UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT
INVESTMENT COMPANIES
Investment Company Act file number: 811-750
Exact name of registrant as specified in charter:
Delaware Group Equity Funds II
Address of principal executive offices:
2005 Market Street
Philadelphia, PA 19103
Name and address of agent for service:
David F. Connor, Esq.
2005 Market Street
Philadelphia, PA 19103
Registrant's telephone number, including area code: (800) 523-1918
Date of fiscal year end: November 30
Date of reporting period: November 30, 2006
Item 1. Reports to Stockholders
Annual Report Delaware
Large Cap Value
Fund
November 30, 2006
Value equity mutual fund
[DELAWARE INVESTMENTS LOGO] [LOGO] POWERED BY RESEARCH(R)
<page>
Table of contents
> Portfolio management review .................................................1
> Performance summary .........................................................4
> Disclosure of Fund expenses .................................................6
> Sector allocation & top 10 holdings .........................................7
> Statement of net assets .....................................................8
> Statement of operations ....................................................11
> Statements of changes in net assets ........................................12
> Financial highlights .......................................................13
> Notes to financial statements ..............................................18
> Report of independent registered public accounting firm ....................22
> Board of trustees/directors and officers addendum ..........................23
> About the organization .....................................................25
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) 2007 Delaware Distributors, L.P.
<page>
Portfolio management review
Delaware Large Cap Value Fund
November 30, 2006
The managers of Delaware Large Cap Value Fund provided the answers to the
questions below as a review of the Fund's activities for the fiscal year that
ended November 30, 2006. Please see pages 2 and 3 to learn more about the
portfolio managers.
Q: What kind of economic and stock market environment did you encounter during
the year ended November 30, 2006?
A: Overall, the equity market performed well and turned in higher returns than
we had anticipated, given a slowdown in the U.S. economy and a variety of other
challenges faced by investors during the past year.
For much of the first half of the reporting period, stocks faced headwinds on a
number of fronts. Interest rates and energy costs continued to rise, which put
downward pressure on corporate earnings and consumer spending.
Stronger-than-expected inflation reports in the spring made it more likely that
the U.S. Federal Reserve Board (Fed) would continue to raise short-term interest
rates. It did just that at each of its 2006 policy meetings through June. The
threat of higher inflation and interest rates were negative influences on equity
prices, which declined rather sharply in May and June 2006.
By July, however, conditions improved noticeably. Corporate earnings, though
slowing, remained relatively solid, as did consumer spending in the face of a
weakening housing market. In addition, oil prices began declining sharply from
their historical highs, and the Fed finally decided not to raise interest rates
at its August meeting and beyond. Against this backdrop, equities performed
well, with high-quality large-cap stocks leading the way after trailing their
smaller counterparts for several years.
Q: How did Delaware Large Cap Value Fund perform during the fiscal year?
A: Delaware Large Cap Value Fund returned +20.28% with all distributions
reinvested (Class A shares at net asset value) and +13.36% with the sales charge
included (Class A shares at maximum offer price) for the year ended November 30,
2006. The Russell 1000 Value Index, our primary benchmark, advanced 20.28% over
this period. The S&P 500 Index advanced 14.22% and the Lipper Large-Cap Value
Funds Averaged gained 16.17% over this period. For the complete, annualized
performance of Delaware Large Cap Value Fund, please see the table on page 4.
The Fund was able to keep pace with its benchmark despite the strong market
environment. Historically, our conservative, value-oriented investment approach
has been best suited to stock market environments where performance is modestly
positive, flat, or even negative. However, we have typically been at a
disadvantage when the broad equity market has performed particularly well, as it
did during portions of the reporting period.
Q: Given this backdrop during the year, what was your management approach?
A: Expecting a slowdown in the economy and a reduced rate of corporate earnings
growth, we believed it was prudent to position the portfolio even more
defensively than usual. As a result, we held overweightings in less economically
sensitive sectors such as healthcare and consumer staples. The Fund was
underweight relative to the benchmark index in more economically sensitive
areas, such as consumer discretionary.
We regularly look to invest in undervalued companies with good businesses that
we believe are priced well below their intrinsic value. During the most recent
period, we focused on companies that we believed to have particularly sound
balance sheets, strong dividend yields, and the potential to continue generating
relatively stable earnings, even in a weaker economy.
This approach led us to hold small positions in the energy and industrial
sectors relative to the benchmark index, both of which tend to be relatively
sensitive to economic changes. As the fiscal year progressed, however, we found
an increasing number of opportunities among technology stocks that we believed
to be attractively valued, and subsequently we added a new position in Intel.
More
The views expressed are current as of the date of this report and are subject to
change.
(continues) 1
<page>
Portfolio management review
technology stocks were passing our strict screening process, as a number of
companies established shareholder-friendly policies in the midst of successful
turnarounds.
We continued to hold a large position in the inherently defensive healthcare
sector. In our view, many healthcare stocks were offering attractive valuations
relative to their historical levels, and compared to the broad stock market. We
identified a number of companies in this group that provided what we believed
were attractive dividends and balance sheets.
We certainly are aware of the challenges faced by pharmaceutical stocks - such
as upcoming patent expirations on key drugs and the risk that legislation could
dampen drug company profits. However, we also believed that positive factors
such as improving drug pipelines and recent cost-cutting may outweigh these
negatives in many cases.
Q: What investments most helped and hurt the Fund's results?
A: Several consumer discretionary stocks generated strong gains during the
fiscal period. Toy manufacturer Mattel benefited from the success of key brands
and better supply chain management, as well as from lower energy prices, which
resulted in reduced production costs for the company. Limited Brands performed
well, in part due to a turnaround in its apparel businesses, as well as from its
personal care segment, Bath and Body Works. In healthcare, the Fund gained from
its holding in Merck. The pharmaceutical company's stock recovered off a low, as
investors' concerns about legal liability surrounding its Vioxx pain medication
abated.
Our holdings in the financial sector were often among our weakest performers.
For example, one stock that trailed the performance of the broad equity market
was bank company Huntington Bancshares. As with other banks, Huntington
encountered difficulty as the company's earnings suffered from less profitable
lending activities, caused by a challenging interest rate environment. Insurance
company Hartford Financial Services Group also underperformed relative to the
overall stock market, hindered by increased competition and a slowdown in the
growth of auto insurance premiums, among other factors.
Q: How was the Fund positioned at the end of the period?
A: The portfolio remained defensively positioned at the end of the period. Yet,
as demonstrated by our purchase of Intel during the period, we remain committed
to finding companies (including those in less defensive areas) that we believe
are under-priced relative to their intrinsic values and that offer attractive
value for our shareholders. This contrarian focus is a cornerstone of our
investment philosophy. In short, we have not hesitated to take advantage of
periodic opportunities to buy what we feel are outstanding investments at
attractive prices. At the same time, our approach remained cautious.
Fund managers
D. Tysen Nutt Jr.
Senior Vice President, Senior Portfolio Manager, Team Leader - Large-Cap Value
Focus Equity
Mr. Nutt joined Delaware Investments in 2004 as senior vice president and senior
portfolio manager for the firm's Large-Cap Value Focus strategy. Before joining
the firm, Mr. Nutt led the U.S. Active Large-Cap Value team within Merrill Lynch
Investment Managers (MLIM), where he managed mutual funds and separate accounts
for institutions and private clients. Mr. Nutt departed MLIM as a managing
director. Prior to joining MLIM in 1994, Mr. Nutt was with Van Deventer & Hoch
(V&H) where he managed large-cap value portfolios for institutions and private
clients. He began his investment career at Dean Witter Reynolds, where he
eventually became vice president, investments. Mr. Nutt earned his bachelor's
degree from Dartmouth College, and he is a member of the New York Society of
Security Analysts and the CFA Institute.
2
<page>
Jordan L. Irving
Vice President, Senior Portfolio Manager
Mr. Irving joined Delaware Investments in 2004 as a vice president, senior
portfolio manager for the firm's Large-Cap Value Focus strategy. Previously, he
worked for the U.S. Active Large-Cap Value team within Merrill Lynch Investment
Managers for six years, where he managed mutual funds and separate accounts for
institutions and private clients. Mr. Irving graduated from Yale University with
a bachelor's degree in American studies and earned a special diploma in social
studies at Oxford University in England. He competed for the United States
National Rowing Team, winning a gold medal at the 1997 World Rowing
Championships in Aiguebelette, France.
Anthony A. Lombardi, CFA
Vice President, Senior Portfolio Manager
Mr. Lombardi joined Delaware Investments in 2004 as a vice president and senior
portfolio manager for the firm's Large-Cap Value Focus strategy. Previously, Mr.
Lombardi worked at Merrill Lynch Investment Managers from 1998 to 2004, where he
rose to the position of director and portfolio manager for the U.S. Active
Large-Cap Value team, managing mutual funds and separate accounts for
institutions and private clients. Prior to that he worked at Dean Witter
Reynolds for seven years as a sell-side equity research analyst, and he began
his career as an investment analyst with Crossland Savings in 1989. Mr. Lombardi
graduated from Hofstra University, receiving a bachelor's degree in finance and
an MBA with a concentration in finance. He is a member of the New York Society
of Security Analysts and the CFA Institute.
Robert A. Vogel Jr., CFA
Vice President, Senior Portfolio Manager
Mr. Vogel joined Delaware Investments in 2004 as a vice president, senior
portfolio manager for the firm's Large-Cap Value Focus strategy. He previously
worked at Merrill Lynch Investment Managers for more than seven years, where he
rose to the position of director and portfolio manager within the U.S. Active
Large-Cap Value team. He began his career in 1992 as a financial consultant at
Merrill Lynch. Mr. Vogel graduated from Loyola College in Maryland, earning both
bachelor's and master's degrees in finance. He also earned an MBA with a
concentration in finance from The Wharton School of the University of
Pennsylvania, and he is a member of the New York Society of Security Analysts
and the CFA Society of Philadelphia.
Nikhil G. Lalvani, CFA
Vice President, Portfolio Manager
Mr. Lalvani is a portfolio manager with the firm's Large-Cap Value Focus team.
At Delaware Investments, Mr. Lalvani has served as both a fundamental and
quantitative analyst. Prior to joining the firm in 1997, he was a research
associate with Bloomberg. Mr. Lalvani holds a bachelor's degree in finance from
Penn State University and is a member of the CFA Society of Philadelphia.
Nashira S. Wynn
Vice President, Portfolio Manager
Ms. Wynn is a portfolio manager with the firm's Large-Cap Value Focus team.
Prior to joining Delaware Investments in 2004, she was an equity research
analyst for Merrill Lynch Investment Managers. Ms. Wynn earned a bachelor's
degree in finance, with a minor in economics, from The College of New Jersey,
and she attended England's Oxford University as a presidential scholar. Ms. Wynn
is also a CFA candidate.
3
<page>
Performance summary
Delaware Large Cap Value Fund
The performance data quoted represent past performance; past performance does
not guarantee future results. Investment return and principal value will
fluctuate so your shares, when redeemed, may be worth more or less than their
original cost. Current performance may be lower or higher than the performance
data quoted. Please obtain the performance data for the most recent month end by
calling 800 523-1918 or visiting our Web site
www.delawareinvestments.com/performance.
You should consider the investment objectives, risks, charges, and expenses of
the investment carefully before investing. The Delaware Large Cap Value Fund
prospectus contains this and other important information about the Fund. Please
request a prospectus through your financial advisor or by calling 800 523-1918
or visiting our Web site at www.delawareinvestments.com. Read the prospectus
carefully before you invest or send money.
Instances of high double-digit returns are unusual, cannot be sustained, and
were achieved primarily during favorable market conditions.
Fund performance
Average annual total returns
Through November 30, 2006 1 year 5 years 10 years Lifetime
________________________________________________________________________________
Class A (Est. 3-18-57)
Excluding sales charge +20.28% +7.40% +7.26% +11.29%
Including sales charge +13.36% +6.14% +6.63% +11.15%
________________________________________________________________________________
Class B (Est. 9-6-94)
Excluding sales charge +19.39% +6.61% +6.60% +9.17%
Including sales charge +15.39% +6.26% +6.60% +9.17%
________________________________________________________________________________
Class C (Est. 11-29-95)
Excluding sales charge +19.38% +6.61% +6.45% +7.88%
Including sales charge +18.38% +6.61% +6.45% +7.88%
________________________________________________________________________________
Returns reflect the reinvestment of all distributions and any applicable sales
charges as noted below.
Performance for Class B and C shares, excluding sales charges, assumes either
that contingent deferred sales charges did not apply or the investment was not
redeemed.
The Fund offers Class A, B, C, R, and Institutional Class shares. Class A shares
are sold with a front-end sales charge of up to 5.75% and have an annual
distribution and service fee of up to 0.30% of average daily net assets.
Class B shares are sold with a contingent deferred sales charge that declines
from 4% to zero depending on the period of time the shares are held. Class B
shares will automatically convert to Class A shares on a quarterly basis
approximately eight years after purchase. They are also subject to an annual
distribution and service fee of 1% of average daily net assets. Ten-year and
lifetime performance figures for Class B shares reflect conversion to Class A
shares after eight years.
Class C shares are sold with a contingent deferred sales charge of 1% if
redeemed during the first 12 months. They are also subject to an annual
distribution and service fee of 1% of average daily net asstes.
The average annual total returns for the one-year and lifetime periods (since
June 2, 2003) ended November 30, 2006 for the Delaware Large Cap Value Fund
Class R shares were +20.00% and +13.08%, respectively. Class R shares were first
made available on June 2, 2003 and are available only for certain retirement
plan products. They are sold without a sales charge and have an annual
distribution and service fee up to 0.60% of average daily net assets, but such
fee is currently subject to a contractual cap of 0.50% of average daily net
assets through March 31, 2007.
The average annual total returns for the 1-year, 5-year, 10-year, and lifetime
(since March 18, 1957) periods ended November 30, 2006 for Delaware Large Cap
Value Fund Institutional Class shares were 20.61%, 7.68%, 7.52%, and 11.35%,
respectively. Institutional Class shares were first made available on January
13, 1994 and are available without sales or asset-based distribution charges
only to certain eligible institutional accounts. Institutional Class performance
prior to January 13, 1994 is based on Class A performance and was adjusted to
eliminate the sales charges, but not the asset based distribution charge of
Class A shares.
An expense limitation was in effect for Class R shares during some of the
periods shown above and on the next page. Performance would have been lower had
the expense limitation not been in effect.
The performance table above and the graph on the next page do not reflect the
deduction of taxes the shareholder would pay on Fund distributions or
redemptions of Fund shares.
4
<page>
Fund basics
As of November 30, 2006
________________________________________________________________________________
Fund objective
________________________________________________________________________________
The Fund seeks long-term capital appreciation.
________________________________________________________________________________
Total Fund net assets
________________________________________________________________________________
$1.4 billion
________________________________________________________________________________
Number of holdings
________________________________________________________________________________
34
________________________________________________________________________________
Fund start date
________________________________________________________________________________
March 18, 1957
________________________________________________________________________________
Nasdaq symbols CUSIPs
________________________________________________________________________________
Class A DELDX 245907100
Class B DEIBX 245907605
Class C DECCX 245907704
Class R DECRX 245907886
Institutional Class DEDIX 245907407
[PERFORMANCE OF A $10,000 INVESTMENT LINE GRAPH]
Chart assumes $10,000 invested on November 30, 1996 and includes the effect of a
5.75% front-end sales charge and the reinvestment of all distributions. Returns
plotted on the chart were as of the last day of each month shown.
Performance of other Fund classes will vary due to different charges and
expenses.
The chart also assumes $10,000 invested in the Russell 1000 Value Index and the
S&P 500 Index as of November 30, 1996.
The Russell 1000 Value Index measures the performance of those companies in the
Russell 1000 Index with lower price-to-book ratios and lower forecasted growth
values. The Russell 1000 Index measures the performance the 1,000 largest U.S.
companies based on total market capitalization. The S&P 500 Index is an
unmanaged composite of mostly large-capitalization U.S. companies.
The Russell 1000 Value Index is replacing the S&P 500 Index as the Fund's
benchmark. The investment manager believes the composition of the Russell 1000
Value Index better reflects the Fund's investments. The S&P 500 Index may be
excluded from this comparison in the future. An index is unmanaged and does not
reflect the costs of operating a mutual fund, such as the costs of buying,
selling, and holding securities. You cannot invest directly in an index.
