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: May 31, 2006
<page>
Item 1.
Semiannual Report Delaware
Large Cap Value Fund
May 31, 2006
Value equity mutual funds
[DELAWARE LOGO] [LOGO] POWERED BY RESEARCH (R)
Table of contents
> Disclosure of Fund expenses .................................................1
> Sector allocation ...........................................................2
> Statement of net assets .....................................................3
> Statement of operations .....................................................5
> Statements of changes in net assets .........................................6
> Financial highlights ........................................................7
> Notes to financial statements ..............................................12
> Other Fund information .....................................................15
> About the organization .....................................................17
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.
Disclosure of Fund expenses
For the period December1, 2005 to May 31, 2006
As a shareholder of the Fund, you incur two types of costs: (1) transaction
costs, including sales charges (loads) on purchase payments, reinvested
dividends, or other distributions; redemption fees; and exchange fees; and (2)
ongoing costs, including management fees; distribution and/or service (12b-1)
fees; and other Fund expenses. This example is intended to help you understand
your ongoing costs (in dollars) of investing in the Fund and to compare these
costs with the ongoing costs of investing in other mutual funds.
The example is based on an investment of $1,000 invested at the beginning of the
period and held for the entire period December 1, 2005 to May 31, 2006.
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, as applicable. The expenses shown in the table assume reinvestment of
all dividends and distributions.
Delaware Large Cap Value Fund
Expense Analysis of an Investment of $1,000
Expenses
Beginning Ending Paid During
Account Account Annualized Period
Value Value Expense 12/1/05 to
12/1/05 5/31/06 Ratio 5/31/06*
______________________________________________________________________________________________________________
Actual Fund Return
Class A $1,000.00 $1,057.50 1.17% $6.00
Class B 1,000.00 1,053.10 1.90% 9.73
Class C 1,000.00 1,053.30 1.90% 9.73
Class R 1,000.00 1,056.10 1.40% 7.18
Institutional Class 1,000.00 1,058.40 0.90% 4.62
______________________________________________________________________________________________________________
Hypothetical 5% return (5% return before expenses)
Class A $1,000.00 $1,019.10 1.17% $5.89
Class B 1,000.00 1,015.46 1.90% 9.55
Class C 1,000.00 1,015.46 1.90% 9.55
Class R 1,000.00 1,017.95 1.40% 7.04
Institutional Class 1,000.00 1,020.44 0.90% 4.53
______________________________________________________________________________________________________________
* "Expenses Paid During Period" are equal to the Fund's annualized expense ratio, multiplied by the average account value over
the period, multiplied by 182/365 (to reflect the one-half year period).
1
Sector allocation
> Delaware Large Cap Value Fund
As of May 31, 2006
Sector designations may be different than the sector designations presented in
other Fund materials.
Percentage
Sector of Net Assets
________________________________________________________________________________
Common Stock 99.12%
Consumer Discretionary 9.09%
Consumer Staples 12.50%
Energy 5.82%
Financials 23.43%
Health Care 18.01%
Industrials 6.12%
Information Technology 12.00%
Materials 2.95%
Telecommunication Services 6.13%
Utilities 3.07%
________________________________________________________________________________
Securities Lending Collateral 4.56%
________________________________________________________________________________
Fixed Rate Notes 1.23%
Variable Rate Notes 3.33%
________________________________________________________________________________
Total Market Value of Securities 103.68%
________________________________________________________________________________
Obligation to Return Securities Lending Collateral (4.56%)
________________________________________________________________________________
Receivables and Other Assets Net of Liabilities 0.88%
________________________________________________________________________________
Total Net Assets 100.00%
________________________________________________________________________________
Statement of net assets
> Delaware Large Cap Value Fund
May 31, 2006 (Unaudited)
Number of Market
Shares Value
______________________________________________________________________________________________________________
Common Stock - 99.12%
______________________________________________________________________________________________________________
Consumer Discretionary - 9.09%
Gap 2,174,300 $ 39,572,260
Limited Brands 1,472,600 39,995,816
Mattel 2,423,000 40,730,630
______________
120,298,706
______________
Consumer Staples - 12.50%
* ConAgra Foods 1,833,200 41,430,320
Heinz (H.J.) 981,800 41,579,230
Kimberly-Clark 697,600 42,323,392
* Safeway 1,703,200 40,161,456
______________
165,494,398
______________
Energy - 5.82%
Chevron 669,400 40,023,426
ConocoPhillips 584,600 36,999,334
______________
77,022,760
______________
Financials - 23.43%
* Allstate 733,600 40,355,336
Aon 985,600 35,136,640
* Chubb 781,700 39,499,301
Hartford Financial Services Group 449,100 39,493,854
Huntington Bancshares 1,678,000 39,466,560
Morgan Stanley 625,100 37,268,462
Wachovia 725,100 38,792,850
* Washington Mutual 873,300 40,093,203
______________
310,106,206
______________
Health Care - 18.01%
Abbott Laboratories 934,200 39,890,340
Baxter International 1,052,200 39,667,940
Bristol-Myers Squibb 1,660,200 40,757,910
* Merck & Co. 1,187,800 39,541,862
Pfizer 1,646,885 38,965,299
Wyeth 866,000 39,610,840
______________
238,434,191
______________
Industrials - 6.12%
Donnelley (R.R.) & Sons 1,245,000 40,064,100
Waste Management 1,118,200 40,948,484
______________
81,012,584
______________
Information Technology - 12.00%
Hewlett-Packard 1,240,900 40,180,342
Intel 2,158,900 38,903,378
International Business Machines 497,200 39,726,280
+ Xerox 2,916,100 40,038,053
______________
158,848,053
______________
Materials - 2.95%
duPont (E.I.) deNemours 916,600 38,982,998
______________
38,982,998
______________
Telecommunication Services - 6.13%
AT&T 1,599,100 41,672,546
Verizon Communications 1,263,900 39,446,319
______________
81,118,865
______________
Utilities - 3.07%
* Progress Energy 965,200 40,577,008
______________
40,577,008
______________
Total Common Stock (cost $1,233,066,108) 1,311,895,769
______________
Total Market Value of Securities
Before Securities Lending - 99.12%
(cost $1,233,066,108) 1,311,895,769
______________
Principal
Amount
______________________________________________________________________________________________________________
Securities Lending Collateral** - 4.56%
______________________________________________________________________________________________________________
Short-Term Investments - 4.56%
Fixed Rate Notes - 1.23%
Calyon 5.05% 6/19/06 $2,020,456 2,020,456
Citigroup Global Markets
5.10% 6/1/06 9,461,000 9,461,000
Deutsche Bank London
5.00% 6/29/06 2,331,296 2,331,296
Washington Mutual Grand
5.00% 6/30/06 2,486,715 2,486,715
______________
16,299,467
______________
~ Variable Rate Notes - 3.33%
American Honda Finance
5.07% 2/21/07 1,398,777 1,398,777
ANZ National 5.05% 7/2/07 310,839 310,839
Australia New Zealand 5.06% 7/2/07 1,554,197 1,554,197
Bank of America 5.07% 2/23/07 2,020,456 2,020,456
Bank of New York 5.07% 7/2/07 1,243,357 1,243,357
Barclays New York 5.06% 5/18/07 2,020,456 2,020,456
Bayerische Landesbank
5.10% 8/25/06 1,554,197 1,554,197
Bear Stearns 5.13% 10/30/06 1,865,036 1,865,036
BNP Paribas 5.14% 7/2/07 1,554,197 1,554,197
Canadian Imperial Bank
5.06% 5/29/07 777,098 777,098
Canadian Imperial Bank
5.07% 11/22/06 1,554,197 1,554,197
CDC Financial Products
5.16% 6/30/06 2,020,456 2,020,456
Citigroup Global Markets
5.13% 6/7/06 2,020,456 2,020,456
Commonwealth Bank 5.05% 7/2/07 1,554,197 1,554,197
Goldman Sachs 5.20% 5/31/07 2,020,456 2,020,456
Manufacturers & Traders
5.07% 9/26/06 1,554,191 1,554,070
Marshall & Ilsley Bank 5.06% 7/2/07 1,709,617 1,709,617
Merrill Lynch Mortgage Capital
5.16% 6/7/06 1,398,777 1,398,777
Morgan Stanley 5.24% 5/31/07 1,927,204 1,927,204
National Australia Bank 5.04% 3/7/07 1,927,204 1,927,204
National City Bank 5.07% 3/2/07 1,865,210 1,865,733
National Rural Utilities 5.07% 7/2/07 2,455,631 2,455,631
(continues) 3
Statement of net assets
> Delaware Large Cap Value Fund
Principal Market
Amount Value
______________________________________________________________________________________________________________
Securities Lending Collateral (continued)
______________________________________________________________________________________________________________
~ Variable Rate Notes (continued)
Nordea Bank New York
5.06% 5/16/07 $ 777,097 $ 777,060
Nordea Bank Norge 5.06% 7/2/07 1,554,197 1,554,197
Royal Bank of Scotland 5.07% 7/2/07 1,554,197 1,554,197
Societe Generale 4.99% 7/2/07 777,098 777,098
Toyota Motor Credit 5.05% 6/23/06 1,554,200 1,554,208
Wells Fargo 5.07% 7/2/07 1,554,197 1,554,197
______________
44,077,565
______________
Total Securities Lending Collateral (cost $60,377,032) 60,377,032
______________
Total Market Value of Securities - 103.68% (cost 1,293,443,140) $1,372,272,801!
Obligation to Return Securities Lending Collateral - (4.56%)** (60,377,032)
Receivables and Other
Assets Net of Liabilities - 0.88% 11,633,058
______________
Net Assets Applicable to 71,102,617
Shares Outstanding - 100.00% $1,323,528,827
______________
Net Asset Value - Delaware Large Cap Value Fund
Class A ($1,133,855,768 / 60,874,570 Shares) $18.63
______
Net Asset Value - Delaware Large Cap Value Fund
Class B ($114,787,537 / 6,206,595 Shares) $18.49
______
Net Asset Value - Delaware Large Cap Value Fund
Class C ($33,275,471 / 1,787,224 Shares) $18.62
______
Net Asset Value - Delaware Large Cap Value Fund
Class R ($1,425,791 / 76,623 Shares) $18.61
______
Net Asset Value - Delaware Large Cap Value Fund
Institutional Class ($40,184,260 / 2,157,605 Shares) $18.62
______
Components of Net Assets at May 31, 2006:
Shares of beneficial interest
(unlimited authorization - no par) $1,210,849,956
Undistributed net investment income 9,024,477
Accumulated net realized gain on investments 24,824,733
Net unrealized appreciation of investments 78,829,661
______________
Total net assets $1,323,528,827
______________
+ Non-income producing security for the period ended May 31, 2006.
~ Variable rate security. The interest rate shown is the rate as of May 31, 2006.
* Fully or partially on loan.
** See Note 7 in "Notes to Financial Statements."
! Includes $60,119,807 of securities loaned.
