the Fund's limitation on investments in illiquid assets.
No securities have been determined to be illiquid under the Fund's Liquidity
Procedures.
8. CONTRACTUAL OBLIGATIONS
The Fund enters into contracts 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.
9. TAX INFORMATION (UNAUDITED)
The information set forth below is for the Fund's fiscal year as required by
federal laws. Shareholders, however, must report distributions on a calendar
year basis for income tax purposes, which may include distributions for portions
of two fiscal years of a fund. Accordingly, the information needed by
shareholders for income tax purposes will be sent to them in January of each
year. Please consult your tax advisor for proper treatment of this information.
For the fiscal year ended November 30, 2005, the Fund designates distributions
paid during the year as follows:
(A) (B)
Long-Term Ordinary
Capital Gains Income Total (C)
Distributions Distributions* Distributions Qualifying
(Tax Basis) (Tax Basis) (Tax Basis) Dividends(1)
- ------------- -------------- ------------- ------------
77% 23% 100% 98%
(A) and (B) are based on a percentage of the Fund's total distributions.
(C) is based on a percentage of the Fund's ordinary income distributions.
(1) Qualifying dividends represent dividends which qualify for the corporate
dividends received deduction.
* For the fiscal year ended November 30, 2005, certain dividends paid by the
Fund may be subject to a maximum tax rate of 15%, as provided for by the
Jobs and Growth Tax Relief Reconciliation Act of 2003. The Fund intends to
designate up to a maximum amount of $1,218,249 to be taxed at maximum rate
of 15%. Complete information will be computed and reported in conjunction
with your 2005 Form 1099-DIV.
17
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and Board of Trustees
Delaware Group Equity Funds II - Delaware Value Fund
We have audited the accompanying statement of net assets of the Delaware Value
Fund (one of the series constituting Delaware Group Equity Funds II) (the
"Fund") as of November 30, 2005, and the related statement of operations for the
year then ended, the statements of changes in net assets for each of the two
years in the period then ended, and the financial highlights for each of the
periods indicated therein. These financial statements and financial highlights
are the responsibility of the Fund's management. Our responsibility is to
express an opinion on these financial statements and financial highlights based
on our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements and financial highlights are free of material misstatement. We were
not engaged to perform an audit of the Fund's internal control over financial
reporting. Our audits included consideration of internal control over financial
reporting as a basis for designing audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion on the
effectiveness of the Fund's internal control over financial reporting.
Accordingly, we express no such opinion. An audit also includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements and financial highlights, assessing the accounting principles used
and significant estimates made by management, and evaluating the overall
financial statement presentation. Our procedures included confirmation of
securities owned as of November 30, 2005, by correspondence with the custodian
and brokers or by other appropriate auditing procedures where replies from
brokers were not received. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of the
Delaware Value Fund of Delaware Group Equity Funds II at November 30, 2005, the
results of its operations for the year then ended, the changes in its net assets
for each of the two years in the period then ended, and its financial highlights
for each of the periods indicated therein, in conformity with U.S. generally
accepted accounting principles.
/s/ Ernst & Young LLP
Philadelphia, Pennsylvania
January 11, 2006
18
DELAWARE INVESTMENTS(R) FAMILY OF FUNDS
BOARD OF TRUSTEES/DIRECTORS AND OFFICERS ADDENDUM
A mutual fund is governed by a Board of Trustees/Directors ("Trustees"), which
has oversight responsibility for the management of a fund's business affairs.
Trustees establish procedures and oversee and review the performance of the
investment manager, the distributor and others who perform services for the
fund. The independent fund trustees, in particular, are advocates for
shareholder interests. The following is a list of the Trustees and Officers with
certain background and related information.