Past performance is not a guarantee of future results.
5
Disclosure of Fund expenses
For the period June 1, 2006 to November 30, 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 June 1, 2006 to November 30, 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 6/1/06 to
6/1/06 11/30/06 Ratio 11/30/06 *
________________________________________________________________________________
Actual Fund Return
Class A $1,000.00 $1,137.40 1.17% $ 6.27
Class B 1,000.00 1,133.80 1.90% 10.16
Class C 1,000.00 1,133.40 1.90% 10.16
Class R 1,000.00 1,136.30 1.40% 7.50
Institutional Class 1,000.00 1,139.60 0.90% 4.83
________________________________________________________________________________
Hypothetical 5% Return (5% return before expenses)
Class A $1,000.00 $1,019.20 1.17% $ 5.92
Class B 1,000.00 1,015.54 1.90% 9.60
Class C 1,000.00 1,015.54 1.90% 9.60
Class R 1,000.00 1,018.05 1.40% 7.08
Institutional Class 1,000.00 1,020.56 0.90% 4.56
________________________________________________________________________________
* "Expenses Paid During Period" are equal to the Fund's annualized expense
ratio, multiplied by the average account value over the period, multiplied by
183/365 (to reflect the one-half year period).
6
Sector allocation & top 10 holdings
Delaware Large Cap Value Fund
As of November 30, 2006
Sector designations may be different than the sector designations presented in
other Fund materials.
Percentage
Sector of Net Assets
________________________________________________________________________________
Common Stock 98.82%
Consumer Discretionary 9.02%
Consumer Staples 12.15%
Energy 6.43%
Financials 22.77%
Health Care 17.80%
Industrials 5.92%
Information Technology 12.88%
Materials 3.00%
Telecommunications 5.63%
Utilities 3.22%
________________________________________________________________________________
Repurchase Agreements 1.02%
________________________________________________________________________________
Securities Lending Collateral 2.93%
Fixed Rate Notes 0.30%
Variable Rate Notes 2.63%
________________________________________________________________________________
Total Market Value of Securities 102.77%
________________________________________________________________________________
Obligation to Return Securities Lending Collateral (2.93%)
________________________________________________________________________________
Receivables and Other Assets Net of Liabilities 0.16%
________________________________________________________________________________
Total Net Assets 100.00%
________________________________________________________________________________
Holdings are for informational purposes only and are subject to change at any
time. They are not a recommendation to buy, sell, or hold any security.
Percentage
Top 10 Holdings of Net Assets
________________________________________________________________________________
Hewlett-Packard 3.42%
ConocoPhillips 3.35%
Merck & Co. 3.30%
ConAgra Foods 3.29%
Limited Brands 3.26%
Progress Energy 3.22%
Intel 3.22%
International Business Machines 3.19%
Chevron 3.08%
Donnelley (R.R.) & Sons 3.07%
________________________________________________________________________________
7
Statement of net assets
Delaware Large Cap Value Fund
November 30, 2006
Number of Market
Shares Value
________________________________________________________________________________
Common Stock - 98.82%
________________________________________________________________________________
Consumer Discretionary - 9.02%
Gap 2,174,300 $ 40,702,896
*+ Idearc 54,870 1,511,120
* Limited Brands 1,472,600 46,666,694
Mattel 1,835,100 40,280,445
_____________
129,161,155
_____________
Consumer Staples - 12.15%
ConAgra Foods 1,833,200 47,113,240
Heinz (H.J.) 981,800 43,641,010
Kimberly-Clark 647,000 43,006,090
* Safeway 1,308,700 40,321,047
_____________
174,081,387
_____________
Energy - 6.43%
Chevron 609,800 44,100,736
ConocoPhillips 712,700 47,964,710
_____________
92,065,446
_____________
Financials - 22.77%
Allstate 666,800 42,328,464
* Aon 1,212,600 43,265,568
Chubb 781,700 40,460,792
Hartford Financial
Services Group 449,100 38,514,816
* Huntington Bancshares 1,678,000 40,792,180
Morgan Stanley 568,600 43,304,575
Wachovia 725,100 39,293,169
* Washington Mutual 873,300 38,145,744
_____________
326,105,308
_____________
Health Care - 17.80%
Abbott Laboratories 873,700 40,766,842
Baxter International 942,400 42,162,976
Bristol-Myers Squibb 1,731,500 42,993,145
* Merck 1,063,600 47,340,836
* Pfizer 1,452,685 39,934,311
Wyeth 866,000 41,810,480
_____________
255,008,590
_____________
Industrials - 5.92%
Donnelley (R.R.) & Sons 1,245,000 43,911,150
Waste Management 1,118,200 40,937,302
_____________
84,848,452
_____________
Information Technology - 12.88%
Hewlett-Packard 1,240,900 48,965,914
Intel 2,158,900 46,092,515
International Business
Machines 497,200 45,702,624
+ Xerox 2,651,700 43,753,050
_____________
184,514,103
_____________
Materials - 3.00%
* duPont (E.I.) deNemours 916,600 43,016,038
_____________
43,016,038
_____________
Telecommunications - 5.63%
AT&T 1,249,100 42,356,981
Verizon Communications 1,097,400 38,343,156
_____________
80,700,137
_____________
Utilities - 3.22%
* Progress Energy 965,200 46,107,604
_____________
46,107,604
_____________
Total Common Stock
(cost $1,180,607,944) 1,415,608,220
_____________
Principal
Amount
________________________________________________________________________________
Repurchase Agreements - 1.02%
________________________________________________________________________________
With BNP Paribas 5.26%
12/1/06 (dated 11/30/06,
to be repurchased at
$6,477,946, collateralized
by $6,656,000 U.S.
Treasury Notes 2.75% due
8/15/07, market value
$6,610,971) $6,477,000 6,477,000
With Cantor Fitzgerald 5.26%
12/1/06 (dated 11/30/06,
to be repurchased at
$3,950,577, collateralized
by $3,203,000 U.S.
Treasury Bills due
12/28/06, market value
$3,191,178 and $822,000
U.S. Treasury Notes 6.25%
due 2/15/07, market value
$838,917) 3,950,000 3,950,000
With UBS Warburg 5.26%
12/1/06 (dated 11/30/06,
to be repurchased at
$4,270,624, collateralized
by $4,463,000 U.S.
Treasury Bills due 5/24/07,
market value $4,358,469) 4,270,000 4,270,000
_____________
Total Repurchase Agreements
(cost $14,697,000) 14,697,000
_____________
Total Market Value of Securities Before
Securities Lending Collateral - 99.84%
(cost $1,195,304,944) 1,430,305,220
_____________
8
Principal Market
Amount Value
________________________________________________________________________________
Securities Lending Collateral ** - 2.93%
________________________________________________________________________________
Short-Term Investments - 2.93%
Fixed Rate Notes - 0.30%
Citigroup Global Markets
5.32% 12/1/06 $2,559,079 $ 2,559,079
Credit Suisse First Boston
5.29% 12/13/06 1,777,338 1,777,338
__________
4,336,417
__________
~ Variable Rate Notes - 2.63%
American Honda Finance
5.32% 2/21/07 1,142,575 1,142,575
ANZ National 5.32% 12/31/07 253,906 253,906
Australia New Zealand
5.32% 12/31/07 1,269,527 1,269,527
Bank of America
5.32% 2/23/07 1,650,386 1,650,386
Bank of New York
5.31% 12/31/07 1,015,622 1,015,622
Barclays New York
5.31% 5/18/07 1,650,386 1,650,386
Bayerische Landesbank
5.37% 12/31/07 1,269,527 1,269,527
Bear Stearns 5.38% 5/31/07 1,523,433 1,523,433
BNP Paribas 5.35% 12/31/07 1,269,527 1,269,527
Canadian Imperial Bank
5.30% 12/31/07 634,764 634,764
CDC Financial Products
5.36% 1/2/07 1,650,385 1,650,385
Citigroup Global Markets
5.38% 12/7/06 1,650,385 1,650,385
Commonwealth Bank
5.32% 12/31/07 1,269,527 1,269,527
Deutsche Bank London
5.34% 2/23/07 1,523,433 1,523,433
Dexia Bank 5.33% 9/28/07 1,777,277 1,776,990
Goldman Sachs
5.45% 11/30/07 1,650,385 1,650,385
Marshall & Ilsley Bank
5.30% 12/31/07 1,396,480 1,396,480
Merrill Lynch Mortgage
Capital 5.41% 1/8/07 1,650,385 1,650,385
Morgan Stanley
5.49% 12/31/07 1,650,385 1,650,385
National Australia Bank
5.29% 3/7/07 1,574,214 1,574,214
National City Bank
5.32% 3/2/07 1,523,568 1,523,710
National Rural Utilities
5.31% 12/31/07 2,005,853 2,005,853
Nordea Bank New York
5.31% 5/16/07 634,762 634,748
Nordea Bank Norge
5.33% 12/31/07 1,269,527 1,269,527
Royal Bank of Scotland
5.31% 12/31/07 1,269,527 1,269,527
Societe Generale
5.29% 12/31/07 634,764 634,764
Toronto Dominion
5.32% 5/29/07 1,523,433 1,523,433
Wells Fargo 5.33% 12/31/07 1,269,527 1,269,527
______________
37,603,311
______________
Total Securities Lending Collateral
(cost $41,939,728) 41,939,728
______________
Total Market Value of Securities - 102.77%
(cost $1,237,244,672) 1,472,244,948 !
Obligation to Return Securities Lending
Collateral ** - (2.93%) (41,939,728)
Receivables and Other Assets Net
of Liabilities - 0.16% 2,276,288
______________
Net Assets Applicable to 68,005,863
Shares Outstanding - 100.00% $1,432,581,508
______________
Net Asset Value - Delaware Large Cap Value Fund
Class A ($1,246,543,650 / 59,143,773 Shares) $21.08
______
Net Asset Value - Delaware Large Cap Value Fund
Class B ($102,322,401 / 4,889,255 Shares) $20.93
______
Net Asset Value - Delaware Large Cap Value Fund
Class C ($36,709,013 / 1,742,366 Shares) $21.07
______
Net Asset Value - Delaware Large Cap Value Fund
Class R ($1,165,969 / 55,375 Shares) $21.06
______
Net Asset Value - Delaware Large Cap Value Fund
Institutional Class ($45,840,475 / 2,175,094 Shares) $21.08
______
Components of Net Assets at November 30, 2006:
Shares of beneficial interest
(unlimited authorization - no par) $1,150,965,961
Undistributed net investment income 13,072,793
Accumulated net realized gain on investments 33,542,478
Net unrealized appreciation of investments 235,000,276
______________
Total net assets $1,432,581,508
______________
+ Non-income producing security for the year ended November 30, 2006.
~ Variable rate security. The interest rate shown is the rate as of November
30, 2006.
* Fully or partially on loan.
** See Note 8 in "Notes to Financial Statements."
! Includes $41,273,569 of securities loaned.
(continues) 9
Statement of net assets
Delaware Large Cap Value Fund
________________________________________________________________________________
________________________________________________________________________________
Net Asset Value and Offering Price per Share -
Delaware Large Cap Value Fund
Net asset value Class A (A) $21.08
Sales charge (5.75% of offering price) (B) 1.29
______
Offering price $22.37
______
(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
10
Statement of operations
Delaware Large Cap Value Fund
Year Ended November 30, 2006
Investment Income:
Dividends $37,099,436
Interest 660,849
Securities lending income 74,731 $ 37,835,016
___________ ____________
Expenses:
Management fees 8,262,336
Distribution expenses - Class A 3,219,992
Distribution expenses - Class B 1,152,096
Distribution expenses - Class C 348,581
Distribution expenses - Class R 7,812
Dividend disbursing and transfer agent fees and expenses 2,620,596
Accounting and administration expenses 546,352
Trustees' fees and benefits 173,182
Reports and statements to shareholders 153,202
Legal fees 142,274
Registration fees 93,675
Trustees expenses 78,068
Audit and tax 66,280
Consulting fees 41,942
Custodian fees 34,897
Insurance fees 32,353
Taxes (other than taxes on income) 22,172
Dues and services 10,067
Pricing fees 2,676 17,008,553
___________
Less waived distribution expenses - Class R (1,302)
Less expense paid indirectly (6,589)
____________
Total operating expenses 17,000,662
____________
Net Investment Income 20,834,354
____________
Net Realized and Unrealized Gain on Investments:
Net realized gain on investments 65,994,031
Net change in unrealized appreciation/depreciation of investments 164,961,782
____________
Net Realized and Unrealized Gain on Investments 230,955,813
____________
Net Increase in Net Assets Resulting from Operations $251,790,167
____________
See accompanying notes
11
Statements of changes in net assets
Delaware Large Cap Value Fund
Year Ended
11/30/06 11/30/05
Increase (Decrease) in Net Assets from Operations:
Net investment income $ 20,834,354 $ 20,158,817
Net realized gain on investments and foreign currencies 65,994,031 204,724,799
Net change in unrealized appreciation/depreciation of investments 164,961,782 (131,514,802)
______________ ______________
Net increase in net assets resulting from operations 251,790,167 93,368,814
______________ ______________
Dividends and Distributions to Shareholders from:
Net investment income:
Class A (19,859,095) (12,957,246)
Class B (1,186,676) (623,394)
Class C (335,762) (146,744)
Class R (17,100) (8,599)
Institutional Class (842,153) (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)
______________ ______________
(108,774,339) (15,616,151)
______________ ______________
Capital Share Transactions:
Proceeds from shares sold:
Class A 65,874,511 51,101,762
Class B 5,439,751 6,405,453
Class C 4,819,232 4,855,770
Class R 676,135 248,793
Institutional Class 6,843,356 7,295,919
Net asset value of shares issued upon reinvestment of dividends and distributions:
Class A 85,308,305 12,399,266
Class B 8,619,793 689,716
Class C 2,472,357 170,998
Class R 83,160 9,702
Institutional Class 3,583,070 618,030
______________ ______________
183,719,670 83,795,409
______________ ______________
Cost of shares repurchased:
Class A (206,560,918) (204,123,054)
Class B (58,142,068) (63,861,325)
Class C (10,340,307) (13,338,432)
Class R (816,466) (476,613)
Institutional Class (13,724,234) (47,816,912)
______________ ______________
(289,583,993) (329,616,336)
______________ ______________
Decrease in net assets derived from capital share transactions (105,864,323) (245,820,927)
______________ ______________
Net Increase (Decrease) in Net Assets 37,151,505 (168,068,264)
Net Assets:
Beginning of year 1,395,430,003 1,563,498,267
______________ ______________
End of year (including undistributed net investment income of
$13,072,793 and $13,245,379, respectively) $1,432,581,508 $1,395,430,003
______________ ______________
See accompanying notes
12
Financial highlights
Delaware Large Cap Value Fund Class A
Selected data for each share of the Fund outstanding throughout each period were
as follows:
Year Ended
____________________________________________________________________
11/30/06 11/30/05 11/30/04 11/30/03 11/30/02
___________________________________________________________________________________________________________________________________
Net asset value, beginning of period $19.010 $18.030 $16.240 $14.320 $16.730
Income (loss) from investment operations:
Net investment income (1) 0.305 0.271 0.204 0.205 0.170
Net realized and unrealized gain (loss)
on investments and foreign currencies 3.279 0.917 1.802 1.835 (2.381)
_______ _______ _______ _______ _______
Total from investment operations 3.584 1.188 2.006 2.040 (2.211)
_______ _______ _______ _______ _______
Less dividends and distributions from:
Net investment income (0.324) (0.192) (0.216) (0.120) (0.199)
Net realized gain on investments (1.190) (0.016) - - -
_______ _______ _______ _______ _______
Total dividends and distributions (1.514) (0.208) (0.216) (0.120) (0.199)
_______ _______ _______ _______ _______
Net asset value, end of period $21.080 $19.010 $18.030 $16.240 $14.320
_______ _______ _______ _______ _______
Total return (2) 20.28% 6.62% 12.44% 14.34% (13.34%)
Ratios and supplemental data:
Net assets, end of period (000 omitted) $1,246,544 $1,177,317 $1,253,876 $895,108 $870,132
Ratio of expenses to average net assets 1.17% 1.15% 1.15% 1.20% 1.11%
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%
Ratio of net investment income to average net assets 1.60% 1.47% 1.18% 1.40% 1.10%
Ratio of net investment income to average net assets
prior to expense limitation and expenses paid indirectly 1.60% 1.47% 1.17% 1.40% 1.10%
Portfolio turnover 16% 114% 70% 77% 99%
___________________________________________________________________________________________________________________________________
(1) The average shares outstanding method has been applied for per share information.