______________________________________________________________________________________________________________
______________________________________________________________________________________________________________
Net Asset Value and Offering Price per Share -
Delaware Large Cap Value Fund
Net asset value Class A (A) $18.63
Sales charge (5.75% of offering price) (B) 1.14
______
Offering price $19.77
______
(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
4
Statement of operations
> Delaware Large Cap Value Fund
Six Months Ended May 31, 2006 (Unaudited)
Investment Income:
Dividends $18,287,016
Interest 466,067
Securities lending income 27,684 $18,780,767
___________ ___________
Expenses:
Management fees 4,130,563
Distribution expenses - Class A 1,587,592
Distribution expenses - Class B 627,288
Distribution expenses - Class C 176,120
Distribution expenses - Class R 3,886
Dividend disbursing and transfer agent fees and expenses 1,362,815
Accounting and administration expenses 273,207
Legal and professional fees 109,833
Reports and statements to shareholders 91,128
Registration fees 45,551
Trustees' fees 40,017
Custodian fees 21,051
Insurance fees 10,293
Taxes (other than taxes on income) 6,816
Pricing fees 119
Other 28,121 8,514,400
___________
Less waived distribution expenses - Class R (648)
Less expense paid indirectly (4,324)
___________
Total operating expenses 8,509,428
___________
Net Investment Income 10,271,339
___________
Net Realized and Unrealized Gain on Investments:
Net realized gain on investments 57,276,286
Net change in unrealized appreciation/depreciation of investments 8,791,167
___________
Net Realized and Unrealized Gain on Investments 66,067,453
___________
Net Increase in Net Assets Resulting from Operations $76,338,792
___________
See accompanying notes
5
Statements of changes in net assets
> Delaware Large Cap Value Fund
Six Months Year
Ended Ended
5/31/06 11/30/05
(Unaudited)
Increase (Decrease) in Net Assets from Operations:
Net investment income $ 10,271,339 $ 20,158,817
Net realized gain on investments and foreign currencies 57,276,286 204,724,799
Net change in unrealized appreciation/depreciation of investments 8,791,167 (131,514,802)
______________ ______________
Net increase in net assets resulting from operations 76,338,792 93,368,814
______________ ______________
Dividends and Distributions to shareholders from:
Net investment income:
Class A (13,831,623) (12,957,246)
Class B (1,026,586) (623,394)
Class C (283,122) (146,744)
Class R (11,971) (8,599)
Institutional Class (572,785) (578,746)
Net realized gain on investments:
Class A (73,336,165) (1,079,756)
Class B (8,144,250) (146,439)
Class C (2,246,101) (34,851)
Class R (66,060) (1,113)
Institutional Class (2,740,977) (39,263)
______________ ______________
(102,259,640) (15,616,151)
______________ ______________
Capital Share Transactions:
Proceeds from shares sold:
Class A 26,823,131 51,101,762
Class B 2,283,347 6,405,453
Class C 1,902,200 4,855,770
Class R 368,316 248,793
Institutional Class 2,884,042 7,295,919
Net asset value of shares issued upon reinvestment of dividends
and distributions:
Class A 79,951,107 12,399,266
Class B 8,473,843 689,716
Class C 2,422,189 170,998
Class R 78,031 9,702
Institutional Class 3,313,661 618,030
______________ ______________
128,499,867 83,795,409
______________ ______________
Cost of shares repurchased:
Class A (128,188,486) (204,123,054)
Class B (29,738,394) (63,861,325)
Class C (6,549,277) (13,338,432)
Class R (85,797) (476,613)
Institutional Class (9,918,241) (47,816,912)
______________ ______________
(174,480,195) (329,616,336)
______________ ______________
Decrease in net assets derived from capital share transactions (45,980,328) (245,820,927)
______________ ______________
Net Decrease in Net Assets (71,901,176) (168,068,264)
Net Assets:
Beginning of period 1,395,430,003 1,563,498,267
______________ ______________
End of period (including undistributed net investment income
of $9,024,477 and $13,245,379, respectively) $1,323,528,827 $1,395,430,003
______________ ______________
See accompanying notes
6
Financial highlights
> Delaware Large Cap Value Fund Class A
Selected data for each share of the Fund outstanding throughout each period were
as follows:
Six Months Year Ended
Ended ___________________________________________________________
5/31/06(1) 11/30/05 11/30/04 11/30/03 11/30/02 11/30/01
(Unaudited)
____________________________________________________________________________________________________________________________________
Net asset value, beginning of period $19.010 $18.030 $16.240 $14.320 $16.730 $16.770
Income (loss) from investment operations:
Net investment income(2) 0.146 0.271 0.204 0.205 0.170 0.182
Net realized and unrealized gain (loss) on investments
and foreign currencies 0.888 0.917 1.802 1.835 (2.381) (0.062)
________ _______ _______ _______ _______ _______
Total from investment operations 1.034 1.188 2.006 2.040 (2.211) 0.120
________ _______ _______ _______ _______ _______
Less dividends and distributions from:
Net investment income (0.224) (0.192) (0.216) (0.120) (0.199) (0.160)
Net realized gain on investments (1.190) (0.016) - - - -
________ _______ _______ _______ _______ _______
Total dividends and distributions (1.414) (0.208) (0.216) (0.120) (0.199) (0.160)
________ _______ _______ _______ _______ _______
Net asset value, end of period $ 18.630 $19.010 $ 18.030 $16.240 $14.320 $16.730
________ _______ _______ _______ _______ _______
Total return(3) 5.75% 6.62% 12.44% 14.34% (13.34%) 0.75%
Ratios and supplemental data:
Net assets, end of period (000 omitted) $1,133,856 $1,177,317 $1,253,876 $895,108 $870,132 $1,132,147
Ratio of expenses to average net assets 1.17% 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 1.17% 1.15% 1.16% 1.20% 1.11% 1.07%
Ratio of net investment income to average net assets 1.58% 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 1.58% 1.47% 1.17% 1.40% 1.10% 1.06%
Portfolio turnover 29% 114% 70% 77% 99% 111%
____________________________________________________________________________________________________________________________________
(1) Ratios and portfolio turnover have been annualized and total return has not been annualized.
(2) The average shares outstanding method has been applied for per share information.
(3) Total investment return is based on the change in net asset value of a share during the period and assumes reinvestment of
dividends and distributions at net asset value and does not reflect the impact of a sales charge. Total investment return
reflects a waiver and payment of fees by the distributor, as applicable. Performance would have been lower had the expense
limitation not been in effect.
See accompanying notes
(continues) 7
Financial highlights
> Delaware Large Cap Value Fund Class B
Selected data for each share of the Fund outstanding throughout each period were
as follows:
Six Months Year Ended
Ended ___________________________________________________________
5/31/06(1) 11/30/05 11/30/04 11/30/03 11/30/02 11/30/01
(Unaudited)
____________________________________________________________________________________________________________________________________
Net asset value, beginning of period $18.880 $17.910 $16.150 $14.240 $16.630 $16.690
Income (loss) from investment operations:
Net investment income(2) 0.079 0.137 0.077 0.096 0.054 0.054
Net realized and unrealized gain (loss) on investments
and foreign currencies 0.871 0.912 1.789 1.821 (2.364) (0.063)
________ _______ _______ _______ _______ _______
Total from investment operations 0.950 1.049 1.866 1.917 (2.310) (0.009)
________ _______ _______ _______ _______ _______
Less dividends and distributions from:
Net investment income 0.150) (0.063) (0.106) (0.007) (0.080) (0.051)
Net realized gain on investments (1.190) (0.016) - - - -
________ _______ _______ _______ _______ _______
Total dividends and distributions (1.340) (0.079) (0.106) (0.007) (0.080) (0.051)
________ _______ _______ _______ _______ _______
Net asset value, end of period $18.490 $18.880 $17.910 $16.150 $14.240 $16.630
________ _______ _______ _______ _______ _______
Total return(3) 5.31% 5.87% 11.60% 13.47% (13.96%) (0.05%)
Ratios and supplemental data:
Net assets, end of period (000 omitted) $114,788 $136,050 $184,203 $74,019 $75,707 $100,419
Ratio of expenses to average net assets 1.90% 1.88% 1.89% 1.94% 1.86% 1.82%
Ratio of net investment income to average net assets 0.85% 0.74% 0.44% 0.66% 0.35% 0.31%
Portfolio turnover 29% 114% 70% 77% 99% 111%
____________________________________________________________________________________________________________________________________
(1) Ratios and portfolio turnover have been annualized and total return has not been annualized.
(2) The average shares outstanding method has been applied for per share information.
(3) Total investment return is based on the change in net asset value of a share during the period and assumes reinvestment of
dividends and distributions at net asset value and does not reflect the impact of a sales charge.
See accompanying notes
8
Financial highlights
> Delaware Large Cap Value Fund Class C
Selected data for each share of the Fund outstanding throughout each period were
as follows:
Six Months Year Ended
Ended ___________________________________________________________
5/31/06(1) 11/30/05 11/30/04 11/30/03 11/30/02 11/30/01
(Unaudited)
____________________________________________________________________________________________________________________________________
Net asset value, beginning of period $19.000 $18.020 $16.250 $14.320 $16.730 $16.780
Income (loss) from investment operations:
Net investment income(2) 0.079 0.136 0.076 0.095 0.054 0.053
Net realized and unrealized gain (loss) on investments
and foreign currencies 0.881 0.923 1.800 1.842 (2.384) (0.052)
________ _______ _______ _______ _______ _______
Total from investment operations 0.960 1.059 1.876 1.937 (2.330) 0.001
________ _______ _______ _______ _______ _______
Less dividends and distributions from:
Net investment income (0.150) (0.063) (0.106) (0.007) (0.080) (0.051)
Net realized gain on investments (1.190) (0.016) - - - -
________ _______ _______ _______ _______ _______
Total dividends and distributions (1.340) (0.079) (0.106) (0.007) (0.080) (0.051)
________ _______ _______ _______ _______ _______
Net asset value, end of period $18.620 $19.000 $18.020 $16.250 $14.320 $16.730
________ _______ _______ _______ _______ _______
Total return(3) 5.33% 5.89% 11.59% 13.53% (14.00%) 0.02%
Ratios and supplemental data:
Net assets, end of period (000 omitted) $33,275 $36,148 $42,371 $13,764 $11,098 $13,442
Ratio of expenses to average net assets 1.90% 1.88% 1.89% 1.94% 1.86% 1.82%
Ratio of net investment income to average net assets 0.85% 0.74% 0.44% 0.66% 0.35% 0.31%
Portfolio turnover 29% 114% 70% 77% 99% 111%
____________________________________________________________________________________________________________________________________
(1) Ratios and portfolio turnover have been annualized and total return has not been annualized.
(2) The average shares outstanding method has been applied for per share information.
(3) Total investment return is based on the change in net asset value of a share during the period and assumes reinvestment of
dividends and distributions at net asset value and does not reflect the impact of a sales charge.