NUMBER OF OTHER
PRINCIPAL PORTFOLIOS IN FUND DIRECTORSHIPS
NAME, POSITION(S) OCCUPATION(S) COMPLEX OVERSEEN HELD BY
ADDRESS HELD WITH LENGTH OF TIME DURING BY TRUSTEE TRUSTEE
AND BIRTHDATE FUND(S) SERVED PAST 5 YEARS OR OFFICER OR OFFICER
- ------------------------------------------------------------------------------------------------------------------------------------
INTERESTED TRUSTEES
JUDE T. DRISCOLL(2) Chairman, 5 Years - Since August 2000, 87 None
2005 Market Street President, Executive Officer Mr. Driscoll has served in
Philadelphia, PA Chief Executive various executive capacities
19103 Officer and 2 Years - at different times at
Trustee Trustee Delaware Investments(1)
March 10, 1963
- ------------------------------------------------------------------------------------------------------------------------------------
INDEPENDENT TRUSTEES
THOMAS L. BENNETT Trustee Since Private Investor - 87 None
2005 Market Street March 23, 2005 (March 2004 - Present)
Philadelphia, PA
19103 Investment Manager -
Morgan Stanley & Co.
October 4, 1947 (January 1984 - March 2004)
- ------------------------------------------------------------------------------------------------------------------------------------
JOHN A. FRY Trustee 4 Years President - 87 Director -
2005 Market Street Franklin & Marshall College Community Health
Philadelphia, PA (June 2002 - Present) Systems
19103
Executive Vice President -
May 28, 1960 University of Pennsylvania
(April 1995 - June 2002)
- ------------------------------------------------------------------------------------------------------------------------------------
ANTHONY D. KNERR Trustee 12 Years Founder/Managing Director - 87 None
2005 Market Street Anthony Knerr & Associates
Philadelphia, PA (Strategic Consulting)
19103 (1990 - Present)
December 7, 1938
- ------------------------------------------------------------------------------------------------------------------------------------
LUCINDA S. LANDRETH Trustee Since Chief Investment Officer - 87 None
2005 Market Street March 23, 2005 Assurant, Inc.
Philadelphia, PA (Insurance)
19103 (2002 - 2004)
June 24, 1947
- ------------------------------------------------------------------------------------------------------------------------------------
ANN R. LEVEN Trustee 16 Years Treasurer/Chief Fiscal Officer - 87 Director and
2005 Market Street National Gallery of Art Audit Committee
Philadelphia, PA (1994 - 1999) Chairperson - Andy
19103 Warhol Foundation
November 1, 1940 Director and Audit
Committee Member -
Systemax Inc.
- ------------------------------------------------------------------------------------------------------------------------------------
19
NUMBER OF OTHER
PRINCIPAL PORTFOLIOS IN FUND DIRECTORSHIPS
NAME, POSITION(S) OCCUPATION(S) COMPLEX OVERSEEN HELD BY
ADDRESS HELD WITH LENGTH OF TIME DURING BY TRUSTEE TRUSTEE
AND BIRTHDATE FUND(S) SERVED PAST 5 YEARS OR OFFICER OR OFFICER
- ------------------------------------------------------------------------------------------------------------------------------------
INDEPENDENT TRUSTEES (CONTINUED)
THOMAS F. MADISON Trustee 11 Years President/Chief 87 Director -
2005 Market Street Executive Officer - Banner Health
Philadelphia, PA MLM Partners, Inc.
19103 (Small Business Investing Director -
and Consulting) CenterPoint Energy
February 25, 1936 (January 1993 - Present)
Director and Audit
Committee Member -
Digital River Inc.
Director and Audit
Committee Member -
Rimage
Corporation
Director - Valmont
Industries, Inc.
- ------------------------------------------------------------------------------------------------------------------------------------
JANET L. YEOMANS Trustee 6 Years Vice President/Mergers & 87 None
2005 Market Street Acquisitions - 3M Corporation
Philadelphia, PA (January 2003 - Present)
19103
Ms. Yeomans has held
July 31, 1948 various management positions
at 3M Corporation since 1983.