(2) Total investment return is based on the change in net asset value of a share during the period and assumes reinvestment of
dividends and distributions at net asset value and does not reflect the impact of a sales charge. Total investment return
reflects waivers and payment of fees by the distributor, as applicable. Performance would have been lower had the expense
limitation not been in effect.
See accompanying notes
(continues) 13
Financial highlights
Delaware Large Cap Value Fund Class B
Selected data for each share of the Fund outstanding throughout each period were
as follows:
Year Ended
____________________________________________________________________
11/30/06 11/30/05 11/30/04 11/30/03 11/30/02
___________________________________________________________________________________________________________________________________
Net asset value, beginning of period $18.880 $17.910 $16.150 $14.240 $16.630
Income (loss) from investment operations:
Net investment income (1) 0.168 0.137 0.077 0.096 0.054
Net realized and unrealized gain (loss)
on investments and foreign currencies 3.252 0.912 1.789 1.821 (2.364)
_______ _______ _______ _______ _______
Total from investment operations 3.420 1.049 1.866 1.917 (2.310)
_______ _______ _______ _______ _______
Less dividends and distributions from:
Net investment income (0.180) (0.063) (0.106) (0.007) (0.080)
Net realized gain on investments (1.190) (0.016) - - -
_______ _______ _______ _______ _______
Total dividends and distributions (1.370) (0.079) (0.106) (0.007) (0.080)
_______ _______ _______ _______ _______
Net asset value, end of period $20.930 $18.880 $17.910 $16.150 $14.240
_______ _______ _______ _______ _______
Total return (2) 19.39% 5.87% 11.60% 13.47% (13.96%)
Ratios and supplemental data:
Net assets, end of period (000 omitted) $102,322 $136,050 $184,203 $74,019 $75,707
Ratio of expenses to average net assets 1.90% 1.88% 1.89% 1.94% 1.86%
Ratio of net investment income to average net assets 0.87% 0.74% 0.44% 0.66% 0.35%
Portfolio turnover 16% 114% 70% 77% 99%
___________________________________________________________________________________________________________________________________
(1) The average shares outstanding method has been applied for per share information.
(2) Total investment return is based on the change in net asset value of a share during the period and assumes reinvestment of
dividends and distributions at net asset value and does not reflect the impact of a sales charge.
See accompanying notes
14
Delaware Large Cap Value Fund Class C
Selected data for each share of the Fund outstanding throughout each period were
as follows:
Year Ended
____________________________________________________________________
11/30/06 11/30/05 11/30/04 11/30/03 11/30/02
___________________________________________________________________________________________________________________________________
Net asset value, beginning of period $19.000 $18.020 $16.250 $14.320 $16.730
Income (loss) from investment operations:
Net investment income (1) 0.166 0.136 0.076 0.095 0.054
Net realized and unrealized gain (loss)
on investments and foreign currencies 3.274 0.923 1.800 1.842 (2.384)
_______ _______ _______ _______ _______
Total from investment operations 3.440 1.059 1.876 1.937 (2.330)
_______ _______ _______ _______ _______
Less dividends and distributions from:
Net investment income (0.180) (0.063) (0.106) (0.007) (0.080)
Net realized gain on investments (1.190) (0.016) - - -
_______ _______ _______ _______ _______
Total dividends and distributions (1.370) (0.079) (0.106) (0.007) (0.080)
_______ _______ _______ _______ _______
Net asset value, end of period $21.070 $19.000 $18.020 $16.250 $14.320
_______ _______ _______ _______ _______
Total return (2) 19.38% 5.89% 11.59% 13.53% (14.00%)
Ratios and supplemental data:
Net assets, end of period (000 omitted) $36,709 $36,148 $42,371 $13,764 $11,098
Ratio of expenses to average net assets 1.90% 1.88% 1.89% 1.94% 1.86%
Ratio of net investment income to average net assets 0.87% 0.74% 0.44% 0.66% 0.35%
Portfolio turnover 16% 114% 70% 77% 99%
___________________________________________________________________________________________________________________________________
(1) The average shares outstanding method has been applied for per share information.
(2) Total investment return is based on the change in net asset value of a share during the period and assumes reinvestment of
dividends and distributions at net asset value and does not reflect the impact of a sales charge.
See accompanying notes
(continues) 15
Financial highlights
Delaware Large Cap Value Fund Class R
Selected data for each share of the Fund outstanding throughout each period were
as follows:
Year Ended 6/02/03 (1)
______________________________________ to
11/30/06 11/30/05 11/30/04 11/30/03
____________________________________________________________________________________________________________________________________
Net asset value, beginning of period $19.000 $18.010 $16.230 $15.150
Income from investment operations:
Net investment income (2) 0.262 0.216 0.145 0.072
Net realized and unrealized gain on investments and foreign currencies 3.275 0.915 1.809 1.063
_______ _______ _______ _______
Total from investment operations 3.537 1.131 1.954 1.135
_______ _______ _______ _______
Less dividends and distributions from:
Net investment income (0.287) (0.125) (0.174) (0.055)
Net realized gain on investments (1.190) (0.016) - -
_______ _______ _______ _______
Total dividends and distributions (1.477) (0.141) (0.174) (0.055)
_______ _______ _______ _______
Net asset value, end of period $21.060 $19.000 $18.010 $16.230
_______ _______ _______ _______
Total return (3) 20.00% 6.30% 12.11% 7.51%
Ratios and supplemental data:
Net assets, end of period (000 omitted) $1,166 $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 1.37% 1.17% 0.84% 0.91%
Ratio of net investment income to average net assets
prior to expense limitation and expenses paid indirectly 1.27% 1.14% 0.84% 0.91%
Portfolio turnover 16% 114% 70% 77% (4)
____________________________________________________________________________________________________________________________________
(1) Date of commencement of operations; ratios have been annualized and total return has not been annualized.
(2) The average shares outstanding method has been applied for per share information.
(3) Total investment return is based on the change in net asset value of a share during the period and assumes reinvestment of
dividends and distributions at net asset value. Total investment return reflects a waiver and payment of fees by the
distributor, as applicable. Performance would have been lower had the expense limitation not been in effect.
(4) The portfolio turnover is representative for the entire fund for the year ended November 30, 2003.
See accompanying notes
16
Delaware Large Cap Value Fund Institutional Class
Selected data for each share of the Fund outstanding throughout each period were
as follows:
Year Ended
____________________________________________________________________
11/30/06 11/30/05 11/30/04 11/30/03 11/30/02
___________________________________________________________________________________________________________________________________
Net asset value, beginning of period $19.010 $18.030 $16.240 $14.320 $16.730
Income (loss) from investment operations:
Net investment income (1) 0.357 0.321 0.248 0.242 0.209
Net realized and unrealized gain (loss)
on investments and foreign currencies 3.279 0.912 1.805 1.835 (2.380)
_______ _______ _______ _______ _______
Total from investment operations 3.636 1.233 2.053 2.077 (2.171)
_______ _______ _______ _______ _______
Less dividends and distributions from:
Net investment income (0.376) (0.237) (0.263) (0.157) (0.239)
Net realized gain on investments (1.190) (0.016) - - -
_______ _______ _______ _______ _______
Total dividends and distributions (1.566) (0.253) (0.263) (0.157) (0.239)
_______ _______ _______ _______ _______
Net asset value, end of period $21.080 $19.010 $18.030 $16.240 $14.320
_______ _______ _______ _______ _______
Total return (2) 20.61% 6.88% 12.75% 14.64% (13.11%)
Ratios and supplemental data:
Net assets, end of period (000 omitted) $45,841 $44,837 $81,814 $45,191 $32,928
Ratio of expenses to average net assets 0.90% 0.88% 0.89% 0.94% 0.86%
Ratio of net investment income to average net assets 1.87% 1.74% 1.44% 1.66% 1.35%
Portfolio turnover 16% 114% 70% 77% 99%
___________________________________________________________________________________________________________________________________
(1) The average shares outstanding method has been applied for per share information.
(2) Total investment return is based on the change in net asset value of a share during the period and assumes reinvestment of
dividends and distributions at net asset value.
See accompanying notes
17
Notes to financial statements
Delaware Large Cap Value Fund
November 30, 2006
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 the
Delaware Large Cap Value Fund (the "Fund"). The Trust is an open-end investment
company. The Fund is considered diversified under the Investment Company Act of
1940, as amended, and offers Class A, Class B, Class C, Class R and
Institutional Class shares. Class A shares are sold with a front-end sales
charge of up to 5.75%. Class A share purchases of $1,000,000 or more will incur
a contingent deferred sales charge of 1% if redeemed during the first year and
0.50% during the second year, provided that Delaware Distributors, L.P. (DDLP)
paid a financial adviser a commission on the purchase of those shares. 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 to certain
eligible 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).
In September 2006, the Financial Accounting Standards Board (FASB) issued FASB
Statement No. 157, Fair Value Measurements, (Statement 157). Statement 157
establishes a framework for measuring fair value in generally accepted
accounting principles, clarifies the definition of fair value within that
framework, and expands disclosures about the use of fair value measurements.
Statement 157 is intended to increase consistency and comparability among fair
value estimates used in financial reporting. Statement 157 is effective for
fiscal years beginning after November 15, 2007. Management does not expect the
adoption of Statement 157 to have an impact on the amounts reported in the
financial statements.
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.
On July 13, 2006, FASB released FASB Interpretation No. 48 "Accounting for
Uncertainty in Income Taxes" (FIN 48). FIN 48 provides guidance for how
uncertain tax positions should be recognized, measured, presented and disclosed
in the financial statements. FIN 48 requires the evaluation of tax positions
taken or expected to be taken in the course of preparing the Fund's tax returns
to determine whether the tax positions are "more-likely-than-not" of being
sustained by the applicable tax authority. Tax positions not deemed to meet the
more-likely-than-not threshold would be recorded as a tax benefit or expense in
the current year. Adoption of FIN 48 is required for fiscal years beginning
after December 15, 2006 and is to be applied to all open tax years as of the
effective date. Although the Fund's tax positions are currently being evaluated,
management does not expect the adoption of FIN 48 to have a material impact on
the Fund's 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 at least 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 directly attributable to the Fund are charged directly to the
Fund. Other expenses common to various funds within the Delaware Investments(R)
Family of Funds are generally allocated amongst such 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 investments, if any, annually.
18
1. Significant Accounting Policies (continued)
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 investments in the accompanying financial statements and totaled $14,927
for the year ended November 30, 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."
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 DDLP,
the distributor and an affiliate of DMC, an annual distribution and service fee
not to exceed 0.30% of the average daily net assets of the Class A shares, 1.00%
of the average daily net assets of the Class B and C shares and 0.60% of the
average daily net assets of the Class R shares. Institutional Class shares pay
no distribution and service expenses. The Board of Trustees has adopted a
formula for calculating 12b-1 plan fees for the Fund's Class A shares that went
into effect on May 2, 1994. The total 12b-1 fees to be paid by the Class A
shareholders of the Fund will be the sum of 0.10% of the average daily net
assets representing shares that were acquired prior to May 2, 1994 and 0.30% of
the average daily net assets representing shares that were acquired on or after
May 2, 1994. All Class A shareholders will bear 12b-1 fees at the same rate, the
blended rate based upon the allocation of the 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 November 30, 2006, the Fund had liabilities payable to affiliates as follows:
Investment management fee payable to DMC $708,635
Dividend disbursing, transfer agent, accounting
and administration fees and other expenses
payable to DSC 262,855
Distribution fees payable to DDLP 397,273
Other expenses payable to DMC and affiliates * 35,369
* 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 and tax services, including internal legal and tax services
provided to the Fund by DMC and/or its affiliates' employees. For the year ended
November 30, 2006, the Fund was charged $63,776 for internal legal and tax
services provided by DMC and/or its affiliates' employees.
For the year ended November 30, 2006, DDLP earned $72,428 for commissions on
sales of the Fund's Class A shares. For the year ended November 30, 2006, DDLP
received gross contingent deferred sales charge commissions of $71, $113,443 and
$2,547 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.
Trustees' Fees and benefits include expenses accrued by the Fund for each
Trustee's retainer, per meeting fees and retirement benefits. Independent
Trustees with over five years of uninterrupted service are eligible to
participate in a retirement plan that provides for the payment of benefits upon
retirement. The amount of the retirement benefit is based on factors set forth
in the plan, including the number of years of service. On November 16, 2006, the
Board of Trustees unanimously voted to terminate the retirement plan. Payments
equal to the net present value of the earned benefits will be made in 2007 to
those independent Trustees so entitled. The retirement benefit payout for the
Fund is $173,183. Certain officers of DMC, DSC and DDLP are officers and/or
trustees of the Trust. These officers and trustees are paid no compensation by
the Fund.
3. Investments
For the year ended November 30, 2006, the Fund made purchases of $211,882,077
and sales of $413,487,300 of investment securities other than short-term
investments.
At November 30, 2006, the cost of investments for federal income tax purposes
was $1,239,610,117. At November 30, 2006, net unrealized appreciation was
$232,634,831, of which $234,387,109 related to unrealized appreciation of
investments and $1,752,278 related to unrealized depreciation of investments.
(continues) 19
Notes to financial statements
Delaware Large Cap Value Fund
4. Dividend and Distribution Information
Income and long-term capital gain distributions are determined in accordance
with federal income tax regulations, which may differ from U.S. generally
accepted accounting principles. Additionally, net short-term gains on sales of
investment securities are treated as ordinary income for federal income tax
purposes. The tax character of dividends and distributions paid during the
years ended November 30, 2006 and 2005 was as follows:
Year Ended
11/30/06 11/30/05
Ordinary Income $ 21,006,940 $14,314,729
Long-term capital gain 87,767,399 1,301,422
____________ ___________
Total $108,774,339 $15,616,151
____________ ___________
5. Components of Net Assets on a Tax Basis
As of November 30, 2006, the components of net assets on a tax basis were as
follows:
Shares of beneficial interest $1,150,965,961
Undistributed ordinary income 20,505,033
Undistributed long-term capital gains 43,438,799
* Capital loss carryforwards (14,963,116)
Unrealized appreciation of investments 232,634,831
______________
Net assets $1,432,581,508
______________
* 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 in 2004.
The differences between book basis and tax basis components of net assets are
primarily attributable to tax deferral of losses on wash sales.
For financial reporting purposes, capital accounts are adjusted to reflect the
tax character of permanent book/tax differences. Reclassifications are primarily
due to tax treatment of dividends and distributions. Results of operations and
net assets were not affected by these reclassifications. For the year ended
November 30, 2006, the Fund recorded the following permanent reclassifications.
Undistributed net investment income $ 1,233,846
Accumulated net realized gain (1,233,846)
For federal income tax purposes, capital loss carryforwards may be carried
forward and applied against future capital gains. $14,104,310 was utilized in
2006. Capital loss carryforwards remaining at November 30, 2006 will expire as
follows: $7,971,824 expires in 2009 and $6,991,292 expires in 2010.
6. Capital Shares
Transactions in capital shares were as follows:
Year Ended
11/30/06 11/30/05
Shares sold:
Class A 3,408,228 2,755,413
Class B 285,406 349,639
Class C 248,715 263,187
Class R 35,902 13,486
Institutional Class 351,204 396,129
Shares issued upon reinvestment of
dividends and distributions:
Class A 4,742,047 669,440
Class B 483,517 37,467
Class C 137,792 9,230
Class R 4,630 524
Institutional Class 199,069 33,389
_________ _________
9,896,510 4,527,904
_________ _________
Shares repurchased:
Class A (10,939,123) (11,031,811)
Class B (3,086,596) (3,463,042)
Class C (547,163) (720,168)
Class R (41,886) (25,807)
Institutional Class (733,900) (2,609,454)
___________ ___________
(15,348,668) (17,850,282)
___________ ___________
Net decrease (5,452,158) (13,322,378)
___________ ___________
For the years ended November 30, 2006 and 2005, 1,429,287 Class B shares were
converted to 1,418,730 Class A shares valued at $26,919,220 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.
