BLUE CHIP FUND
[GRAPHIC OMITTED: ILLUSTRATION OF A MAN AND WOMAN HOLDING A PAINTING
WHICH IS BROKEN IN HALF]
FOR TOTAL RETURN
service and guidance
professional management
goals
1998
Semi-Annual Report
[GRAPHIC OMITTED: LOGO OF DELAWARE INVESTMENTS
----------------------------
Philadelphia * London]
for total
return
2 JUNE 4, 1998
DEAR SHAREHOLDER:
LARGE CAP U.S. STOCKS SOARED DURING this past winter and spring,
propelling Blue Chip Fund to a total return of +11.53% for the six
months ended May 31, 1998 (for A Class shares at net asset value with
distributions reinvested).
A combination of robust growth, tame inflation, low interest rates
and low unemployment led to surging stock prices. Your Fund's benchmark,
the unmanaged Standard & Poor's 500 Index, had a total return of +15.07%
for the period.
Since the Fund began operating a year and a half ago, we have
focused on building a diversified long-term portfolio. Your Fund
underperformed its benchmark for the first half of fiscal 1998 mainly
because it avoided large companies in the S&P 500 that our analysis
showed were overvalued.
Your Fund's subadviser - Vantage Investment Advisors - employs
quantitative methods to conduct fundamental analysis of mid and large
cap U.S. stocks. These quantitative techniques are an essential part
of Blue Chip Fund's disciplined investment strategy - an approach that
emphasizes stocks with both growth and value characteristics.
QUANTITATIVE TECHNIQUES ARE AN ESSENTIAL PART OF BLUE CHIP FUND'S
INVESTMENT STRATEGY - AN APPROACH THAT EMPHASIZES STOCKS WITH BOTH
GROWTH AND VALUE CHARACTERISTICS.
By combining growth and value investing into one comprehensive
strategy, we believe Blue Chip Fund can seek attractively priced stocks
with favorable long-term earnings prospects in spite of potential stock
market volatility.
CUMULATIVE TOTAL RETURN
THROUGH MAY 31, 1998
SIX MONTHS ONE YEAR
Blue Chip Fund A Class +11.53% +25.99%
Standard & Poor's 500 Index +15.07% +30.69%
Lipper Growth and Income Fund Average (734 funds) +11.91% +25.47%
Fund and Lipper performance quoted above is based on net asset value
without effect of sales charges. SEC-mandated performance information
for all share Classes can be found on page 7. Past performance does not
guarantee future results. The S&P 500 Index is an unmanaged measure of
large company stocks.
for total
return
3
Our analysis leads to:
[bullet] Stocks with a low price/earnings ratio - stocks whose share
price is low relative to anticipated earnings, and;
[bullet] Companies whose earnings growth rates are either accelerating
or have been better than expected.
At the start of fiscal 1998 in December, we were concerned that
inflationary pressures and the economic crises in Asia could slow the
expansion of the U.S. economy. Remarkably, consumer spending and
corporate capital outlays remained high.
A drop in oil prices and corporate productivity improvements helped
keep prices down. Low inflation enabled the Federal Reserve Board to
maintain its interest rate target at 5.5%.
Except in technology, the U.S. economy has so far been able to
weather the Asian economic storm with only minimal damage. However,
the long-term consequences of events in the Pacific remain unclear.
Investors are concerned that continuing financial problems in Asia
may further crimp the region's demand for U.S. products. In addition,
Asian countries have also begun to increase exports to the U.S. -
bringing along increased competition to domestic producers.
On the following pages, your Fund's manager - T. Scott Wittman,
President and Chief Investment Officer at Vantage - explains Blue Chip
Fund's strategy in detail and provides his outlook for the remainder of
the 1998 fiscal year.
On behalf of Delaware Investments and Vantage, we thank you for
choosing an objective, disciplined investment strategy for your
portfolio.
Sincerely,
/S/Wayne A. Stork
WAYNE A. STORK
Chairman
/s/Jeffrey J. Nick
JEFFREY J. NICK
President and Chief Executive Officer
PORTFOLIO HIGHLIGHTS
MAY 31, 1998
BLUE CHIP FUND S&P 500 INDEX
Median Market Capitalization $8.9 billion $7.8 billion
Number of Stocks 121 500
Average Stock Price-to-Earnings Ratio 18.1x 24.5x
Largest Sector Weighting Financials Technology
P/E based on a consensus of analysts' estimates for calendar 1998.
for total
return
4
PORTFOLIO MANAGER'S REVIEW
INVESTMENT STRATEGY
Blue Chip Fund's quantitative stock picking method uses proprietary
computer software that allows us to evaluate some 1,200 large domestic
companies every business day. In a rapidly changing market environment,
this approach has the potential to be more efficient than qualitative
stockpicking.
It is impossible for even the best investment managers to meet with
every company's management and carefully dissect each company's financial
statements daily. We believe our analysis can help us benefit from
subtle but important market developments that might be overlooked by
human eyes.
We evaluate raw data about each company's stock - price/earnings
ratios, earnings estimates from many Wall Street analysts and the
percentage of profits paid out as dividends each year. A stock is then
compared and ranked against all other stocks in its industry sector. If
a stock has both growth and value characteristics, it is a candidate
for Blue Chip Fund's portfolio.