- ------------------------------------------------------------------------------------------------------------------------------------
J. RICHARD ZECHER Trustee Since Founder - 87 Director and Audit
2005 Market Street March 23, 2005 Investor Analytics Committee Member -
Philadelphia, PA (Risk Management) Investor Analytics
19103 (May 1999 - Present)
Director and Audit
July 3, 1940 Committee Member -
Oxigene, Inc.
- ------------------------------------------------------------------------------------------------------------------------------------
OFFICERS
MICHAEL P. BISHOF Senior Chief Financial Mr. Bishof has served 87 None(3)
2005 Market Street Vice President Officer since in various executive
Philadelphia, PA and February 17, 2005 capacities at different
19103 Chief Financial times at Delaware
Officer Investments.
August 18, 1962
- ------------------------------------------------------------------------------------------------------------------------------------
DAVID F. CONNOR Vice President, Vice President since Mr. Connor has served as 87 None(3)
2005 Market Street Deputy General September 21, 2000 Vice President and Deputy
Philadelphia, PA Counsel and Secretary and Secretary General Counsel of
19103 since Delaware Investments
October 25, 2005 since 2000.
December 2, 1963
- ------------------------------------------------------------------------------------------------------------------------------------
DAVID P. O'CONNOR Senior Vice Senior Vice President, Mr. O'Connor has served 87 None(3)
2005 Market Street President, General Counsel and in various executive
Philadelphia, PA General Counsel Chief Legal Officer and legal capacities at
19103 and Chief since different times at
Legal Officer October 25, 2005 Delaware Investments.
February 21, 1966
- ------------------------------------------------------------------------------------------------------------------------------------
JOHN J. O'CONNOR Senior Vice President Treasurer Mr. O'Connor has served in 87 None(3)
2005 Market Street and Treasurer since various executive capacities
Philadelphia, PA February 17, 2005 at different times at
19103 Delaware Investments.
June 16, 1957
- ------------------------------------------------------------------------------------------------------------------------------------
(1) Delaware Investments is the marketing name for Delaware Management
Holdings, Inc. and its subsidiaries, including the Fund's(s') investment
advisor, principal underwriter and its transfer agent.
(2) Mr. Driscoll is considered to be an "Interested Trustee" because he is an
executive officer of the Fund's(s') manager and distributor.
(3) Mr. Bishof, Mr. Connor, Mr. David P. O'Connor and Mr. John J. O'Connor also
serve in similar capacities for the six portfolios of the Optimum Fund
Trust, which have the same investment advisor, principal underwriter, and
transfer agent as the registrant.
The Statement of Additional Information for the Fund(s) includes additional
information about the Trustees and Officers and is available, without charge,
upon request by calling 800 523-1918.
20
ABOUT
THE ORGANIZATION
This annual report is for the information of Delaware Value Fund, but 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 which are not a
guarantee of future results. The return and principal value of an investment in
the Fund will fluctuate so that shares, when redeemed, may be worth more or less
than their original cost.
BOARD OF TRUSTEES AFFILIATED OFFICERS CONTACT INFORMATION
JUDE T. DRISCOLL MICHAEL P. BISHOF INVESTMENT MANAGER
Chairman Senior Vice President and Delaware Management Company,
Delaware Investments(R) Family of Funds Chief Financial Officer a Series of Delaware Management
Philadelphia, PA Delaware Investments Family of Funds Business Trust
Philadelphia, PA Philadelphia, PA
THOMAS L. BENNETT
Private Investor DAVID F. CONNOR NATIONAL DISTRIBUTOR
Rosemont, PA Vice President, Deputy General Counsel Delaware Distributors, L.P.
and Secretary Philadelphia, PA
JOHN A. FRY Delaware Investments Family of Funds
President Philadelphia, PA SHAREHOLDER SERVICING, DIVIDEND
Franklin & Marshall College DISBURSING AND TRANSFER AGENT
Lancaster, PA DAVID P. O'CONNOR Delaware Service Company, Inc.