7. Line of Credit
The Fund, along with certain other funds in the Delaware Investments(R)
Family of Funds (the "Participants"), participates in a $225,000,000 revolving
line of credit facility to be used for temporary or emergency purposes as an
additional source of liquidity to fund redemptions of investor shares. The
Participants are charged an annual commitment fee, which is allocated across
the Participants on the basis of each Participant's allocation of the entire
facility. The Participants may borrow up to a maximum of one third of their net
assets under the agreement. The Fund had no amounts outstanding as of November
30, 2006, or at any time during the year.
20
8. Securities Lending
The Fund, along with other funds in the Delaware Investments(R) Family of
Funds, may lend its securities pursuant to a security lending agreement
(Lending Agreement) with J.P. Morgan Chase. Initial security loans made
pursuant to the Lending Agreement are required to be secured by U.S. Treasury
obligations and/or cash collateral not less than 102% of the market value of
the securities issued in the United States. With respect to each loan, if the
aggregate market value of the collateral held on any business day is less than
the aggregate market value of the securities which are the subject of such
loan, the borrower will be notified to provide additional collateral not less
than the applicable collateral requirements. Cash collateral received is
invested in fixed-income securities, with a weighted average maturity not to
exceed 90 days, rated in one of the top two tiers by Standard & 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 November 30, 2006, the market value of the securities on loan was
$41,273,569, for which cash collateral was received and invested in accordance
with the Lending Agreement. Such investments are presented on the Statement of
Net Assets under the caption "Securities Lending Collateral."
9. Credit and Market Risk
The Fund may invest up to 10% 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 November 30, 2006, there were no Rule 144A securities and no securities have
been determined to be illiquid under the Fund's Liquidity Procedures.
10. Contractual Obligations
The Fund enters into contracts in the normal course of business that contain a
variety of indemnifications. The Fund's maximum exposure under these
arrangements is unknown. However, the Fund has not had prior claims or losses
pursuant to these contracts. Management has reviewed the Fund's existing
contracts and expects the risk of loss to be remote.
11. Tax Information (Unaudited)
The information set forth below is for the Fund's fiscal year as required by
federal laws. Shareholders, however, must report distributions on a calendar
year basis for income tax purposes, which may include distributions for
portions of two fiscal years of a fund. Accordingly, the information needed by
shareholders for income tax purposes will be sent to them in January of each
year. Please consult your tax advisor for proper treatment of this
information.
For the fiscal year ended November 30, 2006, the Fund designates dividends and
distributions paid during the year as follows:
(A) (B)
Long-Term Ordinary
Capital Gain Income Total (C)
Distributions Distributions * Distributions Qualifying
(Tax Basis) (Tax Basis) (Tax Basis) Dividends (1)
_____________ _______________ _____________ _____________
81% 19% 100% 100%
(A) and (B) are based on a percentage of the Fund's total distributions.
(C) is based on a percentage of ordinary income distributions of the Fund.
(1) Qualifying dividends represent dividends which qualify for the corporate
dividends received deduction.
* For the fiscal year ended November 30, 2006, certain dividends paid by the
Fund may be subject to a maximum tax rate of 15%, as provided for by the
Jobs and Growth Tax Relief Reconciliation Act of 2003. The Fund intends to
designate up to a maximum amount of $21,006,940 to be taxed at a maximum
rate of 15%. Complete information will be computed and reported in
conjunction with your 2006 Form 1099-DIV.
For the fiscal year ended November 30, 2006, certain interest income paid by
the Fund, determined to be Qualified Interest Income may be subject to relief
from U.S. withholding for foreign shareholders, as provided by the American
Jobs Creation Act of 2004. For the fiscal year ended November 30, 2006, the
Fund has designated maximum distributions of Qualified Interest Income of
$412,659.
21
Report of independent
registered public accounting firm
To the Shareholders and Board of Trustees
Delaware Group Equity Funds II - Delaware Large Cap Value Fund
We have audited the accompanying statement of net assets of Delaware Large Cap
Value Fund (one of the series constituting Delaware Group Equity Funds II) (the
"Fund") as of November 30, 2006, and the related statement of operations for
the year then ended, the statements of changes in net assets for each of the
two years in the period then ended, and the financial highlights for each of
the periods indicated therein. These financial statements and financial
highlights are the responsibility of the Fund's management. Our responsibility
is to express an opinion on these financial statements and financial highlights
based on our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements and financial highlights are free of material
misstatement. We were not engaged to perform an audit of the Fund's internal
control over financial reporting. Our audits included consideration of internal
control over financial reporting as a basis for designing audit procedures that
are appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Fund's internal control over financial
reporting. Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements and financial highlights, assessing the accounting
principles used and significant estimates made by management, and evaluating the
overall financial statement presentation. Our procedures included confirmation
of securities owned as of November 30, 2006, by correspondence with the
custodian and brokers. We believe that our audits provide a reasonable basis for
our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of the
Delaware Large Cap Value Fund of Delaware Group Equity Funds II at November 30,
2006, the results of its operations for the year then ended, the changes in its
net assets for each of the two years in the period then ended, and its
financial highlights for each of the periods indicated therein, in conformity
with U.S. generally accepted accounting principles.
/s/ Ernst & Young LLP
Philadelphia, Pennsylvania
January 16, 2007
22
Board of trustees/directors
and officers addendum
Delaware Investments(R) Family of Funds
A mutual fund is governed by a Board of Trustees/Directors ("Trustees"), which
has oversight responsibility for the management of a fund's business affairs.
Trustees establish procedures and oversee and review the performance of the
investment manager, the distributor, and others who perform services for the
fund. The independent fund trustees, in particular, are advocates for
shareholder interests. Each trustee has served in that capacity since he or she
was elected to or appointed to the Board of Trustees, and will continue to
serve until his or her retirement or the election of a new trustee in his or
her place. The following is a list of the Trustees and Officers with certain
background and related information.
Number of
Portfolios in Fund Other
Name, Complex Overseen Directorships
Address, Position(s) Length of Principal Occupation(s) by Trustee Held by
and Birth Date Held with Fund(s) Time Served During Past 5 Years or Officer Trustee or Officer
____________________________________________________________________________________________________________________________________
Interested Trustees
____________________________________________________________________________________________________________________________________
Patrick P. Coyne (1) Chairman, Chairman and Trustee Patrick P. Coyne has served in 83 None
2005 Market Street President, since August 16, 2006 various executive capacities
Philadelphia, PA Chief Executive at different times at
19103 Officer, and President and Delaware Investments. (2)
Trustee Chief Executive Officer
April 14, 1963 since August 1, 2006
____________________________________________________________________________________________________________________________________
Independent Trustees
____________________________________________________________________________________________________________________________________
Thomas L. Bennett Trustee Since Private Investor - 83 None
2005 Market Street March 2005 (March 2004-Present)
Philadelphia, PA
19103 Investment Manager -
Morgan Stanley & Co.
October 4, 1947 (January 1984-March 2004)
____________________________________________________________________________________________________________________________________
John A. Fry Trustee Since President - 83 Director -
2005 Market Street January 2001 Franklin & Marshall College Community Health
Philadelphia, PA (June 2002-Present) Systems
19103
Executive Vice President - Director -
May 28, 1960 University of Pennsylvania Allied Barton
(April 1995-June 2002) Security Holdings
____________________________________________________________________________________________________________________________________
Anthony D. Knerr Trustee Since Founder and Managing Director - 83 None
2005 Market Street April 1990 Anthony Knerr & Associates
Philadelphia, PA (Strategic Consulting)
19103 (1990-Present)
December 7, 1938
____________________________________________________________________________________________________________________________________
Lucinda S. Landreth Trustee Since Chief Investment Officer - 83 None
2005 Market Street March 2005 Assurant, Inc.
Philadelphia, PA (Insurance)
19103 (2002-2004)
June 24, 1947
____________________________________________________________________________________________________________________________________
Ann R. Leven Trustee Since Consultant - 83 Director and
2005 Market Street September 1989 ARL Associates Audit Committee
Philadelphia, PA (1983-Present) Chairperson - Andy
19103 Warhol Foundation
November 1, 1940 Director and Audit
Committee Member -
Systemax, Inc.
____________________________________________________________________________________________________________________________________
23
Number of
Portfolios in Fund Other
Name, Complex Overseen Directorships
Address, Position(s) Length of Principal Occupation(s) by Trustee Held by
and Birth Date Held with Fund(s) Time Served During Past 5 Years or Officer Trustee or Officer
____________________________________________________________________________________________________________________________________
Independent Trustees (continued)
____________________________________________________________________________________________________________________________________
Thomas F. Madison Trustee Since President and Chief 83 Director -
2005 Market Street May 1999 Executive Officer - Banner Health
Philadelphia, PA MLM Partners, Inc.
19103 (Small Business Investing Director -
and Consulting) CenterPoint Energy
February 25, 1936 (January 1993-Present)
Director and Audit
Committee Member -
Digital River, Inc.
Director and Audit
Committee Member -
Rimage
Corporation
Director - Valmont
Industries, Inc.
____________________________________________________________________________________________________________________________________
Janet L. Yeomans Trustee Since Vice President 83 None
2005 Market Street April 1999 (January 2003-Present)
Philadelphia, PA and Treasurer
19103 (January 2006-Present)
3M Corporation
July 31, 1948
Ms. Yeomans has held
various management positions
at 3M Corporation since 1983.
____________________________________________________________________________________________________________________________________
J. Richard Zecher Trustee Since Founder - 83 Director and Audit
2005 Market Street March 2005 Investor Analytics Committee Member -
Philadelphia, PA (Risk Management) Investor Analytics
19103 (May 1999-Present)
Director and Audit
July 3, 1940 Founder - Committee Member -
Sutton Asset Management Oxigene, Inc.
(Hedge Fund)
(September 1998-Present)
____________________________________________________________________________________________________________________________________
Officers
____________________________________________________________________________________________________________________________________
David F. Connor Vice President, Vice President since David F. Connor has served as 83 None (3)
2005 Market Street Deputy General September 21, 2000 Vice President and Deputy
Philadelphia, PA Counsel, and Secretary and Secretary General Counsel of
19103 since Delaware Investments
October 2005 since 2000.
December 2, 1963
____________________________________________________________________________________________________________________________________
David P. O'Connor Senior Vice Senior Vice President, David P. O'Connor has served in 83 None (3)
2005 Market Street President, General Counsel, and various executive and legal
Philadelphia, PA General Counsel, Chief Legal Officer capacities at different times
19103 and Chief since at Delaware Investments.
Legal Officer October 2005
February 21, 1966
____________________________________________________________________________________________________________________________________
John J. O'Connor Senior Vice President Treasurer John J. O'Connor has served in 83 None (3)
2005 Market Street and Treasurer since various executive capacities
Philadelphia, PA February 2005 at different times at
19103 Delaware Investments.
June 16, 1957
____________________________________________________________________________________________________________________________________
Richard Salus Senior Chief Financial Richard Salus has served in 83 None (3)
2005 Market Street Vice President Officer since various executive capacities
Philadelphia, PA and November 1, 2006 at different times at
19103 Chief Financial Delaware Investments.
Officer
October 4, 1963
____________________________________________________________________________________________________________________________________
(1) Patrick P. Coyne is considered to be an "Interested Trustee" because he is an executive officer of the Fund's(s') investment
advisor.
(2) Delaware Investments is the marketing name for Delaware Management Holdings, Inc. and its subsidiaries, including the Fund's(s')
investment advisor, principal underwriter, and its transfer agent.
(3) David F. Connor, David P. O'Connor, John J. O'Connor, and Richard Salus serve in similar capacities for the six portfolios of
the Optimum Fund Trust, which have the same investment advisor, principal underwriter, and transfer agent as the registrant.
John J. O'Connor also serves in a similar capacity for Lincoln Variable Insurance Products Trust, which has the same investment
advisor as the registrant.
The Statement of Additional Information for the Fund(s) includes additional information about the Trustees and Officers and is
available, without charge, upon request by calling 800 523-1918.
24
About the organization
This annual 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
Patrick P. Coyne
Chairman, President, and
Chief Executive Officer
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
Consultant
ARL Associates,
New York, NY
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
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
Richard Salus
Senior Vice President and
Chief Financial Officer
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.
25
Simplify your life.
Manage your investments online!
Get Account Access, the Delaware Investments(R) secure Web site that allows
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:
o Hassle-free investing - Make online purchases and redemptions at any time.
o Simplified tax processing - Automatically retrieve your Delaware
Investments accounts' 1099 information and import it directly into your 1040
tax return. Available only with Turbo Tax(R) Online(SM) and Desktop
software - www.turbotax.com.
o Less mail clutter - Get instant access to your fund materials online with
Delaware eDelivery.
Register for Account Access today! Please visit us at
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 INVESTMENTS LOGO]
(1174) Printed in the USA
AR-001 [11/06] CGI 1/07 MF-06-11-019 PO11485
Annual Report Delaware
Value Fund
November 30, 2006
Value equity mutual fund
[DELAWARE INVESTMENTS LOGO] [LOGO] POWERED BY RESEARCH(R)
Table of contents
> Portfolio management review .................................................1
> Performance summary ........................................................4
> Disclosure of Fund expenses .................................................6
> Sector allocation and top 10 holdings .......................................7
> Statement of net assets .....................................................8
> Statement of operations ....................................................10
> Statements of changes in net assets ........................................11
> Financial highlights .......................................................12
> Notes to financial statements ..............................................17
> Report of independent registered public accounting firm ....................21
> Board of trustees/directors and officers addendum ..........................22
> About the organization .....................................................24
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) 2007 Delaware Distributors, L.P.
Portfolio management review
Delaware Value Fund
November 30, 2006
The managers of Delaware Value Fund provided the answers to the questions below
as a review of the Fund's activities for the fiscal year that ended November 30,
2006. Please see page 2 to learn more about the portfolio managers.
Q: What kind of economic and stock market environment did you encounter during
the year ended November 30, 2006?
A: Overall, the equity market performed well and turned in higher returns than
we had anticipated for the period, despite a slowdown in the U.S. economy and a
variety of other challenges during the past year.
For much of the first half of the reporting period, stocks faced headwinds on a
number of fronts. Interest rates and energy costs continued to rise, which put
downward pressure on corporate earnings and consumer spending.
Stronger-than-expected inflation reports in the spring made it more likely that
the U.S. Federal Reserve Board (Fed) would continue to raise short-term interest
rates. It did just that at each of its 2006 policy meetings through June. The
threat of higher inflation and interest rates were negative influences on equity
prices, which declined rather sharply in May and June 2006.
By July, however, conditions improved noticeably. Corporate earnings, though
slowing, remained relatively solid, as did consumer spending in the face of a
weakening housing market. In addition, oil prices began declining sharply from
their historical highs, and the Fed finally decided not to raise interest rates
at its August meeting and through the end of the period. Against this backdrop,
equities performed well, with high-quality large-cap stocks leading the way
after trailing their smaller counterparts for several years.
Q: How did Delaware Value Fund perform during the fiscal year?
A: Delaware Value Fund returned +20.48% with all distributions reinvested (Class
A shares at net asset value) and +13.59% with the sales charge included (Class A
shares at maximum offer price) for the period. The Russell 1000 Value Index, our
primary benchmark, also advanced 20.28%, while the Lipper Large-Cap Value Funds
Average gained 16.17% over the same period. For the complete, annualized
performance of Delaware Value Fund, please see the table on page 4.
The Fund was able to keep pace with its benchmark despite the strong market
environment. Historically, our conservative, value-oriented investment approach
has been best suited to stock market environments where performance is modestly
positive, flat, or even negative. However, we have typically been at a
disadvantage when the broad equity market has performed particularly well, as it
did during portions of the reporting period.
Q: Given this backdrop during the year, what was your management approach?
A: Expecting a slowdown in the economy and a reduced rate of corporate earnings
growth, we believed it was prudent to position the portfolio even more
defensively than usual. As a result, we held overweightings versus our
benchmark, the S&P 500 Index, in less economically sensitive sectors such as
healthcare and consumer staples. The Fund was underweight relative to this index
in more economically sensitive areas, such as consumer discretionary.