See accompanying notes
(continues) 9
Financial highlights
> Delaware Large Cap Value Fund Class R
Selected data for each share of the Fund outstanding throughout each period were
as follows:
Six Months Year Ended 6/2/03(1)
Ended _____________________ to
5/31/06(2) 11/30/05 1/30/04 11/30/03
(Unaudited)
_________________________________________________________________________________________________________________________
Net asset value, beginning of period $19.000 $18.010 $16.230 $15.150
Income (loss) from investment operations:
Net investment income(3) 0.125 0.216 0.145 0.072
Net realized and unrealized gain (loss) on investments
and foreign currencies 0.884 0.915 1.809 1.063
________ _______ _______ _______
Total from investment operations 1.009 1.131 1.954 1.135
________ _______ _______ _______
Less dividends and distributions from:
Net investment income (0.209) (0.125) (0.174) (0.055)
Net realized gain on investments (1.190) (0.016) - -
________ _______ _______ _______
Total dividends and distributions (1.399) (0.141) (0.174) (0.055)
________ _______ _______ _______
Net asset value, end of period $18.610 $19.000 $18.010 $16.230
________ _______ _______ _______
Total return(4) 5.61% 6.30% 12.11% 7.51%
Ratios and supplemental data:
Net assets, end of period (000 omitted) $1,426 $1,078 $1,234 $654
Ratio of expenses to average net assets 1.40% 1.45% 1.49% 1.54%
Ratio of expenses to average net assets prior
to expense limitation and expenses paid indirectly 1.50% 1.48% 1.49% 1.54%
Ratio of net investment income to average net assets 1.35% 1.17% 0.84% 0.91%
Ratio of net investment income to average net assets
prior to expense limitation and expenses paid indirectly 1.25% 1.14% 0.84% 0.91%
Portfolio turnover 29% 114% 70% 77%
_________________________________________________________________________________________________________________________
(1) Date of commencement of operations; ratios have been annualized and total return has not been annualized.
(2) Ratios and portfolio turnover have been annualized and total return has not been annualized.
(3) The average shares outstanding method has been applied for per share information.
(4) Total investment return is based on the change in net asset value of a share during the period and assumes reinvestment of
dividends and distributions at net asset value. 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
10
Financial highlights
Delaware Large Cap Value Fund Institutional Class
Selected data for each share of the Fund outstanding throughout each period were
as follows:
Six Months Year Ended
Ended ___________________________________________________________
5/31/06(1) 11/30/05 11/30/04 11/30/03 11/30/02 11/30/01
(Unaudited)
____________________________________________________________________________________________________________________________________
Net asset value, beginning of period $19.010 $18.030 $16.240 $14.320 $16.730 $16.770
Income (loss) from investment operations:
Net investment income(2) 0.171 0.321 0.248 0.242 0.209 0.224
Net realized and unrealized gain (loss) on investments
and foreign currencies 0.879 0.912 1.805 1.835 (2.380) (0.065)
________ _______ _______ _______ _______ _______
Total from investment operations 1.050 1.233 2.053 2.077 (2.171) 0.159
________ _______ _______ _______ _______ _______
Less dividends and distributions from:
Net investment income (0.250) (0.237) (0.263) (0.157) (0.239) (0.199)
Net realized gain on investments (1.190) (0.016) - - - -
________ _______ _______ _______ _______ _______
Total dividends and distributions (1.440) (0.253) (0.263) (0.157) (0.239) (0.199)
________ _______ _______ _______ _______ _______
Net asset value, end of period $18.620 $19.010 $18.030 $16.240 $14.320 $16.730
________ _______ _______ _______ _______ _______
Total return(3) 5.84% 6.88% 12.75% 14.64% (13.11%) 1.00%
Ratios and supplemental data:
Net assets, end of period (000 omitted) $40,184 $44,837 $81,814 $45,191 $32,928 $48,192
Ratio of expenses to average net assets 0.90% 0.88% 0.89% 0.94% 0.86% 0.82%
Ratio of net investment income to average net assets 1.85% 1.74% 1.44% 1.66% 1.35% 1.31%
Portfolio turnover 29% 114% 70% 77% 99% 111%
____________________________________________________________________________________________________________________________________
(1) Ratios and portfolio turnover have been annualized and total return has not been annualized.
(2) The average shares outstanding method has been applied for per share information.
(3) Total investment return is based on the change in net asset value of a share during the period and assumes reinvestment of
dividends and distributions at net asset value.
See accompanying notes
11
Notes to financial statements
> Delaware Large Cap Value Fund
May 31, 2006 (Unaudited)
Delaware Group Equity Funds II (the "Trust") is organized as a Delaware
statutory trust and offers two series: Delaware Large Cap Value Fund and
Delaware Value Fund. These financial statements and related notes pertain to
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) for financial reporting purposes. 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.
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.
Delaware Service Company, Inc. (DSC), an affiliate of DMC, provides accounting,
administration, dividend disbursing and transfer agent services. The Fund pays
DSC a monthly fee computed at the annual rate of 0.04% of the Fund's average
daily net assets 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
12
Notes to financial statements
> Delaware Large Cap Value Fund
2. Investment Management, Administration Agreements and Other Transactions with
Affiliates (continued)
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 rate described above. 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 May 31, 2006, the Fund had liabilities payable to affiliates as follows:
Investment management fee payable to DMC $693,207
Dividend disbursing, transfer agent, accounting and
administration fees and other expenses payable to DSC 261,338
Distribution fee payable to DDLP 398,492
Other expenses payable to DMC and affiliates* 50,700
* 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, including internal legal services provided to the Fund
by DMC employees. For the six months ended May 31, 2006, the Fund was charged
$28,553 for internal legal services provided by DMC.
For the six months ended May 31, 2006, DDLP earned $37,544 for commissions on
sales of the Fund's Class A shares. For the six months ended May 31, 2006, DDLP
received gross contingent deferred sales charge commissions of $22, $63,445 and
1,777 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 six months ended May 31, 2006, the Fund made purchases of $195,195,997
and sales of $336,813,533 of investment securities other than short-term
investments.
At May 31, 2006, the cost of investments for federal income tax purposes has
been estimated since the final tax characteristics cannot be determined until
fiscal year end. At May 31, 2006, the cost of investments was $1,296,162,527 At
May 31, 2006, net unrealized appreciation was $76,110,274, of which $116,286,879
related to unrealized appreciation of investments and $40,176,605 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 six
months ended May 31, 2006 and the year ended November 30, 2005 was as follows:
Six Months Year
Ended Ended
5/31/06* 11/30/05
____________ ___________
Ordinary income $ 14,492,241 $14,314,729
Long-term capital gain 87,767,399 1,301,422
____________ ___________
Total $102,259,640 $15,616,151
____________ ___________
* Tax information for the six months ended May 31, 2006 is an estimate and
the tax character of dividends and distributions may be redesignated at
fiscal year end.
The components of net assets are estimated since final tax characteristics
cannot be determined until fiscal year end. As of May 31, 2006, the estimated
components of net assets on a tax basis were as follows:
Shares of beneficial interest $1,210,849,956
Undistributed ordinary income 9,024,477
Six month period realized gains 56,611,546
* Capital Loss carryforwards (29,067,426)
Unrealized appreciation of investments 76,110,274
______________
Net assets $1,323,528,827
______________
* 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.
The difference 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 dividends and distributions. Results of operations and
net assets were not affected by these reclassifications. For the six months
ended May 31, 2006, the Fund recorded an estimate of these differences since the
final tax characteristics cannot be determined until fiscal year end.
Undistributed net investment income $ 1,233,846
Accumulated net realized gain (loss) (1,233,846)
For federal income tax purposes, capital loss carryforwards may be carried
forward and applied against future capital gains. 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.
For the six months ended May 31, 2006, the Fund had capital gains of $56,611,546
which may reduce the capital loss carryforwards.
(continues) 13
Notes to financial statements
> Delaware Large Cap Value Fund
5. Capital Shares
Transactions in capital shares were as follows:
Six Months Year
Ended Ended
5/31/06 11/30/05
Shares sold:
Class A 1,427,709 2,755,413
Class B 124,268 349,639
Class C 102,751 263,187
Class R 20,151 13,486
Institutional Class 154,675 396,129
Shares issued upon reinvestment of
dividends and distributions:
Class A 4,461,470 669,440
Class B 475,814 37,467
Class C 135,167 9,230
Class R 4,357 524
Institutional Class 184,955 33,389
__________ __________
7,091,317 4,527,904
__________ __________
Shares repurchased:
Class A (6,947,230) (11,031,811)
Class B (1,600,415) (3,463,042)
Class C (353,716) (720,168)
Class R (4,614) (25,807)
Institutional Class (540,746) (2,609,454)
__________ __________
(9,446,721) (17,850,282)
__________ __________
Net Decrease (2,355,404) (13,322,378)
__________ __________
For the six months ended May 31, 2006 and the year ended November 30, 2005,
648,384 Class B shares were converted to 643,595 Class A shares valued at
$12,201,493 and 1,213,157 Class B shares were converted to 1,204,855 Class A
shares valued at $22,483,395, respectively. The respective amounts are included
in Class B redemptions and Class A subscriptions in the table above and the
Statements of Changes in Net Assets.
6. Line of Credit
The Fund, along with certain other funds in the Delaware Investments(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 amount outstanding as of May 31, 2006, or at any
time during the period.
7. Securities Lending
The Fund, along with other funds in the Delaware Investments Family of Funds,
may lend its securities pursuant to a security lending agreement (Lending
Agreement) with JPMorgan Chase. Initial security loans made pursuant to the
Lending Agreement are required to be secured by U.S. government obligations
and/or cash collateral not less than 102% of the market value of the securities
issued in the United States. With respect to each loan, if the aggregate market
value of the collateral held on any business day is less than the aggregate
market value of the securities which are the subject of such loan, the borrower
will be notified to provide additional collateral not less than the applicable
collateral requirements. Cash collateral received is invested in fixed-income
securities, with a weighted average maturity not to exceed 90 days, rated in one
of the top two tiers by Standard & Poor's Ratings Group or Moody's Investors
Service, Inc. or repurchase agreements collateralized by such securities.
However, in the event of default or bankruptcy by the lending agent, realization
and/or retention of the collateral may be subject to legal proceedings. In the
event the borrower fails to return loaned securities and the collateral received
is insufficient to cover the value of the loaned securities and provided such
collateral shortfall is not the result of investment losses, the lending agent
has agreed to pay the amount of the shortfall to the Fund, or at the discretion
of the lending agent, replace the loaned securities. The Fund continues to
record dividends on the securities loaned and is subject to change in value of
the securities loaned that may occur during the term of the loan. The Fund has
the right under the Lending Agreement to recover the securities from the
borrower on demand. The security lending agent and the borrower retain a portion
of the earnings from the collateral investments. The Fund records security
lending income net of such allocation.
At May 31, 2006, the market value of the securities on loan was $60,119,807, 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."