The Fund's sell discipline also differs from that of many mutual
funds because we do not set price targets for our holdings. If we find a
stock with a more attractive price/earnings ratio, higher dividend yield
and better earnings expectations than a Fund holding in the same sector,
the original holding is generally replaced.
This process has allowed us to maintain a lower portfolio turnover
rate than our peers. For the first half of fiscal 1998, average portfolio
turnover rate was 19% - much less than the average of 734 funds in the
Lipper Growth and Income fund category (63%).
STRATEGIC POSITIONING
The U.S. economy provided a fertile field for capital appreciation for
many large cap stocks during the first half of fiscal 1998. However, as
any gardener knows, weeds grow just as well in fertile soil as fruits
and vegetables.
Quantitative analysis allows us to separate tomato plants from
crabgrass. We focus on stocks that have demonstrated earnings momentum
over the past two years, and since November we have found ripe
opportunities in financials and health care.
Years of cancer research appear to be paying off for the
pharmaceutical industry. BRISTOL-MYERS SQUIBB, your Fund's largest
holding as of May 31, 1998, announced new advancements in the fight
against cancer last spring.
We believe Bristol-Myers Squibb's drug - Taxol - has strong sales
potential because research shows it can help raise survival rates for
women with breast cancer. We believe this could build upon the company's
strong earnings performance of the past five years.
Many companies in Blue Chip Fund's financial sector have also
enjoyed earnings increases over the past few years. Banks, in particular,
have benefited from internal expansion, restructuring and merger activity.
for total
return
5
We are especially pleased with the performance of CHASE MANHATTAN,
your Fund's third largest holding as of May 31. Chase announced ambitious
expansion plans many analysts believe can generate double digit earnings
growth over the next few years.
Your Fund continued to remain underweighted in the technology
sector compared to the S&P 500 Index. The technology sector can be
precarious because earnings are less predictable than other sectors.
We believe technology stocks are more subject to the "upgrade cycle"
than the business cycle. Companies in the technology sector are under
intense pressure to improve their products within relatively short
periods of time.
One company making strides in upgrading their product line recently
has been APPLE COMPUTER. Apple's stock could be poised for a turnaround
after years of underperformance. We bought the stock last winter when
our quantitative analysis indicated the stock met both our growth and
value parameters.
In an effort to regain a greater share of the personal computer
market, Apple recently introduced a new personal computer priced below
$1,300. This strategy appears to be working well and Apple's share of
the personal computer market has grown since November.
One stock selection within the technology sector that did not bear
fruit during the first half of fiscal 1998 was COMPAQ - the world's
largest manufacturer of personal computers. The company appears to have
suffered from a lack of technological advancements relative to its
competitors.
As a result, Compaq has been affected by excess inventory problems
and its earnings plunged 96% this past winter. Compaq is transforming
itself, but the company no longer met our growth and value parameters,
so we sold our holdings.
[GRAPHIC OMITTED: text within ovals of THE EFFICIENCY OF QUANTITATIVE
INVESTING]
THE EFFICIENCY OF QUANTITATIVE INVESTING
VANTAGE'S QUANTITATIVE APPROACH
OBJECTIVE ANALYSIS OF EACH COMPANY
BASED ON FUNDAMENTAL FACTORS
RANKING OF STOCKS BASED ON BOTH GROWTH AND
VALUE CHARACTERISTICS
STOCKS CHOSEN FOR PORTFOLIO IN RELATION TO ITS
ATTRACTIVENESS TO OTHER STOCKS WITHIN
THE SAME SECTOR
for total
return
6
We have also sold your Fund's position in OXFORD HEALTHCARE. The
company's earnings growth potential turned out to be a mirage after an
audit of the company's books this past winter revealed numerous problems.
OUTLOOK
The U.S. stock market has thrived during the past three years amid
rising corporate profits. While the economy remains strong, recent
reports indicate that profits are being squeezed due to rising wage costs
and the inability of some companies to raise prices. Some U.S. companies
face intense price competition with lower-priced imports from Asia.
Although profit growth may be slipping, profits are still high by
historical standards. At mid-year, personal spending and corporate
investment remained high, although some companies have warned of lowered
earnings expectations. We believe this somewhat conflicting data can
lead to increased volatility in the U.S. stock market over the coming
months.
WE BELIEVE POTENTIAL STOCK MARKET VOLATILITY PROVIDES AN OPPORTUNITY
FOR OUR QUANTITATIVE STRATEGY TO IDENTIFY VALUE STOCKS WITH GROWTH
CHARACTERISTICS.
We believe potential stock market volatility provides an
opportunity for our quantitative strategy to identify value stocks with
growth characteristics. In our view, our objective approach to
portfolio management could allow us to capitalize on any market weakness
for the remainder of fiscal 1998.