We regularly look to invest in undervalued companies with good businesses that
we believe are priced well below their intrinsic value. During the most recent
period, we focused on companies that we believed had particularly sound balance
sheets, strong dividend yields, and the potential to continue generating
relatively stable earnings, even in a weaker economy.
This approach led us to hold small positions in the energy and industrials
sectors relative to the benchmark index, both of which tend to be relatively
sensitive to economic changes. As the fiscal year progressed, however, we found
an increasing number of opportunities among information technology stocks that
we believed were attractively valued, and subsequently we added a new position
in Intel. More information technology stocks were passing our strict screening
process, as a number of companies established shareholder-friendly policies in
the midst of successful turnarounds.
The views expressed are current as of the date of this report and are subject to
change.
(continues) 1
Portfolio management review
Delaware Value Fund
We continued to hold a large position in the inherently defensive healthcare
sector. In our view, many healthcare stocks were offering attractive valuations
relative to their historical levels, and compared to the broad stock market. We
identified a number of companies in this group that provided what we believed
were attractive dividends and balance sheets.
We certainly are aware of the challenges faced by pharmaceutical stocks - such
as upcoming patent expirations on key drugs and the risk that legislation could
dampen drug company profits. However, we also believed that positive factors
such as improving drug pipelines and recent cost-cutting may outweigh these
negatives in many cases.
Q: What investments most helped and hurt the Fund's results?
A: Several consumer discretionary stocks generated strong gains during the
fiscal period. Toy manufacturer Mattel benefited from the success of key brands
and better supply chain management, as well as from lower energy prices, which
resulted in reduced production costs for the company. Limited Brands performed
well, in part on a turnaround in its apparel businesses, as well as from its
personal care segment, Bath and Body Works. In healthcare, the Fund gained from
its holding in Merck. The pharmaceutical company's stock recovered from a low,
as investors' concerns about legal liability surrounding its Vioxx pain
medication abated.
Our holdings in the financials sector were often among our weakest performers.
For example, one stock that trailed the performance of the broad equity market
was bank company Huntington Bancshares. As with other banks, Huntington
encountered difficulty as the company's earnings suffered from less profitable
lending activities, caused by a challenging interest rate environment. Insurance
company Hartford Financial Services Group also underperformed relative to the
overall stock market, hindered by increased competition and a slowdown in the
growth of auto insurance premiums, among other factors.
Q: How was the Fund positioned at the end of the period?
A: The portfolio remained defensively positioned at the end of the period. Yet,
as demonstrated by our purchase of Intel during the period, we're committed to
finding companies (including those in less defensive areas) that we believe are
under-priced relative to their intrinsic values and that offer attractive value
for our shareholders. This contrarian focus is a cornerstone of our investment
philosophy. In short, we have not hesitated to take advantage of periodic
opportunities to buy what we feel are favorable investments at attractive
prices. At the same time, our approach remained cautious.
Fund managers
D. Tysen Nutt Jr.
Senior Vice President, Senior Portfolio Manager,
Team Leader - Large-Cap Value Focus Equity
Mr. Nutt joined Delaware Investments in 2004 as senior vice president and senior
portfolio manager for the firm's Large-Cap Value Focus strategy. Before joining
the firm, Mr. Nutt led the U.S. Active Large-Cap Value team within Merrill Lynch
Investment Managers (MLIM), where he managed mutual funds and separate accounts
for institutions and private clients. Mr. Nutt departed MLIM as a managing
director. Prior to joining MLIM in 1994, Mr. Nutt was with Van Deventer & Hoch
(V&H) where he managed large-cap value portfolios for institutions and private
clients. He began his investment career at Dean Witter Reynolds, where he
eventually became vice president, investments. Mr. Nutt earned his bachelor's
degree from Dartmouth College, and he is a member of the New York Society of
Security Analysts and the CFA Institute.
2
Jordan L. Irving
Vice President, Senior Portfolio Manager
Mr. Irving joined Delaware Investments in 2004 as a vice president, senior
portfolio manager for the firm's Large-Cap Value Focus strategy. Previously, he
worked for the U.S. Active Large-Cap Value team within Merrill Lynch Investment
Managers for six years, where he managed mutual funds and separate accounts for
institutions and private clients. Mr. Irving graduated from Yale University with
a bachelor's degree in American studies and earned a special diploma in social
studies at Oxford University in England. He competed for the United States
National Rowing Team, winning a gold medal at the 1997 World Rowing
Championships in Aiguebelette, France.
Anthony A. Lombardi, CFA
Vice President, Senior Portfolio Manager
Mr. Lombardi joined Delaware Investments in 2004 as a vice president and senior
portfolio manager for the firm's Large-Cap Value Focus strategy. Previously, Mr.
Lombardi worked at Merrill Lynch Investment Managers from 1998 to 2004, where he
rose to the position of director and portfolio manager for the U.S. Active
Large-Cap Value team, managing mutual funds and separate accounts for
institutions and private clients. Prior to that he worked at Dean Witter
Reynolds for seven years as a sell-side equity research analyst, and he began
his career as an investment analyst with Crossland Savings in 1989. Mr. Lombardi
graduated from Hofstra University, receiving a bachelor's degree in finance and
an MBA with a concentration in finance. He is a member of the New York Society
of Security Analysts and the CFA Institute.
Robert A. Vogel Jr., CFA
Vice President, Senior Portfolio Manager
Mr. Vogel joined Delaware Investments in 2004 as a vice president, senior
portfolio manager for the firm's Large-Cap Value Focus strategy. He previously
worked at Merrill Lynch Investment Managers for more than seven years, where he
rose to the position of director and portfolio manager within the U.S. Active
Large-Cap Value team.
He began his career in 1992 as a financial consultant at Merrill Lynch. Mr.
Vogel graduated from Loyola College in Maryland, earning both bachelor's and
master's degrees in finance. He also earned an MBA with a concentration in
finance from The Wharton School of the University of Pennsylvania, and he is a
member of the New York Society of Security Analysts and the CFA Society of
Philadelphia.
Nikhil G. Lalvani, CFA
Vice President, Portfolio Manager
Mr. Lalvani is a portfolio manager with the firm's Large-Cap Value Focus team.
At Delaware Investments, Mr. Lalvani has served as both a fundamental and
quantitative analyst. Prior to joining the firm in 1997, he was a research
associate with Bloomberg. Mr. Lalvani holds a bachelor's degree in finance from
Penn State University and is a member of the CFA Society of Philadelphia.
Nashira S. Wynn
Vice President, Portfolio Manager
Ms. Wynn is a portfolio manager with the firm's Large-Cap Value Focus team.
Prior to joining Delaware Investments in 2004, she was an equity research
analyst for Merrill Lynch Investment Managers. Ms. Wynn earned a bachelor's
degree in finance, with a minor in economics, from The College of New Jersey,
and she attended England's Oxford University as a presidential scholar. Ms. Wynn
is also a CFA Level I candidate.
3
Performance summary
Delaware Value Fund
The performance data quoted represent past performance; past performance does
not guarantee future results. Investment return and principal value will
fluctuate so your shares, when redeemed, may be worth more or less than their
original cost. Current performance may be lower or higher than the performance
data quoted. Please obtain the performance data for the most recent month end by
calling 800 523-1918 or visiting www.delawareinvestments.com/performance.
You should consider the investment objectives, risks, charges, and expenses of
the investment carefully before investing. The Delaware Value Fund prospectus
contains this and other important information about the Fund. Please request a
prospectus through your financial advisor or by calling 800 523-1918 or visiting
our Web site at www.delawareinvestments.com. Read the prospectus carefully
before you invest or send money.
Instances of high double-digit returns are highly unusual and cannot be
sustained and were achieved primarily during favorable market conditions.
Fund performance
Average annual total returns
Through November 30, 2006 1 year 5 years Lifetime
________________________________________________________________________________
Class A (Est. 9-15-98)
Excluding sales charge +20.48% +9.10% +8.57%
Including sales charge +13.59% +7.81% +7.78%
________________________________________________________________________________
Class B (Est. 5-1-02)
Excluding sales charge +19.59% NA +8.58%
Including sales charge +15.59% NA +8.21%
________________________________________________________________________________
Class C (Est. 5-1-02)
Excluding sales charge +19.59% NA +8.51%
Including sales charge +18.59% NA +8.51%
________________________________________________________________________________
Returns reflect the reinvestment of all distributions and any applicable sales
charges as noted below.
Funds that invest in small and/or medium-sized company stocks typically involve
greater risk, particularly in the short term, than those investing in larger,
more established companies.
Performance for Class B and C shares, excluding sales charges, assumes either
that contingent deferred sales charges did not apply or the investment was not
redeemed.
The Fund offers Class A, B, C, R, and Institutional Class shares. Class A shares
are sold with a front-end sales charge of up to 5.75% and have an annual
distribution and service fee of up to 0.30% of average daily net assets, but
such fee is currently subject to a contractual cap of 0.25% through March 31,
2007.
Class B shares are sold with a contingent deferred sales charge that declines
from 4% to zero depending on the period of time the shares are held. Class B
shares will automatically convert to Class A shares on a quarterly basis
approximately eight years after purchase. They are also subject to an annual
distribution and service fee of 1% of average daily net assets.
Class C shares are sold with a contingent deferred sales charge of 1% if
redeemed during the first 12 months. They are also subject to an annual
distribution and service fee of 1% of average daily net assets.
The average annual total returns for the one-year and lifetime (since September
1, 2005) period ended November 30, 2006 for the Delaware Value Fund Class R
shares was 20.39% and 16.84%, respectively. Class R shares were first made
available on September 1, 2005 and are available only for certain retirement
plan products. They are sold without a sales charge and have an annual
distribution and service fee of 0.60% of average daily net assets, but such fee
is currently subject to a contractual cap of 0.50% of average daily net assets
through March 31, 2007.
The average annual total returns for the 1-year, 5-year, and lifetime (since
September 15, 1998) periods ended November 30, 2006 for Delaware Value Fund
Institutional Class shares were 20.85%, 9.35%, and 8.72%, respectively.
Institutional Class shares were first made available on September 15, 1998 and
are available without sales or asset-based distribution charges only to certain
eligible institutional accounts.
An expense limitation was in effect for all classes during the periods shown
above and on the next page. Performance would have been lower had the expense
limitation not been in effect.
The performance table above and the graph on the next page do not reflect the
deduction of taxes the shareholder would pay on Fund distributions or
redemptions of Fund shares.
4
Fund basics
As of November 30, 2006
________________________________________________________________________________
Fund objective
________________________________________________________________________________
The Fund seeks long-term capital appreciation.
________________________________________________________________________________
Total Fund net assets
________________________________________________________________________________
$512 million
________________________________________________________________________________
Number of holdings
________________________________________________________________________________
34
________________________________________________________________________________
Fund start date
________________________________________________________________________________
September 15, 1998
________________________________________________________________________________
Nasdaq symbols CUSIPs
________________________________________________________________________________
Class A DDVAX 24610C881
Class B DDVBX 24610C873
Class C DDVCX 24610C865
Class R DDVRX 245907860
Institutional Class DDVIX 24610C857
Performance of a $10,000 Investment
September 15, 1998 (Fund's inception) through November 30, 2006
[PERFORMANCE OF A $10,000 INVESTMENT LINE GRAPH]
Chart assumes $10,000 invested on September 15, 1998 and includes the effect of
a 5.75% front-end sales charge and the reinvestment of all distributions.
Returns plotted on the chart were as of the last day of each month shown.
Performance of other Fund classes will vary due to different charges and
expenses.
Chart also assumes $10,000 invested in the Russell 1000 Value Index on September
15, 1998. The Russell 1000 Value Index generally measures the performance of
those Russell 1000 companies with lower price-to-book ratios and lower
forecasted growth values. The Russell 1000 Index measures the 1,000 largest U.S.
companies based on market capitalization. The S&P 500 Index, mentioned as the
managers' sector benchmark, is a composite of mostly large-capitalization U.S.
companies. An index is unmanaged and does not reflect the costs of operating a
mutual fund, such as the costs of buying, selling, and holding securities. You
cannot invest directly in an index.
Past performance is not a guarantee of future results.
5
Disclosure of Fund expenses
For the period June 1, 2006 to November 30, 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 June 1, 2006 to November 30, 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 6/1/06 to
6/1/06 11/30/06 Ratios 11/30/06 *
________________________________________________________________________________
Actual Fund Return
Class A $1,000.00 $1,136.70 1.02% $5.46
Class B 1,000.00 1,133.10 1.77% 9.46
Class C 1,000.00 1,132.10 1.77% 9.46
Class R 1,000.00 1,137.30 1.27% 6.80
Institutional Class 1,000.00 1,138.30 0.77% 4.13
________________________________________________________________________________
Hypothetical 5% Return (5% return before expenses)
Class A $1,000.00 $1,019.95 1.02% $5.16
Class B 1,000.00 1,016.19 1.77% 8.95
Class C 1,000.00 1,016.19 1.77% 8.95
Class R 1,000.00 1,018.70 1.27% 6.43
Institutional Class 1,000.00 1,021.21 0.77% 3.90
________________________________________________________________________________
* "Expenses Paid During Period" are equal to the Fund's annualized expense
ratio, multiplied by the average account value over the period, multiplied by
183/365 (to reflect the one-half year period).
6
Sector allocation and top 10 holdings
Delaware Value Fund
As of November 30, 2006
Sector designations may be different than the sector designations presented in
other Fund materials.
Percentage
Sector of Net Assets
________________________________________________________________________________
Common Stock 98.32%
Consumer Discretionary 8.95%
Consumer Staples 11.91%
Energy 6.17%
Financials 23.72%
Health Care 17.91%
Industrials 5.88%
Information Technology 11.90%
Materials 2.87%
Telecommunications 6.04%
Utilities 2.97%
________________________________________________________________________________
Repurchase Agreements 3.50%
________________________________________________________________________________
Total Market Value of Securities 101.82%
________________________________________________________________________________
Liabilities Net of Receivables and Other Assets (1.82%)
________________________________________________________________________________
Total Net Assets 100.00%
________________________________________________________________________________
Holdings are for informational purposes only and are subject to change at any
time. They are not a recommendation to buy, sell, or hold any security.