Senior Vice President, General Counsel 2005 Market Street
ANTHONY D. KNERR and Chief Legal Officer Philadelphia, PA 19103-7094
Managing Director Delaware Investments Family of Funds
Anthony Knerr & Associates Philadelphia, PA FOR SHAREHOLDERS
New York, NY 800 523-1918
JOHN J. O'CONNOR
LUCINDA S. LANDRETH Senior Vice President and Treasurer FOR SECURITIES DEALERS AND FINANCIAL
Former Chief Investment Officer Delaware Investments Family of Funds INSTITUTIONS REPRESENTATIVES ONLY
Assurant, Inc. Philadelphia, PA 800 362-7500
Philadelphia, PA
WEB SITE
ANN R. LEVEN www.delawareinvestments.com
Former Treasurer/Chief Fiscal Officer
National Gallery of Art Delaware Investments is the marketing
Washington, DC name for Delaware Management Holdings,
Inc. and its subsidiaries.
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.
21
Delaware Investments(R)
- -----------------------------------
A member of Lincoln Financial Group
CONTACT INFORMATION
WEB SITE
www.delawareinvestments.com
E-MAIL
service@delinvest.com
SHAREHOLDER SERVICE CENTER
800 523-1918
Call the Shareholder Service Center Monday to Friday, 8 a.m. to 7 p.m. Eastern
Time:
[_] For fund information, literature, price, yield and performance figures.
[_] For information on existing regular investment accounts and retirement plan
accounts including wire investments, wire redemptions, telephone
redemptions and telephone exchanges.
DELAPHONE SERVICE
800 362-FUND (800 362-3863)
[_] For convenient access to account information or current performance
information on all Delaware Investments Funds seven days a week, 24 hours a
day, use this Touch-Tone(R) service.
Printed in the USA
(9978) ANN-0512 VALUE
AR-456 [11/05] IVES 1/06 MF0512093 PO10677
Item 2. Code of Ethics
The registrant has adopted a code of ethics that applies to the
registrant's principal executive officer, principal financial officer, principal
accounting officer or controller, or persons performing similar functions,
regardless of whether these individuals are employed by the registrant or a
third party. A copy of the registrant's Code of Business Ethics has been posted
on Delaware Investments' internet website at www.delawareinvestments.com. Any
amendments to the Code of Business Ethics, and information on any waiver from
its provisions granted by the registrant, will also be posted on this website
within five business days of such amendment or waiver and will remain on the
website for at least 12 months.
Item 3. Audit Committee Financial Expert
The registrant's Board of Trustees/Directors has determined that each
member of the registrant's Audit Committee is an audit committee financial
expert, as defined below. For purposes of this item, an "audit committee
financial expert" is a person who has the following attributes:
a. An understanding of generally accepted accounting principles and
financial statements;
b. The ability to assess the general application of such principles in
connection with the accounting for estimates, accruals, and reserves;
c. Experience preparing, auditing, analyzing, or evaluating financial
statements that present a breadth and level of complexity of accounting issues
that are generally comparable to the breadth and complexity of issues that can
reasonably be expected to be raised by the registrant's financial statements, or
experience actively supervising one or more persons engaged in such activities;
d. An understanding of internal controls and procedures for financial
reporting; and
e. An understanding of audit committee functions.
An "audit committee financial expert" shall have acquired such attributes
through:
a. Education and experience as a principal financial officer, principal
accounting officer, controller, public accountant, or auditor or experience in
one or more positions that involve the performance of similar functions;
b. Experience actively supervising a principal financial officer,
principal accounting officer, controller, public accountant, auditor, or person
performing similar functions;
3
c. Experience overseeing or assessing the performance of companies or
public accountants with respect to the preparation, auditing, or evaluation of
financial statements; or
d. Other relevant experience.
The registrant's Board of Trustees/Directors has also determined that
each member of the registrant's Audit Committee is independent. In order to be
"independent" for purposes of this item, the Audit Committee member may not: (i)
other than in his or her capacity as a member of the Board of Trustees/Directors
or any committee thereof, accept directly or indirectly any consulting, advisory
or other compensatory fee from the issuer; or (ii) be an "interested person" of
the registrant as defined in Section 2(a)(19) of the Investment Company Act of
1940.