T. SCOTT WITTMAN
President and Chief Investment Officer
Vantage Investment Advisors
June 4, 1998
[PHOTO OF KEYBOARD]
SECTOR DIVERSIFICATION
BLUE CHIP FUND VS. S&P 500 INDEX
MAY 31, 1998
SHARE OF FUND'S ALLOCATION CHANGE FROM SHARE OF
SECTOR NET ASSETS NOVEMBER 30, 1997 INDEX
Financials 18.3% +2.5% 12.0%
Technology 10.9% +2.6% 17.8%
Health Care 10.4% +0.9% 12.5%
Energy/Utilities 10.1% -1.1% 10.0%
Basic Industry 9.4% -2.5% 12.5%
Telecommunications 8.3% +0.1% 7.2%
Food, Beverage &
Tobacco 6.7% -1.0% 7.2%
Consumer Growth 6.4% No change 4.4%
Retail 6.4% -0.9% 8.6%
Media 3.5% +0.5% 4.4%
Automobiles 2.8% -0.4% 2.3%
Transportation 2.1% +0.3% 1.1%
Cash 4.7% -1.0% --
for total
return
7
[GRAPHIC OMITTED: worm chart of BLUE CHIP FUND'S LIFETIME PERFORMANCE]
BLUE CHIP FUND'S LIFETIME PERFORMANCE
GROWTH OF A $10,000 INVESTMENT
FEBRUARY 24, 1997 THROUGH MAY 31, 1998
BLUE CHIP FUND STANDARD & POOR'S
A CLASS 500 INDEX
Feb. 1997 $ 9,529 $10,000
Mar. 1997 $ 8,879 $ 9,664
Apr. 1997 $ 9,249 $10,241
May 1997 $ 9,776 $10,865
June 1997 $10,101 $11,351
July 1997 $10,908 $12,255
Aug. 1997 $10,426 $11,568
Sept. 1997 $11,009 $12,202
Oct. 1997 $10,605 $11,794
Nov. 1997 $11,043 $12,340
Dec. 1997 $11,235 $12,454
Jan. 1998 $11,167 $12,592
Feb. 1998 $12,001 $13,500
Mar. 1998 $12,666 $14,192
Apr. 1998 $12,609 $14,334
May 1998 $12,316 $14,089
Chart assumes $10,000 invested on February 24, 1997 and includes the
effect of a 4.75% front-end sales charge and reinvestment of
distributions. Returns for other classes will differ due to different
charges and expenses. Past performance does not guarantee future
results.
BLUE CHIP FUND PERFORMANCE
AVERAGE ANNUAL RETURNS THROUGH MAY 31, 1998
LIFETIME ONE YEAR
Class A (Est. 2/24/97)
Excluding Sales Charge +22.47% +25.99%
Including Sales Charge +17.89% +20.07%
Class B (Est. 2/24/97)
Excluding Sales Charge +21.63% +25.19%
Including Sales Charge +18.62% +21.19%
Class C (Est. 2/24/97)
Excluding Sales Charge +21.63% +25.04%
Including Sales Charge +21.63% +24.04%
ALL PERFORMANCE INCLUDES REINVESTMENT OF DISTRIBUTIONS AND APPLICABLE
SALES CHARGES AS DESCRIBED BELOW. RETURN AND SHARE VALUE WILL FLUCTUATE
SO THAT SHARES WHEN REDEEMED MAY BE WORTH MORE OR LESS THAN THE ORIGINAL
COST. PAST PERFORMANCE IS NOT A GUARANTEE OF FUTURE RESULTS. PERFORMANCE
FOR CLASS B AND C SHARES EXCLUDING SALES CHARGE ASSUMES EITHER THE
INVESTMENT WAS NOT REDEEMED OR CONTINGENT SALES CHARGES DID NOT APPLY.
CLASS A shares have a 4.75% maximum front-end sales charge and a 12b-1
fee.
CLASS B shares do not carry a front-end sales charge, but are subject
to a 1% annual distribution and service fee. They are also subject to a
deferred sales charge of up to 4% if redeemed before the end of the
sixth year.
CLASS C shares have a 1% annual distribution and service fee. If shares
are redeemed within 12 months, a 1% contingent deferred sales charge
applies.
Expense limitations were in effect for all classes for the periods shown
above. Performance would have been lower if the limitations were not in
effect.
The average annual total return for the lifetime period, and cumulative
returns for the one-year and six-month periods ended May 31, 1998 for
Blue Chip Fund's Institutional Class, which is available without sales
or asset-based distribution charges only to certain eligible
institutional accounts, were +22.81%, +26.43% and +11.70%, respectively.
8 for total return
FINANCIAL STATEMENTS
DELAWARE GROUP EQUITY FUNDS II, INC. -
BLUE CHIP FUND
STATEMENT OF NET ASSETS
MAY 31, 1998 (UNAUDITED)
NUMBER OF MARKET
SHARES VALUE
COMMON STOCK - 95.32%
AEROSPACE AND DEFENSE - 2.14%
B.F. Goodrich 1,255 $ 64,319
General Dynamics 1,200 53,325
United Technologies 1,220 114,680
------------
232,324
------------
AUTOMOBILES & AUTO PARTS - 2.83%
Cooper Industries 1,060 68,237
FORD MOTOR 3,135 162,628
Johnson Controls 540 32,130
General Motors 600 43,162
------------
306,157
------------
BANKING, FINANCE & INSURANCE - 18.07%
Allstate 1,130 106,361
Associates First Capital 822 61,469
Bank of Boston 1,070 112,751
Bankers Trust New York 825 101,888
Bear Stearns 2,650 143,763
CHASE MANHATTAN 1,580 214,781
Comerica 1,955 128,541
Conseco 2,500 116,563
First Chicago NBD 1,325 115,855
Fleet Financial Group 1,400 114,800
H.F. Ahmanson 1,650 125,813
Marsh & McLennan 1,475 129,155
MBIA 830 61,887
NationsBank 745 56,434
PaineWebber Group 2,795 120,010
SLM Holding 1,837 73,365
TRAVELERS GROUP 2,840 173,240
------------
1,956,676
------------
BUILDINGS AND MATERIALS - 1.72%
Armstrong World Industries 1,200 100,950
Masco 625 35,156
* USG 950 50,469
------------
186,575
------------
CABLE, MEDIA & PUBLISHING - 3.46%
Dun & Bradstreet 1,660 56,025
Gannett 1,790 118,028
Knight-Ridder 195 11,127
McGraw-Hill 1,425 111,417
New York Times 550 38,775
Omnicom Group 850 39,791
------------
375,163
------------
- ------------------------
Top 10 holdings, representing 17.5% of net assets, are in boldface.