8. Credit and Market Risk
The Fund may invest up to 15% 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.
While maintaining oversight, the Fund's 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. At May
31, 2006, there were no Rule 144A securities and no securities have been
determined to be illiquid under the Fund's Liquidity Procedures.
9. Contractual Obligations
The Fund enters into contracts in the normal course of business that contain a
variety of indemnifications. The Fund's maximum exposure under these
arrangements is unknown. However, the Fund has not had prior claims or losses
pursuant to these contracts. Management has reviewed the Fund's existing
contracts and expects the risk of loss to be remote.
14
Other Fund information
Board Consideration of Delaware Large Cap Value Fund Investment Advisory
Agreement
At a meeting held on May 17-18, 2006 (the "Annual Meeting"), the Board of
Trustees, including a majority of disinterested or independent Trustees,
approved the renewal of the Investment Advisory Agreement for the Delaware Large
Cap Value Fund (the "Fund"). In making its decision, the Board considered
information furnished throughout the year at regular Board meetings, as well as
information prepared specifically in connection with the Annual meeting.
Information furnished and discussed throughout the year included reports
detailing Fund performance, investment strategies, expenses, compliance matters
and other services provided by Delaware Management Company ("DMC"), the
investment advisor. Information furnished specifically in connection with the
Annual Meeting included materials provided by DMC and its affiliates ("Delaware
Investments") concerning, among other things, the level of services provided to
the Fund, the costs of such services to the Fund, economies of scale and the
financial condition and profitability of Delaware Investments. In addition, in
connection with the Annual Meeting, the Board considered independent historical
and comparative reports prepared by Lipper Inc. ("Lipper"), an independent
statistical compilation organization. The Board also considered industry
comparative information presented by representatives from Lipper. The Lipper
reports compared the Fund's investment performance and expenses with those of
other comparable mutual funds. The Board also received certain supplemental
information regarding management's policy with respect to advisory fee levels
and its philosophy with respect to breakpoints; the structure of portfolio
manager compensation; and any constraints or limitations on the availability of
securities in certain investment styles which might inhibit DMC's ability to
fully invest in accordance with Fund policies.
In considering such materials, the independent Trustees received assistance and
advice from and met separately with independent counsel and representatives from
Lipper. At the meeting with representatives from Lipper, Mr. Driscoll, Chairman
of the Delaware Investments(R) Family of Funds, and Chairman and Chief Executive
Officer of the investment advisor, was present to respond to questions by Lipper
and the independent Trustees. While the Board considered the Investment Advisory
Agreements for all of the funds in the Delaware Investments Family of Funds at
the same Board meeting, information was provided and considered by the Board for
each fund individually. In approving the continuance of the Investment Advisory
Agreement for the Fund, the Board, including a majority of independent Trustees,
determined that the existing advisory fee structure was fair and reasonable and
that the continuance of the Investment Advisory Agreement was in the best
interests of the Fund and its shareholders. While attention was given to all
information furnished, the following discusses the primary factors relevant to
the Board's deliberations and determination, including those relating to the
selection of the investment advisor and the approval of the advisory fee.
Nature, Extent and Quality of Service. Consideration was given to the services
provided by Delaware Investments to the Fund and its shareholders. In reviewing
the nature, extent and quality of services, the Board emphasized reports
furnished to it throughout the year at regular Board meetings covering matters
such as the relative performance of the Fund, compliance of portfolio managers
with the investment policies, strategies and restrictions for the Fund, the
compliance of management personnel with the Code of Ethics adopted throughout
the Delaware Investments Family of Funds complex, the adherence to fair value
pricing procedures as established by the Board, and the accuracy of net asset
value calculations. The Board noted that it was pleased with the current
staffing of the Fund's investment advisor and management's efforts to strengthen
and deepen portfolio management teams during the past year, the emphasis on
research and the compensation system for advisory personnel. Favorable
consideration was given to DMC's efforts to maintain, and in some instances
increase, financial and human resources committed to fund matters. Other factors
taken into account by the Board were Delaware Investments' preparedness for, and
response to, legal and regulatory matters. The Board also considered the
transfer agent and shareholder services provided to Fund shareholders by
Delaware Investments' affiliate, Delaware Service Company, Inc., noting DSC's
commitment to maintain a high level of service in keeping with its past receipt
of the DALBAR Pyramid Award, and the continuing expenditures by Delaware
Investments to improve the delivery of shareholder services. Additionally, the
Board noted the extent of benefits provided to Fund shareholders for being part
of the Delaware Investments Family of Funds, including the privilege to exchange
investments between the same class of shares of funds without a sales charge,
the ability to reinvest Fund dividends into other funds and the privilege to
combine holdings in other funds to obtain a reduced sales charge. The Board was
satisfied with the nature, extent and quality of the overall services provided
by Delaware Investments. Investment Performance. The Board considered the
investment performance of DMC and the Fund. The Board was pleased with DMC's
investment performance. The Board placed significant emphasis on the investment
performance of the Fund in view of its importance to shareholders. While
consideration was given to performance reports and discussions with portfolio
managers at Board meetings throughout the year, particular weight was given to
the Lipper reports furnished for the Annual Meeting. The Lipper reports prepared
for the Fund showed the investment performance of its Class A shares in
comparison to a group of similar funds as selected by Lipper (the "Performance
Universe"). A fund with the best performance is ranked first, and a fund with
the poorest performance is ranked last. The highest/best performing 25% of funds
in the Performance Universe make up the first quartile; the next 25% - the
second quartile; the next 25% - the third quartile; and the poorest/worst
performing 25% of funds in the Performance Universe make up the fourth quartile.
Comparative annualized performance for the Fund was shown for the past one,
three, five and 10-year periods, ended January 31, 2006. The Board noted its
objective that the Fund's performance be at or above the median of its
Performance Universe. The following paragraph summarizes the performance results
for the Fund and the Board's view of such performance.
The Performance Universe for the Fund consisted of the Fund and all retail and
institutional large cap value funds as selected by Lipper. The Lipper report
comparison showed that the Fund's total return for the one and three year
periods was in the fourth quartile of such Performance Universe. The report
further showed that the Fund's total return for the five and 10 year periods was
in the third quartile. The Board noted that the Fund's performance results were
not in line with the Board's stated objective. In evaluating the Fund's
performance, the Board considered the new investment team assigned to the Fund
in late March 2005. At that time management proposed, and the Board approved,
modifications to the Fund's objective, policies and strategies in order to take
advantage of the new team's investment approach. Fund Management believed that,
over time, the new investment team's disciplined value investment style would
enhance the Fund's performance potential. The Board was pleased with
management's efforts to enhance Fund performance and expressed confidence in the
new team and its philosophy and processes.
Comparative Expenses. The Board considered expense data for the Delaware
Investments(R) Family of Funds. Management provided the Board with
information on pricing levels and fee structures for the Funds. The Board
focused particularly on the comparative analysis of the management fees and
total expense ratios of the Fund and the management fees and expense ratios of a
group of similar funds as selected by Lipper (the "Expense Group"). In reviewing
comparative costs, the Fund's contractual management fee and the actual
management fee incurred by the Fund were compared with the
15
contractual management fees (assuming all funds in the Expense Group were
similar in size to the Fund) and actual management fees (as reported by each
fund) of other funds within the Expense Group, taking into effect any applicable
breakpoints and fee waivers. The Fund's total expenses were also compared with
those of its Expense Group. The Lipper total expenses, for comparative
consistency, were shown by Lipper for Class A shares and compared total expenses
including 12b-1 and non-12b-1 service fees. The Board also considered fees paid
to Delaware Investments for non-management services. The Board noted its
objective to limit the Fund's total expense ratio to an acceptable range as
compared to the median of the Expense Group. The following paragraph summarizes
the expense results for the Fund and the Board's view of such expenses.
The expense comparisons for the Fund showed that its actual management fee was
in the quartile with the lowest expenses of its Expense Group and its total
expenses were in the quartile with the second highest expenses of its Expense
Group. The Board gave favorable consideration to the Fund's management fee, but
noted that the Fund's total expenses were not in line with the Board's stated
objective. In evaluating total expenses, the Board considered recent initiatives
implemented by management, such as the outsourcing of certain transfer agency
services, creating an opportunity for a reduction in expenses. The Board was
satisfied with management's efforts to improve the Fund's total expense ratio
and bring it in line with the Board's objective.
Management Profitability. The Board considered the level of profits, if any,
realized by Delaware Investments in connection with the operation of the Fund.
In this respect, the Board reviewed the Investment Management Profitability
Analysis that addressed the overall profitability of Delaware Investments'
business in providing management and other services to each of the individual
funds and the Delaware Investments Family of Funds as a whole. Specific
attention was given to the methodology followed in allocating costs for the
purpose of determining profitability. Management stated that the level of
profits of Delaware Investments, to a certain extent, reflected operational cost
savings and efficiencies initiated by Delaware Investments. The Board considered
Delaware Investments' expenditures to improve services provided to fund
shareholders and to meet additional regulatory and compliance requirements
resulting from recent SEC initiatives. The Board also considered the extent to
which Delaware Investments might derive ancillary benefits from fund operations,
including the potential for procuring additional business as a result of the
prestige and visibility associated with its role as service provider to the
Delaware Investments Family of Funds, the benefits from allocation of fund
brokerage to improve trading efficiencies and the use of "soft" commission
dollars to pay for proprietary and non-proprietary research. The Board did not
find that the level of profits realized by Delaware Investments from the
relationships with the Fund and the Delaware Investments Family of Funds
required negotiation of reduction of fees.
Economies Of Scale. The Trustees considered whether economies of scale are
realized by Delaware Investments as the Fund's assets increase and the extent to
which any economies of scale are reflected in the level of management fees
charged. The Trustees took into account the standardized advisory fee pricing
and structure approved by the Board and shareholders as part of a complex-wide
shareholder meeting conducted in 1998/1999. At that time, Delaware Investments
introduced breakpoints to account for management economies of scale. The Board
noted that the fee under the Fund's management contract fell within the standard
structure. The Board also noted that the Fund's assets exceeded the second
breakpoint level. The Board believed that, given the extent to which economies
of scale might be realized by the advisor and its affiliates, the schedule of
fees under the Investment Advisory Agreement provides a sharing of benefits with
the Fund and its shareholders.
16
About the organization
This semiannual report is for the information of Delaware Large Cap Value Fund
shareholders, but it may be used with prospective investors when preceded or
accompanied by a current prospectus for Delaware Large Cap Value Fund and the
Delaware Investments(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 that are not a guarantee of future results. The return and
principal value of an investment in the Fund will fluctuate so that shares, when
redeemed, may be worth more or less than their original cost.
Board of trustees
Jude T. Driscoll
Chairman
Delaware Investments Family of Funds
Philadelphia, PA
Thomas L. Bennett
Private Investor
Rosemont, PA
John A. Fry
President
Franklin & Marshall College
Lancaster, PA
Anthony D. Knerr
Founder and Managing Director
Anthony Knerr & Associates
New York, NY
Lucinda S. Landreth
Former Chief Investment Officer
Assurant, Inc.