The names of the audit committee financial experts on the registrant's
Audit Committee are set forth below:
Thomas L. Bennett (1)
Thomas F. Madison
Janet L. Yeomans (1)
J. Richard Zecher
Item 4. Principal Accountant Fees and Services
(a) Audit fees.
The aggregate fees billed for services provided to the registrant by
its independent auditors for the audit of the registrant's annual financial
statements and for services normally provided by the independent auditors in
connection with statutory and regulatory filings or engagements were $79,000 for
the fiscal year ended November 30, 2005.
- -----------------------
(1) The instructions to Form N-CSR require disclosure on the relevant experience
of persons who qualify as audit committee financial experts based on "other
relevant experience." The Board of Trustees/Directors has determined that Mr.
Bennett qualifies as an audit committee financial expert by virtue of his
education, Chartered Financial Analyst designation, and his experience as a
credit analyst, portfolio manager and the manager of other credit analysts and
portfolio managers. The Board of Trustees/Directors has determined that Ms.
Yeomans qualifies as an audit committee financial expert by virtue of her
education and experience as the Treasurer of a large global corporation.
4
The aggregate fees billed for services provided to the registrant by
its independent auditors for the audit of the registrant's annual financial
statements and for services normally provided by the independent auditors in
connection with statutory and regulatory filings or engagements were $68,200 for
the fiscal year ended November 30, 2004.
(b) Audit-related fees.
The aggregate fees billed by the registrant's independent auditors for
services relating to the performance of the audit of the registrant's financial
statements and not reported under paragraph (a) of this Item were $0 for the
fiscal year ended November 30, 2005.
The aggregate fees billed by the registrant's independent auditors for services
relating to the performance of the audit of the financial statements of the
registrant's investment adviser and other service providers under common control
with the adviser and that relate directly to the operations or financial
reporting of the registrant were $159,700 for the registrant's fiscal year ended
November 30, 2005. The percentage of these fees relating to services approved by
the registrant's Audit Committee pursuant to the de minimis exception from the
pre-approval requirement in Rule 2-01(c)(7)(i)(C) of Regulation S-X was 0%.
These audit-related services were as follows: Issuance of reports concerning
transfer agent's system of internal accounting control pursuant to Rule 17Ad-13
of the Securities Exchange Act; issuance of agreed upon procedures reports to
the registrant's Board in connection with the annual transfer agent and fund
accounting service agent contract renewals and the pass-through of internal
legal cost relating to the operations of the registrant; and preparation of
Report on Controls Placed in Operation and Tests of Operating Effectiveness
Relating to the Retirement Plan Services Division ("SAS 70 report").
The aggregate fees billed by the registrant's independent auditors for
services relating to the performance of the audit of the registrant's financial
statements and not reported under paragraph (a) of this Item were $0 for the
fiscal year ended November 30, 2004.
The aggregate fees billed by the registrant's independent auditors for services
relating to the performance of the audit of the financial statements of the
registrant's investment adviser and other service providers under common control
with the adviser and that relate directly to the operations or financial
reporting of the registrant were $164,700 for the registrant's fiscal year ended
November 30, 2004. The percentage of these fees relating to services approved by
the registrant's Audit Committee pursuant to the de minimis exception from the
pre-approval requirement in Rule 2-01(c)(7)(i)(C) of Regulation S-X was 0%.
These audit-related services were as follows: issuance of reports concerning
transfer agent's system of internal accounting control pursuant to Rule 17Ad-13
of the Securities Exchange Act; issuance of agreed upon procedures reports to
the registrant's Board in connection with the annual transfer agent and fund
accounting service agent contract renewals and the pass-through of internal
legal cost relating to the operations of the registrant; and preparation of
Report on Controls Placed in Operation and Tests of Operating Effectiveness
Relating to the Retirement Plan Services Division ("SAS 70 report").
5
(c) Tax fees.