CHEMICALS - 1.39%
Dow Chemical 1,035 100,266
Lyondell Petrochemicals 1,600 49,900
------------
150,166
------------
COMPUTERS & TECHNOLOGY - 9.39%
* American Power Conversion 950 28,470
* Apple Computer 3,600 95,737
* Dell Computer 600 49,444
Deluxe 1,680 56,385
HBO 1,100 63,491
* Lexmark International Group A 2,600 144,300
* Microsoft 1,200 101,813
* PeopleSoft 3,300 143,963
* Storage Technology 1,100 92,263
* Stratus Computer 1,400 50,488
* Sun Microsystems 2,555 102,280
* Symantec 3,700 88,338
------------
1,016,972
------------
CONSUMER PRODUCTS - 5.12%
Avon Products 500 40,906
Clorox 1,260 105,210
GENERAL ELECTRIC 2,670 222,611
Maytag 1,225 61,786
Procter & Gamble 1,480 124,227
------------
554,740
------------
ELECTRONICS & ELECTRICAL - 2.31%
Honeywell 1,085 91,072
Raytheon 19 1,013
Tektronix 637 24,365
Xerox 1,300 133,575
------------
250,025
------------
ENERGY - 7.39%
Ashland 900 44,888
Atlantic Richfield 400 31,550
ENSCO International 2,300 58,219
EXXON 2,800 197,400
Helmerich & Payne 1,200 30,300
Occidental Petroleum 2,200 60,775
Royal Dutch Petroleum 1,245 69,798
Sun 3,200 136,000
Texaco 1,570 90,668
USX-Marathon Group 2,315 81,025
------------
800,623
------------
ENVIRONMENTAL SERVICES - 0.59%
* Republic Industries 2,600 64,025
------------
64,025
------------
for total return 9
FOOD, BEVERAGE & TOBACCO - 6.68%
Campbell Soup 260 14,170
Coca Cola 1,720 134,805
Cracker Barrell Old Country Store 200 6,456
Fortune Brands 620 23,831
Heinz (H.J.) 1,865 98,962
Hershey Foods 825 57,131
Interstate Bakeries 4,100 132,225
PHILIP MORRIS 3,900 145,763
RJR Nabisco Holdings 3,365 94,851
Universal Foods 600 14,287
* Vlassic Foods International 26 564
------------
723,045
------------
HEALTHCARE & PHARMACEUTICALS - 10.39%
* Amgen 2,380 143,916
* Arterial Vascular Engineering 1,800 55,631
BRISTOL-MYERS SQUIBB 2,110 226,825
* Health Management Associates Class A 1,400 41,738
Johnson & Johnson 1,505 103,939
* Lincare Holdings 835 63,043
MERCK & CO 1,480 173,252
* Rexall Sundown 3,700 123,834
SCHERING-PLOUGH 2,310 193,318
------------
1,125,496
------------
INDUSTRIAL MACHINERY - 3.06%
Caterpillar 2,170 119,214
Deere 1,435 74,441
Ingersoll-Rand 1,887 85,033
Timken 1,400 52,675
------------
331,363
------------
LEISURE, LODGING & ENTERTAINMENT - 0.92%
Callaway Golf 1,300 26,813
* King World Productions 1,120 28,560
* Outback Steakhouse 1,200 44,213
------------
99,586
------------
METALS AND MINING - 0.74%
USX-U.S. Steel Group 2,220 79,643
------------
79,643
------------
PAPER & FOREST PRODUCTS - 0.17%
Fort James 375 17,930
------------
17,930
------------
RETAIL - 4.95%
Gap 975 52,650
Liz Claiborne 500 25,344
Ross Stores 2,330 103,394
* Safeway 3,700 134,819
* Staples 3,750 94,102
TJX 2,685 125,524
------------
535,833
------------
TELECOMMUNICATIONS - 8.27%
AT&T 1,700 103,488
Ameritech 3,330 141,317
Bell Atlantic 1,435 131,482
BELLSOUTH 2,815 181,568
GTE 1,835 107,003
* Tellabs 1,575 108,232
U S West Communications Group 2,420 122,815
------------
895,905
------------
TEXTILES, APPAREL & FURNITURE - 0.55%
Herman Miller 1,250 34,609
* Tommy Hilfiger 365 24,546
------------
59,155
------------
TRANSPORTATION & SHIPPING - 2.15%
* AMR 495 76,199
* Alaska Air Group 1,600 74,100
Brunswick 2,180 68,534
* Northwest Airlines 300 13,509
------------
232,342
------------
UTILITIES - 2.70%
Baltimore Gas & Electric 1,785 54,331
Energy East 2,805 113,946
General Public Utilities 1,570 60,445
Texas Utilities 1,180 46,610
Unicom 500 17,188
------------
292,520
------------
MISCELLANEOUS - 0.33%
* Cendant 1,645 35,683
------------
35,683
------------
TOTAL COMMON STOCK (COST $8,951,183) 10,321,947
------------
10 for total return
PRINCIPAL MARKET
AMOUNT VALUE
REPURCHASE AGREEMENTS - 4.80%
With Chase Manhattan 5.53% 6/1/98
(dated 5/29/98, collateralized
by $182,000 U.S Treasury Notes
6.625% due 4/30/02, market
value $189,200) $185,000 $ 185,000
With J.P. Morgan Securities 5.55%
6/1/98 (dated 5/29/98,
collateralized by $172,000
U.S Treasury Notes 6.00% due
6/30/99, market value
$176,664) 173,000 173,000
With PaineWebber 5.55% 6/1/98
(dated 5/29/98, collateralized
by $80,000 U.S. Treasury Notes
5.75% due 11/15/00, market
value $80,584 and $79,000
U.S. Treasury Notes 7.50% due
11/15/01, market value $84,347) 162,000 162,000
------------
TOTAL REPURCHASE AGREEMENTS
(COST $520,000) 520,000
------------
TOTAL MARKET VALUE OF SECURITIES OWNED
(cost $9,471,183) - 100.12% $10,841,947
LIABILITIES NET OF RECEIVABLES
AND OTHER ASSETS - (0.12%) (12,643)
------------
NET ASSETS APPLICABLE TO 991,963 SHARES