Percentage
Top 10 Holdings of Net Assets
________________________________________________________________________________
ConocoPhillips 3.11%
Chevron 3.06%
Limited Brands 3.05%
AT&T 3.04%
Aon 3.04%
Heinz (H.J.) 3.01%
Merck & Co. 3.00%
Intel 3.00%
Pfizer 2.99%
Baxter International 2.99%
________________________________________________________________________________
7
Statement of net assets
Delaware Value Fund
November 30, 2006
Number of Market
Shares Value
________________________________________________________________________________
Common Stock - 98.32%
________________________________________________________________________________
Consumer Discretionary - 8.95%
Gap 793,000 $ 14,844,960
+ Idearc 18,845 518,991
Limited Brands 492,000 15,591,480
Mattel 677,200 14,864,540
____________
45,819,971
____________
Consumer Staples - 11.91%
ConAgra Foods 589,900 15,160,430
Heinz (H.J.) 346,300 15,393,035
Kimberly-Clark 228,100 15,161,807
Safeway 494,700 15,241,707
____________
60,956,979
____________
Energy - 6.17%
Chevron 216,900 15,686,208
ConocoPhillips 236,200 15,896,260
____________
31,582,468
____________
Financials - 23.72%
Allstate 236,900 15,038,412
Aon 435,800 15,549,344
Chubb 289,900 15,005,224
Hartford Financial Services Group 176,800 15,162,368
Huntington Bancshares 622,000 15,120,820
Morgan Stanley 196,100 14,934,976
Wachovia 282,600 15,314,094
Washington Mutual 350,200 15,296,736
____________
121,421,974
____________
Health Care - 17.91%
Abbott Laboratories 325,100 15,169,166
Baxter International 342,500 15,323,450
Bristol-Myers Squibb 612,400 15,205,892
Merck & Co. 345,400 15,373,754
Pfizer 557,600 15,328,424
Wyeth 316,900 15,299,932
____________
91,700,618
____________
Industrials - 5.88%
Donnelley (R.R.) & Sons 431,700 15,226,059
Waste Management 405,800 14,856,338
____________
30,082,397
____________
Information Technology - 11.90%
Hewlett-Packard 388,000 15,310,480
Intel 718,900 15,348,515
International Business Machines 165,100 15,175,992
+ Xerox 912,700 15,059,550
____________
60,894,537
____________
Materials - 2.87%
duPont (E.I.) deNemours 312,900 14,684,397
____________
14,684,397
____________
Telecommunications - 6.04%
AT&T 459,600 15,585,036
Verizon Communications 438,400 15,317,696
____________
30,902,732
____________
Utilities - 2.97%
Progress Energy 318,300 15,205,191
____________
15,205,191
____________
Total Common Stock
(cost $429,360,043) 503,251,264
____________
Principal
Amount
________________________________________________________________________________
Repurchase Agreements - 3.50%
________________________________________________________________________________
With BNP Paribas 5.26%
12/1/06 (dated 11/30/06,
to be repurchased at
$7,907,155, collateralized
by $8,125,000 U.S. Treasury
Notes 2.75% due 8/15/07,
market value $8,070,180) $7,906,000 7,906,000
With Cantor Fitzgerald 5.26%
12/1/06 (dated 11/30/06,
to be repurchased at
$4,822,705, collateralized by
$3,910,000 U.S. Treasury Bills
due 12/28/06, market value
$3,895,552 and $1,003,000
U.S. Treasury Notes 6.25%
due 2/15/07, market value
$1,024,087) 4,822,000 4,822,000
With UBS Warburg 5.26%
12/1/06 (dated 11/30/06,
to be repurchased at
$5,213,762, collateralized by
$5,448,000 U.S. Treasury Bills
due 5/24/07, market value
$5,320,493) 5,213,000 5,213,000
____________
Total Repurchase Agreements
(cost $17,941,000) 17,941,000
____________
Total Market Value of Securities - 101.82%
(cost $447,301,043) 521,192,264
Liabilities Net of Receivables and
Other Assets - (1.82%) (9,324,292)
____________
Net Assets Applicable to 37,991,629
Shares Outstanding - 100.00% $511,867,972
____________
Net Asset Value - Delaware Value Fund Class A
($271,377,914 / 20,139,975 Shares) $13.47
______
Net Asset Value - Delaware Value Fund Class B
($9,914,181 / 741,702 Shares) $13.37
______
Net Asset Value - Delaware Value Fund Class C
($41,012,712 / 3,066,450 Shares) $13.37
______
Net Asset Value - Delaware Value Fund Class R
($5,586 / 416.2 Shares) $13.42
______
Net Asset Value - Delaware Value Fund Institutional
Class ($189,557,579 / 14,043,086 Shares) $13.50
______
8
________________________________________________________________________________
________________________________________________________________________________
Components of Net Assets at November 30, 2006:
Shares of beneficial interest
(unlimited authorization - no par) $423,808,766
Undistributed net investment income 6,953,455
Accumulated net realized gain on investments 7,214,530
Net unrealized appreciation of investments 73,891,221
____________
Total net assets $511,867,972
____________
+ Non-income producing security for the year ended November 30, 2006.
Net Asset Value and Offering Price Per Share -
Delaware Value Fund
Net asset value Class A (A) $13.47
Sales charge (5.75% of offering price) (B) 0.82
______
Offering price $14.29
______
(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
9
Statement of operations
Delaware Value Fund
Year Ended November 30, 2006
Investment Income:
Dividends $10,325,692
Interest 502,403 $10,828,095
___________ ___________
Expenses:
Management fees 2,467,164
Distribution expenses - Class A 490,804
Distribution expenses - Class B 79,956
Distribution expenses - Class C 282,242
Distribution expenses - Class R 1
Dividend disbursing and transfer agent fees and expenses 333,025
Accounting and administration expenses 152,977
Registration fees 95,213
Trustees' fees and benefits 77,722
Reports and statements to shareholders 46,725
Legal fees 39,128
Audit and tax 25,352
Insurance fees 19,385
Consulting fees 11,934
Custodian fees 8,830
Dues and services 3,910
Pricing fees 2,174
Trustees expenses 1,552
Taxes (other than taxes on income) 862 4,138,956
___________
Less expenses absorbed or waived (399,760)
Less waiver of distribution expenses - Class A (80,822)
Less expense paid indirectly (1,449)
___________
Total operating expenses 3,656,925
___________
Net Investment Income 7,171,170
___________
Net Realized and Unrealized Gain on Investments:
Net realized gain on investments 7,642,385
Net change in unrealized appreciation/depreciation of investments 59,882,591
___________
Net Realized and Unrealized Gain on Investments 67,524,976
___________
Net Increase in Net Assets Resulting from Operations $74,696,146
___________
See accompanying notes
10
Statements of changes in net assets
Delaware Value Fund
Year Ended
11/30/06 11/30/05
Increase in Net Assets from Operations:
Net investment income $ 7,171,170 $ 3,374,739
Net realized gain on investments 7,642,385 1,841,960
Net change in unrealized appreciation/depreciation of investments 59,882,591 8,331,399
____________ ____________
Net increase in net assets resulting from operations 74,696,146 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)
Class R* - * - *
Institutional Class (1,963,811) (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)
Class R* - * - *
Institutional Class (917,311) (3,613,777)
____________ ____________
(5,017,940) (5,235,275)
____________ ____________
Capital Share Transactions:
Proceeds from shares sold:
Class A 161,427,453 101,212,046
Class B 4,483,577 5,274,458
Class C 19,870,267 16,892,749
Class R 5,579 11
Institutional Class 73,698,794 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
Class R* - * - *
Institutional Class 2,878,965 4,766,157
____________ ____________
264,367,949 204,757,154
____________ ____________
Cost of shares repurchased:
Class A (26,171,621) (4,742,223)
Class B (2,529,601) (591,848)
Class C (3,696,378) (466,091)
Institutional Class (66,794,390) (10,045,691)
____________ ____________
(99,191,990) (15,845,853)
____________ ____________
Increase in net assets derived from capital share transactions 165,175,959 188,911,301
____________ ____________
Net Increase in Net Assets 234,854,165 197,224,124
____________ ____________
Net Assets:
Beginning of year 277,013,807 79,789,683
____________ ____________
End of year (including undistributed net investment
income of $6,953,455 and $3,011,696, respectively) $511,867,972 $277,013,807
____________ ____________
* Amount is less than one dollar.
See accompanying notes
11
Financial highlights
Delaware Value Fund Class A
Selected data for each share of the Fund outstanding throughout each period were
as follows:
Year Ended
____________________________________________________________________
11/30/06 11/30/05 11/30/04 11/30/03 11/30/02
___________________________________________________________________________________________________________________________________
Net asset value, beginning of period $11.370 $10.760 $ 9.480 $ 8.300 $ 9.490
Income (loss) from investment operations:
Net investment income (1) 0.225 0.220 0.134 0.110 0.113
Net realized and unrealized gain (loss) on investments 2.068 0.842 1.240 1.151 (1.231)
_______ _______ _______ _______ _______
Total from investment operations 2.293 1.062 1.374 1.261 (1.118)
_______ _______ _______ _______ _______
Less dividends and distributions from:
Net investment income (0.122) (0.089) (0.094) (0.081) (0.072)
Net realized gain on investments (0.071) (0.363) - - -
_______ _______ _______ _______ _______
Total dividends and distributions (0.193) (0.452) (0.094) (0.081) (0.072)
_______ _______ _______ _______ _______
Net asset value, end of period $13.470 $11.370 $10.760 $ 9.480 $ 8.300
_______ _______ _______ _______ _______
Total return (2) 20.48% 10.11% 14.59% 15.37% (11.88%)
Ratios and supplemental data:
Net assets, end of period (000 omitted) $271,378 $104,140 $6,846 $717 $42
Ratio of expenses to average net assets 1.01% 1.01% 1.00% 1.00% 1.03%
Ratio of expenses to average net assets
prior to expense limitation and expenses paid indirectly 1.17% 1.11% 1.17% 1.26% 1.60%
Ratio of net investment income to average net assets 1.84% 1.98% 1.32% 1.29% 1.27%
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%
Portfolio turnover 24% 26% 128% 101% 61%
___________________________________________________________________________________________________________________________________
(1) The average shares outstanding method has been applied for per share information.
(2) Total investment return is based on the change in net asset value of a share during the period and assumes reinvestment of
dividends and distributions at net asset value and does not reflect the impact of a sales charge. Total investment return
reflects waivers and payment of fees by the manager and distributor. Performance would have been lower had the expense
limitation not been in effect.
See accompanying notes
12
Delaware Value Fund Class B
Selected data for each share of the Fund outstanding throughout each period were
as follows:
Year Ended
________________________________________________ 5/1/02 (1)
to
11/30/06 11/30/05 11/30/04 11/30/03 11/30/02
____________________________________________________________________________________________________________________________________
Net asset value, beginning of period $11.290 $10.680 $ 9.420 $ 8.310 $ 9.700
Income (loss) from investment operations:
Net investment income (2) 0.134 0.137 0.058 0.044 0.030
Net realized and unrealized gain (loss) on investments 2.058 0.843 1.229 1.147 (1.420)
_______ _______ _______ _______ _______
Total from investment operations 2.192 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 $13.370 $11.290 $10.680 $ 9.420 $ 8.310
_______ _______ _______ _______ _______
Total return (3) 19.59% 9.35% 13.69% 14.50% (14.33%)
Ratios and supplemental data:
Net assets, end of period (000 omitted) $9,914 $6,516 $1,518 $383 $13
Ratio of expenses to average net assets 1.76% 1.76% 1.75% 1.75% 1.93%
Ratio of expenses to average net assets
prior to expense limitation and expenses paid indirectly 1.87% 1.81% 1.87% 1.96% 2.62%
Ratio of net investment income to average net assets 1.09% 1.23% 0.57% 0.54% 0.59%
Ratio of net investment income (loss) to average net assets
prior to expense limitation and expenses paid indirectly 0.98% 1.18% 0.45% 0.33% (0.10%)
Portfolio turnover 24% 26% 128% 101% 61% (4)
____________________________________________________________________________________________________________________________________
(1) Date of commencement of operations; ratios have been annulaized and total return has not been annualized.
(2) The average shares outstanding method has been applied for per share information.
(3) Total investment return is based on the change in net asset value of a share during the period and assumes reinvestment of
dividends and distributions at net asset value and does not reflect the impact of a sales charge. Total investment return
reflects waivers and payment of fees by the manager. Performance would have been lower had the expense limitation not been in
effect.
(4) The portfolio turnover is representative for the entire fund for the year ended November 30, 2002.
See accompanying notes
(continues) 13
Financial highlights
Delaware Value Fund Class C
Selected data for each share of the Fund outstanding throughout each period were
as follows:
Year Ended
________________________________________________ 5/1/02 (1)
to
11/30/06 11/30/05 11/30/04 11/30/03 11/30/02
____________________________________________________________________________________________________________________________________
Net asset value, beginning of period $11.290 $10.690 $ 9.420 $ 8.280 $ 9.700
Income (loss) from investment operations:
Net investment income (2) 0.134 0.138 0.062 0.044 0.032
Net realized and unrealized gain (loss) on investments 2.058 0.832 1.235 1.155 (1.452)
_______ _______ _______ _______ _______
Total from investment operations 2.192 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 $13.370 $11.290 $10.690 $ 9.420 $ 8.280
_______ _______ _______ _______ _______
Total return (3) 19.59% 9.25% 13.80% 14.60% (14.64%)
Ratios and supplemental data:
Net assets, end of period (000 omitted) $41,013 $19,597 $2,477 $133 $27
Ratio of expenses to average net assets 1.76% 1.76% 1.75% 1.75% 1.93%
Ratio of expenses to average net assets
prior to expense limitation and expenses paid indirectly 1.87% 1.81% 1.87% 1.96% 2.62%
Ratio of net investment income to average net assets 1.09% 1.23% 0.57% 0.54% 0.59%
Ratio of net investment income (loss) to average net assets
prior to expense limitation and expenses paid indirectly 0.98% 1.18% 0.45% 0.33% (0.10%)
Portfolio turnover 24% 26% 128% 101% 61% (4)
____________________________________________________________________________________________________________________________________
(1) Date of commencement of operations; ratios have been annulaized and total return has not been annualized.
(2) The average shares outstanding method has been applied for per share information.
(3) Total investment return is based on the change in net asset value of a share during the period and assumes reinvestment of
dividends and distributions at net asset value and does not reflect the impact of a sales charge. Total investment return
reflects waivers and payment of fees by the manager. Performance would have been lower had the expense limitation not been in
effect.
(4) The portfolio turnover is representative for the entire fund for the year ended November 30, 2002.
See accompanying notes
14
Delaware Value Fund Class R
Selected data for each share of the Fund outstanding throughout the period was
as follows:
Year
Ended (1)
11/30/06
____________________________________________________________________________________________________________________________________
Net asset value, beginning of period $11.350
Income from investment operations:
Net investment income (2) 0.218
Net realized and unrealized gain on investments 2.058
_______
Total from investment operations 2.276
_______
Less dividends and distributions from:
Net investment income (0.135)
Net realized gain on investments (0.071)
_______
Total dividends and distributions (0.206)
_______
Net asset value, end of period $13.420
_______
Total return (3) 20.39%
Ratios and supplemental data:
Net assets, end of period (000 omitted) $6
Ratio of expenses to average net assets 1.26%
Ratio of expenses to average net assets
prior to expense limitation and expenses paid indirectly 1.47%
Ratio of net investment income to average net assets 1.59%
Ratio of net investment income to average net assets
prior to expense limitation and expenses paid indirectly 1.38%
Portfolio turnover 24%
____________________________________________________________________________________________________________________________________
(1) As of November 30, 2005, Delaware Value Fund Class R had one share outstanding, representing the initial seed purchase.
Shareholder data for this class prior to December 1, 2005 is not disclosed because management does not believe it to be
meaningful.
(2) The average shares outstanding method has been applied for per share information.
(3) Total investment return is based on the change in net asset value of a share during the period and assumes reinvestment of
dividends and distributions at net asset value. Total investment return reflects a waiver and payment of fees by the manager
and distributor. Performance would have been lower had the expense limitation not been in effect.
See accompanying notes
(continues) 15
Financial highlights
Delaware Value Fund Institutional Class
Selected data for each share of the Fund outstanding throughout each period were
as follows:
Year Ended
______________________________________________________________
11/30/06 11/30/05 11/30/04 11/30/03 11/30/02
____________________________________________________________________________________________________________________________________
Net asset value, beginning of period $11.390 $10.780 $ 9.500 $ 8.310 $ 9.490
Income (loss) from investment operations:
Net investment income (1) 0.256 0.243 0.160 0.132 0.126
Net realized and unrealized gain (loss) on investments 2.077 0.846 1.237 1.155 (1.234)
_______ ______ _______ _______ _______
Total from investment operations 2.333 1.089 1.397 1.287 (1.108)
_______ ______ _______ _______ _______
Less dividends and distributions from:
Net investment income (0.152) (0.116) (0.117) (0.097) (0.072)
Net realized gain on investments (0.071) (0.363) - - -
_______ ______ _______ _______ _______
Total dividends and distributions (0.223) (0.479) (0.117) (0.097) (0.072)
_______ ______ _______ _______ _______
Net asset value, end of period $13.500 $11.390 $10.780 $ 9.500 $ 8.310
_______ ______ _______ _______ _______
Total return (2) 20.85% 10.37% 14.83% 15.70% (11.77%)
Ratios and supplemental data:
Net assets, end of period (000 omitted) $189,557 $146,761 $68,949 $41,047 $23,276
Ratio of expenses to average net assets 0.76% 0.76% 0.75% 0.75% 0.87%
Ratio of expenses to average net assets
prior to expense limitation and expenses paid indirectly 0.87% 0.81% 0.87% 0.96% 1.30%
Ratio of net investment income to average net assets 2.09% 2.23% 1.57% 1.54% 1.43%
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%
Portfolio turnover 24% 26% 128% 101% 61%
____________________________________________________________________________________________________________________________________
(1) The average shares outstanding method has been applied for per share information.
(2) Total investment return is based on the change in net asset value of a share during the period and assumes reinvestment of
dividends and distributions at net asset value. Total investment return reflects waivers and payment of fees by the manager.
Performance would have been lower had the expense limitation not been in effect.