The aggregate fees billed by the registrant's independent auditors for
tax-related services provided to the registrant were $17,200 for the fiscal year
ended November 30, 2005. The percentage of these fees relating to services
approved by the registrant's Audit Committee pursuant to the de minimis
exception from the pre-approval requirement in Rule 2-01(c)(7)(i)(C) of
Regulation S-X was 0%. These tax-related services were as follows: Review of
income tax returns and review of annual excise distribution calculations.
The aggregate fees billed by the registrant's independent auditors for
tax-related services provided to the registrant's investment adviser and other
service providers under common control with the adviser and that relate directly
to the operations or financial reporting of the registrant were $0 for the
registrant's fiscal year ended November 30, 2005.
The aggregate fees billed by the registrant's independent auditors for
tax-related services provided to the registrant were $7,500 for the fiscal year
ended November 30, 2004. The percentage of these fees relating to services
approved by the registrant's Audit Committee pursuant to the de minimis
exception from the pre-approval requirement in Rule 2-01(c)(7)(i)(C) of
Regulation S-X was 0%. These tax-related services were as follows: Review of
income tax returns and review of annual excise distribution calculations.
The aggregate fees billed by the registrant's independent auditors for
tax-related services provided to the registrant's adviser and other service
providers under common control with the adviser and that relate directly to the
operations or financial reporting of the registrant were $0 for the registrant's
fiscal year ended November 30, 2004.
(d) All other fees.
The aggregate fees billed for all services provided by the independent
auditors to the registrant other than those set forth in paragraphs (a), (b) and
(c) of this Item were $0 for the fiscal year ended November 30, 2005.
The aggregate fees billed for all services other than those set forth
in paragraphs (b) and (c) of this Item provided by the registrant's independent
auditors to the registrant's adviser and other service providers under common
control with the adviser and that relate directly to the operations or financial
reporting of the registrant were $0 for the registrant's fiscal year ended
November 30, 2005.
The aggregate fees billed for all services provided by the independent
auditors to the registrant other than those set forth in paragraphs (a), (b) and
(c) of this Item were $0 for the fiscal year ended November 30, 2004.
6
The aggregate fees billed for all services other than those set forth
in paragraphs (b) and (c) of this Item provided by the registrant's independent
auditors to the registrant's adviser and other service providers under common
control with the adviser and that relate directly to the operations or financial
reporting of the registrant were $0 for the registrant's fiscal year ended
November 30, 2004.
(e) The registrant's Audit Committee has established pre-approval
policies and procedures as permitted by Rule 2-01(c)(7)(i)(B) of Regulation S-X
(the "Pre-Approval Policy") with respect to services provided by the
registrant's independent auditors. Pursuant to the Pre-Approval Policy, the
Audit Committee has pre-approved the services set forth in the table below with
respect to the registrant up to the specified fee limits. Certain fee limits are
based on aggregate fees to the registrant and other registrants within the
Delaware Investments Family of Funds.
- ---------------------------------------------------------------------------------------------------------------------
SERVICE RANGE OF FEES
- ---------------------------------------------------------------------------------------------------------------------
AUDIT SERVICES
- ---------------------------------------------------------------------------------------------------------------------
Statutory audits or financial audits for new Funds up to $25,000 per Fund
- ---------------------------------------------------------------------------------------------------------------------
Services associated with SEC registration statements (e.g., Form N-1A, Form
N-14, etc.), periodic reports and other documents filed with the SEC or other
documents issued in connection with securities offerings (e.g., comfort letters up to $10,000 per Fund
for closed-end Fund offerings, consents), and assistance in responding to SEC
comment letters
- ---------------------------------------------------------------------------------------------------------------------
Consultations by Fund management as to the accounting or disclosure treatment of
transactions or events and/or the actual or potential impact of final or
proposed rules, standards or interpretations by the SEC, FASB, or other up to $25,000 in the aggregate
regulatory or standard-setting bodies (Note: Under SEC rules, some consultations
may be considered "audit-related services" rather than "audit services")
- ---------------------------------------------------------------------------------------------------------------------
AUDIT-RELATED SERVICES
- ---------------------------------------------------------------------------------------------------------------------
Consultations by Fund management as to the accounting or disclosure treatment of
transactions or events and /or the actual or potential impact of final or
proposed rules, standards or interpretations by the SEC, FASB, or other up to $25,000 in the aggregate
regulatory or standard-setting bodies (Note: Under SEC rules, some consultations
may be considered "audit services" rather than "audit-related services")
- ---------------------------------------------------------------------------------------------------------------------
TAX SERVICES
- ---------------------------------------------------------------------------------------------------------------------
U.S. federal, state and local and international tax planning and advice (e.g.,
consulting on statutory, regulatory or administrative developments, evaluation up to $25,000 in the aggregate
of Funds' tax compliance function, etc.)