($1 PAR VALUE) OUTSTANDING - 100.00% $10,829,304
============
NET ASSET VALUE - BLUE CHIP FUND A CLASS
($4,269,064 / 390,543 SHARES) $10.93
======
NET ASSET VALUE - BLUE CHIP FUND B CLASS
($2,993,387 / 275,100 SHARES) $10.88
======
NET ASSET VALUE - BLUE CHIP FUND C CLASS
($700,271 / 64,339 SHARES) $10.88
======
NET ASSET VALUE - BLUE CHIP FUND INSTITUTIONAL CLASS
($2,866,582 / 261,981 SHARES) $10.94
======
- ------------------------
*Non-income producing securities for the period ended 5/31/98.
COMPONENTS OF NET ASSETS AT MAY 31, 1998:
Common stock, $1 par value, 200,000,000 shares
authorized to the Fund with 100,000,000 shares
allocated to Blue Chip Fund A Class, 25,000,000
shares allocated to Blue Chip Fund B Class,
25,000,000 shares allocated to Blue Chip Fund C
Class and 50,000,000 shares allocated to Blue
Chip Fund Institutional Class $ 9,524,147
Accumulated net investment income 6,362
Accumulated net realized loss on investments (71,969)
Net unrealized appreciation of investments 1,370,764
------------
Total net assets $10,829,304
============
NET ASSET VALUE AND OFFERING PRICE PER SHARE -
BLUE CHIP FUND A CLASS
Net asset value A Class (A) $10.93
Sales charge (4.75% of offering price, or 5.03%
of amount invested per share) (B) 0.55
------
Offering price $11.48
======
- ------------------------
(A) Net asset value per share, as illustrated, is the estimated amount
which would be paid upon redemption or repurchase of shares.
(B) See How to Buy Shares in the current Prospectus for purchases of
$100,000 or more.
See accompanying notes
for total return 11
DELAWARE GROUP EQUITY FUNDS II, INC. -
BLUE CHIP FUND
STATEMENT OF OPERATIONS
SIX MONTHS ENDED MAY 31, 1998 (UNAUDITED)
INVESTMENT INCOME:
Dividends $ 64,950
Interest 12,414 $ 77,364
------------
EXPENSES:
Dividend disbursing and transfer
agent fees and expenses 30,617
Management fees 26,115
Distribution expense 15,302
Registration fees 12,169
Accounting and administration 1,917
Reports and statements to shareholders 1,880
Professional fees 1,060
Custodian fees 550
Directors' fees 505
Taxes (other than taxes on income) 135
Other 266
------------
90,516
------------
Less expenses absorbed by Delaware
Management Company (25,546)
------------
Total Expenses 64,970
------------
NET INVESTMENT INCOME 12,394
------------
NET REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENTS:
Net realized loss on investment transactions (72,531)
Net change in unrealized appreciation/depreciation
of investments 805,795
------------
NET REALIZED AND UNREALIZED
GAIN ON INVESTMENTS 733,264
------------
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS $745,658
============
See accompanying notes
DELAWARE GROUP EQUITY FUNDS II, INC. --
BLUE CHIP FUND
STATEMENTS OF CHANGES IN NET ASSETS
SIX MONTHS ENDED 2/24/97*
5/31/98 TO
(UNAUDITED) 11/30/97
INCREASE IN NET ASSETS FROM OPERATIONS:
Net investment income $ 12,394 $ 16,156
Net realized gain (loss) on investment
transactions (72,531) 6,756
Net change in unrealized appreciation/
depreciation of investments during
the period 805,795 564,969
------------ ------------
Net increase in net assets resulting
from operations 745,658 587,881
------------ ------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income:
Blue Chip Fund A Class (10,143) --
Blue Chip Fund Institutional
Class (12,045) --
Net realized gain from investment
transactions:
Blue Chip Fund A Class (2,536) --
Blue Chip Fund B Class (1,558) --
Blue Chip Fund C Class (247) --
Blue Chip Fund Institutional Class (1,853) --
------------ ------------
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares sold:
Blue Chip Fund A Class 1,988,977 2,298,478
Blue Chip Fund B Class 1,460,729 1,424,813
Blue Chip Fund C Class 441,382 235,373
Blue Chip Fund Institutional
Class 1,296,276 1,663,671
Net asset value of shares issued
upon reinvestment of dividends
from net investment income and
net realized gain on investment
transactions:
Blue Chip Fund A Class 11,735 --
Blue Chip Fund B Class 1,509 --
Blue Chip Fund C Class 247 --
Blue Chip Fund Institutional Class 13,898 --
------------ ------------
5,214,753 5,622,335
------------ ------------
Cost of shares repurchased:
Blue Chip Fund A Class (287,457) (239,705)
Blue Chip Fund B Class (85,893) (81,825)
Blue Chip Fund C Class (3,112) (13,201)
Blue Chip Fund Institutional
Class (514,996) (86,752)
------------ ------------
(891,458) (421,483)
------------ ------------
Increase in net assets derived
from capital share transactions 4,323,295 5,200,852
------------ ------------
NET INCREASE IN NET ASSETS 5,040,571 5,788,733