See accompanying notes
16
Notes to financial statements
Delaware Value Fund
November 30, 2006
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 A share purchases of $1,000,000 or more will incur
a contingent deferred sales charge of 1% if redeemed during the first year and
0.50% during the second year, provided that Delaware Distributors, L.P. (DDLP)
paid a financial advisor a commission on the purchase of those shares. Class B
shares are sold with a contingent deferred sales charge that declines from 4%
to zero depending upon the period of time the shares are held. Class B shares
will automatically convert to Class A shares on a quarterly basis approximately
eight years after purchase. Class C shares are sold with a contingent deferred
sales charge of 1%, if redeemed during the first twelve months. Class R and
Institutional Class shares are not subject to a sales charge and are offered
for sale exclusively to certain eligible 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).
In September 2006, the Financial Accounting Standards Board (FASB) issued FASB
Statement No. 157, Fair Value Measurements, (Statement 157). Statement 157
establishes a framework for measuring fair value in generally accepted
accounting principles, clarifies the definition of fair value within that
framework, and expands disclosures about the use of fair value measurements.
Statement 157 is intended to increase consistency and comparability among fair
value estimates used in financial reporting. Statement 157 is effective for
fiscal years beginning after November 15, 2007. Management does not expect the
adoption of Statement 157 to have an impact on the amounts reported in the
financial statements.
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.
On July 13, 2006, FASB released FASB Interpretation No. 48 "Accounting for
Uncertainty in Income Taxes" (FIN 48). FIN 48 provides guidance for how
uncertain tax positions should be recognized, measured, presented, and
disclosed in the financial statements. FIN 48 requires the evaluation of tax
positions taken or expected to be taken in the course of preparing the Fund's
tax returns to determine whether the tax positions are "more-likely-than-not"
of being sustained by the applicable tax authority. Tax positions not deemed to
meet the more-likely-than-not threshold would be recorded as a tax benefit or
expense in the current year. Adoption of FIN 48 is required for fiscal years
beginning after December 15, 2006 and is to be applied to all open tax years as
of the effective date. Although the Fund's tax positions are currently being
evaluated, management does not expect the adoption of FIN 48 to have a material
impact on the Fund's 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 at least 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 directly attributable to the Fund are charged directly to the
Fund. Other expenses common to various funds within the Delaware Investments
Family of Funds are generally allocated amongst such 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 from investments, if any, annually.
(continues) 17
Notes to financial statements
Delaware Value Fund
1. Significant Accounting Policies (continued)
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 investments in the accompanying financial statements and
totaled $17,871 for the year ended November 30, 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."
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 number of shareholder accounts for dividend disbursing
and transfer agent services.
Pursuant to a distribution agreement and distribution plan, the Fund pays DDLP,
the distributor and an affiliate of DMC, an annual fee not to exceed 0.30% of
the average daily net assets of the Class A shares, 1.00% of the average daily
net assets of the Class B and C shares and 0.60% of the average daily net
assets of the Class R shares. DDLP has contracted to waive distribution and
service fees through March 31, 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. Institutional Class shares pay no
distribution and service expenses.
At November 30, 2006, the Fund had liabilities payable to affiliates as
follows:
Investment management fee payable to DMC $189,617
Dividend disbursing, transfer agent,
accounting, and administration fees and other
expenses payable to DSC 58,315
Distribution fees payable to DDLP 92,146
Other expenses payable to DMC and affiliates * 10,853
* 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 and tax services, including internal legal and tax services
provided to the Fund by DMC and/or its affiliates' employees. For the year
ended November 30, 2006, the Fund was charged $19,011 for internal legal and
tax services provided by DMC and/or its affiliates' employees.
For the year ended November 30, 2006, DDLP earned $51,655 for commissions on
sales of the Fund's Class A shares. For the year ended November 30, 2006, DDLP
received gross contingent deferred sales charge commissions of $3,364, $15,638
and $1,898 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.
Trustees' fees and benefits include expenses accrued by the Fund for each
Trustee's retainer, per meeting fees and retirement benefits. Independent
Trustees with over five years of uninterrupted service are eligible to
participate in a retirement plan that provides for the payment of benefits upon
retirement. The amount of the retirement benefit is determined based on factors
set forth in the plan, including the number of years of service. On November
16, 2006, the Board of Trustees unanimously voted to terminate the retirement
plan. Payments equal to the net present value of the earned benefits will be
made in 2007 to those independent Trustees so entitled. The retirement benefit
payout for the Fund is $57,436. Certain officers of DMC, DSC and DDLP are
officers and/or trustees of the Trust. These officers and trustees are paid no
compensation by the Fund.
3. Investments
For the year ended November 30, 2006, the Fund made purchases of $264,476,257
and sales of $90,213,081 of investment securities other than short-term
investments.
At November 30, 2006, the cost of investments for federal income tax purposes
was $448,710,553. At November 30, 2006, the net unrealized appreciation was
$72,481,711 of which $72,481,711 related to unrealized appreciation of
investments and $0 related to unrealized depreciation of investments.
18
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 year
ended November 30, 2006 and 2005 was as follows:
Year Ended
11/30/06 11/30/05
Ordinary income $4,729,315 $1,218,249
Long-term capital gain 288,625 4,017,026
__________ __________
Total $5,017,940 $5,235,275
__________ __________
5. Components of Net Assets on a Tax Basis
As of November 30, 2006, the components of net assets on a tax basis were as
follows:
Shares of beneficial interest $423,808,766
Undistributed ordinary income 9,846,172
Undistributed long-term capital gains 5,731,323
Unrealized appreciation of investments 72,481,711
____________
Net assets $511,867,972
____________
The differences between book basis and tax basis components of net assets are
primarily attributable to tax deferral of 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 year ended
November 30, 2006, the Fund recorded the following permanent reclassifications.
Undistributed net investment income $ 13,642
Accumulated net realized gain (13,642)
6. Capital Shares
Transactions in capital shares were as follows:
Year Ended
11/30/06 11/30/05
Shares sold:
Class A 12,926,400 8,921,855
Class B 369,958 482,954
Class C 1,620,047 1,538,055
Class R 415 1
Institutional Class 6,003,214 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 16,181 7,598
Institutional Class 253,653 443,363
__________ __________
21,350,059 18,377,093
__________ __________
Shares repurchased:
Class A (2,097,772) (427,192)
Class B (210,902) (53,209)
Class C (304,890) (42,318)
Institutional Class (5,094,164) (909,849)
__________ __________
(7,707,728) (1,432,568)
__________ __________
Net increase 13,642,331 16,944,525
__________ __________
For the years ended November 30, 2006 and 2005, 19,626 Class B shares were
converted to 19,535 Class A shares valued at $237,607 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 Statement of Changes in the Net
Assets.
7. Line of Credit
The Fund, along with certain other funds in the Delaware Investments Family of
Funds (the "Participants"), participates in a $225,000,000 revolving line of
credit facility to be used for temporary or emergency purposes as an additional
source of liquidity to fund redemptions of investor shares. The Participants
are charged an annual commitment fee, which is allocated across the
Participants on the basis of each Participant's allocation of the entire
facility. The Participants may borrow up to a maximum of one third of their net
assets under the agreement. The Fund had no amounts outstanding as of November
30, 2006, or at any time during the year then ended.
(continues) 19
Notes to financial statements
Delaware Value Fund
8. Credit and Market risk
The Fund may invest a portion of its total assets in illiquid securities, which
may include securities with contractual restrictions on resale, securities
exempt from registration under Rule 144A of the Securities Act of 1933, as
amended, and other securities which may not be readily marketable. The relative
illiquidity of these securities may impair each 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
November 30, 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.
10. Tax Information (Unaudited)
The information set forth below is for the Fund's fiscal year as required by
federal laws. Shareholders, however, must report distributions on a calendar
year basis for income tax purposes, which may include distributions for portions
of two fiscal years of a fund. Accordingly, the information needed by
shareholders for income tax purposes will be sent to them in January of each
year. Please consult your tax advisor for proper treatment of the information.
For the fiscal year ended November 30, 2006, the Fund designates distributions
paid during the year as follows:
(A) (B)
Long-Term Ordinary
Capital Gains Income Total (C)
Distributions Distributions * Distributions Qualifying
(Tax Basis) (Tax Basis) (Tax Basis) Dividends (1)
_____________ _______________ _____________ _____________
6% 94% 100% 98%
(A) and (B) are based on a percentage of the Fund's total distributions.
(C) is based on a percentage of the Fund's ordinary income distributions.
(1) Qualifying dividends represent dividends which qualify for the corporate
dividends received deduction.
* For the fiscal year ended November 30, 2006, certain dividends paid by the
Fund may be subject to a maximum tax rate of 15%, as provided for by the
Jobs and Growth Tax Relief Reconciliation Act of 2003. The Fund intends to
designate up to a maximum amount of $4,729,315 to be taxed at maximum rate
of 15%. Complete information will be computed and reported in conjunction
with your 2006 Form 1099-DIV.
20
Report of independent
registered public accounting firm
To the Shareholders and Board of Trustees
Delaware Group Equity Funds II - Delaware Value Fund
We have audited the accompanying statement of net assets of Delaware Value Fund
(one of the series constituting Delaware Group Equity Funds II) (the "Fund") as
of November 30, 2006, and the related statement of operations for the year then
ended, the statements of changes in net assets for each of the two years in the
period then ended, and the financial highlights for each of the periods
indicated therein. These financial statements and financial highlights are the
responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements and financial highlights are free of material misstatement. We were
not engaged to perform an audit of the Fund's internal control over financial
reporting. Our audits included consideration of internal control over financial
reporting as a basis for designing audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion on the
effectiveness of the Fund's internal control over financial reporting.
Accordingly, we express no such opinion. An audit also includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements and financial highlights, assessing the accounting principles used
and significant estimates made by management, and evaluating the overall
financial statement presentation. Our procedures included confirmation of
securities owned as of November 30, 2006, by correspondence with the custodian
and brokers or by other appropriate auditing procedures where replies from
brokers were not received. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of the
Delaware Value Fund of Delaware Group Equity Funds II at November 30, 2006, the
results of its operations for the year then ended, the changes in its net assets
for each of the two years in the period then ended, and its financial highlights
for each of the periods indicated therein, in conformity with U.S. generally
accepted accounting principles.
/s/ Ernst & Young LLP
Philadelphia, Pennsylvania
January 16, 2007
21
Board of trustees/directors
and officers addendum
Delaware Investments(R) Family of Funds
A mutual fund is governed by a Board of Trustees/Directors ("Trustees"), which
has oversight responsibility for the management of a fund's business affairs.
Trustees establish procedures and oversee and review the performance of the
investment manager, the distributor, and others who perform services for the
fund. The independent fund trustees, in particular, are advocates for
shareholder interests. Each trustee has served in that capacity since he or she
was elected to or appointed to the Board of Trustees, and will continue to serve
until his or her retirement or the election of a new trustee in his or her
place. The following is a list of the Trustees and Officers with certain
background and related information.
Number of
Portfolios in Fund Other
Name, Complex Overseen Directorships
Address, Position(s) Length of Principal Occupation(s) by Trustee Held by
and Birth Date Held with Fund(s) Time Served During Past 5 Years or Officer Trustee or Officer
____________________________________________________________________________________________________________________________________
Interested Trustees
____________________________________________________________________________________________________________________________________
Patrick P. Coyne (1) Chairman, Chairman and Trustee Patrick P. Coyne has served in 83 None
2005 Market Street President, since August 16, 2006 various executive capacities
Philadelphia, PA Chief Executive at different times at
19103 Officer, and President and Delaware Investments. (2)
Trustee Chief Executive Officer
April 14, 1963 since August 1, 2006
____________________________________________________________________________________________________________________________________
Independent Trustees
____________________________________________________________________________________________________________________________________
Thomas L. Bennett Trustee Since Private Investor - 83 None
2005 Market Street March 2005 (March 2004-Present)
Philadelphia, PA
19103 Investment Manager -
Morgan Stanley & Co.
October 4, 1947 (January 1984-March 2004)
____________________________________________________________________________________________________________________________________
John A. Fry Trustee Since President - 83 Director -
2005 Market Street January 2001 Franklin & Marshall College Community Health
Philadelphia, PA (June 2002-Present) Systems
19103
Executive Vice President - Director -
May 28, 1960 University of Pennsylvania Allied Barton
(April 1995-June 2002) Security Holdings
____________________________________________________________________________________________________________________________________
Anthony D. Knerr Trustee Since Founder and Managing Director - 83 None
2005 Market Street April 1990 Anthony Knerr & Associates
Philadelphia, PA (Strategic Consulting)
19103 (1990-Present)
December 7, 1938
____________________________________________________________________________________________________________________________________
Lucinda S. Landreth Trustee Since Chief Investment Officer - 83 None
2005 Market Street March 2005 Assurant, Inc.
Philadelphia, PA (Insurance)
19103 (2002-2004)
June 24, 1947
____________________________________________________________________________________________________________________________________
Ann R. Leven Trustee Since Consultant - 83 Director and
2005 Market Street September 1989 ARL Associates Audit Committee
Philadelphia, PA (Financial Planning) Chairperson - Andy
19103 (1983-Present) Warhol Foundation
November 1, 1940 Director and Audit
Committee Member -
Systemax, Inc.
____________________________________________________________________________________________________________________________________
22
Number of
Portfolios in Fund Other
Name, Complex Overseen Directorships
Address, Position(s) Length of Principal Occupation(s) by Trustee Held by
and Birth Date Held with Fund(s) Time Served During Past 5 Years or Officer Trustee or Officer
____________________________________________________________________________________________________________________________________
Independent Trustees (continued)
____________________________________________________________________________________________________________________________________
Thomas F. Madison Trustee Since President and Chief 83 Director -
2005 Market Street May 1997 Executive Officer - Banner Health
Philadelphia, PA MLM Partners, Inc.
19103 (Small Business Investing Director -
and Consulting) CenterPoint Energy
February 25, 1936 (January 1993-Present)
Director and Audit
Committee Member -
Digital River, Inc.
Director and Audit
Committee Member -
Rimage
Corporation
Director - Valmont
Industries, Inc.
____________________________________________________________________________________________________________________________________
Janet L. Yeomans Trustee Since Vice President 83 None
2005 Market Street April 1999 (January 2003-Present)
Philadelphia, PA and Treasurer
19103 (January 2006-Present)
3M Corporation
July 31, 1948
Ms. Yeomans has held
various management positions
at 3M Corporation since 1983.
____________________________________________________________________________________________________________________________________
J. Richard Zecher Trustee Since Founder - 83 Director and Audit
2005 Market Street March 2005 Investor Analytics Committee Member -
Philadelphia, PA (Risk Management) Investor Analytics
19103 (May 1999-Present)
Director and Audit
July 3, 1940 Founder - Committee Member -
Sutton Asset Management Oxigene, Inc.
(Hedge Fund)
(September 1998-Present)
____________________________________________________________________________________________________________________________________
Officers
____________________________________________________________________________________________________________________________________
David F. Connor Vice President, Vice President since David F. Connor has served as 83 None (3)
2005 Market Street Deputy General September 21, 2000 Vice President and Deputy
Philadelphia, PA Counsel, and Secretary and Secretary General Counsel of
19103 since Delaware Investments
October 2005 since 2000.
December 2, 1963
____________________________________________________________________________________________________________________________________
David P. O'Connor Senior Vice Senior Vice President, David P. O'Connor has served in 83 None (3)
2005 Market Street President, General Counsel, and various executive and legal
Philadelphia, PA General Counsel, Chief Legal Officer capacities at different times
19103 and Chief since at Delaware Investments.
Legal Officer October 2005
February 21, 1966
____________________________________________________________________________________________________________________________________
John J. O'Connor Senior Vice President Treasurer John J. O'Connor has served in 83 None (3)
2005 Market Street and Treasurer since various executive capacities
Philadelphia, PA February 2005 at different times at
19103 Delaware Investments.
June 16, 1957
____________________________________________________________________________________________________________________________________
Richard Salus Senior Chief Financial Richard Salus has served in 83 None (3)
2005 Market Street Vice President Officer since various executive capacities
Philadelphia, PA and November 1, 2006 at different times at
19103 Chief Financial Delaware Investments.
Officer
October 4, 1963
____________________________________________________________________________________________________________________________________
(1) Patrick P. Coyne is considered to be an "Interested Trustee" because he is an executive officer of the Fund's(s') investment
advisor.