- ---------------------------------------------------------------------------------------------------------------------
U.S. federal, state and local tax compliance (e.g., excise distribution reviews,
up to $5,000 per Fund etc.)
- ---------------------------------------------------------------------------------------------------------------------
Review of federal, state, local and international income, franchise and other up to $5,000 per Fund
tax returns
- ---------------------------------------------------------------------------------------------------------------------
7
Under the Pre-Approval Policy, the Audit Committee has also
pre-approved the services set forth in the table below with respect to the
registrant's investment adviser and other entities controlling, controlled by or
under common control with the investment adviser that provide ongoing services
to the registrant (the "Control Affiliates") up to the specified fee limit. This
fee limit is based on aggregate fees to the investment adviser and its Control
Affiliates.
- ---------------------------------------------------------------------------------------------------------------------
SERVICE RANGE OF FEES
- ---------------------------------------------------------------------------------------------------------------------
NON-AUDIT SERVICES
- ---------------------------------------------------------------------------------------------------------------------
Services associated with periodic reports and other documents filed with the SEC up to $10,000 in the aggregate
and assistance in responding to SEC comment letters
- ---------------------------------------------------------------------------------------------------------------------
The Pre-Approval Policy requires the registrant's independent auditors
to report to the Audit Committee at each of its regular meetings regarding all
services initiated since the last such report was rendered, including those
services authorized by the Pre-Approval Policy.
(f) Not applicable.
(g) The aggregate non-audit fees billed by the registrant's independent
auditors for services rendered to the registrant and to its investment adviser
and other service providers under common control with the adviser were $348,260
and $359,959 for the registrant's fiscal years ended November 30, 2005 and
November 30, 2004, respectively.
(h) In connection with its selection of the independent auditors, the
registrant's Audit Committee has considered the independent auditors' provision
of non-audit services to the registrant's investment adviser and other service
providers under common control with the adviser that were not required to be
pre-approved pursuant to Rule 2-01(c)(7)(ii) of Regulation S-X. The Audit
Committee has determined that the independent auditors' provision of these
services is compatible with maintaining the auditors' independence.
Item 5. Audit Committee of Listed Registrants
Not applicable.
8
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
Company 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 fourth fiscal quarter) that have materially affected, or are
reasonably likely to materially affect, the registrant's internal control over
financial reporting.
9
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.
10
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and
the Investment Company Act of 1940, the registrant has duly caused this report
to be signed on its behalf, by the undersigned, thereunto duly authorized.
NAME OF REGISTRANT: Delaware Group Equity II Funds
JUDE T. DRISCOLL
- ----------------------------------
By: Jude T. Driscoll
------------------
Title: Chief Executive Officer
Date: 1/31/06
Pursuant to the requirements of the Securities Exchange Act of 1934 and
the Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
JUDE T. DRISCOLL
- ----------------------------------
By: Jude T. Driscoll
------------------
Title: Chief Executive Officer
Date: 1/31/06
MICHAEL P. BISHOF
- ----------------------------------
By: Michael P. Bishof
------------------
Title: Chief Financial Officer
Date: 1/31/06
11