NET ASSETS:
Beginning of year 5,788,733 --
------------ ------------
End of year $10,829,304 $5,788,733
============ ============
- ------------------------
*Date of commencement of operations
See accompanying notes
12 for total return
DELAWARE GROUP EQUITY FUNDS II, INC. - BLUE CHIP FUND
FINANCIAL HIGHLIGHTS
Selected data for each share of the Fund outstanding throughout each
period were as follows:
BLUE CHIP FUND BLUE CHIP FUND
A CLASS B CLASS
--------------------------- ----------------------------
SIX MONTHS 2/24/972 SIX MONTHS 2/24/972
ENDED TO ENDED TO
5/31/981 11/30/97 5/31/981 11/30/97
(UNAUDITED) (UNAUDITED)
Net asset value,
beginning of period $ 9.850 $8.500 $ 9.800 $8.500
Income from
investment
operations:
Net investment
income (loss)3 0.023 0.041 (0.014) (0.009)
Net realized
and unrealized
gain on
investments 1.107 1.309 1.104 1.309
------------ ------------ ------------ ------------
Total from
investment
operations 1.130 1.350 1.090 1.300
------------ ------------ ------------ ------------
Less dividends
and distributions:
Dividends
from net
investment
income (0.040) -- -- --
Distributions
from net
realized gain
on investment
transactions (0.010) -- (0.010) --
------------ ------------ ------------ ------------
Total
dividends
and
distributions (0.050) -- (0.010) --
------------ ------------ ------------ ------------
Net asset value,
end of period $10.930 $9.850 $10.880 $9.800
============ ============ ============ ============
Total return4 11.53% 15.88% 11.14% 15.29%
Ratios and
supplemental data:
Net assets,
end of
period (000
omitted) $4,269 $2,272 $2,993 $1,444
Ratio of
expenses
to average
net assets 1.50% 1.50% 2.20% 2.20%
Ratio of
expenses to
average net
assets prior
to expense
limitation 2.14% 2.95% 2.84% 3.65%
Ratio of net
investment
income (loss)
to average
net assets 0.44% 0.69% (0.26%) (0.01%)
Ratio of net
investment
income (loss)
to average net
assets prior
to expense
limitation (0.20%) (0.76%) (0.90%) (1.46%)
Portfolio
turnover 19% 25% 19% 25%
- ------------------------
1 Ratios have been annualized and total return has not been annualized.
2 Date of commencement of trading; ratios have been annualized and total
return has not been annualized.
3 The average shares outstanding method has been applied for per share
information.
4 Does not include maximum sales charge of 4.75% nor the 1% limited
contingent deferred sales charge that would apply in the event of
certain redemptions within 12 months of purchase of A Class shares.
Does not include contingent deferred sales charge which varies from
1-4% depending upon the holding period for B Class shares.
See accompanying notes
for total return 13
Selected data for each share of the Fund outstanding throughout each
period were as follows:
BLUE CHIP FUND BLUE CHIP FUND
C CLASS INSTITUTIONAL CLASS
--------------------------- ----------------------------
SIX MONTHS 2/24/972 SIX MONTHS 2/24/972
ENDED TO ENDED TO
5/31/981 11/30/97 5/31/981 11/30/97
(UNAUDITED) (UNAUDITED)
Net asset value,
beginning of
period $ 9.800 $8.500 $ 9.870 $8.500
Income from
investment
operations:
Net investment
income
(loss)3 (0.014) (0.011) 0.039 0.062
Net realized
and unrealized
gain on
investments 1.104 1.311 1.106 1.308
------------ ------------ ------------ ------------
Total from
investment
operations 1.090 1.300 1.145 1.370
------------ ------------ ------------ ------------
Less dividends
and distributions:
Dividends
from net
investment
income -- -- (0.065) --
Distributions
from net
realized
gain on
investment
transactions (0.010) -- (0.010) --
------------ ------------ ------------ ------------
Total
dividends
and
distributions (0.010) -- (0.075) --
------------ ------------ ------------ ------------
Net asset value,
end of period $10.880 $9.800 $10.940 $9.870
============ ============ ============ ============
Total return4 11.14% 15.29% 11.70% 16.12%
Ratios and
supplemental
data:
Net assets,
end of
period (000
omitted) $700 $239 $2,867 $1,834
Ratio of
expenses
to average
net assets 2.20% 2.20% 1.20% 1.20%
Ratio of
expenses to
average net
assets prior
to expense
limitation 2.84% 3.65% 1.84% 2.65%
Ratio of net
investment
income (loss)
to average
net assets (0.26%) (0.01%) 0.74% 0.99%
Ratio of net
investment
income (loss)
to average
net assets
prior to
expense
limitation (0.90%) (1.46%) 0.10% (0.46%)
Portfolio
turnover 19% 25% 19% 25%
- ------------------------
1 Ratios have been annualized and total return has not been annualized.
2 Date of commencement of trading; ratios have been annualized and
total return has not been annualized.