Philadelphia, PA
Ann R. Leven
Owner - ARL Associates, Financial
and Strategic Consultants
Washington, DC
Thomas F. Madison
President and Chief Executive Officer
MLM Partners, Inc.
Minneapolis, MN
Janet L. Yeomans
Vice President and Treasurer
3M Corporation
St. Paul, MN
J. Richard Zecher
Founder
Investor Analytics
Scottsdale, AZ
Affiliated officers
Michael P. Bishof
Senior Vice President and
Chief Financial Officer
Delaware Investments Family of Funds
Philadelphia, PA
David F. Connor
Vice President, Deputy General Counsel,
and Secretary
Delaware Investments Family of Funds
Philadelphia, PA
David P. O'Connor
Senior Vice President, General Counsel,
and Chief Legal Officer
Delaware Investments Family of Funds
Philadelphia, PA
John J. O'Connor
Senior Vice President and Treasurer
Delaware Investments Family of Funds
Philadelphia, PA
Contact information
Investment manager
Delaware Management Company, a series
of Delaware Management Business Trust
Philadelphia, PA
National distributor
Delaware Distributors, L.P.
Philadelphia, PA
Shareholder servicing, dividend
disbursing and transfer agent
Delaware Service Company, Inc.
2005 Market Street
Philadelphia, PA 19103-7094
For shareholders
800 523-1918
For securities dealers and financial
institutions representatives only
800 362-7500
Web site
www.delawareinvestments.com
Delaware Investments is the marketing name of Delaware Management Holdings, Inc.
and its subsidiaries.
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 are 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, D.C.; information on the
operation of the Public Reference Room may be obtained by calling 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.
17
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Manage your investments online!
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you to conduct your business online. Gain 24-hour access to your account and one
of the highest levels of Web security available. You also get:
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1040 tax return. Available only with Turbo Tax(R) Online(SM) and
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with) Delaware eDelivery.
Register for Account Access today! Visit www.delawareinvestments.com, select
Individual Investors, and click Account Access.
Please call our Shareholder Service Center at 800 523-1918 Monday through Friday
from 8:00 a.m. to 7:00 p.m., Eastern Time, for assistance with any questions.
[DELAWARE LOGO]
(572) Printed in the USA
SA-001 [5/06] CGI 7/06 MF-06-06-040 PO11111
Semiannual Report Delaware
Value Fund
May 31, 2006
Value equity mutual funds
[DELAWARE LOGO] [LOGO] POWERED BY RESEARCH (R)
Table of contents
> Disclosure of Fund expenses .................................................1
> Sector allocation ...........................................................2
> Statement of net assets .....................................................3
> Statement of operations .....................................................5
> Statements of changes in net assets .........................................6
> Financial highlights ........................................................7
> Notes to financial statements ..............................................11
> Other Fund information .....................................................14
> About the organization .....................................................16
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.
Disclosure of Fund expenses
For the period December 1, 2005 to May 31, 2006
As a shareholder of the Fund, you incur two types of costs: (1) transaction
costs, including sales charges (loads) on purchase payments, reinvested
dividends, or other distributions; redemption fees; and exchange fees; and (2)
ongoing costs, including management fees; distribution and/or service (12b-1)
fees; and other Fund expenses. This example is intended to help you understand
your ongoing costs (in dollars) of investing in the Fund and to compare these
costs with the ongoing costs of investing in other mutual funds.
The example is based on an investment of $1,000 invested at the beginning of
the period and held for the entire period December 1, 2005 to May 31, 2006.
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 12/1/05 to
12/1/05 5/31/06 Ratio 5/31/06*
________________________________________________________________________________
Actual Fund Return
Class A $1,000.00 $1,059.90 1.00% $5.14
Class B 1,000.00 1,055.50 1.75% 8.97
Class C 1,000.00 1,056.40 1.75% 8.97
Class R 1,000.00 1,058.60 1.25% 6.42
Institutional Class 1,000.00 1,061.70 0.75% 3.86
________________________________________________________________________________
Hypothetical 5% Return (5% return before expenses)
Class A $1,000.00 $1,019.95 1.00% $5.04
Class B 1,000.00 1,016.21 1.75% 8.80
Class C 1,000.00 1,016.21 1.75% 8.80
Class R 1,000.00 1,018.70 1.25% 6.29
Institutional Class 1,000.00 1,021.19 0.75% 3.78
________________________________________________________________________________
* "Expenses Paid During Period" are equal to the Fund's annualized expense
ratio, multiplied by the average account value over the period, multiplied
by 182/365 (to reflect the one-half year period).
1
Sector allocation
Delaware Value Fund
As of May 31, 2006
Sector designations may be different than the sector designations presented in
other Fund materials.
Percentage
Sector of Net Assets
________________________________________________________________________________
Common Stock 97.54%
Consumer Discretionary 9.36%
Consumer Staples 12.43%
Energy 5.77%
Financials 23.61%
Health Care 17.30%
Industrials 5.94%
Information Technology 11.40%
Materials 2.88%
Telecommunications 5.81%
Utilities 3.04%
________________________________________________________________________________
Repurchase Agreements 1.88%
________________________________________________________________________________
Total Market Value of Securities 99.42%
________________________________________________________________________________
Receivables and Other Assets Net of Liabilities 0.58%
________________________________________________________________________________
Total Net Assets 100.00%
________________________________________________________________________________
2
Statement of net assets
Delaware Value Fund
May 31, 2006 (Unaudited)
Number of Market
Shares Value
________________________________________________________________________________
Common Stock - 97.54%
________________________________________________________________________________
Consumer Discretionary - 9.36%
Gap 587,000 $ 10,683,400
Limited Brands 413,000 11,217,080
Mattel 665,900 11,193,779
____________
33,094,259
____________
Consumer Staples - 12.43%
ConAgra Foods 510,400 11,535,040
Heinz (H.J.) 270,600 11,459,910
Kimberly-Clark 175,000 10,617,250
Safeway 438,000 10,328,040
____________
43,940,240
____________
Energy - 5.77%
Chevron 172,400 10,307,796
ConocoPhillips 159,200 10,075,768
____________
20,383,564
____________
Financials - 23.61%
Allstate 200,600 11,035,006
Aon 251,500 8,965,975
Chubb 213,000 10,762,890
Hartford Financial Services Group 125,500 11,036,470
Huntington Bancshares 431,500 10,148,880
Morgan Stanley 166,000 9,896,920
Wachovia 196,800 10,528,800
Washington Mutual 240,600 11,045,946
____________
83,420,887
____________
Health Care - 17.30%
Abbott Laboratories 243,500 10,397,450
Baxter International 273,500 10,310,950
Bristol-Myers Squibb 436,100 10,706,255
Merck & Co. 299,600 9,973,684
Pfizer 415,300 9,825,998
Wyeth 217,200 9,934,728
____________
61,149,065
____________
Industrials - 5.94%
Donnelley (R.R.) & Sons 324,700 10,448,846
Waste Management 288,200 10,553,884
____________
21,002,730
____________
Information Technology - 11.40%
Hewlett-Packard 313,700 10,157,606
Intel 552,000 9,947,040
International Business Machines 125,600 10,035,440
+Xerox 740,200 10,162,946
____________
40,303,032
____________
Materials - 2.88%
duPont (E.I.) deNemours 239,000 10,164,670
____________
10,164,670
____________
Telecommunications - 5.81%
AT&T 395,800 10,314,548
Verizon Communications 327,200 10,211,912
____________
20,526,460
____________
Utilities - 3.04%
Progress Energy 255,500 10,741,220
____________
10,741,220
____________
Total Common Stock (cost $323,108,379) 344,726,127
____________
Principal
Amount
________________________________________________________________________________
Repurchase Agreements - 1.88%
________________________________________________________________________________
With BNP Paribas 4.88% 6/1/06
(dated 5/31/06, to be repurchased
at $4,167,565, collateralized by
$1,557,000 U.S. Treasury Notes
2.375% due 8/31/06, market
value $1,555,901, $1,206,000
U.S. Treasury Notes 2.75%
due 7/31/06, market value
$1,213,092, $923,000
U.S. Treasury Notes 2.875% due
11/30/06, market value $913,529
and $533,000 U.S. Treasury Notes
6.50% due 2/15/10, market
value $570,236) $4,167,000 4,167,000
With Cantor Fitzgerald
4.88% 6/1/06 (dated 5/31/06, to
be repurchased at $2,459,333,
collateralized by $1,069,000
U.S. Treasury Notes 2.50% due
9/30/06, market value
$1,065,397, $1,069,000
U.S. Treasury Notes 3.50%
due 11/15/06, market value
$1,064,101 and $362,000
U.S. Treasury Notes 6.00% due
8/15/09, market value $379,372) 2,459,000 2,459,000
____________
Total Repurchase Agreements
(cost $6,626,000) 6,626,000
____________
Total Market Value of Securities - 99.42%
(cost $329,734,379) 351,352,127
Receivables and Other Assets
Net of Liabilities - 0.58% 2,057,653
____________
Net Assets Applicable to 29,817,151 Shares
Outstanding - 100.00% $353,409,780
____________
(continues) 3
Statement of net assets
Delaware Value Fund
________________________________________________________________________________
________________________________________________________________________________
Net Asset Value - Delaware Value Fund Class A
($152,229,034 / 12,841,570 Shares) $11.85
______
Net Asset Value - Delaware Value Fund Class B
($7,603,706 / 644,153 Shares) $11.80
______
Net Asset Value - Delaware Value Fund Class C
($27,088,978 / 2,293,536 Shares) $11.81
______
Net Asset Value - Delaware Value Fund Class R
($11.80 / 1 Share) $11.80
______
Net Asset Value - Delaware Value Fund Institutional Class
($166,488,050 / 14,037,891 Shares) $11.86
______
Components of Net Assets at May 31, 2006:
Shares of beneficial interest
(unlimited authorization - no par) $322,374,037
Undistributed net investment income 2,769,478
Accumulated net realized gain on investments 6,648,517
Net unrealized appreciation of investment 21,617,748
____________
Total net assets $353,409,780
____________
+Non-income producing security for the period ended May 31, 2006.