(2) Delaware Investments is the marketing name for Delaware Management Holdings, Inc. and its subsidiaries, including the Fund's(s')
investment advisor, principal underwriter, and its transfer agent.
(3) David F. Connor, David P. O'Connor, John J. O'Connor, and Richard Salus serve in similar capacities for the six portfolios of
the Optimum Fund Trust, which have the same investment advisor, principal underwriter, and transfer agent as the registrant.
John J. O'Connor also serves in a similar capacity for Lincoln Variable Insurance Products Trust, which has the same investment
advisor as the registrant.
The Statement of Additional Information for the Fund(s) includes additional information about the Trustees and Officers and is
available, without charge, upon request by calling 800 523-1918.
23
About the organization
This annual report is for the information of Delaware 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
Patrick P. Coyne
Chairman, President, and
Chief Executive Officer
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
Consultant
ARL Associates,
New York, NY
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
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
Richard Salus
Senior Vice President and
Chief Financial Officer
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.
24
Simplify your life.
Manage your investments online!
Get Account Access, the Delaware Investments(R) secure Web site that allows
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:
o Hassle-free investing - Make online purchases and redemptions at any time.
o Simplified tax processing - Automatically retrieve your Delaware
Investments accounts' 1099 information and import it directly into your 1040
tax return. Available only with Turbo Tax(R) Online(SM) and Desktop
software - www.turbotax.com.
o Less mail clutter - Get instant access to your fund materials online with
Delaware eDelivery.
Register for Account Access today! Please visit us at
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 INVESTMENTS LOGO]
(1211) Printed in the USA
AR-456 [11/06] CGI 1/07 MF-06-12-015 PO11493
Item 2. Code of Ethics
The registrant has adopted a code of ethics that applies to the
registrant's principal executive officer, principal financial officer, principal
accounting officer or controller, or persons performing similar functions,
regardless of whether these individuals are employed by the registrant or a
third party. A copy of the registrant's Code of Business Ethics has been posted
on Delaware Investments' internet website at www.delawareinvestments.com. Any
amendments to the Code of Business Ethics, and information on any waiver from
its provisions granted by the registrant, will also be posted on this website
within five business days of such amendment or waiver and will remain on the
website for at least 12 months.
Item 3. Audit Committee Financial Expert
The registrant's Board of Trustees/Directors has determined that each
member of the registrant's Audit Committee is an audit committee financial
expert, as defined below. For purposes of this item, an "audit committee
financial expert" is a person who has the following attributes:
a. An understanding of generally accepted accounting principles and
financial statements;
b. The ability to assess the general application of such principles in
connection with the accounting for estimates, accruals, and reserves;
c. Experience preparing, auditing, analyzing, or evaluating financial
statements that present a breadth and level of complexity of accounting issues
that are generally comparable to the breadth and complexity of issues that can
reasonably be expected to be raised by the registrant's financial statements, or
experience actively supervising one or more persons engaged in such activities;
d. An understanding of internal controls and procedures for financial
reporting; and
e. An understanding of audit committee functions.
An "audit committee financial expert" shall have acquired such attributes
through:
a. Education and experience as a principal financial officer, principal
accounting officer, controller, public accountant, or auditor or experience in
one or more positions that involve the performance of similar functions;
b. Experience actively supervising a principal financial officer, principal
accounting officer, controller, public accountant, auditor, or person performing
similar functions;
c. Experience overseeing or assessing the performance of companies or
public accountants with respect to the preparation, auditing, or evaluation of
financial statements; or
d. Other relevant experience.
The registrant's Board of Trustees/Directors has also determined that each
member of the registrant's Audit Committee is independent. In order to be
"independent" for purposes of this item, the Audit Committee member may not: (i)
other than in his or her capacity as a member of the Board of Trustees/Directors
or any committee thereof, accept directly or indirectly any consulting, advisory
or other compensatory fee from the issuer; or (ii) be an "interested person" of
the registrant as defined in Section 2(a)(19) of the Investment Company Act of
1940.
The names of the audit committee financial experts on the registrant's
Audit Committee are set forth below:
Thomas L. Bennett (1)
Thomas F. Madison
Janet L. Yeomans (1)
J. Richard Zecher
Item 4. Principal Accountant Fees and Services
(a) Audit fees.
__________
The aggregate fees billed for services provided to the registrant by its
independent auditors for the audit of the registrant's annual financial
statements and for services normally provided by the independent auditors in
connection with statutory and regulatory filings or engagements were $71,100 for
the fiscal year ended November 30, 2006.
____________________
(1) The instructions to Form N-CSR require disclosure on the relevant experience
of persons who qualify as audit committee financial experts based on "other
relevant experience." The Board of Trustees/Directors has determined that Mr.
Bennett qualifies as an audit committee financial expert by virtue of his
education, Chartered Financial Analyst designation, and his experience as a
credit analyst, portfolio manager and the manager of other credit analysts and
portfolio managers. The Board of Trustees/Directors has determined that Ms.
Yeomans qualifies as an audit committee financial expert by virtue of her
education and experience as the Treasurer of a large global corporation.
The aggregate fees billed for services provided to the registrant by its
independent auditors for the audit of the registrant's annual financial
statements and for services normally provided by the independent auditors in
connection with statutory and regulatory filings or engagements were $79,000 for
the fiscal year ended November 30, 2005.
(b) Audit-related fees.
__________________
The aggregate fees billed by the registrant's independent auditors for
services relating to the performance of the audit of the registrant's financial
statements and not reported under paragraph (a) of this Item were $0 for the
fiscal year ended November 30, 2006.
The aggregate fees billed by the registrant's independent auditors for
services relating to the performance of the audit of the financial statements of
the registrant's investment adviser and other service providers under common
control with the adviser and that relate directly to the operations or financial
reporting of the registrant were $33,700 for the registrant's fiscal year ended
November 30, 2006. The percentage of these fees relating to services approved by
the registrant's Audit Committee pursuant to the de minimis exception from the
pre-approval requirement in Rule 2-01(c)(7)(i)(C) of Regulation S-X was 0%.
These audit-related services were as follows: issuance of report concerning
transfer agent's system of internal accounting control pursuant to Rule 17Ad-13
of the Securities Exchange Act; and issuance of agreed upon procedures report to
the registrant's Board in connection with the pass-through of internal legal
cost relating to the operations of the registrant.
The aggregate fees billed by the registrant's independent auditors for
services relating to the performance of the audit of the registrant's financial
statements and not reported under paragraph (a) of this Item were $0 for the
fiscal year ended November 30, 2005.
The aggregate fees billed by the registrant's independent auditors for
services relating to the performance of the audit of the financial statements of
the registrant's investment adviser and other service providers under common
control with the adviser and that relate directly to the operations or financial
reporting of the registrant were $159,700 for the registrant's fiscal year ended
November 30, 2005. The percentage of these fees relating to services approved by
the registrant's Audit Committee pursuant to the de minimis exception from the
pre-approval requirement in Rule 2-01(c)(7)(i)(C) of Regulation S-X was 0%.
These audit-related services were as follows: issuance of report concerning
transfer agent's system of internal accounting control pursuant to Rule 17Ad-13
of the Securities Exchange Act; issuance of agreed upon procedures reports to
the registrant's Board in connection with the annual transfer agent and fund
accounting service agent contract renewals and the pass-through of internal
legal cost relating to the operations of the registrant; and preparation of
Report on Controls Placed in Operation and Tests of Operating Effectiveness
Relating to the Retirement Plan Services Division ("SAS 70 report").
(c) Tax fees.
________
The aggregate fees billed by the registrant's independent auditors for
tax-related services provided to the registrant were $14,000 for the fiscal year
ended November 30, 2006. The percentage of these fees relating to services
approved by the registrant's Audit Committee pursuant to the de minimis
exception from the pre-approval requirement in Rule 2-01(c)(7)(i)(C) of
Regulation S-X was 0%. These tax-related services were as follows: review of
income tax returns and review of annual excise distribution calculations.
The aggregate fees billed by the registrant's independent auditors for
tax-related services provided to the registrant's investment adviser and other
service providers under common control with the adviser and that relate directly
to the operations or financial reporting of the registrant were $0 for the
registrant's fiscal year ended November 30, 2006.
The aggregate fees billed by the registrant's independent auditors for
tax-related services provided to the registrant were $17,200 for the fiscal year
ended November 30, 2005. The percentage of these fees relating to services
approved by the registrant's Audit Committee pursuant to the de minimis
exception from the pre-approval requirement in Rule 2-01(c)(7)(i)(C) of
Regulation S-X was 0%. These tax-related services were as follows: review of
income tax returns and review of annual excise distribution calculations.
The aggregate fees billed by the registrant's independent auditors for
tax-related services provided to the registrant's adviser and other service
providers under common control with the adviser and that relate directly to the
operations or financial reporting of the registrant were $0 for the registrant's
fiscal year ended November 30, 2005.
(d) All other fees.
______________
The aggregate fees billed for all services provided by the independent
auditors to the registrant other than those set forth in paragraphs (a), (b) and
(c) of this Item were $0 for the fiscal year ended November 30, 2006.
The aggregate fees billed for all services other than those set forth in
paragraphs (b) and (c) of this Item provided by the registrant's independent
auditors to the registrant's adviser and other service providers under common
control with the adviser and that relate directly to the operations or financial
reporting of the registrant were $0 for the registrant's fiscal year ended
November 30, 2006.
The aggregate fees billed for all services provided by the independent
auditors to the registrant other than those set forth in paragraphs (a), (b) and
(c) of this Item were $0 for the fiscal year ended November 30, 2005.
The aggregate fees billed for all services other than those set forth in
paragraphs (b) and (c) of this Item provided by the registrant's independent
auditors to the registrant's adviser and other service providers under common
control with the adviser and that relate directly to the operations or financial
reporting of the registrant were $0 for the registrant's fiscal year ended
November 30, 2005.
(e) The registrant's Audit Committee has established pre-approval policies
and procedures as permitted by Rule 2-01(c)(7)(i)(B) of Regulation S-X (the
"Pre-Approval Policy") with respect to services provided by the registrant's
independent auditors. Pursuant to the Pre-Approval Policy, the Audit Committee
has pre-approved the services set forth in the table below with respect to the
registrant up to the specified fee limits. Certain fee limits are based on
aggregate fees to the registrant and other registrants within the Delaware
Investments Family of Funds.
______________________________________________________________________________________________________________________
Service Range of Fees
______________________________________________________________________________________________________________________
Audit Services
______________________________________________________________________________________________________________________
Statutory audits or financial audits for new Funds up to $25,000 per Fund
______________________________________________________________________________________________________________________
Services associated with SEC registration statements (e.g., Form N-1A, Form
N-14, etc.), periodic reports and other documents filed with the SEC or other
documents issued in connection with securities offerings (e.g., comfort letters up to $10,000 per Fund
for closed-end Fund offerings, consents), and assistance in responding to SEC
comment letters
______________________________________________________________________________________________________________________
Consultations by Fund management as to the accounting or disclosure treatment of
transactions or events and/or the actual or potential impact of final or
proposed rules, standards or interpretations by the SEC, FASB, or other up to $25,000 in the aggregate
regulatory or standard-setting bodies (Note: Under SEC rules, some consultations
may be considered "audit-related services" rather than "audit services")
______________________________________________________________________________________________________________________
Audit-Related Services
______________________________________________________________________________________________________________________
Consultations by Fund management as to the accounting or disclosure treatment of
transactions or events and /or the actual or potential impact of final or
proposed rules, standards or interpretations by the SEC, FASB, or other up to $25,000 in the aggregate
regulatory or standard-setting bodies (Note: Under SEC rules, some consultations
may be considered "audit services" rather than "audit-related services")
______________________________________________________________________________________________________________________
Tax Services
______________________________________________________________________________________________________________________
U.S. federal, state and local and international tax planning and advice (e.g.,
consulting on statutory, regulatory or administrative developments, evaluation up to $25,000 in the aggregate
of Funds' tax compliance function, etc.)
______________________________________________________________________________________________________________________
U.S. federal, state and local tax compliance (e.g., excise distribution reviews, up to $5,000 per Fund
etc.)
______________________________________________________________________________________________________________________
Review of federal, state, local and international income, franchise and other up to $5,000 per Fund
tax returns
______________________________________________________________________________________________________________________
Under the Pre-Approval Policy, the Audit Committee has also pre-approved
the services set forth in the table below with respect to the registrant's
investment adviser and other entities controlling, controlled by or under common
control with the investment adviser that provide ongoing services to the
registrant (the "Control Affiliates") up to the specified fee limit. This fee
limit is based on aggregate fees to the investment adviser and its Control
Affiliates.
______________________________________________________________________________________________________________________
Service Range of Fees
______________________________________________________________________________________________________________________
Non-Audit Services
______________________________________________________________________________________________________________________
Services associated with periodic reports and other documents filed with the SEC up to $10,000 in the aggregate
and assistance in responding to SEC comment letters
______________________________________________________________________________________________________________________
The Pre-Approval Policy requires the registrant's independent auditors to
report to the Audit Committee at each of its regular meetings regarding all
services initiated since the last such report was rendered, including those
services authorized by the Pre-Approval Policy.
(f) Not applicable.
(g) The aggregate non-audit fees billed by the registrant's independent
auditors for services rendered to the registrant and to its investment adviser
and other service providers under common control with the adviser were $273,220
and $348,260 for the registrant's fiscal years ended November 30, 2006 and
November 30, 2005, respectively.
(h) In connection with its selection of the independent auditors, the
registrant's Audit Committee has considered the independent auditors' provision
of non-audit services to the registrant's investment adviser and other service
providers under common control with the adviser that were not required to be
pre-approved pursuant to Rule 2-01(c)(7)(ii) of Regulation S-X. The Audit
Committee has determined that the independent auditors' provision of these
services is compatible with maintaining the auditors' independence.
Item 5. Audit Committee of Listed Registrants
Not applicable.
Item 6. Schedule of Investments
Included as part of report to shareholders filed under Item 1 of this Form
N-CSR.
Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End
Management Investment Companies
Not applicable.
Item 8. Portfolio Managers of Closed-End Management Investment Companies
Not applicable.
Item 9. Purchases of Equity Securities by Closed-End Management Investment
Company and Affiliated Purchasers
Not applicable.
Item 10. Submission of Matters to a Vote of Security Holders
Not applicable.
Item 11. Controls and Procedures
(a) The registrant's principal executive officer and principal financial
officer have evaluated the registrant's disclosure controls and procedures
within 90 days of the filing of this report and have concluded that they are
effective in providing reasonable assurance that the information required to be
disclosed by the registrant in its reports or statements filed under the
Securities Exchange Act of 1934 is recorded, processed, summarized and reported
within the time periods specified in the rules and forms of the Securities and
Exchange Commission.
(b) Management has made changes that have materially affected, or are
reasonably likely to materially affect, registrant's internal controls over
financial reporting. To seek to increase the controls' effectiveness, these
changes provide for enhanced review of contracts relating to complex
transactions and the applicability of generally accepted accounting principles
to such transactions, including enhanced consultation with registrant's
independent public accountants in connection with such reviews.
Because of its inherent limitations, internal control over financial
reporting may not prevent or detect misstatements. Also, projections of any
evaluation of effectiveness to future periods are subject to the risk that
controls may become inadequate because of changes in conditions, or that the
degree of compliance with the policies or procedures may deteriorate.
Item 12. Exhibits
(a) (1) Code of Ethics
Not applicable.
(2) Certifications of Principal Executive Officer and Principal Financial
Officer pursuant to Rule 30a-2 under the Investment Company Act of 1940 are
attached hereto as Exhibit 99.CERT.
(3) Written solicitations to purchase securities pursuant to Rule 23c-1
under the Securities Exchange Act of 1934.
Not applicable.
(b) Certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
are furnished herewith as Exhibit 99.906CERT.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report to be
signed on its behalf, by the undersigned, thereunto duly authorized.
Name of Registrant: Delaware Group Equity Funds II
PATRICK P. COYNE
________________________________
By: Patrick P. Coyne
Title: Chief Executive Officer
Date: February 6, 2007
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: Chief Executive Officer
Date: February 6, 2007
RICHARD SALUS
________________________________
By: Richard Salus
Title: Chief Financial Officer
Date: February 6, 2007