3 The average shares outstanding method has been applied for per share
information.
4 Does not include the 1% contingent deferred sales charge depending
upon the holding period for C Class shares.
See accompanying notes
14 for total return
DELAWARE GROUP EQUITY FUNDS II, INC. - BLUE CHIP FUND
NOTES TO FINANCIAL STATEMENTS
MAY 31, 1998 (UNAUDITED)
Delaware Group Equity Funds II, Inc. (the "Company") is registered as a
diversified open-end investment company under the Investment Company Act
of 1940, as amended. The Company is organized as a Maryland Corporation
and offers four series, the Decatur Income Fund, the Decatur Total
Return Fund, the Blue Chip Fund and the Social Awareness Fund. These
financial statements and related notes pertain to the Blue Chip Fund
(the "Fund"). The Fund offers four classes of shares. The Blue Chip
Fund A Class carries a front-end sales charge of 4.75%. The Blue Chip
Fund B Class carries a back-end sales charge. The Blue Chip Fund C
Class carries a level load deferred sales charge and the Blue Chip
Fund Institutional Class has no sales charge.
The investment objective of the Fund is to achieve long-term capital
appreciation. Current income is a secondary objective. It seeks to
achieve this objective by investing primarily in equity securities and
any securities that are convertible into equity securities.
1. SIGNIFICANT ACCOUNTING POLICIES
The following accounting policies are in accordance with generally
accepted accounting principles and are consistently followed by the
Fund:
SECURITY VALUATION - Securities listed on an exchange are valued at the
last quoted sales price as of the close of the NYSE on the valuation
date. Securities not traded or securities not listed on an exchange
are valued at the mean of the last quoted bid and asked prices. Money
market instruments having less than 60 days to maturity are valued at
amortized cost which approximates market value.
FEDERAL INCOME TAXES - The Fund intends to continue to qualify 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. Income and capital gain
distributions are determined in accordance with federal income tax
regulations which may differ from generally accepted accounting
principles.
CLASS ACCOUNTING - Investment income, common expenses and realized and
unrealized gain (loss) on investments are allocated to the various
classes of the Fund on the basis of daily net assets of each class.
Distribution expenses relating to a specific class are charged
directly to that class.
REPURCHASE AGREEMENTS - The Fund may invest in a pooled cash account
along with other members of the Delaware Investments Family of Funds.
The aggregate daily balance of the pooled cash account is invested in
repurchase agreements secured by obligations of the U.S. government.
The respective collateral is held by the Fund's custodian bank until
the maturity of the respective repurchase agreements. Each repurchase
agreement is at least 100% 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.
OTHER - Expenses common to all Funds within the Delaware Investments
Family of Funds are allocated amongst the funds on the basis of average
net assets. Security transactions are recorded on the date the
securities are purchased or sold (trade date). Costs used in calculating
realized gains and losses on the sale of investment securities are those
of the specific securities sold. Dividend income is recorded on the
ex-dividend date and interest income is recorded on the accrual basis.
The Fund declares and pays dividends from net investment income and
capital gains annually.
Certain Fund expenses are paid through "soft dollar" arrangements with
brokers. The amount of these expenses is less than 0.01% of the Fund's
average daily net assets.
USE OF ESTIMATES - The preparation of financial statements in conformity
with 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.
2. INVESTMENT MANAGEMENT AND OTHER TRANSACTIONS WITH AFFILIATES
In accordance with the terms of the Investment Management Agreement, the
Fund pays Delaware Management Company (DMC), the Investment Manager of
the Funds, an annual fee which is calculated daily at the rate of 0.65%
on the first $500 million of average daily net assets, 0.625% on the next
$500 million and 0.60% on the average daily net assets in excess of
$1 billion.
DMC has entered into a sub-advisory agreement with Vantage Global
Advisors with respect to the management fee of the Funds. For the
services provided to DMC, DMC pays the sub-adviser an annual fee which
is calculated at the rate of 0.15% of the average daily net assets
averaging one year old or less and 0.20% of average daily net assets
averaging two years old or less, but greater than one year old. The
Fund does not pay any fees to the sub-advisers.
DMC has elected to waive the portion if any of the management fee and
reimburse the Funds to the extent that annual operating expenses
exclusive of taxes, interest, brokerage commissions, extraordinary
expenses and distribution expenses exceed 1.20% of average daily net
assets of the Fund through January 31, 1999. Total expenses absorbed
by DMC for the six months ended May 31, 1998, were $25,546.