Net Asset Value and offering price per Share - Delaware Value Fund
Net asset value Class A (A) $11.85
Sales charge (5.75% of offering price) (B) 0.72
______
Offering Price $12.57
______
(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
4
Statement of operations
Delaware Value Fund
Six Months Ended May 31, 2006 (Unaudited)
Investment Income:
Dividends $4,241,015
Interest 273,310 $ 4,514,325
__________ ___________
Expenses:
Management fees 1,040,554
Distribution expenses - Class A 194,094
Distribution expenses - Class B 36,952
Distribution expenses - Class C 119,848
Dividend disbursing and transfer agent fees and expenses 137,393
Accounting and administration expenses 64,319
Registration fees 41,248
Legal and professional fees 21,259
Reports and statements to shareholders 15,515
Trustees' fees 8,369
nsurance fees 7,214
Custodian fees 4,109
Taxes (other than taxes on income) 1,152
Pricing fees 121
Other 8,755 1,700,902
__________
Less expenses absorbed or waived (151,547)
Less waiver of distribution expenses - Class A (32,349)
Less expense paid indirectly (834)
__________
Total operating expenses 1,516,172
__________
Net Investment Income 2,998,153
__________
Net Realized and Unrealized Gain on Investments:
Net realized gain on investments 7,065,422
Net change in unrealized appreciation/depreciation of investments 7,609,118
__________
Net Realized and Unrealized Gain on Investments 14,674,540
__________
Net Increase in Net Assets Resulting from Operations $17,672,693
__________
See accompanying notes
5
Statements of changes in net assets
Delaware Value Fund
Six Months Year
Ended Ended
5/31/06 11/30/05
(Unaudited)
Increase in Net Assets from Operations:
Net investment income $ 2,998,153 $ 3,374,739
Net realized gain on investments 7,065,422 1,841,960
Net change in unrealized appreciation/depreciation of investments 7,609,118 8,331,399
___________ ___________
Net increase in net assets resulting from operations 17,672,693 13,548,098
___________ ___________
Dividends and Distributions to Shareholders from:
Net investment income:
Class A (1,180,873) (60,408)
Class B (23,870) (1,173)
Class C (74,499) (1,852)
Institutional Class (1,963,821) (1,154,816)
Net realized gain on investments:
Class A (687,229) (246,384)
Class B (41,336) (60,851)
Class C (129,011) (96,014)
Institutional Class (917,311) (3,613,777)
___________ ___________
(5,017,950) (5,235,275)
___________ ___________
Capital Share Transactions:
Proceeds from shares sold:
Class A 49,667,771 101,212,046
Class B 2,393,038 5,274,458
Class C 7,959,930 16,892,749
Class R - 11
Institutional Class 18,710,870 76,194,727
Net asset value of shares issued upon reinvestment of dividends and distributions:
Class A 1,758,516 277,187
Class B 61,146 58,141
Class C 183,652 81,678
Institutional Class 2,878,965 4,766,157
___________ ___________
83,613,888 204,757,154
___________ ___________
Cost of shares repurchased:
Class A (8,348,000) (4,742,223)
Class B (1,685,159) (591,848)
Class C (1,683,561) (466,091)
Institutional Class (8,155,938) (10,045,691)
___________ ___________
(19,872,658) (15,845,853)
___________ ___________
Increase in net assets derived from capital share transactions 63,741,230 188,911,301
___________ ___________
Net Increase in Net Assets 76,395,973 197,224,124
Net Assets:
Beginning of period 277,013,807 79,789,683
___________ ___________
End of period (including undistributed net investment income of
$2,769,478 and $3,011,696, respectively) $353,409,780 $277,013,807
___________ ___________
See accompanying notes
6
Financial highlights
Delaware Value Fund Class A
Selected data for each share of the Fund outstanding throughout each period were
as follows:
Six Months Year Ended
Ended __________________________________________________
5/31/06(1) 11/30/05 11/30/04 11/30/03 11/30/02 11/30/01
(Unaudited)
_____________________________________________________________________________________________________________________________
Net asset value, beginning of period $11.370 $10.760 $9.480 $8.300 $9.490 $10.150
Income (loss) from investment operations:
Net investment income(2) 0.107 0.220 0.134 0.110 0.113 0.116
Net realized and unrealized gain (loss) on investments 0.566 0.842 1.240 1.151 (1.231) (0.309)
_______ _______ _______ ______ ______ ______
Total from investment operations 0.673 1.062 1.374 1.261 (1.118) (0.193)
_______ _______ _______ ______ ______ ______
Less dividends and distributions from:
Net investment income (0.122) (0.089) (0.094) (0.081) (0.072) (0.103)
Net realized gain on investments (0.071) (0.363) - - - (0.364)
_______ _______ _______ ______ ______ ______
Total dividends and distributions (0.193) (0.452) (0.094) (0.081) (0.072) (0.467)
_______ _______ _______ ______ ______ ______
Net asset value, end of period $11.850 $11.370 $10.760 $9.480 $8.300 $9.490
_______ _______ _______ ______ ______ ______
Total return(3) 5.99% 10.11% 14.59% 15.37% (11.88%) (2.11%)
Ratios and supplemental data:
Net assets, end of period (000 omitted) $152,229 $104,140 $6,846 $717 $42 $22
Ratio of expenses to average net assets 1.00% 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 1.14% 1.11% 1.17% 1.26% 1.60% 1.08%
Ratio of net investment income to average net assets 1.82% 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 1.68% 1.88% 1.15% 1.03% 0.70% 0.85%
Portfolio turnover 22% 26% 128% 101% 61% 101%
___________________________________________________________________________________________________________________________
(1) Ratios and portfolio turnover have been annualized and total return has not been annualized.
(2) The average shares outstanding method has been applied for per share information.
(3) Total investment return is based on the change in net asset value of a share during the period and assumes reinvestment
of dividends and distributions at net asset value and does not reflect the impact of a sales charge. Total investment
return reflects waivers and payment of fees by the manager and distributor. Performance would have been lower had the
expense limitation not been in effect.
See accompanying notes
(continues) 7
Financial highlights
Delaware Value Fund Class B
Selected data for each share of the Fund outstanding throughout each period were
as follows:
Six Months Year Ended 5/1/02(2)
Ended _______________________________ to
5/31/06(1) 11/30/05 11/30/04 11/30/03 11/30/02
(Unaudited)
_____________________________________________________________________________________________________________________
Net asset value, beginning of period $11.290 $10.680 $9.420 $8.310 $9.700
Income (loss) from investment operations:
Net investment income(3) 0.063 0.137 0.058 0.044 0.030
Net realized and unrealized gain (loss) on investments 0.559 0.843 1.229 1.147 (1.420)
_______ _______ _______ ______ _______
Total from investment operations 0.622 0.980 1.287 1.191 (1.390)
_______ _______ _______ ______ _______
Less dividends and distributions from:
Net investment income (0.041) (0.007) (0.027) (0.081) -
Net realized gain on investments (0.071) (0.363) - - -
_______ _______ _______ ______ _______
Total dividends and distributions (0.112) (0.370) (0.027) (0.081) -
_______ _______ _______ ______ _______
Net asset value, end of period $11.800 $11.290 $10.680 $9.420 $8.310
_______ _______ _______ ______ _______
Total return(4) 5.55% 9.35% 13.69% 14.50% (14.33%)
Ratios and supplemental data:
Net assets, end of period (000 omitted) $7,604 $6,516 $1,518 $383 $13
Ratio of expenses to average net assets 1.75% 1.76% 1.75% 1.75% 1.93%
Ratio of expenses to average net assets prior to expense
limitation and expenses paid indirectly 1.84% 1.81% 1.87% 1.96% 2.62%
Ratio of net investment income to average net assets 1.07% 1.23% 0.57% 0.54% 0.59%
Ratio of net investment income to average net assets prior to
expense limitation and expenses paid indirectly 0.98% 1.18% 0.45% 0.33% (0.10%)
Portfolio turnover 22% 26% 128% 101% 61%
_____________________________________________________________________________________________________________________
(1) Ratios and portfolio turnover have been annualized and total return has not been annualized.
(2) Date of commencement of operations; ratios have been annualized and total return has not been annualized.
(3) The average shares outstanding method has been applied for per share information.
(4) Total investment return is based on the change in net asset value of a share during the period and assumes
reinvestment of dividends and distributions at net asset value and does not reflect the impact of a sales charge.
Total investment return reflects waivers and payment of fees by the manager. Performance would have been lower
had the expense limitation not been in effect.
See accompanying notes
8
Delaware Value Fund Class C
Selected data for each share of the Fund outstanding throughout each period were
as follows:
Six Months Year Ended 5/1/02(2)
Ended _______________________________ to
5/31/06(1) 11/30/05 11/30/04 11/30/03 11/30/02
(Unaudited)
_____________________________________________________________________________________________________________________
Net asset value, beginning of period $11.290 $10.690 $9.420 $8.280 $9.700
Income (loss) from investment operations:
Net investment income(3) 0.063 0.138 0.062 0.044 0.032
Net realized and unrealized gain (loss) on investments 0.569 0.832 1.235 1.155 (1.452)
_______ _______ _______ ______ _______
Total from investment operations 0.632 0.970 1.297 1.199 (1.420)
_______ _______ _______ ______ _______
Less dividends and distributions from:
Net investment income (0.041) (0.007) (0.027) (0.059) -
Net realized gain on investments (0.071) (0.363) - - -
_______ _______ _______ ______ _______
Total dividends and distributions (0.112) (0.370) (0.027) (0.059) -
_______ _______ _______ ______ _______
Net asset value, end of period $11.810 $11.290 $10.690 $9.420 $8.280
_______ _______ _______ ______ _______
Total return(4) 5.64% 9.25% 13.80% 14.60% (14.64%)
Ratios and supplemental data:
Net assets, end of period (000 omitted) $27,089 $19,597 $2,477 $133 $27
Ratio of expenses to average net assets 1.75% 1.76% 1.75% 1.75% 1.93%
Ratio of expenses to average net assets prior to expense
limitation and expenses paid indirectly 1.84% 1.81% 1.87% 1.96% 2.62%
Ratio of net investment income to average net assets 1.07% 1.23% 0.57% 0.54% 0.59%
Ratio of net investment income to average net assets prior to
expense limitation and expenses paid indirectly 0.98% 1.18% 0.45% 0.33% (0.10%)
Portfolio turnover 22% 26% 128% 101% 61%
_____________________________________________________________________________________________________________________
(1) Ratios and portfolio turnover have been annualized and total return has not been annualized.
(2) Date of commencement of operations; ratios have been annualized and total return has not been annualized.
(3) The average shares outstanding method has been applied for per share information.
(4) Total investment return is based on the change in net asset value of a share during the period and assumes
reinvestment of dividends and distributions at net asset value and does not reflect the impact of a sales charge.
Total investment return reflects waivers and payment of fees by the manager. Performance would have been lower
had the expense limitation not been in effect.