The Fund has engaged Delaware Service Company, Inc. (DSC), an affiliate
of DMC, to serve as dividend disbursing agent, transfer agent and
accounting services agent for the Fund. For the six months ended
May 31, 1998, the Fund expensed $30,617 for dividend disbursing and
transfer agent services and $1,583 for accounting services. At
May 31, 1998, the Fund had a liability for such fees and other expenses
payable to DSC of $36,366.
Pursuant to the Distribution Agreement, the Funds pays Delaware
Distributors, L.P. (DDLP), the Distributor and an affiliate of DMC, an
annual fee not to exceed 0.30% of the average daily net assets of the A
Class and 1.00% of the average daily net assets of the B and C Class.
No distribution expenses are paid by the Institutional Class. At
May 31, 1998, the Fund had a liability for distribution fees and other
expenses payable to DDLP of $141,184.
For the six months ended May 31, 1998, DDLP earned $8,538 for
commissions on sales of the Fund A Class shares.
Certain officers of DMC, DSC and DDLP are officers, directors and/or
employees of the Funds. These officers, directors and employees are
paid no compensation by the Funds.
for total return 15
3. INVESTMENTS
During the six months ended May 31, 1998, the Fund made purchases of
$4,849,957 and sales of $711,359 of investment securities other than
U.S. government securities and temporary cash investments.
At May 31, 1998, net unrealized appreciation for federal income tax
purposes aggregated $1,370,764 of which $1,536,508 related to unrealized
appreciation of securities and $165,744 related to unrealized
depreciation of securities. At May 31, 1998, the aggregate cost of
securities for federal income tax purposes was $9,471,183.
4. CAPITAL STOCK
Transactions in capital stock shares were as follows:
SIX MONTHS 2/24/97*
ENDED TO
5/31/98 11/30/97
------------ ------------
Shares sold:
Blue Chip Fund A Class 185,870 255,978
Blue Chip Fund B Class 135,639 156,936
Blue Chip Fund C Class 40,229 25,765
Blue Chip Fund Institutional Class 121,905 194,946
Shares issued upon reinvestment of
dividends from net investment income
and net realized gains from security
transactions:
Blue Chip Fund A Class 1,205 --
Blue Chip Fund B Class 155 --
Blue Chip Fund C Class 26 --
Blue Chip Fund Institutional Class 1,429 --
------------ ------------
486,458 633,625
------------ ------------
Shares repurchased:
Blue Chip Fund A Class (27,249) (25,263)
Blue Chip Fund B Class (8,051) (9,579)
Blue Chip Fund C Class (322) (1,359)
Blue Chip Fund Institutional Class (47,179) (9,118)
------------ ------------
(82,801) (45,319)
------------ ------------
Net Increase 403,657 588,306
============ ============
- ------------------------
*Date of commencement of operations.
5. LINES OF CREDIT
The Fund had a committed line of credit for $200,000. No amount was
outstanding at May 31, 1998, or at any time during the fiscal year.
6. MARKET AND CREDIT RISK
The Fund may invest up to 15% of its total assets in illiquid securities
which may include securities with contractual restrictions on resale,
securities exempt from registration under Rule 144A of the Securities
Act of 1933, as amended, and other securities which may not be readily
marketable. The relative illiquidity of some of these securities may
adversely affect the Fund's ability to dispose of such securities in a
timely manner and at a fair price when it is necessary to liquidate such
securities.
THIS SEMI-ANNUAL REPORT IS FOR THE INFORMATION OF BLUE CHIP FUND
SHAREHOLDERS, BUT IT MAY BE USED WITH PROSPECTIVE investors when preceded
or accompanied by a current Prospectus for Blue Chip Fund, which sets
forth details about charges, expenses, investment objectives and
operating policies of the Fund. You should read the prospectus carefully
before you invest. Summary investment results are documented in the
Fund's current Statement of Additional Information. The figures in this
report represent past results which are not a guarantee of future
results. The return and principal value of an investment in the Fund
will fluctuate so that shares, when redeemed, may be worth more or less
than their original cost.
INVESTMENT MANAGER
Delaware Management Company
Philadelphia, Pennsylvania
INTERNATIONAL AFFILIATE
Delaware International Advisers Ltd.
London, England
SUBADVISER
Vantage Investment Advisors
New York, New York
NATIONAL DISTRIBUTOR
Delaware Distributors, L.P.
Philadelphia, Pennsylvania
SHAREHOLDER SERVICING,
DIVIDEND DISBURSING
AND TRANSFER AGENT
Delaware Service Company, Inc.
Philadelphia, Pennsylvania
1818 Market Street
Philadelphia, PA 19103-3682
[PHOTO OF GLOBES]
FOR SHAREHOLDERS
1.800.523.1918
FOR SECURITIES DEALERS
1.800.362.7500
FOR FINANCIAL INSTITUTIONS
REPRESENTATIVES ONLY
1.800.659.2265
www.delawarefunds.com
Be sure to consult your financial adviser when making investments.
Mutual funds can be a valuable part of your financial plan; however,
shares of the Fund are not FDIC or NCUSIF insured, are not guaranteed by
any bank or any credit union, and involve investment risk, including
the possible loss of the principal amount invested. Shares of the Fund
are not bank or credit union deposits.
[copyright] Delaware Distributors, L.P.
[GRAPHIC OMITTED: LOGO OF DELAWARE INVESTMENTS
----------------------------
Philadelphia * London]
Printed in the USA
on recycled paper
SA-143 [5/98] PP7/98
(826)