See accompanying notes
(continues) 9
Financial highlights
Delaware Value Fund Institutional Class
Selected data for each share of the Fund outstanding throughout each period were
as follows:
Six Months Year Ended
Ended __________________________________________________
5/31/06(1) 11/30/05 11/30/04 11/30/03 11/30/02 11/30/01
(Unaudited)
__________________________________________________________________________________________________________________________
Net asset value, beginning of period $11.390 $10.780 $9.500 $8.310 $9.490 $10.150
Income (loss) from investment operations:
Net investment income(2) 0.121 0.243 0.160 0.132 0.126 0.116
Net realized and unrealized gain (loss) on investments 0.572 0.846 1.237 1.155 (1.234) (0.309)
_______ _______ _______ ______ ______ ______
Total from investment operations 0.693 1.089 1.397 1.287 (1.108) (0.193)
_______ _______ _______ ______ ______ ______
Less dividends and distributions from:
Net investment income (0.152) (0.116) (0.117) (0.097) (0.072) (0.103)
Net realized gain on investments (0.071) (0.363) - - - (0.364)
_______ _______ _______ ______ ______ ______
Total dividends and distributions (0.223) (0.479) (0.117) (0.097) (0.072) (0.467)
_______ _______ _______ ______ ______ ______
Net asset value, end of period $11.860 $11.390 $10.780 $9.500 $8.310 $9.490
_______ _______ _______ ______ ______ ______
Total return(3) 6.17% 10.37% 14.83% 15.70% (11.77%) (2.11%)
Ratios and supplemental data:
Net assets, end of period (000 omitted) $166,488 $146,761 $68,949 $41,047 $23,276 $13,980
Ratio of expenses to average net assets 0.75% 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 0.84% 0.81% 0.87% 0.96% 1.30% 0.78%
Ratio of net investment income to average net assets 2.07% 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 1.98% 2.18% 1.45% 1.33% 1.00% 1.15%
Portfolio turnover 22% 26% 128% 101% 61% 101%
___________________________________________________________________________________________________________________________
(1) Ratios and portfolio turnover have been annualized and total return has not been annualized.
(2) The average shares outstanding method has been applied for per share information.
(3) Total investment return is based on the change in net asset value of a share during the period and assumes reinvestment
of dividends and distributions at net asset. 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 May 31, 2006, 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
10
Notes to financial statements
Delaware Value Fund
May 31, 2006 (Unaudited)
Delaware Group Equity Funds II (the "Trust") is organized as a Delaware
statutory trust and offers two series: Delaware Large Cap Value Fund and
Delaware Value Fund. These financial statements and the related notes pertain to
Delaware Value Fund (the "Fund"). The Trust is an open-end investment company.
The Fund is considered diversified under the Investment Company Act of 1940, as
amended, and offers Class A, Class B, Class C, Class R and Institutional Class
shares. Class A shares are sold with a front-end sales charge of up to 5.75%.
Class B shares are sold with a contingent deferred sales charge that declines
from 4% to zero depending upon the period of time the shares are held. Class B
shares will automatically convert to Class A shares on a quarterly basis
approximately 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.
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) for financial reporting purposes. Costs used in calculating
realized gains and losses on the sale of investment securities are those of the
specific securities sold. Dividend income is recorded on the ex-dividend date
and interest income is recorded on the accrual basis. The Fund declares and pays
dividends from net investment income and distributions from net realized gain on
investments, if any, annually.
Subject to seeking 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 $17,871
for the six months ended May 31, 2006. In general, best execution refers to many
factors, including the price paid or received for a security, the commission
charged, the promptness and reliability of execution, the confidentiality and
placement accorded the order, and other factors affecting the overall benefit
obtained by the Fund on the transaction.
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."
11
Notes to financial statements
Delaware Value Fund
2. Investment Management, Administration Agreements and Other Transactions with
Affiliates
In accordance with the terms of its investment management agreement, the Fund
pays Delaware Management Company (DMC), a series of Delaware Management Business
Trust and the investment manager, an annual fee which is calculated daily at the
rate of 0.65% on the first $500 million of average daily net assets of the Fund,
0.60% on the next $500 million, 0.55% on the next $1.5 billion and 0.50% on
average daily net assets in excess of $2.5 billion.
DMC has contractually agreed to waive that portion, if any, of its management
fee and reimburse the Fund to the extent necessary to ensure that annual
operating expenses, exclusive of taxes, interest, brokerage commissions,
distribution fees, certain insurance costs and extraordinary expenses, do not
exceed 0.75% of average daily net assets of the Fund through March 31, 2007.
Delaware Service Company, Inc. (DSC), an affiliate of DMC, provides accounting,
administration, dividend disbursing and transfer agent services. The Fund pays
DSC a monthly fee computed at the annual rate of 0.04% of the Fund's average
daily net assets 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. DDLP has
contracted to limit distribution and service fees through March 31, 2007 in
order to prevent distribution and service fees of Class A and Class R shares
from exceeding 0.25% and 0.50%, respectively, of average daily net assets.
At May 31, 2006, the Fund had liabilities payable to affiliates as follows:
Investment management fee payable to DMC $165,476
Dividend disbursing, transfer agent, accounting
and administration fees and other expenses
payable to DSC 36,832
Distribution fee payable to DDLP 61,684
Other expenses payable to DMC and affiliates* 20,778
* 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, including internal legal services provided to the Fund
by DMC employees. For the six months ended May 31, 2006, the Fund was charged
$6,242 for internal legal services provided by DMC.
For the six months ended May 31, 2006, DDLP earned $16,469 for commissions on
sales of the Fund's Class A shares. For the six months ended May 31, 2006, DDLP
received gross contingent deferred sales charge commissions of $7, $5,723 and
$982 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 six months ended May 31, 2006, the Fund made purchases of $101,990,217
and sales of $33,405,020 of investment securities other short-term investments.
At May 31, 2006, the cost of investments for federal income tax purposes has
been estimated since the final tax characteristics cannot be determined until
fiscal year end. At May 31, 2006, the cost of investments was $330,129,736. At
May 31, 2006, the net unrealized appreciation was $21,222,391, of which
$25,325,058 related to unrealized appreciation of investments and $4,102,667
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 six
months ended May 31, 2006 and the year ended November 30, 2005 was as follows:
Six Months Year
Ended Ended
5/31/06* 11/30/05
___________ __________
Ordinary income $4,729,325 $1,218,249
Long-term capital gain 288,625 4,017,026
___________ __________
Total $5,017,950 $5,235,275
___________ __________
* Tax information for the six months ended May 31, 2006 is an estimate and
the tax character of dividends and distributions may be redesignated at
fiscal year end.
The components of net assets are estimated since final tax characteristics
cannot be determined until fiscal year end. As of May 31, 2006, the estimated
components of net assets on a tax basis were as follows:
Shares of beneficial interest $322,374,037
Undistributed net investment income 4,114,547
Undistributed long-term capital gains 5,698,805
Unrealized appreciation of investments 21,222,391
_____________
Net assets $353,409,780
_____________
12
4. Dividend and Distribution Information (continued)
The difference 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 dividends and distributions. Results of
operations and net assets were not affected by these reclassifications. For
the six months ended May 31, 2006, the Fund recorded an estimate of these
differences since the final tax characteristics cannot be determined until
fiscal year end.
Undistributed net investment income $2,692
Accumulated net realized gain (loss) (2,692)
5. Capital Shares
Transactions in capital shares were as follows:
Six Months Year
Ended Ended
5/31/06 11/30/05
Shares sold:
Class A 4,242,467 8,921,855
Class B 205,182 482,954
Class C 685,724 1,538,055
Class R - 1
Institutional Class 1,601,013 6,952,097
Shares issued upon reinvestment
of dividends and distributions:
Class A 154,799 25,761
Class B 5,392 5,409
Class C 16,180 7,598
Institutional Class 253,653 443,363
_________ __________
7,164,410 18,377,093
_________ __________
Shares repurchased:
Class A (712,244) (427,192)
Class B (143,675) (53,209)
Class C (143,480) (42,318)
Institutional Class (697,158) (909,849)
_________ __________
(1,696,557) (1,432,568)
_________ __________
Net increase 5,467,853 16,944,525
_________ __________
For the six months ended May 31, 2006 and the year ended November 30, 2005,
6,610 Class B shares were converted to 6,591 Class A shares valued at $78,331
and 6,517 Class B shares were converted to 6,489 Class A shares valued at
$71,984, respectively. The respective amounts are included in Class B
redemptions and Class A subscriptions in the table above and the Statements of
Changes in Net Assets.
6. Line of Credit
The Fund, along with certain other funds in the Delaware Investments(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 amount outstanding as of May 31, 2006, or at any time during the
period.
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 six months ended May 31,
2006. 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 up to 15% 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.
While maintaining oversight, the Fund's 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. At May
31, 2006, there were no Rule 144A securities and no securities have been
determined to be illiquid under the Fund's Liquidity Procedures.
8. 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.
13
Other Fund information
Delaware Value Fund
Board Consideration of Delaware Value Fund Investment Advisory Agreement
At a meeting held on May 17-18, 2006 (the "Annual Meeting"), the Board of
Trustees, including a majority of disinterested or independent Trustees,
approved the renewal of the Investment Advisory Agreement for the Delaware Value
Fund (the "Fund"). In making its decision, the Board considered information
furnished throughout the year at regular Board meetings, as well as information
prepared specifically in connection with the Annual Meeting. Information
furnished and discussed throughout the year included reports detailing Fund
performance, investment strategies, expenses, compliance matters and other
services provided by Delaware Management Company ("DMC"), the investment
advisor. Information furnished specifically in connection with the Annual
Meeting included materials provided by DMC and its affiliates ("Delaware
Investments") concerning, among other things, the level of services provided to
the Fund, the costs of such services to the Fund, economies of scale and the
financial condition and profitability of Delaware Investments. In addition, in
connection with the Annual Meeting, the Board considered independent historical
and comparative reports prepared by Lipper Inc. ("Lipper"), an independent
statistical compilation organization. The Board also considered industry
comparative information presented by representatives from Lipper. The Lipper
reports compared the Fund's investment performance and expenses with those of
other comparable mutual funds. The Board also received certain supplemental
information regarding management's policy with respect to advisory fee levels
and its philosophy with respect to breakpoints; the structure of portfolio
manager compensation; and any constraints or limitations on the availability of
securities in certain investment styles which might inhibit DMC's ability to
fully invest in accordance with Fund policies.
In considering such materials, the independent Trustees received assistance and
advice from and met separately with independent counsel and representatives from
Lipper. At the meeting with representatives from Lipper, Mr. Driscoll, Chairman
of the Delaware Investments(R) Family of Funds, and Chairman and Chief Executive
Officer of the investment advisor, was present to respond to questions by Lipper
and the independent Trustees. While the Board considered the Investment Advisory
Agreements for all of the funds in the Delaware Investments Family of Funds at
the same Board meeting, information was provided and considered by the Board for
each fund individually. In approving the continuance of the Investment Advisory
Agreement for the Fund, the Board, including a majority of independent Trustees,
determined that the existing advisory fee structure was fair and reasonable and
that the continuance of the Investment Advisory Agreement was in the best
interests of the Fund and its shareholders. While attention was given to all
information furnished, the following discusses the primary factors relevant to
the Board's deliberations and determination, including those relating to the
selection of the investment advisor and the approval of the advisory fee.
Nature, extent and quality of service. Consideration was given to the services
provided by Delaware Investments to the Fund and its shareholders. In reviewing
the nature, extent and quality of services, the Board emphasized reports
furnished to it throughout the year at regular Board meetings covering matters
such as the relative performance of the Fund, compliance of portfolio managers
with the investment policies, strategies and restrictions for the Fund, the
compliance of management personnel with the Code of Ethics adopted throughout
the Delaware Investments Family of Funds complex, the adherence to fair value
pricing procedures as established by the Board, and the accuracy of net asset
value calculations. The Board noted that it was pleased with the current
staffing of the Fund's investment advisor and management's efforts to strengthen
and deepen portfolio management teams during the past year, the emphasis on
research and the compensation system for advisory personnel. Favorable
consideration was given to DMC's efforts to maintain, and in some instances
increase, financial and human resources committed to fund matters. Other factors
taken into account by the Board were Delaware Investments' preparedness for, and
response to, legal and regulatory matters. The Board also considered the
transfer agent and shareholder services provided to Fund shareholders by
Delaware Investments' affiliate, Delaware Service Company, Inc., noting DSC's
commitment to maintain a high level of service in keeping with its past receipt
of the DALBAR Pyramid Award, and the continuing expenditures by Delaware
Investments to improve the delivery of shareholder services. Additionally, the
Board noted the extent of benefits provided to Fund shareholders for being part
of the Delaware Investments Family of Funds, including the privilege to exchange
investments between the same class of shares of funds without a sales charge,
the ability to reinvest Fund dividends into other funds and the privilege to
combine holdings in other funds to obtain a reduced sales charge. The Board was
satisfied with the nature, extent and quality of the overall services provided
by Delaware Investments.
Investment performance. The Board considered the investment performance of DMC
and the Fund. The Board was pleased with DMC's investment performance. The Board
placed significant emphasis on the investment performance of the Fund in view of
its importance to shareholders. While consideration was given to performance
reports and discussions with portfolio managers at Board meetings throughout the
year, particular weight was given to the Lipper reports furnished for the Annual
Meeting. The Lipper reports prepared for the Fund showed the investment
performance of its Class A shares in comparison to a group of similar funds as
selected by Lipper (the "Performance Universe"). A fund with the best
performance is ranked first, and a fund with the poorest performance is ranked
last. The highest/best performing 25% of funds in the Performance Universe make
up the first quartile; the next 25% - the second quartile; the next 25% - the
third quartile; and the poorest/worst performing 25% of funds in the Performance
Universe make up the fourth quartile. Comparative annualized performance for the
Fund was shown for the past one, three and five year periods ended January 31,
2006. The Board noted its objective that the Fund's performance be at or above
the median of its Performance Universe. The following paragraph summarizes the
performance results for the Fund and the Board's view of such performance. The
Performance Universe for the Fund consisted of the Fund and all retail and
institutional large cap value funds as selected by Lipper. The Lipper report
comparison showed that the Fund's total return for the one and five year periods
was in the second quartile of such Performance Universe. The report further
showed that the Fund's total return for the three year period was in the third
quartile. The Board was satisfied with such performance.
14
Comparative expenses. The Board considered expense data for the Delaware
Investments(R) Family of Funds. Management provided the Board with information
on pricing levels and fee structures for the Funds. The Board focused
particularly on the comparative analysis of the management fees and total
expense ratios of the Fund and the management fees and expense ratios of a group
of similar funds as selected by Lipper (the "Expense Group"). In reviewing
comparative costs, the Fund's contractual management fee and the actual
management fee incurred by the Fund were compared with the contractual
management fees (assuming all funds in the Expense Group were similar in size to
the Fund) and actual management fees (as reported by each fund) of other funds
within the Expense Group, taking into effect any applicable breakpoints and fee
waivers. The Fund's total expenses were also compared with those of its Expense
Group. The Lipper total expenses, for comparative consistency, were shown by
Lipper for Class A shares and compared total expenses including 12b-1 and
non-12b-1 service fees. The Board also considered fees paid to Delaware
Investments for non-management services. The Board noted its objective to limit
the Fund's total expense ratio to an acceptable range as compared to the median
of the Expense Group. The following paragraph summarizes the expense results for
the Fund and the Board's view of such expenses.
The expense comparisons for the Fund showed that its actual management fee and
total expenses were in the quartile with the lowest expenses of its Expense
Group. The Board was satisfied with the management fees and total expenses of
the Fund in comparison to its Expense Group as shown in the Lipper report.
Management profitability. The Board considered the level of profits, if any,
realized by Delaware Investments in connection with the operation of the Fund.
In this respect, the Board reviewed the Investment Management Profitability
Analysis that addressed the overall profitability of Delaware Investments'
business in providing management and other services to each of the individual
funds and the Delaware Investments Family of Funds as a whole. Specific
attention was given to the methodology followed in allocating costs for the
purpose of determining profitability. Management stated that the level of
profits of Delaware Investments, to a certain extent, reflected operational cost
savings and efficiencies initiated by Delaware Investments. The Board considered
Delaware Investments' expenditures to improve services provided to fund
shareholders and to meet additional regulatory and compliance requirements
resulting from recent SEC initiatives. The Board also considered the extent to
which Delaware Investments might derive ancillary benefits from fund operations,
including the potential for procuring additional business as a result of the
prestige and visibility associated with its role as service provider to the
Delaware Investments Family of Funds, the benefits from allocation of fund
brokerage to improve trading efficiencies and the use of "soft" commission
dollars to pay for proprietary and non-proprietary research. The Board did not
find that the level of profits realized by Delaware Investments from the
relationships with the Fund and the Delaware Investments Family of Funds
required negotiation of reduction of fees.
Economies of scale. The Trustees considered whether economies of scale are
realized by Delaware Investments as the Fund's assets increase and the extent to
which any economies of scale are reflected in the level of management fees
charged. The Trustees took into account the standardized advisory fee pricing
and structure approved by the Board and shareholders as part of a complex-wide
shareholder meeting conducted in 1998/1999. At that time, Delaware Investments
introduced breakpoints to account for management economies of scale. The Board
noted that the fee under the Fund's management contract fell within the standard
structure. Although the Fund has not reached a size at which it can take
advantage of breakpoints, the Board recognized that the fees were structured so
that when the Fund grows, economies of scale may be shared.
15
About the organization
This semiannual report is for the information of Delaware Value Fund
shareholders, but it may be used with prospective investors when preceded or
accompanied by a current prospectus for Delaware Value Fund and the Delaware
Investments(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
that are not a guarantee of future results. The return and principal value of an
investment in the Fund will fluctuate so that shares, when redeemed, may be
worth more or less than their original cost.
Board of trustees
Jude T. Driscoll
Chairman
Delaware Investments Family of Funds
Philadelphia, PA
Thomas L. Bennett
Private Investor
Rosemont, PA
John A. Fry
President
Franklin & Marshall College
Lancaster, PA
Anthony D. Knerr
Founder and Managing Director
Anthony Knerr & Associates
New York, NY
Lucinda S. Landreth
Former Chief Investment Officer
Assurant, Inc.
Philadelphia, PA
Ann R. Leven
Owner - ARL Associates,
Financial and Strategic Consultants
Washington, DC
Thomas F. Madison
President and Chief Executive Officer
MLM Partners, Inc.
Minneapolis, MN
Janet L. Yeomans
Vice President and Treasurer
3M Corporation
St. Paul, MN
J. Richard Zecher
Founder
Investor Analytics
Scottsdale, AZ
Affiliated officers
Michael P. Bishof
Senior Vice President and
Chief Financial Officer
Delaware Investments Family of Funds
Philadelphia, PA
David F. Connor
Vice President, Deputy General Counsel,
and Secretary
Delaware Investments Family of Funds
Philadelphia, PA
David P. O'Connor
Senior Vice President, General Counsel,
and Chief Legal Officer
Delaware Investments Family of Funds
Philadelphia, PA
John J. O'Connor
Senior Vice President and Treasurer
Delaware Investments Family of Funds
Philadelphia, PA
Contact information
Investment manager
Delaware Management Company, a series
of Delaware Management Business Trust
Philadelphia, PA
National distributor
Delaware Distributors, L.P.
Philadelphia, PA
Shareholder servicing, dividend
disbursing, and transfer agent
Delaware Service Company, Inc.
2005 Market Street
Philadelphia, PA 19103-7094
For shareholders
800 523-1918
For securities dealers and financial
institutions representatives only
800 362-7500
Web site
www.delawareinvestments.com
Delaware Investments is the marketing name of Delaware Management Holdings, Inc.
and its subsidiaries.
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 are 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, D.C.; information on the
operation of the Public Reference Room may be obtained by calling 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.
16
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(568) Printed in the USA
SA-456[5/06]7/06 SEMI-0606 Value PO11114
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Item 2. Code of Ethics
Not applicable.
Item 3. Audit Committee Financial Expert
Not applicable.
Item 4. Principal Accountant Fees and Services
Not applicable.
Item 5. Audit Committee of Listed Registrants
Not applicable.
Item 6. Schedule of Investments
Included as part of report to shareholders filed under Item 1 of this Form
N-CSR.
Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End
Management Investment Companies
Not applicable.
Item 8. Portfolio Managers of Closed-End Management Investment Companies
Not applicable.
Item 9. Purchases of Equity Securities by Closed-End Management Investment
Companies and Affiliated Purchasers
Not applicable.
Item 10. Submission of Matters to a Vote of Security Holders
Not applicable.
Item 11. Controls and Procedures
The registrant's principal executive officer and principal financial
officer have evaluated the registrant's disclosure controls and procedures
within 90 days of the filing of this report and have concluded that they are
effective in providing reasonable assurance that the information required to be
disclosed by the registrant in its reports or
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statements filed under the Securities Exchange Act of 1934 is recorded,
processed, summarized and reported within the time periods specified in the
rules and forms of the Securities and Exchange Commission.
There were no significant changes in the registrant's internal control over
financial reporting that occurred during the second fiscal quarter of the period
covered by the report to stockholders included herein (i.e., the registrant's
second fiscal quarter) that have materially affected, or are reasonably likely
to materially affect, the registrant's internal control over financial
reporting.
Item 12. Exhibits
(a) (1) Code of Ethics
Not applicable.
(2) Certifications of Principal Executive Officer and Principal Financial
Officer pursuant to Rule 30a-2 under the Investment Company Act of 1940 are
attached hereto as Exhibit 99.CERT.
(3) Written solicitations to purchase securities pursuant to Rule 23c-1
under the Securities Exchange Act of 1934.
Not applicable.
(b) Certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 are
furnished herewith as Exhibit 99.906CERT.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report to be
signed on its behalf, by the undersigned, thereunto duly authorized.
Name of Registrant: Delaware Group Equity Funds II
Patrick P. Coyne
______________________________
By: Patrick P. Coyne
Title: President and Chief Executive Officer
Date: August 3, 2006
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.
Patrick P. Coyne
______________________________
By: Patrick P. Coyne
Title: President and Chief Executive Officer
Date: August 3, 2006
Michael P. Bishof
______________________________
By: Michael P. Bishof
Title: Chief Financial Officer
Date: August 3, 2006